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IACC study on farm-to-retail in India

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According to a study by Indo-American Chamber of Commerce (IACC), the Indian farm industry loses 40 per cent of the produce in wastage and poor handling at transit stage, and streamlining of the process can result in Indian farmers earning 15-20 per cent more. The Indian government has been targeting a growth rate of 4 per cent in the agricultural sector, though the actual growth rate of 1.8 per cent over the last few years is much less than the target. IACC seeks to understand why this problem exists in a nation that is still predominantly agricultural in nature.

Typically, a farmer gets a return of up to 14 per cent on his produce, the trader adds his 12 per cent to it, and the retailer charges the consumer an additional commission of 12-15 per cent. By the end of this three-step series, the consumer ends up paying over 40 per cent extra for the produce, without any value addition.

“The price paid to farmers for fresh farm produce is currently about 30-35 per cent of retail prices, as compared to the international norm of more than 50 per cent of retail price. This differentiation is primarily due to the farm sector being predominantly unorganised in India. Organised retailing in F&G segment can drastically improve supply chain and boost farmers’ incomes, and this will bring a more structured growth to the whole sector,” explained Deepak Pahwa, national president, IACC.

The most serious issue that the Indian farm industry is facing is the wastage of almost 40 per cent of farm produce due to lack of cold storage facilities and adequate transportation. In the food segment, this lack of infrastructure coupled with several layers of intermediaries, who do not add any value to the product, significantly raise the cost of the final product at the retail shelf.

Pahwa added, “The agriculture sector needs diversification, modern marketing, cold-chain management, and private sector linkages. While India is the world’s second largest producer of fruits and vegetables, only 2 per cent of the produce is processed. As per a recent study on the food-processing sector, the turnover of the total food market is approximately $70 billion, out of which value-added food products comprise $22 billion. The government has been supportive of FDI and joint ventures for the food and agro processing industry, and 100 per cent export-oriented units are also being encouraged.”

Pahwa informed, “IACC will further explore this matter at their forthcoming Indo-US Economic Summit slated to take place in September.”

IACC suggestions:

• All the different taxes, including inter-state taxes and local mandi taxes, should be amalgamated into one nuclear tax.

• There should be an exponential increase in the number of cold storage facilities across India. This should include facilities subsuming all capacities – low; medium and high – to ensure that there is no wastage while transporting the products.

• Further development of the organised retail sector should lead to reduced role of middlemen. The direct procurement route results in a greater margin for farmers, besides facilitating the creation of a market with multiple sellers and buyers meeting at the same platform, eliminating the old fashion of few buyers and many sellers, which resulted in monopoly after some time.

• State governments should develop integrated farm-to-retail cold chain/warehouse infrastructure in partnership with the private sector. They should also encourage bills such as the Warehouse Bill, to be presented in this session of parliament, which enable farmers/retailers to get payment against warehouse receipts. Also, concessional land should be provided.

• Encourage farmers to participate in agro-commodity exchange, to hedge their risks.

• Private sector participation should be promoted through contract farming and land leasing arrangements to allow accelerated technology transfer, capital inflow and assured market for crop production, especially of oilseeds, cotton and horticultural crops.

• Farm incomes in India can double if organised retail enhances farmer realisations on food items – from the current 30-35 per cent of retail price to the international norm of over 50 per cent.

In order to perk up the growth rate to 4 per cent in organised retailing, an approximate investment of Rs 300,000 crore will be required from the government.

– Mumbai Bureau

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