May 26, 2011

A farmer in the supermart

Devinder Sharma on how FDI in retail could break the backbone of Indian agriculture

A CRUCIAL development in organised retail took place in Scotland recently. Low supermarket prices in the country led to an exodus of dairy farmers from the value chain. It also led to irate farmers forming a coalition, Fair Deal Food, to seek better price for their farm produce. It is ironical that at this time, India’s Minister for Food and Consumer Affairs, KV Thomas, thought of asking for incentives for the organised retail sector in an effort to make direct purchases from farmers.

Thomas made this suggestion recently in a letter to the Prime Minister. Although he did not mention the contentious term “FDI in retail”, his proposal seems to be clearly aimed at opening up the domestic farm sector to the organised big retail.

Ever since British Prime Minister David Cameron pitched for the further opening up the retail sector in India during his visit in July 2010, New Delhi has been bending backwards to justify the need to allow big retail. It all began with a discussion paper floated by the Department of Industrial Policy and Promotion, which said, “The agriculture sector needs well-functioning markets to drive growth, employment and economic prosperity in rural areas.” Soon, a number of economists and researchers began joining the chorus on the role the supermarkets can play in promoting Indian growth.

The International Food Policy Research Institute says: “So far, in India, while Wal-Mart has succeeded in opening one cash-and-carry outlet since its alliance with Bharati Telecom, Tesco has entered into a franchise agreement with Tata Trent, and Carrefour is still scouting for a suitable partner. In the meantime, farmers are robbed in the mandis while consumers pay through their nose to retail vendors.” This is a flawed argument. Past experience shows that big food retail has neither benefited the farmer nor the consumer. Nor has big retail helped create jobs.

Related Claims by the big supermarkets to be driving economic growth by creating thousands of jobs have been exposed as a sham. In the UK, it has now been shown that supermarket chains, like Tesco and Sainsbury, have failed to live up to the promise of creating thousands of jobs and thereby driving up the economy. In the past two years, Tesco had promised to create 11,000 jobs and Sainsbury another 13,000. Newspaper reports say that instead of creating 24,000 jobs in two years, the big retail actually laid off 874 already employed. Tesco had created only 726 jobs, while Sainsbury laid off 1,600 of its existing employees, leaving 874 people unemployed.

If not creating any additional employment, do supermarkets help remove poverty? Based on biased studies by consultancy firms and some institutes, the government believes that supermarkets will create employment and therefore help in ameliorating poverty. This too is a flawed assumption. Lessons need to be drawn from a 2004 study done by Stephen J Goetz and Hema Swaminathan of Pennsylvania State University. This eye-opening study, titled Wal-Mart and Poverty, clearly brings out that those American states that had more Wal-Mart stores in 1987 had higher poverty rates by 1999 than the states where fewer stores were set up. “Equally important, the counties which built new Wal-Mart stores during the period 1987 to 1998 also had high poverty rates,” the report concludes.

Does big retail help farmers realise a better price? I have already talked about the experience of dairy and pig farmers in the UK, but the picture is no different elsewhere. In fact, 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 live on the farm in America. In fact, the number of farmers has come down to such a low level that the US has stopped counting its farmers since its last census in 2000.

In Europe, despite the dominance of big retail, every minute a 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. Farmer’s income in Europe is being sustained by huge subsidies in the form of direct income support otherwise agriculture would have collapsed by now. It is therefore futile to expect the supermarkets to rescue farmers in India.

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 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, why is the US providing massive subsidy for agriculture. After all, the world’s biggest retail giant Wal-Mart is based in the US and it should have helped American farmers to become economically viable. But, it has not happened. American farmers have instead been bailed out by the government, providing a subsidy of `12.50 lakh crore between 1995 and 2009, and this includes direct income support as well.

The situation is no better in Europe. A 2010 report by the Organisation for Economic Cooperation and Development 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 `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.

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

The drop in the farmers’ income that I talked about earlier is, therefore, shared by the new battery of middlemen, who come under the same retail hub. So, while the farmer is pauperised, the profit of supermarkets multiply. In India too, the supermarkets are coming with the same intention.

Source: Financial World and


Sugunasrimaddala said...

Very alarming. Can we stop this from happening?!

Anonymous said...

Relevant to this: This was sent by email to me from govt dept and followed a letter from Minister Caroline Spelman.

Farmer/advisor has just sent letter from Minister James Paice with permission to publish - am so angry I can't use it until I cool down.

Coming soon . . .

What an uphill battle!

Barbara Panvel

Gaurav said...

Its hurting, this way our economy will go to a toss. Shame shame. The people who decide these policies are ill-literate or what? :(

arvsubbu said...

The U.S started getting super rich on cattle rearing and farming about 200 yrs ago ......... and then these WallMarts came along :(