There is a
village called Narakoduru in the coastal belt of Andhra Pradesh. Like in any
other village, the residents of this village too eke out their living by
tilling soil. There is, of course, a difference: they grow only vegetables.
Their village is popularly known as a vegetable bowl of the coastal Andhra.
This popularity has, however, not altered their lives, for like any other
farmer they too suffer from poor farm-gate prices – but more silently.
Their suffering
is indeed much worse, for the whole village grows the same vegetables and the
entire produce has to be essentially sold to wholesalers coming from the nearby
towns that too, no sooner were the vegetables harvested. The result is: they
have to part with their produce for whatever price the wholesalers offer, as
otherwise they have to simply dump the harvested vegetables in their manure
pit, since vegetables, unlike other agricultural produce, don’t have
shelf-life; nor could they afford to cold-storage them and bargain for a better
price. Which means, if they don’t accept whatever price the middlemen offered,
they would get nothing for their produce plus they would also suffer the loss
of additional expenses in the form of harvesting charges – a double whammy?
This, in a
nutshell, is what the fate of every vegetable grower across the geography is.
During the periods of peak supply, the price mechanism operates still bad—the
farmer gets a still worse price, while the consumer enjoys no benefit of fall
in prices, for he still needs to pay whatever price the vendor fixes. This
phenomenon of chilies purchased from a farmer for Rs. 4 a kg being sold to the
ultimate consumer at Rs. 15 plus, remained an unresolved puzzle to farmers and
consumers as well. For economists, it is, of course, a mere phenomenon of
‘cartel’—a few traders forming a strong group—monopolizing the market, and
dictating both buying and selling prices.
However, with
the advent of big corporates into retailing, a paradigm shift has emerged: the
corporates are purchasing vegetables directly from farmers offering a price
that meets their cost of production and a reasonable profit margin, and selling
it to the consumers at a profit margin that normally hovers around 12-15%. The
net result is: remunerative prices to farmers, and supply of fresh vegetables
at decent prices to consumers. To stabilize their supply chain, corporate
retailers are even entertaining contract farming, under which the corporates
would be supplying improved seeds, technology and capital to farmers to grow
vegetables with a promise to buy their harvest at market prices.
But this appears
to be not to the liking of the existing traders. There are reports that the
existing vegetable traders turned violent against the officials of corporates
who had gone to Narakoduru village for buying vegetables from the farmers.
There are also reports of petty traders and vegetable vendors of Ranchi
vandalizing three of the five Reliance Fresh food outlets, accusing that its
entry into vegetable retailing has directly affected their businesses. Even a
section of political forces in the country is criticizing the entry of big
corporates—Reliance, AV Birla Group, Bharti with Wal-Mart, etc.—into retailing,
for in their opinion, it is sure to throw the existing petty traders and
vendors out of their businesses.
A question has
thus arisen: Does the entry of corporates into retailing really pose a threat
to the existence of petty traders and vendors? The answer is both ‘yes’ and
‘no’. Let us first look at why the answer is ‘yes’. By virtue of their
large-scale operations, corporates can create better storage and distribution
facilities. They can leverage on contract farming to keep their supply chain
intact. Cumulatively, they can source vegetables from the production centers in
bulk and distribute across the geography with no loss in their freshness and
quality. Secondly, corporates, unlike the existing traders, are known to work
for a fixed margin of profit, say 13-15% and as the competition increases, even
these margins are likely to shrink further. Thus, a better price is what the
free market guarantees both the producer and consumer. This obviously, moves
the consumers away from the existing vendors, and to that extent petty traders
and vendors may lose their market share.
But, it cannot
certainly end their businesses, for they can always compete with corporates who
are known to operate with huge establishment expenditure vis-à-vis small
traders. It only means that these traders can compete with the corporates but
with less profit margins vis-à-vis what they are enjoying today. To put it
otherwise, they can no longer buy vegetables at Rs. 2 a kg from the farmers and
sell it at Rs.10 for kg to the consumers. Indeed, it is the petty vendors who
are more competent—provided they are willing to operate at normal profit
margins—to be a threat to the corporates, but not vice versa. So, small traders
have to necessarily change their business model and fall in line with the
changed market scenario where class politics are declining while the new social
movements that are picking up speed are making the consumer the ultimate
decider. “In an infinite aisle” that globalization has opened up for trade,
won’t it therefore make great sense for these two classes of traders to
collaborate with each other and run their businesses on an even keel?
(June, 2007)
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