Is the Electronic Market the Way Forward to Overcome Market Failures in Agriculture?

Decades of policy neglect of marketing has been giving way to concerted efforts in the last few years to refurbish the system in ways more than one (GOI 2016; Vijayshankar and Krishnamurthy 2012; Chand 2016; Nuthalapati et al 2017). At the heart of the agricultural marketing system in India is the Agriculture Produce Marketing (Regulation) Act adopted by various states in the 1960s (Acharya 2004). Endemic food shortages during those times drove policy towards tighter regulation so much so that even interstate movement of agricultural produce is severely restricted. These regulations coupled with rudimentary infrastructure served the nation reasonably well in the run up to achieving self-sufficiency in food production by enabling farmers market their outputs (Purohit et al 2017). More than a fivefold increase in foodgrain production during the intervening period and still higher production of fruits and vegetables, coupled with changing consumption patterns, have made the system so obsolete that several changes are due in the country for a long time. Besides, excessive regulation encouraged rent-seeking (Lele 1971; Minten et al 2012; Reardon and Gulati 2008). Research shows that variation in prices of agricultural commodities both within and among states is very high in India even in comparison to other developing countries, despite the adoption of new information and communication technologies as well as putting in place better infrastructure (Chatterjee and Kapur 2017). This speaks poorly of the price discovery process against the background of poor marketing and related infrastructure.

The politically sensitive nature of reforms, compounded by the resistance of vested interests of disparate intermediaries in the scattered value chains, delayed their arrival in agricultural marketing. A quarter century after the onset of full-fledged reforms, the central government started moving towards reforms with the draft model Agricultural Produce Market Committee (APMC) Act, 2003, relaxation of foreign direct investment in retailing, creation of national agricultural market, and further reforms with the proposed draft model acts called the Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act, 2017 and the Agricultural Produce and Livestock Contract Farming and Services (Promotion and Facilitation) Act, 2018. Among these measures, the creation of a national agricultural market through electronic platform is expected to be game changer, though not a panacea (Chand 2016). This is a difficult job and would need policy-tweaking at several levels. The humongous nature of this task can be gauged from the fact that the geographically scattered markets are divided into as many as 2,477 principal regulated markets and governed separately by disparate APMCs with different tax structure. In essence, we have thousands of markets for agricultural commodities in India (GOI 2016). The positive response to the introduction of the e-tendering system in 2006 and a unified online agricultural market platform in 2014 have acted as precursors to this measure (Dey 2016; GOI 2017; Bisen and Kumar 2018). The latest available data at the beginning of 2020 show that 360 out of the 585 proposed mandis have been conducting online trade in the country.