Reliance deal with farmer company sparks price war in Karnataka

A deal between Mukesh Ambani-owned Reliance Retail and a farmer producer company in Karnataka’s Raichur for 100 tonnes of paddy (sona masuri variety), at a price 4.4 percent higher than the minimum support price (MSP), has set off a price war in the region, amid the ongoing farmers protests against the new laws brought by the Centre.

After Reliance Retail procured the paddy at the beginning of 2021, farmers are demanding a higher price from traders.

Reliance Retail procured 100 tonnes of paddy as a sample from a farmer’s producer company—Swastya Farmers Producer Company in Sindhanur taluk in Raichur district. The retail giant paid ₹1,950 per quintal, about 4.4 percent higher than the minimum support price and the market fee set by the government (₹1850 plus 1% market fee = 1868.50).

“Initially, they asked if we can supply 1,000 tonnes and we said yes. They took 100 tonnes as a sample and we are now requesting to raise a purchase order for the balance 900 tonnes,” Umakant Sharma, CEO of Swastya Farmers Producer Company Ltd said. “We have the capacity to deliver even up to 2,000 tonnes.”

With 1,100 farmers as members in their organisation, the deal for 1,000 tonnes will benefit about 250-300 farmers, Umakant says.

Over the last four years, Reliance has been procuring from traders in Sindhanur and other parts of the state. But this particular transaction—while it has made the farmers associated with the firm happy—coming in the midst of ongoing farmers’ protest has set off alarm bells.

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Local leaders approached the company and said what the Swastya did was not right as they claim the company is falling into the trap laid by the government and corporates.

But Umakant argues that if farmers are benefiting from the transaction, there’s nothing wrong with it. He adds that the deal set off a price war within the district where other farmers and groups are now demanding a higher price from traders.

Traders in Sindhanur confirmed this development. Virupanna Gowda of Sri Maruthi Traders who traders in rice varieties say the prices per quintal of rice shot up by ₹200 after the Reliance deal.

Another trader and exporter, Gowtham Jain of Jai Kissan Traders who rented a commercial space (warehouse) for storage to Reliance, says the prices were going up even otherwise when the market opened post the COVID crisis.

“Attributing the price rise completely to Reliance is not right. Farmers may have got a higher price with a particular deal. But even otherwise with good demand, farmers are demanding a better price,” Jain added.

Swastya, which was incorporated in 2019 as a Farmers Producer Company, has been doing business ever since and selling organic produce like millets, jaggery and oil to small retailers. The deal with Reliance is the first big transaction for the company.

“Reliance is in the business here for at least four years. If not us, they would have procured from some local traders. So instead of traders benefitting, farmers are reaping the benefit,” V Mallikarjuna, MD at Swastya said.

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Mallikarjuna, a lawyer-turned-agriculturist, said his organisation could scale up the production and trade with the support of the National Bank of Agriculture and Rural Development (NABARD).

In 2020, before the new farm bills were introduced in Parliament, NABARD extended support to farmer producer organisations (FPOs) giving financial assistance of up to ₹16 lakh for training, business and marketing plans.

NABARD sought help from corporates like Reliance and Tata to be part of the programme so that FPOs can directly sell to these companies and make the transaction digital.

Besides, the government gave additional refinance support of ₹30,000 crore to NABARD to enlist farmers for concessional credit as part of its COVID-19 relief package so as to address the problem of low prices and falling demand.

Mallikarjuna says Swasthya received ₹3 lakh for solar panels, ₹5 lakh for business development and another ₹10 lakh for marketing assistance.

“If an FPO props up at the block level in every district, perhaps more farmers can benefit,” Mallikarjuna says. “Farmers alone cannot do it. They need assistance and training from the educated lot who can coordinate and explain the opportunities and available schemes to their benefit.”

But not everybody agrees with this viewpoint. Ashok Bhati of Navajeevana Grameena Abhivruddi Samaste believes that it could be a gimmick by Reliance to support the government’s stance that farmers will benefit because of the new laws.

“How many such organisations will procure from farmers and how many farmers will tend to benefit? It’s a mere eyewash. What if the traders decide not to pay a higher price, then where will the farmer go without having proper storage facilities?” asks Bhati.

A shift in business for Reliance

During the ongoing farmers’ protest in Delhi, farmers group upped their ante against Reliance Group, saying their entry into the food retail will have negative consequences and that Reliance would benefit from the three new agricultural laws.

Soon after, Reliance issued a statement saying it has no plans of entering agriculture business, contract or corporate farming. It also said it never bought agricultural land for corporate farming or contract farming and had no plans to do so.

While the current transaction with the FPO is not anyway related to contract farming, it however pertains to the agriculture business and deviates from what the company has stated.

Reliance, which operates a retail chain across the country, now plans to rope in kirana stores as franchise partners which in turn can sell to consumers in their neighbourhood.

While players like Amazon, BigBasket, and Flipkart partnered with kirana stores as mere delivery partners, Reliance plans to shift focus from business to consumer (B2C) to business to business (B2B) wherein the company plans to supply to Kirana stores at a wholesale rate and make them franchise partners for Jiomart. It’s cash and carry store format are likely to turn into B2B delivery points for the company, as per reports.

“It (Reliance Retail) does not purchase any food grains directly from farmers. It has never entered into long-term procurement contracts to gain unfair advantage over farmers or sought that its suppliers buy from farmers at less than remunerative prices, nor will it ever do so,” the company said in a statement. “Indeed, we shall insist on our suppliers to strictly abide by the Minimum Support Price (MSP),” it added.