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Abstract

As the Indian population is increasing, the demand for fresh fruits and vegetables is also increasing. Owing to the perishable nature and very short shelf life, these items require proper storage and transportation facilities in order to reach to the customer in fresh state. A lack of investment in agriculture makes the country vulnerable to international price shocks as well as exchange-rate volatility. The present study undertakes a thorough review of basic and contemporary literature available and tries to explain the challenges & opportunities in supply chain management to create a bridge between rural & urban market. It also brings out relevant research gaps and overlooked problems in the supply chain. The proposed research work is exploratory in nature using secondary sources.

Introduction

The Indian economic growth in the recent years has been propelled by the growth of the service and manufacturing sectors, while agriculture sector is still playing a significant role by contributing 17% of the GDP and providing employment to 60% of the population. With the increasing focus and investments from the large national and international players in the food retailing, the agriculture sector is bound to modernize much faster in the coming years. As this sector has a strong social implication, it has also been accorded a high priority status by the Government, which is facilitating its growth by charting favourable initiatives at different policy levels. The changing consumption dynamics coupled with the growth of modern retail sector, like the growing demand for the processed food offers a tremendous opportunity for all stakeholders in the areas of production, processing, marketing, supply chain, infrastructure development, technology up gradation and education. Since organized retail sector has started showing interest in fresh fruit and vegetable marketing and already some of them have entered into food retailing with huge investments, but the

supply chain management i.e., from the farm to fork is still in a very pathetic state. There is a need to manage the whole show in transparent and participatory ways with proper coordination with the stakeholders so that whole agriculture sector in India can derive the benefit effectively. The present study is undertaken after a thorough review of basic and contemporary literature available and tries to identify the challenges & opportunities in supply chain management in creating a bridge between rural producers & urban consumers. It also brings out relevant research gaps and overlooked problems in the supply chain management in India.

Indian food supply chain is full of challenges and throws open several questions which has drawn attention of contemporary researchers. According to Food Corporation of India (FCI) sources, an average of 20%-30% (Bhardwaj and Palaparthy, 2008) of harvested produce is lost during transport from farm to factory. It throws opportunities in the research areas of transportation, storage and logistics, which may concentrate on minimizing these losses. Present trends of food sector demands innovative, competitive and sustainable supply chains in the food sector. India is bestowed with one of the best natural resources in the world and several factors like globalization, information technology, and rise of organized retails are gearing up the Indian food supply chains for a better future. If properly utilized, these natural resources can be converted to an advantage. However, the path is full of challenges and hurdles. There is a comprehensive requirement of research in the area not only to fully understand the challenges in supply chains management but to identify the opportunities for improvement and also to reduce several inefficiencies in the supply chains. There is a huge potential for the researchers to take the challenge and develop a body of knowledge, which will help the government, corporate and cooperatives in handling their responsibilities by running the supply chains effectively.

Proposed System

Natural resources for agro-based industry

India is a developing country and the economic growth of the country was dependent on agriculture for several decades. Unlike many nations, India has a large pool of natural resources, which can flourish into a large resource of food products for the evergrowing population. It is a known fact that, in India, although half of the total land is cultivable, but productivity per hectare is very low. The Gangatic plain is one of the most fertile plains in the world. India has more than 40 varieties of soil and a regular system of rainfallthe monsoon phenomenon. The irrigation projects, which have come up over a period of several decades, now ensure regular supply of water for irrigation in states like Rajasthan. States like Punjab and Haryana are pioneers in achieving one of highest per hectare production records. According to the FICCI report of October 2004, India is

  • Second largest fruit and vegetable producer in the world (approximately 135 million tonnes);
  • Second largest producer of milk;
  • Fifth largest producer of eggs; and
  • Sixth largest producer of fish with harvesting volumes of 5.2 million tonnes.
  • The above statistics are encouraging and promise a greater future.

Population and demographic changes

Indian middle and upper middle class population is growing very rapidly and there is also increase in number of young working couples, resulted in increase in demand for semi-processed food, fast foods, packed foods, ready-to-eat foods. Changing taste and preference towards consumption of basic foods items, which is driven by longer working hours, increase in double income families, more exposure to advertising, for comfort and convenience etc. Especially people living in cities are become more health and hygiene conscious. In place of conventional wet markets, they prefer to buy vegetables, fruits and other agri-products from the super markets and modern retail stores, and this leads to the entry of more and more corporate into the agri-food marketing.

Integration of primary sector, secondary sector and tertiary sector

Agri-sectors (primary sector) of many developing countries are undergoing drastic change in their production process and selection of crops and how they are integrating different crops for better production and profit. However, it is a relatively recent phenomenon (Hobbs and Young, 2000). One of the reasons that can be cited for the phenomenon is the transaction cost economics. According to the theory, economic transactions form a considerable part of transactions in an open market wherein buyer and seller incur costs in conducting a transaction. These costs arise specially when there are a large number of small players resulting in information asymmetry, bounded rationality and opportunism (Williamson, 1989; and Eggertsson, 1990). However, these costs tend to be low when carried out in an environment of a strategic alliance through contracting, or within a vertically integrated firm (Coase, 1937; and Williamson, 1979). For many agricultural commodities in the US, the trend has been away from spot market transactions and towards closer vertical coordination along the supply chain (Hobbs and Young, 2000). In India, setup of retail chains like Reliance Fresh or Food World has low overall transaction costs for a given volume of transactions.

Emergence of organized retail

The emergence of organized retail, which presents superstore as the primary outlet, goes together with new retail strategies demanding emphasis on the establishing retail brand as a source of competitive advantage. The scale and complexity of the retail store operation, along with these retail branding strategies, requires highly refined operating and control procedures and centralized management structures . From a supply chain perspective, the more important aspects of emergence of organized retail have resulted in a close focus on identification and exploitation of hidden supply chain costs and efficiencies. In India Reliance Fresh and Spencer’s are the pioneers in the organized retail sector. Emergence of organized retail is leading to direct benefits to the farmers, by giving better price by lowing the cost and providing better quality products to the end consumers. Local companies like Dabur, MTR, ITC, Godrej, and Amul are aggressively developing semi-process and ready-toeat foods. Multiple restaurant chains such as McDonald’s, Pizza Hut, Dominos, Coffee day, Qwiky’s and Saravana Bhavan, and Sagar Chains are growing rapidly in fast food sector. .

Emergence of technologies

One of the major benefits of Electronic Point of Sale (EPOS) technology is that, in concurrence with delivery information and frequent stock counts, the sales data collected presents a very clear picture of market demand patterns. Along with EPOS, salesbased ordering systems are becoming popular which enable orders to be generated automatically in response to customer demand. This provides retailers an opportunity to develop a seamless

information flow, from the checkout to retail stock control and replenishment functions (Stone, 1995; and Collins et al., 1989). EPOS and Enterprise Resource Planning (ERP) are the technologies popular with Indian food retailers like Spencer’s and Reliance Fresh. From the economics point of view, the costs associated with these technologies can be justified only in case of large organized and integrated players. In the US, the availability of EPOS data enhanced the attractiveness of centralized distribution (McKinnon et al., 1990), which was rapidly embraced by the major grocery retailers during the late 1980s and early 1990s through the establishment of composite distribution centres. Efficient centralized distribution is dependent on flexible and advanced information systems (Collins et al., 1989). In India, several companies like Reliance Fresh, Spencer’s, and McDonalds are utilizing IT for their benefit. Sachin and Kuttayan (2003) conducted a descriptive case study on ITC’s (Indian Tobacco Corporation) e-choupal initiative. This study delineates the effect of emerging technologies on Indian food supply chain and describes the benefits of information technology to the supply chain partners (ITC and farmers). It has been found that farmers get the benefits like faster processing time, prompt payment and access to a wide range of information, including accurate market price knowledge, and market trends, it also help them to make efficient selling decisions. The farmers selling directly to ITC through an e-choupal receive a higher price for their crops than they would receive through the mandi (traditional) system, on an average they get about 2.5% higher. The overall benefits to farmers include lower prices for inputs and other goods, higher yields, and a sense of empowerment. E-choupal saves farmers from the dreaded agents, time wasting mandi system and transportation costs. At the same time, ITC also gets the benefits like lowering of procurement costs (it saves the commission fee and part of the transport costs it would otherwise pay to traders who serve as its buying agents at the mandi). ITC recovers its equipment costs from an e-choupal in the first year of operation and the venture as a whole becomes profitable. The system also provides direct access to information about conditions on the ground and weather which helps farmers in planning for the next crop.

Globalization

Many transnational companies have grown so large that their size exceeds that of some nation states. Thus they could override, neutralize, or even counteract the political will of a nation state’. Economic globalization is due to capital movements and specifically Foreign Direct Investment (FDI). Julius (1990) described the flow of FDI in the 1980s between the three areas Japan, the EU and North America. This was `marketdriven’ trade in services as well as goods. Cable (1999) identifies that the flow to non-OECD (Organization for Economic Cooperation and Development) countries has increased as a share of the total to: