How Does FDI In Retail Sector Help Farmers?

This question is not specific to India; but rather all the countries that have allowed FDI in retail sector. It's being conveyed through various sources that foreign direct investment in retail sector is a step to help the farmers. The argument goes like this -

Currently the 'middlemen' community that buys from farmers and then sells it to retailers is corrupt. If FDI is allowed, then the foreign companies will be able to buy from the farmers directly. Thus, a competition will be created which will force the middlemen to offer the right & competitive price to the farmers. Thus farmers will benefit.

Second point is about technology: It's being conveyed that the foreign companies will bring technology which will help creating more jobs & infrastructure. I don't buy that argument because no company will EVER bring 'technology'; the companies would rather bring 'products' to sell. It's one thing to bring 'technology' and other thing to bring 'products' to sell.

The third argument is that the small grocery shop owners will buy from the foreign retailers ( how & why ?) so they will get products at a lower rate and then they'll be able to benefit more.

I'm not convinced. It seems like an open robbery! The question I want to ask is, who takes the profits? Why should any country let the foreign companies siphon money out? What are your thoughts? If you don't have any, read about the issue and then comment. But comment. You should.

Replies

  • ISHAN TOPRE
    ISHAN TOPRE
    Had quite an interaction with Dr. Rajendra Prasad from IIT Delhi, who recently came to Nagpur. He has long experience in rural and Entrepreneurship development. To put his words simply,
    FDI will only 'replace' Middlemen the problem will remain as it is. If you think today broker is exploiting farmer, then after FDI, foreign companies will do it.

    For sustainable development of rural sector, Middlemen have been part of economy since centuries. The only thing we need to do is give proper guidance to these market forces by setting up some good laws or rectifying the current ones. Disturbing traditional economy might prove harmful

    Do you people agree what he said?
  • Prasad Ajinkya
    Prasad Ajinkya
    Biggie, I do not agree with your arguments.

    An organized player in an erstwhile unorganized sector means better processes, more information, and even better technology (logistic algos, packing materials, produce processing methods, etc). Companies such as Walmart for example, do not bring products, they do bring in experience, processes and investments in the country.

    So in the short term, you will see a decline in unemployment (since these firms will hire the local talent).
  • Kaustubh Katdare
    Kaustubh Katdare
    kidakaka
    Biggie, I do not agree with your arguments.

    An organized player in an erstwhile unorganized sector means better processes, more information, and even better technology (logistic algos, packing materials, produce processing methods, etc). Companies such as Walmart for example, do not bring products, they do bring in experience, processes and investments in the country.

    So in the short term, you will see a decline in unemployment (since these firms will hire the local talent).
    ...and what will happen to local small scale manufacturers? For example, there's a local biscuit factory which makes awesome biscuits. What would happen to them once Wal Mart brings in all the foreign brands? What if they choose not to buy from these biscuit manufacturers?

    The top point - who gets the profits?
  • CIVILPRINCESS
    CIVILPRINCESS
    Actually 40% of the vegetables, fruits, grains that the farmer produces gets wasted before it reaches the market since there is no proper technology to preserve them till they are put on sale. there are just around 5000 cold storage units in India. and most of them are used up in storing the potatoes. the other perishable goods are wasted. so when a big company like walmart comes to do business here he would bring in technology to maximise his sales and in turn it will benefit the farmers too.

    And also i think there is a rule that atleast 35% of their stocks must be purchased from India. So it will not affect the Indian companies so much. And anytime, when the government feels that the company may create a mess in India, the Government can ask the company to move away.

    And one more thing is that these shops are not going to be set up in every city or town. only the people nearby would be going there to buy from there. so the argument that ALL the small shops will be affected is not acceptable.

    By allowing a big player to enter the sector we could observe it to learn how we can run the business the way they do.

    It is no different from the shops like Big Bazaar which is a one stop solution for every needs. When shops like Big Bazaar has done no harm i don't thing this Walmart would... This is my personal opinion though 😀
  • ISHAN TOPRE
    ISHAN TOPRE
    @CP: The facts you are keeping are perhaps wrong. Foreign brands do not need to purchase 35% from Indian SSI, it is just 20%.
    Anyways Indian SSIs have 100% sales. Now when FDI will come, 20% of their produce will go to foreigners and 80% to other Indian companies.
    Some time later, the foreign brands might also set-up their own SSIs under an Indian CEOs and say "We purchase 100% from Indian owned (%age wise) SSIs".

    My point is why can't we better frame laws which will regularize the unorganized the broker community. Don't you think that in giving profits to only farmers we are taking away the lively hood of many people?
  • Kaustubh Katdare
    Kaustubh Katdare
    @Civilprincess: India does *not* need cold storages. Any vegetable, once out of the farm should be consumed within 48 hours. Cold storages kill the nutritional value of food. I think there's enough evidence to prove it.

    35% of stock must be purchased in India. What about the rest?

    And one more thing is that these shops are not going to be set up in every city or town. only the people nearby would be going there to buy from there. so the argument that ALL the small shops will be affected is not acceptable.
    These shops will be setup at the places where the 'purchasing power' is greater. Else it does not prove to be a profitable model to the company. All small shops won't be affected, but a large majority of shops *will* be affected. FDI in retail is going to increase unemployment.

    It is no different from the shops like Big Bazaar which is a one stop solution for every needs. When shops like Big Bazaar has done no harm i don't thing this Walmart would...
    There's a HUGE difference. Big Bazaar is Indian. Wal Mart isn't.

    Question remains: Who takes the profits?
  • CIVILPRINCESS
    CIVILPRINCESS
    Issue
    @CP: The facts you are keeping are perhaps wrong. Foreign brands do not need to purchase 35% from Indian SSI, it is just 20%.
    Anyways Indian SSIs have 100% sales. Now when FDI will come, 20% of their produce will go to foreigners and 80% to other Indian companies.
    Some time later, the foreign brands might also set-up their own SSIs under an Indian CEOs and say "We purchase 100% from Indian owned (%age wise) SSIs".

    My point is why can't we better frame laws which will regularize the unorganized the broker community. Don't you think that in giving profits to only farmers we are taking away the lively hood of many people?
    I thought it is 35%. That is what i was said by a sir two days ago. And the 20% won't go to the foreigners. it will be consumed by us only.
    Well we had all these years to do that Law framework. My point is why not learn from someone else?
    I'm addressing your other point below.


    The_Big_K
    @Civilprincess: India does *not* need cold storages. Any vegetable, once out of the farm should be consumed within 48 hours. Cold storages kill the nutritional value of food. I think there's enough evidence to prove it.

    35% of stock must be purchased in India. What about the rest?



    These shops will be setup at the places where the 'purchasing power' is greater. Else it does not prove to be a profitable model to the company. All small shops won't be affected, but a large majority of shops *will* be affected. FDI in retail is going to increase unemployment.


    There's a HUGE difference. Big Bazaar is Indian. Wal Mart isn't.

    Question remains: Who takes the profits?
    Yeah as you say the fruits and vegetables must be consumed fresh. but in the unorganized way in which the retail chain is functioning these days aroud 40% of those foods perish. then there will be price cost when we cannot supply the commodity like that for the use. and using the cold storage units wouuld reduce the value. but doesn't make it inedible. a little less fresh is far better than no food right?
    And not to forget cold stores are also used for the refrigerated goods, sea food, meat, etc.

    but a large majority of shops in the locality will only be affected. As kidakaka had said earlier they will have to hire local talents only to work in the company. so then it will not be a total loss as you guys say. What i mean to say is that the positives here outweigh the negatives.

    I'll try answering your question by just stating this fact:
    Indian farmers realize only 1/3rd of the total price paid by the final consumer, as against 2/3rd by farmers in nations with a higher share of organized retail.
    So what if Walmart is not Indian. It will still have to pay the same taxes to the Govt and if it can boost the Indian economy why not give it a chance. The govt has not given it the right to stay as long as it wants.
  • Kaustubh Katdare
    Kaustubh Katdare
    @CP: You didn't get the point. India is different from other countries and most of the basic vegetables required for everyday consumption are grown in almost all the places. The type of vegetables grown in any place is suitable to the weather & environment at that place. I wonder but several years ago, we'd buy vegetables 'directly' from the hawkers who'd bring them fresh to the markets and sell them by the end of the day. That type of selling needs to be encouraged. Cold storage is for the countries that are large and do not have enough places where they can grow them.

    The Government is taking wrong steps.

    I don't buy the point that FDI will help economy. Of course they might pay tax. For every 100 bucks they earn, they might just pay x% in taxes; yet (100-x)% is still the money they will siphon out of the country.

    How does that help economy?
  • Prasad Ajinkya
    Prasad Ajinkya
    Biggie, the profits are taken by the person/institution who does the business.

    So yes, Walmart will take home the money. But so what? They have earned it.

    I do not buy your argument of Indian corporates being allowed to exploit the farmers, but not foreign ones. Let's not bring reservations in this at least.

    The local biscuit manufacturer would be forced to compete against the foreign firms and perish in most of the cases. If he has any hopes of survival, then he should deliver that much value to the end consumers.
  • ISHAN TOPRE
    ISHAN TOPRE
    @Kidakaka: How about Indians staring a business? Check this out- IITans selling vegetables!

    #-Link-Snipped-#
  • Kaustubh Katdare
    Kaustubh Katdare
    kidakaka
    Biggie, I do not agree with your arguments.

    An organized player in an erstwhile unorganized sector means better processes, more information, and even better technology (logistic algos, packing materials, produce processing methods, etc). Companies such as Walmart for example, do not bring products, they do bring in experience, processes and investments in the country.

    So in the short term, you will see a decline in unemployment (since these firms will hire the local talent).
    No company will ever bring technology. They will bring the end result of technology. Any new technology has to be invented by the country on their own. India got 3G at a cost! That's an altogether different debate though 😀

    Walmart does bring an experience; but the price is *HUGE*. You might see Walmart hiring 10 people locally; but it will have destroyed 100 businesses; leaving the business owners become the servants at these malls.

    Do you like the fact that Coca Cola employs thousands of people in India and take thousands of crores out of India for employing those thousands? The direct statement that may follow is - instead of leaving those thousands unemployed, it's a better option to let that company take away thousands because they've 'earned it'. It's wrong!

    The government should encourage local businesses to grow and employ those thousands. The government is making a wrong a right to offer a 'solution'.

    kidakaka
    Biggie, the profits are taken by the person/institution who does the business.

    So yes, Walmart will take home the money. But so what? They have earned it.

    I do not buy your argument of Indian corporates being allowed to exploit the farmers, but not foreign ones. Let's not bring reservations in this at least.

    The local biscuit manufacturer would be forced to compete against the foreign firms and perish in most of the cases. If he has any hopes of survival, then he should deliver that much value to the end consumers.
    That's obvious, right? But at the end of the day, money is being siphoned out of the country which is bad! Businesses are for profits and Walmart knows the game better.

    Do you really expect a local biscuit manufacturer to deliver the experience & value like that of a big corporate? If they can't, what should they do? Maybe close down their business and be an attendant at Walmart? If the Government, instead of setting up red carpet for Wal Mart, takes steps to help these local biscuit manufacturer grow to a limit where he can export his biscuits - THEN it's useful. Exporting more stuff is the best way to get foreign money and growing economy.
  • pranav_vanarp
    pranav_vanarp
    I agree with most of the points being discussed here.
    But one thing I would like to point out there is virtually no difference between Big Bazaar and Walmart. If you are okay with Big Bazaar then you should also be okay with Walmart. Just because Big Bazaar is owned by Indians doesn't make it any more beneficial to the nation at large than Walmart. Companies like Big Bazaar are owned by individuals who get most of the profit out of the company. There is no difference between a group of capitalists tanking up money in India than in US. Note , I am not against capitalism I just want to point out if you oppose Walmart you should also oppose Big Bazaar style companies.

    If we want industries to do help out farmers , we should have a mix of capitalism and socialism . And we definitely don't want the government of India in this. We don't need to look outside India for this. Most of you will be acquainted with it when you have your breakfast. What I am speaking of is Amul Corporation.
    The model employed by Amul is very interesting. It doesn't have the disadvantages of socialist schemes.
    As most of you know Amul buys milk directly from farmer's wives who travel large distances daily from their farms to the Amul centers.
    Amul The Three Tier .22Amul Model.22
    Amul Impact Of The .22Amul Model.22
  • Kaustubh Katdare
    Kaustubh Katdare
    pranav_vanarp
    I agree with most of the points being discussed here.
    But one thing I would like to point out there is virtually no difference between Big Bazaar and Walmart. If you are okay with Big Bazaar then you should also be okay with Walmart. Just because Big Bazaar is owned by Indians doesn't make it any more beneficial to the nation at large than Walmart. Companies like Big Bazaar are owned by individuals who get most of the profit out of the company. There is no difference between a group of capitalists tanking up money in India than in US. Note , I am not against capitalism I just want to point out if you oppose Walmart you should also oppose Big Bazaar style companies.
    I'm not supporting Big Baazar either. But I were to choose between Big Bazaar & Wal Mart, Big Bazaar would get my choice as it keeps the money within the country.

    pranav_vanarp
    If we want industries to do help out farmers , we should have a mix of capitalism and socialism . And we definitely don't want the government of India in this. We don't need to look outside India for this. Most of you will be acquainted with it when you have your breakfast. What I am speaking of is Amul Corporation.
    The model employed by Amul is very interesting. It doesn't have the disadvantages of socialist schemes.
    As most of you know Amul buys milk directly from farmer's wives who travel large distances daily from their farms to the Amul centers.
    Amul is a great example and I wish there were several replicas of Amul. Unfortunately, the Government is trying to offer a wrong solution which will force Indians into eternal slavery & unemployment.
  • Kaustubh Katdare
    Kaustubh Katdare
    Moving ahead, I want to know answers to the following questions -
    1. FDI in Retail supporters say that Farmers would get better price. I wonder why would Wal Mart pay extra bucks to the farmers?
    2. Wal Mart may offer better supply chain. But why should Indian Government rely on Wal Mart (read a foreign company) to fix the supply chain? What's the Government for? Don't give me the stupid "they don't have money" reason. If a single 2G scam in India can amount to mishandling of Rs. 176000 Cr (how many zeroes should I add, huh?), I don't think there's scarcity money to fix the supply chain.
    3. FDI will definitely create job opportunities. But it's no brainer that most of these jobs will be for the educated clerks (engineers & MBAs). What about job creation for those who can't read & write and are dependent on current supply chain as their basic & only means of earning? Or it's not 'our' problem?
    4. Every small business takes care of at least 5 people. What happens to them when they're out of business because they can't compete with the big guns?
    In the end, let's not forget the story of Thums Up - the Indian cold drink brand. Read this from Wikipedia:

    In 1990, when the Indian government opened the market to multinationals, Pepsi was the first to come in. Thums Up went up against the international giant for an intense onslaught with neither side giving any quarter. With Pepsi roping in major Indian movie stars like Juhi Chawla, to thwart the Indian brand, Thums Up increased its spending on Cricket sponsorship. Then the capacity went from 250ml to 300ml, aptly named MahaCola. This nickname gained popularity in smaller towns where people would ask for "Maha Cola" instead of Thums Up. The consumers were divided where some felt Pepsi’s mild taste was rather bland.
    In 1993 Coca-Cola re-entered India after a prolonged absence from 1977 to 1993. But Coca-Cola’s entry made things even more complicated and the fight became a three-way battle. That same year, in a move that baffled many, Parle sold out to Coke for a meagre US$ 60 million (considering the market share it had). Some assumed Parle had lost the appetite for a fight against the two largest cola brands; others surmised that the international brands seemingly endless cash reserves psyched-out Parle. Either way, it was now Coca-Cola’s, and Coke has a habit of killing brands in its portfolio that might overshadow it.

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