FDI in retail?

Myth of infrastructure growth and  food safety?

By Dr Ashwani Mahajan ?

One of the major arguments, justifying recent decision of the Union Cabinet to open retail sector for Foreign Direct Investment (FDI), or in other words opening up of more than 22 lakh crore of huge retail sector for multinational corporations is that this decision of the government would result in all-round development of rural infrastructure, especially warehousing and cold storages. Argument of the government is that, a significant amount of agricultural produce go waste due to lack of storage facilities in the country. It is said that due to lack of investment in cold storages more than 50 per cent of the vegetables go waste, and the one and the only solution to these problems is FDI in retail. Government argues that when these multinational giant corporations in retail sector will come they will make a huge investment in warehousing and cold storages. Government also says that, these corporations would be asked to channelise at least 50 per cent of their investment into infrastructure.

If we look into the reality, even going by government’s argument of need of foreign investment in infrastructure, it would be interesting to note that, FDI in warehousing and cold storages was allowed more than a decade back. However, no FDI could get attracted into this sector (warehousing and cold storages).

There is no denial of the importance of storage infrastructure for agriculture and farmers’ well-being. This is also true that because of lack of storage agricultural produce goes waste. However, the basic question is that, whose responsibility is the provision of storage infrastructure. We understand that, about 60 per cent of India’s population is directly or indirectly dependent on agriculture, and storage constitutes a major need for agriculture. However, even after 64 years of Independence the government has failed to provide this important infrastructure.

In the process of taking a decision to open retail sector for FDI, the Department of Industrial Policy and Promotion, Government of India, issued a ‘Discussion Paper’ and cited Mid-Term Appraisal of the Tenth Five Year Plan. The ‘Discussion Paper’ says, “Mid-Term Appraisal of the Tenth Five Year Plan made a strong case for FDI in modern retailing as entry of modern foreign retailers through joint ventures in India, would help develop backward linkages to sources of supply and thus develop a domestic supply chain capable of meeting international standards.” It further says, “Allowing FDI in joint ventures is likely to provide access for domestic suppliers to international retailing which purely domestic modern retailers may not be able to offer.”
Infrastructure : Essentially government’s responsibility

It is unfortunate that to legitimise the entry of the multinationals in retail sector, the government is taking the shield of lack of storage facilities for agriculture produce. Is this not the responsibility of the government to either create this storage capacity on its own or encourage private sector to create this by way of subsidies, fiscal concessions or other incentives. In the 65 years after Independence, the government has failed miserably on this front. Government has no right to penalise the small retailers for no fault of theirs. The paper  circulated by the government gives an argument that creation of this infrastructure requires an investment of rupees 7,687 crore and therefore we need FDI in retail, so that multinational retail giants would create this infrastructure. This argument is not tenable. In a country where the size of annual budget is more than Rs 12 lakh crore, for this small investment of merely 7,687 crore, we cannot legitimise the death warrant for small retailers, especially when they are not at fault. Further if at all these multinational companies would provide storage infrastructure, it would only be provided to strengthen their own supply chain. We cannot expect that the cold storages built by these multinational corporations would keep potatoes produced by our farmers and save them from hardships.

Big retailers actually cause food wastage

If we think that, entry of multinational retail companies would reduce wastage of food, we are highly mistaken. Global data about food wastage indicates that, the USA, European countries and other developed countries are much ahead of India and other Asian countries in terms of wastage of food. According to international data, in Europe food loss and waste per person per year is 280 kg,  in North America it is 295 kg and in South and South-East Asia it is only 125 kg. It is not mere coincidence that the countries where food wastage is maximum, are the countries which are dominated by multinational organised retailers. Answer to this dilemma, is provided by Food and Agriculture Organisation (FAO) of United Nations. According to FAO, a major reason for food wastage is that, organised retailers (supermarkets) in order to look more quality conscious reject a major portion of agricultural produce at the farm gate due to rigorous quality standards concerning weight, size, shape and appearance of crops. Therefore, large portions of crops never leave the farms. Even though some rejected crops are used as animal feed, the quality standards might divert food originally aimed for human consumption to other uses.

FAO further says that, “Large quantities on display and wide range of products/brands in supply lead to food waste in industrialised countries. Retail stores need to order a variety of food types and brands from the same manufacturer to get beneficial prices. Consumers, also expect a wide range of products to be available in stores. A wide range of products does, however, increase the likelihood of some of them reaching their ‘sell-by’ date before being sold, and thereby wasted. When shopping, consumers expect store shelves to be well filled. Although certainly beneficial for sales statistics, continually replenished supplies mean that food products close to expiry are often ignored by consumers.”

Direct sale of food products by the farmers to the consumers or from shops is the solution to the food wastage provided by FAO. Therefore building of big warehouses and cold storages infrastructure as a part of supply chain management by multinational retail giants is neither in the interest of farmers nor is in the interest of the people at large, as farmers may lose due to ‘rigorous quality standards’ and loss of food due to the marketing policies of the supermarkets.

In a country like India small vegetable shops are actually key to food safety and minimisation of food wastage. In this context building of warehouses and cold storages are important, but they should be built near villages by government, maybe with the help of private sector. Mega stores or giant multinational corporations are certainly not a solution for wastage of food. If FCI is not able to handle its affairs properly, solution doesn’t lie in surrendering to Walmart. We have to ensure food security of our people by building our own infrastructure. This has become even more important in view of the proposed food security legislation.

(The write is a Associate Professor, PGDAV College, University of Delhi).?