Competition Issues in Agricultural Marketing and Procurement in IndiaJyoti Gujral- IDFCPiyush Joshi & Anuradha R.V.- CLARUS LAW ASSOCIATES

February 16, 2011

• 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

Some basic facts

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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 may potentially

qualify as issues necessitating and justifying intervention by the Competition Commission of India

Threshold issue: Not everything an issue for the Competition Commission for India

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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

Focus of Discussions

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Farmer

Pre-Harvest Contractor

Commission Agent/ Broker (Regulated by APMC)

Wholesaler (Regulated by APMC)

Retailer

Consumer

Chain in Agricultural Marketing

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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

Role of APMCs

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•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.

Impact of APMCs

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•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

Anti-competitive effects

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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

APMC Licenses

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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

Role of Traders/ Commission Agents

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•Limiting the market for farmers

•Preventing purchasers from accessing markets

•Preventing development of adequate infrastructure

•Preventing development of private markets

Anti-competitive impacts & APMCs

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•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

Food Corporation of India

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•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.

Food Corporation of India

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• 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’)

Role of the Competition Commission of India

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•Resolving Disputes (Adversarial situations)

•Competition Advocacy: a unique role to advocate principles of competition in various contexts; potential ability to initiate legislative reforms.

Role of the Competition Commission of India (cont’d)

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•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

Role of the Competition Commission of India (cont’d)

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