When the FDI norms were announced last year, retailers were expected to establish proper back-end supply chains that involved direct sourcing from farmers. A year later, however, the grandiose plans seem to remain mostly on paper.
Today, considering Walmart alone, the retailer sources farm produce from only about 12,500 farmers in the country. Five years after kickstarting the direct farming programme, only 15% of Bharti Walmarts procurement has been happening through direct farming, says a company official.
The process is slow because of the numerous challenges involved in it. Industry officials say apart from the initial resistance from locals, farmers indebted to the arhtiyas (middlemen) are unable to sell to the companies out of fear that they may jack up the lending rates.
Direct farming also takes time to develop as the corporate retailers and wholesalers take time to get the business model right. The challenge is to manage the costs so that the customer gets the best price. Direct farming really requires scale to work properly, says an official in charge of direct farming at a global retailer.
In Bakhtawarpur, on the outskirts of Delhi, Walmart procures farm produce from nearly 1,000 farmers. The town is barely 15 km from Azadpur mandi. Yet, farmers prefer selling their produce to corporate wholesalers and retailers like Bharti Walmart and Reliance Retail.
Both the mandi and the farms lie within the administrative boundary of Delhi and accessibility is definitely not the reason. Its also not the price, as corporates offer rates that are more or less similar.
The benefit comes from the aggregate of the small savings I get by selling to them, says Gulab Singh, a farmer with 10 acres of land, who sells his produce to Bharti Walmart.
Farmers like Singh are offered at best 5% more than the mandi prices. However, it is the overall value proposition that attracts them. Singh, for example, says because Walmart has a small collection centre in Bakhtawarpur, his freight cost comes down substantially.
If I hadnt tied up with the company, I would be buying fertiliser and seeds at the maximum retail prices, says Singh. But Walmart gets us a 8-10% discount on such items.
Satish Kumar, another farmer from the area, has 10 acres of land of his own besides leasing another 10 acres. The problem is that his fields are in the Yamuna river bed, because of which this year has not been a good one for