Business | Features
Sweet and sour deal for mango growers
Indian farmers are reaping the benefits of competition for their produce between the traditional commission agents and representatives of multinational food companies. The traders, however, are trying to protect their turf by saying that they are the farmers' shield.
- By Amy Kazmin, Financial Times
- Published: 22:14 August 9, 2009
At Dharmavir Singh's mango orchard, hired labourers drift around, harvesting the raw, green fruits that hang in abundance from the leafy branches.
The 20-hectare orchard, about 80km from New Delhi, is a disorderly, forest-like jumble; the trees of varying sizes are planted in no discernible pattern. Some, planted by Singh's father, are towering after six decades without any pruning. Others are smaller, making it easier for workers such as 25-year-old Manoj Kumar - who scrambles into the trees without a ladder - to reach the prized fruits.
Once his mangoes are picked, sorted and boxed, Singh sends the truckloads of fruit to traders at Delhi's huge Azadpur Subzi Mandi, the busy open-air hub of an informal but sophisticated network that distributes mangoes - grown commercially in only a few parts of India - all over the country.
Each morning, sample boxes from each lot are laid out to be inspected by potential buyers: large-scale regional traders and exporters, who buy by the truckload, and the skinny men in sweat-stained clothes who buy a few boxes for their fruit carts to push through the city's neighbourhoods. The traders - or commission agents as they are formally known - auction the mangoes in their custody, earning 5-8 per cent commission.
At the height of the mango season, more than 60,000kg of the fruits pass through Azadpur, south Asia's largest wholesale fruit and vegetable market, each day. The agents who facilitate the trade earn huge profits with little risk since they never take possession of the mangoes and put up no working capital, except for a nominal rent for the market stall.
In theory, the interests of farmers are protected through transparent public auctions at the market. In reality, however, many deals are negotiated secretly through an elaborate system of hand signals between the traders and buyers, who hide their hands behind towels. The traders are thus able to increase their margins and keep the farmers in the dark about the true market value of their mangoes.
But in the past two years, Singh and some of his fellow growers in the mango belt in the northern state of Uttar Pradesh have begun selling some of their produce to a new buyer: Bharti Del Monte, a joint venture between Del Monte Pacific, the Philippines-based food company, and Bharti Enterprises, the Indian conglomerate.
Bharti Del Monte's long-term aim is to boost India's mango exports, but for now the company is buying them for Easy Day, Bharti Enterprises' wholly owned retail chain, which operates 27 stores in the northern states of Punjab and Haryana, and has plans to open many more in the coming year.
So far, the quantities actually bought by Bharti Del Monte are a minuscule proportion of India's huge mango trade. But the method of direct outreach to farmers by the company is a harbinger of the kind of relationship some analysts say the country needs to strengthen its agricultural sector.
Agriculture accounts for about 16 per cent of India's gross domestic product and involves about 150 million families, most of which struggle with small landholdings, limited resources for investment, lack of education and deep poverty.
Productivity in the sector is far below its potential; huge amounts of food are lost each year because of spoilage, and farmers are grappling with serious long-term challenges such as the rapid depletion of local water tables.
For Singh, the relationship with Bharti Del Monte is already bearing fruit. The company pays slightly more than the market price - an "incentive for quality", one technical adviser says - and handles all the transport costs, unlike market traders, who pay nothing for transport.
More significantly, rather than just buying mangoes like traditional traders, Bharti Del Monte has seconded technical experts such as 26-year-old Amit Jot, a horticulturist, to advise farmers on how to boost productivity through pruning, more carefully timed application of fertiliser and pesticide and other techniques.
"Our output has increased 30 per cent in two or three years," says Singh. "It's all by using scientific methods."
But India's powerful networks of fruit and vegetable traders are none too happy with such forays into farmers' fields. They are at the forefront of resistance to corporate involvement in India's retail produce sector, which they see not just as a threat to millions of small shopkeepers but as a challenge to their role in India's distribution networks.
The power of the traders was illustrated two years ago in the state of Uttar Pradesh, when Mayawati, the chief minister, ordered Reliance Fresh, the retail arm of Reliance Industries, to shut 10 brand new supermarkets in the state.
That edict followed protests by produce traders, who were unhappy at the government policy of allowing corporate retailers to purchase direct from farmers. In addition, Mayawati also rescinded an order that would have liberalised the fruit and vegetable trade within days.
In West Bengal, too, traders have mounted fierce resistance to companies such as Metro Cash and Carry, the German wholesaler, Spencer's, the retail brand of India's RPG, and Food Bazaar, part of the country's Future Group, which have bought direct from farmers.
The traders have won high-level national support, casting themselves as farmers' shields against exploitative corporate interests. In June, a parliamentary committee on large-scale investment in the retail sector warned of dire consequences if Indian or foreign companies were allowed to buy fruit and vegetable direct from farmers.
"Procurement centres constituted by big corporates for making direct bulk purchases would initially pay attractive prices to farmers, and cause the gradual extinction of mandis [village markets] and regulated market yards," the report warned. "Then on the strength of their monopolistic position, farmers would be forced to sell their produce at rock bottom prices."
Many agriculture experts disagree. They say traditional traders already exploit vulnerable farmers, misleading them about broad market conditions, lying about the true price their produce has fetched and using old-fashioned scales to weigh produce quickly and imprecisely.
Ashok Gulati, Asia director of the International Food Policy Research Institute, a non-governmental organisation, argues that direct links with retail companies could reduce the price risk for farmers, help them move into higher value crops and provide technical support to coax better quality produce from their limited landholdings.
"If you look at the existing market system, things are not very much in farmers' favour," he says. "Farmers only get between a quarter and a half of what the consumer pays."
In Malerkotla, one of the poorest regions of Punjab, India's agricultural heartland, Bharti Wal-Mart, a joint venture with the US hypermarket chain, is working with small vegetable growers supplying Easy Day stores in the city of Ludhiana. As part of the relationship, two advisers with masters degrees in agriculture are spending the year in Malerkotla demonstrating new techniques and closely supervising the crops of about 60 extremely poor families with small landholdings and almost no formal education.
In spite of the intensive technical support, the farmers are not required to sell their produce to Bharti Wal-Mart. Instead, when Easy Day stores need fresh vegetables, Bharti Wal-Mart notifies the farmers a day in advance of its requirements and the purchase price, which allows the growers to decide whether to sell to the company or to local market traders.
"In around 20 or 30 per cent of the cases, they say 'no' as they have got a better option," says Mukesh Madhukar, deputy general manager of agricultural development at Bharti Wal-Mart. "They can take an informed decision."
Yet Madhukar, who spent years working with contract farmers growing potatoes when he was employed at Pepsi, believes that such relationships could transform India's rural landscape.
He argues that the savings would allow the company to provide greater technical support to farmers, pay them a higher price, earn the company a profit and still keep prices competitive.
"We are not trying to be traders," he says. "We are trying to [ensure we receive] good materials. Instead of giving 6 per cent to the traders, I'd rather spend 5 per cent on agricultural extension work and keep 1 per cent for myself. This is basically about creating value for both the farmers and the company."
For now, fledgling grocery chains such as Easy Day and its rivals are far too small to have a transformative impact on agriculture. The quantities of produce moving through retail chains are too small to absorb all the vegetables produced by the relatively few farmers with whom Bharti companies are working. Even investing in modern cold storage facilities or refrigerated trucks does not yet make financial sense in an extremely price-sensitive market.
That may change eventually - if organised retail chains can grow to a larger scale - but as companies struggle to build retail businesses in the face of high real estate costs, restrictions on foreign investment and regulatory difficulties, the traditional fruit and vegetable traders look set to dominate India's mango trade for many seasons to come.
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