You have to admire Reliance’s balls. While the whole question of big business in agricultural sourcing and retailing is sure to stir up a hornet’s nest, Reliance has gone right ahead and consolidated its position right in the middle of the freaking beehive; namely Kerala.
Frontline has carried out an article on the astonishing extent of Reliance’s sourcing operations in Kerala. In one year, it has ensured a regular supply of fruits and vegetables to its 18 outlets. In true Reliance style, it has set a target of opening 120 outlets in the state and a dozen collection centres. Most farmers are happy to get on board the Reliance juggernaut; the company offers them higher prices than they would receive at normal markets, and even in the lean season when demand slacks off, they are assured of guaranteed purchases at Reliance collection centres. The assurance of regular purchases can go a long way in making life a lot less easier for farmers, and ensuring a loyal, faithful supply chain for Reliance. Win-win situation.
And not only that, the company also offers guaranteed assistance in the shape of inputs and technical knowledge to cultivators if they grow crops suited to urban demand and suited to the company’s tastes. But they don’t extend this largesse to all farmers though; due to its present small scale of operations, Reliance only selects a group of farmres to source from and extend assistance to. Those left out can only pray for the success of the company and hope that they get invited to the party next year.
On the face of it, it seems like its an arrangement that works for everyone. the farmers get rid of the pernicious influence of middlemen, thereby netting higher prices and assured purchases. Reliance’s economies of scale could help translate their operational efficiency at the sourcing end into lower prices for the consumer. Reliance captures a very sizeable market, grows, profits, creates jobs in the economy and brings about world peace.
One of the major features of this relationship that immediately struck me was the guaranteeing of purchases by Reliance. This is practically a godsend for many of the small farmers of the state, especially when it involves normally perishable commodities like certain fruits and vegetables. An arrangement that guarantees this as well as more remunerative prices for produce scores a 10 on 10 in my book.
But will this relationship last? Once the company’s operations in the rural sector strengthen and they become a more powerful monopoly buyer, there is every possibility that they will depress prices paid for produce in order to maintain margins and profits. The Walmartization of the trade is a potent possibility. Retail in agricultural produce is all set to be the next big corporate battleground, and the dangers of cartelization can be seen amongst the coffe-growing region of Wayanad. The buying of coffee is controlled by a few major buying houses and trans-national corporations, and they have the power to depress producer prices in order to protect (and inflate) margins. The margins are ridiculous: in 2005 (the date on which the article was written), fresh coffee powder could be bought for about Rs 90 a kg directly from producers, but instant coffee from Nestle sells for about Rs 900 to Rs 1400 a kg. The full article about this phenomenon deserves careful reading, if only to warn us against the dangers of allowing unrestricted corporate entry into such a sensitive field such as agricultural produce.
Of course, the facts are different in the two cases. Despite being grown in Kerala, coffee does not have a large domestic market in the state. It is easy, on the other hand, to find alternate markets for such a differentiated and heterogenous product such as agricultural produce. The fears of cartelization and/or monopolization of this market may be unjustified, it must be said. But I do think that food security is too major a concern to trust to corporate interests, no matter how efficient they may be in the short run. Moreover, it does seem disturbing to me that farmers are changing cultivation patterns in response to perceived urban demand and urgings by Reliance (as outlined in the frontline article). Being clued in to the demands of the market will no doubt benefit the individual producer, but it can have an impact on food security. Moreover, what of the environmental concerns when one sees that Reliance was getting farmers to grow input-heavy varieties of tomatoes and the like? And when Reliance has enough clout to pick and choose amongst sellers, would they still subsidise inputs for the farmers? Its all very well to expect cultivators in developed nations to indulge in economic competition; but I do not feel that the Indian agricultural producers are strong enough to indulge in this kind of competition.
(It may be true that retail companies may never be able to exercise such monopolistic control over large swarthes of the rural landscape given the extent of the agricultural sector, but it is conceivable that certain companies may be able to acheive monopoly-like status in fixed specific areas, like amongst rice farmers in a certain district, or tomato growers in another district).
Maybe i’m being unnecessarily pessimistic. The full impact – whether beneficial or not – of this move can only be ascertained in time. There are plenty of hypothetical arguments both in favour of and against this move that can be thrown at both camps, without any side settling the issue to anybody’s satisfaction.
But one thing I do know for sure. The major impact of agricultural retail will be felt on urban employment. Urban hawkers, roadside vegetable sellers and neighbourhood vegetable shopowners will definitely be made worse off by the expansion of agricultural retail shops. Workers in the unorganised sector, those who eke out earnings by selling vegetables or dealing in agricultural produce, might find themselves out of a job when big retail chains open. And yes, the expansion of retail chains will lead to employment opportunities. But I doubt whether the 50 year old mother of four who used to sell you vegetables is going to find a place at that shiny new Reliance outlet.
I agreed with you