Fighting inflation has been high on the BJP's agenda to fight the 2014 elections, and fixing agriculture problems is something it will have to focus on.
In a report last week, ratings and research firm CRISIL stated that inflation based on the consumer price index has averaged 10 per cent in the past seven years, despite good performance in agriculture. "Overall inflation has been driven higher by food inflation, which has contributed more than 50 per cent to annual inflation in the last few years," the report says.
It adds that inflation in fruits and vegetables, which have a seven per cent weightage in the CPI, has averaged above 10 per cent since 2008. This is despite a 5.3 per cent rise in production each year from 2005 to 2013, compared with 1.3 per cent in the previous seven years.
The removal of fruits and vegetables from the purview of the APMC (Agricultural Produce Marketing Committee) Act would help the new government work towards the broader goal of abolishing the act altogether, say experts.
The BJP manifesto lists "reform the APMC Act" as one of the things it will do, under the heading "Agriculture - Productive, Scientific and Rewarding". While abolishing the act may be too drastic a step, experts agree that farmers should be free to sell to whomever they want, and retailers should be free to choose where to buy from.
"That is what creates competition and efficiency in the market," says Ashok Gulati, chair professor for agriculture at the Indian Council for Research on International Economic Relations. "At present, if I want to buy directly from farmers, it is illegal... That's where the farmers have a short hand, because the APMC markets are captured by these big commission agents and they're charging hell for a five-minute job of auction."
Kumar Rajagopalan, CEO of the Retailers Association of India (RAI), says that although the association does not believe in scrapping any marketing agency, the simple way is to make sure that the wastage in the system is reduced and farmers are free to sell to whomever they want - things that are not getting recognised. "There is a mandate for getting APMC into everything, which is not necessary, because the farmer loses his freedom," he says.
Experts argue that if the private sector is given the go-ahead to create a back end for themselves, they will do so. "Normally, if you allow the big private sector to invest in the front end, then they would be keen to invest at the back end...The government should give a 50 per cent subsidy to anybody who wants to build back-end infrastructure," says Gulati.
RAI's Rajagopalan agrees: "If the corporate enterprise has the chance, you think they would err by not managing how to store and save the produce properly to reduce wastage? They won't. If there is no competition, there can be a situation where efficiencies are not perfect."
Companies such as the Future Group don't just deal with APMC markets directly, but also reach out to farmers directly wherever it is allowed, and if they have a direct marketing licence. However, dealing with APMCs and farmers directly is different, says K. Radhakrishnan, CEO of KB's FairPrice (the company's chain of neighbourhood stores). "Prices are decided, and everything is transparent. The farmer brings the produce to us. We look at the quality, give the farmer the receipt and he is paid according to that," he says. He, however, adds that physical yards run by APMC are important.
There is also the Model APMC Act, recommended by the central government in 2003 for all states to adopt. It lays down a good roadmap for the sector the response has not been great. "One of the reasons for a lukewarm response from many states is the conflict of interest that exists when the market operator [the State Mandi Board] and the regulator [Agri Marketing Department of the Government] are the same," says S. Sivakumar, Chief Executive - Agribusiness Division, ITC Ltd and Chairman of the Confederation of Indian Industry's National Council on Agriculture.
The CRISIL report notes that there are other hurdles that play a part, despite the recent notifications by states to delist fruits and vegetables. "These [notifications] are unlikely to have a considerable impact on price till the major grower states - Punjab, Maharashtra and Uttar Pradesh - also step up to the plate," the report notes.