Feeding a Billion plus: Indian Agro Marketing & Distribution Challenges & Opportunities


Background

»   Supply Demand Scenario

»   The Complexities that Exist

»   Changing Needs of Consumers & New Agro Marketing Paradigm

Analysis

»  Need to Aim for Inclusive Growth by Transforming the Traditional Mandi’s & Strengthening the Agro-marketing and Distribution Network




Highlight

 

With the Agriculture GDP increasing at the rate of 3% annually from past three decades, today India is the third largest agriculture producer behind China and United states. However Indian agriculture is yet to blossom to its fullest in terms of yield, processing and export. India still has a large population which does not have enough food as per the estimates of food and agriculture organization of the United Nations prevalence of undernourishment is 18%.

The real issue is the agro marketing and distribution system. The agriculture supply chains in recent times have become sort of industrial organizations where products, payments, ownership rights, technology and information is constantly being passed between the participants at various levels. Thus marketing and distribution networks have to be focused and agile to adapt to the changing needs of the consumer.

Supported by growing income levels and increasing awareness about healthy living food consumption pattern in India are changing. The change has most prominently surfaced in the urban areas where people are buying more of processed food, packaged food and high value commodities like fruits, vegetables. To cater to this new demand pattern new form of retail has emerged but has only been marginally successful. In fact to harness inclusive growth from this new opportunity the entire agro supply chains need to transform.

Given the fact that 90% of the agriculture produce is still following the traditional route to reach out to the Indian consumer. ONICRA believes that instead of creating a new system inclined toward private players, transforming the traditional whole sale markets (Traditional Mandis – APMC’s) is the way forward. This can be achieved by upgrading the whole sale markets (Traditional Mandi’s/ APMC’s) in terms of farm gate infrastructure, process orientation and governance, so that they can be used as platforms for introducing new initiatives. Subsequently strengthening the distribution efforts by creating region specific avenues for value added activities and prompt delivery. Finally focus on marketing efforts with special initiative to formalize the information flow between the farmers and consumers. This we hope will create a system where the customer gets the best product and farmer the best price.



 

Background

Supply Demand Scenario

 
With a billion plus mouths to feed it’s quite evident how important the agriculture sector is to the India. Demographically agriculture is one of the biggest and largest employers for rural India. The food and agriculture industry has shown strong growth in the past three decades. With the Agriculture GDP increasing at a growth rate of 3% annually from past three decades, India today is the third largest agriculture producer behind China and United states.

However Indian agriculture is yet to blossom to its fullest in terms of yield, processing and export. India still has a large population which does not have enough food, as per the estimates of food and agriculture organization of the united-nations prevalence of undernourishment is 18%. To the natural question whether Indian food production is enough to feed the billion plus population of the country the answer is yes. The issue really is distribution system coupled with widening gap between the rich and the extremely poor. For example, inefficiency in the tomato business, according to the editor of the Wall Street Journal Asia, results in as much as 20 percent of tomatoes rotting in transit, while the price for consumers is marked up by as much as 60 percent. These kinds of anomalies exist for various food items across the country.

INDIA: PRODUCTION VS. DOMESTIC DEMAND FOR FOOD




"Production" refers to the full amount of the harvest before any deductions are taken for post-harvest losses, seed use, etc.

"Domestic Availability" refers to Opening Stocks (quantity of stocks held at the beginning of the marketing year) plus Production



The complexities that exist


A simple concept of taking the agriculture produce from the farmers to the consumer has become one of the most complicated web of interlinked activities. Primarily because supply-chains have become sort of industrial organizations which allow buyers and sellers to constantly add value as products pass from one member of the chain to the next. It’s not just that the product is moving from producers to consumers; payments, credits and working capital move from producers to consumers; technology and advance techniques disseminate among producers, packagers and processors; ownership rights pass from producers to processors and ultimately to marketers; information on current customers on retail level product preferences pass back from retailers to producers. In Indian context the complexities are even more as regional issues related to geographic and social-political diversities emerge as dominant factors driving the preferences and perceived value.


Changing needs of consumers and the new agro marketing paradigm


Supported by growing income levels and increasing awareness about healthy living food consumption pattern in India are changing. The change has most prominently surfaced in the urban areas where people are buying more of processed food, packaged food & “high value foods” like fruits, vegetables and complex proteins. Rural India is also stepping up rural spending outpaced the urban consumption in 2011-2012 fueled by non-farm income*. Although this extra spend has largely been spent on discretionary goods like mobile phones, TV, automobiles etc. still in the next couple of years it’s quite likely that high value food items will witness an increased in demand from this segment. Some early signs are also evident for, instance the salty snack category registered a compound annual growth rate (CAGR) of 55% between 2009 and 2011 in the rural markets. Research form a leading market research firm suggests that the market for fast-moving consumer goods will hit USD 100 billion by 2025, up from US$ 12 billon at present.

CONVENTIONAL MODEL OF AGRO-MARKETING

Distributive handling centered on wholesale market

 




THE EMERGING MODEL OF AGRO-MARKETING

Emergence of New Demand pattern & New type of Retailers




THE EMERGING MODEL OF AGRO-MARKETING

 

 

To cater to this demand a large number of private firms and public initiatives have emerged, interestingly the most successful among these are the PPP initiatives taken-up jointly by government and private players. This new development has paved way for a new kind of retail where the consumers can have processed, better packaged and fresh food items with information on the contents and usage. The conventional agriculture marketing platforms like Agriculture produce marketing committees (APMC – whole sale Mandi’s to facilitate farmers and buyers) set up by the government are realizing the need for transforming themselves to meet the expectations. Value additions at the APMC level or the middle men level create high impact on prices, a simple activity like sorting the produce as per sizes can increase the price of a commodity considerably. Although the middle men have realized this and different kinds of value additions are being practiced at various levels still the process is not formalized and is highly fragmented in nature. The need is to formalize it and include in the main-stream of supply chain. These measures will actually allow producers to improve producers to increase their gross margins, increase savings from cash crop sales.



 

Analysis

Need to aim for inclusive growth by transforming the traditional Mandi’s & Strengthening the Agro-marketing and Distribution network


Better marketing and distribution not just reduce wastage but they also create synergies in multiple ways that help better price discover. The synergy may be due to expanding the boundaries of the supply chain beyond traditional markets or by reducing the delivery cost of products below the cost of competing chains or by targeting specific market segments with specific products thereby increasing consumer perception of delivered value and eventually allowing channel members to charge higher prices.

Although the new scenario presents immense opportunities for inclusive growth and development but to harness it to its full potential will require intensive efforts on the part of farmers, private firms and the government. In our opinion instead of creating a system inclined toward private players. It is better to improve the traditional route i.e. to improve the farm gate infrastructure.

Given the fact that 90% of the agriculture produce is still following the traditional route to reach out to the Indian consumer the efforts at APMC level (agriculture Mandi- traditional wholesale market level) can be the most effective. The first and the foremost would be to upgrade the traditional mandis (APMC’s) in terms of its infrastructure, process orientation and governance, so as to create a platform for introducing the new initiatives. Subsequently focus on value added activities like sorting, processing, packaging etc can be developed through introduction of new infrastructure and manpower. The third important aspect would be to formalize and strengthen the information flow between the marketers and the farmers; to educate farmers on the changing needs of consumers and ways and means to cater to the new kind of demand pattern.



References


 

»   Food and agriculture organization of the united
http://www.fao.org/statistics/en/

 

»   A Needed Paradigm Shift For Agricultural Marketing In Asia
www.agnet.org/htmlarea_file/library/20110725172845/eb523.pdf

 

»   A Changing Structure of Global Food Consumption and Trade. Anita Regmi,editor. Market and Trade Economics Division, Economic Research Service, U.S. Department of Agriculture, Agriculture and Trade Report. WRS-01-1.
www.agnet.org/htmlarea_file/library/20110725172845/eb523.pdf

 

»   Flavors of Incredible India: Opportunities in food industry
www.cifti.org/Reports/Flavors%20of%20Incredible%20India%2009.pdf

 

»   Hunger Index, The Challenge of Hunger:Taming Price Spikes and Excessive Food Price Volatility
www.ifpri.org/sites/default/files/publications/ghi11.pdf

 

»   TEDO: Food law and Regulation in Fruits and Vegetable Sector

 

»   Building Agri Supply Chains: Issues and Guidelines Jan van Roekel, Director, Agri Chain Competence center Ronald Kopicki, World Bank, Supply Chain Advisor Carry J.E. Broekmans, Agri Chain Competence center Dave M. Boselie, Wageningen UR - Agricultural Economics Research Institute (LEI)

 

 

 


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