Selling India’s Retail Wholesale

Finally, FDI in retail has arrived. The collapse of the Rupee by one-fifth in just weeks, dwindling forex inflows and net FII outflows have forced a desperate government to sell India’s retail trade wholesale. Corporate and multinational lobbying to induct FDI in retail, branding it as “big ticket reform”, has been intense in the last few years. The lobbies have won. India has lost. The decision betrays a metropolitan bias; and exposes lack of understanding of India’s agricultural and rural economy. That it will endlessly damage the huge 1.2 million strong community-run retail business in India is undisputed. But the less known truth is that it will destroy food security in rural India. How? Read on.

The principal lobby argument for FDI in retail is that the deep pocket and expertise of Walmarts to establish supply chain will make rural areas and farmers prosperous. It does not need a seer to say how illiterate those who advocate this view are about rural India. The report of the “Working Group of the Planning Commission on Agricultural Marketing, Infrastructure, and Policy Required for Internal and External Trade” for the XI Five Year Plan [2007-12], read along with the 19th Report of the Standing Committee of Parliament on Food, Consumer Affairs, and Public Distribution [2006-07] submitted to Parliament draws the true picture of the rural/agricultural India. Compare the farms in India with those in the West. A total of 58.8 million of small and marginal farming families, that is over 32 crore rural people, live on farming in India. Their farm size is 5 acres or less. In contrast, in Canada, it is 1798 acres; in US, 1089 acres; in Australia, 17975 acres; in France, 274 acres; in UK, 432 acres. The US farm size is 250 times larger than the Indian; the Australian farms, 4000 times! Therefore, Farm Gate to Walmart supply chain that works in the US/West cannot be imagined here. Now look at how - and how much of - the Indian farm produce is brought to the market.

The Farm Gate to Walmart theory is founded on the elimination of not only middlemen but also small farmers by making farming contractual and corporate to reap economics of scale. It ignores global studies and Indian experience that affirm that economics of scale does not operate in agriculture. Actually smaller farms gives better production. The SMFs in India farm about 34% of the cultivated area, but produce 41% of food grains; their productivity is 33% higher. Replace small farms by large ones. Nation’s food production will instantly fall by 7%. Not just food. SMFs produce most of the 100.9 million tons of milk. So, unless half the rural population is done away with, small farming cannot be dispensed with. The Working Group concluded: “The small and marginal farmers are certainly going to stay for a long time in India - though they are going to face a number of challenges. Therefore what happens to small and marginal farmers has implications for the entire economy”. More critical is that what SMFs produce, they consume and share with the farm labour; they have no surplus to sell. See how Walmarts will destroy their food security.

A less known, stunning truth about rural India is that more than 60% of India’s food production does not enter commercial stream at all, but gets distributed, consumed within the villages. It is retained or stored by farmers for consumption, payment of wages in kind to farm labour; and for use as seed and feedstock for animals; for sale within the village. Even if a small part of the 60% un-marketed food production is drawn into the market through supply chain which Walmarts will establish, that will mean urban pricing in rural areas. Can SMFs and landless labour afford the market price and buy their food? Never. If that happens, will that what happened Alfanso mango in Konkan and Kerala fish not happen to rural food also? The Konkan people see, but don’t eat Alfanso but only export it for high prices and spend that money on urban goods. And the Kerala fishermen fish and export it at high rates, get cash and drink foreign whisky! The FDI in retail undoubtedly puts at risk, t he food security of SMFs and agriculture labour who who constitute 2/3 of India’s population, as the supply chain of Walmarts will make Alfanso out of the basic food grains in rural areas.

How does the marketable surplus of 40 percent of food produced by Indian farmers cross the village borders and enter the market? Nine out of ten tons [35%] of the surplus [of 40%] that enters the commercial stream enter the market through traditional Haats, Shandies, Fairs whose number is estimated at 47000. Only the balance of 5% directly enters the 6359 traditional wholesale Mandis organised under government supervision. Here begins the modern market economy where the surplus 40% of national production gets traded. This is from where the government procures and stocks food for the nation!

How do the Haats/Shandies function? Some 3/4th of them are held once a week; 1/5th twice a week; 1/20th on daily basis; one Haat covers some 14 villages; all put together cover almost the entire 6.58 lakh Indian villages. Some 2/3rd are held at 16 km from the villages; 1/4th at between 6 and 15 km; a tenth at less than 5 km. More than a third of the buyers walk to the Haat; 1/3 use bicycle; the rest use bullock carts, even motorised vehicles. According to the Working Group, at the Haats, the farmers not just trade, but also exchange social and cultural information about neighbourhood areas, settle marriages and disputes, make crop choice and discuss resource allocation. Therefore, the Working Group recommended that instead of asking the farmers to come to government for knowing what they should do and should not, the government should open its offices at the place where millions meet at the Haats. Now, by its retail FDI policy, the UPA government expects Walmart to go where the Planning Commission Working group had asked the government to go!

See how the agricultural India is far removed from even the government. National Sample Survey data shockingly reveals that 7 out of 10 Indian farmers had not even heard - yes not even heard - of the Minimum Support Price [MSP] announced by the government with lot of fanfare; 81% of the those who have heard of it do not know - yes do not know - how to use it! This is because the MSP system operates only in Wholesale Mandis, not at Haats. That is why the Working Group wants the government to go to Haats. The Standing Committee rightly asked the government ‘how will farmers who do not know what MSP is, make use of futures market’. The government, which had no answer, finally banned forward trading in foodgrain.

QED: Thanks to FDI in retail, twelve million community-run retail shops are in danger; and rural food security at risk. This is UPA government’s gift for 2012 and onwards.

— The New Indian Express, November 26, 2011