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Factors Influencing Indian Supply Chains

Factors Influencing Indian Supply Chains

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Published by Gourav Sihariya

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Published by: Gourav Sihariya on Aug 03, 2012
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59Factors Influencing Indian Supply Chains of Fruits and Vegetables: A Literature Review
 Factors Influencing Indian Supply Chainsof Fruits and Vegetables: A Literature Review
 As the Indian population is increasing, the demand for fresh fruits and vegetables is also increasing.Owing to the perishable nature and very short shelf life, these items require proper storage andtransportation facilities in order to reach to the customer in fresh state. This requires a considerableamount of effort from the involved parties. The entire chain is fraught with issues like lack of transparencyin pricing (at the farmers’ end), dominance of traders, weak links in supply chain, etc. This leads to lossof revenue to the farmer and increased additional costs to the other supply chain partners, which ultimatelyenforces the final consumer to bear extra burden on his pocket. Since organized retail has started showing interest in fresh fruit and vegetable markets and has already entered into the market with hugeinvestments, the issues involved in this supply chain have changed dramatically and are influencing notonly the supply chain partners but also the whole agriculture sector in India. The present study undertakesa thorough review of basic and contemporary literature and tries to explain the factors influencing Indian fruit and vegetable markets and their effects on the supply chain partners. It also brings out relevantresearch gaps and overlooked problems in the supply chain.
Sunil Bhardwaj* and Indrani Palaparthy**
 
© 2008 The Icfai University Press. All Rights Reserved.*Faculty Member, The Icfai Business School, Hyderabad, India. E-mail: sunilbhj@yahoo.com**Faculty Member, The Icfai Business School, Hyderabad, India. E-mail: ipalaparthy@gmail.com
Introduction
The manual,
Improving Your Supply Chain
(Solomon, 1998, p. 3) published by FederalGovernment’s Industry, Science and Technology Department, defines a supply chain as“an organization that covers the full range of activities from the earliest level of inputthrough the internal processes in the host organization and on to the outputdistribution system. The input elements cover the supply of raw materials, components,assemblies and packaging. The internal elements cover goods inwards receipt,warehousing, movement to line operations, work in progress storage and movement,finished goods inventory, picking, palletizing and despatch. The output end of the chaincovers wholesale distribution, external warehousing retail distribution, returns andservice and anything necessary to get the product to the client in the most satisfactoryway. The supply represents the physical value chain of the host organization”. Figure 1captures the essence of agri-supply chain.Some authors (La Londe, 1997; and Ross, 1998) believe that SCM is a ‘managementprocess’. Handfield and Nichols (1999) stated that the supply chain encompasses allactivities associated with the flow and transformation of goods from the raw materialstage (extraction), through to the end user as well as all information flows. Food isnecessarily a mix of the ‘organic’ and the ‘inorganic’ (Fine and Leopold, 1993; andFine, 1994) or the ‘natural’ and the ‘social’ (Fitzsimmons and Goodman, 1998).
 
The Icfai University Journal of Supply Chain Management, Vol. V, No. 3, 200860
Therefore, these categories have great influences on the process of industrializationand also are placing several constraints on deriving profit from the agri-basedbusiness sector. The supply chains related to the food products thus invite attentionof hosts of researchers and practitioners. Agri-supply chains include growers, pickers,packers, processors, storage and transport facilitators, marketers, exporters, importers,distributors, wholesalers, and retailers. Supply chain development can thus benefit abroad spectrum of society, both rural and urban, in developing countries. The presentpaper is an attempt to provide a snapshot of agri-supply chain in India includinginfluencing factors, trends, challenges and research avenues.
Current Factors Influencing Agri-Supply Chains in India
Natural Resources for Agro-Based Industry
India is a developing country and the economic growth of the country is mainlydependent on agriculture for the past several decades. Unlike many nations, Indiahas a large pool of natural resources, which can flourish into a large resource of foodproducts for the ever-growing population. It is a known fact that, in India, almosthalf of the total land is cultivable. The plains of the Ganges are one of the mostfertile plains in the world. India has more than 40 varieties of soil and a regularsystem of rainfall—the monsoon phenomenon. The irrigation projects, which havecome up over a period of several decades, now ensure regular supply of water forirrigation in states like Rajasthan. States like Punjab and Haryana are pioneers inachieving one of highest per hectare production records. According to the FICCIreport of October 2004, India is the:Second largest fruit and vegetable producer in the world (approximately 135million tonnes);Second largest producer of milk;Fifth largest producer of eggs;andSixth largest producer of fish with harvesting volumes of 5.2 million tonnes.The above statistics are encouraging and promise a greater future.
 Figure 1: Global Food Agribusiness Market
RawMaterialsSupplyPrimaryProcessingSales andCompetitionMarketing andDistributionSecondaryProcessing
Cost DrivenRevenue Driven
VolatileSupplyPrimaryProcessingMainlyOutsideRegionDemandDrivenCreatingValueAdding
Difficult Managing CostNo Revenue Control
Source: Hargoort, 1999.
 
61Factors Influencing Indian Supply Chains of Fruits and Vegetables: A Literature Review
Population and Demographic Changes
Indian middle and upper middle class population is growing rapidly with an increasein number of young working couples, owing to the increase in consumption of fastfoods, packed foods, ready-to-make foods. Change in tastes and change inconsumption patterns of basic foods, longer working hours, increase in doubleincome families, increased exposure to advertising, etc., are leading to a dramaticchange in agri-supply chains. More and more career-minded working couples arelooking for comfort and convenience and are alsobecoming more and more healthand hygiene conscious. In place of conventional wet markets, they prefer to buyvegetables, fruits and other agri-products from the super markets and modern retailstores, and this leads to the entry of more and more corporates into the agri-basedbusiness market.
Integration in Agri-Sector
Agri-food sectors of many developing countries are undergoing changes leading tocloser vertical coordination. However, it is a relatively recent phenomenon (Hobbsand Young, 2000). One of the reasons that can be cited for the phenomenon is thetransaction cost economics. According to the theory, economic transactions forma considerable part of transactions in an open market wherein buyer and sellerincur costs in conducting a transaction. These costs arise specially when there area large number of small players resulting in information asymmetry, boundedrationality and opportunism (Williamson, 1986; and Eggertsson, 1990). However,these costs tend to be low when carried out in an environment of a strategicalliance through contracting, or within a vertically integrated firm (Coase, 1937;and Williamson, 1979). For many agricultural commodities in the US, the trend hasbeen away from spot market transactions and towards closer vertical coordinationalong the supply chain (Hobbs and Young, 2000). In India, setup of retail chains likeReliance Fresh or Food World has low overall transaction costs for a given volumeof transactions when compared to the same volume traded by a large number of small players. Regulatory changes also play an important role in changingtransaction characteristics. For example, the apparent negative consumer reactionin Europe to products containing genetically modified organisms may lead toregulatory requirements concerning traceability of these products throughout thefood chain. Inevitably, this will lead to closer supply chain relationships (Hobbsand Young, 2000). Some of the examples in India are Reliance Fresh, Spencer’s,which depict the phenomenon.
Emergence of Organized Retail
The emergence of organized retail, which presents superstore as the primary outlet,goes together with new retail strategies demanding emphasis on the establishingretail brand as a source of competitive advantage (Hughes, 1994; and Leahy, 1994).The scale and complexity of the retail store operation, along with these retailbranding strategies, requires highly refined operating and control procedures and

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