Agrarian dependence of the Indian economy may well have fallen from roughly 42% of GDP in 1960 to 17% in 20141, yet agriculture remains the focus of discussion in India every year from July to September. During these months, farmers and city-dwellers both eagerly await the arrival of the determined (sometimes fickle), scarily overwhelming (oftentimes disappointingly scarce), and beautiful (but also frustrating) natural phenomenon of the monsoons.
But why are the monsoons so unpredictable and frustrating?
Every year, meteorologists use sophisticated technology to anticipate the new personality of the monsoons, but increasing global temperatures have led to increased variability in weather, thus making such a prediction very difficult. Climate change does not bode well for India, the country where the majority of the Indo-Gangetic Plain lies, that produces 14-15% of the world’s production of wheat2. Some researchers believe that in the 21st and 22nd centuries, monsoons will reduce by 70% below normal levels, with certain regions seeing monsoons delayed by up to 15 days3, threatening food security.
Economics 101: Supply and Demand
The economics of the situation are fairly obvious. Increasingly erratic weather negatively impacts growing patterns and thus supply of fruits and vegetables. Additionally, due to weak infrastructure, India’s supply chain capacity is simply not large enough to accommodate sufficient cold storage and rapid enough distribution to retailers, which lowers supply even more. Demand however, keeps soaring. India has the second largest population (1.3 billion), about a third of which is vegetarian. High demand, low supply- seller’s market. Food prices skyrocket (as much as 100%)4, becoming inaccessible to most. No wonder as of 2012, 43% of Indian children under five, were malnourished5.
So with inconsistent supply, how does any food and beverage company survive in India?
Enter Mother Dairy! Mother Dairy is a subsidiary of the National Dairy Development Board (NDDB), and was started in 19746, with the primary function of making India self-sufficient in milk production. Soon after, NDDB decided to organize the distribution of fruits and vegetables too, and started a new brand called ‘Safal’, which today stands for ‘Happy Food Happy People’6.
Mother Dairy Fruit & Vegetable (F&V) began with retail locations only in New Delhi. In the late 90s, Mother Dairy also began freezing and processing raw produce, to use both in Safal, and to supply to the food and beverage industry – PepsiCo, Unilever and Nestle6. Through aggressive marketing and expansion of stores, by 2012, there were 350-375 F&V stores7, with plans of expansion to other major, metropolitan cities. In 2013, Safal sales were $80M, which had grown steadily at 10% per year. Safal stores were handling 120,000 tonnes of fresh produce per year8.
Mother Dairy Fruit & Vegetable Supply Chain
As of 2009, Mother Dairy F&V had a relatively simple supply chain. Fruits and vegetables are shipped from farms to collection sites. Trucks then transport them to Mother Dairy’s ‘large and ultramodern central distribution facility’9 for cleaning, sorting and grading. From there, depending on grade, produce is split between retail stores and the processing plant.
Is it possible to grow sales at 10% per year, despite climate change?
In the short term (5-10 years), it should be! A large portion of fresh produce is still sold on individual road-side street-carts. To ensure continued supply, NDDB will need to adapt by building additional retail outlets in areas other than metropolitan cities, and expanding the capacity of their current supply chain. NDDB could,
- Make collection sites larger, and more widely distributed; sites can have cold storage for storing fresh produce longer before shipping upstream.
- Build a few more large distribution facilities for cleaning, sorting and grading, spaced throughout India.
- Build another processing plant, thus increasing conversion of raw produce to finished goods.
Despite a likely warmer future and despite being in a position to improve food security, Mother Dairy F&V has not taken a very strong approach to lower the carbon impact of their operations. Retail stores refuse to carry plastic bags however, selling jute bags10 instead at Rs. 34, which not only cuts plastic out of the supply chain but also furthers the sales of the jute industry. Mother Dairy could do a lot more-
- India is a country blessed with immense sunshine. Mother Dairy could use rooftop solar cells to power collection sites, distribution centers, cold storage and processing plants
- Install lightweight solar cells on top of their fleet of trucks
- Generate compost from by-product of processing plants, and distribute to farmers so they can organically increase the nutrient content of their farms, instead of resorting to industrially manufactured chemicals.
In the long term however, matters remain to be seen. How should Mother Dairy F&V ensure constant supply from farmers? Would partnering with farmers and becoming the sole fresh produce distributor in India secure their growth plans? Should Mother Dairy F&V ‘diversify its portfolio’ by expanding into grain, pulses and export business too? (809 words)
1 The World Bank, “Agriculture, value added (% of GDP),” http://data.worldbank.org/indicator/NV.AGR.TOTL.ZS?end=2014&locations=IN&start=1960&view=chart
2 Venkataraman Balaji, Sreedhar Ganapuram, C. Devakumar. “Communication and capacity building to advance adaptation strategies in agriculture in the context of climate change in India”, Indian Institute of Management, Calcutta. Published online May 2015
3 Yen Yi Loo, Lawal Billa, Ajit Singh. “Effect of climate change on seasonal monsoon in Asia and its impact on the variability of monsoon rainfall in Southeast Asia”, Geoscience Frontiers, Published online March 2014
4 Varmal, Subodh. “Why dal prices have doubled: Here’s the math”. The Times of India, Oct 17th 2015. http://timesofindia.indiatimes.com/india/Why-dal-prices-have-doubled-Heres-the-math/articleshow/49426042.cms, Accessed Nov 3rd 2016
5 Food Security Portal, “India”, http://www.foodsecurityportal.org/india/resources
6 Mother Dairy, “About Us”, http://www.motherdairy.com/Category/about-us
7 Nagarajan, Shiva. “Mother Dairy plans to expand operations beyond Delhi, NCR”. The Economics Times, Feb 5th 2012. http://articles.economictimes.indiatimes.com/2012-02-05/news/31027016_1_token-milk-mother-dairy-fruit-pcdf Accessed Nov 3rd, 2016
8 Press Trust of India. “Mother Dairy to expand retail presence”. Business Standard, June 30th 2013. http://www.business-standard.com/article/companies/mother-dairy-to-expand-retail-presence-113063000583_1.html. Accessed Nov 3rd, 2016
9 Dr. H. M Chandrashekar, “Supply Chain Management of Fruits and Vegetables in Karnataka- A study of Safal Market, Bangalore, Karnataka, India”, Interdisciplinary Journal of Contemporary Research in Business, July 2009, Vol 1, No. 3
10 FRPT – Retail Snapshot, issued April 16th 2016, “Mother Dairy outlets to sell jute bags to curb polythene use”, Pages 26-27