Producers' plight

Print edition : December 30, 2011

In a rice mandi at Lucknow's Bangla Bazar. - SUBIR ROY

In U.P., where 70 per cent of the people depend on agriculture, FDI in retail does not produce any cheer.

ON a misty Monday morning in early December in Muradnagar, a small town in western Uttar Pradesh, numerous tractors and trucks, loaded with jaggery and driven by farmers themselves, lined up in front of the smallest grain mandi (market) of the region. With unusual patience, the drivers waited for their turn to unload their vehicles, and then tried their best to help with the unloading. Up ahead, about 50 metres away, was a crowd which spoke more in numbers than the regional dialect of Hindi. That crowd, the centre of attraction, had a bunch of commission agents leading an auction to fix the price of the jaggery. The price of one quintal of jaggery was finally fixed at Rs.195, and most of it was bought by traders from Gujarat through local agents who had been in the business for a long time now.

The middlemen did not fix the price; what they did, instead, was to follow a set of instructions from the traders. The agents would receive a small and fixed percentage (generally 2 to 5 per cent of the total transaction) from the traders. This is how traditional selling and buying of most agricultural products happen in western Uttar Pradesh.

There are 24 agricultural products, including paddy and wheat, for which the government has announced minimum support prices (MSP). Sugarcane is covered by a system termed as fair and remunerative price (FRP). But auctions for sugarcane products, like the one referred to above, register prices above or below the FRP since the government, more often than not, does not come directly into the purchase market.

The proposal for foreign direct investment (FDI) in the retail sector has evoked mixed reactions among farmers in different parts of Uttar Pradesh. There is a sense of anticipation over the changes that will happen to the buying-and-selling process when big corporates come to their mandis; at the same time, there is an apprehension of the potential negative impact on traditional trading in the long run. The government promises that corporates will be able to buy our crops directly from us. But we do not know whether there will be any change in our conditions as we are not sure whether they will give us better rates, said Sunil Tomar, who owns around 10 acres (four hectares) of land and is a relatively privileged farmer in the area.

In an agent-operated mandi, the agents quote the rates only after observing the rates in other mandis. The agents themselves feel that the rates the farmers get for jaggery and sugarcane are abysmal in Uttar Pradesh. There is absolute dacoity going on by the traders. The last time the farmers wanted a better price for sugarcane, the wholesalers went to Madhya Pradesh farmers to buy it as they were offering lower prices, and the sugarcane crop of that year got ruined. In the end, we have to see what price will be acceptable to the wholesalers, or else both the farmers and the agents will lose their shares. We would naturally want better rates for the farmers because we would also get better commission if the business is better, said Rakesh Chand Sharma, a commission agent in Muradnagar mandi.

The logic of introducing FDI in the retail sector is, presumably, that corporates will pay better prices to farmers if the crop is bought directly from them. However, Sitaram Gujjar, a marginal farmer in Hapur, who holds a mere one acre of land, does not expect a lot from this deal. He did not understand what FDI was, but the agrarian crisis of the last two decades has left him with little hope.

Why should a big company buy from us? We produce very little; 75 per cent of our produce is for our own use, and the 25 per cent we sell can be sold only because we know the agent in the mandi who agrees to push our produce along with the produce of other big farmers, he said.

A bigger farmer who holds around 25 acres of land hopes for better rates from corporates but has no major expectation of change. We produce around 38 quintals of sugarcane every year for which we get around Rs.250 per quintal if we sell it to a sugar mill or a beverage company. We make hardly Rs.70,000 to Rs.80,000 for the whole year, and this does not include labour costs. The question is if the big company buys from us, how much more is it going to give? Will it give us a much better profit margin than the present or will it be only a marginal increase in rates? We do not know, said Sant Mallik, the big farmer.

Mallik also feared that the corporates would start dictating terms once they had dug in their heels in the business, whereas farmers now had a much more personal relationship with the agents. It can be both good and bad. We fear that we might lose the little bargaining power that we have now, Mallik said. The relationship between the farmer and the commission agent is usually a love-hate bond. The farmers, as much as they might want to be able to sell their produce directly, do not seem sure that the commission agents should go.

The commission agents, however, are vociferous against FDI in retail trade, and so are traditional wholesalers. FDI in retail trade will directly impact these two sections, and both will get eliminated gradually if the companies source all their goods from farmers. While some agents think that the big companies might need their help in dealing with local conditions, some said that they would not be allowed to work otherwise. We know this business for ages. The companies will surely need local support and we can choose to help them or not. Even if the company wants to buy from farmers directly, they will have to know them and for that they will need help from local people. How are they going to do that? said Rakesh Chand Sharma.

FARMERS LOAD THEIR cauliflower crop on a rickshaw on the outskirts of Allahabad, on November 25.-RAJESH KUMAR SINGH/AP

Across the State, farmers are resentful that the products that they are forced to sell for a pittance are traded in the consumer market for prices that are tenfold or more. Voices from Barabanki in central Uttar Pradesh, the primary political ground of Union Minister Beni Prasad Verma, a major advocate of FDI in retail, uniformly reflected this idea. Talking to Frontline, Dinesh Mishra, a local paddy cultivator, said he knew that the paddy he sold for Rs.1,300 a quintal acquired a value of Rs.5,000 by the time it passed through the middleman, the wholesaler and finally the retailer.

We do all the toiling, and others who merely push the product in transport or sit in mandis get greater financial benefits. This needs to change, but will FDI bring that change? We are not very hopeful, given the way many programmes of this government have worked so far, he said.

The refrain was more or less the same among the mango cultivators of Malihabad, many of whom deal directly with wholesale and retail merchants across the globe. What we sell for Rs.10 is sold for Rs.100 in the market. Generally in all other businesses the producer receives the most, but in farming it has become just the opposite. Will the big companies ensure that we get the most? I don't think so. A loose cartel of wholesalers will be replaced by a network of big companies which can function as the oil cartel, said Prem Chaudhary of Ghaziabad in western Uttar Pradesh who holds around 50 acres of sugarcane farms. The fear of this oligarchy of retail giants is all-pervasive.

Rajpal Singh, a government-appointed mandi secretary in Muradnagar, showed Frontline the transaction papers of the mandi and calculated the profit margins of a farmer in sugarcane, paddy and wheat this year, and the reports are not encouraging. A sugarcane farmer gets Rs.9,200 per acre, while input cost, excluding the labour costs, is Rs.5,000. For paddy, it is Rs.5,500, and the cost price is Rs.2,750. For wheat, it is Rs.3,550 and Rs.1,700 respectively. How does anyone expect a farmer to survive? I don't think that the big companies would offer a much better margin for the farmers. The government should fix a good rate for the farmers and tell the companies to buy at those rates. The big company will always have the option of sourcing their goods from anywhere in the world if the prices in India are not competitive enough. If that happens in the near future, it will be disastrous because at that point even the traditional wholesalers and agents would have gone.

Clearly, the announcement regarding FDI in retail has not evoked a sense of elation in Uttar Pradesh, where 70 per cent of the population is engaged in agriculture, producing approximately 45 per cent of the State's income.

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