A K Bhattacharya: Why cash & carry has no takers

NEW DELHI DIARY

Till 2000, Metro Cash & Carry operated in China with some restrictions. Its growth there too was, therefore, restrained. Once these curbs were lifted, growth for the German company engaged in the business of wholesale trade was phenomenal. In the last seven years alone, the total number of its outlets in China has zoomed to 34, compared to a handful of them before 2000.

In India, Metro Cash & Carry operates with a major handicap. It cannot directly purchase fruits and vegetables from farmers in most states, thanks to the reluctance of their governments to amend the legislation on the marketing of agricultural produce. Consequently, its operations are limited to wholesale trade in non-food items and it has only three outlets at present "" two in Bangalore, where it cannot trade in food items, and one in Hyderabad, where business is booming because the agriculture produce marketing law has been amended. Two more outlets are coming up "" one in Kolkata, where it hopes to be able to directly purchase fruits and vegetables from farmers, and the other in Mumbai.

Metro Cash & Carry's global chief executive, Thomas M Hubner, says that he has lined up ¤500 million (approximately Rs 2,900 crore) for investment in India, but policy restrictions such as those that prohibit his company from directly purchasing fruits and vegetables from farmers have stopped him from going ahead with his investment plan. He has met almost every senior functionary in the central and state governments to explain to them how his investment plans have been stalled by this restriction. There are sympathetic noises, but little corrective action on the ground, in spite of everyone realising that Mr Hubner's business plan, will eventually benefit India's farmers, small retailers and consumers.

Why is Metro Cash & Carry important for Indian farmers and the country's millions of small retail traders? The German major itself is not in retail trade and operates as a business-to-business player "" buying fruits, vegetables and other consumable items (over three-fourths of its total sales are in the food sector) from farmers, artisans and small producers and then selling them to the small retail trade, also known as the kirana stores. Metro's operations come along with its technology and advice to farmers on how to produce fruits, vegetables and foodgrains while maintaining a high level of productivity and quality. And when these are procured from farmers in bulk and sold in bulk to the kirana stores at a price that leaves a decent margin for all the players "" the farmer, Metro and the kirana store "" the consumer also benefits.

The clear winners from this exercise are the farmer, the small retailer, the consumer and of course Metro Cash & Carry or all such businesses. And who loses? Well, the big retail does not really lose out, but it has to start worrying about competition from an entirely unexpected quarter "" at least in the Indian context. The farmer gets a choice "" he can now sell his produce either to a wholesale trader like Metro. So, he will not get brow-beaten by the big retail chain to sell his produce at a price dictated by it. The retailer or the kirana store-owner is now assured of a steady supply of goods at competitive prices. He does not have to worry about the low prices at the big retail chain.

There is, of course, one clear loser if the Metros of the world succeed and prosper in India. The state-level Agriculture Produce Marketing Committees (APMC), set up under the law to conduct the sale of farm produce in the wholesale markets, lose their monopoly status. In each of the states, where the farm produce marketing laws have not been amended, an APMC is the only channel through which farmers can sell foodgrains, fruits and vegetables to intermediaries and traders. In most cases, these transactions are held under fairly opaque conditions and the farmer, with no staying power and no option either, is the loser. Indeed, when the cash & carry businesses are allowed to purchase directly from farmers, the state-owned APMCs and the state bureaucrats lose whatever clout they still enjoy among farmers.

But nobody should mourn that loss. Nor should the pressure exerted by the entry of cash & carry businesses on big retailers should be any cause of concern for anyone. Yet, the pace of change in the legal framework to allow more Metro-like cash & carry traders has been painfully slow. It is reasonable to surmise that those who will be adversely affected by the rapid rise of more cash & carry businesses may have lobbied hard with the government to delay the much-needed legislative changes. But why the government should not see the logic of higher incomes for farmers with no threat to the existence of small retailers is a mystery.

ashok.bhattacharya@bsmail.in