Organized Agri Retailing: Policy Backup Needed
Dr Gursharan Singh Kainth
Director
GAD Institute of Development Studies
14-Preet Avenue, Majitha Road
PO Naushera, Amritsar 143 008
(Emails: idsasr@indiatimes.com, gursharan_kainth@rediffmail.com)
INDIAN Retail industry, which is US$300 billion in 2006, is likely to reach 427 billion US dollars by 2010 and to 637 billion US dollars by 2015. Merely 3 per cent of retail in India is organized. Visible retail revolution is on in India. In a short span of two years, retailing has exploded on the Indian firmament as a humungous business opportunity. The rapid expansion of super markets in India started from mega cities of Bangalore, Chennai and Hyderabad, the southern part of the county. Nevertheless, in recent years, new retail stores/supermarkets are being opened at a frenetic pace in different small cities and towns throughout the country. The country is quickly readying to face profound changes in the retail landscape. It is only the beginning and the best is yet to come.
In such a scenario food retailing cannot be far behind which account for nearly 60 per cent of the total and that too almost entirely in what is described as unorganized sector. This is where organized retail has perceived an opportunity. India’s food sector is set to expand exponentially in the coming years. Given the existing low per capita consumption, every increase in income will first translate into higher demand for food until the time basic food needs are satisfied. Increasing urbanization and growth of small towns throughout the country coupled with increased income level, diversified food habits, growth of working women outside home, willingness to pay or better quality and need for convenience drive demand for processed, ready to cook or ready to eat, convenience foods, packaged and preferably branded. In addition opening up of domestic markets for external trade as part of the ongoing economic and trade liberalization has allowed entry of processed foods from foreign destinations. Consumers are now demanding international shopping experience because of the pervasive effect of information communication technologies (ICTs).
The traditional model of farm plucked vegetables reaching the market and sold the same day by the petty traders had to slowly give way to sophisticated storage, handling and retailing of these commodities over few days by organized market chains. The initiatives by large corporate such as Bharti, Reliance ITC’s Business Division, Godrej, Aditya Birla Retail under Trinethra, Fabmall and more, Food World. PepsiCo, Tropicana and traditional grocery stores, such as, Nilgris, Apna Bazar, Subhiksha and Metro are also increasing their outlets by connecting to farmers directly. With appropriate contacting mechanisms stakeholders can also connect to processing industries and fast food chain such as McDonalds, KFC, Pizza Hut, Bominos and Narulas which continue to expand their operations in India. These developments raise several fears and apprehensions among the stakeholders, policy makers, and civil society organizations as revealed by the recent protests against opening of the retail shops by the corporate sector.
Corporate know that the Indian agriculture sector is a potential goldmine that has not been tapped till now and farmers have a lot of reasons to be happy with the corporate entry into agriculture scenario. With plenty of money and manpower’s at their disposal these corporate Goliaths are attempting to give a new meaning to Indian agriculture- a positive and vibrant. These entrepreneurs are all set to change the fortunes of agriculture industry that has so long been considered a failure. Corporate are more capable of undertaking risks and can face financial losses than small and medium farmers. The government is supporting all these big players into the agriculture sector because of big growth potential which can make a positive impact on the lifestyle of the farmers. Many of these corporate are making a beeline to farmers’ doorstep for buying their produce, something, which the poor farmers’ has never experienced so far. All the times it was the farmers who had to take his produce to the market and search for marketing channels. Corporate entry into agriculture could find an answer that has been plaguing the farm sector for long- proper and affordable price to the farmers. Challenges arising out of fragmented landholdings, limited credit flows and uncertain market conditions would be addressed to a large extent. Importantly, the system will force stakeholders move towards quality related pricing something our country lacks. A strong demonstration effect could add fillip to farm sector modernization.
All these improvements are more than what the government has been able to offer to the agriculture sector. In fact the the governmental cooperative movement which was started with the similar idea of procuring, transporting and retailing the produce has been a major disaster with red tape and political interferences clogging its functioning. By moving in and taking over the supply chain in agriculture, corporate India is also breaking the stronghold of middlemen and loan sharks who have been exploiting the farmers. But the litmus test is whether this new trend is relieving the present constraints that the farmers face in effectively linking with regional domestic and global markets.
How is private sector driving smallholders’ participation in retail food markets? The common perception that private sector will exploit smallholders is slowly changing with the successful demonstration of several corporations that are working with small holders to connect them with domestic and world market.
Retailing in India is subjected to a plethora of laws/regulations at the central, state and local/municipal levels. There is lack of specific legislation controlling distribution trade and there is no nodal ministry to control and guide the operation of this sector. This has resulted in delays owing to multiple clearance procedures. Single window clearance scheme should be set up. The food supply chain is highly fragmented and is dominated by a large numbers of intermediaries. Marketing of agricultural produce is governed by the state specific Agriculture Produce Market Committee Acts which until were quite restrictive in commercial transactions in agricultural commodities outside the state designated markets. Under the economic reform program, central government amended the APMC Act in 2003 allowing agribusiness marketing firms to source their raw material requirements directly from the farmers through contracts or other wise. However its implementation, which rests with state governments, has been slow acting as disincentive for agribusiness firms to invest.
As recommended by Dr M S Swaminathan, Chairman of National Commission for Farmers, the Special Agricultural Zones should be established to sustain and expand the retail boom from farm to market. SAZ should aim to bring about a Small Farm Management Revolution which can help to improve the productivity, profitability and sustainability of the major farming systems of the country. Special incentive and support for conservation of farming, timely supply of credit, effective insurance system and above all post harvest infrastructure for value addition to primary produce, biomass utilization and producer oriented marketing must be given to farm families in the SAZ
Multi-stakeholder Contract Farming Regulatory Authority should be established to ensure mutually beneficial partnership between the growers and mega retail trade. Authority should ensure equitable social bargain in this sector and can at as a watchdog body.
Another potential option that can effectively integrate smallholders on the modern supply chain is to facilitate smallholders to form grass-root level associations/informal cooperatives owned and managed by farmers themselves, and/or producer companies- a hybrid between cooperative ad private limited company- owned y farers but managed by hired professionals empower them to effectively deal with big industrial players and reap the benefits of scale economies of marketing.
There is a land war involving small and marginal farmers possessing fertile agricultural land and those who wish to purchase for setting up SEZs. The answer to this question is not just to persuade small farmers to quit farming by selling their land, however attractive the prevailing price may be. Most of the small farmers after selling their lands will become just landless labourers after a year or two when the money gets exhausted. Therefore any Exit Policy for small farmers through land markets must be accompanied by an Entry Policy to provide them alternative and sustainable non-farm livelihoods- a real contribution of the retail sector. Failure to do will swell the numbers of landless labourers’ families with disastrous social consequences.
Another heated debate is on whether or not; Foreign Direct Investment (FDI) in retailing is desirable. FDI is not allowed in retailing. FDI in a single brand is permissible. It is also allowed only in franchising and in commission agent services. The Foreign Investment Promotion Board on a case by case basis approves the FDI proposal in the wholesale trade services. Many reputed foreign retailers with deep pockets and deeper market knowledge are waiting in the wings to enter the country. Restriction on FDI may constrain the growth of organized retailing. Restriction of FDI in food retailing is on account of the apprehension that entry of multinationals will displacement of workers in the unorganized retailing, which needs thorough examination. FDI in retailing will expedite the process of development of modern format India bring in technical know-how, reduce inefficiency in the supply chain, increase productivity, help achieve international quality standards and improve the quality of employment and services offered to the consumers.
Storage is the biggest challenge because the warehousing facilities in India are totally inadequate. Temperature control and inventory management are two issues that need focused attention. Transportation is another challenge. We need inexpensive, efficient and specific movement including appropriate material handling equipments, cold chains and refrigerated vans. Segmentation based on class of buyers, packaging and store display are areas that deserve attention. Public policy has an increasing role to play in effectively using retail agricultural markets to reduce poverty in rural areas. Public investments in rural roads connecting smallholders in remote hinterlands to market centres can extend the benefits of retail food boom beyond periurban areas. Infrastructure and cold storage development for storing, sorting and distributing fresh foods can bring together smallholders in the form of cooperatives and producers associations which will induce more private companies to deals with small and medium scale farmers.
Public private partnership can create further competition mange the retailers and reduce the welfare losses of the traditional players such as petty traders and street vendors of fresh produce markets. Traditional retailers and street vendors need to be encouraged to form cooperatives from the existing retailers associations. They should be given appropriate training to organize them selves and start retail stores which can effectively compete with the corporate sectors.
Retail boom will not collapse in the recent future provided those engaged in making huge profits through transnational or national super markets ensures livelihood security of millions of persons engaged in micro retailing. Small and marginal farmers should be assured of income and work security as a result of their partnership with those riding the retail boom. Small and marginal farmers should be assisted in improving their productivity and profitability through timely input supply and improved quality management.
Central and States governments have to create a level playing field for the growth of new market institutions. Effectively integrating farming community with the local, regional, national and global market is crucial for realizing the commercialization of Indian agriculture. Retailing of agriculture products will help to bring a transformation in the country’s moribund farm sector by attracting private investment to improve production, productivity and quality. Organized well, private participation in the small holder agriculture for producing, processing and marketing high value commodities can be win-win proposition for all stakeholders- growers, aggregators, processors, retailers and consumers- if it is played with social responsibility. However, it may be unreasonable expect food retail to address all the entrenched problems of Indian agriculture and produce marketing. Retailers are after all in business to derive return on investment and make profits. By its very nature, food retail is high-volume, low margin business.