Monday, December 24, 2012

Transformation of Agri related Organized Retail in India

A few months ago I read an article on Dr Ashok Gulati, who has had an illustrious career in policy making at the national and international levels. One of his enduring publications is part of a key-note presentation around Role of Organized Retail in India. While parts of this presentation were published as early as 2008, I can certainly relate to his assessment and recommendations at that time.

During our first season of Watermelon, our issues were not those of production – the impediments became immediate access to sales channel and marketing. Now that we have started to see a small but regular harvest of Moringa, we have regular consumers of our produce but challenges largely remain the same when our production will increase in 6-8 months. 

There are several data points published here by Dr Gulati, some of them are encouraging trends and others are ripe opportunities to be harvested by an enterprising Agri-prenuer!

1 - Agri-food system is under threat but rapidly transforming
  • Organized retail (food & grocery) is rapidly expanding    
  • Other front end players (processors, logistic suppliers, etc) are responding
  • But, the farm sector is fragmenting

2 - Changing Production Basket~ All India


Comments : At Savera Farms, we have decided on a portfolio of Long, Medium and Perennial agri crops. To alleviate risks and fluctuations in land crops, we will also venture into animal husbandry .

3 - Transforming Agri-food System

A noticeable trend in recent years is that of entry of major corporate firms. These players are entering at the front end in organized food processing and retailing. As a result of this growing integration, farmers are likely to experience much greater interface with corporate world, some working very closely with them and others in tandem. The key issue that remains for us is to see how it can benefit the farmers. Will the growing competition amongst the front-end players deliver better prices, markets and value chain services to the farmers?



Comments : We believe the new paradigm will be between producers > processors > marketers, as highlighted above. Savera Farms would be interested in exploring go-to market and distribution arrangements with volume processors or traders. Our focus will remain on varieties of premium mango, Moringa, timber and fresh meat (on-hooves). We hope to generate positive synergies for a win-win situation for all involved.

4 - Organized retail in India is an unfolding revolution.  

There is a huge potential for growth and expansion in the organized (food) retail, here are a few key metrics to consider :
  • Total retail $322 bn in 2006/07 likely to grow to $590 bn in 2011/12. That is ~13% per annum growth!
  • Organized retail is set to grow at 45-50% p.a until 2011-12. Organized retail share (as part of total retail) would grow from 4% in 2007-2008 to 16% in 2011-2012.
Food accounts for nearly 60% of the retail pie in India but remains at >2% under organized sector (2008). There is a huge opportunity to be explored in organized food distribution and retail. Below is how India compared in market penetration (%) of top 5 grocers in 2008.



5 - Fragmenting of Indian Farm Sector. 

This is a function of our rural social-economic trend. Agricultural holdings have become a commodity instead of being means to a sustainable living. People routinely divide and sell their current holdings, often rendering them unsustainable for production. Average holding sizes had shrunk from 4 ha (1970s) to less than 2 ha by 2003. Yet, there is fortune at the bottom of the pyramid (<2 ha holdings).

  • Marginal & small farmers are quite competitive at the farm production level
  • Low marketable surplus; high transaction costs; going through mandis; long unorganized supply chains;  eat into their net returns.

Comments : Current fragmented agri practices have become unsustainable at the bottom of the pyramid. Our experience is leading us to study economies of scale in production and explore large volume marketing arrangements. Organized agriculture is the need of the hour and consortium of progressive farmers may be the way to go. Studies confirm that farmers have benefited in the past through farm-firm tie-ups (contract farming, cooperatives, producers 'organization). This allows for reduced transaction & marketing costs, better prices & access to niche markets


Where do we go from here ?

At Savera Farms, we are fast becoming convinced that the Indian Agri sector can still hold its own. We are encouraged to see a steady and increasing flow of educated, dedicated and determined generation of new agri-prenuers come into the system. Recommendations from Dr Gulati that we subscribe to are :
  • Clusters of agri-practitioners to create scale
  • Farmer consortiums are better equipped to leverage govt sponsored production, mechanization and marketing programs.
  • Informed farmers are better able to withstand fixed asset and land value fluctuations
  • Use of modern technology in enhancing information dissemination is key for decision making
  • Focus on agricultural education and R&D opportunities is required to stay current.
We are in talks with a few fellow agri-prenuers around forming a consortium in areas of common interests (land crops or animal husbandry) and welcome suggestions or participation from the reader community as well.



Credits :
Transforming Agri-food System: Role of Organized Retail in India, Dr Ashok Gulati
http://ageconsearch.umn.edu/bitstream/57393/2/1-DrAshok%20Gulati-1.pdf

2 comments:

  1. Great article again. Thanks for sharing the document. The best part of the article was the comparison between policies suggested and what was practised.

    The "Where do we go from here" section quite sums up what needs to be done.
    The document had mentioned that for Milk 66% of the consumer price was going to the Milk Producers (farmers), while in the case of fruits/vegetables it was only 20%. Hope this becomes a reality in the Agri sector sometime in the near future.
    Perhaps we will need a way to grade fruits/vegetables and make the consumer aware of it for better marketing.
    I had read another article, one suggestion there was to have 2 or 3 villages cultivate /produce the same/similar crop, so as to pull the wholesalers/retailers/food processing units there, hence reducing the need the market extensively. As well as reduce production cost as expertise increases Not sure to what extent this would work out or how to get it work.

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