THE CASE FOR ORGANISED AGRI-RETAIL THE

INDIAN IMPERATIVE
Umashankar Venkatesh
This paper looks into the antecedents of farm produce distribution and consumption
in India, the evolving organized retailing and the ensuing movement against such
moves in various states of India. For the purposes of this paper the term farm
produce includes agricultural and horticultural produce and its retailing is referred
to as agri-retail. The paper, based on socio-economic parameters, critically looks
at the arguments for and against organized farm produce retail and builds a case
for organized retail in this sector in India.

INTRODUCTION

etail sales in India of farm produce such as - cereals, millets,

edible oils, fruits and vegetables etc. has traditionally been in
the hands of small retailers and vendors who would typically
buy their stocks from local wholesalers within close physical proximity.
This retailer is located at the end of long chain of intermediaries and
middlemen with the producer (farmer) at other end of the chain. Some
of these middlemen buy their stocks from their upstream partners while
some others play an agency role where they work on a brokerage basis
and take no ownership of the stocks they move.
The overall state of the retail sector in India is highly fragmented
and organized retail in the country is at a very nascent stage. There are
about 12 million retail outlets spread across India. More than 80% of
these 12 million outlets are run by small family businesses which use
only household labour. (Ernst & Young, 2006) Traditionally, smallstore (Kirana) retailing has been one of the easiest ways to generate
self-employment, as it requires limited investment in land, capital and
labour. Consequently, India has one of the highest retail densities in
the world at 6% (12 million retail shops for about 209 million
households). Indias peers, such as China and Brazil, took 10-15 years
to raise the share of their organized retail sectors from 5% when they
began, to 20% and 38% respectively (Ernst & Young, 2006). India too
is moving towards growth and maturity in the retail sector at a fast
pace.
In this transition phase from an unorganized and fragmented retail
sector to a more organized and large format retailing in India, especially
Journal of Services Research, Volume 8, Number 1 (April-September 2008)
2008 by Institute for International Management and Technology. All Rights Reserved.

92 The Case for Organized Agri-Retail

in the context of farm and horticultural produce retail, there have been
obvious hiccups, mainly based upon fears of loss of livelihood among
the large constituency of intermediaries which control the distribution of
commodities and other food items. There have been demonstrations and
agitations in some states of the country where stores have been attacked
and damaged by agitators connected to the unorganized retail sector. As
a consequence of this, some states have (like Uttar Pradesh) banned or
restrained the opening of food retail stores of a particular style or category
within the states. This has happened after these state governments had
granted permission to these companies to commence their business and
roll-out these stores within their state. This has resulted in a state of
confusion among organized food retailers about their future course of
action and growth plans, as well as causing unwarranted hardships to
their employees who were taken on rolls for supporting their expanding
operations. It has also resulted in major losses to these companies as
most of them had entered into contract with farmers to buy their produce
according to a given time table at a specific price and volume agreement.
MARKETING OF FARM PRODUCE IN INDIA
To reach the final consumer, agricultural produce goes through a chain
of transfers or exchanges between numerous intermediate parties. The
basic functions that are discharged by these intermediaries include the
activities pertaining to procurement and assembly, processing and/or
preparing for consumption and finally, distribution.
Procurement and assembly function is a fragmented and highly
complex operation as far as India is concerned as it is affected by a
myriad of factors as vast and diverse geographic spread; seasonality of
produce; poor information on prices and demand (especially on part of
farmers); poorly organized markets in terms of quantity as well as in the
way they are administered; perishability of produce; poor storage
infrastructure both in terms of quantity and quality; distress sale on part
of growers; multi modal and diverse means of transport etc. The second
stage of processing or preparing for consumption, is usually controlled
by intermediaries as far as processing is concerned. In terms of cleaning,
sifting and grading of some of the farm produce may be accomplished
at the farmers end also. The final distribution is usually through
commission agents, brokers, wholesalers and retailers.
Kumar et al, (2007) commenting upon the policy framework
impinging upon agricultural marketing in India report that in India the
marketing of farm produce is regulated under the Agricultural Produce
and Marketing Committee (APMC) Act, which is a state level legislation
with varying features and guidelines across different states. They identify
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93 Venkatesh
the two main tenets of this Act as (a) sales and purchases outside the
market yard are prohibited, in order to allow the government to control
and regulate the markets; (b) it specifies that agro-processors procure
raw materials only from the notified markets. They conclude that these
provisions have led to a state where a few licensed or registered
participants or agents or traders effectively could control the markets,
making the Act a deterrent for the development of a competitive
marketing system in the country. Moreover, inter-state variations in
the Act have resulted in creating bottlenecks in the development of a
nation-wide integrated market for agricultural commodities.
They further report that taking cognizance of these constraints the
central government has come up with a Model Act on Agricultural
Marketing containing provisions that
(i) Enable private and cooperative sectors to establish and operate
(including levy of service charges) agricultural marketing
infrastructure and supporting services,
(ii) Allow direct marketing of agricultural commodities from production
point, without the necessity of going through licensed traders and
regulated markets.
(iii) Permit contract farming programs by processing and marketing
firms with the legal support provided by the APMC and granting
tax concessions on account of market fee, cess, duties, taxes under
the contract farming program.
(iv) Rationalize the market fee structure.

(v) Promote marketing infrastructure development projects.

This model Act has been developed with the expectation that the state
governments would amend their respective APMC Acts and make them
conform to this model Act. But most of the state governments of India,
with a few exceptions, are yet to come forward to reform their existing
marketing acts.
Acharya (2006), summarizes the problems of agricultural marketing
in India as
l Poor market linkages: Farmers are not effectively linked (both
backward and forward) and the marketing system has not kept
pace with the growing marketing demands of Indian farmers.
l Inadequate marketing infrastructure: Private trade, which accounts
for 80 percent of the marketed surplus, has failed to invest in
marketing infrastructure due to the excessive and restrictive
regulatory framework along with the dominance of the unorganized
sector.

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94 The Case for Organized Agri-Retail

l

Inadequate rural capacity: There is an ever increasing demand for

value-added services and geographic expansion of markets resulting
in intensified demand for lengthening the marketing channel,
however due to constrained rural infrastructure this has remained
out of reach.
Negligible direct marketing: Direct marketing by farmers to
consumers remains negligible. In the 27,294 rural periodic markets,
where small and marginal farmers come to the markets, 85% lack
facilities for efficient trade.
Inadequate primary market facilities: For facilitating trade at the
primary market level, 7161 market yards/sub-yards have been
constructed but they are ill equipped.
Constrained food processing system: Food processing industry has
a high income multiplier effect and employment potential. But in
India the value addition to food production is only 7%, mainly
because of the multiplicity of food-related laws.
Ineffective handling of harvest: Due to poor handling (cleaning,
sorting, grading and packaging) at the farm gate or village level,
about 7% of grains, 30% of fruits and vegetables and 10% of seed
species are lost before reaching the market.
Poor marketing infrastructure: An estimated Rs. 50,000 crore are
lost annually in the marketing chain due to poorly developed
marketing infrastructure and excessive controls.
Restrictive policy regulation: As discussed earlier the State
Agricultural Produce Markets Regulation (APMR) legislation
hampers contract farming initiatives, which otherwise can be highly
successful.
Reduced private sector role: While agricultural price policy and
associated instruments have induced farmers to adopt new
technology and thereby increase physical and economic access to
food, they have reduced private sector initiative and created several
other problems in the economy.

Organized retail in India

India has topped the AT Kearney annual Global Retail Development
Index (GRDI) for the third consecutive year for 2007, maintaining its
position as the most attractive market for retail investment. The Indian
retail market, which is the fifth largest retail destination globally,
according to industry estimates is estimated to grow from the US$ 350
billion in 2007 to US$ 427 billion by 2010 and $635 billion by 2015.
Simultaneously, modern (read organized) retail which presently
accounts for 4 per cent of the total market is likely to increase its share
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95 Venkatesh
to 22 per cent by 2010. The organized retail sector is projected to grow
at a compounded growth rate of 40 percent, from 8 billion dollars to
22 billion dollars (Moriarty et al, 2007).
Table 1: Growth in Organized Retail in India
2002
(million $)

2007
(million $)

CAGR
(%)

Large segments

1924

5024

21

Other segments

1315

2645

15

239

422

12

3478

8091

18

391
326
65

1624
1462
162

33
35
20

1075
293
315
467

2266
590
852
824

16
15
22
12

359
141
98
120

822
284
298
240

18
15
25
15

97
54
43

310
202
108

26
30
20

CATEGORY

Non-store retailing
Total organized retail
The 4 Large segments:
FOOD
Chain stores
Single large stores
CLOTHING
Manufacturer retailers
Chain stores
Single large stores
CONSUMER DURABLES
Manufacturer retailers
Chain stores
Single large stores
BOOKS & MUSIC
Chain stores
Single large stores

Source: Ernst & Young (2006) - The Great Indian Retail Story

India has one of the largest numbers of retail outlets in the world. Of the 12
million retail outlets present in the country, nearly 5 million sell food and
related products. Even with this large number of outlets, organized retail
accounts for only 4 per cent of the total market, opening huge growth
potential in this segment. Food retail has also grown the most amongst the
four highest selling consumer product categories (see Table: 1).
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96 The Case for Organized Agri-Retail

As far as entry of foreign players into the Indian retail market is
concerned, currently the regulations only allow a single brand retailer to
have a 51 percent majority stake in an Indian venture with a local partner.
This does not allow big name multi-brand retailers like Tesco, Walmart,
Carrefour etc to come into the market forcing them to operate through a
cash-and-carry or franchise model.
GROWTH DRIVERS FOR ORGANIZED FOOD RETAIL IN APAC
REGION
If one tries to analyze the factors driving the growth of organized retail in
the Asia-Pacific region, a two pronged approach may be used to do so.
We may need to look at the demand-side growth drivers on one hand and
the supply-side determinants on the other.
A study of APAC region by Coyle (2006) reports that in 2005 retail
food sales in the APAC region amounted to 1.8 trillion dollars, with modern
supermarkets accounting for about 75 percent or 1.35 trillion dollars and
traditional outlets accounted for the rest about 450 billion dollars. While
more than 40 percent of the regions sales are concentrated in the USA
and Japan, most of the growth is attributed to the regions developing
economies in China, Southeast Asia and Mexico. For instance, China,
S.E. Asia & Mexico account for 60 percent of the 1.35 trillion dollars food
sales through supermarkets. By 2012, China food sales share estimated to
be 50:50 between organized and unorganized sectors. In Mexico,
supermarkets already account for more than 50 percent of the food sales
compared to less than 5 percent around mid 1990s, finally supermarket
food share in Brazil today amounts to 49 percent of total food consumption
(Coyle, 2006).
In the AT Kearney GRDI 2007 list the top five positions have three
Asian countries with India on top, China in the third position and Vietnam
in the fourth place. The other two countries in the top five are Russia in the
second place and Ukraine in the fifth place, both representing Eastern
Europe (Moriarty et al, 2007). The factors that are fuelling the demand
and hence growth of the organized retail sector in the Asia-Pacific region,
including India specifically, could be narrowed down to the following
1. Rapid economic growth and urbanization: In the last two decades
the Indian economy has shown rapid economic growth and progress.
The growth rate of average incomes has increased from 1.25 percent
prior to 1980 to 7 percent by 2006. Between 1999 and 2004, the
absolute number of people living under the national poverty line has
fallen for the first time since gaining Independence in 1947. Over the
past two decades, India has moved away from being a closed and
centrally controlled economy to a market-based economy. This reform
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97 Venkatesh
process which was started in the mid 1980s revolved around reduction
in direct taxes, removal or dilution of licensing regimes, and facilitating
investments from large companies both domestic and foreign. These
reforms have had a major beneficial impact on the economy. By 2006,
the average share of imports and exports in GDP had risen to 24 percent,
up from 6 percent in 1985. Inflows of foreign direct investment
increased to 2 percent of GDP from less than 0.1 percent of GDP in
1990. The combined fiscal deficit of central and state governments
has been reduced from 10 percent of GDP in 2002 to just over 6
percent of GDP by 2006, with the ratio of debt to GDP falling from 82
percent in 2004 to 75 percent by March 2007. There has been a massive
increase in output, with the potential growth rate of the economy
estimated to be around 8.5 percent per year in 2006. GDP per capita is
now rising at 7.5 percent annually, in contrast to an annual growth of
GDP per capita of just 1.25 percent in the three decades from 1950 to
1980. Faster growth has resulted in India becoming the third largest
economy in the world (after the United States and China and just ahead
of Japan) in 2006, when measured at purchasing power parities,
accounting for nearly 7 percent of world GDP (OECD, 2007).
This reflects directly upon the rapid urbanization on one hand and
increasing disposable income and consequent rise in purchasing power
on the other. The urban population in the country, which was 28 percent
in 2001, is expected to increase to 38 percent by 2026. The urban
growth would account for over two-thirds (67 percent) of total
population increase by 2026. Out of the total population increase of
371 million during 2001-2026 in the country, the share of increase in
urban population is expected to be 249 million (National Commission
on Population, 2006). Also, urbanization is creating time pressures
and need for paid-for conveniences. Any sales format that is able to
deliver on this would come up trumps, depending upon what the
regulatory framework of the society concerned allows. As Coyle
(2006), indicates supermarkets provide a one-stop shopping
experience and are therefore better equipped to meet the needs of
higher income urban consumers than traditional food retail outlets, as
they are able to provide under one roof, a broad variety of fresh,
processed and semi and fully prepared food as well as other
merchandise and services.
2. Rising per capita income: An increase in per capita income obviously
has an impact on the levels of disposable income, assuming that
inflationary trends do not mitigate or overwhelm the rise in disposable
income, and this in turns enhances the purchasing power. Studies have
shown that as income rises absolute spending on food may increase
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98 The Case for Organized Agri-Retail

as incomes move up, but its share of total private consumption
expenditure (PCE) decreases, as basic food needs are satisfied extra
income is spent on other consumer goods, such as clothes and
entertainment (Meade and Rosen, 1997). As far as organized retailing
goes studies have also revealed that as per capita income rises the
preference and hence prevalence for supermarkets also goes up (see
Figure: 1). It indicates that as we move up from low per capita income
economies to high per capita income economies the percentage share
of organized retail food sales in the total food sales increases.
Supermarket share of retail food sales (%) early 2000s

Source: Coyle, William (2006), A revolution in food retailing underway in the Asia-Pacific
region, Amber Waves; 4(3), pp. 22-29.

Figure 1: Supermarket Penetration Rises with Per Capita Income

Figure 2 highlights the shift of the Indian population from lower income
groups to higher income groups leading to a rapidly burgeoning middle
class. This indicates a growing upward move of standard of living of
the populace in very large numbers. The purchasing power is increasing,
although part of it is being offset by inflation also, but the net effect is
one of a gradual increase in standards of living.

(Note: Income figures in 000 per annum at 2001-02 prices, households in 000 numbers)
Source: The Great Indian Market, NCAER (2005).

Figure 2: Income Distribution of Indian Households

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99 Venkatesh
3. Younger age group demographics: Countries like India where
population is relatively young (2001: median age 22.51 yrs; 2026:
est. at 31.35 yrs) imply growing buying power as well as increasing
profits for companies (for instance in an aging economy like Japan,
supermarkets are facing shrinking sales and profits). As per the
National Commission on Population (2006), the youth population
in the age- group 15-24 years is expected to increase from 195
million in 2001 to 240 million in 2011 and then continue to decrease
to 224 million in 2026. Although this represents an eventual
decrease in its proportion in the total population from 19 percent
in 2001 to 16 percent in 2026, the absolute numbers are
considerably large to keep fuelling the retail demand.
As per the GRDI 2007 report, modern retail is more welcome
in markets where there is a large population of young and employed
people with disposable incomes (Moriarty et al, 2007). This
segments has a propensity to spend and accepts new formats (of
retailing) more readily. These young professionals are usually
pushed for time and therefore happily pay for speed, choice and
convenience. As Coyle (2006), in his study indicates that in
increasingly complex and often congested urban markets, through
their highly efficient procurement & distribution system, modern
chain stores are able to offer consumers lower prices; greater
convenience; and higher quality and safer food options.
4. Intensifying demand both in volume as well as variety in urban
centers: This is a phenomenon that is sweeping through the gamut
of A, B and C class cities in India. Traditional metropolitan cities
now have company in the form of new and upcoming mini-metros.
As per the 2001 Census of India there are 35 Indian cities that
have a population one million or more representing a rapidly
growing consumer market with rising incomes. They are referred
to as second-tier cities, and the Indian government is keen to
encourage economic expansion there. The impact of Indias robust
economic growth has spread to smaller cities. According to the
National Council for Applied Economic Research (NCAER), in
2006 half of Indias 10.7 million households with an annual income
of up to US$23,000 were in smaller cities such as Vadodara, Nagpur,
Ahmedabad and Vijayawada. Economic growth in these smaller
cities is increasingly driven by a manufacturing boom and the
expansion of business services outsourcing industries
(Euromonitor, 2007).
Across countries and income levels worldwide, consumers are
choosing to spend their additional income on some combination
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100 The Case for Organized Agri-Retail

of increased quality, convenience, and variety of foods. Food
delivery systems and consumption patterns in middle-income
countries like China and Thailand are converging, or catching
up to countries with higher income levels. Income growth has
been a primary force behind converging global consumption
patterns, but globalization of the food industry is also contributing
(Frazo et al, 2008). The NCAER in its latest study on Indian markets
reports that the rapid rise in incomes will lead to an even faster
increase in demand for consumer durables and expendables as a
result of which the ownership of goods will also go up significantly.
They further go on to say that what will power this is the increased
usage in different income classes coupled with the rise in the size
of the Great Indian Middle Class (Shukla, 2005).
5. Consumerism on the rise, proliferation of electronic and other
means of communication: In their study of opportunities in retail
sector in India, Moriarty et al (2007), comment that although the
share of modern retail in India is small at 2 to 3 percent, it is growing
at a rapid rate of 25 percent per year. In their opinion, one of the
major influences that can be attributed this rapid growth is the
westernization of the culture. They write that modern retail is
taking off in large cities primarily because television shows, movies
and internet sites help shape daily life and offer a glimpse into
modern retails enticements a vast selection of products (not
available in mom and pop stores) and the ability to shop in airconditioned comfort. (Moriarty et al, 2007: pp 5-6). If the pattern
of ownership of durables like two wheelers and cars for personal
use in the financial 2007-08 is any indicator, where two wheeler
sales has taken a hit whereas personal car sales has gone up, it only
proves that consumerism is on the rise along with rise in standards
of living as well as an increasing propensity to consume. There is
an increasing shift from price consideration to design and quality,
as there is a greater focus on the aesthetic value of products and
experience. At the same time, the new Indian consumer is not
beguiled by retailed products which are high on price but
commensurately low on value or functionality. There is an easier
acceptance of luxury and an increased willingness to experiment
with mainstream fashion. This results in an increased tendency

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101 Venkatesh
towards disposability and casting out - from apparel to cars to mobile
phones to consumer durables (Ernst & Young, 2006: pp. 20).
6. Liberalized trade regimes allowing freer inflow of agroproduce amongst other consumer goods, besides easier norms
for FDI ingress into domestic markets: The Government of India
has allowed Foreign Direct Investment (FDI) in real estate since
early 2005. FDI in real estate is likely to boost joint ventures between
Indian and international developers. This should logically result in
India witnessing a marked improvement in warehousing as well as
the quality of malls and shopping centers.
As far as import liberalization of food items is concerned India
has managed to push its doors wide open to produce from foreign
farms without much political opposition domestically. There has
been a creeping liberalization of Indias agricultural trade as spiraling
food prices has induced the government to lower import barriers.
Customs duties on most major food items in short supply are
now at zero or an all-time low, for instance India has now zero
duty on major staples such as wheat, wheat flour, corn, pulses, and
jute. The effective duty on edible oils is less than 20 percent for
crude palm and soya oil, though they compete directly with Indias
own oilseed production. Moreover, under South Asia Free Trade
Agreement (SAFTA), duty has been reduced from 16-40 percent
to zero on meat, fish, milk, dairy products and dry fruits from
Bangladesh, Nepal, Bhutan and Maldives. Duty on these items has
been reduced to 12 percent from 20 percent on goods imported
from Pakistan and Sri Lanka (Srinivas, 2008).
7. Long history of exploitative practices on part of intermediaries
in the agro food supply chain: Distress sales of farm produce has
been an age old problem of Indian agriculture. This refers to the
sale of farm produce at the village itself resulting in poor price
realization. There is also the phenomenon of farm output being
pledged even before its harvest to either pay for agri-inputs or other
debts on part of the farmers. Distress sale in agriculture is rampant
because of the following causes
a. Fragmented land holding,
b. Marginal farmers and subsistence farming
c. Perishable produce;
d. Poor or inadequate storage and processing capabilities;
e. Poor communication or awareness of market related
information;
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102 The Case for Organized Agri-Retail

f. Long distances to market
g. Transportation and related infrastructure not developed etc.
The resultant of all this is that the farmers get highly un-remunerative
prices. Quoting a government (NSSO) survey, Goyal (2007) reports
that 40 percent of farmers want to quit farming because of its poor
returns. If that were to happen, the food security of the country may be
in peril and higher priced imports will become inevitable.
As agri-marketing slowly gets more organized in terms of
commodity exchanges, cooperative processing and marketing
efforts; network of local wholesale markets; superior information
dissemination systems etc., and as more and more of the farming
community comes to understand the benefits therein find their way
new initiatives like contract farming; dealing directly with retailers
etc., the organized retail of food items would certainly get an
impetus.
8. Producers becoming increasingly aware of their importance in
the supply chain and getting organized: As discussed above, given
the gradual increase in visibility over the supply chain for the farmers
(e.g. the e-Choupal initiative of ITC Ltd.), decision to sell in terms
of timing of sale as well as ability to negotiate a suitable price
would slowly shift to the favor of the producers.
THE SOCIO-ECONOMIC CONTEXT OF FOOD CONSUMPTION
IN INDIA
This section highlights the socio-economic context of consumption of
food items in an effort to relate this to the dire need for managing both
quantity available for consumption and the prices at which they are
available. This is currently a burning question as the world reels under
increasing food prices and obviously the worst hit are the lowest strata
of the income pyramid. As Bhattacharya (2008) reports that burgeoning
food-grain prices and worsening global supplies is now impacting the
domestic food supply situation adversely. The crisis is accentuated as
Indian farmers seemingly have hit a plateau as their food-grain yields
are no longer going up. Grain output has remained static for over a
decade and now theres a growing gap between supply and demand.
Let us look at some of the other indicators of the perilous state of
food availability to our population to drive home the point that how
badly we need organized retail in food retail as it will help drastically
in releasing this strain on the populace of India.
The dwindling availability of food-grain could be gauged by the
fact that in 1979, at the height of the Green Revolution, per capita
availability of cereals and pulses had gone up to 476.5 grams per day
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103 Venkatesh
whereas by 2006 it had gone down to 444.5 grams per day. In the case
of pulses, per capita net availability today is almost half of what it was
five decades ago - 32.5 grams per day in 2006 compared with 60.7
grams per day in 1951 (Bhattacharya, 2008).
Out of every rupee spent in 2004-05 by the average rural Indian
on consumption, 55 paise was spent on food. Of this, 18 paise was
spent on cereals and cereal substitutes, 8 paise on milk and milk
products, 6 paise on vegetables, 5 paise on edible oil, 5 paise on sugar,
salt and spices, and 5 paise on beverages, refreshments and processed
food. The corresponding figure for the urban Indian population is that
out of every rupee spent, 43 paise was spent on food. Of this, 10 paise
was spent on cereals and cereal substitutes, 8 paise on milk and milk
products, 6 paise on beverages, refreshments and processed food, and
4 paise on vegetables (National Sample Survey Organisation, 2007).
Significantly, the cost of fuel is not included in this and that will again
add up to the already heavy burden of food cost, especially in the
context for rural India and the burgeoning slum dwellers in large Indian
cities. What this means is that more than half of their income goes
towards subsistence in terms of staving hunger leaving very little for
education, healthcare, and shelter.
Table 2: Prevalence of Undernourishment in Total Population (%)

Country

1969
1971

1979 1990 1995 2001 20022004

1981 1992
1997
2003 (preliminary)

Bangladesh

31

39

35

40

30

30

Myanmar

34

18

10

Nepal

56

52

20

26

17

17

Pakistan

27

29

24

19

23

24

Sri Lanka

22

20

28

26

22

22

India

39

38

25

21

20

20

Source: http://www.fao.org/es/ess/faostat/foodsecurity/Files/PrevalenceUndernourishment_en.xls

Undernourishment is a growing menace in the Indian context. As

indicated in FAO estimates in Table: 2, India ranks even lower than
Myanmar and Nepal as far as percentage of population afflicted by
undernourishment is concerned.
A 20 percent undernourished population indicates to a upwards of
200 million Indians surviving below the nourishment line. If we are
not able to improve access in terms of reduction of prices along with
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104 The Case for Organized Agri-Retail

increase in quantity, the consequences are only going to worsen further.
THE VALUE DRIVERS FOR ORGANIZED AGRI-RETAIL
Seen from the supply side, the value drivers for the growth of organized
food retail are numerous and highly compelling. Some of these are
l Higher and more realistic price realization: Farmers/grower will
see the opportunity for improving their price realization (fair price
expectation) from the existing abysmal levels. Consider some of
the examples - an apple farmer in Himachal Pradesh receives about
15 percent of the end-consumer price. A wheat farmer receives
less than 50 percent of the price the Indian government is willing
to pay for highly subsidized imported wheat. Amla (Indian
Gooseberry) farmers in UP receive about 10 percent of the final
end consumer price for their produce (Pandey et al, 2007).
l Better access to market: Marketing and access to markets have
been the biggest bottleneck for Indian farming. In areas, where
this problem has been addressed, such as in poultry and dairy;
returns to farmers have seen significant gains. Agricultural markets
in India are few and far between - less than one per 400 sq km. In
such a scenario organized retail can bring new investment by private
sector which can only augment the marketing infrastructure.
l Contract farming: Contract farming, which hitherto faces many
constraints under the existing policy regime, will induct an aspect
of professionalism in this mire, where fragmented markets and a
plethora of intermediaries currently rule the roost.
l Government gains: State governments stand to gain from better
tax compliance at the retail end, once organized retail players are
allowed (Pandey et al, 2007). Currently, under invoicing, sales
without receipts is the norm in food retail and if organized retail is
given a chance, at least in the context of food retail, it will certainly
bear good results.
CONCLUSIONS
The main criticism of allowing organized players in the retail domain,
especially food retail is classical in nature and is based on the premise
that any such move will wipe-out the traditional mom and pop store,
leaving in its wake a large chunk of those households involved in the
trade economically distressed. In the authors opinion however, these
protests are largely politically motivated for populist gains. In any case
in any society with a multi-party coalition government, the ability of
the government of the day to take independent and rational decisions
does get impaired and speed is also not one of the virtues of such
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105 Venkatesh
governments. Adding to this, if there is a federal structure (as in the
case of the APMC Act discussed above), uniform policies and
implementation of the same also become difficult.
It is obvious from the discussion in the previous sections of this
paper that the policy (as under the APMC Act) has acted contrarily to
the interests of the farmers by making a few intermediaries the centers
of power in the channeling of agricultural produce to the consumers.
The backlash against agri-retail players like Reliance Fresh in the
states of Uttar Pradesh, Madhya Pradesh, Jharkhand etc. have been
highlighted in the recent past in the media. What needs to be juxtaposed
against these so called popular protests is that whether farmers and
producers were ever a party to such protest. These sporadic unrests
most probably are locally fomented and are nothing but matters of
law and order where the respective state government is doubly
indictable as on one hand they have been unable to deal with a handful
of miscreants who have indulged in hooliganism and damaged private
as well as public property and on the other they have not been able to
(or willing to) help law abiding companies who were given permission
under the law of the land to operate in these states. In the last few years
cases of farmers in various states of India committing suicide because
of debts, poor harvests, poor price realization and distress sales has
increased. As per official statistics, 8,263 farmers have committed
suicide in seven states (Maharashtra, Karnataka, Kerala, Andhra
Pradesh, Tamil Nadu, Punjab and Gujarat) between 2003 and March
2007 (Ghosh, 2007). The Tata Institute of Social Sciences (TISS, 2005),
in its report, submitted to the Mumbai High Court on the issue of farmer
suicides in Maharashtra has concluded that repeated crop failures,
inability to meet the rising cost of cultivation, and indebtedness seem
to create a situation that forces farmers to commit suicide.
It is therefore clear, that by letting the status quo remain as such
and vesting control of agricultural produce marketing with
intermediaries, we have aided and abetted the deaths of so many farmers
in the country. It seems that the welfare of one segment of the society,
i.e. the small retailers and intermediaries has to be paid for by the death
of farmers.
But there is evidence that this perceived dragon of organized retail
which is supposed going to decimate the traditional food retail sector
in India does not really have a foundation, based on empirical studies
or case studies. To present the case of Brazil, which is akin to India in
many of its socio-economic and demographic parameters and
characteristics, researchers have found no evidence that the advent of
organized supermarkets in Brazil has killed the traditional mom and
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106 The Case for Organized Agri-Retail

pop segment.
Brazilian urban consumers were the beneficiaries of food retailing
restructure that occurred during the 1990s. Food prices have since
drastically reduced since the stabilization plan of 1994. As indicated in
the Indian case also there was a fear that incidence of supermarkets
will result in the the disappearance of medium and small retail however,
the Brazilian empirical evidence does not confirm this prediction. On
the contrary, the number of independent supermarkets and traditional
retailers has grown, and their share in food sales has increased, except
for the metropolitan area of So Paulo.
Empirical analysis suggests that traditional retail today is surviving
in Brazil alongside the modern big retail, despite setting higher prices.
The reasons why consumers are willing to pay more is mainly due the
convenience offered by small retail in terms of lower transport costs,
no lines, etc. No correlation has been found between the degree of
concentration in retail and price behavior. The prices practiced by
supermarkets were, for a small group of products in which it was
possible to make the comparison, lower than those of traditional retail
(Farina et al, 2005).
It is therefore clear that given the socio-economic characteristics
of the Indian economy, in the specific context of food retail, it would
be beneficial for farmers and the consuming public if organized retail
is allowed. This paper in no way is proposing anything on whether
foreign retail players should be allowed or not to enter into India, as
that is beyond the purview of this paper. But there is more than a
compelling case for allowing domestic organized food retail operations.
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Umashankar Venkatesh, Ph.D. is Dean and Professor at Institute for

International Management and Technology, Gurgaon, India.

Journal of Services Research, Volume 8, Number 1 (April-September 2008)

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.