FDI in food retail may have local-buy clause

Govt seeks to appoint a regulator to safeguard farmers from large firms.

The commerce and industry ministry's proposal for foreign direct investment in food retailing will require foreign players to buy from local farmers.

The ministry also proposes to set up a regulatory authority to ensure that farmers are not exploited by large firms.

Officials told Business Standard that the Prime Minister's Office had asked the ministry to make presentations on this to the Left parties.

The need to put in place a regulator along concurrently with FDI entry has been felt as international investment models adopted by retailers in the food sector has resulted in farmers being exploited in the long-run.

"We have looked at various international models adopted by retailers in the food sector in the West, like Tesco and Metro, which have been undertaking wholesale operations in India," an official said.

The proposed model calls for eliminating middle-men through direct long-term contracts at fixed prices between corporates and farmers. While this works well in fetching higher prices for crops, it also proves detrimental in the long-run when the corporates begin dictating terms to farmers.

"The regulator, which can be in the form of a cooperative body or agency, will oversee such contracts to ensure that there are safeguards for farmers. Alternatively, the regulator can suggest a model specific to farmers of different regions," they said.

The proposed model will also contain restrictions in terms of retail locations being limited to select metros. It prescribes a minimum floor area which will ensure that the retail outlets are located only in areas like malls and not in the market area.

Officials said allowing FDI in the food retailing would have an added advantage -- India getting around the barriers of sanitary and phytosanitary requirements imposed by developed countries on agriculture exports of developing countries.