(Indian Economy) Agricultural Marketing - Regulated Markets, Defects, Salient Features & Agriculture Reforms




Agricultural Marketing System in a country like India must satisfy the following three objectives:

  1. Ensure a remunerative price for the farmer.
  2. Narrow down the difference between the price that a farmer gets and the price at which it is sold to consumers.
  3. Minimize the role of middlemen.

In India, agricultural marketing poses various problems for farmers when they wish to sell their produce in markets away from their villages. These problems are as follows:

  1. Lack of warehousing and storage facilities due to which they are forced to sell their produce as soon as it is ready because they cannot store it for want of these facilities and thus cannot hold and wait to fetch better prices .
  2. Inadequate and inefficient transportation which prevents them from taking their produce to mandis. Not only that there is lack of motorable and mechanized transport but also most of the connecting roads are Kuccha and unpaved roads.
  3. Lack of grading and standardization facilities due to which they are not able to get better price and it weakens their bargaining power.
  4. Use of substandard weights and measures due to which their produce may be underweight.
  5. Presence of a large number of middlemen who change several unauthorized commissions due to which the price that the farmer gets is depressed.
  6. Lack of credit facilities due to which a farmer has to sell his produce immediately after the crop is ready. Adequate credit facilities can enable him to withhold his produce and run his household till he gets a better price.
  7. Lack of market information by way of prevailing condition in the market as well as prices prevailing .

Over the years, the government has tried to address these problems by adopting the following measures:

  1. Provision of warehousing facilities.

The government set up Central Warehousing Corporation in 1957 with the purpose of constructing and running godowns and warehouse. The States have set up corresponding State Warehousing Corporations. Also a network of rural godowns has been setup. In recent years. The FCI has taken up construction of its own network of rural godowns.

  1. Grading and standardization has been facilitated by enacting Agricultural Produce (Grading and Standardization) act. Grading Standards have been laid down for nearly 180 agricultural and allied commodities. The graded goods are stamped with the seal of “AGMARK”.
  2. Promoting Cooperative, marketing by setting up National Cooperative Development Corporation and NAFED.
  3. Special Boards have been set up for commodities like rice, pulses, jute, millets, cotton, oilseeds, tobacco, sugarcane etc.
  4. Boost to export of agricultural commodities through incentives provided in successive Exim policies and setting up of Export Promotion Council as well as Agricultural and Processed Food Export Development Authority, Also, the Centre has been allocating funds to assist States for the development of Agro Export Zones.
  5. Buffer stocks and procurement policy of the government has helped farmers to market their produce to the government at the price fixed by the government.
  6. Futures Trading has been permitted in various agricultural commodities. Also in 2003-04 the government took a significant initiative towards futures trading in all commodities by setting up national level commodity exchanges like for wheat, cotton, soya oil, jute, rubber, pepper, turmeric etc.
  7. Enactment of model APMC act 2003 by the Centre with a view to urging States to amend their respective APMC Acts in accordance with this Act. Salient features of this Act are given later in this chapter.
  8. Setting up of Regulated markets has been the most significant and landmark step taken by the government in the field of agricultural marketing.


A regulated market is set up under the law either for a specific commodity or a group of commodities. These markets are set up under the APMC Acts of State governments.

This market is administered by a market committee which consists of representative of the State Government, the legal bodies (like the District Board), the traders and the farmers themselves. The committee is appointed by the government for a fixed period for management of the market. The committee fixes the market charges like the commission etc. it ensures that no ‘dalal’ represents either the buyer or the seller. The prevents unauthorized deductions from the price paid to the farmer and ensures that correct weights and measures are used.

The committee is responsible for the licensing of brokers and weighmen and is empowered to punish anyone found guilty of dishonest and fraudulent practices. It hears all the complaints and in case of disputes, it arranges for arbitration.

The chairman and Vice-Chairman of the Committee are from the farming community. The regulated market system has proved a good source of generating income for the marketing boards and this income is used for creating rural infrastructure.

Regulated markets predominate in areas where commercial or non traditional crops are grown. Cooperative marketing and distribution and banking are also linked with the regulated markets. At present, nearly 80 per cent of agricultural produce is sold in regulated markets.

Defects of Regulated Markets

These markets have proved a boon for farmers over the years even since they are being set up since 1951. There are nearly 8,500 such markets in the country However, with changing times, these markets have been exposed to some serious limitations as follows.

  1. Failure to adopt new innovative market technologies.
  2. They have not helped in exchange of market information.
  3. They have restricted smooth supply of raw materials for agro producers.
  4. They have restricted development of alternative form of markets.
  5. They have become too monopolistic in the sense that the authorities do not permit alternate and competitive markets in an area where there is regulated market.
  6. Also, no transaction is permitted outside the regulated market. For any such transaction, one has to obtain a licence and pay requisite fee to the market committee.
  7. Cold storage facilities exist in less than 10 percent of these markets which implies poor infrastructure.
  8. Grading, cleaning and standardization facilities exist in just one third of these markets.

In view of these limitations and problems relating to regulated markets, the centre set up Shankar Guru Committee in 2001 and also set up an inter-ministerial expert group to review the system of regulated markets. These committees, inter-alia, made the following observations and recommendations.

(i) These markets have become too restrictive and instead of promoting free and fair play market forces, have become too monopolistic.
(ii) These markets have failed to reflect situations of scarcity or plenty and particularly in respect of food grains have led to stock piling by FCI.
(iii) Government intervention in agricultural markets should be selective and confined only to situations of extreme scarcity.
(iv) Essential Commodities Act should be repealed.
(v) Government should review all the relevant legislations relating to agricultural marketing.

Based on these, the Centre enacted a model APMC Act in 2003 urging State governments to adopt this, legislation by carrying out suitable amendments in their APMC Acts. The model APMC Act 2003 has three major objectives viz, deregulation of agriculture markets making these markets competitive and permitting private sector investment in market infrastructure.

Salient features of the Model Act are as follows:

(i) Farmers and traders should not be permitted to sell their produce in regulated markets.
(ii) Farmers and traders should be permitted to set up purchase centres for direct sale of their produce to consumers.
(iii) States should encourage farmers, traders, local authorities to set up parallel markets.
(iv) Separate markets should be set up for perishable commodities like fruits and vegetables.
(v) Public private partnership should be encouraged in management and development of agricultural markets.
(vi) There should be regulation and promotion of contract farming.

Regulated markets are dominated by intermediaries and middlemen. The high costs of intermediation have a cascading effect on prices. The committee on Agriculture Reforms set up in 2013 recommended, inter-alia, a barrier-free national market for the benefit of farmers and consumers.

The committee noted that by and large, the APMCs have emerged as some sort of government sponsored monopolies in supply of marketing services/facilities with all drawbacks and inefficiency associated with a monopoly.

Thus, the APMC Act has not achieved the basic objective of setting up a network of physical markets. There are some successful initiatives in direct marketing, such as April Mandi In Punjab, Uzhavar Sandhai in Tamil Nadu, Shetkari Bazaar in Maharashtra, Hadaspur Vegetable market in Pune, Rythu Bazaar in Andhra Pradesh, Krushak Bazaar in Odisha and Kisan Mandi In Rajsthan.

Some measures that would facilitate the creation of a barrier-free national market are:

  1. Permit sale and purchase of all perishable commodities such as fruits as vegetables, milk and fish in any market. This could later be extended to all agricultural produce.
  2. Exempt market fee on fruits and vegetables and reduce the high incidence of commission charges on agricultural/horticultural produce.
  3. Taking a cue from the success of direct marketing efforts of states, the APM/other market infrastructure may be used to organize farmers markets FPOs/self-help groups (SHGs) can be encouraged to organize farmers markets near urban centres, malls, etc that have large open spaces. These could be organized every day or on weekends, depending on the concentration of footfalls.
  4. Include facilitating organization of farmer markets under the permitted list of corporate social responsibility (CSR) activities under Companies Act 2013 to encourage companies engaged in agri-allied activities, food processing etc to take up this activity under CSR and also help in setting up supply chain infrastructure. this would be similar to the e-Choupal initiative of ITC Ltd. but under CSR.
  5. All the above facilitators can also tie-up a link to the commodity exchanges’ platform to disseminate spot and future prices of agricultural commodities.

Recent initiatives by the government has been to urge state governments to keep perishable commodities like fruits, vegetables, milk and fish out of the purview of regulated markets.


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