ANALYSING INDIAN FOOD SUPPLY CHAIN: Traditional system(2)

Traditional system(2)

Further in traditional marketing system, there is low transmission of information on the use of input. This is directly related with the public health issue which is related to lack of proper attention to and control of such issues. On the contrary, modern markets and specifically international market place a high premium on food safety. In the study, only 20% of retailers stated that they were aware of production activities relating to pesticide, irrigation water use and fertilizer used by farmers. Also research evidence shows that there is no premium in traditional market for such unobservable quality characteristics.

As far as payment mechanism is concerned, almost all transactions are settled by cash. Similar results in studies on the importance of spot, unsophisticated, and cash transactions have been observed in other poor agriculture economies. Another significant problem prevailing in the traditional system is, of avoiding healthy competition by brokers. By organization of broker unions with use of power and money as well as lobbying with political parties and market authorities, competition is being bypassed.

It is significantly reflected in noncompliance with the APMC rules. It is evident from the example, when the entry of modern retailer, Reliance, was hurdled by large strikes in the states of Uttarakhand and Uttar Pradesh. The strategy of Reliance was to bypass broker and to buy directly from farmers.

On the other hand, schemes like e-choupal model which used brokers but by passing the regular wholesale market were easily accepted. The e-choupal model enables farmers to obtain information on mandi prices and good farming practices, and to place orders for agricultural inputs like seeds and fertilisers. The model was meant to create a win-win. While farmers benefit through enhanced farm productivity and higher farm gate prices, ITC benefits from the lower net cost of procurement, having eliminated costs in the supply chain that do not add value. But amendment to the APMC Act is necessary for direct procurement from farmers. The initiative is not possible in states where the APMC Act is yet to be amended.

Shockingly, the issues associated with the amendment to the APMC Act have derailed many agri-related initiatives, not just the e-choupal 9.

Ultimately paradox seems to prevail in the traditional system that leads to lower sales prices to the farmers and higher purchase prices for the consumer /retails. It is obvious that this phenomenon is due to higher margins for transacting at wholesale market10 . Also, non compliance to regulations manipulated the roles of traders & brokers. This resulted in lack of information transmission and limited outside competition with broker system.

Despite of above all pitfalls in the traditional system, farmers prefers traditional system rather than selling directly in fresh market to consumers at higher price. This is due to the fact that, such transaction would require more time and chances are there for higher wastage of products.

For retailer community, broker system is of not high importance but from farmer’s point of view, the provision of input advantages and credit, in case of uncertain outcome, lead to higher importance. Hence, a segment of farmer is there relying on broker which provides sense of security to them.

Another advantage for farmers in working with selected brokers might be, access to input advances for agriculture activities. This will prove very helpful to farmers as they often face financial problems due to seasonal liquidity constraints or assistance in terms of getting seeds. Importantly it is unlikely that on default from farmer’s end to repay, broker would not go to authorities or police or court. Only outcome is that broker would not work anymore with the farmer or use peer pressure, if required.