The Hindu Business Line : China well ahead in allowing FDI in farm produce retailing: OECD

INDIA might be having an intense and interminable debate on the desirability of opening up foreign direct investment in retail sector with the Left parties opposing this.

The Food and Agriculture Minister, Mr Sharad Pawar, and the Commerce & Industry Minister, Mr Kamal Nath, pitched for FDI in retail at least to provide a seamless supply chain super marts for the sale of farm produce and fast-perishable fruits and vegetables as India is second largest producer of fruits and vegetables.

But China, another major agriculture country, has traversed miles ahead of India in this regard as is borne out by a recent study of the Paris-based inter-governmental think-tank of 30 rich industrial countries, the Organisation for Economic Cooperation & Development (OECD). While analysing agricultural policies for four major agricultural economies outside OECD area, OECD reviewed agricultural policies of China, the others being India, South Africa and Brazil.

OECD study said while Government enterprises and agencies remain the main purchasers of grains in China, farmers have the option of selling their products through diversified private channels. The most widespread are "big marketing households" (yunxiao dahu), which are family-based traders specialising in the intermediation between farmers and wholesale markets.

Other main channels include direct sales by farmers to retail or wholesale purchasers, including supermarket chains, direct sales to local markets, direct contracting with food processors/exporters and sales through farmers' cooperatives.

OECD specifically cites accelerated changes in the downstream sector triggered off by the development of supermarket chains. While their share in overall food sales is below 20 per cent, compared to 60-80 per cent in the US and the European Union (EU), OECD projects this share to rise rapidly as retail chains are spreading to all cities, including China's interior provinces.

While cereals remain the key crop, their share in total crop production and in the area sown declined quite steeply between 1990 and 2003 as other crops became more profitable. Impressive increases in vegetable and fruit production compared to performance of other crops reflects, OECD contends, China's comparative advantage and adjustments in land use in response to changes in domestic demand as well as to emerging export opportunities for selected products such as garlic, onions, apples and pears.

Though there are no reliable data on the overall retail food turnover, it is reckoned that the total amount of money spent on food by Chinese families was close to $200 billion in 2001, excluding expenditure on food in restaurants, hotels and canteens which could add more than $50 billion to this amount.

Even as state-owned enterprises involved in food retailing still exist, this sector is dominated by private enterprises. Since the inception of the 1990s, growth in food retail sales was dominated by the development of supermarket chains. The first supermarket was set up in 1990 and by 2002 the number had zoomed to more than 53,000.

Even as the largest food retail chains are Chinese, there is a growing number of foreign retailers such as Carrefour, Wal-Mart, Metro and Price Mart. Further inflow of foreign capital into the sector is likely in the near future with relaxation of the FDI rules.

Stating that the food industry continues to attract foreign investors, OECD said most often foreign companies set up joint ventures with local businesses. Many famous brand names such as Cadbury, Campbell's Soup, Cargill, Coca-Cola, Danone, Heinz, Hershey, Hormel, KFC, Kraft, M&M, Maxwell, McDonald's, Nabisco, Nestle, Ocean Spray, Pepsi Cola, Pizza Hut and Wrigley have set up shops in China. About 80 per cent of the products sold under these brand names are produced in local plants.

There is a cue from China in this as wastage of fruits and vegetables in India is currently reported at 22 per cent in various stages of handling after harvest such as inadequate post-harvest infrastructure, lack of cold chain facilities, poor handling technique by farmers, lack of proper storages and opening up of food retail might be a credible policy to insulate farmers from loss of real income.

Referring to domestic policy measures, OECD said for farmers in China charges for water, electricity and transport tend to be lower, though it is difficult to assess the cost of provision as this differs across various users. The level of support to agriculture from policies fluctuated at low levels through the 1990s rising to 8 per cent in 2003, still well below the OECD average of 30 per cent. The total support estimates is relatively high at 3.7 per cent of GDP, reflecting though large expenditure on general services, in particular investments in agricultural infrastructure to improve productivity.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

More Stories on : Foreign Direct Investment | Retailing

Stories in this Section
Rains buoy fertiliser demand in South

Innovative farming

Rubber improves on narrow arrivals

TN levies, controls leave sugar mills bitter

Dull domestic demand caps nickel gains

Oilseed prices tumble; mustard below MSP

China well ahead in allowing FDI in farm produce retailing: OECD

Better prices sought for forest produce