The entire trade of the enchanting Kashmiri apples is in the hands of commission agents. They decide how much the growers need to be paid and how much you need to shell out.
For several years now, food inflation continues to pose a serious headache for the government. Nine year after assuming power, Prime Minister Manmohan Singh appears clueless. He told the Confederation of Indian Industry (CII) a few days back that inflation (along with corruption) remains a big challenge. While it is not that he doesn't know what to do, the fact remains he doesn't want to take steps that can bring down inflation simply because these steps would go against the basic tenants of market economy.
For several years now, in almost all the panel discussions that you get to see on the TV channels and also the articles/analysis appearing in major newspapers, the blame has been on supply-demand constraints. Because that is what the text books say. I have always maintained that there is no constraint at the supply side, and the entire fault is with the wholesale-retail trade. If you were to visit a wholesale market (mandi) in the morning hours when the auctions take place, you will find the prices going up by 300-400 per cent just within an hour. And by the time, the produce reaches your home, you end up paying anything between 500 to 600 per cent more than what the farmers have been paid.
Take the case of apples from Jammu & Kashmir. In an eye-opening report Marketing System and Price Spread of Apple in Kashmir submitted by the National Bank for Agriculture and Rural Development (NABARD) the exploitation of apple growers as well as the consumers by a well-knit network of commission agents has been laid bare. While you end up shelling out anything between Rs 105 to Rs 120/kg for the Kashmir apples, the grower get on an average Rs 26 per kg. The production cost is around Rs 35 per kg.
The exploitative system has been perfected over the years. According to a news report in DNA newspaper entitled Agents decide how much you will pay for Kashmiri apples (DNA April 1, 2013 http://bit.ly/17eeRdD) "Supply is manipulated in artificial manner generally at agents level through hoarding of apple in cold stores for short duration and controlled atmosphere stores (CAS) for long duration up to 6-9 months.” Incidentally, traders gets subsidy and also subsidised loans for setting up cold stores and the controlled atmosphere stores (CAS) which is being used by commission agents to their advantage.
The newspaper further says: "This trend started with Delhi and has spread to all other parts of the country. Though the agents adopted this CAS system in the late 2000s, the scam became big after 2010 when big agents expanded their CAS capacity in Delhi and Kundli (Industrial Growth Center, Sonepat). “Now CAS units are becoming a craze among CAs,” said an area marketing manager of the J&K horticulture marketing and planning department.
It quotes the NABARD study: “The existence of seven cold storages within Azadpur market yard of Delhi and about 100 CAS at Kundli in Haryana (25 km from Azadpur market) is leading to a sort of hoarding’ of Kashmiri apple before it enters Delhi market for auction.” It also blames the banks for extending commercial loans to commission agents instead of growers, who then exploit growers by extending loans at high rates of interest. In 2011-12, apple growers received Rs 1,200-crores of advances of which only Rs 200-crore came from banks. The rest came from the commission agents and others (Agent's apple growers don't get fruit of labour, DNA, Mar 31, 2013, http://bit.ly/16qmEls).
Reading the reports it becomes quite apparent how the scam has been operating. If we take apple as an example, it become obvious that the price rise being witnessed is not because of supply constraints. Neither can apple growers be blamed for the price increase in the markets. It also negates the view that farmers benefit when inflation goes up. What is at fault, and which unfortunately is brazenly defended by analysts, economists and policy makers, is the exploitative trade. It is the trade that is solely responsible. But why is that no regulation as well as deterring action has been initiated against the nexus that operates between the wholesale and retail traders?
I agree that it is primarily the poor implementation of APMC Act (1997). Over the years, traders have formed strong cartels which are very powerful and difficult to break simply because the successive governments have preferred to turn a blind eye. These traders also operate as big money bags for political parties and so no one wants to cut the hands that feeds. But to say that the best way forward is to debunk the APMC Act and allow private markets to be set up which will provide a higher price to growers and a better price to consumers is another flawed hypothesis. The prevailing rotten system needs to be set right, but throwing it away is not the right answer.
It is being suggested that foreign direct investment in retail will set the house in order. It will end the exploitation of the farmers by the middlemen. Many fall for this argument. But in the most recent cases of exploitation of dairy farmers by super markets in UK it has been shown that supermarket giants like Tesco and Sainsbury have pushed prices down to unsustainable levels thereby pushing dairy farmers out of business (Retailer aligned milk contracts -- good or bad. http://fairdealfooduk.com/?p=
Striking at the wholesale-retail trade in India will send a wrong signal for the market economy. The propaganda machinery has so far been telling us that markets correct itself. This is not true. Showing a stick to the trade therefore will go against the fundamental premise of market reforms. Prime Minister is therefore reluctant to discipline the erring trade. He is trying to protect the reforms he unleashed. His commitment is therefore to the market reforms. The nation can continue to suffer and be exploited in the process. #