The Times of India
12th October, 2007
New Delhi: The anti-retail brigade seems to have dealt its first severe blow to big retailers like Reliance Industries. The company, which had unveiled ambitious plans to cover the entire country, is now slowing down its overall retail strategy significantly.
“Our plans to open Reliance Fresh stores have been delayed. We are now opening 5-10 stores a week from the proposed 30 a week”, a senior company official told TOI.
Reliance Fresh is the mainstay of the company’s ‘farm to fork’ strategy, linking the produce from farmers to the market, bypassing middlemen. This development comes close on the heels of the company shutting shop in Uttar Pradesh and laying off over 1,000 staff, amid opposition from small traders and the local government. It also faced stiff opposition to the opening of its stores in major states like Kerala, Orissa and West Bengal. In Maharashtra too, protests were held on October 10 against the entry of multinationals and domestic biggies in organised retail.
Reliance Retail opened its first exclusive apparel store Reliance Trends in Gurgaon on Thursday where it plans to provide affordable and valuefor-money fashion wear. The store, spread across 30,000 sq ft, is the first of 100 such outlets the company plans to set up in the next three years. While there has been political opposition to allowing FDI in retail, now there is growing resentment from small retailers and traders as well.
Blackstone, Carlyle eye microfinance firms
Top 10 Institutions Corner Most Of The Funds In India; MFIs Post A CAGR Over 100%
The Economic Times
12th October, 2007
PRIVATE equity interest in microfinance institutions (MFIs) is reaching a crescendo with heavyweights such as Blackstone and Carlyle willing to invest in the sector. Both these groups have shown interest in putting money into MFIs, said a source close to the development. The quantum of investments may be upwards of $20 million. The target firms are not yet clear.
“They are keen on making huge investments, but they are yet to decide on the MFIs. Since most of the big MFIs are saturated with funds, they may need to look at multiple investments in smaller MFIs,” the source said.
There nearly 15-20 serious funds in the sector, but very few look at tier 2 and 3 categories of MFIs. While the Blackstone group refused to comment, a spokesperson at Carlyle was unavailable for comment.
“PE investors look at hard growth numbers and these organisations throw up incredible growth figures, year after year. With a CAGR of 100%, this sector is very attractive,” he added. Of the 200 odd MFIs in the country, only the top 10 corner most of the funds. PE investors find it a daunting task to zero in on credible investments.
Blaine Stephens, director of analysis, of Microfinance Information Exchange (MIX) Market, a Washington-based organisation, “The leverage ratios here are as much as 18-19 times, compared to other South American markets where it is limited to 4 times at the most. Commercial debt and managed portfolios fuelled growth in lending among leading Indian MFIs, leaving no capital cushion and creating unparalleled leverage.”
The sector has already witnessed one of the biggest PE investments in the world. Recently, private equity group Legatum and Aavishkaar Goodwell have partnered to invest $25 million capital in a micro-finance group, Share. California-based venture capital group Sequoia and Unitus, the Seattle-based company that lends to and invests in MFIs, have ploughed $11.5 million into SKS Microfinance.
According to a report,’State of the Sector’ released at the Microfinance India summit earlier this week, “The pressure to maximise returns by the new PE investors is unlikely to result in upward pressure on interest rates, although it could dampen the decline of rates that should come with further growth. The pressure to maximise returns is likely to take the form of the desire to reach massive scale.” The estimated annual requirement is Rs 1,35,000 crore of credit for the under banked population, of which only 5% of the demand is met.
The report however raises questions about the quality of growth, with MFIs witnessing a rush to grow. The report anticipates large investments by private equity, with the possibility of IPOs.
The Business Line
11th October, 2007
Uncertainty hangs over the 10 lakh tonnes of rice contracted for exports after the Cabinet on Tuesday decided to ban exports of non–basmati rice. At least three lakh tonnes of rice meant for exports are lying in the ports, according to trade sources.
“We have sewed up deals to export 10 lakh tonnes of rice. The shipments will be done in the course of next three months. We have not opened letters of credits (LCs) as they will happen only close to the shipment,” said an official of an exporting firm, who did not wish to be identified.
“Besides, at least three lakh tonnes of rice are lying in various ports. Now, we don’t know what will happen to them. If we are not allowed to export, then we will have to take them back to the domestic tariff area, in which case we will have to pay additional taxes,” he said.
‘Loss of face’
But more than losing the contracts, exporters fear the repercussions of the ban. “It is a loss of face for us in the global market. We have been doing pretty well in the last 4-5 years and have earned a name for quality shipments. We have even gained a foothold in new markets,” an official of another exporting firmsaid.
India has emerged among the top three rice exporters in the last five years and tops in shipments of parboiled rice. It has been able to make headway particularly in West Asia and North Africa.
“We are exporting close to 40 lakh tonnes annually fetching over Rs 4,000 crore. The Centre has opted to take an ill-advised move,” industry sources said.
Pointing out at the Union Food and Agriculture Minister, Mr Sharad Pawar’s statement last week that non-basmati exports would not be banned, the sources said by doing exactly the opposite, the Centre had made it hard for importing nations to trade with India.
“More than that, the unit value realisation of rice exports has increased by over 50 per cent in terms of dollars. From around $180 a tonne, they fetch nearly $300 now,” the sources said.
Breach of contract
Internationally, no rice is now available below $300 a tonne. While the Centre’s move is now seen favouring Thailand by a section of the trade, another sees Pakistan also making headway, particularly in white rice exports.
“Apart from all these, we are going to face litigation for breach of contract. It will be loss of earnings and face for us,” an exporter said.
Also, traders feel the Centre has not done the right thing by banning exports. “See, exporters don’t buy paddy. They buy only rice. The Centre’s procurement of paddy for the public distribution system and other welfare measures it implements has been tardy only because people were waiting for the bonus announcement,” traders said.
“It was in the public domain that bonus for paddy was coming and it was before the Cabinet. So, mills in particular held back. Instead of reading the real situation, the Centre has panicked,” industry sources said.
On Monday, the Centre said paddy procurement had declined this year by over five lakh tonnes to 17.50 lakh tonnes.
“There is a basic misconception about banning exports and paddy procurement. The quality of rice exported is different from what is distributed for various Government programmes. Then, at least 35 per cent of rice meant for public distribution gets leaked into the open market. This should have been plugged instead of the ban,” the sources said.
“The Centre could have waited for some more time or even post-dated its move. This has left everyone helpless. Stocks with it are adequate and above buffer norms,” they said.
As on October 1, rice stocks in the Central pool was 54.8 lakh tonnes, well above the buffer stock norm of 52 lakh tonnes.
“The Centre has done to rice what it did to sugar. It banned sugar exports and by the time it was lifted, the whole industry was in trouble,” the sources said.
“On the one hand, the minimum support price (MSP) has been hiked. On the other, exports have been banned. This will lead to fall in domestic prices as mills and others, including exporting firms , have stocks that will have to diverted to the local markets. It will mean prices will fall below MSP and finally, the Government will end up paying for it,” the industry sources said.
“Also, this could lead to huge rise in buffer stocks. That could lead to situation of selling rice at discount again the global market wherein quality could suffer. And again, we will have start all over again to build our market,” they said.
The Three Faces of Retail
The Financial Express
11th October, 2007
The global retail who’s who—including Carrefour, Auchan, EDEKA, Eroski, Superunie, El Corte Ingles and Coop—will soon sit down for a matchmaking session with domestic giants Field Fresh, Heritage, Godrej Agrovet, Tatas, Essar Agrotech, Global Green Company and Shriram Chemicals to explore tie-ups in the food retail sector.
This is the largest ever matchmaking session between multinationals and leading Indian players in the food retail sector. As the tie-ups are in the back-end and food processing, where FDI is permitted up to 100%, sourcing capital will not be a problem for the partners.
The unprecedented meet, catalysed by the Centre, builds on the strength of the Indian agro chain to meet global demand. Sources in Apeda, which is acting as facilitator, said the foreign companies have all sent written expressions of interest in the project.
The projected tie-ups make sense in the context of the government’s commitment to boost agriculture. Exports from the sector are crucial if farmers are to realise significant value addition. Currently, a large proportion of vegetables and other commodities are spoilt for lack of cold storage facilities.
The initiative comes under Apeda’s direct retailers’ project. Sources said initial investments worth at least Rs 750 crore would be pumped in to developing backward linkages, to generate incremental exports worth Rs 6,000 crore, and create employment for over a million people.
Mahindras foray into retail
Business Standard
11th October, 2007
The $4.5 billion tractor-to-real estate Mahindra group on Wednesday announced a foray into the rapidly growing Indian organised retail market with a chain of premium lifestyle stores selling apparels, toys and furnishings.
The new venture has been christened Mahindra Retail and will operate under group company Mahindra Intertrade.
The roll out is planned over a year. The company did not comment on the exact number of stores being planned or reveal any investment details.
The Mahindra group already held licences to distribute children's apparel, toys and furnishings of giants such as Walt Disney, Mattel, Lego and Woolworths' Ladybird, a company executive said.
"As such, it is a natural extension of the group's existing business," said Raghunath Murti, executive vice-chairman, Mahindra Intertrade. The company is planning to introduce private labels in its stores.
Mahindra Retail has already started looking for talent. The company put out recruitment advertisements in newspapers on Wednesday.
It was looking for people with 15 years of experience in different fields such as project development and management, business development, merchandising and so on, the advertisement stated.
The Mahindra group already has interests in the agriculture sector through export of fresh produce -- under Mahindra Shubhlabh.
It is also looking to carve Mahindra Logistics as a separate company and list it. Mahindra Logistics has lined up Rs 400 crore to set up greenfield warehouses across the country.
The company is planning customised cold and dry warehouses and fruits and vegetable processing centres for corporates in major cities, including Mumbai, Pune, Bangalore, Hyderabad, Chennai, Kochi and Kolkata.
Mahindra Agri Business, a group company, is in talks with European supply chain companies to set up a supply chain joint venture for international and domestic markets.
Mahindra's Agri Business is involved in contract farming, contract services, exports and agri retailing.
To supply fresh produce to domestic modern retail formats, the company is conducting a pilot project in Punjab over 100 acres. The company is supplying to retailers such as Subhiksha, ITC, Namdhary Fresh, Reliance [Get Quote] Retail to supply the produce.
This was part of its strategy to sell fruits and vegetables under its own brand name -- Mahindra.
Farm policy flurries
The Business Line
11th October, 2007
Going by the signals emanating from New Delhi, it seems no more a question of ‘if’, but ‘how soon’ general elections will be announced. And, as a consequence, inflation control has raced to the top of the government’s priority list. In a series of decisions designed to support both farmers and consumers, the government has raised the minimum support price (MSP) for rabi crops such as wheat, pulses and oilseeds, extended sops to the sugar sect or and banned the export of sensitive food products such as non-basmati rice and wheat flour. Happily, the announcement has come well before planting time, but the decision needs to be disseminated among growers across the country, so that procurement can keep pace with the output.
Globally, grains and oilseeds markets have been on fire for some time now because of a combination of bad weather (in Australia, for instance), competition among various crops leading to lower acreage for some (in the US), and large-scale diversion of traditional products (corn, wheat, vegetable oil) for biofuels in the western world. As the domestic market is no more insulated from global influences, international trends are reflected in prices here, with grain and oilseed prices rising to newer highs.
No doubt, at 33 per cent, wheat has seen an unprecedented hike in MSP to a record Rs 1,000 a quintal for the ensuing season. Rabi pulses (gram and lentil) prices are higher by 10-11 per cent, while rapeseed/mustard is up 5 per cent to Rs 1,800 a quintal. But will the growers respond with higher production? On current reckoning, it seems less likely that wheat output in April 2008 will even reach, leave alone exceed, the 75 million tonnes of 2007 or, for that matter, that pulses and oilseeds output will expand sharply. Punjab, Haryana, West Uttar Pradesh and parts of Rajasthan and Madhya Pradesh show soil moisture deficiency. A good round of winter rains alone can improve the crop prospects. Acreage shifts are also not ruled out.
Despite price concerns, the ban on export of non-basmati rice is unfortunate, and reflects excessive caution by the government. The ban would deny paddy growers higher market prices. At the same time, there is no guarantee that internally prices will not spike. An embargo on coarse varieties may be justified on considerations of domestic demand and prices; but stoppage of premium grades, that command attractive export prices, is uncalled for. The ban needs to be reviewed. Superfine varieties should be allowed, if need be with a minimum export price condition. To some extent it will help repair the damage caused in the international market by sudden clamp-down on exports of various commodities.
Exporters seek exemption for premium grades rice from ban
The Business Line
11th October, 2007
The Union Government’s decision on Tuesday to ban export of all non-basmati rice with immediate effect has sent shockwaves among the rice traders.
While there is grudging acknowledgement about the need for the government to keep domestic prices under check — more so with the threat of elections looming large — the exporters are, however, upset with the blanket ban on all non-basmati shipments.
“We understand the Government’s concern over ensuring adequate procurement of grain to meet the requirements of the public distribution system (PDS) and various welfare schemes. But that does not mean banning export of all non-basmati rice, including premium varieties that are not dispensed through PDS outlets”, said a Delhi-based exporter.
Demand from overseas population
These niche varieties — which are technically non-basmati and yet command a market especially among the overseas Indian population — include ‘Ponni’, ‘Swarna Masoori’, ‘Matta’ (red rice), ‘Sharbati’, ‘Jeera Samba’, ‘Kala Jeera’ and ‘Rambhog’. “Many of these cater to specific segments.
The Ponni and Swarna Masoori rice, for instance, follows the Tamilian software engineer wherever he goes, just as the Malayali in Dubai cannot do without Matta”, he added.
Exports of ‘Ponni’, ‘Swarna Masoori’ and ‘Matta’ are annually estimated at 1-1.5 lakh tonnes (lt). ‘Sharbati’ similarly sells about one lt as standalone premium rice, in addition to the 1.5-2 lt that is mislabelled or admixtured with basmati. ‘Ponni’ and ‘Masoori’ are currently being exported at $550-600 a tonne free on board (f.o.b), with ‘Sharbati’ fetching $650-700.
These rates are way above the $300-350 a tonne at which ‘Parmal’, ‘PR-106’, ‘IR-64’ and other long-grain superfine varieties (which are procured for the Central pool) are shipped out from the country. “If the Centre does not want PDS supplies to be affected, the best way is to fix a minimum export price of, say $500 per tonne. This will ensure that the common and grade A rice procured by the Food Corporation of India (FCI) does not go out and, at the same time, the Indian diaspora market for premium non-basmati varieties is protected”, the exporter pointed out.
There is also uncertainty over the impact of the ban on premium aromatic varieties such as ‘Pusa 1121’ and ‘CSR-30’ that are still to be officially notified as basmati. This is even as ‘1121’ — hugely popular is markets such as Iran — is quoting at $1,100-1,200 a tonne, which is more than the $950-1,000 for the notified Pusa Basmati-1. In 2006-07, about 2.5-3 lt of ‘1121’ was exported, with the quantity projected at 7.5 lt for the current year.
“The Centre should clarify at the earliest whether the export ban applies to 1121 and CSR-30”, the exporter said. During 2006-07, non-basmati exports totalled 37.05 lt, valued at Rs 4,257.88 crore. Out of the 37.05 lt, the premium grades would add up to over five lt.
Meanwhile, the FCI and State agencies have procured 21.91 lt of rice for the Central pool during the current 2007-08 marketing season (October-September) as on Wednesday. This is below the 28.14 lt bought in the corresponding period of 2006-07.
This year, Diwali comes early to farmers
Minimum Support Price Hiked To Rs 1,000 From Rs 750 For Wheat, Rs 695 From Rs 620 For Normal Rice
The Economic Times
10th October, 2007
THE government on Tuesday hiked the minimum support prices (MSP) for the rabi and kharif crops for 2007-08. While the MSP of wheat was increased to Rs 1,000 per quintal from Rs 750 per quintal, for normal rice it was increased to Rs 695 from Rs 620 per quintal. A Cabinet Committee on Economic Affairs (CCEA) also announced a series of relief measures for the sugar industry. These include mandatory blending of 5% ethanol with petrol across the country with immediate affect. The limit would increased to 10% from October 2008.
It had also proposed to reduce Customs duty from 7.5% to 5% on “denatural alcohol” and from 10% to 5% on molasses “and to implement the same when mandatory ethanol blending at 5% level is operationalised in the country,” Mr Chidambaram said. CCEA also decided to extend the export assistance scheme by one year.
The sugar mills would also be eligible for a special loan to the amount equivalent to the excise duty paid by the mills. The loan could, however, be used for the purpose of paying the arrears of farmers.
CCEA also approved the procurement of long delivery equipment for implementation of four units of 700 mw pressurised heavy water reactor plant at a cost of Rs 1,680 crore. Two plants would set up each at Kakrapar in Gujarat and Rawatbhata in Rajasthan.
Futures perfect: FMC wants to bring small farmers to market
The Economic Times
10th October, 2007
THE Forward Markets Commission (FMC) will meet officials from the commodity national exchange in a month to discuss the possibility of bringing small and marginal farmers to the exchanges, through aggregators. The concept will enable the farmers to discover prices for their produce. The regulator is also likely to take up the restrictions on open position limits, specially in near month contracts.
FMC chairman B C Khatua told ET, “We are discussing with the exchange officials about how to proceed on the appointment of aggregators. A formal meeting will be convened with the exchanges in a month.”
He said aggregators will build up a sizeable volume and (because of their size) be able to handle the financial requirements needed for compliance with the market requirements like mark to market pay-in and pay-out and margins.
Banks will be encouraged to provide the requisite credit to the aggregator once it takes up a position on the exchange. “Either the bank or the aggregator can handle the margins and mark to market so that the farmer can trade without hassles,” Mr Khatua said.
NCDEX vice president R Balasubramaniam said that few banks have liked the concept and are ready to lend to meet the margin and mark to market payments. The exchange has referred the concept to FMC.
On the position limits Mr Khatua said that the near month limits for the hedgers should be more liberal. “Hedgers should be given a special consideration to allow them to carry out settlements.
They are grappling with the problems of squaring off positions if they hold more than the stipulated level,” he said.
He insisted that open position limits are necessary and the question is where to set the limit. “If the people who take up positions are speculators and there are no set limits they can dominate the market,” he added.
Farm credit: Myth and reality
The annual growth rate of the farm sector has shown a steady decline. It’s not enough to set targets for credit disbursements. To support the desired GDP growth level of 8-9 per cent, the agri sector needs a more focussed approach.
The Business Line
10th October, 2007
Agricultural credit dispensation has been a vital financial intervention to make the farm sector a key contributor to national income and wealth creation. Advance estimates of the Government put the GDP growth for 2006-07 at 9.2 per cent. The compounded annual growth rate of the agricultural sector has fallen steadily. It averaged 4 per cent per annum during the 1980s, 3.2 per cent during the 1990s and 2 per cent so far during the 2000s.
The rainfall during 2006 South-West monsoon season (June-September) was reported to be close to normal. This resulted in a comfortable reservoir position auguring well for the rabi crops. Cumulative rainfall during North-East monsoon season (October-December) was, however, 21 per cent below normal as compared to 10 per cent above normal during the corresponding previous period.
Govt measures
Among others, the Government in mid-2004 announced a credit package which proposed to double the flow of credit to agriculture in three years.
Accordingly, the Reserve Bank of India directed all lending institutions to step up farm credit estimating an increase of 30 per cent over the Rs 80,000 crore of 2003- 04 to Rs 1,05,000 during 2004-05; the break-up being commercial banks: Rs 57,000 crore, regional rural banks Rs 8,500 crore and co-operative banks Rs 39,000 crore.
The Finance Minister during the Budget speech for 2007-08 sounded confident of reaching the farm credit target of Rs 175,000 crore for 2006-07. It was reported that during 2006-07, 53.37 lakh new farmers were brought into the institutional credit system up to December 2006.
The disbursements both under crop loan and investment credit by a bank or credit institution are included for achievements of the target. Under crop loans, disbursements are made at the beginning of the season by way of renewals in a majority of cases.
Additional areas may not come under the plough regularly; however, additional finance to meet the genuine requirements of the borrowers, is given at the time of renewal.
The real picture
The real growth in agriculture credit cannot be measured on account of the following reasons.
Under kharif/rabi financing, a majority of disbursements is by way of renewals. The lending institution may increase the quantum of finance depending upon the rise in the cost of inputs etc.
Jewel loans are normally included at the branch level under agricultural disbursements, though the end-use in a majority of cases is not strictly known. Consumption loans may also come under this category.
Banks generally include takeover loans under this category, though the transferee bank also might have already taken them under disbursements. This may result in duplication.
Effectively, addition of new farmers is not taking place on a massive scale due to lack of inclusion of additional areas under cultivation. It can be seen that real growth in farm production has not happened during the past two or three years, though financing institutions and the RBI may be satisfied with the disbursement level. The addition of 53.37 lakh new farmers needs to be analysed.
Statistics on agricultural production brought out by the Government, shown in the Table, are revealing.
As against the normal area of 99.8 m. ha (million hectares) for kharif cultivation, 100.00 m. ha were brought under cultivation during 2005-06. Similarly, under rabi cultivation, as against 56.5 m. ha, 63.9 m. ha. were covered.
The area for kharif season was down by 1.9 m. ha. and for rabi season, up by 1.3 m. ha. As compared to that in the previous fiscal. This reveals that there is no significant increase in the area under cultivation over the years.
To sustain/support the desired GDP growth level of 8-9 per cent, the agri sector needs a greater thrust, with appropriate measures calibrated to reach out to more and more of the farming community, encouraging them to adopt new techniques such as contract farming with appropriate linkages in the real sense rather than feeling euphoric about/complacent with the existing practices and levels of disbursements.
Unless this happens, the sectoral contribution of agriculture to the GDP can only remain a myth.
(The author is a former General Manager, Canara Bank.)
The Economic Times
10th October, 2007
THE government is set to strengthen all lossmaking regional rural banks (RRBs) and partner with private sector banks to provide credit to farmers at their doorstep, minister of state for finance PK Bansal said on Tuesday.
The Centre has committed funds for recapitalising 29 ailing RRBs, an important tool for financial inclusion, the minister said at the India rural business summit here. The Centre’s commitment is around Rs 1,850 crore while state governments, who own 15% of these banks, have to come up with a proportionate amount. After consolidation, the number of RRBs have come down to 96 from 196. Out of the 96 RRBs, 29 are making losses now. The Centre owns 50% in RRBs, sponsored public sector banks hold 35% while states hold 15%.
Mr Bansal said that some banks have started using hand-held devices to dispense cash to farmers at their doorsteps, besides introducing them to the banking system through ‘no frills’ accounts and ‘kisan’ credit cards. “There are only 70,000 bank branches in the country as against six lakh villages. We will rope in all the banks that have pioneered in this to ensure that credit is made available to all,” the minister said at the summit organised by Ficci. These efforts are aimed at bridging the deficits in terms of public investment, infrastructure, market economy and knowledge that exists in the agriculture and rural sector, he said.
The Financial Express
9th October, 2007
In a major strategy shift, Reliance Fresh has decided not to sell fruits & vegetables in areas where it faces intense opposition to these sales. The stores would stock primarily FMCG and groceries.
According to sources, the company has make a beginning in this direction for roll-outs in northern and eastern states as it faced the most opposition in these regions. On Sunday, the company opened its first Reliance Fresh store without fruits & vegetables in Bhubaneshwar in Orissa.
The change in tack comes with much heartburn for Reliance as the fruits & vegetables category attracts the most footfalls to a supermarket. But given the circumstances, the company clearly felt it was the best thing to do, sources told FE.
After initial opposition, the company tried shifting fruits & vegetable from prominent storefronts to the rear. It also displayed promotion boards from FMCG suppliers so as to shift focus away from fruits & vegetables. However, the strategy has not worked in such a short period of time.
Company officials declined to comment on the change in strategy. Reliance Fresh has been facing heat in the Hindi belt of MP, UP, Jharkhand as well as the eastern states of West Bengal and Orissa.
Reliance bags Apple deal, gets first big bite of foreign retail
The Economic Times
9th October, 2007
RELIANCE Retail has clinched an exclusive marketing and distribution deal with the $19.3-billion iconic maker of iPods and Mac computers, Apple, for standalone iStores. This is Reliance Retail’s first exclusive alliance with an international brand. The partnership was sealed on Monday. The first store, to be called iStore by Reliance Digital, will come up by October-end in Bangalore.
This is the first time Apple is tying up with a big corporate house for distribution anywhere in the world. The iStores would be standalone stores selling Apple products ranging from Macintosh computers to iPods and later, once it’s launched in India, the latest cult offering from Apple, the iPhone.
The store, which will be opened just ahead of Diwali, will be spread over 2,000 sq ft and is currently under construction. Globally, Apple stores are not mere retail stores, they feature a theatre for presentations and workshops, a studio for training with Apple products, and a Genius Bar for technical support and repairs, and also offer free workshops to the public.
The Mukesh Ambani-controlled Reliance Retail will open 10 iStores by the end of the calendar year. Apple would invest in market development, said sources. Confirming the deal, a company executive said the partnership will benefit both. While it would give Apple immediate presence and scale, it would give Reliance Digital mileage as the ‘stores would be co-branded’. Reliance Digital, the consumer electronics chain of the retail venture, so far has only one store which opened earlier this year in the NCR.
Apple currently has a few resellers in India but no company-owned store. The company sells its products worldwide through its online stores, retail stores, direct sales force, third-party wholesalers, resellers and value-added resellers.
Organised retail: Facing political head winds?
The opposition to organised retail has spilled onto the streets. Unorganised retailers and politicians have come together to oppose corporate chains, even forcing closures in some states.
The Economic Times
9th October, 2007
ORGANISED retailing in consumer goods has been in vogue since the advent of malls in India since the late ’90s and has seen strong growth across all parts of the country. This growth is expected to continue at a rate of over 30% CAGR for next five years.
Organized retailing has largely won the customer service battle, as middle class and high-end consumers are deserting in droves the poor quality and service offered by many neighborhood shopkeepers, for the lower priced and superior quality products at the large retail shops. The strong opposition to organized retailing has surfaced with the advent of organized retail in agricultural commodities, and has been stronger in states which have some of the most marginalized farmers. Organized retailing of agricultural commodities offers farmers a glimmer of hope to realize market linked prices for their effort and create a more competitive marketplace. But it also enters an arena hitherto controlled by local mafia and politicians in many states.
Marketing and access to markets have been the biggest bottleneck for Indian farming. In areas, where this problem has been addressed, such as in poultry and dairy; returns to farmers have seen significant gains. Agricultural markets in India are few and far between — less than one per 400 sq km. These markets or mandis are virtually out of reach for a sizeable section of farmers.
Most farmers are at the mercy of local commodity traders. In mandis most transactions are done by commission agents, who usually keep farmers in the dark about how their produce is evaluated and priced, and ensure that there is no fair competition.
Amlafarmers in UP receive about 10% of the final end consumer price for their produce. The inefficiency and corruption in mandis due to lack of competition provides 300%-1,000% value capture in supply chain, while providing meagre return to the farmers. It is the commission agents, auctioneers, agricultural commodity traders and retailers, who earn super-normal profits.
Organised retail backed by large corporations can bring the goods directly from farmer to an endconsumer, offering farmers a choice of market place. Farmers would greatly benefit from increased competition for their produce, because that is the only way that they can receive a fair price. The government needs to play its regulatory role in enhancing fair competition in agricultural commodities, and discourage exploitation.
Regulations are required to define standard contracts for contract farming, to ensure that farmers do not lose their land; and become bonded labour. Government needs to help create and not impede an active market for agricultural commodities futures to allow price discovery and hedging of risk. The government should also fully deregulate movement and trading in agricultural commodities.
One is yet to see any farmer protest against organised retailing. The evolution of agricultural markets driven by organised retailing can usher in rural prosperity and income growth — growth for small and marginal farmers residing all over ‘Bharat’ who still do not have access to a competitive markets providing fair global prices for their produce.
THE retail industry is one of the world’s largest industries, increasingly being controlled by a handful of powerful corporations based mainly in the US and Europe. Multinational retailers, like Wal-mart, Tesco, Carrefour and Metro have by and large saturated their home country markets and are now looking to enter into India. Anticipating the entry of multinational retailers and seeing huge opportunities for profit, large Indian business houses like Reliance, Bharti, Birla, Pantaloons are entering into our retail market announcing aggressive plans and at an alarming pace.
These corporations have ambitions to command 20% of the retail trade in the next four years. Massive investment of corporate money in retail and agriculture is only for industry-driven retail and agriculture aimed only at bringing more and more profit to industry while spending crores of rupees for creating myths of being ‘fresh’, consumers and farmers friendly’ as well as in advertising to change our consumer mentality of ‘save and buy’ to “buy and repay”, which exists in the west.
As is already evident through the Bharti-Wal-Mart deal and through Reliance Retail these companies will enter into every aspect of what has come to define the retail industry, from direct production and contract farming, storage, distribution, land acquisition, real estate development and final sale. Therefore, this will have and is already having a direct impact on suppliers and workers throughout the supply chain and existing retailers. These groups are mainly farmers, manufacturers, distributors, wholesalers, traders, shopkeepers, hawkers and cooperative stores.
Already agriculture, land use, real estate, tax and labour policies and laws are changing and are facilitating the entry and growth of corporate retail and negatively impacting millions of people.
Therefore, the issue of corporate is a question of employment and livelihoods of the people of India and is being approached in this way by the India FDI Watch Campaign.
China had initially restricted FDI in retailing to only joint ventures at 49% foreign holding and only at specified locations subject to a ceiling on the number of stores. Malaysia, Indonesia, Thailand and Japan have enforced zoning restrictions for megaretailers. There are minimal capital requirements for foreign retailers in Sri Lanka. The Philippines has imposed “sourcing” and reciprocity requirements on foreign retailers.
In Japan, mega-retailers must seek the views and permission of small local stores before opening a new store. In the US, major cities such as Los Angeles, California, Chicago and New York City have restricted the opening of Wal-Mart stores within city limits. France enacted the Raffairin Act that regulates the growth of hypermarkets larger than 300 square feet. In Thailand the government has set up an assistance fund for local retailers due to the impact of mega retailers.
IT ISironical that while each October, we pay our grateful homage to the Mahatma who gave us the dream and the courage to exhort the colonial rulers to Quit India, a bunch of activists could not find a more deserving cause than organising rallies in support of their quixotic Quit Retail movement.
The case “against” an efficient and modern retail has been building up for some years now, primarily on account of any timely intelligent, coherent, and forceful rebuttal from either the government or initially, even by the Indian industry even though they are also stakeholders, directly or indirectly. In the absence of any comprehensive and empirical study of the entire issue, half truths and blatant untruths have been made to appear as truths by a motley group of a few habitually disruptive political parties and politicians, and a few characteristically obnoxious, perennially bile-spewing activists.
There is no comparably large and diverse economy anywhere in the world that has such an antediluvian distribution system for basic commodities and day-to-day-needed consumer products as we have in India. If the government and the industry do not nip this growing tide against the emerging modern retail sector, the impact would be more disastrous for the country as a whole rather than for most of the players who have announced ambitious plans to enter this sector.
The Tatas, Birlas, Ambanis, Mittals, and Goenkas of this world are large (and almost invariably) highly diversified business houses. They can very easily afford to shelve their plans for the retail sector and divert their attention and resources to a host of other equally exciting opportunities in India and beyond.
Wal-Mart, Metro, Carrefour and Tesco (among a few others) may be excited with the potential of India but India is not the only country offering potential and is not the only business opportunity for them. They can, at the very least, defer their plans for India for years to come. The only loser in the process would be hundreds of millions of middle and lower income Indians who could have potentially benefited from competition- and efficiency-induced lower prices, better quality, and superior service and shopping comfort.
The losers would also be the millions of farmers who would be constrained to continue to sell to the middlemen who have no qualms in creating scarcity when it suits them only to raise the final prices for the consumers even as the farmers continue to live an impoverished existence. The losers would also be those millions of average Indian men and women who could have found some jobs (in the sales function as well as myriad other retail ecosystem support systems) with their otherwise nearly unemployable situation. And finally, the loser would also be these very state governments who would have otherwise gained from better tax compliance at the retail end.
India needs massive private investment in every sector be it retail, education, healthcare, infrastructure including power, transportation, telecommunication, housing, etc. It should be of no surprise to anyone that in the current state of our developing economy and with a population exceeding 1.1 billion individuals, the majority will be self-employed. Most of these are self-employed not by choice but are forced to do so because they do not have jobs.
We need large investment in every sector to create the tens of millions of jobs every year so that most of our population are not forced to attempt to eke out a living through millions of microscopically small one-person or one-family enterprise. Retail is no exception.
Farmers may get back 10% of SEZ land
The Economic Times
9th October, 2007
DEVELOPERS of special economic zones may have to return 10% of the land acquired from farmers after development. A proposal to this effect is part of the resettlement and rehabilitation (R&R) policy drafted by the rural development ministry. The policy is with the Cabinet, following approval from a group of ministers (GoM).
“With industrialisation, land prices inevitably go up manifold. The growth is steeper in remote areas after land development. The idea of returning 10% of the land is to enable farmers to benefit from appreciation of land prices due to development,” a government official said.
It is estimated that on completion of Reliance’s SEZ at Jhajjar in Haryana, land prices in the area will go up to about Rs 1 crore per acre from Rs 22 lakh per acre now. In the areas adjoining the SEZ site, land prices have already shot up to about Rs 35 lakh per acre in anticipation of development.
Interestingly, the move comes at a time when speculation about mid-term polls is rife.
The pro-farmer move comes two months after the GoM on R&R policy announced a major incentive for realty developers in August. The GoM, headed by agriculture minister Sharad Pawar, allowed state governments to acquire 30% land from farmers, provided the remaining 70% has already been acquired. The EGoM had earlier banned land acquisition by state governments.
Currently, the ruling UPA does not intend to leave any stone unturned in displaying its pro-farmer stand. On Sunday, Haryana chief minister Bhupinder Singh Hooda announced farmers will get an annual compensation of Rs 15,000 per acre for 33 years. Further, there will be a minimum upward revision of Rs 500 per year.
Anti-retail lobby targets APMC Act
Business Standard
9th October, 2007
The anti-retail and land acquisition bandwagon has a new target now. An assorted bunch of farmers, small traders and non-government organisations (NGOs) have trained their guns on a legislation that allows private companies to directly procure produce from farmers.
Termed the Model Agriculture Produce Marketing Committee (APMC) Act, the legislation was drawn up by the central government a few years back.
The farm sector is administered by both the state and central government. Till date, an estimated 10 states, including Madhya Pradesh, Punjab and Haryana, have amended their existing APMC legislations.
Explaining the reasons for building opposition to the APMC Act, Dharmendra Kumar Sharma, director of NGO India FDI Watch, said, “The Act is aimed at allowing private players such as Reliance to set up a direct supply chain — a Farm to Fork strategy. It will directly affect the livelihoods of lakhs of persons, including wholesalers, retailers, commission agents, ‘mathadis’ (mandi workers), transporters and other APMC staff.”
“APMC markets have already seen a reduction in business over the last few months, ever since agriculture products have started directly entering Mumbai through private companies. This has propelled the mathadi workers’ unions to take up this issue along with the traders, which by itself is a historic move,” said Vinod Shetty, spokesperson, Vyapaar Rozgaar Suraksha Kriti Samiti, an organisation that is organising a massive rally in Mumbai on Wednesday.
All APMC mandis across Maharashtra will voluntarily remain closed on the day. Among their various demands is one to cancel the wholesale cash-and-carry permissions granted by the central government to German Metro AG and South Africa’s Shoprite.
Against the backdrop of a possible mid-term election, the anti-APMC issue is expected to hit political centre stage. This is despite the fact that the adoption of the Model APMC Act is a state subject. “Politicians will have no choice but to side with us. It is a question of their survival,” said Shetty.
Reliance Retail is trying to set up a large wholesale market at Navi Mumbai. But a company insider admitted that if its plans became a political target, it would delay the project.
Trade unions and anti-organised retail groups are slowly gaining the support of farmers. Bhartiya Kisan Union, led by Mahendra Singh Tikait, has already promised support to the cause.
“These corporates will initially promise higher rates to the farmers. But after that, they will create a monopoly and kill the farmer by paying less.
These companies only care for profit,” said Rakesh Tikait, son of Mahendra Tikait. BKU is organising a rally in Lucknow on October 18, and will also protest against the model APMC Act, among other farmer-related issues.
“My father met the prime minister last month. In that meeting, he informed the PM that farmers in the Hindi-speaking belt would not sell their produce to companies like Reliance Retail,” said Rakesh Tikait.
On the other side, retailers are claiming that the entire agitation is based on the fact that the APMC committee members do not want to lose out on their powerful positions.
One of the country’s largest retailers said, “Every state committee collects as much as Rs 1,500-2,000 crore annually. These committees have become politcised and play a major role during elections. Why would they want to lose out on their power?”
Given the large domestic production base, population size and income growth, India is a big and growing market for food products; and is expected to remain so.
The Hindu Business Line
7th October, 2007
Until the turn of the millennium, India had got stuck in what may be called ‘low-level equilibrium trap’ — a state of equilibrium at low levels of production and consumption, income and growth. With economic liberalisation and gradual opening up of the markets, the economy has begun to grow.
Investment has been a key driver of growth. Rising incomes and demographic pressure have now begun to create mismatch between production and consumption demand. As incomes rise, people begin to demand and consume more. As the existing consumption levels of goods and services are relatively low, increase in income translates into higher demand for essential goods and services.
On priority chart
Obviously, food will top the chart of priorities. Indian consumers will spend an increasing share of their family budget on food until the time food needs are satisfied. The Indian food market is currently estimated at about $150-160 billion. It is estimated that 55-60 per cent of total private consumption is spent on food. There are also differences between urban and rural areas in share of food in consumer-spend or food as share of the monthly family budget.
In the US, typically, a family spends less than 15 per cent of its income on food. Agriculture is highly subsidised in developed countries, and the post-farm processes are efficient. However, food is not subsidised in India and is expensive in this country.
Other factors that contribute to high cost of food include low farm yields, high logistics costs and generally inefficient production and marketing systems. Given a large domestic production base, population size and income growth, India is a large and growing market for food products; and is expected to remain as such for long years.
In course of time, as it almost invariably happens in the development process, with rising incomes, the share of food in consumer-spend is expected to decline. With rising incomes, food use will first rise, then steady, before declining. In other words, demand for food in the near future is expected to expand considerably.
Modest consumption
Despite India being among the world’s largest producers of a number of food products (milk, rice, wheat, pulses, sugar) the per capita consumption is modest. Indeed, in some cases, the per capita use has been falling in recent years. Food grains (rice, wheat, coarse cereals and pulses) are a good example. Per capita net availability of cereals and pulses today (430 gm) is less than it was 10 years ago (495 gm). Nutritionists recommend 16 kg of edible oil per person per year; but currently it is less than 12 kg here.
India may be the world’s largest milk producer (100 million tonnes), but per capita availability is relatively low because of a huge population. Also, the consumption is skewed based on income levels. Typically, the bottom one-third of the population tends to consume considerably less than the per capita number would suggest. If incomes in the hands of the bottom one-third were to rise because of growth-oriented policies, there would be an extraordinary spurt in demand for food products.
The appended table suggests the approximate value of major agricultural commodities produced in the country. These are indicative values and would vary from year to year, depending on volume of output, market prices and so on. Most crops/products undergo various processes such as milling, crushing, extraction and packaging before they reach the retail consumer. The same product would be traded multiple times.
Scope for expansion
The fragmented nature of the processing industry, the non-integrated nature of production units and long supply chain increase the number of hands the product changes before it reaches the retail consumer. For instance, oilseed grown by farmers would go to an oil mill for crushing, where it is converted into raw oil and oilcake. Raw oil may be filtered or sent to a refinery for refining. Oilcake is sent to a solvent extraction plant where it is processed into deoiled meal/extraction and solvent extracted oil. The former is sent to animal feed manufacturers and the latter for refining.
Similarly, paddy will have to be milled into rice; and wheat into flour to facilitate consumption. In addition, we have imported foodstuffs too, such as edible oil and pulses. In other words, the aggregate turnover of the agri-commodity market would be several times the value of farm production. The scope for expansion of the food market is enormous.
Railways to establish agri-retail chain
Invites Expression of Interest from private players
The Hindu
5th October, 2007
Putting into action the assertions of Railway Minister Lalu Prasad to reach out to the farming community and provide them platform for sale of their products at the local level, the Railways has invited Expression of Interest from interested players to set up agriculture retail chain across the country.
According to the proposal, conceived by Mr. Lalu Prasad and outlined in parts of his Railway budget this year, the Railways would utilise the surplus land for development of facilities as part of agri retail chain at non-metro stations to cash on the retail revolution sweeping across the country. “The idea behind this retail agricultural chain concept is to provide remunerative price to the farmers for their produce that at times rots for want of proper storage facilities or transportation,” a senior official remarked.
The Railways will play a role of the facilitator only and it would limit itself to providing logistics at these locations. The hub would be created in non-metro stations facilitating transportation of agri products using the rail network or provide for their sale at the local level wherever possible, the official added.
The project is seen as another effort by the Railways to put into action the Public Private Participation (PPP) model announced by Mr. Lalu Prasad at the same time ruling out complete privatisation. The delay in putting in place this concept was that the Railways was trying out to work out a model that would take off without any hiccups. The idea was to settle out all possible issues and then get going with it in a big way. The Rail Vikas Nigam Limited (RVNL) has been entrusted with the task of floating the tender for inviting expression of interest from corporate houses and cooperative institutions. The Railways is expecting that this move will generate interest among the private players and a large number of logistic operators and retail chain operators would respond positively. The Railways has a total 4.23 lakh hectares of surplus land out of which 42,846 hectares is vacant land.
MP farmers take corporate route to prosperity
Business Standard
5th October, 2007
Amidst reports of farmers' suicides and farmland acquisitions, here is some good news from the rural heartlands of Uttar Pradesh and Madhya Pradesh where land reclamation projects have helped farmers improve their earnings. Here is the last of a three-part story...
Dinesh Nagar hardly has the look of a company executive. He is dressed in a modest shirt and trousers and tills his fields for a living.
Yet, he is a key shareholder and the chairman of a company called Khujner Agriculture Producer Company (Private) Limited (KAPCL), registered under the Companies Act.
“Our company procures and grades the yield and markets it. It also trains farmers,” says Nagar, with quiet pride.
For long, Indian farmers have faced the problem of marketing their produce. As a result, a significant part of their output rots in the field and in transit. Also, since each farmer carries his produce alone, he is not able to get a good price in the market. Farmers like Nagar have been able to address these problems to a large extent by forming KAPCL.
The company, named after Khujner town, where it is based, has been functional since May 2006 and does business in no less than 100 villages in five blocks of Rajgarh district of Madhya Pradesh. Other shareholders and directors of the company too are farmers like Nagar. All told, 1,200 farmers own the company's stock.
KAPCL has its roots in the state government's District Poverty Initiatives Programme, under which farmer groups, called common interest groups, have been formed in 14 districts.
These groups pursue a common livelihood and are kept together with a grant, besides assistance in irrigation. These groups are now forming larger clusters or producer companies - all registered under the Companies Act.
“These companies are essentially a federation of common interest groups,” says Ravindra Pastor, project coordinator, DPIP. So far, 17 such companies have been formed in the districts and are doing business in farm produce and dairy products.
In the initial stages, these companies get support from the state government. While the government provides a consultant who assists the farmers in setting up the company in accordance with their business plans, a special state fund provides Rs 7 lakh.
The companies can also get up to Rs 25 lakh from the banks to expand. The promoters (farmers) contribute Rs 10,000 each.
As Madhya Pradesh is the country's largest producer of soybean, the producer company is concentrating on the crop. At the moment, KAPCL is small - it had a turnover of Rs 7.5 lakh last year. But for this year's kharif crop, it has set a target of marketing soybean worth Rs 5.5 crore.
The company has already tied up with big names like the MP State Agro Industries Development Corporation, state MARKFED, NSC, State Seed Corporation and some private companies like Bhumi Putra Agritec and Monica Seeds, says Nagar.
KAPCL has even got licences for retailing seeds and fertilisers as well as a trading licence from the Agriculture Produce Marketing Committee.
Still, KAPCL has a long way to go. The company is yet to reach out to all areas in the district, which needs more such companies. For example, Nalajhiri, a village 75 km from Nagar's, is not covered by the company.
“Though the DPIP has benefited our common interest group by providing money, we still have a problem with marketing, for which we have to through the commission agents in the nearby market,” said Bapulal of Bholenath Samuh (a CIG of five members) in Nalajhiri. The remote village, which is showcased by the DPIP as a success story, has had no electricity for almost two months now.
“Had it not been for timely rains, the mirch (chilly) crop and other vegetables would have dried up,” a group member said, pointing to the motor pump set sitting idle on the edge of a well with abundant water.
The correspondent’s visit was sponsored by the World Bank.
Max Hypermarkets to invest Rs 200 cr
The Hindu
5th October, 2007
Max Hypermarkets which launched its first Spar store in Bangalore last week is actively working on making shopping a daily activity for its consumers.
Mr Viney Singh, Managing Director, Max Hypermarkets, told Business Line that the 75,000-sq ft hypermarket is aimed at making shopping a ‘hassle-free experience and provide good value for money.’
The Spar Hypermarkets in India is the result of a licence agreement between the Landmark Group’s Max Hypermarkets India and Spar International, a Netherlands-based brand which is present in 34 countries.
Max will have access to Spar’s best practices and technical knowledge in international retailing.
Spar is also one of the leading food retailers globally and this will help us in our food retail, which is a lead section in hypermarkets, Mr Singh said.
National footprint
Max Hypermarkets plans to invest around Rs 200 crore to launch seven hypermarkets across metros in the country by end- 2009, according to Mr Singh.
“We intend to have a national footprint through locations in South and North India first,” he said.
Carrefour in talks to pick local partner
The Telegraph
5th October, 2007
French retail giant Carrefour is preparing a list of domestic companies with whom it can tie up for India entry.
Sources said over the last few weeks, the chain had held talks with many big Indian industrial houses, including Essar, Reliance ADAG, DLF and Future Group.
A spokesperson for the French company, however, said in an e-mail that Carrefour “does not comment on that (entry into India with a local partner) subject”.
If Carrefour enters the retail segment by tying up with an Indian partner, it will follow the US-based giant Wal-Mart, which has worked out a similar arrangement with Bharti. FDI is not allowed in retail, but foreign chains can join hands with Indian groups as their back-end suppliers.
Alternatively, industry analysts feel Carrefour can enter the Indian market through the wholesale route. German retailer Metro has chosen this route and has set up a cash-and-carry wholesale outlet in Bangalore. Foreign direct investment up to 100 per cent is allowed through this route.
The size of the organised retail sector is estimated at Rs 55,000 crore. This market is expected to grow 39.6 per cent in value terms by 2011, averaging a growth of 7 per cent a year.
With retail trade showing such promise, both foreign chains and Indian corporate houses are eager to cash in on the potential.
Domestic retail majors, however, do not think the entry of multinationals will pose a threat as there is enough space for all to coexist. Organised retail is just 3 per cent of the total market.
A Future Group spokesperson said, “We don’t feel threatened by the retail chains coming from abroad. We have built a bond with our customers and we try to improve based on customer feedback.”
Initially, all large format stores will have to penetrate into a market dominated by the local grocer.
Deepankar Sanwalka, executive director of KPMG, said, “Foreign retailers may face the same problem that Indian retailers are facing.”
“The violence Reliance is facing is symbolic. This is happening because the smallest of the retailers, the neighbourhood vegetable and fruit sellers, are feeling threatened. They are scared that they may be out of business.”
Private mandis welcome
Business Standard
4th October, 2007
While prospective investors in new retail chains are up against the odds in several states, those wanting to invest in primary level agricultural marketing may find the going easier. A clear indication to this effect is available from the way different states are amending their laws on agricultural produce marketing so as to allow privately-built, -owned and -operated terminal markets for trading in fruit, vegetables and other perishable farm products. More than 10 states have already identified the sites for such private markets and have short-listed the financial institutions which will support these ventures.
If successful, this initiative will provide farmers a more competitive and therefore efficient marketing infrastructure. It will enable them dispose of their produce at transparently determined prices through an electronic auction system — in sharp contrast to the present system, where most transactions are done by commission agents, who usually keep farmers in the dark about how their produce is evaluated and priced. Previous attempts to improve farm marketing have relied on curbs and controls under the existing laws, including that umbrella legislation, the Essentially Commodities Act. This time, fortunately, the outmoded state laws on agricultural produce marketing are being replaced with relatively liberal legislation, thus ending the state monopoly in this field.
The new markets will be mandated to have facilities like cold stores and efficient logistics support. They will function through collection centres located at convenient spots to allow farmers easy and quicker market access. In return, farmers will be expected to pay user charges that may be higher than the levies and fees prevailing in the existing mandis. Those running the new markets will therefore have to make sure that the reward for higher charges is sufficiently attractive for farmers to come to them.
This development needs to be viewed in the context of the other changes taking place with regard to the marketing of agricultural products. Companies like ITC have set up a digital price-discovery network that helps farmers get better returns on their crop. Firms that are into food processing have emerged as major buyers, as also some of the retail chains that are seeking to set themselves up. The growing popularity of the commodities exchanges is another factor to be taken into account. Even as these changes are under way, the existing agricultural marketing infrastructure has been exposed as being inadequate for today’s needs. There is just one agricultural market in an area as vast as 435 square kilometres.
This puts mandis virtually out of reach for a sizable section of farmers, forcing them to rely on improvised markets or local haats, which are not a substitute for modern markets. On the other hand, there is congestion in the main mandis, especially during the peak harvesting seasons, forcing farmers to wait for days before they can dispose of their stocks. Not even 10 per cent of these regulated mandis have cold stores in their vicinity, leaving farmers with little option but to sell their perishable produce at whatever price is on offer. The expansion and strengthening of the marketing network has been estimated by an official task force to cost as much as Rs 12,230 crore — a sum that will not become available without private participation. The question now is whether there will be a good response to the opening up of this sector.
Business Standard
4th October, 2007
Jaitpura Kurd is a tiny village tucked away in the Rajgarh district of Madhya Pradesh. There is little that is remarkable about Jaitpura Kurd, except that it is an example of how a village stuck in poverty can turn itself around.
A village that once depended on agriculture, Jaitpura Kurd has made dairy farming its prime activity. The result: Every family involved in the business is making a decent profit.
The opportunity came in 2001 in the form of the Madhya Pradesh District Poverty Initiatives Project (DPIP), which encouraged villagers to form common interest groups of around five people each. With the World Bank providing Rs 461 crore, each beneficiary (one per family) was given a grant of up to Rs 20,000.
The groups bought high-yield buffaloes and cows. In 2004, Rs 6 lakh were provided through an innovation fund set up under the project for an automated milk collection centre.
The villagers deposit the milk at the centre, where they get a computer-generated receipt mentioning the quality and quantity of the produce and the amount payable.
“The village now produces 600 litres to 700 litres of milk everyday and we get Rs 15-20 per litre based on quality,” says Ram Kailash, president of the Jaitpura Kurd Dairy Cooperative Society, an association of dairy CIGs in the village.
So, on a good day, the villagers can make as much as Rs 14,000. Not bad for a community that was not so long ago steeped in poverty.
The movement that started with 37 people in 2002-03 has 141 farmers and 29 dairy CIGs (out of 40 CIGs in the village).
Kailash, a member of the five-member Ganesh Bhais Palan Sangh, says, “With around Rs 1 lakh government grant and our own contributions, we bought 10 buffaloes from Ludhiana and Haryana.”
The collected milk is kept in a freezer and is taken by the Madhya Pradesh (Bhopal) Dairy Federation, which pays once in ten days, say officials.
“We save on transport costs as we don’t have to go to the towns to sell,” says Ramesh Chandra Dangi, a resident of the village.
While the men in the village focus on agriculture, women and children take care of the cattle. “With 10-15 litres milk from my two buffaloes, I get around Rs 6,000 a month. After deducting the input costs, I earn Rs 2,000 to Rs 3,000 per month,” said Dangi.
In 2001, the government found that 202 out of 289 families in the village needed support. The villagers used to toil in the fields with little water and were in debt for different reasons.
Six years later, there are visible signs of prosperity. “My business used to run on credit. Now, villagers pay in cash,” said owner of a kirana shop in the village.
“The village showed a good potential for dairy and so we focused on that. While the DPIP extended Rs 34.38 lakh for these projects, the villagers contributed Rs 1.88 lakh. A new road has provided easy access to the village and support to irrigation has led to an increase in the total area irrigated area,” said Ravindra Pastor, project coordinator, DPIP, Madhya Pradesh.
The dairy initiative has set in a new White Revolution in the state. Officials said there were 7,785 dairy CIGs in the 14 districts where the programme was operating.
As many as 35,000 milch animals have been procured under the project and the yield now is 1.25 lakh litres per day. The income from animal husbandry has increased by 158 per cent in these districts, officials say.
Amidst reports of farmers' suicides and farmland acquisitions, there is some good news from the rural heartlands of Uttar Pradesh and Madhya Pradesh, where government intervention has helped farmers improve their earnings. Here is the second of a three-part report...
Business Standard
4th October, 2007
Jaitpura Kurd is a tiny village tucked away in the Rajgarh district of Madhya Pradesh. There is little that is remarkable about Jaitpura Kurd, except that it is an example of how a village stuck in poverty can turn itself around.
A village that once depended on agriculture, Jaitpura Kurd has made dairy farming its prime activity. The result: Every family involved in the business is making a decent profit.
The opportunity came in 2001 in the form of the Madhya Pradesh District Poverty Initiatives Project (DPIP), which encouraged villagers to form common interest groups of around five people each. With the World Bank providing Rs 461 crore, each beneficiary (one per family) was given a grant of up to Rs 20,000.
The groups bought high-yield buffaloes and cows. In 2004, Rs 6 lakh were provided through an innovation fund set up under the project for an automated milk collection centre.
The villagers deposit the milk at the centre, where they get a computer-generated receipt mentioning the quality and quantity of the produce and the amount payable.
“The village now produces 600 litres to 700 litres of milk everyday and we get Rs 15-20 per litre based on quality,” says Ram Kailash, president of the Jaitpura Kurd Dairy Cooperative Society, an association of dairy CIGs in the village.
So, on a good day, the villagers can make as much as Rs 14,000. Not bad for a community that was not so long ago steeped in poverty.
The movement that started with 37 people in 2002-03 has 141 farmers and 29 dairy CIGs (out of 40 CIGs in the village).
Kailash, a member of the five-member Ganesh Bhais Palan Sangh, says, “With around Rs 1 lakh government grant and our own contributions, we bought 10 buffaloes from Ludhiana and Haryana.”
The collected milk is kept in a freezer and is taken by the Madhya Pradesh (Bhopal) Dairy Federation, which pays once in ten days, say officials.
“We save on transport costs as we don’t have to go to the towns to sell,” says Ramesh Chandra Dangi, a resident of the village.
While the men in the village focus on agriculture, women and children take care of the cattle. “With 10-15 litres milk from my two buffaloes, I get around Rs 6,000 a month. After deducting the input costs, I earn Rs 2,000 to Rs 3,000 per month,” said Dangi.
In 2001, the government found that 202 out of 289 families in the village needed support. The villagers used to toil in the fields with little water and were in debt for different reasons.
Six years later, there are visible signs of prosperity. “My business used to run on credit. Now, villagers pay in cash,” said owner of a kirana shop in the village.
“The village showed a good potential for dairy and so we focused on that. While the DPIP extended Rs 34.38 lakh for these projects, the villagers contributed Rs 1.88 lakh. A new road has provided easy access to the village and support to irrigation has led to an increase in the total area irrigated area,” said Ravindra Pastor, project coordinator, DPIP, Madhya Pradesh.
The dairy initiative has set in a new White Revolution in the state. Officials said there were 7,785 dairy CIGs in the 14 districts where the programme was operating.
As many as 35,000 milch animals have been procured under the project and the yield now is 1.25 lakh litres per day. The income from animal husbandry has increased by 158 per cent in these districts, officials say.
Amidst reports of farmers' suicides and farmland acquisitions, there is some good news from the rural heartlands of Uttar Pradesh and Madhya Pradesh, where government intervention has helped farmers improve their earnings. Here is the second of a three-part report...
Metro, Wal-Mart see red as retail backlash spreads to cash & carry
The Economic Times
4th October, 2007
AFTERbig retail, it’s now the turn of cash & carry operations to face the ire of the anti-organised retail brigade. In a public interest litigation (PIL) filed in the Delhi High Court, the Federation of Associations of Maharashtra (FAM), an ally of India FDI Watch, has sought to restrict the scope of cash & carry business.
“People in the cash & carry business are wholesalers. By definition, a wholesaler should sell in bulk to a retailer, who can then sell in small quantities to consumers. B2B customers like hotels, restaurants and canteens are consumers, not retailers, and therefore cash & carry stores should not be allowed to sell to them,” the association has argued in the PIL. If a favourable judgement comes, the restriction in the definition of cash & carry will adversely impact Bharti-Wal-Mart and Metro who are both looking at institutional sales, and have identified the B2B segment as a growth driver. Recently, commerce and industry minister Kamal Nath also said that India’s B2B market alone offers more opportunities to companies like Wal-Mart than the retail market in many countries.
“It (cash & carry) will be an important agenda in our Mumbai rally against corporate takeover of retail space to be held on October 10,” FAM president Mohan Gurnani told ET. The organisers said that more than one lakh traders are expected to participate in the rally who will demand repeal of the APMC Model Act, a national hawkers policy and cancellation of all the wholesale cash & carry licences.
The PIL says FAM is not against FDI in wholesale trade, it’s merely contesting the interpretation of cash and carry. “We are demanding cancellation of licences granted to wholesalers because they have circumvented rules.” Mr Gurnani said. In the PIL, the petitioners have made a mention of the German chain, Metro, alleging that the company has violated certain premises on which it was granted permission to operate in India. “In the PIL, a number of invoices have also been filed to show that Metro is selling individual items in small quantities unrelated to the business of the purchasers. This is a clear-cut violation,” India FDI Watch convenor Dharmendra Kumar said.
Growing crops by following the lunar calendar
The lunar cycle plays a key role in this farming practice
The Hindu
4th October, 2007
Biodynamic farming (BD) is also a form of organic farming as it not only avoids the use of pesticides and chemical-based fertilizers but also offers advise on the time of crop sowing according to the lunar crop cycle.
The term biodynamic is derived from the Greek words ‘bio’ (life) and ‘dynamics’ (energy).
Also known as ecological farming, it remains largely unknown to the modern Indian farmer. The basic theory of bio dynamic farming is to conceive the farm as an individual and a complete entity. Importance is given to crop and livestock integration, soil upgradation, plant and animal growth. The farmer too is a part of this whole
Origin of this system
The origin of this system of farming is believed to be from a series of lectures given by an Austrian philosopher, Mr. Rudolf Steiner, sometime during the 1920’s. The harvested produces grown by this method seem to have a good taste and aroma compared with other farming methods.
“Biodynamic farming is quite eco-friendly as there is no great investment involved. There are nearly 100 farmers practicing this system in Tamil Nadu and about 1,000 all over the country,” said Mr. R. Jeyachandran, a BD farmer in Ariyanoor village of Madhurantakkam taluka, Kanchipuram district in Tamil Nadu.
The basic theory in BD farming is that the lunar cycle (waxing and waning of the moon) plays a key role in the timing of biodynamic practices, such as making of biodynamic preparations, timing of planting the seeds and harvest, according to Mr. Jeyachandran.
Lunar cycle
“The lunar cycle casts a tremendous effect on the size and formation of plant roots and their growth, and farmers can get a good yield if they sow their crops in accordance with the lunar phase,” he explained.
“This is an ancient method which was practised by our forefathers and lost along the way. It has now been accepted and scientifically proved ,” he said.
Though there are several books on BD farming, one cannot learn this technique by mere reading alone , according to him. “Practical application can be achieved only through interaction with other practising BD farmers,” he noted. Cow’s horn is the one of the basic requirements in BD farming. Fresh dung from a lactating cow (one which has delivered a calf in a week’s time) is stuffed into the horn and buried into the soil during the descending days of the lunar calendar.
Horn manure
The burying is done usually sometime during September-December and the dung is dug out during May-July. By this time the dung inside the horns would have turned into a paste like substance (similar to melted wax) called horn manure.
This wax-like substance contains several beneficial microorganisms essential to promote good plant growth.
About 25-30 gm of this horn manure diluted in 12-15 litres of water can be used for sprinkling on one acre. “Sprinkling should be done during evening time and while sprinkling farmers should take care to see that the field is wet,” said Mr. Jeyachandran.
Horn silica
Two to three applications of horn manure per year are sufficient to enhance the fertility of the soil, explained Mr. Jeyachandran. Another method called ‘horn silica’ where instead of cow dung, crushed white silica powder (silica powder can be obtained from any horticultural shop) is stuffed into the horns and buried in the soil.
After the same period of time similar to that of stuffed dung, the silica should be dug out. The recommended amount is one gm of horn silica per acre stirred well for about an hour in 13-15 litres of water.
Soil fertility
Application of organic manure and composts produced with the help of earthworms and microbes can also be done alongside to improve soil fertility and ensure sustained soil health, according to him.
In BD farming, nothing is brought from outside. Every thing, from manure to pesticides are available in the field itself. It is a big step towards restoration of health of the earth. An ideal biodynamic farm is where the input cost (excluding labour) is zero. “I have brought down the annual per acre input cost from Rs 7,000 to Rs 500,” he said.
Mr. R. Jeyachandran can be reached at , Ariyanoor village, Madhurantakkam taluka, Kanchipuram district, Tamil Nadu, phone: 044-27539608.
Enam Financial picks up 10% in rural financial inclusion firm
The Economic Times
4th October, 2007
ENAM Financial has picked up 10% in A.Little.World, a company which works for financial inclusion by taking banking to rural areas, which are currently underserved or inaccessible through the branch banking route. The seven-year-old firm also received investment from Coronet Capital, a wholly-owned subsidiary of Legatum, around five months ago. Legatum Capital, a privately-owned international investment firm by Christopher Chandler, holds 13% in the firm. The amount of investment was not disclosed.
A.Little.World is currently working on a pilot project with NXP Semiconductors to use low-cost technology solutions to facilitate movement of bank credit, deposits, insurance payments, utility payments and disbursal of pension and social security funds from the governments into villages, where people have no access to bank branches and need to travel at least 5-10 kms to reach the nearest branch. The pilot project was carried out in 280 villages, in partnership with six nationalised banks and one regional rural bank, Andhra Grameen Vikas Bank, and a private sector player, Development Credit Bank.
The low-cost solution uses a mobile phone equipped with a secure communication technology, Near Field Communication (NFC), a biometric fingerprint authenticator, a contactless smart card, and a printer. The entire solution is estimated to cost around Rs 25,000, with costs expected to come down to about Rs 17,000 in a year’s time. NFC has been developed by NXP Semiconductor and is available on select mobile phone models from Nokia, Motorola, Siemens BenQ and Samsung.
Earlier, A.Little.World had initiated a project for fare collection in Mumbai buses using the contactless smart cards. The project, branded GO-Mumbai, was sold to Kaizen Automation in May 2006. The other investor in A.Little.World, Legatum, invested $25 million into Share Microfin, the country’s largest MFI earlier this year.
Legatum Capital has investments of over $1 billion in the Indian stock market. Most of these investments are in the financial sector. It has stakes in ICICI Bank, HDFC, HDFC Bank, UTI Bank and others. Legatum’s investment in the MFI space is not a part of its philanthropic efforts. The company views microfinance differently from CSR or corporate philanthropic activities.
Overseas players who have made significant investments in the Indian microfinance space include Dutch institution FMO the Netherlands-based Tridos, World Bank arm International Finance Corporation, US-based Accion, KfW from Germany and the UK-based CDC.
`Quit Retail` campaign moves full steam ahead, gets more support
Business Standard
4th October, 2007
Preparations are in full swing for a massive “Quit Retail” rally in Mumbai on October 10, when 50,000-100,000 wholesalers, hawkers, farmers, retailers, chemists and cooperatives from all over Maharashtra will converge at the Azad Maidan to demand the exit of big corporations from the retail business.
Workers at the Agriculture Produce Marketing Committee (APMC) mandis across Maharashtra have also decided to join the rally. “Therefore, all such mandis across the state will remain shut on October 10,” said Vinod Shetty, spokesperson, Vyapaar Rozgaar Suraksha Kriti Samiti, which is organising the rally.
One of the demands at the rally will be scrapping of the Model APMC Act, which has been adopted by Maharashtra. Under the Act, private companies can set up wholesale markets and procure directly from farmers. Reliance Retail is in the process of setting up one such market in Navi Mumbai.
In what could be as a major setback to corporate retailers, the textile workers and large trade unions like the Centre of Indian Trade Unions (CITU) have decided to join the cause.
“Yesterday, thousands of textile workers courted arrest at the Azad Maidan grounds. Their livelihood is also under threat from these corporates and foreign retailers. They are already suffering as mill land, on which many of them had stalls, is being developed into large shopping malls,” said Shetty.
The organisers have started touring the city in open buses and distributing leaflets outside shopping malls. On Gandhi Jayanti, 15 people were “practising Satyagraha” and handing out leaflets at Phoenix High Street, where many big retailers, like Big Bazaar, Lifestyle, Marks & Spencer and McDonalds, are operational. The police detained seven “satyagrahis,” but released them at night.
Today, the lobbyists toured central Mumbai to create awareness of how big corporates and foreign retailers would adversely impact the livelihood of millions of people who depend on retail for livelihood.
Small retailer groups are also organising meetings at night to mobilise as many people as possible for the rally. They met yesterday at Malad. Today’s meeting will be held at Khapoli in Navi Mumbai.
ICICI Lombard, Nabard to farmers’ rescue
New product to lessen debt burden; launch likely in next kharif season
The Business Line
28th September, 2007
ICICI Lombard General Insurance Company (ILGIC) and Nabard have tied up to design a liability product targeting the debt-hit farmers of Maharashtra and Andhra Pradesh. The product would help the farmers in these regions mitigate their debt burden.
Speaking to Business Line, the ILGIC’s Head - Rural and Agriculture Business group, Mr Pranav Prashad, said, “We intend launching the product from the next kharif (April - October) season.”
risk mitigation
The ILGIC initiative comes close on the heels of Syndicate Bank’s drive to refinance farm loans taken from unorganised money lenders. Mr Prashad said ILGIC risk product would be a risk mitigation product. In the event of crop losses/failures, insurance claims could be used to settle debt liabilities with banks or even money lenders.
In fact, such debts have been one of the major reasons for farmer suicides in both Maharashtra and Andhra Pradesh. Already, the Agricultural Insurance Corporation (AIC) of India and the State Governments offer crop insurance covers at subsidised premiums.
customised
However, the product structured by ILGIC would be specifically customised to meet the requirements of debt high farmers and crop losses would just be one component in the product, he said. ILGIC was one of the first private sector insurers in the country to launch weather risk covers. The weather covers had found phenomenal success in the States where it was launched. These included Punjab, Rajasthan, Chhattisgarh, Andhra Pradesh and Karnataka.
For the last financial year, ILGIC had premium accretions on farm covers was in the excess of Rs 200 crore. Mr Prashad said that the success of the cover could be gauged from the claims ratio that was currently about 110 per cent. But, he added, that since the company also bundled weather covers with rural health covers, it was not making any losses.
He said, “We have a combined claims ratio of 94 per cent.” As a result, the insurer took no losses. Besides, the farm covers were also reinsured. Swiss Re was one of the major re-insurers for its weather/farm covers, he said. This was in addition to the mandatory ceding to the General Insurance Corporation of 20 per cent. So far all the reinsurance support is on a facultative basis. This implied that the reinsurer has the option of accepting or rejecting the risks.
Support
With the reinsurance support and favourable claims experience, ILGIC planned to expand the coverage of its farm/reinsurance cover to 10 per cent of its gross premium accretions. Gross premium underwritten during the last financial year was Rs 3,003.45 crore.
Mr Prashad said that ILGIC was also working with AIC through coinsurance arrangements for rolling out farm insurance products, including weather risk covers by the next rabi (October-March) season. This would be launched in 11 States in the country, covering a range of crops. The business potential is estimated at Rs 250 crore. The coinsurance with AIC, he said, would help improve the domestic retentions and reduce the reliance on external reinsurance.
Does India need Bt brinjal?
The Business Line
28th September, 2007
at the same time that Greenpeace was holding a protest against Bt brinjal, outside Krishi Bhavan, the ICAR Director-General was making a strong plea for genetically modified (GM) crops.
His argument “It takes 3,000 litres of water to produce a kg of rice, which GM rice will never need” looked simple on the surface and he buttressed his argument by saying that GM crops yielded more, had “resistance” and conc luded: “Whether we like it or not, GM crops are here to stay”.
These two positions — that of the activists of Greenpeace and of the Director-General of ICAR —
are at the extreme poles of a very contentious issue, which has come at a time when the country is passing through the worst agricultural crisis in its history. Plummeting food-grains production, huge wheat imports in succession and, to cap it all, unending farmer suicides.
Let us take the question of the current controversy on Bt brinjal.
Legal background
On September 22, 2006, in response to a public interest litigation (PIL), the Supreme Court passed an order that the entire question of field-testing and approval of GM crops should be handled by competent, and committed bodies/scientists. The question before the court was with regard to Bt brinjal, which an MNC, through its Indian subsidiary, was promoting.
Accordingly, an independent committee was constituted by the Centre for Sustainable Agriculture in Hyderabad, which had some of the leading toxicologists, plant physiologists, entomologists, agronomists and economists of the country, supported by field activists, with this author as its chairman.
The committee submitted its report, examining the field data provided by the Indian subsidiary of the MNC from all aspects — bio-safety protocols to marketing of the end-product — to the Supreme Court in October.
Since then, the Union of India has been seeking modification of the order passed by the Supreme Court on September 22, wherein the court had directed the Genetic Engineering Approval Committee (GEAC) to withhold approvals till further instructions to be issued by the court on hearing all concerned. In the May 8, 2007 hearing that followed, the Additional Solicitor-General submitted that in view of the order passed by the Supreme Court, the GEAC was not in a position to grant approval to various applications pending with the authority, for field trials on various plant varieties. The GEAC, between May and September 2006, had granted approval for 24 items, including Bt cotton, Bt cauliflower, Bt brinjal, Bt rice, transgenic rice, Bt castor, Bt groundnut, transgenic tomato and potato. The field trials are going on in respect of these items.
The May 8 Supreme Court order specifically states that:
The GEAC shall take sufficient precautions to see that these trials do not cause any contamination to neighbouring fields.
There should be at least 200 m distance between trial fields and the neighbouring ones, where the same type of crop is being grown.
In all the trials, the name of the scientist and other details of the person responsible should be reported to the GEAC and there should be regular supervision.
Prior to bringing out the GM material from the green-house to the field, for open field trials, the approved institution should submit a validated, specific test protocol at an LoD (Level of Detection) of at least 0.01 per cent (that is at 99.99 confidence level in statistical parlance) to detect and confirm that there has been no contamination.
The reality on the field
The independent expert committee cited instances of scientific inaccuracy in data reporting, breach of scientific protocols and improper reporting of allerginicity and toxicity, in the field data provided by the Indian subsidiary of the MNC on Bt brinjal.
The manner in which these field trials are being conducted leaves much to be desired. Farmers are being tricked into accepting GM material for field testing without being made aware of the possible adverse consequences.
Experience in ‘cotton bowl’
A few months ago, Mr Balasaheb Thorat, the Maharashtra Minister for Agriculture, went on record that Bt cotton was a failure in the Vidarbha district, the cotton “bowl” of India and, yet, why is the Government of India pushing so many new strains of the crop?
The MNC that introduced the first Bt cotton in India three years ago was selling a 450-gm packet for Rs 1,950, while the same MNC was selling it for under $2 (less than Rs 90 at the time) in China. Can there be a worse instance of fleecing poor farmers?
Breach of scientific protocol
The independent expert committee noted the following breach of scientific protocols in collecting field data on Bt brinjal by the Indian subsidiary of the MNC:
The allerginicity of the protein extract from the Bt brinjal was apparently carried out on brown Norway rats and not on male rabbits as prescribed by the Department of Biotechnology (DBT).
DBT guidelines prescribe in vivo immunological assays for the detection of reactogenic antibodies in the test sera. These were allegedly not carried out.
Though the Cry 1Ac gene was earlier considered innocuous, recent published evidence indicates that the specific protein from Bacillus thurengiensis (Bt) is a potent systemic and mucosal adjuvant that enhances mostly serum and intestinal IgG antibody responses.
There is apparently conclusive evidence to show that root exudates of GM crops alter the soil microflora profile, negatively impacting soil productivity.
The field data was not statistically analysed for precise scientific interpretation, and, as such, the conclusions are invalid. No cost-benefit ratio for the farmer was calculated to examine whether or not the new technology is economically viable.
Circumventing SC Order
In response to public outcry against clandestine cultivation of GM crops — farmers of Karnal in Haryana and Ramanathapuram village in Coimbatore district burnt Bt rice fields —– the move by the GEAC to legitimise these field trials by requiring them to be conducted in institutional premises is most curious as this does not forestall the possibility of transgenic contamination.
Our farms and fields are not put to monoculture as in the US, the UK or Canada. Even in the UK, the recent reporting of super-weeds near GM rape-fields shows that the risks of pollen transfer leading to the breeding of unwanted plants cannot be wished away, as the protagonists of GM technology are doing.
Larger picture
The introduction of Bt brinjal in India calls for a ‘holistic’ approach, rather than a ‘reductionist’ one, as brinjal is a favourite vegetable of India that figures on meal menus across regions and social classes.
India is the place of origin of this interesting vegetable, which finds its way into the popular kathirikai poriyal of Tamil Nadu, vazhuthinanga thoran/upperi of Kerala, the badnekai sambar of Karnataka and the baingan ka bharta of North India — and has made its way to kitchens in the US, the UK, Canada and Europe.
The next time you polish off these delicacies, would you want to eat them with the fear of ingesting the Bt toxin as well?
Are we risking the health of millions of Indians when published scientific data, as of now, is ambiguous about the safety of GM food crops?
A small nation, such as Mexico, had the courage to say ‘No’ to GM maize. Yet, India is issuing a ‘blank cheque’ for any GM crop, be it brinjal, which originated here, or rice, in which India has a tremendous export stake.
Are we being pushed to do this, and if so, by whom?
(The author, a former Professor of the National Science Foundation, The Royal Society, Belgium, is Chairman of the Independent Expert Committee constituted to look into various aspects of Bt brinjal and can be reached at
Banks reach out to urban needy via SHGs
The Business Line
28th September, 2007
Vidya Khustale, a resident of Ghatkopar, a suburb in Mumbai, has taken a loan of over Rs 1 lakh for her son’s engineering studies from State Bank of India. She is now planning to avail herself of another personal loan from the bank for buying a new sewing machine for her husband’s tailoring shop.
Nothing unusual about this, except that it would have been tough for her to get the loan if she were not part of the Self Help Group (SHG) formed by State Bank of India.
The group, which consists of 15 women, was formed four years ago, with a savings of Rs 50 per month, per member. So far, it has availed a loan of Rs 1.25 lakh from SBI, of which it has already repaid Rs 65,000. The monthly repayment is about Rs 3,500 per month. After all expenses, the group is able to save about Rs 1,500 per month.
SBI has over 7,000 SHGs in Mumbai alone, of which 2,000 have availed loans, totalling about Rs 10 crore.
“About 20-25 per cent of the SHG members do become our customers and avail loans,” the SBI official said.
Tougher task
As an officer of a public sector bank pointed out, “In villages it is easier to contact people and form groups. In cities, it is more difficult. Besides, in rural areas it is easier to identify activities that banks can lend money to.”
Hawkers’ group
Some banks are targeting groups of people who are linked together by occupation, in tie-ups with associations. For instance, Union Bank of India recently tied up with the Hawkers’ Association of Mumbai and opened no-frills accounts for about 60 hawkers. Next step is to form a SHG for hawkers, said Mr G.S. Mehta, General Manager, Priority Sector, Union Bank of India.
Explaining the difference between urban and rural SHGs, Mr Mehta said, “In rural areas SHGs provide a sense of self reliance and independence to the members, who are mainly women. But in urban areas SHGs help the women in adding to the family income.”
Similarly, Syndicate Bank also opened 800 savings bank accounts for housemaids over the last one month in different part of Mumbai.
Less is more
Business Standard
24th September, 2007
Destination kiosks could well be the future of modern retail. But will the Indian consumer bite?
Sudha Choudhary, a 43-year-old housewife and resident of Dombivli, a suburb on the outskirts of Mumbai, recently bought a mobile for her son and an LCD TV. No, she didn’t pick them up from a mall — her shopping arena was a small kiosk, all of 120 square feet in area.
This is the new out-of-store format that Kishore Biyani’s Future Group has come up with. The kiosk, which houses a computer terminal, offers access to information about 10,000 products for the consumer to choose from. He can place the order, pay by credit card or cash, and his purchases are shipped to his residence in maximum of 10 days. Simple, isn’t it?
Clearly, with new malls coming up all over the place, retailers are scouting for new formats to gain an edge over the competition, especially since the investment needed to set up a large store can exceed Rs 25 crore. Currently, the The Future Group’s out-of-store format is operating on a franchisee model.
The company plans to come up with 12-15 more stores in the next three months, and go into tier II cities with this model. “We are looking at locations that are not already covered by big retail outlets,” says Sankarson Banerjee, chief executive officer, futurebazaar.com.
Internationally, the kiosk format is quite successful. There’s 7/11, a chain of small-format stores in the US which are mostly located on busy streets and business districts. Here, customers can place an order on-line, and either pick up the shopping basket at a location of their choice or get it delivered to a preferred location at a designated time. The Future Group is coming up with a similar concept in India.
According to Kaushik Guha Thakurta, manager, KPMG Advisory Services, “It is premature to predict whether such a format will work in India, mainly because of the large number of choices available to customers in terms of kirana and upscale convenience stores. Also, several players have toyed with similar ideas like online carts, but most plans have been put on cold storage since it didn’t go down well with Indian consumers.”
B. S. Nagesh, managing director, Shopper’s Stop, is equally cautious: “It is still a relatively new concept in India. We will have to wait and see whether the medium kicks off.”
However, retail experts believe that destination kiosks make a lot of sense for products/merchandise that are not available in the neighbourhood and where retailers could enjoy some customer stickiness. Example — books, music, accessories and certain leisure products.
“In fact, you will see a strong play in these format-category combinations going forward, and we have advised some of our retail clients to exploit this format aggressively,” Guha Thakurta adds.
According to Banerjee, “The idea is to extend our retail presence, to extend the shopping experience to consumers who do not have access to modern retail outlets. Eventually the entire Big Bazaar range will be available through this format.”
The first store in Dombivli is a month old. “Dombivli was an ideal location for us to test the format. It has a mix of working population and there are no big retail chains in that area,” Banerjee says.
Company executives say that sales have been decent and 300-400 orders were placed in the first month itself. “The store is doing pretty well and people have accepted the concept. Consumers have bought products in almost every category, be it a T-shirt worth Rs 99 or an LCD TV worth Rs 40,000,” a satisfied Banerjee says.
For farm sector investment
The Financial Express
24th September, 2007
Inflation in 2006-07 was fuelled by the rise in prices of primary articles, even though the prices of manufactured products rose at a much higher rate. This draws attention to the terms of trade or relative price trends between agriculture and other sectors. A sudden rise in farm-produce prices does not necessarily fill the pockets of farmers and lead to new investments. Also, the changes in the Indian economy over the last two decades mean that competition for capital between agriculture and manufacturing is not as significant as it could have been.
The terms of trade between agriculture and the rest of the economy do, however, point to changes in the supply-demand imbalances across sectors. To induce new investment, either rising margins of profit or rising volume of business are necessary. In the case of agriculture, what will it be?
The terms of trade, estimated as the ratio of agricultural prices to manufactured product prices, offer a rough indicator of relative attractiveness of the agricultural sector for investment. However approximate, it reflects the fact that when prices of farm products are rising faster than those of manufactured products, many of which would be agricultural inputs, the returns to investment in agriculture would improve. It is certainly not a measure of welfare, as rising agricultural prices (especially of food items), would mean costlier sustenance to the poor.
During the period when agricultural growth was the best in recent times, 1992-96, the terms of trade were improving for agriculture. Agricultural GDP increased by an average of 4.7% per year during this period. In the next ten years, the growth was about half this rate, and the terms of trade were declining for agriculture (until the last couple of years of the decade).
In the most recent five-year period, investment in agriculture was stagnant as a percentage of GDP. The Eleventh Five-year Plan is looking at raising agricultural output at 4% per year. This won’t be easy. Clearly, more investment would be needed to accelerate growth. This will require a conducive investment climate for the farm sector.
Slower rise in prices and slower growth in output point to the key weakness of agriculture—that of limited markets. It is not clear what the Doha round is likely to achieve in terms of access to world markets for Indian agriculture. But improving the terms of trade is an important variable for improving the investment climate in
the sector. If it is not the volume, margins would have to increase for more investments. Better margins may not necessarily come from higher prices, but also from a larger share of higher-value output.
The correlation between the relative prices and agricultural growth, while plausible, is clearly not the entire explanation for the pace of agricultural output growth. The other ways of inducing farmers to invest and improve productivity through subsidies, expansion of markets or reducing risks, are more effective in achieving the same goals. Sharp fluctuations in prices have led to severe shocks to the farm sector in the past. High and unsustainable prices have led to unwise investments and low prices have led to borrowing at high interest rates. The farm sector has not been able to withstand the large shocks.
Generic support systems, such as directed credit, have been the main form of inducing new investments. Crop-specific support systems, such as high-yield seeds and support prices, tend to have short-term impact and require continued interventions. The more generic form of support provides greater choice to farmers in terms of crops they can grow and move up the value chain of agriculture. Gaining favourable terms of trade, therefore, is not a sufficient condition for bringing about more investment into agriculture. It can be a catalyst in the process, but for sustaining investment, other productivity enhancing measures and market expansion measures would be needed.
What is of importance in influencing the course of agriculture is government policy. The link between the terms of trade and policy is quite unclear. Does government-sponsored capital formation pick up when the terms of trade are moving against agriculture, or the other way around? In the past five years, it was government spending that was sustaining growth in agricultural investment. It is, therefore, likely that the agricultural growth rate has greater influence on government policy: sagging growth induces more spending.
The policy target has typically been food output. Steady improvement of farm incomes is a more appropriate if difficult goal to achieve. Recommendations made by the National Commission on agriculture seek to move policy in this direction. But clearly, it should be farmers’ own decisions that should drive investment in this sector. This requires both volumes and margins. There are clear signals that public investment in the rural sector as a whole is increasing. Rural development programmes aim to improve infrastructure. Then again, this is but
End the escapism
The Financial Express
24th September, 2007
Doling out sweeteners for an ailing sugar industry has become a national pastime. It is a minor coincidence, of course, that elections are round the corner, at least by many a calculus in New Delhi. Sugar, some would say, is a deserving candidate. It has been hit by a global glut in production. Domestic output rose by more than one-third over the last three years, resulting in a threefold increase in stocks to 14.5 million tonnes, half of India’s annual output. With global production up by 18 million tonnes this year, export possibilities are low, too.
This is the sort of occurrence in a patronage-padded democracy that brings a stream of mill-owners to politicians’ durbars with folded hands. Surely, such supplicants mustn’t be turned away? The plain and simple economic reality, however, is that India’s sugar industry needs to be weaned off the nanny state, and be allowed to grow up and attain true competitiveness on its own terms in a market that operates at the behest of demand and supply, not political whim and fancy.
Rescue packages, such as those recently announced, do nothing towards that end. Admittedly, the process of transformation has been complicated by the new thrust for biofuels, which requires ethanol derived from molasses, a sugar mill byproduct. It would not be out of place for the government to give out incentives for the conversion of sugar to ethanol, to be used in doping petrol. Such fiscal supports could be useful.
Less justifiable are the schemes that smack of vote-garnering patronage. Sadly, sugar enjoys state subsidies in the rich world, too. The US does it with a dedication bordering on paranoia that some trace to its one-time standoff with Cuba and others pin on its larger energy insecurity. The EU’s sugar reforms, though, aim to cut price support by one-third by the end of the decade and open up imports. This signals an opportunity.
But if India is to assure the rich world of sugar sufficiency, it must be prepared to put its own industry into good shape. At the moment, India’s cost of production is about 50% higher than that of Brazil, the world’s least-cost producer. The competitiveness project will have to start with increasing the sugarcane yield and go all the way to sugar mill consolidation. For sweet success, India must bet on large-scale operations.
Delhi University's GM mustard gets process patent rights
The Financial Express
24th September, 2007
The University of Delhi has been accorded process patent rights by the US Patent Office relating to the development of the transgenic mustard hybrid, DMH-1. "We have applied for two other process patent rights for developing the transgenic mustard seed under the Patent Cooperation Treaty. We expect to get these patent rights soon," said the Vice chancellor, Deepak Pental.
He said that the transgenic mustard hybrid has pollination control mechanism. Demonstration trials followed by multi-locational field trials of DMH-1 were successfully conducted in 2005-06 and the results showed that DMH-1 had higher yield advantage over its check counterpart, Rohini.
The University of Delhi (South Campus) has also developed another transgenic hybrid, DMH-11 which is also claimed to higher yield advantage over its check counterpart, Varuna.
Pental further said : "The Supreme Court in its recent order has directed that the isolation distance between GM and non-GM crops field trials should be maintained at 200 metres. This has made difficult to conduct field trials."
He said that private seed companies were, however, interested in commercialising the transgenic mustard hybrids. "But now we have allowed the public sector agencies, National Seeds Corporation and State Farms Corporation of India to produce seeds. The National Dairy Development Board and DOFCO are funding the production of seeds," he said.
The Genetic Engineering Approval Committee (GEAC) had approved field trials of transgenic mustard, but the Supreme Court in response to a petition filed by Aruna Rodrigues and PV Satheesh banned field trials of GM crops on September 22, 2006. Thereafter the apex court made an exception and allowed field trials on transgenic mustard.
Resolving the wheat crisis
Business Standard
22nd September, 2007
Using futures to fix procurement prices is a good idea as this will link them to global prices and appears the only way to get farmers to sell their stocks to the government.
There are four interesting facts about the wheat scenario in India. The RBI Annual Report indicates that wheat production this year has been 74.9 million tonnes which is 5.5 million tonnes higher than that last year. The second is that the government is importing wheat at close to $390 per tonne. The third is that the procurement this year by the FCI has been 11 million tonnes which is higher than the 9.2 million tonnes last year but still lower than the targeted amount of 15 million tonnes. The last is that the minimum support price offered to the farmers was Rs 850 per quintal, after an additional bonus of Rs 100 was offered to them over the Rs 750 announced earlier, when it looked likely that the procurement target would not be met.
These facts are interesting for more than one reason as they individually raise a series of issues which need to be pieced together cogently. The first question is whether or not production is really higher than what it was last year. This is important because the import of wheat needs to be justified on grounds of lower production.
If the production number is correct, then the government is importing wheat because it is not able to procure the same from the farmers. In fact, with a marketed surplus of 63 per cent, there is actually 47 million tonnes which has come to the market (or partly held at home) of which only 11.1 million has gone to the government. Why should this be so?
The farmers are not selling because either they want a better price and are progressively aware of the market prices thanks to futures trading (before the ban) or due to the entry of private players. This, in turn, means that the price of Rs 850 offered is very low. A farmer may feel that he deserves a better price considering that the government is paying $390 per tonne which works out to over Rs 1,500 per quintal as global prices are on the rise due to supply issues, which is 75 per cent higher than what was offered to the Indian farmer.
This issue could have been ignored as being an unusual aberration but for the fact that the government has had a problem on the procurement end for the second successive year — the first was a deficit production year, while the second has been a year for surplus. Evidently, a strategy needs to be devised to ensure that there is no repetition of the same in the next year.
The basic issue goes back to the government procurement of wheat. Procurement has a bearing on the output perception, the future minimum support price (MSP), the current price as well as import decisions. Ideally the government may have to review the MSP system as the MSP is supposed to be a price support system and not necessarily a procurement aid. By attempting to target both the objectives with one instrument, a contradiction has arisen. In fact, economic theory always says that rarely can one achieve two objectives with one instrument.
This is so, as we have noticed that the farmers have become progressively more aware of the market conditions and are in a position to demand the same from the government. Therefore, even in years of good production such as 2007, while production has been steady, the procurement programme has run into an impasse.
It is said that some of the private players were offering prices of over Rs 2,000 a quintal for some grades of wheat. If this were so, then evidently there is a market price which is quite different from the MSP and we need to either change the MSP calculation or keep it as a benchmark and use the market to get signals for procurement.
The futures market was providing valuable signals of the wheat price, which can provide an alternative for determining procurement prices. The futures price can be used to fix the MSP so that the FCI is able to purchase the requisite amount at a fair market price. Hence, we will have the traditional MSP which serves as the base price, while the futures price will be the actually Implemented Procurement Price (IPP).
The IPP could be variable with the market price or also fixed in advance based on the futures price so as to be market-aligned. An analogy could be borrowed from the money market here. This would be similar to the bank rate and the repo rate, where the bank rate is the benchmark, and the fixed repo rate mimics the same based on market conditions through the RBI policy. This way the farmers are assured of a fair price which is the market price. If the market price falls to low levels, then the benchmark MSP could be used for the same purpose. This would eschew the need to import wheat when there are surpluses in the country.
The major problem here is that the MSP is serving as a base price-cum-procurement price which is progressively becoming anachronistic in a market-driven system. Private players are pushing aggressively for wheat given the retail boom, which is only going to explode further. Futures markets had provided price information to a considerable section of the farmer population so that they could ask for a higher price in the market. The government, hence, has become just another player that will have to procure at market rates.
Again, to draw a comparison with the G-sec market, the T-bills which were issued to finance the budget got away with a 4.6 per cent rate prior to liberalisation. Once this segment opened up, the government had to pay a higher rate. So, shouldn’t the same thing happen in the case of wheat?
Eyeing festivals, govt may cut import duty on wheat flour
The Financial Express
22nd September, 2007
The government is likely to cut the import duty on wheat flour to zero from the present 30%. The proposal, which is being considered by the empowered group of ministers (eGoM), is aimed at tiding over the demand during the festival season.
The reduction in duties is also being considered as the US, the largest exporter of wheat, might not be able to participate in the wheat flour import tender floated by India due to tough phytosanitary conditions. The absence of the US is also being considered as one of the reasons why the State Trading Corporation received higher prices in response to its tenders for wheat flour import.
The government plans to import up to 5 million tonne wheat flour in view of the shortfall in procurement this year. The reduction in duty would enable imports particularly to coastal cities.
There are surplus milling capacities in neighbouring Sri Lanka, Malaysia and the UAE from where the flour can be brought in to India. This would also facilitate the private sector to import wheat flour at competitive rates that would reduce pressure on the domestic market.
Though significant volumes would not be imported due to high international prices, some of the end users like bread and biscuit manufacturers would be able to import the flour economically.
Given the spiraling prices of wheat in the international market, the government has decided to import the flour in small parcels of about 5 lakh tonne every month and build the buffer stock to ensure food security.
The weighted average price (WAP) of wheat imported last year was $204.66 per tonne and the WAP obtained in the last tender finalised in September 2006 was $227.17.
The order placed in July this year for import of 5.11 lakh tonne was at $325.59 per tonne. The futures prices in the international market are expected to remain high for some time.
EU’s domestic support to farmers still high: OECD
The Business Line
22nd September, 2007
The Organisation for Economic Cooperation and Development (OECD) has said that domestic support to farmers in the European Union (EU) continues to remain above the average for the rest of the industrial countries and well above the most free-trading countries.
In its economic survey of the 28-member EU, released in Paris, the inter-governmental think tank of 30 rich industrial countries said that this was despite the slight decline in support to EU farmers over the past five years when such support has become less production-distorting by moving away from market support.
Hence from the focus of the economic effects of agricultural policy, as is the case for many countries, “further reform is desirable because of the economic benefits resulting for Europeans”, it said.
Stating that the EU’s Common Agricultural Policy (CAP) has many objectives including competitiveness of food production, protection of the environment, maintenance of the population in rural areas and underpinning farm incomes, the survey said that it had also some “negative side-effects”.
Thus even as it has liberalised imports from the poorest countries, import tariffs continue to reduce export opportunities for other countries and consumers pay more for certain types of foods, trapping resources in a low productivity sector.
It further said that there were many factors that contribute to more intensive farming and to the extent that the CAP encourages intensification it could cause environmental harm – though the CAP also includes policies that aim to mitigate the adverse environmental consequences.
The survey said the most significant reform was the advent of the single farm payment in 2003, replacing a plethora of the previous payments that were tied to production, herd size or planted area.
The CAP, however, still includes elements that provide spurs to produce. Decoupling is only partial for some commodities while several countries have chosen to keep significant portions of payments tided to production.
Second, support for certain products in particular through import tariffs still remains outside the single farm payment.
While de-linked payments are substantially less distorting than the pre-2003 system, they do not completely eliminate the incentive to produce.
Moreover, market price support remains high for some commodities through high tariffs, especially meat, milk and sugar and about half of the estimated aid to farmers (based on the Producer Support Estimate) is still the most market- distorting type.
Export subsidies have been reduced considerably but remain “extensive” by global standards, it said adding that the EU accounts for 90 per cent of all WTO member states’ notified export subsidies, although this measure captures only limited portion of total export support throughout the world and EU export subsidies amount to 5 per cent of the value of agricultural exports.
However, the EU has conditionally proposed phasing out all export support, including export subsidies, in its offer to the Doha trade round, the OECD said.
Needs to be broadened
It argues that the benefits of recent reforms would be significantly enhanced if all payments were decoupled from production and if the level of support were reduced further.
Some non-ad valorem tariffs for agricultural goods applicable to processed agricultural goods incorporating several inputs are complex and could benefit from simplification.
This has been conditionally proposed by the EU in its offer to the Doha trade round.
And because tariff protection on processed food is also high, reform needs to be broader than just tackling support to farmers.
Noting that EU’s farm subsidies should be reduced and market access improved, the OECD survey said the EU’s policies would influence, together with those of the other main trade majors, whether the Doha trade round succeeds or whether the world trade would splinter into regional agreements.
Reliance shuts agri collection centres
The Economic Times
02nd Oct, 2007
NEW DELHI: Reliance Retail, the wholly owned subsidiary of Reliance Industries’ which is setting up food-to-footwear retail chains across the country, has decided to shut its agricultural collection centres in Punjab, Rajasthan, Madhya Pradesh and Haryana. In the last one year or so, the company had set up more than 2,000 collection centres in these states for procurement of agricultural produce. The idea was that direct procurement from farmers will help the company save on costs and make products cheaper for retail consumers.
Sources said the company’s decision to close down the collection centres is in sync with its earlier decision of going slow in the food and grocery part of the retail business. Besides, the move comes close on the heels of its decision to completely withdraw from the retail business in Uttar Pradesh. The sources linked the company’s decision to go slow on the food and grocery part to the political opposition that these formats are evoking.
They said Reliance Retail could shift its focus to other formats such as apparel lifestyle retailing, consumer durables and hypermarkets. “The company will continue to operate state-level collection centres, but will close down the ones at the level of mandis,” said a source. In effect, it means that the company will put contract farming on hold, as only the mandi level centres were involved in direct procurement from farmers.
When contacted, an RIL spokesperson declined to comment.
The decision to exit contract farming, at least for now, is in line with company’s view that its businesses do not end up becoming part of the election agenda. “It will stay away from contentious issues like contract farming till there is more political clarity on the subject,” said an official.
Although it is argued that contract farming is in the interest of farmers, of late it has been mired in political controversies. Some farmer associations have been pressurising farmers to stay away from the “trap of corporates”. Farmer leader Mahendra Singh Tikait had recently told ET: “Organised retail is a vicious circle and if farmers get into it, in the long run they will become dependent on the companies’ whims and fancies.”
However, the price offered by private companies for farm produce are higher than the government’s minimum support prices. For instance, Reliance had been offering double the MSP for procurement of wheat in Punjab and cereals in Madhya Pradesh.
But political pressure is forcing governments to review their policy initiatives for organised retail. Recently, the Uttar Pradesh government, which had amended the APMC Act, did a U-turn and said it needed time to understand the impact of such a move.
