The utilisation of good quality fresh vegetables and fruit is a significant element in the current rapid growth of organised food retailing
Donald Taylor is an independent consultant specialising in agribusiness and rural enterprise development. He has served in an advisory capacity to Asian Development Bank, U.S. Agency for International Development, World Bank, U.N. agencies and numerous corporate clients. Mr. Taylor has some 30 years international consulting and management experience in more than two dozen countries, primarily in East, Southeast and South Asia, which also includes experience in the Pacific, Africa, and the Middle East. In recent years, he has concentrated primarily on the improvement of agribusiness systems and the integration of small scale farmers into agribusiness value chains. Mr. Taylor serves as India country representative for ACDI/VOCA, a Washington, D.C. based international development consultancy firm. For the past four years, he has managed the U.S. Agency for International Development sponsored GMED and IGP projects in India, aimed at promoting the growth of small-scale horticulture farmers and improving fresh produce supply chains. Mr. Taylor is an American, resident in the Philippines.
The quality of the fresh produce department is a critical element in drawing customers into supermarkets worldwide. In the case of India, however, modern fresh produce supply chains are almost completely absent; and the small-scale vegetable and fruit farmers that represent the major source of supply lack access to the appropriate production and postharvest technology needed for their products to meet buyer specifications. These gaps pose major constraints for organised retail food outlets attempting to attract consumers by offering premium quality fresh produce. A new programmes sponsored by Infosys and the U.S. Agency for International Development (USAID), based on mobile connectivity, is expected to provide solutions to these constraints.
During the past decade, the Indian economy has undergone many significant changes, including the growth of the IT, specialty manufacturing, pharmaceutical and other high technology sectors. The rapid economic growth engendered by these changes has, however, bypassed much of the majority rural population of the country. An important phenomenon during the past five years that is directly linked to growth prospects for India’s rural economy, has been the continuing rapid growth of the organised food retail sector constituted by modern supermarkets, hypermarkets, convenience outlets etc.
The burgeoning consumer preference for the supermarket experience has its roots in the rise of the urban middle class, a growing number of whom are young, upwardly mobile and less wedded to tradition than their parents. GDP growth of eight to nine percent per annum is placing more disposable income in the hands of these urban middle class consumers.
The booming retail market
According to the findings of a recent joint study conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI) and Ernst and Young, organised retail will advance from the current five percent of total retail to 30 percent over the next 10 years. The same study forecasts a more than doubling of the organised retail market during the coming three years, from the present 14 billion dollars to 30 billion dollars. According to a more recent study by Deloitte, Haskins and Sells, organised retail grew at an unprecedented rate in 2007, accounting for eight percent of total retail sales compared with five percent in 2006. Food and groceries account for some 74 percent of total Indian retail sales with food accounting for some 44 percent of Fast Moving Consumer Goods (FMCG) sales, according to the Indian Brand Equity Foundation.
Elements in organised food retailing
The utilisation of good quality fresh vegetables and fruit as a primary means of attracting customers to supermarkets is a significant element in the current rapid growth of organised food retailing. Compared to many other countries, fresh vegetables and fruit play a disproportionately important role in the Indian diet. The ‘supermarket revolution’ in other developing countries started with staple commodities and processed food and only later progressed to sales of fresh produce and other perishables. In marked contrast, however, Indian supermarkets have accorded prominence from the outset to vegetables and fruit.
In addition to the impact of the rapid growth of the organised retail sector on market opportunities, there exists great potential for India to become an important exporter of fruit and vegetables. The country possesses a wide variety of agro-climatic zones, ranging from tropical to desert to higher elevation temperate climates. India has the highest proportion of arable land to total land area of any country in the world. The country’s location is favourable for trade with Europe, Southeast Asia and the Gulf states. Rising transportation costs to these markets from North and South America caused by skyrocketing oil prices are significantly increasing India’s comparative advantage in the export of fruit and vegetables.
Benefiting the small-scale farmers
These favourable market prospects pose significant growth opportunities for small-scale farmers and the Indian rural economy. In 2001, the latest year for which figures are available, there were approximately 25.4 million Indian fruit and vegetable farmers. According to informed estimates, it requires an average of about 150 small-scale farmers to service a supermarket produce department year-round. Given the number of organised fresh produce outlets already on the ground (one firm alone has already opened between 500 and 600 stores and continues to open new outlets every week) and those on the drawing board, the organised retail food sector could conceivably involve several million small-scale vegetable and fruit farmers over the next few years.
The almost complete absence of modern, coordinated supply chains for fresh vegetables and fruit in India represent possibly the most serious constraint to taking full advantage of these development opportunities. The lack of access by farmers to the techniques required to satisfy supermarket and export requirements constitutes a second major constraint. The growing demand for a reliable supply of better quality fresh produce by the supermarket and export sectors combined with the ongoing amendment at the state level of the Agriculture Produce Marketing Committee (APMC) Act are creating favourable conditions for successfully addressing both of these constraints.
The ACDI/VOCA initiative
The India Growth Oriented Micro-Enterprise Development (GMED) programme, managed by ACDI/VOCA, a Washington D.C. based international development consultancy, has conclusively proven over the past four years that, contrary to the common belief formerly held by organised retail buyers, small-scale Indian farmers can become reliable suppliers of quality fresh produce to organised retail as well as exporters. The programme, sponsored by the U.S. Agency for International Development (USAID) was established for the purpose of developing long-term supply partnerships between small-scale vegetable and fruit farmers, and supermarket and export buyers, and to help improve the capacity of the farmers to meet buyer requirements. The rationale for the programme was the perceived opportunity to increase farmer productivity and incomes while improving the quality of fresh produce available to the consumer.
The GMED pilot programme
GMED undertook an initial pilot project in three locations in India, in partnership with a major retailer, to validate the approach. Results have been positive for both the farmer and the organised retail buyer. The buyer/farmer partnership satisfies the need of the farmer for access to assured, higher value markets as well as enabling the farmer to acquire the technical skills required to satisfy the requirements of these markets. It also provides a solution to the supermarket buyer’s requirements