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Onion Crisis Was Stage Managed

By Devinder Sharma

27 December, 2010
Ground Reality

Now it can be told. Onion crisis was stage managed to justify the approval for FDI in multi-brand retail

There is more to onion prices than what meets the eye. And it is time to peel the onion, layer by layer.

No sooner did the onion crisis erupt on your small screen last week, following the retail prices jumping from Rs 35/kg to Rs 60-80/kg, Minister for Commerce Anand Sharma was the first one to make a statement. Even before the Food and Agriculture Minister Sharad Pawar opened his mouth, Anand Sharma had told the nation that the onion crisis was because of hoarding, and that the country had enough stocks.

This year production of onions has been a record with at least one million tonnes more onion produced than the previous year.

I wonder how and why Anand Sharma made this statement. After all, agriculture is Sharad Pawar's beat and normally Cabinet Ministers tread carefully by not transgressing into the domain of a fellow colleague. Even if Anand Sharma commented because he looks into trade, the fact remains that he has never commented earlier when prices of sugar and dal for instance had touched the roof.

As the evening progressed, and the UPA government went into a tizzy, Nafed's managing director Sanjeev Chopra expressed surprise at the sudden price rise. He told the media that there was roughly 20 per cent more supply, and despite the rain damage to the standing crop in September when the sowing takes place in Maharashtra and Rajasthan, the price rise defies any logic. I agree with Sanjeev Chopra. He was being forthright and honest.

While all kinds of explanations were being tossed around, what became increasingly clear was that the trade -- middlemen, in this case -- had made a killing. But what remains hidden from public glare is that the entire onion price crisis is stage managed. It has been created to justify the need to bring in big box retail.

Within the next two days the government went into a massive salvage operation. Knowing well that onion prices have in the past brought down the government, not once but twice, UPA-II didn't want to take any chances. Exports were immediately banned, import duties were brought down to zero, crackdown against hoarders began simultaneously, and lo and behold the prices began to come down.

Meanwhile tomato and garlic prices began to rise. While tomato prices ruled high in Delhi (rising to Rs 40 a kg in retail markets), again there was no reason for tomato prices to rise. In fact, as metros witnessed tomato prices going out of reach, the irony is that Jharkhand farmers were dumping tomatoes on road for want of a fair price. http://bit.ly/hPvuHR

Coming back to onions, before the prices had even stabilised at Rs 50-60 per kg, Anand Sharma moved swiftly to talk to his fellow colleagues on Dec 23 about the need and possibility of opening up to multi-brand retail. In other words, in the midst of a crisis situation, Commerce Minister found time to 'discuss' with his Cabinet colleagues the possibility of inviting multi-brand retail into the country.

For the benefit of some of our readers, when we say multi-brand retail we are talking of big box retail like Wal-Mart and Tesco.

At a time when the Cabinet Secretary was monitoring the onion price situation on an hourly basis, Commerce Minister was confabulating with his ministerial colleagues about multi-brand retail. Finance Minister Pranab Mukherjee, Home Minister P Chidambaram, Defence Minister A K Anthony had taken part in these discussions. Why the urgency? Anand Sharma replied: "Policy formation is a dynamic process, and we are very progressive and forward-looking."

Surely, Mr Sharma. We know what you mean by 'progressive and forward looking'.

In fact, he also met media persons the same day to tell them about the dynamics of FDI in retail. A journalist asked him about the link FDI in retail has with the soaring onion prices. According to The Hindu (Dec 24) "While Mr Sharma rejected the argument that there was a link between the soaring onion prices and the opening up of multi-brand retail to foreign direct investment, the demand for liberalising the sector has been intensifying, especially in the wake of the wide gap between wholesale prices and retail prices."

Now if you are wondering how can someone be planning (and succeeding) in raising onion prices across the country, I want you to remember the sudden eruption of dropsy several years back, which took quite a human toll. Dropsy was blamed on poisonous argemone seeds which had slipped into mustard oil extraction process. This was, as we now know, done to build a market for packed mustard oil. And surely, the sales of loose mustard oil has gone down drastically after that incidence.

Howcome, argemone seeds never found their way into mustard oil after that?

More recently, according to a leaked US diplomatic cable released by WikiLeaks, in a January 2008 meeting, US and Spain trade officials strategized on how to increase acceptance of genetically modified foods in Europe, and among the measures included inflating food prices on the commodities market. Read more about Hike Food Prices To Boost GM Crop Approval In Europe: Leaked Cable by Rady Ananda http://foodfreedom.wordpress.com/2010/12/14/leaked-cable-bubble-gmo-eu/

Allowing big box retail into the country is no less a priority for Manmohan Singh government than the nuclear treaty. President Obama had pressurised India to open up when he visited India in November. Before that, British Prime Minister David Cameron had sought the opening up of Indian market for big box retail when he had made a visit. And more recently, French President Nicolas Sarkozy had also promised more investments if India opens up to retail FDI.

The G-20 has also directed member countries to remove all hurdles in accepting multi-brand retail. It was primarily to meet this directive that the Department of Industrial Policy and Promotion (DIPP) had floated a completely flawed discussion paper on allowing FDI in multi-brand retail. Consultations with the stakeholders (?) have also been completed by the Ministry of Commerce.

Both Sharad Pawar and Anand Sharma are in favour of it. Since there is opposition to multi-brand retail FDI within the Congress party, the onion price drama had to be stage managed. While your tears have by now dried, let us wait and watch how soon the UPA-II gives us another breaking news.


Now, what FDI in multi-brand retail would do for Indian farmers, is something that I have been regularly talking about. You can read the paper below and judge for yourself.

FDI in retail is the beginning of the end for Indian farmers

It is being projected as a boon for the agricultural sector. In reality, it will spell a death knell for farming. It will be the beginning of an end for Indian farmers.

It has happened in the United States. Ever since big retail – dominated by multi-brand retailers like Wal-Mart, Tesco and Carrefour – has entered the market, farmers have disappeared, and poverty has increased. Today, not more than 7 lakh farmers remain on the farm in America. In fact, the number of farmers has come down to such a low level that America has stopped counting the farmers since its last census in the year 2000.

In Europe, despite the dominance of the big retail, every minute one farmer quits agriculture. According to a report, farmer’s income in France has come down by 39 per cent in 2009, having already slumped by 20 per cent in 2008. In Scotland, low supermarket prices are being cited as the reason for the exodus of dairy farmers. It is therefore futile to expect the supermarkets rescuing farmers in India.

Despite the destruction of farming globally by the supermarkets, the Ministry for Commerce and Industry is gung-ho about allowing foreign direct investment in multi-brand retailing, which means allowing the big players like Wal-Mart and Tesco to swamp the Indian market. “The agriculture sector needs well functioning markets to drive growth, employment and economic prosperity in rural areas,” says a discussion paper drafted by the Department of Industrial Policy and Promotion. I find a number of economists and researchers singing chorus of praise for the role the supermarkets can play.

But do the supermarkets really benefit? Since 2006, India has allowed a partial opening up of the retail sector. Has these retail units benefited the Indian farmers and for that the consumers? The answer is no.

The argument is that the supermarket chains will squeeze out the middlemen thereby providing higher prices to farmers and at the same time provide large investments for the development of post-harvest and cold chain infrastructure. All these claims are untrue, and the big retail has not helped farmers anywhere in the world. Even in Latin American countries, including Brazil, Argentina, Uruguay and Colombia, where supermarkets, most of them owned by multinational giants, now control 65 to 95 per cent of supermarket sales, farmers have been forced to quit agriculture.

If the supermarkets were so efficient and provided dynamism, I would like to know why the US is providing a massive subsidy for agriculture. After all, the world biggest retail giant Wal-mart is based in America and it should have helped American farmers to become economically viable. But it did not happen. American farmers have instead been bailed out by the government, providing a subsidy of Rs 12.50 lakh-crore between 1995 and 2009, and this includes direct income support.

Let me illustrate. Till 1950 in America, a farmer used to receive about 70 per cent of every dollar spent on food. Today, it is no more than 3 to 4 per cent. And that is why the American farmers are being supported in the form of direct income support by the American government.

A latest 2010 report by the Organisation for Economic Cooperation and Development (OECD), a group comprising the richest 30 countries in the world, states explicitly that farm subsidies rose by 22 per cent in 2009, up from 21 per cent in 2008. In just 2009, industrialised countries provided a subsidy of Rs 1,260 billion. And it is primarily for this reason that the farm incomes are lucrative. Take the Netherlands; the average farm family income is 275 per cent of average household income. This is because of the farm subsidies, and not because of supermarkets.

We are therefore importing a failed model from America.

Regarding employment, big retail does not squeeze out middle-men from the food chain. Middle-men by definition mean someone who is between the producer and the consumer. Supermarkets claim that they remove middle-men and therefore are able to provide a higher price to farmers. In reality, what happens is just the opposite. Supermarkets are themselves the big middlemen. They replace the small fish in the trade.

Big fish is known to eat the smaller ones. Supermarkets exactly perform that function. They replace the plethora of small middle-men. The arhtiya clad in a dhoti-curta, is replaced by a smartly dressed up middlemen. An illusion is therefore created as if the supermarkets have removed the middlemen from trading. But in reality, the big boys now share the commission between them. The new battery of middle-men, who replaces the traditional middle-men, are the quality controller, certification agencies, packaging industry, processors, wholesalers etc.