Urgent need to regulate margins between wholesale and retail trade

Not only with tomato, onion and potato (TOP is the acronym for this group of veggies), the story of other vegetables like garlic, ginger, cauliflower, cabbage, bhindi, brinjal, capsicum and lettuce, to name a few, too is not very different. Rarely have the consumer prices been in close proximity with the farm gate prices. For several years now, I have kept track of the trade and my observation is that not only during a price crash for farmers, the commission that trade extracts even at normal times is also exceptionally high

On a TV discussion the other day, I said that it was appalling to see the price difference between the price onion farmers are able to fetch in the wholesale market, at Rs 2 to Rs 3 per kg, and what the retail trade make selling the same produce for Rs 20 to Rs 30 per kg depending on the location. In other words, the price difference between the wholesale and retail market is at least 900 per cent!

In February, when cauliflower was being sold in Punjab in the retail market at Rs 20 per kg, farmers were getting not more than Rs 2 per kg. This again showed a price difference of almost 900 per cent. According to news reports, during the same month, potato prices for the farmers had come down to Rs 4 to Rs 6 per kg, and the retail price had still remained consistent at Rs 20 per kg. Apparently, trade was clearly making a huge profit.

A few weeks back, capsicum was priced in the retail market at Rs 30 per kg. This is what the retail trade was charging from the gullible consumers when capsicum was being literally dumped on the streets by irate farmers. With farmers being offered Rs 15 for a bag of 17 kg of capsicum, the wholesalers were not willing to offer a higher price. And with no let down in retail prices, the trade walked away with a commission of 2,900 per cent.

Not only with tomato, onion and potato (TOP is the acronym for this group of veggies), the story of other vegetables like garlic, ginger, cauliflower, cabbage, bhindi, brinjal, capsicum and lettuce, to name a few, too is not very different. Rarely have the consumer prices been in close proximity with the farm gate prices. For several years now, I have kept track of the trade and my observation is that not only during a price crash for farmers, the commission that trade extracts even at normal times is also exceptionally high.

What we measure as food inflation and the general thinking is that it is because of the higher prices farmers get, but in reality it is driven by the seller’s profit. The price consumer pays the exploitative commission that retail walks away with. After all, how can the trade justify a commission margin of 900 per cent and in exceptional cases the margin even exceeding 2,900 per cent?

Whenever reports of farmers throwing their harvest on the streets appear in the media, quite a large section of the social media handles want the farmers to take the blame. The argument they come up with, which is not different from the claims of agribusiness, is that if the farmers had not forced the government to withdraw the three contentious farm laws, they would have got a better price. Some even go to the extent of saying that the three laws could have turned agriculture into profitable propositions.

The same arguments were made when the entry of organised retail was being debated. The organised retail will eliminate middlemen thereby providing a higher price to farmers and sell it at a decent price to consumers and in the process plugging exploitation on both sides. But it didn’t happen. For instance when prices of onions, garlic or capsicum crashed in the wholesale, I didn’t see any appreciable decline in the consumer prices in the supermarket stores. Please do correct me whenever you see organised retail providing a price advantage to consumers when farm gate prices are low. I am aware there are quality issues, but that alone is not the factor to drive up the consumer prices by a few hundred per cent.

Take the case of apples. In Himachal Pradesh, the average price at which apples are procured is around Rs 60 per kg. First, the price at which the big companies purchase apples from farmers has for no apparent reason been slashed by Rs 16 per kg and the same apples are stored, packed and sold in the supermarkets at a staggering Rs 199 per kg. This means a commission of roughly 230 per cent. On the other hand, hawkers are able to sell apples at a price that is around Rs 150 per kg. The point I am trying to make is that the commission margin hasn’t come down for the companies, which have always claimed that they eat away the multitude layers of middlemen in the supply chain thereby reducing the consumer prices.

Food inflation in other words has traditionally been bitten by the profit bug. Call it ‘greedflation’, the retail prices for especially the horticultural produce, hides the huge margins the middlemen extract. But whenever we hear of food inflation inching up, the general impression is that it is because of higher prices farmers are getting. In reality it is not so. While veggies prices hover at almost the same level, it is the exorbitant trade margins that add to the inflationary figures.

Even in Britain, where food and drink prices increased by 20 per cent in April, political leaders are asking the Competition and Market Authority to investigate. Already reports have shown that a heightened profiteering is the primary reason for the price rise. Such is the growing pressure to tame the retail trade that Prime Minister Rishi Sunak has called for a Food Summit with industry leaders on May 16. While observers say that the summit is all about food inflation, civil society is calling for inclusion of diverse voices so that it helps to reset food policies.

I think Britain needs a serious rethink on reframing agricultural policies considering that it has already surpassed the sustainability barriers. My suggestion would be to open up for collaborative efforts to encourage agro-ecological farming systems, learning from the enormous leadership being demonstrated by Community-based Natural Farming Systems from Andhra Pradesh. The state has already converted eight-lakh farmers’ from chemically harmful to non-chemical farming systems.

Similarly in India, a stern enforcement of regulations are necessary to ensure that the exploitative trade margins between wholesale and retail trade are reduced to reasonable and acceptable limits. The Reserve Bank of India (RBI) itself needs to acknowledge that whenever it expresses concern at rising food inflation, it must spell out this instead of simply passing the blame on farmers, rising food inflation is primarily because of the unacceptable profit margins being extrapolated by the retail trade.

The volatility in markets has to be curbed. It cannot be allowed to go on without any tangible reforms being introduced and enforced.

(The author is a noted food policy analyst and an expert on issues related to the agriculture sector. He writes on food, agriculture and hunger)