Fdi in Retail Without Enhanced Social Security Will Be Suicidal

A lot of well off and educated sections of our society are rooting for FDI in retail. There seems to be a disappointment among the middle/upper middle class consumers and the corporate world that the Government of India has put this policy on hold. There was an article published in The Telegraph on 5th December 2011 titled “How Bengal gains from FDI: Experiment that protected 6500 farmers from a curse.”
The article describes how in some districts of Bengal, Pepsico company has brought economic gain and security to several farmers, including the small ones, who have agreed to grow and sell a special grade of ‘Pepsi potatoes’ to the company. It reports that Pepsi buys potatoes through the vendors at a fixed price that is much higher than the wholesale price or prevailing local market price. These vendors are typically big traders, dealers or even big farmers. The article makes a point that the small farmers who sell ‘Pepsi potatoes’ to these vendors are better off than the former situation in which they were dependent on and exploited by the local “Mahajan”. Through this example the article makes the concluding point that FDI in retail will bring in more such economic benefit to many more such small farmers. The article, in a way, presents the best possible argument about how FDI in retail will benefit small farmers.
The article is of course written with half facts selected to suit its tenor. What is describes is not representative of what Pepsi or similar firms normally do. Pepsi (Frito Lay, in this case) does not deal directly with small farmers. As the article itself mentions, it deals with intermediaries or with large farmers to cut down its transaction costs. If at all some small farmers are at one end of this chain, they have to interface with bigger intermediaries, and get low price because of their poor bargaining position. Frito Lay does indulge in long term forward and fixed price procurement with big agricultural traders and agents. In the process Frito...