Basics of Agricultural Supply chain in India

Here’s a scary stat:
20-40% of the food grown in India ends up getting spoilt before it even reaches consumers. If we want to understand why this happens and how can we reduce it, let’s take a short supply chain class - Supply chains are networks of people, organizations, information, activities, and resources that interact with each other to take a product or service to the end-customer.


Let’s look at a simplistic e-commerce supply chain. You’d notice that number of decisions to be made at each point of interaction.


You order a product on Amazon. Let’s call it X. The product first goes from the seller or manufacturer (let’s say a small town near Delhi) to a local warehouse (in Delhi), then gets transported to a local warehouse near the buyer location (say Bangalore). From there, it goes to a local hub (catering to a few pin-codes in Bangalore), from which it ultimately gets shipped to the customer (last-mile delivery). At each point there are a number of decisions to be made: what should be the size of the shipment from warehouse 1 to warehouse 2 (X plus hundreds of others items ordered by customers), what route should it take (is it a direct route from Delhi to Bangalore, or are there intermediate warehouses to be covered in other cities (maybe a detour to Hyderabad), and so on. There are a number of criteria governing these decisions such as delivery time, cost of storage, cost of transportation, etc. Even though we haven’t considered the part of the supply chain that involves manufacturing product X in the above example, we can still see that the whole thing is extremely complicated.


Agricultural supply chains


In one-line, the agricultural supply chain can be understood as to how food gets from farmers’ fields all over India to the plates of the country’s 1.3 billion people. There are two main types of agricultural supply chains in India – one that is highly regulated by the government and another that is run by the private sector.


The first one has to do with the food security amendment where the government provides rice, wheat, sugar and kerosene to below poverty line population through ration shops within the public distribution system. Most farmers sell their produce in APMC or mandis, which are generally a few kilometres away from farms. Mandis can usually be understood as an aggregator where produce from any and all parts of India comes to. Your local subzi wallah and kirana store vendor gets their produce from mandis. At the mandi, there are commission agents who procure the produce from the farmers by negotiating prices. Their job is to find a buyer who can be a trader. This buyer could also be the government (e.g.: the food corporation of India). The agent earns some percentage of the transaction. FCI will procure large amounts of wheat, for example, at minimum support price, store it and distribute it through the ration shops.


On the other hand, a private supply chain involves several middlemen - the commission agent would sell to traders who then sell to wholesalers who in turn sell to retailers who finally sell to consumers. Fruits and vegetables, which have a short shelf-life and are generally unregulated, are handled almost entirely by the private sector.


Issues in Agri supply chains


Since Agri produce has such a short shelf life, farmers and traders, many a time, are forced to sell their produce at even below cost prices. This is because if they don’t sell, it is just going to go bad and won't fetch any price (remember, farmers in Punjab throwing tomatoes on roads because transportation cost was more than selling price?). Thus, cold storage facilities are crucial. Cold storage facilities are refrigerated warehouses where produce can be stored. This can reduce price volatility, minimise food waste and increase incomes. Cold storage can extend the shelf life of produce for months or longer, buying farmers and traders valuable time. Fruits and vegetables can be stored while prices are low and there’s little demand, and then released into the market when prices rise again. In developed countries, food prices enjoy stability due to regulated supply. This is only possible through adequate storage. One might think that if cold storages are the answer, why aren’t we using them - Cold storage can be so expensive, as it requires capital investments and large amounts of energy. This coupled with uneven power supply, makes the cost of cold storage exceed the value of the goods. Thus, most cold storages in India only store expensive imported products.


Also, due to the lack of processing facilities and modern logistics, there are several leakages along the supply chain. We need investment, information dissemination, and sensible public policies. Investment especially in processing facilities. Those tomatoes could have been processed into sun-dried tomatoes, tomato puree, tomato ketchup, tomato pickle etc. which would have increased value and also the shelf life. Information is crucial if we want to decrease the gap between demand and supply.  If both the government and farmers had better information about the expected supply of certain crops in the coming season, prices would have been estimated and farmers would choose which crops to grow. This can be achieved through surveying, outreach initiatives, and analysis of historical trends.


Innovative solutions such as digital twins are coming up to solve some of the many problems discussed above. While we would like to cover more on digital supply chains in our next post, we’d like to hear your thoughts on the state of Agri supply chains. J




  1. That was really insighful and helped me get some clarity over supply chain model in general and also agri specific. Yes, India has a shortage of more than 1000 MT of products to be kept in cold storages each day. Even with certain subsidy provided over the setup for cold storages, I still don't understand why people do not see any profits and stepping to take the initiative. The example that Tomaotes can be processed into various forms which could be interesting and new to the consumers without geting wasted or not meeting the MSP was very thoughtful and I see immense future in that domain.

    Overall, a good article to read and congrats to the team


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