Ecohorts Blog

Organized Retail – Challenges and what lies ahead for the Apple Grower?

Posted in Organized Retail by Administrator on the February 1st, 2014

The current burning Question: Are the farmers, ready for organized retail?

I am deliberately, avoiding the term FDI in retail because it is a political stunt. FDI or no FDI, Indian retail will eventually become “organized retail” at a speed that most people don’t imagine possible. If we avoid Walmart, Tesco and Carrefour; we will still have our own equivalents in India. The rate at which billionaires are made in India is second to none; and they know where to put their dollars to generate more dollars. Globally, retail is a trillion dollar business and someone has to eat into the India cake – be it FDI or no FDI; the cake is too big to be left to the street vendor.

Let’s examine the various points of views:

a. My view as a consumer, I am all in favour for organized retail because it gives me choices 24×7x365. It gives me a transparent value delivery. It gets me all in one place or even at my doorstep at a time I choose and the products last longer because of excellent packaging and improved handling. I can write this for hours. No need though. Everyone knows the good stuff.

b. My view as an economist, I am sensitive to the (left of centre) view that seems worried about the Chahhbawala (street vendor) but the horrendous conditions and exploitation of this very Chhabawala are well known and well ignored. The unorganized retail has made sure that this street vendor remains a Chhabawala for generations after generations. He lives with appalling conditions (slums) at home and the biggest mud pond in Asia at work (Azadpur Mandi). Therefore, let’s throw away the philanthropic idea, no favours are being done to anyone. The economist in me thinks, if we have organized retail and an efficient supply chain we can save the 30% fruit and veg that goes to the rot. We can ill afford such luxuries when we have the largest hungry population in the world. The creation of supply chain will create millions of direct and indirect jobs. All the construction and unskilled workers will come from somewhere!! Again the list goes on forever.

c. My View as a farmer is that we have a great challenge at hand. Are we readyyyyyyy for the muscle of the buyers who deal with trillion dollar supply chains?  Obviously we are not. We can’t even handle the humble artiyas (commission agent). The commission agents are tiny midgets compared to the dinosaurs I deal with every day. The dinosaurs have very deep pockets. Remember, Coca-Cola and Pepsi, they were betting for the future. They lost and probably still lose hundreds of millions of dollars every year in India – just to keep the market share, till they kick everyone out. Secondly,

The view of the supermarket: Now think of yourself as the manager of a mature supply chain in the modern world without bounds, where you as a buyer in organized retail can make multi-million dollar procurement contracts or forward contracts with wholesalers and farmers cooperatives. You will obviously buy where the best (read extortionist) prices are available. Also, where the fruit is handled well and will not perish (ahem: telescopic cartons) An example is the American apple growers. When they can’t sell their crop where they want to the leftovers are sold for 15 cents a Kg. Half of this can be transported globally and the supply chains make a margin of 500% by selling them in Bengali market. The Eureka moment, did you know American delicious lands cheaper on Indian ports than Himachali Delicious lands in New Delhi? Same goes for European apples. Thankfully, they don’t grow varieties that our customers like (phew!!!).

The time machine: Let us look into the future. What made me think and share these views is my connection with ecohorts, my weekly shopping at the local super market (?) and my connection with British top fruit industry. The Italian and now the British apple industry is a great source of inspiration for top fruit growers worldwide. Looking at their life cycle to date is like going into the time machine and looking at our future. The wise always learn from others mistake and by learning from their journeys we can avoid the disastrous earthquakes they felt in Europe and America. Let’s reflect on the two well known examples:

1. The Italian job: The Italian orchards are typical and most close to ours. They have slopes (well somewhat), mountains and valleys, limited land per capita (only 19000 hectares in the whole region), small holdings and no economies of scale. As a result of the competitive conditions created indirectly by organized retail the apple industry in Italy was almost wiped out. This is because the super markets found cheaper/efficient sources elsewhere. The average grower with just about two to three acres of holding did not stand a chance against the buying power of organized retail. How did they deal with it? Fast forward 30 years, they improved their efficiency and adopted/improved growing techniques to take the yield levels from 15 tonnes to 80 -100 tonnes per hectare. They diversified (home tourism and vineyards) and the neighbours got together and shared facilities and bought farm inputs collectively to create economies of scale (collaboration). The result – now they have the highest yields in the world and command credibility beyond imagination. The Americans and rest of the Europeans go to Bolzano to learn from them.

2. The British example: All the above did happen to the British Apple industry. Additionally, the British had another complication – emotional attachment to their centuries old apple orchards and every orchard had 100 traditional varieties that were passed down from generations. A few years ago, there was no sign of British apples in the supermarkets and the fabled research institutions turned into small time applied research companies that only do paid applied research for (guess who) super markets. Finally, the current generation of top fruit farmers turned a page – they bulldozed their traditional orchards and went for the cutting edge European models, reduced the cultivars to what the customers wants and now can move apple varieties more quickly than we change cars. Orchards for life are history now. Small cooperatives are in place to help keep the costs down. One most important factor, they got together with the government to promote “Eat British”. They funded government campaigns and due to awakened consumer, the supermarkets are helping local growers to increase the market share of British top fruits on the shelf. The market share that had gone down to below 20% local fruit even during harvest season has made a comeback. The consumer is helping by demanding more “local produce”. Farmers are able to make some cash and allocate Capex for the next generation of orchards that are investment heavy. In a nutshell, a great collaboration between the consumer and producer forced the comeback of British top fruit grower and now the super markets are helping as well.

What can we do? For us the answer lies in the middle. We need to do a bit of both. Right now the aspirations of the nation mean that anything imported is preferred and desired. In future, slowly and steadily the consumer needs to be educated (forget the government). The growers can do their part by improving the choices for consumers i.e. put fruit on the shelf that is second to none and at a price that is world beating. The organized retailer will go where he smells the dollars. We need to be competitive to a point where we have the Capex to diversify or/and deep enough cooperation (read pockets) to take losses for long. Remember, the Cherries I eat these days are coming from South America (Chile etc.), we struggle to get them to Delhi in time.

In conclusion, avoiding organized retail is not an option – surviving organized retail is where the trick lies. See the future in my weekly shopping picture and the list below. See what the British farmer competes with every day. Notice where all these fruits have come from and where your competition lies. We need to think how a poor country like Chile can break into established markets in our backyard. Remember, there is still a lot to learn. Our next generation is working hard and working smart and we are sure we will beat the competition but it will need meticulous planning and ruthless finance management – the talent for numbers has to come. Remember – if you can’t beat them join them.

Apples (Fuji) – China and others Chile, New Zealand and Germany.

Litchi – South Africa

Cherry and  Blueberries – Chile

Dragon Fruit – China/Hong Kong

Kiwi – New Zealand

Oranges – Spain

Redcurrants – Holland

Strawberry – Egypt

Dates – Tunisia

Radish – Morocco

Okra – India

Tomatoes – Italy and the list goes on it is hard to find two things from one country.

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