The Mandi And Modern Supply Chains
It’s been 150 years since you have returned from South Africa to propose your decentralized and localized economic models; and your nation is still obsessed with the same old imperialistic ideas of free trade and market-driven consumerist models. The case at hand is that of revolutionizing the vegetable supply chain in the country. Before going to the models with which we want to replace the existing one, let’s see what’s wrong with the existing supply chain. Remember I promised to write to you about APMC Act and our Mandi System? Here is how it works.
Essentially, under this act, the government sets up and manages mandis in designated geographical area. The mandi is basically a market place where farmers sell their produce to the buyers through auction. It is operated as per the regulations of APMC. The auction is facilitated by the Adathiyas (commission agents, middlemen) at the mandi, who hold license and are allotted a shop in the market. APMC also ‘notifies’ certain commodities to be sold at the mandi. The notified commodities can be sold only through the mandi in its geography. The farmers cannot sell these commodities directly to the buyers. For example, fruits and vegetables were recently de-notified in Delhi, which means, now Delhi farmers can sell their produce directly to the buyers without any mandi intervention.
So on a mandi day, farmers (or their representatives) get their produce to the mandi early in the morning (generally at 4:00AM in the morning) where the commission agents auction off their produce to the buyers. They take a percentage of the selling price as commission for facilitating the process, which ranges from 5% to 10% of the selling price. Mandi’s infrastructure-weighing machines, receipts, etc., is maintained by the commission agents. Price of different commodities at the mandi is defined by supply and demand, typical Adam Smith style. When the supply of a certain commodity is high, the price is low; when the supply is low, demand is high and price goes up accordingly.
It’s a fair model – gives farmers easy access to markets, creates employment in the village (and indirectly elsewhere), produce is auctioned thereby giving the farmer the best possible price, platform where producers and buyers meet. But since it is operated by humans, it has its own flaws. The two main issues over which it is criticized the most are inefficiency of its supply chain, and cartelization of Adathiyas – mutually; and with buyers.
The wastage in the mandi supply chain is very high because of the number of intermediaries in the chain, especially for vegetables-nearly 40%. The perishability of vegetables is already very high and that coupled with the inefficient handling increases the wastage percentage drastically. And Adithi-buyer cartels neutralise the auction advantage to the farmer. Now everybody thinks Adithi is the evil man who has to be replaced, and replaced with what? A supply chain with just one intermediary.
The monopoly of mandi is being challenged, and people want direct marketing – buyers buying directly from the farmers to be allowed. Everybody wants to build a farm-to-fork supply chain, to connect producers directly with the consumers. The argument is, that this will reduce wastage and make the supply chain more efficient. And since there is only one intermediary, farmer can get a higher price share in the final price and the end consumer gets it at a lower price, a win-win for both producer and consumer. Mostly, these new supply chains are getting started in villages that are near to cities. As the consumption in cities is high, the price of vegetables is also high, thereby making the chain sustainable.
But the thing is, here we are connecting farmers with distant markets unlike the mandi system, wherein the farmer and Adithi share a relation bigger than just a business transaction. The Adithi and farmer are of the same village and face each other daily. Whereas in the new chain, the buyer has nothing to do with the well-being of the farmer. Their relation is limited to business, both looking to maximize their profits. And it’s a long distance relation man, all soup boys know long distance relations don’t work out. You might say, if the buyer disappears tomorrow, the farmer can still sell it at the mandi. But for the mandi to remain, it should have transactions regularly. If the buyer buys for 2-3 years and moves out when he gets the commodities at a lower price from some other village, the farmer will be left without a market.
And the other thing about these models is that, most of them are market-driven. The buyer gives a list of commodities that his consumers prefer to the farmer to grow. It’s like English parliamentarians making laws to administer India sitting in London. But then, there is another thing happening simultaneously. Parallel to this supply chain revolution, there is another evolution happening in collectivizing farmers through Farmer Producer Organisations and Farmer Clubs. These farmer organisations increase the bargaining power of farmers, thereby reducing the chances of them getting exploited by the buyers.
Anyways, competition in the market always brings out the best from the system. If this long distance relation works out it’s good for the farmers. If it doesn’t, both the farmers and Adithis learn their lesson on rules of interdependence. Just like how the spiritually arrogant orient needed the materialistic occident’s imperial intervention to remind it of the importance of liberal values, and the consumerist occident needed an exposure to contended orient to uplift it from spiritual depravity, the Adithis need an outside intervention to realize the importance of fairness and innovation.
P.S.: A lot of water has flown since this, especially with the Farm Bills introduced by the Central Government in 2020 and the subsequent protest and ensuing withdrawing of the bills. You can follow those details here