A Revolution in the Making: The Case of Agro-Food Retailing in India

AUTHOR

Sudha Narayanan

CITATION

Sudha Narayanan (2007). Case Study #6-2, "A Revolution in the Making: The Case of Agro-Food Retailing in India". In: Per Pinstrup-Andersen and Fuzhi Cheng (editors), "Food Policy for Developing Countries: Case Studies." 14 pp.
URL: http://cip.cornell.edu/dns.gfs/1200428172

EXECUTIVE SUMMARY

Recent discussions of global agro-food systems have turned the spotlight on food retailing. Observers concur that globalization has been accompanied by, and may have aided, retail concentration in agro-food markets. This transformation, especially in developing countries, has been nothing short of a revolution.

Until now, India has been conspicuous as an exception to the rule. Only around 2 percent of all retail trade in India is in the organized sector. The food retail sector is likely even more fragmented and continues to be a complex mosaic of diverse smallscale actors, including itinerant vendors, government outlets, cooperative markets, and small-scale corner stores.

This fragmented retail sector was attributable in large part to the policy framework. So far, foreign direct investment (FDI), a critical driver of retail transformation in other countries, has been disallowed in the retail sector. Laws putting ceilings on urban land use limit the physical space available to giant retail stores. In addition, domestic trade in agricultural produce was tightly regulated. Postharvest practices related to storage and transportation, as well as logistical bottlenecks, have also stood in the way of large-scale investments in the sector. Yet these factors might be changing now. Growing urban consumerism and the rise of a newly wealthy professional middle class that values shopping experience and convenience have spurred a growth in demand for processed and branded ready-to-eat convenience foods. In the absence of FDI, domestic businesses have responded powerfully to this demand and intensified their focus on food retailing. Meanwhile, with India ranked the top destination for global retail investment for the second consecutive year, multinationals are seeking ways, other than FDI, to enter the Indian market.

Advocates enthuse, rightly, over the efficiencies that large-scale investments would bring. At the same time, there is considerable concern that the emergence of supermarkets, especially if it leads to retail concentration, might have distressing implications for a large constituency of poor actors along the entire chain—small and poor farmers, informal traders, and retailers, as well as poorer consumers. Retail transformation raises important questions about the relative position of farmers in the supply chain. Although consumers are the presumed beneficiaries of supermarkets, because of improvements in quality, safety, and choice, it is not clear if supermarkets will be able to serve the poorer segments of the population. As for small traders, the emergence of large-scale retailers with deep pockets could dismantle their livelihoods if they succeed in weaning away small traders’ clientele. In short, it is not clear if supermarkets will be part of a solution to poverty or part of the problem.

Clearly, two issues merit careful scrutiny. First, how will the efficiency gains from this transformation be distributed across actors? Second, what is the nature of costs associated with the displacement of livelihoods that such a transformation would entail? Given these considerations, should the government enable or aid such a transformation by reconfiguring domestic policies and opening up FDI in retailing?

Your assignment is to recommend to the Government of India a set of policies to be pursued to guide future developments in the food retail sector, taking into account the interests of the different stakeholder groups.

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