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Inefficient Agriculture Markets in India - Coggle Diagram
Inefficient Agriculture Markets in India
Reasons for non adoption of e-trading" by traders and commission agents :red_flag: (Observations from Karnataka ReMS online platform for marketing)
lack of awareness on its operation, computer knowledge, market infrastructure and technical support
apprehension that it will lead to transparency nd enhance market competition
no scope for price manipulation affecting their prices
adversely affect their business relations with farmers
Traders are unwilling to forgo the rent they earn through manipulation of prices, under-weighing of produce and tied transactions.
need to hire trained staff, the wages of which could offset the potential gains from participation in e-tendering.
Why is it important to improve this
Food loss in emerging economies due to inadequate information and infrastructure
Reduces producers share in consumer's rupee
-Price discovery is not transparent
(in direct sale- farmer is a price taker)
High incidence of tied transactions where traders advance credit to farmers on the latter’s commitment of sale of produce.
Small farmers cannot participate
as these platforms are infrastructure based and related to scale
Access and connectivity to warehouses and collection are issue
roads and storage infrastructures
are needed for improved participation
Low volumes of produce: highly differentiated and in small quantities; Additional fixed costs for grading, weighing and storage insurance : :
unable to compete in market with changing demand for higher value and quality goods
Why is it bad?
-
Present Agriculture Market in India
leads to
Transfer of farm produce to end-consumers involves at least 4 intermediaries
Multiple taxes, market fees, multiple licensing systems
Inter state restrictions
Information asymmetry
Lack of infrastructure, grading, and adequate standards
time-consuming processes. lack of logistical support, high transportation charges
Limited usage
Commodity futures markets
e-tendering system
Benefits:
Transparency in price discovery
Multiple bid by different traders
Freedom of choice before farmers
Reduced transaction time
Requirements:
warehousing,
economies of scale,
Infrastructure for grading, assaying, standardized commodities
eNAM
The challenges are poor infrastructure and systems in the market. The lack of testing machines and technicians for grades and standards determination, poor internet connectivity, poor storage facilities, low stakeholder participation and malpractices in the form of misreporting physical auction as online auctions
the absence of which may discourage traders from far off places to participate in e-tendering
How can we improve?
:star:
adequate assaying facilities for grading and quality
enable better transportation of goods, cold chains
and goods storage facilities
Need public sector investment for infrastructural development
create awareness among farmers of the benefits of e-trading, remove apprehension of price manipulation
organize farmers into collectives to enable them to capture benefit at scale; reducing fixed costs of quality determination, transportation to physical locations of transactions and enable better linkages to financial services.
build their capacity in online banking
improve farmers’ access to institutional credit to reduce their dependence on traders and commission agents.
Requires
policy support, interventions like aggregation models, infrastructural development and reform of existing marketing practices
that have led to increasing transaction costs in the market.
Removal of entry barriers- a single license for buyers/traders to participate across all markets
remedy the issue of economies of scale, access to capital for both producers and value chain actors and effective governance of value chains and markets
Uncertainty in market reforms, abrupt bans and ad-hoc prohibitions affects sanctity of contracts and dissuade entrepreneurs from investment
Warehousing of agricultural commodities
To mitigate high price volatility in agricultural commodities
store their produce in warehouses when the prices are low
get a warehouse receipt, which functions as a derivative, which can be traded or put up as collateral with banks for immediate cash needs
Advantages:
reduced handling costs, higher price realization
and the ability to buy and sell without physical transfer.
Linking farmers to markets will
Incentivizing small farms to diversify production in line with the changing demands of the market.
Effective functioning of online marketing platforms can also encourage increased private sector participation, also participation of less developed areas & small farmers who are at disadvantages
improve household level incomes
Well-functioning value chains are critical to improving the efficiency of bringing food from farm to table by minimizing food loss and waste
Regulated markets in India
• Poor market infrastructure.
• Inadequate price information; and
• Poor storage leading to wastage;
• Poor grading and quality description to assist price estimation;
• Long processing time (time taken to process and pay);
presence is required to obtain a license and they need to own a premises to participate;
• Intermediaries need multiple licenses to operate in different mandis, their physical
• High transaction costs including excessive travel by farmers (cutting their profit margins);
• Farmers have to sell in the local mandi and only to licensed intermediary;
Large number of intermediaries who do not add value;