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   Wednesday, January 17, 2018
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Fooling the farmer
By Devinder Sharma



The proposal to allow multinational retail giants to enter India is pushed on the pretext of its possible benefits for the poor farmers. What many do not know is that big retail has only aggravated problems for the farmers everywhere they established their chain of mega stores.

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Big retail marginalises multiple buyers of farm produce and leave farmers with
little choice

Prime Minister Manmohan Singh projects FDI in retail as a boon for the agricultural sector. Unfortunately, if you examine the realities, it will spell a death knell for farming. It will be the beginning of an end for Indian farmers.

It has happened in the United States. Ever since big retail – dominated by multi-brand retailers like Wal-Mart – entered the market, farmers have disappeared, and poverty has increased. So has hunger. Today, not more than 7 lakh farmers remain on the farm in America. Poverty has grown, and hunger has broken past 14-years record.

In Europe, despite the dominance of the big retail, every minute one farmer quits agriculture. This is because farmers’ income across US/EU is on a downslide.

According to a report, farmer’s income in France has come down by 39 per cent in 2009, having already slumped by 20 per cent in 2008. More recently, in Scotland, low supermarket prices are being cited as the reason for the exodus of dairy farmers. Low supermarket prices in Scotland have forced irate farmers to form a coalition called ‘Fair Deal Food’ to seek better price for their farm produce. Studies have shown that Tesco has paid producers 4 per cent less price than the average prevailing in the open market.

It is therefore futile to expect the supermarkets rescuing farmers in India.

Despite the destruction of farming globally by the supermarkets, the Ministry for Commerce and Industry is gung-ho about the virtues of foreign direct investment in multi-brand retailing, which means allowing the big players like Wal-Mart and Tesco to swamp the Indian market. I find a number of economists and researchers singing chorus of praise for the role the supermarkets can play. But the entire hypothesis is based on a deliberately prepared flawed basis.

If the supermarkets were so efficient and provided dynamism, I would like to know why the US is providing a massive subsidy for agriculture. After all, the world biggest retail giant Wal-mart is based in America and it should have helped American farmers to become economically viable.

Do the supermarkets really benefit? Since 2006, India has allowed a partial opening up of the retail sector. Has these retail units benefited the Indian farmers and for that the consumers? The answer is No.

The argument is that the supermarket chains will squeeze out the middlemen thereby providing higher prices to farmers and at the same time provide large investments for the development of post-harvest and cold chain infrastructure. All these claims are untrue, and the big retail has not helped farmers anywhere in the world. Even in Latin American countries, including Brazil, Argentina, Uruguay and Colombia, where supermarkets, most of them owned by multinational giants, now control 65 to 95 per cent of supermarket sales, farmers have been forced to quit agriculture.

If the supermarkets were so efficient and provided dynamism, I would like to know why the US is providing a massive subsidy for agriculture. After all, the world biggest retail giant Wal-mart is based in America and it should have helped American farmers to become economically viable. But it did not. American farmers have instead been bailed out by the government, providing a subsidy of Rs 12.50 lakh-crore between 1995 and 2009, and this includes direct income support.

And that is why the American farmers are being supported in the form of direct income support by the American government. It is the massive farm subsidy that supports agriculture in the US. If this subsidy, classified under Green Box for WTO calculations, is withdrawn (as analysed by UNCTAD-India), US agriculture collapses.

A latest 2010 report by the Organisation for Economic Cooperation and Development (OECD), a group comprising the richest 30 countries in the world, states explicitly that farm subsidies rose by 22 per cent in 2009, up from 21 per cent in 2008. In just one year in 2009, these industrialised countries provided a subsidy of Rs 12.60 lakh crore to agriculture. And it is primarily for this reason that the farm incomes appear lucrative. Left to big retail alone, European farmers would have packed up by now.

The Indian retail market is estimated to be around $ 400 billion with more than 120 million retailers and employing over 400 million people. On the contrary, the US-based giant Wal-Mart, a global leader in big retail, also has a turnover of US $400 billion and employs only 2.1 million people. Which one of these retail systems provides employment is crystal clear.

In India, it is markets that sustain the farmers and not subsidies. We are therefore importing a failed model from America.

Regarding farm incomes, let me illustrate. Till 1950, a farmer in America used to receive about 70 per cent of every dollar spent on food. In 2005, it had come down to not more than 3 to 4 per cent. If the middlemen have been squeezed out, as is being made out, farmer’s income should be increased. Why it has instead gone down drastically is because farmers’ income is being devoured by the new battery of middlemen swamping on him like a vulture. That is why the US/EU governments are providing subsidy support to keep farmers alive.

Big fish is known to eat the smaller ones. Supermarkets exactly perform that function. They replace the plethora of small middle-men. The arhtiya clad in a dhoti-curta, is replaced by a smartly dressed up middlemen. An illusion is therefore created as if the supermarkets have removed the middlemen from trading. But in reality, the big boys now share the commission between them. The new battery of middle-men, who replaces the traditional middle-men, are the quality controller, certification agencies, packaging industry, processors, wholesalers etc.

Do supermarkets help remove poverty? Based on biased studies by the consultancy firms and some institutes, the government believes that supermarkets will create employment and therefore help in ameliorating poverty. This too is flawed assumption. Lessons need to be drawn from a 2004 study done by Stephen J Goetz and Hema Swaminathan of the Department of Agricultural Economics and Rural Sociology, at Pennsylvania State University in the United States. The authors measured the impact of Wal-Mart's massive retail boom on poverty in various American states.

In UK, it has now been shown that supermarket chains like Tesco and Sainsbury have failed to live up to their promise of creating thousands of jobs and thereby driving up the economy. In the past two years, Tesco had promised to create 11,000 jobs and Sainsbury another 13,000. Tesco had created only 726 jobs, while Sainsbury actually terminated the services of 1600 of its existing employees, leaving 874 people unemployed.

In this eye-opening study, entitled “Wal-Mart and Poverty”, the comprehensive study clearly brings out that those American states that had more Wal-Mart stores in 1987, had higher poverty rates by 1999 than the states where fewer stores were set up. "Equally important, the counties (districts) which built new Wal-Mart stores during the period 1987 to 1998 also had high poverty rates," the report concludes. Interestingly, increased poverty growth from Wal-Mart operations comes at a time when poverty rates nationally in America were otherwise going down.

Claims by the big supermarkets to be driving economic growth by creating thousands of jobs have been exposed as a sham. In UK, it has now been shown that supermarket chains like Tesco and Sainsbury have failed to live up to their promise of creating thousands of jobs and thereby driving up the economy. In the past two years, Tesco had promised to create 11,000 jobs and Sainsbury another 13,000. Tesco had created only 726 jobs, while Sainsbury actually terminated the services of 1600 of its existing employees, leaving 874 people unemployed. How do we expect Tesco/Sainsbury to create additional employment in India when they have failed to stand up to their commitment back home?

Big retail does not create additional employment but actually destroys the existing employment. Here is a comparison which should help remove the wool from your eyes. The Indian retail market is estimated to be around $ 400 billion with more than 120 million retailers and employing over 400 million people. On the contrary, the US-based giant Wal-Mart, a global leader in big retail, also has a turnover of US $400 billion and employs only 2.1 million people. Which one of these retail systems provides employment is crystal clear.

If you think Wal-mart is here to create employment opportunities you must be living in a fool’s paradise. Simply put, they are investing in India to make money. I don’t know how therefore economist, policy makers and the ministers can think that big retail will provide employment while the evidence from across the world shows that big retail has displaced millions who are already employed. Are we not deceiving the nation by presenting wrong facts?

At stake is the livelihood security of tens of millions of hawkers, small traders and farmers. How can any sensible government that claims to work for the aam aadmi actually bring in massive destruction of livelihoods in the name of foreign direct investment? Why is our government so keen to pull out the US/EU economy from recession and in turn push India into a headlong depression?

 
Disclaimer:
The views expressed above are personal and do not necessarily reflect the views of d-sector editorial team.
 

Devinder Sharma  |  hunger55@gmail.com

Devinder Sharma is an award-winning journalist, writer, and researcher globally recognised for his analysis on food, agriculture and trade policy. 

Write to the Author  |  Write to d-sector  |  Editor's Note
 


 Other Articles by Devinder Sharma in
Socio-Economic Development  > Indian Economy > National Policies and Programmes

Better late, than never
Tuesday, March 01, 2011

Pranab Mukherjee has made a beginning to improve the conditions of the deprived and marginalised sections but the policies need much higher allocations to make any positive transformation in the lives of the poor.

Bailing out the richest
Friday, March 12, 2010

Forbes magazine says India has almost twice the number of billionaires than last year. Strangely these richest of the rich gained when the world economy was badly hit by the meltdown. Was it despite or due to the economic recession?
 
 Other Articles in Socio-Economic Development
 
 
Corruption Watch

The bad news is that corruption has not only sustained but has grown in size and stature in the country. With scams being a regular feature, seventy per cent respondents in a survey have rightfully opined that corruption has continued to increase in India. One in every two interviewed admit having paid a bribe for availing public services during last one year. Transparency International's latest survey reveals that the political parties top the chart for the most corrupt public institutions, followed by police force and legislatures. No wonder, India continues to make new records on the global corruption arena!

The shocking revelation is that the health and education sectors haven't remained untouched by this phenomenon. With 5th and 6th positions respectively for these sectors on the public perception chart on corruption, corruption has crept insidiously into these sectors of hope for the masses. With bureaucracy being fourth in the list of corrupt institutions in the country, corruption seems to have been non-formally institutionalized with little hope if public services would ever be effective in the country. With economic growth having literally institutionalized corruption, are we now expecting corrupt to be socially responsible - a different CSR.

Poor. Who?

Not giving 'aid' to India is one thing but calling it 'rich' is quite another. If one in three of the world's malnourished children live in India, what does average daily income of $3 indicate? It perhaps means that there is a relative decline in poverty - people are 'less poor' than what they used to be in the past. But having crossed the World Bank arbitrary threshold of $2 a day does not absolve the 'developed' countries of their obligation to part with 0.7 per cent of their Gross National Income in development aid. Should this three-decade old figure not be revised?  

An interesting debate in UK's House of Commons delved on future of development assistance by the British Government. While prioritizing limited resources has been a concern, there has been no denying the fact that development aid must be guided towards tangible gains over a short period of time to start with. There are difficult choices for elected governments to make - should they invest in long-term primary education or in short-term university scholarships? Which of these will bring gains and trigger long-term transformation in the society. As politicians continue to be divided on the matter, poverty persists!!   

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