Study on Mandis and the practices characterizing them

IRM Project assignment

Group A11 Saurabh Bhandari (11P041) Animesh (11P066) Ashish Gauba(11P070) Eshan Gupta(11P074)

Contents
Introduction ................................................................................................... Error! Bookmark not defined. Sale of Agricultural Produce.......................................................................................................................... 3 Operations at Khandsa Mandi ...................................................................................................................... 3 Roshan Pura Mandi , Gurgaon ...................................................................................................................... 5 Mandi Distribution System ........................................................................................................................... 6 Mandi Operation Process ............................................................................................................................. 7 Limitations of the Mandi system .................................................................................................................. 8 Recommendations to improve the mandi system...................................................................................... 10

Introduction
Khandsa is one of the villages in Gurgaon Mandal in Gurgaon District in Haryana State. Khandsa is located 6.315 km distance from its Mandal Main Town Gurgaon. Khandsa is 4.893 km far from its District Main City Gurgaon. More than 100 registered traders and few unregistered traders are engaged in trading of various kinds of crops. The nearby villages surrounding this place are Naharpur Roopa, Hari Nagar, Kadipur and Shahpur Jat.

Sale of Agricultural Produce

There are generally three commercial channels for various kinds of crops traders, government-mandated markets (mandis), and Trading through Railway cart. In addition, farmers traditionally keep a small amount of their crops for their personal consumption and for feed purposes. The system varies among states and districts, as does the percentage of produce going through each channel. The Agricultural Products Marketing Act legislated the creation of mandis to enable a more equitable distribution of the gains from agriculture among producers, consumers, and traders. The mandi is central to the functioning of the marketing channel, and acts as delivery point where farmers bring produce for sale to traders.

Operations at Khandsa Mandi

Every day truck loads of agricultural produce from nearby villages and also states as far as Maharashtra and Bihar, arrives here which is unloaded and then distributed. Very peculiar insights into the operations of such mandis were observed on our visit there. 1. Owing to its smaller scale of operation as compared to the biggest mandi in NCR region (Azadpur), it was observed that the mark ups/margins were significantly in favor of the middle men carrying the produce from farmers till the mandi. A possible reason for this was noted to be the added convenience of delivering it at the doorstep.

2. The type of produce available here included vegetables and grains primarily. On further interrogation it was discovered that easily perishable food items are also the fastest moving, with most of the daily shipment being sold in the morning itself.

This had many implications which included non-existence of good storage infrastructure to protect such items. The mandi operated in a more make-shift fashion with very few facilities there being of permanent kinds.

3. There were three modes being used simultaneously for pricing the vegetables and grains. First was based on future order contracts, wherein the demanded quantity and price were fixed before the truckloads were sent. These contracts are almost exclusively done by bulk purchasers and regular buyers only, and the terms of the contract are based on risksharing for example in case of price volatility and wastage. The second mode of setting the price was based on auction, which seemed to be market driven and the demand for a particular product category drove its prices high. On our questioning the middle-men denied the possibility of any cartels being formed citing the high competition amongst players, which would make it unfeasible. The final mode of price fixing was wherein the middlemen and farmers quoted a fixed price for selling their produce. They also decided on the minimum purchase quantity for any order. Such mechanism could be followed only in case of low supply-high demand products.

4. Commissions being charged included portions for government, for example: one middle man informed us that for a truckload of onions, he charged a commission of 8% for each crate of 20 kgs. This included 5% for the government and 3 % for his business. While at the same time another middleman was charging 10% commission for onions. The reasons for this differential were found to be threefold: Latters produce was from Maharashtra while formers from UP, and thus the added costs incurred Also, the perceived quality of the produce was considered better in the latter case Finally, the latter also had storage facilities and booked small orders too

5. Supply chain model observed here was:

Farmers

Middlemen (Village)

Distributors & Logistics

Middlemen (Mandi)

Retailers, Small traders, local public

Here, the middlemens primary job was to form bulk quantity by purchasing from multiple sources in villages, so as to make it economically viable to send the quantity and in mandi the middlemen broke the truck load bulk received, for smaller orders. Their value proposition was in terms of this service rendered by them and also their risk sharing ability with provision of storage infrastructure and dealing with distributors.

Roshan Pura Mandi , Gurgaon

It was the second mandi which we covered. This mandi mainly sells vegetables and fruits. Most of the products are purchased from the khandasa mandi or from Azadpur mandi in few cases. Here the price markup is atleast 2-3 Rs higher per kg then the khandasa mandi. Most of the seller keeps lesser quantity of stocks as goes to the bigger mandi frequently to restock. In this mandi we noticed a dealer who owned a small shop and used it as a stock center. Smaller sellers who sell mainly in the city in their hand carts bought from this particular trader. Nearby shopkeeper instead of buying from this trader preferred to buy from the Khandasa Mandi. From interviewing of this particular trader we got to know that he purchases his stock from azadpur mandi and that the middle men there sells him the products at a margin of 6-10%. The price keeps varying everyday and the variations are in range of 50-100 Rs per sack. There is no lower limit on the no. of sacks to be purchased from the middlemen. Traders can even buy just one sack if they wish. On Interviewing the smaller shopkeepers we found that few of the sellers were from nearby villages and that they have purchased their vegetables from that particular village itself and selling here for better margins. These sellers doesnt keep any backup stock as they are less on cash and find it very difficult to get credit for their purchases. On asking what they do with the vegetables or fruits which are about to get rotten, they said that they either use it for their personal use or send it back to villages where it is used in the fields for it seeds or feeding cattle.

Mandi Distribution System

Farmer

Village Trader Railway Cart Trading Whole Seller

Regulated Markets Mandis

Commission Agent

Trader

Crop Processor

Crop Stocker

Mandi trading is conducted by commission agents called adatiyas (brokers who buy and sell produce). They are of two types: kachha adatiyas are purchasing agents that buy only on behalf of others and pukka adatiyas who finance trade as representatives of distant buyers and sometimes procure crops on their own account. The lack of professional competition combined with the communal stranglehold on rural trading has made commission agents extremely wealthy. Commission agents from medium sized mandis can possess assets and incomes in the millions of dollars. The adatiyas established network with crop processing industries and buying and selling of maize is based on oral agreements. Their expansive personal networks within the industry and their financial influence make them a formidable presence. The operation of the Mandi consists of a number of different stages, from the logistics of transporting grain to the market to quality inspection, auction, bagging and weighing, and payment. Based upon

local price information within the village, farmers decide in which of the nearby place to sell. They transport their crops to the mandis in carts drawn by animals or tractors. Very often, to avoid peaktime crowds, farmers will arrive at the mandi the night or in the early morning before they intend to sell. When the mandi opens in the morning, farmers bring their carts to display areas within the mandi. The inspection by buyers is by sight. There is no formal method of grading the produce and the only instrument used is the moisture meter but rarely; the crop is not tested for moisture content in general and quality assess only through expertise of the broker .

Mandi Operation Process

Inbound Logistics Display & Inspection Auction Bagging & Weighing Payment Outbound Logistic

Once potential buyers have inspected the produce, the mandi personal conducts the auction, where commission agents place bids. The auctions are typically open oral auctions with incremental bidding. The auction represents a stark contrast from the buyers and sellers perspectives. The farmers role in the price fixing of the crop is negligible. For the farmer, the moment is pivotal: a scant 30 seconds assesses the results of four months of investment and hard work and establishes the value of one of only two or three paydays he will have in the year. For the commission agent, on the other hand, the moment is routine; he has many more carts of produce to buy and his margin is assured irrespective of the price. The commission agent generally loose the confidence of the farmer by saying that their crops quality is not good and it will fetch less market price. A group of agents motivate farmer to sell their produce at low price. Once the price has been established by the auction, the farmer moves the cart to the weighing area run by the buying commission agent. In most cases, the farmer weighs in the mandi complex. In some cases, commission agent ask farmer to weigh their produce from private weighing machine. Here, the produce is transferred from the cart into individual sacks. The sacks are then weighed, one at a time, on a manual scale. After weighing, the full value of the grain is calculated. The farmer goes to the agents office to collect a cash payment. The bagged produce is then loaded on to the buyers

trucks and transported to the processing plant. The traders generally use to upload the produce directly to the buyers trucks if transport price is also included in the procurement price.

Limitations of the Mandi system

The mandi system does not serve the farmer well, and is burdened by inefficiency. Because the farmer does not have the resources to analyze or exploit price trends, the timing of the sale may not result in the optimal price for the crop. Moreover, since the actual sale price is determined at the auction, by the time the farmer gets the price, it is too late to go to another place to make his sale. Other expenses and inefficiencies exist: the overnight stay near the mandi costs the farmer money; the crops are displayed in open air courtyards, and are therefore subject to being negatively affected by the weather The inspection process is unscientific and often arbitrary, tending to favor the buyer, and generally does not provide an incentive to farmers to invest in better seed or farming practices that lead to higher qualityeven though quality, especially for processing, Gain of moisture by the crops reduces the quality and the produce price, most of the farmers claim about the seed quality and availability of the inputs at required time. In addition, farmers find the auction process demeaning. Agents belong to a close-knit community that is socially and economically distinct from the farmers community. While they may not collude in pricing, they do collude in establishing the practices of the trade that uniformly favor agents and exploit the farmers situation. The farmers also bear the cost of bagging and weighing the crop, which is done by mandi laborerspart of whose compensation is the sale of spilled produce. Needless to say, these laborers ensure that some portion of each lot is spilled. Farmers feel that the weighers consistently under-weigh their produce by applying practiced and timely nudges to the scale. Historical intimidation and long queues waiting behind them dissuade the farmers from protesting. To add to this exploitation, the farmer is sometime not paid the full purchase price up front but is paid a partial amount and asked to return to the mandi later for the remainder. Farmers are not paid interest on the remaining sumalthough processors pay agents usurious rates for

the privilege of delayed paymentand repeating the trip to the mandi costs farmers time and money. Since the crop has already been delivered, however, the farmers are at the agents mercy. Apart from the exploitation of the farmer, there are other inefficiencies in the system. Sometimes the multiple points of handling in the supply-chain require the produce to be bagged, which takes four to five times longer to be unloaded at the processing plant than unbagged produce. Traders generally do not have the capacity to store and manage different qualities and grades of produce, inhibiting efforts to produce better crop grades. Pricing is set locally at the mandis, and is not reliably tracked or reported nationally, resulting in a lack of information that reduces the opportunity for arbitrage and leads to market inefficiency. In addition, regulatory restrictions tend to limit arbitrage to small geographic areas. The mandi system also does not serve trading companies; its inefficiencies make the mandi far from an optimal procurement channel. From the companys point of view, the key problem is the agents control of the market and the resulting distortions of price and quality. Agents purchase grain on a trading companys behalf. Some of the produce they buy is of good quality and therefore commands a premium price, while other crops are of poor quality and therefore sell at a discount. In any given day, an agent purchases produce with a range of crop quality at a range of prices. The agent often mixes the different quality crops together and charges the trading company a single price near the higher end of the price spectrum. Not only does the agent inflate the price to trading companies, he also inflates the price at the mandi. As we have seen, high-quality produce is used to make an entire lot of lower quality produce acceptable. Because of its value to agents, agents pay an inflated premium for high-quality produce, which drives up the high crop price at the mandi for the day. Very few farmers actually get the price for top -quality produce, but this price acts as a benchmark for the next days pricing, thereby inflating the mandi price over a period of time and increasing costs for trading companies. Additionally, the trading company establishes a daily price range for its agent to buy within. If the agents average buy price that day is lower than the low end of the established price, the agent sells the grain to the trading company at the established low price and pockets the difference. If, however, the average buy price is higher than the trading companys established high price, the agent will still buy the produce but will report to the company that since its price was not high enough, no grain could be bought. The agent will store the grain and sell it to the trading company the next day when the established price has been raised to make-up for the previous days procurement shortfall.

Commission agents therefore capture the entire benefit of intra- day price shifts. The agents therefore operate without risk of loss of profit As a result of the commission agent structure in the traditional mandi system, processing companies have no direct interaction with the farmer. This gap created a range of supply-chain issues, including limiting companys knowledge of its crops, suppliers, and supply risks, as well as limiting the companys ability to improve crop quality and quantity by bringing modern agricultural practices to the farmers

Recommendations to improve the mandi system

Common model APMC act (which states that farmers can sell to the private players) in all the states would ensure that there is uniformity in its implementation and hence ensure private sector participation Improvement of infrastructure in mandis. Electronic weighbridges should be installed at all the mandis. This move will help reduce grain theft due to manual weighing malpractices and reduce farmers waiting times Use of technology in the Mandis- Eg. Mandi at Harda in MP has developed a SMS-based registration system to manage heavy arrivals and mandi management during government wheat procurement season. Also, use of handheld electronic devices for auction processes, this would ensure that all transactions are recorded and tax avoidance does not occur Strong leadership along with the staffs deep practical knowledge of market processes and social dynamics would facilitate the implementation of difficult micro-interventions on the ground. Hence, appoint experienced persons as mandi leaders Provide financial incentives to the private sector so that they establish ITCs e-choupal like systems. This would ensure that government mandis face competition from these and therefore improve their processes Improvement in the transportation system to and from the mandis. Establish a rate chart which should be followed by drivers which transport the produce to and from the mandis. This would ensure that farmers are not taken for a ride by these transport agents Improve the storage facilities in the mandi to avoid wastage

 Formulate a commission rate manual to ensure uniformity in commissions charged by the middlemen Develop microfinance institutions to aid the farmers. As of now, they are exploited by the mandi traders who provide credit to them at exorbitant rates