Professors

1
Indian Agricultural Produce Distribution System
Towards an Integrated Agri Produce Flow

• Professors
• S. Raghunath and D. Ashok
• Research Scholars
• Puneet Prakash Mathur and Thomas Joseph
• Indian Institute of Management, Bangalore

2

• In the Indian Manufacturing Context
• It is customary to refer to various entities as
  supply chain players.
• Players are beginning to regard effective supply
  chain management
• as a team activity.
• It is the supply chains that compete, and not
  individual businesses-
• is an accepted axiom

What about the Agri Produce Supply Chain?
3
The Indian Agricultural Setting

• Rural Population 72
• Depend directly or indirectly on agriculture
  72
• Self-sufficient in food-grain production
• Share in Indias GDP is just 25

4
The Context of Indian Fresh Fruit and Vegetables
industry

• Second largest producer of vegetables in the
  world
• Second only to China
• accounts for about 15 of the worlds production
  of vegetables
• Largest producer of fruits in the world
• accounts for about 8 of the worlds production
  of fruits
• constitute around 10 of the total agricultural
  production of the country (Approximate size Rs
  25,000 crores)
• Expected size of food industry Rs 500,000
  crores
• Expected size by 2005
• (FAIDA Revisited Realising the potential,
  January, 2004 by McKinsey Company prepared for
  CII)

FV production in India is high, and
opportunities in the field are large
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Yet The Efficiency Of The Agri Produce Supply
Chain Is Not Even A Patch On The Indian
Manufacturing Supply Chain

• Numerous intermediaries
• High Level of Wastages
• Lack of transparency prices, availability,
  demand, customer preferences
• Poor Infrastructure Storage, Packaging,
  transportation / no cold chain
• Poor linkages in the marketing channel

6
Our Field Study

• Examined following areas
• Role of each intermediary in the traditional
  channel
• Quality, hygiene shelf life of agriculture
  produce
• Wastages at various stages of distribution system
• Price received by farmer vis-à-vis end-consumer
  price

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Field Study Scope

• Cultivation area covered
• Hosakote Kolar taluks of Bangalore
• Wholesale markets covered
• New Kalisaipalyam Market,Bangalore Vegetables
• Binipet market, Bangalore exclusively for Banana
• Yeshwantpur APMC, Bangalore
• Vegetables and fruits selected for study
• Tomato, Potato, Cabbage, Cauliflower and Banana

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Numerous Intermediaries
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• High cumulative wastages across the supply chain
  varied from 24 (for potato) to 40 (for tomato)

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Way Forward

• Is the way forward then..
• Strengthening value added-essential activities
• Total elimination of non value added activities

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Lack of Transparency-Unacceptable Inequity in
Farmers Remuneration
One of the highest in the world !
12
Does The Supply Chain Promote Supply-Demand
Transparency?

• Agri produce moves downstream
• Demand traditionally flows upstream link to link

Semi Wholesaler
Wholesaler
Retailer
Consolidator
Demand
Customers
Farmer
travels upstream
Agri Produce
moves downstream
13
Field Study Findings Price

• Price received by farmer varies from 24 to 58
  of end consumer price for different produces

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Each link within the supply chain embraces the
following constituents

• Perceived demand for produce
• -purchase orders placed
• -forecasts of what might happen
• At least one added value process
• -which customer is prepared to pay for
• Information on current produce
• -which may be stale or alternatively
  distorted or both

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Each link within the supply chain embraces the
following constituents

• Disturbances affecting produce supply
• -rainfall / water table / electricity / farm
  equipment / transport.
• Transmission lags or lead times
• -which occur for both agri produce flow and
  information flow.
• Decision points
• -where information on agri produce
  availability, purchase orders
• and stock levels is brought
  together and acted upon.

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Potentially complex operation of supply chain is
made worse

• This is because there is uncertainty associated
  with
• Perceived demand
• Quality of information
• Time associated with the many transmission lags
• both for agri produce flow and information flow

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Are Customer Preferences Transparent To
Suppliers Suppliers?

• Customer needs expectations
• Suppliers
• Suppliers suppliers

Coordination
Success is linked to the strengths of the weakest
supply chain partner.
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Are Customer Preferences Transparent To
Suppliers Suppliers?

• Hotels/Restaurants
• Catering joints
• Home kitchens
• Packaged food manufacturers
• Ministry of Defence!
• Suppliers
• Suppliers suppliers

Coordination
20
Poor Handling Infrastructure

• Poor and multiple handling
• Improper bagging without crating
• Lack of temperature controlled vehicles and
  storage facilities
• Poor roads, warehouses and market yards

21
No Cold Chain

• Without post-harvest preservation , fruits and
  vegetables tend to ripen
• or perish very quickly
• Cold chain helps preserve the fruits and
  vegetables for longer periods
• Removal of field heat immediately after
  harvesting - within 2 hours
• prevents ripening of fruits and vegetables
• It is estimated that post harvest losses in India
  are typically around 30
• - i.e. around Rs 30,000 Crores p.a!

22
Poor Linkages in the Marketing Channel

• Current Relationships
• Focus on produce sales transaction
• Focus on produce as a commodity

• Suggested Future Relationships
• Focus on retention of farmer as a valued
  supplier
• Focus on produce differentiated according to
  benefits

23
Poor Linkages in the Marketing Channel

• Current Relationships
• Short time scale
• Little emphasis on farmer information and
  advisory service

• Suggested Future Relationships
• Long time scale
• High commitment to farmer information and
  advisory service

24
! Poor Linkages in the Marketing Channel

• Current Relationships
• Moderate farmer contact
• Quality is primarily the concern of farmer

• Suggested Future Relationships
• High farmer contact
• Quality is the concern of all

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So Why The Urgency ?

• Agri Produce Perishability
• Urgency
• Search for efficiency

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Suggested Improvements Dis-intermediation and
participation of organized players
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A short video clip follows Thank You
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• Supply Chain Issues In The Distribution Of Fruits
  Vegetables

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Orchard to Market Chain
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2
1
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Some Observations On The Current Agri Supply
Chain Scenario

• Primitive systems of cultivation
• Agriculture is disjointed as there is no linkage
  between production of agricultural produce and
  its demand in the market
• Poor on-farm practices in harvest and
  post-harvest handling
• Poor infrastructure in terms of transportation,
  storage and market
• Difficulty in collection from numerous small
  farms

31
Some Observations On The Current Agri Supply
Chain Scenario

• Negligent attitude towards post-harvest losses
• Lack of quality consciousness
• Absence of food processing units
• Faulty power supply
• Unavailability of modern cold storage

And yet, we are amongst the largest producer of
Fruits Vegetables in the world !!
32
Unshackling of the Supply Chain

• Efficiating of the supply chain can happen on
  many fronts
• Physical
• Fiscal
• Process
• Technology

33
Physical

• As the length of the chain gets reduced, each
  player has to do more
• work
• The resultant crashing of the link(s) will enable
  economies of scale to
• build up
• As competition hots up, size will matter and
  mom-and-pop outfits will need to consolidate to
  attain scale
• For this consolidated chain to be competitive,
  their procurement costs must decrease
• Large players are most likely to be able to
  service this requirement

34
Physical

• The big players in the process, will bring in
  systematic ways of working and better practices
  and improved infrastructure like cold chain
• Ultimately Consumers are the winners

35
Fiscal

• Acts of Law that do not offer a level playing
  field will need to be
• re-looked at (e.g. The APMC Act)
• Introduction of uniform tax rates will encourage
  the disbanding of
• artificial and fragmented links like CF
  Agents in each state
• Impact of issues relating to subsidies will need
  to be studied for
• relevance in current context

36
Process

• The supply chain business processes will need to
  be revamped in line
• with changing or improving practices
• Adversarial relationships (e.g. with the
  wholesalers) will need to be
• converted into one of genuine partnerships

37
Technology

• Farm production technologies will need to be
  modernised
• Usage of IT in agri-business will need to be
  enhanced
• Linkages between farmers and the other players in
  the chain will need to be strengthened and IT
  offers this opportunity

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Grower

• Full risk borne at every stage
• Marginal land holding
• Disconnect with the market place

2
All pain little gain !
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Harvesting

• Manual methods
• Poor storage conditions
• Timing harvesting with transport arrival

40
Packaging

• No grading or sorting
• Poor packing
• Inadequate processing capability

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• Poor storage conditions
• Manual material handling

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Improvements in the Distribution System

• Can the Indian agri-produce distribution system
  be improved?
• Adopt the global best practices which are present
  in developed countries
• A model worked-out for the select produce (of the
  field study) based on above showed better
  realization to farmers and lower prices for end
  consumers

43
Improvements in the Distribution System

• Adopt the global best practices which are present
  in developed countries
• Storage
• Post harvest storage facilities
• Collection centers
• Cold chain
• Packaging
• Special purpose containers to prevent
  transportation damages
• Protection from contamination
• Not imparting any toxic substance
• Handling
• Specialty handling tools and equipments
• Transportation
• Freighters
• multi modal transport services
• Logistics service provider
• Storage, warehousing and material handling
  services

44
Improvements in the Distribution System

• Adopt the global best practices which are present
  in developed countries
• Value added services
• Grading, sorting and packaging facilities leading
  to standardization
• Ripening and primary processing facilities
• adoption of good post harvest practices can
  result in significant cost savings
• due to wastage reduction and economies of
  scale

45
Suggested Improvements Dis-intermediation and
participation of organized players

• Illustrative example of tomato for establishing
  the benefits of organized distribution formats.

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And The Winner Is ..
(Note All figures in )
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Thank You D Ashok ashokd_at_iimb.ernet.in