FDI curse in retail

Monday, 20 January 2014 - 7:53am IST | Place: Mumbai | Agency: DNA
One has to look at the US to realise the damage retail giants have inflicted on farmers.

There is a popular advertisement on the TV. A child is running and falls down in mud. His mother comes running, picks up the child, dusts his clothes and says: “Beta, get up. Don’t worry, Surf Excel hai naa!” In a country where nearly 3 lakh farmers have committed suicide, farm incomes are plummeting, rural infrastructure is in a shambles, middlemen rule the roost, and the nation is witnessing a jobless growth, FDI in retail is being promoted as an excellent cure to the problems.

An impression is being given that once FDI in retail comes in, it will address all the ills plaguing the food and agriculture sector, and also boost employment.

In the mid-1980s, when Pepsico came up with a proposal to bring in a second agricultural revolution in Punjab, it, too, was hailed as a path-breaking initiative that would put an end to the continuing distress on the farms. It was expected to usher in the latest technology, improve farm research and extension, create supply-chain infrastructure, and provide marketing linkages from farm to the fork. I remember the kind of excitement that prevailed all around. Politicians, bureaucrats, economists, agricultural scientists and even the Bharatiya Kisan Union (BKU) joined the chorus.

Some 15 years after the project was approved, Pepsico’s horticultural revolution is all but forgotten. Agriculture has gone from bad to worse. The food bowl of the country has also become a major hot spot for farmer suicides.

Arvind Kejriwal’s scrapping of the FDI in retail in Delhi has renewed the debate over one of the most contentious of policy issues. Commerce Minister Anand Sharma has expressed displeasure saying that the AAP’s decision will send a wrong signal to foreign investors. FDI advocates feel that FDI in retail will lay out back-end infrastructure, bring in a chain of cold storages and improved transportation, thereby reducing crop losses; removing middlemen who rob the farmers of profits, and provide higher prices for their produce; bring in improved technology to help in crop diversification; and, of course, create millions of jobs.

Let us examine how true these claims are. Walmart, Tesco, Sainsbury, Carrefour and a host of other big retail players are expected to increase farm income. In the US, where Walmart has completed 50 years, if farmers were getting a better income, why would the number of farmers decrease to less than one per cent of the population? US farmers survive not due to Walmart, but because of massive subsidy support, which includes direct farm income. Between 1997 and 2008, Rs12.60 lakh crore was provided as income support to farmers. A UNCTAD-India study shows that if these subsidies, classified as Green Box in WTO parlance, are removed, agriculture in the US would collapse.

In Europe, despite the dominance of big retail, every minute one farmer quits agriculture. Europe provides the highest amount of subsidies, including direct income support. But because 74 per cent of these subsidies are cornered by corporations and big farmers, small farmers are quitting the profession. In France, farm income had come down by 39 per cent in 2009, down from 22 per cent in 2008. In OECD, the richest trading block comprising 30 countries, Rs14 lakh crore was the farm subsidy support in 2009 alone. It is not big retail, but direct income support that keeps farmers in agriculture.

Studies show that in the US, some 50 years back, if a farmer sold his produce for one dollar, his income would be 70 cents. In 2005, it had fallen to 4 per cent. With the middlemen wiped out, I thought the farmer’s income would go up. No, it is the new battery of middlemen — quality controller, standardiser, certification agency, processor and such like —who walk away with the farmer’s profits. In the process, the number of middlemen, operating under the same hub, actually increases.

Take the example of an earlier Walmart-Bharti tie-up for wholesale marketing in Punjab. Baby corn is bought by Walmart-Bharti at Rs8 per kg, sold at Rs100/kg in wholesale by the big retail, and ultimately the consumer price hovers around Rs200/kg. It’s a clear example of how the middleman squeezes farm incomes and fleeces consumers. This is not an isolated case. Much of the farm produce is bought at very low prices across the globe. Primarily for this reason, dairy farmers in UK are quitting on a large-scale. They are asking the UK government to set up a fair price mechanism that big retail should be directed to adopt.

There is no evidence that big retail creates back-end infrastructure. In US and Europe, rural infrastructure has been created through government support which came in the form of agricultural subsidies. To say that 40 per cent agricultural food that goes waste in India will be drastically reduced is also an illusion. Even in the US, 40 per cent food is wasted and much of it is after processing where Walmart should have played a more important role. More than 50 per cent vegetables/fruits rot in supermarket stores. If big retail failed to reduce food wastage in the US, I wonder why we expect them to perform a miracle in India?

Regarding employment generation and poverty alleviation, lessons need to be drawn from a 2004 study of Pennsylvania State University by Stephen Goetz and Hema Swaminathan, which showed how higher  levels of poverty prevailed in areas where Walmart stores had come up, compared to the states where big retail was absent. In any case, for a $450 billion turnover, Walmart employs only 2.1 million people. Whereas, for an estimated $460 billion market, Indian retail employs 44 million people. If Walmart is allowed entry, what has to be understood is that for every job it creates, it will displace at least 20 workers.

Yes, there is a need to improve rural infrastructure, provide a sophisticated supply chain, and offer better income to farmers. The milkman of India, late Dr Verghese Kurien, had shown us the way. The cooperative dairy structure, which led to the evolution of the Amul brand, is the right approach.

If he could do it for milk, which is a highly perishable commodity, there is no reason why it can’t be replicated in fruits, vegetables and other agricultural commodities. The solution to the plethora of problems on Indian farms does not lie in the West, but in our own backyard.

The author is a food and agriculture policy analyst


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