[Answered] What are the supply chain constraints of India’s food processing sector? What steps have should be taken to remove these constraints?

Demand of the question
Introduction. Contextual Introduction.
Body. Supply chain constraints of India’s food processing sector. Steps to remove these constraints.
Conclusion. Way forward.

Food processing Industry is a sunrise industry which has an immense potential to address the rural economy distress. But the Food processing Industry is facing many challenges especially in supply chain. Supply chain management (SCM) is the management of the flow of goods. It includes the movement and storage of raw materials, inventory and finished goods from point of origin to point of consumption.

Supply chain constraints faced by India’s food processing sector:

  1. Fragmented supply chain: The long and fragmented supply chain results in the wastage and price escalations. This is because of the large share of unorganised players in the supply chain and operating commercial viability challenges.
  2. Inadequate cold storage and warehousing facilities: Warehousing is a key requirement in the overall supply chain it is mostly dominated by unorganised players. 20% of warehousing is organized currently with 70% of the organised market controlled by the Government.
  3. Logistics issues: Logistics in India still face challenges related to quality and connectivity:
    • Indian national highways account for only 2% of the total road network but carry 40% of all cargo.
    • Port capacity may be increasing, lack of connectivity to these ports leads to cost escalations and delays in the goods transferred.
    • Lack of last-mile connectivity from rail transporters.
  4. Slowdown in production growth: With around 67 percent of landholdings being marginal, with an average size of 0.4 hectares, more than half of marginal farmers are likely to not have any excess income to spare beyond subsistence, hindering the improvements in farm-level productivity
  5. Large informalisation: More than 50% of the industries in the food processing sector is concentrated in informal sector and are small scale industries. Therefore they cannot achieve economy of scale and avail the benefits from the formal financial sector.
  6. Underdeveloped processed food market: Indian processed food market is still evolving and still is at its infancy stage.
  7. Fragmented market: Indian retail sector is still dominated by small traders and Kirana shops. This poses a serious challenge in building of consumer base.
  8. Other issues: Apart from the above areas of concern, other issues such as Lack of applied research, Taxation issues, access to credit, obsolete technologies, etc. persist in the sector.

What should be done?

  1. Low demand and supply uncertainty requires an efficient supply chain strategy to optimise profitability. Profitability can be reached by cost and information coordination. Low costs are realised by eliminating non-value-added activities, leading to scale economies and optimising of techniques and production.
  2. Supply chains with low demand but high supply uncertainty should follow the risk-hedging strategy to reduce costs.
  3. The supply chain must focus on being responsive and flexible to meet the changing needs of customers with an efficient supply chain.
  4. The supply chains should adopt a combination of the risk-hedging and responsive supply chain. Supply chains must try to cope with demand and supply chain uncertainty to be responsive to unpredictable demand.
  5. Logistics bottlenecks should be removed especially by focusing on road and port development.
  6. A single point of contact for each trading partner should be defined. This ensures that the information is neither lost nor deteriorates during its flow between the trading partners.
  7. Ensuring continuous sharing of information is important. The need to keep continuous information flow is paramount.

The food processing industry is the fifth-largest industry domestically in terms of production, consumption, export and expected growth in the country.  It contributes to around 14 % of manufacturing Gross Domestic Product (GDP) and 13 % of India’s total food exports. Supply chain constraints once removed can help the industry to reach new heights.

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