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Western experience not so encouraging

chandigarh Updated: Sep 28, 2012 12:13 IST
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In the mid-1980s, Pepsico came up with a proposal to bring in the second horticultural revolution in Punjab. It was hailed as a path-breaking initiative that would put an end to the continuing distress on the farm. It was expected to usher in the latest technology, improve farm research and extension, create supply-chain infrastructure, and provide marketing linkages from the farm to the fork.

I remember the kind of excitement that prevailed all around. Politicians, bureaucrats, economists, agricultural scientists and even the Bhartiya Kisan Union (BKU) joined the chorus. All my efforts to reason out the hollowness of the claims, based on Pepsico's own studies, were simply lost in the din created by the drum-beaters.

Some 15 years after the project was approved, Pepsico's horticultural revolution is all but forgotten. Agriculture has gone from bad to worse. The food bowl of the country has also become a major hot spot for farmer suicides. While the soft drink giant remains busy marketing its colas, Pepsico has not been held accountable for its failed promises. It will never be punished for selling a fake dream to the beleaguered farming community.

It is now the turn of Walmart and other big retail giants. Foreign direct investment (FDI) in retail is again being projected as a panacea for all ills plaguing Indian agriculture. FDI in retail will lay out backend infrastructure; bring in a chain of cold stores and improved transportation, thereby reducing crop losses; remove middlemen who rob farmers of profits, thereby providing him higher prices; bring in improved technology to help in crop diversification; and of course, create millions of jobs. It's a win-win situation, scream the headlines.

Having spent Rs 52 crore in two years for lobbying alone, and after the recent New York Times expose showing how Walmart bribed its way to control 50% of the retail market in Mexico, the union cabinet finally allowed big retail to set shop.

Walmart, Tesco, Sainsbury, Carrefour and a host of other big retail players are expected to increase farm income. In the US, where Walmart has completed 50 years, if farmers were getting a better income, there was no reason why the farming population should plummet to less than 1% of the population. Farmers in the US survive not because of Walmart but due to the massive subsidy support, which includes direct farm income. Between 1997 and 2008, Rs 12.60 lakh crore was provided as income support to farmers. An UNCTAD (United Nations Conference on Trade and Development)-India study shows that if these subsidies, classified as Green Box in World Trade Organisation (WTO) parlance, are removed, the US agriculture collapses.

In Europe, despite the dominance of big retail, one farmer quits agriculture every minute. Europe provides the highest amount of subsidies, including direct income support. But because 74% of these subsidies are cornered by corporations and big farmers, small farmers are quitting farming. In the Organisation for Economic Cooperation and Development (OECD), the richest trading block comprising 30 countries, Rs 14 lakh crore was the farm subsidy support in 2009 alone. It is not big retail, but direct income support that keeps farmers in agriculture.

These subsidies also bring down the domestic and international prices, as a result of which big retail sells cheap. Empirical studies show big retail charging 20-30% higher than the open market in Latin America and Southeast Asia. In India, organised domestic retail has not been able to sell cheaper. A NABARD (National Bank for Agriculture and Rural Development) study for Hyderabad shows Reliance Fresh and other charging 15-20% higher prices.

Studies show that in the US before 1950, when farmers would sell their produce for one dollar, 70 cents was his income. In 2005, it had fallen to 4 cents. With the middlemen wiped out, the farmer's income should have gone up. No, it is the new battery of middlemen - quality controller, standardiser, certification agency, processor, etc. who walk away with the farmer's profits. The number of middlemen operating under the same hub actually increases.

There is no evidence that big retail creates backend infrastructure. In the US and Europe, rural infrastructure has been created through government support, which came in the form of agricultural subsidies. To say that 40% agricultural food that goes waste in India will be drastically reduced is also an illusion. In the US also, 40% food is wasted and much of it after processing, where Walmart should have played a much important role.

Regarding employment generation and poverty alleviation, lessons need to be drawn from a 2004 study of Pennsylvania State University by Stephen Goetz and Hema Swaminathan, which showed how higher poverty prevailed in areas where Walmart stores had come up compared to those states where big retail was absent. In any case, for a $450 billion (about Rs 23 lakh crore) turnover, Walmart employs only 2.1 million people. For an estimated $460 billion (approximately Rs 24 lakh crore) market, Indian retail employs 44 million people. Last month, the US was rocked by massive demonstrations by Walmart workers complaining of poor working conditions and exploitative salaries. Who creates employment, therefore, is evident.

Yes, there is a need to improve rural infrastructure, provide a sophisticated supply chain, and provide better income to farmers. The milkman of India, late Dr Verghese Kurien, had shown us the way. The cooperative dairy structure, which led to the evolution of the Amul brand, is the right approach. If he could do it for milk, a highly perishable commodity, there is no reason why it can't be replicated in fruits, vegetables and other agricultural commodities. Solution to the plethora of problems on Indian farms does not lie in the West, but in our own backyard. We need to look inwards.