Improved Logistics to Boost Agricultural Economy
Times Shipping Journal April 2009
V. Shunmugam[1]

Despite spending about 15-40 per cent in logistics for transportation and storage of our grains, fruits and vegetables, it has been widely estimated that we stand to lose about 20 per cent of our grains and 30 per cent of fruits and perishables annually due to the poor quality of available logistics or the lack of logistics in some cases. As urban infrastructure developed over a period in time, the nearby urban markets remained the main assembling centres for traders to cater to the demand spread across the nation for a given commodity value chain. Additionally, these also remained the major centres for value addition leading to loss of value addition opportunities and the associated investment and employment benefits at the rural marketing centres. Over a period of time, this led to increasing pressure on the available urban resources not only making marketing and value addition costlier but also leading to a higher cost of available transportation capacity and poor quality of handling and storage.

What ails the Indian agricultural economy? Things have changed over the last decade or so. Technology has played a key role in spreading information across the rural canvass and empowered producers to take decisions based on their need and convenience. Also, increased investment in rural infrastructure (markets, roads, storage facilities, etc) and the expected entry of mechanisms such as warehouse receipts are likely to prop up the balance sheets of agricultural producers. However, nothing may actually change in terms of efficiently and cost-effectively reaching the produce to the consumer. This is mainly because of the fact that due to better the availability of connectivity and transparency, ‘assembling markets’ would continue to play a significant role in accumulating the produce at one place and send it to satellite consumption centres. Despite the current improvement in rural infrastructure, producers would continue to depend upon the major marketing centres due to lack of transparency within and among the rural producing centres compared with urban marketing centres which are more organized and well connected in terms of supply chain participants. The result: assembling as a function continues to add pressure on the transportation and storage logistics infrastructure, eventually reflecting upon the consumer rupee.

There are two ways in which the burden of excessive dependence on the urban assembling markets and the associated logistics can be reduced. One, by way of setting up agricultural logistics parks and connecting them to the info highway; this can reduce the concentration of produce in a particular centre and lessen the burden on the existing logistics thereby cutting on the wastage and costs. The other way in which this can be achieved would be through slow penetration of the national online electronic spot exchanges such as the National Spot Exchange Limited (NSEL) that would facilitate market access and transparency which otherwise was not available at the producing centre level and even if available, open access to make purchases was either restricted due to regulatory reasons or lack of means by which these can be accessed by buyers across the country.

Instead of competing between them these two new initiatives would actually compliment each other to coexist for their mutual benefits. While providing the spot exchanges and their buyers with a one-stop solution to getting agricultural commodities delivered, the logistics parks would also certify their quality and enable transportation to buyers located in satellite consumption centres. The national online electronic spot exchanges would enable buying and selling in these logistics parks, connecting the interests of buyers and sellers across the nation. Added to this, the two entities existing side by side would bring in transactional efficiency in trading of agricultural commodities close to other goods enjoying the benefits of organised logistics.

As far as perishables are concerned, a large part of their wastage can be prevented by putting up cold storages nearer to the production centres rather than the assembling centres. Agricultural logistics parks can house cold storage facilities near the production centres preventing potential losses due to longer-duration transportation. Development of consumption habits among the consumers of perishables in terms of the processed products starting from highly seasonal/high-value products would go a long way in curbing wastages. An agricultural logistics park housing such processing facilities would reduce time and costs besides creating employment opportunities and boosting investment potential in the rural economy.

As these entities develop and advance on to the national agri-horti landscape, necessary policy and institutional changes would have to be brought in to boost their growth and reach. Given the public and commercial interests that exist in coming up of these entities, a slew of fiscal measures, along with public-private partnership mode of operation of this model with stricter guidelines, would go a long way in creating a win-win situation for both producers and consumers. Hence, improving access to the markets and improved logistics would go a long way in boosting the rural economy.

[1] Author is Chief Economist, Multi Commodity Exchange of India Limited, Mumbai. Views are personal.