Amazon's FDI in food retail to face opposition from middlemen

Sneha Gilada

The Ministry of Food Processing Industry has announced that Amazon plans to invest about $500 million in India's food e-retail market. Other e-commerce firms in the industry like Grofers and Big Basket have also come forward with proposals for investments. The government has received investment proposals from a group of companies totalling $695 million in value. 

In 2016, the government had pushed through a bill that opened up 100% FDI in the retail of food products manufactured or sourced from India. A similar proposition for non-food products is still in the working. 

Minister of Food Processing Harsimrat Kaur Badal broke the news and hailed the series of investment proposals as a boost to the food processing Industry of India. From 2011-12 to 2015-16 (until December), the total FDI inflows in the food processing sector stood at $5.4 billion. An all-time high of $3.9 billion was achieved in 2013-14, while FDI for all other years since 2009 individually stayed below $500 million. 

Opening up retail in non-food products will attract other American bigwigs like Walmart, which have been hitherto tied up in arrangements with Indian giants like Bharti to tap the Indian market. 

The supply chain in the food processing sector is riddled with ranks of middlemen, making the final food products much more expensive for the consumer. This is a problem that's unique to India. 

The entry of big-ticket food retailers like Amazon, who will invariably source in bulk from grass roots to achieve competitive pricing, is a potential threat to the livelihood of an army of intermediaries clogging the industry. 

"Only a proposal has been submitted so far. Unfortunately, there is a lot of opposition from middlemen to any direct entry like that (Amazon)," Anil Kumar V Epur, Director, Gati Kausar (cold chain solution providers) said when speaking to The Dollar Business regarding Amazon's investment proposal. 

"The farmer community and the past two central governments have vigorously tried to change the APMC Act (Agricultural Produce Market Committee), which prevents farmers from selling directly to the processor/trader/exporter," he added, explaining that their combined might is still no match to the opposition by middlemen. 

In an answer to how Amazon's entry would be beneficial in rationalising the supply chain, he said, "Grant of permission to Amazon and many others who are in the line, must be conditioned on direct sourcing from farmers and provision of counsel and access to high-quality planting material."