Upali Cooray, Former General Manager of Sathosa
It was when I was drafting this piece that Dr. U. Pethiyagoda expressed his views in his very brief opinion on the subject on the 17th in "The Island" and hit the nail on its head. The similarity of my title and views art a coincidence but many who know this field of activity but prefer to be silent would concur. I believe that as a person who was associated with the effort to improve the agricultural marketing sector by the state in the late nineties and last decade, which gave me immense personal satisfaction, I should elaborate some of the root causes that have culminated in this crisis.
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, enabling the people of this country to have some respite from an imminent cost escalation resulting from an acute shortage of fresh vegetables during the oncoming holidays and the festive season. The government also saved face from embarrassment at least temporarily.
Minimizing waste
Usage of plastic crates specially, 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%. However what disturbed the hornets’ nest was the manner in which the government set about doing this. The Minister of trade appeared to have no comprehension about the exercise at hand when he went about in a thoughtless bigheaded manner, lambasting the middlemen, opposition politicians and poly-sack manufacturers for instigating the disruption. Some opposition politicians were seen among the protestors on TV, barking up the gum tree without any in depth understanding of the situation. Their sole objective was to ensure the disruption to continue aggravating. They had neither the interests of the producer nor the interests of the consumers in mind. It is also noteworthy the lukewarm attitude of the Agricultural Ministry and the other authorities responsible for the development of agriculture in this country. They probably feared to bell the cat. There are specialists galore in the agricultural state sector who really should have given better advice to the political authorities. It appears that not standing up to what they believe in, is a malady common to present day Sri Lankan bureaucracy. If one goes through some of the research papers prepared by these specialists on agricultural marketing and agribusiness, one would wonder why the government is bungling when there are such people to guide them.
High farmer income,the motive
The primary objective of this exercise should be to give a higher income to the farmer and a lower price and good quality produce to the consumer. 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 which is only a partial integration. The fault, in what the government is trying to implement 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. Then the question arises whether such total integration of the supply chain is practical in the existing marketing channels. The present archaic system is exploit oriented delete the word) objective driven but nothing else, when the driving objective should be satisfying the needs of the farmer and the consumer.
Inefficient infrastructure
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 "Kada Mandi" markets are underdeveloped and imperfect. Over 90% of these markets are periodic, ill equipped markets lacking in facilities. The farmers deal with collectors, commission traders, wholesalers. The numbers of growers who bring their vegetable to the government managed economic centers are a minority. In Sri Lanka the farmers have a strong bondage 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 Centers (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 a personal friend in need who will offer credit for contingency expenditure of the farmer family or for occasions such as weddings and funerals etc keeping the future harvests as collateral. 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 in implementing a totally integrated vegetable marketing system in Sri Lanka will not 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 has done this successfully in a completely different manner adopting the same concepts and methods which Sri Lanka is trying to adopt through forced 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, the traders operating 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 which have now grown to twelve 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 than serving farmers and consumers. DECs are just another link in the marketing channel adding to costs of the produce.
Millionaire wholesalers funding politicians
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 wholesaler will still pay the same low prices to the farmers and keep his 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 few years ago during my tenure 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 onion 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 program 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.
No new DEC’S needed
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 Agri. produce. Let this archaic system die a natural death. But How?
It is appropriate to take India as an example to examine how this change is rapidly occurring very successfully in that country. Also, I cannot be without mentioning that 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.
Take Indian example
My umpteen number of visits and interactions in a long career in matters relating to procurement of agricultural produce such as onions, potatos, dhal, dried chilies, coriander, garlic and rice from India enabled me to closely interact with major state sector players, private sector traders, companies, farmers in many states of India and I have seen the strides taken by the Indian agricultural marketing channels towards modernization. The change that has occurred is remarkable. The responsibility of managing marketing channels for Agriculture 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 guide lines spelt out by the government is the responsibility of the companies. There is no possibility of political or other unnecessary interference in the management of the company. Only the professionals selected by the company manage it. Farmer to retailer link is straight and there are less or no superfluous intermediaries. Producer and consumer satisfaction is very high. The system is facilitated by the government through subsidization of Company capital by way of land and other infra structure. 25% of equity is reserved for other stake holders such as farmers. 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 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 centers 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 centers. Though farmers 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 no longer subsistence farmers. Modern methods of increasing productivity are inculcated among all stake holders by the company. 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 nearing its death.
I am of the firm belief that the government is making a grave mistake by trying to rectify an exploit-based system which will leave no stone unturned to maintain the status-quo. It is worthwhile to investigate and see whether there are hidden hands benefiting from the present system; not only opposed but also within the government and who added fuel to the recent flare-up.
The solution
Let the present system remain with no more DECs. Use some funds which would have been planned for the Commonwealth 2018 games to fund terminal markets in Sri Lanka run by professional private companies facilitated but not controlled or interfered with by the government. One would be able to see a modern agribusiness based system beneficial to farmers, consumers and the government too, by 2018 the year next Commonwealth games would have been held in Sri Lanka. The present system would die a natural death or will be senile and the infra structure put up for existing DECs can be used for Terminal markets by then. Also 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.
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=42428
No comments:
Post a Comment