India is the world’s largest producer of fruits and vegetables, has the largest area under wheat, rice and cotton and is the second-largest producer of rice and wheat. That is the good news. But, at the other end of the spectrum, India loses about Rs 50,000 crore annually just on account of frail post-harvest infrastructure.

A major scoop of these farm losses can be traced to a feeble supply chain system that includes storage, transportation and distribution. Inadequate warehouses and cold storages and poor road and rail transportation are some of the red flags in the Indian logistics landscape.

Different studies have indicated that the logistics industry in India is valued at about 13-14 per cent of the gross domestic product (GDP), while in developed nations, especially in the US, it ranges between seven to eight per cent of their GDPs. This is a clear indication that Indian consumers are forced to pay avoidable costs for more logistics expenses and post-harvest losses.

Infrastructure development

The Government’s initiative to allow 51 per cent foreign direct investment (FDI) in multi-brand retail has been a subject for debate for quite some time now. The Government appears to be confident of drumming up enough support to counter the opposition’s move to block it in the ensuing winter session of Parliament that begins next week. A minimum investment of $100 million and a mandatory 50 per cent capital reinvestment in back-end operations have been proposed.

Experts indicate that this could beef up the existing logistics infrastructure to a significant extent, which could translate into better prices for farmers and consumers. However, there is one rider. Retailers feel that unless there is a seamless implementation of this programme across states, a robust supply chain architecture cannot be built. If some states chose not to open up FDI in their retail sectors, there would be a break in the chain.

Organised food retailing in India still accounts for less than two per cent of the total food market, according to a recent study by Nabard. Estimates indicate that the size of this segment is Rs 19,400 crore, as against the total food market of Rs 12,45,000 crore. By 2020, this segment is estimated to grow to Rs 62,000 crore, the study points out. Indeed, direct procurement by retailers in the new format is seen to deliver better deals, both for the farmers and producers, especially due to improvements in supply chain operations.

In a paper presented during a recent Confederation of Indian Industries (CII) seminar, Sunitha Raju from the Indian Institute of Foreign Trade, points out that direct procurement format resulted in an increase in farmers’ net income by eight per cent, while consumers paid six per cent less and transportation wastage fell by seven per cent. This could further improve if supply chain logistics is strengthened.

Warehousing issues

Inadequate warehousing is one of the biggest bottlenecks in the entire supply chain structure. Statistics show that at 108 million tonnes (MT), the present agriculture warehousing capacity is short of the requirement by about 25 MT. A major portion of this is with Food Corporation of India (32 MT), Central Warehousing Corporation (10 MT) and State Warehousing Corporation (21.30 MT). The fact that the Government needs to further incentivise this sector to attract private players is indicated by the fact that in the last ten years hardly 35 million tonnes capacity has been created by the private sector.

In this context, the Andhra Pradesh Government has taken an initiative to bring out a separate agri-warehousing policy. “The new policy is part of the State Government’s initiative to have an additional 50 lakh million tonnes of warehousing capacity in the next three to four years through public-private participation. We expect to finalise it in the next one or two months,” I.Y.R Krishna Rao, Special Chief Secretary (Agriculture Marketing), said.

CII estimates that the shortfall in warehousing capacity for the next five years is expected to be about 40 million tonnes at current rate of production. However, the Government is targeting to create about 35 million tonnes of new capacity in the next five years, involving an investment of Rs 14,390 crore. The shortfall is even more acute for cold storage facilities. There are an estimated 5,400 cold storages with a total capacity of about 25 million tonnes. Nearly 80 per cent of this is used for potatoes. Further, these are available in only nine per cent of the markets. It is estimated that to expand cold chain facilities to handle 40 per cent of the food and vegetables in the next five to six years would require an investment of a whopping Rs 55,000 crore.

Higher costs & wastage

Another bottleneck is that the quality of warehousing operations is poor, leading to more costs and wastages. A study by Delloite puts warehousing costs at 20-25 per cent of the total logistics costs,while 80 per cent of the warehouses are traditional with sizes of less than 10,000 sq ft. Apart from the farm sector, the Indian life sciences segment too is smarting under inadequate logistics backing, especially in regard to reefer transportation.

A study by Deutsche Post DHL and the Organisation of Pharmaceutical Producers of India last year had revealed that the time taken for a hypothetical one-way trip covering 300 km in India was between 24 to 36 hours. But the same in China would take less than 18 hours and in EU between 8 to 10 hours. While trucks in India log an average of 200 kms a day, those in China and Japan cover 600 kms and 800 kms, respectively. Thus, while the FDI in retail is expected to see some more debate in the ensuing Parliament session, its positive impact on supply chain logistics cannot be ignored.

amitmitra@thehindu.co.in

(This article was published on November 18, 2012)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.