The Case for Organised Agri-Retail - the Indian Imperative

By Venkatesh, Umashankar | Journal of Services Research, April 1, 2008 | Go to article overview

The Case for Organised Agri-Retail - the Indian Imperative


Venkatesh, Umashankar, Journal of Services Research


INTRODUCTION

Retail sales in India of farm produce such as - cereals, millets, edible oils, fruits and vegetables etc. has traditionally been in the hands of small retailers and vendors who would typically buy their stocks from local wholesalers within close physical proximity. This retailer is located at the end of long chain of intermediaries and middlemen with the producer (farmer) at other end of the chain. Some of these middlemen buy their stocks from their upstream partners while some others play an agency role where they work on a brokerage basis and take no ownership of the stocks they move.

The overall state of the retail sector in India is highly fragmented and organized retail in the country is at a very nascent stage. There are about 12 million retail outlets spread across India. More than 80% of these 12 million outlets are run by small family businesses which use only household labour. (Ernst & Young, 2006) Traditionally, smallstore (Kirana) retailing has been one of the easiest ways to generate self-employment, as it requires limited investment in land, capital and labour. Consequently, India has one of the highest retail densities in the world at 6% (12 million retail shops for about 209 million households). India's peers, such as China and Brazil, took 10-15 years to raise the share of their organized retail sectors from 5% when they began, to 20% and 38% respectively (Ernst & Young, 2006). India too is moving towards growth and maturity in the retail sector at a fast pace.

In this transition phase from an unorganized and fragmented retail sector to a more organized and large format retailing in India, especially in the context of farm and horticultural produce retail, there have been obvious hiccups, mainly based upon fears of loss of livelihood among the large constituency of intermediaries which control the distribution of commodities and other food items. There have been demonstrations and agitations in some states of the country where stores have been attacked and damaged by agitators connected to the unorganized retail sector. As a consequence of this, some states have (like Uttar Pradesh) banned or restrained the opening of food retail stores of a particular style or category within the states. This has happened after these state governments had granted permission to these companies to commence their business and roll-out these stores within their state. This has resulted in a state of confusion among organized food retailers about their future course of action and growth plans, as well as causing unwarranted hardships to their employees who were taken on rolls for supporting their expanding operations. It has also resulted in major losses to these companies as most of them had entered into contract with farmers to buy their produce according to a given time table at a specific price and volume agreement.

MARKETING OF FARM PRODUCE IN INDIA

To reach the final consumer, agricultural produce goes through a chain of transfers or exchanges between numerous intermediate parties. The basic functions that are discharged by these intermediaries include the activities pertaining to procurement and assembly, processing and/or preparing for consumption and finally, distribution.

Procurement and assembly function is a fragmented and highly complex operation as far as India is concerned as it is affected by a myriad of factors as - vast and diverse geographic spread; seasonality of produce; poor information on prices and demand (especially on part of farmers); poorly organized markets in terms of quantity as well as in the way they are administered; perishability of produce; poor storage infrastructure both in terms of quantity and quality; distress sale on part of growers; multi modal and diverse means of transport etc. The second stage of processing or preparing for consumption, is usually controlled by intermediaries as far as processing is concerned. In terms of cleaning, sifting and grading of some of the farm produce may be accomplished at the farmers' end also. …

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