Friday, December 09, 2011

FDI in Retail: Neither Boon Nor Bane

The deadlock in Parliament for a week over allowing 51% Foreign Direct Investment (FDI) in multi-brand retail was over, with Manmohan’s government withdrawing  the proposal “ for now”.  For the past week, we have heard and read Giga Bytes of information with Aye sayers proclaiming  FDI will bring in better prices for farmers and increase employment and Nay sayers  predicting it will wipe out the small kirana stores thereby increasing unemployment in the unorganized sector.                                              
To me, both are wrong.  For different reasons.

In the heat of arguments, everyone forgot that retail giants that will come in are giant transcontinental corporations  which empathize only with one thing. Profits and more profits.  It is a myth and naivety to even optimistically think these corporations will pay a better price for farmers than that is existent in the market. They will just replace the existing middlemen by they themselves becoming the middlemen and hoarders. Neither will they generate employment to the large extent being projected. In large retail chains, very few are employed in the store compared to the volumes. Even contract farming or captive farming where agreements are drawn beforehand  by the retail chain with farmers for purchase of entire produce has not worked to the advantage of the farmers as is evident from the basmati growers of Punjab, potato framers in Northern India with Pepsi and Subabul, eucalyptus growers in Andhra Pradesh with ITC paper mills. On the other hand, they impose extra burden on the farmer to bring in gloss for the produce like wax coating for apples and protective sponge net for pears.
The argument that these retail conglomerates will wipe out the corner store Kirana Wala is also unfounded. Already, India has retail giants for the last several years like More, Reliance, Metro, Subhiksha and a host of others but the mom and pop kirana stores never perished. They have a unique business model of extending credit, home delivery and personal relationship with the consumer. It is a common practice for these stores to give goods on credit even when the order is placed through the house maid or on telephone. In fact, it was Subhiksha that got wiped out and not the kirana stores.

India Inc. too stepped in crying hoarse that withdrawal of the proposal will be a blow to economic reforms and a great loss to farmers. Obviously, the tycoons were salivating at the prospect of  investing in the rest of the 49% equity and riding on the train of super profits. It was hilarious listening to these Armani suite wallahs glibly espousing the cause of farmers. None of the existing retail conglomerates paid a single rupee extra to the farmers than the market price.  With their clout and money power, they have become the biggest hoarders buying up huge stocks at distress price, hoarding them against all laws and selling them for windfall profits.

Rotting Food Grains at Govt. Storage Depots
The government should have announced a slew of measures for the benefit of farmers before the decision to allow Foreign Investment or Indian Investment in retail. It should have come out with plans for massive network of storage houses for grains and cold storages for perishable produce across the country.  All the produce should be bought by the government at a price fixed every two years giving farmers an opportunity to make a decent profit and impose a limit on the percentage of profit the retailers can sell the same. Also a pre-condition should have been imposed that 80% of all farm produce and manufactured goods that are displayed ( not sold ) in retail chains should be procured from within the country. This would have addressed the three most important issues that are plaguing the country, - rotting farm produce due to lack of storage facilities, distress sales by farmers leading to farmer suicides and dramatic rise in food inflation hitting hard the consumers. Instead of addressing the issue holistically, all the politicians without exception took hard stands benefitting none of the three stakeholders-  producer, seller and consumer.
Alas,  What a loss !!

Thursday, September 15, 2011

Gen X to Gen Z: What a Difference !

I have no idea about when demographers started classification of generations, but the classifications fit the majority. And vast differences exist between each generation, and from generation to generation the gap increases tremendously.  First there were “veterans”, born prior to 1925 who have witnessed World War II and the tumultuous events of World history, next is “ babyboomers” born between 1940 and 1955 who would have come of age between 1960-1970. Rebellion against authority was part of their profile. They were the beneficiaries of economic boom of 60s. Then came Gen X,  my generation, born in early 60s  who were more rebellious against any type of authority and life was a constant struggle against every stereo type of authority. Usually they grew up with two or three more siblings in the house and had to share everything with the siblings from bedroom to bathroom, from soap to towel. In India, this generation like me stared at the colour TV first time when they were in budding twenties, lived with one Doordarshan channel for more than a decade and could relish the countless channels only after their forties. They stood in long lines in their 20s to book a trunk call at post offices to their homes and waited for hours to get connected. They have enjoyed the fruits of telecom revolution and the quintessential cell phone only when after their 40s. PCs and Internet were only  newspaper stories and most would have touched a key board for the first time in their 40s. PCs storage capacity was talked in MBs.Porn was only in books and in their mid 20s VCR was the most sought after personal entertainment device. Rayban goggles was the ultimate fashion statement.  Most of them would have started in their mid 20s with the prized possession of a Bajaj Scooter and caringly dusted it everyday without fail. One VIP suitcase was used  for a life time without it ever getting even a scratch protected with an olive green military standard canvas cloth cover. Eating out in restaurants was rare and when happened it was a family event and talked for weeks. Owning a car was the biggest dream and owning a house was even a bigger dream. Mega schemes were laid out to own a house. First it would be acquiring a plot of land, somewhere on the far outskirts of the town or city and then planning a savings schedule for the next 10 years to construct the dream house. America was the ultimate dream and any one fortunate enough to settle there was a demi God.
Then came Gen Y, born in 80s and by the time they came of age the next century dawned and the Indian economy was in full swing. By the time they crossed teenage, mobile phone has become another organ of the body and internet was being used by millions. Even hick towns sprouted dozens of internet cafes. Porn has moved from books to PCs and computers capacity was talked in GBs.TVs straightened out and became flat. Jazzy bikes replaced the Bajaj scooter and owning a car by  mid 20s did not even call for a comment. Signing up a 20- 30 year EMI  housing loan did not raise any eye brows. America was still  a dream but only for short term assignments or for a holiday. Cooking at home has become irregular. Curry points mushroomed everywhere.  Number of siblings fell to just one. Use of branded goods has become the fashion statement, whose price made their parents miss a heart beat.

Then came Gen Z, born in 90s usually the children of Gen X.  The decades of hard work and painful and planned accumulation of the wealth of Gen X has become the spring board for Gen Z. Nothing but the best is their motto and a thousand rupee note in their hands transforms into loose change in a jiffy. Authority is no problem for them because they have never encountered one. Friends are virtual and all talk happens only on the Face Book and any advice by teacher or parent is immediately put for validation with virtual friends. They are part of one or other virtual social groups with thousands as members. Google is THE only source of reliable  information. Cell phone is no longer just a phone and does everything except cooking. Palm sized phones boast of GB capacities. Two continuous days of eating at home calls for by default home delivery pizza or KFC. Picking up goods without even looking at the price tag attracts no comment. All decisions are taken independently without parental intervention or advice. It is not uncommon to be the only child.

What a change!! And what a gulf of differences with in just one generation!!

Wednesday, May 25, 2011

AP Rice Mill Lobby Strangulating Farmers

It is sad that neither media nor the government is concerned about the plight and suicides of paddy farmers in the state as they are about say weavers’ deaths. Not that the death of weavers should not be a matter of concern, but due attention should be paid to the paddy farmers suicides too. While clothes can be made by textile mills and weavers can choose other forms of work, it is the farmer who is stuck with his land and there is nobody on the earth to produce food grains except him. The reasons for the plight of farmers are two. One is the Central Government which fixes minimum support price arbitrarily without taking the actual input costs and refuses to increase it citing the fallacious reason that food prices will increase. It cites the same reason for refusing exports. Its arm, the Food Corporation of India ( FCI ), has grain stocks  double the capacity of its godowns. Crop after crop and year after year, the FCI cites the reason of lack of storage space to avoid buying from the farmer directly.
In AP, kharif crop ( July- Dec ) on average yields 100 – 110 lakh tons of paddy. In Rabi ( Jan – April ) the yields are 110- 120 lakh tons.  The just harvested rabi crop yielded  an estimated 120 lakh tons. Of this, the FCI bought directly from  farmers a meager  5 lakh tons and the state civil supplies  department bought 1.5 lakh tons at the minimum support price of Rs 1000 a quintal. Once the FCI stopped purchasing, the rice millers started purchasing a quintal of paddy at Rs 800- 850. And they bought 98 lakh tons. At Rs 200 lesser price per quintal, the farmers lost a whopping sum of Rs 2000 crore. And this is just for one crop not including the profits earned by millers by exporting rice to other states  and countries. The government in AP, whichever party is in power, dances to the tune of rice millers and so when almost all the farmers had made a distress sale of paddy, politicians are shedding crocodile tears now urging the central government to increase MSP and allow export of rice. And who will benefit from this. None except the rice millers. Each rice mill pays 30% of the milled paddy to FCI as levy and can sell the remaining stocks in the open market. The millers also get 12 kg of rice bran and 12 kg of broken rice for each quintal of paddy milled. The 4-5 kg of husk they get is used to generate power or used to generate steam to make paraboiled rice. The levy rice collected by the FCI is  allocated  to public distribution system for distribution to below poverty line people at a high subsidized rates. FCI has now 50 million tons in its warehouses, double the quantity required to meet the needs of subsidized rice distribution through PDS.

Paddy cultivation is  highly labour intensive. The input costs have trebled in the last 5 years but the MSP for paddy has not increased by  more than 40%.  If we take 5 acres farmer, his input costs are Rs 90,000/- which includes from raising nursery, mechanized ploughing, plantation, weed removal, fertilizer, pesticide, reaping and to harvesting. At an average  25 quintals per acre, if he gets MSP, his net earnings are a meager  Rs.35,000 for the entire crop from his 5 acres. If rabi crop is also cultivated and both the crops are not affected by any natural calamity, his earnings per year is Rs 70,000/-, which is less than Rs 6000 a month. It is  a fact that once every 3 years, one crop at least is lost to nature’s fury. having thus lost a year of earnings and with no money for the input costs for the next crop, farmers have to go for loans either from banks or private money lenders. Both these institutes show no mercy on the hapless farmer while recovering the money. This is what makes the farmer take his life. Last quarter, State Bank of India wrote off Rs 41,500 crore as bad debts and not even a single rupee of this colossal amount  would be from a farmer.

The AP government should exert pressure on the central government to allow exports of rice on a continuous basis and stop the practice of permitting millers to export after they buy at a lower price from the farmers. The FCI should be given procurement quota for each state depending on the extent of paddy cultivated. The practice of FCI procuring a lion’s share from only Northern states should stop.