Agricultural Markets in most states of India are established and regulated under the State APMC (Agricultural Produce Marketing Committee) Acts. The whole geographical area of the State is divided into smaller market areas wherein the markets are managed by the Market Committees constituted by the State Governments. Once a particular area is declared a market area and falls under the jurisdiction of a Market Committee, no person or agency is allowed freely to carry on wholesale marketing activities.
Introduced mostly in the 1960s the APMC Acts prohibited farmers from dealing directly with retailers and required them to sell their produce to licensed middlemen or 'market functionaries'. According to Arpita Mukherjee, a senior fellow at the Indian Council for Research on International Economic Relations, the aim of such acts was to give the farmers a fair and consistent price for their produce.
By creating regulated markets, the price paid to farmers by licensed middlemen for their produce could be monitored, thereby ensuring that they were not exploited. But over the years it grew into a monster, gaining layer upon layer of intermediaries, none of whom added any value to the fruits and vegetables they traded even as they added on their own margins.
The result was a grossly inefficient system in which farmers are divorced from market feedback and often must wait months to be paid. Many farmers routinely go into debt to the very traders who buy their produce and then sell them seeds and fertilizers for the next crop.
By giving only licensed market functionaries the right to purchase directly from the farmer, the APMC Acts have created a long chain of intermediaries (or middlemen). Farmers sell their produce to licensed middlemen at the APMC mandis. These middlemen resell the same produce to wholesalers at the APMC market in urban areas. At these urban APMC markets, the produce passes on to retailers and then to the end-consumers at the urban retail markets.
In the absence of market information farmers do not get remunerative prices and the middlemen get the major share in profit.
Thus there is wide gap between the wholesale and retail prices with middlemen consuming the best of the pie. The suicide incidence among the farmers is on the increase for reasons of high indebtedness, low productivity, less remunerative agricultural produce prices, fragmentation of land holdings because of population growth, harassment by the middlemen and money lenders and the widening gap between the urban and rural incomes.
The AMPC act has proven to be a deterrent in developing efficient practices both for the retailer as well as the farmer. The Act provides a monopoly status to the state-owned agricultural Produce Marketing Committees in the purchase of agricultural produce from farmers. As a result, the supply chain is lengthened, farmers are not able to realise high prices due to monopoly and consumers have to pay higher prices since the APMCs are typically cartelized.
For retailers it becomes difficult to source directly from farmers. They are forced to rely on intermediaries thus causing systemic inefficiencies.That leads the central government to approve private players for APMC in the year 2003. And Gujarat Government has accepted the change in the year 2007 by amending APMC Act, 1963.
