FDI in retail is being projected as a panacea for all the ills plaguing agriculture. It is expected to raise farmers income, remove middlemen, help consumers get a low price, and of course remove the massive wastage that we see in the farm supply chain.

This is a myth. It is very conveniently being used by the industry as well as the policy makers to justify a flawed policy initiative. To understand what big retail means to agriculture, let us see how it has fared in the United States and Europe. In United States, ever since Wal-Mart entered some 50 years ago, farmers have disappeared, poverty has grown, and hunger has broken a 14-year record this year.

You will agree no country, whether it is India, US or Japan, would like to provide subsidies to farmers and for that matter poor. In India, there is a strong demand for reducing subsidies so as to contain the fiscal deficit. Govt has raised the prices of fuel periodically so as to pass on the subsidy burden to the poor. It has also decontrolled fertiliser (except urea) with the intension of reducing the massive subsidy outgo on agriculture. The US is no exception. If Wal-Mart was doing so well, providing a higher income to farmers, I am sure you will agree there was no reason for US government to dole out massive subsidies for agriculture year after year. In fact, these subsidies, are going up steadily.

In the last Farm Bill 2008, which made provision for agrcultural support for the next five years (the next Farm bill is slated for 2013), US provided $ 307 billion for agriculture in the next five years. Between 2002-2009, in terms of Indian rupees, US doled out approximately Rs 13-lakh crore to its farmers as direct income support. In the WTO negotiations, the US has very strongly defended these subsidies, and have ensured that these subsidies are not to be cut.In the OECD countries, a group of 30 large trading block of rich industrialised countries, farm subsidies have risen by 22 per cent in 2009, up from 21 per cent in 2008. In 2009, these countries have provided a phenomenal subsidy support of Rs 12.60 lakh crore to its farming community. This is just for one year.

Let us take the example of France. Despite the heavy subsidies, farm income are falling year after year. In 2009, farmers income fell by 29 per cent, up from 22 per cent a year ago. The farm income is falling not because of any reduction in subsidies but because most of the subsidies are cornered by the rich farmers and corporates. Interestingly, France has its own version of big retail in Carrefour. I see no reason why farm incomes should be coming down heavily when big retail existsin France.  

Despite the presence of Tesco, Sainsbury and Carrefour (and also Wal-Mart), European farmers cannot survive without being given direct income support by the government. Does it not show that higher farm income in US/Europe is not because of big retail but government subsidies? In fact, Europe provides the biggest support to agriculture in the world. Each cow for instance receives a daily subsidy of Rs 200 whereas an Indian farmer is able to earn not more than Rs 40 a day.
That brings me to the logical question as to how can the middlemen be getting squeezed by big retail if the farm income is not rising?

Well, the answer is that big retail does not remove the middlemen as is being projected. Wal-Mart for example is a middleman itself, a big middleman that eats away the small middleman. Big retail actually brings in a new battery of middlemen under a single hub. Studies have shown in the US that farm income has come down from 70 per cent before 1950s to a bare 4 per cent in 2005. The drastic slump in farm income is because a new battery of middlemen, like quality controller, standardiser, certification agency, processor etc have now appeared walking away with farmers profit.

Moreover, it is not only in US, population of farmers is also dwindling in Europe. Studies show one farmer quitting agriculture every minute. If farmer income is going up because of big retail I see no reason why farmers should be quitting agriculture.

There is also no evidence that big retail brings down the consumer prices. Empirical studies show that in Latin America, Africa and Asia, big retail has been charging 20-30 per cent higher prices than the open market. In US and Europe, if the food products are available cheap in the big stores it is not because of any benevolence being shjown by the super markets.

Massive subsidies brings down the domestic and international prices, and under WTO both US and EU is known to be dumping commodities at highly subsidised prices. In case of cotton, for instance, in 2005 US provided a massive direct income support of US $ 4.7 billion to its 20,000 cotton farmers. The total cotton crop was worth $ 3.9 billion dollars. In addition, US provided its textile industry another $ 180 million to but the subsidised cotton from farmers. all these subsidies brings down the market prices by some 48 per cent. Similarly for food products.  

In the US, it is not Wal-Mart that takes care of storage of agricultural commodities. It is the trading companies, including the global trade giants like Cargill and ADM, that are responsible for storage. I don't even know where in the world is Wal-Mart/ Tesco and Sainsbury ensuring proper grain storage to save losses. Prime Minister Manmohan Singh says that FDI in retail will take care of food storage. There is no evidence of it. Food storage is the job of the government, but unfortunately India had never taken grain storage task on priority. For 30 years now, I have seen food rotting in godowns while millions go to bed hungry.

On theb other hand, In India, we have to learn from Amul, which has created a sophisticated supply chain (including cold storage facilities) to carry milk (a highly perishable commodity) across long distances. It is time to learn from Amul rather than make agriculture subservient to Wal-Mart and other big retailers.

Now let me also analyse the employment generation capacity of the big retail companies. Manmohan Singh has said that big retail companies will create one crore jobs in India. What he failed to tell us was that how did he arrive at this fantastic figure. International evidence tells us thatv big retail does not create employment, it actually displaces the people who are already employed in the retail business. Let's make a comparison between the Indian retail market and Wl-Mart.

The total turnover of Wal-mart is roughlyv $ 450 billion. Ironically, the Indian retail market is also worth $ 420 billion plus. While Wal-Mart employs only 21 lakh people, Indian retail sector has 1.2 crore shops and employs 4.4 crore people according to the national surveys. It is therefore evident that Wal-mart will not be creating additional employment, but would be displacing a number of times more people than what it needs to employ.   

India definitely needs to modernise its retail sector but that does not mean it should hand over the retail market to foreign players. And that too in the name of farmers.