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Poster presented at the 7th International Conference on Management in AgriFood

Chains and Networks, Ede, The Netherlands, 31 May – 2 June, 2006

Motives and Concerns in Supply Chain Management for Wheat


Industry in India
Veena Goel, Economist (Marketing), Punjab Agricultural University,
Ludhiana -141001, India, email: veengl@yahoo.co.in

Abstract
This study reviews the chain management motives and concerns that impact firms’
performance. Being conducted for the wheat sector in the Northwest Punjab state of India
it is based upon both primary and secondary data. Primary data have been collected from
the respondents in the entire supply chain - farmers, commission agents / traders, wheat
based products supply agents, public agents engaged in procurement, primary &
secondary processors and retailers of various types of wheat based products. These have
been included from all the major three-agro climatic zones - central, sub mountainous and
the cotton belt. Study indicated that the introduction of green revolution technology since
the mid sixties to meet domestic food shortages amplified the role of regulated markets –
being pulled out from wheat / atta (whole wheat flour) distribution to wheat procurement
in the major wheat producing states, Punjab being one of these. This brought into
existence dual market structures for wheat procurement in the State. Punjab State Mandi
Board regulated the wholesale foodgrain markets. Due to the availability of assured
markets for wheat disposal farmers shifted the area under wheat cultivation from the
alternative crops during the rabi (winter) season. Coupled with the availability of
technology as it led to a fabulous increase in the market supplies, public sector has
emerged as a market leader for the procurement of this primary product. It is distributed
primarily through a network of fair price shops for the public distribution system in the
deficit areas of the country. To achieve its social motives both at the producer and
consumer (particularly poor) levels public sector forms alliances with the private agents
for an access to the requisite supplies, labour, shipment, storage, supervision, minimize
costs of handling and distribution, etc. This has no doubt helped to overcome the serious
problems of the nonexistence of micro credit markets and market supporting institutions
such as forward markets but has impinged upon its efficiency due to the bungling up of
several unfair practices at various stages in the chain that has increased the burden of
food subsidy on the exchequer. Also with the initiation of the liberalization of the
economy thereby introduction of the targeted public distribution system that has drawn a
distinction between the above and below poverty line families, central issue prices have
been increased for the former. It has led to a decline in the off take from the PDS while
farmers due to higher risks involved in the sale of other crops have shown reluctance to
bring market friendly adjustments in the cropping patterns. This leads to excessive stock
piling particularly during periods of good harvests. In the open market segment due to
financial and managerial constraints for an organization at each level in the chain it tends
to concentrate only upon those activities it can best perform. Thus independent chain
partners coordinate the entire chain and its length depends upon the level of processing
and the services added. Due to small firm sizes at each level in the chain these have
multiple motives such as access to resources – financial, physical, networks, specific
market knowledge and the management expertise, trust at minimal costs and risks to stay
competitive. Though wheat is a major staple food consumed largely in the form of
chapatis, pancakes prepared from whole-wheat flour but due to traditional food habits
urban consumers either and get wheat milled on a custom basis or prefer to buy primary
wheat products. With the liberalization of the economy and deregulation of the industry
manufacturing sector has seen the entry of corporate sector and multinationals and
several ‘ready to eat’ global retail chains such as McDonald, Pizza Hut, etc. As a result
with the restructuring of the industry leading to modernization and expansion it has
ventured into market development and market penetration to identify the hitherto unmet
requirements of customers’ satisfaction over time and space, capture the emerging market
opportunities and meet the growing competitive threats. To cope up effectively and stay
competitive traditional marketers have started restructuring supply chains and form
Strategic Alliances (SAs) to adopt an integrated approach and improve flexibility of the
chain. These cover a variety of flexible cooperative arrangements from fluid short-term to
long-term and formal agreements that have started recently and still constitute only a
small proportion. Though informal and highly flexible alliances along the chain make it
difficult to pull all the partners for the implementation of a joint strategy that can
effectively produce, process, and market the products. But a coordinated effort i.e., an
attempt to increase market efficiency at each partner’s individual level tends to lead the
chain network for an efficient marketing. The coexistence of several networks depends
largely upon partners’ resource positions and the socio economic profiles of the target
markets that impinge upon the choices of various product lines, related services and other
product attributes hence its performances. Only about 8% of the chain partners with a
strong capital base practice vertical integration - forward /backward to seek additional
employment opportunities for the growing families, capitalize on the accumulated
learning experiences and networks, pick benefits from changes in policy frameworks,
decrease monitoring costs, internalize new learning experiences, exercise power in the
network and increase profitability. To strengthen a competitive position large sized
secondary processors prefer to set up own distribution networks for market intelligence –
to cope up with market imperfections such as an access to timely and accurate
information to identify the causes for late deliveries, if any, and make quick adjustments
for the execution of timely orders, maintain a demand-supply equilibrium for each
product line, parallet positioning of products with competitors, build up and sustain
customer loyalty and market penetration. For example the bakery unit ‘Cremica’ with its
recent entry to the major national and regional markets and product placements in line
with the national players such as ‘Britannia’ and ‘ParleG’ is in the process of linking the
various distribution centers with the use of information technology. All the major bakery
players such as ‘Cremica’, Bonn and Kitty have with capacity expansion have developed
own logistic networks to minimize costs and stay competitive. However, product
development and its launch for the target markets and the use of brands remains vested
with the industry. Even though, this is in sheer contrast to the mature markets in the
developed countries such as USA wherein entry of the mass merchandisers since the last
decade has introduced supply chain management to cope up with the growing demands of
consumers for services such as convenience, taste, quality, safety and variety. In the

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Indian market entry of retail chains with intuitive management practices might introduce
further structural changes in chain management but the traditional chains will continue to
exist due to a large chunk of the poor population with traditional food habits.