Amul says FDI in retail will hurt farmers

While the Government claimed farmers support on FDI in retail, the country’s largest dairy cooperative and food brand Amul felt such a move will hurt the interest of both producers and retailers.

“FDI in retail is definitely not going to benefit the farmers,” said Mr R.S.Sodhi, Managing Director, Gujarat Co-operative Milk Marketing Federation Ltd, which owns the Amul brand.

Farmers get the least returns from the modern trade and the “so called efficiency” benefits only the large retailers as they constantly drive down the prices, Mr Sodhi said.

Citing the International Farm Comparison Network (IFCN) data, Mr Sodhi said milk producers in the US got only 38 per cent share of the consumer’s dollar spent on milk, while the rest was earned by the processor and retailer. In the United Kingdom, the milk producers got only 36 per cent.

However, in India, the milk producer gets more than 70 per cent of the consumer’s rupee on an average. Moreover, the milk producer affiliated to co-operatives get more than 80 per cent share of the consumer’s rupee, Mr Sodhi said.

In the US, the farmer’s share in the consumer’s price has declined from 52 per cent in 1996 to 38 per cent in 2009, while in the UK it has declined from 56 per cent in 1996 to 38 per cent in 2009. “This decline clearly demonstrates that the milk producers suffer when the share of organised retail increases,” Mr Sodhi said.

Mr Sodhi questioned whether those seeking liberal FDI policy be able to maintain the farmer’s share of consumer price in India. “Will they operate at 2 per cent distributor margin and 3 per cent retail margin for milk as practised by Amul and other milk brands,” he asked. From a manufacturers’ perspective, Mr Sodhi said the organised retail trade tends to be monopolistic. The access to market to brands often comes at a heavy price to be paid by the producer, Mr Sodhi said citing Amul experience with large retailers in about 40 countries like the US, Japan, Australia and Singapore where it exports dairy products.

The terms of the trade dictated by many of these players are not even heard of in India such as short credit period, huge listing fees for products, reluctance to increase prices for as high as six months among others. “The retailers will effectively kill innovation, squeeze margins and always threaten the brands with cheaper substitutes, imports or finally private label store brands,” Mr Sodhi said.

For the Government, the share of taxes would remain the same irrespective of the format of retail, while on the contrary the foreign retailers will demand more and more concessions and liberal policies to earn better. Further, the labour prices of large retailers were not employee friendly and that the Government may have to deal with huge labour issues if liberal FDI policies are implemented in retail. “If largest and most reputed Indian corporate houses like Reliance, Tata and Birla have invested in retailing in India, we do not need to look to foreign investors to invest in Indian retail,” Mr Sodhi said.

The small retailers in India over the past decade have improved their outlets, presentation, service levels and consumer orientation significantly. The modern retail and their deep pockets due to foreign investment will destabilise the retail trade, which gainfully employees a very large section of our society.

“The promised employment generation in modern retail will be at the cost of unemployed shopkeepers who form the backbone of our commerce and economy,” Mr Sodhi said

विदेशी हितों को तरजीह


[खुदरा कारोबार में एफडीआइ को किसानों, उपभोक्ताओं और निर्माताओं, तीनों के लिए घाटे का सौदा मान रहे है देविंदर शर्मा]

ऐसे समय जब प्रधानमंत्री मनमोहन सिंह खुदरा कारोबार में एफडीआइ खोलने के फैसले को देशहित में बताते हुए इसे वापस लेने से इंकार कर रहे है, अमेरिकी राष्ट्रपति बराक ओबामा की राय इससे उलट है। 26 नवंबर को उन्होंने ट्वीट किया-अपनी पसंदीदा स्थानीय दुकान से सामान खरीदकर छोटे व्यापारियों का समर्थन करे। ओबामा अपने देश के हित की बात कर रहे है, जबकि मनमोहन सिंह अमेरिकी हितों को सुरक्षित करने की। मनमोहन सिंह की यह दलील तथ्यों पर खरी नहीं उतरती कि रिटेल एफडीआइ से हमारे देश को फायदा होगा, ग्रामीण ढांचागत सुविधाओं में सुधार होगा, कृषि उत्पादों की बर्बादी कम होगी और हमारे किसान अपनी फसल के बेहतर दाम हासिल कर सकेंगे। परेशानी की बात यह है कि वाणिज्य मंत्री आनंद शर्मा और प्रधानमंत्री मनमोहन सिंह की दलीलों का कोई आर्थिक आधार नहीं है। इनकी महज राजनीतिक उपयोगिता है। इनसे यही पता चलता है कि सत्ताधारी दल के राजनीतिक एजेंडे को न्यायोचित ठहराने के लिए आर्थिक तथ्यों को किस तरह तोड़ा-मरोड़ा और गढ़ा जा सकता है।

मल्टी ब्रांड रिटेल के पक्ष में सबसे बड़ी दलील यह है कि इससे सन 2020 तक एक करोड़ रोजगार पैदा होंगे। इस दावे के पीछे कोई तर्क नहीं है। अमेरिका में रिटेल कारोबार में वालमार्ट का वर्चस्व है। इसका कुल कारोबार चार सौ अरब डॉलर [लगभग 20 लाख करोड़ रुपये] है, जबकि इसमें महज 21 लाख लोग काम करते है। विडंबना है कि भारत का कुल रिटेल क्षेत्र भी 20 लाख करोड़ रुपये का है, जबकि इसमें 4.40 करोड़ व्यक्ति काम करते है। इससे स्पष्ट हो जाता है कि भारतीय रिटेल कहीं बड़ा नियोक्ता है और वालमार्ट सरीखे विदेशी रिटेलरों को भारत में बुलाने से करोड़ों लोगों का रोजगार छिन जाएगा। इंग्लैंड में दो बड़ी रिटेल चेन टेस्को और सेंसबरी है। दोनों ने पिछले दो वर्षो में 24,000 रोजगार देने का वायदा किया था, जबकि इस बीच इन्होंने 850 लोगों को नौकरी से निकाल दिया।

आनंद शर्मा का कहना है कि रिटेल एफडीआइ से किसानों की आमदनी 30 प्रतिशत बढ़ जाएगी। इससे बड़ा झूठ कुछ हो ही नहीं सकता। उदाहरण के लिए अगर वालमार्ट किसानों की आमदनी बढ़ाने में सक्षम होती तो अमेरिकी सरकार को यूएस फार्म बिल 2008 के तहत 307 अरब डॉलर [करीब 15.35 लाख करोड़ रुपये] की भारी-भरकम सब्सिडी नहीं देनी पड़ती। इनमें से अधिकांश सब्सिडी विश्व व्यापार संगठन के ग्रीन बॉक्स में जोड़ी जाती है। अगर ग्रीन बॉक्स सब्सिडी वापस ले ली जाती है तो अमेरिकी कृषि का विनाश हो जाएगा। 30 धनी देशों के समूह की स्थिति भी इससे अलग नहीं है। इन देशों में 2008 में 21 फीसदी और 2009 में 22 फीसदी सब्सिडी बढ़ गई है। केवल 2009 में ही इन औद्योगिक देशों ने 12.6 लाख करोड़ रुपये की कृषि सब्सिडी दी है। इसके बावजूद यूरोप में हर मिनट एक किसान खेती छोड़ देता है। यह इसलिए हो रहा है कि वहां किसानों की आय लगातार गिर रही है। केवल फ्रांस में 2009 में किसानों की आमदनी 39 फीसदी गिर गई है।

सरकार की तीसरी दलील है कि बड़ी रिटेल कंपनियां बिचौलियों को हटा देती हैं, जिस कारण किसानों को बेहतर कीमत मिलती है। एक बार फिर यह झूठा दावा है। अध्ययनों से पता चलता है कि बीसवीं सदी के पूर्वा‌र्द्ध में अमेरिका में प्रत्येक डॉलर की बिक्री पर किसान को 70 सेंट बच जाते थे, जबकि 2005 में किसानों की आमदनी महज 4 फीसदी रह गई है। यह वालमार्ट और अन्य बड़े रिटेलरों की मौजूदगी में हुआ है। दूसरे शब्दों में जैसी की आम धारणा है, बड़े रिटेलरों के कारण बिचौलिए गायब नहीं होते, बल्कि बढ़ जाते है। नए किस्म के बिचौलिए पैदा हो जाते है जैसे गुणवत्ता नियंत्रक, मानकीकरण करने वाले, सर्टिफिकेशन एजेंसी, प्रोसेसर, पैकेजिंग सलाहकार आदि इसी रिटेल जगत के अनिवार्य अंग होते है और ये सब किसानों की आमदनी में से ही हिस्सा बांटते है। यही नहीं, बड़े रिटेलर किसानों को बाजार मूल्य से भी कम दाम चुकाते है। उदाहरण के लिए इंग्लैंड में टेस्को किसानों को चार फीसदी कम मूल्य देती है। सुपरमार्केटों के कम दामों के कारण ही स्कॉटलैंड में किसान ‘फेयर डील फूड’ संगठन बनाने को मजबूर हुए है।

चौथी दलील यह है कि रिटेल एफडीआइ छोटे व मध्यम उद्योगों से 30 प्रतिशत माल खरीदेंगे और इस प्रकार भारतीय निर्माताओं को लाभ पहुंचेगा। यह लोगों को भ्रमित करने वाली बात है। सच्चाई यह है कि विश्व व्यापार संगठन के समझौते के तहत भारत किसी भी बड़े रिटेलर को कहीं से भी सामान खरीदने के लिए बाध्य नहीं कर सकता। यह विश्व व्यापार संगठन के नियमों के खिलाफ है और कोई भी सदस्य देश इसका उल्लंघन कर जीएटीटी 1994 की धारा 3 या धारा 11 के तहत निवेश प्रतिबंध झेलने की मुसीबत मोल नहीं ले सकता। विश्व व्यापार संगठनों के प्रावधानों का इस्तेमाल कर मल्टी ब्रांड रिटेल सस्ते चीनी उत्पादों से बाजार पाट देंगे और छोटे भारतीय निर्माताओं को बर्बादी के कगार पर पहुंचा देंगे। निवेश नियमों की आड़ में रिटेलर भारत में खाद्यान्न भंडारण व परिवहन आदि का बुनियादी ढांचा भी खड़ा करने नहीं जा रहे है। नियम के अनुसार कंपनियों के मुख्यालय में होने वाला खर्च भी भारत में निवेश में जुड़ जाएगा। इस प्रकार भारत में एक भी पैसा निवेश किए बिना ही रिटेल एफडीआइ 50 प्रतिशत से अधिक निवेश कर चुके है। पेनसिलवेनिया यूनिवर्सिटी के अध्ययन ‘वालमार्ट और गरीबी’ से पता चलता है कि अमेरिका के जिन राज्यों में वालमार्ट के स्टोर अधिक है उनमें गरीबी दर भी अधिक है। यह ऐसे देश के लिए खतरे की घंटी है जिसकी आधी से अधिक आबादी गरीबी, भुखमरी और मलिनता में जीवन बिता रही है।

[लेखक: खाद्य एवं कृषि नीतियों के विश्लेषक है]

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Selling India’s retail wholesale

S. Gurumurthy

http://expressbuzz.com/finance/business/Selling-India%E2%80%99s-retail-wholesale/337135.html

Finally, FDI in retail has arrived. The collapse of the Rupee by one-fifth in just weeks, dwindling forex inflows and net FII outflows have forced a desperate government to sell India’s retail trade wholesale. Corporate and multinational lobbying to induct FDI in retail, branding it as “big ticket reform”, has been intense in the last few years. The lobbies have won. India has lost. The decision betrays a metropolitan bias; and exposes lack of understanding of India’s agricultural and rural economy. That it will endlessly damage the huge 1.2 million strong community-run retail business in India is undisputed. But the less known truth is that it will destroy food security in rural India. How? Read on.

 

The principal lobby argument for FDI in retail is that the deep pocket and expertise of Walmarts to establish supply chain will make rural areas and farmers prosperous. It does not need a seer to say how illiterate those who advocate this view are about rural India. The report of the “Working Group of the Planning Commission on Agricultural Marketing, Infrastructure, and Policy Required for Internal and External Trade” for the XI Five Year Plan [2007-12], read along with the 19th Report of the Standing Committee of Parliament on Food, Consumer Affairs, and Public Distribution [2006-07] submitted to Parliament draws the true picture of the rural/agricultural India. Compare the farms in India with those in the West. A total of 58.8 million of small and marginal farming families, that is over 32 crore rural people, live on farming in India. Their farm size is 5 acres or less. In contrast, in Canada, it is 1798 acres; in US, 1089 acres; in Australia, 17975 acres; in France, 274 acres; in UK, 432 acres. The US farm size is 250 times larger than the Indian; the Australian farms, 4000 times! Therefore, Farm Gate to Walmart supply chain that works in the US/West cannot be imagined here. Now look at how – and how much of – the Indian farm produce is brought to the market.

 

The Farm Gate to Walmart theory is founded on the elimination of not only middlemen but also small farmers by making farming contractual and corporate to reap economics of scale. It ignores global studies and Indian experience that affirm that economics of scale does not operate in agriculture. Actually smaller farms gives better production. The SMFs in India farm about 34% of the cultivated area, but produce 41% of food grains; their productivity is 33% higher. Replace small farms by large ones. Nation’s food production will instantly fall by 7%. Not just food. SMFs produce most of the 100.9 million tons of milk. So, unless half the rural population is done away with, small farming cannot be dispensed with. The Working Group concluded: “The small and marginal farmers are certainly going to stay for a long time in India – though they are going to face a number of challenges. Therefore what happens to small and marginal farmers has implications for the entire economy”. More critical is that what SMFs produce, they consume and share with the farm labour; they have no surplus to sell. See how Walmarts will destroy their food security.

 

A less known, stunning truth about rural India is that more than 60% of India’s food production does not enter commercial stream at all, but gets distributed, consumed within the villages. It is retained or stored by farmers for consumption, payment of wages in kind to farm labour; and for use as seed and feedstock for animals; for sale within the village. Even if a small part of the 60% un-marketed food production is drawn into the market through supply chain which Walmarts will establish, that will mean urban pricing in rural areas. Can SMFs and landless labour afford the market price and buy their food? Never. If that happens, will that what happened Alfanso mango in Konkan and Kerala fish not happen to rural food also? The Konkan people see, but don’t eat Alfanso but  only export it for high prices and spend that money on urban goods. And the Kerala fishermen fish and export it at high rates, get cash and drink foreign whisky! The FDI in retail undoubtedly puts at risk, t he food security of SMFs and agriculture labour who who constitute 2/3 of India’s population, as the supply chain of Walmarts will make Alfanso out of the basic food grains in rural areas.

 

How does the marketable surplus of 40 percent of food produced by Indian farmers cross the village borders and enter the market?  Nine out of ten tons [35%] of the surplus [of 40%] that enters the commercial stream enter the market through traditional Haats, Shandies, Fairs whose number is estimated at 47000. Only the balance of 5% directly enters the 6359 traditional wholesale Mandis organised under government supervision. Here begins the modern market economy where the surplus 40% of national production gets traded. This is from where the government procures and stocks food for the nation!

 

How do the Haats/Shandies function? Some 3/4th of them are held once a week; 1/5th twice a week; 1/20th on daily basis; one Haat covers some 14 villages; all put together cover almost the entire 6.58 lakh Indian villages. Some 2/3rd are held at 16 km from the villages; 1/4th at between 6 and 15 km; a tenth at less than 5 km. More than a third of the buyers walk to the Haat; 1/3 use bicycle; the rest use bullock carts, even motorised vehicles. According to the Working Group, at the Haats, the farmers not just trade, but also exchange social and cultural information about neighbourhood areas, settle marriages and disputes, make crop choice and discuss resource allocation. Therefore, the Working Group recommended that instead of asking the farmers to come to government for knowing what they should do and should not, the government should open its offices at the place where millions meet at the Haats. Now, by its retail FDI policy, the UPA government expects Walmart to go where the Planning Commission Working group had asked the government to go!  See how the agricultural India is far removed from even the government. National Sample Survey data shockingly reveals that 7 out of 10 Indian farmers had not even heard – yes not even heard – of the Minimum Support Price [MSP] announced by the government with lot of fanfare; 81% of the those who have heard of it do not know – yes do not know – how to use it! This is because the MSP system operates only in Wholesale Mandis, not at Haats. That is why the Working Group wants the government to go to Haats.  The Standing Committee rightly asked the government ‘how will farmers who do not know what MSP is, make use of futures market’. The government, which had no answer, finally banned forward trading in foodgrain.

QED: Thanks to FDI in retail, twelve million community-run retail shops are in danger; and rural food security at risk. This is UPA government’s gift for 2012 and onwards.

FDI in retail: Whom are you kidding, Mr PM?

Devinder Sharma

In India, it is markets that sustain the farmers and not subsidies. We are therefore importing a failed model from America.


 

Prime Minister Manmohan Singh projects FDI in retail as a boon for the agricultural sector. Unfortunately, if you examine the realities, it will spell a death knell for farming. It will be the beginning of an end for Indian farmers.

It has happened in the United States. Ever since big retail – dominated by multi-brand retailers like Wal-Mart – entered the market, farmers have disappeared, and poverty has increased. So has hunger.

Today, not more than 700,000 farmers remain on the farm in America. Poverty has grown, and hunger has broken past 14-years record.

In Europe, despite the dominance of the big retail, every minute one farmer quits agriculture. This is because farmer’s income across US/EU is on a downslide.

According to a report, farmer’s income in France has come down by 39 per cent in 2009, having already slumped by 20 per cent in 2008.

More recently, in Scotland, low supermarket prices are being cited as the reason for the exodus of dairy farmers.

Low supermarket prices in Scotland have forced irate farmers to form a coalition called ‘Fair Deal Food’ to seek better price for their farm produce.

Studies have shown that Tesco has paid producers 4 per cent less price than the average prevailing in the open market.

It is therefore futile to expect the supermarkets rescuing farmers in India.

Despite the destruction of farming globally by the supermarkets, the Ministry for Commerce and Industry is gung-ho about the virtues of foreign direct investment in multi-brand retailing, which means allowing the big players like Wal-Mart and Tesco to swamp the Indian market.

“The agriculture sector needs well functioning markets to drive growth, employment and economic prosperity in rural areas,” says a discussion paper drafted by the Department of Industrial Policy and Promotion.

I find a number of economists and researchers singing chorus of praise for the role the supermarkets can play. But the entire hypothesis is based on a deliberately prepared flawed basis.

Do the supermarkets really benefit? Since 2006, India has allowed a partial opening up of the retail sector. Has these retail units benefited the Indian farmers and for that the consumers? The answer is no.

The argument is that the supermarket chains will squeeze out the middlemen thereby providing higher prices to farmers and at the same time provide large investments for the development of post-harvest and cold chain infrastructure.

All these claims are untrue, and the big retail has not helped farmers anywhere in the world.

Even in Latin American countries, including Brazil, Argentina, Uruguay and Colombia, where supermarkets, most of them owned by multinational giants, now control 65 to 95 per cent of supermarket sales, farmers have been forced to quit agriculture.

If the supermarkets were so efficient and provided dynamism, I would like to know why the US is providing a massive subsidy for agriculture.

After all, the world biggest retail giant Wal-Mart is based in America and it should have helped American farmers to become economically viable.

But it did not. American farmers have instead been bailed out by the government, providing a subsidy of Rs 12.50 lakh-crore between 1995 and 2009, and this includes direct income support.

And that is why the American farmers are being supported in the form of direct income support by the American government.

It is the massive farm subsidy that supports agriculture in the US. If this subsidy, classified under Green Box for WTO calculations, is withdrawn (as analysed by UNCTAD-India), US agriculture collapses.

A latest 2010 report by the Organisation for Economic Cooperation and Development (OECD), a group comprising the richest 30 countries in the world, states explicitly that farm subsidies rose by 22 per cent in 2009, up from 21 per cent in 2008.

In just one year in 2009, these industrialised countries provided a subsidy of Rs 12.60 lakh crore to agriculture. And it is primarily for this reason that the farm incomes appear lucrative.

Left to big retail alone, European farmers would have packed up by now.

In India, it is markets that sustain the farmers and not subsidies. We are therefore importing a failed model from America.

A latest 2010 report by the Organisation for Economic Cooperation and Development (OECD), a group comprising the richest 30 countries in the world, states explicitly that farm subsidies rose by 22 per cent in 2009, up from 21 per cent in 2008.

In just one year in 2009, these industrialised countries provided a subsidy of Rs 12.60 lakh crore to agriculture. And it is primarily for this reason that the farm incomes appear lucrative.

Left to big retail alone, European farmers would have packed up by now.

In India, it is markets that sustain the farmers and not subsidies. We are therefore importing a failed model from America.

An illusion is therefore created as if the supermarkets have removed the middlemen from trading.

But in reality, the big boys now share the commission between them. The new battery of middle-men, who replaces the traditional middle-men, are the quality controller, certification agencies, packaging industry, processors, wholesalers etc.

Do supermarkets help remove poverty? Based on biased studies by the consultancy firms and some institutes, the government believes that supermarkets will create employment and therefore help in ameliorating poverty.

This too is flawed assumption. Lessons need to be drawn from a 2004 study done by Stephen J Goetz and Hema Swaminathan of the Department of Agricultural Economics and Rural Sociology, at Pennsylvania State University in the United States.

The authors measured the impact of Wal-Mart’s massive retail boom on poverty in various American states.

In this eye-opening study, entitled “Wal-Mart and Poverty”, the comprehensive study clearly brings out that those American states that had more Wal-Mart stores in 1987, had higher poverty rates by 1999 than the states where fewer stores were set up.

“Equally important, the counties (districts) which built new Wal-Mart stores during the period 1987 to 1998 also had high poverty rates,” the report concludes.

Interestingly, increased poverty growth from Wal-Mart operations comes at a time when poverty rates nationally in America were otherwise going down.

Claims by the big supermarkets to be driving economic growth by creating thousands of jobs have been exposed as a sham.

In UK, it has now been shown that supermarket chains like Tesco and Sainsbury have failed to live up to their promise of creating thousands of jobs and thereby driving up the economy.

In the past two years, Tesco had promised to create 11,000 jobs and Sainsbury another 13,000.

Tesco had created only 726 jobs, while Sainsbury actually terminated the services of 1600 of its existing employees, leaving 874 people unemployed.

How do we expect Tesco/Sainsbury to create additional employment in India when they have failed to stand up to their commitment back home?

Big retail does not create additional employment but actually destroys the existing employment. Here is a comparison which should help remove the wool from your eyes.

The Indian retail market is estimated to be around $ 400 billion with more than 120 million retailers and employing over 400 million people.

On the contrary, the US-based giant Wal-Mart, a global leader in big retail, also has a turnover of US $400 billion and employs only 2.1 million people. Which one of these retail systems provides employment is crystal clear.

If you think Wal-mart is here to create employment opportunities you must be living in a fool’s paradise. Simply put, they are investing in India to make money.

I don’t know how therefore economist, policy makers and the ministers can think that big retail will provide employment while the evidence from across the world shows that big retail has displaced millions who are already employed.

Are we not deceiving the nation by presenting wrong facts?

At stake is the livelihood security of tens of millions of hawkers, small traders and farmers.

How can any sensible government that claims to work for the aam aadmi actually bring in massive destruction of livelihoods in the name of foreign direct investment?

Why is our government so keen to pull out the US/EU economy from recession and in turn push India into a headlong depression?

 

WHO GAINS FROM FDI IN RETAIL?

Sukhpal Singh

With the Union Cabinet deciding to allow 51 per cent foreign direct investment (FDI) in multi-brand retail on Thursday the way has been cleared for the entry of global supermarket giants in India. There are doubts and fears amid hopes for long-term gains


Photo: S Chandan

 

ONE of the conditions for 51% FDI in multi-brand retail proposed is that the players will source at least 60% of their farm produce requirements from small farmers. A small farmer is defined as one with up to 10 hectares. It is important to understand implications of FDI in food retail for various stakeholders.

The more important questions to be asked on the issue of FDI in retail are: Does it really help farmers or small farmers? Does it improve efficiency of food supply chains and help lower food inflation which India is grappling with? And of course, how does it impact traditional food retailers’ livelihood?

Small farmers may not gain

The operations of domestic fresh food supermarkets in India have not made any difference to the producer’s share in the consumer’s rupee so far (one of the arguments of the DIPP discussion paper for permitting FDI in retail) other than lowering the cost of marketing of the producers as supermarkets have collection centres in producing areas unlike the Agricultural Produce Market Committee (APMC) markets (mandis) which are in distant cities.

But these supermarkets will buy only ‘A ‘grade produce, that too on open market-based prices, and only a part of the output of farmers, who end up going to an APMC mandi to dispose of the remaining/rejected produce. The chains procure from “contact” farmers without any commitment to buy regularly as they do not want to share the risk of growers. Thus, the involvement of supermarket chains with producers is low and there is no delivery of supply chain efficiency as many of them have already wound up e.g in Gujarat.

Supermarkets and malpractices

Though the move to open up Indian markets to foreign retailers is meant to benefit small farmers, the condition of having 10 hectares of land will leave most of them out. There are other problems too:

  • Domestic supermarket performance so far does not give any hope that FDI-driven supermarkets will be any different in terms of benefits to small farmers
  • Buying and selling power of supermarkets due to market concentration will come in the way of benefits to farmers and consumers.
  • Traditional retailers will suffer a loss of livelihood due to competition from supermarkets
  • Many malpractices by supermarkets will not let farmers benefit
  • Supermarkets do not lead to lower food prices if we see global evidence.

Key policy initiatives

Until now only 51% FDI in single-brand retail and 100% FDI in wholesale cash and carry trade was allowed. The paper put up by the Department of Industrial Policy and Promotion (DIPP) for public discussion and comments in mid-2010 and the 2010-11 Economic Survey had argued for FDI in food retail trade in India. In mid-2011 an inter-ministerial group also recommended FDI in retail to control food inflation. The following policy initiatives can be taken to safeguard the interests of local stake-holders:

  • Slow down food supermarket expansion through mechanisms like zoning, business licences and trading restrictions.
  • Strengthen competition laws and regulation of supermarkets
  • Give legal protection to farmers and suppliers as is done in Japan
  • Permit only formal contract farming, not ‘contact’ farming
  • Set up an independent retail commission to supervise and regulate supermarkets to protect interests of suppliers, consumers and labour and support to local retailers and farmers
  • Establish multi-stakeholder initiatives in food value chains and provide support to small producers and traditional food retailers.
  • Producers’ organisations and the NGOs need to monitor and negotiate more equitable supply contracts with the supermarkets.
  • Government should encourage producer companies and farmers’ co-operatives for collective bargaining with supermarkets

 

The noise about benefits to small-holders in high-value crops (read fruits and vegetables) due to supermarket linkages is exaggerated as these crops account for only 2% of the gross cropped area, and the direct linkage is either absent or pretty weak. This is not likely to change even with FDI in retail.

Further, due to the sheer size and buying power of foreign supermarkets, the producer prices may be depressed. In the UK there was a negative relation between the relative market share of a supermarket and the price paid to the suppliers in relation to the average price. The UK supermarket chain Tesco paid its suppliers 4% below the average price paid by retailers.

There have been a large number of supermarket malpractices across the globe which include payments to be on the supplier list (listing fees), threats of delisting if the supplier price is not low enough, payments and discounts from suppliers for promoting/opening new stores, rebate from producers as a percentage of their supermarket sales, minus margins whereby suppliers are not allowed to supply at prices higher than the competitor price, delayed payments, lowering prices at the last minute when the supplier has no alternative, changing quantity/quality standards without notice, just-in-time systems to avoid storage/inventory costs, removing suppliers from the list without good reason, charging high interest on credit, using tough contracts and penalties for any failure to supply.

If it is not misreported, the limit of 10 hectares is laughable as there are hardly 1% farmers who have more than 10 hectares of land. Thus, putting this condition is no good as it is too broad and covers 99% of farmers and, therefore, does not differentiate among farmers at all. Even if it is assumed that it is 10 acres (4 hectares), it will be more than 94% of all farmers (2005-06). How does this conditionality help really small-holders in whose name the permission is being granted? The retail players may work with the top layer (5%) of these farmers and still meet the conditions.

Small retailers to be hit

The supermarket expansion also leads to employment loss in the value chain as compared to 18 jobs created by a street vendor, 10 by a traditional retailer and eight by a shop vendor in Vietnam, a supermarket like Big C needed just four persons for the same volume of produce handled. Metro Cash & Carry employed 1.2 workers per tonne of tomatoes sold in Vietnam compared with 2.9 persons employed by traditional wholesale channel for the same quantity sold. The spread of supermarkets led to 14% reduction in the share of “mom and pop” stores in Thailand within four years of FDI permission. In India 33-60% of the traditional fruit and vegetable retailers reported 15-30% decline in footfalls, 10-30% decline in sales and 20-30% decline in incomes across the cities of Bangalore, Ahmedabad and Chandigarh, the largest impact being in Bangalore, which is one of the most supermarket penetrated cities in India.

Another proposed condition is that FDI in retail will be permitted in all cities with a population of more than one million. The question to be asked is: How many cites in India are really below one million population and how long? Further, given the size of the supermarket retail stores, they may be located in one city but their coverage in terms of potential clientele will extend to neighbouring towns as well.

Impact on food inflation

So far as the role of FDI-driven food supermarkets in containing food inflation is concerned, the evidence from Latin American (Mexico, Nicaragua, Argentina), African (Kenya, Madagascar) and Asian countries (Thailand, Vietnam, India) shows that the supermarket prices for fruits and vegetables and other basic foods were higher than those in traditional markets.

Also, the lower procurement prices through direct procurement from farmers need not lead to lower consumer prices in supermarket chains as procurement prices are more about the bargaining power of buyers and suppliers. Even if it is accepted that supermarkets are able to offer lower prices, the low-income households may face higher food prices because of reasons of distance from supermarkets, and higher prices charged by supermarkets in low-income areas. Thus, there is no direct correspondence between modern retail and lower food prices and, thus, better food security of the poor consumers. Therefore, the inflation containment logic for FDI in food retail does not stand ground given the empirical evidence from across the globe.

Thus, supermarkets would lead to the concentration of market power, with upstream suppliers facing buyer power in terms of lower prices and consumers (buyers) facing higher prices due to lower competition, besides traditional retailers suffering a decline in their business.

Need for regulation

The biggest fear in India is not that FDI in retail per se is worse than domestic corporate investment for farmers or traditional retailers; it is that there may not be adequate institutions and effective governance mechanisms to regulate and monitor operations of the global retailers.

If the monitoring of wholesale ‘cash n carry’ stores so far is anything to go by, there is no regulation and the norms are flouted openly at the store level by the existing players. They are found to do retail sales in the grab of wholesale as the size of a single purchase (minimum ticket size) was just Rs. 500 or Rs. 1,000 which does not seem to be governed by any regulation.

Given the global and Indian experience of supermarkets so far, it is important to slow down food supermarket expansion by mechanisms like zoning, business licences and trading restrictions. Further, there is need to limit buying power of the supermarkets by strengthening the competition laws like the legal protection given to subcontracting industries in Japan in their relations with large firms. These provisions are monitored by the Fair Trade Commission. If contract or “contact” farming is only another name for subcontracting prevalent in industry, then it is only logical to extend such legal provisions with necessary modifications to farming contracts.

Also, provisions for legally binding and clearly worded rules for a fair treatment of suppliers and an independent authority like a retail commission to supervise and regulate supermarkets are required. This authority should ban the buying of products below cost and selling below cost, improve local traditional markets for small growers, delay the pace of supermarket expansion, establish multi-stakeholder initiatives in the chains and provide support to small producers and traditional food retailers.

Producers’ organisations and NGOs need to monitor and negotiate more equitable contracts with supermarkets. The government should play an enabling role through legal provisions and institutional mechanisms like helping farmer co-operatives, producer companies and producer groups to facilitate the smooth functioning of supermarket linkages and avoid ill-effects.

The writer is a Professor, Institute of Economic Growth (IEG), Delhi. Email:sukhpal@iegindia.org

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Walmart Effect: for those who are batting for FDIs in retail sector

We are hearing Manmohan Singh and his gang, Saharad Pawar, Jaiprakash Narayan and others batting for FDIs in Retail oector and saying that FDIs in retail sector will increase employment opportunities and provide better prices to farmers.  In US the organised retail sector led by Walmart has successfully pushed down the prices for the farmers and killed all the small time shop keepers.  Read from various sources, Universities on the ‘Walmart Effect’.

Unfortunately in India no Academic institute is interested in this.  Fortunately the Parliamentary Standing Committee on Commerce has made a critical analysis on this.

Understanding Wal-Mart Effect

Wal-Mart and Local Enemy

The new Wal-Mart Effect: Role of private contracting in global governance

The Effect of Wal-Mart on local labour market

Impact Wal-Mart phenomenon on Rural Communities

Wal-Mart and Country wide poverty

Wal-Mart’s impact on America’s Economy, Environment and Communities

Wal-Mart’s Economic Foot print: a literature review

 

Locational impact of Wal-Mart entrance

Wal-Mart effect

 

 

 

 

 

 

 

Sharad Pawar says FDI will help farmers

by Shubhangi Khapre

November 28, 2011

At a time when the opposition parties and some of the alliance partners supporting the UPA government are raising a hue and cry over the 51% foreign direct investment in retail, Union agriculture minister Sharad Pawar has come out in strong defence of prime minister Manmohan Singh.

In a message to those raising an alarm over the move, Pawar said, “The policy will be enforced only in the big cities, which have a population of more than 10 lakh. As a result, the smaller towns with lesser population are clearly being exempted.”

He said, “The policy, which promises to usher in reforms, will benefit farmers, directly or indirectly.”

Maintaining that government cannot compromise farmers’ interests, he said, “The critics are overlooking the fact that the policy’s main objective is to enhance the financial ability of the farmers who are responsible for the produce. If the farmers’ produce is directly lifted from the fields, with them receiving higher remuneration for it, why should there be any objections?” he asked. “It has always been my endeavour to address farmers’ interests.”

Citing an example on how onions are traded between Nashik and Delhi he said, “Currently, the onions from Nashik are purchased for Rs200 to Rs300 per quintal. But when they reach Delhi, the prices shoot up to Rs1,400 per quintal. Even if one were to consider the transport charges, the prices should still be lower.

The higher price is on account of multiple layers of agents who demand their commissions. If through reforms we can get rid of the agents, both the farmers and consumers will benefit.”

Clearly defining the NCP’s support to the policy he said, ” As ministers we participate in the policy-making of the government at the cabinet meeting.”

Meanwhile, senior BJP leader Gopinath Munde has strongly criticised the policy and threatened an agitation in the state.