Gearing up for future

Indian farmers harvest record produce while rural people also need consumer goods at their doorstep. It needs sufficient transportation and warehousing of goods in both ways. To meet this demand logistic and warehousing companies are gearing up themselves. MOHD MUSTAQUIM reports on the growth and challenges of the sector.
Gearing up for future

India’s farm output during 2011-12 reached a record 252 million tonnes. Additionally, the country produces around 200 million tones of fruits and vegetables every year. On the other hand, according to a Crisil report, during 2009-10 and 2011-12, consumer spending in rural India touched a record high at Rs 3,75,000 Crore, significantly higher than Rs 2,99,400 Crore spent by urban consumers.

These figures show how India’s economy shifting towards rural terrains and driven by rural people. The strong consumers base of 840 million people shows the future direction of India’s economy as it is going to be rural centric in the future.
The Demand
The high farm output and increasing consumer demand in the hinterland require a strong storage and supply chain network of goods. Food Corporation of India and Central Warehousing Corporation with some private sector firms like National Collateral Management Ltd are playing key role in providing warehousing facilities to the food grains.

However, the country still faces shortage of warehousing capacity. According to an  Assocham report, around 35-40 per cent of fruits and vegetables are wasted annually. The same happens with foodgrains in the country.

According to BK Pal, a member of Warehousing Development and Regulatory Authority (WDRA), warehousing infrastructure development faces multiple hurdles as it is high capital intensive, loans are not available easily, taxation and other financial benefits are not encouraging.

Moreover, according to P Alli Rani, director (finance), Container Corporation of India (CONCOR), availability of land and good transportation connectivity are also the major challenges in developing the warehousing infrastructure. She seeks land on subsidise rates for building warehouses. She further added, "The capital intensive functioning of cold chains sometimes stops functioning, there are many cold chains have been shut down its functioning due their operational cost. Farmers cannot afford all the cost so the operational cost also be subsidised by the Government."

According to Dinesh Rai, chairman of  WDRA, farmers are reluctant in storing their produce in the big warehouses. Therefore, when we gives registration to a new warehouse, we run farmers’ awareness programme and gives focus on farmers’ co-operative to run the warehouses. Currently, 10,000 big warehouses are available in the villages under Rural Warehousing Project, where we also run training programmes for warehousing entrepreneurs.

Cold Chains
According to an Assocham report, currently India has approximately 23 million tonnes of cold storage facilities where as the country currently needs at least 9-10 million tonnes more of capacity. The report says, fruits and vegetables of around Rs 100,000 Crore are wasted every year due to lack of cold chains.

Defining the cold chain and its importance for agriculture, chief advisor and CEO at National Centre for Cold Chain Development, Pawanexh Kohli, said, "Cold-chain is a series of interlinked chain of activities that link perishable goods from source point to destination. Inherently cold-chain must involve a market linkage and a product life cycle matrix."

"In agriculture this chain of activities, especially since it counters perishability and enables to connect to distant buying markets, makes it of utmost importance to this sector. Most importantly, the cold-chain can empower the producers by extending short product life cycles and thereby allowing them to cover longer distances to reach more favourable buying markets", he added.

Infra Development
With increasing focus from large corporates to sell into rural India – they mostly see rural areas as a growing consumption market – reverse haulage of goods into rural areas is opening up.

In fact, by viewing rural areas as both source and as destination, the flow of goods and demand patterns is overpowering. For example, a pack-house with pre-coolers, which is source of fresh produce, can also be destination for public health services; the reefer vehicle that transports fruits and vegetables can back haul dry FMCG goods.

Gearing up For Future
Increasing consumer spending in rural areas needs a concentrated logistics infrastructure. According to Kohli, since the food supply chain needs to be in motion, it will also be an energy guzzler. I would suggest that service providers develop and focus on energy efficient technologies, improved traceability, effective network designs and food specific performance metrics. Lastly, they must build capacity that is not restricted to single product types but allows them to strategically expand their service basket across a range of product types.

Adding that he said, "Typically, there are very few retailers who understand or care about the backend, and it is really the logistics sector that can manage backend tasks the best! They must take advantage of favourable government policies, unending demand for food and find opportunity to build brands unto themselves."

According to Professor Nalin Jain of International Management Institute, as far as technological upgradation is concerned, the internet and mobile penetration have increased in the rural areas. Therefore, it can be a good platform for data interchange within the supply chain. That can enable supply chain companies to be connected to the final outlets."

The major innovations are coming today on the form of optimisation of the payloads. If a truck goes to multiple locations to deliver the goods, the issue is how to optimise the payloads. Indian companies can adopt cross-docking which is used by Walmart. They send the goods to the hub rather than sending directly to the retailers. However, it is different from hub-and-spoke model, used by India’s supply chain industry. If a consignment is sent to a hub, the truck may collect another consignment from a middle point. It is called cross-docking.

In the current scenario, the country needs concentrated efforts to develop warehousing, cold chains and logistics infrastructure.

The Changing Face of Rural India