Indian Logistics

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Innovation of Agriculture Logistics
Managing Food Inflation

© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

About the study

This is a briefing paper written by KPMG that assesses the underlying reasons for the high levels of inflation in the food economy of the country and its subsequent impact on innovations in business models from both a corporate and policy perspective. Our study starts with a brief overview of the key reasons for the high levels of food inflation, government initiatives to overcome the constraints, changing business models and innovations in the private sector. We then highlight 13 different cases of innovation that have helped the food economy deal with the problem of inflation. The crisis also presents an opportunity to deliver greater value to consumers from both an economic and social standpoint.

© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Foreword

Double digit food inflation is an extremely topical concern that has plagued the Indian economy for the past three years showing no signs of abating. A high level of food inflation has a cascading impact on the overall health of the economy on account of the resulting interest rate regime that chokes the availability of capital to fund the economic growth engine. Reduction in food inflation has hence become a serious concern for the wider business community with implications beyond the food and agri-business sector. The reasons for the high levels of inflation are essentially structural in nature arising from supply constraints on account of the inefficiencies in production, processing, distribution and retail of fresh produce and food products. These constraints have been further exacerbated by an increase in demand led by growing per capita consumption of food driven by the economic advances of the past decade. Patterns of food consumption have also changed as Indian consumers evolve up the food pyramid from a predominantly grain based regime to a better balanced diet comprising of higher intake of animal proteins including dairy, fruits, vegetables and processed food products and services. It is in this context that some food and agribusiness firms have developed innovative business models to not only profit from the surge in demand but also improve efficiencies of the agricultural supply and demand chain by investing in modern production, processing and distribution practices. Policy has also been active both nationally and in a few states to promote the growth of agricultural output from a yield and productivity standpoint. This report highlights some of these leading practices from a corporate and government viewpoint that can serve as illustrations of the potential way forward to mitigate the serious challenges impeding capacity building in this crucial sector.

Ramesh Srinivas Partner Management Consulting KPMG in India

© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Foreword

Modern India’s appetite for food is insatiable making food retail – whether through QSRs, fine dining, modern retail formats or even the kirana shops – one of the fastest growing industries in India. Rise in incomes, changing lifestyles, urbanization and easy availability along with fast changing demographics are only some of the reasons fuelling this exponential growth. However, fast growth in an environment limited by supply side constraints leads to high food inflation. India is no exception with its persistent double digit food inflation. Supply side...
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