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Rashid K Kidwai: Political knives that should not cut the supply chain

FDI in retail cannot be abandoned forever, as it could transform rural employment

Rashid K Kidwai 

As the opening up of retail gets put on the back burner, at least until the Uttar Pradesh election, I still do not understand why the Congress has not pushed this through earlier. They would certainly benefit from rewarding the huge number of voters at the two ends of the tunnel — the farmers and the consumers. The tunnel itself, or the chain of middlemen, comprises a much smaller but powerful lobby of traders, traditionally supporters of the

Farmers would benefit from direct access to the end-buyer, as against being fleeced by middlemen. This has been amply demonstrated by with their tomato procurement in Punjab. The reason why this ran into trouble is that the politically important farmer enforced the contract with when prices were low, but broke the contract and sold to the mandi when prices were high. Given the political sensitivity, could not enforce their contracted terms. This is something the government also needs to address, as with retail coming in there will be huge opportunities for farmers — provided companies can go in for contracting on fair terms. Farmers would gain from the price realisation from the end-buyer, rather than the price paid by the chain of middlemen.

My own experience here is when Grassroots Trading Network for Women, of which I am director, contracted with ITC to sell them sesame seed through (Self Employed Women’s Association). Where, pre-contract, farmers were getting Rs 18 per kilo from the middlemen, they now started getting Rs 29 per kilo from ITC. ITC was not doing them a favour; they, in fact, had a bit of financial advantage as they saved on sorting and grading the seeds, which was doing for them before dispatch. Apart from the financial gain, farmers also learnt about pre- and post-harvesting techniques and storage, and pesticide usage. In addition, ITC helped them learn how to optimise their expenditure. The same was seen with Pepsi where, apart from gaining financially, farmers increased their yield of tomatoes from two-to-three kilos to around 25 kilos — from the same plots — because of the technology that Pepsi brought in.

All large retailers will need to buy from farmers to ensure freshness and quality, in order to attract customers. They will also bring in technology to increase yields which, in India, are among the lowest per hectare in the world; this, too, will benefit farmers. The quality of food we eat will also improve, as these retailers would need to keep their international standards intact. Farmers would have to produce goods to meet their requirements — for which they would need to improve current agricultural protocols.

In the last few years, high food inflation has engaged Parliament and disrupted proceedings. Food inflation is happening because our people are finally eating better and demanding a variety of products, apart from just cereals. The increased yields will not only address food inflation through higher supply, but will also improve our nation’s food security.

Another aspect that we in India have never looked at — because our government accepts it — is the level of pesticide residue in our food. Hopefully, international retailers will apply the international standards to their purchases, and so help us in reducing our pesticide intake, which goes completely unchecked today. Here again, government needs to come up with mechanisms to adhere to international standards. Strict laws, based on international standards, have helped in curbing pollution. We need to replicate such action for the food we eat every day, to bring down our pesticide intake.

The segment that will lose out is the middlemen. But in numbers, they are much fewer than are producers or consumers. Not all will be affected, and many will gain from the technology and systems of organised retail. Some traders will have to re-engineer themselves as buyers for retail chains, or get into the logistics business of aggregating produce for retailers. There will be a large number of such opportunities which will open up: an organised supply chain, for example, including a cold chain.

Once contract manufacture becomes a reality, food processing cannot be far behind. And that will open up large possibilities for rural employment, especially given the ancillary service requirements. Rural-to-urban migration is high because of the lack of opportunity for work in rural India. This has been a great failing of the government. They give large incentives and tax breaks to companies in SEZs; why couldn't they do the same for food processing in rural areas? Even today, why not bring in a policy to encourage food processing in rural areas?

With retail opening up I am sure that we will improve manufacture of our processed foods significantly, which is currently two per cent, against 35 per cent in the developed world. Demand for processed food is bound to go up with international retailers in the field. Food processing facilities will need to come up in rural areas nearest to the point of production. This is how India will see much better, more equitable growth than we see today. Organised retail is thus not only about agriculture, which has been the main focus of attack from different vested interests. Opening up of retail will also encourage and help the non-agricultural sector.

Those who have the country’s interests at heart should encourage anything which adds to our GDP, builds our grassroots capacity, develops and produces high-yield quality produce with long-term gains to farmers, brings about better and more equitable growth, provides huge rural and urban employment opportunities which we desperately need — especially with our large population at a young age — as well as strengthens our institutions and addresses inflation and food security.

The writer is director, Grassroots Trading Network for Women. 

First Published: Sun, December 18 2011. 00:00 IST