private markets: untapped potential by: dr. j. s. yadav coo premium farm fresh produce ltd., new...
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PRIVATE MARKETS: UNTAPPED PRIVATE MARKETS: UNTAPPED POTENTIALPOTENTIAL
By:Dr. J. S. Yadav
COOPremium Farm Fresh Produce Ltd., New Delhi
(The LaLiT Suri Group company)
Flow of PresentationFlow of Presentation
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I. IntroductionI. Introduction
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Regulated Agricultural Markets continue to play pivotal role in
agricultural marketing
The concept of cash and carry is new in India
Response from Private players still not encouraging
PFFPL only company to acquire 11 licenses in 3 States (Maharashtra -1, Karnataka-4, Gujarat-6)
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• In the first Phase in 2007, no market could be allotted in Bihar, Maharashtra, Tamil Nadu and Chandigarh(UT).
• Revised guidelines 2009-10 also could not attract investors (only Lukeworm interest)
2. Prospects of Private Wholesale
Markets
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Opportunities Opportunities UnlimitedUnlimited Farmers’ perspective Strong backward – forward ; clustrisation of small & marginal
farmers and formation of groups ; reducing chain of mediators ; expanding zone of influence of commodities(upstream & downstream) and as such reducing distress sale; door step services and ATMs.
Investors’ perspective Wide scope for Investment ; long term Revenue generation; Untapped
Potential ; Innovative multiple revenue model; First mover advantage; Monetization and Value Proposition of Assets (Only Pvt. Can do this not the Govt.) ; PAN India Presence by networking of Markets
Traders’ perspective PAN India registration for Traders/Exporters/Processors (Single Market
Concept) Advanced systems to online buy and sell in International Markets; DSAs/
Merchant Banking Partners, Volume Business advantages States’ perspective Food safety and hygiene; Integration with food parks; Professionally
Managed Markets; transparency; quick cash payments to farmers; Development of Processing Units; meeting storage challenges.
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II. Problems being faced II. Problems being faced by Private Wholesale by Private Wholesale
Market Operators Market Operators
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Issues and bottlenecks in attracting Issues and bottlenecks in attracting investment from Private Playersinvestment from Private Players
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1. No classification for Collection Centers1. No classification for Collection Centers
Approved format is ‘Hub and Spoke’ but Act/Rules speaks about Hub only.
Spokes can not be awarded Direct Marketing License (DML) as not being Buyer or Seller.
Only way out is to declare CCs as Sub- Yards, but no Rules/Guidelines available.
Solution: Hence Rules be framed for Pvt. Market Sub-Yards, treating Spokes as Sub-Yards.
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2. Multiple License System for 2. Multiple License System for Establishment of Private Market in Hub & Establishment of Private Market in Hub &
Spoke FormatSpoke Format
Procuring separate license for each CC is a tedious task (minimum 20 CCs prescribed by NHM)
Submit separate application forms, deposit securities, bank guarantees, etc, is cumbersome
Example: PFFPL has 6 licenses in Gujarat. Hence 120 licenses need to be taken assuming minimum of 20 CCs for each market.
Solution: Single Unified REGISTRATION for entire state be issued.(License word be replaced with Registration)
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3. Restriction of Distance Limit 3. Restriction of Distance Limit between Marketsbetween Markets
Karnataka : No private market can be located within the radius of 25km from existing APMC [ref: KAPMR 87 B, 1, (i) c]
Solution: This provision leaves no space for viable investment and attracting private players for
healthy competition. No space for CCs is available in Market Area. These restrictions should be
abolished.
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4. Levy of Market Fee at multiple points4. Levy of Market Fee at multiple points
This has cascading impact on prices
Provision for Single point levy of market fee exists in Model Act [ref: Model Rules: Chap 9, 84(7), pg61].
Maharashtra, M. P., Chandigarh(UT), Chhattisgarh, Goa & Sikkim have adopted this provision.
Solution: This should be implemented with true spirit.
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5. Market Fee Payable by Private 5. Market Fee Payable by Private Market AuthorityMarket Authority
Only source of income to private investor is market fee and service charges permitted at different rates in each State.
This to be used to repay the loans availed by the banks and for the maintenance assets, facilities and infrastructure created by PE.
Some States ask Private Markets to pay market fees to local APMCs which is not a valid charge.
Private Market authority to be treated at par with Govt. APMCs Independent Regulator should ensure level - playing field to private markets,
Equal concessions to APMCs and private markets, standardize services and facilities, act as bridge between licensing authority and private markets.
Solution: private markets should not be directed to pay either full or part of the market fee collected by it to the local APMC or to the Govt.
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Sources of Income to APMCs and their contribution to Total Income
A.P.M.C,S MARKET FEE
INTEREST FROM BANK DEPOSIT
SHOP RENT &TRANSFER FEE
MARKET ENTRY FEE
LICENSE FEE
OTHER MICELLANEOUS INCOME TOTAL
BANGALORE 73.8% 20.7% 2.7% 0.0% 1.1% 1.6% 100.0%BELGAUM 79.0% 7.8% 0.0% 0.0% 1.9% 11.3% 100.0%HASSAN 86.8% 2.1% 4.1% 0.0% 3.8% 3.2% 100.0%KOLAR 83.0% 4.0% 0.5% 0.0% 3.7% 8.8% 100.0%SHIMOGA 93.4% 0.0% 0.1% 0.0% 1.1% 5.4% 100.0%MUMBAI 73.2% 0.9% 0.0% 3.2% 0.1% 22.5% 100.0%PUNE 74.5% 8.6% 8.7% 1.1% 1.6% 5.6% 100.0%NAGPUR 56.4% 2.9% 0.4% 0.0% 0.2% 40.1% 100.0%NASIK 84.3% 0.0% 4.3% 2.7% 1.4% 7.4% 100.0%JALGAON 66.2% 13.8% 8.4% 2.2% 0.0% 9.3% 100.0%AHMADABAD 77.6% 7.6% 1.1% 3.7% 0.2% 9.8% 100.0%SURAT 52.5% 24.5% 2.3% 1.2% 0.1% 19.3% 100.0%RAJKOT 79.6% 11.2% 0.6% 0.0% 0.2% 8.4% 100.0%LUDHIANA 93.7% 0.6% 0.2% 0.0% 0.1% 5.3% 100.0%JALANDHAR 90.1% 0.4% 0.0% 0.0% 0.1% 9.3% 100.0%AMRITSAR 88.7% 0.4% 0.0% 0.0% 0.2% 10.7% 100.0%Average 78.3% 6.6% 2.1% 0.9% 1.0% 11.1% 100.0%
6. No Classification for Markets Either as 6. No Classification for Markets Either as Infrastructure/Service/Real EstateInfrastructure/Service/Real Estate
Markets should be classified under ‘Service Industry and Infrastructure’ as the markets provide infrastructure and services to its stakeholders
In China this facility is classified as Infrastructure and allowed even for FDI and ECBs
Shenzhen Agricultural Products Co. Ltd. is a wholesale Market promoted by Bill Gates in China
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Current Status of Wholesale Markets as per RBI Current Status of Wholesale Markets as per RBI guidelines and DIPP(Govt. of India)guidelines and DIPP(Govt. of India)
1. Wholesale Markets are not Infrastructure
2. Wholesale Markets are not classified as Real Estate Projects
3. Wholesale Markets are not classified as Service Industry
4. In service industry FDI is partly allowed
5. ECB restricted to Infrastructure only
6. Wholesale Markets are not considered as an agricultural activity.
7. Concessional Lending to infrastructure prescribed by RBI- restricted to storage & laboratory only.
8. As per RBI-FDI (100%) is allowed only in Storage and Warehousing
9. FDI in Cash & Carry allowed but not in wholesale markets
16
Classification of different components of Classification of different components of a marketa market
17
7. Ceiling Limits Barrier for purchase of 7. Ceiling Limits Barrier for purchase of Land for Spokes (Collection Centers)Land for Spokes (Collection Centers)
Ceiling limit for purchase of land in various States
For 20 CCs minimum land required in a District is 120acres (@6acres/CC)
In Karnataka this limit is 25acres/district (Ref: Karnataka Land Reform Act,1961)
Solution: Ceiling Limit should be increased in case of Agri Service Industry Infrastructure.
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8. 8. Heavy Security Deposit for Issue of Heavy Security Deposit for Issue of License for opening of Spokes (CCs)License for opening of Spokes (CCs)
For opening 1 CC in Karnataka a security deposit of Rs.50 lakhs is required. For 4 markets in the State with 20 CCs each a total of 40 crores need to be deposited.
Moreover, Private market authority neither purchases nor sells any commodity and as such how is it required to deposit Rs.50 lakhs security (refer Karnataka APMC Rule 87 C (5)).
While there is no mention in the Act, this discourages and makes the project unviable.
Solution: No Security deposit for issue of license for Spokes (CCs)
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9. 9. Heavy Security Deposit for Traders Heavy Security Deposit for Traders operating in Private Markets and the Spokes operating in Private Markets and the Spokes
(CCs)(CCs)
In Karnataka as per Rule 87 C (5), a trader is required to deposit Rs. 50 lakhs as security with Director Agricultural Marketing for operating in Spokes(CCs).
Security Deposit will restrict him to trade only in few markets and hence creating a hurdle for his business expansion.
It will also restrain him to shift his trade from the existing market to Private Market and thus no business will take place in these markets.
Solution: Traders operating in private markets should be free to operate in entire state under Single Unified Registration with private market authority along with Unique Identification Code (UIC) and
not requiring to deposit any security.
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10. No Separate Rules for Development10. No Separate Rules for Development
Since the Preamble of the Act has been changed as “Development and Regulation”, development related aspects must find exhaustive explanation in Rules.
Single window clearance system is needed for activities like
Change of land use, Zone change, Approval of drawings, Permission to purchase of land, environmental clearance
Food Safety & Hygiene compliance
Solution: Hence, more details of development planning need to be
incorporated by bringing amendments in Rules/Guidelines so framed.
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New Role of Market Authority in IndiaNew Role of Market Authority in India
Market authorities should enforce improved working conditions.
Management of Vehicles Traffic and city congession
Safety of goods and peopleHygiene and safety requirementsCompliance with various standardsTransparency of transactionsAllocation of pooled charges etc.
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III. Problems faced by III. Problems faced by Terminal MarketsTerminal Markets
(OMDA Provisions)(OMDA Provisions)
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No Concessioner- concessionee relationNo Concessioner- concessionee relationNo concession/holidays like exemption of rental
charges, taxes and fees for various approvals (eg. NOCs & CLUs)
Example: In case of Mumbai Terminal Market Govt. is providing land @Rs.4-5lakhs/acre/year, whereas land in surrounding area is available @Rs.50,000-60,000acre/year
Past experiences show that PEs submit bids at around 25% against existing provision of 40%. Hence policy should be changed to flat 40% and not through bids.
This is simply a subsidy scheme for which normal agreement of NHM will be sufficient. Hence applicability of OMDA poses a question mark.
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Issues in Terminal market GuidelinesIssues in Terminal market Guidelines
As a general rule applicable world over Market Authority should not be allowed to buy and sell (ref: Terminal Market Guidelines, July 2009, ‘Role of the Private Enterprise’, item ‘e’, pg. 20, buying-selling is allowed)
The market authority-cum-market regulator, would like to pay the minimum and the farmer would like to receive the
maximum price of produce, hence having conflict of interest.
Solution: This clause may be deleted, keeping in view the future repercussions and potential conflict between the
producers and the market authorities.
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Market ServicesMarket Services Platforms and Electronic auction
facility Storage/Cold storage facility Temperature controlled warehouse Ripening chamber Facility for sorting, grading,
washing and packing lines. Facilities for manual/ mechanical of
carriage of produce. Facilities for waxing, labeling and
quality testing. Material handling equipment
(palletisation and plastic crates ) Movement and parking facility for
vehicles attached to market Futures trading facility Transport services related to
market(including cool chain/refer vans)
Banking services including settlement of transactions related to market
Vehicle fuelling services related to market
Waste and refuse treatment and disposal facilities related to market
Adequate space for handling and storage of produce, plastic crates, packaging material related to market
Facilities for sanitary and phyto-sanitary measures.
Facilities and devices for prevention, disinfection and control of rat, rodent and other insect pests and diseases.
Bulk Weighment etc Price displays / market information
services
Compulsory Services Proposed in Private Compulsory Services Proposed in Private & Terminal Markets& Terminal Markets
Non-Market Non-Market ServicesServices Business Centre services Catering services Freight consolidators/forwarders or
agent services General retail shops Hotels and Motels services including
reservation services Locker rental Logistic Centers Messenger services Porter service Restaurants, and other refreshment
services Vehicle rental services Vending services Leisure service Facilities Shopping Complex Processing facilities
Toilets and nursing mothers rooms; Waiting /rest rooms; Drinking water Cleaning, heating, lighting and air
conditioning public areas Facilities for the disabled and other
special needs people Information desks Policing and general security Fire fighting services Emergency services Any other services deemed to be
necessary for the safe and efficient operation of the Wholesale Market Complex.
Essential Essential ServicesServices
Current Status of Available & Current Status of Available & Non Available Facilities in Major Non Available Facilities in Major
Markets of IndiaMarkets of India
Market services Non-market services Essential services
Prese
nt
Abse
nt
%
presen
t
Prese
nt
Abse
nt
%
presen
t
Prese
nt
Abse
nt
%
prese
nt
% of
total
facilities
present
Azadp
ur 9 15 37.50 8 14 36.36 9 5 64.29 43.33
Nashik 7 17 29.17 5 17 22.73 7 7 50.00 31.67
Kolar 5 19 20.83 4 18 18.18 7 7 50.00 26.67
Hassa
n 5 19 20.83 5 17 22.73 6 8 42.86 26.67
Belgau
m 9 15 37.50 6 16 27.27 8 6 57.14 38.33
Averag
e 29.17 25.45 52.86 33.33
Facility wise Return on Investment Facility wise Return on Investment from:from:
Market Services Market Services
Major Facilities Azadpur Nashik Kolar Hassan Belgau
m Average
Platforms -1.94 -0.28 0 -0.25 0 -0.49Bulk weighment - -0.05 - - 0.08 0.02
Cold storage facility 1.25 - - - 1.25 1.25Facilities for manual carriage of produce 8.4 - - - - 8.40
Material handling equipment
(palletisation & plastic crates) 2.81 - 1.92 - - 2.37Movement and
parking facility for vehicles attached to
market 5.79 - - - - 5.79Banking services
including settlement of transactions
related to market. 6 0.55 - - 0.47 2.34Price
displays/market information services -0.25 -1.11 - -1.39 -34.18 -9.23
Average 3.15 -0.22 0.96 -0.82 -6.48 1.30
Facility wise Return on Investment Facility wise Return on Investment from:from:
Non-Market Services Non-Market ServicesFacilities Azadpur Nashik Kolar Hassan Belgaum
Average
Catering services - - - 6.4 - 6.40
Restaurants/canteens/food kiosks & other
refreshment services 6.35 0.35 2.42 15 33 11.42
Logistic Centres/Transporters
shops 1.27 - - 8.4 0.18 3.28
Porter service 39.17 22.5 3.12 1.14 1.91 13.57
Shopping complex - 2.78 - 1.5 1.5 1.93
Exporter’s shops 0.29 - - - - 0.29
Input shops/Nurseries 0.35 2.5 3.08 - 2.83 2.19
Conference/Multipurpose Hall
-0.05 -0.2 -0.14 - -0.04 -0.11
Library -0.04 - - - - -0.04Average 6.76 5.59 2.12 6.51 6.56 5.51
Facilities Azadpur Nashik Kolar Hassan Belgaum AverageWaiting/rest
rooms -0.02 0 0 - -0.03 -0.0125
Drinking water -0.95 -0.04 -0.1 -0.72 -0.29 -0.42
Toilets 0.44 0.12 0.23 0.3 -0.13 0.192Cleaning -6.39 -3.67 -0.77 -8.05 -4.98 -4.772
Lighting of public areas
-0.44 -0.18 -0.07 -0.13 -0.6 -0.284
Information desks
-15.59 - -1.3 - - -8.445
Waste treatment plants
1.33 - - - - 1.33
Disposal trucks -1.22 - -0.13 - - -0.675
Policing & general security
-2.5 -1.15 -0.93 -2.56 -1.66 -1.76
Emergency services
-0.58 0.12 - - - -0.23
Average -25.92 -4.8 -3.07 -11.16 -7.69 -10.528
Facility wise Return on Investment Facility wise Return on Investment from:from:Essential ServicesEssential Services
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• Market is totally dependent on Non-Market services to make it a viable proposition• The Private Investor should have the freedom of deciding the Non-Market services as per his own estimates of profit generating activities• Also, to maximize the returns from Market Services, the cap on user charge which is 2%, should be increased atleast upto 3.5%
Kind of Service Avg. ROI
Market Services 1.3
Non Market Services 5.51
Essential Services -10.53
Total Avg. ROI -3.72
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Thank You
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