DAXSLY – How Middle Men in Mandi make Money

Just like Annachi – in North Inda there are Arhatiyas

The wholesale vegetable and fruit market at Azadpur in north Delhi is not for the faint-hearted. 

The smell of rotting garlic mixes with slush in lanes gridlocked with vehicles that have arrived from the countryside loaded with farm produce.

Seated on raised platforms under a canopy of asbestos, hundreds of arhatiyas preside over the sale of this produce, within minutes trading the fruits and vegetables that farmers have tended over weeks.

Commission Agents
Arhatiyas are commission agents who are often called the nerve centre of the agricultural markets of India. Under the law of the land, farmers cannot sell their produce outside designated mandis. And in the mandis, you can trade only if you have a licence: if you are an arhatiya.

“A farmer calls and checks with me the prevailing price in the mandi. If the price suits him, he sends his produce to me. I sell it on his behalf,” said Narain Das, one of the oldest arhatiyas dealing in the onion trade in Azadpur, who claims to have been around since the late sixties.

As he explained the trade to me, he simultaneously negotiated prices with an old shopkeeper from Seelampur in eastern Delhi, who had spent some time turning around the onions spread out on the floor before quoting Rs 600 per sack. “That’s too little,” Das responded to him. “The rate is Rs 800 per sack.” A sack contains 50-55 kilograms or half a quintal of onions. The old man walked away. Das was unmoved. He had sold one-third of the consignment of 300 sacks that had come from Madhya Pradesh within two hours of its arrival. He was confident that he would find buyers for the remaining stock by evening.

For his efforts, Das would earn a commission of 6% of the sale price, which would amount to nearly 15,000 rupees for that morning’s consignment. By his own admission, Das makes an average of Rs 4 lakh a month. “Not bad for a 10th pass,” he said, referring to himself with a sense of pride.

But wasn’t his income coming at the expense of the farmer?

“The commission is paid by the buyer, not the farmer,” Das hastened to clarify. “We act in the farmers’ interest. We get them a good price.”

Not everyone thinks so. Farmers believe arhatiyas make easy money. “What do they do?” asks Vijender Tyagi, who grows wheat and okra on his land in Burari, in the northern periphery of Delhi. “All they do is sit in the market. And for that, they take away 10% of our income."

The commission ranges from 6%-10% depending on location and product. Farmers say arhatiyas often charge both sellers and buyers.

“If the commission was 2%, it would be fine, but 7 to 8% is hard to justify," said Ajay Jakhar, who grows citrus fruits in Punjab, and heads a farmers’ organisation called Bharat Krishak Samaj.

It’s not just farmers. Many agricultural economists also feel arhatiyas do not serve a useful purpose. By charging a commission, they simply add to the price that consumers pay for food. Ashok Gulati, the former chairman of commission for agricultural costs and prices, has argued that states governments must repeal the Agricultural Produce Marketing Committee Act, the law that created the monopoly of middlemen by prohibiting the sale of agricultural produce outside mandis.

The debate over the APMC act
The APMC act was passed by the states in the 1960s, when farmers were routinely cheated by the traders who came to their villages to buy produce. If the trade could be moved out of the villages to a central market place, it was argued, the farmers would be able to discover the fair price for their produce.

“The APMC Act was meant to consolidate buyers and sellers at a central place, which should reduce time, costs and efforts,” says an essay in the book Agricultural Diversification and Smallholders in South Asia. “However, the APMC has failed to achieved the desired objective of improving the conditions of farmers by regulating the market, and instead has strengthened the hands of middlemen, resulting in a huge difference in the price which the farmers get and what is realised in the APMC.”

Many argue that instead of creating transparency in the trade, mandis have limited competition, depriving farmers of better prices.

“My village is in Punjab near a place called Abohar,” said Ajay Jakhar of the Bharat Krishak Samaj. “If a trader comes from Kerala, he won’t be able to buy my produce because he has to have a licence in the mandi. If he wants to buy from other farmers in Punjab, he needs a separate licence for every mandi, and he needs to renew the licence every year. This creates a monopoly for the existing traders."

In some places, traders have been accused of acting as cartels. A 2012 report by the Competition Commission of India found that traders in onion markets in Maharashtra and Karnataka were acting in collusion and hoarding onions to push up prices.

In recent years, there has been a growing demand that the government end the monopoly of mandis – if not in food grain, at least in fruits and vegetables.

In December last year, with the United Progressive Alliance government under fire over food inflation, Rahul Gandhi asked Congress-ruled states to de-list fruits and vegetables from the APMC Act. Six months later, as soon as the BJP government came to power, finance minister Arun Jaitley sent out an advisory asking all states to do the same.

Are farmer markets the solution?
If the sale of agricultural produce is no longer limited to mandis, where would it go? For one, it would be bought directly by food companies. The day Maharashtra issued a draft notification to de-list fruits and vegetables from the APMC act, the Hindu Business Line reported that “companies in agri-business, food processing and organised retail sector are in for a bonanza.” The Confederation of Indian Industry welcomed the notification. Industry bodies have been lobbying for a repeal of the APMC act, prompting some to argue that more than farmers, it is private companies that stand to benefit from the dismantling of mandis.

Devinder Sharma, a food policy analyst, has argued that this would amount to one set of middlemen being replaced by another. He cited the example of Bihar, which repealed the APMC act in 2006 but did not see either a drop in food prices or raised profits for farmers. “Against the procurement price of Rs 1,310 per quintal that Punjab farmers got this year, Bihar farmers have somehow managed to sell paddy at something around Rs 800-900 per quintal,” he wrote in this blog piece. “This is nothing but a distress price, a classic example of ruthless exploitation by the private trade.”

“Bihar’s example shows that you cannot do away with the mandis without creating an alternative system in their place,” said Ajay Jakhar of the Bharat Krishak Samaj. Instead of closing down mandis, he argues that we need to open them up to competition.

“If there is demand for my citrus fruits in Kerala, a trader should be able to come and buy from me without worrying that he would have to apply for a licence for which he may have to pay an official. Once you remove the bottlenecks more traders would be able to go across the country and buy stuff.”

This open trade could be supplemented by farmer markets, says Jakhar. “In the West, you’ll find farmer markets in open spaces in residential areas where farmers can come and sell their produce and go back home. Under the Jawaharlal Nehru urban renewal mission, the government should make it mandatory for every city to create such areas. Once you start providing such platforms, farmers will pool in together and come to the cities to sell their produce.”

This is exactly what happened in Hyderabad, where the government created Rythu Bazaars (Telugu for ‘farmer markets’) in 1999. “In these markets, set up in urban centres, farmers can sell directly to consumers, thus realising a better price,” reported the Economic Times. “Today, Rythu Bazaars account for 41% of all vegetable supplies in Hyderabad, and about 10% of the total urban requirement in the state. They attract even small farmers, who bring their produce from 25-30 km afar in a state transport bus.”

Until such alternatives are created, Jakhar says that mandis and middlemen are indispensable. “Every farmer cannot be visited by a retailer or a consumer. Every farmer does not have the capacity to reach a consumer or a retailer. Middlemen are required, mandis are required, farmer markets are required. All these things working simultaneously would create competition and bring down the prices."

Agreeing with Jakhar, Rajesh Tikait of the Bharatiya Kisan Union put the idea succinctly. “We do not want the mandis to go away,” he said. “We want the freedom to go to the mandis and sell our produce directly.”

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