1. Strengthening the supply chain: Welcome additions, such as Walmart, to the supply chain

Strengthening the supply chain: Welcome additions, such as Walmart, to the supply chain

Welcome additions, such as Walmart, to the supply chain. This helps our farmers.

By: | New Delhi | Updated: June 14, 2018 3:08 AM

We seem to be in an ‘anything goes’ frame. In a number of channels earlier this week, I argued that IMD’s forecast that this was a ‘normal’ monsoon had to be taken with the assessment that the Deccan Plateau, which accounts for a large part of the variability in price-volatile kharif crops, was washed away by the positive noise of business chiefs. But RBI has gone along it seems, with a more cautious assessment by raising the interest rate. The controversy created by Luddite groups reflects a complete ignorance on the understanding of the supply chain question in agriculture, in their noise on Walmart. The ‘terms of trade’ had moved against agriculture in the first decade of this century. For earning `100 of income, the farmer at the margin was spending `114 as per CACP calculations. I had argued that profitability of agriculture had fallen by 14%. In technical literature, my friend Abhijit Sen had shown that profitability rates in agriculture were around 3.5% and the fall was marginal, but the change was 14%.

Grain prices in India are dominated by the state, being set by CACP reports, and with a major share of public purchase at least in Northwest India and UP, the private trade dare not speculate. But within grain, the problem was in pulses, and to an extent in some inferior cereals like corn and bajra, also used as fodder. It is the non-grain prices which are the problem. The income elasticity of demand for animal husbandry products like milk, cheese as also meat, chicken and eggs being in the range of 1.5-2, demand rises by 10% or more with per-capita income rising by 6%. This is also true for vegetables and fruits and for fish and forest products. Marketing here is a big constraint. More than 40 lakh farmers moved to census towns, chasing the demand for such products in the last decade, and one can be sure that the number is more in this decade. These products are sold outside APMCs and the infrastructure support to the kisan is abysmal, as all field reports show. APMCs are in any case strangled by the brokers as a number of studies show. The supply chain is ruptured at a crucial point.

When Walmart entered into an agreement in Anand in Gujarat, I welcomed it as an addition to the supply chain. Our kisan and the urban consumer can use an alternative supply chain. Good to do it in Anand, the land of cooperatives. In a discussion group that I chaired where a Marxist MP was a colleague, I was able to convince him that, as in China, we have to incorporate and regulate alternate distribution channels in our supply chain.

During my last visit to China, I was sent to a Walmart outside Shanghai. It was full of agriculture and other household products with ladies in Walmart uniform helping the sales. In one part, the atmosphere was different—like a village market. Farmers were males and their female relatives were around. In the initial phase, China had insisted that a percentage of space in the Walmart should be reserved for its local supply chain, both for agriculture and household industry. They let the transition take place smoothly.

We need to welcome additions to the supply chain. This helps our farmers. The movement of TORs against agriculture for the last few years is a bad signal. It is a dangerous trend and is behind the agitations that are exploding all over the country. Farmers producer companies, corporate enterprises with interest in agriculture like Tata Chemicals and Shakti Pulses, and global distribution channels like Walmart have to be encouraged to link up with Indian farmers. The fact that we propose to encourage e-markets initiatives will also put life into the supply market initiative that has been started. This is important because, at present, supply markets are moribund. They are not serving the cause of price discovery from farmers and it is important they do it. I can understand an argument for regulating a new supply chain. I cannot see the case for eliminating it. The argument for regulating a supply chain in agriculture is necessary. The argument for abolishing is non-existent and this position is silly.

By Yoginder K Alagh, former Union Minister

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