Real solutions, not crocodile tears

While most of us have vented our spleen at the middleman for hoarding and raising retail prices of onions to between Rs 40 and 50 a kilogram...

While most of us have vented our spleen at the middleman for hoarding and raising retail prices of onions to between Rs 40 and 50 a kilogramme, few, if any, have had the time to reflect on the real problem. Or to consider what is needed to ensure that such a situation doesn8217;t recur every time there is a problem with rains destroying or causing damage to crops.

The real issue is not merely one of hoarding, or of the government not cracking down on this venomous breed. Sure, hoarding is evil, and it is the government8217;s job to prevent it. The point, however, is that, even if there were no hoarders, a 20 to 30 percent fall in the crop, as in the case of the current kharif onion, is large enough to cause a large rise in prices 8212; onions may not have sold at Rs 50 a kilo, but surely they would have sold at Rs 40?

Nor is the issue merely, though it is important, of the government not liberalising imports fast enough and not ordering state-owned organisations to import as much as they can as the cases of onions,potatoes and pulses have shown, the international surpluses are quite small.

The real issues are two: those of very low productivity in Indian farms, and the fact that India8217;s entire food chain is riddled with inefficiencies. In the case of fruits and vegetables, for instance, the absence of adequate cold storages and so on, results in 40 percent of the produce rotting before the consumer gets it.

In absolute numbers, according to a joint study by international consultants McKinsey and Company and CII, that8217;s around Rs 23,000 crore 8212; add the wastage in pulses, wheat and rice, and you8217;re talking of around Rs 50,000 crore, or a fifth of the country8217;s total agricultural produce. The answer is obvious: reduce this huge waste and you can reduce retail level consumer prices by a large amount.

The fact that there are far more middlemen between the farmer and the consumer also ensures that retail prices in India are far higher than those elsewhere. While India has around 7 layers of middlemen in the fruits andvegetables segment, the UK or the US, for example, have just two or three.

As a result of this inefficient system, while the US farmer gets 50 percent of the retail price, the Indian one gets just around a fifth. Nor does it help that Indian yields are just a fraction of those elsewhere. Wheat and rice yields in India, for instance, are a third of international levels, while those for citrus fruits is even lower. Maize yields are a mere 7 percent of world levels and those for dairy are around 10 percent.

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What does all this add up to, and what is the solution being proposed? The solution is to allow large-sized players, including those from abroad, to come into the sector, and bring in better farm practices, better seeds, better transportation skills and more efficient organisation practices.

This, of course, is something that is opposed by most political parties on the grounds that agriculture is an area which involves crores of people, that land is very precious, and that foreigners cannot be allowedto enter this. Frankly, no one8217;s suggesting that you allow US conglomerates to buy land owned by small tillers, but there is a lot to be gained by freeing up the market, in terms of allowing large-sized farming, or freeing up the cold chain business.

Pepsi8217;s limited experience in Punjab has seen tomato yields go up by 200 percent, while Cargill has helped double sunflower yields.

Similarly, while several politicians, including many in the BJP, continue to profess that potato chips of the Pepsi type are not quite their idea of ideal foreign industrial investment, the fact is that, if allowed to function and develop freely, the food processing industry has tremendous spin-off benefits. Once large players come in, or players are allowed to operate on a truly large scale, they force efficiencies of scale.

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In Thailand, for example, large-scale development of the food processing industry saw the price of chicken in real terms fall by 70 percent during the period 1970 to 1985. With better farm practices andbetter seeds, yields of maize, the critical food for chicken, quadruple 8212; feed costs are 70 percent of the cost of chicken.

And, just in case you rush to the conclusion that all this is essentially pleading the case of multinationals, in Thailand, it was a local company Charoen Pokphand that achieved this, and not some foreigner. According to CII-McKinsey, in all countries, the major food processing players are locals, primarily because the key lies in understanding local tastes and in local distribution strategies.

In the Philippines, for instance, 71 percent of food companies are locally owned, and in Indonesia the figure is 65 percent.

While the government has made several moves to stimulate this industry by removing items such as biscuits, rice-milling and poultry feed from the reserved list for small-scale units, not even a dent has been made on what needs to be done. Rules still exist on how much food can be stocked by individual traders, restrictions abound which prevent companies from takinglarge tracts of land on lease.

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The fact that, during the current onion crisis, the government had to ask state governments to relax restrictions on setting up cold-storage chains, speaks volumes for how restricted the market still is 8212; more so, considering that the central government delicensed this area more than a year ago. The greater tragedy, of course, is that both the common man as well as the farmer have been led to believe that they will be badly hit if large companies are allowed to operate in the sector.