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Written By Ritika Aurora Bhola
Food Grain Logistics sector is often considered as a neglected sector because of the constraints that the industry faces in terms of infrastructure, technology, transportation and storage. Every year, millions of tons of food grains get wasted due to inadequate number of reefer vehicles, poor handling strategies, lack of advanced technology to name a few. If we go by the facts, India is the second largest producer of horticulture products producing 48 million mt of fruits and 68 million mt of vegetables. India wastes as much as the total production of fruits and vegetables in the United Kingdom. There are different estimates on the quantum and value of this wastage due to lack of supporting infrastructure such as refrigerated storage and ransportation. Establishing proper and integrated cool chains will take out the seasonality and perishability from the agricultural produce, lower inventories, shorten lead time required for deliveries, quickly bridge the gap between demand and supply, and provide value-added services.In India a lot of food is lost and wasted due for growth in agri-business. In agriculture, logistic costs are greatly influenced by the bulkiness of the produce, seasonal demand and supply, and perishability of products. As the agricultural goods are generally bulky, most of their inland movement is through road transport while shipping is used for carriage across seas. The movement of perishable agricultural goods requires technical improvements such as reefer transportation for management of temperature and humidity. Appropriate road and sea transportation will have to meet this growing demand in an economic manner. The competitiveness will be greatly affected by the speed and economy with which cargo moves from factories to markets inland or ports and beyond.to lack of adequate infrastructure, however, a 2011 report by a UN body, FAO, puts wastage in fruits and vegetables as high as 45 per cent of produce (post-harvest to distribution) for developing Asian countries like India.Infrastructure and services are important
Anurag Awasthi, Founder & CEO, Save Indian Grain stresses that the shortages can be examined under three heads, namely, storage loss, transit loss, and non-issuable / damaged food grains.
As per FCI’s data, the third category is negligible.
The factors contributing to the storage loss are:
Loss in moisture
Poor texture of gunnies, accentuated by use of iron hooks
Improper storage practices
The factors contributing to the transit loss are:
Poor texture of gunnies, accentuated by use of iron hooks
Poor quality wagons
Inadequate security at rail points, especially during night working and BG/MG trans-shipment
Other Major Challenges:
According to various case studies and government reports, the food grain logistics sector is facing many challenges such as inefficient price signals, limited reach of mandis, inadequate infrastructure for storage, etc.
1. Inefficient price signals: The Indian government has been buying almost onethird of wheat and rice produced in India through the Public Distribution System, but in other kinds of grains, fruits and vegetables (both being highly perishable), the role of the government is limited. This leads to Minimum Support Price being ineffective as both price signals and as insulators from the perspective of the larger agricultural population.
2. Limited reach of mandis: Also, this procurement system has failed to cover the entire country evenly (On an average a farmer needs to travel 12 kms to reach the nearest mandi and more than 50 kms in NE India) while according to the recommendations by National Farmers Commission, availability of markets should be within a 5 km radius.
3. Too many intermediaries, information asymmetry: The above mentioned problems have led to formation of long marketing channels, with multiple intermediaries, adding to the woes of the producers of perishable agriculture goods.
4. Inadequate infrastructure for storage: The Planning Commission has recently estimated the gap between agri-warehousing supply and demand at 35 mn
“Government of India has advised to frame policy/roadmap for construction of 100
LMT silos in next four years. It has also submitted that the High Level Committee constituted
for re-structuring of FCI had recommended construction of silos for capacity 100 LMT.
Subsequently, FCI had conducted an exercise with regards to the existing storage gap and
requirement of silos for storage of wheat and accordingly, Ministry of CA, F&PD had
decided that silos for capacity of 43.5 LMT silos will be constructed by FCI and state agencies”
Anurag Awasthi, Founder & CEO, Save Indian Grain
MT. Currently, public sector agencies
like the FCI, Central Warehousing
Corporations (CWC) and the various
State Warehousing Corporations (SWC)
have a storage capacity of 71 mn MT, while
the private sector has close to 25 mn MT.
To put the scarcity in perspective, food
grain stocks held only by the government
was 80 mn MT last year (peak) according
to the FCI annual report.
5. Skewed distribution of capacity: Skewed
distribution of this capacity is another issue, with North India having access to 60
per cent of the total storage infrastructure.
The Planning Commission has recently estimated the gap between agri-warehousing supply and demand at 35 mn MT.
6. Lack of cold storage infrastructure: India’s
current cold storage capacity at 25 MT is
barely sufficient for 10 per cent of fruit and
vegetables produced in the country.
7. Lack of collateral management options:
Collateral management refers to financing of agricultural goods stored at warehouses, and is estimated to be a `3,500 cr
opportunity by industry sources.
Observing the same, Devangshu Dutta,
Chief Executive, Third Eyesight reiterates,
“Our storage capacity in public, cooperative
and the private sector is about 109 million
tonnes, which is short of the overall storage
requirement. Moreover, instead of hermetically sealed or controlled environments, much
of food-grain storage in India is still open to
the elements and to pest infestations. This is
true not only of the much-maligned government stocks of food grains, but also private
storage and transportation. While many
modern storage systems for food grains, including fixed installations like warehouses,
indoor and outdoor silos, and flexible such as
hermetic storage and silo bags have been introduced in India, they are sparingly used. It is ironic that while millions of Indians sleep
hungry, we are not showing enough regard
for proper handling and distribution of our
surplus or buffer stocks.”
Special Care for Perishables
The concept of cold storage is not alien to agri-business in India. If we go by the facts, over the years, UP has seen a large scale development of cold storage for potatoes and potato seeds. Out of a total 8.7 million ton cold storage facilities presently available in the country, UP has a 48 per cent (4.83 mil lion ton) share followed by West Bengal (2.24 per cent). Western India has only 0.5 million ton capacity in which Maharashtra has a share of 0.35 million tons. Maharashtra has over 50 million cubic feet cold storage space in capacities ranging between 500 to 1000 mt per unit. Nearly, 80 per cent of this is privately owned. Cold storage provides location specific facility but is not linked in any manner across the country. Even though India is blessed with varied ecological conditions which enable growing of all types of fruits and vegetables throughout the year, efforts at boosting the exports of fruits like mango and grapes have gone down. Same is the status of floriculture exports when viewed in global context. In each of these and other similar cases, infrastruc ture has been the key bottleneck. For vari ous reasons there are few reefer ships calling on the Indian ports. Instead, the perishable cargos move inland as well as on sea in reefer containers on feeder services connecting to the hub ports. This adds cost to the exports, adversely affects their quality and reduces the competitiveness
Awasthi adds, “The solution is to develop an integrated software application linking overall production, demand, procurement and storage, keeping in view the associated regions and infrastructure available. The system will create most optimal location network of grain storage, minimising travel distance for storage as well as distribution. Such integrated software system is the key to building an efficient grain storage network. The financial institutions, technology, consumer markets and infrastructure move along with structure of society. The change of joint family to nuclear families has forced these to change from hub and spoke model to distributed architecture. Therefore, rather than one big bank, we now have thousands of ATMs; intelligence is stored in clouds rather than in one big computer; and home deliveries take care of our requirements, instead of one big shop. Similarly, the grain storage infrastructure architecture also needs to change. From several hundred big storage spaces, the architecture needs to move into several thousand small godowns close to farmers and distribution spots.” He continues, “The second intervention of technology is needed in the storage infrastructure itself. Today, new-technology steel silos and silo bags are available, whereby the life and safety of grain are enhanced multiple times by creating modified atmosphere of low oxygen and high CO2 . Through these technologies, one can create smaller storage of 2,000 tonnes per bag next to farmers, taking only 1/10th of an acre of land. It is the most chronic supply chain problem ever.”
Awasthi shares, “Government of India (GoI) has set up a High Level Committee (HLC) in August 2014 with Shanta Kumar as the Chairman, six members and a special invitee to suggest restructuring or unbundling of FCI with a view to improve its operational efficiency and financial management. GoI also asked HLC to suggest measures for overall improvement in management of food grains by FCI; to suggest reorienting the role and functions of FCI in MSP operations, storage and distribution of food grains and food security systems of the country; and to suggest cost effective models for storage and movement of grains and integration of supply chain of food grains in the country. The HLC had wide consultations with various stakeholders in its several meetings in different parts of the country. It also invited comments through advertisements in newspapers and electronic media. HLC would like to gratefully acknowledge that it has benefited immensely from this consultative process, and many of its recommendations are based on intensive discussions with stakeholders.”
Roadmap to the Future
According to Awasthi, Government of India has advised to frame policy/roadmap for construction of 100 LMT silos in the next four years. It has also submitted that the High Level Committee constituted for re-structuring of FCI had recommended construction of silos for capacity 100 LMT. Awasthi elaborates, “Subsequently, FCI had done an exercise with regard to the existing storage gap and requirement of silos for storage of wheat and accordingly, Ministry of CA, F&PD had decided that silos for capacity of 43.5 LMT silos will be constructed by FCI and state agencies. In view of the directions of the government, present strategy is to make a roadmap for construction of 100 LMT silos in next four years in a phase wise manner as the actual requirement of silos is dependent on existing storage capacity, stocks in central pool and the resultant storage gap. The Silo strategy is also dependent on the government policy with regards to Direct Benefit Transfer which was also one of the recommendations of the High Level Committee for restructuring of FCI. Already, the government is implementing the DBT Scheme on a Pilot basis in the UTs of Chandigarh, Puducherry, Dadra and Nagar Haveli. Thus, in case there is a change in the procurement and distribution policy under NFSA/TPDS, creation of capacity that might not be required with a financial commitment for 30 years will need to be reviewed and evaluated with regard to the financial implications of the same.” He adds, “In view of this, it has been planned to undertake construction of silos in a phase wise manner. A three phase approach has been adopted which ensures that if needed, we can have the creation of 100 LMT of silo capacity in four to five years and at the same time we have the flexibility to limit the construction of silos to capacity that is actually needed and financially viable.” Agreeing with Awasthi, Dutta concludes on a positive note by saying, “Although many private players are expressing interest in the area, more participation of the private sector is dependent on projects being modeled as viable businesses with timely returns and lower (or better managed) risk, as well as optimum capital and operational costs. Indigenous and traditional techniques also need to be improved, and affordable technologies need to reach the farmer. With the government’s push towards processing, changing consumer needs, and developing business interests in both domestic and export markets, the standards of storage need to improve dramatically. It is important to remember that, while food safety and hygiene standards may be applied to finished, packaged products, the quality standards that are finally achieved start getting determined from procurement and storage onwards. Other than private storage capacities, it is imperative that the government’s storage capacities are upgraded. The lakhs of tonnes of wheat, rice and other grains that get spoiled each year can literally feed millions. Not only will investment in modern storage will add percentage points to the country’s GDP, it will bring a mass of Indians closer to the basic dignity that they need and deserve.”
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Written By: Devangshu Dutta
The Netherlands is the second largest exporter of agricultural and food products in the world. The processed food sector has grown about 35 per cent over the last 10 years, with investments in research growing 75 per cent. The sector’s share in total production value is 21 per cent making it largest industrial sector in the Netherlands.
In spite of this, the share of Dutch processed food products in total imports in this sector India is limited. Keeping the immense growth potential of the Indian market in mind, the Embassy of the Netherlands commissioned a study of the processed food market in India.
As stated by Mr. Wouter Verhey, agricultural counsellor of the Embassy of the Kingdom of the Netherlands in India, in his Foreword to the report: “Netherlands is the second largest exporter of agricultural and food products in the world. For decades, the Dutch agriculture sector has succeeded in maintaining its lead over international competitors through continual investment in innovation in agri-food value chains. In May 2012 an extensive Indo-Dutch Agriculture Action-plan was signed between the Central Government of India and Government of the Kingdom of the Netherlands. Within this broad agreement, several areas of cooperation in the agriculture/food sector are defined. This study is a tool in implementing the projects being identified in the processing sector under the Action Plan.”
The report was commissioned in order to develop an understanding of India as a market for processed food products and uncover opportunities for Dutch companies. The report provides an overview of the economic growth in India, the consumer base and its key characteristics, the food retail and services environment, market structure of various food product categories, their growth potential and areas of opportunity for imported products within these categories, the regulatory framework governing imports and domestic production and possible routes to the market for the Dutch organisations.
India is the largest democracy on the globe, the second largest country by population, one of the top-10 when measured by the size of its GDP, and one of the fastest growing economies in the world. The ethnic, linguistic and cultural diversity of India’s 29 states and 7 Union Territories makes it more like the diversity of the European Union than like that of any other single nation-state. And yet, in political and legal terms, these diversities are managed within one constitutional framework, which possibly makes India unique among the nations around the world.
India has wide variations in the income and tastes which are important for consumer product companies to understand if they are looking to cater to mainstream meal habits. India is the second largest populated country in the world with almost two third of the population living in the villages. The urban population has dramatically been growing from last two decades. Though average income of the urban is higher than the rural average income but there exists a rural rich section who is consumers of premium branded products.
India with the youngest population in the world and a large urban population in the age group 20-34 years of age has observed changes in the consumption pattern. India has been consuming products from multinationals for several decades now and with the growing young population who is well educated and travelled across the globe; the tastes and the choices have been changing.
The number of middle class households is rising and approaching 30 million households or over 150 million individuals, with increasing numbers of nuclear families and double income households. This also is creating a socio-economic class across the country, especially in the larger cities, which has some commonality in consumption patterns irrespective of the city the family has originated from or is now staying in. This is the group of consumers who are driving the consumption growth of processed and semi-processed food products.
As Mr. Devangshu Dutta, chief executive of Third Eyesight, states in his introduction to the report: “On the demand side, as Indian consumer households and lifestyles change from the traditional joint- family structure, consumers’ needs as well as the means at their disposal have changed dramatically. With nuclear households, less time is available for both shopping as well as preparation, leading consumers to consider a whole range of processed and semi-processed food options. Therefore, both Indian and international companies can be beneficiaries as Indian consumers are “outsourcing” their food preparation and cooking activities. It is also worth mentioning a key advantage of the Indian market: that the already significant base of consumers is also growing rapidly. This is true regardless of whether you are targeting a consumer base of 5 million or 500 million. Companies that work with the consumer sector are as yet at the early stages of an expanding opportunity, as incomes grow and lifestyles change. Therefore, any company looking at addressing the Indian market must view it as a long-term opportunity, rather than a short-term win.”
Some major trends which aid the development of processed, semi-prepared and packaged food options include new consumption occasions, growth in dining out opportunities, the willingness to experiment with unfamiliar cuisines, the growth of convenience options and the need for predictability (quality as well as hygiene).
The evolution of food retail and services is playing a significant role in the growth in consumption of the processed food products.
The retail sector in India comprises of a large majority of traditional retail formats and a small (but growing) slice of modern retail formats. The share of modern retail is estimated to be less than 2 per cent in food and grocery. Both, traditional retail stores as well as modern store formats such as supermarket, hypermarket ad convenience stores chains are growing, and both are platforms for launching and growing processed food products in the Indian market. The Hotels, Restaurant and Catering sector is also a major driver of food processing in the country, due to its need for significant consistency of products, predictability of supplies, and larger-scale requirements.
Although India is an abundant producer of dairy products, meat products, fruits and vegetables and sugar, the value-added processed products in all these categories present a growing market. India is also growing as a market for new products such as breakfast cereals, pasta, infant food, bakery products, foreign liquor and different types of oils and sauces. Many international organisations have engaged with the India market by setting up manufacturing infrastructure here itself and understanding the market in depth. This approach has not only enabled them to offer their international range of products at competitive prices and but also became very powerful brands in India. Others are taking a more cautious, trading-led approach to the market. This report presentsthe opportunities and challenges in 20 selected product sectors, and also an assessment of different routes to market.
Although imports account for a relatively small share of the total consumption of food products, in some products such as dairy like cheese and whey, processed fruits and vegetables especially processed potatoes, poultry and swine meat, beer, infant food and sauces, Netherland occupies an important position as a source of import.
Regulations are an intrinsic part of the food industry anywhere in the world, and India is no different. Due to the stress placed on domestic production, import duties are fairly high for finished products. A specific agency related to Food Safety and Standards has also been established by the government in 2006, which consolidates various acts and orders for food-related issues previously handled by various Ministries and Departments. The report describes some of the key regulatory aspects related to imports and distribution of food products in India.
It is important to note that the government has introduced several schemes favouring domestic production in the food processing sector such as providing financial assistance in the form of grants and subsidies for the setting up and modernization of food processing units, the creation of infrastructure, support for research and development and human resource development as well as other promotional measures to encourage growth within the processed food sector. In order to promote faster establishment of food processing industries in the country, the government provides various tax and other incentives to businesses which have been detailed in the report.
To conclude, the market for processed and semi-processed food products is growing in India, and there is significant opportunity for value-added and differentiated products. We hope this report will present a well-rounded view of the market, and serve as a first step for Dutch organisations to productively engage with the Indian industry and Indian customers.
About Third Eyesight
Third Eyesight is a consulting and management solutions firm focussed on sectors retailer to retail and consumer products. Clients who have benefited from our experience and expertise include retailers, brands and manufacturers, technology suppliers, private equity & venture investors, educational institutions and organisations servicing the consumer products and retail sectors.
Third Eyesight has worked with companies that are market leaders (with sizes up to USD 80 billion in annual sales) to early-stage and start-up businesses, on engagements of strategic significance to the top management.
Strategy and operations support provided by Third Eyesight include: identifying and evaluating new business areas, market and industry research, business strategy and business plan development, development of sales and distribution networks, including support with acquiring key client relationships, business due diligence, partner evaluation, strategic alliances, mergers & acquisitions, sourcing and supply chain strategy, merchandising support, operational audits & assessment and a variety of other operational support.
Source: Kingdom of Netherlands
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