For the moment business is being held together by credit, goodwill and old notes. But for how long?
New Delhi: At Azadpur mandi – a sprawling wholesale vegetables and fruit market that counts itself as Asia’s largest – the agricultural supply chain is slowly choking.
Stakeholders within the ecosystem point out that the Modi government’s demonetisation move has reduced daily business volumes (Rs 20 crore to Rs 30 crore) by anywhere between 50% to 70%.
Large wholesale traders and commission agents speak of business contracting from all sides: consumers are buying less, arrivals of produce have decreased and current transactions are increasingly fuelled by a combination of old Rs 500 and Rs 1000 notes and a quickly dwindling goodwill-credit system.
The Azadpur mandi is a crucial market that provides a glimpse of what is slowly happening throughout the country. Almost a city within a city, it officially houses over 2,500 commission agents and wholesale traders. With over 40 lakh metric tonnes of fruits and vegetables passing through the wholesale market last year, the mandi, as one former minister once cheerfully put it, supplies most of North India’s nutrition and vitamin requirements.
On Thursday, Delhi chief minister Arvind Kejriwal and West Bengal chief minister Mamata Banerjee made it a focal point of their rallies against the Modi government’s demonetisation move. Tomorrow, according to sources, the finance ministry plans on convening a meeting with farmers and agricultural experts.
The rallies and the meeting however are both aimed at trying to understand two key questions: How severely will demonetisation impact India’s agricultural supply chain and how badly will it dent farmer incomes?
A careful look at the the various stakeholders involved in the agricultural supply chain shows that while business is down and supply of fruits and vegetables are starting to shrink, credit cycles will prop up supply for at most another 10-14 days. Farmers have to either accept credit or take a substantial hit on their produce. This credit, however, will be of no use if it can’t be cashed in time for planting of winter crops.
At the lowest, bottom-feeder level at Azadpur mandi, labourers and coolies (palledars) have also been crippled by the government’s demonetisation move: With very little work, many have doubled up as cash mules for the more wealthier commission agents and now stand in long banking queues to exchange old notes.
According to the Confederation of All India Traders, India’s largest trader association, trade in the markets across the country has reduced by 25% post-demonetisation; Indian retail trade is currently estimated at about Rs. 14,000 crore every day.
How is this playing out on the ground? The Wire takes a look at how Modi’s demonetisation move affects each stakeholder at Asia’s largest mandi.
The Palledars or the bottom-feeders
While the official number of labourers or palledars that have registered with the APMC (agricultural produce marketing committee) at Azadpur, is extremely low, hundreds of daily wage workers keep the wholesale market up and running.
What they do for the day often changes: Many of the labourers operate the numerous cycle-rickshaws that dot Azadpur mandi, dragging fruits and vegetables from a distributor at Azadpur to local markets around Delhi. Others help in odd manual labour jobs or operate the slightly bigger chhota haathis (mini-trucks) that transport goods from Azadpur to other smaller mandis in the national capital region.
Shivpujan is one such palledar, who operates a cycle-rickshaw. He has spent most of last week puffing away at his No. 27 beedis. On average, a cycle-rickshaw operator like Shivpujan makes two-to-three rounds a day, transporting various fruits and vegetables.
“I have been badly affected, the same way most other rickshaw pullers have been. On an average I made around 400 a day in two rounds of transporting goods. Not a single day in the last week, have I made more than Rs 200. Today, I have been sitting idle since morning. It is already afternoon. I don’t know whether I will make any money today or not. There is no work for me in the mandi,” Shivpujan told The Wire.
Munna Singh, like many other porters at the mandi, also complains about the lack of work over the last week. He spends most of his days loading and offloading vegetables and fruits from trucks which come to the mandi. “If it is a good day at the mandi, I make anything between Rs 700-1000. On a bad day, my earnings are never less than 500. But I am struggling to get even Rs 100 now. It is not as if I did not work at all. But everyone wants to pay me in old notes. Some traders for whom I worked last week have promised that I will be paid later,” said Singh, as his friends nodded along in agreement.
Credit and old Rs 500 and Rs 1000 notes are of little use to Azadpur mandi‘s daily-wage labourers. Receiving payment in old notes means standing in queue for whole day at a bank, which in turn means they miss out on a day’s pay. Accepting credit on the other hand means trusting truck operators and distributors to pay up; it also means they will struggle to eat or send money to their families for a week.
Singh points out that the only bank account he has is with a local rural bank back in his village in Bihar. His account lies mostly dormant. Usually, he travels to his village every three months with his meagre savings, which are often used for his family’s short-term and medium-term requirements.
Most porters, The Wire spoke to, however were not concerned about the politics of black money and corruption. “We do not understand much of what is happening. We rely on our daily earnings for a living. That has been severely affected,” said Lalan, a porter in the tomato godowns section of Azadpur mandi.
In most cases, the bank accounts that the palledars have are in their native villages but have been lying dormant for years. “Only those with farm incomes use their bank accounts. I do not have any land and never saved enough for savings,” Lalan added.
Indeed, a defining characteristic of the mandis daily-wage workers is that they have no land in their villages back home and therefore have come to Delhi in search of employment. Their choices now are to leave the mandi and look elsewhere for employment or agree to exchange cash on behalf of the market’s vastly wealthier commission agents.
The distributors, or the ‘sub-retailers’
Distributors, often referred to in mandi lingo as ‘sub-retailers’, are the business operators who usually purchase goods from large commission agents or wholesale traders and sell to big-ticket customers (such as the hotel or restaurant industry) or the vegetable sellers of Delhi’s local markets.
These distributors and small retailers are bearing the greatest short-term impact of demonetisation: reduced customer demand. They also eventually dictate how much of the future transactions down the supply chain, from commission agents to farmers, will be conducted by credit.
Ved Prakash Gupta, a kiwi distributor, is panicking. “I am ready to sell a box of kiwis that normally goes for Rs 850 for just Rs 350. But no one is ready to take it even for this price. Perishable items like kiwis will have no value if it stays in my shop for more than two days.” He said in desperation to sell his kiwi stock over the last few days, he has had to take a hit of nearly Rs. 5 lakh per container (a truck load of kiwis). A container usually goes for around Rs. 8 lakh.
“When people cannot buy large quantities of vegetables due to demonetisation, how will they afford kiwis, I may keep my shop shut for the next week,” added Gupta. Crucially, Gupta notes he does not plan on stocking up for the next month; a decision that will affect Kiwi farmers around India. “Right now it does not look like the situation will improve for the next few months.”
Chandrabhan, another fruit distributor, talks of disruptions in credit cycles. “Usually, the buyers (small retailers) pay us either in credit or cash or both. As there is no currency in the market, they ask us to supply either fully in credit or in old notes. What should we do? We can supply them on credit but as of now we do not know when they will be able to pay us. Usually they paid us in a week’s time but this time around, they are not sure.”
A consequence of a distributor like Chandrabhan accepting 100% credit is that he will eventually not be able to pay the commission agent in cash, who in turn will not be able to pay the farmer.
Smaller vegetables and distributors, who cannot afford to deal in credit, are closing up. “At the lowest level of the distribution chain, the business has collapsed and it has affected all of us equally,” Chandrabhan said.
In the first three-four days after demonetisation was announced, distributors told The Wire that large stocks were left to rot or sold for huge losses. “We generally keep stocks of fruits for three to four days and stocks of vegetables for one day. On an average each one of us does transactions (in both cash and credit) in the range of Rs 15-20 lakh per day. Over the last week, this figure has not touched even Rs 2 lakh properly,” said Chandrabhan.
Commission agents or arhtiyas
The backbone of the mandi are arhtiyas, who who are referred to as traders within the market. They are the channel between farmers and distributors. Licensed to keep the businesses flowing, they help the farmer sell their goods to the distributor. Both the farmer and the distributor depend on the arhtiyas for logistical requirements like porters, transporters, credit accounting etc. A successful arhtiya builds a huge network of farmers across India,and, sometimes, lends money to farmers for cropping and other inputs for farming.
For each business transaction, he charges a commission of up to 6% from the distributor. The higher the transaction, the lesser his commission. Over the last week, the arhtiyas of Azadpur mandi have been caught between a rock and a hard place.
“The farmer needs cash for his daily requirements. Therefore, most of our transactions were cash-based. Today, the distributor, already reeling under a demand crunch, does not have enough new notes and the farmer is not ready to accept old notes,” said Mukesh Tyagi, a commission agent, who deals with cauliflower farmers and buyers.
As a result, the arhityas are trying to convince the farmer to either take old currency bills or wait for another few months to be paid. To keep the food and vegetable supply chain running, the arhtiyas have taken it upon themselves to deal in both old notes and credit. “I am forced to accept old notes from the distributor and pay the farmer from my own pocket to keep business flowing,” said Manish Singh, an arhtiya in the tomato section.
“I just hope I can get the old notes exchanged,” he added.
What happens when there’s a cash crunch and the old Rs 500 and Rs 1000 notes are needed to keep food flowing from farm to fork? The answer: numerous trips to nearby banks to exchange the notes.
A few wealthy arhtiyas, who declined to be identified, told The Wire that they employ 40-50 palledars to stand in the bank queues to get the demonetised 500 and 1000 rupee notes exchanged. “As it is the coolies do not have work these days. We give them Rs 200 a day to get the old notes exchanged in banks. But this has still not improved cash flow to a great extent,” said one arhtiya working in the onion market. The onion arhtiya, however, maintained that all the money he was talking about is not illegal and all of it is accounted for.
“We are feeling the pinch only because we work in a cash-intensive market,” he said.
At one point, this unsustainable system is bound to collapse. Singh claimed that until now the full impact of demonetisation has not been felt in the mandi. “We are witnessing a crunch because of an immediate demand fall. But the full impact of the move will be felt only when the credit cycles in the mandi will be disrupted. That will lead to a supply shock next month. The farmer can sustain himself on credit only for a few days. Even if the government contains the situation by flushing in new currency into the market, it will take much longer than a month for those new notes to hit the wholesale market where cash transactions are huge,” he said.
In the arthiya community, commission agents who deal in smaller quantities are the worst hit.
Ravinder Chowdhary, a cabbage arhtiya whose transactions never exceed Rs 10,000 on normal days, are facing a financial debacle at both ends of the business. “I deal only with marginal farmers and small and very small vegetable vendors. Both are out of cash. Unlike bigger arhtiyas, I do not have a cash pile. While the farmers can still depend on a credit-fuelled and goodwill economy that exists in the villages, vegetable vendors might be on the verge of starvation,” said Chowdhary.
The more wealthier commission agents told The Wire that the only way the businesses are still functioning after demonetisation is because the transporters are accepting old notes. Truck companies have used petrol and diesel stations, which are temporarily exempted from the demonetisation move, as an outlet for old notes.
Nevertheless, this continuing exchange of Rs 500 and Rs 1000 notes runs more on goodwill than anything else. How long can this continue? Nobody at Azadpur mandi knows. S.K. Gupta, an APMC official, however says the number of incoming trucks has drastically reduced. A few arhtiyas said that the number of trucks supplying vegetables and fruits has dropped by nearly 50% over the last week.
Farmers and farming incomes
India’s farmers, who sit at the most vulnerable rung of the food supply chain, have been thrown into a tailspin.
Being one of the more economically weaker links in the overall agricultural chain, they depend heavily on cash payments. For the last two months, most have either loaned or used all their savings to grow their crops. Usually, the vegetable season in winter lasts for more than a month – November and December being the peaks of business.
Jitender Chowdhary, a farmer in Sonepat, Haryana, owns around 5 acres of land and primarily grows vegetables. Two months ago, he sowed cauliflower after getting a loan from his arhtiya. His hope to repay the loaned amount this season and make around Rs 30,000 as profit crashed when the demand for cauliflower fell drastically because of demonetisation.
“I supported the prime minister’s move initially but I had not imagined its fallout. The cauliflower season lasts only for a month and a half. I don’t know what I will do if I don’t manage to sell it,” said Chowdhary.
Chowdhary brings around 12 sacks (10-12 kg) of cauliflower every day to the mandi by paying the transporter Rs 15 per sack. While each sack of cauliflower usually sold for anywhere between Rs 200 to Rs 250, it is now being sold at Rs 80 or less. “I can’t do anything. If I don’t sell it for this price, I will only have to feed my produce to the cattle,” said Chowdhary.
Chowdhary, a marginal farmer in Haryana, got into vegetable farming because of its profit-intensive nature. “Vegetables are perishable but it requires low input costs and sells at a premium. For farmers like me who own only a little land, it is lucrative. But now I run the risk of doubling my loans,” said Chowdhary.
Chowdhary said that he has accepted to sell his produce on credit to recover his costs – an emergency measure – but does not know how he is going to make his ends meet in the next few months.
Food and vegetable microcosm
The larger picture that emerged in Azadpur is multi-layered. While the perishable vegetable business has been deeply impacted, with an ever-escalating credit cycle, fruit traders are comparatively better off this month despite having faced huge losses. Why are fruit traders relatively better off? This is because they hardly come in contact with marginal farmers and mostly deal with prosperous businessmen at both ends of the business chain. However, as the new currency notes will take at least two months to penetrate the wholesale trade – as most traders feel – the credit cycle in fruit trade may also collapse. Once high-value transactions (Rs. 50 lakh or more) start getting hit, it will cause a ripple effect throughout all the legs of the trade.
As of now, vulnerabilities in the vegetable trade, that runs mostly on cash, has affected everyone involved. The condition of each stakeholder is likely to worsen in the next few days as food supply receives a blow. For now, the prices of most vegetables have remained constant due to decreased consumer demand and the presence of adequate supply. In the coming weeks, however, this may change.
Multiple other insights emerged. A large section of arhtiyas pointed out if the withdrawal limit for current account was increased, with some saying there should be no limit at all, they would have greater cash flow within the supply chain. Four days ago, the Centre increased the limit to Rs. 50,000, but this will not bring succour to Azadpur mandi, as most transactions are of far greater value.
When you consider that the other major source of funding for farmers – disbursal of loans through village level cooperative societies – has also been ham-strung by demonetisation, it is clear that if drastic steps aren’t taken, supply shocks in India’s agricultural chain could be in the offing.
Does the human cost match up to the so-called benefits of demonetisation, which many prominent economists have already panned? This is a question that will bother many in the next few months.