Wednesday, February 21, 2007

Markets beat mandis

This one from Business-Standard:

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. (emphasis mine)

Is this good or is it not? I cannot see why not. Farmers get a good deal, as do consumers - middlemen get squeezed - nothing like eliminating the middleman.

The piece also speaks about how companies have booked future harvests for a particular price and are, obviously, selling it at a higher price in the markets.

“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 ... HP Fruit Growers Association.

Well, did you ask the farmers, why they thought that was a good deal? Perhaps, they were getting lower prices than that before these companies came in and offered 18 to 45 rupees per kilo. Next year, they will get wiser and demand a higher price for their crops - if Reliance doesnt pay, ITC will.

Read the piece fully to see how markets are proving to be more efficient than mandis in getting a better price for farmers - if it did not, they would have sold it at the mandis or to the government. Markets work.

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