Re(t)a(i)l-Politic

The news of Reliance Retail shutting down operations in northern state of Uttar Pradesh(UP) and other states is being looked upon as an eye-opener to the landscape of organized retail in India. I did some online research to see how the agri suppy chain in India looks like. I found a presentation made at Images Retail Forum by Ashok Singhal who is the chariman of KSA-Technopak, a leading consulting company in India in the retail and CPG verticals. A snapshot of the different players in the agri supply chain from Mr. Singhal's presentation is shown below

As agricultural produce moves further from the producer (farmer) there is wastage happening at every stage and margins added to the costs which eventually build up to 3.5 times the cost at which the farmer sold his produce. The table below (obtained from Ashok Singhal's original presentation) gives the breakdown of the margins at every stage.

So the claim of the Reliance Retail (through its "farm to fork" strategy) is that by bypassing the intermediaries it can provide value to the end customers and offer 'fair' prices to the farmers. In an ideal world that makes sense but the existing Indian retail environment is much more complex with many socio-political forces at play. I came across a very insightful article by S.A. Aiyer (Editorial contributor to Times of India) on the agricultural landscape in India. In a gist what Mr. Aiyer explains is that over the past decades as Reliance was building its businesses, it had to mainly deal with politicians, bureaucrats, bankers etc but with retail a hotch-potch of trade groups, comission agents and most importantly farmers have to be managed to get the operations going. Inexperience in dealing with such a complex group is back firing on Reliance. Its not that no one has managed in such a tough environment. The e-choupal scheme run by ITC is cited as an example of a successful model.