Organised Retailing and Agri-Business: Implications of New Supply Chains on the Indian Farm Economy

315 Pages·2016·6.02 MB·English

by  N. Chandrasekhara Rao

India Studies in Business and Economics
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N. Chandrasekhara Rao • R. Radhakrishna
Ram Kumar Mishra • Venkata Reddy Kata
Editors
Organised Retailing and
Agri-Business
Implications of New Supply Chains
on the Indian Farm Economy
1 3
Editors
N. Chandrasekhara Rao Ram Kumar Mishra
Agricultural Economics Research Unit Institute of Public Enterprise
Institute of Economic Growth Hyderabad
New Delhi India
India
Venkata Reddy Kata
R. Radhakrishna Centre for Economic and Social Studies
Centre for Economic and Social Studies Hyderabad
Hyderabad India
India
ISSN 2198-0012 ISSN 2198-0020 (electronic)
India Studies in Business and Economics
ISBN 978-81-322-2475-4 ISBN 978-81-322-2476-1 (eBook)
DOI 10.1007/978-81-322-2476-1
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Foreword
A major concern among the planners and policymakers in India today is how to
achieve a minimum of 4 % annual growth in farm output in order to sustain high
overall growth in GDP, while ensuring its inclusiveness. Driven by rising demand,
Indian agriculture is getting increasingly diversified into dairying, horticulture,
meat and fisheries, etc. These products being input-intensive and perishable require
a marketing infrastructure that enables the farmers to minimize postharvest losses,
which are substantial now, and realize a much better share in the price paid by
the consumers. Reforms in the marketing system for farm produce are, therefore,
high on the agenda of planners. Overcoming the prevailing technological fatigue
in agriculture is another important concern. But wider adoption of even the known
technology as well as incentives for further innovations crucially depends on the
favourable marketing environment. Therefore, the present book on the implications
of organized retailing for the country’s farm economy assumes special significance,
and is very timely.
The move towards organized distribution of food and grocers has been the big-
gest change witnessed in the country in the new millennium. Gradual liberalization
of agricultural marketing and easing of restrictions through a slew of measures in-
cluding changes to Agricultural Produce Marketing Committee (APMC) Act have
been playing a significant role in this transformation, besides demand-side factors
like higher increase in disposable incomes, urbanization, aspiration for better shop-
ping, and increased participation of women in workforce. The organized distribu-
tion of food and grocery raised hopes for speedy modernization of supply-chain
sector in the country through its technological upgradation, resulting in improved
competitiveness—necessary for sustaining high growth of the economy. Substan-
tial investment in back-end infrastructure by organized retailers in areas like rural
warehousing and cold chains is likely to benefit farming community. The rise of
organized retailing also has the potential to drive the growth of food processing and
consequently diversification of agriculture, as these are demand-driven in nature.
The transformation of the agri-food system and the likely implications for the sup-
ply chains, from farming community to the ultimate consumers, have thrown up
new areas for researchers.
v
vi Foreword
Disintermediation through direct procurement of farm produce from farmers by
organized retailers through establishing collection centres in the villages and cen-
tralizing distribution of fruits and vegetables so procured is the crux of the changes
in the new supply chain, apart from investing in cold chains, modern storage, pack-
aging and related infrastructure. Experience from other developing countries sug-
gests that this will usher in far reaching changes in the methods of organization of
food by farmers, processors, wholesalers on the one hand, and the purchasing habits
of consumers, on the other. Now that these changes are on the horizon, research
needs to be carried out to understand the real impacts.
The debate in the country overwhelmingly focused on the foreign direct invest-
ment in organized retail and its fallout, while in reality this sector has been spread-
ing out at phenomenal growth rates. Given the strong investment capabilities of do-
mestic private players, full-scale liberalization might not have as dramatic impact as
in the Latin America or East Asia. Nevertheless, the entry of foreign players might
increase the competition, professionalism and better service in terms of passing on
the price margins to the consumers catapulting the organized retail to the tier II and
tier III cities and to the people with lower income levels.
The book is born out of the international conference organized at the Centre for
Economic and Social Studies and is concerned with understanding the international
as well as the Indian experience regarding the impact of organized retailing on the
fortunes of agriculture and on ways for overcoming the existing infrastructural and
institutional constraints with a view to maximize the benefits for resource-poor
farmers.
The present volume draws on some fresh evidence from both India and abroad
and contributes to a more informed debate on the likely impact of supermarket
diffusion on smallholders in the Indian context. The case studies presented in this
volume show that the farmers get higher returns by selling to the supermarkets. The
problem, however, relates to the inclusion of resource-poor farmers in the process
for ensuring such benefits to them. The evidence from China and Kenya shows
that the participation of smallholder farmers in the supermarket channel is possible
provided the government plays the role of a catalyst by making better policies and
infrastructure provisions to improve the competitiveness of smallholders. More-
over, poor smallholders may benefit through their participation in the labour market
as the farmers may hire more labour to meet the exacting standards demanded by
the supermarket chain.
All the case studies have taken note of continued dependence of farmers on tradi-
tional wholesale market. Moreover, most supermarket chains set their prices using
the prices in the traditional wholesale market as the reference price, indicating lat-
ter’s importance for a competitive agri-food system. That apart, procurement by the
supermarket chains is often limited, leaving the farmers with the remaining produce
to sell elsewhere. All in all, the government cannot shy away from its responsibility
towards undertaking investment in the better provision of infrastructure in the tradi-
tional wholesale markets to promote a more inclusive agri-food system.
Public policy needs to be reformulated to help develop marketing infrastructure
by building supporting infrastructure such as storage facilities, assured electric-
Foreword vii
ity supply, transport and communication networks, which can be provided mainly
through public investment or through public–private partnerships. The tasks on the
institutional front are no less daunting. Over 80 % of farmers now are small and
marginal with increasing participation of women. Their awareness on the marketing
problems in the new context as well as their bargaining power while negotiating
with the more powerful buyers such as organized wholesalers and retailers needs
to be raised by organizing them into sales cooperatives. Easy access to institutional
credit and extension services by the government to small and marginal farmers can
improve their bargaining power vis-a-vis private players who may increasingly pro-
vide such services. Another class of measures relates to those needed to address
the concerns of potential losers from the growth of organized retail, consisting of
kirana stores, small traders and commission agents, and pushcart vendors, with a
view to enabling them to adjust to changes by upgrading their present activities
wherever possible or move into new jobs and occupations created in the wake of
high overall growth of the economy.
The book addresses the gaps in literature by bringing out a comprehensive set
of papers delving into issues relating to organized retail and their links to agricul-
ture on policy perspective; likely impacts of foreign direct investment; empirical
evidence on small farmers in other developing countries and India; and finally pro-
ducer companies to link resource-poor farmers to the retail giants. This book is the
first of its kind on the implications of organized retailing for agricultural sector and
the farming community. I have no doubt that this book would be a valuable addition
to the economic literature on organized retailing. I do hope that the research com-
munity, civil society and policymakers will find it useful.
Centre for Economic and Social Studies, C. H. Hanumantha Rao
Hyderabad,
April 8, 2015
Preface
Reforms in agricultural marketing have come to the forefront of policy-making
agenda in India in the past few years. In the prereform period, food policy in India
paid inadequate attention to agricultural marketing. Supply chains were fragmented
and lacked modernization. The initiation of liberalization policies and enactment of
amendments to the Agricultural Produce Market Committee Act by the state gov-
ernments, situation has been changing. The sector has also been opened to foreign
direct investment.
Experiences from most of the developing countries in Latin America, Asia and
Africa show that modernization of supply chains is inevitable with economic devel-
opment. However, impact of this process on different stakeholders is not uniform
across countries. In India, diffusion of organized retail or supermarkets accelerated
in the new millennium after a slow start in the late 1990s and has brought both op-
portunities and concerns for the farm sector. The emotionally surcharged national
debates on this phenomenon have often seen extreme claims and counter claims
with little empirical evidence.
Some argue that organized retailing offers remunerative prices to farmers and
better quality food and fair prices to consumers, and promotes investment in stor-
age, packing and transport infrastructure. On the other hand, it is argued that it
would ruin the small farmer-based Indian agriculture by bringing in new intermedi-
aries, dealing mostly with large farmers, resorting to imports, and selling at higher
than prevailing prices. However, the debate is not well-informed in the country
with emotional undertones and without basing on empirical evidence. There is no
significant research on the impact of organized retailing as the phenomenon itself
is very nascent.
This book tries to fill this gap in literature by bringing out papers from schol-
ars working on related issues from both India and other developing countries. This
edited volume is born out of the international conference organized by Centre for
Economic and Social Studies (CESS), Hyderabad in association with Indian Society
of Agricultural Marketing (ISAM) and Institute of Public Enterprise (IPE), Hyder-
abad. The Department of Agricultural Marketing of Government of Andhra Pradesh
cosponsored the conference. The brain storming sessions organized by CESS and
ISAM firmed up the themes of the conference. Dr. T. Satyanarayana, Secretary of
ix
x Preface
ISAM played a major role in organizing the conference. The organizers of the con-
ference and the editors of the book benefited immensely from the policy insights
and sagacious advice of Dr. C. H. Hanumantha Rao. The inaugural address of Dr.
C. Rangarajan at the conference, keynote address of Dr. S. S. Acharya and valedic-
tory address of Dr. Y. K Alagh were helpful in the choice of themes for the book.
Dr. Manoj Panda, former director of Centre for Economic and Social Studies and
present director of Institute of Economic Growth (IEG), New Delhi, and Dr. S. Gal-
ab, present director of CESS have generously helped in organizing the conference.
Many national and international dignitaries participated in the conference and
enriched its proceedings. Asian scholars shared their experiences in reforming agri-
cultural marketing in their countries. Given the focus of the book, not all papers pre-
sented at the conference could be included, but a few invited papers were included
to fill the gaps. The editors of the book are indebted to the paper contributors for
their painstaking effort in revising the papers.
April 9, 2015 N. Chandrasekhara Rao
R. Radhakrishna
R. K. Mishra
Venkata Reddy Kata