- Posted October 19, 2012 by
FDI in retail is a Himalayan Fantasy
Among the many miracles that the FDI in retail genie is supposed to perform in India, one involves the creation of a sustainable supply chain mechanism for Indian horticultural industry by reducing wastage. Exactly how this is going to be achieved is as deeply buried in fine-print as was the promised quantum jump in power production through Indo-US nuclear deal of 2008 vintage. It is being fashionably argued these days that apple and orange farmers in Himachal Pradesh are angry with the BJP because it has opposed the FDI in retail idea; the ostensible reason being that the horticulturists of the hill state will benefit hugely by the presence of foreign retailers. The absurdity of such an imagined anger does not for one bit discourage the proponents of these electoral theories.
The three dimensions
In the Himachal Pradesh context there are essentially three dimensions to this FDI-in-retail-impacting-electoral-fortunes theory in the backdrop of apple orchards and imagined citrus cultivations.
The economic evangelism
Just like Christian evangelists trying in vain to offer spiritual succor to India (which is the place of origin of Nirvana), the failing foreign retail model of the West is supposed to teach the art of retailing to a nation of corner shops. The Congress party is historically known to make these impossible promises to gullible masses and then fall woefully short of delivering them. Indira Gandhi ruled for decades on the “Garibi Hatao”( remove poverty) plank and India was no closer to eradicating poverty at the end of her rule than it was during the British rule. Today, fashionistas & intellectuals alike are telling us that FDI in retail will bring in cold storage chains to prevent the wastage of apples grown in upper Himachal & (imaginary) oranges grown in lower Himachal. Once again the Congress machinery of intellectual rumour-mongering is in full swing.
HPMC, a public sector undertaking of the Himachal Government is already doing a fantastic job of storing, transporting and marketing apples from upper Himachal. It is one of those rare public sector agriculture marketing companies that is not only functioning adequately but also has a great potential going forward. Right now, the focus should be on improving the business model of HPMC rather than chasing the mirage of foreign retail which may never materialize. HPMC not only markets fresh apples, but also processes the unmarketable surplus and markets the processed products.
The Dhumal Government decided to process apple-based wines and also market those wines through the corner shops at all tourist destinations of the state using the retail presence of HPMC, and that initiative has been a grand success. Some of the wines that HPMC produces are on par with many of their European rivals, in fact the large number of foreign tourists visiting the hill state have only praise for these apple-based wines. The next challenge for HPMC is to market these wines across India and they are already gearing up to reach out to various states. My humble advice to the likes of Aditi Phadnis: please taste the apple wine of Himachal and you will forget all your FDI fantasies.
This year HPMC has started generating revenues from its cold storage units of Delhi, Mumbai, Chennai, Parwanoo and 5 other units across Himachal. It has also upgraded the apple pack houses at Kinnaur, Kotgarh, Kotkhai, Kumarsain & Kullu. HPMC is not only involved in marketing products but also has helped horticulturists improve their cultivations through community participation, thus building a unique symbiotic economy. As a result, fruit production in the hill state has jumped by a whopping 60% in the last 4 years
Apple (’000 tonnes) 510.16 892.11
All Fruits & flowers (’000 tonnes) 628.02 1027.82
*Data Source: Economic survey done by planning commission
Large retailers, if and when they come to India, would only leverage these existing supply chains of the HPMC, rather than investing in creating new infrastructure and would only put the likes of the HPMC out of business eventually. Large retailers, at the end of the day, would only be interested in maximising their own profits and would be least bothered about the farming community. Why should a state like Himachal Pradesh, which has created a unique ecosystem of apple growing and marketing, surrender this working model to foreign retail? Why should the horticulturists of Himachal be subjected to the price dictations of big-box retail?
The agricultural irrationalism
Agriculture contributes about 16% to the hill state’s total GDP and is therefore a very important part of the state’s economy. Kharif and fruits – mainly consisting of apples – have been the major agricultural produce of this state, rendering it vulnerable to weather peculiarities and market fluctuations. The eco-agro-climatic zone of Himachal Pradesh is best suited for floricultural activities and Himachal has the potential to be the flower basket of Asia. Realising this, and also in order to diversify the agricultural production of the state, the Dhumal government decided to take initiatives to encourage floriculture in the state.
Today, if one travels across the state, especially in the mid-hill & lower-hill districts of Hamirpur, Mandi, Kangra, Bilaspur etc., one is bound to be presented with a unique landscape of diffuse greenhouse farming. The Pandit Deen Dayal Kisan Bhagwan Samridhi Yojana is a state government initiative of providing subsidies to set up greenhouse/polyhouse farming which is best suited to grow various exotic flowers. This initiative has started yielding results and has generated revenues to the tune of 50 Cr Rupees this year in about 500 hectares. This unique model of growing flowers by following precision agriculture techniques has the potential to transform the state into a major flower exporting hub of the world.
The global flower trade is expected to be a 20 billion dollar industry by 2015 and Himachal could well be a part of this booming industry, but for a major obstacle. The obstacle that Himachal faces is that of small land holding patterns, rendering individual flower growers unviable in the export market due to lack of scale. Mind you, the solution to this problem is not the mumbo jumbo economic talk of FDI nirvana, the solution is a lot more closer to home than most great economists would care to acknowledge.
When many decades ago, individual milk producers of Gujarat faced the same problem of lack of scale, they did not turn to foreign investments, instead they came up with a unique solution of community dairy farming which we today know as AMUL. The flower growers of HP need the AMUL model to address their scalability issues.
If FDI in retail model is followed instead of the successful and working model of AMUL, then the consequences could be disastrous for the state
• Large retailers would be interested in apple and other fruits rather than in helping improve the export of flowers from the hill state, thus rendering flower trade unviable and also affecting the agricultural diversification plans of the state.
• Since most apple orchards belong to large farmers, they would be vulnerable to takeover bids by large retail chains (who would be interested in improving their profit margins by reverse integration).
• Small and marginal farmers of the state (almost 90%) would be vulnerable to the vagaries of pricing mechanisms of big-box retailers without any community or political checks & balances as in AMUL or agriculture marketing companies. For instance, how can a small farmer fight a large company in cases of contractual breach in a country with flawed lower judiciary?
The electoral absurdism
Myth 1: Apple growers influence elections: Apple growers constitute less than 4% of the state’s population (large & medium farmers) and have no influence whatsoever on electoral outcomes
Myth 2: Apple growers are angry with the BJP for opposition to FDI in retail: Apple orchard owners are the elite of the Himalayan society and have traditionally been Congress & Virbhadra supporters. BJP in 2007 has managed to create a unique demographic for itself beyond Virbhadra loyalties and apple orchards, thus it swept a district like Solan (apple territory for starters) by winning all 5 seats. This 2012 election will tell us whether that social engineering of the BJP, away from the raja sahib and feudalism, is here to stay.
Myth 3: Lower hill area is known for growing oranges (Kinu): Only a non Himachali who has been a tourist to that state will indulge in such fantasies. Just because some hawker was selling Kinu in Dharamshala bus stop when you happened to visit the state doesn’t mean Kinu is a major crop in the region. Kinu or Oranges for that matter do not constitute even 2% of Himachal’s agriculture, period.
Myth 4: FDI in retail will bring votes for the Congress in Himachal Pradesh: Every time a leader speaks about the benefits of FDI in retail on the political stage, Congress will lose at least a 100 votes. The question on the streets of HP; “How much has Congress made under the table, through this FDI thingy?” – this is the reaction of middle India to the Congress corruption, the sooner political analysts/commentators/intellectuals/media talking heads understand this, the better it is for their own health.
Epilogue: With the festive season beckoning and villages being busy with food & fodder collection before the winter, it is quite possible that the voter turnout would be affected as the response to election campaigning has been quite dull, especially in the vast rural hinterlands. Dassehra in Devbhoomi is a unique festival when the gods (Devtey) literally descend down from the mountains and gather in the Kullu mela, wherein each village participates by bringing their deity. On the other hand winter in the Himalayas are not only marked by practical aspects of collecting food and fodder but also by transhumance pastoralism, whereby Gaddis of upper mountains descend down to plains for their pastoral activities. Despite all of this prior knowledge, election commission in its great wisdom decided to go ahead with the elections in the hill state in November just so that Gujarat & Himachal could be clubbed together (with a 1 & half month gap in between). With a dull public response to electioneering and not much of a choice in terms of political alternatives, it could well be possible that in this corruption season, there is that much lesser incentive to vote for Virbhadra Singh’s (VBS) Congress party. Will Himachal create history like neighbouring Punjab by putting an end to anti-incumbency induced alternate electoral victories to rival political formations? If anybody has a chance of creating that history of winning two consecutive elections (in the brief history of electoral politics of the state) it is the Prof Prem Kumar Dhumal led BJP government.
Dr. Bikram Lamba, a political and business strategist, can be contacted at 905 848 4205. Email:email@example.com