The Hindu Business Line : Can retail and futures help rural incomes?

There has been some debate about the benefits of organised retail on local vendors and farm incomes. Procurement efforts by organised retailers are touted to benefit farmers by getting them better prices for their produce. It was recently reported that a major retail player is offering twice the going rate for procuring cereals.

Some interim studies and arguments presented before the Dr Abhijit Sen Committee suggest that futures do not create inflation or price volatilities. By implication, it has been argued, they should not harm farmers and, hence, be allowed to resume. The impact of these on the various interest groups affected has to be carefully studied before one can be sure about their impact. First, retail.

Impact of retail

Retail may create some higher-profile jobs and fetch higher prices for farmers who have a net surplus to sell. Contracting may also take away pricing risks and help cultivators plan their cropping patterns. But the biggest concern should be the impact on marginal farmers and landless labourers and those engaged in non-farm employment in the rural areas who are all net buyers of food.

First, the impact of doubling the price of food crops will be hard on these segments, pushing them further below the subsistence level. Secondly, retail may dictate changes in cropping patterns from foodgrains and cereals, which are locally required, and will further impact their availability for the rural folks. Third, higher incomes for ‘net surplus’ farmers will soon translate into higher mechanisation — farmers with contracts with retail biggies can easily flaunt them to get bank loans — and may further shrink rural employment opportunities.

Will not the higher payments by retailers translate into higher rural wages? Unlikely. When farm labour is in high surplus and when one can find as many hands as one wants at the current wage levels why would anyone increase the wages to his labourer? The rural labour market is distinct from the agriculture produce markets and higher prices in one need not automatically transmit into the other.

Any meaningful intervention in the rural sector and poverty should begin with creating rural employment and diversification of work opportunities and creating income streams that do not depend on land. It is difficult to see how the retail linkage to rural sourcing helps this.

Signals from futures

Next, futures. The arguments presented both for and against in the media and before the Committee seem to largely miss the point. A major, or perhaps the only, way futures can help the farmers is by way of sending meaningful and reliable price signals to them.

They should be able to plan their crop pattern for the ensuing season so that they do not end up producing something that faces a glut when it arrives in the market but be able to optimise incomes. Instead of exploring ways to make this happen, both sides seem to exclusively concentrate on whether futures cause volatilities or price inflation and related arguments.

The farmers ideally require price signals at the local market level within which his produce is likely to find use whatever the number of intermediaries it passes through. This would require demand supply analysis at the local (district or even lower) level and information on cropping patterns, sown area and weather conditions at the micro level. It is doubtful whether the futures traders will have this information with them or if they would be inclined to analyse these and stay detached from happenings in the ‘status symbol’ markets which can hardly be expected to serve the farm interests.

In any market, the operators in the ‘ring’ are the ones to enter at the most opportune time and exit at the first signs of trouble, loading the resultant losses on unsuspecting ‘investors’. Given the peculiarities of farming, the ‘investors’ can’t even cut losses and withdraw from the markets, having sown their crops.

If the farming community’s interest is central to the government’s efforts, it should develop and disseminate information about cropping patterns, cost movements, and demand supply aggregates, market by market at the State, district and, if need be, even lower levels. This would help futures traders analyse and give out meaningful price signals to the agricultural community.

(The author is CFO with JK Paper Ltd. His views are personal. E-mail at kumarviru101@indiatimes.com)

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