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Perishable Supply Chains – The Bite That Hurts

Girish V S
1, April 2020

One of the intractable issues in India is the persistent food inflation. Expert opinion, – and sometimes not so expert – attribute this to supply side shock, demand pull, corruption, inequality and the supply chains. Girish V S takes a look at how to strengthen the Perishable Supply Chains in India.

Food inflation has once again started rising, heralding difficult times for the Modi government. Food inflation had a major role in the defeat of UPA government. In a country like India where a significantly higher number of people live in poverty (much higher the numbers quoted as per the official poverty line), a change in food inflation would make them poorer inflicting greater misery on them. Thus it becomes imperative for the government to act to see that lives of a large number of our people does not become any more difficult. Agri value and food chain is under severe scrutiny and criticism as it has been one of the prime cause for food inflation in India.

This raises fundamental questions. Are farmers in this country paid more as procurement prices disproportionate to their cost? Is agriculture facing a supply side bottleneck due to low productivity? Are there institutional and legal bottlenecks that is hindering the growth of agriculture on one hand and spurring food inflation on other?  Is the agricultural supply chain to be blamed for the sustained rise of food inflation since last few years?

Two different worlds: farm to fork

This double digit inflation really requires answers and action. Look at an article in Economic times by Ajay Vir Jakhar, Chairman of Bhartiya Krishak Samaj. According to him perishables like vegetables cost 550 percent more at the consumers end. Poor farmer has to sell these vegetables at throw away prices. Prices of gram, barley and mustard have not changed since 2006-2007 though the consumer pay 350percent more. The procurement prices where farmers have benefitted is for the food grains crop like wheat and rice. But production of wheat and rice has created distortion in cropping pattern leading to decline in area under pulses and non-food crops. This has in a way contributed to the rising prices of these commodities, leading to spiralling food prices. The government support prices do not benefit farmers. Most often, farmers do not even realise their cost of production leading to stressful situations in Indian villages. Farming today is a way of life rather than an occupation. No child wants to take up agriculture as a profession. An abject lack of employment opportunity forces them to stay back home and engage in farming.

Strategies for economic reform and regeneration in India cannot succeed without substantial and broad based agricultural development.

Low productivity leads to supply shock

Strategies for economic reform and regeneration in India cannot succeed without substantial and broad based agricultural development. With changing lifestyle, increase in income of the poorest population in the country, demand for food will continue to see an upward trend. This is accentuated by rise in demand for food by emerging consumers in tier two and three cities. However, agricultural productivity has not increased, while number of people to be fed is increasing every day. This leads to a supply bottleneck in many commodities spurring food inflation. Investment in agriculture has seen steady downward trend. Both public and private investment in agriculture has showed a steady decline. In agriculture, public investment crowds out private investment; more so in developing economies like India. The impact of falling agricultural investment has affected backward regions more. The entire indo-Gangetic belt comprising of eastern UP, Bihar, Orissa and West Bengal are neglected and kept outside the purview of economic reforms. Similarly, seventy percent of our arable landfall under dry land classification. Government has resorted to increasing support prices but farmers cannot respond to higher prices because of constraints due to inadequate irrigation, lack of agricultural extension services and poor transport facilities. It is time we explored the use of Information technology to improve irrigation; research, extension and transport facilities. Widespread adoption of IT will do more for agriculture than waiting for liberalisation induced improved terms of trade to materialise. The fall in investment is accompanied by arising share of subsidies in the plan outlay. The growing share of subsidy in the plan outlay has crowded out public investment in agriculture. This is evident from the fact that 40 percent of the total spending in agriculture goes for non-productive expenditure. India needs a capable and supportive rural infrastructure to take off. This should be supported by availability of seeds, fertilisers and pesticides. This will address the supply bottlenecks in the long run.

This leads to the poor farmer getting a price which is abysmally low and the buyer, in this case processor and final consumer paying close to 500 percent more.

Disintermediate the supply chain

Agricultural Produce Market Committees constituted as per APMC Acts manage the markets. Most State Governments and Union Territories enacted legislations to achieve an efficient system of buying and selling of agricultural commodities. The Agricultural Produce Marketing (Regulation) Act (APMC Act) provides for regulation of agricultural produce markets. Under this act, farmers are not allowed to sell to open market directly. They have to necessarily go through the Mandi. In order to sell at Mandis, farmers have to travel a distance of anywhere between 2 to 40 Km. In fact even after travelling such long distances, they do not know if they will get the right price for their product, or will they be able to sell all their produce or will they get a premium for quality produce. The Kaccha and Pakka Aaditiyas who are well organised intermediaries often form cartels to keep the auction prices low and exploit farmers in terms of prices, wrong grading and wrong weighing. This leads to the poor farmer getting a price which is abysmally low and the buyer, in this case processor and final consumer paying close to 500 percent more. The agricultural chain becomes parasitic. Though it was started with an intention of helping the farmer it has turned out to be exploitative. This is why even when trading community makes a killing due to rising food prices, poor peasantry of this country are grossly exploited. Why should we let APMC help intermediaries with wrong intention to operate the Mandis? Why should not we allow farmers to sell directly to corporates? Why should farmers get rupees five and trader get rupees thirty. Such a parasitical supply chain needs to go. Jaitely is right but he needs to act. Revising the Agriculture Produce Market Committee Act, encouraging competition among traders and promoting efficiency in retailing are some of the steps needed to calm food inflation. The APMC laws must be amended to free farmers from the markets controlled by a few people and provide them access to consumer markets directly. In the recent past an attempt to allow organised retailers and corporation has shown that both farmers and processors along with final consumer stands to gain due to disintermediation of the chain. ITC a global commodity giant was allowed to bypass the APMC route by paying APMC tax and the net result was that farmer’s income rose by 250 percent. ITC could buy its commodity both for food business as well as exports about 180 percent cheaper. The final prices for the consumer will also be lower. India needs to allow buying by corporates directly and allowing farmers cooperatives to sell directly to the market and consumers. APMC has outlived it utility except for the intermediaries.

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Wastages add to the problem

According to a study done by CII,40 percent of total agricultural commodities produced in our country are wasted due to poor storage and transportation facilities. Given the geography of our country, we need to create warehouses suited for around 54 agro climatic zones. Agri warehousing accounts for 15 percent of total warehousing market in India. Even with significant development of storage capacities developed under NABARD and NCDC schemes, 30 to 40 percent of the total food grain harvest is estimated to go waste due to inadequate storage capacity, regional imbalances in warehouses, lack of adequate scientific storage and inefficient logistics management in the country. Each grain bag is handled at least six times before it is finally opened for processing, which leads to higher transportation and storage charge as well as increase in the wastage of food grains during storage and handling. Storage capacity available with state agencies is available only for the central stock of food grains, buffer stock, public distribution system and other central schemes. This leaves marginal capacity for other players to store their produce. Food grain is the main commodity stored. That too primarily wheat and rice. All other commodities face severe storage problems. The government should encourage the entry of private players who can correct these imbalances in Agri warehousing space scientifically and thus provide better value added services.

The existing Warehousing and regulation act intends to provide farmers credit against harvest collateral, credit to farm processors against their farm produce inventory. The developers also get subsidy under the scheme – Gram Bhandaran Yojna and tax relief. This can pave way for a collaborative warehousing development which will solve some of problems of Indian agriculture.

The Roads needs to improve…

For achieving logistics efficiency, Indian roads have to improve. The quality of infrastructure in terms of road and rail has hindered the free movement of goods with acceptable pace adding to the cost of agricultural commodity transported. There is an urgent need, not only to develop better transport infrastructure, but also to also link rural and urban India in a big and efficient way on the lines of the Golden quadrilateral. Development of multimodal transport networks and parks, and facilities near airport to make perishable goods stay safe and are transported quickly is important. It is also important to design the mesh of cargo networks in such a way that the intersection of various modes of transport are near the production centre of bulk of farm produce. Indian cannot afford to keep its transportation sector backward. This will not only lead increase in prices but will keep our products inefficient and priced out of market.

India needs to ensure enhanced focus in its agriculture sector. It should become a part of mainstream development

The way forward

India needs to ensure enhanced focus in its agriculture sector. It should become a part of mainstream development. Investments have to increase along with efficiency of the investment. Creating right kind of logistics infrastructure and network will help farm production become efficient. India will not only be able to tackle the problem of food inflation but substantially reduce logistics cost, but will become globally competitive as the world seems to face severe food crisis in future. For all this to happen Modi’s government have to be active agile and forward looking. ♦♦♦♦♦

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