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September 09, 2007

Organized retail vs. the middlemen

Businessworld has an article providing a spirited defense of organized retail against the violent protests and lobbying by the middlemen.

Traditional traders and middlemen are angry about the way organised retailers are changing the age-old rules of their business. For one, the retailers sell superior products at competitive prices in air-conditioned stores in which housewives are happy to spend time. At the other end of the supply chain, the companies’ willingness to pay farmers quickly and fairly for their produce is also cutting out the traditional middlemen. “Most farmers borrow from middlemen at high interest rates,” says C. Sushant Darekar, a farmer in Lonikhalbor near Pune. “They fall into a debt trap of unending repayments if the crops fail.” Darekar says he has doubled earnings since he started selling directly to the Wadhawan Group’s Spinach retail chain and avoiding the price cartel of middlemen in the APMC’s yards. In addition, Darekar is getting guidance on cropping patterns and seeds and fertilisers from Spinach.

Organised retailers do not pay too much in excess of mandi prices. Yet, because middlemen can take up to nine months to pay farmers and the companies pay immediately, farmers prefer to deal with the latter. “With organised retail, farmers get at least 75 per cent of the consumer’s rupee,” says Arvind Choudhary, CEO of the food business of Pantaloon Retail — the owner of Food Bazaar. “With a middleman, they hardly manage 30-40 per cent.”

...If these numbers don’t work, another kind might. After all, going by sheer numbers, the farmers’ vote bank is larger than that of the traders. And their first sound of support for organised retailing has already been sounded on the outskirts of Lucknow.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.