The recent fiasco over the strict enforcement of a law making it mandatory for the wholesale traders and vegetable transporters to use plastic crates was diffused after the intervention of the head of state who has given a month's grace period for the implementation.
Many views have been expressed about this exercise. Modernization of the system through productivity would offset the cost and other disadvantages of the project as proven in many other developing countries including India. It is the method of implementation which has gone wrong.
Usage of suitable crates, plastic or not, especially for fresh vegetables and fruits is no doubt of immense benefit by way of reducing costs and minimizing waste which is now said to be around 40%. The primary objective of this exercise is to give a higher income to the farmer and a lower price and good quality produce to the consumer which is perfect as an objective. It is known that farmer income could be increased by 20% when total integration of the supply chain takes place and wastage reduced to 5%. What the government is going to do is to compel the intermediaries in the supply chain in vegetables, specifically the wholesalers and transporters, to comply with an inevitable need of the modern supply chain.
This is only partial integration. The fault is that it will not bring the expected result of increasing farmer income and reducing costs. Transportation in crates ideally has to begin from the farm gate and end with the retailer which means that the new law has to be complied with by all concerned in the chain starting from the farmer with the exception of the consumer. There is going to be only a very minimal benefit in enforcing the law to the transporters and wholesalers/traders alone.
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Then the question arises whether such total integration of the supply chain is practical in the existing marketing channels. The present archaic system is driven by the sole objective of exploitation, nothing else, when the driving objective should be satisfying the needs of the farmer and the consumer.
It is necessary to understand the inefficiencies in the present infrastructure set up of agriculture marketing which consequently results in an inefficient Wholesale market. A main drawback is the existence of multiple intermediaries causing low realization to the farmer, high losses and high prices to the consumer.
Most of the lower level markets such as the "pola" and the "kadam andi" markets are underdeveloped and over 90% are periodic and lacking in facilities. The farmers deal with collectors, commission traders, wholesalers. The numbers of growers who bring their vegetables to the government managed economic centres are a minority. In Sri Lanka, the farmers have a strong bond with these intermediaries contrary to the perception that the intermediary is a swindler. Though the numbers of farmers who bring their produce to the Government managed Dedicated Economic Centres (DECs) might show high numbers, many are collectors or traders who operate under the guise of farmers. They may even do some farming while their main activity is collecting.
The evil picture of the middleman is not always correct. The collector or the wholesaler mostly buys the produce from the farmer on credit and the settlements are made only when the produce are sold. Besides, many intermediaries are considered as personal friends in need who will offer credit for contingency expenditure of the farmer family. Therefore these numerous intermediaries of the traditional inefficient channel of very low productivity have become an integral part in our country's economy. I have great doubt that the way government is going about implementing a totally integrated vegetable marketing system in Sri Lanka will give the expected result of increasing farmer income or reducing the cost to the consumer because some other developing countries in South America, Africa and specially India have done this successfully in a completely different manner adopting the same concepts and methods which Sri Lanka is trying to adopt through enforcement in an existing channel that is well behind times.
The DECs project was started in 1998 with the worthy vision of improving the productivity of the agriculture marketing channels and it was expected to be done through modern efficiencies in backward and forward integration. While the government owned the infrastructure (buildings only) the traders were private wholesalers. The board of governors is appointed by the government and generally a person of Additional Secretary level at the Ministry of Trade is the Chairman. However this seemingly modern idea was distinctive from the totally state owned and operated channels that existed at that time such as now defunct marketing department, Markfed and Sathosa. The private sector traders and wholesalers still dominated. The DECs, now 12 in number have not been able to serve the purpose for which they were established due mainly to political interests taking precedence over the other economic objectives thereby making most of them political strongholds where middlemen with full patronage of the political strongmen of the areas have made them their power bases rather than serving farmers and consumers.
The DECs are just another link in the marketing channel adding to costs of the produce. The millionaire wholesalers obviously are funding their political masters and in return they are protected and allowed to hold sway in the market. In these circumstances any major overhaul of the system could be manipulated in a manner advantageous to the trader than consumer or the producer. The wholesalers will still pay the same low prices to the farmers and keep unconscionable margins when selling to the consumer. For instance, there have been occasions where Nuwara Eliya vegetables brought to Dambulla DEC for transportation to other parts of the country have gone back to Nuwara Eliya for resale during April season.
The reason is pretty obvious. It is vividly etched in my mind how a few years ago during my tenure in the CWE, a political strong man in an area famous for onions totally overruled and sabotaged the CWE entering into forward contracts with onion growers for purchase of onions from the farmers in his area directly and nominated one of his henchmen as a chairman of a fake farmer organization from whom the CWE was directed to purchase the onions. This chairman of the farmer organization in fact was a commission agent. The Central Bank sponsored forward contract programme which was of immense benefit to the farmer could not be implemented in the state sector as a consequence.
One cannot rule out such circumstances even now. The use of plastic crates is mandatory only to the wholesaler and the transporter. The farmer and the retailer are excluded. Possibly the implementation strategy is to gradually enforce it to the farmers in a softer manner. My frank view is that the government should not open any more DEC's or try to make mandatory any of the requirements of a modern productive and efficient marketing channels for agricultural produce. Let this archaic system die a natural death or become unimportant. But how can this are done?
It is appropriate to take India as an example to examine how this change is rapidly occurring very successfully in that country. Some private sector companies in Sri Lanka too have done a total integration process of agricultural produce very successfully and a supermarket chain has been able to sell very good quality vegetables at a lower price or a competitive price to that of the existing open market. It is reported that the wastage is 5% and the dedicated number of farmers in the chain numbers over 1000.
My umpteen number of visits and interactions in a long career in matters relating to procurement of agricultural produce such as onions, potatoes, dhal, dried chillies, coriander, garlic and rice from India enabled me to closely interact with major state sector players, private sector traders, companies, famers in many states of India and I have seen the strides taken by the Indian agricultural marketing channels towards modernization.
The change is remarkable. The responsibility of managing marketing channels for agricultural produce has been gradually taken over by the private sector companies that are selected by a government bidding process. The setting up of the channels according to guidelines spelt out by the government is the responsibility of the companies.
I must not fail to mention here that this is not like some privatization that has taken place in Sri Lanka to plunder state assets, but is a practically possible and proven symbiosis of state and private sector. This is very much a state facilitated and guided system.
The difference is that the most suitable companies with proven track records and the professionalism are selected. The main equity holder is a company selected by a two stage bidding process. 20% to 40% of equity is subsidized by the government depending on the area but the government is not a shareholder and has no role other than monitoring to ensure that the company comply with required standards. Only the professionals selected by the company manage it.
The farmer to retailer link is straight and there are less or no superfluous intermediaries. Producer and consumer satisfaction is very high. It is known as the hub and spokes channel. The hub is known as a terminal market situated in a major city or a town. The spokes connect the hub straight, without or a minimum of intermediaries.
The hub offers facilities such as export processing, stocks for wholesale and retail trading, cold storage, temperature and sunlight controlled storage, ripening chambers, pack houses, quality testing facilities, cool chain transport, payments and market information. Farmers bring produce to collecting and grading centres set up by the company in close vicinity to the farm in crates having cleaned and graded them.
Further cleaning and grading is done at the collecting centres.
Though farmers/out growers are dedicated to the company they have the freedom to select the buyer. But the Indian farmers are quite satisfied and happy with the companies and they stick to them. Most farmers are changing to agribusiness and are no longer subsistence farmers. Modern methods of increasing productivity are inculcated among all stake holders by the company.
The farmer has instant information about the market, especially the prices, electronically conveyed at the farm. The sale of produce at the terminal market is based on electronic auctions and no middleman holds anybody to ransom or manipulate the system. Yet the traditional systems in India have not totally gone away and run parallel with the system. The government does not meddle with it. But one can see it being given tough competition to exist.
I am of the firm belief that the government is making a grave mistake. It will be prudent to rethink this idea and see whether operating a terminal market system with the collaboration of private sector initially as a pilot project is a better option with whatever the adjustments necessary to local conditions. Terminal Markets is not an Indian idea but appears to be borrowed from developed countries with adjustments in line with Indian market condition.
I am fully aware that government finds it difficult to subsidize the services to its people. This should not be such a subsidy but only a start-up support to genuine companies having the expertise. A government which was confident that it could find the funds for holding Commonwealth Games 2018 should be able to find lesser amounts required for this kind of project through private sector participation.
Let the present system remain with no more DECs. The government need not be shy to get guidance from the private companies that have already done this locally, though in a small way. Such a private sector terminal market is a vital necessity in Colombo to compete with the Manning Market - a hotbed of inefficiency, waste and exploitation.
(The writer is a former General Manager of Sathosa) |
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