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Agriculture in India: Experiencing Backward Movement

"The emergence of organized retailing and more specifically retailing in agriculture sector is more important from both micro as well as macro perspectives. In micro-perspectives the farmers are likely to gain the middlemen’s share and the prices paid by consumers will also declining going by the facts of ever low pricing at these outlets."

Rohit Arya : October 21, 2007

It is really disheartening to see the recent developments on agricultural front. On one hand, the government is paying significantly higher prices for imported wheat and is showing reluctance to pay the same or even a proportionate price to our farmers on the other hand, which will boost the area under cultivation for wheat and stabilization of grain prices in the near future.

More than anything else, the development on agricultural retail front is truly disappointing. It is widely known fact that farmers do not get more than 30 paise from a consumers’ rupee. This means that middlemen and the retailers get 70 percent without much value addition in the actual produce. Indian farmer's share is very low as compared to 60-65 percent of the retail price in countries like the US, which have an organised retail penetration of about 80 per cent.

Most of the retail companies venturing into the retailing of agricultural produce have entered with an objective to improve the marketing inefficiency of the existing agricultural mandis. The recent amendment into the Agricultural Produce Marketing Committees (APMC) Act is a step to facilitate the efforts of these companies in order to provide better price to farmers and make the same available to consumers at an affordable price.

This put the middlemen on the disadvantageous front and they joined hand with petty traders and made it a political issue. The huge outcry on the street protesting against organized retail is attempted to thwart the growth of agricultural retail companies.

Even the Union Minister for Agriculture, Consumer Affairs, Food and Public Distribution Sharad Pawar have emphasized that organized agricultural retailing and contract farming can empower farmers with technology and provide them better market access. He expressed optimism that the pricing arrangements through contract farming could significantly reduce the risk and uncertainty of market place.

“The emergence of organized retailing in recent years has increased demand for quality produce leading to rising private sector investment in supply chain infrastructure. Modern food retailing would lower marketing costs and lead to lower prices for consumers and higher realization for farmers,” explained Mr. Pawar.

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It is not only the street vendors of vegetable who have lost business due to mushrooming growth of retail chains. The small businessmen who are engaged in clothing, grocery, stationery shops etc. are also at receiving ends because of organized retail chains.  But they did not make clamours like middlemen and traders of agricultural commodities.

In fact, if observations of experts are to be believed then it becomes explicit that the petty traders have also gained due to organized retailing, which has led to increased consumption and production mass manufacturing through standardization and making it available at competitive pricing.

The emergence of organized retailing and more specifically retailing in agriculture sector is more important from both micro as well as macro perspectives. In micro-perspectives the farmers are likely to gain the middlemen’s share and the prices paid by consumers will also decline going by the facts of ever low pricing at these outlets.

Experts believed that the establishment of modern terminal market complexes would ensure both backward and forward linkages to farmers. This is also necessary for public-private partnership for improving necessary infrastructure for liking production centre to the consumption centre.

Even it will benefit the micro-perspectives as well in terms of increased private investment into agriculture. The increasing private investment in agriculture will boost the capital formation in agriculture for which the government has been trying hard since long time.

The recent order by the Uttar Pradesh government about the closure of Reliance outlets and West Bengal government declining the permission to the company to open store has surfaced as set back to the company’s plan of Rs 25,000 crore investment in this sector by 2011. Thought this is an individual instance of the refusal by the government set do business in their respective territory but it might have long term repercussions on the such planning by several other organization.

This situation is not desirable as it is not going to sustain for long. The benefits of millions of farmers and consumers can not be stopped by few thousands of middlemen for their selfish motives. It is also not appreciable measures by the respective state governments as well who has buckled down by the pressure from these traders and middlemen who are paying these political parties for the election fund.

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CRISIL, the world’s fourth largest and India’s most influential rating agency estimated Indian retailing sector to be about Rs 12.8 trillion in 2006 of which food and grocery (F&G) items account for a significant 74 per cent of total retail sales across both, the organized and unorganized sectors. Of this barely one percent of the food items are under the organized retail channel.

The CRISIL report also revealed that organized food retailing would address high food grain prices and inflation as well. This is likely to happen because of reduced supply chain costs arising out of lower wastage and storage costs, which can be shared by producers and consumers creating a win-win situation for all.

The reports also revealed that the total avoidable supply chain costs in the F&G vertical in India at about Rs.1 trillion. About 57 per cent of this is the avoidable wastage and the remaining cost goes to storage and commissions by the middleman.

It is yet another instance of anti-development by the selfish few, who are trying to protect their gains at the cost of rest others. Indian agriculture is highly competitive but it has been uncompetitive and un-remunerative tactfully. Indian farmers are not likely to gain only from the WTO negotiations on agriculture as long as the capital formation goes coupled with diversification and remunerative price realization by farmers.

(Author is a graduate in Agriculture Science with a Rural Management Degree and now works as a professional in Rural Development, Rural Finance and Agriculture sectors.)



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