Indians are now eating more fruit, vegetables and meat than ever before. And this one fact about dietary change can help make sense of the current debates on the future of agriculture and organized retail.
On 29 May, Prime Minister Manmohan Singh announced a Rs25,000 crore package to revive Indian agriculture. A day later, the Communist Party of India (Marxist) released a position paper on modern retailing, with a demand for a new licensing regime in the sector. Both initiatives address important issues of livelihood—of farmers and small retailers, respectively. But both are flawed because they fail to see the linkages between two issues. It is short- sighted to try and fix agriculture without allowing large retailers to expand in India and it is equally myopic to prevent the rise of modern retailing while pretending that it has nothing to do with farmers. In short, the future of Indian agriculture is inextricably linked with the future of modern retailing.
Why? Go back to what the consumer has on his plate. Several consumer surveys have shown that, with rising prosperity, ordinary Indians are getting more of their nutrition from fresh farm produce than before. The importance of cereals such as rice and wheat has fallen proportionately. But getting the right supply response to this big change in demand will not be easy. One challenge will be to get fresh vegetables, fruit, meat and milk from farm to plate. That’s precisely where modern retailing comes in.
It is sometimes said that almost a third of India’s fresh farm produce rots before it can be sold. The reason is that transporting and storing this stuff is not easy. India needs a network of good roads, refrigerated trucks and modern storage facilities to reduce this almost-criminal wastage. And these linkages are essential, even if one were to assume that the problem of wastage is not as large as assumed.
Compare this with the relative ease of the cereal procurement game. Official agencies buy cereals at harvest time and store them through the year in large godowns. Buying rice and wheat takes place at fixed times of the year, and these are relatively easy to store. Fresh and perishable produce needs to be bought every day and moved into the market quickly, often in a couple of hours. The nature of the distribution challenge is radically different.
Farmers are unlikely to change their cropping pattern to meet changes in consumer demand unless the supporting logistics system gets built up. (Of course, they also need access to irrigation, new seeds and stable prices to make the transition.) So, the critical issue is who is, going to build this infrastructure. The most likely candidates right now are the large retailers. Or, if they do not want to commit capital on transport and logistics, it is very likely that specialist firms will move in, scenting the opportunity. Modern retailing can thus be the missing link between the farmer and the modern consumer.
Instead of taking a holistic view of the issue, both the PM and the CPM have preferred to go down the same old potholed road of government intervention. The PM has essentially promised to throw more money at Indian agriculture, which is not a bad thing in itself, given the fact that public investment in agriculture has languished over the past decade and a half. But it still sees the problem through the lens of national food security rather than changing consumer tastes.
The CPM has come up with a more bizarre suggestion. It wants the government to introduce a new licence raj for the domestic retailing sector, while banning foreign investment in big-box stores. It says that a committee of local municipal authorities, small shopkeepers and street vendors should decide if, and how many, large retailers should be allowed to enter an area.
Neither plan is practical. What is really needed is more private investment in agriculture and retailing.
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