How Mandi-based Agri Marketing Works in India: A Primer
Even among the professionals in the agriculture/agribusiness sector, there’s a lack of understanding about how things actually work on the ground, when it comes to Agri-produce merchandising. How do farmers sell their goods and what happens thereon? This article is an attempt to put together the basics of a typical APMC based Agri marketing system which covers a large part of total Agri produce marketing in India. It covers Key players involved and their role, necessary documentation, and tax implications. Of course, there are variations across states, sometimes across markets-but, this should serve as a starting point for anyone interested in this area.
The process flow is divided into two stages: Primary (farmer-to-trader) and Secondary (Trader-to-trader and beyond). Key players/institutions in the chain are shown in bold letters on their first appearance and requisite documents are in italics.
A. Primary Sale
Farmers bring their produce to the premises of a Krishi Upaj Mandi of their choice. Such mandies are designated market-places where farmers can sell their products through open auction. An APMC (Agricultural Produce Marketing Committee) or simply called the ‘Mandi committee’ oversees the functioning of the local mandi/market-place and represents the interests of all stake-holders like farmer-producers, agents, traders, laborers, co-operative societies, local bodies, and government agencies.
Farmers unload their produce on to a particular platform of a commission agent (arhatiya). A commission agent is a licensed dealer, authorized by the local market committee and acts as an agent of the farmer. He is responsible for farmer’s crop display, basic cleaning, and sorting, conducting auction and payment to farmers. As an agent, he does no trading of his own and his income is the commission as fixed by the APMC. It is paid by the buyer. Generally, arhatiyas maintain long-term relationships with 50–100 farmers’ families, who form the core of their business. Some acharyas also lend credit to farmers. The Principal and interest is typically adjusted against the payment due to farmers. On the other hand, by aggregating Agri produce and facilitating concentrated purchases, the arhatiya saves the buyers the hassle of dealing individually with several farmers.
The agent gets the goods cleaned/sorted as required and organizes its auction. There’s a mandi appointed official called ‘Dami or Neelamkarta’ (auctioneer) who conducts auctions of all the lots one-by-one. Interested bidders encircle the heap of goods on market yard platform, inspect it physically and quote their bids. The highest bidder wins the auction and dami records the details in his register.
Once bidding is completed, the goods are bagged and weighed to calculate the payable amount, and the bags are stitched before loading into the trucks of the buyer concerned
Example of mandi auction: Guar seed in Jodhpur mandi (Rajasthan)
Video courtesy: my friend Dennis Seisun
The commission agent issues Vikray Parchi/sale slip (J-Form) to the seller (farmers) and Auction Sale Invoice (I-Form) to the buyer. Expenses for Heaping, cleaning, and sorting as well as storage charges (if goods are not sold the same day) are charged to the farmer. Mandi fees and additional cess, labor, commission, and bagging charges are levied from buyers in I-Form. I-form mentions the Item name, farmer name, weight, bags, price, etc. Per Bag labor/stitching rates are fixed by govt. from time to time for each type of product. Weighman/measurer/hammal/palledars or surveyor in the market area are licensed by the APMC
A Daily report of all J-Forms issued is submitted to the market committee. The commission agent keeps records of goods bought and sold and furnishes statement of stocks, arrivals, and dispatches every month to the market committee
A Canvassing Agent (Pakka arhatiya) typically works as a front (canvass) for large buyers like processing plants, exporters, whole-sellers, and organized retail. Their value addition is the aggregation of the produce and sometimes concealment of the actual buyer’s identity which may cause adverse price movement for the buyer. He also performs document handling and shipment services.
Mandi Fee is to be paid only by the first buyer in the mandi either as Self-purchase (Pakka Arhatiya can mention ‘self’ as a buyer in J-Forms issued by him) or by way of purchase through I-Form.
The key difference between the two types of Arhatyas is that Kacha arhatiya cannot make any purchase in his own name whereas Pakka arhatiya can purchase goods in his own name.
Primary Sale Process Flow
B) Secondary Sale
Once goods are routed through mandies and mandi fees etc are paid on them they are eligible for secondary sales across the country. In the case of Inter-mandi sale, in order to avoid duplication of mandi fees during the second transaction, the APMC issues a Niryat Prativedan Certificate. This certificate is issued by an APMC officer on the request of Traders/ commission agents. It’s issued in the triplicate-one copy is kept by the mandi office, the other is kept at the mandi gate after seal being put and the third copy is given to the transporter. This is to certify that the goods are ‘mandi cess’ paid and will not be levied mandi fees again in another state/another mandi of the same state.
A Pakka arhatiya (canvassing agent) can also purchase goods from Pakka arhatiyas of other mandies. When such a purchase is made, the seller issues him a GST invoice (CGST+SGST) if the sale is within the state. If the sale is inter-state IGST invoice is issued to the buyer. Two establishments of the same entity in different states or outside India will be treated as distinct persons and are liable to IGST. In the case of exports, however, IGST refund can be claimed since exported goods don’t attract GST.
Often secondary sales are done through brokers who facilitate a transaction between traders or a trader and whole-seller or a trader and processor. The difference between a broker and an agent is that a broker works at an arm’s length distance and does not take the title of the goods. An agent, however, can take the title of the goods and is effectively empowered to act on behalf of its principal while dealing with the seller.
GST Scenarios of secondary sales
1) Both seller A and buyer B are in the same state: CGST+SGST is levied
2) Seller B and buyer C are in different states: IGST levied, however, the seller can claim input of CGST and SGST paid by him
3) Seller C and buyer D in the same state: SGST and CGST is levied but C can claim input of IGST paid. IGST paid will be first adjusted against CGST due and the balance will be adjusted against SGST.
4) Seller C and buyer E are in different states: IGST paid is set off against IGST due and only balance is levied.
Note: Any IGST credit will first be applied to set off IGST then CGST. Balance will be applied to set-off SGST.
Often secondary sales are done through brokers who facilitate the transaction between traders or a trader and whole-seller or a trader and processor. The difference between broker and agent is that broker works at an arm’s length distance and does not take title of the goods. An agent, however, can take the title of the goods and is effectively empowered to act on behalf of its principal while dealing with the seller.
GST Scenarios of secondary sales
1) Both seller A and buyer B are in the same state
CGST+SGST is levied
2) Seller B and buyer C are in different states
IGST levied, however, the seller can claim input of CGST and SGST paid by him
3) Seller C and buyer D in the same state
SGST and CGST are levied but C can claim input of IGST paid. IGST paid will be first adjusted against CGST due and the balance will be adjusted against SGST.
4) Seller C and buyer E are in different states
IGST paid is set off against IGST due and only balance is levied
Note: Any IGST credit will first be applied to set off IGST then CGST. The balance will be applied to set-off SGST.
GST Scenarios Example: Coriander
*To be paid as SGST since IGST paid of 27,500 is first adjusted against entire CGST component of 15,000 and the balance 12,500 is credited against SGST.
