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
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•
•
•
•
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