The Hindu Business Line : The consumer today has increased focus towards high-value commodities

Hyderabad, Jan. 1 Mr S. Sivakumar, Chief Executive Officer of ITC’s Agri Business Division, is credited with pioneering the well-known eChoupal model that has attracted global attention. There are 6,500 eChoupals, covering about 50,000 villages. The plan is to cover one lakh villages by 2012.

A management graduate from the Institute of Rural Management at Anand (Gujarat), Mr Sivakumar has deep insights into the rural economy and functioning of farmers’ cooperatives. He joined ITC in 1989, after working for a farmers’ cooperative for six years.

In an interview with Business Line, Mr Sivakumar speaks on the changing patterns in consumer choices across all sections, scope for value creation, bottlenecks in supply chain infrastructure, opportunities in investments and the way forward to make agri business a profitable option for the farmers.

Excerpts from the Interview:

What are the current trends in food sector in the country keeping in mind the spurt in demand for processed agricultural commodities?

There has been a significant change in diet consumption. It is now more diversified, across commodities and across consumer groups. There is a decline in growth of annual per capita consumption of cereals and pulses in both lower and upper income groups during 1983-2000. In the same period, consumption levels of edible oil, vegetable oils, fruits, milk, meat and egg have gone up significantly.

What actually is triggering growth in commodities other than cereals and pulses?

Affordability is one thing that is driving the growth. Raising per capita income is contributing to this. The sustained economic growth is also resulted in evolution of a demanding consumer. The consumers demand quality and safety. Besides, as urbanisation and globalisation expand, there is also a demand for variety and convenient buying options. This obviously results in increased focus towards high-value commodities.

What has been the response from the farmers to support the changing consumption patterns?

We primarily have a base of farmers having small holdings. About 81 per cent of farm households have an average holding of 0.7 hectares as against 6.97 ha for 6.8 per cent of households. In the last 40 years, the number of small holdings is increasing. Despite this, the production system has responded well. But this will not do as Indian market getting integrated with global markets.

How to achieve this?

We need to address both the demand side (food security and evolving buying choices) and supply side (competitiveness and ensuring ecological sustainability as we produce). We need to have effective linkages of production systems with the processing and consumption aspects.

For this, we should have enabling atmosphere that addresses issues like uniform taxation, reducing transaction costs, implementation of APMC Act to facilitate better linkages between markets and production systems.

What were the main issues with the food economy in the past?

As the markets turn consumer centric, we will witness demand-driven production systems from the supply-driven value chain in the past. The latter system had suited the context then, but it created Lemon’s Problem (putting all the produce in one basket which results in lesser returns to the producer) for the new value chain paradigm.

What are the key elements that will help capture better value?

This can happen in two ways. We need to enhance product, purchase and shopping experience by innovating in processing and packaging. This is important to address the consumer end of the chain.

This should be backed by efficient supply chain by focusing on integration, coordination and disintermediation. This would go a long way in lowering cost strictures.

Then, what is hampering the process of value creation?

As I said earlier, our base is mostly large number of farmers owning very small holdings. Obviously, they lack resources. On other hand, the infrastructure and institutions are still emerging.

What has been the ITC experience in terms of back-end support structures to support the front-end (Choupal Fresh) initiatives?

We have networked formers in the areas where we are operating now. We help them in planning their crops with better varieties that suit their land and give them better value.

The expansion of this activity will be in synchronisation with the expansion of our sales (retail) network that includes both domestic and export activities. We are present in three cities now and the support structures are accordingly planned. Besides, we also wholesale the produce to other players such as Food Bazaars. As we do that, we also operate store-in-store outlets at some of their shops.

What are you doing to address the consumer side of the value chain?

We are experimenting with various models, the latest being small format retail outlets to tap smaller areas. Whether we can offer formats with less than 1,000-square feet area, suiting to the neighbourhood demographies. Besides cutting down on operational costs, determination of range is crucial here.

What is your take on commodity exchanges? Do they help in value capture or do they contribute to the inflation as some argue?

The exchanges are very important tolls in risk management and price discovery. They can never drive inflation. They are just signals. Moreover, it is time-tested mechanisms in many countries. But there are some issues like liquidity and breadth (participants) to be addressed in order to make farmers reap the benefits. Transparency in management too plays an important role.

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