India Studies in Business and Economics

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N. Chandrasekhara Rao • R. RadhakrishnaRam Kumar Mishra • Venkata Reddy KataEditors

Organised Retailing and Agri-Business

Implications of New Supply Chains on the Indian Farm Economy

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ISSN 2198-0012 ISSN 2198-0020 (electronic)India Studies in Business and EconomicsISBN 978-81-322-2475-4 ISBN 978-81-322-2476-1 (eBook)DOI 10.1007/978-81-322-2476-1

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EditorsN. Chandrasekhara RaoAgricultural Economics Research UnitInstitute of Economic GrowthNew DelhiIndia

R. RadhakrishnaCentre for Economic and Social StudiesHyderabadIndia

Ram Kumar MishraInstitute of Public EnterpriseHyderabadIndia

Venkata Reddy KataCentre for Economic and Social StudiesHyderabadIndia

v

Foreword

A major concern among the planners and policymakers in India today is how to achieve a minimum of 4 % annual growth in farm output in order to sustain high overall growth in GDP, while ensuring its inclusiveness. Driven by rising demand, Indian agriculture is getting increasingly diversified into dairying, horticulture, meat and fisheries, etc. These products being input-intensive and perishable require a marketing infrastructure that enables the farmers to minimize postharvest losses, which are substantial now, and realize a much better share in the price paid by the consumers. Reforms in the marketing system for farm produce are, therefore, high on the agenda of planners. Overcoming the prevailing technological fatigue in agriculture is another important concern. But wider adoption of even the known technology as well as incentives for further innovations crucially depends on the favourable marketing environment. Therefore, the present book on the implications of organized retailing for the country’s farm economy assumes special significance, and is very timely.

The move towards organized distribution of food and grocers has been the big-gest change witnessed in the country in the new millennium. Gradual liberalization of agricultural marketing and easing of restrictions through a slew of measures in-cluding changes to Agricultural Produce Marketing Committee (APMC) Act have been playing a significant role in this transformation, besides demand-side factors like higher increase in disposable incomes, urbanization, aspiration for better shop-ping, and increased participation of women in workforce. The organized distribu-tion of food and grocery raised hopes for speedy modernization of supply-chain sector in the country through its technological upgradation, resulting in improved competitiveness—necessary for sustaining high growth of the economy. Substan-tial investment in back-end infrastructure by organized retailers in areas like rural warehousing and cold chains is likely to benefit farming community. The rise of organized retailing also has the potential to drive the growth of food processing and consequently diversification of agriculture, as these are demand-driven in nature. The transformation of the agri-food system and the likely implications for the sup-ply chains, from farming community to the ultimate consumers, have thrown up new areas for researchers.

vi Foreword

Disintermediation through direct procurement of farm produce from farmers by organized retailers through establishing collection centres in the villages and cen-tralizing distribution of fruits and vegetables so procured is the crux of the changes in the new supply chain, apart from investing in cold chains, modern storage, pack-aging and related infrastructure. Experience from other developing countries sug-gests that this will usher in far reaching changes in the methods of organization of food by farmers, processors, wholesalers on the one hand, and the purchasing habits of consumers, on the other. Now that these changes are on the horizon, research needs to be carried out to understand the real impacts.

The debate in the country overwhelmingly focused on the foreign direct invest-ment in organized retail and its fallout, while in reality this sector has been spread-ing out at phenomenal growth rates. Given the strong investment capabilities of do-mestic private players, full-scale liberalization might not have as dramatic impact as in the Latin America or East Asia. Nevertheless, the entry of foreign players might increase the competition, professionalism and better service in terms of passing on the price margins to the consumers catapulting the organized retail to the tier II and tier III cities and to the people with lower income levels.

The book is born out of the international conference organized at the Centre for Economic and Social Studies and is concerned with understanding the international as well as the Indian experience regarding the impact of organized retailing on the fortunes of agriculture and on ways for overcoming the existing infrastructural and institutional constraints with a view to maximize the benefits for resource-poor farmers.

The present volume draws on some fresh evidence from both India and abroad and contributes to a more informed debate on the likely impact of supermarket diffusion on smallholders in the Indian context. The case studies presented in this volume show that the farmers get higher returns by selling to the supermarkets. The problem, however, relates to the inclusion of resource-poor farmers in the process for ensuring such benefits to them. The evidence from China and Kenya shows that the participation of smallholder farmers in the supermarket channel is possible provided the government plays the role of a catalyst by making better policies and infrastructure provisions to improve the competitiveness of smallholders. More-over, poor smallholders may benefit through their participation in the labour market as the farmers may hire more labour to meet the exacting standards demanded by the supermarket chain.

All the case studies have taken note of continued dependence of farmers on tradi-tional wholesale market. Moreover, most supermarket chains set their prices using the prices in the traditional wholesale market as the reference price, indicating lat-ter’s importance for a competitive agri-food system. That apart, procurement by the supermarket chains is often limited, leaving the farmers with the remaining produce to sell elsewhere. All in all, the government cannot shy away from its responsibility towards undertaking investment in the better provision of infrastructure in the tradi-tional wholesale markets to promote a more inclusive agri-food system.

Public policy needs to be reformulated to help develop marketing infrastructure by building supporting infrastructure such as storage facilities, assured electric-

viiForeword

ity supply, transport and communication networks, which can be provided mainly through public investment or through public–private partnerships. The tasks on the institutional front are no less daunting. Over 80 % of farmers now are small and marginal with increasing participation of women. Their awareness on the marketing problems in the new context as well as their bargaining power while negotiating with the more powerful buyers such as organized wholesalers and retailers needs to be raised by organizing them into sales cooperatives. Easy access to institutional credit and extension services by the government to small and marginal farmers can improve their bargaining power vis-a-vis private players who may increasingly pro-vide such services. Another class of measures relates to those needed to address the concerns of potential losers from the growth of organized retail, consisting of kirana stores, small traders and commission agents, and pushcart vendors, with a view to enabling them to adjust to changes by upgrading their present activities wherever possible or move into new jobs and occupations created in the wake of high overall growth of the economy.

The book addresses the gaps in literature by bringing out a comprehensive set of papers delving into issues relating to organized retail and their links to agricul-ture on policy perspective; likely impacts of foreign direct investment; empirical evidence on small farmers in other developing countries and India; and finally pro-ducer companies to link resource-poor farmers to the retail giants. This book is the first of its kind on the implications of organized retailing for agricultural sector and the farming community. I have no doubt that this book would be a valuable addition to the economic literature on organized retailing. I do hope that the research com-munity, civil society and policymakers will find it useful.

Centre for Economic and Social Studies, C. H. Hanumantha RaoHyderabad,April 8, 2015

ix

Preface

Reforms in agricultural marketing have come to the forefront of policy-making agenda in India in the past few years. In the prereform period, food policy in India paid inadequate attention to agricultural marketing. Supply chains were fragmented and lacked modernization. The initiation of liberalization policies and enactment of amendments to the Agricultural Produce Market Committee Act by the state gov-ernments, situation has been changing. The sector has also been opened to foreign direct investment.

Experiences from most of the developing countries in Latin America, Asia and Africa show that modernization of supply chains is inevitable with economic devel-opment. However, impact of this process on different stakeholders is not uniform across countries. In India, diffusion of organized retail or supermarkets accelerated in the new millennium after a slow start in the late 1990s and has brought both op-portunities and concerns for the farm sector. The emotionally surcharged national debates on this phenomenon have often seen extreme claims and counter claims with little empirical evidence.

Some argue that organized retailing offers remunerative prices to farmers and better quality food and fair prices to consumers, and promotes investment in stor-age, packing and transport infrastructure. On the other hand, it is argued that it would ruin the small farmer-based Indian agriculture by bringing in new intermedi-aries, dealing mostly with large farmers, resorting to imports, and selling at higher than prevailing prices. However, the debate is not well-informed in the country with emotional undertones and without basing on empirical evidence. There is no significant research on the impact of organized retailing as the phenomenon itself is very nascent.

This book tries to fill this gap in literature by bringing out papers from schol-ars working on related issues from both India and other developing countries. This edited volume is born out of the international conference organized by Centre for Economic and Social Studies (CESS), Hyderabad in association with Indian Society of Agricultural Marketing (ISAM) and Institute of Public Enterprise (IPE), Hyder-abad. The Department of Agricultural Marketing of Government of Andhra Pradesh cosponsored the conference. The brain storming sessions organized by CESS and ISAM firmed up the themes of the conference. Dr. T. Satyanarayana, Secretary of

x Preface

ISAM played a major role in organizing the conference. The organizers of the con-ference and the editors of the book benefited immensely from the policy insights and sagacious advice of Dr. C. H. Hanumantha Rao. The inaugural address of Dr. C. Rangarajan at the conference, keynote address of Dr. S. S. Acharya and valedic-tory address of Dr. Y. K Alagh were helpful in the choice of themes for the book. Dr. Manoj Panda, former director of Centre for Economic and Social Studies and present director of Institute of Economic Growth (IEG), New Delhi, and Dr. S. Gal-ab, present director of CESS have generously helped in organizing the conference.

Many national and international dignitaries participated in the conference and enriched its proceedings. Asian scholars shared their experiences in reforming agri-cultural marketing in their countries. Given the focus of the book, not all papers pre-sented at the conference could be included, but a few invited papers were included to fill the gaps. The editors of the book are indebted to the paper contributors for their painstaking effort in revising the papers.

April 9, 2015 N. Chandrasekhara Rao R. Radhakrishna

R. K. Mishra Venkata Reddy Kata

xi

Contents

1 Implications of New Supply Chains on the Indian Farm Economy: An Overview ����������������������������������������������������������������������������� 1N� Chandrasekhara Rao, R� Radhakrishna, R� K� Mishra and Venkata Reddy Kata

Part I Policy Perspective

2 Modern Organised Retail and Its Impact on Agriculture ���������������������� 29C� Rangarajan

3 Contribution of Organized Retailing to Agricultural Distribution System: Prospects and Challenges �������������������������������������� 37R� K� Mishra, P� Mahesh and Srinivas Kolluru

4 Retail Trade in Agriculture, Environment, and Fair-Trade Practices: Review of Experiences and Future Pathways ������������������������ 59Amita Shah

Part II International Experience with Organised Retail

5 Supermarket Growth and Rural Welfare: Evidence from Kenya �������� 81Elizaphan James O� Rao and Matin Qaim

6 The New Supply Chains in Malaysia: Implications to the Fruits and Vegetables Producers �������������������������������������������������������������� 99Fatimah Mohamed Arshad

7 An Innovative Marketing Model for Fresh Produce in China: Farmer-Supermarket Direct-Purchase ��������������������������������������� 119Dinghuan Hu and Fred Gale

8 Retracted: Regulation of Retail: Comparative Experience ������������������� 139Anuradha Kalhan and Martin Franz

xii Contents

Part III Foreign Direct Investment in Retail and Implications

9 Role of FDI in Multi-brand Retail Trade in India and Its Implications ��������������������������������������������������������������������������������� 161Sukhpal Singh

10 Regulating FDI in MBRT: Some Key Concerns ����������������������������������� 181K� S� Chalapati Rao and Biswajit Dhar

Part IV Indian Experience with Organised Retail

11 Organized Fresh Food Retail Chains Versus Traditional Wholesale Markets: Marketing Efficiency and Farmers’ Participation ��������������������������������������������������������������������������������������������� 207Seema Bathla

12 Inclusive Fresh Food Retail Chains in India: A Case Study from Punjab ���������������������������������������������������������������������� 229Naresh Singla, Sukhpal Singh and Paramjeet Kaur Dhindsa

13 Is Farmer–Food Retail Chain Linkage Feasible? ��������������������������������� 241P� G� Chengappa, K� P� Mangala and Vijayalakshmi Dega

14 Linking Farms with Consumers Through Organized Retail Chains: Implication for Producers in India ������������������������������������������ 251Nilabja Ghosh and Ananda Vadivelu

15 Promoting Organized Retail in Horticulture and Beneficial Impact on Farmers—The Case of Deepak Fertilizers and Petrochemicals Limited ��������������������������������������������������������������������������� 267Sangeeta Shroff, S�S� Kalamkar and Jayanti Kajale

Part V Farmer Producer Organisations

16 Producer Companies and Modern Retail in India—Current State and Future Potentials of Interaction �������������������������������������������� 277Anika Trebbin

17 Farmer Producer Organizations in India: Policy, Performance, and Design Issues ������������������������������������������������������������� 289Amar KJR Nayak

Erratum ������������������������������������������������������������������������������������������������������������ E1

Index ������������������������������������������������������������������������������������������������������������������ 305

xiii

About the Editors

N. Chandrasekhara Rao is currently a professor and the head of agricultural economics research unit at the Institute of Economic Growth, Delhi. Prior to this, he worked at the Centre for Economic and Social Studies, Hyderabad and the Andhra Pradesh Department of Agriculture for 10 years. He was the Fulbright Fellow at Cornell University, Ithaca, NY, USA during 2010–2011 academic year. Recipient of Anamitra Saha award for the best research article for 2004 from the Indian Society of Agricultural Economics, his book, Biotechnology in Indian Agriculture: Potential, Performance and Concerns, was published by Academic Foundation, New Delhi in 2010. He has coedited the book, India: Perspectives on Equitable Development, also published by Academic Foundation, New Delhi in 2009. His research interests are development issues of agriculture including supply chain consisting of producers, processors and retailers, new technologies including biotechnology and nanotechnology, food processing and other agro-based industries; poverty reduction and labour market. Currently, he is working on a longitudinal project in four Indian states to understand the nature of diffusion and impacts of supermarket penetration on country’s agriculture.

R. Radhakrishna is currently the chairman and honorary professor at the Centre for Economic and Social Studies, Hyderabad and chairman, Centre for Development Alternatives, Ahmedabad. He worked as the director of the Centre for Economic and Social Studies, Hyderabad for 10 years before moving to Delhi as the member secretary of the Indian council of Social Science Research, New Delhi. Later, he was the vice-chancellor of the undivided Andhra University, Visakhapatnam and director of Indira Gandhi Institute of Development Research, Mumbai for 7 years. He was the chairperson of Madras Institute of Development Studies during 2008–2013. His latest assignment was at the National Statistical Commission, New Delhi as its chairman. He has varied research interests in the field of economics. Considered to be an expert on poverty, food security and nutrition issues, he works on wide-ranging issues. Currently, he is the president of the Indian Society of Agricultural Marketing, which brings out the journal Indian Journal of Agricultural Marketing. He was the conference president of the Indian Society of Labour Economics in

xiv About the Editors

2004 and also of the Indian Econometric Society in 2008. He was Jawaharlal Nehru National Fellow (ICSSR) during 2008–2010. He was awarded VKRV Rao Prize in Economics in 1986 and received ‘Telugu AtmaGauruvaPuraskaram’ in 1988 from the Government of Andhra Pradesh.

R. K. Mishra is senior professor, director and ONGC Subir Raha Chair Professor at the Institute of Public Enterprise, Hyderabad, India. A graduate of international management programme, SDA Bocconi, Milan, Italy, he has been a fellow of British Council and Commonwealth Secretariat. He has had research stints at London Business School and Maison Des Sciences De L’ Hommes, Paris. He has taught at the University of Bradford, UK and was a visiting Professor at Maison Des Sciences De L’ Hommes, Paris. He is a member of the UN Task Force on International Taskforce on Standards of Excellence in Public Administration and Education. He has been a management consultant to several organizations including DFID, Deloitte, Adam Smith Institute, ADB and Centre for Good Governance. He is an honorary member on the Board of Research, American Biographical Institute, USA.

Venkata Reddy Kata is a visiting fellow at the Centre for Economic and Social Studies, Hyderabad and joint secretary of Indian Society of Agricultural Marketing. He was the former head of department of applied economics in Andhra University, Visakhapatnam. A doctorate in agricultural economics, Prof. Reddy taught for three decades in the same department. His book Agricultural Production Functions was published by Ajanta Publications, New Delhi in 1990. Besides teaching and supervising several doctoral students, he has undertaken research studies for different organizations including University Grants Commission, Indian Council of Social Science Research, Indira Gandhi Institute of Development Research, Mumbai, National Thermal Power Corporation, and Planning Commission of Government of India. He has published research articles in many of the reputed journals in the field of agricultural economics. Currently, he is working on child nutrition.

xv

Contributors

Seema Bathla Centre for Study of Regional Development, Jawaharlal Nehru University, New Delhi, India

P. G. Chengappa Institute for Social and Economic Change, Bangalore, India

Vijayalakshmi Dega University of Agricultural Sciences, Bangalore, India

Biswajit Dhar Jawaharlal Nehru University, New Delhi, India

Paramjeet Kaur Dhindsa Punjab School of Economics, Guru Nanak Dev University, Amritsar, India

Martin Franz Department of Geography, University of Marburg, Marburg, Germany

Fred Gale U.S. Department of Agriculture, Economic Research Service, Washington, DC, USA

Nilabja Ghosh Institute of Economic Growth, New Delhi, India

Dinghuan Hu Institute of Agricultural Economics and Development, CAAS, Beijing, China

Jayanti Kajale Gokhale Institute of Politics and Economics, Pune, India

S.S. Kalamkar Agro-Economic Research Centre, V.V. Nagar, India

Anuradha Kalhan Department of Economics, Jai Hind College, Mumbai, India

Venkata Reddy Kata Centre for Economic and Social Studies, Hyderabad, India

Srinivas Kolluru Institute of Public Enterprise (IPE), Osmania University Campus, Hyderabad, India

P. Mahesh Institute of Public Enterprise (IPE), Osmania University Campus, Hyderabad, India

K. P. Mangala University of Horticultural Sciences, Bagalakote, India

xvi Contributors

R. K. Mishra Institute of Public Enterprise (IPE), Hyderabad, India

Fatimah Mohamed Arshad Institute of Agricultural and Food Policy Studies, Universiti Putra Malaysia, Serdang, Selangor, Malaysia

Amar KJR Nayak Xavier Institute of Management, Bhubaneswar, India

Matin Qaim Georg-August-University of Goettingen, Goettingen, Germany

R. Radhakrishna Centre for Economic and Social Studies, Hyderabad, India

C. Rangarajan Madras School of Economics, Chennai, India

Elizaphan James O. Rao International Livestock Research Institute (ILRI), Nairobi, Kenya

K. S. Chalapati Rao Institute for Studies in Industrial Development, New Delhi, India

N. Chandrasekhara Rao Institute of Economic Growth, New Delhi, India

Amita Shah Gujarat Institute of Development Research, Ahmedabad, India

Sangeeta Shroff Gokhale Institute of Politics and Economics, Pune, India

Sukhpal Singh Centre for Management in Agriculture, Indian Institute of Management, Ahmedabad, India

Naresh Singla Centre for Economic Studies, School of Social Sciences, Central University of Punjab, Bathinda, India

Anika Trebbin Department of Geography, Philipps University Marburg, Germany

Ananda Vadivelu The Energy Research Institute, New Delhi, India