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FDI in Multi-brand Retail Concerning the Agricultural Sector

Abstract

India is a country of 1 billion and we still have a significant portion of the population living

below the poverty line, not able to have two meals a day. We are having record production offood grains and dairy products as a result of the revolutions. However we are not able to deliver

the farm produce to the masses even though we have tons of grain rotting in the poorly kept

storage sheds.

Article

Every year India produces about 250 million tons of food grain, approximately 10.5% of the total

food grain production of the world.

Of the 250 million produced, a lot of it doesnt reach the market directly. India has a lot of

middle men and wholesale dealers who arrange for the various farm products to reach the people

from the farmers.Agriculture experts blame the crisis faced by Indias small farmers on a highly

inefficient supply chain for perishable farm produce, a situation exploited by traders and

middlemen. The middleman plays a very important role as he purchases products from farmers at

a lower price and sells it at a higher cost to the consumers. This is an exploitation of both the

producers and consumers while the middlemen thrive, since they control the price of each

commodity irrespective of whether there is enough or less demand. As a result of which

agriculture system in India remains largely ineffective, monopolized by the middle men.

The massive production of 250 million tones also translates into another problem-Storage. Due

to poor logistics, a good portion of the annual produce does not make it to the market. Thats

where the Food Corporation of India steps in by procuring the produce at a fixed price from the

farmers. The FCI held about 82 million tons last year. However a startling report tabled in the

Parliament recently by the national auditor stated that India did not have the space to store 33

million tons of food grain it had purchased from the farmers at a cost of 12 billion dollars.

Thirteen percent of India's gross domestic product (GDP) is squandered every year due to

wastage of food grains in supply chain and rotting due to lack of storage says Dinesh Rai, of

India's Warehousing Development and Regulatory Authority. This is at a time when the

National Food Security Bill has been passed by the Cabinet which requires the FCI to hold

additional buffer stock to provide subsidized grains to 67% of the population.

All this means that India desperately needs a new measure to avert the looming crisis before it

explodes. The entry of multi-national organized snack food joints and restaurants has eased the

situation to an extent. The expansion of McDonalds has given a new boost to the potato farmers

of Gujarat. As it decides to enter the 2-tier and 3-tier cities, it has given the go ahead to increase

procurement of potato (a main ingredient), from the present 30,000 tons to 50,000 tons in three

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years. The company has provided the latest technologies and new seeds to potato growers, in

Deesa (North Gujarat) and Kheda (Central Gujarat). Such direct measures adopted by the

organizations help in top quality produce and removal of middlemen since the entire output is

directly absorbed by the organization. However these models have not been enough to rescue the

agricultural sector.

The topic of FDI in multi-brand retail (Foreign Direct Investment) has been a widely debated

topic in the Parliament. On December 6, 2012, the FDI reforms in multi-brand retail were passed

in the Lok Sabha after intriguing debates and discussions. The bill provided for the entry of

foreign retailers such as Wal-Mart, Carrefour and Tesco to the Indian market. The bill made it

mandatory for these companies to bring inhuge minimum investment in back-end infrastructure

and a mandatory 30% sourcing from local small and medium enterprises. The entry of such

retailers would ensure the logistical services which are not currently available in India to be

provided for the farm produce to reach its shelves directly to the consumers without any

middlemen. If all such retailers enforce the system put in place like McDonalds, India would one

day be rid of the middlemen who are responsible for the present state of Indian farmers. The

back end infrastructure developed by these retailers could in turn support the schemes of the

Government since they would be able to provide storage facilities for the enormous grain

produce of India which otherwise rots away in the open. The mandatory 30% sourcing from local

enterprises will also give a huge lift to the small and medium scale industries. Companies such as

Wal-Mart rake in revenues of 450 billion dollars. There is a lot the small scale units can hope to

achieve when these multi-nationals enter the market, not to mention the huge number of direct

and indirect employment opportunities.

All in all, FDI in retail is the only sustainable development model India has under its belt

currently on which it can hope to swim out of the current crisis of poor logistics and storage

facilities haunting the Indian agricultural sector.

Mathew George, PGDM-1

NMIMS Hyderabad

Mobile: 8019256900

Email: Mathew.george@nmims.edu.in

mitthugrg@gmail.com