IN India, food constitutes the largest chunk of the consumer shopping basket. As we prosper, the contribution of food in our shopping basket declines and hence it is not surprising to see the share of food decrease in the metros while remaining at more than 50% amongst rural consumers. The quality of food consumption also dramatically changes over time and with increasing wealth, in certain consumer segments.

What does this translate to for the Indian economy? Look at it from three perspectives – the producer, the supplier and the consumer. First, the producer’s perspective: As the population grows so does the demand for food. Unfortunately, landholdings are getting increasingly fragmented and with galloping urbanization, land availability on the fringes of cities is also decreasing. With increasing urban consumer population, demand for water goes up, reducing its supply for agriculture. We recently witnessed this in Maharashtra and at the Cauvery in Karnataka. Fragmented landholdings reduce agricultural productivity, because of unproductively sized farm holdings. We are currently beset by double digit food inflation, led by supply side constraints. The only way forward is to explore options to increase supply. Demand will continue to increase, driven by prosperity. The nature of the food basket will also alter over time – from basics and staples to semi-processed, meat and fish, imported and exotic, and ready to cook or consume food items.

Food producers will increasingly compete with non-food products for use of land and other resources. The increased rearing of animals for food will also deplete the same scarce resources for humans. The population in India and other emerging markets is increasing and with the collective increase in demand in these markets, producers will be hard-pressed to meet the surge in demand. The continuous increase in agricultural commodity prices is also an important factor to consider. Artificial price support mechanisms like minimum support price (MSP) will distort production to suit the economic interest of the farmer.

The silver lining in this cloud is that it is possible for producers to aggregate their capability and capacity in the form of cooperatives and joint farming to create self-sustaining benefits. The role of corporates in farming too cannot be understated. As age-old agricultural laws give way, newer concepts such as contract farming can flourish. All these diverse attempts to intervene in the farming sector can yield results. The large-scale rearing of animals for meat and milk can also help increase supply and improve quality, though it can deplete land and water availability.

 

Let us now look at the supplier’s perspective. Who are the suppliers for the food industry? They include not only farmers who directly supply to consumers, but also agricultural supply chain companies, mandi merchants, food wholesalers, abattoirs, dairies, food processing companies and so on.

The traditional agricultural supply chain was often routed through the market yards or mandis till the model APMC Act (Agricultural Produce Market Committee) was introduced. Post this, many states have adopted modern supply chain routes such as private markets and direct sourcing from the farmer, resulting in better integration between the farm and consumer. This has helped improve the quality of the produce, reduce wastage and lower prices. The modern APMC Act, while ushering in reform, will stimulate investment in the agricultural supply chain because of the ability to connect directly with the farmer. Retailers will be incentivized to invest in order to derive benefits of lower costs, better quality and reduced wastage.

 

In the non-agricultural supply chain, which has mostly seen investments in the dairy sector by government companies, fresh activity and investment by the private sector is expected. Led by the retail revolution, dairies will focus on value added milk products which can cater to the sophisticated palette of the Indian urban consumer. The increasingly time starved Indian woman, who is more likely to balance the dual responsibilities of running a household while pursuing a career, will seek convenient options for satisfying her family. This will create demand for readymade dahi as opposed to being set in the kitchen, flavoured yoghurt, chaas and several other traditional Indian milk based products. Paneer, cheese and spreads present the next big growth opportunity. With increasing urbanization, there will be demand for a wider variety of such products. Dairies will move up the value chain to address another large Indian food market – milk based sweets, preparations etc.

As Indian consumers prosper, their aspirations will change and we should expect the consumption of meat, fish and eggs to increase. The need of the hour will be for clean culling, hygienic abattoirs and processing. Technology will need to be imported and partnerships will abound in this space. The potential for processing meat and fish for consumer homes and dining tables will be huge. The demand for creating value addition as opposed to merely selling meat and fish, will drive the growth of talent creation and skill improvement, import of modern technology, development of non-traditional manufacturing centres and utilization of food parks. Coupled with domestic demand, the opportunity to export to other South East Asian markets will also grow, since our livestock and poultry population is the highest in this region.

 

The key driver of any business is the consumer. Indian cuisine is varied and has evolved over centuries and generations. When consumers migrate across the country, they also carry their food habits with them. They seek the vegetables and condiments which characterize their food habits. Every large city is composed of several micro-markets, each relating to different ethnic groups. Understanding the composition of a micro-market and tailoring market offerings and assortment for different segments is the key to success in food retail. What does your catchment need, how do you deliver high quality and consistently fresh products, and keep tailoring your offerings in line with the consumer’s changing food habits and needs – this is the hallmark of any successful food retailer.

Our consumer segments vary in terms of affluence. Their ability to afford domestic and imported food, local and national produce, seasonal and out of season products is also varied. Dissecting the catchment, creating aggregation of sorts which translate into meaningful numbers and tailoring market offerings based on this analysis is the continuous merchandising priority of any national retailer.

The role of women in society and in the home has changed over the last couple of decades. The growing proportion of women in the workforce has changed the lifestyles of the working woman. With a higher focus on educating and training children, the role of the homemaker in many urban centres has also changed. What are the implications of this for a food retailer? There are many. Time deficient working women often seek convenience in the preparation of food. Cut and sorted vegetables as opposed to whole vegetables, ready to heat (RTH) and ready to eat (RTE) food preparations instead of starting from basics. These are some of the needs of the working woman. Are food processing companies and food retailers capable of creating products which address the need of the working woman, and her nuclear family? Specialized nutritious foods which are quick to cook and convenient to serve, are seen as a symbol of a mother’s love and focus on providing her children with a better quality of life and health.

 

Retailers have adapted themselves to these changes in several ways. Some have improved their stores and offerings to provide high-end, imported food to its consumers. Others have attempted to create distinct offerings which are organic, as consumer awareness about these factors has increased. Some have focused on specific categories of food – either fruits and vegetables, or meat and fish or processed foods. Many have partnered with SME’s to develop and produce food products which create a wider choice for consumers even while attaining and retaining a specialist status for their products.

The food supply chain encompasses producers, transporters, suppliers, retailers and finally consumers. Given the disaggregated nature of the supply chain, the produce changes many hands, experiences various modes of transportation and climatic conditions, and different handling methods. Of paramount importance is the need to maintain the quality and safety of the produce across the entire supply chain. Every single supplier in the supply chain has a limited role but needs to discharge it with care, adhering to norms and processes while providing for compliance to standards as defined within the act for each intermediary in the supply chain. This is the first step in the long journey to provide safe food, produced and processed under hygienic conditions and retailed or served to customers in stores or restaurants. Indian retail industry and food services sector is dominated by traditional suppliers who have been in the business for several generations. Creating the change necessary for adherence, is a mammoth task. While we may fear the magnitude of the task, it is inescapable.

 

Diseases attributable to unhygienic food are the single largest cause of loss of productive time. Adhering to the FSSAI Act 2006 (Food Safety and Standards Authority of India) is not the only a safety requirement but an economic imperative. The younger consumers who have only experienced modern retail and processed foods, recoil when they see the wet markets that dominate our cities. We need to upgrade the quality and the hygiene of our wet markets to ensure disease free retail of food. We are familiar with epidemics like the Mad Cow disease, Avian flu, SARS, and the recent incidents of melamine blended baby food, all of which are grim reminders of the huge impact such epidemics may cause.

An integrated food supply chain, reflective of changing consumer requirements, is the need of the hour. The efforts of all players, governed by contemporary standards which have been defined, should foster the growth and development of the flourishing food retail business in India and make life easier for the consumer.