Excerpts (Chapter 1)
The Backdrop
Agriculture is the most important source of livelihood
accounting for about 60% of employment and 19% of the
gross domestic product in India. Agriculture encompasses crop
production, plantation and horticulture, animal husbandry,
forestry and fisheries. India is the largest producer of milk and
fruits and second in vegetables and sugar. It is the fourth largest
economy after USA, China and Japan in terms of GDP at $3363
billion calculated on purchase parity basis. However the per
capita income is only $3100 with a ranking of 145. Prosperity
in agriculture is crucial to the majority of the population not
only for growth but also equity, as otherwise people could
literally be working to starvation.
With the advent of the World Trade Organization,
agriculture no longer is just the tradition it has always been.
There are people who argue that the WTO is an external
imposition and a curse forgetting the fact that the alternative
to liberal trade is nothing short of war. The essence of the
General Agreement on Trade and Tariff (GATT) is that the
consumer is placed on the pedestal and the producers and the
sellers have to strive hard to offer him the best products at the
Supply Chain Management for Indian Agriculture Introduction
lowest prices. There are varied interest groups, who try to hide
this simple fact and confuse the issues. But the global economic
forces are too strong to resist for long and they would dictate
an efficient, value adding and shortest link from the farm to
the plate. Over time, money talks and every one listens. Indian
policy makers have been wise to sign GATT, which despite
being unfair in some ways, has opened up the opportunities
for modernization, diversification and integration of agriculture
with the mainstream economy. The trends are becoming visible,
albeit slowly.
The medium term strategy of India in the WTO
negotiations centre around market access, domestic support,
export competition and food security. They envisage the
continuance of the present flexibility in public stockholding,
public distribution of food grains as also dispensation for
developing countries to take measures for poverty alleviation,
rural development and rural employment. It specifically seeks
flexibility for developing countries for providing subsidies to
key farm inputs. However, in the long run, which means not
more than two years, India will have to move towards greater
competitiveness. India will also have to be on high alert about
tariff and excessive non-tariff barriers to Indian exports in the
name of quality, environmental damage and human rights
violations. Some believe that there is a conflict between export
orientation and food security. Actually these objectives could
be mutually reinforcing. The labour intensive nature of
agriculture makes India competitive to an extent.
With the shrinking of time and distance, the inevitability
of globalization is obvious and accepted widely, with some
reservation on the inequitable elements. In the words of Shri
Atal Behari Vajpayee, democracy has been globalised, but
globalization remains to be democratized. If it is agreed that
India needs the world more than the world needs India,
globalization is not a dirty word it is made out to be. It is a
window of opportunity to make Indian agriculture competitive.
In developed countries the system of marketing agricultural
produce is no different from that for industrial products. The
super market networks bring producers and the consumers in
close proximity and build in grading and testing facilities that
match exacting standards.
The Supply Chain
The potential for agricultural development does not merely
lie in the soil, water and bio-diversity. It is in the minds of the
people. It is definitely an advantage that India has all these
natural endowments. Therefore, management has become
crucial missing link in realising the potential. Supply chain
management and logistics is surely emerging as a key
component of the fast growing services sector.
While the supply chain management (SCM) is a well-known
concept in modern industry, its application is yet to be fully
realised in India, least of all in the agricultural sector. The supply
chain management theory has emerged as a result of the rapidly
changing social, economic and business environment in which
agribusiness operate. Competition for market-share is increasing
as barriers to trade fall and firms look intensively into their
regional, national and international markets for opportunities.
The cooperative strength through the whole supply chain from
consumer to the producer is an inescapable tool to promote
income levels and market shares including exports. It is no
longer a competition among individual enterprises but among
production chains collaborating in markets but competing in
value addition and quality. Competition and collaboration are
not mutually exclusive. In an effective supply chain they coexist.
The relationships between buyers and sellers within the
chain cannot continue to be adversarial. The Netherlands are
known world leaders in agricultural supply chains. The rest of
Europe is fast catching up. According to Jan van Roekel,
Managing Director, Agri-chain Competence Foundation, the
Netherlands “Because each company is just one link in the production
chain, with upstream and downstream links, it has to cooperate. The
more effectively it does this, the stronger its competitive position in the
market.
Though the concept of SCM is being increasingly adopted
by all the developed countries, there has been little insight in
India even among economists and policy makers on the subject.
Of late the issues are being debated. A reference was earlier
made about the strong networks in the Netherlands. Australia
has developed the Food and Fibre Chains Programmes in
support of their Prime Minister’s “Supermarket to Asia”
strategy. This program is providing assistance to businesses
involved in Australia’s food and fibre industries to develop
and implement superior supply chain skills and practices.
It is not easy to bring about SCM discipline in Indian
agriculture because at present, it is not a chain of established
business firms but a primitive and incoherent aggregation of a
large number of farmers, commission agents, traders,
government agencies, cooperatives and a small number of firms
and corporate bodies. The actors generally tend to exploit the
rest of the supply chain for short term gains rather than
collaborating for a long term win-win strategy. If there is to be
a reform in agriculture it is precisely in introducing the concept
in the sector.
Contrary to conventional belief in India, supplies are
chasing demand in many segments of agriculture. Customers
are becoming more discerning about the quality and value they
expect. Therefore, the first step is to look at a product or a
group of interrelated end products that have a significant
market. With the global village shrinking it is not material where
the markets are so long as they are identifiable and reachable
in a cost effective manner. It is necessary to realise here that it
is far more difficult to create the markets. It is a different ball
game. As they say in Israel, you cannot argue with the market.
The next step is to analyse every link in the vertical chain
of production, storage, processing, logistics and marketing and
to bring about a very intensive collaboration among the actors
so as to maximise value addition on the one hand and cost
efficiency on the other. The seeds and planting material, the
package of practices, research and extension, information
network, quality control, regulations, management, credit,
storage and processing, marketing and organisations involved
will have to receive close attention from all the stakeholders.
Farmers have to view themselves as links in the supply chains
rather than mere commodity producers. Stronger links between
businesses throughout the supply chain create the critical mass,
reliability, product consistency and quality demanded by
customers. It is a challenge of education, coordination and
management. It is the quintessence of integrated development.
Cutting into the middle functions is a natural consequence of
the approach as the retailers establish global sourcing networks
to guarantee supplies to satisfy the demands of the customer.
An important component of SCM is the information
network along side the flow of materials. Information flow
within the supply chain relating to markets, technologies and
inventory management is an integral part of the management
process. It is smarter to cooperate rather than compete with
other members of the supply chain, so as to be able to become
more competitive against other chains. Businesses must be
prepared to be open and share information with other chain
members, as the greatest increase in chain efficiency results
from greater and faster information flow.
The government has to play a crucial role in catalysing
and facilitating the supply chain management systems through
appropriate legal, administrative and promotional policy
measures.
The Objective
With this background, the aim of this book is to build a
“Supply Chain Management” model that would fit into the
socio-economic conditions of agriculturists. This broadly
translates into the following objectives:
• To identify four product groups sourced from agriculture
and allied activities with very significant market potential
• To study the relationships within the vertical chain starting
with marketing, processing, storage, production etc. for
each group
• To study the support structures in the form of market
infrastructure, research and extension, legal and
administrative support, credit and collaboration and
competition among the stake holders
• To build up a model of supply chain management for each
group so as to maximise the efficiency and value addition
and consequent income levels to the entire chain.
• To generalise the models for a common application in the
agriculture sector and to suggest the catalytic interventions
needed from the government for the purpose.
In a coordinated supply chain, farmers and firms do not
have to own the processes up and downstream; control through
knowledge can be equally effective. In addition, a business
does not have to be a chain leader. Being an active partner is
sufficient to gain some of the benefits of supply chain
management. This concept would contribute to enhanced
livelihood opportunities and incomes to the large farming
community through quantum jump in efficiency and value
addition.
Structure
The book has been divided into the following chapters and
the nature of contents of each chapter is given in brief.
Chapter 1: Introduction
The current chapter introduces the concept of supply chain
management, its objective and methodology.
Chapter 2: Supply Chain Management in Agriculture
This chapter defines and explains the concept of SCM as
applied to agriculture and enumerates arguments for its
adoption particularly in the backdrop of globalisation of trade.
The problems of poverty in agriculture amidst plenty in
production but low value addition are described. It is seen that
the policies have not been conducive to the growth of the
sector. The SCM strategy could fit into the vision, objectives
and strategies of the Agriculture Policy declared by the
Government of India. It is seen that all non-value adding middle
functions are temporary and many would be eliminated over
time. SCM could relieve farmers of the responsibilities of forced
entrepreneurship. The emerging interest of the corporate sector
in agriculture is beneficial to both farmers and the corporate
bodies. The existing and improved supply chains are explained
through figures. The place of technology and management in
SCM are emphasized. The idea of contract farming and its
variants as a subset of SCM is introduced. It is shown that
small farmers and the agricultural labourers also stand to benefit
from the approach.
Chapter 3: Sugar
Sugar is a strategic commodity in crisis time and again and
its by-products would only enhance its strategic value. The
industry status in other countries is described and it is seen
that subsidy is not a precondition for sustainability. The
background of surpluses in capacity and production of sugar
in India and particularly UP is explained. India has the
technologies to contribute greatly to the cost efficiency of
production and processing the adoption of which is integral to
SCM. The plethora of policies affecting the sector and the
reformist path for production, processing and marketing
including futures are presented. The absence of proper
corporate governance in most sugar mills is a bottleneck that
could be overcome.
Chapter 4: Mango
Mango is a unique fruit with a relatively low shelf life and
underdeveloped international market, though the domestic
demand is strong. Indian mango farmers are yet to be aware of
international quality standards and adoption of agronomic
practices to impart the quality. Organic mango could capture
the imagination of environmentally aware market. There are
examples of horticultural crops capturing shelf space in the
retail chains of developed countries like grapes from
Maharashtra. Here again, the policies affecting the sector and
the set up of mango supply chain are given in detail. The
proposals for setting up agricultural zones for mango are seen
as the right steps to achieve SCM in mango.
Chapter 5: Milk
The chapter deals with the fastest growing sector. The
success achieved is based on the precedent created by
“Operation Flood” in production and the world class marketing
by Amul. Still a large segment is unorganized. There is export
potential despite non-tariff barriers. Quality in production and
processing is the need of the hour. Private sector also needs to
go for product diversification and modernization and follow
the supplier care policies of Amul. Greatest rural wealth can
be created by SCM practices in dairy for which a road map has
been presented. The policy scene and changes needed are also
discussed.
Chapter 6: Cotton
Cotton dominates the fiber profile of India. Livelihood of
4.5 million farmers depends on cotton. This crop is associated
with farmer distress in Maharashtra. The textile industry
provides 20% of employment. The textile exports are expected
to touch $50 billion. Cotton chain has many segments which
work at cross purposes. The importance of contract farming
for productivity, quality control and a better deal for farmers
is being recognized. Organic cotton is likely to add value,
especially for exports.
Chapter 7: Generalised Model of SCM
This chapter generalizes the case studies for the entire
agriculture sector. The movement towards SCM globally and
in India is described. The co-existence of collaboration and
competition is no longer a paradox. SCM is also dependent on
the quality of leadership provided by the pivotal agency. SCM
in cultural terms is defined in terms of relationships, synergy
and social capital. The boost to the concept has come from
the application of information technology as it ensures real
time sharing of information on orders, prices and inventory
among the players. The emerging successful models in India
are referred to in some detail.
Chapter 8: Making Agriculture Competitive
There is emphasis on knowledge led agriculture. A
Combination of area development and commodity promotion
strategies is considered effective. It is seen that contract farming
has the merits of reducing market risk and non-alienation of
land from the farmer. Hassle-free credit is a critical add on.
Corporate sector interest in agriculture is also motivated by
the growing rural purchasing power and its impact on demand
for manufactured goods. The positive role of Rallis Kisan
Kendra sponsored by the agriculture inputs company is
described in detail. The concepts of B2B and B2C business
models using info-tech are integrated into SCM. The states of
Punjab, West Bengal, Andhra Pradesh, Maharashtra, Gujarat,
Madhya Pradesh and Karnataka are in the forefront of
competition in offering diversification opportunities and grow
to order facilities to the processing and marketing firms. The
competition is bound to intensify in future.
Chapter 9: The Road Map
This chapter highlights various lessons that emerged from
the earlier chapters viz.,
• Agriculture fuels all-round growth
• SCM is a culture in search of win win opportunities
• Logistics would emerge as a very valuable service in India
• SCM should be declared the basis for state agricultural
policy
• SCM is an educative and capacity building exercise
• Farmers need access to the entire domestic market
• Monopoly markets and movement taxes should go
• SCM is effective with peoples’ participation
• Rural economy should get the benefits efficient financial
services including credit marketing, relationship banking
and cost effective insurance
• Contract farming should expand and be managed
innovatively
• Agriculture should get technology edge including precision
farming
At the end, it makes as many as 58 suggestions presented
in a unique way.