Developing Integrated Supply Chains
Sanjeev Asthana
“ Better Returns for the Indian Farmer and producer by connecting them directly to
the Indian and global consumer, and lower prices and better product quality for
consumer
April 13, 2015
Agenda
Introduction
 Reliance – Growth is Life
Retailing in India
 Integrated Supply Chain: ‘Farm to Fork”
 Challenges
 Market Driven Supply Chains Most Efficient
“The fundamental belief
for us is that growth is life
and we have to continue
to grow at all times”
- Mukesh D Ambani
Chairman & Managing Director
Reliance – Contribution to Indian Economy
 Revenues US$ 19.9 billion
 Cash Profit US$ 2.9 billion
 Net Profit US$ 2 billion
 Total Assets of US$ 20.8 billion
India and Reliance
 Revenues equivalent to 2.8% of India’s GDP
 Over 8.2% of India’s total exports amounting to US$ 7.32 billion
 Contributing 8% India’s indirect taxes
 4.7% of the total market capitalization
 11.5% weightage in Bombay Stock Exchange Sensex
 9.3% weightage in National Stock Exchange Sensex
Retailing in India
With robust economy,
sustained GDP growth
and booming stock
exchange, there are
several emerging sectors
in India waiting to be
tapped . . .
Organized Retail Is At The Forefront Of These Opportunities
Retailing Segments
Fastest growing retail segments in India
Jewelry
Footwear and leather
Durables
Pharmacy
Furnitures and fixtures
Clothing
Food and grocery
0
20
40
60
80
100
Growth Rate Agriculture
Source: National Center for Agriculture Economics and Policy Research
 1% change in GDP of agriculture generates 0.24% overall GDP growth
 Linkage effect: effect on industry: Elasticity of industrial output growth wrt growth
rate of agriculture is 0.38.
 Agriculture contributes 24.2% to GDP, 15.2% of total exports and provides
employment to 58.4% of country’s work force
GAPS - Key areas
Farming
• What to
produce?
• How to create
scale
operations?
• How to control
and buy
effectively?
• Development
& Absorption
of technology
Handling &
Logistics
Processing
• What are the
infrastructure
& technology
requirements
• How to build
world scale
processing
facilities?
• Where to set
up this
infrastructure
• How much of
backward
integration is
necessary?
• What logistics
constraints
have to be
overcome?
Retailing/
Wholesaling /
Export
• How to build
scale?
• How to develop
forward
linkages?
• How to establish
the food safety?
• Can the private
label market be
tapped?
Lack of Awareness and Low Opportunity
Low
Opportunity
• Access to capital
• Access to market
• Access to technology
• Quality
• Efficiency
• Cost effectiveness
• Market Intelligence
Low
Productivity
Lack of
Awareness
Poor Rural
Economy
Traditional Supply Chain
Status
Integrated Supply Chains
 5- 7 intermediaries.
 Reduce wastages
 Price spread:
 Preserve freshness
–
–
–
–
Wastage –
Cost of supply chain
Margin for inter
Farmer realisation
 No grading, standardisation
20-30%
10%
40%
20-30%
 Reduce consumer prices
 Improve farmer price
 Improve farmer income
 Negligible food processing
 Limited exports
 Improve exports
Wastages and Costs
Current
Farmer 15%
Consolidator 5%
Wholesaler 5%
Current Scenario
Produce
Farmgate Price
(Rs)
Retail Price
(Rs)
Farm gate as %
of retail price
Wastages
Tomato
2
8.2
24%
40%
Potato
6.6
12
55%
24%
Banana
5
9
56%
30%
5.5
9.5
58%
36%
4
12
33%
24%
Cabbage
Cauliflower
Semi-wholesaler 5%
Source: IIM Bangalore Research
Retailer 8%
* Wastages in red
How to make this Supply Chain Efficient
Strengthen Value Adding Activities
e.g. Primary Procurement Infrastructure, Cold Chain, Demand Driven Supply
Chains, Food Processing, Exports of Excess Produce, Food Safety
Elimination of Non Value Adding Activities
e.g. Intermediaries
Focus on strengthening value adding activities will lead to sustainable advantages,
and benefits across the value chain
Agri Infrastructure - The Missing Link
Warehousing & Storage
Logistics
Primary Processing
Community Facilities
Technology Development
Food Processing & Export
Retailing
Improving Farm Productivity and Farm Incomes
Status of Indian Farms
 Productivity can improve 3-4 times
from current levels
 Needs technology and quality
inputs
 No one-stop shop
 Need to complement the
government extension machinery
Market Need
 Trained agronomists – visit farmer
fields and provide advise – monitor
progress
 One stop shop for all agri inputs
and finance
 Enables right choice of crop and
technology in line with the ecology
and market demand.
Farm to Fork: Impact on Prices
original price level
Consumer price
anticipated price level
Farmer Price
Markup
Increase farmers’ realization and lower consumer prices
Waves of Change: Inclusive Growth
Rural
Development 2.0
Rural
Development 1.0
Rural
Development 3.0
Global Linkages
• Promoting GAP:EurepGAP
Agriculture Services
Availability of Quality Inputs
and Daily Need Items
• Domestic Distribution
• Export
• For High Value Crops
• Value Addition
• At Right Place
• Organic Farming
•High Return to Farmers
• At Right Time
• Expert Advice
• In Adequate Quantity
• Extension Services
• At Reasonable Price
• Vet. Services
• Financial Support
Inclusive Growth for All
•
Increased revenues will come by the reduced wastages
•
Farmer will gain with efficiency in supply chain
•
Customer will pay less for the quality produce
•
Information flow will lead to demand driven production
•
Infrastructure development leading to growth of sector
•
Food Processing and value addition will open new vistas
•
Safe to Eat Food Products
•
Exports will boost the price realizations of the produce
Globally Integrated Supply ChainsCase of Cotton
Making cotton ‘fashionable’ again ...
 Post access (today, 2005)
– Farmers shift back to cotton
– Acreages increase. Yields increase. Production increase
phenomenally
– Quantitative restrictions on textile exports abolished
– Indian textile industry extremely buoyant
– Textile machinery manufacturers see a 50% increase in sale. Their
order books filled up for two years !
30
25
20
Enhanced access
35
WTO signing
Liberalisation
40
Quota dismantled
Cotton production and textile exports
40
35
30
25
20
15
15
10
10
5
5
0
0
1985
1990
1995
Cotton prod - m bales
2000
2005
Tex export $bill
2010
30
25
20
Quota dismantled
35
Enhanced access
40
WTO signing
Liberalisation
Cotton production and textile exports
40
35
30
25
20
15
15
10
10
5
5
0
0
1985
1990
1995
Cotton prod - m bales
2000
2005
Tex export $bill
2010
30
25
20
Quota dismantled
35
Enhanced access
40
WTO signing
Liberalisation
Cotton production and textile exports
40
35
30
25
20
15
15
10
10
5
5
0
0
1985
1990
Cotton prod - m bales
1995
Column 3
2000
2005
Tex export $bill
2010
Line 4
THANK YOU