Foreign Direct Investment in Multi-Brand Retailing in India

-B.V.Raghunandan, SVS College, Bantwal

Post-Graduate Department of Management,

Sri Devi College, Kenjar, MangaloreDecember 5, 2012

Classes of Foreign Investment

• Foreign Institutional Investment• Foreign Direct Investment

Retailing: Brand Modes

• Single Brand : Also known as vertical brands

- Single Line Format - Multiple Locations - Limited Investment• Multi-Brand : Many brands

including private brands - Limited Locations - Huge Investment

Recent Government Move• 51% FDI in Multiple Brand

Retailing• 100% FDI in Single Brand

Retailing• 30% Outsourcing Locally

from MSME units• Brands need not be

Owned by the Parent, but by any of the Subsidiaries

• In cities with a population of not less than 10 lakh

The Widespread Opposition

• Political Parties are Dominated by Mandis

• Fear of the Middlemen being Removed

• Economic Issues are Adopted when Political Ideologies Whither Away

• Kiranawala is only an eye wash argument

Consistency in Political Stand• Party in Power Favours it

for Achievement• Parties in Opposition Use it

to Create an Emotional Hype

• Political Mileage is Obtained

• Creation of a Mass Hysteria

• Less Healthy Discussion• Doomsday Attitude for

Every Change

Impact on Local Kiranawalla• Near the Location of

the Customers• Flexibility on the Basis

of Requirements of Customers

• No need to Scale up the Model

• Low Employee and Establishment Costs

• Customer Services• Limited Suitability for

Large Retail Format

Need for FDI • Encouraging Contract Forming• Better Processing of

Agricultural Produce• Networking with Local Retailers• Commercial Warehousing in

Rural Areas• Better Dissemination of Market

Information• Healthier Agricultural Practices• Better Seeds and Organic

Farming• Better Agricultural Research• Avoiding Wastages

Earlier Examples

• ITC’s E’Choupal• Pepsi’s Contract Farming in Punjab• EID Parry’s Farmers-Connect• AMUL’s Success• Nestle’s Dairy Development• Private Dairies

Some of the Indian corporates in Linkage with Agri value chain

• Adani Agrifresh : Apple value chain• TATA CHEMICALS LTD : Extension Services• ITC : Agri allied sector• Jain irrigation : Water conservation• Marico : Safflower value chain• National Spot Exchange : Enhancing farm income• Global Green Co Ltd : Value chain integration in Gherkin• Chambal Fertilisers Ltd : Improving Agri Productivity

Some of the MNCs in Linkage with Agri value chain

ADM : Soybean value chain SAB MILLER : Barley value chain PEPSICO : Potato value chain BHARTI WALMART : Supply chain across diverse crops MONSANTO : Sustainable value chain in Maize SUMINTER INDIA ORGANICS : Sustainability in organic farming FIELDFRESH FOODS LTD : Fruits & Vegetable value chain

• 3,500 small & marginal farmers ( < 1Ha)

• 4000 Acres under contract farming of baby corn

• Increase in farm output by 20%

• Technology transfer in conservation of water, chemical fertilisers and pesticides

• Efficient weather insurance• Modern post harvest facility• Rural employment

next previous

ITC

•

Marketing support Retail linkage Watershed development Wasteland development Sustainable off-farm livelihood

IMPACT 1.03 lac Ha wasteland converted

into green land Increase in farmer income by

>50% E-choupal covers 4 million farmers

with direct market linkage Direct linkage with retailing Company with maximum impact

on farmers

PEPSICO INDIA

Contract farming in special variety of Potato for their chips brand Lays

Engaged with farmers in Bihar, Gujarat, Karnataka, Maharashtra

PPP in R&D and Agriculture extension

Technical assistance on latest cultivation practices

IMPACT 11,000 farmers Increase in yields / net farm

income by 40% Price support against volatility

ADM- Soybean revolution in Maharashtra

• ADM has an oilseed process plant in

Latur, a backward district in Maharashtra with no soybean crop.

ADM, initiated extension services in this area.

Agri advisory centres were set up for a cluster of each 20 villages and farmers were introduced to soybean cultivation

Women farmers were trained as they work in fields.

High yielding variety seeds were produced through farmers with linkage to Universities

End to end technical guidance was given to farmers

ADM- Soybean revolution in Maharashtra

IMPACT

2002 : 19,500 HA

2003 : 49,500 HA

2004 : 1,38,500 HA

2005 : 1,75,000 HA

2006 : 1,80,000 HA

2007: 1,86,000 HA

2008 : 2,05,000 HA

2009 : 2,26,000 HA

2010 : 2,43,000 HA

2011 : 2,74,000 HA

2012 : 3,03,000 HA

More crop per drop

Maximise yields with minimum water sources

Develop models for each crop.

Saving on fertiliser and judicious use of micronutrients

Reduce cultivation costs Well administered R&D

to manage emerging challenges

Interest of FDI• Large Markets• Stable Income Levels in

India• Sourcing of Agricultural

Produce• Festivals and Special

Occasions (Multi-etnic and Multi-religious)

• Cash Based Transactions• Diversified Consumption

Problems for the FDI

• Limited Working Hours• Working Hours Unsuitable for Indian Customers• Expensive Real Estate• High Salary to the Employees• High Establishment Expenses• Unsuitable for Many Lines of Products• Indian Corporate Retailers paint a sad Story• Younger Demography

Focus• Development of Infrastructure in Rural Areas• Better Price for the Farmers• Effective Utilisation of Grains in the Godowns of Central and State

Warehousing Corporation• Better Processing Facilities• Increasing the Storage Facilities• Better Farming Practices• Better Farmer Education using Modern Technology

THANK YOU