FDI in multi-brand retail will not benefit farmers

An important argument put forth by the government and the votaries of FDI in multi-brand retail is the benefit accruing to the farmers in terms of better prices for their products. The stated purpose of liberalising FDI in retail is that it will attract investments for modernising India’s supply-chain infrastructure, especially for the agricultural sector, in turn, providing better returns to farmers and small agro-processing units through enhanced direct sourcing as well as curbing inflation by reducing wastage. The argument is that the giant foreign retail chains will squeeze out the middlemen thereby providing higher prices to farmers and at the same time provide large investments for the development of post-harvest and cold chain infrastructure. In India, the relaxation of regulations already allows foreign direct investment in cold-chain infrastructure to the extent of 100 percent. But there has been modest increase in foreign direct investment in cold storage infrastructure. According to them, the cold storage infrastructure will become economically viable only when there is strong and contractually-binding from organised retail. The risk of cold storing perishable food, without an assured way to move and sell it, puts the economic viability of expensive cold storage in doubt. The condition for making at least 50 percent of the total investment in ‘backend’ infrastructure under the proposed FDI scheme is being cited to argue that this would lead to more cold chains and other logistics, benefiting the farmers. But experiences of other countries, however, show that procurement by various multinational retailers do not benefit the small farmers. “Over time, they receive depressed prices and find it difficult to meet the arbitrary quality Standards.  Experiences show that nowhere in the world have the farmers who supply goods to big retail chains benefitted. It  is difficult to understand how they would benefit, when the big retail players like Wal-Mart look for the cheapest possible suppliers. To begin with, they might offer higher prices, inputs and finance; but that would be only until they are able to eliminate the traditional channels of supply. Ultimately the farmers will have no choice but to sell to big players -- at any price as happened in many countries. For instance, in Western countries, 110 buying desk of big companies control the flow of goods from 3.2 million farmers supplying to over 160 million consumers A detailed examination of information available on the impact of allowing multi-brand global biggies including Wal-Mart, Carrefour and Tesco into countries such as Indonesia, Thailand, Brazil, Canada, Germany, etc., indicates that they will ultimately eliminate competition and will indulge in monopolistic practices; finally putting the farmers under their clutches.  Evidences show that farmers in the West have paid a big price, with hundreds of thousands forced to   abandon their farms, due to corporatisation of the farming sector, along with corporate control of the purchasing side among processors and retailers. Therefore, there is no point in giving this stake (i.e. multi-brand retail trading) to the foreign retailers, albeit to cater inflation. India might receive some foreign direct investments; but this will make the situation even worse by displacing the farmers leading to increase in rural unemployment and poverty. Given the already over-crowded agriculture sector, and the stagnating manufacturing sector, and the hard nature and relatively low wages of jobs in both, many million Indians are virtually forced into the services sector, particularly in retail trade. (Excerpts from    book authored by this commentator entitled, “FDI in Retail Trade in India: a Retrograde Step” published by RAC Publications, No 38, Gill Nagar Third Street, Choolaimedu, Chennai-94, Email: racpublications@gmail.com)

Dr.C.Murukadas, Hindustan Times, OCT.3,2012