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Resource centre on India's rural distress
 
 

Middle Earth Moguls -Pragya Singh
-Outlook

Good monsoon or bad, glut or drought, boom or bust...it’s always fair weather for the range of middlemen who come between the farmer and consumer. An anatomy of the trade.

One of the axioms of logic is called the Law of the Excluded Middle. Something has to be eit­her true or false—there’s no middle ground. As we all know, economics works a bit differently. Facts can be fickle, data pliable, and different things true at the same time. A kilo of potato can be worth both 11 paise and many multiples of that. Of course, you need to look at both extremes of the food chain to see this. But there’s a zone of stable truth in all this, and for that you need to include the middle. Or personify it. We’re talking of the Middleman, the one with a 900 per cent mark-up.

That’s a bit simplistic, but see it like this. We could be in a raging hyper-inflation, with a kilo of onions going for Rs 150, and consumers getting teary-eyed enough to vote out governments. Or we could be in a crisis such as we see now, where farmers across half of India are so desperate that many consider death by pesticide (and some, by police bullet). But between consumer and producer, there’s a vast middle ground that’s relatively insulated from these cyclical shocks. This is the zone that soaks in the bulk of the mark-up—which could routinely be, say, a mammoth 900 per cent, as we shall see.

Start with Pawan Kumar on his 50-bigha, or 12-acre, farm in Tatarpur, near Hapur, western UP. Last year he sowed potato and, by February, reaped a rich harvest of 1,200 quintal. The prices were rather low at the time—touching Rs 6-8 a kilo, well below the comfort zone of Rs 10-12 he could have managed just before demonetisation. So he stuffed the entire produce into hundreds of 50-kilo sacks—altogether 2,200 such sacks—and packed them off into a cold storage. Then he waited for the summer’s demand spike. But in three months, he got burnt.

In June, amid a bumper harvest, the resulting price crash and all the politics around it, potatoes are changing hands in the Ghazipur mandi in Delhi for Rs 5 to Rs 5.50 per kilo—trader to trader. At Azadpur, another Delhi mandi, prices ranged betw­een Rs 3-17 on Wednesday; the most common varieties were at Rs 5-7. At these rates, you’d think, Pawan Kumar should be getting Rs 250-275 for a 50-kilo sack. But that would be barely breaking even for him. And the reality is starker than that.

“The bichaulia (middleman) is offering me Rs 100 per 50-kilo packet, or Rs 2 per kilo. My cost is at least Rs 5 per kilo. I’m ruined,” says Pawan, who has roughly Rs 8 lakh worth loans to pay off at two local credit societies and a bank. He also cannot afford the rent of storage and has written off the rest of his crop. With India’s overall yield seven per cent higher than last year, which itself was a good crop, the 200-odd potato growers in and around his village face a similar crisis.

Meanwhile, the bichaulia Pawan sold to—the very first middleman in the chain—would have more than doubled the price as he sold onward. The differential between what the farmer got and what the consumer pays is distributed across six or seven such intervening layers, each of which is an essential element, offering a service that makes up the totality of the Indian agriculture bazaar. The profits at each layer too would expand or contract depending on the season, but never enough for governments to topple or suicide rates to climb.

In a simplified graph, here’s how the supply chain works. To cut costs, most potato growers sell their produce to local traders. At this stage, there’s the cold storage, where either the farmer or the first trader rents space. Once at the mandi, a commission agent (called an ‘artia’ in Punjab) buys it off the first middleman. He’s an aggregator, who buys off many such sour­ces, then sorts, grades and packs the produce. (Sorting is also outsourced to another informal layer of workers at the mandi.) Now, the artia’s commission is fixed by law, with state-specific ceilings. Typically, the artia sells to a sub-wholesaler within the same mandi—dealing only in graded, packed potatoes—who in turn sells to a wholesaler in a larger city mandi, such as Delhi, paying for the transport. From here on, there’s a distributor and finally the last vendor from whom you buy. Each time it changes hands, the potato naturally becomes costlier—a service is rendered, a cost incurred, and profits worked in.

The tragedy is that the farmers—and they alone—are bearing the burden of the price crash. It’s business as usual at all points downstream. That the price escalation doesn’t benefit the far­mer becomes obvious at both mandis in Delhi. It’s equally app­arent at the ‘farm gate’. Contacted by Outlook, several potato farmers from Hathras, Hapur, Agra and Aligarh say that if the local bichaulia offers anything under say Rs 6 a kilo, they would not break even. Even if they sell at the farm (avoiding the cost of transporting to the mandi), it still involves packaging into sacks (Rs 10-12 apiece) and often hired labour. These farmers are being offered as little as Rs 1-2 per kilo, even 50 paise.

Sahukar Singh, a farmer in Aligarh who pulled out his potatoes from the cold storage and brought it to Delhi’s Ghazipur, says he spent Rs 230 per 50-kilo packet, including cost of seeds. Each crop also yields new seeds which farmers often sell, but there were fewer seed buyers post-demonetisation, so farmers sowed that too—which also explains the bumper harvest. Sah­ukar grew 50 kg per bigha, paid Rs 126 per pack for storage, and another rupee for transportation to Delhi. “If I won’t earn Rs 6 per kilo, how can I break even? I would have sold it at the farm without storage if I’d known prices would crash,” Singh says.

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