Unified Market Platform: how can the benefits reach the needy?

Following efforts from various policy institutions for over a decade, the vision for a Unified Market Platform (UMP) in agricultural commodities has come true. Some ₹200 crore has been earmarked in the 2015-16 Budget as Agricultural Technology Infrastructure Fund (ATIF) to scale up ‘mandi modernisation’.

In fact, a few States such as Karnataka, Gujarat, Maharashtra and Madhya Pradesh have already responded positively to APMC Model Act, 2003 and APMC (Reforms), 2013 by initiating a slew of measures. However, many States are far behind in adopting a similar initiative. Nevertheless, will this trickle down to the bottom and benefit producers?

The Centre intends to implement the project through a structured bidding process. NCDEX-promoted National E-Markets Limited (erstwhile NCDEX Spot Exchange) showed interest in bidding for the project. It has gained domain expertise in facilitating electronic spot trading of agricultural commodities in the Karnataka, Gujarat and Rajasthan.

The exchange can help interested States to improvise APMC regulated markets into software-enabled trading platforms, but the implementation may require planning over a longer term. State Agricultural Marketing Boards, Food and Civil Supplies Corporations and State Procurement Agencies need to help speed up project execution and to ensure a hassle-free operation in mandis and collection centres.

However, all the success will depend on the States’ outlook to market-led agriculture or prospects in agriculture through steady procurement, reduced distress sales, value addition to marketable surplus and adoption of co-production and profit sharing model. Political instability or policy logjam might result in the implementation period being extended.

Now, hiring of a consultant for the implementation may require some time as the government needs to invite bids from interested agencies internally. State Government co-operation is essential to conduct a thorough market research and to expedite the process of implementation. There is a dire need for network orchestration of NCDEX, consultant(s), market agencies, implementing State(s) and Centre. Mandi modernisation aims to rope in diverse and discursive group of the clientele.

These include farmers, merchants/aratiyas, hamalis/contract labourers, bulk traders and processors, APMC staff and board members. To this end, interested public/private organisations could get an opportunity to render customised services, such as, assaying, warehousing and disposal, commodity-based financing.

The consequence of the project might be far-reaching and could consider several contours of markets and policy environment.

First, it could reduce pricing anomaly through a network of electronic spot markets. Price polling exercise, on one hand, would be more transparent and authentic and, on the other, this may be real-time linking to a hub or central database. As a result, information asymmetry in the market could get reduced as electronic auction will resulting in licensed traders, buyers and sellers getting organised in a single platform.

Second, organised spot markets can support forward/futures markets for base or reference pricing and final settlement of the forward/futures contracts. Traders will be more informed since they may follow frictionless trading in both markets simultaneously. Delivery might not be an issue since warehousing business could receive a ripple effect of the project. Commodity-based structured financing might also be a fruitful outcome of the project that might restore the confidence of lending organisations on the negotiability of warehouse receipt.

Third, commodity prices tend to be more uniform or less distorted and traders will be able to compare prices of commodities across secondary and terminal markets that could reduce their search or monitoring costs. Overall, the market would correct itself to curb excess speculation of “rogue” traders or agents to the extent of market liquidity and magnitude of participation.

The project is aimed at addressing the concerns of small and marginal farmers, who have been struggling for a better price. Accessibility of price information is of crucial relevance to them.

While physical barriers might prevent their access, they need to be market-oriented and equipped in calculating returns for risks they take. As they depend on opinion leader of the local populace, civil society in consultation with the external agency, say commodity exchanges, could take the initiative of real-time price dissemination. The electronic market, in essence, may break the shadow of ‘digital divide’ between urban traders and rural peasants.

Technology and business convergence might induce productivity and make farmers aware of agricultural policy and economic environment. However, producer inclusion in technology mediated market is central to the grand success of this project that needs a bottom-up approach.

The writer is Post-Doctoral Fellow of CMA at IIM-Ahmedabad. Views are personal.