The small farmer stands to gain little from allowing FDI, because no matter how much we wish, middlemen are not going to disappear while retailers need to focus on post-harvest businesses

Media discussion on allowing foreign direct investment (FDI) in retail looks sharply polarised. While one side portrays FDI as a ‘magic wand’, the answer to all problems right from the agricultural system to public distribution and unemployment, others are equally critical of its merits; and labelled it as ‘a failed model imported from US’.
 
What must be understood is that FDI will not change everything. No amount of FDI can change the uneconomical land holding pattern that defines Indian agriculture. Farming and harvesting equipment and techniques also cannot be expected to change and standardize magically. The small farmer stands to gain little from allowing FDI, because no matter how much we wish, middlemen are not going to disappear. Indians should be happy if the middlemen are removed. Whether it will create more or less employment is debatable.
 
Unless the big retailers decide to approach the farmer and provide him advances in terms of credits, equipment and seeds, dominance of the middlemen will continue.  India’s big retailers clearly lack the will to change. Retailers want things on their terms, at their time rather than adjust to the market practices. It will be a long time, before both change and meet somewhere in the middle.

At the top, there is a lack of awareness of markets and at the bottom; it is a question of having to work harder. I will elaborate. For instance, the farm produce reaches wholesale markets in the middle of the night. All the supermarket chains have fixed times for accepting the produce. Their reluctance to go to the markets in the middle of the night or morning makes them dependant on other traders, who add to the costs.

There is potential, but in order to realise it, the industry itself must change its outlook. A foreign player could actually change things, especially if they have a long-term view. Moreover, there is a lot that can be changed.

Today, the big Indian retailers have no approach outlined for vegetable farming. The vegetable markets need change and the ideal thing would be to have an Amul like set up, which can act as their saviour. Without that, the traders will dominate, even if the Wal-Marts were to step in. It is also necessary to bring about some rationality in crop patterns, crop rotations and other practices. If big retail can bring about ‘contract’ farming, change will happen.
 
If the retailers take up this issue and things improve, Agricultural Produce Market Committee can be done away with. There is no need for such a primitive market mechanism. World over, auction centres for vegetables provide cold storage facilities and they are not simply rolled on the ground, like it is done in India. If that is achieved, perhaps it will lead to evening out of vegetable prices round the year.

The other blunder that India’s retailers have made is not making any investments in post harvest businesses. There is an enormous investment required in all the stages of farming, including downstream processing units to handle the unsalable vegetables.

FDI can be channelled for that purpose: in the farm, at processing stage, for transportation and at the market place. The other big change that can come about with entry of foreign names is easy credit from banks. Bank finance will open up for firang names. Today, Indian companies do not get money for agriculture from banks.
 
And for the farmers and customers too, there are benefits in the long term. The farmer will take time to realise that better techniques can actually help him. Yes, job losses can happen if the farmer wisens up and uses more mechanisation. Job losses in the farm can be offset by job gains in the post harvest sector.
 
FDI will also provide an exit opportunity for the Indian business that have already invested in retail.  The changing practices of handling produce from farm to fork will make sure that the customer then will get better products. However, he may not gain anything in price.