Transcript Slide 1
Competition Issues in
Agricultural Marketing and
Procurement in India
Jyoti Gujral- IDFC
Piyush Joshi & Anuradha R.V.- CLARUS LAW ASSOCIATES
February 16, 2011
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Some basic facts
• Inefficiencies in Agricultural Markets in India, primarily
due to:
▫ Undue State intervention in pricing, marketing etc.
▫ Barriers to entry by private operators
▫ Bureaucracy at various levels of obtaining licenses/
permits for different stages of activity
• Regulatory and Institutional Reforms to ensure robust
functioning of markets and ensuring competition- a
necessity
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Threshold issue: Not everything an issue
for the Competition Commission for India
X Our paper is not about how Competition
Commission of India can intervene and resolve all
that ails agricultural marketing and procurement
systems in India
√ Our paper is about identifying a few critical
issues
in
agricultural
marketing
and
procurement, which maypotentially qualify as
issues
necessitating
and
justifying
intervention by the Competition Commission of
India
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Focus of Discussions
Agricultural Marketing governed by Agricultural
Produce Marketing Acts in different States in
India
Constitution of Agricultural Produce Marketing
Committees
Agricultural Procurement governed by the FCI Act
in India
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Chain in Agricultural Marketing
Farmer
Pre-Harvest Contractor
Commission Agent/ Broker (Regulated by APMC)
Wholesaler (Regulated by APMC)
Retailer
Consumer
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Role of APMCs
Theory
• Regulation of Agricultural Produce markets
• Access to Farmers to orderly regulated markets
Practice
• Exclusion of new entrants
• Restriction of growth of agricultural markets
• Difficult terms for existing players
• Monopolistic and Oligopolistic conduct
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Impact of APMCs
• Regulation of :
▫ Licensor/ Creator of market, and
▫ Regulation of participating entities
• Regulation of:
▫ Who can Farmer sell to
▫ Who can participate in the market
▫ Where are the markets to be established
• Price inefficiencies in procurement, storage,
release and marketing of agricultural produce
▫ Any increase in price of agri commodities: 53% for
farmers, 31% for middlemen, 16% market costs.
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Anti-competitive effects
• Marketing only in ‘notified areas’; which is
typically the whole state
• No marketing without APMC license possible in
whole state
• Licenses to limited no. of wholesalers/ traders
• Imperfect competition in agricultural mandis
• No transparency in Licensing system
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APMC Licenses
•
•
•
•
•
Process of granting licenses- not transparent
Very few new entrants
Location specific licenses; limited scope for expansion
Instances of arbitrary revocation of license
Variations in Duration of Licenses: In some states,
duration is only 1 year, which dis-incentivises
investment in infrastructure
• Impact of Licensing terms: Inability to raise adequate
commercial loans
• Only persons controlling and regulating system
typically retain licenses
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Role of Traders/ Commission
Agents
CLARUS LAW
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• Closed system; no transparency on price
discovery etc.
• Open auction accounts only for 20-30% of
market transactions; 40% through secret
bidding
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Anti-competitive impacts & APMCs
• Limiting the market for farmers
• Preventing purchasers from accessing markets
• Preventing development of adequate
infrastructure
• Preventing development of private markets
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Food Corporation of India
• FCI, estb. Under Food Corporation Act, 1964, is
the nodal agency of GOI to undertake
procurement under Minimum Support Price
(MSP).
• Although MSP procurement is not the only
procurement FCI undertakes, it is one of its
more critical operations and is the focus of our
paper
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Food Corporation of India
• FCI MSP procurement is undertaken through
state level agencies and cooperatives identified
by the state government at identified purchase
centers
• Generally majority of the identified purchase
centers for MSP procurement are APMC
markets leading to control of APMC licensed
traders.
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Role of the Competition
Commission of India
ASSOCIATES
• CCI’s Mandate:
▫ Anti-competitive Agreements
When these have an appreciable adverse effect on
competition in India
▫ Abuse of Dominant Position
• Broad Jurisdiction:
▫ Includes jurisdiction over statutory entities and Govt.
authorities. (Only exception: when Govt. exercises
‘sovereign functions’)
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Role of the Competition
Commission of India (cont’d)
ASSOCIATES
• Resolving Disputes (Adversarial situations)
• Competition Advocacy: a unique role to advocate
principles of competition in various contexts;
potential ability to initiate legislative reforms.
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Role of the Competition
Commission of India (cont’d)
ASSOCIATES
• There is preliminary grounds for CCI to either:
▫ Commence full scale investigation by the DG
under the Competition Act
▫ If not a full investigation, commence studies and
surveys as a first step towards investigation
▫ take action based on complaints received
▫ Issue competition advocacy advisories to GOI,
State Governments and other government
agencies on measures that can be initiated to
remedy