The issue of food wastage is central to India’s efforts in combating hunger and improving food security. While focus has been on improving production, reducing food supply chain losses remains a relatively uuaddressed problem till very recently.
It is hard to put a figure to how much food is lost and wasted in India today due to lack of adequate infrastructure, however, a 2011 report by a UN body, FAO, puts wastage in fruits and vegetables as high as 45% of produce (post-harvest to distribution) for developing Asian countries like India.
Role of government
In India, a large part of the agri supply chain ecosystem is either in the public sector, or strongly linked to it. The Indian government attempts to insulate the cultivator from price fluctuations by procuring their produce at Minimum Support Prices (MSPs), decided by the Commission for Agricultural Costs and Prices after analyzing the costs of growing a particular crop. The 7500+ Agricultural Procurement and Marketing Committee (APMC) mandis provide a marketplace for the transaction and the Food Corporation of India (FCI) plays the role of the buyer, storing the procured produce in the relevant warehousing corporation’s warehouse. Ultimately, this gets distributed through the Public Distribution System (PDS) shops and reaches the consumer. For non-MSP crops, the producer is dependent on the traditional private channels to market her produce.
Agriculture is a ‘state subject’ and a large part of investment as well as regulatory progress is happening at the state level. Till very recently, regulatory barriers had constrained the development of storage and processing infrastructure but measures like inclusion of agri-warehousing under priority sector lending by RBI, subsidy schemes, tax incentives and the Warehousing Act (which will promote negotiability of warehousing receipts) have helped private players take an active interest in the same. The Private Entrepreneur Guarantee Scheme is one such initiative to incentivize private investment for construction of warehouses by private entrepreneurs, with an FCI guarantee to hire them for 10 years, assuring a fair return on investment by the entrepreneur.
- Inefficient price signals: The government has been buying almost one-third of all rice and wheat produced in India through the PDS system, but in other kinds of grains, fruits and vegetables (both being highly perishable), the role of the government is limited. This leads to MSPs being ineffective as both price signals and as insulators from the perspective of the larger agricultural population.
- Limited reach of mandis: Also, this procurement system has failed to cover the entire country evenly (back of the envelope calculation suggests that 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.
- 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 agri goods. These intermediaries have led to a cost inflation of ~250% (over the cost of production) and have exacerbated the existing information asymmetries in agriculture, especially for non-MSP crops.
- Inadequate infrastructure for storage: The Planning Commission has recently estimated the gap between agri-warehousing supply and demand at 35 mn 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.
- Skewed distribution of capacity: Skewed distribution of this capacity is another issue, with North India having access to 60% of the total storage infrastructure. The Planning Commission has recently estimated the gap between agri-warehousing supply and demand at 35 mn MT.
- Lack of cold storage infrastructure: India’s current cold storage capacity at 25 MT is barely sufficient for 10% of fruit and vegetables produced in the country.
- Lack of collateral management options: Collateral management refers to financing of agricultural goods stored at warehouses, and is estimated to be a ~Rs 3,500 cr opportunity by industry sources.
- Comprehensive agriculture logistics solutions: Private players like Star Agri that provide integrated post harvest management solutions have entered the space to fill these gaps. Apart from providing warehousing services, Star Agri, which recently raised funding from IDFC PE, provides collateral management and other value added services (quality testing, agri insurance, bulk procurement and rural retailing) to its clients.
Sohan Lal Commodity Management, which raised funding from Nexus and Mayfield and Shree Shubham Logistics are other comprehensive agri-logistics solutions players providing services across the spectrum.
SV Agri is another player that provides end-to-end solutions for the potato supply chain.
- Integrated cold chain solutions: ColdStar Logistics provides customized solutions for cold storage and refrigerated transportation across India for fresh and frozen commodities. Promoted by Tuscan Ventures, a logistics focused investment firm, their services include specialized refrigerated storage¸ warehousing¸ transportation¸ distribution and logistics.
LEAF, which raised funding from Aspada recently, is another player which works with small holder vegetable farmers in South India. LEAF provides integrated cold chain logistics comprising post harvest transport, cold storage, processing, and supply through refri-trucks to the distribution center and retail store. Apart from this, LEAF is also involved in contract farming and agro processing, working on improving income realizations for small farmers through yield improvements, productivity increases, and consistent produce pricing.
- Alternate marketplaces: A young innovative company, eFarm, is providing a way to bypass the long chain of intermediaries by directly connecting buyers and sellers of agricultural produce and allied services, via a web and mobile based information exchange platform. This is a B2B (Business to business) model and aims to connect all stake holders in the supply chain: from farmers, to buyers, to suppliers of services like labor and transportation. The portal currently has over 5,000 kinds of produce listed.
- Reducing the information asymmetry: Riding on the high mobile penetration in rural India, Reuters Market Light and Fasal Intuit are working on the problem of information asymmetry for agricultural producers, by making personalized agricultural market information available to the farmers at minimal costs, through a mobile based service. Since its inception in 2009, Fasal claims to have helped close to a million people and created additional value for farmers of over Rs 135 crs. According to a 2009 study by ICRIER, RML has lead to an increase in incomes by 5-25% for users.
TCS’ mKRISHI platform offers personalized advisory services to farmers, via mobile phones (SMS and IVR), enabling them to access important information on pesticides, fertilizers, soil and water conservation, and improving access to markets for them.
- Innovative ICT tools for supply chain management: Logistimo is a hosted web service for supply chain management, which can be accessed via basic mobile phones and web browsers, which makes it uniquely suitable for in rural markets. It is a configurable service which offers customers the ability to capture and share data in a simple, low-cost way, empowering them to make better logistics decisions.
Although it’s still early days, these solutions should lead to better supply chain management in Indian agriculture, reducing inefficiencies and increasing farmer realizations, as well as curbing food waste.
Author: Ishita Verma
Ishita joined Unitus Capital in March 2013 and tracks the agriculture and technology sectors.
Unitus Capital has had an investment banking relationship with Reuters Market Light. The authors’ personal views do not necessarily represent those of Unitus Capital.