Big Retailers Not To Hurt Small Kirnana Stores;

India Model For Fdi In Retail To Be Worked Out

Subodh Kant Sahai, Minister of State for Food Processing Industries, recently called for an India model for retailing that protects the kirnana (small grocery stores) from the big retailers to give a fillip to the food processing sector.

Inaugurating the two-day conference and exhibition on ‘Winning with Intelligent Supply Chains’, organized by FICCI, Sahai said,“India may open up its US$ 330 billion retail market after being convinced that the kirana stores will not be affected by big retailers. DIPP has engaged an agency to make an in-depth study on the impact of FDI in food retail on our domestic market and the report is expected to be available by March 2008.”

Sahai said, organized retail backed by efficient supply chain has the potential of raising the rate of growth of the food processing sector from 13% to 20% in the next three to five years.

The Minister said, during the 11th Plan, the Ministry would launch a revamped comprehensive cold chain infrastructure scheme for creating integrated cold chain infrastructure at different levels – farm-level primary processing centre-cum-cold chain, collection/aggregation centers and strategic distribution centers.

Elaborating on the scheme, Sahai said since deterioration of produce sets in within a few hours of harvesting, farm-level cooling and primary processing was critical to empower the farmers. Such infrastructure at the farm gate would help the farmers preserve and add value to the produce, leading to better realizations.

At the collection centers, he said, the produce from individual farms in the hinterland would be aggregated and sorted out and kept in cold storages for onward supply to Strategic Distribution Centres (SDCs). The SDCs would have integrated infrastructure facilities like material handling equipment, refrigeration, freezing facility, frozen storage, modern packaging facilities and ancillary equipment like x-ray, weigh bridge, etc. These centers would be linked to retail supermarkets.

He said 30 mega food parks were proposed to be established throughout the country. The proposed parks would seek to provide a mechanism to bring together farmers, processors and retailers and link agricultural production to the market so as to ensure maximisatuion of value addition, minimize wastages and improve farmers’ income. The food parks would function as sourcing hubs for the retail outlets.

Rajan Bharti Mittal, Chairman, FICCI Retail Committee & Managing Director, Bharti Enterprises, underlined the need for massive investments in setting up and upgrading supply chain infrastructure along with giving infrastructure status to the sector with adequate tax breaks. He said, India had the potential to become the export food and fruit basket for the world. To achieve this, there was imperative need to involve the private sector in the PPP mode as the investments required are reckoned at Rs 100, 000 crore.

The Minister released the FICCI-Ernst & Young study report on Winning with Intelligent Supply Chains presented by Pinakiranjan Mishra, Partner, Ernst & Young.

Mishra stated “The current retail boom in India can only sustain its momentum if supply chain management is given top priority by retail players. Development and upgradation of basic infrastructure is imperative to reduce costs and raise efficiency across the supply network.”

He said, “The FICCI - Ernst & Young study, a comprehensive study on supply chain characteristics of major categories in India’s retail sector, makes an assessment of issues and recommends measures to mitigate these concerns in a bid to assist the government, industry, retailers and investors in identifying action areas to streamline the supply chain in order to achieve desired economic benefits.”

The following are the key highlights of the report:
Railways could accelerate freight earnings growth by 100%
Warehousing infrastructure has a US$ 1.88 billion potential by 2012
Outsourced logistics market expected to grow at a CAGR of 15% to 20% during 2007-10
Food & Grocery is a significant and lucrative retail opportunity for organised players

Railways could accelerate freight earnings growth by 100%. Railways today hardly transport about 22% of cargo whereas they don’t suffer from the typical issues of our roadways like congestion and poor maintenance. On the other hand, 2% of roads constitute national highways but carry 40% of all cargo. Only 48% of villages are covered by road network. Indian cargo travels 250 to 300 km per day vis-à-vis 600-800 kms as per international norms. This severely limits the access of rural producers to the consumer markets. By connecting specific producing regions like Food Parks and building storage and handling capacity, railways could double their freight growth from the current 10-11% to about 20% while providing market connectivity to farmers. A study by the US Federal Railroad Administration had revealed that relative fuel efficiency of railways was about 4.5 times that of roadways.

India’s large food production and rising demand for processed foods will require the development of a large and efficient supply chain. Additional warehousing capacity of 35 million MT is estimated to be required by 2012. Warehousing infrastructure has a USD 1.88 billion potential by 2012.

The report notes that Third Party Logistic Providers (3PLs) have significant opportunity of growth with the outsourced logistics market in India, estimated at US$10.2 billion, expected to grow at a CAGR of 15% to 20% during 2007-10, driven by a growing trend towards annual contracts. Indian companies are increasingly using specialist logistics service providers to reduce costs and focus on their core competence. Growth in industry and trade has created demand for a range of logistics services including transportation, storage, warehousing and inventory management which benefits the productivity and efficiency of the customers entire supply chains. This offers a huge opportunity for 3PLs. The unorganized structure of the transportation industry with a large number of small truckers accounting for over 80% of revenues is indicative of the huge opportunity available for 3PL providers to reduce costs.

With 54% share of the retail market and penetration rates of just over 1%, Food & Grocery is a significant and lucrative retail opportunity for organized players. Owing to of land parcels, multiplicity of regulations, large number of intermediaries and inadequate processing infrastructure the final price for the products increases significantly. Consumer prices for fruits and vegetables in India are as high as 3.5 times its farm gate prices. Milk and dairy products is another large consumption category and offers huge opportunity for the processing industry with 35% of milk currently produced, undergoing some form of processing.