Printer-Friendly Page http://www.countercurrents.org/print.

html

Printer Friendly Version

FDI In Retail: Importing A Failed Model

By Devinder Sharma

13 July, 2010
Ground Reality

The Department of Industrial Policy and Promotion (DIPP) has come out with a discussion paper in on
multi-brand FDI in retail. It has spurred a debate on whether there is a need for opening up for multi-brand
retail, and if yes, on what conditions. This follows an earlier study by the Indian Council for Research on
International Economic Relations (ICRIER) on FDI in retail.

The discussion paper was expected. After all, the G-20 mandates its member countries to open up to FDI in
retail. It is therefore amusing to hear economists and market experts sing virtues of FDI in retail in
excitement. The reality is that we are under an international obligation to open up for FDI in retail. You just
have to read the last few paras of the G-20 Toronto declaration, and it becomes clear as to why the
government has launched this exercise now to build up on public opinion.

Having said that, I find the pink dailies and the Business TV channels jumping into the debate with obviously
industry-backed speakers being invited to tell us about the great potential FDI in retail has for consumers,
farmers, and for generating employment. For the sake of maintaining a 'balance' they will invite one critical
voice and then at the end say that you are the lone voice against FDI on this show. Not even one TV channel
has in fact cared to ask as to what happened with the 2006 approval for 100 per cent FDI in cash and carry
and 51 per cent stake in FDI in single-brand retail. Did it benefit farmers and the end consumer?

The answer is NO. At a time when food inflation was at its peak, the big retail maliciously fleeced the
consumers. It continues to do so merrily.

No one has cared to ask this embarrassing question to all those who backed the entry of selective FDI in retail
earlier. No one will later question the economics of centres like ICRIER, which is now building up a case for

1 of 3 7/14/2010 5:08 PM
Printer-Friendly Page http://www.countercurrents.org/print.html

a green light for multi-brand FDI in retail. The DIPP should be first made to explain as to why it has failed to
stop the loot that the big retail is indulging in? As G Ganapathy Subramaniam writes in the Economic Times
today (Put the consumer first: FDI in retail's back on radar but lowering prices must be priority):
"Supermarket chains also get their supply of fresh produce from the same mandis that feed hawkers and
efforts to procure directly from farmers largely remain on paper."

He goes on to say: "Nothing prevents foreign investment from flowing into the back-end logistics business
which is vital for the wholesale. the ground reality, however, is that not much overseas investment has flown
into warehouse facilities or cold chains ... What is preventing more investment flowing into wholesale and
back-end? What should be done to encourage investment in this important segment?"

For the last few days I am repeatedly asked whether the multi-brand retail will help farmers as claimed. I
would like to share a few of my thoughts and concerns with you.

1. Increasing corporate control over food and agriculture has meant that the profits are being shared among
the traders, processors, wholesalers and retailers. This is not only limited to the developing countries where
policy makers tend to blindly ape the farm model from the industrialised countries. In the US till 1990, a
farmer used to receive about 70 per cent of every dollar spent on food. Today, it is no more than 3 to 4 per
cent. (Source: Sharma 2005; Trade liberalisation in agriculture: Lessons from the first 10 years of WTO,
Aprodev, Brussels)

2. If big retail was so good for farmers, there is no reason why the US/EU should be providing direct income
support to farmers. Farmers in US/EU survive not because of big retail/commodity trading but because they
receive direct income support. Take the Netherlands, for example, the average farm family income is 275 per
cent of average household income, and so on . (Source: OECD 2002). This is because of the farm subsidies.
Please also see my article 'Entitled to subsidies' http://indiatogether.org/2004/oct/dsh-entitle.htm

In the US, the situation is no better. I had recently written a piece on this on my blog: US farmers are bailed
out, Indian farmers are left to die
http://devinder-sharma.blogspot.com/2010/05/us-farmers-are-bailed-out-indian.html

We are therefore importing a failed model from the US/EU.

3. Regarding employment, big retail does not squeeze out middle-men from the food chain. Middle-men by
definition means someone who is between the producer and the consumer. Wal-Mart claims that it removes
middle-men. In fact, it only replaces the plethora of small middle-men. Wal-Mart itself is a middle-man. The

2 of 3 7/14/2010 5:08 PM
Printer-Friendly Page http://www.countercurrents.org/print.html

drop in the farmer income is therefore shared by the new battery of middle-men who come under the same
retail hub. The new battery of middle-men, who replaces the traditional middle-men, are the quality
controller, certification agencies, packaging industry, processors, wholesalers etc etc.

In Latin America, the biggest retail chains, most of them owned by multinational giants, now control 65 to 95
per cent of supermarket sales (Source: FAO 2004). Can anyone tell me if the income of Latin American
farmers has increased? Are the Latin American farmers well-off today? The answer is a big NO. Their
condition has in fact worsened.

It is now the turn of Indian farmers to be squeezed out by big retail.

3 of 3 7/14/2010 5:08 PM