What will the middlemen do?

India is primarily an agricultural economy. 55 to 65% of the workforce is directly and indirectly involved in the production of cereals, pulses, vegetables and other cash crops.

The price that the farmer gets is at a great variance from the price that the consumer pays. Take wheat for example, the farmer gets a minimum support price of 1625/- per 100 kilogram of wheat. The consumer on the other hand pays anywhere between 3300/- to 3700/- for the same 100 kilogram. The price difference is almost 100%.

Some of the price difference can be attributed to transport costs, handling costs, trader margins, etc. But a 100% mark up should not be acceptable to anyone.

The farmers operate through a APMC (Agricultural Produce Markets Commission) setup. At these APMC’s spread all over the country, farmers bring their produce and the wholesale traders buy it from them. They in turn distribute the produce to sub-distributors in the cities, who eventually give it to the retailers.

The retailers have the highest margin in the scheme of things as they are the last mile distribution point.

In this transition from farmer to the consumer, products become expensive by 100% or even more.

Therefore there is a dire need to correct the anomaly such that farmers get a better price even if consumers continue to pay the same price.

Some ways in which this can be achieved is;

(a) To allow the farmers to sell directly to the consumers through a selling cooperative. This cooperative should be provided necessary space by the government to stock and sell their produce.

(b) To fix a profit margin for the people in the chain such that most of the profit goes to the original producer (a sort of reverse pricing mechanism where prices are calculated in reverse).

(c) To provide for better storage facilities at the village, tehsil or district level such that the farmer does not have to sell at a distress and can raise funds from banks against the collateral of his stock.

(d) To disband the APMC system and allow farmers to use the space in the existing APMC’s as their point of sale to retailers, thus eliminating some layers of traders.

But then what will the middlemen do?

What ever said and done, there is a dire need to think about a long term solution, because loan waivers are going to bring short term relief.

(Image credit grandmaratha.org)

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