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Transforming Agri-food System: Role of Organized Retail in India
Ashok GulatiDirector in Asia
International Food Policy Research Institute, New Delhi
Keynote Address at first Annual Conference of the Indian Society of Agri Business Management
Bangalore
25th September, 2008
Page 2
Key Issues
Demand patterns are changing (plate is driving the plough)
Agri-food system is transformingo Organized retail (food & grocery) is rapidly expandingo Other front end players (processors, logistic suppliers, etc)
are respondingo But, the farm sector is fragmenting
Challenge lies in… making retail lift the tail creating opportunities for mainstream participation
What are the next steps??
Page 3
Changing Complexion of the Indian Food Basket
Items
Expenditure as percent of total food
Rural Urban
1983 2004-05 1983 2004-05
Cereals and pulses 55.3 38.7 38.6 29.0
Milk & products 11.5 15.4 15.7 18.6
Egg, fish & meat 4.6 6.0 6.1 6.4
Vegetables 7.2 11.1 8.4 10.5
Fruits & nuts 2.1 3.4 3.6 5.3
Other food items 19.3 25.4 27.6 30.2
Total 100.0 100.0 100.0 100.0Expenditure on food as a percent of total expenditure
65.6 55.0 59.1 42.5
Source: NSS0 2006
Page 4
Changing Production Basket~ All India
TE2006-07
16.7%
24.7%
27.8%
4.4%
26.4%Fruits&Vegetables
Foodgrains
Other Crops
Livestock
Fishery
TE1982-83
14.1%
31.7%
31.1%
2.7%20.3%
Fruits&Vegetables
Foodgrains
Other Crops
Livestock
Fishery
Source: Calculations based on 1999-2000 price series obtained from National Accounts Statistics (back series 1950/51-1999/2000), 2007 & National Accounts Statistics 2008, Central Statistical Organization, Government of India
Page 5
Transforming Agri-food System
RBHs
Source: Gulati & Gupta, 2008
emer
ging
link
ages
emerging linkages
Page 6
Organized Retail in India~unfolding revolution
Total retail ($322 bn in 2006/07) likely to grow @ 13% annually (to $590 bn in 2011/12).*
Organized retail (comprising of just 4% of total retail) to grow at (45-50)% & (account for 16% by 2011/12).*
Total food (accounts for nearly 60% of the retail pie), organized segment hovering around 1%.
Huge scope for expansion
*Source; ICRIER Retail Report, 2008
Page 7
Retail Revolution~ Growth of Organized Food & Grocery Retail
63.4
72.4
26
22.5
20.8
18.6
0 10 20 30 40 50 60 70 80
Philippines
Indonesia
Thailand
China
Viet Nam
India
average annual percent growth rate
Note: Food sales include food, beverages, tobacco products, drugstore items and small everyday non-foods household goods.
Source: Planet Retail website, Accessed on 20th May, 2008
Organized Food & Grocery Retail Sales of selected 10 Retailers (2002/07)
Page 8
Market share (%) of Top 5 Grocers, 2005 ~very low level of concentration in India
Source: Global Retail Concentration, Planet Retail Report, August 2008
90.1
89.5
35
34.5
31.5
24.7
23.9
20.9
20.7
18.2
17.9
14
13.2
4.1
1.3
New Zealand
Australia
Thailand
Philippines
Hong Kong
Malaysia
Korea, South
Singapore
Taiwan
Japan
Turkey
Vietnam
Indonesia
China
India
Page 9
Scaling up of Organized Food Processing Sector Food processing sector has grown at 13 percent in
2006/07 (up from 7 percent in 2002/03)
Organized segment accounted for nearly 81% of gross output in 2000/01 (up from 64.3% in 1984-85)…must have grown thereafter
Share of employment increased from 13.3% to 15.1% during the same period in the organized segment
Its share in fixed assets had increased to 61.4% in 2000/01 (up from 26.2% in 1984-85)
Page 10
Scaling up of Organized Logistics Suppliers~favorable impact on the dd for logistics services in the organized food retail sector
Logistics industry is undergoing structural transformation: from conventional storage to inventory management & value addition
$100 bn industry (grew @ of (8-10)% b/w 2002/07) is likely to grow at (15-20)% to $385 bn by 2015 (Cushman & Wakefield, 2008).
Share of organized segment is likely to double (to12%) by 2015 (Cushman & Wakefield, 2008).
Logistics parks & 3-PL are gaining popularity
Indian players (Bharti, Reliance Logistics, Tata Realty & Infrastructure) are also entering the foray
Page 11
Agricultural Markets By & large, agricultural produce is traded through
government regulated markets that
– lack proper facilities (cleaning, sorting, grading)– Inadequate storage infrastructure– Tax farmers in terms of high market fees, commission agents’ fee, etc
However things have begun to change Amendment of APMC is a positive step (although needs a lot a
political will at the state levels to actually implement the provisions)
Creation of Terminal markets on the “hub-and-spoke” model (eg: operated by Safal in Bangalore, more in the pipeline)
Private buyback arrangements
Page 12
Fragmenting Farm Sector~swelling bottom
0%
20%40%
60%
80%100%
1970-71 1981-82 1991-92 2003
percent landholdings by size class
0-2 ha 2-4 ha 4 ha & abv
Avg farm size 2.2 1.67 1.34 1.06
0%
20%
40%
60%
80%
100%
1970-71 1981-82 1991-92 2003
percent operated area by size class
Source: NSSO, 2006
Page 13
“fortune at the bottom of the pyramid”C.K Prahlad (2004)
Marginal & small farmers are quite competitive at the farm level
# accounts for 51% of the gross value of agricultural output (Srivastava, 2008)
Despite this, low marketable surplus; high transaction costs; going through mandis; long unorganized supply chains; etc eat into their net returns
Hence, how to do business with those at the bottom of the pyramid?
Page 14
Can Retail lift the Tail? ~clusterization at the backend
Market Information(incl. food safety)
Retailers & Agro
processors
Input delivery &Extension services
Credit &Insurance
Farmers’ clusters
Source: Gulati & Ganguly, 2008
Page 15
Missing or Inadequate Rural/Agri Services
Input services: quality inputs (seeds, fertilizers and alike), agri equipments, extension services, credit & insurance, etc
Output services: buyback & open ended procurement systems, contract farming & warehousing facilities.
Consumer services: FMCG, & other consumables.
Other services: health & medical facilities, money transfer facilities, entertainment facilities such as food joints, movie hall, parks, etc.
Page 16
Open Source Intermediation~the dynamics of RBHs
Output
Farmers
Input
RBHs
IPR*
MandiInformal Markets
Ext. Services
Money lender
Banks &
Insurance
Financial
FuelInputs
FMCGs
ProduceExtension
FMCGInputs
*IPR: Input Suppliers, Processors and Retailers
Source: Gulati & Gupta, 2008
Page 17
Emerging Players in RBHs~a type of open source intermediaries
ITC led e-Choupal 2000, Choupal Saagar in 2004
DSCL-Hariyali 2002
Godrej Aadhar 2003
Others like Triveni (2005),IOCL (2006) and Reliance (yet to enter)
PPPP (CII & Ministry of Panchayati Raj), 2004
Mega FoodPark 2007
Private Initiatives
Public Initiatives
Tata Kisan Kendras 1998, rechristened as Tata Kisan Sansar in 2004
Source: Gulati & Gupta, 2008
Page 18
Challenge of “Inclusiveness with Competitiveness” ~ who benefits & how?
Implications on consumers: benefit from competitive price offers, better product quality, wider choice of commodities, better shopping environment, etc
international experience (in USA, Chile, Mexico, etc) & ICRIER study confirm the same
prices of vegetables were 33 percent cheaper in organized outlets as compared to traditional and that of fruit was 15 percent (Recent IFPRI study, Gulati & Reardon, 2008)
Page 19
Not just Big Box Malls~opportunities for “mainstream participation”
Neighborhood, convenience stores: Subhiksha, Big Apple, Reliance Fresh, ITC-Choupal Fresh, etc…
Branded pushcarts (in fresh) piloted by ITC and ACME
Providing franchisee to traditional retailers: Mother Dairy in liquid milk & other dairy products
Huge employment generated: (likely to emerge next to agricultural sector!)
Page 20
Branded pushcarts piloted by ITC
Source: ITC
Page 21
ACME-branding of pushcarts
•Direct to Home is a revolutionary concept.•Sustainable livelihood to Urban Street Vendors.
A Pilot project with 70 thermally enabled carts has been implemented in Gurgaon, NCR.
Source: ACME
Page 22
How have farmers benefited?
Studies confirm that farmers have benefited in the past through farm-firm tie-ups (contract farming, cooperatives, producers 'organization)
–through reduced transaction & marketing costs, better prices & access to niche markets
However farmers are still vulnerable to production and price shocks and there is a need to establish better firm-farm linkages.
Page 23
Next Steps~ “one size fit all” formula does not work
Solving the policy puzzle (“rubic cube”) to ensure C-CompetitivenessI-InclusivenessS-ScalabilityS-Sustainability
Need for innovations and institutions at different levels of the agri-food system
Page 24
What are the possible levers of change?
Clusterization in creating scale
Use of modern technology in enhancing information dissemination
Agricultural marketing reforms (amending APMC, introduce warehouse receipts system, etc)
Creation of vibrant land markets
Focus on agricultural R&D and extension services (strengthening RBHs)