Retail 2: The tail of retail

Time to continue the positivity exhibited in “The Imbalance” and that first blurb on “organized retail“. While the front-end of organized retail might attract controversies around job losses, story should be lot different at the ‘tail of retail’.

Remember those news items around an year ago that said farmers in Kolar were dumping tomatoes on the highway? They were unable to sell, and didn’t have facilities to stock for long. Result? Extreme measure.

Commonly estimated stat for T&D losses (to borrow a term from electricity world) for farm produce in India? 30-35% they say. A third is wasted, got that?

More recently, read what Mukesh Ambani had to say on a similar subject:

… Take potatoes, the most common food across the world. From Bill Gates to my driver, everybody eats potatoes. Now, plot the prices. Farmers in Uttar Pradesh and Bihar get about Rs 4-5 a kilo; in the Middle East, the wholesale price is about Rs 25-30 a kilo. In the US, Sam’s Club, it is Rs 90 a kilo. In Europe, it is Rs 110 a kilo. The arbitrage is 1:20. If we get our produce right, and if the US market is opened up …

I wanted to know more about Metro (Cash and Carry chain, 3 outlets, all in Bangalore) and some TV programs obliged. Metro can’t buy farm produce directly from farmers (thanks to state’s APMC act), but they can do so for fish. Apparently, they have taken an interest in transforming Mangalore’s fish market, and have invested heavily in efficient transportation (I am thinking huge refrigerated trucks or perhaps planes) from that port city to Bangalore. The result I can guess would be happy fishermen as well as Metro and its customers.

[In most states, the APMC Act prohibits transactions outside the govt established yards. Even in states that allow transactions outside these yards, companies need to pay a tax if procurement is direct.]

So now, if APMC acts were amended to let these private concerns source farm produce directly from farmers, then, what if these players cut that T&D loss down from 35% to 20%, and then keep some of this gain themselves and put the rest in farmers pockets? Expect similar gains by way of eliminating the famous middlemen who, so many books and magazines tell us, extract lower-than-market prices from farmers.

Sounds good right? You are either dumb or a lot more knowledgeable if you answered no. This makes sense to me, and a few state govts too. Karnataka state govt isn’t behind either, and as you would expect, protests have commenced as well.

When the dust settles, I am sure the right thing will happen. And the ‘tail of retail’ will begin the important job of helping our hinterlands catch up. I just can’t wait.

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14 Responses

  1. The personal GREED there is almost palpable- go on then throw the stones at me ye intolerant votaries of the free market- but dont ever say you werent warned

  2. Great post pranav..
    Here are some stories I was following today. One is big picture stratergic another is apple in hand application.

    Finance Minister P Chidambaram today said, “The time has come to make a determined and decisive intervention in agriculture in order to boost productivity”.

    Chidambaram said the government had devised a multi-pronged strategy to revive the agriculture sector, which included rapid expansion of irrigation facilities, extension of credit and introduction of new technologies.

    http://www.business-standard.com/common/storypage.php?autono=273143&leftnm=3&subLeft=0&chkFlg=

    Ganesh Jadhav, a farmer from Wadgaon-Tanda in Yavatmal in Vidarbha district, now infamous for suicides by indebted farmers, tills 3 acres of rain-fed land. He has escaped the horrors of the local moneylender because this year, he turned to contract farming. Thanks to a good castor crop that he sold to Gujarat-based Jayant Oil Mills, he has already seen a more than 60 per cent jump in his annual income to Rs 25,000.
    Now sowing tur (a pulse) and soyabean, Jadhav’s annual income will increase once he sells these remunerative inter-crops and markets the seeds from his first castor crop. “Had I stuck to cotton, I would have barely earned Rs 15,000 in the whole year,” Jadhav said.

    http://www.business-standard.com/common/storypage.php?autono=272910&leftnm=3&subLeft=0&chkFlg=

  3. hmm…
    guess from what you say, it must be sleepless in mangalore and banglore days now. guess why apparently BM highway is plain unmotorable on the shiradi ghats. so much so even veerendra heggade has come out complaining.

  4. shashi,
    please elaborate on your concerns. or atleast lead us to some material where we can educate ourselves on why you object to entry of private buyers in agriculture.

    personally, i have heard from people who are in the know that losses at sarkaari godowns are > 60% for things like grains. forget about perishables.
    I also know of farmers who year after year suffer losses because they have to dump their produce because they cannot get their produce to market fast enough.

    Sarkaar has been trying to tackle the problem of fragmented land ownership with bhashan after bhashan and scheme after scheme. but neither the farming community nor the economics community is happy with the state of affairs. What is troubling is that it has not been possible to replicate AMUL type of model in agriculture anywhere in India. What this means to me is that there are systemic problems not leadership problems in implementing the AMUL model in agriculture.

    but i understand that agri in India is just not business but has other aspects to it. But I think, these issues, primarily social equity and equal opportunity, have to be addressed on their own merits and cannot be pigged backed on propping an unsustainable agriculture model. I.e, failure of the govt in providing practical education, opportunity and existence basics, cannot be swept under the magic carpet of agriculture that one fantasizes will carry Indian masses to wonderlands. I suspect the load is too heavy for that.

    For context, please think of farmers in North Karnataka and not the vishweshvarayya bhaktas in mandya.

  5. Education of farmers and providing the correct and right guidence is the requirement of the day.

    Have heard that maufacturer of MAAZA brand of mango drink has started doing this with the farmers of rathnagiri belt. He has contracted their entire produce for his MAZA fruit drink at a reasonably high cost, is providing them technincal inputs on how to improve yeild and most imprtantly gaurding against common mango pests on timely basis.

    Offcourse at end of day, the MAAZA drink owner a capitalist smiles away at cash box, common man can not eat those wonderful mangoes due to very high cost ( Marshalls theorem of demand and supply work here), farmers for a change are happy till some netha smells blood and does a protest that next year it should be profit sharing…

    Isnt it a general way of life in india?

  6. I feel having APMC as the “middleman” is not conceptually a bad idea!
    The situation is something like this Farmers –> APMC –> various retailers

    The main idea behind this was to “avoid” exploitation of farmers. The government fixes the price for each vegetable looking into various conditions, and all the farmers will sell their products at the same price.
    The moment we open up the communication, each private party will start quoting his own price.. and obviously there will be competition and who bares the brunt? It’s we the consumers!

    So “conceptually” APMC idea is good. Infact perfect. BUT, as usual anything “govt” in India is corrupted. So, we are seeing the state we are in today :-(

  7. Shashi, what exactly is your concern? Our country is called India, not Utopia.

    Tarle, thanks. Actually, I read that B-S bit on contract farming, I subscribe to B-S, read it everyday, very good newspaper as far as coverage of economic policies is concerned.

    M O H A N, another contract farming example again.

    shark, actually, APMC amendments aren’t getting rid of govt Mandi’s. Govt will now let you buy directly from farmers w/o paying any tax for doing so. Yes the idea behind APMC was to prevent private parties from farming a procurement cartel – so I too read. But being monopolistic in nature, govt mandis have no incentive to be quick and efficient. And any place you have govt control without alternatives for the consumer, you are automatically inviting corruption, isn’t it?

  8. @Shashi: This is not a privatization move. Farmers already sell their produce to private parties. The new law wants to open up the market to direct buyers such as Metro bypassing the middlemen.

    @Shark: APMC is meant to be a facilitator or a mediator. It does not buy or even set selling prices. Farmers bring produce to APMC yards and sell through an auction system to buyers (commission agents or middlemen or dallali as they are known in Karnataka). The Govt can intervene when there is a crisis by announcing minimum support prices.

    The whole system is setup in favor of the middlemen as they manipulate the prices. APMC officials are often part of this to push the prices down. It does not matter whether the demand for a particular crop is high or low as the system is rigged. This is why we often hear about farmers venting their anger at both middlemen and APMC officials.

    @Silkboard: You are too optimistic!!! I have mixed feelings about the new law. Elimination of commission agents sounds good on paper. However large corporations also tend to be just as exploitative and manipulative as local dallalis. One way the big guys exploit the little guys is through restrictive or exploitative contracts. There is a lot of fine print in all the things a corporation does.

    Our new farm policy should place the farmer at the center of it. Green revolution has done enough damage. Time to focus on sustainable profit margins for farmers, reduced dependence on chemicals as our water and soil have been poisoned by unsustainable practices, preservation of local crop and fruit varieties etc. There are some positive signs as some farmers in Karnataka and Maharashtra are turning to Natural Farming to reduce costs and minimize environmental harm. This effort is headed by Subhash Palekar.

    More reading:

    1. http://www.thehindubusinessline.com/2003/12/16/stories/2003121600030900.htm
    2. http://en.wikipedia.org/wiki/Green_revolution
    3. http://www.indiatogether.org/2006/nov/dsh-revive.htm
    4. http://www.hindu.com/2006/09/22/stories/2006092202200300.htm
    5. http://en.wikipedia.org/wiki/Masanobu_Fukuoka (natural farming pioneer from Japan)
    6. http://goldenharvestindia.blogspot.com/2007/01/apmc-markets-archaic-market-place.html (good intro to the way APMC works)

  9. Don’t know about APMC and its functioning a lot…. but this is what NDTV showed on television via a ‘sting’ operation:

    1. The grains that govt. bought, and marked as BPL (Below Poverty Line) – was actually found at shipyards for exports. And this was done with the collusion of folks managing this BPL grains itself.

    2. NDTV folks followed the trucks that came out of such graneries, and found that instead of dumping food at BPL Ration Shops – it went straight to some wholesalers and dumped it there.

    There is NO INCENTIVE… ZERO – for the govt. folks to actually be good or fair at their jobs.

    And i remember reading that – FoodGrains rot in dumpyards across india, but do not reach the poor. Basically there is no scarcity of food in india, but corrupt and inefficient distribution is the problem. (Reminds us of power situation too).

  10. @silkboard: Completely agree with you. As I said “conceptually” it’s a god idea, but as you pointed out monopoly spoils everything. Especially if it’s anything “GOVT” in nature!

    @Apun Ka Desh: Yes. I have also heard of things rotting in the dump yards. My neighbour had a farm in the village.. and he was telling me that they do this to create artifical scarcity, so that they can then sell at much higher prices!

  11. Just for your glance.
    Open it through firefox, there seems to be some debug/error when opened on IE.

    http://optimistmysorean.aminus3.com/image/2006-12-21.html
    ==>Farmerism

  12. when clicked on the comments down in the page

  13. In the link below is the other side of the coin from one of the few authors that I respect. The US / western nations’ model is not the most appropriate one to be followed in toto – a better one might be to adopt practices suitable for India and add / modify other ones. A good example is TRAI – the roaming charges were recently slashed when the “market forces” did not drive them down.
    http://www.deccanherald.com/deccanherald/jan182007/editpage2222162007117.asp

    An extract that is worth noting –
    “On the other hand, despite the industrial farming systems linked to supermarkets, the number of middlemen has actually grown in the US. The new breed of middlemen operates under one umbrella organisation. You have the quality control man, the standardiser, the processor, the retailer and so on. It is primarily for the increase in the number of middlemen that the farmer’s income has got squeezed. Studies have shown that in 1995 when a farmer went to the market to sell his produce worth one dollar, his income would be 70 cents. Ten years later, in 2005, farmer’s income has dropped to a paltry four cents. The middlemen have neatly pocketed the rest.

    Economists and socialites, who back the entry of global retailers like Wal-Mart, Tesco, Reliance and Bharti Telecom repeatedly tell us that while the intermediaries may be sulking over being left out from the newly acquired value chain, for the farmers, hopes, opportunities and wealth are all finding their way into their homes. Well, the reality is that the American farmers were actually pauperised by the value chain. If that is the situation in the Mecca of the second Green Revolution, I wonder what will happen to Indian farmers when the retail chains take over.”

  14. Dharwad, N, your points about exercising caution when making things too free market are valid. Corporates can be exploitative, and will certainly be more greedy. I firmly believe that a govt/public monopoly is better than private monopoly.

    However, I think that our policy makers know these things as well. They will setup TRAI (the example N gave) like bodies to regulate and monitor Agri procurement and pricing (though this will be at state govt level). And central govt should monitor these bodies across states to see if cartels (or virtual monopolies) start getting formed. After all a purpose for APMC act was to prevent formation of private cartels and manipulative procurement pricing. I am sure that goal will be kept intact.

    My optimism stems from the fact that though things appear chaotic and easy-for-us-to-criticize on policy front when they happen, at the end of the day, the right things does happen (refer recently started review of SEZ act).

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