May 2, 2015 Developing Integrated Supply Chains Sanjeev Asthana “ Better Returns for the Indian Farmer and producer by connecting them directly to the Indian and global consumer, and lower prices and better product quality for consumer

Introduction Reliance – Growth is Life Retailing in India Integrated Supply Chain: ‘Farm to Fork” Challenges Market Driven Supply Chains Most Efficient Agenda

“The fundamental belief for us is that growth is life and we have to continue to grow at all times” - Mukesh D Ambani Chairman & Managing Director

Revenues US$ 19.9 billion Cash Profit US$ 2.9 billion Net Profit US$ 2 billion Total Assets of US$ 20.8 billion India and Reliance Revenues equivalent to 2.8% of India’s GDP Over 8.2% of India’s total exports amounting to US$ 7.32 billion Contributing 8% India’s indirect taxes 4.7% of the total market capitalization 11.5% weightage in Bombay Stock Exchange Sensex 9.3% weightage in National Stock Exchange Sensex Reliance – Contribution to Indian Economy

With robust economy, sustained GDP growth and booming stock exchange, there are several emerging sectors in India waiting to be tapped... Retailing in India Organized Retail Is At The Forefront Of These Opportunities

Retailing Segments

Source: National Center for Agriculture Economics and Policy Research Growth Rate Agriculture 1% change in GDP of agriculture generates 0.24% overall GDP growth Linkage effect: effect on industry: Elasticity of industrial output growth wrt growth rate of agriculture is Agriculture contributes 24.2% to GDP, 15.2% of total exports and provides employment to 58.4% of country’s work force

Processing How to build world scale processing facilities? How much of backward integration is necessary? GAPS - Key areas Retailing/ Wholesaling / Export How to build scale? How to develop forward linkages? How to establish the food safety? Can the private label market be tapped? Farming What to produce? How to create scale operations? How to control and buy effectively? Development & Absorption of technology Handling & Logistics What are the infrastructure & technology requirements Where to set up this infrastructure What logistics constraints have to be overcome?

Lack of Awareness and Low Opportunity Low Productivity Poor Rural Economy Low Opportunity Lack of Awareness Access to capital Access to market Access to technology Quality Efficiency Cost effectiveness Market Intelligence

Agribusiness: Way Forward Agriculture needs substantial investments in rural infrastructure. However, public investments hitherto are largely in subsidies Improve farm incomes through farm productivity with better technology and inputs Reduce value loss though infrastructural investments in an integrated supply chain Build a global supply chain connecting the Indian farmer to the global market Thus an ‘ subsistence farming’ can become a ‘food-factory’ of the world, in due course

Traditional Supply Chain Status 5- 7 intermediaries. Price spread: – Wastage – 20-30% – Cost of supply chain 10% – Margin for inter40% – Farmer realisation20-30% No grading, standardisation Negligible food processing Limited exports Integrated Supply Chains Reduce wastages Preserve freshness Reduce consumer prices Improve farmer price Improve farmer income Improve exports

Farmer 15% Consolidator 5% Wholesaler 5% Semi-wholesaler 5% Retailer 8% * Wastages in red ProduceFarmgate Price (Rs) Retail Price (Rs) Farm gate as % of retail price Wastages Tomato %40% Potato %24% Banana 5956%30% Cabbage %36% Cauliflower 41233%24% Current Current Scenario Source: IIM Bangalore Research Wastages and Costs

How to make this Supply Chain Efficient Strengthen Value Adding Activities e.g. Primary Procurement Infrastructure, Cold Chain, Demand Driven Supply Chains, Food Processing, Exports of Excess Produce, Food Safety Elimination of Non Value Adding Activities e.g. Intermediaries Focus on strengthening value adding activities will lead to sustainable advantages, and benefits across the value chain

Community Facilities Food Processing & Export Agri Infrastructure - The Missing Link Warehousing & Storage Logistics Technology Development Retailing Primary Processing

Improving Farm Productivity and Farm Incomes Status of Indian Farms Productivity can improve 3-4 times from current levels Needs technology and quality inputs No one-stop shop Need to complement the government extension machinery Market Need Trained agronomists – visit farmer fields and provide advise – monitor progress One stop shop for all agri inputs and finance Enables right choice of crop and technology in line with the ecology and market demand.

Consumer price anticipated price level Markup Farmer Price original price level Farm to Fork: Impact on Prices Increase farmers’ realization and lower consumer prices

At Right Place At Right Time In Adequate Quantity At Reasonable Price Financial Support Rural Development 1.0 Rural Development 3.0 Rural Development 2.0 Availability of Quality Inputs and Daily Need Items Agriculture Services Global Linkages For High Value Crops Organic Farming Expert Advice Extension Services Vet. Services Promoting GAP:EurepGAP Domestic Distribution Export Value Addition High Return to Farmers Waves of Change: Inclusive Growth

Inclusive Growth for All Increased revenues will come by the reduced wastages Farmer will gain with efficiency in supply chain Customer will pay less for the quality produce Information flow will lead to demand driven production Infrastructure development leading to growth of sector Food Processing and value addition will open new vistas Safe to Eat Food Products Exports will boost the price realizations of the produce

Globally Integrated Supply Chains- Case of Cotton

Making cotton ‘ fashionable ’ again... Post access (today, 2005) – Farmers shift back to cotton – Acreages increase. Yields increase. Production increase phenomenally – Quantitative restrictions on textile exports abolished – Indian textile industry extremely buoyant – Textile machinery manufacturers see a 50% increase in sale. Their order books filled up for two years !

Cotton production and textile exports Liberalisation WTO signing Enhanced access Quota dismantled

Cotton production and textile exports Liberalisation WTO signing Enhanced access Quota dismantled

Cotton production and textile exports Liberalisation WTO signing Enhanced access Quota dismantled

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