# Which markets organisation to enhance a transition to natural farming? Apples as the new lemons in Himachal Pradesh

Annick Vignes, Subhash Sharma

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Annick Vignes, Subhash Sharma. Which markets organisation to enhance a transition to natural farming? Apples as the new lemons in Himachal Pradesh. 2025. hal-05304744

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# Which markets organisation to enhance a transition to natural farming? Apples as the new lemons in Himachal Pradesh

Ajay Kumar¹, Subhash Sharma¹, and Annick Vignes*²

¹Dr. Yashwant Singh Parmar University of Horticulture and Forestry,
Nauni-Solan (173230) (HP), India

²LISIS-INRAE and CAMS-EHESS, UMR 8557, 54 boulevard Raspail, 75006,
Paris, France

## Abstract

Agriculture is an important sector of the Indian economy, but smallholders face persistent environmental and economic challenges. In Himachal Pradesh, the government has initiated a transition to natural farming to reduce input use and improve sustainability. However, the market has not yet adapted to this type of production. This article examines the functioning of regulated wholesale markets (APMC/mandis) for apples and highlights a double asymmetry of information and collusive practices that undermine competitiveness. Based on field observations, it shows how different institutions influence trading practices, leaving no room for products from natural agriculture. The article then analyses public initiatives, such as various labelling systems and minimum support prices for natural products, as well as various private initiatives, notably through the implementation of targeted cooperatives. The results suggest that, although public and private interventions provide partial solutions, an integrated approach is needed to promote natural agriculture in differentiated markets, strengthen the capacities of cooperatives and enable a fair transition to sustainable food systems.

**Keywords** agricultural markets, English auctions, quality uncertainty, natural farming, transition to sustainable food systems.

J.E.L codes: Q 13; Q 18; Q 21

<footnote>*Corresponding author: annick.vignes@inrae.fr</footnote>
Quelle organisation des marchés pour accompagner la transition vers l'agriculture naturelle ? Les pommes comme nouveaux «lemons» de l'Himachal Pradesh.

**Résumé en français:**

L'agriculture représente un secteur important de l'économie indienne, mais les petits ex-
ploitants sont confrontés à des difficultés persistantes sur les plans environnemental et économique.
Dans l'Himachal Pradesh, le gouvernement a initié une transition vers l'agriculture naturelle,
pour réduire l'utilisation des intrants et améliorer la durabilité. Le marché ne s'est toute-
fois pas encore adapté à ce type de production. Cet article examine le fonctionnement des
marchés de gros réglementés (APMC/mandis) pour les pommes et met en évidence une dou-
ble asymétrie d'information et des pratiques de collusion qui compromettent la compétitivité.
A partir d'observations de terrain, il montre comment différentes institutions influencent les
pratiques commerciales, sans faire de place aux produits issus de l'agriculture naturelle.
L'article analyse ensuite les initiatives publiques, telles que les différents systèmes de la-
bellisation et les prix de soutien minimum pour les produits naturels, ainsi que différentes
initiatives privées, notamment à travers l'implémentation de coopératives ciblées. Les résul-
tats suggèrent que, bien que les interventions publiques et privées apportent des solutions
partielles, une approche intégrée est nécessaire pour promouvoir l'agriculture naturelle sur
des marchés différenciés, renforcer les capacités des coopératives et permettre une transition
équitable vers des systèmes alimentaires durables.

**Mots-clefs :** marchés agricoles, enchères anglaises, sélection adverse, agriculture naturelle, transition vers des systèmes alimentaires soutenables.
Introduction

Agriculture plays a vital role in India's economy, contributing approximately 16% to the national GDP at current prices for the year 2024. It remains a primary source of livelihood for nearly 46.1% of the population, underscoring its central role in employment and rural sustenance<fnref n="1" />. In recent years, the growth of agriculture sector in India was around 5% annually from 2017 to 2023 <fnref n="2" />. For many years, low agricultural productivity failed to meet the nation's food requirements. Food insecurity was one of the main challenges facing India in the 20th century. In the years 60, India launched the Green Revolution by promoting high-yielding varieties of wheat and rice, supported by modern inputs such as fertilizers, pesticides, irrigation systems, and mechanized equipment (Chakravarti 1973, Parayil 1992). As productivity increased, a new problem emerged in connection with the excessive use of chemical fertilisers and pesticides and its dangers (Rufo et al. 2024) or (Cobos et al. 2024). According to some governmental sources <fnref n="3" />, 60% of agricultural land is currently at risk because of fertilizer misuse, poor cropping practices and soil nutrient deficiencies.

India invests in organic farming (Das et al. 2020), with significant growth in land under organic cultivation. In the year 24, 7.3 million hectares were under organic cultivation over 219.15 million hectares of ictural land, producing 3.6 million tons of certified products, including oilseeds, fiber crops, cereals, and pulses. Nevertheless, producing organic crops can be difficult in terms of financial investment in a country where more than 90% of farmers are considered small or marginal (the average farm size is 0.9 hectares) and have a very limited access to credit.

In 2018, the government of Himachal Pradesh, a Himalayan state, introduced a program aimed at fostering sustainable agriculture through non-chemical, low-cost, climate-resilient, and environmentally sustainable practices. This called natural farming. Building on this initiative, the Government of India launched a National Mission on Natural Farming in 2024, aimed at improving soil health, restoring ecosystems, and reducing input costs for farmers in order to enhance climate resilience. The technique of natural farming is seen as improving the net income of farmers as they save money on pesticides and chemical fertilisers (Thiery et al. 2023, Berger et al. 2025). Products should also be seen as being of better quality while better for the environment and better for the health. However, it appears that producers still face difficulties in gaining recognition for the quality of their products.

According to recent data<fnref n="4" />, Himachal Pradesh has approximately 863 000 farmers, operating about 944 000 hectares of land, with an average holding less than 1 hectare. Most of these farmers are classified as marginal or small, meaning they cultivated less than one hectare of land. Based on national 2025 data, around 223 000 farmers had adopted chemical-free or natural farming, either partially or fully, across most panchayats (villages) of this moutain-

<footnote n="1">¹https://www.indiabudget.gov.in/economicsurvey/doc/echapter.pdf</footnote>

<footnote n="2">²https://www.indiabudget.gov.in/economicsurvey/doc/eschapter/echap09.pdf</footnote>

<footnote n="3">³https://www.drishtiias.com/daily-updates/daily-news-editorials/agricultural-marketing-reforms</footnote>

<footnote n="4">⁴Economic Survey 2024–25 (Himachal Pradesh)</footnote>
ous Indian state. This represents around 38% of the population and the decision-making institutions plan to convert most of the farmers to this method through a series of incentives. The question we ask here concerns the ability of governmental wholesale markets (hereinafter referred to by the Indian name of mandis) to offer viable outlets for the production of natural farmers. While some of them argue that their productivity has declined since their transition (from chemical to natural farming), most of them explain that the mandis do not differentiate their products: in other terms, the market provides a pooling price, without clearly distinguishing between different qualities or modes of production. Union Home and Cooperation Minister of India, Amit Shah declared in August 2023 that transition to natural farming has to be the new green revolution. There is then an urgent need to understand which institutions can ensure viable conditions for natural farmers. Are mandis, as organised in 2003, efficient enough to promote natural products and provide higher prices to cover the eventual loss in productivity? Do the new forms of trading better help natural farming to develop more effectively? Are the Farmer Producer Organizations (hereinafter referred to by FPOs), as promoted since 2020, adequately equipped to ensure an achievable transition, from chemical farming to natural one?

Since 1963, agricultural markets in India are primarily regulated by state governments under the Agricultural Produce Market Committee (APMC) Act, which establishes market areas, regulates the sale of agricultural produce, and charges market fees. These Acts designate most of the agricultural commodities: they mandate that their first sale must take place through licensed commission agents operating within mandis. Standard facilities at these markets are expected to include auction halls, storage godowns, weighbridges, retail outlets, and basic amenities for farmers. Additionally, various governmental taxes are levied on transactions conducted within the mandis.

By imposing exclusive marketing through the mandis (there are more than 8 000 across India), the system has generated significant supply side fragmentation, thereby consolidating a demand-led market dynamic.

To address market atomization and the limited freedom of farmers to sell outside APMCs, the Ministry of Agriculture introduced the Model APMC Act in 2003. This new amendment enables different things as direct contracting between farmers and traders, permission for private players, farmers, and consumers to set up markets, establishment of consumer-farmer markets for direct sales or utilization of market revenues for infrastructure development. These reforms aimed to foster greater competition and expand farmers’ marketing power. Some states, such as Karnataka, have pursued more extensive reforms to enhance competition within their markets<fnref n="5" />. Nevertheless, many states implemented the provisions only partially and overall enforcement has remained uneven, reflecting a general reluctance to liberalize agricultural markets.

In 2020, the Government of India enacted three central statutes, the *Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, 2020*<fnref n="6" />, the *Farmers (Empowerment and*

<footnote n="5">⁵https://www.indiabudget.gov.in/budget2015-2016/es2014-15/echapvol1-08.pdf</footnote>

<footnote n="6">⁶FPTC Act, 2020</footnote>
*Protection) Agreement on Price Assurance and Farm Services Act, 2020*<sup>7</sup>, and the *Essential Commodities (Amendment) Act, 2020*<sup>8</sup>. Their stated objective was to liberalize agricultural marketing by, among other things, providing a legal framework for contract farming, enabling electronic trading platforms, and relaxing stock and stocking limits to attract private investment in storage and cold-chain infrastructure<sup>9</sup>. These laws provoked sustained nationwide farmer mobilization, driven by concerns that minimum support prices and mandi protections would be eroded, and that smallholders could be exposed to unequal bargaining power under private contracts. Following more than a year of protests, the government announced repeal in November 2021, and Parliament enacted the *Farm Laws Repeal Act, 2021*<sup>10</sup>. It was also in 2020, that the Central Sector Scheme for "Formation and Promotion of 10,000 Farmer Producer Organizations" was promoted by the Indian government to enhance small farmers' bargaining power as underlined by by Sirdey & Lallau (2020) or Kaur & Singla (2024). In 2024, 8 000 FPOs were registered in India, representing around 3 millions of farmers over 125 millions.

The complexity of the organisation of agricultural trade, as well as the lack of available data, prompted the authors of this article to visit various mandis in Himachal Pradesh, in order to better understand the price formation mechanisms at work and assess the opportunities for natural products. Some enterprises, specialized in the collect and storage of apples and some FPOs have also been observed. While mandis provide daily quantities, minimum and maximum prices, no information is supplied on the quality of products or number of participants or transactions. For seek of comparison, the decision has been taken to observe mandis for apples as a whole.

India is the fifth-largest apples producer in the world with more than 2 MT per year (Golombek & Blanke 2022). In Jammu and Kashmir, Himachal Pradesh or Uttarakhand, apple production holds substantial economic importance. In these mountainous states, apples contribute to a healthy diet. India's economic and population growth has driven a sustained increase in apple demand. The country represents the world's largest market potential for apples, with demand far surpassing domestic production. Production of apples does not benefit of fixed prices but the Himachal Pradesh Horticultural Produce Marketing and Processing Corporation buy apples from farmers at floor prices, especially during surplus or market crashes. These floor or minimum support prices are announced by the state government, not the central government. When floor prices can be seen as a support for producers, they can also favour wasteful behaviors while farmers are guaranteed outlets. In a non competitive market, with a large number of small producers and a small number of buyers (middlemen), the risk is a collusion between middlemen to maintain prices at the floor prices level. Banerji & Meenakshi (2008) bring into the light the existence of collusion amongst buyers of basmati paddy in a wholesale market in Panipatthe and show how it depresses market prices.

This article shows how a poorly implemented English auction mechanism, with auctioneers

<footnote n="7"><sup>7</sup>Farmers Agreement Act, 2020</footnote>

<footnote n="8"><sup>8</sup>EC Amendment Act, 2020</footnote>

<footnote n="9"><sup>9</sup>NITI Aayog summary</footnote>

<footnote n="10"><sup>10</sup>Farm Law Repeal</footnote>
who are not neutral (because they are paid by buyers), encourages collusive behavior on the
demand side. In a market without quality signals, high-performance technical equipment or
insurance against payment default, agents face a double sided moral hazard problem. Al-
though the government emphasizes the importance and benefits of natural farming, none
of the stakeholders we met, whether markets or companies, recognize this label. Apples
produced using natural farming methods are sold like any other apples, sometimes fetching
lower prices because they are smaller or less red. While several private and public initiatives
are attempting to raise awareness of natural farming, it would appear that these piecemeal
efforts are not enough. A rigid institutional organization, led by the state but hampered by
the old wholesale market structure, seems powerless.

Section 1 provides a description of the mandis functioning with some theoretical insights.
Section 2 refers to the question of quality uncertainty and lack of information signals. Section
3 explains how new modes of exchanges emerge which provide trustable tools to discriminate
betwwen different qualities. Section 4 presents some public and private initiatives to help
natural farmers to be recognised by the market. The conclusion follows.

# 1 When commissioneers are not neutral: the functioning of mandis

As explained in Introduction, the functioning of mandis as established by the APMC Act
in 2003 is intended to provide the farmers an efficient way to sell their apples, in order
to avoid relationships of dominance with powerful middlemen. The idea was to implement
competitive markets, through auction mechanism, which should insure a fair repartition of
surplus and greater access to food for consumers. In what follows, Subsection 1.1 explains
the funtioning of English auctions -which are implemented in the mandis- and underlines the
limits of this mechanism in providing fair trade. Subsection 1.2 displays the distributions of
min and max prices for different apple markets, bringing into the light surprising fixed prices
in some markets and minimum prices under the floor price, as established by the Himachal
Pradesh government. These various findings, discussed below, question the ability of this
mechanism to prevent collusion or ensure transparent information, in line with former results
of the economic literature.

## 1.1 English auctions

A large literature on auctions widen the idea that centralized markets should be more effi-
cient (Bulow & Klemperer 1996, Klemperer 2000) and Milgrom (2004) underlines how auc-
tion theory can be mobilized in real situation to increase the markets performance. Duffie
(2011)designs as dark markets the over-the-counter (OTC) markets for derivatives. Pairwise
transactions between market participants who may be unaware of prices that are currently
available elsewhere in the market favor bubbles and crises. On markets with heterogeneous
goods and agents (buyers and sellers), there is a clear information transmission problem and
an auction system could help to resolve it.

On the Indian agricultural markets, open (English) auctions are organised daily. An English auction typically begins with the auctioneer inviting an initial bid from the audience of prospective buyers or by announcing the seller's reservation price. Any subsequent bid is valid only if it exceeds the current standing bid. The auction concludes when no higher bids are forthcoming, at which point the item is awarded ("knocked down") to the highest bidder at its bid price. When multiple identical or nearly identical items are sold in an English auction, each lot is usually offered sequentially and sold as a separate unit—for example, livestock in the United States (Marshall et al. 2021) or wool in Australia (Nolan et al. 2014). However, in the case of *n* strictly identical items, an alternative mechanism has been proposed: all items are auctioned simultaneously, allowing up to *n* bids at the current highest level. Once *n* bids match the standing highest bid, any new bid must exceed this level (Vickrey 1976).

The open auction mechanism is well known to favor collusion and/or cartel as underlined by Phillips et al. (2003). Hu et al. (2011) shows how increasing auctions (open or first-price sealed-bid) are more likely to encourage collusion than descending auctions. Das (2023) analyse the role of cartels driven by few buyers representing the big food industry in the Indian agricultural wholesale markets.

The functioning of the apple markets in India diverges significantly from the ideal set forth by the government. An important quantity of apples is sold daily on each of these markets as shown in Graph 1.1. Commission agents are numerous and sell at the same time different lots of apples. Generally, farmers (who come with pick-up or trucks) sell their whole quantity in one lot: One pickup carries around 80-100 box with 20kg/box and a truck carries around 800-1000 boxes. The lots which are sold are then of different quantities.

<figure><img src="image_1.png" /><figcaption>Figure 1: Daily quantities of apples sold in different markets of Himachal Pradesh and North India.</figcaption></figure>

Auctions are fragmented, taking place simultaneously in different corners of the mandi
with only a handful of buyers. But there is no coordination between the different actioneers and the floor bids never follow a clear rule. A lot can get a high floor bid at one moment then be followed by a lot with a lower floor bid, which is contrary to what is recommended by auction theory. The explanation provided by the actors is that the qualities of the lots differ but there exists no quality signals which make the quality difficult to evaluate. Moreover, the quality (even subjective), is pretty complicated to evaluate, even for professionals. because the lots involve quantities of boxes that are as large as they are heterogeneous, buyers (and comissioneers) can only check the quality of a small portion of the boxes. The rest of the lorry's load is delivered once the purchase has been made.

As far as we understand, the floor price is decided by the comissioneer, following informal rules. Some talk about quality, some others reveal a kind of agreement with the buyers or with the sellers. Information is scarce, and the commission agents—who should in theory act as neutral intermediaries—are in fact paid by the buyers (they take a commission of 5% of the total amount), which undermines their impartiality.

These markets are poorly organised. They provide few facilities, as the place for selling, parking space and very few storage facilities. They do not provide any labour or machinery that could help to unload the goods more easily and/or check the quality of the batches. They have no control on the mechanism of prices fixation nor the quality which is sold. Moreover, they have no insurance and few means of forcing defaulters to pay their debts which puts farmers in a vulnerable position.

## 1.2 Price Distributions Across Different Markets

Since wholesale markets are government-regulated and subject to taxation on transactions, they maintain a public portal agmarknet<fnref n="11" />, which provides daily minimum and maximum prices and quantities. Using the available data, we have plotted price distribution graphs for key markets in Himachal Pradesh namely Parwanoo, Solan, and Rohru as well as two strategically important markets based on volume and geographic connectivity: Pinjor (Haryana) and Delhi (Azadpur Mandi). Unlike the relatively isolated markets of Himachal Pradesh, Pinjor and Delhi are well integrated with national trade routes, as illustrated in Map 2, and are therefore subject to higher levels of competition.

The different minimum and maximum prices are shown below in Figures 3, 4, 5, 6, for the period July 23- August 23, 2025.

The prices distributions in Pinjor and Delhi are quite surprising, giving the feeling of fixed prices, both for the min and the max. The Delhi market is able to distinguish between different qualities of apples, small, medium and large, which suggests differentiated prices, which is not the case for the other markets which are studied here. Prices are higher for large apples than for medium or small apples, which is in line with what the actors explain. In North India, consumers are reputed for preferring the biggest apples. However, while the

<footnote n="11">¹¹https://agmarknet.gov.in/</footnote>
<figure><img src="image_2.png" /><figcaption>Figure 2: Map showing the study area / relevant region, where Points B indicate major apple grower locations and points A indicate the different main markets.</figcaption></figure>

<figure><img src="image_3.png" /><figcaption>Figure 3: Minimum Prices of Apple in Pinjor and Delhi Markets</figcaption></figure>

population of Delhi is supposed to be wealthier on average than the Indian population and more likely to consume organic or natural products, no organic products or products from natural farming are listed in the data.

A second important observation and maybe a more surprising one, is that prices remain virtually unchanged over a period of one month, with only small variations for the large ap- ples. Anyway, when comparing with Himachal Pradesh markets, prices are higher in Pinjor and Delhi, as they are both the most distant markets, which means high transport costs for farmers and the best-connected markets, allowing a larger number of buyers to participate (and then higher competition).

When looking at the prices distributions in Himachal Pradesh (Figures 5 and 6 below), things are a little different. In particular, in the Parwanoo and Rohru markets, prices vary
<figure><img src="image_4.png" /><figcaption>Figure 4: Maximum Prices of Apple in Pinjor and Delhi Markets</figcaption></figure>

greatly. A puzzling fact is that in Rohru, minimum prices can be under the floor price fixed
by the government (1200 roupies/ quintal) which suggests i) that farmers are badly informed
of the different regulations, ii) that the organisation of these governmental markets do not
regulate the trades, failing in its basic duty to protect farmers, as recommended by the 2003
Act.

<figure><img src="image_5.png" /><figcaption>Figure 5: Minimum Prices of Apple in Solan, Parwanoo, Rohru Markets</figcaption></figure>

2 Have you heard of natural farming? Quality uncer-
tainty and lack of information signals.

Uncertainty about quality further complicates price formation. There is no certification pro-
cess, and apples of similar appearance can be sold at very different prices. Trust and social
<figure><img src="image_6.png" /><figcaption>Figure 6: Maximum Prices of Apple in Solan, Parwanoo, Rohru Markets</figcaption></figure>

relationships therefore play a central role. Farmers have to entrust their produce to a single commission agent, while buyers can choose between different commissioners to orient their purchases. Yet these ties are not purely voluntary or based on trust: financial constraints often bind farmers to a particular commission agent, creating dependency. Once the transactions have been completed, it is the commission agent who will be paid by the buyers. He must then pass on their share to the farmers, which, from what we were told during our discussions in the markets, may take a long time or even never happen at all.

The auctioneers set minimum prices according to informal rules, sometimes invoking quality criteria, sometimes revealing tacit agreements with buyers.

As explained in sub-section 1.2, different lots of apples are sold at the same time by different auctioneers. The size of the lots varies with the size of the farmer's vehicle. Once could imagine a kind of "specialisation" of auctioneers with some selling the bigger lots and the others the smaller ones (and the size could directly influences the price): this is not the case no more than there is a specialisation of lots, between 'good and bad' apples. Most batches consist of apples of different sizes or colours, corresponding to different perceived qualities. For each lot, the price is a pooling price. In the absence of full information about product characteristics, buyers face a classic adverse selection problem: with limited means to assess quality, they are at an informational disadvantage. Consistent with Akerlof's 'market for lemons' framework, it is therefore rational for them to discount their willingness to pay below the full price.

Quality, in practice, is reduced to visible criteria such as size and colour (the redder the apples, the more sought-after they are). In fact, what people design as quality is mostly related to individual preferences, which vary across states: for example, traders note that in poorer states like Bihar and West Bengal, smaller apples are often preferred and paradocically, get higher prices from buyers coming from these states. Notably, apples from natural or organic farming are not recognized as a distinct quality and are never mentioned in discussions about quality. Natural products are pooled together with conventional ones. Although the
government is promoting natural farming practices as an urgent goal, none of the individuals interviewed had a clear idea of the potential benefits of these products.

In a country with a very high level of demand for apples, the rudimentary organisation of mandis is not efficient enough to ensure outlets for all production. A large share of production ends up being sold at the government's minimum support price. It is not uncommon to see piles of apples left along the roads, waiting for government trucks to collect them.

## 3 From pooling prices to clear differentiation

While there is now general agreement, from the economic literature, that markets have to be organised, opinions still differ on whether centralised, auction-based markets should prevail over decentralised markets. The question of dominance of centralized markets on decentralized ones is still not clarified, since the pioneering Grossman & Stiglitz (1976)' article, which explains how a decentralized market information acquisition process is not the most efficient (the existence of arbitrage in a financial decentralized markets demonstrates that information is incomplete). However a high cost of operating an efficient centralized information mechanism can diminishes the social outcome, compare to a decentralized market.

In the real world, numerous commodities are traded pairwise as on financial markets, agricultural or real estate markets which function through a pairwise process. Not only homogeneous assets, but also heterogeneous goods are exchanged over the counter. When there exists no credible quality signals, the asymmetry of information between traders is especially high and a centralized market may seem a more efficient way to reveal the information. We have shown, through Section 1 and Section 2 how open English auctions can allow collusive behaviours and sparse information. Moreno & Wooders (2010) and Moreno & Wooders (2016) show how decentralized trade mitigates the lemons problem as defined by Akerlof (1970). In markets with adverse selection, only low-quality units trade in the competitive equilibrium when the average quality of the good offered by sellers is low. When trade is decentralized, Hernandez et al. (2018) underline the contribution of direct individuals interactions to the robustness of a decentralised market, which ensures a kind of dominance compared to a centralised market.

The Indian apples wholesale markets are characterized by a double-sided moral hazard problem. On the buyer side, agents have no access to trustable quality signals. On the seller side, farmers suffer from a lack of information regarding the state of demand or the financial capabilities of buyers. In this situation, contracts could provide added value to both buyers and sellers, helping to ensure a certain level of quality, securing supplies and providing financial facilities to producers (Emons 1988, Magrini et al. 2025).

### Companies as an alternative to market.

Alongside poorly functioning markets, few companies have emerged that exploit their weaknesses. They both provide facilities to buyers and sellers and develop quality measurement
tools, based on the size, degree of maturity and sugar content of the fruits. In what follows,
we present two examples, with different functioning and objectives but both contributing
to remove the best quality apples from mandis by providing rigorous quality evaluation and
differentiated prices.

In the mid-2000s, a large agribusiness enterprise entered the apple sector of Himachal
Pradesh by establishing state-of-the-art controlled atmosphere storage facilities in the main
producing regions of the Shimla district. With a storage capacity exceeding 20 000 MT and
procurement centers strategically located near production zones, the firm pioneered an inte-
grated model of procurement, storage, grading, and distribution in the region. It contributes
to regulate the market by storing apples and putting them on the market up to a year after
harvest.

The procurement network encompasses more than 17 000 growers, the majority of whom are small and marginal farmers spread across several hundred villages. The distribution system reaches wholesale markets and retailers across India, including modern retail formats. Procurement typically begins in late August, when the enterprise announces an opening price schedule differentiated by grade. Farmers deliver their produce in standardized crates supplied by the firm. Upon delivery, lots are evaluated on parameters such as firmness and maturity and can be rejected, when they do not reach the quality criteria. Accepted lots are then mechanically graded, and farmers are remunerated according to the grade composition. For a lot composed of different grades, a farmer will get differentiated prices, which can be more profitable than the mandis for farmers with a higher percentage of high quality apples but less advantageous for farmers with lower quality products. Payments are transferred directly to farmers' bank accounts, usually within one week.

This approach addressed major inefficiencies of mandis, characterized by traditional mar-
keting—manual grading, high transport costs, post-harvest losses, and opportunistic de-
ductions by commission agents. By offering input supply, technical training, and assured
procurement, the enterprise mitigated risks, stabilized incomes, and reduced waste along the
value chain.

The integrated procurement-storage-marketing model reduces transaction costs for farm-
ers by eliminating the need for transport to distant mandis, providing standardized grading,
and ensuring timely payment. In addition, the enterprise supplies agricultural and horticul-
tural inputs (e.g., anti-hail nets, fertilizers) and organizes training on production, sorting,
grading, and logistics in line with international standards. The model thus contributes to
reducing post-harvest losses, improving productivity, lowering risks associated with payment
delays, and ultimately stabilizing farm incomes. More recently, the firm has launched a dig-
ital auction platform that combines quality testing, grading, packaging, and live bidding.
Farmers benefit from transparent price discovery and immediate payment, while buyers gain
access to credit, logistics, and QR code-based traceability.

In recent years, a start-up—subsequently acquired by a private company—has intro-
duced an alternative marketing model. The enterprise operates within regulated wholesale markets (APMCs), participating both as commission agents and as direct buyers, but differentiates itself by ensuring immediate electronic payment to farmers. In addition, the firm has established its own registered private mandis, where farmers deliver their produce and sales are arranged through the company's network of buyers, including remote purchasers. To facilitate transactions, the enterprise provides short-term credit to retailers and offers post-harvest services such as grading, packaging, and controlled atmosphere storage. Price differentiation is applied according to quality categories, thereby improving incentives for higher-quality produce. Farmers are increasingly attracted to this model due to its combination of prompt payment, reduced uncertainty, and potential for higher returns compared to traditional commission-based systems. From the buyer's perspective, this model can be quite risky due to the very short credit terms and very high interest rates. However, it also guarantees them access to higher quality goods. On both the demand and supply sides, this company's model selects the most reliable players.

These different models illustrate how contracts and pairwise exchanges can alleviate in-
formation asymmetry, reduce post-harvest losses, and foster greater efficiency in high-value
agricultural markets. It should be noted, however, that these enterprises do not care about
the method of production of fruit (chemical farming, natural farming or organig farming).
Buying and selling of the produce is based on the criteria set by the market -mainly size,
colour and maturity.

4 A transition to natural farming needs a transition to
new forms of exchanges.

Himachal Pradesh has emerged as a first mover in the promotion of natural farming through its flagship Prakritik Kheti Khushhal Kisan Yojana (PK3Y), launched in 2018. The program sought to reduce farmers’ reliance on chemical inputs by promoting low-cost, eco-friendly substitutes such as jeevamrit, beejamrit, mulching, and biocontrol methods. Beyond the technological shift, PK3Y invested in institutional mechanisms—including farmer field schools, peer learning, and dedicated extension services—that reduced information barriers, enabled knowledge diffusion, and lowered coordination costs for smallholders.

From an institutional economics perspective, PK3Y represents a state-led attempt to correct multiple market failures. By framing natural farming not only as an ecological externality-reducing measure but also as a rural livelihood and public health strategy, the program internalized benefits that private markets would underprovide. It also addressed information asymmetries by laying the groundwork for certification and traceability innovations. The most significant of these is CETARA-NF (Certified Evaluation Tool for Agriculture Resource Analysis – Natural Farming), a digital self-certification and star-rating mechanism that reduces transaction and compliance costs for smallholders. Its tiered structure—combining self-assessment, peer verification, and periodic checks—generates standardized quality signals
and traceability metadata, thereby creating a quasi-public good that should mitigate adverse selection in agri-food markets. The reality is less glorious than the objectives set, and among other things, we can highlight the lack of labour rights and poor working conditions for a workforce that is often foreign, poorly paid (12 000 roupies/ month<fnref n="12" /> against 20 358 rupees in average for India <fnref n="13" />.) and poorly regarded. Natural agriculture is labour-intensive, and Himachal Pradesh suffers from significant emigration. This situation is not compatible with the goal of improving overall social welfare.

## 4.1 Private initiatives.

Complementing state-led efforts, private and civil society actors have piloted alternative models of certification and marketing. For instance, initiatives such as Gram Disha's Apples to Apples program leverage CETARA-style traceability to connect certified natural producers directly with “conscious consumers”, functioning as transparent intermediaries<fnref n="14" />. These innovations provide three clear benefits for natural farming: (i) reducing the monetary and paperwork barrier to certification, (ii) creating digital traceability and narratives that support true pricing and consumer trust, and (iii) enabling aggregation platforms such as FPOs, retail chains, and niche e-marketplaces to source identifiable natural produce<fnref n="15" />.

Nevertheless, their market impact remains limited. Empirical reports suggest that CETARA-NF and related pilots face weak price recognition: as explained before, buyers and APMC actors do not differentiate CETARA-rated produce from traditional ones, procurement systems (including MSP) are not systematically linked to CETARA status, limiting buyers' willingness to pay sustained premiums<fnref n="16" /> and verification mechanisms remain lighter than third-party organic certification, which constrains willingness to pay premiums. Consequently, most certified farmers continue to transact through conventional mandis without significant income gains. Unlocking CETARA's transformative potential requires institutional reforms such as recognition of ratings within mandis (via dedicated counters or differential fee structures), integration into public procurement and MSP regimes, hybrid verification models, and consumer-facing branding in collaboration with modern retail.

## 4.2 Public Initiatives.

The state government has recently reinforced its support by offering Minimum Support Prices (MSP) for selected naturally grown crops<fnref n="17" />, arguably making Himachal Pradesh the first In-

<footnote n="12">¹²https://cleartax.in/s/minimum-wages-in-himachal-pradesh</footnote>

<footnote n="13">¹³Indian minimum wages</footnote>

<footnote n="14">¹⁴FAO, 2023</footnote>

<footnote n="15">¹⁵Gram Disha, 2023</footnote>

<footnote n="16">¹⁶Business Standard, 2023</footnote>

<footnote n="17">¹⁷TOI, 2025</footnote>
dian state to guarantee support prices specifically for natural produce. This mechanism is
expected to directly reduce price risk for farmers transitioning away from chemical inputs.
But these prices stay very low and most of the natural farmers we interviewed were not aware
of the existence of minimum prices dedicated to natural farming.

In parallel, projects such as the Producer Organisation Promoting Institution (POPI)
initiative and the Sustainable Food System Platform for Natural Farming (SuSPNF<fnref n="18" />) have
facilitated the creation of farmer producer organizations (FPOs) dedicated to natural farm-
ing. With support from state universities and NABARD funding, seven natural farming
FPOs now operate as independent, farmer-led enterprises aggregating raw and value-added
produce. By bypassing conventional intermediaries and marketing through local outlets and
university-supported stores (e.g., UHF Naturals), these FPOs strengthen farm-to-market
linkages, improve price realization, and enhance supply chain resilience.

At the international level, the ACROPICS project (Agroecological Crop Protection To-
wards International Co-Innovation Dynamics and Evidence of Sustainability), implemented
by INRAe in collaboration with Dr. Yashwant Singh Parmar University of Horticulture and
Forestry (UHF) and funded by the European Commission, connects Himachal Pradesh to
global agroecological research networks. Through Sustainable Agroecological Systems (SAS)
groups, the project provides participatory decision-making, operational planning, and value
chain integration. Joint research and peer-learning workshops further situate Indian nat-
ural farming within comparative agroecological transitions worldwide, framing PK3Y and
CETARA-NF as part of a broader international experiment in institutional innovation for
sustainable food systems.

Conclusion

The transition to natural farming in Himachal Pradesh presents both significant challenges and promising opportunities within the agricultural sector. This article highlights the crucial role of institutional frameworks and market adaptations necessary to facilitate this transition effectively.

Despite the government's initiative to reduce input use and improve sustainability, the existing market structures for apples, primarily regulated wholesale markets, have yet to fully adapt to accommodate natural farming products. The English auctions mechanism as implemented through the Indian mandis favor the presence of information asymmetries and collusive practices which undermines the competitiveness of these markets. Commissioneers are not neutral, farmers stay poorly informed and natural farmers struggle to gain recognition for their unique characteristics. Overall, despite the official narrative of competitive auctions, the apple markets fail to ensure transparent information or fair prices. Instead, they remain characterised by adverse selection, weak institutional organisation and the persistence of informal relationships and dependencies. Against the backdrop of markets inefficiencies,

<footnote n="18">¹⁸SUSPNF</footnote>
some private enterprises have entered the apple market. They provide farmers with financial
facilities and offer loans to buyers. More importantly, they introduce screening mechanisms
based on mechanical measurements of apple size and density, allowing for the classification
of apples into grades (A, B, small, etc.). Farmers are then remunerated according to the
quantities delivered in each category. These enterprises also play a regulation role, buying
the best-quality apples to store them for several months to a year. Nevertheless, none of
these enterprises recognize the value of natural farming.

Key findings suggest that while current public interventions, such as labeling systems, minimum support prices and private initiatives, like targeted cooperatives, offer partial solutions, they are insufficient in isolation. A systemic approach is essential to address these challenges comprehensively. There is an urgent need for an efficient reform market mechanism, to provide a competitive framework to the traders. There is also an urgent need to strengthen cooperative capacities, to empower farmers and improve their market access. In some other countries or regions, a bottom-up approach—where individual farmers and small communities take the lead in transitioning to natural farming without waiting for extensive market or policy reforms—has shown promise. This approach can also face challenges, such as limited reach and scalability. Nonetheless, it emphasizes the power of grassroots movements and localized solutions. Perhaps Himachal Pradesh lacks the power of collective action.

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## Acknowledgement

We thank the ACROPICS (EU funded) project for financial support and Allison Loconto (Inrae) for having made this collaboration possible. We express our gratitude to Ashish Gupta, Rajeshwar Singh Chandel and Inder Dev (Dr YSP University of Horticulture and Forestry Nauni-Solan, H.P., India) for rich and passionate discussions on the role of natural farming and for facilitating meetings with various farmers and stakeholders in the agricultural sector in Himachal Pradesh. Any error remains our responsibility.