The Hindu Business Line : Reforming retail

Given India’s economic prospects and the buoyancy in the food retail sector, there will be enough room for both the organised and unorganised sectors to grow.

UK retailer Tesco’s entry into India once again brings into focus the benefits of allowing foreign players in food retail. Corporates can buy, transport and sell in bulk, thereby adding value at lower cost. The gains that accrue to farmers and consumers as a result of a shorter, efficient supply chain outweigh the possible losses to intermediaries and small retailers. However, those against foreign direct investment (FDI) in retail — the government permits FDI only in wholesale and single-brand retail — underplay its potential benefits, failing to realise that the concerns of small farmers, traders, commission agents, hawkers and kirana stores can be addressed through policy measures. Most States have amended their APMC (Agriculture Produce Market Committee) laws, which allow transactions only in a mandi or government market yard, to enable corporates to buy their produce directly from farmers. Farmers, so far exploited by traders, now get better prices, while retaining the option to go to the mandi.

The amendments have also cleared the path for contract farming, under which farmers are assured of sale of a given quantity at a given price. With urbanisation and higher incomes, the demand for high value products such as fruits and vegetables, as opposed to cereals, will increase. Farmers will enjoy a larger share of the pie if they were to sell directly to a big retailer. According to studies, a truncated supply chain will also help consumers benefit through a 25-35 per cent reduction in prices of primary food articles, and more in the case of processed food. In addition, modern retail chains, with efficient cold storages and inventory management, will cut down on wastage, estimated at 60 per cent of farm supplies. Organised sector players can also be held accountable for product safety and quality. As the share of organised retail increases from the current level of 4 per cent, it will also bring a higher proportion of revenues into the tax net.

However, this is not the whole story. Small farmers may not be able to participate in a restructured industry unless the Government helps them form sellers’ cooperatives. As studies point out, traders and commission agents can join hands to become large wholesalers, or enter the processed foods industry, using their expertise in distribution to procure from the farm and supply to kirana stores at a lower cost than the regular brands. Kirana stores should be assisted to form buyers’ cooperatives, for which the Government should make laws, as in the US, that protect them from price discrimination vis-a-vis large retail buyers. Given India’s economic prospects and the buoyancy in the food retail sector, valued at over $180 billion and growing at 10 per cent per annum, there will be enough room for both the organised and unorganised sectors to grow.

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