- What is supply chain management?
- Food Industry: Supply Chain
- Fruit Veggies Processing (F&V)
- Chocolate /Confectionery Business
- Misc. useless Tables
In the previous articles we saw
- Food processing industry: Awesomeness and Obstacles
- Food processing industry: Truckload of Government Schemes and bodies
- Marketing of agricultural produce: issues and constrains, Nuisance of APMC Acts and Commission Agents
- Agro/Food Processing: Export, Dumping, FDI, Finance, Taxation, Budget Provisions, CODEX, NWR, BRGF, RKVY
Moving on, in this article we see topics
|UPSC General studies Mains Paper 3 Syllabus Topic||Topics touched in this article|
|Food processing upstream and downstream requirements, supply chain management.||
- Supply chain is a system that links a company with its suppliers and customers.
- Supply chain management (SCM) tries to optimize ^this system by…
- getting the right things
- to right place
- at right time
- In a cost-effective manner.
- In any business, you get input (men/material)==>process it==>output (goods/service).
- In Supply chain, Upstream-downstream depends on the point of reference. For example,
|Point of reference||Upstream||Downstream|
|farmer||Traders of seeds, fertilizer, pesticides and agro-machinery.||
|food processing company||
|towards suppliers to your company (+ intermediaries if any)||towards consumers (+intermediaries if any)|
|What||Company expands its activities to upstream areas||Company expands its activities to downstream areas|
|Why?||Company aims to get raw material @cheap rates, uniform quality, steady supply and eliminate any middlemen.||Company aims to get more control over sales, consumer-contact and eliminate any middlemen/kiranawalla/wholesellers/retailers.|
- When company’s backward and forward integration is so good that it practically runs everything from making raw material to selling final product to final customer. Example Oil giants such as Shell/BP have their own oil wells (supply), refineries (processing) and petrol pump (retail).
- In other words, Vertical integration is achieved when Single firm absorbs several firms involved in all aspects of a product’s manufacture from raw materials to distribution.
- For Indian food processing industry, Vertical integration is extremely difficult because like we saw earlier:
- Indian food entrepreneurs are small sized and loan starved, while Vertical integration requires deep pockets and truckload of cash.
- FDI permitted only in a few specific sectors of Agriculture. Many states have outdated APMC laws. = backward integration is difficult.
- FDI in Multibrand retail is permitted but with many conditions.= Forward integration also difficult.
So, what we can have is “linkage”. For example
|Setup||promotes ____ linkage||from ____’s point of view|
Mega Food parks
Indian Food processing supply chain has two type of Stakeholders
|those included in Supply Chain||
|those influencing supply chain||
Based on level of processing, we can classify food products into:
|Primary||Products consumed in the original state. Don’t have any no value addition. (e.g. just chop apple from the tree, pack it in wooden-boxes and send to market)|
|Secondary||Basic level of processing: grading, sorting, cleaning, cutting, drying, grinding etc. before they are consumed. (e.g. dried fish, turmeric powder, chili powder, wheat flour.)|
|Tertiary||Combining multiple primary, secondary products from above and doing high value addition (e.g. ice creams, biscuit, jam, cakes, pastries etc.)|
- As you can imagine: tertiary food products ought to have a longer supply chain than primary products because tertiary food products need variety of inputs.
- But in India, even primary processed food too has a lengthy supply chain thanks to dozens of intermediaries before farm produce reaches the fork. Observe the following diagram:
As you can see this supply chain is lengthy and fragmented= high cost and wastage. An ideal fruit supply chain should be similar to FHEL’s.
- Container Corporation of India (CONCUR)= a PSU under Railways ministry.
- Fresh and health Enterprises ltd (FHEL) = subsidiary company under CONCUR, started in 2006
- to create world class cold chain infrastructure in the country
|Middlemen||FHEL was among the first companies to procure apples directly from the farmers and has now refined the procurement system. This has eliminated middlemen in the chain.|
FHEL sells its apples
- via Marketing Associates in Delhi, Mumbai, Chennai, Ahmedabad and other big cities
- Via Cash and Carry wholesale or Retail Chains such as Bharti Wal-Mart, Big Bazaar, Aditya Birla retail, etc.
With the above upstream and downstream arrangements, FHEL has shortened and optimized its supply chain and as a result
- less spoilage / wastage of apples
- More profits to both company and farmers, since middlemen are eliminated.
- Apple available at cheaper price to consumers
Ok well and good for FHEL’s apples but most of the Indian food processing industries don’t have such supply chains. From the last three articles on [Food Processing], we can derive a few common points
What are the upstream requirements for efficient supply chain management? (From Food entrepreneur’s point of view)
Next, What are the Downstream requirements for efficient supply chain management? (From Food entrepreneur’s point of view)
In the first article we had seen the scope-significance of entire food processing industry. Now let’s get more additional points specific to Fruit-veggies industry:
Top 5 States
Big list of individual fruit/veggie grower states= given at bottom under the title “Misc.”
|Processed Food||demand and export potential in|
|Mango Pulp||Saudi Arabia, Kuwait, UAE, Netherlands and Hong Kong|
|Pickles, Chutney||Saudi Arabia and UAE, USA, UK and Germany|
|Tomato Paste, Jams, Jellies And Juices||USA, Russia, UK, UAE and Netherlands.|
Fruit Juice demand
- More youth + Higher disposable incomes + ‘heath’ consciousness=> Urban junta preferring fruit juices over carbonated drinks (e.g. Thumbs up, Coke)
- In 2012, Fruit Juice segment was more than 50 billion rupees.
- This shift is creating newer opportunities:
- Exotic flavors: cranberry, lychee and pomegranate,
- Vitamin, nutrient or fiber-enriched fruit juices.
- Big players have responded to this trend by focusing on their non-carbonated soft drinks (+More ads using Bollywood celebrities like SRK, Kat, Bips)
|Fruit juice product||Boss|
Almost 1500 mango varieties are grown in India but only 3-4 of them are worthy of export but they too face problems:
|Alphonso Mango||Famous and highly valued. But due to its thin skin, it can only remain fresh for 20 days (even in cold storage) = low shelf life.|
|Totapuri mangoes||Cheaper than Alphonso mangoes and have higher pulp content. But Totapuri mangoes banned in some foreign countries due to ‘stone weevil’ pest|
Similar problem for other fruits/veggies:
|Raw material||quality problem|
Nuisance of Middlemen
- For most fruits, the cultivation/gestation period at least 3-4 years. But banks don’t easily give loans to farmer for such long period.
- Hence difficult to encourage farmers to experiment with new varieties of fruits/veggies, even if the new variety has more profit/export potential.
- Given this lack of timely financing from banks / financial institutions, the fruit-farmer goes to middlemen, who advance money to the take the farm on lease.
- Then middlemen manipulates selling prices, to enhance their margins. e.g. Indian Mangoes=wide price fluctuations in Middle-east.
- South American countries offer more consistent prices and are a threat to India. India’s dominance in the pulp sector is gradually eroding due to this factor
What is the solution/requirement?
- Research-development (R&D) to make new varieties of fruits n veggies with longer shelf life, disease resistance and export quality-uniform size-length-color-texture.
- Government should promote cultivation specific fruits and vegetables in a specific states. It would lead to ease in monitoring of new verities + uniform quality=> easier to process + export worthy. For example
|Raw Material||What to do?||Where to focus?|
|Orange||Develop varieties with low-bitterness, suitable for juice-processing||Maharashtra, Andhra Pradesh|
|Potato||Develop varieties suitable for processing into French fries, Chips (low sugar content, uniform length)||UP , West Bengal, Gujarat|
|Apple||Encourage cultivation of foreign Varieties from NZ, S.Africa etc.||Jammu & Kashmir, Himachal Pradesh|
|Mango||Identify other varieties for processing, and reduce dependence on Totapuri, Alphonso||UP , AP , TN, Maharashtra|
|Sapota||Focus on cultivation of uniform size, firm fruits with longer shelf-life||Karnataka, Maharashtra,|
|Litchi||Cultivate varieties with higher shelf life, and smaller seed size||Bihar, West Bengal|
|Onions||Cultivate sweet and white onions- they have export demand||Maharahstra|
- As we saw above, Indian orange=bitterness=not good for juice making. Pepsi imports FCOJ (Frozen Concentrate of Orange Juice) as raw material for its Tropicana juice brand
- Recently Pepsi and Government of Punjab have partnered to promote cultivation of new orange variety in Punjab, to reduce dependence on the imported FCOJ.
- More such partnerships are necessary in the Fruit-veggie sector R&D.
Why is Cold storage important?
- Reduces losses due to spoilage
- Reduces gluts and distress sale by growers,
- Reduces transport bottlenecks at the peak period of production,
- Maintains quality of the produce
- Ensures that a crop harvested over a period of one or two months is capable of serving the round the year market demand.
#investment in cold storage
Broadly, fruits & vegetables can be classified into three segments, based on their shelf-life in cold storage
|Shelf lifein Cold Storage||Example||Does it attract investment?|
|A||Long (6-8 moths)||Potato, Apple, Chilies||Most investment comes here. Especially for potato- for hoarding during lean season.|
|B||Moderate(8-10 weeks)||Grapes, Pomegranates, Banana, Tomatoes||not much investment coming here, Except few export oriented chains.|
|C||small (few days)||Papaya, Melons, Gourds, Cabbage, Cauliflower, Leafy Vegetables.||hardly|
Needless to say, for category B and C, government needs to provide innovative tax-reliefs/incentives to attract more investment.
|New tech||In cold storages, following technologies need to be adopted
- Desi cold storages have high operation cost than their foreign counterparts, mainly because of high consumption of electricity.
- Reason: Food entrepreneur doesn’t buy efficient (and expensive) equipment on Engineer’s advice. Instead, they buy cheap quality equipment on CA’s advice. Why? Because we saw earlier, government schemes have ‘low-ceilings’ + if project cost increases too much food-entrepreneur won’t get loans under Priority sector lending of Bank and won’t be eligible for various tax benefits available to MSME industry.
- Government: enhance road-connectivity to rural areas.
- Entrepreneur: needs to get easy loans for reefer vans and refrigerated trucks.
- Railways: Introduce dedicated horticulture trains. More frequency of freight trains in agro-regions.
|Why?||Because conventional goods trains have following problems
Benefits/Features of Horticulture trains:
- Specially designed containers with good ventilation=>increases the shelf life of the produce
- Container train has been designed to run at a top speed of 100 kilometre per hour (kmph) as against the maximum speed of 75 kmph of conventional railway wagons and trucks= faster delivery less rotting.
- Accepts small quantities, to the unit of one container without agents or middleman. Even small farmers who wish to transport goods to various destinations now have the chance to do so without coughing up huge sums to middle-men or clearing agents.
Let’s see an example, “Banana Train”= connects Maharahstra to Delhi. Lauched in Sept.2012
|Banana||Jalgaon (MH) to the rail yard of the Azadpur mandi in Delhi.by the way, Azadpur Mandi @Delhi= Asia’s biggest market for fruits and vegetables.|
|Potatos||in the return journey (i.e. from Delhi to MH).|
If train returns empty with no cargo=uneconomic. In Delhi-Maharashtra route, we connected them with Banana and potatoes. Similarly following projects should be considered:
- Delhi to W.Bengal (Apples) and return WB to Delhi (potatoes)
- JK to Delhi (Apples) and return Delhi to JK (potatoes: originally from WB)
|When?||Mamta’s rail budget 2009*|
|Why?||To encourage creation of facilities of setting up cold storage and temperature controlled perishable cargo centres through Public Private Partnership (PPP)|
|How?||PPP via public sector logistics viz.
*Although topic is from 2009 but been in news in August 2013 for:
- Rail Minister’s reply in Parliament (available @pib.nic.in)
- News reports on how it is #epicfail
And for us, it becomes important for GS Paper 3 because UPSC syllabus contains
- Infrastructure: Energy, Ports, Roads, Airports, Railways etc.
- transport of agricultural produce and issues and related constraints;
Anyways, under this Kisan Vision project, 6 Perishable Cargo centers were to be developed at:
- Nasik (Maharashtra)
- New Azadpur (Delhi)
- New Jalpaiguri (West Bengal)
- Singur (West Bengal)
- Dankuni (West Bengal)
- Murshidabad (West Bengal)
A Pilot project was started @Singur, WB in 2009 itself but yet to take off because
- Although facility has the capacity to store more than 1,000 tonnes of potatoes, but lack of proper roads for trucks to enter the area. Recall the criticism of government schemes from earlier article…. Most schemes seek to get investors to pump money in (Cold storage) infrastructure without providing the necessary (road) support for the utilization of the infrastructure.
- Cold storage projects have to be near the market, especially the multi-purpose ones. This project was located far away from the market and could not find many takers.
- It takes about 3 weeks to send Mango from India to EU via sea=> sea transport is unsuitable for Alphonso Mango export. You’ve to transport it via air
- Indian air-cargo-transport=> fuel surcharge and variety of taxes. Combine that with exchange rate difference =Pakistani mangos are cheaper in EU compared to Indian mangos.
- Similarly Terminal handling charges at several ports are also high (compared to Hong Kong etc).
- poor frequency of ships / flights leaving from various ports / airports
- need customs clearance=>inefficiency, delays, bribes
All ^these results into
- wastage of perishable food/veggies
- Higher cost of transport => product price increased in destination country = pricewise, it becomes uncompetitive.
|Japan||Indian mangoes without Vapour heat treatment (VHT)=banned.|
|Australia||Indian mangoes import facing problem due to fruit fly|
|USA||Indian mangoes import facing problem due to Stone weevil.|
- EU and in the Middle East follow CODEX standards when importing fruit based products.
- India’s problem: Lack of post-harvest treatment facilities such as for vapor treatment – Lack of packhouses from farm to port.
- Even after complying with these requirements, Indian exporters need to invite and sponsor visits of the quarantine departments of the relevant importing country for lifting of the ban. Such visit / inspection costs about ~ USD 100,000/visit/person
- Similarly for grape exporters: the cost of EurepGap certificate Rs.75000 / farmer.
- APEDA (under Commerce Ministry) provides financial help for Eurepgap certification, more fruits and veggies need to be given similar help to meet with the certification/ requirements in foreign markets.
As we saw in the first article, The Kirana-wallas in USA (known as mom and pops stores) have cold storage / refrigeration hence they can sell fresh fruits/veggies but our cart-pullers, small-veggies sellers don’t have such facilities=wastage. Hence FDI multi-brand=necessary for the growth of fruit-veggie industry and to contain food inflation.
let’s move to next sector:
The per capita chocolate consumption in India is much lower than most European countries. But there is lot of potential in upcoming years, because:
- Increased disposable incomes, newly rising middleclass = higher propensity to spend on impulse categories such as chocolate.
- Chocolates-sale no longer confined to children only. Companies trying the power of advertisement to attract:
- Youth= Those ads involving romance/valentine day angle.
- Middle-aged= Chocolate gift boxes for Diwali and Raksha-bandhan etc. This advertisement model has been successful in China, chocolate box gift has become a routine-gift for wedding receptions.
|Year||Chocolate business in billion Rs.|
(^doesn’t include the income of Dentists.)
- (same can be used for soft-drink industry)
- woolly aphid (an insect pest) causing high damage to sugar crops in Maharashtra and Karnataka
- UP’s yields are much lower than TamilNadu.
- successive increase in sugarcane prices in past years, mainly politically driven= abnormally high cost of production of sugar
- This Increase in raw material (sugar) prices has hurt profit margins of confectionary units because companies are unable to pass on the higher costs to consumers.
- ^To put this in other words- the dairy owners can form a cartel and raise milk prices every month, but you’ll still purchase it, because milk is an essential item.
- But If toffee makers form a cartel and raise price of 1 toffee from one rupee to two rupees, then most people will stop buying or giving additional pocket money to their kids! Meaning toffee-maker cannot ‘pass’ the increased raw material cost to the final consumers.
- Hence Desi confectionary industry wants rationalization of the sugarcane pricing policy. For more read Ranagarajan Sugar committee article click me.
- Kerala is the leading cocoa producing state in the country but industrial demand is significantly higher, estimated at nearly three times the cocoa cultivation.
- But cocoa cultivation= Inadequate marketing network + fluctuations in prices =farmers feel insecure.
- Indian varieties of cocoa=low chocolate yield.
- Need R&D, Need to introduce superior varieties using clonal technology to improve yields.
- Cocoa buying attracts >10% purchase tax in Kerala= input cost increased for confectionary unit.
Just some stupid Tables for informative purpose only, otherwise hardly relevant from exam point of view.
|Banana||Maharashtra, Tamil Nadu, Karnataka|
|Mango||Andhra Pradesh, Uttar Pradesh, Bihar|
|Citrus||Maharashtra, Andhra Pradesh, Karnataka|
|Papaya||Andhra Pradesh, Karnataka, West Bengal|
|Guava||Bihar, Maharashtra, Karnataka|
|Grapes||Maharashtra, Karnataka, Tamil Nadu|
|Pineapple||West Bengal, Assam, Bihar|
|Apple||Jammu and Kashmir, Himachal Pradesh, Uttaranchal|
|Litchi||Bihar, West Bengal, Assam|
|Sapota||Karnataka, Maharashtra, Tamil Nadu, Andhra Pradesh|
|Total fruits (incl others)||Maharashtra, Andhra Pradesh, Tamil Nadu, Karnataka|
|Potato||Uttar Pradesh, West Bengal, Bihar Punjab|
|Brinjal||West Bengal, Orissa, Bihar|
|Tomato||Maharashtra, Karnataka, Bihar, Andhra Pradesh|
|Tapioca||Tamil Nadu, Kerala, Andhra Pradesh|
|Cabbage||West Bengal, Orissa, Bihar|
|Onion||Maharashtra, Karnataka, Gujarat|
|Cauliflower||West Bengal, Bihar, Orissa|
|Okra||Bihar, Orissa, West Bengal,|
|Peas||Uttar Pradesh, Jharkhand, West Bengal|
|Sweet Potato||Orissa, Uttar Pradesh , West Bengal|
|Total veg. (incl others)||West Bengal, Uttar Pradesh, Bihar Orissa|
|Jam||Hindustan Unilever, Mapro, Marico , Malas|
|Pickles||Priya foods, Praveen, Desai Brothers, Cavin Kare, GD Foods|
|Sauce / Ketchup||Hindustan Unilever, Nestle, Heinz|
|Juices / Fruit based drinks||Pepsi, Dabur , Parle, Godrej, Mother Dairy|
|Squashes||Hindustan Unilever, Haldiram, Mapro|
|Ready to Eat Vegetables||Tasty Bite, ITC, MTR|
|Cooking pastes||Dabur, Hindustan Unilever|
|Company||brands of chocolate/chewing gum etc.|
|Perfetti||Brooklyn, Big Babool, Alpenliebe, Center Fresh, Chlor Mint, Golia, Cofitos|
|Parry’s/ Lotte||Coffy Bite, Lacto king, Coconut punch, Caramilk, Madras Cafe, Soft-Spot, Flavoured Candy, Mango, Sunshine, Shakti, Pineapple|
|Parle’s||Melody, Mango bite, Kismi, Poppins, Rola cola, LuxDairy, Peppermint, Rosemint|
|GDC/ Joyco||Boomer, Bonkers, Donalds,PimPom, Mickey,Bonkers|
|Candico||Minto, After smoke, Candy king, Americano, Orange-tutti frutti, Drum Beat, Vanilla Roll, Elaichi roll, Big Freedom, Jumbo-Gumbo, LocoPoco, Minto-Fresh|
|Ravalgaon||Pan pasand, Mango mood, Coffee breakSupreme,|
|Nestle||Polo, Allen’s Splash, Soothers, Toffo Butter, Fruit Rings, Fox’s|
|Cadbury’s||Googly, Mocka, English toffee, Frutus, Gollum, Eclairs, Pops.|
Next time we see upstream downstream issues related to milk-meat-marine, tea-coffee-liquor-oil etc.