At least 50 per cent of the production of fruits and vegetables in the country is lost due to wastage and value destruction. The wastage costs the country an estimated Rs 23,000 crore each year, according to a joint study by the management consultancy firm, McKinsey & Co and the Confederation of Indian Industry (CII).
The amount, which is almost equivalent to the country's current car manufacture sector, includes over Rs 1,500 crore in wastage at the farms and along the procurement chain, Rs 10,500 crore in value destruction and Rs 12,500 crore in intermediary margins.
This high level of wastage and value loss is largely due to lack of basic infrastructure, like storage and handling facilities at the farm level, besides owing to the large number of intermediaries who place large costs in the system, says the study.
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Stating that in several other food sectors too, both the production, transportation and retailing segments are highly fragmented, the study says produce from the individual farm passes through the hands of at least seven intermediaries before it reaches the retailers.
There are a multitude of problems at the farms themselves that cause inefficiencies in the system and add to wastage and value loss, the report says.
The major problem is that storage and handling techniques at the farms are inadequate. For example, all the crop is harvested simultaneously and harvesting of produce is done without any consideration for the distance over which the produce has to be transported. As a result, the natural processes of ripening can greatly add to the value loss during transportation.
To compound the problem, farm-hands are frequently unaware of the appropriate picking and handling techniques.
In absence of appropriate storage facilities, the harvested crop is left in the fields, often in open baskets or on the ground, where it is damaged by the sun, the report says.
The lack of storage facilities also implies that the farmer is not able to negotiate the best rate for his crop since he is reluctant to carry the risk of holding inventory of these perishable items.
All this, including indiscriminate plucking of produce that is either over-ripe or under ripe, the bruising of produce due to mishandling, the lack of grading systems and inadequate storage facilities, results in very significant wastage even before the produce leaves the farm.
There is further loss during transportation from the farm to the market, the study says, adding that the current road conditions, combined with inappropriate packing and temperatures of as high as 40 degree celsius lead to further deterioration in the quality of produce.
It usually takes more than 24 hours for the produce to reach the retailer following harvest. The majority of retailers are typically push-cart vendors or open market stalls.
As a result, once displayed for retail, the produce is kept unchilled in baskets or open piles and which rapidly deteriorates much of the produce.
In India, the intermediaries add greatly to the final cost of produce. Since each of the intermediaries carries the risk described above, their mark-ups are substantial and vary between 33 per cent and 50 per cent.
As a consequent of this and the relatively small scale at which they operate, margins are also high. For example, in India, the wholesaler's margins are as high as 15 per net compared to two to three per cent in the US, the study says.
While farmers in more developed markets receive 40 to 70 per cent of the final retail price, in India they receive only 25 per cent, it says.
The study suggests that the key drivers of change could be large retailers who can procure the produce directly from the farms which will enable them to greatly increase efficiency by reducing the number of intermediaries between the farm and the retail outlet.
Like retailers in other countries, Indian retailers will also reduce the wastage in the system by communicating best practices in harvesting, storage and transportation to the farmers as well as those involved in transportation and handling along the procurement chain.
Big retailers in the country have high overheads compared to the existing fresh produce vendors. In order to successfully compete with the existing sellers, retailers will have to ensure that they offer better quality produce at competitive prices.
Given their higher overheads, this will be possible only when the retailers reduce their cost of procurement by reducing the high level of wastage and by minimising intermediary margin.
To do this, they will need to establish close links with the producers and invest in infrastructure along the procurement chain between the farm and the shop.
Despite these problems, the domestic fruits and vegetables sector, already the largest is in the world, is likely to register impressive growth by year 2005. The growth will come from the current low consumption levels. The current per capita availability of fruit in India is a mere 100 gram per person per day and 200 gram of vegetables per person, per day which is well below the recommended dietary levels of 140 gram of fruit a day and 200 gram of vegetable a day, the report says.