The Hindu Business Line : Urban food retailing: A virtuous circle of prosperity

A MAJOR RETAIL OUTLET in Hyderabad... The emergence of organised retailing and the creation of premium retail space have led to an increased demand for quality produce. — Mohammed Yousuf

The size of the Indian urban food market is authoritatively estimated at Rs 350,000 crore. The domestic market for processed food is not only huge but also fast-growing. The retail boom will create a huge demand for the food processing sector in the coming years. Little wonder that 2007 has been designated the Year of Food Technology.

The private sector is yet to realise its full potential in the food retailing sector. However, it has now started discovering the money there is to be made in the urban food retailing market.

ASSURED MARKET

Urban centres serve as growth poles in the development process. But urban centres do not produce food; the rural areas do. In that sense, the urban areas provide an assured market for the food produced by farmers. The urban food marketing system thus assumes considerable importance for both feeding the urban population and helping farmers.

There are certain distinct characteristics of urban food demand. This population generally has a higher purchasing power. The rising average income is leading to greater demand for high-value processed food. A considerable number of urban women work, creating a demand for heat-and-serve foods.

The urban population density is high and this demands a chain or a network of retail outlets. Indian food retailing is poised for a quantum leap. Not only are newer names set to dot the retail landscape but such new formats as hyper- and super-markets are to emerge.

The key drivers for increased demand in value-added processed food products are: a) growing consumer class; b) changing lifestyle characterised by expanding urban population, increasing number of nuclear and dual-income families; c) changing attitudes and tastes with increasing modernisation and to a lesser extent Westernisation of tastes, particularly, of the youth; d) low penetration rates; and e) ability to offset seasonal supply-and-demand effects in fresh products.

It has been estimated that during the Eleventh Plan period, an investment of Rs 1 lakh-crore is expected in the food-processing sector. Realising the need for a regulatory framework for the retailing sector, the Government has merged 16 laws relating to the food-processing sector into one piece of legislation and this is expected to be put in place from the 2007-08 financial year.

STRESS ON MARKETING

To tap into the huge market for processed foods, an efficient marketing system is necessary to induce demand-driven production; marketing becomes the key to catalysing agricultural development and with that fostering inclusive growth. Besides, it reduces intermediaries, increases farmers' realisation and lowers consumer prices.

An efficient marketing system can reduce post-harvest losses, promote graded processing, packaging services and food safety practices, induce demand-driven production, enable high value addition and facilitate exports.

Marketing reforms are needed as they are critical to development of the potential urban food demand. The National Commission on Farmers, headed by Dr M.S. Swaminathan, has suggested encouraging public-private partnership besides encouraging private sector investments to tap this huge potential.

At present, there are 7,521 regulated markets. Most of these lack critical infrastructure. Therefore, massive investment is needed to provide critical agricultural marketing infrastructure. It is estimated that at least Rs 12,234 crore is needed for the regulated markets. Initiative has to be taken to promote public-private partnerships as they ensure efficient resource utilisation and better management practices. There are many examples of successful public-private partnerships. Safal market in Karnataka is an instance of the modernisation of wholesale markets. ITC's e-Chaupal, Haryali Kisan Bazaar, Mahindra Subh Labh, Cargil Farmgate Business and Tata Kisan Sansar are all initiatives of marketing distribution in the PPP format. Besides, commodity exchanges and futures markets have come up in the form of National Commodity and Derivative Exchange Ltd (NCDEx) and Multi-Commodity Exchange Limited (MCX).

INCENTIVES TO CORPORATES

To encourage the private sector to make investments in marketing infrastructure on the required scale, a favourable regulatory environment needs to be created so as to attract large corporates.

This would include: a) liberalised credit norms to entrepreneurs for agricultural marketing activities; b) changes in the market regulatory framework to allow private entrepreneurs establish market yards and other regulatory facilities; c) changes in the co-operative laws to allow farmers' co-operatives to work along corporate lines and compete with private trade; d) review of several legal instruments to facilitate the entry of entrepreneurs in marketing activities; and e) provisions to allow private entrepreneurs to cover price and yield risks for farmers.

The emergence of organised retailing in recent years and the creation of quality retail space have led to an increased demand for quality produce and thereby investments in supply chain infrastructure by private players.

RELIANCE INITIATIVE

A visit to the fruits and vegetables stores of a leading corporate would reveal the depth and width of the market for processed foods. In fact, the company opened more than 17 such stores in one city alone. The company also plans to enter into agri-horticulture and the processed food sector. Subsequently, a subsidiary is to market agri-horticultural products across the country. Conceptually, the company is creating a virtuous circle of prosperity by bringing farmers and consumers together in a win-win partnership.

The retail business should partner with farmers, logistics operators and traders to enhance their purchasing power. A supply chain, logistics and information technology infrastructure would string the whole plan together.

EVOLVING SYSTEM

It has taken some time but finally it seems that the evolution of organised retailing in food products is on in India. Many retail start-ups promised a lot. But failed. Through trial and error, a sustainable business model is evolving. A significant number of new businesses are poised for a major surge.

Notably, private investments in marketing of processed food for urban centres have reached the inflection point with several large corporates beginning to invest significantly. Each of these retail businesses has created a sustainable model of its own. In fact, each has developed a model unique to the Indian context. The entry of large business conglomerates is likely to attract greater investments and create a cascading effect across the SME segment of the food and agri-space.

This coming of age for retailers in the organised retail sector augurs well for consumers and farmers in India.

(The author is a Senior Under-Secretary in the Department of Agriculture and Cooperation, Ministry of Agriculture, New Delhi. The views are personal.)

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