Considering requests from many across the country I am posting here two presentations I made at recently held events in Delhi. Trust these presentations shall be of some interest to other visitors also.

First event was NATCOM 2011 on 3^rd December 2011 which was hosted by IIMM (Indian Institute of Materials Management) where I spoke on supply chain fundamentals for organized food retail and food service industry.

The second event NE Connect on 22^nd December 2011 was jointly hosted by NSFI (National Skill Foundation of India) and NERAMC (North Eastern Regional Agricultural Marketing Corporation Ltd where I spoke on Strengthening Input Delivery mechanisms in North East India.

Both these presentations were built over the hands-on experience and insights gained at two of my recent projects – one far away in East Europe for a multinational retailer and another nearer home in Tamil Nadu for a large NGO.

Those who don’t want to run through the presentations can go scan through brief synopsis of same at the end of this post.

NATCOM 2011

NE Connect

NATCOM 2011

Building on the theme of supply chain turnaround workshop conducted last year, gist was presented as an abridged mystical case study. Synopsis of the presentation follows.

Supply Chain Management as a business strategy rests on 4 Pillars

• Cross-company / business group process
• Integrated Supply Processes with best-in-class Suppliers
• Alliances – internal & external
• World-class Supply Chain Management techniques

These pillars have to be woven around a thread called VRE to build world class food supply chains. V here stands for value creation while R is for relationships and E for efficiency.

NE Connect

Taking cues from the initiatives taken by the Tamil Nadu NGO a theme was built around the strong need to mainstream poor Small Horticultural Producers in North East India into booming Indian Economy with Knowledge Based Marketing & Decision Enabling Systems.

The a mantra for success (if well executed) could be:

• Organizing small farmers into business groups using strategic f+v crops in a holistic, integrated and harmonized manner within the farming systems, and get their businesses registered for legal standing – let’s say as Producer Companies.
• Assisting groups to profile their baseline and establish baseline data that will be used to develop vision based business plans and implementation strategies
• Assisting groups to develop survival, working capital accumulation and production enhancement strategies and action plans

Who would be best suited to become catalyst and also gainers from this enabling initiative in NE India.

NGOs or Financial institutions or Private Sector Input / Service Providers or Food MNCS – who strongly believe that:

• farmer and other stakeholders empowerment is a viable enterprise for improving livelihoods
• raising farm productivity of small holders shall win them their future customers
• Willing to invest their own resources till positive results are achieved
• Don’t want have vested interest in the Chain (no ownership of the product or process)

The need for empowerment however has to emerge from within NE India like it did in case of AMUL in Gujarat.

Few weeks back at a conference I was almost shouted down when I began opposing organic food.

My main arguments were on the near impossibility of producing REAL organic food in an ever shrinking land holdings and cost of production, which in my view, shall remain prohibitive because of low productivity – unless of course one allows GM seeds under organic regime.

Genuine organic stuff would require one to maintain isolation distances so that so though harmful chemicals in soil, air and underground water aquifers from inorganic neighbors don’t creep in one’s organic production systems. 

Obviously, I could not find an ally at that conference. Yesterday however I found one when I stumbled upon a Washington Post article at http://is.gd/eru8Ve 

What a solid argument? Definitely organic movement and opposition to GM seeds is against hunger and poverty.

Ongoing debate notwithstanding, cabinet has given a much awaited nod to increase in FDI in retail – 51% in multi brand and 100% in single brand. For common man, this means that there will be more malls and for the informed it means India could soon have the likes of Tesco, Ikea, Wal-Mart, Best Buy, Starbucks, Carrefour, etc setting shops in India. Viva la consumerism!

This decision shall surely impact logistics and supply chain services, my consulting bread & butter. But how? Following reflections gathered from the historical evidence across geographies shall help build up a near foreseeable scenario.

The deepest impact of more supermarkets shall be on retail procurement systems. Read on…

When the number of stores in a given supermarket chain grows, there is a tendency to shift from a fragmented single store replenishment system to a distribution center serving several stores in a given catchment, and eventually the whole country. The catchment of a distribution center or set of them usually starts as the zone (such as Delhi NCR) and then widens to several distribution centers representing a centralized system for procurement over all zones across country.

This de-fragmentizes, integrates and centralizes the procurement system over the country. This comes with fewer procurement officers and increased use of centralized warehouses. Increased levels of centralization may also occur in the procurement decision making process, and in the physical produce distribution.

Centralization increases efficiency of procurement by reducing coordination and other transaction costs, although it may increase transport costs by extra movement of products.

The next, and economically logical, step is Internationalization to set up regional distribution centers to allow coordinated procurement over few countries. A logical further extension is insertion into global procurement networks.

More supermarkets shall mean shift from reliance on traditional wholesale to use of non-traditional – specialized/dedicated wholesalers and logistics firms.

This means that a shift from dependence on traditional wholesale markets and brokers towards use of specialized/dedicated wholesalers who are specialized in a product category and are dedicated to the supermarket/s as main supplier.

These specialized wholesalers shall cut transaction, coordination, and search costs, and enforce private standards and contracts with suppliers on behalf of the supermarkets.

Retail chains increasingly outsource logistics and wholesale distribution function sometimes to a sister company within the same holding company or enter into JVs with other firms.

Retail procurement system shall see a shift from wholesale markets to contracts or preferred suppliers in the products / categories where there is greatest need for quality and consistency, and where farmers or processors are associated collectively or are individually large to lower the transaction costs.

Finally the retail procurement system change shall see the rise of standards both in quality and packaging and also enforcement of public standards. To me this can be a biggest game changer which sadly has not yet been fully understood and appreciated by many including large corporations where the writer has worked or consulted.

Well, if you agree with above premise and are expert in reading between the lines, you would have understood by now that, left alone to move on their own inertia, small farmers, small suppliers and small retailers for that matter, will have little room for maneuver in such a scenario. However, there is a silver lining. These small business entities can coalesce to form larger groups (producer companies for eg) that can eventually become knowledge based producers and suppliers to these growing supermarket chains with increased bargaining power. Time to do it is NOW. Interested to implement such a solution to milk the development utopia called Organized Retail in future at your works. Get in touch with me, the specialists who is paid to plan and implement similar customized solutions across the value chains to supply chain start-ups and organised retailers. Visit www.agrisolutions.in or drop me a line at anil.chopra@agrisolutions.in

Presented below is an implementable framework for reversing the ‘Poverty Circle’  by empowering poor farmers with knowledge based marketing & decision enabling systems. This presentation was recently made to a large South Indian ‘not for profit’ organization. A large project based on this framework is in pipeline.

Why the onion trade (for that matter any agri commodity) is in hands of traders not farmers? ‘Direct Marketing’ to those uninitiated souls who are yet to navigate agricultural marketing Indian jungle called APMC. A case study with Maharashtra as an example.

Non-availability of economic loads at farm location – Availability of onion is widely scattered in Maharashtra for instance. Land holding of onion growers is very less. Most of the farmers own less land and due to unfavorable weather conditions and need to spread price risk over a period after harvest even one vehicle of 16 MT is not available with a single farmer field at a given time. Non-availability of full truck load of onions at a farm has led to concentration of onion trading at market yards. Ready availability of desirable onion lots at a market yard in case of a shortfall to make a truck load, is another big plus point. Secondly, procurement cost of small lots in a scattered environment works out to be very steep. So market yards and traders help in pooling of produce and provide infrastructure for standardized sorting / grading at one central location.

Marketing produce as per grade necessity of a particular market. Each market has its own grade requirement for Maharashtra onions. While eastern India / Bangladesh / Bhutan / Nepal markets prefer small sized onions, North and West Indian markets prefer bigger sized onions. Traders buy small lots from the market yards and pool the produce for sorting / grading at their pack houses and sends different grades to different markets all over India depending upon the grade requirements and price at a particular market. Onion trading involves huge risk and in depth knowledge of distant markets. Lack of trading expertise, market knowledge and risk bearing capacity has prevented most of growers or their organizations to make a significant dent in onion trading. So, most of the trading is in private hands.

Local markets (16 presently in Nasik District) act as a reference market to small growers. Since Maharashtra onions have an almost year round pan Indian and export clientele, no market is big enough to act as a price leader. Farmers generally take reference of the local markets’ rates, while traders compare rates of all markets, including major distant and export market and then decide where to send their produce of a particular grade. Significantly, most of the growers Coops handling onions are located in Market yards where their members bring produce for auction under supervision of local APMC’s. These Coops at best act as a commission agent operating from market yards and are meaningless presently as no trade is happening through them. Even in case they can have tie ups with organizations like Mother Dairy or Reliance Retail they buy produce from market yards from arrivals of their own members or from arrivals at other commission agents. However, their inability to market (read sell) rejections / small size grades through organized retailers (because of reason # 2) or at distant markets has resulted in their losses and eventual discontinuation of supplies. Due to this reason, retailers have been relying on its onion supplies from traders since so many years.

Non-sustainability of exclusive onion Coops / Associations. Because of various agro-climatic reasons, onion belt in Maharashtra is actually a scattered chunk of large number of smaller sub belts, crisscrossing a distance of almost 1000 Kms plus. It starts with Karnataka border on one side and continues till MP / Gujarat border on the other end. It almost covers all western Maharashtra and Marathwada region. For a particular distant market, for example Delhi or Bangalore, most of these sub belts are active for a short period as far as fresh onion flows are concerned. Active period in some cases is only a fortnight or a month. Because of this reason, exclusive onion coops / associations have not been successful as short period of business can’t sustain their yearlong expenses. Many coops were organized for the purpose of purchasing / selling onions but over a period these coops have taken other businesses (credit and inputs) and onion trade because of above said reasons have been relegated to the back ground leaving field open only to private traders. In our view, multi F & V items would have succeeded as unlike onions, revenue could be expected to flow round the year.

Concentration of large storage capacities with traders. For historical and market reasons, large storage capacities for onions has remained with private traders and that too in Nasik belt. State Govt. and Central agencies have promoted small sized storage structures at farms which are not conducive to standardized sorting / grading at central locations by trained labor. Usually growers do sorting / grading on their own, using family and farm hands and are prone not only to errors but smaller throughput. Traders can buy the whole stored lots and provide sorted / graded produce to retailers or buyers as per their requirement at their risk and cost. Finance for establishing such facilities, working capital and risk bearing capacity of Coops will have to be taken care off.

Non-availability of sorting / grading facilities with Co-Ops at farm locations. Farmers have small storage capacity based on their individual needs. Generally traders purchase un-graded produce from Markets, then they do sorting and grading. So to ensure quality and standard packing, material has to be arranged from the traders.

Vertical Integration of various market functions by onion traders. At Pimpalgaon, a major onion market near Nasik, like practically all across Indian onion markets, traders wear many hats by bending (not breaking) the APMA rules and bye laws. Rather the law and rules look silent on this competition aspect. Big onion traders are commission agent cum wholesalers, order suppliers, forwarders cum store owners and some are even transport or railway agent also. They have different firms with or without licenses to handle same function, let’s say ‘being a commission agent”. Odd it may look, but this multiple roles by a firm some time are instrumental in stabilizing the trade. For example: If the prices of a lot on a particular day are going very low that a commission agent feels the risk of losing a good and regular supplier than as a wholesaler or forwarder he may buy the lot himself (though his group firm with or without license) and pays an inflated price to supplier. Similarly, as a railway agent he fills the minimum railway quota if other traders are not forthcoming with supplies. This way he earns good will of railways by taking additional risk. Having explained the benefits of this integration, there are obvious pitfalls also. Such multiple roles by select few big traders have brought inequality between traders. So big have become very big which has created monopolistic conditions.  This lack of capacity to conduct multiple roles prevents farmers, their organizations to compete with traders even if they are well represented in APMCs.