FDI in retail

Emerging Global Food Hub : Possible Consequences
Dipankar Dey

[The debate on allowing foreign direct investment (FDI) in India's retail trade primarily focuses on two issues—employment and consumer welfare. Supporters of this move have developed consumer centric arguments while the opponents are more concerned with its adverse impact on employment. This paper tries to highlight the issue from the perspectives of long term food security and systematic transfer of valuable natural resources like fertile land and water, through virtual mode, to developed word. Fertile land and renewable water sources of the farmers will be used, like womb and blood of a surrogate mother, by the transnational retailers. This article was first presented at a seminar on ‘Contemporary Indian Economic Policies : Deprivation, Destitution and Debates’ organized by the Forum of Development Economics and Institute of Development Studies, Kolkata, March 22, 2013.]

The government's decision to allow 51% FDI in retail trade of India will facilitate the major global retailers to turn India as a major global food sourcing hub, the way they have turned China as the global manufacturing hub. This will encourage large scale export of exotic and varied food items of India, one of the richest countries in the world in terms of biodiversity, to the affluent markets of the North by the transnational retailers.

The Indian government has also decided, in principle, to transfer food subsidies to the bank account of the beneficiaries. If this is done, the existing public distribution system (PSD) along with its five hundred thousand fair price shops (ration dealers) will become defunct and food consumption of the poor is likely to decline further.

The ground for this move was prepared over a long period. Releasing a study done by CII & Yes Bank on "The Indian Processed Food Industry: A Diagnostic Review of Opportunities and Challenges", on the sidelines of the 2nd Processed Food Advantage India 2010, Mr Subodh Kant Sahai, the then Minister for Food Processing Industries, said, "The food processing sector has the potential to become the outsourcing hub for the world and India will be feeding the world in years to come." The Meet was attended by more than 50 International Companies engaged in food processing, retailing etc.1

Earlier initiatives
(a)  During 1960s, through 1st green revolution, US could initiate its control on the food production of the developing countries like India. Rockefeller and Ford Foundations have done the basic job through International Rice Research Institute (IRRI) by introducing fuel and water intensive high yielding varieties (HYV) of crops. IRRI had been set up in 1960 as part of America's efforts to control and direct rice research in Asia, even though America is hardly a rice eating country. A famous plant- breeder had once said, in regard to rice: 'He who controls the supply of rice will control the destiny of the entire Asiatic orbit. The most important thing to the majority of the Asia is not capitalism or socialism or any other political ideology but food which means life itself, and in most of Asia, food is rice."2

(b)  In December, 1974 Henry Kissinger had submitted a confidential report, titled National Security Study Memorandum 200 (NSSM-20)- For US Security and Overseas Interest( also called the Kissinger Report), to US government. On November 26, 1975, NSSM-200 became official foreign policy when it was endorsed by National Security Decision Memorandum 314. The main recommendations of the report were:

*    The United States needs wide access to the mineral resources of less-developed nations (LDCs).
*    The smooth flow of resources to the United States could be jeopardized by LDC government action, labor conflicts, sabotage, or civil disturbances, which are much more likely if population pressure is a factor.
*    Young populations are also much more likely to challenge imperialism and the world's power structures, so their numbers should be kept down if possible.
*    Therefore, the United States of America must develop a commitment to population control among key LDC leaders while bypassing the will of their people.

Kissinger Report identified 13 key nations (India one of them) as the primary targets of population control. And food was considered as one of the major tools through which USA wanted to achieve their objective. Kissinger commented 'if you control the oil, you control the country, if you control the food, you control the population.'

(c)  On July 18, 2005, the Ministry of Agriculture, Government of India and US Department of Agriculture (USDA) agreed to work together for a new India-US Knowledge Initiative on Agriculture Education, Research, Services and Commercial Linkages. They agreed on a Work Plan which included among others3—(i) Education: Preparing graduates to harness science and technology for the pursuit of attaining and sustaining the 'Evergreen Revolution', (ii) Food-processing and marketing, (iii) Biotechnology, (iv) Water Management. To supervise this plan, a Board was created consisting of eminent scientists and representatives from the governments, NGOs and private firms. The honorary members were Dr Norman Borlaug (USA) and Dr M S Swaminathan (India) the architects of 1st Green revolution.4 The private sector representatives in the board were: Monsanto,5 Archer Daniels Midland Company6 and Wal-Mart from USA side and from the Indian side, the representing firms were: Masani Farm7 and ITC Ltd.

(d)  ITC has already taken a major initiative, through e-chopal,8 to establish a sophisticated supply chain to strengthen large corporations' grip on food business. To facilitate this change, the public sector National Bank for Agricultural and Rural Development (NABARD) has initiated, in January 2009, an in-depth study on 'organized agri-food retailing and supply chain management', covering different Indian states and all major agricultural commodities including fruits and vegetables. The ground for the '2nd green revolution' is being prepared at different levels.

The game plan is very clear. Transnational corporations, with the help of their junior Indian partners, will retain total control, from cultivation to retailing, on food industry. Monsanto will supply seeds, pesticides et al, Archer Daniels Midland Company will 'transform crops such as corn, oilseeds, wheat and cocoa into food ingredients, animal feeds, and agriculturally derived fuels and chemicals', and Wal-Mart will market those items through their global retail chains. It is interesting to note that the mainstream left parties, who withdrew support from the UPA-I government on Indo-US nuclear issue, remained silent on this Indo-US Knowledge Initiative

Drivers for FDI in Food Business
EU and USA have taken two distinct approaches to tackle the climate issue and seize the advantages of the new business opportunities it has offered. While EU tried to address the cause of global warming, 'mitigation strategy', by promoting clean technology,9 as a late entrant to this emerging market, the USA has put its thrust on 'adaptation strategy' to reduce the adverse impact of climate change on food production.

(i)   EU strategy to import food: Being a sparsely populated region with moderately low demand for food grains EU has put more importance in promoting market for quality food products grown mostly through organic farming.10 European Union will emerge as one of the largest importers of food grain by 2013. The EU is already the biggest market for Third World foodstuffs.11

(ii)  USA strategy to control food: USA continues with their strategy to remain focused on global food market, especially in the densely populated Asian and African regions, where the demand for food has been growing steadily. As before, the present push is on mass production through diffusion of new farming technology, including genetically modified seeds (GMS), across the globe. Obama administration sees 'chronic hunger' as a key priority of their foreign policy. According to the US administration, 'food security' is not only about food. 'It represents the convergence of complex issues: drought and floods caused by climate change, swings in the global economy that affect food prices and threaten the fate of vital infrastructure projects, and spikes in the price of oil that increase transportation cost'.13 The Indo-US Knowledge Initiative on Agriculture Education, Research, Services and Commercial Linkages, as mentioned earlier, is a major part of this US strategy.

(iii) Saving Water for Future: European Union (EU) and other developed nations have taken a conscious decision to save their scarce water resources by shifting the burden of cultivation to developing countries. Through this strategy major economies of Europe (also USA) have successfully brought down their present water usage for the benefit of their future generations. India, however, has followed a suicidal policy of exhausting this vital natural resource.

How could countries like The Netherlands and Germany reduce the use of fresh water? The 'water import dependence' (WID) data of a few major economies of Europe and USA will explain the above observation. WID (expressed in %), is the ratio between 'water footprint' of a country's import and its total water foot prints. The higher the ratio, the more a country depends on outside water sources.

During 1997-2001, the 'water import dependence' of the Netherlands, UK, Germany, Italy France and Spain were 82%, 70% ,53%, 51%, 37% and 36% respectively. The corresponding figures for India, Bangladesh, China, and Brazil are 2%, 3%, 7% and 8%. And the WID of Japan and USA, during that period, were 64% and 19%.14 Thus during 1997-2001 the Netherlands could cut, through imports, the country's 'total water foot prints' by 82%! This explains how The Netherlands could reduce their fresh water withdrawal rate (as % of the total renewable water resources) to 12.6% during 2003-2007 from as high as 71.0% during 1978-97.15

The concept of 'virtual water' will help to understand this mechanism better. Virtual/embedded water is the amount of water used in the production of food, energy and other products. It is the embedded water content of a product. The idea of 'virtual water trade' is gaining importance. It has been claimed that one solution to water scarcity involves accounting for the 'virtual water' when designing trade policy. Suggestions have been made to set up a 'virtual water-trading council', under the World Trade Organization (WTO), to help 'manage both real and virtual water resources for the world's booming population'.16

Possible Consequences
(i)    Siphoning off water: If a country, say The Netherlands, decides to rely more on water intensive imported food, it can save enormous amount of its own water which otherwise would have been used for cultivation. For example, to produce one ton of wheat, say, 1160 cubic meters of water is required. That means, 1160 cubic meters of water get embedded in one ton of wheat. Thus if India exports one ton of wheat to Europe then there is a virtual flow of 1160 cubic meters of water from India and Europe saves equal amount of water.

(ii)   Fertile lands for cultivation of exportable items: The organic farmers, under contractual obligation to supply export quality products to transnational retailers like Wal-Mart for their global consumers of Europe and America, will increasingly rely on high grade fertile land for cultivation. A part of these organic foods will be sold, to the affluent domestic consumers, through organized retail chains. And for the remaining hungry millions, low grade grains will be cultivated, in arid and saline land, using genetically modified seeds and arsenic contaminated ground water. The fertile lands of this tropical region will be used by the global retailers as the womb of a surrogate mother. History reminds that during 18th century the East India Company forced Bengal farmers to cultivate indigo in their fertile land. Organic indigo was exported to England for dyeing clothes made in cotton mills. Later when synthetic dye had been invented in Germany, demand for Indian indigo plummeted and farmers of Bengal faced severe starvation and death.

(iii)  Rapid erosion of income of the farmers: In USA, by 1997, supermarkets and bigger 'super-centers' owned by companies like Wal-Mart and Kroger controlled 92 per cent of fresh-produce retailing. In the UK, by 2003, just five supermarket chains controlled 70 per cent of the market. Experiences of the countries, where large retailers controlled the food market, suggest rapid erosion of income of the farmers—particularly the small and marginal farmers. Oxfam (2004) study revealed that while exporting apple from Africa to Europe, the African farmers as a whole got only 9% of the total price of an exported apple, the overseas retailers in UK corners 42% share and the rest went to other stakeholders like agents, packers, transporters et al. In 1981, a UN study also suggested similar picture of deprivation of local producers.17

(iv)  Loss of biodiversity: Researchers have observed that the global food chain (the 'global vending machine') makes production of diversified local food obsolete. It encourages chemical intensive monoculture and global homogenization of food aiming at 'culinary imperialism'. This model of food distribution challenges the food security of a region by destroying the local self-efficiency and making it highly dependent on imports. Local communities can suffer if farmers replace staple crops for local consumption with exports crops. For example as recently as 1965, Britain was largely self-sufficient in dessert apples (apples for direct consumption, not for canning or baking). There are over 2,000 varieties—that ripened and were harvested throughout the year. During last three decades, as less expensive apples entered Britain from abroad and as supermarkets and apple processors required higher degrees of standardization, British farmers replaced 60 percent of their apple orchards with other crops. After three and a half decades, only 25 percent of the apples eaten in Britain were home-grown. British orchards are now dominated by two or three "commercially desirable" varieties with a relatively narrow harvest season, crippling the potential to regain self-sufficiency.18 Because of Green Revolution the Indian sub-continent has already lost thousands of varieties of grain.19 Transnational retailers will destroy the rest.

(v)   Food Security at Stake: The Indian government has decided, in principle, to transfer food subsidies to the bank account of the beneficiaries. If this is done, the food consumption of the poor is likely to decline further20 as part of the money might be spent for buying non-food items. This possibility of fund diversion is very high as bank accounts in India are mostly opened in the name of the male member of the family and unlike mothers; procurement of food for the children is not always the top priority of the fathers. Direct cash transfer will also make the public distribution system (PDS) defunct. The Food Corporation of India (FCI) along with its five hundred thousand odd fair price shops (ration dealers) will become redundant. Eventually FCI godowns and the ration dealers' network will be taken over by global retailers like Wal-Marts at a throw-away price. The ration dealers will turn to procurement and sales agents of global retailers. They will procure exotic food items for export and would sale GM seeds, pesticides, low grade imported grains, and animal feeds et al to millions of poor farmers. The food security of a large section of the population will be at risk.

(vi)  Emergence of an Indigo Economy: The world is increasingly getting divided between the 'green' and 'indigo economies'.21 The 'indigo economy' represents economic activities which primarily use dirty and polluting production process. This also represents an economic program that is mostly meant for global markets and is detrimental, as was the case of indigo plantation of the 18th century, to the large section of the local population. While the citizens of the importing countries of the North, would consume 'green products', large number of the underprivileged population of Southern countries like India would lose their basic rights on water and safe food. The transnational water utilities will take charge of the municipal water distribution services22 and the fertile lands will be used to produce exotic foods for the affluent consumers. The developed economies are becoming 'green' at the expense of the developing economies which are turning 'indigo' by absorbing increasing amount of 'Franken foods' and industrial pollutants, including nuclear radiation. ooo

References and Notes :
1.    http://www.cii.in/NewsRoom.aspx?enc =SO0\va+TYDvk3FXKFOlbi)I
2.   Claude Alvares, The great gene robbery, The Illustrated Weekly of India, March 23, 1986
3.   Government of India, Ministry of Agriculture, Department of Agricultural Research and Education (DARE), Indo-US Knowledge Initiative on Agriculture, http://dare.nic.in/contact_us.htm
4.   For details see, Claude Alvares, The great gene robbery, The Illustrated Weekly of India, March 23, 1986.
5.   The Transnational seed farm which promotes GM seeds
6.   Archer Daniels Midland Company transform crops such as corn, oilseeds, wheat and cocoa into food ingredients, animal feeds, and agriculturally derived fuels and chemicals. With crop sourcing, transportation, storage and processing assets in more than 60 countries, ADM connects farmers' crops with the needs of the global marketplace. See company web site http:/Avww.admworld.com/cn-US/Pagcs/dcfault.aspx, visited on 18th March 2010
7.   An Indian think tank who promotes US farming practices and contract farming
8.   e Choupal is an initiative of ITC Limited to link directly with rural farmers for procurement of agricultural / aquaculture produce like soybeans, wheat, coffee, and prawns. e-Choupal was conceived to tackle the challenges posed by the unique features of Indian agriculture, characterized by fragmented farms, weak infrastructure and the involvement of numerous intermediaries. Each ITC Limited kiosk having an access to Internet is run by a sanchalak—a trained farmer.
9.   The British Prime Minister Gordon Brown's statement (March 2009) on this is a case in point. According to him, investment in "green" projects will create hundreds of thousands of jobs and could help put the world's ailing economy on the path to recovery. Spending money on environmentally friendly infrastructure and new technology will create 400,000 new jobs in Britain alone over the next eight years. The investment will form part of a global "Green New Deal" that aims to restore growth while dealing with climate change and energy security. "(It is) an opportunity to tackle our over-dependence on oil and to meet our three interlinked objectives—energy security, climate change and job creation—together", he said. See UK's Brown: "Green New Deal" will help fix economy, March 6,2009, http://www.alertnet.Org/thenew:j/newsdesk7l,5661912.htm, visited on September 30, 2009
10.  See the "Good for nature, good for you" campaign, http://ec.europa.eu/agriculture/quality/
11.   http://vvvvw.eurunion.org/eu/indcx2.php? option=com_content&do_pdf=l&icl=40. May 6, 2009
12.  Dey, Dipankar, The Second Green Revolution in India: The Emerging Contradictions, Consequences and the Need for an Alternative Initiative (August 12, 2009). Available at SSRN: http://ssrn.com/abstractH447795
13.  Hillary Rodham Clinton, US Secretary of State, World without hunger. The Times of India, October 16, 2009
14.  See Gardner G (August 6, 2009), Water Scarcity Looms, World Watch Institute, http://www.worldwatch.org/node/6213? emc=el&m=279787&l=4&v=a274235068
15.  UNDP, HDR 2000, 2011.
16.  See, Virtual water trading could benefit developing countries, February 13, 2007. http://www.unisa.edu.au/news/2007/130207
17.  For details, see Dey (2007), GATS and Translational Retailing: Few Concerns and Challenges, ICFAI Journal for Management Research, Jun-2007
18.  Halwell B, 2002, 'Home Grown', The Case for Local Food in a Global Market, Worldwatch Paper 163, The Worldwatch Institute.
19.  As per Dr Richaria's (former Director, Central Rice Research Institute, India) estimate India was home to nearly 200,000 varieties of rice. See Claude Alvares; op cit...
20. Net availability of food grains (cereals and pulses per capita per day) has declined over years. In 1961 it was 468.7gm. In 2009 the corresponding fig was 444gm. The mail decline (from 69 gm to 37 gm) was in pulses- the main source of protein for the poor. The decline between 1991 and 2009 (the period of liberalization and high growth) was very steep. Net availability declined from 510.1gm to 444 gm. See, Agricultural Statistics at a Glance, 2010, Ministry of Agriculture, Govt of India.
21.  See, Dey, Dipankar (2010), Of Global Warming and Indigo Economy, The Frontier Weekly, Vol.43, No.6, August 22-28, 2010. Also available at SSRN: http://ssrn.com/abstracl=1601269.

Frontier
Vol. 45, No. 43, -May 5-11, 2013

Your Comment if any