(Weekly Organ of the Communist Party of India (Marxist)
July 18, 2010
FDI in Organised Retail: A Lose-Lose Game
THE UPA government is once
to completely open up the retail sector to foreign direct investment
possibly, 100 per cent FDI in organised multi-brand retail or
chains. The department of industrial policy and promotion has issued a
discussion paper on this subject, significantly without suggesting any
limit on FDI. Currently, FDI is permitted up to 26 per cent under the
route in wholesale so-called cash-and-carry operations and up to 51 per
government approval in single-brand stores such as Nike shoes, Levi
Calvin Klein readymades. These measures have been welcomed by industry,
seen by critics as the thin end of the wedge. Opening up the retail
India to foreign players has been a gradual process but the end-goal
been clear, namely the unfettered entry into India of global
stores such as Wal-Mart of the US, Carrefour of France, Marks &
Tesco of UK, Shoprite of South Africa and so on, all of whom have
established a substantial presence in India. The Indian retail market,
burgeoning middle-class with growing purchasing power has, after the
From the beginning these
moves have been
totally opposed by the Left and other progressive sections. Opposition
come, albeit somewhat two-facedly, from the BJP with one eye on
and another on its major constituency of small traders who are deeply
apprehensive. Arguments against have mostly centered around the
adverse impact on the mostly unorganised small retail sector of
mom-and-pop stores (in
Arguments advanced in support of this policy by corporate houses including Indian retail chains, business associations, consultancy firms and government officials have revolved around two major propositions which, this article would show, are complete myths.
First, huge wastage in the
agri-produce supply chain in
On the contrary, international experience has shown that, except for the huge profits raked in by the supermarket chains, organised retail has been a lose-lose scenario for farmers, small traders and wholesalers, consumers, and the environment and therefore society as a whole.
FOOD WASTE IN
Supermarkets themselves in
Supermarkets in the EU and
And all this is only with
fresh produce. The supermarket culture of course also encourages
pre-cooked or semi-cooked foods with expiry dates, huge quantities of
get thrown away by supermarkets each year because of over-stocking.
Pre-packaging of groceries and other food items also leads to huge
of packaging material which has to be discarded posing a huge waste
environmental problem, amounting to 5.3 million tonnes in the
So much for the saving wastage argument!
SMALL TRADERS LOSE
The other myth about organised retail is that it would benefit farmers and also not harm small traders who could simply shift from the traditional supply chain to the modern one linked to supermarkets. Again the facts are exactly the opposite.
The authoritative UK Competition Commission found in a 2000 study of major retail chains including Marks & Spencer, Sainsbury and Tesco that supermarkets had a poor record on treatment of all categories of suppliers, specifically that “the burden of cost increases in the supply chain has fallen disproportionately heavily on small suppliers such as farmers.” Apart from prices, smaller farmers came under severe pressure from supermarkets due to the latter’s requirement for large volumes of each product, pushing farmers to grow single crops rather than the multiple produce they would usually grow to minimise risk. Similarly, insistence on or good prices only for similarly sized produce again works to reduce bio-diversity, pushes prices down and drives suppliers towards more input-intensive factory-farming. The commission called for greater regulation and enforcement of the UK Fair Trading Code of Practice which it said itself needed to be strengthened to protect smaller suppliers from exploitation engendered by the immense power exercised by large buyers.
Numerous other supermarket practices too worked against the interests of almost all other stakeholders. Supermarket chains routinely sell some products at lower than market prices, which appears to benefit to consumers, but this puts pressure on small local stores in turn having adverse impact especially on low-income and elderly consumers who rely on local shops. Supermarkets also tend to alter prices in different branches adjusting to local rivals, “price-flexing” as the Commission termed it, again working to the disadvantage of local mom-and-pop stores. All in all, the Report said, “27 [such] practices by… major buyers operate against the public interest.”
In its January 2010
report, the UK Competition Commission concluded that the situation had
changed in over a decade, and that the practices of big retail chains
to cause losses for farmers and small stores. The near-monopoly of
chains, which procure over 70 per cent of food products in the
FAO in its “Spotlight
2005” Report concluded that these trends are witnessed in other
regions too, showing once again that these patterns are inherent to the
logic of supermarket chains, not to some peculiarities of Western
retail increases pressure on farmers to produce standardised produce,
down prices and margins, and over time weeds out larger numbers of
suppliers in favour of fewer and larger “preferred suppliers”. In
Food Policy Research Institute says that the heightened penetration of
supermarket chains into Asia, Africa and
NEED FOR REGULATION
Colossal waste and
pressure on suppliers are part of supermarket culture. In
Indeed, supermarket waste
such proportions that the
Yet the pressure exerted by the powerful retail chains is such, and the ideology of de-regulation is so strong, that of course one can barely talk of regulation in the US while efforts at regulation in the Eurozone and UK have not made much headway.
The influential UK Sustainable Development Commission (UK-SDC) in its study of policies relating to supermarkets strongly criticised the British government for allowing WRAP to leave it to the supermarkets themselves to formulate a voluntary self-regulatory set of practices to reduce waste termed the Courtald Agreement. UK-SDC stated that “too many supermarket practices are… unhealthy, unjust and unsustainable.” Needless to say, the UK-SDC report covered many other areas of supermarket operations too besides the issue of food and other waste.
An even broader ambit was covered by the UK Competition Commission whose 2000 Report cited earlier led to the proclamation of a Supermarkets Code of Practice which was later amended in 2009 to the Groceries Supply Code of Practice (GSCOP) that lays down standards and procedures for procurement, fair trade, inventories and sales, and so on.
It is indeed significant that in all the debate in India around organised retail, no industry or government body has said a word about regulation or the need for it. For all their weaknesses, it is the presence and functioning of regulatory bodies in the UK and EU, in contrast to the situation prevalent in the US that has at least thrown up a substantial amount of data and analytical information, and brought supermarkets under public scrutiny and the possibility of at least some social control.