COMMENTARY
Implications of FDI
in Food Supermarkets
Sukhpal Singh
This survey of the global and
Indian experience with retail
supermarkets, against the
backdrop of a recent official paper
on foreign investment in retail,
highlights malpractices due to
buying power, employment loss
in the value chain, and an
unwillingness to share the risk
of the growers.
In this context, it would be
prudent to slow down
supermarket expansion by using
mechanisms such as zoning,
business licences and trading
restrictions. Measures to ensure
smooth functioning of the
contract farming system should
include strengthening
competition laws to limit buying
power, providing legal protection
to contract growers and
encouraging farmer cooperatives
and producer groups.
Sukhpal Singh (sukhpal@iimahd.ernet.in)
is at the Indian Institute of Management,
Ahmedabad.
Economic & Political Weekly  EPW   august 21, 2010  vol xlv no 34
T
he discussion paper “Foreign Direct
Investment in Multi-Brand Retail
Trading” put up by the Department of
Industrial Policy and Promotion (DIPP) for
public comment on 6 July 2010 describes
the various aspects of the Indian retail
sector like its size and nature, recent
growth, and its economic and social sig-
nificance besides the limitations of the
present set-up. It then examines the posi-
tive and negative implications of foreign di-
rect investment (FDI) in the retail sector
based on the reports of various commit-
tees/institutions/bodies – academic and
business, official and non-official.
This article discusses the existing super-
market experience in India in the perishable
produce sector – fruits and vegetables (F&V)
– and examines the global experience of
supermarket practices. It also looks at the
implications for smallholders and traditional
retailers, and regulatory issues and mech-
anisms for protecting their interests.
Indian Supermarket Experience
The operations of F&V retail chains in India
have, so far, not made any difference to the
share of the producer in the consumer’s
rupee (a major and valid concern of the
DIPP paper), other than lowering the cost of
marketing of the producer, as retail chains
have collection centres in producing areas
unlike the Agricultural Produce Marketing
Committee (APMC) mandis (markets) which
are located in distant cities. The retail
chains, however, buy only “A” grade pro-
duce and only a part of the farmers’ output,
even if all of it is “A” grade. The farmers end
up going to the APMC mandi to sell the re-
maining or rejected produce.
Recent studies across chains and states
reveal that the chains (with the exception
of one or two) procured from relatively
resourceful “contact” farmers without any
contract or commitment to buy regularly
(Singh and Singla 2010; Pritchard et al
2010). Thus, there was little involvement on
the part of supermarket chains with the
producers and improvement in supply chain
efficiency was absent, which is also reflect-
ed in the performance of these chains. The
latter has been miserable as most of these
chains have either closed down or are scal-
ing down their store and procurement
operations. Subhiksha is not in the market
anymore, Spencer’s has moved out of
Gujarat, ITC has shut shop in Chandigarh
and Birla’s More is also reported to have
wound up its operations in Gujarat. Some
of these like Namdhari Fresh, Fresh@,
Spencer’s, More and Reliance Fresh still
operate, though only in the south. On the
other hand, 33%-60% of the traditional
F&V retailers (vendors) reported 15%-30%
decline in footfalls, 10%-30% decline in sales
and 20%-30% decline in income across
Bangalore, Ahmedabad and Chandigarh.
The largest impact was felt in Bangalore, a
city with high levels of supermarket penetra-
tion (Pritchard et al 2010) and the least was
in Chandigarh. Roadside retailers suffered
the most, followed by roadside-cum-home
delivery retailers. A majority of them pointed
to the modern supermarkets as the major
reason for this loss (Singh and Singla 2010).
Growers: Beneficiaries or Losers?
The DIPP paper highlights the case of F&V
with estimates of wastages and value
addition potential, for justifying the need
for FDI for supply chain improvements.
But F&V crops account for only 2% of the
gross cropped area in India and suffer
from lack of production and/or market
risk management at the farmer level due to
high cost of inputs, high quality standards
in markets, absence of minimum support
price, high yield risk, and low bargaining
power of growers. Further, by and large,
supermarket retail chains do not work with
small­holders due to higher transaction
costs. Therefore, the noise about small-
holder benefit in high value crops due to
retail chain linkage is exaggerated and
the linkage is either weak or absent.
An important question in the supermarket
chain linkage is why do chains, in general,
and those in India in particular, have only
informal arrangements with growers in-
stead of contract farming? The answer lies in
the unwillingness of supermarkets to share
the risk of the growers. The system of infor-
mal arrangements and consignments places
the financial risks solely with the producers/
17
COMMENTARY
suppliers and the supermarkets need to
maintain no stocks, carry no price risk, and
have no purchase commitments. But they
still have control over production and its
traceability; they enjoy reduced risk of low-
quality produce; and they pay lower prices
as there are no intermediaries. This puts
farming businesses under pressure which is
passed on to the workers on the farms, who
are often women (Stichele et al 2006).
The supermarket chains give market-
price-based prices to their supplying “con-
tact farmers”. Given that in India, market
prices fluctuate so widely during the season
and across seasons, is this a fair practice?
Why not work prices backward or forward
based on the market price of final products
or cost of production? Further, if market
prices are so efficient, why do the chains go
to growers? This is a serious issue as even a
significant premium over the market price
may not benefit the farmer if open market
prices go down significantly, a phenomenon
not uncommon in India. Even in organic
produce supply chains, this is the norm and
there is little transparency in pricing and
costing of operations of private organisers
of such projects (IFAD 2005; Singh 2009).
On the retailing end side, there have been
some corporate social responsibility (CSR)
initiatives by supermarket chains to rope in
traditional F&V sellers into their operations,
though most of these have been unsuccess-
ful. For instance, to keep local traditional
F&V retailers (vendors) in business, ITC
Choupal Fresh had provided them push-
carts to sell its perishable produce,  but
this did not succeed and had to be discon-
tinued. Similarly, Best Price Wholesale of
Walmart-Bharti has financed about a dozen
pushcart vendors in Amritsar but the initia-
tive did not take off. On the other hand, an
initiative by a local businessperson in
Ahmedabad – under the brand name of
Harra Fresh – seems to be more promising.
It involves former traditional F&V retailers
selling perishables in mobile vans which
have computerised billing and weighing
system. The vans serve identified housing
colonies/areas on a fixed day and time,
and customers benefit from doorstep
delivery of fresh fruits and vegetables.
Supermarket Practices
The DIPP paper highlights the concerns
about the likely negative impact of FDI in
18
retail on traditional food retailers. How-
ever, the argument that domestic corpo-
rate investors in retail are at a nascent
stage is not logical – how are the domestic
players any better than foreign players so
far as implications of retail investment for
poor producers/suppliers and traditional
retailers are concerned? But if one considers
the impact of FDI on local firms and systems,
it is important to realise that the diffusion
of ideas from transnational corporations
(TNCs, read “global supermarkets”) to local
firms is not automatic. Also, the growing
competitive pressures, resulting from dis-
tributional benefits and market power of
supermarkets, may even negatively affect
the productivity and ability of local enter-
prises (Durand 2007).
Sketchy Description
The experiences of various countries cited
in the DIPP paper are sketchy and not
based on any analysis or insights. In the
case of Indonesia, the zoning policy to re-
strict the impact of retail chains on local
retailers is not even mentioned. In Mexico,
modern retail workers suffered a wage de-
crease of 18% between 1994 and 2003 and
the retail sector wages were 14% lower
than those in the manufacturing sector.
Wal-Mart’s imports into Mexico were 3.5%
of consumption goods imports, 0.5% of
global imports, and contributed negatively
to the Mexican trade deficit in 2002 (ibid).
If the supermarket concentration in the
western markets is any indication, a few
players are likely to dominate the food sec-
tor over time and then dictate terms to the
suppliers and buyers. In 2007, five major
chains accounted for more than 50% of
retail sales in most of the European Union
countries; even as much as 70%-80% of the
retail market in Denmark and Finland. Fur-
ther, consolidation was also indicated by
the increasing size of stores and a decline in
the number of stores per capita by 10%-15%
during 2002-07 in countries like the United
Kingdom (UK), Finland and the Netherlands.
Further, own brands of these supermarkets
accounted for a major share of the total
sales, i e, 43% in the UK, 40% in Denmark
and 42% in Belgium (Bukeviciute et al
2009). Thus, rapid rise of supermarket
chains would lead to concentration of mar-
ket power, with upstream suppliers facing
buyer power in terms of lower prices and
august 21, 2010  vol xlv no 34  EPW   Economic & Political Weekly
higher private standards, and the down-
stream buyers (consumers) facing higher
prices due to lower competition.
The implications of the rise of supermar-
kets for farmers do not come from the type
of store but from the methods of procure-
ment used and the quality standards ap-
plied (Chen et al 2005). Supermarkets
have multiple channels through the sys-
tem of category management, and suppli-
ers range from spot markets, or traditional
wholesalers, to preferred suppliers and
direct contracts with independent large
growers, with the latter two increasing in
importance. Carrefour, Malaysia’s fresh
fruit and vegetable supply chain was made
up of wholesalers (41% of total supplies),
semi-direct suppliers (wholesalers and sup-
pliers) (41%), and direct suppliers (18%).
Similarly, GIANT, another supermarket in
Malaysia, which in 2002 had 200 vegetable
suppliers, reduced them to only 30 in 2004
which included specialised wholesalers,
general wholesalers, farmers with oral con-
tracts, and suppliers without contracts.
Similar was the case of TOPS in Thailand
which had 250 suppliers to begin with (Chen
et al 2005). This is known as “supplier ra-
tionalisation” in supermarket terminology.
Though supermarkets initially offered
higher prices to producers than those of-
fered by traditional channels, farmers also
incurred extra costs like processing and
packaging, marketing, transport, and other
transaction costs unlike their counterparts
in traditional channels (Cadilhon et al 2006).
Due to the sheer size of supermarkets and
consequent buying power, the producer
prices may be depressed. For example, in
the UK, there was a negative relation be-
tween the relative market share of a super-
market and price paid to the suppliers in
relation to the average price. The larger
the market share of a supermarket, the
lower was the price paid to the suppliers.
The UK supermarket chain Tesco paid its
suppliers a price 4% below the average price
paid by retailers due to its buying power
(Stichele et al 2006). This lower producer
price does not necessarily result in lower
consumer price (Durand 2007).
Malpractices and Cost-Cutting
There have been a large number of super-
market malpractices in the UK and France
due to the buyer power they possess. These

include (i) payment to be on the supplier
list (listing fees), (ii) threats of delisting if
supplier price is not low enough, (iii) pay-
ment from producers for various promo-
tions and opening of new stores, (iv) rebate
from producers as a percentage of their su-
permarket sales, and (v) minus margins
whereby suppliers are not allowed to supply
at prices higher than the competitor price
(Chen et al 2005; Stichele et al 2006).
Where they deal with growers directly,
malpractices employed by supermarkets are
(i) delayed payments, despite regulations to
pay within a week in countries like Malaysia,
(ii) lowering prices at the last minute when
supplier has no alternative, (iii) changing
quantity and quality standards without
notice and support, (iv) just-in-time systems
to avoid storage and inventory costs, (v) re-
moving suppliers from list without good
reason, (vi) charging high interest on credit,
and (vii) using contracts that cannot be
enforced by suppliers (Stichele et al 2006).
Even in Asian developing countries,
supermarket supplies suffer from the follow-
ing: (i) supermarket orders can go up and
down dramatically as there are no long-term
commitments or written contracts, (ii) pur-
chase prices are often negotiated for a fixed
period, such as a week, but are renegotiated
(only downwards) by supermarkets if
market prices decline during that period,
(iii) promotion fees are charged from sup-
pliers where a product or range of fresh
produce is featured in an in-store promotion,
(iv) discounts for new stores, and (v) pen-
alties are invariably levied for failing to
supply agreed quantities (Chen et al 2005).
These practices hamper upgrading of sup-
pliers into better producers and into pro­
cessing and marketing (Stichele et al 2006).
Supermarket expansion also leads to
employment loss in the value chain. Metro
Cash & Carry employed 1.2 workers per
tonne of tomatoes sold in Vietnam com-
pared with 2.9 workers employed by tradi-
tional wholesale channel for the same
quantity sold (Cadlihon et al 2006). The
spread of supermarkets led to a 14% reduc-
tion in the share of “mom and pop” stores
in Thailand which was cornered by foreign
supermarket chains within four years
(Stichele et al 2006). On the other hand, in
supermarket stores, low wages, job cuts,
long and irregular working hours, and
non-contract workers are reported as
Economic & Political Weekly  EPW   august 21, 2010  vol xlv no 34
strategies to cut labour costs. Thus, nega-
tive impact of supermarkets include exclu-
sion and squeezing out of small producers,
loss of jobs in the traditional markets, and
decline of the traditional wholesale markets
which may be important for small produc-
ers and workers (Cadilhon et al 2006).
Supermarkets also resort to unfair and
unethical practices. Carrefour was fined in
South Korea for unfair business practices,
i e, forcing suppliers to cut prices to save a
1.737 billion Won supply order for 10 months
in 2005. It was also fined $1,70,000 by the
Indonesian Business Competition Authority
(KPPU) in 2005 for not sourcing goods from a
listed supplier who then went bankrupt,
which was considered an unfair competi-
tion practice. It was also asked to stop mi-
nus margin practices. Its agreement was
found to include listing fees, fixed rebate,
minus margin, terms of payment, regular
discount, common assortment cost, opening
cost/new store, fees for bi-weekly advertise-
ments and penalties (Stichele et al 2006).
Regulation of Supermarkets
The biggest fear in India is not that the
FDI per se will be more disadvantageous
for farmers or traditional retailers than
domestic corporate investment; it is that
the government and its agencies may not
be able to regulate and monitor the opera-
tions of the global retailers. If the monitor-
ing of wholesale “cash and carry” stores so
far is anything to go by, there is no regulation
and existing players are openly flouting the
norms at the store level. They are known to
carry out retail sales in the garb of wholesale,
as the size of a single purchase (minimum
ticket size) was just Rs 500 in one store and
Rs 1,000 in case of another store. These are
self-imposed limits and do not seem to be
governed by any regulation. This raises
questions about the effectiveness of regula-
tion of retail space in India. Also, retail buy-
ers can easily use the ID cards issued by
these stores because as long as you hold a
card, no further questions are asked at the
entry to the stores. Individual buyers pur-
chase in a group on one card. Thus, one sees
more of families and women in these stores
than business heads or their employees.
Further, some of these wholesale stores also
sell F&Vs in retail with the minimum pur-
chase quantity being only 1 kg. Thus, effec-
tively, they are operating in the retail space.
COMMENTARY
Given the global and the Indian experi-
ence so far, it is important to slow down
food supermarket expansion by using mech-
anisms such as zoning, business licences,
and trading restrictions. There are several
instances in other countries where large
stores are kept away from the traditional
markets. Hypermarkets are not allowed
within 3.5 km of housing estates or city cen-
tres in Malaysia. Indonesia prohibits hyper-
markets within 500 m of traditional mar-
kets, and large stores of more than 40,000
sq ft are to be at least 2.5 km from tradi-
tional markets (Srivathsan 2007).
Further, there is a need to limit the buy-
ing power of supermarkets by strengthen-
ing competition laws. This can be initiated
by establishing or improving contract regu-
lations as in the form of legal acts in the US
and Argentina. Legal protection to contract
growers as a group must be considered to
protect them from ill-effects of procure-
ment practised by supermarkets. There are
cases of legal protection given to subcon-
tracting industries in Japan in their rela-
tions with large firms. These laws specify
the duties (to have a written and clear
terms contract with the sub­contractor) and
forbidden acts for the large parent firm.
The latter include refusal to receive delivery
of commissioned goods, delaying the pay-
ment beyond agreed period, discounting of
payment, returning commissioned goods
without good reason, forced price reduction,
compulsory purchase by subcontractors of
parental firm’s products, and forcing sub-
contractors to pay in advance for materials
supplied by the parent firm. These provi-
sions are monitored by the Fair Trade Com-
mission. Interestingly, most of the viola-
tions by parent firms were on the written
form and clear terms of the contracts (Sako
1992). If contract farming is only an exten-
sion of the flexible production systems
prevalent in industry to farm production,
then it is only logical to extend such legal
provisions with necessary modifications to
farming contracts.
The Indian model contract farming
agreement under the amended APMC Act
(2003) is quite fair in terms of sharing of
costs and risks between the contracting
agency and the grower. But it leaves out
many aspects of farmer interest protection
like delayed payments and deliveries, con-
tract cancellation damages if the producer
19
COMMENTARY
has made firm-specific heavy investments,
inducement/force/intimidation to enter into
a contract, disclosure of material risks,
competitive performance-based payments,
and sharing of production risks. Further, it
is not known how widely the model contract
agreement will be adopted by the agencies
unless it is a conditionality to avail of cer-
tain other incentives or policies. The vulner-
ability of the growers due to fluctuations in
market prices needs to be reduced by mak-
ing supermarkets offer minimum purchase
prices, not market-price-based premiums.
Also, provisions for legally binding and
clearly worded rules for fair treatment
of suppliers, an independent authority like
a retail commission to supervise and regu-
late supermarkets for supplier, consumer,
and labour aspects and support to local re-
tailers, are required. Such an agency
should ban buying of products below cost
and selling below cost, improve local tradi-
tional markets for small growers, establish
multi-stakeholder initiatives in the chains
and provide support to small producers
and traditional food retailers.
Sexual Harassment:
Not Fitting the Bill
Mridul Eapen
In 1997 the Supreme Court issued
the Visakha guidelines to prevent
sexual harassment of women at
the workplace until a suitable law
was passed. A draft bill in 2005
was followed by yet another draft
in 2007. A report of a discussion
in Kochi.
Email: mridul@cds.ac.in
20
On the other side, farmers’ organisa-
tions and non-governmental organisations
need to monitor and negotiate more equi-
table contracts with the supermarkets. Pro-
ducers’ organisations amplify the political
voice of smallholder producers, reduce the
costs of marketing of inputs and outputs,
and provide a forum for members to share
information, coordinate activities, and
make collective decisions. On the other
hand, they also lower the transaction costs
for the processing/marketing/retailing
agencies working with growers. The gov-
ernment should also play an enabling role
through legal provisions and institutional
mechanisms, like helping farmer coopera-
tives, producer companies and producer
groups, to facilitate smooth functioning of
the contract farming system, and not inter-
vene in contracts directly.
References
Bukeviciute, L, A Dierx and F Ilzkovits (2009): “The
Functioning of the Food Supply Chain and Its
Effect on Food Prices in the European Union”,
European Commission, Directorate General for
Economic and Financial Affairs, Occasional Paper
No 47, European Communities (EC).
T
here are reports in the media (see
for instance, The New Indian Express,
24 May 2010) that the much awaited
bill against sexual harassment (SH) at the
workplace is likely to be introduced in
Parliament. The draft bill had been put up
on the web site of the Union Ministry
of Women and Child D­eve­lopment for
comments and suggestions until 31 March
2007. Three years have gone by and it has
still not been placed in Parliament. A
group of concerned citizens – academicians,
advocates, activists, and policymakers –
met in Kochi in early May to take a fresh
look at the bill and submit comments/sug-
gestions anew.
Addressing the Issue
This bill derives from the Supreme Court
(SC) judgment in 1997 in the Visakha and
august 21, 2010  vol xlv no 34  EPW   Economic & Political Weekly
Cadilhon J-J, P Moustier, N D Poole, P T G Tam and
A P Fearne (2006): “Traditional vs Modern Food
Systems? Insights from Vegetable Supply Chains
to Ho Chi Minh City (Vietnam)”, Development
Policy Review, 24(1), 31-49.
Chen K, A W Shepherd and C da Silva (2005): “Changes
in Food Retailing in Asia: Implications of Super-
market Procurement Practices for Farmer and
Traditional Marketing Systems”, AMMF Occa-
sional Paper 8, FAO, Rome.
Durand, C (2007): “Externalities from Foreign Direct
Investment in the Mexican Retailing Sector”,
Cambridge Journal of Economics, 31 (3), 393-411.
IFAD (2005): Organic Agriculture and Poverty Reduc-
tion in Asia: China and India Focus, Thematic
Evaluation, International Fund for Agricultural
Development, Report No 1664, Rome, July.
Pritchard, B, C P Gracy and M Godwin (2010): “The
Impacts of Supermarket Procurement on Farm-
ing Communities in India: Evidence from Rural
Karnataka”, Development Policy Review, 28(4): 435-56.
Sako, M (1992): Prices, Quality and Trust – Inter-firm
Relations in Britain and Japan (Cambridge: Cam-
bridge University Press).
Singh, S (2009): Organic Produce Supply Chains in
India: Organisation and Governance (New Delhi:
Allied Publishers).
Singh, S and N Singla (2010): “Fresh Food Retail Chains
in India: Impacts on Small Primary Vegetable Pro-
ducers and Traditional Fruit and Vegetable Re-
tailers”, Final Report, CMA, IIM, Ahmedabad, April.
Srivathsan, A (2007): “Regulating Space”, Frontline,
13 July, 25-27.
Stichele, M V, Sanne van der Wal and J Oldenziel
(2006): “Who Reaps the Fruit? Critical Issues in
the Fresh Fruit and Vegetable Chain”, Centre for
Research on Multinational Corporations (SOMO),
Amsterdam, June.
O­thers vs the State of Rajasthan (AIR 1997
SC 3011), which came to be known as the
V­isakha guidelines (incorporating Gene­ral
Recommendation 19 of Committee on the
Elimination of Discrimination against
Women (CEDAW)) to protect women against
sexual harassment at the workplace since
the then civil and penal laws in India did
not contain adequate provisions to address
this form of violence against women. The
guidelines were to be “binding and en-
forceable in law until suitable legislation is
enacted to occupy the field”. While the
guidelines were based on the problems of
women working in rural India facing
threats to their life and person, the SC
judgment was beneficial to women in the
organised sector and some complaints
were filed and redressal given under the
Visakha judgment.
A few years later the first attempt was
made to frame a suitable draft legislation
with considerable involvement of and
pressure from women’s organisations.
This was called “The Protection against
Sexual Harassment of Women Bill 2005”.
However, that too gathered dust till it was
replaced by “The Protection of Women