Plastic crates: a wrong strategy towards a worthy objective

December 24, 2011, 9:47 am 

By Upali Cooray
Former General Manager Sathosa

The Island newspaper of Dec. 20 carries a news item has a sub title "fruits and vegetables sold near overflowing toilets" and the title is "Dambulla Economic centre scandal". Mind you this is a legal case which went before the Dambulla Magistrate where the courts have warned the manager about the unsanitary conditions of the Centre. This is a good illustration of the present situation in the vegetable and fruit marketing exercise in Sri Lanka. It is also a common sight to see vegetable vendors and farmers washing vegetables in polluted canals and drains near the city.

Numerous views have been expressed in the media about the exercise of using plastic crates; for and against, such as the cost benefit, environmental pollution etc. by specialists and non-specialists including The Sunday Island editorial and a piece by Dr. Gamini Kulatunga. I initially would say that modernization of the system through productivity would offset the cost and other disadvantages of the project as proven in many other developing countries including India. It is the method of implementation which has gone wrong.

The first organization to try this system in a small way was the CWE as a pilot project in the late 1990s. That was a success. With the collapse of the CWE in 2002 and for other reasons a few private sector companies have followed modern total integration of the vegetable marketing channel with success in competing with the traditional marketing channels.

Usage of suitable crates, plastic or other, for transport of 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%. 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. It is noteworthy that the attitude of the agricultural ministry and the other authorities responsible for the development of agriculture in this country on this issue was lukewarm. They probably feared to bell the cat. There are specialists galore in the state agricultural 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.

The primary objective of this exercise is supposed to be and 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 other developing countries which have already done total integration and local research that farmer income could be increased by 20% 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 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, the consumer being the exception.

There is going to be only a very minimal benefit in enforcing the law on 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 driven by the sole objective of exploitation, nothing else, when the driving objective should be satisfying the needs of the farmer and the consumer.

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 and lacking in facilities. The farmers deal with collectors, commission traders and wholesalers. The numbers of growers who bring their vegetables to the government managed economic centers are a minority.

In Sri Lanka, the farmers have a strong bond 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 is sold. Besides, many intermediaries are considered as personal friends 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.

The hidden cost to the nation by way of health in consuming pesticide sprayed and unhygienically washed and stored vegetable have not been factored by any specialist and 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. 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 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 . Even then, the private sector traders and wholesalers still dominated the system.

The DECs which have now grown to 12 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. Most of them have become 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. 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 more advantageous to the trader than consumer or the producer. The wholesalers 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 transport to other parts of the country have gone back to Nuwara Eliya for resale during April season. The reason is pretty obvious.

I vividly remember how few years ago during my tenure in the CWE, 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 onions 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 was in fact 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 situations 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 on the farmers in a softer manner. My frank view is that the government should not open any more DEC’S or try to make mandatory any of the requirements. Let this archaic system die a natural death or become unimportant. But how can this are done?

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 again 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 outgrower farmers in the chain numbers over 1,000.

My umpteen visits and interactions in a long career in matters relating to procurement of agricultural produce such as onions, potatoes, 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 agricultural produce 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 guidelines spelt out by the government is the responsibility of the companies.

I must not fail to mention here that this is not the kind of privatization that has taken place in Sri Lanka to plunder state assets. Rather, it is a practically possible and proven symbiosis of state and private sector. This is very much a state facilitated and guided system. The difference is that the most suitable companies with proven track records and the professionalism are selected.

The main equity holder is a company selected by a two stage bidding process. 20% to 40% of equity is subsidized by the government depending on the area but the government is not a shareholder and has no role other than monitoring to ensure that the company complies with required standards. Only the professionals selected by the company manage it. The farmer to retailer link is straight and there are less or no superfluous intermediaries. Producer and consumer satisfaction is very high.

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 or with a minimum of intermediaries. The hub offers facilities such as export processing, stocks for wholesale and retail trading, cold storage, temperature and sunlight controlled storage, ripening chambers, packing 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 farmer/out-grower is 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 have a better income, better methods of cultivation and their welfare is assured including support for children’s education.

Most farmers are changing rapidly to Agribusiness and are no longer subsistence farmers. Modern methods of increasing productivity are inculcated among all stake holders by the company. The 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 modern system. The government does not meddle with it. But one can see it being given tough competition to exist.

I am of the firm belief that the Sri Lanka government is making a grave mistake by trying to rectify an exploiter-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 those opposed but also within the government who added fuel to the recent flare-up. One hears of ministers from the same area pitted against each other even to open a water tap or switch on an electrical bulb.

According to reports in the media, at the discussions the head of state had with the stakeholders to diffuse the crisis, it has been said by the president himself that there will be no alternative but to set up new state organization to do take on these functions if the crates law is not complied with at the end of the grace period. It will be prudent to rethink this idea and see whether operating a terminal market system with the collaboration of the private sector initially as a pilot project is a better option with whatever the adjustments necessary to suit local conditions. Terminal markets are not an Indian idea but appears to be borrowed from developed countries with adjustments in line with Indian market conditions.

I am fully aware that government finds it difficult to subsidize various services to the people. This should not be a subsidy but only startup support to genuine companies having the expertise. A government which was confident that it could find the funds for holding the Commonwealth Games in 2018 should be able to find lesser amounts required for this kind of project through private sector participation.

Let the present system remain with no more DECs. 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 and Dambulla - a hotbed of inefficiency, waste and exploitation.