Infrastructure remains undeveloped in India

Infrastructure remains undeveloped in India

Getting products on shelves is a significant challenge for food manufacturers and retailers in India, where an under-developed supply chain hampers such efforts. International food groups and logistics companies are working to overcome the lack of infrastructure and, for companies who can offer solutions, a significant commercial opportunity exists. Raghavendra Verma reports.

International companies with specialised logistics technologies able to improve the distribution of branded food products across India could secure significant business, especially those specialising in delivery to retailers, a Federation of Indian Chambers of Commerce and Industry (FICCI) seminar has been told.

Dr Arpita Mukherjee, of the Indian Council for Research on International Economic Relations explained how at the ‘Food Supply Chain in India: Analysing the Potential for International Business' seminar, staged on Friday (28 March) in New Delhi.

The key demand areas, she said, were: "Not actually couriering or freight forwarding but putting in systems like logistic tracking, implementing processes, cold chain technologies, mass track moving technologies, inventory management technologies and within stores the technologies that will improve the shelf life of the products."

Dr Mukherjee is one of the authors of a study on the subject, which was funded by British High Commission in New Delhi and released during the seminar. The report finds that the supply chain infrastructure in India is not well developed and the majority of international businesses have instead built their own supply chain network or are working closely with foreign logistics service suppliers to create them.

Indeed, according to Sachidanantham Swaminathan, general manager of supply chain management specialists GS1 India, his country's retailers are not helping the creation of effective supply chains, because different companies use contrasting inventory management and packaging systems. They fail to adopt global best practices regarding the common identification of products, services and processes, and are not transparent about how these operate.

This can cause confusion with distributors: "Due to non-sharing of information in retail [chain] there is a discrepancy in 15% to 20% of the purchase orders and the actual goods [delivered]," he said, "Most of the trucks have to wait for three to six hours at warehouse because the data does not match and then it goes into quarantine."

Lately, safety concerns, competitive pressures and regulatory requirements are creating demand for more traceability in the food sector said Rupinder Singh Bedi, chairman of task force on logistics management at the PHD Chamber of Commerce and Industry, which promotes good business practice.

"The use of IT for tracking sales and for demand forecasting" is widely known, he told the delegates. Indeed, if large international retailers make a significant move into India, "third party logistic providers will be in demand", he suggested.

According to Bedi, the Indian manufacturing industry could also thrive if it boosted its logistics capacity. There were opportunities to create specific food processing export hubs, for instance selling halal meat to the Middle East, organic food to Europe and the US. It could also build on India's strong vegetarianism tradition to create a vegetarian food export hub.

Sanjiv Rangrass, divisional chief executive of Indian tobacco and food giant ITC's agri-business division, highlighted his concerns over upstream food supply problems, including the uncontrolled use of pesticides, unhygienic processing and farm storage, as well as poor farm profits, which are a brake on improving standards. "Who is going to help the farmer?" he asked. "The entire supply chain has to start from there."

Regarding the business interests of foreign food manufacturers and their local traders, the British High Commission report noted that "due to higher tariffs, sporadic implementation of import restriction and regulations such as FSSA (Food Safety & Standards Act), 2006, it is difficult to import food products into India and this difficulty is likely to continue."

Dr Mukherjee advised that foreign players establish at least one small manufacturing unit in India, which will ease import red tape for other products.

"If foreign companies have a wholly owned subsidiary in manufacturing, they are pampered and treated as an Indian company. They can disable several barriers and avail [themselves of] the benefits of zero import and export duty," she told just-food on the sidelines of the event.

"If a company doesn't want to invest US$110m as Tesco [has done], it can still spend US$50m to open a manufacturing facility and have a better deal than Tesco."

The report cautions that developed country foreign company operating models and strategies may not be successful if replicated in India and the companies should be aware that India is a heterogeneous market where consumption patterns differ across states and sometimes within states. "They should have a clear understanding of the regulations, identify states with conducive policies and select the right partner."

The report added that brand consciousness among Indian consumers is low, but price consciousness is high and it may be difficult for food companies to reap short-term profits. "Sometimes, organised players have to partner with unorganised [unbranded] manufacturers and retailers to enhance their reach," said the report. "A long term phased investment plan (at least 3 to 5 years) with clear strategies will ensure success in the Indian market."