FDI IN RETAIL: PART 3 - FDI in Retail Will Gradually Make Our Farmers Bankrupt

FDI IN RETAIL IS A BIG HOAX PROMOTED BY US MNCs AND INDIAN MEDIA

The Government is planning to bring in FDI In Retail, in On-Line Retail and In Defence. 

We all have a keen interest in knowing the effects of FDI in these sectors.
We start with the effects of FDI on the Indian retail sector. 
We are presenting you a series of articles, to help you come to an informed conclusion.

PART 3: FDI in Retail to Make Farmers Bankrupt

 (Summary: The supermarket chain stores keep squeezing the prices of the farmers and the small producers to a bare sustenance level. Some of them go bankrupt in this process. The supermarket chains also play with product freshness and quality to reduce costs. The profits of the supermarket chains, as a result, keep increasing along with their market share.)

PART 3: FDI in Retail will give better margins to Producers and Farmers - Is it the truth or wool in our eyes?

A very major promise held out by supporters of organized GDI in Retail is that it will result in the removal of the middle-men, in the delivery chain from the producer to the ultimate consumer. Due to this direct delivery system, there will be significant savings. These savings will be passed on to the producers, as better prices for their products. This will mean better profitability of farmers and lower prices to the consumer. Let us examine the truthfulness or otherwise of this crucial argument offered in favour of FDI in Retail, based on the international experience.

1. What has the media to say about the profits of the farmer and small producer?

Supermarkets indulge in regular price wars and “Loss-leader pricing” (Please refer Part 2), in order to increase their market share. As a result of these, the consumer may benefit in the shorter term through lower prices. But do the supermarkets absorb the losses due to the lower prices?

Let us take the example of the recent milk wars in Australia. The milk prices were reduced by the supermarkets to $ 1 per litre, a drop of over 50%. Who paid for this reduction? Not the supermarket! These lower prices were pushed down the throat of the producer, who had to either comply with accepting lower prices for his milk or let it rot in his milk-containers.

This is what the Herald Sun, a leading newspaper wrote in its business section,” Somebody has had to pay for those lower prices, and it has been the suppliers. Coles and Woolworth (the big two superstore chains, who control over 80% of the retail food market) have been ruthless with them. Forcing them to cut their prices…….. Milk is the standout example. Small suppliers, or those without major branded products, just have to cop whatever the big two demand……it's simply undeniable that overall, they've been ruthlessly squeezing their suppliers.”

And did the supermarkets lose money due to the price wars? Just the opposite. Herald Sun continues, “they have had to supply even bigger increases in volumes, because of their price cuts, their profits have increased at an even faster pace…. by 24 per cent for Woolworth, by 40 per cent for Coles.” So, the huge price reduction actually increased the profits of the Supermarkets. Herald Sun has this to say, ” Woolworth maintained a very aggressive program of new stores…..it added 74 new ones in three years, and increased it total food and liquor floor space by 13.5 per cent.” This 13.5% growth is in a market which is hardly growing by 1-2%! Is it not evident that the additional 12% sales came from driving the smaller players to the ground?

The supermarket chain stores are so powerful that even politicians do not want to take any action. Herald Sun continues,” It would be a courageous politician or regulator who tried to aggressively reduce the dominance or the price-cutting practices of the big two.” Are the Indian politicians any different?

So, if the supermarkets increased their profits and the consumer paid lower prices, who paid for the milk price reduction?

2. What is the version of the farmer and small producer, and what are the authorities doing?

Georgina Mitchell and Sally Willoughby, writing in Business Day section of Sydney Morning Herald, (the largest daily newspaper), say,” Brian Wilson, a fourth-generation cattle farmer with a property near Tamworth, says the Coles and Woolworth duopoly cut his income by about $80,000 last financial year… Mr Wilson said producers in the New England went through a competitive tender process to win the Coles and Woolworths milk contract, but many farmers were forced to sell their product at a loss”.

So, what was the consequence of such unremunerative prices to the farmers? Mitchell and Willoughby write, “The chief executive of the NSW Farmers Association, Matt Brand, said 30 farming families in the state had left the dairy industry in the past year because of price cutting by supermarket chains.”

A dairy farmer of Australia, who has been made bankrupt, because of price squeeze by the Supermarket chain stores

And what was the regulator doing? …”The ACCC (Australian Competition and Consumer Commission) announced last week it would investigate the supermarkets over claims they bullied suppliers, misused market powers and potentially breached the law. Fifty producers anonymously stepped forward with evidence against the supermarket giants, who last year earned combined revenue of $70 billion.”

As you can see the producers were so scared of the big superstores that only a few of them gave evidence anonymously. These dairy farmers are giants in comparison to Indian milk producers, with hundreds of cattle and automatic milking stations. Till the time of writing this article, no action has been taken against the supermarket giants by ACCC.

Can you imagine what would happen in a similar situation in India? The farmers will have nowhere to go, but up. There will be mass suicides.

3. FDI in Retail supporters say that it will provide better storage and transportation and thus fresher food – how true or false?

What about the modern infrastructure facilities, tom-tommed by the FDI in Retail supporters?  What about quick transportation of produce from the farms to the consumers, to keep the natural freshness, and reduce wastage?

While in India we are used to getting our milk nearly fresh (less than 6 hours after milking), milk in Australia takes anywhere up to 6 days after milking, to reach the supermarket shelves. This is because of the system called batching, to minimize collection and transportation costs. To keep the milk from going bad in this period, it is chemically treated to kill all organisms. I have never been able to make curd at home with the supermarket milk. I am forced to buy curd, from the same supermarkets, at three times the milk price.

There is something more, which I have not been able to understand in years. The toned milk in Australia costs 15-20% more than full-cream milk! The superstores have given the story to the public that as they have to process full-cream milk in order to take out the butter, to make toned milk, the extra processing costs more. What about the sales and profits from the sales of butter? When I ask this question, people are puzzled, as no one has ever asked that question to the supermarkets.

So, how would you like to drink 6 days old milk, supplied at twice or thrice the present prices, and not being able to make your own curd, from these FDI superstores?

4. How supermarkets use meat scraps and animal glue to produce fresh meat

To meet the ever increasing pressure by supermarket chains to reduce prices, the commercial meat packing industry around the U.S. have found a new way to increase profits by using meat scraps to make filet mignons as well as hot dogs, sausages and stew meat. Powdered meat glue binds scraps of beef, lamb, chicken or fish that would normally be thrown out, into solid pieces of meat. According to its manufacturer, meat glue can be used to produce new kinds of mixed meats (for example combining mutton and fish seamlessly).

Meat glue permits restaurants and butchers to sell their meat scraps as premium meat. Once you cook the glued meat, even a professional butcher or chef can’t tell the difference.

Daily Mail, Australia, writes,” It's packaged in supermarkets and delis as 'formed', or 'reformed', meat. But in restaurants across the U.S., there are no laws requiring chefs to disclose the use of 'meat glue', a kitchen trick that has left consumers curdling at the thought of ordering a filet. The little-known secret - a powdery substance made from an animal blood clotting agent that connects small pieces of meat - allows stores to sell the final product as a prime cut, making fast food out of fine dining, experts say.”

The same is now being used in Australia and was shown on national television, in a sting operation. The video can be seen on the YouTube at https://www.youtube.com/watch?v=hXXrB3rz-xU

Meat glue consumption can lead to illnesses such as Celiac Disease, Heart Disease, Stroke, Crohn’s, Ibd and Ibs.

Conclusion: Will the superstores help our farmers, improve their returns and supply fresher products?

Based on the example of the developed countries, we have to be prepared for regular farmer suicides, higher customer prices and non-fresh farm products, which are made to look fresh by artificial methods. Are these portends of good days for the customers and farmers?

PART 4: In this part we shall analyse if FDI in retail will bring in huge investments in infrastructure for storage and transportation, as being promised.

Sincerest Regards,

AAP - THE ROAD AHEAD

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