Column: Ice-cream model for rurban India

Written by Ashok Gulati | Ashok Gulati | Updated: May 28 2014, 10:09am hrs
India today has a little more than 400 million people, roughly one-third of its population, living in urban areas. By 2030, it is likely to have 600 million people in urban areas, next only to China. The 2011 Census lists 53 cities with a million-plus population each. Urban experts tell us that to house 600 million people properly, we need to create one Chicago every year till 2030! This is indeed a formidable challenge and if we fail to rise to this challenge, we will end up making slums in these cities.

Within this chorus of rising urbanisation and its associated challenges, there is also talk of rurbanisation of India, albeit somewhat muted. But Prime Minister Narendra Modi has been talking about ithis statement Gaav ki atma aur sheher ki suvidha, essentially means that it will have the spirit of a village but the facilities of a city. He has also been talking about building 100 model cities/towns in India, which will be clean (recall his statement in Varanasi regarding the cleaning up of the city) and hygienic, with better and faster connectivity. If this happens, it will be a dream come true, giving job creation and income augmentation a boost in rurban India. Improving sanitation, especially safe drinking water supply and sanitary toilets, can play a catalytic role in reducing malnutrition amongst children.

In any case, with higher and rising per capita incomes of urbanites, they are going to demand more and better food. But they dont produce food. Much of it is produced in rural areas, and this will be quite the wave for rural people to ride, supplying food to urban areas in a seamless manner through well-integrated food value-chains. These value-chains can create a win-win situation for rural and urban population, and also build an effective bridge of rurban India. But how can this be achieved

In order to understand this, we may have to go back to mid 1960s. The memory of standing in queues for hours to get just two litres of milk in Delhi are still fresh in the minds of many. But the night of October 31, 1964, which the late Prime Minister Lal Bahadur Shastri spent in Kheda, Gujarat, talking to farmers till 2 am, changed the course of milks history in India. He decided to launch the National Dairy Development Board, with Verghese Kurien as its chairman, which later was scaled up as the Amul model. Later on, through Operation Flood and subsequent developments, India emerged as the largest producer of milk in the world, with 139 million tonnes produced in FY14.

Three points need attention in this context.

* As Kurien noted in his biography, early in his career, he realised that without capturing markets, it is not worth asking farmers to increase production or aggregate their produce; so the battle for front-end markets was in fact more challenging than the task of streamlining the back-end.

* Much of the money to build back-end infrastructure to aggregate milk from rural areas, grading and pricing it as per its quality, chill it, and then transport this to pasteurising and homogenising plants, and finally distributing it in urban centres, was provided by the government at extremely soft terms (be it by monetising the EC aid at that time or World Bank loans).

* As a result of these two steps, sizeable gains flowed to small and marginal farmers having less than 4 milch animals.

But now the challenge to build similar or even better value-chains for fruits and vegetables, meat, and fish, besides dairy products, is bigger. This is because the consumption of these highly perishable but nutritious agri-products is rising quite fast in urban areas while the per capita consumption of cereals is falling. This is natural with rising incomes of people. But who is investing at the back-end to create infrastructure for aggregating these perishable products Mother Dairys Safal has been in existence for a long time, but nowhere near the success Amul achieved with milk. Action on supplying safe meat and fish to urban areas through well-integrated value-chains is almost missing. The private sector is reluctant to enter due to several hurdles, starting with the APMC Act governing sale of fruits and vegetables. But the biggest question that the private sector is facing is why it should invest in back-end if its front-end (retail) is not developed India is no more a shortage economy of 1960s when anything that was produced could be absorbed quickly in the system. So, the concept of farm to fork has to be turned upside down, and reimagined as from plate to plough, meaning that the whole system has to be demand-led, where the consumers preferences rule supreme and the producers have to satisfy those demands in a globally competitive environment.

But the Indian debate on retail is still stuck at the FDI question. The real issue, i.e., connecting the front-end with the back as efficiently as possible, in terms of time and cost, is getting lost. No matter who does it, be it cooperatives, the domestic private sector, or foreign players, the critical point is efficiency by compressing the value-chains in the manner that producers can get a better price and consumers pay a lower price.

The issue of what happens to existing kirana stores or vendors is critical from the equity point of view, and this is where India needs to innovate to combine efficiency with equity. Why cant kirana stores and vendors be part of the modern organised retail network Only one policy tweak is needed, saying that say 15-20% of the area of modern retailers should come from franchised kirana stores or vendors operating as extension counters of these retailers on a commission basis, something akin to what Amul is doing now for its ice-cream vendors. These ice-cream vendors are given well-designed push/battery-operated carts, and they easily earn R15,000-20,000 per month through commissions by selling Amul ice-creams at, say, the India Gate lawns in Delhi. The consumers trust the quality of Amul ice-creams more than the local makes, and this is where heavy investments of major players are required.

What is needed, therefore, is fusion between large organised-retail players and small kirana stores and vendors, and not friction. But the change must come to promote efficiency, and efficiency in value-chains cannot come without major investments all along the chain. Schumpeters process of creative destruction, by demolishing the old and inefficient, and building on that new and more efficient process, is inevitable. As they say, Ganga can be clean only when it is flowing. So must we change, else the system will start stinking with inefficiency, and decay. Wisdom lies in innovating a process and product that can help the poor in rural areas to benefit from rurbanisation, a la the ice-cream model! The job of government policy should be to incentivise this fusion.

The author is Chair Professor for Agriculture, Indian Council for Research on International Economic Relations. Views are personal