Why are farmers still required or nudged to sell in government mandis?

The mandi (agricultural market yard) system wasn’t designed to trap farmers but to protect them. In the 1960s and 70s, farmers in many regions faced powerful local buyers who could dictate prices, manipulate weighing scales, and delay payments indefinitely. Mandis promised protection: regulated trading spaces with licensed buyers, standardised weighing, transparent auctions, and dispute resolution mechanisms. Over time, what began as protection became restriction.

Most states enacted Agricultural Produce Market Committee (APMC) Acts that designated certain areas as “notified” where agricultural produce had to be brought for sale. Licensing systems limited who could buy from farmers, typically only licensed traders and commission agents operating within mandis. The stated rationale was to prevent exploitation, ensure farmers get fair weights and prices, and provide a regulated space for transactions.

However, competition dried up inside mandis. High entry barriers and limited licenses meant that a handful of traders dominated each mandi. Instead of dozens of buyers competing for farmers’ produce, often just 3-5 license holders controlled transactions. The system operated as a monopsony.

Restrictions like movement controls, stocking limits under the Essential Commodities Act, and licensing requirements make it risky or expensive to buy directly from farmers or to set up private market yards. Even when states formally allowed “anywhere” trade, on-ground compliance issues, local fees, and informal gatekeeping kept the mandi as the path of least resistance. As a result, farmers had to bring their produce to mandis, where limited competition meant they could not get the best price.

In states that have liberalised APMC laws, reforms have gradually allowed private market yards, direct purchase centres, contract farming, and electronic trading alongside traditional mandis. In Karnataka, legal changes have enabled a substantial share of trade, often more than half in some districts, to take place outside APMC yards. Farmers and traders shift when they can avoid fees or obtain better net prices. These changes have increased competitive pressure on APMCs. The problem is a mandatory monopoly. When farmers must use mandis and face limited competition within them, protection turns into restriction.