VZCZCXRO0702
PP RUEHAST RUEHBI RUEHLH RUEHPW
DE RUEHCI #0126/01 1081318
ZNR UUUUU ZZH
P 171318Z APR 08
FM AMCONSUL KOLKATA
TO RUEHC/SECSTATE WASHDC PRIORITY 1967
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEIDN/DNI WASHINGTON DC
RHMFIUU/CDR USPACOM HONOLULU HI
RUEHCI/AMCONSUL KOLKATA 2403

UNCLAS SECTION 01 OF 03 KOLKATA 000126 
 
SIPDIS 
 
SIPDIS 
 
DEPT PLEASE PASS USTR - AADLER 
 
E.O. 12958: N/A 
TAGS: EAGR ECON EFIN SENV IN
SUBJECT: WEST BENGAL FARMERS' BUMPER POTATO CROP MEANS PROBLEMS NOT 
PROFITS 
 
 
KOLKATA 00000126  001.2 OF 003 
 
 
¶1.  (U) On March 17, Econoff traveled to Magra in West Bengal's 
Hooghly District (approximately 50 miles northwest of Kolkata) 
to tour a potato cold storage facility and discuss the wholesale 
market for the potato crop in the state.  West Bengal is 
experiencing a glut in its potato crop market and cold storage 
facilities appear to be running at almost full capacity as they 
work to manage a large flow of potato sacks into their 
refrigerated warehouses each day.  Farmers and traders who have 
purchased the produce look to cold storage operations in Hooghly 
as a means to extend the life of their crop while waiting out 
the current drop in prices.  However, these market fluctuations 
are not the only concern for these back-end players; lack of 
equal access to buyers, insufficient cold storage capacity, and 
problems realizing the full profit of goods sold continue to 
plague the potato supply chain each year and remain overarching 
concerns.  The difficulties experienced by the West Bengal 
potato farmers reflect the overall problem with India's 
agricultural sector as poor distribution and infrastructure 
means that even as inflationary pressures cause rising prices of 
basic food items for the Indian consumer, farmers are unable to 
get decent returns for their crops.  End Summary. 
 
------------- 
Potato Glut 
------------- 
 
¶2. (U) A long winter season and better crop management has led 
to record potato production in West Bengal this year.  According 
to press reports, advance estimates by the West Bengal 
government put potato production this year at around 80 lakh 
tons (8 million), an increase of almost 60 percent over last 
year's production of 50.52 lakh tons (about 5 million).  (Note: 
Last year's potato crop was severely impacted by a blight that 
damaged 85 percent of the cultivable land.  End note.)  The 
increase in produce comes despite the fact that the total area 
used for growing the crop decreased by 22 percent to a little 
more than 900,000 acres in the last year.  In response, prices 
for the vegetable in retail markets and with wholesalers have 
fallen by about 30 percent compared to last year.  Around 45 
lakh tons (4.5 million) of the potato crop will be consumed 
within the state of West Bengal, while the rest is exported to 
other states and neighboring countries. 
 
¶3. (U) To date, 25 percent of the harvested potato crop has been 
placed in cold storage, according to press.  The total capacity 
of the 370 potato cold storage facilities in West Bengal is 
about 5.3 million tons, according to media figures, and while 
some farmers were able to sell their crops early in the harvest 
season for around Rs 180 (about USD 4.50) per 50 kg sack many 
are now bringing their crop directly to the cold storage 
facilities or working with middlemen traders - who buy, 
transport and package the produce - in order to extend the shelf 
life of their crop and wait out the current slump in prices. 
 
--------------------- 
Cold Storage Solution 
---------------------- 
 
¶4. (U) On March 17 Econoff met with the owner and operator of a 
cold storage facility in West Bengal and discussed the benefits 
and interests of both traders and farmers who are utilizing this 
service.  The Santa Cold Storage operation in Magra, Hooghly 
District is about 50 miles northwest of Kolkata in the heart of 
the district's potato farming area. Ramesh Periwal, the owner of 
Santa Cold Storage, explained that he will provide potato crop 
storage for about 15,000 farmers at a capacity of about 11,000 
tons in a five story ammonia-refrigerated structure from 
February 26 to November 30 of this year. Servicing an area of 
about 5,000 acres, Periwal's operation is a market where 
farmers, traders, and wholesale buyers converge. 
 
¶5. (U) Open for around 10 hours each day, Periwal's facility 
weighs, labels, and stores the potato crop at Rs 93 (about USD 
2.33) per 50 kg sack.  This price is set by the West Bengal 
Agricultural Marketing Department each year with minimal input 
from the cold storage operators, according to Periwal, whose 
cold storage facility is licensed by the same government outfit. 
 Once a farmer's produce is checked into the facility, he is 
provided receipt that shows the weight and number of potato 
sacks held in the warehouse, which can then be transferred and 
sold at the farmer's discretion. (Comment: There is a large 
market for these potato bonds based on speculation and other 
factors.  This market is controlled by the cartels of potato 
traders, cold storage owners, wholesalers and retailers with 
 
KOLKATA 00000126  002.2 OF 003 
 
 
farmers receiving no part of the speculative profits.  End 
comment.). 
 
¶6. (U) While Periwal's efforts at the moment are focused on 
storing the crop, from May to December he expects to see more 
traders and wholesalers coming into the facility to bring out 
bags that they have purchased from farmers, as well as an influx 
of farmers who have arranged for other means of transporting 
their goods to the market.  At that time, the potatoes will be 
re-packaged, weighed, and graded before continuing along the 
supply chain to retail outlets.  According to Periwal, about 
four to six percent of the stored crop becomes inedible due to 
rot.  However the benefits of extending a potato's shelf life by 
almost six months (without refrigeration, the crop usually lasts 
between six to eight weeks), far outweigh these minimal risks. 
Both farmers and middlemen are pleased by the pricing stability 
and security provided by an extended selling season, which they 
say cuts down on short term fluctuations in the market. 
 
-------------------------------------- 
The Farmer's and Trader's Perspectives 
-------------------------------------- 
 
¶7. (U) Highlighting the impact of excess product on the market, 
all the farmers with whom we spoke said that they had brought 
crop in for storage because their costs of production were not 
being met at the current prices offered for the produce. 
According to the farmers, the production cost for a 50 kg packet 
is Rs 120 (about USD 3.00), and they are can currently sell 
these sacks for Rs 80 to 100 (USD 2-2.5) directly from their 
farms.  Hoping the market will yield better prices in the next 
few months, the farmers have opted to use cold storage to extend 
the life of their crop.  They believe the expenditure of time 
and effort put into packaging and transporting the crop to cold 
storage, the Rs 20 (about USD 0.50) handling fee per sack 
charged by the cold storage facility, and the Rs 93 rent for the 
season, will be met before they are required to remove the 
produce from Periwal's facility in the end of November. 
 
¶8. (U) The farmers we spoke to said that 70 percent of their 
crop this year will go as a distress sale (i.e. loss 
minimization effort) and reminds them of a similar glut in 1997. 
 Farmers faulted the government and the lack of a structured 
network of buyers for the lag in their ability to sell at a 
profit.  Traditionally, the Government of West Bengal has 
promised a fixed price to potato farmers at which they can 
wholesale their crop.  However, farmer's complained that this 
price has yet to be set, which has forced them to store their 
crop rather than wait and possibly lose some of the potatoes to 
rot. 
 
¶9. (U) Describing themselves as a bridge between farmers and 
consumers, the potato traders said they are currently buying 
potato crop from farmers at between Rs 115 to Rs 120 (USD 2.90 
to 4.00) per 50 kilogram sack.  These middlemen provide 
packaging and transport to the cold storage facility, and 
generally work with small farmers whose capacity to manage this 
end of the supply chain is constricted by the amount of manual 
labor, time, and access to transportation typically available to 
larger landholders like the farmers we spoke to.  Traders, like 
the farmers who directly store their produce, are also 
responsible for selling the stock of potatoes they keep at the 
refrigeration facility before the end of November. 
 
--------------------------------------------- -------------- 
Different Impressions of What Ails the Supply Chain Network 
--------------------------------------------- -------------- 
 
¶10. (U) With a bumper crop season in full effect, farmers 
continually faulted the potato marketing system and lack of 
government intervention for the financial straits they are 
facing.  The farmers we spoke to said they believed a demand for 
their crop at beneficial prices existed in the market, however 
they lack the ability to network with buyers and have inadequate 
access to information that might allow them to identify, 
contact, and sell to traders and wholesalers at greater profits 
than are currently negotiable in the area.  All three of the 
mid-size farmers (who cultivate between 10 and 13 acres of land 
each) we met said they would welcome large retail chains like 
Reliance as well as foreign buyers without qualms, provided they 
received a advantageous margin of profit for their crops, which 
they said would be around Rs 170 (about USD 4.00) per 50 
kilogram. 
 
 
KOLKATA 00000126  003.2 OF 003 
 
 
¶11. (U) The potato traders we spoke with had a different 
perspective.  According to these brokers, they have adequate and 
established access to a network of buyers with whom business is 
traditionally transacted.  Traders will typically reside in 
their area of business so they have immediate access to the 
farmers and then travel to the buyers in order to receive 
payments and finish deals.  Traders favor this current system 
and are opposed to the entry of corporate buyers and 
multinationals who can break the marketing cartel in their areas 
of business.  While they complained that the current system 
inhibits the liquidity of the produce they have purchased, they 
believe an instrument for spot trading of the crop will address 
their issues with the current supply chain. 
 
---------------------------------- 
A Possible Solution for Both Sides 
---------------------------------- 
 
¶12. (U) After our discussions with the farmers and traders, 
Periwal disclosed that he is in talks with a company to provide 
his customers with automated up-to-date data on the price, 
buyers, national and international trends in the potato crop 
market that would serve as a technology based market place for 
farmers and traders.  Having met with the company three times in 
the last year, Periwal hopes to have this center up and running 
at the cold storage facility by April or May, which will be the 
first one of its type in the immediate area, and provide his 
trader and farmer clients with a solution to their problems with 
liquidity and access to data on potential buyers. 
 
--------- 
Comment 
------------ 
¶13. (U) More equitable market access for farmers would probably 
help stabilize potato prices in the future.  During this year's 
glut in the potato harvest, there are rumors that potato trading 
cartels are deliberately not buying from the farmers and thus 
artificially decreasing the price for the crop.  These cartels 
are then joined by cold storage owners who refuse to keep the 
produce on the grounds that there is no space for it in their 
warehouses.  The cold storage warehouse we toured during our 
trip was quickly filling up and the other cold storage 
facilities in the area had long lines of farmers with their 
potato laden trucks and wagons waiting to store the harvest. 
There have been recent reports of potato farmer suicides, with 
papers reporting that the farmers are unable to meet their debts 
and unable to find adequate cold storage space for their crop. 
If the queues, the glut, and the efforts at price manipulation 
are any indication, this could be a rough season for West 
Bengal's potato farming community.  The difficulties experienced 
by the potato farmers also reflect the fundamental problem of 
India's weak agricultural infrastructure, which results in 
farmers unable to gain decent returns for their crops even as 
inflation drives up the prices of basic food items for the 
Indian consumers. 
JARDINE