India turns to Wal-Mart as food prices rise

February 26, 2011

Facing anger over sharply rising food prices, India’s government is preparing to gradually open its massive and fast-growing retail market to foreign supermarket chains such as Wal-Mart, in the hope that their investment and expertise can deliver lower food prices to consumers and a better deal to farmers.

The intention might be flagged Monday when the government presents its budget to Parliament, to fulfill an assurance Indian Prime Minister Manmohan Singh made when President Obama visited this country in November.

“We are at a juncture where [foreign direct investment] in multi-product retail is worth considering,” the government said in Friday’s pre-budget Economic Survey. “It could enable farmers to get higher prices and consumers to have to pay less.”

Wal-Mart currently operates several wholesale stores in India through a joint venture with India’s Bharti group, but is under government orders to sell only to wholesalers and business owners, not directly to the public.

Commerce Minister Anand Sharma said last week that a decision to open up the market was close, and another official said it was now only a question of “when, and not if.”

The decision, which will initially limit foreign companies to a few outlets in major cities, is likely to face widespread protests from small shopkeepers and street hawkers who dominate retailing in India and believe the entry of foreign giants such as Wal-Mart will ultimately force them out of business.

“The livelihood of 40 million poor Indians is at stake,” said Dharmendra Kumar of the protest group India FDI Watch. “Retailing is the biggest employer in India after agriculture, and this is not a move you can make when agriculture is almost stagnating.”

Food prices in India have been increasing about 10 percent to 20 percent a year over the past two years, propelled by rising wealth, loose monetary policy and a grossly inefficient supply chain, as well as periodic droughts and higher world prices. With the average Indian family spending half its income on food, and the poor even more, the government knows it needs a solution, and soon.

To drum the point home, tens of thousands of trade unionists marched on Parliament last week in one of the biggest protests in the capital in years, with food prices even higher on their agenda than official corruption.

“Food inflation is the worst form of taxation you can inflict on the poor,” said Ashok Gulati, Asia director of the International Food Policy Research Institute, who has been invited to join the government to run a commission on agricultural prices.

At Azadpur market, an endless stream of trucks arrive from across the country in the early hours of the day, carrying the capital’s supply of fruit and vegetables. Sacks and boxes are cut open in the pre-dawn light; beans, tomatoes, carrots and chilies spill out and are auctioned off to eager wholesalers.

To the untrained eye, it all functions smoothly. But Gulati and others say the system leaves a chain of middlemen skimming off a significant chunk of the profits. It also leaves farmers so cut off from the consumer they have little incentive to improve the quality of their produce. And without cold storage facilities, up to 30 percent of food is wasted on its way from the farm to the table.

Wal-Mart and companies such as Britain’s Tesco, Germany’s Metro AG and France’s Carrefour want permission to cut out those markets and middlemen and deal directly with farmers. They are promising to invest in cold storage facilities across the country and bring expertise and investment to help farmers improve yields.

India’s retail market is worth about $400 billion and is growing at a breakneck pace. At the moment, more than 95 percent of this huge market is in the hands of what is known as unorganized retail, the “kirana” or mom-and-pop stores that are the lifeblood of every Indian town and city.

It is not hard to see why companies such as Wal-Mart are impatient to get a share of this “virgin” market, but it is equally easy to see why many Indians worry supermarkets will destroy not just jobs but ultimately community life as well. Such is the disparity in bargaining power that small-scale Indian farmers will end up as exploited as cocoa farmers in Africa and Latin America, Kumar said.

“Agriculture is culture in India,” he said. “Do you need to replace that culture with agribusiness dominated by multinational corporations?”

Employment in unorganized retail also provides a social safety valve in a country that has still failed to develop a thriving manufacturing sector and where tens of millions of people throng the cities in search of work.

“The Western concept of efficiency is maximizing output while minimizing the number of workers involved — which will only increase social tensions in a poor and yet developing country like India, where tens of millions are still seeking gainful employment,” Delhi’s Center for Policy Alternatives warned in a report. “This dislocated and unemployed horde has to be accommodated somewhere else. But if you look at the growth rates of labour in manufacturing and industry, you wonder where this new accommodation can be found?”

Wal-Mart India’s chief executive, Raj Jain, dismisses many of those arguments as “emotional” and “unfounded.” In China, even after 15 years of liberalization, more than 75 percent of all retailing is still controlled by mom-and-pop stores, he said, adding that Indian consumers would not change their preferences overnight. “Convenience continues to be the single most important factor why somebody chooses a store to shop in,” he said.

For now, the door will be opened only a crack, with just a few outlets allowed in major cities, so that the big players do not dominate the market. “Further opening up can follow depending on the success we have with this,” the Economic Survey said.

denyers@washpost.com

Simon Denyer is The Post’s bureau chief in China. He served previously as bureau chief in India and as a Reuters bureau chief in Washington, India and Pakistan.
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