Business | South Asia

Why Walmart is Welcome: The Agro-Retail Revolution in India

The WSJ Asia is carrying an article (Metro’s new system produces India growth, subscribers only) that outlines how Metro, amongst others, is (re)inventing the agricultural supply chain in India:

Metro is the first Western retailer to tackle a fundamental problem facing Wal-mart and other retailers trying to enter India today: how to stock their huge supercenter stores with produce that must travel India’s rough roads, in outdated trucks, and that come from farmers, shepherds and fishermen who use techniques from a century ago.

So how does Metro address the supply chain issue, and indeed improve quality of produce delivered? They go back to basics.

For instance, Metro sent managers to visit shephards, to show them how to vaccinate their herds, treat the animals for sicknesses, and even imported British sheep to breed with “their skinny Indian counterparts”. It provided basic lessons for vegetable farmers: “don’t water spinach the night before it is picked; don’t place cucumbers on the ground after you pick them; pack in crates instead of burlap bags; and don’t store onions in warm warehouses.” Metro also cut out the middlemen by sending its own truck drivers to collect directly from farmers, and started checking if ice cream had melted by delivery to ensure suppliers did not turn off the refrigeration to save gasoline.

The Benefits of Metro & Walmart 

Despite protests by the retail lobby, the entrance of large retailers is to be welcomed - and this article illustrates why. The dismal state of India’s agricultural supply chain is well documented. It is a story of poorly trained small-scale producers, inefficient government controlled markets, and a mostly non-existent supply chain. Fixing such a system is impossible because of the diversity of players and interests involved, and the scale of investments required - which no existing player would be willing to make. The only solution, therefore, is to create a parallel system. That is what these retailers do - they create parallel markets and have both the incentives to improve those markets and the financial wearwhital to make the necessary investments.

Fixing Agricultural Value Chains: Lessons for Development

There is an interesting contrast here with my experience at the UNDP in Kenya. Agriculture was, not surprisingly a recuring theme of most projects and much development funding. Two projects, in particular, stand out. In the first, USAID funded technical assistance training aimed at helping farmers improve crop productivity. Another, funded by the government, purchased a fleet of refrigerated trucks to build a cold chain.

The first project, did indeed, improve crop productivity. But its success was qualified by its reach - the project remained restricted to a small part of Kenya. USAID had neither the funds nor the incentives to expand the scope of the project. And with improved productivity not always tied to higher prices for their produce (since the market had not changed), farmers had fewer incentives to stick to new practices.

The second, government funded project, can only be described as a complete failure. When I left Kenya the entire fleet remained mostly in the garage while the attached sorting facility was a white elephant - used on occassion by local fruit suppliers, but wearing a deserted look on most days.

The lesson is clear. When the entire supply chain is so badly damaged, fixing bits and pieces of it is not an option. Better to let Walmart, Metro, and whomever, to build their own systems, than to languish with the existing system. The benefits to almost everyone will far outnumber the losses to the few.

© 2007 The Discomfort Zone.