After growing at a fast rate, the farm sector today faces stagnation. The possibility of a second Green Revolution rests with the marketing and development of crops other than rice and wheat. Farmers, cooperatives and governments have proved their inability in doing so. Hence, the need for foreign investment in retail.....
THE decision of the Union Government to allow foreign direct investment (FDI) in multi-brand retail is being debated by touching various dimensions of livelihood of small farmers, trade, middlemen, price rise, malpractices, scope of value addition, consumers’ welfare etc. Such an economic transformation ought to be thrashed out at this juncture. For this, we have to first analyse our present situation and have a glance of the valley we have already stepped in. Till now 51% FDI in single-brand retail is allowed.
An average farmer of Punjab or Haryana has got expertise on food-grain production system, which he has nicely demonstrated on the ground. Now he is at the crossroads and faces economic stagnation and looks for new avenues. Taking into account the aspect of opening up of the economy, we need to view the things in a diametrically opposite perspective.
The current production system is quite rigid and has to be geared up to cater to consumers’ requirements. To capture the need of various sections of society in terms of consumer’s taste, product quality, safety, nutrition etc, the essential services are required to be provided and the existing ones to be upgraded, necessitating the opening of retail chain stores in the state. Therefore, to demonstrate the technical and pricing efficiency, through horizontal and vertical market linkages, harnessing the scale economies appears to be a feasible solution.
There is need to highlight possibilities and assess market requirements for boosting the farm sector’s performance. On this pretext, the following specific questions arise: whether the existing structure of agricultural production and marketing is conducive for a second Green Revolution? If not, how and who should come forward to handle this situation? What are the possibilities and directions for vertical integration in terms of value addition in alternative enterprises?
Marketing pattern
As a food security measure, almost the entire rice and wheat production is procured by the national government at a pre-agreed price from farmers. The market infrastructure was developed to cater to the requirements of foodgrains. A slight increase in production of perishable goods can depress the prices even to the zero level, leaving farmers helpless, which we have been practically witnessing.
Thus farmers hesitate to undertake market risks. The system so far has also not felt the need for handling perishable products from the state. Now, with growing consumerism due to the rising disposable income, level of education and urbanisation, and the changing attitude of the younger generation, a consumer-oriented rather than production-based market system is becoming better workable. In view of this, we have already experimented with various alternatives that can come forward and shoulder the responsibility.
An average farmer has a small farm and is handicapped by constrains of inadequate resources. Incurring heavy investment with business aptitude is not within his reach. Farmers’ cooperatives have been tried for long but have not been successful due to various reasons, including typical Punjabi psyche and political interference and thus lack initiatives to take up such activities.
Autonomous investment is also a remote possibility as the state governments have already washed their hands off with the excuse that they are starved of financial resources, obviously due to various populist measures adopted on different fronts. The initiation of contract farming by roping in private trade was an interesting positive step taken by state governments a few years back. This experiment too is fumbling due to a number of reasons, especially basic structural flaws in the system and over-interference of the government.
There has not been even an iota of success whenever a high-level consumers’ organisation had tried to operate in the country.
Thus the only ray of hope is investment by big business houses which have already initiated the process of horizontal and vertical market integration in farm products. Let the potential farmers’ organisations and individual farmers also coordinate and compete within the system. Going a step further, the market view should not be limited only to the domestic consumers but also to potential global markets to even out market fluctuations.
Public perception
By population, India is a big country. There are about 12 million retail outlets in the country which means that for every 90 persons there is one retail shop. The need for a single window to meet the domestic requirements is increasingly felt. A vast majority of the population has small means with low purchasing power. Market requirements of the domestic consumers are diverse as the population has varying income levels, cultures and tastes etc. Most of the production units are also small, scattered and unorganised.
Therefore, market channels are generally long and marketing costs and margins are quite high and account for a sizable part of consumers’ cost. The varieties of consumer goods are also not so wide to meet the pocket and taste of consumers. As compared to 80% in the USA, 40% in Thailand and 17% in China, only 4% of the consumption needs are realised through organised retailing in India. Across the commodities traded through such markets, most of these products are directly or indirectly the outcome of the farm sector.
A number of chain stores such as Bharti Wallmart, PepsiCo, Reliance, Tata Khet Se etc are coming up in the area as well. An opinion survey of various sections of society about such development has revealed certain issues which may be considered in the light of allowing foreign investment.
Investment only in retail trade should be kept confined. Some liberty was taken by MNCs in the past when they entered agro-processing but shifted to soft drinks. Similarly, investment in real estate made by retail stores has resulted in significant gains. As the land prices are booming, the gain from this proposition is sometimes even higher than the trading of goods.
Employment of human factor is feared to be getting adversely affected. This was argued by others and countered with the fact that only 8% of the population of India is in retail business as against 20% in the US. Evidently, the supply chain gets shortened but the spread of utilities and services is widened.
Disparity in the economy may also widen because small would not be able to compete with big business houses. Experience of other countries indicates that small and ancillary trades coexist and continue to flourish. Establishment of retail store becomes a mini focal point giving birth to a number of small units around.
Economic efficiency improves due to large-scale operations, division of labour and mechanical handling. Thus it lowers the cost of operations such as storage, transportation, handling, processing and packing. High selling cost such as advertising, staff salaries, maintaining showrooms could be exploitative for consumers and increase undue costs. However, competition among big business houses themselves and with small traders in terms of price, quality, variety and services is an auto check to improve efficiency, maintain quality and minimise wastage.
There is a serious concern of the nations to minimise wastage and spoilage which appears to be better addressed through the development of chain stores. It is an accepted fact that the wastage of perishable goods by public agencies and petty traders is enormous due to poor handling of the produce and lack of suitable infrastructure. Various studies have confirmed 30-40 per cent transit losses in case of fruits and vegetables, which we cannot afford.
Having better information about domestic and global market signals and Sanitary & phyto-sanitary (SPS) measures and technical barriers of trade (TBT) standards, quality of goods may improve, make crop diversification possible, farm incomes may increase and export of farm goods is likely to go up.
The claim of ‘targeting small farmers’ is just not practicable in such a situation. First, almost all farmers are small and further limited by the ceiling on land holdings. Secondly, buyers and sellers both feel convenient by contractual agreements with bigger ones. Moreover, there cannot be any effective check for depriving larger farmers from entering the field. Therefore, growing population, urbanisation, consumerism and changing lifestyle demand no going back from increasing chain stores to the traditional system of petty shop trading. Better services, lower prices, more variety and quality products are expected due to such development. Farmers’ organisations and competitors may come up to balance the ill-effects.
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