As part of its efforts to rein in food inflation, the government has decided it will ask states to issue orders to bypass mandis; even if it is able to get this done in Delhi which houses the country?s biggest mandi in Azadpur, it would be a good start, given the daily arrival of fruit and vegetables here is 50,000 tonnes. While reducing the commissions of middleman at the mandis is critical since it would benefit the farmers who make the smallest margins across the value chain, the move would also facilitate purchases, at the farm gate, by large organised retailers; currently a Reliance Fresh or a Food Bazaar is virtually unable to source from farmers given the clout of the arthiyas.
Contrary to popular belief, large retailers haven?t hurt small retailers, offer their customers reasonable prices and are not raking it in. CRISIL estimates that accumulated losses of the top ten retailers crossed R13,000 crore in FY14 while the revenues earned from the segment were around R23,500 crore. Indeed, the foods business is turning out to be a big drag on them because they are unable to source directly from the farm gate in most states and also unable to scale up in the absence of infrastructure. Weighed down by losses and debt, they are being compelled to hold back on expansion plans. Even after this, CRISIL believes losses will grow by about 30% over the medium-term, probably peaking sometime in 2017 with at least half the players breaking even.
The scale that domestic retailers operate on clearly isn?t going to be big enough to encourage investment in warehousing and storage. For serious capital to be committed to the space and accompanying infrastructure, the volumes need to be far larger. Which is why the government must consider allowing foreign retailers to enter the space; their size of operations would justify investments in storage capacity. The government seems to be ignoring the fact that enormous quantities of fruit and vegetables?close to 30%?perish simply because cold storage facilities are grossly inadequate. If it is indeed serious about taming inflation in fruit and vegetables, eliminating the middlemen is a must but ensuring that storage infrastructure comes up is equally critical.