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Ifpri Ashok Gulati

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  • 1. Transforming Agri-food System: Role of Organized Retail in India Ashok Gulati Director in Asia International Food Policy Research Institute, New Delhi Keynote Address at first Annual Conference of the Indian Society of Agri Business Management Bangalore 25 th September, 2008
  • 2. Key Issues
    • Demand patterns are changing (plate is driving the plough)
    • Agri-food system is transforming
      • Organized retail (food & grocery) is rapidly expanding
      • Other front end players (processors, logistic suppliers, etc) are responding
      • But, the farm sector is fragmenting
    • Challenge lies in…
        • making retail lift the tail
        • creating opportunities for mainstream participation
            • What are the next steps??
  • 3. Changing Complexion of the Indian Food Basket Source: NSS0 2006 30.2 27.6 25.4 19.3 Other food items 100.0 100.0 100.0 100.0 Total 42.5 59.1 55.0 65.6 Expenditure on food as a percent of total expenditure 5.3 3.6 3.4 2.1 Fruits & nuts 10.5 8.4 11.1 7.2 Vegetables 6.4 6.1 6.0 4.6 Egg, fish & meat 18.6 15.7 15.4 11.5 Milk & products 29.0 38.6 38.7 55.3 Cereals and pulses 2004-05 1983 2004-05 1983 Urban Rural Expenditure as percent of total food Items
  • 4. Changing Production Basket~ All India 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
  • 5. Transforming Agri-food System RBHs Source: Gulati & Gupta, 2008 emerging linkages emerging linkages
  • 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
  • 7. Retail Revolution ~ Growth of Organized Food & Grocery Retail Note: Food sales include food, beverages, tobacco products, drugstore items and small everyday non-foods household goods. Source: Planet Retail website, Accessed on 20 th May, 2008 Organized Food & Grocery Retail Sales of selected 10 Retailers (2002/07)
  • 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
  • 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)
  • 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
  • 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
  • 12. Fragmenting Farm Sector ~swelling bottom Source: NSSO, 2006
  • 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?
  • 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
  • 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.
  • 16. Open Source Intermediation ~the dynamics of RBHs Output Farmers Input RBHs IPR* Mandi Informal Markets Ext. Services Money lender Banks & Insurance Financial Fuel Inputs FMCGs Produce Extension FMCG Inputs *IPR: Input Suppliers, Processors and Retailers Source: Gulati & Gupta, 2008
  • 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 Food
      • Park 2007
    Private Initiatives Public Initiatives
      • Tata Kisan Kendras 1998,
      • rechristened as Tata Kisan Sansar in 2004
    Source: Gulati & Gupta, 2008
  • 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)
  • 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!)
  • 20. Branded pushcarts piloted by ITC Source: ITC
  • 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
  • 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.
  • 23. Next Steps ~ “one size fit all” formula does not work Solving the policy puzzle (“rubic cube”) to ensure C- Competitiveness I- Inclusiveness S- Scalability S- Sustainability
      • Need for innovations and institutions at different
    • levels of the agri-food system
  • 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)