Spot E-trading at Agricultural commodities Markets -- My thoughts

I came across this news few days ago on 'Spot E-trading to unleash power of commodities' that will soon integrate markets electronically across a few states in India. Though it is a first step in the right direction, it is designed to be used by the traders who are already licensed by the state Agricultural Produce Marketing Companies(APMC) to bring more transparency in pricing and hoping that the added competition will enable farmers to get fair prices on their products. Though the system offers the right solutions in certain areas(ware housing and guaranteed loans) it is failed to address the primary goal in solving the agriculture product marketing issues faced by the farmers in right approach.

Few state APMC's (for e.g. AP) do have transparency in pricing and offer a level of competition among the buyers to benefit the farmers from increased competition. But the system severely limits the competition only among the registered agents (buyer agents/buyers), which offers an opportunity for these players to operate themselves as syndicate's or pre-agreed, arranged upon pricing across the markets. This buyer tactics are severely limiting the farmers in demanding fair pricing on their produce.

Also, these market solutions are placing the market manipulators in commanding positions, which are in no way different from the quo. The only difference being the transactions are handled electronically rather physically at mandi's. They still enforce some restrictions on who can participate in the marketplace with the introduction of warehouses and warehouse receipts. Though warehouses may offer added value in securing loans using guarantees and being able to hold on to the goods until he gets the right offer, this adds an undue burden of additional warehousing costs, transportation and limiting himself to the markets that operate within that region.
A right approach to this problem is creating an online exchange or market place for non-perishable agricultural products(grains, lentils, cotton etc...) with no restrictions on who can participate in the system. This approach would correct the market to reflect(or closely resonate) the retail prices as the end consumers will be enticed to the market by better prices it offers that benefits the farmers further. Devising an open market will bring on its own challenges with respect to trust in the market place, quality of the produce, logistics and on time delivery, payment processing etc... These are some of the reasons why other market makers are moving towards a closer market where these factors will not be of a great issue. These trust issues can be alleviated to some extent with the adoption of Adhaar(Unique ID project) identity in to the system with a feedback ratings approach (like on ebay) which will incentivise the market players to be more honest in the market place that will help their long term marketability.

A good market place that incorporates all the best practices, encourages a fair play and easy to adopt interface will make a big difference in the lives of communities offering better earnings. Governments still have a role to play in the new system to determine minimum prices to prevent when the supply is in abundance (good harvest, monsoons etc).