The great gam­ble

US re­tail gi­ant Wal­mart is des­per­ate to takeover the In­dian mar­ket in re­tail and on­line seg­ments. But will it go the ex­tra mile to fill a crit­i­cal gap in stor­age ca­pac­ity for agri­cul­tural pro­duce?

Down to Earth - - CONTENTS - SANDIP SEN @down2earth­in­dia

Will US re­tail gi­ant Wal­mart go the ex­tra mile and in­vest in cold chains in In­dia?

IN MAY 2018, Wal­mart picked up 77 per cent stake in In­dian e-com­merce gi­ant Flip­kart for us $16 bil­lion. Mar­ket an­a­lysts at­tribute the move to Wal­mart’s ambition to cap­ture the In­dian on­line mar­ket. As per the US-based ad­vi­sory firm For­rester Re­search, the In­dian on­line mar­ket is one of the fastest grow­ing, with sales amount­ing to $21 bil­lion last year. Of this, Flip­kart holds a mar­ket share of 32 per cent com­pared to Ama­zon’s 31 per cent. But when it comes to e-com­merce sales, Wal­mart is far be­hind. Glob­ally, the com­pany’s pres­ence in this space is neg­li­gi­ble, with only $15 bil­lion of its $500 bil­lion an­nual sales com­ing from this seg­ment. Per­haps to rec­tify this, Wal­mart has promised to pump in $2 bil­lion (about 13,000 crore) as fresh eq­uity in Flip­kart.

With Wal­mart go­ing the ex­tra mile, there is a point to be noted: An­a­lysts say the com­pany, which has world-class ex­per­tise in cold chains and ware­houses, can help the In­dian agri­cul­ture mar­kets grow and give the much-re­quired boost to In­dian farm­ers reel­ing un­der volatil­ity and low prices. Even the Wal­mart press re­lease prom­ises sup­port to small busi­nesses and devel­op­ment of cold stor­age to re­duce food wastage. “Our in­vest­ment will ben­e­fit In­dia pro­vid­ing qual­ity, af­ford­able goods for cus­tomers, while cre­at­ing new skilled jobs and fresh op­por­tu­ni­ties for small sup­pli­ers, farm­ers and women en­trepreneurs,” says Wal­mart pres­i­dent and chief ex­ec­u­tive of­fi­cer Doug McMil­lan.

How­ever, it re­mains to be seen whether the global gi­ant gen­uinely in­vests in the In­dian farm sec­tor or just prof­its from e-com­merce trade? Prakash Ras­togi, a Delhi-based seller of pro­cessed food, says,

“It will be log­i­cal for Wal­mart to in­vest heav­ily in cold chains with­out which they will re­main a small player in In­dia.” The global gi­ant, which boasts of 11,000 out­lets in 28 coun­tries, has a neg­li­gi­ble re­tail pres­ence in In­dia with just 21 stores across eight states. To make its pres­ence felt, the US gi­ant plans to open 30 more stores in the next three years.

Not a con­ducive sit­u­a­tion

Wal­mart is known as the world’s largest gro­cer as nearly 55 per cent of its sales come from com­pet­i­tively-priced gro­cery sales. It sells ev­ery­thing from rice, wheat, pulses and oils to fruits, veg­eta­bles, meat and fish. This unique sell­ing point can give Wal­mart an edge over its com­peti­tors in In­dia, espe­cially Ama­zon, which is weak in the gro­cery seg­ment.

At present, a host of prob­lems plague the In­dian agri­cul­ture sce­nario. The coun­try is the world’s sec­ond largest fruit and veg­etable pro­ducer, but a third of its farm pro­duce worth nearly $10 bil­lion is wasted ev­ery year due to the lack of proper stor­age fa­cil­i­ties. Also, as most farm­ers are poor, they lack the means to store their pro­duce. An­other big draw­back is the pres­ence of agri­cul­tural pro­duce mar­ket com­mit­tees (apmc) where only li­censed traders buy farm­ers’ pro­duce at low prices. The pres­ence of apmcs re­stricts farm­ers from en­ter­ing into direct con­tracts with man­u­fac­tur­ers and bulk pro­duc­ers. Thus, the process in­hibits un­re­stricted trade in farm pro­duce and places lim­its on farm­ers.

As a re­lief mea­sure, the Union Min­istry of Agri­cul­ture and Farm­ers’ Wel­fare has now pro­posed the Agri­cul­tural Pro­duce and Live­stock Mar­ket­ing (Pro­mo­tion and Fa­cil­i­ta­tion) Act, 2017 that aims to open up the lo­cal mar­kets, thus giv­ing greater free­dom to farm­ers to sell their pro­duce at higher re­turns.

To es­tab­lish direct link­age be­tween farm­ers and con­sumers, the Union Min­istry of Food Pro­cess­ing In­dus­tries has no­ti­fied 42 mega food parks across the coun­try since 2010. Out of these, 12 are op­er­a­tional and 30 un­der im­ple­men­ta­tion. Of the 12, only the Patan­jali Food and Herbal Park in Ut­tarak­hand and the Srini Food Park in Te­lan­gana part­nered by Mother Dairy, are show­ing some prom­ise. Most food parks across sev­eral states lack pro­duc­tion units, strong mar­ket­ing fa­cil­ity, cold chains, preser­va­tion tech­nol­ogy, food pro­cess­ing cen­tres, qual­ity con­trol, re­frig­er­ated trucks and lo­gis­tics to send farm­ers’ pro­duce to city mar­kets on time.

When it comes to on­line sales, Wal­mart's pres­ence glob­ally is neg­li­gi­ble. Only $15 bil­lion of its $500 bil­lion an­nual sales come from this par­tic­u­lar seg­ment

What Wal­mart can of­fer

With its top-notch sup­ply chain ex­per­tise, Wal­mart can re­vi­talise the In­dian agribusiness scene. The gro­cery gi­ant and its sup­plier net­works are lead­ers in cold chain op­er­a­tion, ware­houses and lo­gis­tics. Un­der Wal­mart’s vmi or ven­dor-man­aged in­ven­tory ini­tia­tive, man­u­fac­tur­ers are re­spon­si­ble for man­ag­ing their prod­ucts in Wal­mart’s state-of-the-art cold stor­age units and ware­houses. An­other tech­nol­ogy de­vel­oped by Wal­mart which can help In­dian farm­ers and small-scale pro­duc­ers is Eden in­tro­duced in March 2018. Un­der this, ar­ti­fi­cial in­tel­li­gence in­spects fruits and veg­eta­bles for de­fects and dis­coloura­tion, thus pre­dict­ing the shelf life of farm pro­duce. Wal­mart also has its own fleet of air-con­di­tioned trailer trucks, which are ex­perts in in­no­va­tive cross­dock­ing of goods where prod­ucts are di­rectly trans­ferred from in­bound or out­bound trucks with­out ex­tra stor­age.

With such tech­nolo­gies, In­dia can ben­e­fit from Wal­mart. “But Wal­mart alone can­not per­form a mir­a­cle and it should not be ex­pected to do so,” says Biswa­jit Dhar, pro­fes­sor of eco­nomics at Jawa­har­lal Nehru Univer­sity, New Delhi. “The United Pro­gres­sive Al­liance sold the same the­ory when Wal­mart en­tered In­dia a decade ago. But we have seen that Wal­mart’s in­vest­ment has been slow. The busi­ness model of all for­eign re­tail­ers is to max­imise prof­its with min­i­mum in­vest­ment,” he adds. There is an­other point Dhar raises. “Un­der the World Trade Or­ga­ni­za­tion regime, it is very dif­fi­cult to in­sist on high in­di­geni­sa­tion. The proof of this lies in the mar­kets in metro ci­ties which are flooded with im­ported fruits at the cost of In­dian pro­duc­ers.”

As of now, Wal­mart has opened two ware­houses—one in Bhi­wandi in Ma­ha­rash­tra’s Thane dis­trict and an­other in Ut­tar Pradesh’s cap­i­tal city Luc­know. It re­mains to be seen what kind of role it plays. “Global re­tail­ers should in­vest in cold stor­ages, air-con­di­tioned trucks and grad­ing fa­cil­i­ties to con­nect In­dian farm­ers to food pro­ces­sors. This will save post-har­vest losses and in­crease farm­ers’ in­come,” says au­thor and colum­nist Gur­cha­ran Das. As more and more play­ers such as Gro­fers and Big­Bas­ket are en­ter­ing the In­dian food busi­ness sce­nario, stay­ing afloat will be es­sen­tial for Wal­mart. “Com­pet­ing in In­dia is an ex­is­ten­tial must for Wal­mart, if it does not want to end up as the 21st cen­tury ver­sion of di­nosaurs,” says Adam Lashin­sky, the ex­ec­u­tive edi­tor of For­tune magazine.

COURTESY: RAN­DOM RE­TAIL

Wal­mart is the world's largest gro­cer as nearly 55 per cent of its sales come from low-priced gro­cery sales

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