Cover Story

Agriculture Services A Journey from Farm to Plate

Ever wondered how much an average Indian meal travels to get from farm to plate? Believe you us; it is definitely not as simple as it sounds! Rather it is a fairly long and complex process, encompassing a wide network of services working at multiple levels simultaneously.

Once the food is processed, it is manufactured and packaged. Post that, they enter an extensive distribution network that brings products from the manufacturer to various retail outlets spread across the country.

The transportation, warehousing, cold storage, retail outlets, etc are all vital segments, playing crucial roles in the supply chain. Nowadays, even perishable food can travel long distances with quality intact, thanks to modern, high-speed methods of transportation — trucks, trains, and planes — and refrigeration and cold storage network.

The extensive distribution networks have led to the consumer being the king, who is spoilt for choices when it comes to variety in food and fibre products.

Business of Agriculture traces the journey of food products from farm to plate, sneaking a peek into each and every aspect of distribution and storage network.

Warehousing: The Protector and Guarantor

A scientific storage structure specially constructed for the protection of the quantity and quality of stored products, warehouse plays a crucial role. The products stored in warehouses are preserved and protected against rodents, insects and pests. They also ensure that the moisture and dampness don’t play spoilsport. Warehousing is an integrated scheme of scientific storage, rural credit, price stabilisation and market intelligence, and is intended to supplement the efforts of cooperative institutions.

Storage of produce is an important task. If the crop grains are to be kept for longer time, they should be safe from moisture, insects, rats and micro-organisms. The fresh crops contain more moisture. If freshly harvested grains are stored without drying, they may get spoilt, thus losing their germination capacity. Therefore, prior to storing them, the grains should be properly dried in the sun to reduce the moisture content. This also prevents the attack by pests, bacteria and fungi. Farmers store grains in jute bags or metallic bins. However, large scale of storage is done in silos and granaries. For storing large quantities of grains in big godowns, specific chemical treatments are required.

According to global property consultancy Knight Frank, India’s warehousing requirement was expected to grow at an annual average rate of nine percent to 1,439 million sq ft in 2019 from 919 million sq ft in 2014.

The India Logistics and Warehousing Report 2014 said that the government’s renewed focus on incentivising the manufacturing sector will boost growth of warehousing. The logistics market will reap the benefits of this growth in the coming years. Additional demand for warehousing space per year will be around 104 million sq ft till 2015, and will entail investments of about `15,000-16,000 crore every year, the agency estimated.

The investments will go towards land acquisition and cost of construction. “Investment in warehouse can provide an opportunity of realising returns in the range of 12-20 percent per annum to investors willing to explore this sector,” the report said.

The Central Sales Tax structure is forcing companies to locate warehouses in all the states they operate in, which leads to an inefficient supply chain. Introducing the Goods and Services Tax (GST) will streamline the taxation procedure, creating an effective supply chain. It’s high time that the government introduces GST, so that the operation of the warehousing sector is streamlined without further delay.

Some of the logistics companies with a presence in the warehousing industry include Allcargo Logistics Ltd, Gateway Distriparks Ltd, Transport Corp of India Ltd, Gati Ltd, Sical Logistics Ltd and Container Corp of India Ltd.

Important Functions of Warehouses

Scientific Storage: Here, huge quantities of agricultural commodities are stored. Various methods of preservation are implemented, so that the product is protected against quantitative and qualitative losses.

Financing: It goes without saying that financing holds the key to warehouse management. They must meet the financial needs of the person who stores the product. Nationalised banks, especially National Bank for Agriculture and Rural Development (NABARD) and others advance credit on the security of the warehouse receipt issued for the stored products to the extent of 75 to 80 percent of their value.

Price Stabilisation: By checking the tendency to making post-harvest sales among the farmers, warehouses help in price stabilisation of agricultural commodities. Farmers can store their products in warehouses during the post-harvest season, when prices are low and sell it once they are assured of good returns on their products. Warehouses even inform farmers about the current market prices, thereby preventing distress sales and apprise them about the emergence of favourable market conditions, so that they get the best value for their product.

Today, there is a greater demand for advanced and comprehensive warehousing services in India. Two factors that have comprehensively spiked this demand are the development of organised retail in India and the growth of the manufacturing sector.

In order to make the most of the opportunities, the private sector of the warehousing market must get its act together and reorganise itself. According to an industry report by the Associated Chambers of Commerce and Industry in India (ASSOCHAM), India is short of 10 million tonnes of cold storage capacity, resulting in the wastage of over 30 percent of agricultural produce every year.

Warehousing infrastructure developments will also receive a thrust from the improvements in transport modes. Property developers, who have identified significant opportunities in warehousing in India, are planning to build warehouses. All these developments will enhance the availability of warehousing services in the country.

Transportation: A Transformation in the Making

When it comes to transportation, India is largely dependent on road and rail networks. However, the recent decision of the Food Corporation of India (FCI) to move food grains through the sea route from Kakinada to Kochi could alter the whole dynamics of the transportation network. The government has already approved the container movement of 20,000 MTs of rice per month from Kakinada to Kochi. The decision to utilise sea routes will go a long way in reducing bottlenecks in the transportation network.

Cold Storage Facilities: Miles to Go

Due to the lack of adequate cold storage facilities and refrigerated transport, India is throwing away fresh produce worth billions every year. Currently, India does not have a comprehensive cold chain network, which is estimated to grow to `32,000 cr by 2015.

During the past decade, there has been a tremendous growth in the production of horticulture produce, dairy products, and meat products. There has been an urgent need for creation of a cold chain network, which is crucial for longevity of perishable food commodities.

A well-integrated cold chain network will improve supply chains and reduce losses during produce handling and movement to a large extent.

A vast network of cold storage is sine qua non for dealing with the long-term storage of potatoes, onions and high value crops like apples, grapes and flowers. Potato cold storages used to contribute 88 percent storage capacity till the year 2000. Nowadays, new cold storages are being constructed as multipurpose facilities focussing on all fruits and vegetables, poultry, dairy and FMCG product categories.

With more than 3,500 companies in the whole value system, the Indian cold chain market is highly fragmented. Cold storage solutions comprise about 85 percent of the Indian cold chain market by value, and the balance 15 percent is contributed by transportation.

There are various standalone, integrated companies and 3PL service providers offering cold storage and transportation solutions to various food companies. The fact of the matter is that the cold chain business in India is a lucrative proposition for foreign investors due to high growth prospects for the food processing sector, along with attractive government incentives.

Marketing and Pricing: Aiming for High Profits

Similar to the process of production, the pricing and marketing of agricultural commodities is instrumental in maximising profits. Successive governments have stressed the development of physical markets, on farm and off farm storage structures, facilities for standardisation and grading, packaging and transportation through different Five Year Plans.

The damage caused by pest infestations leads to a reduction in market value, depending upon the extent of damage. Most agricultural commodity markets usually function under the demand and supply mechanism. The government also fixes minimum support prices or statutory prices for certain crops in order to protect the interests of farmers, and encourage them to increase production. If the price of these commodities falls below the support limit, the government arranges to buy these crops.

The government supports organised marketing of agricultural products through a system of regulated markets in India. These physical markets are meant to make sure that farmers get reasonable profits by creating an atmosphere of fair play. This fairness is with regard to the forces of supply and demand, regulation of market practices and transparency in transactions.

Most State Governments and Union Territories have enacted legislations like the Agricultural Produce Marketing Committee Act to provide for regulation of agricultural produce markets. This leads to an efficient system of buying and selling of agricultural commodities. The mechanism ensures a reasonable amount of profits to agriculturalists for their crops and other agricultural products.

Basic facilities such as internal roads, boundary walls, electric lights, loading and unloading facilities, and weighing equipment are available at more than 80 percent of the markets. Auction platforms, drying yards and more and more cold storage units are very much in the offing.

The Way Forward

India is an agricultural country, which remains the mainstay of the economy. Commercialising agricultural production is the need of the hour. Fortunately, production and distribution of food is finally getting the attention it deserves.

Gone are the days when agricultural marketing was all about the farmer selling his products to the consumer on a cash or barter basis. The journey of food from farm to plate has undergone rapid transformation. In fact, it has to undergo a series of exchanges or transfers from one person to another before it reaches the consumer.

There are three marketing functions: assembling, preparation for consumption and distribution. Selling the agricultural produce depends on the demand of the product at that time, storage infrastructure, etc. The products may be sold directly in the market, or stored locally for the time being. Moreover, it may be sold as it is gathered from the field or it may be cleaned, graded and processed by the farmer or the merchant of the village.

Processing depends on the demand and quality of the product. The task of a distribution system is to match the supply with the existing demand. Agricultural products in India are mostly sold by farmers in the private sector to moneylenders/village traders. Products can be sold at a weekly village market. They are even sold at irregularly held markets.

Central government organisations like Commission of Agricultural Costs and Prices, Food Corporation of India, Cotton Corporation of India, Jute Corporation of India, etc. are involved in agricultural marketing. There are also specialised marketing bodies for rubber, tea, coffee, tobacco, spices and vegetables.

Agricultural production is much more than a commercial activity. Rather it is a part of Indian tradition. Marketing and allied commercial activities associated with agriculture must be infused with fresh perspectives. The value added services needs to be further augmented, and policymakers should set their priorities right.

It’s time the Indian agricultural sector realises its potential. Agriculture services are not only revenue generating sector; it can also provide employment that the country teeming with billions needs.