Mandis' loss is the farmer's gain

New retail chains like Reliance and corporate agri-buyers like ITC are shaking up the traditional vegetable and fruit market.

By buying in bulk directly on the farmer's doorstep, and booking future harvests as well, they are taking business from the traditional mandis. This has caused a sharp drop in supplies to the traditional wholesale markets - and is driving up prices there.

Those gaining from this are farmers, who now get a better and, indeed, an assured price, for their produce.

Also gaining are urban consumers in towns like Noida, neighbouring Delhi, where Reliance Retail outlets offer goods substantially cheaper than traditional neighbouring stores. What is squeezed is the trade margin in the middle, as the big companies exploit supply chain efficiencies.

Also caught in the pincer is the government. Last year, its procurement agencies could not buy enough wheat during the harvest season to feed the public distribution system, as companies like ITC and Cargil bought up wheat supplies in bulk. This year, it is vegetables, onions, apples, and mangoes.

At Delhi's Azadpur mandi, Asia's biggest vegetable and fruit market, fruit arrivals between January 1 and February 18 this year were down 37 per cent to 158,000 tonnes.

In Nashik, onion farmers have contracted to sell 5,000 tonnes to trading company Global Agrisystems. The quantity is small (annual onion production is 6.2 million tonnes), but this is only the start. Reliance Retail too is believed to be procuring onions in bulk from the region.

In Himachal Pradesh, of the 273,000 tonnes of apples grown last year, organised retailers and processors procured about 40 per cent.

And farmers in Ratnagiri and Sindudurg districts in Maharashtra, famous for mangoes, are being approached by Reliance and ITC. Reliance is reportedly buying large quantities of mangoes (over 1,200 tonnes) in Ratnagiri.

The new entrants are in their way emulating older bargain-price retail chains like Subhiksha and the government-run cooperative Mother Dairy, which have been leveraging bulk discounts to offer consumers lower prices for years.

Over the past two years, eight new retail-chain entrants in the food and grocery business have accelerated the trend. The new entrants include Reliance Retail and Raheja's HyperCity.

Bharti Retail is also going to start business soon, in collaboration with the world's largest retailer, Wal-Mart. Organised retail accounts for less than 1 per cent of the Indian food and grocery retail market.

But as this segment grows, it seems poised to shake up traditional markets and buying habits, at a time when political parties have been concerned about what might happen to the traditional "mom and pop" stores.

Politicians have also targeted futures trading at the new commodity exchanges that began operations a couple of years ago, arguing that futures trading has been responsible for inflation in food product prices.

Other voices too are being raised. "Companies like Reliance, Adani and ITC had procured 40 per cent of the apple production at prices ranging from Rs 18 to Rs 45 per kg. This is being sold at Rs 50-110 per kg. The higher realisation is being appropriated by companies," said Sanjay Chauhan, former secretary, HP Fruit Growers Association.