Indian Agriculture – Paradigm Shift in Supply Chain & Marketing

Presentation By

S K Sharma

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Indian Agriculture: The Paradox

Agriculture contributes 18% to the GDP

– But over 60% population is dependent on it for livelihood We are among the top few producers of many agricultural

commodities in the world…

– Yet our share in world food trade is about 2 % The post-harvest losses of fruits and vegetables are

estimated to be 25 to 40 %, amounting to more than Rs. 30,000 crores…

– Yet less than 5 % is processed ! We have a middle class of 300 million people with adequate

purchasing power to buy manufactured goods…

– Yet value addition to agricultural products is less than 10%

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Indian Agriculture: A Fact Sheet

F&V: India’s comparison at World Level

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Current Supply Chain - Gaps

Farm Level– Shortage of quality seeds in sufficient quantity– Extension services needs to be strengthened– Lack of adequate crop insurance– Dependence on natural factors – erratic production– High price of hybrid seeds– Lack of standardization of farm practices

Interlinkages– Long chain of intermediaries resulting in huge losses > 40%– Cartel of middlemen implying decreased profits for farmers– Poor interlinkage between processors and farmers

Post Harvest– Poor infrastructure– Improper handling at APMCs– Improper handling at collection centers resulting in poor quality – Lack of post harvest technology adoption e.g. 25-30% mango is lost

during canning

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Current Supply Chains: Challenges

Farm LevelAggregation /

Collection CentresWholesale

MarketsRetail

• Lack of knowledge about quality control and Standards

• Traditional harvesting storage facilities;

• Poor infrastructure for handling

• In-adequate transport from field to Primary Markets

• Pre-cooling facility is non existant

• Absence of grading, sorting, washing facilities;

• Non-transparent weighing;

• Poor handling and in-adequate storage facility;

• Absence of adequate transport facility

• Lack of grading, sorting, washing and packaging facilities;

• Cold-storage, CA Stores, warehouse facility is not available;

• Labeling of products is non-existent;

• Non-availability of material handling equipments;

• Lack of adequate infrastructure for Multi-commodity Transport facility with reefer trucks and vans to Wholesale Markets / Auction Centres / Terminal Markets

• Quality testing facility etc

• Adequate handling at the retail end

• Non-availability of storage facility, freezers and other infrastructure

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Existing Supply Chain – Major Issues

Consume r

Retailer

Sub-Wholesaler

Wholesaler

Market level commission agent

Consolidator at Village level

Small / marginal farmer

< 25%

< 6%

< 10%

< 8%

< 10%

Total mark-up in the chain

Total margin - 60 to 75 %Margin to wholesaler - 30-35%Wastage - 15-25%Transportation - 10% approx.

Farmers get 25-30% of consumer price

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Need for a Holistic Approach

Restructure the Supply Chain to remove inefficiencies- enhanced income to the farmers, reduced consumer prices;

Reorganise the Agricultural Marketing System to ensure transparent price setting and facilitate value addition;

Clean up the regulatory bottlenecks to provide a hassle- free environment to processors;

Rationalise the Taxes and Levies on processed food products to make them affordable to average man on the street.

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Supply Chains- Desired Action Points

Increasing Direct Corporate Investment in and control of Supply Chains– E-services, input sale models– Procurement Models– Retail Back-End Operations – Rural Marketing Hubs– Export Sourcing

Increasing disintermediation through Contract Farming and use of IT as a means to unlock value

Growing role of national commodity exchanges in agri-trade as a parallel market

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Trade-upFarmerprice

Consumer price

anticipated price level

original price level

Economics of Efficient Linkages

Reduce intermediariesincrease farmers’ realisation and lower consumer prices

Recent Developments to lead Changes in SCM

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Consumer: Shortest Possible Shopping & Preparation Time

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The Retail Revolution

Spread of Supermarkets• 70 to 80 % in US and Europe• 55 % in Latin America (up from 15% in 1990)• 50% in Central Europe ( up from 25% in 1999)• 6000 in China in 2002 (from a few in 1992)

Rapid consolidation everywhere– Top 5 chains in a given country:

• 40% in the US (up from 25% five yrs ago)• 70% in France (2/3 global chains)• 65% in Latin America (3/4 global)

In India Food retailing accounts for 88% of sales and 80% of employment

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Organised Trade- India Vs China

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Major Private Players in Food Retail:

Reliance Fresh

ITC

Aditya Birla Retail Ltd.

Adani Fresh;

Bharti – Walmart

Field Fresh (Bharti Enterprises)

Subhiksa

Big Bazar

Tata Kisan Sansar

Premier Farm Frsh

Heritage Foods

Macro

Food Land

HyperCity

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Increasing Clout of Supermarkets –Paradigm shift in SCM

Consolidation of procurement• Shift to big Distribution Centers

• Shift to specialised wholesalers / companies

• Fewer, bigger suppliers

Tough “private standards” of quality and safety• EUREPGAP (reduction in pesticide residues by 2004)

• Global Food Safety Initiative – to implement PRIVATE standards amongst top 250 retailers / top 250 suppliers (members’ sales=2.8 trillion $)

Converge of and increase in standards globally

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Recent Initiatives by Govt - Creating an Enabling Environment

Integrated Food Law (Food safety and Standard Bill, 2005) passed by Parliament;

Warehousing (Development and Regulation) Bill 2005 has been placed before the Parliament

The State Agricultural Produce Marketing [ Development & Regulation ] Act,2003 circulated

Modern Terminal Market scheme framed

Mega Food Park scheme on the anvil

Tax concessions and subsidy schemes

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Reforms in Agricultural Marketing

The State Agricultural Produce Marketing [ Development & Regulation ] Act,2003 - main features :– Direct Marketing by producers;

– Establishment of markets by private bodies/ co-ops or PPP;

– Separate markets for special commodities;

– Promotion of Contract Farming;

– Prohibition of commission agency in transactions with producers;

– Role of APMC in promoting alternative marketing system, contract farming etc;

– Wider role of State Marketing Boards in training & extension;

Constitution of Standards Bureau at State level Cold Chain development initiative

– Cold chain incentives – tax concession, subsidy for cols stores, CA stores, integrated pack houses

– Setting up Cold Chain Institute is proposed

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Setting-up Modern Terminal Markets

To link Farmers to the Markets by shortening supply chains and enhance efficiency, thus increase Farmer’s income

Provide professionally managed competitive alternative marketing structures that provide multiple choices to farmers for sale of agricultural produce;

To drive reforms in agricultural marketing sector resulting in accelerated development of marketing and post harvest infrastructure including cool chain infrastructure in the country through private sector investment;

To bring transparency in the market transactions and price fixation for agricultural produce and through provision of backward linkages to enable farmers to realise higher price and thus higher income to the farmers.

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Our Wholesale Markets

SAFAL Fruit & Vegetable Market

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Electronic Auction Hall

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Grading of Produce by the Farmer

Collection centers set up near production areas

Extension and QC services provided

Transparent price setting mechanism

State Govt facilitated the project by amending APMC Act

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Mechanised Handling of Produce

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Developing Mega Food Parks (MFPs):

– Provide state of the art infrastructure for Food Processing in the country;

– Ensure value addition of agricultural commodities including poultry, meat, dairy, fisheries etc.

– Establish a sustainable raw material supply chain for each cluster, Facilitate induction of latest technology, Foster interagency linkages for pooling of resources for activities complementary to food processing Quality assurance through better process control and capacity building;

– Address issues of small farm size and small and medium nature of processing industries through a cluster approach with stakeholders managing the supply chain

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