India’s biggest discount retailer, Subhiksha Trading Services Ltd plans to set up a private wholesale market for fresh produce in Nashik and another in Pune, to feed its own stores and sell fruit and vegetables to other retailers, as organized stores try and cut out middlemen in the journey from the farm to the store-shelves.
Subhiksha will seek approval from Maharashtra’s State Agriculture Marketing Board in the coming weeks and expects one to come in the next two months, according to G. Kashinath, president for agriculture commodity sourcing for Chennai-based Subhiksha.
Meanwhile, Subhiksha has already secured the requisite licence from the Maharashtra agriculture marketing agency to purchase fresh produce directly from farmers and is currently scouting for five-six acres of land in Nashik which it will purchase or take on lease to set up the market.
“We can have multiple mandis once we see the success of one (planned at Nashik),” Kashinath said, using the Hindi word for wholesale markets.
Kashinath says the Maharashtra government mandates a minimum investment ofRs2 crore by companies setting up mandis and that Subhiksha plans to invest between Rs2 crore andRs5 crore in the Nashik market. He added that it will gauge the business for two- three months before moving into Pune.
“We are looking more for our backward linkages for our own outlets…that it would service our own requirements primarily,” Kashinath said. “We will be doing some wholesale but the majority will be for our own requirements.”
The private mandis willservice Subhiksha’s 400-500 stores in Maharashtra and the western region. The company will also ship some of the produce to New Delhi.
Separately, Subhiksha has already rolled out fruit and vegetable stores called Subhiksha Mandi.
Many states have amended or are in the process of amending the Agriculture Produce Marketing Act that will not only allow private players to bypass government-run procurement markets and source fresh produce directly from the farmers but also sell them through private-owned wholesale markets. Much of India’s fresh produce has traditionally been sold through government-run markets to regulate the supply and distribution of produce and a tax is levied on the goods sold. The Act, however, is governed by state laws.
Companies in the hypermarket business have often cited the law, which can also regulate who buys from these markets and prevent cartelization, as a reason why India’s supply chain is inefficient and riddled with middlemen who pay little to farmers, yet mark up the price of fresh produce. In response, governments have tried to relax the laws and, in some cases invite private participation in such terminal markets.
Although India produces almost 10% of the world’s fruit and vegetables, it accounts for 1% of global trade in these. Experts estimate that 40% of the fresh produce in the country is wasted because of a lack of proper handling and storage facilities and say that modern markets will not only help local consumption but also boost exports.
The ministry of agriculture is extending financial support to wholesale markets under the National Horticulture Mission.
As India’s organized retail takes off with thousands of branded stores nationwide, many of the players are seeking to bypass government wholesale markets by sourcing fresh produce directly from farmers.