One of the first lessons we learn in our econ lectures is:

• Monopolies are disadvantageous to the buyer.
• Monopsonies are disadvantageous to the seller.

Yes, and the existing APMCs are massive monopsonies acting in tandem with local politicians and strong men that render the farmers dependent on them. Which means farmers have to accept whatever price the APMCs set because there is only 1 buyer. Let me elaborate:

Imagine you sell cars for a living and your cost per unit is ₹1 lakh. You go out and sell it to the guy who offers you the best deal. That is the function of a market. The market tells you: "The best value you can get for the car you've built is say 5 lakh rupees" and then you will curate your production capacity and estimate profits based on the demand for a car that will sell at ₹5 lakh. That is the function of a govt. To "facilitate" the transaction and ensure any of the parties are not cheated during the transaction and address the grievances of the party in a case when they are cheated. The role of the Govt is not to be a "part" of the transaction.

But imagine there is no market. At the end of your production line, there is only 1 buyer. Across all the states only 1 buyer is buying the cars you make. What will you do? If he says I'll buy at 1,50,000 you have to sell him at that price because you already have invested 1 lac rupees for the production of the car and if you don't sell the vehicle you are left with unsold inventory. You are a car seller. Imagine the desparation of a farmer who has invested all his capital into this season's crops and then the price set by the APMCs are in the low single digit rupees per kilo range. He has to sell it at that price because if he doesn't , he'll have rotting onions and no cash to sustain his family.

Carrying forward my example: there's no one to tell you what the real value of the car that you've built is, because you only know 1 price, which has been quoted by the only buyer available. That buyer can go and sell it to the larger public at say 5 lakh and keep the 4 lakh to himself.

Now if you have a number of buyers (distributors) vying for the car you've built, they'll try to compete with each other while evaluating your product and the price gradually goes up and settles at some range which will be certainly higher than the ₹1.5 lakh you were being offered before. This is called the discovery of price. Price discovery is an absolute essential to realize the real value of the product/service that you are offering. Absence of a market place cannot help you realise the price of your product/service.

APMCs were introduced in an era when we faced persistent food shortages and they played a part in ensuring a guranteed buyer for the farmer in case of a glut or a consistent supply in case of a shortage, effectively, a means of price stabilization. But do we have price stability? We buy onions at ₹20 a kilo at one season and ₹80 a kilo at another. At ₹20 the farmer suffers and at ₹80 the lower strata of the socio economic heirarchy suffers. Having disposable income helps us go through the ₹80 stage without much pain except for whining and complaining. But not that daily labour who gets a ₹100 hand out at the end of day’s work. He misses out on onions altogether for a season when the prices are high. On the other hand the farmers who work on small patches of land can’t simply leverage the economies of scale needed to subsist on a ₹20 per kilo MRP. Please note that for onions to be sold at ₹20 a kilo at the market, it has to bought at ₹1 to ₹2 a kilo from the farmers. A major portion of the margin is eaten up by the APMCs, who sell it to the vendors and retailers, at double digit prices, who in turn keep a margin for themselves and sell to us at the MRP. APMCs restrict the vendors and retailers to interact with the farmers to negotiate the price. Removing this one layer of middlemen can go a long way in bringing real stability in the market and help the farmers get better price which is more or less consistent through out the year.

You might wonder, how will this address the seasonal glut and shortage problem that we face. Through innovation. Innovation happens when people put the money where there mouth is and invest in R&D. In a country where the Govt spends abysmally low amount into R&D in any sphere whatsoever, it effectively falls on the private sector to do any kind of innovation. The catch here is that the private sector is motivated by profits and not altruism. Once the private sector is allowed to benefit and directly transact with the farmers, they will, for their own benefit, come up with solutions like cold storage of high standards. In a glut season they can buy from the farmers at ₹5 a kilo instead of the ₹1 or ₹2 paid by the APMCs, keep the buffer in cold storage (which can then be sold in the season of shortages), sell the remaining at ₹18 and still earn hefty profits because markets bring in efficiency. Every one wins in this transaction. We all pay an overall lower price for the vegetables we buy. The farmer gets a better price and more importantly a stable price. When the sowing season comes, he knows how much should he allocate to onions and how much to potatoes and have a rough idea of how much he can earn. Removing that uncertainty will go a long way in removing the anxiety from the lives of farmers.

All of it looks good in theory. But the real catch will be in implementing it. The Govt has to play an honest role in "facilitating" this market and be rid of the temptation to be a "part" of the transaction.

If there was ever one policy decision that the whole country should unanimously support no matter which end of the political spectrum you belong to, it is this. Don't let petty politics come in the way of a real game changer like this.