Centre’s new law liberalising agri-trading boosts online platforms

Online agri-trading platforms have got a boost from a Central legislation enacted in September which has abolished cesses and levies on trades that happen outside the boundaries of the regulated market yards. The charges were earlier payable in ‘notified areas’ of the regulated markets, which could be a block or even a district.

The Farmers’ Produce (Trade and Commerce) Act, 2020 has made these charges payable only on transactions within the confines of the regulated market yards.

The rates are as high as six per cent on wheat and common rice traded in Punjab. This puts buyers on the online platforms at an advantage as compared to those in the regulated mandis. The online portals also charge low or no commission. Agribazaar, a three-year-old start-up, charges 0.20 per cent from buyers; Bijak, launched in April last year, charges none. In Punjab’s regulated markets, the commission is 2.5 per cent. In Delhi’s Azadpur mandi it is 6 per cent for fruits and vegetables; one per cent mandi cess is extra.

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‘Platform of platforms’

Private online trading platforms also score over e-NAM, the electronic National Agriculture Market, which the Prime Minister launched in April 2017. Being a network or 1,000 (so far) regulated mandis, trades on the platform are subject to their charges and fees. Neelkamal Darbari, the CEO of Small Farmers’ Agribusiness Consortium, which is in charge of e-NAM says it has floated a tender for a ‘platform of platforms’ that will electronically network private market yards as an alternative to e-NAM.

But the avowed purpose of the September legislation, which is to create ‘one-nation, one-market’ will not happen unless certain conditions are met. When trading is face-to-face, the buyer inspects the produce and quotes a price which the seller can accept or reject. The sellers (farmers) have long relationships with the traders and commission agents who also double up as lenders. The risk of default is minimised as there are dispute settlement mechanisms and commission agents can lose their licence if they don’t pay.

In high value items like fruits and vegetables, defaults happen because of long distance trades. Grapes are consumed all over the country, but Maharashtra produces 80 per cent of them in a couple of districts. Apples originate in Kashmir, Himachal and Uttarakhand but are sold all over the country. This is the case with tomatoes, potatoes and onions as well. Delivery happens on credit after payment of an advance, but buyers might settle the deal for less citing quality issues. Or they might not pay at all.

The markets that attract suppliers from far are wide are those like Delhi’s Azadpur mandi, where traders have built a reputation for prompt payment, says a former secretary of its governing committee.

Managing defaults

Building goodwill takes time. Contract enforcement through courts is difficult. For network effects to kick in, the online platforms must attract more and more buyers and sellers, as every addition enhances its value for everyone else. This can happen if they catalyse trades between parties who don’t know each other. Nukul Upadhye, co-founder of Bijak, says its buyers’ and sellers’ attractiveness index helps weed out parties of doubtful integrity. A buyer gets a high ranking on a scale of 1-5 if they settle within the permitted period and deduction from the invoice price is within the allowed range. The buyers on his platform are mostly traders and processors who do about a hundred transactions over 60 to 90 days. That frequency of trading allows robust ranks to be developed. His intention is to incentivize good behaviour.

Anurag Yadav of UP’s Kannauj district says he would lose a few lakh rupees every year. He is a ‘loader’or suppliers of potatoes. To compensate for the defaults, he would keep a profit of about Rs 20 per “packet” on a bag of 50 kg. A part of it was the risk premium. On a truckload of 15 tonnes, he would make a profit of Rs 6,000. But since he started trading on Bijak, there have been no defaults, he says, and this has allowed him to reduce the profit margin to around Rs 5 a kg or Rs 1,500 per truckload.

He supplies mainly to eastern UP and Bihar. He sells to parties he wouldn’t earlier. If the buyer raises a quality issue, Bijak’s agents mediate and settle the issue. These agents are stationed in cities and towns where Yadav’s wholesale buyers are located.

Tech expenses

Devraj Singh Jurel, a potato farmer and founder of a farmers’ collective in Agra district’s Khandoli village, says he lost Rs 3.5 lakh on a consignment of potatoes to Gulbarga in Karnataka. On Bijak, he has faced no defaults. In one instance, when the buyer delayed payment, Bijak paid him, he says.

Upadhye says 80 per cent of his spending in on technology – engineers and data scientists. “We use data analytics to drive our recommendation engine.” Bijak, which deals mainly in fruits and vegetables, makes money by sharing anonymised data with banks and non-finance companies to underwrite their loans to buyers on its platform.

Agribazar has a wallet and buyers are required to park their money in escrow there. This is released once the buyer is satisfied with the consignment. He also invests in data analytics as a marketing tool to prompt buyers and sellers about trades they might be interested in. It has a ranking system as well.

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Upadhye claims Bijak does about 2,000-tonne trading worth about Rs 1,200 crore a year. In Azadpur mandi alone 2.07 million tonnes of fruits and vegetables changed hands in 2019-20.

Agarwal says trades on his platform were worth Rs 3,500 cr a year. This year, owing to the pandemic, there has been a four-fold increase in just seven months. It’s not possible to displace the physical markets, he says, but his aim is to claw a large chunk of business from them. This can happen as the online platforms develop algorithms that closely track trading behaviour and attract more buyers and sellers. “Like e-commerce in retailing, we might see a steep change in wholesale agri-commodity trading in the coming years,” he said.