Few days back I participated in a big debate on impact of FDI in retail on cold chain infrastructure in India. A specialty magazine for the distribution and logistics scene in India had organized this debate at one of the chambers of commerce in India. Three gentlemen including a self-proclaimed cold chain specialist, an omnipresent agribusiness consultant, a retired CMD of a nationalized bank, apart from yours truly, debated on the subject which was moderated by the editor of the said magazine. Cameramen captured the hot and cold moments of the proceedings for posterity.
Like always since 1987, the year I entered the organized fruit and vegetable industry, the discussion on the subject invariably turned to proverbial 30-50% wastage of fruit and vegetables in India because of absence and / or sub-optimal presence of cold chain industry in India. This wastage story is so sticky that it has now become ingrained in minds of every one who has anything to do with food and agriculture in India. No points for guessing – FDI in retail was the only panacea for this ill called f+v wastage as per our self-styled cold chain specialist and the agribusiness consultant.
But this FDI or cold chain infrastructure is not what I have in mind here. Though I have always contested the 30-50% figures as physical wastage for the simple reason that I’m yet to see mountains of f+v wastage lying there in either wholesale markets, warehouses or farms for that matter. Everything sells (all qualities and grades – including the one that you see at the top of this post) and have a market in India. Overall VALUE loss to the tune of 30-40% – yes, believable or product specific wastage – like onion stored in a traditional way – yes, agreed.
Yes, it was the onions with documented 30% plus wastage during storage that started a chain of thoughts while I started driving back to my office. What follows are my instincts derived through my sectoral experience of fresh produce wholesale and retail in India. Or shall I say point of view derived from a different perspective?
Let’s come back to the title of this post. ‘Wastage is good business – Invest your onions”… Just visualize and try to create a scenario on what would happen if one fine day the wastage in onions during storage in Maharashtra / Gujarat etc somehow (let’s say because of technology intervention or God’s grace) gets down to zero to from 30%. What would logically happen in that scenario?
- 30% additional onion would be available in the onion trade pool.
- Additional 30%, a huge quantity indeed, could theoretically crash the wholesale prices. (Our perishable markets have serious liquidity issues – At the top of that price volatility is disproportionate to the excess arrivals).
- The greatly subdued prices could perhaps be lesser then the production cost of onion resulting in huge trading loss to farmers. More suicides perhaps! (Pertinent to recall here what a Malegaon farmer told me when I did a onion research for NCAER / IDFC in 2010. His exact words were – “No one in Cities has ever died of eating costly onions but low onion wholesale prices have definitely taken lives in Maharashtra”.
- Reduced storage capacity and unemployment in people associated with onion storage.
- Extended storage could reduction of interstate movement of onion as geographical arbitrage would be missing which will also reduce the onion areas in States like Rajasthan from where onion starts arriving when onion in stores ends in Maharashtra.
- Excessive onion dehydration because of excessive availability and resultant bubble as equilibrium of flakes market will be broken.
Till I reached my office I continued to weave plethora of scenarios around excess onion supply. You can perhaps add more. Eventually I could only reach to one conclusion that “Wastage is good” in case on onions in India. May be it is not the lack of capital, knowledge and resources that has prevented Indians into investing in Onion storage mechanisms that reduce wastage but have a potential to disturb the market mechanisms.
How I wish some econometric algorithm could churn up the most likely scenario in a situation of excessive onion in the market. Are you listening NCAER?
In a way the issue of more onion supply in not much different from excessive money supply. Excess money (current chairman of Federal reserve in USA would calls it quantitative easing – printing more money in bank’s printing presses at the most base level) can solve most of the issues at individual level but on a higher level, say a nation, more money can create as many complications not only for the nation but also global sometimes. There are many instances in history where too much money led to serious and damaging consequences, such a hyperinflation and assets bubble. The bubble in the property market in USA in 2008 that caused a butterfly effect across the World, was one such consequence of excessive money supply leading to lower interests in USA. Excessive onions are no different from more money supply.
I once again repeat – above said is based on my instincts. I have seen potato and onion rates crashing at the macro and micro level because of excessive supply in the wholesale markets.
Many a times instincts derived through experience are more accurate than research. I remember reading somewhere that test methodologies called agile and rapid, has lot to do with decisions based on instincts made on the fly. These are very effective methodologies. I just see a huge pool of information on food wastage which we need to mine to create more thoughts for food, particularly food for the farmers and by the farmers.