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August 03, 2010 Mumbai

Retail FDI to reduce fruit and vegetable wastages
A CRISIL Research study concludes that allowing foreign direct investments (FDI) in multi-brand retail has the potential to reduce the prices of perishable food produce such as fruits and vegetables in India over the long term. This policy measure is likely to stimulate a flow of investments from organised retailers and logistics companies for establishing quality supply-chain infrastructure for fresh fruits and vegetables. An efficient supply chain will enable large retailers to source vegetable and fruit produce directly from agricultural cooperatives, lowering annual wastages, about Rs 630 billion in 2009-10, and reducing commissions of trade intermediaries. This, in turn, will improve realisations to farmers, reduce consumer prices of fruits and vegetables, and increase operating margins of large retailers. About 30 per cent of India's total production of fruits and vegetables is wasted every year due to inadequate cold storage and transport facilities. CRISIL Research estimates that almost 50 per cent of the annual wastages can be prevented if fruit and vegetable retailers have access to specialised coldstorage facilities and refrigerated trucks. Further, large retailers will be able to save on commissions, amounting to 10-15 per cent of the retail selling price of fruits and vegetables, to trade intermediaries such as commission agents and wholesalers, if they are able to source the produce directly from agricultural cooperatives. "The wastage in the supply chain and the commission to trade intermediaries inflate the final price paid by Indian consumers for fruits and vegetables. Indian consumers pay nearly 2-2.5 times the price paid to a farmer as compared to 1-1.5 times in developed markets where the penetration of organised retail is much higher," says Mr. Nagarajan Narasimhan, Director, CRISIL Research. CRISIL Research estimates that Rs 650 billion will need to be invested over the medium term to build the supply-chain infrastructure for fruits and vegetables. This estimate takes into account the number of cold storage facilities and refrigerated trucks that would be required for handling India's production of fruits and vegetables. The fruit and vegetable segment has so far not attracted adequate investments since organised retailers account for less than 1 per cent of the total sales of fruits and vegetables in India. "Liberalisation of the retail-FDI policy will help increase organised retail penetration," says Mr. Sridhar C, Head - CRISIL Research. "A likely increase in the sales volumes of fruits and vegetables through modern store formats will encourage large retailers and logistics companies to invest in cold storage and transport facilities."

August 3, 2010

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