The rising cost of food that has hurt both Indian pockets and politicians’ electoral prospects in the past year is often blamed on a multi-layered system of middlemen involved in the distribution of produce from farm to fork.
In late-December, Congress Vice President Rahul Gandhi, was so worried about the ballooning prices that he asked all states where his party is in power to remove fruits and vegetables from the grip of the middlemen-dominated agriculture produce marketing committees by Jan. 15.
Introduced in the 1960s, these legally-enshrined committees prohibit farmers from dealing directly with buyers and require them to sell to licensed middlemen. The aim was to give India’s huge farming community a fair and consistent price for their produce.
But over the years, the system has created several layers of intermediaries, lengthening the supply chain and increasing the opportunity for cartels to form, which in turn drive prices down for farmers and up for consumers.
Removing fruit and vegetables from the control of these committees would allow the produce to find its true market value and damp down inflation, according to analysts.
However, over a month after Mr. Gandhi’s deadline, little progress has been made in this direction.
“The idea looks good. But, it can’t happen overnight,” said Madan Sabnavis, chief economist at Mumbai-based Care Ratings.
A crop cultivated by a farmer in a far-flung village goes through as many as four intermediaries before reaching the local vegetable market in a semi-urban or urban area, according to analysts.
Many of these intermediaries provide money in advance to the farmers to cover cultivation costs and recall their loan in the form of produce after the harvesting. Unless the big retailers decide to take the same approach and provide advances in terms of credits, equipment and seeds to the farmer, the dominance of middlemen will continue, said Kishore Narne, associate director at Motilal Oswal Commodity Broker Pvt Ltd.
“The intermediaries add value but they increase the cost. You need to provide the farmer an alternative avenue to sell their produce,” said Mr. Sabnavis.
In some places, contract farming, direct with the companies is allowed. But its share is minuscule compared with overall trade.
Another problem lies in India’s farming landscape: More than half of Indian farmers have small holdings and they don’t produce enough to dictate the price of their products.
Economists said a co-operative set-up may eliminate these middlemen-dominated market places.
“In a cooperative model, farmers get at least 70% of the market price of their produce,” said R.B. Singh, former president of the National Academy of Agricultural Sciences. This is compared to the one quarter of the production cost that farmers get when they sell through middlemen.
India’s poor infrastructure in crop producing regions also enables middlemen to deceive farmers as to the true value of the produce they are selling.
Most of the warehouses are near the cities, increasing post-harvest losses through rotting.
India is currently the world’s second-largest producer of fruits and vegetables and the post-harvest losses are estimated at nearly 30%.
Farmers have little option but to send their produce to urban markets as there are no warehouses close to their fields, said Mr. Singh.
APMC officials in Maharashtra said they were pursuing the plan to remove the vegetables and fruits from the control of middlemen.
“We have control over the middleman. It’s wrong to say they exploit the farmers,” said Ashok Valunj, a director at the Agricultural Produce Market Committee in Navi Mumbai, one of the biggest APMCs in the country.
APMC’s provide farmers the option of large number of buyers for the produce at market places, he added.
In late-December, Congress Vice President Rahul Gandhi, was so worried about the ballooning prices that he asked all states where his party is in power to remove fruits and vegetables from the grip of the middlemen-dominated agriculture produce marketing committees by Jan. 15.
Introduced in the 1960s, these legally-enshrined committees prohibit farmers from dealing directly with buyers and require them to sell to licensed middlemen. The aim was to give India’s huge farming community a fair and consistent price for their produce.
But over the years, the system has created several layers of intermediaries, lengthening the supply chain and increasing the opportunity for cartels to form, which in turn drive prices down for farmers and up for consumers.
Removing fruit and vegetables from the control of these committees would allow the produce to find its true market value and damp down inflation, according to analysts.
However, over a month after Mr. Gandhi’s deadline, little progress has been made in this direction.
“The idea looks good. But, it can’t happen overnight,” said Madan Sabnavis, chief economist at Mumbai-based Care Ratings.
A crop cultivated by a farmer in a far-flung village goes through as many as four intermediaries before reaching the local vegetable market in a semi-urban or urban area, according to analysts.
Many of these intermediaries provide money in advance to the farmers to cover cultivation costs and recall their loan in the form of produce after the harvesting. Unless the big retailers decide to take the same approach and provide advances in terms of credits, equipment and seeds to the farmer, the dominance of middlemen will continue, said Kishore Narne, associate director at Motilal Oswal Commodity Broker Pvt Ltd.
“The intermediaries add value but they increase the cost. You need to provide the farmer an alternative avenue to sell their produce,” said Mr. Sabnavis.
In some places, contract farming, direct with the companies is allowed. But its share is minuscule compared with overall trade.
Another problem lies in India’s farming landscape: More than half of Indian farmers have small holdings and they don’t produce enough to dictate the price of their products.
Economists said a co-operative set-up may eliminate these middlemen-dominated market places.
“In a cooperative model, farmers get at least 70% of the market price of their produce,” said R.B. Singh, former president of the National Academy of Agricultural Sciences. This is compared to the one quarter of the production cost that farmers get when they sell through middlemen.
India’s poor infrastructure in crop producing regions also enables middlemen to deceive farmers as to the true value of the produce they are selling.
Most of the warehouses are near the cities, increasing post-harvest losses through rotting.
India is currently the world’s second-largest producer of fruits and vegetables and the post-harvest losses are estimated at nearly 30%.
Farmers have little option but to send their produce to urban markets as there are no warehouses close to their fields, said Mr. Singh.
APMC officials in Maharashtra said they were pursuing the plan to remove the vegetables and fruits from the control of middlemen.
“We have control over the middleman. It’s wrong to say they exploit the farmers,” said Ashok Valunj, a director at the Agricultural Produce Market Committee in Navi Mumbai, one of the biggest APMCs in the country.
APMC’s provide farmers the option of large number of buyers for the produce at market places, he added.