Thursday, November 1, 2012


FDI would revive India's ignored agriculture

The incumbent government is grinding it out in their apparent effort to convince the farming community that allowance of FDI in retail will actually benefit them. So much effort to convince the truth is required because of a highly charged political surrounding that is reflected in the Opposition’s stand against the move. However, the farming community came together organically and enthusiastically in the difficult task of voicing open support for FDI in retail. A farmers’ delegation recently have thanked Sonia Gandhi eagerly that they feel the move will benefit both farmers as well as consumers. They submitted a memorandum stating that this move has the potential to re-energise the farming sector and projected an air of confidence that it can also prevent the sector from a probable breakdown.

What the retail giants like Wal-Mart can do is a vertical integration in the supply chain, and there by choking the middlemen’s involvement from the system. It is already noticed from certain regions of the country, where deep pocket corporates like Reliance and ITC operate, that farmers have benefited from the organised retail giants’ venture. The model has succeeded because the organised retail has sourced the agricultural produce directly from farmers, which allowed them, to pay the farmers more than what the middlemen could have paid. It is often argued by the people opposed to it that the MNCs would require large farms and thus neglecting small farmers, or the retailers can leave a farmer for better opportunities, even flouting the contract with the farmers. In any of the cases the farmers are not really met with adverse effects. The moot point that is missing with the opposition is that in imperfect distribution channels the benefits of farm products’ price rise are mostly hushed up by the middlemen depriving the farmers completely on the financial gains.

APMC Acts require the agricultural produce to pass through the channels of authorized middlemen before it reaches the end users, portending financial loss for the farmers. Further, Essential Commodities Act, too, is a restrictive instrument that put caps on the volume and distribution of the farm produces, ratcheting the farmers’ despair. Despite some serious efforts by the government, it has failed to bring about any major changes in the APMC Act, as any effort to trim the middlemen attracted strong opposition of state’s traders lobby in the fear of putting their employment at risk. An integration of supply chain is needed that can be transformational in the way agricultural distribution is carried on in the country since independence; by reducing the farm and retail price gap. Unfortunately farmers’ unions are not as strong as middle men’s lobby, which stifle the voice of the farmer in the bargaining power of agricultural marketing. Thus all states should take measures to strengthen the producers association so that their say in the marketing value addition of the farm products can be taken into account. Even the urban people share this point of view that organized retail is a boon. An Ipsos initiated survey conducted in 6 Indian cities, reveal that 51 per cent of the respondents believe that FDI in retail will stoke up the economic prosperity for the farmers and for the country’s economy.

The stage seems set as Starbucks in JV with Tata Tea recently opened its first outlet in Mumbai. With Starbucks coming to India, hundreds of coffee farmers who were once committing suicide (from coffee-growing states of Kerala and Karnataka) should get a new lifeline. The JV aims at sourcing coffee from the local farmers and provides them with training to increase productivity. Starbucks is trying to do something that the government should have done long before. If the same was done by our government then today, Starbucks would have found much steeper competition in the domestic market.


1 comment:

  1. Do agree sir, that FDI in retail is a major improvement towards agricultural sector. Though we need also to make stringent laws against these big daddy MNC's as they can play with prices and try manipulating them. FDI is not a issue for a diverse market like India, but with each FDI, the rules should be secure and strict.