Adding yet another conflicting data point to the simmering controversy of whether organized retail will benefit or hurt the average Indian, credit rating agency Crisil Ltd has come out with a report saying that around Rs1 trillion worth of food is not being used in the country because of wastage, poor storage and middlemen commission costs.
This wastage may occur in the form of food simply rotting or not getting its full market price because of gaps in the current food supply chain, the report says, suggesting the emergence of organized retail will only strengthen the supply chain, increase farm incomes and reduce food spends for consumers.
Food and grocery sales form just 18% of organized retail revenues, according to the report. But with many new players, including Reliance Industries Ltd, the Aditya Birla group and Bharti Enterprises setting up retail operations, food and grocery retail could form 25% of revenues for organized retail. This could bring wastage down from the current level of 25% to 15%, which is as much as is wasted in more developed retail environments.
That could then boost farm incomes by as much as 37% and reduce the country’s food spending by 3.5%, the report estimates.
“We are already seeing that there are less layers and less wastage of food in organized retail,” says Ajay Dwivedi, director, Crisil Research, in a conference call to discuss the report’s findings.
The findings of the report come against the backdrop of the Left parties asking for regulations to curb organized retail as they believe that the shift to organized retailing could lead to an elimination of jobs in the unorganized retail. After agriculture, organized retail is India’s second largest employer.
Faced with such concerns, the government has commissioned a study on the impact of organized retail on unorganized retail, by the Indian Council for Research on International Economic Relations.
“We do not have enough evidence to show the extent of wastage caused by middlemen,” says Reena Desai, campaign director of the FDI Watch campaign, which opposes opening up India’s retail sector to domestic and foreign organized retailers.
“Many livelihoods will be lost where these companies are entering. Besides, there are also implications of having a few companies controlling the entire supply chain of food,” Desai added.
Currently, just about 1% of food and grocery is sold in an organized retail environment. But, with organized retailers increasing their presence and customers’ shopping habits changing, food and grocery retail in an organized set-up will grow at 37% over the next five years, compared to 26% for the entire industry.