In the wake of political protests against the entry of corporate players into agri-retail in West Bengal, terminal markets proposed by the state government to organize supply chains for farm products, which will be floated in private-public partnership, are attracting a lot of attention.
ITC Ltd, for one, is hinging its entry into the state’s agri-retail market on successfully bidding for the terminal markets. There are others who have conveyed their interest in participating in the terminal markets to the government.
The state government has been preparing the ground for inviting bids for participation in setting up three terminal markets on the northern and southern outskirts of Kolkata, at Dankuni, Barasaat and South 24 Parganas.
With the Left Front (the coalition of parties ruling the state) divided on allowing the corporate sector into marketing of agricultural products, the proposal for terminal markets is awaiting approval from the state cabinet before the government actually calls for bids. Meanwhile, almost all the companies looking for an entry into agri-retail have opened a dialogue with the state to express their interest in investing in those markets, says a senior government official close to the developments who did not wish to be identified, given the preliminary nature of the talks.
“It makes sense for us, because it can potentially combine the Choupal Sagar retail concept (ITC’s rural retail format) with the sourcing infrastructure for Choupal Fresh,” says S. Sivakumar, chief executive officer, ITC’s agri-business division.
Even Pantaloon Retail (India) Ltd, the company that runs several retail formats—including hypermarket chain Big Bazaar and supermarket network Food Bazaar—is looking at the terminal markets as an opportunity. The company has already announced plans to spread its network in West Bengal. “It will allow for upgrading agri-commodities for our network,” says Damodar Mall, head of new businesses, Pantaloon Retail.
As the draft structure of the terminals currently stands, they will source their produce from surrounding areas covering about 150 km each. Operating on a hub-and-spoke model, the terminals will be served by collection centres closer to the area of produce. These centres will wash, sort, grade and pack the fruit and vegetables before they are sent to the terminals, equipped with cold storage, warehousing and ripening facilities.
This is very close to the facilities that Reliance Fresh, the agri-retail venture of Reliance Industries Ltd and the Indian cash-and-carry arm of the German retailer Metro AG are trying to put in place on their own in the state. While Metro is staying out of the race for the terminal markets, Reliance and RPG Enterprises (it owns Spencer’s Retail) have shown some interest, said the government official.
Reliance, facing stiff opposition to its retail plans in the state from the Forward Bloc, a constituent of the Left Front government, declined to comment about its approach to the terminal markets. Sanjiv Goenka, vice-chairman of RPG Enterprises, couldn’t be reached for comment as he was travelling. Currently, Spencer’s, which has already entered the Kolkata market, is procuring products from the existing wholesale markets (mandis), but this is not seen as a very cost-effective procurement channel.
“West Bengal, in its capacity as the country’s largest producer of vegetables, is bound to attract most of the agri-retail players,” says Rajesh Srivatsava, managing director, corporate and commercial banking, Rabo India Finance Pvt. Ltd, which helped draft the structure of the terminal markets in the state. While a single terminal cannot sustain a complete agri-retail network, the catchment area covered by a terminal can support about 20 outlets, he explains.
The terminal markets, expected to serve about 50 traders each, will also need an anchor player each to pick up a sizeable portion of their products. The corporate players will play that role, Srivatsava says. However, he refused to comment on whether the markets would provide the critical entry point for the agri-retail players in the face of all the political turmoil over their role in the sector. He is convinced that the current disturbance in the market will not last.
Though ITC, which is eyeing pan-India presence in the current financial year, has decided to restrict the roll-out of its urban retail chain Choupal Fresh, it is looking at the terminal market option only in Bengal. “Once the model’s feasibility is proven, we will look at other locations,” says Sivakumar.
The company did not bid for the terminal market in Chandigarh, where it is already present with Choupal Sagar and Choupal Fresh. Pantaloon, which has been talking to the West Bengal government about the terminal markets project, is still evaluating its options in other states.
Now the wait for the proposal to obtain cabinet clearance, which will involve the Forward Bloc as well. The food processing and horticulture department of West Bengal which is moving the terminal markets proposal, has already initiated a dialogue with the state’s agri-marketing department, run by Forward Bloc members, to ensure an easy passage for the proposal.
The feasibility report that Rabo India tabled in 2005 suggested that the agri-marketing department should be one of the equity holders in the terminal market. The food processing department has been pushing the terminal markets project, as it is seen as a potential breakthrough in tackling the 30% loss in agricultural produce that West Bengal sees in the post-harvest currently.