Devangshu Dutta
November 25, 2011
(This piece appeared in the Financial Express on November 26, 2011.)
The debate on allowing more foreign investment in retail reminds me of an incandescent bulb: producing more heat than light. With a variety of agendas at play, the heat has been generated by both sides, for and against foreign investment in retail. Conflicting views have emerged not just outside but from within the government and the civil services as well.
Much time has been spent, multiple studies and consultations carried out, even as behind-the-scenes negotiations have gone on.
We can now all let out our collective breaths. The Indian Cabinet has, with some caveats, approved foreign investment up to 100% in single-brand retail operations and up to 51% in multi-brand businesses.
However, the Cabinet “yes” to 51% foreign investment in multibrand retail and 100% in single brand retail doesn’t quite mean an all-clear to accelerated development of modern retail in the country. The debate is not really over—how can it be when it remains still alive and kicking in some of the most consolidated markets in the West? The states retain the power to allow or disallow foreign-owned retail businesses from operating within their boundaries, and local and regional political parties would certainly have an impact on retailers’ expansion strategies. It also remains to be seen whether this will only affect new stores, or affect investment into existing businesses, too.
Opposition to the expansion of Big Retail is not unique to India. There are enough places within the US where the American giant Walmart has faced opposition, not just in small towns but including large cities such as Boston. Similarly, Tesco has been opposed in several locations within the UK. In fact, there was a huge uproar in the UK in the late-1990s when Walmart entered the country with its acquisition of Asda. The details of such opposition vary from location to location, but the canvas of fears is similar: predatory pricing by large retailers, depressed wages, net loss of jobs in the medium to long term with closure of local businesses, as well as low sensitivity to local social issues when operational and financial decisions are driven from distant headquarters.
Though India is labelled a slow-coach when compared to China, it is worth remembering that China took over 12 years to liberalise its FDI regime, and in stages with reversals as well. It first allowed foreign direct investment in retail in 1992 at 26%, took another 10 years to raise the limit to 49%, and allowed full foreign ownership in 2004, but only in certain cities. It even revoked some previously granted approvals, to reduce the foreign retailers’ footprint.
Anyway, the “policy flywheel” in India has finally moved and is now rolling. Certainly there will be winners and losers in its path.
The losers will include simple intermediaries and low-value wholesalers who have a diminishing role in a better-connected economy. Large suppliers, including multinationals, will gradually find power slipping from their hands. However, the fact is that most of them would anyway be losing in absolute or relative terms to the large Indian retailers over the course of the next few years; it would be naive, even dishonest, to suggest otherwise. And I suspect also that landlords who may be rejoicing the FDI decision could be tearing their hair out when they sit down to negotiate rents with the big boys.
In the other corner, the beneficiaries obviously include the foreign retailers themselves. With a direct relationship to the consumer, retail operations are the most economically valuable link in a supply chain. Foreign retailers can now have access to this with a controlling stake in one of the fastest growing markets.
The second set of winners is the large Indian retailers. In a capital-hungry business, large Indian retailers can use foreign equity and cheaper foreign debt to reduce high-interest domestic debt, and infuse more funds into growing the store footprint. For some, this also allows a potential exit from the business, whether immediate (for instance from the current 51:49 single-brand ventures) or in the future.
There would be winners among suppliers as well, including packaged and processed foods for which modern retail is a great platform to reach the “income-rich, time-poor” urban consumers, technology companies and service providers including the larger logistics companies, as well as foreign suppliers who would benefit from the trust that they enjoy with the international retailers in other markets.
The government can certainly benefit in terms of indirect and direct tax collection, from these more structured, “on-the-books” businesses.
And the consumer would be at the receiving end of a much better product choice and better shopping environments.
Where India as a whole can potentially derive the biggest benefit from foreign retailers is in developing agricultural practices and supply chains that comply with global requirements. If channelled well, this can create tremendous export possibilities (‘agricultural produce outsourcing’), and help to propel rural incomes upwards, creating a wider economic impact.
However, I think the critical things that have been debated most hotly will also be the slowest to be impacted: foreign retailers contributing to bringing prices down, and on the other hand, potentially damaging local competitors.
If the efficiency is simply a matter of scale, and if building up scale is simply a function of having deeper pockets from which to invest, it is obvious that the largest global retailers will squeeze their smaller Indian counterparts out of business, one way or the other. However, retail is not a global business or even a ‘national’ business: it is an intensely local business. Sheer financial muscle can be used to bulldoze competitors, but the consumer chooses to shop at a particular retailer for several reasons, many of which are not influenced by the size of the retailer’s balance sheet. So, local retailers have more than a fighting chance. Walmart, Carrefour and Tesco are the only three foreign retailers in China’s top-10, although two of them have been there for more than 15 years.
The growth of modern retail is an outcome of the development of the economy and a better supply chain, and a working population that is seeking food in more convenient and safe forms; it doesn’t necessarily drive supply chain improvements itself. Indeed, in India, during the last decade, modern retailers have deployed money and management more on opening stores in a drive to capture market share, than actually in supply chain improvements and operational efficiencies.
However, without investments in the supply chain, neither can the quality of products be significantly improved nor their cost significantly reduced. The new FDI policy partly addresses this issue, as it requires a minimum investment of $50 million in the ‘back-end, which cannot include land, rentals or front-end storage. While the final notification should be clearer on the exact implications, for now one can assume that this investment is envisioned in the storage, processing and transportation infrastructure. However, the impact this can have on a $450 billion retail market will be too small to be immediately meaningful.
Clearly, FDI in retail is not a panacea for growth and efficiency. There is much the government itself still needs to do.
The modernisation of retail doesn’t just lead to consolidation of sales turnover, but also enormous concentration of economic power. Therefore, a tilt towards modern retail must be accompanied by the government taking on the active role of a competition oversight body that can maintain an environment of fair competition. So far, the government has played this role mainly in consolidated industries; retail will require it to play this role in a fragmented market as well, and between buyers and suppliers also rather than only between direct competitors.
We also cannot run 21st century supply chains on dirt roads, with unpowered storage and a poorly educated workforce. The benefits of FDI in retail will remain largely unrealised for the nation overall if there is no simultaneous investment by the government in three key areas: transport infrastructure, electricity and education. The Indian government must be a ‘co-investor’ and active partner in developing and maintaining these aspects much more aggressively.
Lastly, several other regulatory changes are needed to unfetter domestic businesses, too. These include, among others, land and real estate reforms so that we are not constantly living with a mindset of scarcity and ridiculous real estate prices, rationalisation of tax structures, and simplifying the certifications and approvals needed to run business on a day-to-day basis.
Unless these aspects of governance are managed actively and consciously, Indian businesses — small or large — will not be completely free to grow and to complete effectively, and FDI could well turn out to be a Faustian bargain for India.
Tarang Gautam Saxena
October 30, 2011
The operating environment for the fashion retailers in India is only moving towards a more challenging and competitive direction even though the market is yet to mature. The market has grown over the last two decades on account of brand proliferation and developing retail network and more recently due to new product category creations. High consumer awareness and exposure to international trends has cut the product life cycles short. Topping this up, the last 12-18 months has witnessed the growth of the online platform offering an alternate, convenient and cost effective shopping option for consumers.
It is necessary that fashion retailers manage their operations efficiently both in terms of managing a complex and responsive supply chain at the back end and delighting the customers at the store with great product offers and customer service. Adopting lean practices can help fashion retailers to achieve significant improvements in store profitability and customer satisfaction, making their retail business sustainable through a positive impact on bottom-line.
The concept of lean philosophy, pioneered by Toyota, is built on the premise that inventory hides problems. The basic tenet of this philosophy is that keeping the inventory low will highlight the problems that can be dealt with and fixed immediately instead of maintaining inventory in anticipation of any bottlenecks.
“Lean retailing” is an emerging concept and has already been adopted by retail organisations in the Western countries using technology such as barcodes, RFID (across the product value chain from raw material sourcing through production through final delivery at the retail store) and item-level inventory management and network architectures.
In an ideal scenario a retail organization would be lean at both the store and the distribution center. The organization would leverage technology such as RFID to uniquely identify the movement of its inventory accurately and use fulfillment logic as per the store’s merchandizing principle to have replenishments in tune with customer demand.
Some international retailers that have adopted lean retailing techniques include Wal-Mart, Macy’s, Bloomingdale’s, The Gap and J. C. Penny. Applying lean philosophy to fashion retail in India may sound like an avante garde concept as of now. However, there are some leading large retailers in India such as the Future Group who are early adopters and have already adopted lean practices in their retail supply chain.
An understanding of what lean retailing is and some of its principles can help in appreciating how this concept can make the apparel retail business more sustainable. Lean retailing aims to continuously eliminate “waste” from the retail value chain, waste being defined as any activity/process that is not of “value” to the customer. A fundamental principle of lean retail is to identify customers and define the “value” as those elements of products or service that the customer believes he should be paying for, not necessarily those that add value to the product. Further the value should be delivered to the customer “first-time right every time” so that waste is minimized.
Lean retailing requires simplifying the workflow design in delivering products to customer. Given that the connotation of value is customer-centric, simplifying the workflow design requires streamlining the core and associated processes so that any kind of waste is eliminated. Further pull-system drives replenishment at the stores (and the shelf) based on what customers want “just-in-time” (neither before nor after the time customer demands). This results in a value flow as pulled by the customer.
Those practising lean retail have invested in information technology that allows the stores to share sales data in real time with their suppliers. New orders for a given product maybe automatically placed with the supplier as soon as an item is scanned at the check-out counter (subject to minimum order size criteria). Smaller stores may use visual systems wherein the sales staff can gauge through the empty shelf space the products that have been sold and that need to be re-ordered.
Removing bottlenecks throughout the supply chain is another principle driving lean retail. It entails redesigning processes to eliminate activities that prevent the free flow of products to the customer. Further, lean retail requires following a culture of continuous improvement. Continuous improvement (or “Kaizen”) focuses on small improvements across the value chain that rolls up into significant improvements at an overall level. Kaizens not only can lead to elimination of wasted effort, time, materials, and motion but also focus on bringing in innovations that lead to things being done faster, better, cheaper and easier. Involvement of staff at the lowest levels is very important in Kaizen activities and that means that companies must invest in training, up-skilling their talent pool in Lean Principles.
In the context of apparel retail business, lean retail can help in improving organisational responsiveness to customer needs, the speed with which the products are delivered to them and meet their expectations as per the latest trends. Systematic application of lean principles translates in increased throughput (Sales), with lower Work in Process (Investments) and as per customer requirements of Quality, Design, Trends and Time. Improved information visibility across the chain leads to reduced instances of out of stock and excess inventory at the same time, minimising inventory control costs and reducing shrinkage. At the front-end lean retail may lead to redesigned in-store processes and systems for consistency in frontline behaviors to provide standard customer experience.
With the focus on training and involvement of the workforce, Lean principles have resulted in improving employee satisfaction without increasing labour costs that in turn positively impacts revenues and profitability. Some retailers in the West have reported reducing their store labour costs by 10-20 percent, inventory costs by 10-30 percent, and costs associated with stock outs by 20-75 percent on account of lean retail.
In addition to top-line and bottom-line impact, lean retailing by enhancing the enthusiasm and motivation of the frontline staff creates distinctive shopping experiences for customers.
Inditex, the world’s largest clothing retailer with Zara as its flagship brand, has successfully achieved supply chain excellence following lean principles. It targets fashion conscious young women and is able to spot trends as they emerge and deliver new products to stores quickly thereby establishing its position as the leading fast fashion retailer. The product development processes is based on customer pull-system. Its design team reviews the sales and inventory reports on a daily basis to identify what is selling and what is not. Additionally, regular visits to the field provide insights into the customers’ perceptions that can never be captured in the sales and inventory reports. Critical information about customer feedback is widely shared by store managers, buyers, merchandisers, designers and the production team in an open plan office at the company’s headquarters. Frequent, real time discussions and interactions within the team help them to understand the market situation and identify trends and opportunities.
Further, Zara manufactures the products in small lots and many styles are typically not repeated. Style cues for replenishments are derived from real time customer demand. At the back end, Zara holds inventory of raw materials and unfinished goods with its supply partners which may be local or offshore manufacturers. Typically, the fashion merchandise is produced at the local manufacturing base and quickly delivered while the staple low-variation range is produced offshore at cheaper costs.
Following lean retail practices implies a higher stock turn and frequent replenishments by the suppliers based on real-time sales. Building and maintaining reliable and responsive suppliers through win-win partnerships, is imperative to realize the success of lean retail implementation as high stock turns and frequent replenishments involves the commitment and involvement of the entire supplier base.
Like in any transformational effort, change management plays a critical role in reaping the benefits of lean retail. The whole philosophy requires paradigm shift in attitudes, behaviors and mind sets of those involved upstream and downstream across the value chain. Training, communicating and inspiring the front end staff is thus an important aspect in the overall success and companies need to device a compelling vision that is shared by employees across functions and hierarchy across the entire chain.
Devangshu Dutta
July 22, 2011
The apparel retail sector worldwide thrives on change, on account of fashion as well as season.
In India, for most of the country, weather changes are less extreme, so seasonal change is not a major driver of changeover of wardrobe. Also, more modest incomes reduce the customer’s willingness to buy new clothes frequently.
We believe pricing remains a critical challenge and a barrier to growth. About 5 years ago, Third Eyesight had evaluated the pricing of various brands in the context of the average incomes of their stated target customer group. For a like-to-like comparison with average pricing in Europe, we came to the conclusion that branded merchandise in India should be priced 30-50% lower than it was currently. And this is true not just of international brands that are present in India, but Indian-based companies as well. (In fact, most international brands end up targeting a customer segment in India that is more premium than they would in their home markets.)
Of course, with growing incomes and increasing exposure to fashion trends promoted through various media, larger numbers of Indian consumers are opting to buy more, and more frequently as well. But one only has to look at the share of marked-down product, promotions and end-of-season sales to know that the Indian consumer, by and large, believes that the in-season product is overpriced.
Brands that overestimate the growth possibilities add to the problem by over-ordering – these unjustified expectations are littered across the stores at the end of each season, with big red “Sale” and “Discounted” signs. When it comes to a game of nerves, the Indian consumer has a far stronger ability to hold on to her wallet, than a brand’s ability to hold on to the price line. Most consumers are quite prepared to wait a few extra weeks, rather than buying the product as soon as it hits the shelf.
Part of the problem, at the brands’ end, could be some inflexible costs. The three big productivity issues, in my mind, are: real estate, people and advertising.
Indian retail real estate is definitely among the most expensive in the world, when viewed in the context of sales that can be expected per square foot. Similarly, sales per employee rupee could also be vastly better than they are currently. And lastly, many Indian apparel brands could possibly do better to reallocate at least part of their advertising budget to developing better product and training their sales staff; no amount of loud celebrity endorsement can compensate for disinterested automatons showing bad products at the store.
Technology can certainly be leveraged better at every step of the operation, from design through supply chain, from planogram and merchandise planning to post-sale analytics.
Also, some of the more “modern” operations are, unfortunately, modelled on business processes and merchandise calendars that are more suited to the western retail environment of the 1980s than on best-practice as needed in the Indian retail environment of 2011! The “organised” apparel brands are weighed down by too many reviews, too many batch processes, too little merchant entrepreneurship. There is far too much time and resource wasted at each stage. Decisions are deliberately bottle-necked, under the label of “organisation” and “process-orientation”. The excitement is taken out of fashion; products become “normalised”, safe, boring which the consumer doesn’t really want! Shipments get delayed, missing the peaks of the season. And added cost ends in a price which the customer doesn’t want to pay.
The Indian apparel industry certainly needs a transformation.
Whether this will happen through a rapid shakedown or a more gradual process over the next 10-15 years, whether it will be driven by large international multi-brand retailers when they are allowed to invest directly in the country or by domestic companies, I do believe the industry will see significant shifts in the coming years.
Tarang Gautam Saxena
June 27, 2011
In most conversations we have had with international brands in the last 2-3 years, India consistently appears on list of the top-5 markets in which to expand into.
The second most populous country in the world, India has a young population that offers a vibrant population mix that will provide a workforce and consumers in decades to come. There is steady growth in per capita income and a greater availability of credit, as well as a significant change in the consumers’ outlook to life that has propelled consumption levels.
The United Nations Conference on Trade and Development ranked India as the second most attractive destination for global foreign direct investments in 2010. The lowest recorded GDP growth rate during the global slowdown was still a decent 6.7 per cent. This growth rate is expected to have returned around 9 per cent in 2011, and is driven by robust performance of the manufacturing sector, as well as government and consumer spending.
The ongoing opening up of the economy over two decades and its robust growth has steadily attracted brands and retailers into the country. Many of them have now been in the country since the early 1990s, and the numbers have grown exponentially during the last 8-10 years. Despite this, the market is far from saturation and many more international brands are actively scouting the market.
Many of them are value brands in their home markets and may, therefore, be more a logical fit into a “developing” market, but there are also plenty of premium and luxury names on the list. For instance while the growth has largely been led by soft goods product brands, as incomes have grown, the presence of more expensive consumer durable brands has also expanded.
While the journey to the Indian market has not been a smooth ride even for the well established and successful international brands in the market, brands that have invested in understanding the psyche of the Indian consumer, adopted flexibility in market approach and displayed persistence, have been paid off handsomely.
Some international brands have exceeded domestic brands in size and reach, while others have had to reconcile to being niche operators. Some have seen profits while others may have their senior management wondering what fit of madness brought them to tackle this market where they can only dream about making money sometime in the future.
Typically, when looking at a new market the very first question anyone would ask is: what is the market potential for brand?
However, you should also be prepared to ask yourself: what need is the brand addressing and what is the value being offered by the brand? How would it be able to effectively and efficiently deliver that value? In many cases, for those entering a non-existent product category a more basic question is: “Is there a need for my product offer?” Just because a brand is huge somewhere else in the world does not automatically make it desirable to the Indian consumer.
While most brands want to target the Indian middle-class millions, their sourcing structure and strategy places them out of the reach of most of the population. Brands that have succeeded in creating a significant presence, maintaining their brand image and having a sustainable operating model have, almost uniformly had a significant amount of local manufacturing. Notable examples from fashion include Bata, Benetton, Levi Strauss, Reebok, among others. In case of certain food brands such as Domino’s and McDonald’s, the companies have collaborated with and developed their vendors locally to bring down costs, and improve serviceability.
Apart from the costs and margins, another important issue is that of the adaptability of the product mix. Brands that are sourcing locally and have a significant product development capability in India are also able to respond to specific needs of the Indian market better, rather than being driven by what is appropriate for European or North American markets. This is an enormous advantage when you are trying to be “locally relevant” to the consumer in an increasingly cluttered marketplace.
Indeed the question is more to do with the brand’s willingness and capability to create a product mix that is most suitable for India through a blend of international and India-specific merchandise. The famous “Aloo-tikki” burger by McDonald’s is a great example of a product specifically developed for the Indian consumers. Not just that, India is probably McDonald’s only market in which its signature dish, the Big Mac, is not sold.
Of course, flexibility in tweaking the product to suit Indian market can become a concern when it amounts to losing control over the brand direction, and mutating away from the core proposition that defines the parent in the international market. Many brands wish to control every aspect of product development head office, but this also severely limits their ability to respond to local market needs and changes. A one-size fits all strategy obviously will limit the number of consumers that the brand can effectively address in a market such as India.
Another key question is: what is the degree of control that a brand wants to exercise on the brand, the product, the supply chain and the retail experience of the consumer? The corporate structure itself may be determined by the internal capabilities and strategies of the international brand in their home market or other overseas markets. A brand that has presence through a wholesale business in the home market may not have internal capability or experience in retail, and would look for an Indian partner who can fill in the gap.
Based on whether they want direct operational control over store operations, international companies can set up fully owned subsidiaries or joint ventures to manage the business in India. Many brands prefer to take a slow and steady approach as they do want to exert a significant amount of control over the business (including companies such as Inditex, the owner of Zara, and other retailers such as Wal-Mart and Tesco), entering only when they are fairly confident of being able to closely manage the business in India right up to the retail store.
During our work we have come across both extremes – companies that want to manage the minute details of the India business out of their own head offices, as well as companies that are so hands-off that they only want to hear from their franchisee or licensee when things are especially good or particularly bad. While a balanced, middle-of-the-road approach would be the logical one in each case, in reality individual styles of the top management have a huge influence on the approach actually taken. Also, the size of the potential market segment – relevant to the brand – has an important role to play in the strategy. If the brand is meaningful only to a small segment of the population, or priced at the top-most end of the market, one company may choose to establish an exploratory distribution relationship, while another might choose to set up an owned presence rather than look for an Indian partner to handle their small business.
While perfect partnerships seldom exist, companies could be a lot more careful we have found them to be, in questioning the criteria and motivations for choosing partners. In some cases, financial strengths, or past industrial glory were qualifying factors for picking franchisees, and the relationships have failed because the business culture was divergent from the Principal’s. In other cases, partners have been picked because they “have real estate strengths”, but no consideration has been paid to whether the partner has the operational skills to manage a fashion brand.
On several occasions, franchise relationships and joint ventures have split because one or both partners find that their expectations are not being fulfilled, or the water looks deeper than it did when they got into the business.
The opportunities in India are many. As the managing director of one international brand commented in a conversation with Third Eyesight, India is a market where a brand can enter and live out an entire lifetime of growth.
However, international brands do need to carefully identify what role they wish to play in the market, and what capability and capacity they need operationally to create the success that can truly root a brand into the rich Indian soil.
Devangshu Dutta
November 30, 2010
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:
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.)
