organised retailing of fresh fruits and vegetables: opportunities for putting research into use?

7/28/2019 Organised retailing of fresh fruits and vegetables: Opportunities for putting research into use?

1/37

2011 Discussion Paper 12

ORGANISED RETAILING OF FRESH FRUIT AND VEGETABLES:

OPPORTUNITIES FOR PUTTING RESEARCH INTO USE?

RASHEED SULAIMAN V., N.J . KALAIVANI, J ATINDER HANDOO, T.S.VAMSIDHAR REDDY, KUMUDA DORAI AND ANDY HALL

APRIL 2011

D I S C U S S I O N P A P E R S E R I E S


2/37

DISCUSSIONPAPER12:ORGANISEDRETAILINGOFFRESHFRUITANDVEGETABLES:OPPORTUNITIESFOR

PUTTINGRESEARCHINTOUSE?

ACKNOWLEDGMENT

This document is an output from the Research Into Use Programme (RIU) funded bythe UKs Department for International Development (DFID) for the benefit ofdeveloping countries. The views expressed are not necessarily those of DFID.

ThisworkislicensedundertheCreativeCommonsAttribution3.0UnportedLicense.Toviewacopyofthislicense,visit

http://creativecommons.org/licenses/by/3.0/orsendalettertoCreativeCommons,171SecondStreet,Suite300,San

Francisco,California,94105,USA

ResearchIntoUse RASHEEDSULAIMANV.,N.J.KALAIVANI,JATINDERHANDOO,T.S.VAMSIDHARREDDY, 2 KUMUDADORAIANDANDYHALL
http://creativecommons.org/licenses/by/3.0/http://creativecommons.org/licenses/by/3.0/


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ORGANISED RETAILING OF FRESH FRUIT AND VEGETABLES:

OPPORTUNITIES FOR PUTTING RESEARCH INTO USE?

RasheedSulaimanV.1,N.J.Kalaivani

2,JatinderHandoo

3,VamsidharReddy,T.S.

4,Kumuda

Dorai5andAndyHall

6

Abstract

AcrosscuttingthemeintheDFIDfundedResearchintoUse(RIU)programmeisthe

explorationofthedevelopmentalopportunitiespresentedbynewpatternsof

entrepreneurialactivity.Thisisanexcitingtimetobeexploringsuchissuesastherehas

beenanupswinginenterpriseactivityinthedevelopingworld,characterisedbyamarkedly

differentera

of

economic

dynamism.

This

has

affected

agri

food

value

chains

in

profound

ways.ForRIUthisraisesquestionsaboutwhetherthereispotentialtopiggybackonthis

newdynamicforputtingresearchintouse.Italsoraisesthequestionofwhether

institutionalchangeinmarketingarrangementsisassociatedwithinstitutionalchangein

relationtoaccesstotechnology,researchandothertechnicalexpertise.Organisedretailing

offruitandvegetablesisinvestigatedtoexplorethisquestion.Afarmlevelsurveyandretail

outletlevelreviewsuggestthatthispatternofmarketdevelopmentislinkingfarmersto

marketswithpromisingsocialandeconomicconsequences.Butitisalsofindingthatthe

valueofthisasamechanismforstrengtheningtechnicalchangeandinnovationcapacityis

underdevelopedandthatitisherethatpublicpolicyneedstoconcentrateitsattentionand

efforts.

Keywords:OrganisedRetail,Horticulture,Entrepreneurship,AgriculturalResearch,

Innovation,Development,Policy,ValueChainDevelopment,SouthAsia,

JELCodes:L14,L26,L32,L66,N5,N55,O13,O19,O31,O32,O33,O53,Q12,Q13,Q16

RIUDISCUSSIONPAPERSERIES

ResearchIntoUse RASHEEDSULAIMANV.,N.J.KALAIVANI,JATINDERHANDOO,T.S.VAMSIDHARREDDY, 3

1HeadofAsiaResearch,RIUCRT,[email protected]

2ResearchFellow,CentreforResearchonInnovationandSciencePolicy(CRISP),[email protected]

3SocialPerformanceAnalyst,MicrofinanceInformationExchange(MIX),[email protected]

4ResearchFellow,RIU,[email protected]

5ResearchFellow,LINK,[email protected]

6

Headof

the

RIU

Central

Research

Team

(CRT),

Director

of

LINK

Ltd.

and

visiting

professor,

Department

of

Development

PolicyandPractice,OpenUniversity,UK,[email protected]

KUMUDADORAIANDANDYHALL
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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TABLE OF CONTENTS

LISTOFACRONYMS 5

1.INTRODUCTION 7

2.DEBATESABOUTFOODRETAILANDDEVELOPMENT 10

FIGURE1:AFRAMEWORKFOREXPLORINGPUTTINGRESEARCHINTOUSE

INDYNAMIC,ECONOMICSYSTEMS 12

3.THE

EMERGING

ORGANISED

FOOD

RETAIL

LANDCAPE

IN

INDIA

13

4.CASESTUDY:ORGANISEDRETAILOFFRESHFRUITANDVEGETABLES

INHYDERABAD,INDIA 16

TABLE1:EXPANSIONOFORGANISEDRETAILOFFRESHFRUITAND

VEGETABLES 16

BOX1:VONTIMAMIDI,ANEPICENTREOFRETAIL 17

TABLE2:PROCUREMENTDETAILSOFDIFFERENTMARKETAGENTSAT

VONTIMAMIDI 17

5.KEYFEATURESOFORGANISEDRETAILARRANGEMENTS 21

TABLE3:NETGAIN(ORGANISEDRETAILVS.LOCALMANDI) 21

TABLE4:DECISIONSONSALEOFPRODUCE 22

TABLE5:HOLDINGSIZEOFFARMERS(ACRES) 24

TABLE6:SERVICESRECEIVEDFROMTHERETAILERS 24

BOX2:EXTENSIONSUPPORTBYORGANISEDRETAILERS(ITCANDHERITAGE) 25

6.CHALLENGESANDOPPORTUNITIESFORORGANISEDRETAILININDIA 28

7.LESSONSFORPUTTINGRESEARCHINTOUSEANDINTERNATIONAL

DEVELOPMENTPRACTICE 30

REFERENCES 32



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LIST OF ACRONYMS

ADB AsianDevelopmentBank

ASARC AustraliaSouthAsiaResearchCentre,Canberra

CABI CentreforAgriculturalBioscienceInternational

CGIAR ConsultativeGrouponInternationalAgriculturalResearch

CGD CenterforGlobalDevelopment

CPA CentreforPolicyAlternatives

CRT CentralResearchTeam,RIU

DFID DepartmentforInternationalDevelopment,UK

FAO TheUnitedNationsFoodandAgricultureOrganization

FDI ForeignDirectInvestment

GDP GrossDomesticProduct

GlobalGAP GlobalGoodAgriculturalPractices

GoI GovernmentofIndia

ICRIER IndianCouncilforResearchonInternationalEconomic

Relations

IFPRI InternationalFoodPolicyResearchInstitute

LINK

LearningINnovation

Knowledge

MSU MichiganStateUniversity

MTID Markets,TradeandInstitutionsDivision,IFPRI

NDDB NationalDairyDevelopmentBoard,India

NGOs NonGovernmentalOrganisations

R&D

Researchand

Development



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RIU ResearchIntoUse

S&T ScienceandTechnology

UK

UnitedKingdom

UN UnitedNations

UNPAD UniversitasPadjadjaran

USA UnitedStatesofAmerica



7/37



1. INTRODUCTION

AcrosscuttingthemeintheResearchintoUse(RIU)programme,fundedbytheUKs

Departmentfor

International

Development

(DFID),

is

the

exploration

of

the

developmental

opportunitiespresentedbynewpatternsofentrepreneurialactivity.RIUsspecificinterest

concernsthewayentrepreneurshipasadriverofinnovationandthedynamicforce

withineconomicandsocialsystemscanbeusedaspartofamechanismwhere

agriculturalresearchandtechnologyaredeployedforpovertyreductionandeconomic

development.Thisispartofawiderinterestinunderstandinghowtheeffectivenessofa

keypublicpolicytoolinvestmentsinagriculturalsciencecanbeenhanced.

Thisisanexcitingtimetobeexploringsuchissues.Developmentpracticeisbecoming

increasinglycomfortablewithembracingenterpriseasapartnerinthedevelopment

process.But,moreimportantly,therehasbeenanupswinginenterpriseactivityinthe

developingworldcharacterisedbyamarkedlydifferenteraofeconomicdynamism.

Althoughsomeofthisdynamismhashadlittletodowithagriculturedirectly,ithas,

nevertheless,startedtoaffectagrifoodvaluechainsinprofoundwaysthe

industrialisationoffoodsystemsnotjustforexport,butincreasinglyforlocal

(super)marketsbeingjustoneexampleofthis.Whileitistruethatthiseconomicdynamism

hasbeenmostapparentinIndia,ChinaandotherAsiancountries,moregenerally,partsof

Africaandandthefoodsectorinparticulararestartingtoexhibitsimilartrends

associatedwithurbanisationandrisingurbanincomes.

ForRIUthisraisesquestionsaboutwhetherthereisanypotentialtopiggybackonthisnew

dynamicforputtingresearchintousespecifically,whetherinstitutionalchangein

marketingarrangementsisassociatedwithinstitutionalchangeinrelationtoaccessto

technology,researchandothertechnicalexpertise.Theliteraturehasforsometimenow

discussedthepotentialroleofpublicprivatealliancesforpromotingtechnicalchangeand

innovationintheagriculturalsector(ByerleeandEcheverra,2002).Theliteraturehasalso

discussedsomeofthelikelyarchitecturesformakingthisworkinanemergingeconomy

setting(Hall,

2006).

However,

equity

and

governance

issues

in

value

chains

have

also

been



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highlightedasaconcernthatcannotbeignored(Kaplinskyetal.,2010),althoughmorein

relationtointernationalvaluechains.Whatisnowneededisresearchtoexplorethese

issuesinrelationtothenewandemergingpatternsofentrepreneurialactivityassociated

withdomestic

food

systems,

which

have

been

transformed

profoundly

in

the

last

5years.

ThecasechosenforthisstudyistheemergingtrendinIndiaoflargecorporatehouses

branchingoutintoretailingoffruitandvegetables.Thistrendiscloselyassociatedwith

urbanisation,growingconsumerismandanincreaseinthenumbersofuppermiddleclass

andhighincomehouseholds.Thisisaphenomenonthatistakingplaceacrossthe

developingworldandtheexperiencesofIndiaarelikelytoprovideinsightsonwhatmay

alreadybe

starting

to

take

off

in

Africa.

In

the

case

of

India

the

establishment

of

these

new

retailoutletssellingfreshfruitandvegetableshasledtosomelimitedexperimentationwith

newwaysoffieldlevelprocurementofthesecommodities.Despiteseveraltrader

organisations,NGOsandassociationsofstreetvendorsopposingthemassiveexpansionof

organisedretailbecauseofalosstolivelihoods,manyinindustryandpolicycirclesbelieveit

willhavepositiveimpactsontheagriculturalsupplychainandraiseprices.Thisdebateis

alsocloselyrelatedtothewiderissueofpotentialimpactsonstreethawkersandneighbour

hoodkirana(grocery)stores.

Istheorganisedretailingoffreshfruitandvegetablesbenefitingproducersofthese

commodities?Arethesearrangementscreatinganynewcapacityforinnovationornew

demandsfortechnicalandothersupportbydifferentactorsintheagriculturalinnovation

system7?

Therestofthispaperisorganisedasfollows:Thesecondsectiondiscussestheemergence

oforganisedretailinthefoodandgrocerysectorinthedevelopingworld.Section3explores

theorganisedretailinglandscapeinIndia.Section4presentsacasestudyofthechanging

natureoforganizedfruitandvegetableretailinthecityofHyderabadinSouthIndia.


7AgriculturalInnovationSystemreferstothenetworkoforganisations,enterprises,andindividualsfocusedonbringing

newproducts,newprocesses,andnewformsoforganisationintoeconomicuse,togetherwiththeinstitutionsandpolicies

thataffect

the

way

different

agents

interact,

share,

access,

exchange

and

use

knowledge.



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Procurementoperationsofvariousretailersandkeyfeaturesofthesearrangementsare

discussedinSection5andthechallengesandopportunitiesfortheorganisedretailing

sectorinIndiaarediscussedinSection6.Finally,Section7summarisesthelessonsfor

internationaldevelopment

practice

and

for

putting

research

into

use.



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2. DEBATES ABOUT FOOD RETAIL AND DEVELOPMENT

Modernretailingissettohavetakenoffindevelopingcountriesinthreesuccessivewavesin

the

years

between

the

early

1990s

and

the

early

2000s

(Reardon

and

Hopkins,

2006;

ReardonandBerdegue,2007).InthecaseofthelargeAsianeconomiesofChinaandIndia,it

occurredduringthethirdofthosewaves,startingfromthelate1990s.Thistrend,popularly

referredtoasthesupermarketrevolution,hasbeentransformingfoodretailmarkets

andthesupplychainstheysourcefromnotonlyinmediumincomecountries,butalsoin

thepoorerdevelopingnations(Timmer,2005).Whileexploringdriversofrapidretailgrowth

indevelopingcounties,Reardonetal.(2003)indicatedthatthesamefactorsthat

contributedto

the

spread

of

supermarkets

in

developed

countries

50

years

ago

were

still

responsibleforthesamephenomenonindevelopingcountriesmorerecently,including:

marketliberalisationindevelopingcountries;thefloodofForeignDirectInvestment(FDI)

availableafterthe1990s;saturationofsupermarketsinhomebasemarketsandtheirlow

margins(whichpropelledthesearchforhigherreturnsintransitionalanddeveloping

countries);thegreateravailabilityofprocurementandlogisticstechnology;anddeclining

transportcosts.Inaddition,theemergenceofregionalagrifoodchainsinAsiawiththe

disappearanceof

regional

trade

barriers,

rise

in

institutions

that

encourage

regional

integrationandgreaternumbersofimportantregionalplayersalsohadimportant

implicationsforagriculturalproductionandinnovationsystems(ThompsonandCowan,

2000).

Consumerdemandandchangingpreferenceshavealsoplayedaroleinstimulatingthis

growth.Forinstance,astudybyICRIER(2008)foundthatretailsalesgrowthwasdirectly

proportionaltoRealGDPandRealPrivateFinalConsumptionexpenditure,indicatingthata

substantialincreaseindisposableincomeamongIndianhouseholdssincethemid1990s

couldbeanotherdriverofthissupermarketrevolution.AstudybyDeloitteStores(2007)

predictsfastergrowthfortheorganisedretailbusinessindevelopingcountriesinthenext

decadeduetorisingnumbersofyoungerpopulations.InIndiatheorganisedfoodretail

sectorhasbeengrowingatannualratesbetween16and50percentoverthepastfewyears

(ReardonandGulati,2008),startingfromasmallbase.Ifthesehighratesofgrowth



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continuetheyareboundtohavesignificantimpactsonexistingvaluechains(ICRIER,2008).

Rapidgrowthintheorganisedretailsectorisalsoresultinginconsolidationtoachieve

economiesofscale(ChakravarthyandKurien,2007).ExamplesoftheseinIndiainclude

corporategiants

such

as

the

Reliance

Retail

Group

taking

over

Adani

Retail

in

Gujarat

and

theA.V.BirlaGrouptakingovertheTrinethrachainofstoresacrossthecountry.

Althoughrapidlyincreasingnumbersoftheseretailventuresseemtoprovidenew

opportunitiesforproducersandprocessors,theirdevelopmentalimpactsarestillcontested.

Cadilhonetal.(2006)reportsthathigherpricesofferedbysupermarketswasoffsetbythe

extracostsincurredbyfarmerstosupplytothem.Inmostcases,supermarketsstillsourced

frommedium

and

large

suppliers

(Farina

et

al.,

2005).

Even

when

they

did

source

from

small

farmersthesetendedtobeanupperechelonofsmallfarmersintermsofcapitalassets,

infrastructureaccessandsize(ReardonandTimmer,2007).Natawidjajaetal.(2007)

demonstratedasimilartrendfortomatoesinIndonesia.Intheveryrareinstanceswhere

smallfarmerssolddirectlytosupermarkets,itwasfoundthattheywerepartofaverygood

producersorganisation(GulatiandReardon,2007).Similarobservationshavebeenmadein

otherstudies,whichshowthatfarmersconnectedtotheorganisedretailsectorinIndiahad

largerlandholdings(ICRIER,2008;MangalaandChengappa,2008;AlamandVerma,2007)

andhigherproportionofirrigatedland(ICRIER,2008)thanthosesupplyingtotraditional

marketchannels.

However,severalstudiesonfreshfruitandvegetableretailchainsinIndiahaveconfirmed

relativeadvantagesforfarmersconnectedwithorganisedretail.Forexample,retailchain

contractedfarmersreceivecomparativelyhigherprices(DhananjayaandRao,2009;Alam

andVerma,2007),highernetprofits(ICRIER,2008;MangalaandChengappa,2008;Birthal

etal.,2005)andalsohadlowertransactioncosts(SinghandSingla,2010;ICRIER,2008;

AlamandVerma,2007).SinghandSingla(2010)reportthatretailchainshaveraisedquality

consciousnessamongfarmers,introducedgrading(inprimaryprocessing)andhavehelped

incostcuttingthroughextensionandtrainingoninputuseforbetteryield.



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Thediscussionsaboveindicatethatpatternsofmarketdevelopmentandthedifferential

impactsthesehaveondifferentmarketchainstakeholdershasbeengivenconsiderable

attention.However,lessattentionhasbeengiventothewaynewmarketingarrangements

andrelationships

between

farmers

and

retailers

act

as

vehicles

for

technical

change.

This

is

animportantquestionforRIUandisoneoftheissuesexploredintheinvestigationofthe

Indianretailsectordiscussedinthenextsection.Specifically,thediscussionexplores

whetherinstitutionalchangeinmarketingarrangementsisassociatedwithinstitutional

changeinrelationtoaccesstotechnology,researchandothertechnicalexpertise.Figure1

belowpresentastylisedframeworkforexploringthisquestion.Itsmainfeatureisthe

propositionthatthecurrenteraofeconomicdynamisminemergingeconomiesis

stimulatingenterprises

to

introduce

institutional

innovations

in

marketing

systems

that

not

onlylinkpoorfarmerswithmarkets,butalsobringaboutinstitutionalinnovationinaccess

toresearch,technologyandrelatedexpertise.

Figure 1. A Framework for Exploring Putting Research into Use in Dynamic Economic

Systems

Source:The

authors



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3. THE EMERGING ORGANISED FOOD RETAIL LANDSCAPE IN

INDIA

Retailisoneofthefastestgrowingsectorsintheworld.TheretailbusinessinIndiais

estimatedtogrowat13%perannumfromUS$322billionin200607toUS$590billionin

201112.Whiletheunorganisedsectorisexpectedtogrowatabout10%perannum,

organisedretailisestimatedtogrowat4550%perannumduringthesameperiod(ICRIER,

2008).However,organisedretailconstitutesonlyaround4%ofthetotalretailsalesinIndia,

comparedto7580%indevelopedcountriessuchastheUS,JapanandtheUK.InIndia,

organisedretailingisspreadingfast,thoughthegrowthiscurrentlyfocusedaroundcities

and

tier

1

towns.

FoodandgroceryconstitutesthebulkofIndianretailinganditsshareisabout60%

(Images,2008).Organisedretailingaccountsforaboutlessthan2percentofthefood

retailingindustryinIndia.However,theshareoforganisedretailinginthefoodandgrocery

segmentcouldgrowto1520%ifthecurrenttrendsinexpansionoforganisedretail

continue(ReardonandGulati,2008).

Nilgiris,establishedin1905asadairyfarmnearOotacamundinSouthIndia,isperhapsthe

firstorganisedfoodretailerinIndia8.Althoughanotherchain,Spencers,hasbeenpartofthe

Indianretaillandscapesince1863,itonlybegansellinggroceriesin1920.Safal,established

in1988bytheNationalDairyDevelopmentBoard(NDDB),wasthefirstorganisedretailing

ventureforfruitandvegetablesinNorthIndia(mainlyDelhi)9.Therapidexpansionofthe

RPGGroupsFoodWorldoutletsindifferentpartsofIndiabeginningwithitsfirstoutlet

inChennaiin1996indicatesenhancedcorporateinterestinfoodretailing.


8ItopenedanotherstoreinBangalorein1936andthenextoneinErode,TamilNadu,in1962.Nilgirisinitiallyfocusedon

dairy products, bakery productsand confectionary, but in 1945 expanded its range to includegroceries andother food

items.Itcurrentlyhasmorethan90storesunderthebrandnameNilgiris1905.9SafalFruitandVegetableUnitwassetupin1988bytheNationalDairyDevelopmentBoardwiththeobjectiveofcreating

adirectlinkbetweenfruitandvegetablegrowersandconsumers.ItispresentlyaunitofMotherDairyFoodsProcessing

Ltd.,awhollyownedcompanyofMotherDairyFruit&VegetableLtd.Safalhassetup279speciallydesignedmodernretail

outlets in and around Delhi to market fresh and frozen fruit and vegetables directly to consumers. It sources fruit and

vegetablesthrough

more

than

a100

producer

associations

set

up

in

select

villages.



14/37



OthercorporatehousesthatarecurrentlyactiveinthefoodretaillandscapeofIndia

include:RPG(Spencers),Reliance(Fresh),ITC(ChoupalFresh),AdityaBirla(More),Heritage

(Fresh@),PantaloonRetail(FoodBazaar),Bharti(EasyDay)andExpressRetail(BigApple).

Muchof

the

expansion

in

food

and

grocery

retailing

in

India

is

currently

concentrated

in

the

southernstatesinandaroundChennai,HyderabadandBangalore.Increasing

urbanisationandrisingincomelevelswithresultantchangesindietarypatternstowards

highvaluecommoditieshavealsosparkedcorporateinterestinfoodretailinginIndia.

Whatistheimpactofthisexpandingcorporateretailingofagriculturalproducts

especiallyfruitandvegetablesonproducers,intermediariesandconsumersinIndia?The

evidenceis

limited

and

opinion

seems

to

be

divided.

Much

of

the

focus

of

discussion

has

beenaroundlivelihoodlossesofstreethawkersandneighbourhoodstores,whocurrently

sellmorethan98%offoodandgroceries.TheICRIER(2008)studyfoundthatunorganised

retailersinthevicinityoforganisedretailersexperiencedadeclineinvolumeofbusiness

andprofitintheinitialyearsaftertheentryoflargeorganisedretailers.Impactsare

expectedtobelargerinthelongrun,whentheorganisedretailingoffoodandgrocery

reachesatleast2530%ofthetotalsales(ReardonandGulati,2008).However,consumers

dogainfromlowpricesofferedthroughorganisedretail(GaihaandThapa,2007;ICRIER,

2008).

Withregardtoimpactonfarmers,availableevidencevariesfromsignificantbenefitsarising

fromdirectsalestoorganisedretailers(ICRIER,2008)tonoimpactascorporatesare

procuringonlyfromthemandis(producemarkets)(IndiaFDIWatch,2007;Navadanya,

2007).Astudyoncontractfarmingarrangementsindairy,poultryandvegetableshas

reportedsignificantgainsinincomeoffarmerswhoarepartofcontractarrangementsin

comparisontononcontractfarmers(Birthaletal.,2005).However,theperformanceof

contractfarmingvariesconsiderably,dependingonthenatureandtypeofcontracting

agency,natureoftechnology,crop/produceandthelocalandnationalcontext(Singh,

2007).Anotherstudycitingglobalexperiencespointstolowerpricesforfarmerswhenlarge

retailerspurchaseinbulk(CPA,2007).



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TheFAO(2005)studyonfoodretailinginAsiaindicatesthatratherthanthetypeofstore,

factorssuchasmethodsofprocurement,theuseoflogisticsandqualitystandardsapplied

haveimplicationsforfarmersincomes.Thesamestudyalsoindicatesthatfarmersface

manyproblems

in

supplying

to

supermarkets,

including:

delisting

of

suppliers

and

rejection

ofproducebyretailersfornotconformingtovolume,qualityanddelivery;andprice

competitionsbetweenchainsthatkeeppriceslow,thusmakingitdifficultforfarmersto

earnenoughofaprofittopayforonfarminvestments.TheIndianGovernment,however,

considersorganisedretailtobebeneficialasitcansetupsupplychains,givebetterpricesto

farmersandfacilitateagroprocessing(GoI,2006).Whileorganisedretailingmaypartially

supportsomeofthesemuchrequiredchanges,theroleofthegovernmentespeciallyits

differentorganisations

involved

in

agricultural

research,

extension

and

marketing

in

creatingabetterproductionandmarketingsystemisstillnotveryclear.



16/37



4. CASE STUDY: ORGANISED RETAIL OF FRESH FRUIT AND

VEGETABLES IN HYDERABAD, INDIA

TheOrganisedRetailingLandscape

Upuntil2000Hyderabadhadonlytwoorganisedretailersoffreshfruitandvegetables

TrinethraandFoodWorld.Trinethrawasfoundedin1986asamultipleoutletretailstore

networkinHyderabad,SecunderabadandVishakapatnam.FoodWorld,whichopenedits

firstoutletatChennaiin1996,extendeditspresencetoHyderabadthesameyear.RPGs

Spencerfollowedsuitin2001andPantaloonRetailsFoodBazaarin2003.

Table

1:

Expansion

of

Organised

Retail

of

Fresh

Fruit

and

Vegetables

Name Year set up in

Hyderabad

Number of

stores in

Hyderabad

TotalNumberofstores

in India (as of March

2010)

1 Trinethra10 1986 79 275(tillJan2007)

2 FoodWorld 1996 20 67

3 Spencers 2001 28 250

4 FoodBazaar 2003 11 174

5 ChoupalFresh 2006 6 6

6 RelianceFresh 2006 45 624

7 @Fresh 2006 32 75

7

More

2007

92

579

8 SPAR 2008 1 4

Intheyearsthatfollowedtheseinitialforaysseveralothercorporateretailershave

expandedintotheHyderabadmarket(SeeTable1above).ITCopeneditsfirstChoupalFresh

storeinHyderabadinmid2006.RelianceenteredthescenewithitsfirstRelianceFresh

storeinHyderabadattheendofthesameyear.Heritagealsoemergedonthescenewithits

@Freshstoresatthesametime.ThelatesttoenterthisfieldisSPAR,whichopeneditsfirst

storeinHyderabadin2008.

Methodology

Thisstudyisbasedpartlyonasurveyof100farmersatVontimamidiafruitandvegetable

growingclusterinMedakDistrictnearHyderabad(SeeBox1)whoarecurrentlysupplying

producetofiveorganisedretailers(20farmerswererandomlyselectedfromeachretailer).


10TheAdityaBirlaGroupacquiredTrinethrainearly2007andrenamedthesestoresasMore.



17/37



Thiswassupplementedwithinterviewswithrelatedactors,includingprocurementstaffand

seniormanagementofdifferentretailers,commissionagentsintraditionalmarketsand

governmentextensionstaff.

Box1:Vontimamidi,anepicentreofretailprocurement

VontimamidiisavillageintheRangareddydistrictofAndhraPradesh,about40Kmaway

fromthemajorurbancentreofSecunderabadandlocatedonamajorhighway.Itscentral

locationhasallowedittobecometheepicentreofaclusteroffarmsina3040kmradius,

andahubforretailcollectioncentres.Approximately14000farmersgrowvegetables

includinggourds,

cucumber,

brinjal,

chillis,

beans

and

tomatoes

in

villages

around

Vontimamidi.ReliancewasthefirstorganisedretailertosetupahubinVontimamidiin

2006tosourcefruitandvegetables,andITCandMorefollowedsuitin2007.Inthesame

year,SpencerssetupitsvegetablecollectioncentreatMulugunearVontimamidi,while

Heritagelauncheditspackhouseinanearbyvillage.

Table2belowprovidesanindicationofthevolumeofproduceboughtbyorganisedretailers

fromVontimamidieveryday.Inadditiontoorganisedretail,traditionalproducemarkets

alsosourcetheirfruitandvegetablesfromVontimamidithroughthe75oddcommission

agentswhooperateatalocalmandi(market).

Table2:ProcurementDetailsofDifferentMarketAgentsatVontimamidi

Averagedailyprocurement(tonnes)OrganisedRetailers

Otherdays Weekends

(Saturday/Sunday)

Number of

farmers selling

their produce

(dailyaverage)

Organisedretailers

ITC ChoupalFresh 45 7 3050

RelianceFresh(RangerFarms) 1314 16 3050

RPGSpencers 10 12 2530

Heritage @Fresh 2630 4245 50

AdityaBirlaMore 7 17 3540

Local produce market (mandi),

Vontimamidi

300 300 500



18/37



NatureofExistingProcurementArrangements

ITCChoupalFresh

ChoupalFresh

is

apilot

project

operated

by

ITCs

Agri

Business

Division,

with

the

professed

objectiveofverticallyintegratingfarmerswiththemarket.ITCestablisheditscollection

centreforfreshvegetablesin2007atVontimamidi,wherevegetablesboughtaresorted,

cleanedandgradedbeforebeingsenttoadistributioncentre.ITChassetupacropnursery

anddemonstrationfarmatVontimamidionatwoacreplotitleasedin2008.Thecompany

hasemployedatechnicallyqualifiedfarmmanagertohandlegroundleveloperations,

includingprocurement,nurserymanagementanddisseminationofbettercrop

managementpracticesamongvegetablegrowers(SeeBox2inthenextsectionformore

details).Thecompanymaintainsalistofcontactfarmersandhasencouragedsomeof

themtobranchoutintothecultivationofexoticcrops.

HeritagesFresh@

Fresh@isachainofretailstoresspecialisinginfreshfruit,vegetablesandgroceriesset

upbyHeritageFoodsIndiaLimited,aleadingprivatedairyandagribusinesscompanyin

SouthIndia.Heritagehasestablisheda60tonnecapacitypackhouseinAdivimasjid,a

villageclosetoVontimamidi,aswellascollectioncentresinfivenearbyvillages.Thepack

househasfacilitiesforcleaning,sorting,gradingandripeningfruit.Ithandlesmorethan52

kindsofvegetables,includingcarrots,cauliflower,gourds,chillisandcapsicum.Heritage

workswith187farmersspreadoutin4clusters(eachclustercomprises1213villages).Out

ofthese,131aredesignatedascustomfarmersatermforthecompanyspreferred

producers,who

it

supports

through

inputs

and

technical

advice

from

an

experienced

agronomist.Productionoperationsarecoordinatedbyaproductionmanager(SeeBox2in

thenextsection)andfieldleveloperationsby15productionandprocurementassistants.

Heritagealsomaintainsafieldnurseryforfarmersandhasbeeninstrumentalinpromoting

cultivationofnewcropsinthearea,suchascarrots,cauliflowerandpotato.



19/37



RPGsSpencersRetail

SpencerssRetailisoneofIndiaslargestmultiformatretailers,specialisinginfoodand

groceryitems,electronics,homeandofficeessentials,garmentsandpersonalcare.The

companyis

one

of

the

oldest

players

in

agri

food

retailing.

It

set

up

aprocurement

facility

in

Muluguvillage,closetoVontimamidi,in2007,wherefreshvegetablesareboughtfrom

nearbyfarmersandeventhelocalmandi(market)whensuppliesfallshortofdemand.The

collectioncentremaintainsalistof150farmersonitsroster,butbuysproducefromaround

2530farmerseveryday.Itdoesntprovideanysortofadviceortechnicalsupportto

farmers.Produceboughtisthencleaned,packedandsenttodistributioncentresbefore

beingdispatchedtodifferentstoresacrossthecountry.

RelianceFreshsRangerFarms

RangerFarmsistheprocurementwingofRelianceFresh,thevegetableandfruitretailwing

ofRelianceRetail.ItscollectioncentrewasestablishedatVontimamidiin2006,witharound

3550farmerssupplyingproducetoiteveryday.Althoughatrainedagriculturalistlooks

afterprocurementoperationsatVontimamidi,thecollectioncentredoesntprovideany

specifictechnicalsupporttogrowers.RelianceFreshhasalsoestablishedthreeother

collectioncentresintheregion,specificallyforgreenleafyvegetables,colecropsand

tomatoes.

ABRLsMore

AdityaBirlaRetailLimited,whichoperates672foodandgrocerystoresacrossIndia,

acquiredtheHyderabadbasedTrinethrasupermarketchainin2007andrenameditMore.

MoresprocurementcentreatVontimamidi,setupin2007,hasaround350farmersonits

roster,outofwhich3540areregularsuppliers.Asofnow,Moredoesnotprovideany

technicalsupporttogrowers.

Localmandi,Vontimamidi

TheAndhraPradeshstategovernmentsetupalocalmandi(traditionalproducemarket)for

fruitandvegetablesatVontimamidiinJuly2008.Themandihasnoformalsystemofauction

in

place,

but

transactions

are

carried

out

by

75

commission

agents,

who

set

prices

based

on



20/37



theproduceavailableandtheirnegotiationsforitwithtraders.Allproduce,irrespectiveof

quality,isboughtatthemandi.Farmersbringtheirproducetothemandiintheeveningand

sellittocommissionagents,who,inturn,selltotradersfromotherlocales.

Themandilacksbasicinfrastructure(storage,parking,cleanwater,etc.)andthereisno

modernordigitalweighingsystem.Commissionagentschargeabrokeragefee(varying

from4to10%ofproduceprices),whilefarmershavetobearunloadingcharges(Rs2per

bag).Theexactpercentageofcommissionchargeddependsoncreditadvancedtofarmers

(forbuyinginputssuchasseedandfertiliser)aswellasimplicitfactorssuchaspersonal

relationshipsandfarmersreputations.Asgeneralpracticecreditadvancedisnotdirectly

chargedany

interest,

but

agents

charge

farmers

ahigher

percentage

of

brokerage

fee

to

compensateforinterest.



21/37



5. KEY FEATURES OF ORGANISED RETAIL ARRANGEMENTS

Organisedretailerscurrentlybuyaround2233%oftheproducegrowninandaround

Vontimamidi,but

the

figure

is

likely

to

go

up

as

more

new

retail

stores

continue

to

open

in

urbancentres(andassumingthatfreshfruitandvegetableretailbeginstocontribute

significantrevenuestocorporateretailers).Keyfeaturesofprocuringarrangementsby

organisedretailersexaminedinthecourseofthisstudyaresummarisedbelow:

(i)Betterpricesforfarmers

AllfiveorganisedretailerswhosourcetheirproducefromVontimamidibasetheirdaily

rateson

local

average

daily

prices

at

the

major

local

produce

market

at

Bowenpally,

making

suretofixrateshigherthanmarketrates.Farmersalsogainthroughthesearrangements

becausetheysaveonbrokeragechargesandpackingcostsatthelocalmandi.Therearealso

instanceswherefarmershaventbenefitedasaresultofpricefluctuationsatthemandi.Of

the100farmerssurveyedforthisstudy69hadsoldtobothanorganisedretailerandthe

localmandionthesameday.TheirexperiencesofthetransactionsarepresentedinTable3

below,whichillustratesthepercentagenetgaininthefarmersearningsthroughorganised

retail.

Table3.NetGain(Organisedretailervs.localmandi)*

%gain** No.of producers %ofproducers

25to0 3 4.34

0to25 9 13.04

25to50 26 37.68

50to75 17 24.63

75to100 5 7.24

>100 9 13.04

Total 69 100.00

*Netgain=retailerpricenetpriceatthemandiafterdeductingothercharges

**%gain=(netgain/netpriceatthemandi)X100



22/37



Thus,whilemorethan95%ofthefarmerssurveyedgainedthroughtransactionswith

organisedretailers,thegainsexperiencedbyatleast62%ofthemwasmuchmorethanthe

prices(between25%and75%more)offeredtothematthemandi.

(ii)Greaterchoiceforfarmersofoutletsforsale

Till2006,vegetableproducersintheregiononlyhadoneavenueformarketingtheir

producethroughagentsattheproducemarketatBowenpallyinHyderabad.However,

themushroomingofretailstoresinthecityandcollectioncentresintheregionhasafforded

Vontimamidifarmersagreaterchoiceinhowtheyselltheirproduce.Thesettingupofa

localmandiatVontimamidihasalsoworkedinthefarmersfavour,asanyproducenot

boughtby

the

retailers

is

sold

at

the

market.

Almosteveryfarmersurveyeddidnttrustthemethodofweighingproducethatwasusedin

themandiwhereagentsstillusedthetraditionalhangingbalanceandpreferredthe

electronicscalesusedbyretailers.However,themandistillheldsomeappealforfarmers,as

allproducewasboughtregardlessofquality,whiletheretailersonlyboughtquality

produce.Table4belowsummarisesthefactorsaffectingfarmersdecisionsonwhotosell

toonagivenday.

Table4.DecisionsonSaleofProduce

Methods usedfordecidingthepointofsale %

Farmerscalltheretailers(checkdemandandprices) 64

Retailers call farmers on the phone and inform them of their daily

requirementandprices

32

Taketheproducetothefirstretailer,thentothenextandthentothe

mandi

4

n=100

Whensurveyed,farmerssaidthemainattractionoforganisedretailwasthehigherprices

offeredforproduce,closelyfollowedbytheirtrustoftheelectronicscaleoverthe

traditionalhangingbalance.Savingsfromcommissionchargestoagentsatthelocalmandi

wasanotherreasontochooseorganisedretailinstead.

(iii)Insufficient

institutional

development



23/37



Organisedretailershaveintroducedanewinstitutioninmarketingfreshfruitand

vegetablesbycreatingasystemofpreferentialpaymentforqualityalthoughgiventhe

(small)scaleofthesearrangements,theyareyettohaveanyimpactonthelocalmandi,

wherefarmers

continue

to

sell

the

bulk

of

their

produce.

However,thegovernancemechanismofthenewsupplychaincreatedisstillnotfully

developed.Theinstitutions(rules)relatedtocontracts,payments,gradesandstandardsare

yettoevolve.Theretailersexistingmarketingsystemdoesntfitintoeitherthemodelof

standardcontractfarmingorthatofcorporatefarming.Thereisnopredetermined

procurementpriceandnorareinputsortechnicalsupportprovidedaspartofthis

arrangement.It

is

more

like

contact

farming

an

informal

procurement

arrangement

whereretailersenterintoinformalarrangementswithproducerswhocanprovidequality

produce.Thereisnomechanismforsharingproductionandmarketingrisks.Procurement

volumesandpriceschangedaily,basedoninformationonfrontenddemand

communicatedbytheheadofficeaswellaspricesatthelocalmarket.Also,eachpartyis

freetoexplorebetteravenuesofprocurementandsale.

Ifthesearrangementsaretoexpandandsucceedthereisaneedtodevelopacodeof

commercialconductforcommercialrelationsbetweenretailersandproducers.Herethe

governmentcanplayaveryimportantroleindevelopingthiscodeofconduct,sothat

chancesofpotentialconflictsbetweenretailersandproducersarereducedand,thus,losses

tobothpartiesmitigated.

Thereisenoughreasontobelievethatretailersare,sofar,notbiasedagainstsmallfarmers

(Table5).However,globalexperienceindicatesthatsmallholdersarelikelytobeexcluded

fromthesenewsupplychainswhenorganisedretailersstartemployingstringentquality

parametersinprocurement(FAO,2005).

Table

5.

Holding

Size

of

Farmers

(Acres)



24/37



Holdingsize % Averagearea[acres]

Lessthan2.5 31 1.78

2.5 5.0 34 3.88

5.010.0 21 8.28

Morethan10 14 18.86

n=100

Fromtheabovetable,itisreasonabletoassumethatorganisedretailersarenotbiased

towardfarmsofanyparticularsize.Rather,theemphasisismoreonqualityandpreference

isgiventothosefarmerswhofulfilretailersrequirements.

(iv)Institutionalchangesinaccesstotechnology,researchandtechnicalexpertise

Introductionof

new

knowledge

on

improved

seeds

and

farming

practices,

deployment

of

trainedstafftoadvisefarmersandanewprocurementsystemthatvaluesqualityhaveall

resultedinincrementalimprovementstofarmersaccesstotechnology,researchand

technicalexpertise.Outofthefiveorganisedretailers,onlyITCandHeritagehave

establishedreliablemechanismsfortransferringnewtechnologiestofarmers(SeeBox2on

thefollowingpage).Bothhaveestablishedproductionanddemonstrationplotsin

Vontimamidiandhaverecruitedtrainedpersonnelwhoalsoprovidetechnicaladviceto

farmerstomanagethem.Theyhavealsodistributedsampleseedsofvegetables

(suppliedbyseedcompanies)tofarmers.Heritagehasabiggerprofessionalteamtoprovide

technicalsupporttoproducers,especiallyitscustomfarmers.RangerFarms(Reliance)is

managedbyanagriculturalprofessional,butthecompanydoesnotprovideanyformal

extensionsupporttoproducers.MoreandSpencersdonotofferanytechnicalsupportto

farmers.Only15%offarmershavereceivedanykindofadvicefromretailersonvegetable

production(Table6).

Table6.Servicesreceivedfromtheretailers

Typeofservice %of respondentswhohave received the

service

Samplepacketofvegetableseeds 12

Adviceonvegetableproduction 15

N=100



25/37



Box2:ExtensionSupportbyOrganisedRetailers(ITCandHeritage)

ITCChoupal

Fresh:

ITC

has

set

up

a2acre

crop

nursery

and

demonstration

farm

at

Vontimamidi.Newvarietiesofvegetablesaretestedhereandthesiteisalsousedasa

trainingcentre.Thecompanyhasanagriculturalextensionofficerpostedhere,assistedby2

local,trainedtechnicalassistants.TheofficervisitsITCscontactfarmersregularlyand

providestechnicalguidanceoverthephone.

Thistechnicalteamisresponsiblefor:

Identifyingvegetablegrowingvillageclusters

Studyingcropping

patterns,

seasonality,

quantity,

duration

and

availability

of

crops

Identifyingkeyfarmers

Developing collectioncentresandfinalisingqualityparameters

Introducing newvarieties,demonstratingnewtechnologiesandprovidingadviceon

problems

Recentlythecompanyselected24farmersfromtheregionandtrainedthemonvegetable

productiontechniquesthatwouldearnthemaGlobalGAP(GoodAgriculturalPractices)

certificate,ultimatelygrantedtothembyFoodCert(theorganisationentrustedwithGAP

certificationinIndia).GAPisastandardthatcoverstheentireactivityofagricultural

productionfrombeforeseedsareplanteduntilthecropisharvested.ITCsextension

teamhasalsopreparedachecklistbasedonGlobalGAP,titledChoupalFreshGAP.

HeritagesFresh@

Heritage

has

established

a

nursery

and

demonstration

farm

near

its

pack

house

at

Mulugu,

nearVontimamidi.Alargeteamofprofessionalsmanagesproduction,procurementand

extensionactivities.Besidesaseniormanager(trainedinagriculturalbusinessmanagement)

theteamcomprisesadeputymanager(procurement),2productionandprocurement

executivesand15fieldassistantswithdiplomasinagriculture.Technicalsupportisprovided

byanexperiencedagronomist.

Everymonth

outside

experts

conduct

training

classes

for

the

technical

staff

on

production



26/37



andplantprotectionaspects.Thetechnicalteam,inturn,trainscustomandregistered

farmersduringvillagemeetings.Farmersinterestedinregisteringwiththecompanyare

invitedtofillinanagreementformandarethenprovidedauniquecodeandidentitycard.

Customfarmers

who

are

willing

to

invest

in

poly

houses

are

encouraged

to

grow

exotic

vegetables,suchasyellowandredpeppers,broccoli,redcabbage,chinacabbage,etc.

.Thetwocompaniesthathaveplacedtechnicallyqualifiedteamsatthecollectioncentres

andthathavesetupdemonstrationplotsneedtobecommended,giventheweaknatureof

publichorticulturalextension.TheAndhraPradeshDepartmentofHorticultureonlyhastwo

employees(1

horticultural

officer

and

afield

consultant)

for

each

division11.

Sometimes

the

twomemberteamsareforcedtoattendtomorethanonedivision,giventhelargenumber

ofvacantposts.Thedepartmentasawholeismorefocusedondistributinginputsand

subsidies.Atthetimeofconductingthisstudyneithertheorganisedretailersnorthe

farmersinVontimamidihadanyengagementwiththehorticulturedepartment,despite

bothbeingeagertoimproveproductiontechniques.

(v)Newactors,newrolesandopportunitiesformorefrequentandmoreeffectiveinteraction

ThefivecorporateretailersinVontimamidihavesetupcollectioncentres,distribution

centresandpackinghousestostore,grade,cleanandpackproducebeforedistributingitto

urbanretailoutlets.Thishasresultedinastrengtheningofthesupplychaininfrastructure

forperishablecommodities,andhasreducedproducespoilagetoalargeextent.Retailers

haveincentivisedqualityproductionbyprovidingfarmersanalternatechannelfor

marketingproduce.Theyhavealsobroughtinanewsystemofpricingbasedonquality.

Somearealsotryingtodevelopfarmerscapacitytocultivatenewcropsandproduce

commoditiesofbetterquality.

Currentpatternsofinteractionare,however,restrictedtoretailersandselectfarmers.

Whatisclearistheneedforalocalretailpresenceandcontinuousintermediationto

developnewcapacities.Upgradingproductionofhorticulturalproducewithnewcrops,


11Eachdivisioncomprises67mandals.Eachmandalincludesaround3035villages.



27/37



bettervarietiesandadoptionofbetterqualitystandardswouldneedadifferentkindof

extensionsysteminplace.Thestatehorticulturaldepartmentandresearchstationsworking

onvegetablesandfruitcouldlearnalotfromtheexperienceofsomeretailers,suchasITC

andHeritage,

who

are

currently

experimenting

with

new

models

of

support

for

their

preferredfarmers.Theimportanceofproblemsolvingadvice,regularfieldvisitsand

continuousintermediationforproducingbetterqualityproduceisincreasinglyclear.Alot

couldbegainedbyforgingeffectivepartnershipsbetweendifferentagenciesinvolvedin

research,extensionandmarketing.Withoutaneffectivemechanismfortechnology

developmentandpromotion,thepotentialofferedbytheentryoforganisedretailingwould

bedifficulttoachieve.



28/37



6. CHALLENGES AND OPPORTUNITIES FOR ORGANISED RETAIL

IN INDIA

Organisedretailingoffruitandvegetablesbythecorporatesectorisexpectedtoexpandin

Indiainthecomingyears.Whileretailersareexperimentingwithanewbusinessmodel,

producersaretestingoutnewapproachestomarketingfruitandvegetables.These

arrangementsarestillevolving.However,thesenewwaysofproducingandmarketingfresh

fruitandvegetablesarecurrentlycreatingcapacitiesforinnovationinhorticulture.While

governmentcoulddomoretosupportandstrengthenthesearrangements(through

research,extension,marketingandinfrastructuredevelopment),itseemstobedisengaged

from

this

entire

process

of

change.

Thecurrentdebateonorganisedretailoffreshfruitandvegetablesishighlyskewedin

termsofitsimpactontraditionalsmallretailers.Protectingtheinterestsofsmallretailersis

important,buttheinterestsofproducerswhooutnumberdifferentmarketintermediaries

byanycountshouldalsoreceiveequalconsideration.

Producersdo

benefit

when

alternate

marketing

channels

emerge

and

this

study

clearly

supportsthis.Benefitsarenotonlyintheformofhigherincomes,butalsointermsof

improvedcapacityforqualityproductionanddealingwithnewwaysofmarketing.However,

sofaronlyafewfarmersintheregionhavebenefited,withretailoperationsstillatasmall

scale.Farmersstillcontinuetodependontraditionalmarketsand,therefore,upgradingthe

infrastructureandtradingpracticesatthesemandisshouldreceivecontinuedattention.

Oncethescaleofbusinessexpands,retailerswillhavetodealwithagreaternumberof

producers.Withrisingurbanconsumerdemandintermsofquantity,quality,choiceand

convenience,organisedretailisboundtoexpand.Ifproducersaretobenefitfromthisnew

marketingrevolution,theirabilitytoproducequalityhorticulturalproduceneedstobe

upgraded.Thiswouldrequirebothpublicandprivatesectorsupport.Farmerscapacitiesto

marketqualityproducealsoneedtobeenhanced.



29/37



Publicsectorextensionsupportforhorticultureproducersiscurrentlyveryweak.

Strengtheningitwouldrequirelargernumbersoftrainedpersonnelandmoreresources.

However,thereisagreaterneedforadifferentkindofextensionsystemthatcould

specificallysupport

farmers

to

produce

quality

fruit

and

vegetables

and

help

them

access

therightkindsofinputandoutputmarkets.Alotcouldbelearntfromtheexperiencesof

ITCandHeritage,aswellasotherpublicinitiativesinthecountry,suchasSafal(Mother

DairyFruitandVegetableLtd.)andtheVegetableandFruitPromotionCouncil,Keralam.

Publicsectorextensionneedstobeproactiveandengagewithorganisedretailerstodesign

extensionprogrammesthatenhancethecapacityoffarmersandproducergroups.Although

thisstudy

hasnt

found

any

discrimination

against

smallholders,

global

experience

indicates

thattheyarelikelytobeexcludedfromthesenewsupplychains,whenorganisedretailers

startemployingstringentqualityparameterswhenbuyingproduce.Extensioncanand

shouldassistsmallfarmersinenhancingtheircapacitytodealwiththesenewquality

requirements.

Someorganisedretailershavestartedsupportingproducerswithseed,adviceandpersonal

visitstofarmerfields.Buttheyneedtodomoreiftheyarekeenonexpandingoperations.

Thiswouldinvolverecruitingmoretechnicallytrainedstaff,improvingfarmadvisory

servicesanddesigningspecificeducationalprogrammesonqualityproduction.

Arrangementsbetweenretailersandfarmersarecurrentlybasedontrust,withoutany

writtenorbindingcontract.However,oncethescaleofoperationsexpands,written

contractswouldbecomeimportant.Thepublicandprivatesectorsneedtoworktogetherto

developbetterandtransparentguidelinesoncontractarrangementstoreduceriskand

ensureprofitsharing.



30/37



7. LESSONS FOR PUTTING RESEARCH INTO USE AND

INTERNATIONAL DEVELOPMENT PRACTICE

Inthelate1990sandearly2000s, anumberofstudiesflaggedtotheinternational

developmentcommunity

that

private

sector

activity

in

agri

food

systems

had

the

potential

todrivetechnicalandinstituitionalinnovationscapableofimprovingthelivelihoodsofthe

smallscalefarmingsystem(Halletal.,1998,2002;Reardonetal.,2003;Byerleeand

Echeverra,2002).Atthattimeexampleswerescarceanditwasdifficulttoseehowthese

wouldplayoutatscale.Nevertheless,evenatthattimethekeybottleneckwasclearly

identified:namely,theneedfornewwaysofworkingandotherinstitutionalchangesthat

wouldallownewandpotentiallinksbetweenprivateagrienterprises,publicresearchand

alliedtechnical

services

to

work

productively

together

in

supporting

acontinuous

process

of

innovation.

Tenyearslater,thepredictionsaboutthepotentialofprivateenterpriseshavestartingtobe

seenontheground.AsthecaseofIndiashows,privateenterpriseisbecomingamajor

transformativeforceintheagrifoodsystem.Morespecifically,itisbeingviewedasalarge

scalemechanismforlinkingpoorfarmerstorapidlyexpandingurbanmarkets.Theseareno

longerisolatedcases,butanincreasinglycommonpractice.Fromadomesticand

internationaldevelopmentpolicyperspective,thisisatrendofsufficientimportancefor

policymakerstogiveattentionto.

Yetwhilethispatternofmarketdevelopmentisnowwidelyandbetterestablishedthanit

was10yearsago,thesameproblemsarebeingencountered.IfthecaseofIndiais

indicativeofamoregenerictrend,itsuggeststhatwhileanewarchitectureofsector

playersisnowinplace,relationshipsbetweenprivateenterprise,publicresearchandallied

technicalservicesarestillpoorlydeveloped.Moreover,becauseofthis,thepotentialfor

thesenewpatternsofmarketdevelopmenttoprovidefarmerswithaccesstoarangeof

technicalandotherresourcesandexpertiseandtocontributeeffectivelytotheupgrading

ofproductionsystemsisanopportunitymissed.Policycannotaffordtoignorethisasthe

foodsystemsofmostdevelopingcountriesurgentlyneedtoupgradeproductionpractices

toincrease

food

productivity

and

improve

the

sustainability

of

practices

in

order

to

cope



31/37



withclimatechangeaswellastomeetchangingconsumerdemandswhichincreasingly

embodythesesustainabilityandethicalconcerns.

Whatcan

be

done?

It

seems

that

the

hardware

is

in

place

in

the

sense

that

an

architectureoflinkagesexistsbutthesoftware(ororgware)tomakethishardwarework

ismissing.Thetaskatagenericlevelis,therefore,aboutfindingwaysofincreasingthe

comfortlevelbetweenagrienterprises,publicresearchandalliedtechnicalservices. Once

thesenewandcomfortablewaysofworkingareestablishedthatwouldenableproductive

collaborationtotakeplace.This,ofcourse,hasproveneasiersaidthandone(Hall,2006;

Spielmanetal.,2009).Thetruthisthatthereisprobablynoshortcuttoachievingthis

comfortlevel

of

relationships.

It

is

going

to

require

long

term

policy

support

for

arange

of

activitiesthathelpdeveloptheinterfacebetweenorganisedretailingandagricultural

researchandextensionservices.Thejustificationforthisasapublicexpenditureisthatofa

clearsocialreturntothesmallholderfarmingsector.

Therangeofpossiblewaysofachievingthisgreaterinterfacebetweeniswideanddiverse,

butatitscoreistheneedforpublicmoneytoexperimentwithandbuildexperiencesof

publicprivaterelationships:thiscouldbeintheformoftaxbreaksforinvestmentsinpublic

researchbytheprivatesector;itcouldbeintheformofbusinesschallengefundstosupport

collaborativeresearchanddevelopmentactivity;itcouldinvolvehandingoverhorticultural

researchfacilitiestoindustryassociations;itcouldinvolvesecondingpublicextensionstaff

toprivatecompaniesorevenprovidingpublicresourcestotheprivatesectortotrainand

provideextensionservices.Thepossibilitiesareendlesswhilebeingspecifictoparticular

socialandinstitutionalsettings.However,theoverridingmessageforpublicpolicyisthatits

taskistostrengthenthecapacityoftheemergingarchitecturesandsystemsthatare

assumingsignificanceinthedevelopmentlandscape.ThisisalessonforRIUinthesense

thatitsmodusoperandiinthefutureshouldbetobecomeopportunistic.Itshouldfocuson

identifyingopportunitiesassociatedwithemergingpatternsofentrepreneurial

developmentandexplorewaysofusingfinancialandtechnicalsupporttostimulatethe

patternsofinstitutionaldevelopmentneededtoenableinnovationandrelevancetosocial

and

economic

development

agendas.



32/37



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