India: Effects of Tariffs and Nontariff Measures on U.S. ... - USITC

First Point <strong>of</strong> Sale
State-Regulated M<strong>and</strong>is
Over time, m<strong>and</strong>is, originally designed to protect the farmers from large purchasers with
market power to set prices, have become controlled by traders <strong>and</strong> middlemen; they now
act to limit farmer incomes. 7 The large number <strong>of</strong> small farmers selling their products in
m<strong>and</strong>is <strong>and</strong> the limited number <strong>of</strong> buyers, traders, <strong>and</strong> brokers, increases the buyers’
market power. The m<strong>and</strong>is reduce the marketing opportunities available to <strong>India</strong>’s
farmers <strong>and</strong> keep farm-level prices low.
The system <strong>of</strong> regulated markets, or m<strong>and</strong>is, was created over a period <strong>of</strong> several years
following <strong>India</strong>’s independence. 8 There are more than 7,500 m<strong>and</strong>is in <strong>India</strong>. 9 M<strong>and</strong>is
guarantee agricultural producers a minimum support price (MSP) for agricultural
commodities deemed essential by the <strong>India</strong>n government. 10 Most products are sold
without distinction as to grade or quality st<strong>and</strong>ards, <strong>and</strong> therefore farmers have little
incentive to provide higher-quality products. Farmers pay a fee to access the m<strong>and</strong>i to
maintain the storage infrastructure <strong>and</strong> rural roads, normally equal to 1.5–3.5 percent <strong>of</strong>
the value <strong>of</strong> their crops, depending on the state. 11
Alternative Markets
Alternative market structures were authorized by <strong>India</strong>’s central government in the State
Agricultural Produce Marketing (Development <strong>and</strong> Regulation) Act <strong>of</strong> 2003 (Model Act)
to counter the market power <strong>of</strong> traders <strong>and</strong> brokers in the m<strong>and</strong>i. The Model Act allows,
but does not require, states to create alternative marketing arrangements for farmers. 12
Most states <strong>and</strong> union territories used the opportunity presented by the Model Act to
implement reforms to their state agricultural produce marketing acts, but implementation
varies considerably from state to state. 13 Under most <strong>of</strong> the revised state marketing laws,
m<strong>and</strong>is, regulated by local government committees (agricultural produce marketing
committees, or APMCs), continue to operate as they did under the old system, but three
principal alternative market arrangements have emerged: (1) direct marketing, which
allows farmers to sell produce directly to consumers; (2) private m<strong>and</strong>is, owned by
individuals or firms that may be granted a license by the state government to purchase
directly from farmers; <strong>and</strong> (3) contract farming, which allows farmers to sell their harvest
directly to purchasing companies under mutually agreed upon contract terms without
7 Government <strong>of</strong>ficial, interview by Commission staff, Jaipur, <strong>India</strong>, June 3, 2009.
8 Acharya, “Agricultural Marketing <strong>and</strong> Rural Credit,” 2004, 9.
9 Tiwari, “Post-Harvest Management <strong>and</strong> Marketing,” 2009.
10 See chapter 4 for a discussion <strong>of</strong> MSPs.
11 As a technical matter, traders <strong>and</strong> middlemen pay the infrastructure fee, but these fees are passed back
to the farmers in the form <strong>of</strong> lower prices for their goods. As a consequence, farmers bear the economic
burden <strong>of</strong> the fee because they have few other options to sell their crops. Traders sometimes pay the
infrastructure fee twice if they sell purchased crops to another m<strong>and</strong>i market area. Fees are intended for local
infrastructure projects to benefit the m<strong>and</strong>i, although the funds are <strong>of</strong>ten not used by local governments for
their intended purpose. Industry representative, interview by Commission staff, New Delhi, <strong>India</strong>, May 5,
2009; industry representative, interview by Commission staff, New Delhi, <strong>India</strong>, May 6, 2009.
12 As noted in chapter 4, agricultural policy implementation is largely controlled by the states rather than
the central government. The central government formulates broad agricultural policies, which the states tailor
to fit their specific economic <strong>and</strong> political needs. The Model Act encourages state agricultural marketing
boards to promote st<strong>and</strong>ards, grading, quality certification, <strong>and</strong> farmer training. Chadha et al., “Competition
<strong>and</strong> Regulation Issues in <strong>India</strong>n Agricultural Markets,” June 5, 2008, 5.
13 See appendix G for a description <strong>of</strong> <strong>India</strong>’s central <strong>and</strong> state government jurisdiction on agriculture.
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