The farmer agitation against the three farm laws crossed a 100 days some days back. And today, the farmers have called for a nationwide strike. While some may argue that the intensity seems to have tapered down, the dust definitely has not settled down on the issue. Amidst the high pitched campaign that has been this agitation, one allegation that hasn’t been sufficiently answered is that “the three farm laws will accelerate the monopolization of Indian agriculture and consolidate power in the hands of the few”. I feel these fears may be unfounded and here, I try to argue why.
First, let us put aside the comparisons being made with Jio, to justify the above allegations. The mobile telephony is a capital intensive sector and hence barriers to entry are quite high. What we have seen so far is a natural consolidation. It stood out because, the number of players were so low to start with. The agriculture sector is not similar. One can do a purchase and sale of agriculture commodities with just Rs 1 Lakh in the pocket. Many FPOs that I know of have started with that much equity capital and overtime built commodity trading businesses over Rs 1 Cr. So, here barriers to entry are low, there are a large number of players, there is product homogeneity and as a result, per player share of the market is very low.
Building up from the above point, so how large is this market? Many people, not from the sector seldom realize its enormity. Let’s me quote with an example. A senior official from one of the largest commodity players in the market once told me that they procure 200,000 tons of grains from the market annually. Now, 200K can seem to be a daunting figure, but do you know that this accounts for 78% of production of just one commodity — rice — of just one district — Kolhapur — in just one state — Maharashtra — of India. And Kolhapur is by no way the largest Rice producer in India. In fact, it doesn’t even count among the top rice producers. So think about it, one of the largest buyers of commodities in India has a total purchase of that is less than the production of one commodity in one district in Maharashtra. So if there are 731 districts in India, we could say (albeit liberally) that this player procures less than 1/731 of all food commodities produced in India. What really are the likelihood of this player monopolizing the market in India?
To further support this argument, let us look at what would drive such a monopolization, if at all. For example, a typical monopoly like scenario in the Rice market would look like one where a few large retailers — let’s say Reliance, Future Group, Amazon and Aditya Birla Group combined — account for 70–80% of the total rice sales in India. Such a consolidation would mean that these players are able to dictate paddy prices to farmers and processing prices to rice mills, since they account for 70–80% of all purchases in the market. So, how much market share do these players really command in the market today. The Reliance Retail Annual report for 2019–20 indicates that organized retail accounts for less than 5% of total food retail market in India. Evidently it is a long distance to traverse before these players command such monopoly powers. At least in the medium term it doesn’t seem to be happening. So should we really be scared?
Now there is also another argument that can be made as a counter to my above point — “Ok maybe the sector is not consolidated today, but what if it consolidates in the future?”. I personally don’t feel this is likely to happen in the next 2–3 decades at least. Following is why I feel so:-
1. Very Little Product Differentiation. The commodities that we are talking about are brand agnostic to begin with. For instance, when I purchase Toor Dal (Arhar Dal), I seldom look at what brand I buy. Almost all of grain products go through just primary level of processing and there are fundamentally very little product differences that a brand can leverage on. And while the market does have Retail Owned Brands (ROBs) and other brands such as Tata Shakti, they still command only a small clientele. Even many ROBs command market share in their own stores only by not letting competing brands on their shelves (a Satyam probably being the only exception).
2. Price Competitiveness of the unorganized market. Little product differentiation coupled with price competitiveness of the unorganized market is another reason that inhibits consolidation. From my experience in the sector I have learned that food supply chains in India are extremely cost efficient. So despite a chain of intermediaries, there is hardly any difference in prices at larger retail stores and those charged by your local kirana stores (corner shop). So, how much is the incremental value proposition for the larger retailer?
3. Localization and door step service. ‘All under one roof’ and ambience seem to be some of the biggest selling points for large format retailers. And they are strong ones indeed. I myself purchase at least 50% of my daily essentials from a nearby large format store for precisely these reasons. But, are they enough to make the local stores redundant. Experience shows us not. I remember us discussing the death of the Kirana stores with the oncoming of the first Big Bazaar stores in my hometown of Thane (Thane is a large growing city adjacent to Mumbai). But not only have the Kirana stores not died, they have grown and prospered despite a boom in organized retail. While the jury is still out on why this is so, I feel this may be because of the following — (a) An ultra-local collection of products offered by the Kirana store, that is difficult for a centrally managed organized retail to match, (b) no holds barred door step delivery service (the store will even deliver one item to you, immediately, and they don’t expect you to buy at least Rs 1,000 worth to deliver at home), © interest free credit — the khata (account) that you used to run with your local kirana still matters to many and (d) sheer adaptive ability of the small Indian businessmen and their never-die attitude.
The persistent can still make arguments that while consolidation may not happen in the next 20–30 years, what about in the long term? Well, as Keynes said, “in the long term, we are all dead”. So, should we be fretting about a potential problem long into the future and today hold laws which are clearly beneficial for all.
In parting, for critics of the three acts I would like to point them towards two sub-sectors of the agri-market — (i) Fruits & Vegetables (F&V) market and (ii) the industrial use food commodities like Soyabean. There hasn’t been an APMC regulation in the F&V market for some time now, but no one seems to be complaining about monopoly in the sector. Similarly, unlike food grains, soyabean is primarily used for industrial purposes and has a relatively more consolidated buyer’s market. But I haven’t heard of soyabean farmers in Central India agitating for MSP or complaining of monopolies.
Views expressed in the above article are that of the author himself and do not reflect the opinions of the organization he works with.