Dec 26, 2010

Now it can be told. Onion crisis was stage managed to justify the approval for FDI in multi-brand retail.

There is more to onion prices than what meets the eye. And it is time to peel the onion, layer by layer.

No sooner did the onion crisis erupt on your small screen last week, following the retail prices jumping from Rs 35/kg to Rs 60-80/kg, Minister for Commerce Anand Sharma was the first one to make a statement. Even before the Food and Agriculture Minister Sharad Pawar opened his mouth, Anand Sharma had told the nation that the onion crisis was because of hoarding, and that the country had enough stocks.

This year production of onions has been a record with at least one million tonnes more onion produced than the previous year.

I wonder how and why Anand Sharma made this statement. After all, agriculture is Sharad Pawar's beat and normally Cabinet Ministers tread carefully by not transgressing into the domain of a fellow colleague. Even if Anand Sharma commented because he looks into trade, the fact remains that he has never commented earlier when prices of sugar and dal for instance had touched the roof.   

As the evening progressed, and the UPA government went into a tizzy, Nafed's managing director Sanjeev Chopra expressed surprise at the sudden price rise. He told the media that there was roughly 20 per cent more supply, and despite the rain damage to the standing crop in September when the sowing takes place in Maharashtra and Rajasthan, the price rise defies any logic. I agree with Sanjeev Chopra. He was being forthright and honest.

While all kinds of explanations were being tossed around, what became increasingly clear was that the trade -- middlemen, in this case -- had made a killing. But what remains hidden from public glare is that the entire onion price crisis is stage managed. It has been created to justify the need to bring in big box retail.

Within the next two days the government went into a massive salvage operation. Knowing well that onion prices have in the past brought down the government, not once but twice, UPA-II didn't want to take any chances. Exports were immediately banned, import duties were brought down to zero, crackdown against hoarders began simultaneously, and lo and behold the prices began to come down.

Meanwhile tomato and garlic prices began to rise. While tomato prices ruled high in Delhi (rising to Rs 40 a kg in retail markets), again there was no reason for tomato prices to rise. In fact, as metros witnessed tomato prices going out of reach, the irony is that Jharkhand farmers were dumping tomatoes on road for want of a fair price.

Coming back to onions, before the prices had even stabilised at Rs 50-60 per kg, Anand Sharma moved swiftly to talk to his fellow colleagues on Dec 23 about the need and possibility of opening up to multi-brand retail. In other words, in the midst of a crisis situation, Commerce Minister found time to 'discuss' with his Cabinet colleagues the possibility of inviting multi-brand retail into the country.

For the benefit of some of our readers, when we say multi-brand retail we are talking of big box retail like Wal-Mart and Tesco.

At a time when the Cabinet Secretary was monitoring the onion price situation on an hourly basis, Commerce Minister was confabulating with his ministerial colleagues about multi-brand retail. Finance Minister Pranab Mukherjee, Home Minister P Chidambaram, Defence Minister A K Anthony had taken part in these discussions. Why the urgency? Anand Sharma replied: "Policy formation is a dynamic process, and we are very progressive and forward-looking."

Surely, Mr Sharma. We know what you mean by 'progressive and forward looking'.

In fact, he also met media persons the same day to tell them about the dynamics of FDI in retail. A journalist asked him about the link FDI in retail has with the soaring onion prices. According to The Hindu (Dec 24) "While Mr Sharma rejected the argument that there was a link between the soaring onion prices and the opening up of multi-brand retail to foreign direct investment, the demand for liberalising the sector has been intensifying, especially in the wake of the wide gap between wholesale prices and retail prices." 

Now if you are wondering how can someone be planning (and succeeding) in raising onion prices across the country, I want you to remember the sudden eruption of dropsy several years back, which took quite a human toll. Dropsy was blamed on poisonous argemone seeds which had slipped into mustard oil extraction process. This was, as we now know, done to build a market for packed mustard oil. And surely, the sales of loose mustard oil has gone down drastically after that incidence. 

Howcome, argemone seeds never found their way into mustard oil after that?

More recently, according to a leaked US diplomatic cable released by WikiLeaks, in a January 2008 meeting, US and Spain trade officials strategized on how to increase acceptance of genetically modified foods in Europe, and among the measures included inflating food prices on the commodities market. Read more about Hike Food Prices To Boost GM Crop Approval In Europe: Leaked Cable by Rady Ananda

Allowing big box retail into the country is no less a priority for Manmohan Singh government than the nuclear treaty. President Obama had pressurised India to open up when he visited India in November. Before that, British Prime Minister David Cameron had sought the opening up of Indian market for big box retail when he had made a visit. And more recently, French President Nicolas Sarkozy had also promised more investments if India opens up to retail FDI.

The G-20 has also directed member countries to remove all hurdles in accepting multi-brand retail. It was primarily to meet this directive that the Department of Industrial Policy and Promotion (DIPP) had floated a completely flawed discussion paper on allowing FDI in multi-brand retail. Consultations with the stakeholders (?) have also been completed by the Ministry of Commerce.

Both Sharad Pawar and Anand Sharma are in favour of it. Since there is opposition to multi-brand retail FDI within the Congress party, the onion price drama had to be stage managed. While your tears have by now dried, let us wait and watch how soon the UPA-II gives us another breaking news.      


Now, what FDI in multi-brand retail would do for Indian farmers, is something that I have been regularly talking about. You can read the paper below and judge for yourself.

FDI in retail is the beginning of the end for Indian farmers

It is being projected as a boon for the agricultural sector. In reality, it will spell a death knell for farming. It will be the beginning of an end for Indian farmers.

It has happened in the United States. Ever since big retail – dominated by multi-brand retailers like Wal-Mart, Tesco and Carrefour – has entered the market, farmers have disappeared, and poverty has increased. Today, not more than 7 lakh farmers remain on the farm in America. In fact, the number of farmers has come down to such a low level that America has stopped counting the farmers since its last census in the year 2000.

In Europe, despite the dominance of the big retail, every minute one farmer quits agriculture. According to a report, farmer’s income in France has come down by 39 per cent in 2009, having already slumped by 20 per cent in 2008. In Scotland, low supermarket prices are being cited as the reason for the exodus of dairy farmers. It is therefore futile to expect the supermarkets rescuing farmers in India.

Despite the destruction of farming globally by the supermarkets, the Ministry for Commerce and Industry is gung-ho about allowing foreign direct investment in multi-brand retailing, which means allowing the big players like Wal-Mart and Tesco to swamp the Indian market. “The agriculture sector needs well functioning markets to drive growth, employment and economic prosperity in rural areas,” says a discussion paper drafted by the Department of Industrial Policy and Promotion. I find a number of economists and researchers singing chorus of praise for the role the supermarkets can play.

But do the supermarkets really benefit? Since 2006, India has allowed a partial opening up of the retail sector. Has these retail units benefited the Indian farmers and for that the consumers? The answer is no.

The argument is that the supermarket chains will squeeze out the middlemen thereby providing higher prices to farmers and at the same time provide large investments for the development of post-harvest and cold chain infrastructure. All these claims are untrue, and the big retail has not helped farmers anywhere in the world. Even in Latin American countries, including Brazil, Argentina, Uruguay and Colombia, where supermarkets, most of them owned by multinational giants, now control 65 to 95 per cent of supermarket sales, farmers have been forced to quit agriculture.

If the supermarkets were so efficient and provided dynamism, I would like to know why the US is providing a massive subsidy for agriculture. After all, the world biggest retail giant Wal-mart is based in America and it should have helped American farmers to become economically viable. But it did not happen. American farmers have instead been bailed out by the government, providing a subsidy of Rs 12.50 lakh-crore between 1995 and 2009, and this includes direct income support.

Let me illustrate. Till 1950 in America, a farmer used to receive about 70 per cent of every dollar spent on food. Today, it is no more than 3 to 4 per cent. And that is why the American farmers are being supported in the form of direct income support by the American government.

A latest 2010 report by the Organisation for Economic Cooperation and Development (OECD), a group comprising the richest 30 countries in the world, states explicitly that farm subsidies rose by 22 per cent in 2009, up from 21 per cent in 2008. In just 2009, industrialised countries provided a subsidy of Rs 1,260 billion. And it is primarily for this reason that the farm incomes are lucrative. Take the Netherlands; the average farm family income is 275 per cent of average household income. This is because of the farm subsidies, and not because of supermarkets.

We are therefore importing a failed model from America.

Regarding employment, big retail does not squeeze out middle-men from the food chain. Middle-men by definition mean someone who is between the producer and the consumer. Supermarkets claim that they remove middle-men and therefore are able to provide a higher price to farmers. In reality, what happens is just the opposite. Supermarkets are themselves the big middlemen. They replace the small fish in the trade.

Big fish is known to eat the smaller ones. Supermarkets exactly perform that function. They replace the plethora of small middle-men. The arhtiya clad in a dhoti-curta, is replaced by a smartly dressed up middlemen. An illusion is therefore created as if the supermarkets have removed the middlemen from trading. But in reality, the big boys now share the commission between them. The new battery of middle-men, who replaces the traditional middle-men, are the quality controller, certification agencies, packaging industry, processors, wholesalers etc. 


uthamanarayanan said...

Could as citizens of honesty and integrity, though not influenceal, do something to stem the rot set in by the Govt in allowing so feverishly the multi-brand retail and for the Ministers are quick in taking and augmenting plans.What to do?

Anonymous said...

Dear Devinder,
This is an excellent article. I was intrigued by the similar rigged shortages in Pakistan. It seems to be a pattern in our region, maybe in other south countries too. Last year it was with wheat over here. Later it was found that big producers and exporters were, among other things, smuggling to Afghanistan while poor people went hungry because they couldn't buy much at hiked prices.
This year it was the rigged sugar crisis -- sugar industrialists, half of them feudals in parliament, were hoarding and smuggling. Sugar touched 150/- a kilo, almost three times the normal price, and people went mad. It is the poor man's only source of energy. Next it'll be cotton and other things. The myths about foreign trade and investment simply have to be more effectively exposed if we are to regain food sovereignty.


Najma Sadeque

Ramesh Dubey said...

आदरणीय देवेंद्र जी आपका यह कहना ठीक है कि प्‍याज संकट के बहाने खुदरा क्षेत्र में एफडीआई की अनुमति देने की भूमिका बनाई जा रही है । जो प्‍याज बाजार में 40 से 50 रुपये प्रति किलो बिक रही है उसके उत्‍पादकों को एक-चौथाई कीमत भी नहीं मिल रही है । ऐसे में बिचौलियों का खात्‍मा समय की मांग है लेकिन इसी बहाने सरकार बड़े बिचौलियों (वालमार्ट, टेस्‍को) को बाजार पर कब्‍जा करने अनुमति दे रही है ।
भले ही भारत ने सूचना प्रौद्योगिकी के क्षेत्र में अपना लोहा मनवाया हो लेकिन अभी भी हमारी कोल्‍ड स्‍टोरेज तकनीक पचास साल पुरानी है । हम कम लागत वाली विकेंद्रित कोल्‍ड स्‍टोरेज व्‍यवस्‍था निर्मित करने में नाकाम रहे हैं । स्‍मरणीय है कि इस साल दुनिया के कई हिस्‍सों में सूखा पड़ने के चलते गेहूं उत्‍पादन में गिरावट आई है । यदि सरकार के गोदामों में अनाज भरा न होता तो गेहूं की कीमतें भी उसी तरह राकेट बन जाती जैसे कि हाल में प्‍याज की हुई हैं । अच्‍छा हुआ सरकार बाजार व्‍यवस्‍था के पैरोकारों के दबाव में आकर गेहूं निर्यात की अनुमति नहीं दी । अत: सरकार को देशव्‍यापी भण्‍डारण सुविधा और बिचौलिया मुक्‍त खरीद तंत्र विकसित करना होगा अन्‍यथा बहुराष्‍ट्रीय रीटेल कंपनियां आम आदमी की थाली खाली करने में कोई कोर कसर नहीं छोड़ेंगी ।
रमेश दुबे, दिल्‍ली

Anonymous said...

Your post is interesting. I am a novice and have a doubt - why are farmers getting edged out? Where do the Walmarts and Tescos source their supplies of fruit and vegatable? Do they underpay the farmers because of having an upper hand?

bIGtIME lOSER said...

You haven't actually detailed how the staging of onion price hike could have been accomplished..

While you started of saying 'Now if you are wondering how can someone be planning (and succeeding) in raising onion prices across the country...', I dont find any thing suggestive after that.. or am i failing to decipher something ?

bIGtIME lOSER said...

yeah.. Even im kinda intrigued about the question of big retailers squeezing out farmers life.. Yes, the article you have given in the second half gives a list of examples. But, im failing to understand the happenings behind. I mean, as someone pointed out above in the comments, they are gonna source things the farmer again right ?

Second, Im kinda not clear about how the 'middle man' thing is defined. I had thought middleman are the ones between farmers and retailers. Am i wrong ? Going by my definition that's a benefit right ? I mean, there will be no funda of wholesalers and retailers right ? both roles will be acted by the bigtime retailers..

Anonymous said...

This article is full of socialist drivel..
What is wrong if wal mart comes in India?..
The number of farmers in developed countries fall .. simply because the farmers find more lucrative occupations..( Are you suggesting that farmers be turned into sers.. tied to their lands)
The developed countries are not exactly starving to death because of the fall in farmers numbers

Sambaran said...

My doubts are well captured by earlier comments of 'anonymous' and bigtimeloser.
On one hand I agree that for a farmer 1 big-retail-customer may be much worse than an army of less-wealthy-middlemen.
However, I have nothing to suggest that farmers are in a good state now. If there are a good number of big-retail-organizations without any cartel-activity, big retail can still be good.
I fail to arrive at any strong conclusion/opinion (be it for or against) about entry of big-retail in India. Has anybody read the book 'Price of Onions' by Ashok Desai written about 12 years ago? My opinions are mostly borrowed from that book.

Devinder Sharma said...

Yes, farmers are faced with distress. But the solution is not big retail. No where in the world has big retail helped farmers to survive. In Britain for instance dairy farmers are now feeling the squeeze by big retail and are demanding fair prices from Tesco and the likes.

All over the world, big retail has pushed farmers out of agriculure. To therefore justify the entry of wal-mart on the plea that it will help farmers is completely wrong. Why use farmers name to gain an entry is something that I have always questioned.

To another question, middlemen is someone between the producer and the consumer. Big retail is actually a big middleman who replaces small middleman.

To another question about my being a socialist, I have only to say that please do not be kind to farmers with your market-based solutions. You have already done enough damage to farmers not only in India but across the globe. Already over 2 lakh farmers paid by their blood. How many more people you want to kill to justify more money in your pockets.

Devinder Sharma

Rajesh Thangamani said...

India is a living example of failure of socialist policies !

You can make a case that Socialism has caused silent Genocide all over the world !

People like the author of this blog are far more dangerous to India than the rightwing communalists.

Sambaran said...

@Devinder Sharma,
You claim big-retail is not the solution. Can you please explain why? You said in Britain Tesco has pushed the dairy-farmers out. What are the dairy farmers doing now? Have they migrated to other jobs? If yes, is this development bad? If dairy-farmers are out, who is doing the dairy farming now? Is it the big Corporates? If yes, Is it bad that dairy-farming is being done by corporates?

I have no allergy to the word middle-man. I do not believe that middleman (be it corporate or be it unorganized) is necessarily a parasite. Middleman serves the important purpose of bringing the produce to customer. There is nothing inherently bad in this activity. It pains me to see the term middleman being generally used with negative connotation.

@ Rajesh Thangamani,
I do not agree that author of this blog is dangerous. He seems to be much more learned than many of us in his field. That does not necessarily mean that I should agree with him though. I would say that painting any opinion with one brush by terming it as communist/socialist/hindu-fundamentalist is a very dangerous habit. This habit of painting a view-point with a simplistic moniker keeps discussion easy but makes the discussion stupid and futile.

Dr Mohammed Ali Khan F said...

Its heartening to see more and more of my countrymen awakening to this sick ideology called socialism..
I wish a groundswell of opinion forms in our country against Socialism, and if it forms, I am confident, given the hard working, intelligent and civilized nature of Indians in general, released from our socialist shackles, we will become a prosperous nation.We will no longer be a ” Third world” nation..

Anonymous said...

To all the dreamy-eyed fellow travellers in India..
The biggest middle man in Socialist India is the your darling the " Government Sector " .. Think about it!!

Anonymous said...

"I do not agree that author of this blog is dangerous. He seems to be much more learned than many of us in his field..."
Even Karl Marx was more learned than many of his fellow Germans.. Just read the history of the last century, to know the havocs, the deaths, the terror, the suffering this learned gentleman's ideas caused around the world..

Devinder Sharma said...

In an era of crony capitalism, corruption and corporate crimes, I don't think we need a lesson in what constitutes growth and development.

It is not the poor but the rich who are a parasite on the govermment as well as the society at large. In India, the corporate sector got a tax waiver of Rs 5.16 lakh crore in 2010-11. This is classified as 'revenue foregone' in the annual Budget document.

This is half the annual budget of the country, that is shared by a few corporate houses. This is how the rich and the elite loot the government coffers, and then blame the poor to be a drain on the national exchequer.

Niira Radia tapes has clearly shown how the corporates, rich and the elite feed on the government.

I think it is important to discuss the issue at stake rather than go on a blame game as some of you have started. I am afraid it may not be possible for me to carry any more insuniations.

Devinder Sharma

income.portfolio said...

If American model is a failure, then why are they considered to be one of the biggest agricultural exporters? While count for number of farmers have reduced, how come produce qty has increased? productivity gains?

pointing being middle man lobby in out country is brainwashing and misguiding the public. Since they will be at loss, they are protecting their territory -- Nothing new in this opposition.

Instead of weeding out middlemen like Anand Sharma et al... why are we opposing progressive idea? why not focus of killing middlemen machinery?

may be retail is not an answer, but what are other options to kill this middlemen machinery?

Devinder Sharma said...

Last year you complained when tur dal price touched Rs 110/kg. A section of the economists and policy makers repeatedly talked of bringing in big retail to stem the food delivery system so as to benefit the farmer and the consumer, by squeezing out the middleman.

A fortnight back, Tata has launched its tur dal at Rs 100/Kg. No one complains now. It is ok if Tata supplies dal at Rs 100/kg. No one is asking why Tata is pricing its dal so high when what the farmer gets is hardly Rs 30/kg.

Is there any difference between the old middlemen and the new middlemen (Tata, in this case)? Both are crooks of the first order. And if someone supports the new middleman (against the earlier one in this case) we know why.

Devinder Sharma

Anonymous said...

The perfect answer to this blog is this blog

Anonymous said...

If you do not like Tata's price.. Do Not, I repeat Do Not buy from him..