The widening gap between wholesale and retail prices of essential items buttresses the argument in favour of foreign direct investment in retail.

Most essential food items, with the exception of pulses and sugar, have seen a much higher increase in the prices at the retail level over the last one year in comparison to the change seen in wholesale prices during the period.

A higher increase in retail prices could imply that middlemen are pocketing higher margins as the food items move from the wholesale market to shop shelves. ‘Big Box Retail' promises direct procurement at the farm/producer level, thereby eliminating the margins pocketed by the middlemen.

The price data collated by the Price Monitoring Cell in the Ministry of Consumer Affairs for Delhi for November 30, 2011 and the same date last year shows that the retail price rise seen in items such as cereals (rice, wheat), cereal products (wheat flour or atta) and items such as tea is much higher than the corresponding increase in prices of these items at the wholesale level.

In case of rice and tea, the change in prices at the retail level is nearly double the change at the wholesale level during the 12-month period. In the case of wheat and flour, where wholesale prices actually dipped, the retail prices recorded double-digit growth. In case of onions and potatoes, where prices have fallen, the dip is steeper at the wholesale level than at the retail level.

The trend seen in prices of pulses, where the retail price increase is considerably lower than the surge at the wholesale level, can largely be attributed to Government intervention in Delhi. The State Government had made pulses available at discounted prices at state-owned stores in the Capital after last year's price surge.

Mr Arvind Singhal, Chairman of consulting firm Technopak Advisors, attributed two main reasons for the mark up in the retail prices – one being the actual margin that middlemen charge and the other being the wastage during transportation of fresh produce.

Apart from the front-end delivery, large format stores place greater emphasis on better storage and quality of handling during transit, which cuts down on wastages.

On the argument that organisations such as Confederation of All India Traders have been using that large retailers squeeze farmers on margins while striking sourcing deals, Mr Singhal said in India, the MSP mechanism already exists as a counter to any visible trend of retailers short-changing farmers.

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