Agricultural Markets in India: Managing Capital Leakages in Commodity Linkages

Authored by: Shubham Singh

ABSTRACT

The agriculture sector in India has witnessed continued distress in recent years with net investments in agricultural assets decreasing along with the sector’s share in the economy. Farmers have been grappling with stagnant incomes in the absence of true price realisation at the farmgate level, while paying a high retail price for other commodities as consumers. There are issues in the supply chain of agricultural commodities that have contributed to the existing income-expense gap for the farmer such as an overbearing presence of middlemen, fragmented agricultural markets, intentional hoarding, and multiple commissions and licenses. These issues have persisted even though several agricultural produce marketing regulations have been passed over the years by governments at the state and centre. This paper takes a detailed look at what ails agricultural marketing in India and key policies that have been enacted in response. It also attempts to analyse the persistence of some major issues in agricultural marketing and suggests alternatives to achieve true farmgate value of produce for farmers.

INTRODUCTION

The agricultural sector in India employs nearly half of the population of the country, yet its share in the GVA (Gross Value Added to the economy) was only 17.1% in 2017-2018. In comparison, the industries and services sectors contributed 29.1% and 53.9% respectively (PIB 2018). The agriculture sector has been in distress for a few years now, which is reflected in the sector’s decrease in gross fixed capital formation from 17.7% in 2013-14 to 15.2% in 2017-2018 (PRS 2019). Simply said, the net investments in fixed agri- cultural assets, such as equipment and machinery, have dropped over the years, with more than half the producers expressing the desire to give up farming as a source of income (Sood 2018).

This state of affairs is a consequence of the numerous challenges the Indian farmer faces during the process of production. Many of these challenges pertain to the value chain, which includes problems faced in securing inputs such as the purchase of seeds and access to irrigation and credit facilities, among others. However, challenges also arise in the supply chain of agricultural commodities, primarily in the form of distortions in the movement of agricultural produce from farmgate to consumers.

There is a clear difference in the farmgate value1 and market value of agricultural produce. This can be observed, for instance, through a comparison of the average wholesale selling price of onions in Delhi in December 2019, as researched by this author. Onions were being sold at INR 65/Kg at the Azadpur-AP- MC Mandi, whereas the average retail price paid by consumers in the National Capital Region (NCR) was around INR 120/Kg at an East Delhi neighborhood. This disconnect in the prices paid by the consumer and that received by the producer is caused due to a leakage of capital in the supply flow. This results in the failure of true price realization by the farmer for his produce.

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