This is a recording of a short, candid talk by Devangshu Dutta (chief executive, Third Eyesight) at the ASSOCHAM’s 8th Global Food Processing Summit in New Delhi, India.

He touched upon the inherent conflicts in the food supply chain we need to be aware of before formulating policies and practices, and strongly urged everyone to look at food security from the point of view of sustainability and risk-management. (Transcript below.)

As we all know, whoever’s been following the news, there’s all this buzz around FDI into retail being allowed, not only for physical retail but also for e-commerce companies, and there are two very strong sets of drivers. On the one hand is the likes of Walmart and Tesco and people who want to actually set up food retail. and you know food is the largest consumption in our basket of consumer products, so they obviously want to tap into that demand. The second side is Amazon and the likes of it where again you know there are no barriers in terms of location, you are buying on the net, tapping into a consumer who’s looking for convenience, and there you need to actually service that demand with food and grocery which is packaged, so there is obviously a very strong push a very strong lobby for that to happen. At the same time there’s a very strong lobby against that because there are domestic retailers who invested a lot of money over the last maybe 10-15 years in setting up a lot of retail stores. In the recent years there have been a few e-commerce companies that have come up as well with domestic and foreign capital. So there is this conflict.

In this whole ecosystem of food production and supply and retail there are some fundamental conflicts that we need to be aware of, before we get into any kind of thinking about what should be done with the sector.

First of all is foreign vs. Indian; this is a conflict which is there the world over, and I think we will see that increase in Europe, in the US, and in other places. You know, “local versus foreign” is a conflict which we will keep seeing. I think we have moved a little bit away from that within, not only this government’s regime but also the earlier government’s regime, where we started to welcome foreigners back into the country and said, “let’s do trade together”.  I think it’s important to keep it in mind that local interests will always always be take predominance over foreign interests. If any government comes in and says, “I will give foreign interests precedence”, it’s going to not be there in power the next time, so that’s something which is to be kept in mind.

The second is this is a conflict between large and small…large retailers versus small retailers. A Reliance had to close shops in Uttar Pradesh, had to close shops in Kerala because they were impacting small retailers. So it’s not just about Walmart impacting small retailers, it’s also about the large Indian companies impacting smaller companies.

The third conflict is between traditional and modern, and this is happening again even in farming. Indian farmers tend to follow traditional practices, there are fragmented land holdings, and then you have modern entrepreneurial farmers, you have cooperatives which are adopting different techniques, and there is a conflict which happens at that level as well. At the local level it can get hugely political and then it starts raising barriers. So if you talk about the food supply chain, it’s not a simple thing to deal with.

Fourthly, the biggest biggest conflict – and that’s not really a conflict outright because these are people who are working together – but there are differences of interests and, therefore, there are conflicts…that is between retailer, supplier and the farmer, the interests are not aligned. A retailer wants lower prices, a supplier wants even lower prices, but the farmer wants higher yield and higher prices, so that conflict, just something on account of price and commercial terms and various other things, is bound to create friction in that supply chain.

Having understood that, I think we need to also acknowledge the fact that retailers are unlikely to invest in the supply chain and in farming. Amazon is not going to set up food processing. Amazon is not going to set up farms which are contract farming. Let’s face it, even Future Group hasn’t. Future Group has set up a food park. Future Group has taken over companies which are in food production companies but Future Group has has not set up, ground-up, contract farming. They’ve tried but it’s not their core competence, it’s not even their core interest. Reliance has done a little bit, ITC has done a few things but it’s not something which is fundamentally their business. They’re retailers, that’s what drives them, so what they can do is they can create an ecosystem.

Let’s take the example of McDonald’s or a Pizza Hut or say a Domino’s. These are foreign quick service restaurants which have come into the country. A McDonald’s had to actually build its supply chain from scratch to get the potato fries, to get the burgers done, to get the patties done and they created an ecosystem, in some cases they invested or co-invested with Indian partners, but in most cases they encouraged Indian partners to talk to their partners from Europe, US etc.

When we talk about people like Future Group, it has done a lot in being a platform for Indian companies to come on board and sometimes international companies as well. They’re a platform for them to launch and grow their business. So what the retailer can do is create the ecosystem, create the demand pipeline. Beyond that it is up to the food producer, it is up to the farmer, to take that opportunity and move on. It’s not for the retailer to handhold from scratch all the way to selling on the shelves.

In terms of the practices that we need to adopt I’d like to say this, that while we keep talking about international standards, food is a very local thing. We may be going into a world where 50 years down the line all of us will be having a white-gray powder which has no flavour and that’s what the future of food…I hope not!…The fact is the food is a very local thing because of tastes, because of cultures, because of the environment that you are in. And we are actually losing a lot. People who are here from farming, if you look back not, even very far – maybe 20-25 years – certainly, if you look back 50 years, what was being farmed we’ve lost probably 30-40 percent of that produce, because there is no demand, because it is difficult to grow, because it’s seasonal, because it is difficult to process,  difficult to sell. If you go to the sabziwala today versus if we went to the sabziwala 10 years ago, you will find that the variety of produce has actually diminished. So while we are talking about food processing, what is happening is…and I’d like to mention this…You know, sometimes we come to conferences like this and we run our businesses, we run with a split personality. We do what is convenient for the business, we do what is good for the business in terms of cost, in terms of ease of processing, in terms of ease of selling etc. When it comes to us as consumers, we want fresh, we want variety, we want flavor, we want colour, we want all of it. Why do we have the split personality? Why can’t we actually combine the two and do what is right for us as consumers, our children as consumers, the environment, and the future as well?

Sustainability is should be a big driver and we forget that the kind of food processing which is going on right now, by and large the kind of plants which are being put up, are based on technology which was developed in North America and Europe between 1900 and say 1960-70. That’s been the most wasteful part of the last century in terms of energy, in terms of water, in terms of labour, in terms of anything. It’s resource intensive. Now imagine even if 20% of India – over 200 million people – started to live and depend on that kind of a lifestyle and that kind of an industrial structure! This country will be finished, certainly! The world would be finished! We cannot do that, so we’ve got to do stuff which is good for us as consumers, the environment as a whole, and good for the business. It can’t just be one. We cannot be uni-dimensional in our thinking.

Last point: I think diversity is a very, very important part of the food supply chain and diversity means that there are “many”. We tend to look at large companies as being the standard and, therefore, large being good. But the fact is that if you take food which is an integral part of our lives…You cannot live without air, you can live without food and water for a few days, you can’t survive. You can live without clothes for your entire life.

If let’s say the food supply chain and even the processing, the acquisition and everything else, if it gets consolidated beyond a certain point it becomes extremely vulnerable. Anybody who’s looked at financial services risk management or any any kind of risk assessment, you would know that it is good to have a diversified basket. From the point-of-view of farming, from the point-of-view of manufacturing, from the point-of-view of retail, consolidation beyond a certain point is actually detrimental to quality and to safety. So if you’re looking at food safety, if you’re looking at sustainability, we need to actually encourage many, many, many entrepreneurs, many small businesses.

For that…I don’t know if anybody is there from the government sitting in this audience…but Make in India will only happen if we make it easier. Today all of us who are in business know that India is one of the most hostile environments to do business of any sort. It does not matter whether you are in manufacturing, whether you’re a truck driver, whether you are running a consulting business. With all the regulations…we don’t lack regulation, there’s too much regulation…we don’t have an environment where it is easy to do business. If that can happen we will find that we will have an extremely diverse and vibrant ecosystem which will grow and we can actually be the standard, the international standard which can be followed by everybody else. I think what we should do is try and get the government to work in that direction. If we can do that, if that’s one outcome we can achieve out of this conference I’ll be really, really, really happy.

Thank you so much!

The cold chain sector is expanding quickly due to increased investments from Indian and international organisations going towards both modernisation of the existing facilities and establishment of new ventures. Over the last few years cold-chain has gained a buzz, finding its way not only into industry presentations but also into budget speeches in Parliament. It is widely reported that India needs to build more cold chain capacity, especially to reduce the enormous amount of waste of food products in the chain from farm to consumer.

India is one of the largest producers of agro-products i.e. fresh fruits and vegetables, milk and related products, fishery products and meat. However, due to lack of the required facilities, spoilage of products is comparatively high.

In recent years, significantly incentivised both by business logic and by tax breaks, there has been a fair amount on investment in cold storages. However, the sector is still highly fragmented; there is inequitable distribution of cold storages, interlinkages between storages is also very poor and many facilities are also operating below capacity.

The National Centre for Cold Chain Development (NCCD) reported that as of December 2014, 70% capacity was utilised, where the total number of cold storages available in India was around 5300 and approximately 6000+ vehicles, providing about 30 Million Metric Tonnes capacity of storage. Most of these facilities are located in the states of Uttar Pradesh, Uttaranchal, Punjab, Maharashtra and West Bengal.

Storage and transportation capacity is only the very first step in strengthening cold chain capabilities but, unfortunately, that is where many entrepreneurs and investors in cold-chain are stopping their thought process. Many players in the industry have been using obsolete machinery, and storages are majorly for a single commodity. The result, predictably, is underutilisation of capacity or mishandling of food products leading to operational problems, cost escalations, spoilage and other losses. Just to mention a simple example that many seem to forget: even domestic refrigerators have at least 3-4 temperature-humidity zones: the freezer, the chill tray, the large cool area, and a vegetable tray. In comparison, many cold stores are built without adequate thought to the various influencing factors. It’s important to recognise that in developing a cold chain capability, the products to be handled, the environment in which the cold chain will operate, not only storage but intake, handling and transportation, all have a role to play.

With a fragmented operating environment, both in terms of production as well as distribution, often a single investor or company may not be able to create the business logic to set up a cold chain facility. Collaboration between multiple individuals and agencies may be a way out.

An example of successful use of integrated cold chain is the Tamil Nadu Bananas Growers Federation. Banana growers in the Tamil Nadu belt were diminishing due to lack of appropriate storage facilities, and farmers were forced to sell produce at throw away prices. With introduction of integrated cold chain solutions, the federation of farmers from Tamil Nadu has now managed to gain a hold of the banana market again. They have managed to increase their income manifold by growing better qualities and storing bananas for longer period of time in the integrated cold chains.

Cold chain logistics in the true sense begin with harvesting and post-harvest handling, going on to controlled atmosphere vehicles, cold storages, sorting and grading facilities, modern pack houses and controlled atmosphere retail stores. Most importantly, even operational know-how is something that is not made part of the investment plan, leading to unviable, unprofitable cold chain facilities.

The focus should be to integrate the cold chain, and also build capacities in all areas. As per NCCD (December 2014), India has approximately 6,000 reefer vehicles against a requirement of 60,000. Similarly the number of pack houses available is 250 and the projected requirement is for 70,000. Hence, the need for a more balanced investment in terms of modern pack-houses, refrigerated transport units and ripening chambers is evident and will bring far better results, both operationally and financially.

In addition, there has to be a significant improvement in developing the know-how and skills sets available to the sector. While the country is faced with large-scale unemployment annually, a well-thought out development of the cold chain sector including due investment in knowledge-based initiatives can create significant numbers of better paying jobs around the country, especially in rural areas from where the produce is sourced.

With development of the consumer and retail sector supporting its growth, integrated cold chain development should be at the top of the agenda for government as well as for private business.

The Patanjali Group has created an Indian FMCG giant in a very short span of time on the back of a three-pronged strategy:

1. The enormous brand awareness that can be attributed to the very high visibility of Baba Ramdev, across a variety of media and issues,
2. Wide and deep market penetration through a large network of outlets and distributors across the country, and
3. Pricing itself below the benchmark competitor in each product area in which it is competing.

Over time, the group has also invested in improving its manufacturing and packaging infrastructure to bring itself on par with well-established competitors.

The group has clearly focussed itself on the mass market, and Patanjali Group’s products become a “go-to” for customers who are more price-sensitive than brand-loyal. This definitely creates pressure on established brands in each of the product segments where the group is now present.

In the growing market for ready-to-cook packaged food, a new entrant would struggle to create visibility and initial demand. However, with the momentum of the Patanjali brand behind it, the group’s new product — instant noodles — has a fighting chance.

I must say, though, that the immediate opportunity would have been bigger had Maggi also not just relaunched in the market. The other aspect to keep in mind is that while a lot of food and nutraceutical products resonate easily with the Patanjali brand, instant noodles seem completely counter-intuitive under this brand’s umbrella. How much consumers will support this new launch remains to be seen.

This 2-4 minute noodles story is still cooking. Keep watching the pot!

This article is based on a presentation at the 2nd International Summit of Processed Food, Agribusiness and Beverages, organised by the Associated Chambers of Commerce (ASSOCHAM) and supported by the Ministry of Food Processing, Government of India. The presentation was made to a mixed audience of retailers, manufacturers, farmers, government functionaries and service providers, and rather than provide answers, the objective was to raise questions that were not being discussed.

The old saying goes: where there are issues, there are opportunities. By that standard, the perishable commodities supply chain offers plenty of issues and, hence, opportunities.

Part of the problem, or opportunity, is that there are so many steps between the farmer and the consumer, so many hands through which the produce passes, especially in the case of India. With every step in this supply chain, there is the potential of waste and deterioration with time, and on the flip side, there is also an opportunity to add value and improve.

Misalignment on Motivation

One core issue, at the heart of most problems with the perishables supply chain, is widely different perspectives and the lack of alignment.

For instance, there is competition at the basic level between cities and villages. But there is even misalignment between the development needs of ever-growing cities that are taking over neighbouring agricultural lands, and the need to feed people living in those very cities. Similarly, the motivations for small sustenance-driven landholders are different from those of the wealthier farmers with large holdings. And, of course, within the supply chain, the tug of war is between consumer vs retailer, retailer vs brand, brand vs producer.

This is but natural in any economy, even more so in India whose rapid growth is widening the already existing gaps and intensifying the inherent disconnects.

Misalignment on Value

However, there is also another significant potential misalignment, of which we need to be keenly aware. This is in the very definition of value.

Given that we have been discussing “value-addition” as a driver for the food supply chain, I think we also need to understand that the word value has various connotations and implications, depending on who we are speaking about. Each throws up different challenges, and needs to be dealt with differently.

In my mind, the three aspects of value related to the food sector are:

• Calorific
• Nutritional
• Economic

The complication is that these three aspects address three very different audiences in society.

For a large part of India’s population, simply providing adequate calories is the main problem. For this chunk of people, not only do we need to have more productive land under use, we need to maximise the output from each piece of land, and ensure that the productive output reaches the population that needs it the most. Within that, there are several social, political, logistical and economic challenges to tackle: clarity of land-holding, availability of arable land to agriculture rather than non-agricultural uses, unit area productivity with efficient use of other resources, safety during transportation and storage, and distribution at prices that are affordable.

Nutritional value is the next step up: packing more nutrients into each gram of produce and delivering the right mix and balance is a critical issue for consumers who get enough calories, but can benefit hugely in physical and mental health through the quality of the nutrition they are taking in.

In pushing up both calorific and nutritional value, we also run into two entirely different debates.

One is whether genetic modification (GM) is desirable. The argument against GM foods is that we shouldn’t tamper with the most basic building blocks of biology, because we don’t understand the implications completely. The powerful argument for GM is that it is a must, to ensure that we have enough and ever-improving food available to a growing population.

The second debate is about organic produce. The organic camp believes strongly that organic is better, nutritionally superior. The other side argues that organic delivers no clear demonstrable increase in either calories or nutrition, and instead pushes production down and prices up: a recipe for complete disaster in a growing country.

But most interesting to me is the fact that in most industry platforms such as this, when we speak of “value-addition”, it is neither calorific nor nutritional value that is being targeted, but only economic value.

Obviously, companies are profit-driven by their very nature, and if calorific or nutritional value does not deliver economic value to them, they will not focus on those aspects. For that reason, most companies engaged in or being encouraged to participate in the food supply chain do so through food processing: the transformation of the basic produce into a manufactured packaged product with higher economic value per gram. A thinking consumer may be tempted to ask, am I getting proportionately better food (especially more nutrition) for the extra unit value that I am paying for orange juice (as compared to oranges), ketchup (as compared to tomatoes) or chips (when compared to potatoes)?

My concern is that such a deep misalignment in the definition of value can cause a huge amount of friction and potential politicisation, especially if only one aspect of “value-addition” is constantly in focus.

Misalignment on Losses

I’d also like to briefly comment on another aspect of value: losses.

We’ve all come across the much-quoted “fact” that in India 30-40% of the agricultural produce is wasted. That’s incredible! A country otherwise so frugal pushes a third of its valuable food into the gutters? Can that really be true?

I have not come across any authoritative study that clearly demonstrates that India actually wastes that much food.

Of course, there is wastage due to improper harvesting, lack of post-harvest processing and gaps in the storage and transportation infrastructure. But that figure, depending on what product and part of country you pick, varies hugely and the overall average is nowhere close to the 30-40% figure.

Overestimating the size of the problem leads to overestimation of the opportunity, and that misdirects investment. I think the correct way to look at the issue is not just in terms of value-lost, but in terms of opportunity lost. There is certainly an opportunity for farmers to grow their incomes by ensuring that better agricultural and post-harvest techniques are followed. If harvesting products at the right time, chilling the produce at the farm immediately, adequate sorting and grading, or even the simple act of washing can lead to higher prices for the farmer, I’m all for it.

The opportunities we are missing may be bigger than the waste that we imagine.

The Drivers of Value

Obviously, the technological, political and business mandate changes dramatically, depending on where we want to focus on building value. Is it to increase, improve, protect or change the produce? Are we going to focus on the seed, on growth, on harvest and post-harvest, on processing, on storage, on packaging or marketing.

Given the diversity of the questions, I think the discussion on value should also include – openly – a widely inclusive group. Obviously large corporate retailers, brands and producers, and the various arms of the government would be part of the discussion, but the table should also have room for farmers of every hue, technology innovators that address not just aggregated large land-holdings but also small farms, and platforms that encourage both ultra-modern and traditional knowledge, both from within India and outside.

By focussing on an over-simplified view of “value-addition”, we risk not addressing fundamental issues. In fact, we could be losing sight of humongous opportunities.

In the food supply chain, we are dealing with a product that is perishable; given our economy’s rapid transformation, the opportunities are perishable, too. We should get cracking.

(To download the PDF of the presentation, please click here.)