special feature

Food
improving india’s

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


W
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 sys-
tem, 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
country’s 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 heat-
and-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
felt—Cargill 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
special feature
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 advan-
tage 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 sup-
ply chain needs to be designed and built in an integrated
THE ideal supply chain
T
he food supply chain can be subdivided
into a number of sectors. While agricul-
ture, horticulture, fisheries and aquacul-
ture 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 intermedi-
ate stage. The retailers, wholesalers and cater-
ers 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.
supply chain management & logistics 2.0 | september 2008 | 29
 special feature

manner, alongwith the processes of new product devel-
opment, 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. Consum-
ers benefit from improved product availability and choice,
while distributors and suppliers derive better efficiency
and cost savings. Also collaborative planning, forecast-
ing 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 manag-
ing the supply-demand situation and coordinat-
ing 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
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 part-
ner 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.

30 | september 2008 | supply chain management & logistics 2.0


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 com-
pete to attract the consumer. Realising the growth op-
portunities 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 sup-
ply 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 Standardization is
packaging, etc. There are several
such standards for dairy, poultry, a powerful tool for
etc. The second standard is about improving supply chain
the logistics and IT systems, like
standardization of cartons, pallets efficiency.
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.
Compliance with Food Safety and
Hygiene Standards
With food safety assuming growing importance in world
markets, much of India’s 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,
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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 sys-
tems 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 re-
tailer or a neighborhood kirana store. An international
consumer could be served through food malls. Thus
products need to be manufactured for local use and ex-
port. In each case, it is important to forecast the demand
for the channels and serve the customer within the ex-
pected lead time. The service levels and the pricing will
determine whether the customer
will return.
Streamline Processes
In India, there are several regu-
latory 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 govern-
ment is trying hard to improve the country’s cold chain
infrastructure. The new legislation has created fresh
opportunities for 3PL service providers primarily, es-
pecially 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 tempera-
ture sensitive and manual handling reduces the product
quality and life. Hence, entry of logistics providers with
air-conditioned trucks, automatic handling equipment
supply chain management & logistics 2.0 | september 2008 | 31
 special feature

and trained manpower can improve the chain. The service been only partially successful. This is because there are
providers can also adopt state-of-the-art techniques such several regulations along the supply chain that constrain
as cross docking that will reduce transit times and cut its expansion and functioning as a demand driven supply
down on inventory. chain or seed-to-feed chain. Abolishing controlled prices,
Food processing industry: This is one sector where eliminating taxes on inter-state movement of goods,
100 per cent FDI is allowed. Incentives are also offered allowing farmers to sell directly to organized retail and
to those interested in setting up processing plants either removing restrictions on land holdings (which are cur-
in Agri-Export Zones or outside rently circumscribed by land ceil-
them. Given the diverse popula- ing acts) leading to fragmented
tion and religions found in India, land holdings, are some of the
there is scope for creating zones issues that need active consider-
meant for specific communities. ation. The backward integration
Thus, a “halal hub” could export of organized retail into agricul-
its products to South-East Asia ture also holds the potential of
and the Middle East. Likewise, economies of scale and helps
a “vegetarian hub” could reach remove the large inefficiencies in
out to vegetarians in India and the supply chain.
abroad. Same way, there could India has practically every-
also be “organic food zones” and thing going for it. It has culti-
“sea food hubs”. vable land, it has all the seasons
Retail revolution: Retail, one Several regulations needed for production of all
of the largest sectors in the global along the supply chain varieties of fruits and vegetables
economy, is going through a tran- and it has a well-developed agri-
sition in India. While globally, constrain its expansion business system that works in its
more than 72 per cent of food and functioning as a own, though chaotic, way. The
is sold through supermarkets, only problem with this system
Indian consumers buy most of seed-to-feed chain. is that a huge gap exists between
their food products from the 12 what is produced and what fi-
million-plus outlets which include nally reaches the consumer. By
handcarts, wet markets and neighbourhood kirana stores. the time, the surplus and fresh produce makes its way to
The kirana stores usually have small spaces, lack cold the markets, they have gone through several middlemen,
storage facilities and have restricted capital. The Indian travelled several roads, worsened in quality, increased in
retail sector is estimated to have a market size of over price and got wasted. If India has to offer the world a
$180 billion; but the organized sector represents only 2 rich and healthy food basket, it has to build proper cold
per cent of this market. A strong retail front-end can also chain infrastructure, invest in applied research in post
provide the necessary fillip to agriculture, food process- harvest technologies, get food processing plants working
ing and other industries. Though 100 per cent FDI is in various sectors and develop its food retailing sector.
not allowed in this sector, India has a retail revolution Till then, the surplus food produced in India remains
knocking on its doors. out of its food basket. n

The way ahead

While several foreign organized retailers have vowed The writer is the executive director of GLAMS at Indian School of
to improve the farm-to-plate supply chain, they have Business. You can reach him at n.viswanadham@gmail.com.

32 | september 2008 | supply chain management & logistics 2.0