Retailing: The magic word for Punjab

Dear Capt Amarinder Singh,

I regret I could not attend the Punjab government workshop this week on reviving Punjab’s economy, focusing on a second green revolution based on fruits and vegetables. But let me share with you an insight from Harvard scholar Peter Timmer. Encourage global retail chains to set up huge supermarkets — called hypermarkets — in India to promote the production and marketing of fruit and vegetables tailored to global standards. This will harness growing domestic demand, and also prepare Indian farmers for the global market.

New Delhi is dragging its feet on allowing foreign retail chains to enter India. I suspect that you have not seen what a high priority this should be for Punjab.

Professor Timmer gives the example of Carrefour, the French retail giant in Indonesia. He visited a Carrefour hypermarket in Java which had more variety in fruit and vegetables than anything he had seen in the USA. Remarkably, only apples and grapes were imported. All other fruit were grown locally. In effect, a second green revolution in Indonesia was sparked by MNC retailers.

Once, MNCs could adopt lower standards in developing countries than at home. Not any more. MNCs have discovered that using lower standards in developing countries leads to legal suits and loss of reputation.

no Carrefour adopts the same standards of cultivation, packaging and marketing in Indonesia as it does in France itself. It does not go to a mandi and bid for produce. Carrefour enters into contracts with farmers’ associations to produce, pick, package and market fruit and vegetables. Its insistence on global standards extends to ensuring that no child labour is used in cultivation.

Adapting to Western standards involves a huge change in mind-set that cannot easily be appreciated by Indians who have never lived abroad. In Indian markets, fruit and vegetables are routinely bruised in handling, or have scabs and rotten patches. Damaged produce can be sold, at a price, to poor consumers.

But in the West, even a slight bruise makes fruit unsalable. Prices are fixed in supermarkets, customers pick the best fruit, and the rest is thrown away. This makes quality control critical in ways that Indian farmers cannot comprehend today.

Farmers are used to selling whatever they produce, maybe with a discount for damaged produce. They are not used to the idea that if their produce needs is not cultivated, picked, refrigerated and marketed with high standards, they will not be able to sell at all. Gluts are common at harvest time in India, and truck shortages mean that much produce rots.

Abroad, sowing and harvesting in large farms is planned such that one row of fruit or vegetables matures for picking each day in the harvest season, so that harvesting itself is tailored to refrigeration and transport capacity.

Picking has to be done at exactly the right moment, not when casual farm labour happens to be available. Movement from the farm to cold storage to markets has to be planned meticulously, especially for exports. India exports fruit to the Gulf, which has lesser standards. But the biggest, juiciest market is the US, and the refrigerated freight cost to the US is affordable. Indian farmers could compete if only they adopted global standards. But those standards will not come without foreign collaboration, and collaboration will not come without retail chains.

This has not been understood by the Punjab government. It knows that traditional grain farming is unprofitable, and so talks about contract farming and food processing. These are desirable, but not enough.

India has failed to get into the global market for processed fruit and vegetable for a simple reason: global chains like to deal with giant farms that can reliably deliver huge quantities of quality produce on time. They simply cannot deal with hundreds of small farmers of the sort we find in India. Many global fruit companies have studied India and thrown up their hands in despair.

But retail MNCs will venture into this difficult terrain to penetrate the fast-growing domestic market. As incomes rise, the demand for superior foods and premium products shoots up.

This has been demonstrated in South-East Asia and in India itself, where imported fruit now sell at fancy prices. Retail MNCs will enter India and spark a second green revolution if entry is made simple, and if Punjab and other states establish farmers’ associations as legal entities with corporate obligations (there can be no compromise on quality).

Carrefour cannot handle thousands of individual small farmers, but can deal with farmers’ associations, which can later consolidate into a few federations.

So, Amarinder, whatever your differences with the Akali Dal, ask it to use its influence with the National Democratic Alliance to open up the retail sector, especially for food, to MNCs. This can do more for Punjab’s economy than a dozen seminars and workshops.

What do you think?