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Photo: PTI
Photo: PTI

Why farmers prefer selling to supermarkets

  • Vegetable growers get 11-40% higher prices for their crop from supermarket chains than traditional markets such as mandis, a study finds

The new farm laws have generated debate about the role of the private sector in agriculture. On the face of it, the laws are about letting farmers sell their produce to whomsoever they want. If a recent paper is anything to go by, vegetable farmers have done better selling their crop to collection centres that procure for private supermarkets than in traditional markets such as mandis. Collection centres offer 11-40% higher prices than traditional markets.

Chandra Nuthalapati, Rajib Sutradhar and other economists make use of a 2014 survey of 795 farmers across four states growing tomato, cauliflower, ladies’ fingers, brinjal and cabbage. All vegetables secured higher prices at collection centres. Tomato fetched the biggest gains: nearly 3 per kilo, or 40%, more than in mandis.

Cabbage fetched 0.77 (11%) more, ladies’ fingers 2.4 (19%) more, cauliflower 1.4 (16%) more, and brinjal Rs. 1.9 (18%) more.

One reason supermarket collection centres offer higher prices is that ‘transaction costs’ there are lower, by around 70%. These are the additional costs farmers incur while selling their crop—such as charges for transportation, bagging and loading. Farmers also pay up to 10% of their crop value as commission fees to middlemen at mandis.

Also, collection centres buy vegetables from farmers without binding contracts. So higher prices incentivize farmers to continue selling to centres, instead of in traditional markets, and ensures a regular supply.

The authors acknowledge that supermarkets may be offering higher prices only at the beginning, and might lower their rates once farmers get ‘locked in’. But this isn’t seen as a danger since vegetable supply chains in India are very diverse. As long as that’s the case, there will be multiple buyers and no single player controlling the market.

Also read: “Supermarket procurement and farmgate prices in India"

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