THE EMERGING ISSUES IN AGRI SUPPLY CHAIN PERFORMANCE IN

INDIA

*Dr. G.V.R.K. Acharyulu **Mr. Sudhakar Madhavedi,

ABSTRACT

The increased agriculture production requires additional area under cultivation, extension of irrigation
facilities, use of high yield seeds and better technologies. Government of India had setup mechanism for
agriculture credit, co-operative setup to supply input materials like seeds, fertilizers and pesticides. In
order to manage risk of post harvest, warehousing corporations will streamline the procurement and
storage for the benefit of the farmers, sellers and users. The supply costs are higher due to lack of
coordination, communication, stringent regulations and high exploitation. This paper will look into agri
problems from supply chain perspective.

Key words: Supply chain, Production, Marketing Committees, PACS, Inputs

1.0 Introduction:
A primary driver of the growing focus of agribusiness on SCM is the changing competitive environment.
Agriculture is inherently a fragmented industry, involving a diverse range of distinct enterprises (farmers,
processors, marketers and distributors) and relies on input from various sources often at distinct geographical
locations. With respect to grains and fresh fruit and vegetables most marketers and processors obtain their supply
diverse sources (Farmers, Wholesalers, retailers and brokers) in order to meet market targets. From the marketing
and process perspective, SCM is an essential tool for integrating the activities of the various suppliers within the
company’s operations in order to assure the consistent delivery of guaranteed safe, desirable and good quality food
in a cost effective manner. Other drivers for increasing interest in SCM include the industrialization of agriculture
and uncertainty is associated with variations in product quality and safe. The high variability in quality and
magnitude that is characteristic of the agriculture environment and basic food raw materials creates uncertainty in
the ability of the industry to assure a consistent supply of good quality and safe products to consumer.

2.0 Indian Agriculture Scenario:

In the recent reports published by Government of India are giving warning bells to the economy in respect of
agriculture. Agriculture is not only the contributor to the GDP but also employment in the nation. Share of
agriculture in GDP has declined from 48.7% in 1996 and further 18.7%in 2007. The GDP contribution is declined
with sharp but still 58% of the people depending on agriculture for their livelihood. Every year agriculture growth is
declining by 0.5%.

Agriculture and allied

Five Year Plans Overall GDP Growth
sector growth
VII 6.0 3.2
VII 3.4 1.3
VIII 6.7 4.7
IX 5.5 2.1
X(2006-07) 7.6 2.7
(Source: Economic Survey 2006-07)

The increase in agriculture production from independence due to various initiatives taken by the government of
India such as bringing additional area under cultivation, extension of irrigation facilities, the use of improved high
yield varieties of seeds and adoption of new farming techniques and modern control system. India’s agriculture
productivity has improved to the point that it is both self sufficient and a net exporter of variety of food grains still it
is comprises of 1-2% of the world agriculture exports. The opportunities in the world trade giving an insight into the

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potential and scope of sector. This sector can develop in manifolds provided the right kind policies and distributions
are made available to the industry partners. The performance of Indian Agriculture through half a century of planned
economic development is broadly characterized by three phases. In the first phase covering green revolution period
up to the mid of 1960, development of irrigation facilities, land reforms, community development and restructuring
of rural credit institutions received a high priority.

Despite of major achievements in these spheres, the growth of food grains output was far from adequate to meet the
needs of growing population. The experience of other developing countries highlighted the need to achieve a
quantum jump in the productivity of land through adoption of high yield varieties and greater use of chemical
fertilizers under irrigated conditions. The green revolution started in the mid of 1960s. First 15 years confined
largely to wheat and rice in all regions. In this period the not only quantum increased in inputs, but also quantity per
hectare. Further in response to the rise in per capita incomes and growing preference of consumer towards non-agri
food items milk, poultry, meet, fish, and also vegetables and fruits. It emphasized the dimension of diversification of
agriculture.

2.1 Issues in Agriculture Industry:

In the back drop the various issues and challenges are identified. Indian agriculture is facing negative growth in the
production, poor irrigation and water management, declining investment in agriculture research and extension,
distorting markets due to high government interventions, declining public and private investment, unorganized agri
credit and insurance, poor infrastructure in post harvesting and storage, inefficient supply chain and marketing
strategies, and slow development of agro process units.

3.0 Indian Agri Input Industry:

Adequate and timely supply of quality inputs such as seeds, fertilizers, plant protection chemicals, bio-pesticides,
agricultural machinery and credit at reasonable rates to farmers will be the endeavour of the Government. Soil
testing and quality testing of fertilisers and seeds will be ensured and supply of spurious inputs will be checked.
Balanced and optimum use of fertilizers will be promoted together with use of organic manures and bio-fertilizers to
optimize the efficiency of nutrient use.

Protection to plant varieties through a sui generis legislation will be granted to encourage research and breeding of
new varieties particularly in the private sector in line with India’s obligations under TRIPS Agreement. The farmers
will, however, are allowed their traditional rights to save, use, exchange, share and sell their farm saved seeds except
as branded seeds of protected varieties for commercial purpose. The interests of the researchers will also be
safeguarded in carrying out research on proprietary varieties to develop new varieties.

3.1 Fertilizers:
Government of India has identified fertilizer as one of its core industries. Fertilizer plays a vital role in the growth of
the agricultural sector and in the industrial development of the nation. Therefore, a lot of emphasis has been placed
on making the country self sufficient in this sector. The factors which has contributed to the growth of fertilizer use
due to spread of intensive cultivation practices, high use of HYV seeds, more profitability in growing crops on
account of better supporting prices by government, and effective fertilizer demonstration program.

Initially fertilizer distribution was only through government agencies and cooperative channels. Subsequently the
sale of fertilizers was allowed through private channels. The material is routed from manufacturers or pool handlers
to agencies such as cooperative marketing federations, agro industries corporations operating at state level. The
cooperatives distribute fertilizers through their own outlets, such as primary agriculture cooperative societies, and
agro industries corporations sells through service centres or private traders. Distribution channel of the private
channel could be either through distributors or direct to retailers. Fertilizer distribution and consumption has
increased due to the multi-channel approach of companies and also build-up massive grass root fertilizer distribution
system.

Chronically fertilizer industry fails to integrate the supply chain process. PACS (Primary Agriculture Cooperative
Societies) are not enough to carry heavy inventory costs due to low margins. They are not authorized to place
different brands as they procure fertilizers from district level agencies. Government channels are too long and results

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in no timely delivery of fertilizers. Input supply chain heavily influenced by bureaucratic structure. It is noted that
there is low infrastructure to store and transport materials results in higher cost for maintaining fertilizers in rented
storages. Government agencies like Agro industries are need government clearances as their decision powers to
operate business is centralized. Private distribution shops creating artificial scarcity to cash demand.

3.2 Seeds
Seeds form the fundamental and crucial input for sustainable growth in agriculture production. Seed is also the most
cost efficient means of increasing agricultural production and productivity. The role of seeds sector is not only to
ensure adequacy in seed quality but also ensure varietal diversity. India has developed more than 3000 varieties in
different crops at national level. National seed project set up seed corporations in Bihar, A.P, Haryana, Punjab,
Karnataka, Maharastra, Orissa, Punjab and U.P. It is to assist the farmers by ensuring timely and adequate
availability of certified and quality seeds for reasonable prices. Production of seeds is carried out in a decentralized
manner on individual farms, for example the production portfolio of Punjab Seeds Corporation is predominantly
paddy and wheat where as portfolio of Maharastra Seeds Corporation is differs.

Seed business is a seasonal and it is difficult to estimate demand for any seed because the demand changes in
marginal change in whether during the season. Seed companies are paid little attention towards the medium and long
term forecasting (CMA, 1999). Dealers are exploiting the farmers by charging high prices and interest rates on their
seed credit. It is found that the seed quantities available for sale in market are in bulk and it is high cost to the
marginal and small farmers. The season for sowing is only three to four weeks, so availability important. Seeds
delivered out of the season are waste. Hence channel role is pivotal.

3.3 Pesticides:
Every year nearly 30 percent food production valued at Rs. 150 billions is lost due to insects, pests, plant pathogens,
weeds, rodents and birds in storage. Studies estimated the output loss due to insects/pests at 50percent for cotton,
35percent for rapeseed-mustard, 30percent for pulses and 25percent for rice, 20percent for sugarcane and 5percent
for wheat.

Pesticide use levels were determined by extent of irrigation, use of high yield seeds and agriculture wage rates.
Farmers who are poor and illiterates have not only to depend on the retailers’ knowledge but also develop a
relationship with the retailer, as they require credit for purchasing the pesticides. Cooperatives which usually
located in a village, stock are sold to only members. Agro industries corporations sell pesticides through outlets at
district headquarters or large towns. They have to indent their requirements to a state level apex body, which
procures and supplies the required pesticides.

Cooperatives and Agros do not have the flexibility to dispose pesticides to other areas, thus they, stand the risk of
handling unsold for more than one season. Due to this reason outlets keep limited range of pesticides. Even in
government scheme stores, a limited number of brands are kept. Most of the farmers are not buy pesticides on credit
as they have to buy fertilizers on credit and which are more essential and priced. There are lack of organized
approach to handle product complaints related to quality and performance of pesticides.

3.4 Agriculture Implements:

Machanisation impacts positively on agriculture production. Several studies stated that the mechanization reduced
the use of hired labour. Central Institute of Agriculture Engineering, Bhopal developed more than 126 agri
machinery for different climate regions. 90percent of cultivation and 70percent rural transportation is depended on
85 million draught animals. The adoption rate machinery in agriculture is influenced with percentage of area under
cultivation, cropping intensity and wage rate of hired labour. Selective and eco-friendly farm mechanization through
appropriate technology will be promoted, with special reference to rainfed farming to reduce arduous work and to
make agriculture efficient and competitive as also to increase crop productivity.

Government are failed to focus the usability of agri implements. Except the case of tractor, there always a shortage
of spares, repairs and services are short coming farming community.

4.0 Agriculture Produce Marketing:

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Agriculture marketing system is the critical link between the farm production sector and non-farm sectors like
industry and urban economy. Besides the physical and facilitating functions of transferring the goods from
producers to consumers, the marketing system also performs the function of discovering the prices at different stages
of marketing and transmitting the price signals into market chain. An efficient market system helps in the
optimization of resources use, output management, increase in farms incomes, widening of markets, growth of agro
based industry, addition to national income through value addition and employment creation.

Agriculture produce can be marketed under three tier system in India viz, rural primary markets, assembly markets
of towns and regulated markets. The primary and assembly markets are meeting the food needs of the rural and
urban level population with low assortment. The regulated markets are network markets under the control of
government bodies. The basic objective of setting up a network markets to ensure reasonable prices to farmers by
creating demand. There are 7161 regulated markets are functioning throughout the nation.

Agri marketing in India is seriously suffering from following drawbacks

• An estimated Rs 50,000 crores are lost annually in the market chain due to poorly developed marketing
infrastructure like storage, pre-processing, information system and other marketing related amenities
• Increased demand for value added services and good geographic expansion of markets demands
lengthening of marketing channel but this is hampered by lack of rural infrastructure.

• Agriculture produce marketing committees (APMC) are statutory bodies restricting the contract farming
initiatives and the farm and factory relationship. APMC monopolistic practices of agriculture results buyers
markets rather than mutual and customer oriented market.

• Direct marketing by farmers to consumers remain negligible. In the 27,294 rural periodical markets, where
small and marginal farmers come to the markets, 85percent lack facilities for efficient trade.

• Food processing industry has high value addition to food production, is at only 7percent due to food related
laws enforced by 9 ministries of government of India.
• The existing machinery has failed to check trading and malpractices and has made the agricultural
marketing system highly restrictive and inefficient

5.0 Post Harvest Management:

The term processing must apply to all value addition to biologically produced commodities including staples, oil
seeds, sugar bearing material, fruits and vegetables. Processing means activities that add to the value and shelf life.
Start with cleaning grading, sorting, packaging, transformation of commodity into another product and also the
various activities that adds contribution to farm income. The value addition to agri produce is at 7percent in India
compared to 22percent value addition in China.

In India facilities for cleaning, washing, grading, packaging and semi processing at farm level is negligible. Only
limited grading and sorting facilities are available in regulated markets (1321 out of 7127) for removing unwanted
and biodegradable bio mass for package. It is estimated that one-third of total fresh produce is perished due to
inadequacy of cold logistics and storage. There is no technological awareness in post harvest technology.

6.0 Model of Agri supply chain:

Supply Chain Management encompasses the planning and management of all activities involved in sourcing,
procurement, conversion, and logistics management activities. Importantly, it also includes coordination and
collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and
customers. In essence, Supply Chain Management integrates supply and demand management within and across
companies (Supply Chain Council, USA)

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6.1 Indian Agri Supply Chain
From the farming of basic raw materials to delivery of final products to the consumers, each different step in the
entire production process is viewed as link in the supply chain. Therefore it represents the management of the entire
production, transformations, distribution and marketing activities by which a consumer is supplied with a desired
product. The practice of supply chain comprises of the disciplines like production, marketing, logistics and
organizational behaviour to study how supply chains are organized and how institutional arrangements influence
industry efficiency, competition and profitability.

MATERIAL FLOW

Farm Post Marketing

Agri Input
production Harvest Storage Customers
suppliers

Fertilizer Irrigation Grinding Transporting Primary/ Haats High Price

Seeds Climate Cleaning Cold Storage Town Markets Value
Agri Implements Washing Regulated markets
Pesticides Packaging
Processing

INFORMATION AND FINANACIAL FLOW

6.2 The Supply Chain Coordination Problems:

Although tremendous efforts have been made to satisfy consumer's needs, the challenges for agri produce in the
twenty-first century are enormous. The agriculture supply chain has the following challenges to improve the
performance and face severe competition

• Perishability, which means the loss of quality after harvesting the product
• lack of speed, due to longer distances in time and space, to guarantee a year round supply of produce
• Loony logistic costs, a consequence of the costs of physical distribution, packaging at the point of
harvesting, and repackaging at the point of shipment, at the distribution centre, and at the point of sale
location
• Terrible transaction costs, which show increases by the large number of suppliers, the increase in
assortment of produce, the traditional administrative systems, and the less than sophisticated buying
offices at retail level;
• The virtue of value-adding, waiting for all players in the game-however, not without investments and
perseverance; and
• The right of consumers and customers to know the place of origin, production methods, the use of
pesticides and insecticides, etc. to higher costs.

7.0 Conclusion
Attempts to strengthen Indian agriculture must address not only farm production (farmers) but also processing,
marketing, trade, and distribution. We must link farmers to markets. However, in the emerging environment, these
need many more changes for making the agricultural sector vibrant and responsive to the aspirations of the rural

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masses and customers. The suggested measures includes (i) revision in the state Agriculture Produce Marketing
legislation, (ii) redefining the role of state marketing boards and market committees, (iii) repeal of Essential
Commodities Act except under emergencies, (iv) putting in place a unified food law, (v) introduction of new
instruments like contract farming and warehouse receipt system, and (vi) assurance to investors that regulations
will not be reimposed. Complementary public investment in marketing infrastructure should be made. The system
of training farmers by strengthening the marketing extension education network needs to be put in place.
Instruments for insurance of farmers against production and price risks should be made an essential component of
development strategy. Banks should take the help of NGOs and local formal institutions in their lending
programs to reduce transaction costs. These apart, effective linkages between farmers and processors on the one
hand and between processors and credit agencies on the other should be promoted.
8.0 References:
1. P.J.P. Zuurbier, 1999. “Supply Chain management in Fresh Produce Industry: A mile to go?” Journal of
Food Distribution, March; p: 20-30
2. Martin Christopher, 1998. Logistic and Supply chain Management, Second edition. Pitman Publishing,; p:
4-13
3. J.L.Gattorna and D.W.Watters, 1996. Managing Supply Chain: A Strategic approach. Palgrave publisher;
6-17
4. S.S. Acharya, Agriculture marketing and rural credit: Status, Issues and reform agenda, 2005
5. Surabhi Mittal, 2007. Strengthening Indian Agriculture-Need for Reforms, Draft paper, U.S. India
Agriculture Initiatives. Organized by ICRIER, Ministry of External Affairs, GoI
6. Gokul Patnaik, Marketing, Storage and Extension services: State of Agriculture in India]
7. Pingali Venugopal, 2004. State of Indian Farmers: A Millennium Study-Input Management, Academic
Foundation; P: 59-245
8. V.R.Gaikwad, Shreekanth.S, V.Prakash, 2004. State of Indian Farmers: A Millennium Study-Post-Harvest
Management, Academic Foundation; P: 67-92, 59-245
Websites:
1. http://indiabudget.nic.in/es2005-06/agriculture.htm
2. http://www.adb.org/Documents/Reports/Consultant/TAR-IND-4066/Agriculture/acharya.pdf
3. http://www.adb.org/Documents/Papers/INRM-PolicyBriefs/inrm3.pdf
4. http://www.glakes.org/downloads/farmsupplychain.pdf
5. http://en.wikipedia.org/wiki/Supply_chain_management#Supply_chain_management
6. http://rrtd.nic.in/agriculture.html

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Authors:
* Faculty Member, University of Hyderabad, he can be reached at: acharyulu_gvrk@yahoo.com

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**Research Scholar, University of Hyderabad, he can be reached at: sudhakarnzb@yahoo.co.in