FDI in Retailing: Building Farmers' Markets

FDI in Retailing: Building Farmers’ Markets

Opening up retail for foreign investments is a boon to Indian farmers. A well- organized supply chain in the farm sector will help our farmers realize the right value for their produce. Middlemen arm-twist farmers adopting various strategies to squeeze their prices low. I was in a farm near Dindigul in Madurai district during summer last year. It was the peak of mango harvesting season in the farm. The farm was situated near a village called Natham and as I was speaking to the farmer who owned a large farm, he opened up to me and I came to know some startling facts. One of the revelations to me was that the farm produce in the whole catchment area spreading over a few villages are usually bought over through a contract procurement lease at cheap lump sums in the season by a handful of middlemen. The farmer saves the pain of selling his produce to the mandis during each phase of the harvest but loses a good deal of income on the lump sum lease. The other startling fact was that the middlemen quote low prices throughout the season and defer procurement till the time majority of the produce is pushed to the verge of rotting as these farms are not easily linked to the market as well. He said that in yesteryears there was a mango drink manufacturing organization, which supported farmers throughout the year by taking mangoes for their production at published procurement prices directly from them. It was closed eventually and there is now no way they could pulp these mangoes nor store them. They are forced to sell at low prices to middlemen who garner almost about 55% of the margin in the entire supply chain – from farm to fork.

Small retailers do procure farm produce at high prices from the wholesale markets as any produce comes to them after passing through a minimum of four or five or even more number of middlemen. Tamil Nadu was the frontrunner in helping farmers realize the value their produce would deserve. In Tamil Nadu the government facilitated farmers by creating marketplaces called the Farmer’s Market in the last decade, in 1999, where they could themselves set up shops, stock their produce and sell them to consumers directly. Many of them are yet functioning as successful centres. These markets provide fresh vegetables and fruits at the right prices in correct measurements everyday without the interference of the middlemen. The Tamil Nadu government helps these markets serve as technical information centres to the farmers so that they could be trained in better farming practices. Due administrative steps are taken to see that prices are put up daily on an announcement board in the market and these fixed prices are monitored for compliance. Shops are allotted free of cost everyday to the farmers on first-come-first-served basis and never on a permanent basis to anyone. The market committees of the Department of Agricultural Marketing and Agribusiness maintain these farmer’s markets in Tamil Nadu. This phenomenon will be multiplied as farm collection centres and large retailers will establish such markets in due course across the country, helping farmers a great deal.

In 1997 FDI was permitted up to 100% in the cash and carry wholesale business in India through the automatic route. It has taken almost 14 years for a mere two or three organizations who have invested in India to set up their cash and carry outlets and none has reached even a double-digit number of outlets. So slow is their progress and many of our small retailers yet make their purchases directly from the distributors of products and other traditional wholesale markets. The new cash and carry organizations have enrolled small retailers as their members and they even organize credit for them so that they could avail forty five days’ credit to pay up, which may be in fact enough time ‘to sell and pay’. As these cash and carry stores spread over the country with the establishment of many more organized retail stores and an efficient supply chain, small retailers will benefit more. Retailers will come to experience shopping under one roof for most of their requirements availing credit that FMCG suppliers and traditional wholesalers will never offer!

So, its, not just the farmers and retailers but consumers at large who will be all smiles as FDI opens up in retailing in India!

- Dr. Gibson G. Vedamani