special feature

Food
improving indias

supply chain

To become a global leader in food supply, India needs to replace its fragmented
and wasteful produce-supply chain with a modern and efficient one. A
supportive food processing industry will also help improve the farm-to-plate
supply chain, writes professor N. Viswanadham
28 | september 2008 | supply chain management & logistics 2.0

special feature

hen it comes to food production, India

can claim an impressive collection of
rankings. It is the second largest producer
of fruits and vegetables, second highest
producer of milk, fifth largest producer of eggs and sixth
in fish. Given this record, it becomes a little difficult to
explain why it does not have a place in the top-ten list of
food exporting countries.
It is here that the real revolution starts, because India
has one of the most fragmented produce-supply chains in
the world. Lack of adequate cold chain infrastructure and
a supportive food processing industry leads to wastage of
about 20 per cent of all foods produced.
Conservative estimates put processing levels in the fruit
and vegetable sector at 2 per cent, meat and poultry at
2 per cent, milk at 14 per cent, fish at 4 per cent, bulk
meat de-boning is to the tune of 21 per cent. As of now,
the food processing sector, constitutes only 14 per cent
of the manufacturing GDP, which amounts to a product
value of Rs 2,80,000 crores.
So is it possible to transform this archaic food system, which is so deeply entrenched and wasteful, into a
modern efficient one that makes India the food basket
of the world? To answer this we need to understand the
countrys food supply chain.

The Indian Food Processing Industry

India with its billion-plus population provides a large

and growing market for food products. Food products
are the single largest component of private consumption
expenditure, accounting for as much as 49 per cent of
the total spending. Furthermore, the upward mobility
of income classes and increasing need for convenience
and hygiene is driving demand for perishables, non-food
staples and processed foods. Though companies like
HLL, ITC, MTR have introduced some innovative heatand-eat dishes with reasonably good packaging, hygiene
and quality issues remain since there is a fair amount of
manual handling.
While domestic companies like Dabur, MTR, ITC,
Godrej and Amul are aggressively entering the food chain,
multinationals are also gradually making their presence
feltCargill and Conagra in agri-inputs, Tropicana in
food processing and Metro in wholesaling.
However, the pace is slow in the food sector when
compared to IT and pharma. India is still to get its share
of billion-dollar players in the food industry like China
and Philippines where the companies are achieving sales
exceeding US $ 1 billion.

How can India become a leader?

If India has to become a leading global food supplier,

it needs to put in place an agile, adaptive and efficient

supply chain. While the country has a distinct advantage

in terms of diversity in population with several religious
groups and different food habits, the food supply chain
is complex, with perishable goods and numerous small
stake holders. In India, the infrastructure connecting these
partners is weak. Each stake holder, be it the farmer, the
wholesaler, the food manufacturers, the retailer, all work
in silos. There is complete absence of demand forecasting,
with farmers trying to push into the market whatever
they produce.
What needs to be introduced in the food supply chain
are best practices like data integration, financial flow
management, supply-demand matching, collaborative
forecasting, information sharing and goods movement
synchronization through efficient transport scheduling.
Cold chain-intensive supply chains should take advantage of technology improvements in data capturing and
processing, product tracking and tracing, synchronized
freight transport transit times for time compression along
the supply chain and supply-demand matching. The supply chain needs to be designed and built in an integrated

THE ideal supply chain

he food supply chain can be subdivided

into a number of sectors. While agriculture, horticulture, fisheries and aquaculture come in the primary-producers category,
the manufacturers, who process the food for
ready-to- cook or eat format, along with the
packaging companies come in the intermediate stage. The retailers, wholesalers and caterers comprise the last part of supply chain.
At each stage, value is added by the new
ownership such as processors, distributors,
packers, etc., and the cost and profits are part
of the business. The food items can go to the
final consumer from any of the three stages
from farmers in the form of fresh produce, to
the caterers directly from the manufacturer, and
finally from the retailer to the consumer. The
movement of goods from one stake holder to
another is facilitated by the in-house or 3PL
service provider. Information management is
done by all stake holders and their information
systems are all interconnected seamlessly. This
is the food chain system followed in advanced
countries. In India and other developing
countries, the state of the food chain is more
fragmented and primitive.

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special feature
manner, alongwith the processes of new product development, procurement and order-to-delivery processes,
well-designed and well supported by software.
There are several regulatory changes that need to be
made all along the supply chain so that they are consistent
and mutually reinforcing.

Introduce supply chain expertise

There is need to embrace the Efficient Consumer Re-

sponse (ECR) concept, which was introduced in the US

in the nineties and is now followed worldwide in grocery
supply chains. ECR refers to a set of strategies that aim
to get companies across a supply chain to work closely to
serve their customers better and at a lower cost. Consumers benefit from improved product availability and choice,
while distributors and suppliers derive better efficiency
and cost savings. Also collaborative planning, forecasting and replenishment have yielded substantial savings

The FOOD SUPPLY CHAIN ECOSYSTEM

The Food chain ecosystem is formed through the participation of all stake holders, including
farmers, seed growers, merchants, transporters, wholesalers, retailers, financial institutions
and insurance companies. Information sharing is essential for generating efficiencies.

In advanced countries, retailers like Walmart,

Tesco, etc. have become the channel masters
of food supply chain taking over from the food
manufacturers.
In India, there is no real channel master managing the supply-demand situation and coordinating the supply chain and managing the logistical
activities. This provides a tremendous opportunity
for smart players to enter the growing market
retailing. The only thing to keep in mind is that

30 | september 2008 | supply chain management & logistics 2.0

infrastructure capital outlays are high and returns

are long term.
There are also various risks associated with
owning a cold chain. Some of these include
country risks, monsoon risks, crop or raw material
supply failures due to pests, diseases and partner risks. Then there are sticky points like high
taxes on processed food, high import duties and
nascent contract farming which make profitability
look like a big issue in India.

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for retailers. Relationship between the stake holders in a
supply chain is of paramount importance for ECR, CPFR
and other relationship paradigms to work.

Lower Food Packaging Costs

Packaging is one area that has assumed critical importance

as shelf-life becomes limited and hordes of products compete to attract the consumer. Realising the growth opportunities linked to it, companies from different sectors
have jumped in to the packaging bandwagon. This has
opened the sector for introduction of modern technology
and also the entry of foreign players. Given that the cost
of packaging ranges anywhere from 10 to 64 per cent
of the total production costs, efforts should be made to
cut costs through use of manufacturing automation and
economies of scale.

Need for Standards

Standardization is a powerful tool for improving supply chain efficiency. There are two kinds of standards in
the food supply chain. The first
one is the food standard, which
is related to the content, the
manufacturing process and the
packaging, etc. There are several
such standards for dairy, poultry,
etc. The second standard is about
the logistics and IT systems, like
standardization of cartons, pallets
and IT software so that seamless
transfer of goods and information
is possible. Standards enable partners across the supply
chain to enjoy increased productivity and economies of
scale due to better compatibility and interoperability of
their systems and processes.

coaching, counseling and mentoring have to be extended

to all parties in the supply chain. For example, training
sessions should be provided on important logistics systems like cold chain management to raise the knowledge
level and awareness on the importance of implementing
the cold chain management. This will reduce breakdowns
in maintaining the required temperature throughout the
supply chain. The same applies to other areas in the food
supply chain such as procurement, retailing, etc.

Multiple Business Models

The food processing industry supply chain starts at the

farm and ends with the consumer. The local consumer
could be served though home delivery or through a retailer or a neighborhood kirana store. An international
consumer could be served through food malls. Thus
products need to be manufactured for local use and export. In each case, it is important to forecast the demand
for the channels and serve the customer within the expected lead time. The service levels and the pricing will
determine whether the customer
will return.

Standardization is
a powerful tool for
improving supply chain
efficiency.

Compliance with Food Safety and

Hygiene Standards

With food safety assuming growing importance in world

markets, much of Indias success in doing business will
depend on its ability to meet the increasingly stringent
food safety standards imposed in developed countries.
The increase in world food trade and the advent of the
Sanitary and Phytosanitary (SPS) Agreement under the
WTO have lead to increasing recognition and adoption
of food safety measures. Compliance with international
food standards is a prerequisite to gaining a higher chunk
of world food trade pie.

Training

The food supply chain is going through a metamorphosis,

which means the system has to be supported through new
organizational forms manned by specialists. Training,

Streamline Processes

In India, there are several regulatory measures handled by a

multitude of departments divided
between the state and central
governments. While some of
this is inevitable, streamlining
the process would be extremely
productive. Further, research should be initiated to
develop indigenous packaging materials, machines and
laboratories for developing new food products and more
importantly protocols for storage and processing food
raw materials.

Improving the Food Supply Chain

Cold chain infrastructure. That the finance minister

has finally exempted certain categories of refrigeration
equipment from taxes shows that the Indian government is trying hard to improve the countrys cold chain
infrastructure. The new legislation has created fresh
opportunities for 3PL service providers primarily, especially foreign players. Though there is 100 per cent
FDI allowed in this sector, investments in cold chain
infrastructure are capital intensive and yield slow returns.
There is, however, a need to study the potential risks and
the ROI for this activity.
Third Party Logistics: The food supply chain is temperature sensitive and manual handling reduces the product
quality and life. Hence, entry of logistics providers with
air-conditioned trucks, automatic handling equipment
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and trained manpower can improve the chain. The service
providers can also adopt state-of-the-art techniques such
as cross docking that will reduce transit times and cut
down on inventory.
Food processing industry: This is one sector where
100 per cent FDI is allowed. Incentives are also offered
to those interested in setting up processing plants either
in Agri-Export Zones or outside
them. Given the diverse population and religions found in India,
there is scope for creating zones
meant for specific communities.
Thus, a halal hub could export
its products to South-East Asia
and the Middle East. Likewise,
a vegetarian hub could reach
out to vegetarians in India and
abroad. Same way, there could
also be organic food zones and
sea food hubs.
Retail revolution: Retail, one
of the largest sectors in the global
economy, is going through a transition in India. While globally,
more than 72 per cent of food
is sold through supermarkets,
Indian consumers buy most of
their food products from the 12
million-plus outlets which include
handcarts, wet markets and neighbourhood kirana stores.
The kirana stores usually have small spaces, lack cold
storage facilities and have restricted capital. The Indian
retail sector is estimated to have a market size of over
$180 billion; but the organized sector represents only 2
per cent of this market. A strong retail front-end can also
provide the necessary fillip to agriculture, food processing and other industries. Though 100 per cent FDI is
not allowed in this sector, India has a retail revolution
knocking on its doors.

been only partially successful. This is because there are

several regulations along the supply chain that constrain
its expansion and functioning as a demand driven supply
chain or seed-to-feed chain. Abolishing controlled prices,
eliminating taxes on inter-state movement of goods,
allowing farmers to sell directly to organized retail and
removing restrictions on land holdings (which are currently circumscribed by land ceiling acts) leading to fragmented
land holdings, are some of the
issues that need active consideration. The backward integration
of organized retail into agriculture also holds the potential of
economies of scale and helps
remove the large inefficiencies in
the supply chain.
India has practically everything going for it. It has cultivable land, it has all the seasons
needed for production of all
varieties of fruits and vegetables
and it has a well-developed agribusiness system that works in its
own, though chaotic, way. The
only problem with this system
is that a huge gap exists between
what is produced and what finally reaches the consumer. By
the time, the surplus and fresh produce makes its way to
the markets, they have gone through several middlemen,
travelled several roads, worsened in quality, increased in
price and got wasted. If India has to offer the world a
rich and healthy food basket, it has to build proper cold
chain infrastructure, invest in applied research in post
harvest technologies, get food processing plants working
in various sectors and develop its food retailing sector.
Till then, the surplus food produced in India remains
out of its food basket. n

Several regulations
along the supply chain
constrain its expansion
and functioning as a
seed-to-feed chain.

The way ahead

While several foreign organized retailers have vowed

to improve the farm-to-plate supply chain, they have

32 | september 2008 | supply chain management & logistics 2.0

The writer is the executive director of GLAMS at Indian School of

Business. You can reach him at [email protected].