Tenth AIMS International Conference on Management January 6-9, 2013

Supply Chain Management of Fruits and Vegetables in India

Gourav Sihariya
Vipin B. Hatmode
V.Nagadevara
gourav.sihariya@iimb.ernet.in
vipin.bh@ iimb.ernet.in
nagadev@iimb.ernet.in
Indian Institute of Management Bangalore
1. Introduction
India produces 146 million tons of vegetables (NHB report, 2011) and the total area under vegetable
cultivation is around 8.5 million ha. Potato, tomato, onion, cabbage and brinjal account for around 60% of the
total vegetable production in terms of quantity. India’s annual fruit production is 75 million tons (NHB report,
2011) and the total area under fruit cultivation is around 6.3 million ha. The major Indian fruits are mango,
banana, citrus fruits, apple, guava, papaya, pineapple and grapes.
Fresh fruits and vegetables play a vital role in Indian context and their marketing works as an influencing
force in the economy. Though retailing of fresh fruit and vegetables is a low margin business, the market
potential is very large in a country like India. This factor has attracted many corporates into this sector.
Marketing of agricultural produce is different and more challenging than many industrial products because of
the perishability, seasonality and bulkiness. The very nature of small size of land holdings by the farmers, varied
climatic conditions, production spread over wide geographical area, mainly in remote villages, diversified
consumption patterns/habits of the Indian consumers and poor Supply Chain (SC) infrastructure makes
marketing for fruits and vegetables more complicated. At the same time, Indian consumers demand fresh fruits
and vegetables. Thus SCM plays a crucial role in marketing fruits and vegetables. Supply Chain efficiency not
only helps in increased production and per capita consumption, but also contributes to economic development of
the country. As a result, SCM throws both challenges and opportunities in marketing of fruits and vegetables.
Efficient SCM in marketing, not only increases the profitability and efficiency of retailers, but also adds value to
different stakeholders like cultivators (farmers), consolidators and consumers.
This study attempts to identify various issues involved in managing supply chain in fruits and vegetables and
identify and analyze different strategies that can be applied to optimize supply chain in fruits and vegetables.
This paper aims to analyze the business models of vegetable retailers in organized retailing.

2. Research Methodology
Entry of organized retail into vegetable marketing in India has impacted the entire spectrum of supply chain
practices. Issues like perishability, seasonality and bulkiness has been the constant problems faced in this supply
chain. The business models followed in Indian organized retailing for fruits and vegetables are studied and
comparisons are made with the practices followed in other markets in order to suggest scope for improvements.
This paper uses case based approach where instead of relying solely on the knowledge of problem domain or
making association with generalized relationships between problem descriptor and conclusion, we will make use
of previously experienced knowledge and concrete problem situations or cases. The problem in one market can
be solved by looking for its solution in another market where similar situation was faced earlier. This
methodology will also help in incremental and sustained learning which can again act as solution if future
problem arises.
This research is exploratory and includes research instruments like in depth interviews with players in the
organised retailing. Approach will be to find out issues faced in this business, its logistical processes and what
instruments they use to tackle them.

3. Literature Review
Fruits and vegetables supply chain in India
Traditional Retail Model (shown in Figure-1) of fruit and vegetables is predominantly followed in unorganized
retail sector. Players involved in this model are commission agents, auctioneers, wholesalers, traditional retailer
of all type of formats family run 'mom and pop' stores, roadside shops, pavement shops and cart vendors apart
from farmers and customers. (Rajkumar, 2010)
 Tenth AIMS International Conference on Management January 6-9, 2013

Auctioneers Cart-vendors

Farmers Whole- Consumers

sellers

Agents Traditional
Retailers

Figure 1: Traditional Retail Model of fruits and vegetables retailing

This model carries a number of inefficiencies with it. Cane baskets and jute or gunny bags are used in
handling vegetables. Loading and unloading are carried out manually. Vegetables are not cleaned and washed of
dirt and soil. No sorting, grading and packaging of any kind is being done. No temperature controlled storage or
warehousing is used across the chain. Information technology and advanced management techniques are not
deployed. Also the distribution of selected commodities in the traditional market channel involves multiple
intermediaries and high cycle times (Reddy, 2009). A large chunk of fresh fruits and vegetables is lost because
of inadequate post-harvest handling and lack of cold storage, processing facilities and convenient marketing
channels (Reddy, 2010). All these factors also contribute to quality degradation and higher cost (Veena, 2011).
Though vast majority of urban markets as well as rural markets are being served by traditional grocery
retailers, many organized players have also forayed into fruits and vegetable retailing due to its high potential.
Through this study an attempt has been made to understand the practices used by such organized players.

Practices being followed in other markets

Hospitality/
Catering

Primary Manufacturer Wholesaler Consumers

Producer/ & Processors /Agents
Agriculture
Retailers

Figure 2: Supply Chain Model of Developed Economies; Source: Sukvinder Jassi, 2011

The supply chain model followed in most of the developed nations for fruits and vegetables produce is presented
in Figure 2. Just after the produce is produced, it is processed in order to increase its life. Then it is further
transported in the supply chain. Wholesalers or agents buy the produce and sell them either to hospitality or
catering service or to retailers. These retailers or hospitality services can also buy directly after the processing is
done (Sukvinder Jassi, 2011).
Tenth AIMS International Conference on Management January 6-9, 2013

Some challenges faced by different constituents in this sector are presented below:

Some factors which play a major role in supply chain in these markets are given below:
1. There is a contractual agreement between farmers and buyers which enable farmers to enter the supply
chain network. In absence of this agreement, farmers will not have information about the prevalent
market demand, price and other conditions. This agreement enables proper flow of market information
to farmers, they receive the right price, consistency of supply and quality is maintained.
2. Immediately after the harvest, fruits and vegetables are processed which is termed as pre-cooling. This
is done in order to increase life of fruits and vegetables. In the absence of contract agreement this is not
possible, as small farmers do not have capacity to do the processing.
3. The backbone of this supply chain is the availability of excellent cold transport system. This enables
wastage free transportation of fruits and vegetables to long distances.
4. Packaging is done in such a way that there is less pressure on fruits and vegetables which again ensures
long life.
5. Large capacities of cold storage is available at each stage where-ever storage is required.
6. It is also observed that small farmers act collectively by forming groups which enables them to enter
the supply chain network. Small farmers acting individually will not be able to cater the huge demand.

Above observations are made after looking to models followed in developed nations. These models are
prevalent in many western countries as well as European countries (Viorica Gavrila, 2009). The food
consumption pattern followed by people staying in these regions is altogether different from what is followed in
India. People in India want to consume fresh food whereas in western region, people mainly consume frozen
food. This is mainly due to climatic conditions prevalent in those countries. Hence the supply chain followed in
those countries changes as per the consumer demand, consumption pattern and climatic conditions.
If we consider countries like China and Japan (Fresh Food in Japan and China; Euromonitor International,
2011), people mainly consume sea food and meat and consumption of green fresh vegetables is comparatively
less and consequently, the supply chain model is different. Thailand has similar climatic condition as India and
food consumption pattern is also similar. The supply chain in fruits and vegetables is better developed in
Thailand as compared to India. Thus we analyzed the fresh fruits and vegetables supply chain in Thailand and
tried to analyze its functioning (Srimanee & Routray, 2012).

Flow chart of fruits and vegetables supply chain followed in Thailand is shown in Figure 2.
Tenth AIMS International Conference on Management January 6-9, 2013

Figure 3: Fruits and vegetables supply chain in Thailand; Source: (Srimanee & Routray, 2012)

Supermarkets in Thailand accounted for 40 percent of fruit and 30 percent of vegetables in urban areas
(Bangkok), but a lower percentage in the context of the entire country. Fresh fruits and vegetables have not only
increased in percentage share of sales but also are very profitable relative to other products in the store. A
consequence of the increasing importance of supermarkets on fruits and vegetables is that the procurement
system has had an impact on small farmers, who are the major fruits and vegetables producers in Thailand.
It is observed that there are multiple channels from farmers to the ultimate consumer. Each channel has its own
advantages and disadvantages. Since we are discussing about organized retailing we’ll focus our discussion on
supply channel to Supermarkets. Supermarkets are being served through four channels. What we can learn from
this is that there is one channel from farmers to Co-operative Groups to Supermarkets. This forms about 20% of
supply of farmers. There is no middleman between supermarkets and farmers’ co-operative groups. This has
reduced the incidence of multiple parties in the channel thereby improving efficiency of channel.
Cooperatives and specialist assemblers are more beneficial to farmers compared to other channels because of
their openness and flexibility. Intermediaries of these channels are responsible for all the steps involved in
grading, packaging and delivery, which are more efficient when carried out on a larger scale. Farmers prefer
cooperatives channels to supermarkets because of the collective efforts, the potential offered to the members and
the associated benefits. Through cooperative functions, farmers’ interests are better protected than others
because of their collective bargaining power. This is one of the major learning from the model used in Thailand
market.
Tenth AIMS International Conference on Management January 6-9, 2013

4. Three Case Studies

The authors visited three modern retail outlets situated at Banneghatta Road, Bangalore and had discussion
with their managers in order to understand and analyze various aspects of procurement of fresh vegetables and
entire supply chain. Following section provide the summary of those discussions.
Benison India
Benison India is a Hyper-Store format retailing store in Bangalore. It is similar format as Reliance Mart.
Benison store has separate section for their Fruits & Vegetables customers. Benison has outsourced their fruits
and vegetables section to third party who handles this section entirely. Benison only takes rent from this third
party for using their space.
Third party procures fruits and vegetables from the nearby market (K R market in Bangalore). This activity is
done on daily basis. Quantity to be procured is decided keeping various factors such as
 Day of week ( Saturday and Sunday has maximum sale)
 Season of the year ( Winter season sales are higher as compared to summer)
 Festivals ( During festivals, like Diwali, Dushera, sale volumes are higher)

There is no particular vendor associated in this and fruits and vegetables are directly procured from the mandi
by the third party middlemen on a daily basis. The purchases are made from whosoever offers better prices on
that day while meeting the quality standards.
Since the third party middlemen purchase fruits and vegetables directly, quality is checked during purchase
and no quality check is again done inside the store. There is no storage facility for these fruits and vegetables
and fresh vegetables are directly placed on the shelves. There are no chillers and refrigerators inside the store, so
there is lot of wastage. There is no visible effort inside the store to reduce the waste.

Hypercity
Hypercity is the Hyper-Store format retail chain in India. It was found that it procures fruit and vegetables
from three different vendors. Sourcing is done internationally for some exotic fruits. Orders with vendors are
placed daily and received early in the morning to ensure freshness. These vendors procure vegetables from local
mandi every morning and supply them to the other Hypercity store situated in Bangalore. They have their fixed
suppliers for specific type of vegetables. Sometimes they buy from the agents as well those who bring
vegetables from villages to the mandi.
These vendors have small storage facilities which aren’t refrigerated and thus wastage rates are high. The
wastage further increases during heavy rains, especially in the case of leafy vegetables. Hypercity store has its
own refrigerated storage but its capacity is rather limited. Transportation cost is borne by vendors while
packaging cost and other costs (if any) are borne by the store.

Reliance Fresh
Reliance uses various methods for sourcing of fresh fruits and vegetables: local farmers (direct sourcing,
Mandi), Inter-state movement, national sourcing and international sourcing.
In its direct sourcing route, farmers transport vegetables from farming location to the buying centers (also
known as collection centers). Small farmers and contract farmers are the primary source of supply of vegetables
and constitute 80% of the sourcing volume.
Vegetables are transported from buying centers to distribution center (or City processing centers) in both
temperature-conditioned and unconditioned trucks. A distribution centre is served by one or more buying centre
and a buying centre serves one or more distribution centre. Vegetables are cleaned and then sorting and grading
is done at the distribution centre. Distribution centre also buys small volume of vegetables from the local
wholesale market (mandi) to balance demand supply gap which constitute 20% of the entire sourcing volume.
Some exotic fruits are sourced internationally and constitute the rest 20%.
Fresh vegetables are then transported from distribution centre to stores in small trucks. A store is served by
only one distribution centre.
To tackle the issues of perishability and seasonality of fruits and vegetables, Reliance has adopted a very
different approach. They work closely with the farmers and help them in crop planning. For example, if
Reliance estimates that there will be a demand of 3000 tonnes for cauliflower in Karnataka in the month of May,
they would inform the farmers about this opportunity. They will help farmers by providing information about
fertilizers, pesticides and irrigation techniques. They will also help farmers in getting good quality seeds which
can be sown even in summer months. Reliance maintains close contact with various seed/fertilizers companies.
Other waste reduction measures adopted by Reliance include pre-cooling of harvest, better post-harvest
handling (less number of human touches/contacts), and special type of packaging for soft products. Reliance has
 Tenth AIMS International Conference on Management January 6-9, 2013

its own patented packaging process which ensures less wastage during handling and transport. They also focus
on training of staff and use cold-chain for interstate movement of fruits and vegetables.
With the help of above measures, they have been able to reduce the wastage levels significantly. Wastage
levels were in the range of 25-30% in the chain from collection centre to retail stores when Reliance-Fresh
started operations. The current wastage levels in the entire chain i.e. from farm to retail stores are in the range of
7-8%. Most of the wastage occurs in the farming stage itself. Since Reliance has stringent quality standards for
procurement, wastage at later stages is very low (maximum 2-3%).
Above figures are comparable to many developed economies where better infrastructure facilities like
mechanical grading of vegetables, sophisticated cold chains etc. are in place. So what makes this achievement
even more important is the fact that Reliance has done this without spending much in infrastructure. This has
helped Reliance in achieving higher net margins and increased profitability.
According to Reliance manager, the reason behind this success is Reliance’s continuous quest for marginal
improvement. They keep on devising new and innovative ways of wastage reduction. Currently some of top
management personnel are directly involved in an exercise where they are continuously trying to achieve better
wastage reduction results through better post-harvest handling of ripe mangoes.
Figure 4 presents a summarized representation of the entire supply chain of fruits and vegetables adopted by
the above three retailers.

Reliance Fresh
Contract Farmer
Store

Farmer Buyin Store

Distributio
g
n Centre
Centre Store
Farmer

Farmer Store
Customers

Benison Store
Whole-
Sale Store
Agents
Market
s

Hypercity Store

Vendors

Store

Figure 4: Organised Retail Supply Chain in India

Tenth AIMS International Conference on Management January 6-9, 2013

5. Analysis and Comparison

The Benison store offers same benefit as other hyper stores, but the model for fruits and vegetables which is
being currently followed does not seem to be scalable to larger levels. The store is able to cater to the needs of
the customers and is running successfully for past 38 months. There is no effort to enhance the capability and
capacity of the third party who is running the store and there is no progress in terms of offerings in this store in
fruits and vegetables section. No exotic fruits are kept. It offers marginally better quality than that of traditional
retailers because vegetables are kept at lower temperature inside store.
There is no vendor /seller base from where fruits and vegetables are procured and so constant supply with
same quality is always an issue. This can be one of the hindrances for expansion. There is no interaction with
farmers/producers and consequently the rate at which fruits and vegetables are bought is same as the market
rate. Similar to the traditional model, it is highly dependent on wholesale market for the supply. If tie-ups with
farmers can be done, there are chances that they might improve on the margins.
The model used by Hypercity is similar to that of Benison except that instead of directly sourcing from
wholesale market they source from vendors. Absence of cold storage facilities, lack of good
transportation/packaging and poor handling of vegetables by vendors limit the shelf life of products. It is
difficult for retailers like Hypercity to adopt a model involving direct sourcing from farmers because of their
smaller number of stores. While Reliance has multiple stores, Hypercity has only two stores operating in
Bangalore.
At present, several other organized retailers including Spencer's Retail and Food Bazaar are also using a model
similar to the one used by Reliance-Fresh (Rajkumar, 2010). But what differentiates Reliance from these
retailers is its significantly high share of direct sourcing, less dependency on wholesale market and supply link
between distribution centres. This model is based on its core growth strategy of backward integration and
progressing towards building an entire value chain starting from the farmers to the end consumers.

6. Conclusions
Based on the analysis, we observed a definite scope of improvement in Indian practices of SCM of fresh fruit
and vegetables. In India, infrastructure facilities such as roads are not developed in all regions of the country.
Hence the transportation industry is not very efficient. The country has diverse climatic conditions and hence
during transportation, majority of fruits and vegetables gets deteriorated due to difference in temperatures.
Hence there is utmost need of cold transport system which will maintain the temperature of fruits and vegetables
at constant temperature. Small scale farmers are still exploited by middlemen and farmers do not get correct
picture of the market and consumer demand. Farmers can come together and form co-operative
societies/associations so that even a small farmer will be able to sell his produce and get protection from
exploitation by middlemen. These associations can tie up with big retailers ensuring good margins.
Contractual agreement will help both the parties; farmers will get correct market information, retailers can
train the farmers in their farming techniques in order to increase productivity, retailers will get consistent supply
of good quality fruits and vegetables and they don’t have to go in for hunting in mandis for their supply (Aiying
Rong, 2011). The retailers can afford to have good cold storage facilities thus reducing the wastage.

Based on the analysis, the following recommendations are made for modern retailers operating in India as well
as government.
 Increased Infrastructure: Retailers need to focus on better transport and cold-chain systems to make
movement of vegetables across distribution centres located in different states possible. It would thus
reduce dependency on wholesale markets.
 Encouraging large scale operations: More number of stores in a city makes it economically viable to
have a distribution centre catering to them. This in turn would encourage direct sourcing from farmers
and eliminate unnecessary intermediaries.
 Formation of cooperative groups of farmers: This would provide farmers a higher bargaining power
due to increased collective volume. This process should be initiated by the government. Retailers could
form contractual agreements with cooperatives groups. This would ensure a disruption less supply for
retailers and higher prices for farmers.
 Educating farmers about good farming practices: Highest amount of waste in fruits and vegetables
supply chain occurs at farming stages. Traditional cropping patterns are prevalent in most parts of
India. For example, bottle guard is grown on the ground in many parts. If instead it is grown on
Pandals, it would increase the productivity as well as quality of the product and farmers would get
Tenth AIMS International Conference on Management January 6-9, 2013

better prices for it. Also for many fruits and vegetables, there are seeds available for different seasons.
Problem of seasonality could be handled to a greater extent using such methods.
 Post-harvest handling: This is a major factor affecting shelf life of fresh produce. Retailers should
ensure minimum extent of human contacts with fruits and vegetables products. This could be achieved
through staff training and use of modern packaging.

7. References
1. Aiying Rong, R. A. (2011). An optimization approach fo rmanaging fresh food quality throughout the
supply chain. Int. J .Production Economics (131), 421–429.
2. G.P. Reddy, M. M. (2010). Value Chains and Retailing of Fresh Vegetables and Fruits, Andhra Pradesh.
Agricultural Economics Research Review , 23, 455-460.
3. Rajkumar, P. (2010). Food Mileage: An Indicator of Evolution of Agricultural Outsourcing. Journal of
Technology Management & Innovation , 5 (2), 38-46.
4. Reddy, G. a. (2009). Food Supply Chain: Food Retail Management. Hyderabad: National Academy of
Agricultura lResearch Management- Annual Research Report.
5. Srimanee, Y., & Routray, J. K. (2012). The fruit and vegetable marketing chains in Thailand: policy
impacts and implications. International Journal of Retail & Distribution Management , 40 (9), 656-
675.
6. Sukvinder Jassi, A. P. (2011). United Kingdom Food Supply Chain. Heslington: Improve Limited.
7. Veena A, K. N. (2011). Supply Chain: A Differentiator in Marketing Fresh Produce. The IUP Journal
of Supply Chain Management , 8 (1), 23-36.
8. VIORICA GAVRILA, M. K. (2009). THE DOMESTIC VEGETABLE SUPPLY IN A EUROPEAN
CONTEXT. LUCRĂRI ŞTIINŢIFICE, SERIA I, VOL. XII (1) .