Retail Inc stumbles in direct sourcing of fresh produce

Failure of small grocery format denies big chains required scale; cos say ?farm-to-fork? needs more time to work

Between the cup and the lip, the farm-to-fork strategy has faltered. Modern retailers who came of age in the last seven years have failed to make headway in direct sourcing of fresh fruits and vegetables from farmers, turning instead to wholesale markets they had originally intended to bypass.

Tata Chemicals, which formed a joint venture with Ireland’s Total Produce to open a chain of fresh produce in several cities, has closed the venture as it failed to take off. Global fresh sourcing firm Unifrutti is struggling after entering India some years ago.

Reliance Retail long ago scrapped its cash-and-carry chain to sell fresh produce procured directly from the farmers while Jain Irrigation shelved plans to open a chain of wholesale outlets to sell fresh produce.

Currently, most modern retailers rely on traditional mandis such as the one in Delhi’s Azadpur where vegetable wholesalers pack various fruits and vegetables in colour-coded plastic crates meant for different retailers.

Spencer’s Retail sources directly from farmers and local mandis. Spencer’s president Vineet Kapila said he won’t be able to quantify the amount of produce bought directly from farmers, adding however that it is ?limited.?

Similarly, a host of retailers from Reliance Retail to the Future Group rely on purchasing from mandis, in parallel with direct purchases from farmers. Future Group has outsourced its fresh supply to fruit and vegetables wholesalers to operate in many cities.

Purnendu Kumar, vice-president for retail at Technopak Advisors says although modern retailers have achieved some success in sourcing fruits from growers, there has been little headway with vegetables. He sees a direct correlation with the failure of the smaller convenience format in India, which would have otherwise given the kind of scale for retailers to source directly from farmers.

Indeed, since the slowdown started in late 2008, the small grocery store format has been the biggest casualty as at least 3,000 branded convenience stores were shut by retailers, with the crunch continuing even today: Earlier this month, Aditya Birla Retail said it was closing dozens of smaller format stores.

But retailers and industry watchers disagree, saying they have made significant progress over the years. ?I won’t call it unsuccessful as a lot of retailers have done excellent work with a lot of quality and range improvement,? says Sanjeev Asthana, former head of Reliance Retail?s agri-business unit who currently runs a private equity firm.

?It doesn’t happen overnight.

It has taken more time than we anticipated, but we are getting there,? adds Asthana.

Pradipta Sahoo, business head for horticulture at Mother Dairy Fruits and Vegetables echoes Asthana’s sentiments. It took 25 years for Mother Dairy to put together a farm-to-fork supply chain as the company currently operates 400 Safal fresh produce stores in Delhi and its suburbs as well as Bangalore. Today, almost 80% of Safal’s fresh produce is sourced directly from the farmers, says Sahoo. The company works with about 10,000 farmers in 10 different states, procuring thousands of tonnes from them every day. Sahoo says there is a huge addressable market in India as the company has just touched the tip of the potential in the National Capital Region. ?Almost 8,000 metric tonnes of fruits and vegetables are consumed in Delhi on a daily basis and our share is less than 5%,? he says, adding the company will open 50 more stores in the current fiscal year in the Capital and aims to corner 10% of the city’s fresh business in the next three to five years.

Retailers cite problems associated with the overall farm-to-fork strategy. In a vast country like India, farmers’s individual landholding is very small; so, the companies have to negotiate individually with thousands of farmers. And then, there is the cold chain issue. Although India plans to double cold chain storage capacity from about 13 million metric tonnes in 2000 to about 27 million metric tonnes, almost 90% of the capacity still would be fit to store potatoes.