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Why Supply Chain Management Remains Paramount in AgriBusiness?

On Tuesday, 24 Jun 2014
Why Supply Chain Management Remains Paramount in AgriBusiness?

Agriculture is a significant sector and main stay for many economies of the world. Agriculture derives its importance from the fact that it provides any country self reliance in terms of food for their people, provides huge direct and indirect employment and greater revenue through export.

Agricultural production is synonymous with uncertainty due to exposure to weather; the unpredictability of disease and pests, the seasonality of harvest and market cycles. Agriculture is also dependent on supply chains to cope with the geographical separation of inputs, farming and consumption. The prices for many agricultural commodities have peaked in recent years and have become more volatile as a result of temporary disruptions to supply and/or increased demand. This trend is likely to continue as supply pressures arise from climate change, increase in demand for bio fuels and the rising financialization of agricultural commodities.

  • Physical products (from input suppliers to farmers, farmers to traders, traders to buyers, buyers to consumers)
  • Financial (credit, payments, insurance)
  • Information (prices, transport opportunities)

Designing Customized Supply Chain for Agricultural Products

Regulatory barriers have constrained the investments in development of storage and processing facilities, hampered the development of successful institutions, and deteriorated the condition of agricultural producers to be internationally competitive. India, for example, is the world’s largest producer of fruit and vegetables but it has been estimated that inadequate post-harvest storage and transportation cause losses of around 30-40%. This means that only 7% value addition takes place and only about 2% of production is processed commercially.
For designing a supply chain for any Agriculture product, it’s important to know which kind of agriculture product it is, and accordingly a responsive supply chain is designed. The products can be categorized as follows:

  • Products which are not highly perishable like cereals but need to be processed like- rice is polished, and wheat has to be husked
  • Products which are highly perishable must reach markets fast or need to be processed and packaged

Supply Chain for Non Perishable Items

Cereals like Wheat, Rice, Maize etc. and some vegetables like Potato and Onion are highly inelastic in demand and non perishable.The supply chain for such products should focus more on efficiency and cost effectiveness rather than responsiveness. Cereals need processing and polishing after they are harvested from fields and hence supply chain comes into play. The food grain is then packed in jute bags and stored in cold storages until there is order from the market.

These types of agricultural products being inelastic, the demand more or less remains constant. In such cases their demand can easily be forecasted and hence while designing supply chain for such products efficiency should be more preferred.

Supply Chain for Perishable Items

Fruits, green vegetables and flowers are categorized under perishable items and they require a more responsive, faster supply chain as a means of propagation from farms to the market.

These products are elastic and erratic in demand hence their demand forecasting is also difficult. They need more costly cold storage and refrigeration, special transportation mechanism and on-time delivery; all these requirements make this kind of supply chain very costly. Moreover, the price of these products is consummately adjusted to ensure higher margin and profit. While designing supply chain for such items,the main focus should be responsiveness.

Supply Chain Management and AgriBusiness

It has been observed that there is a wide divergence between the farm gate prices and retail prices of various food items. The usual reference to 1-2-3-4 in supply chain is quite well known, where what the producer sells for one rupee, by the time it reaches the final consumer fetches four rupees due to the presence of intermediaries.

Improving supply chain is beneficial both for the producer and final consumer as producers would get remunerative price for his produce and consumer would be benefitted from the lower price. An efficient supply chain can contribute to an increase in the marketable surplus by lowering down the inefficiencies in production, processing, storage and transportation.

It widens the market opportunities for products and thus helps in maintaining an ever increasing demand for the same. Therefore, increasing efficiency of supply chain could help in bringing down food inflation, increase the efficiency of our food markets and transform our agriculture sector to become more sustainable and viable.

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