In India, millions of informal hawkers earn a living with small vegetable or

11.06.2013

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Logistics costs play a decisive role in food price development, especially when looking at local agricultural supply chains, e.g. for fruit and vegetables. The logistics cost burden on groceries varies greatly, depending on the prevalent supply chain setup. This article discusses the pros and cons of a traditional supply of agricultural produce into cities versus a modernised logistics setup, involving organised retail chains. This comparison is illustrated using the example of India, a country where the Government has recently decided to legalise foreign direct investment (FDI) in the retail sector.

Indian food price inflation was at 10.7 per cent in January 2013. Vegetables, considered a staple food in India, ranged at an alarming 26 per cent in the same period (Economic Times of India, 12.02.13). The media have been focusing on this issue, repeatedly reporting staggering inflation rates in this 230 billion US dollar market and investigating possible reasons for these rises. Public interest in this topic is not surprising. In 2012, the average share of wallet spent on food and nutrition of an Indian household was 43 per cent. Interestingly, while consumer prices are constantly on the rise, farmers are reporting a decline in their production price levels. So the price hikes are mostly due to an increase in the overall margin between farmgate and retail counter. In a straightforward supply chain setup, such as the delivery of vegetables from a peri-urban environment to a city like Bangalore, the capital of Karnataka, a standard markup would be anything between 70 per cent and way above 100 per cent.

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