Aug 24 2012

Onions and Tomatoes, Turnips and Potatoes …

Thanks to the unprecedented spike in the retail prices of onions, (and now tomatoes); everyone in the country is expressing concern, and multiple views and opinions on the subject.   The blame game  is on – consumers are accusing  governments and traders, governments (centre/state) are accusing each other and the traders, traders are accusing the government, organized retail is accusing the APMC Act, the unorganized retail holds the ‘stockist’ as the main culprit, and the farmer feels cheated because  he is not receiving a fair value of the produce. The chambers of commerce are rushing in to plead the case for FDI in retail, and opening up the sector to the large aggregators, the ministry of commerce is looking at export restrictions and easing of imports, the consumer affairs ministry is monitoring prices, and the agriculture ministry is gearing up production, but can these different instruments   work together to produce a symphony, or will all this end up in a cacophony, which will make the scenario messier than it was before! The missing link is the’ conductor’ – the one who can guide these different notes to tune in harmony….

Having said this, let us now ask ourselves: what are the concerns? How can these be addressed? What is the time frame? Which institutions need to be involved?   What can be the role of institutions and technologies to take this forward? 

The main concern  is that consumers, especially those in urban areas are not getting  good quality fruits and vegetables at ‘reasonable prices’, especially in lean production months.  However, this needs to be understood in a perspective. Why is there such difference between ‘wholesale and retail rates?  First of course, is the long supply chain between the wholesaler, the stockist, the logistics provider and the vendor?  Second, there is a large amount of wastage that takes place every day on account of unsold/damaged stocks, because the current supply chain practices lead to a quick deterioration of stock at all levels – from the farm gate to the wholesale auction point, the auction centre to the van to the stockist to the vendor who unfurls his wares on her cart, and the multiple charges that have to be forked out – for the cops, the health and sanitary staff, and the local ‘don’. Then there is the issue of ‘transaction terms’ between the vendor and the stockist.  Your columnist was told by some vendors that they have to borrow money on a daily bi-weekly basis at exorbitantly high interest rates, which also pushes up the cost to the final consumer.  However these issues have not been addressed so far and the focus has always been on enhancing production, which is good, but not sufficient by itself to address the issues.  The fact is that because of interventions  by  NHM and state horticulture departments,  production of fruits and vegetables is  keeping pace with the growth of population – the issue is that the urban consumer is becoming more aware, has greater purchasing power and is willing to spend more on high quality fruits and vegetables  because  as incomes rise, there is a shift from cereals to proteins , and  the  top end segment  is ‘price insular’.  Thus, while there are some issues on the supply side, there is also the ‘demand ‘aspect.   The urban consumer also wants the produce in a ‘ready – to –use ‘format.  However this will call for a change in the current vending practices of fruits and vegetables.  There is a case for technology interventions in   a big way to ensure that  waste is eliminated – but the issue is – can  the market fund these capital intensive solutions  if the livelihood of existing vendors has to be protected ?

An Empowered Vendor 
This is where the institutional partnership with the Urban Local Bodies comes in.  The horticulture department (which can organize the production) must sit together with the Municipal Commissioners to ease the supply chain bottlenecks. If ULBs give some financial  and institutional support to  vendors ( for purchasing motorized mobile Controlled  Atmosphere Vans ) and also provide   some transaction points where the farmers can bring their produce and  put it  up for auction on an  electronic trading platform, it would  be possible  for larger aggregators, or  association of vendors, or RWAs to pick up their stocks on a regular basis.  Some training on soft skills, proper understanding of hygiene and a dress code can transform this sector. Electronic weighing scales will also address the consumer’s concern about weighment issues. The vendors should also be eligible for working capital finance on soft terms to ensure that their margins improve, even as they can offer competitive prices to the consumer. These interventions  are perhaps even more important than addressing the production issues because  these can be addressed at the farm level by providing requisite inputs, and this has been done quite successfully, year after year for cereal crops , pulses and oilseeds. 

The Legal Space
However the other hurdle that the scheme faces is the regressive APMC Act in several states, including the NCT of Delhi which makes it difficult for farmers and vendors to transact freely.  APMCs have become  institutions of the  traders, for the traders and by the traders, especially in cities because the transactions are not controlled   by the  farmers, and   given the shortage of physical space, no fresh licenses are being issued  by the APMC committees which are quite happy to retain their ‘patronage’ and monopoly.  It is high time  that at least ‘perishable commodities’ are exempted from the legal necessity of first bringing the produce to the APMC market yard before it can be sold to the consumer.  While the issue of ‘holistic reform’ in the sector has been pending for quite a while, exemption of horticulture produce (perishables) offers a good via media to start the reform process.