Distribution of Value Added Farm produce and Government
By: Amit Bhushan Date: 26th Feb. 15
Distribution of value added farm produce barring tobacco products remains highly constrained in India. This is even when government claims to maintain a tax driven restrictive policy on tobacco product, however these would still reach every nook & corner at rather easily ‘affordable’ prices (though its required in rather low quantity by users). It is about some of the other farm produce like milk products, veggies, fruits, animal products where concerns remain. In part this is touted on account of a lack of cold chain infra, however much of it is due to gross neglect and vested interests that have held stranglehold and overall governance framework has allowed the same to remain neglected. The regulation and licensing conditions from a multitude of authorities be it central, state or municipal have played havoc together to ensure that overall system is rent seeker and burden on consumers. It is reflected in the shape of lack of adequacy of distribution facilities of dairy products, fisheries produce especially the sea based varieties as well as meat & poultry. Planning of mass processing facility wherever it may be economically suited to be located and their ‘planned, fair and wide distribution’ could have resulted in lower cost to customers. The government could have focused on sustained flow/production capacity, adequate competition in markets and health & sanitation standards, creation of common supporting infra where needed. Instead, intervention by the government and its multitude of agencies went hell bent into distribution creating licensing logjams and a rent seeking bureaucracy, which increases journey cost of farm produce to consumer plate, manifold. An additional result is that packaging and expiry dating procedure for such products is still follows rudimentary mechanisms prone to misuse & mischief by trade.
This is even as true for almost all non-cereal farm produce which apart of being affected by seasonality, are dependent on a multi-layered chain of traders for manual handling/logistics to reach end customers. This is even as the government takes little risk towards covering ‘price risk’ for the producers as in case of cereals or some other farm goods. Needless to say that such chains focus to maximize their own benefits by constricting the supplies to key target markets through a maze of cross-trades and related hoarding rather than supporting a free flow. Smaller towns or village markets being not so lucrative to be focused by these traders, suffer near total neglect towards developing a consumer base. This also results in high wastage and low productive value addition by the supply chain staff, besides spiraling of costs & consumer dissatisfaction. The story of other goods like spices, honey etc. is not very different and a plethora of malpractices abound in such conditions which would otherwise not be seen in markets where producers & consumers feel on being some sort of equal footing. The performance of such market system which has seen little government initiated reforms for last 15 years has already seen sinking of the previous regime while its role seemed less than friendly for the earlier rein of the party currently in power. However effort to reform these markets by the current leaders have been little. The leadership would rather court to gallery the players in these markets, for political as well as pecuniary reasons. The subsidies on a set to farm products ensure that producers are more focused towards goods which would fetch firm prices rather than take additional price risks and distribution interventions in support of traders without any liability to cover ‘production costs’. Even the bigger customers like canteens, caterers, exporters etc. are subjugated to this supply chain rather than being free to compete basis strength of supply chain nurtured by them.
We find this situation even when consistently all governments have been pro-farmers who yearn for better returns for their produce as well as pro-poor who want cheaper food. The system seems more to be pro-middlemen, a majority of which cannot be seen as adding value. While there have been moves to open market via corporatization or even FDI, however, removing restrictions on existing players hotel & restaurant chains/caterer associations to procure directly from producers or to liberalize distribution licenses of municipalities have not seen any movement. To be fair it is only now that we see a lack of action to rein in authorities (from municipal upwards) by top leadership as having potential to cause political upheaval and ‘stop’ the victory juggernaut of political leaders even in top-most positions, probably a necessary precursor for reforms.
By: Amit Bhushan Date: 26th Feb. 15
Distribution of value added farm produce barring tobacco products remains highly constrained in India. This is even when government claims to maintain a tax driven restrictive policy on tobacco product, however these would still reach every nook & corner at rather easily ‘affordable’ prices (though its required in rather low quantity by users). It is about some of the other farm produce like milk products, veggies, fruits, animal products where concerns remain. In part this is touted on account of a lack of cold chain infra, however much of it is due to gross neglect and vested interests that have held stranglehold and overall governance framework has allowed the same to remain neglected. The regulation and licensing conditions from a multitude of authorities be it central, state or municipal have played havoc together to ensure that overall system is rent seeker and burden on consumers. It is reflected in the shape of lack of adequacy of distribution facilities of dairy products, fisheries produce especially the sea based varieties as well as meat & poultry. Planning of mass processing facility wherever it may be economically suited to be located and their ‘planned, fair and wide distribution’ could have resulted in lower cost to customers. The government could have focused on sustained flow/production capacity, adequate competition in markets and health & sanitation standards, creation of common supporting infra where needed. Instead, intervention by the government and its multitude of agencies went hell bent into distribution creating licensing logjams and a rent seeking bureaucracy, which increases journey cost of farm produce to consumer plate, manifold. An additional result is that packaging and expiry dating procedure for such products is still follows rudimentary mechanisms prone to misuse & mischief by trade.
This is even as true for almost all non-cereal farm produce which apart of being affected by seasonality, are dependent on a multi-layered chain of traders for manual handling/logistics to reach end customers. This is even as the government takes little risk towards covering ‘price risk’ for the producers as in case of cereals or some other farm goods. Needless to say that such chains focus to maximize their own benefits by constricting the supplies to key target markets through a maze of cross-trades and related hoarding rather than supporting a free flow. Smaller towns or village markets being not so lucrative to be focused by these traders, suffer near total neglect towards developing a consumer base. This also results in high wastage and low productive value addition by the supply chain staff, besides spiraling of costs & consumer dissatisfaction. The story of other goods like spices, honey etc. is not very different and a plethora of malpractices abound in such conditions which would otherwise not be seen in markets where producers & consumers feel on being some sort of equal footing. The performance of such market system which has seen little government initiated reforms for last 15 years has already seen sinking of the previous regime while its role seemed less than friendly for the earlier rein of the party currently in power. However effort to reform these markets by the current leaders have been little. The leadership would rather court to gallery the players in these markets, for political as well as pecuniary reasons. The subsidies on a set to farm products ensure that producers are more focused towards goods which would fetch firm prices rather than take additional price risks and distribution interventions in support of traders without any liability to cover ‘production costs’. Even the bigger customers like canteens, caterers, exporters etc. are subjugated to this supply chain rather than being free to compete basis strength of supply chain nurtured by them.
We find this situation even when consistently all governments have been pro-farmers who yearn for better returns for their produce as well as pro-poor who want cheaper food. The system seems more to be pro-middlemen, a majority of which cannot be seen as adding value. While there have been moves to open market via corporatization or even FDI, however, removing restrictions on existing players hotel & restaurant chains/caterer associations to procure directly from producers or to liberalize distribution licenses of municipalities have not seen any movement. To be fair it is only now that we see a lack of action to rein in authorities (from municipal upwards) by top leadership as having potential to cause political upheaval and ‘stop’ the victory juggernaut of political leaders even in top-most positions, probably a necessary precursor for reforms.