FDI in retail will really benefit us, if it helps the farmers. Today, farmers are starved of infrastructure, logistics and investment. Even the investment schemes are hard to implement. A first-hand view of the reality on the ground
Foreign Direct Investment (FDI) in retail has become a hit topic of debate and discussion. It is interesting to note that all the noises are coming from people who have no stake in either side. People are more worried about which perceived lobby they can incite and whip up passions. And of course, our media is all for it. But what is the reality on the ground?
Over the last three years, I have been fortunate enough to be a part of a horticulture venture (vegetables and fruits) that has brought me in touch with the farmer as well as the consumer. Let me first give you my first-hand views on the issues. Farmers want a better share of the price that the customer can pay. Today, the price difference between what a farmer gets at the wholesale mandi and what the customer pays is approximately 100% or so, on a good day. The big issue we have seen is one of wastages in the output from the harvest to reaching the shelf due to time lapse, improper storage, primitive packing and total absence of post-harvest management. Moreover, the farmer also does not have any infrastructure and has to sell off his produce immediately. When there is oversupply in one locality, the price at the mandi drops disproportionately. The farmer has no flexibility to hold on or even to transport the produce back to his field. Apart from this, farmers suffer from tiny land holdings. This means higher costs of production, transportation and very low financial flexibility. The present format of retail supermarkets does nothing to make the farmer any better off.
To solve the plight of the farmer, infrastructure is required, which includes processing centres, refrigerated trucks, cold storage at the destination and proper storage at the retail outlets. As one of the first players in this field, we have been trying to address the issues, one by one. We buy from the farmer and sell to the supermarket—directly. We pay top mandi price without charging any commission. Since we pick up the produce, the farmer also saves on transport.
Ideally, we should form a farmer cooperative and do something like Amul. That is perhaps the best way. And if a cooperative is well funded, there could be a retail chain that will sell directly to the customer. This would be real reform.
Today, most department stores or supermarkets keep a mark up of around 30% in order to provide for ‘dump’ or unsold stock. Obviously, customers do not want to pick up ‘broken’ vegetables. Proper packaging would help to virtually eliminate store losses and they can reduce the mark ups. Proper handling and infrastructure will not add much to the final prices prevailing today. The farmer will get a higher price and the customer will get better quality, perhaps at the same price.
There is room to drop prices further, if we can succeed in investing in secondary processing. This means that we invest in making concentrates out of broken or mis-shapen vegetables or fruits that do not get sold—make jams, dehydrated produce, etc. Of course, all of this calls for high investment.
It is heartening to see that the government has announced so many schemes for subsidies in this sector. However, obtaining them is a nightmare. The funny thing is that, to get hold of these subsidies, one needs a bank loan sanction first. Forms and project reports are required to be given to the agency doling out the subsidy. In about three to six months a Letter of Intent is issued. Before this is obtained, one cannot start any work on the project.
Banks are shy to lend to the farmer and prefer ‘personal’ guarantees and/or ‘urban’ collateral. Farm land is not considered to be an ‘enforceable’ security. Banks have lost a lot of money lending to the farmer at the behest of the government and have been continually writing off loans. More importantly, the agricultural loans department in public sector banks have never seen a balance sheet. They have merely lent against land, gold or real estate.
Tomorrow: The impact of FDI in retail at the other end of the supply chain—the actual retailers—will be discussed.
(The author can be reached at [email protected].)
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