Saturday, 18 June 2011

Fair Price Shops. Fair to whom ?

On a walk the other day, I spied a shop that was a "fair price shop". There are many of them dotted around cities and towns in India. They are usually shut with a "No stock" board hanging in front. They are part of government initiatives to sell foodgrains and vegetables at "fair prices". They are not ration shops, mind you, which are designed to sell subsidised grains to the poor. These are shops where you and I can buy as well. At "fair prices".

Begs the question, fair to whom ?

Here's Economics 101 for the economically challenged. Prices are fixed by supply and demand. A willing seller and a willing buyer together fix the price. As long as there are many sellers and buyers and as long as there is information on what everybody is buying and selling at, the price that is so determined freely is what is a "fair" price.

But to Rajalakshmi, a fair price is a low price. Nothing wrong with buyers wanting the lowest possible price, but that can't be necessarily termed as fair. According to her, the "poor" farmer is being cheated by nefarious middlemen who is then overcharging her and making obscene profits. It is still fashionable in India to rail against all middlemen and term them as hoarders, blackmarketeers, racketeers, and such other colourful terms.

This is complete bunkum. The one market in India that is reasonably close to a perfect market is the one for foodgrains and vegetables. The more perishable the commodity, the more perfect the market. With the advent of mobile phones, farmers now have ready information of wholesale market prices. They usually shop around for the best prices they can get - gone are the days where the villainous middleman could pay the farmer a pittance and sell at the market a kilometer away at a fortune. The middleman has little elbow room to make huge profits. Prices are now very transparent in wholesale markets and price fixation is virtually impossible - the next market is only some 50 kms away and the mobile phone instantly relays prices there.

Speculating is real tough. Commodity and futures markets are in infancy and not a factor. Hoarding in the anticipation of better prices is equally challenging. Firstly storage space is non existent or extremely expensive (India is a country of third world prices in everything except land and property which are above first world prices). The economics simply does not work out. Secondly investment in storage, especially cold storage is wildly expensive. Pest infestation is rampant. That's why some 20-30% of food production in India goes waste. It simply doesn't make economic sense to hoard. And finally Rajalakshmi is the most astute of buyers. She may be intellectually challenged in other fields, but in buying food, she is the queen. If a shop sells something at 0.5% cheaper, she is sure to find out. All the ingredients of a perfect market are there.

That's why food prices fluctuate daily. And often wildly as they move in tandem with supply and demand. When prices shoot up, its not that somebody is making a huge profit. Usually supply is low because of a natural calamity or a crop failure. In that case the high price is a fair price to the producer. Consumers have the choice of switching to something else. The price is also fair to the consumer who buys at the high price because she is choosing to do so, valuing her taste for that particular item. What Rajalakshmi wants is a low price, no matter what, with "somebody" subsidising her. Well , who is that somebody ?I can argue the case for the poor being subsidised and cushioned against high prices of food. But Rajalakshmi ?  She, who is going for a pedicure ? No way.

That's why "fair price" shops remain mostly shut with the no stock sign. They are fair to nobody and are a prehistoric relic of India's dalliance with an outmoded socialist philosophy.

11 comments:

  1. An 'A+' class article....Another bow, Ramesh!!

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  2. Kiwibloke18/6/11

    Well well we have several relics of our left leaning socialist past - An airline which has more crew per plane than passengers (225 people per plane as crew+employees as against the worldclass benchmark of 76), an aircraft manufacturing PSU which till date has not 'manufactured' a single indigenous plane,a coal miniing PSU which is run more by the mafia than by the govt. So no surprises on 'fair price' shops. Still we see some progress from the days when we had the govt companies making stuff like textiles (remember NTC?), bread (modern bread?) scooters (SIL) and all kinds of odds and ends! Price we pay for 60 years of bleeding heart, left leaning confused socialist doctrine.

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  3. Sandhya Sriram18/6/11

    even though you choose to have your leg pull at poor rajalakshmi every time, isnt she the anchor of the struggle class. I am not talking about the techie who gets paid 7 digit salaries. these are the top of middle class pyramids. think of all those Rajalakshmis who have to fight the inflation with the same thousands that come into the house hold. who has balance the increasing cost of medicine, education, aspirations and yet help her spouse set aside for the future. she walks that few km to the store that gives slightly cheaper, carries the weight and walks back home not bothering about her unpedicured aching legs, not bothering about many small and large compromises that she has made to many of her personal desires and still keeping her family weaved together in all times.

    Come on.. give some credit to the majority of the Rajalakshmi class.

    Sorry for completely digresing from the topic. I actually dont feel the concept of fair price shops was wrong. it may not be the middleman, who is the culprit, but more so is organized retail, who have the muscle and wherewithall to twist the arms of that farmer and get the best price and fund their million dollar expansions, hefty bonuses, huge advertising spends and misleading freebies. the farmer can a have a mobile phone but doesnt make a fortune still. the road side vegetable seller also may have a mobile phone but cannot make more than a fair meal a day still. I strongly believe that a concept of a fair price is still required. a price that is fair to the struggling Rajalakshmi and to the unorganized farming sector

    PS: I think i would have written longer than your post itself on this one. what to do, the more you keep needling rajalakshmi, the more, i have started getting attached to her that now it has become an obsession for me to speak up for her :-)

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  4. @RS - Hey thanks. You are so kind

    @kiwi - Oh yes, there are many relics indeed.

    @Sandhya - Bravo. Spirited defence of Rajalakshmi :)

    No No - Organised retail is not the culprit. Every organised grocery chain is losing money. No chance of fat bonuses and the like. Please keep writing long comments. A small consolation for your fans like me who are missing your posts :)

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  5. ella schemeum nalla intentionoda thaan start aaguthu..aana execute pannaravangalala thaan sothaputhu. Fair price shops were/are the lifelines of millions and in a country like india i dont see a fairpriceshopfree era happening ever at all.

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  6. Technically I thought that there is actually no difference between a Ration shop and a Fair price shop.
    Anyways, poor Rajalakshmi! What is wrong in her wanting a lower price?
    Anyone in that category would want it.
    You have captured the saga of the obsolescence of the middle men very well.
    And the food wastage due to lack of storage space is indeed pathetic.
    By any chance does Ms.R remotely think that she can get fairer by shopping in the so called Fair price shop??

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  7. @gils - In many cases execution is indeed the problem, but in this case, I believe the scheme itself is harebrained.

    @Hema - In some cases it is the same , but in others these are different - the Hopcoms shops in Bangalore being a case in point. Nothing wrong at all in seeking a lower price - after all that's what every rational buyer should do. Its just that governments attempting to subsidise such demands is nonsense. I am trying to bring an economic point of view to the concept of fairness !

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  8. I was of the same opinion as Hemarao. Thought that the ration and fair price shops are the same. Well, the last I went and stood in a ration queue as I remember was when I was doing my SSLC or maybe another 2 years past that.

    There is an impromptu veggie market that has cropped up on the roadside (20 vendors, maybe) near my home and the prices are decent than inner Bangalore and also fresh. And not much bargaining as well. Win-win it is. :)

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  9. Brilliant post, Ramesh - made me recall late 90s when I was a part timer in my father's foodgrains business.

    It was indeed difficult to speculate. However, there were times when you could make good profits and suffer good losses too. But if you played safe and exited the stocking at the right time, you could still earn good amount of money. Mind you that was late 1990s. Things have changed drastically over the years. A wholeseller is willing to sale at 2-3% margin (on food grains) in the same market now. The nos. of so called wholesellers have gone up 20 times with no specialized wholeseller. A food grain wholeseller who invested in other businesses during this transition is more than happy.

    P.S. - Talking of retail businesses, the retailer in me was smart enough to charge Rajalakshmi more on premium products like cashews, almonds etc. and suffer loss of cost of working capital on dal and chini. After all, almonds and cashews were and are a must for nutrition. Rajalakshmi would definitely defend a price increase of 20 paise per Kg on chini and dal.

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  10. @RamMmm - Suspect the happy state of affairs on the vegetable front is entirely due to the management skills of Senora :)

    @Vishal - There's an expert talking. Excellent practical perspective.

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  11. Excellent Posting for fair. interesting info share in the post. lovely idea so thanks

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