Cultivating farmers

Corporate retail giants are quietly consolidating their position even in politically sensitive States such as Kerala.

in Thiruvananthapuram

Reliance FRESH is as yet an unfamiliar name at Velanthavalam, a sun-soaked village in Palakkad district in north Kerala. So is Ranger Farms, a Reliance subsidiary, which has discreetly occupied a warehouse in the heart of the village. No doubt, the village itself is nondescript, known only for its landmark vegetable auction market and, perhaps, for a flourishing toddy shop that leads across the border to Tamil Nadu.

The auction market is one of the biggest in north Kerala and is controlled by a coterie of 13 commission agents who provide a platform for hundreds of local farmers and a diverse group of wholesale traders from many districts, to trade in vegetables freshly picked from the farms.

Every day between 30 and 50 tonnes each of an amazing variety of vegetables are sold there. Commission agents that Frontline spoke to estimated the daily turnover for each of these vegetable varieties at between Rs.25 lakh and Rs.35 lakh, with the tomato season from August to December bringing in an additional Rs.50 lakh a day.

Such a bountiful harvest is precisely the reason why Reliance has made its appearance in this far-flung area. Indeed, other such vegetable-growing tracts in the State too have, of late, been teeming with agents of big-time retail companies. Their target is the traditional wholesale vegetable trade in village markets, with its string of intermediaries who take their own commission and other expenses from the profits of farmers and, thus, at every stage add to the cost to the consumer.

About 10 km away, at Kozhinjampara, in an unmarked building, is a Reliance collection centre, one of the two the company has acknowledged formally as operating in the State. The other is at Kuruppanthara, a well-known vegetable production centre in Kottayam district. Their aim is to procure vegetables and other farm products directly from farmers by cutting out middlemen, their [10 per cent] commission, loading, unloading and transportation charges, and thus pay farmers more and sell fresh vegetables at ever lower prices to urban customers.

In spite of the protests that have marked the launch of many retail chain stores in the State, Reliance has, within a year of opening its first outlet in June 2007, emerged as the only big retail chain to procure farm produce locally on a substantial scale without even a whimper of protest. Indeed, the company has kept its back-end operations low-profile deliberately even as it spreads to all parts of the State.

To understand why there have been no protests, it is important to know how deeply and silently the company has endeared itself to farmers, mostly through its collection centres. Its expansion in the rural areas has been curtailed, if at all, only by its inability to open more stores in the cities.

The atmosphere at the Reliance collection centre at Kozhinjampara was strikingly different from the crowd, the commotion, the dirt and the dust at the auction market at Velanthavalam. A young agriculture graduate, the companys collection official, evaluated the quality of the produce, advised farmers on market trends and the companys next requirement and also paid farmers in cash, on the spot. The price was at least one or two rupees more a kilogram than what farmers got from commission agents at auction markets.

Informed sources at the company told Frontline that there were at least 300 growers from nearby areas who supplied vegetables regularly to the collection centre. Every night, at least two truckloads left the collection centre with the days produce and local farmers ensured a regular supply by changing cultivation patterns, trying out new varieties that are in demand in the city markets and staggering the harvest. Very soon a new collection centre is scheduled to open at a bigger building a few kilometres away in order to buy the daily harvest of vegetables from growers in three more panchayats.

Selvamani, a farmer whose family owns 30 acres (one acre is 0.4 hectare) and has been selling both to Reliance and in the auction market at Kozhinjampara, told Frontline: On an average, we get at least Rs.2 a kg more for every commodity if we give it to Reliance rather than at the wholesale market. At the local market, as elsewhere, we have to pay a 10 per cent commission to agents in addition to the loading and unloading charges. Their weighing machines are almost always inaccurate. This is why a lot of farmers here prefer to sell to Reliance.

He said farmers of the local padasekharam committee, of which he is the president, now sell the best lot of their daily harvest to the company and whatever it discards they sell in the wholesale market.

Not long ago, Reliances collection centre hosted a dinner for its regular suppliers and promised to provide them seeds and other inputs and the services of agricultural experts. Selvamani said the company had so far imposed no condition on farmers and claimed that they had the freedom to sell elsewhere if they so chose.

Reliance officials refused to speak on record, but information that Frontline gathered from various sources indicates that in the one year since the company started its operations in Kerala it has been successful in ensuring a regular supply of vegetables every day to its 18 shops. About 25 varieties (seven to 10 tonnes) are sourced from Kozhinjampara and about 20 varieties (three to four tonnes) from Kuruppanthara.

Initial plans to open 120 Reliance Fresh stores and nearly a dozen collection centres (each one as a hub for a particular farm commodity) are temporarily on hold. But we will reach that target soon, a procurement executive of the company said.

Recently, Reliance opened a wholesale distribution unit at Maradu in Kochi and this centre now provides supplies regularly to other retailers, wholesale traders, hotels, major hospitals and other institutions.

Said a senior official of the company: We cannot offer all our farmers an assured market every day with the business in the existing 18 Reliance Fresh stores. But if we dont buy from them regularly, and keep them in our network, they will drift away. The key to a farmers heart is not even the price, but the promise of an assured market. That is why we decided to start the wholesale division that will get supplies from our collection centres as well as from other markets. There is a whole new trade in wholesale selling that we are building up and our customers include small and big traders who had initially protested against the opening of our stores.

After an initial trial run in a few places, Reliance scouts are wooing farmers in several other districts, offering them higher prices, electronic weighing, on-the-spot cash payment, extension services and, importantly, an assured market for their produce.

Several groups of farmers at Munnar in Idduki district and Sulthan Bathery in Wayanad district are already part of the Reliance supply chain. Informed sources in the company said that very soon it would be opening collection centres in the rural areas of Thiruvananthapuram, Kollam, Kozhikode and Wayanad districts so as to ensure a constant supply for its upcoming outlets in the State.

In almost all the places where it has been able to commit groups of farmers to be corporate suppliers, Reliance has encouraged them to try out new varieties, to change their cropping and harvesting patterns and even grow exotic vegetables for which they are offered a higher price and an assured market.

Last year, for example, farmers in Palakkad grew a new variety of tomato plump and robust in appearance on the advice of Reliances agriculture experts. An entire seasons crop of this new variety was procured at the collection centre at Kozhinjampara and was a sell-out in city outlets.

Local farmers said the traditional variety was still the choice of most farmers and consumers in Palakkad but they chose the new option because it had higher productivity and brought more profits.

The senior Reliance official said: They now understand what the market demands and the benefits of giving the market what it wants. Ultimately, what we do is to make farmers market savvy.

In Wayanad, an agricultural district that is yet to recover from the trauma of debt traps and the largest number of farmer suicides, Reliance employees have tried vigorously to coopt non-governmental organisations (NGOs) and self-help groups into its agri-business chain with the support of agronomy experts and university professors, especially urging them to make use of the colder climate to grow vegetables that the company now sources from markets in Udhagamandalam (Ooty) and Darjeeling.

In the rice bowl of Kerala, Kuttanad, in Alappuzha district, the company had almost clinched a deal with self-help groups under the Kuttanad Development Society to buy their entire harvest of two varieties of rice that the KDS sells under the brand name Karshakan (see box). This was before a calamitous spell of summer rain wiped out entire chunks of the rice harvest, adding to the deepening food crisis in the State.

Said Fr. Thomas Peelanikkal, KDS chairman: Eventually, we disagreed on the price. But even when we refused, we were aware of the benefits of selling to this super-store company. Farmers would get an assured market and the price, in cash, immediately. That would be considered a godsend in Kuttanad.

Sourcing is the key to the retail industry and our strength is our information network, a senior Reliance executive told Frontline. We have a huge database and we can act knowing which the cheapest sourcing location for any given product at any given time will be. Indeed, if a commodity is available locally it will never be cheaper in a faraway location. That is why we give so much importance to buying locally and building a relationship with all the local players.

Reliance officials said that in the pineapple market at Vazhakkulam near Moovattupuzha (Ernakulam district), the biggest pineapple market in the country, they helped several farmers to sell directly in the all-India market for better profits rather than through the coterie of wholesale traders who had a stranglehold on the pineapple business. They claimed that they also helped such farmers track price trends in various markets through the companys information network and sell at the right place.

Baby John, president of the Pineapple Farmers Association, a body with a membership of over 500 farmers in and around Vazhakkulam, told Frontline that farmers wanted Reliance to grow in prominence in the pineapple trade too. The farmer gets the price on the spot and he is assured of a market, two big advantages of selling to a company like Reliance. But, so far, the company has made little impact in the market that sells 3.75 lakh tonnes of pineapple every year, he said.

According to K.P. Kuriakose, Head of the Department of the Kerala Agriculture Universitys Pineapple Research Station at Vazhakkulam, farmers and traders have generally welcomed the entry of Reliance into the pineapple business, even though the companys claims of helping individual farmers find an all-India market should be seen against its main objective of merely procuring pineapples for the cheapest price directly from these farmers for its own all-India outlets.

However, despite such hectic activity in the past year, the companys share in the fruits and vegetable business in Kochi, for example, where it has the largest number of stores, is only 1 or 2 per cent, according to informed sources in Reliance Fresh. Yet, the fruits and vegetables business is where the profits lie and it accounts for 30 to 50 per cent of the turnover in most Reliance Fresh stores. The total procurement from Kerala could be much higher than what Reliances sources disclose, with the company also buying farm-fresh vegetables regularly for its fledgling wholesale business within the State and fruits such as banana and pineapple and the entire range of spices from various harvesting centres in Kerala to be sold (under its brand name) in over 350 stores throughout India.

In Kochi, a huge processing complex that can accommodate around 200 workers has been kept ready, seemingly waiting for Reliance Freshs 120-store plan to unfold. It is equipped with grading and sorting facilities, a ripening chamber, a sophisticated cold chain facility and several trucks. Asked why they need such big back-end support for just 18 Reliance Fresh stores, company executives answer, smugly: The benefits of the Reliance strategy may not be obvious to everyone immediately. But, we are sure we are here to stay.

Secrecy is pervasive in the Reliance procurement chain. Company trucks criss-crossing the State are all invariably unmarked. Private trucks on hire do not display any sign of a farm-to-warehouse transport. Collection centres and the processing centre in Kochi run under cover without advertising the name of the company. Even the backroom offices in the heart of Kochi, the companys nerve centre, are unmarked. Visitors have to sign a register and use a swipe card to enter, a rude contrast to the customer-friendly face of the 18 brightly painted Reliance Fresh stores.

Such self-imposed anonymity is perhaps the price the company has decided to pay for its ambitious plans in the farming villages of Left-ruled Kerala, even as it, like other big-time retailers, is engaged in a strange game with the local bodies, traders unions and political parties in the urban centres.

Significantly, since June 2007, when its newly inaugurated outlets began to be the target of vicious attacks and its plans to get 120 stores up and running were mired in political, legal and street battles, the retail chain has built its back-end operations diligently and has looked for discreet collaboration with farmers and small entrepreneurs in rural Kerala.

It is important to see such an insistent and acutely market-savvy spread of the Reliance supply chain in Keralas fruit and vegetable farms in context and only as an example. The strategy is not new: by cutting out middlemen, sourcing directly from farmers, purchasing bulk quantities and transporting them to its city outlets, and by achieving efficiency in all such operations, the company gains the clout to sell below the market price.

Reliance is already the largest single Big Retail buyer of fresh vegetables and fruits in Kerala. Soon, if not already, there could be other such big players too, with their leaner, meaner tentacles digging deep into the rural landscape of a food-, vegetable- and fruit-deficit State.

A giant cash-and-carry wholesale agri-business is also looming around the corner in India and major retail chains are competing to have a toehold in that gravy train. What we are all excited about, and some people are worried about, is the consolidation in Big Retail that is sure to follow. It is a question of who will create the numbers first to go beyond the tipping point that is the game being played out today in every region of the country. Eventually, only a handful will survive, a senior official of the Reliance group said.

Farmers like Selvamani of Kozhinjampara have found that delivering produce tailor-made to the companys requirements and improving farm practices as advised by it is the best way forward. We hope they will open more such collection centres, said Selvamani. There are reports of farmers in Palakkad taking land on lease and engaging workers from Tamil Nadu to supply vegetables regularly to the company.

But already a division between those who sell to the company and those who cannot seems to be emerging in places like Palakkad. According to Selvamani, supplying vegetables at the quality required by the company is a difficult task. You need to have the resources, quality seeds that cost you a fortune (a kilo of hybrid tomato seeds is priced at Rs.33,000) and other inputs, the expertise, technical and irrigation support and so much hard work, he said.

At the market at Velanthavalam, Swaminathan, a farmer in his late fifties, his hands dark and dirty from the days harvest, told Frontline: It is just my luck. The company selected only 25 farmers. I have to wait until they decide to take more members. They pay well. They give seeds and other inputs to members. But they will take our produce only if it meets their standards.

Very soon, as more and more of them prefer to sell to the company, farmers in Kerala may find themselves left at the mercy of a few big buyers who take only the best quality supplies from the cheapest sources and thus constantly pull down prices, relegating those who cannot deliver, or deliver regularly, to ever-shrinking rural markets that trade mostly in second-grade produce.

It is a typical Wal-Martian back-end drama in yet another corner of the world, being enacted with very little public awareness about the important structural changes it seeks to engineer. However, there are many supporters in Kerala for the system that claims to ensure ever lower market prices for super-store customers and those who believe that the case of supermarket dominance of agriculture supply chains is being exaggerated.

But the concern being expressed the world over that the ascendancy of a few large firms at both ends of the farming sector can affect the profitability and livelihood of farmers and farm workers cannot be brushed aside in Kerala alone, where its permeation has the added potential to sever the link between agriculture and poverty alleviation in the rural areas.