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Can industrial agriculture be sustained?

May 25th, 2008 by Devangshu Dutta

A few days ago, I wrote about the possible “Dis-economy of Scale”, when we start to add up the hidden costs in industrial agriculture.

I’ve just found an interesting article from Fortune about Jason Clay, described as a “thinking environmentalist”.

He calls for intensification of agriculture, and “economies of scale”. However, the critical departure from usual proponents of industrial farming, his view is to make agriculture “both more productive and sustainable” (i.e. “generating more output from fewer inputs”).

I wonder if that means using truly fewer inputs through the entire chain. That is really the key, since the current intensive and industrial model of farming actually seems to use more input (fuel and production) calories to produce fewer output (food) calories. Unless that changes, the model of industrial agriculture is unsustainable over time.

(The earlier post is here: The Dis-Economy of Scale)

And while we are on the subject of sustainability, it’s always good to remember that human beings haven’t suddenly become rapacious in the industrial and post-industrial age. We’ve displayed similar behaviour of overdoing things over centuries – a good book to pick up is Jared M. Diamond’s “Collapse: How Societies Choose to Fail or Succeed”. (Here’s his profile on Wikipedia, and book on Amazon).

Posted in Corporate Social Responsibility, Food & Grocery, Supply Chain, Uncategorized | No Comments »

Transforming Retailing in India – Event by Confederation of Indian Industry (CII) – 13 May 2008, New Delhi

May 6th, 2008 by admin

The Indian retailing industry is at an inflection point, and set to enter a new growth trajectory owing to rising household consumption and the entry of corporate entities. About 400 new malls, 1,500 supermarkets and 350 department stores are currently being built in various Indian cities. With more than US$ 30 billion in investments slated in the modern retail sector of India, it becomes imperative to develop a better understanding of the key challenges of talent management, supply chain / logistics and real estate and identify the next steps to facilitate this exponential growth and enable the policy makers to formulate appropriate strategies. With this objective, the Confederation of Indian Industry (CII) is organizing a Retail Conference on 13 May 2008 in New Delhi. (Details about the event here).

Devangshu Dutta, chief executive of Third Eyesight, will deliver a special address and chair the session on Supply Chain Management – the panel comprises of Vikram Bakshi (Managing Director – North and East – McDonald’s India), Rakhee Nagpal (Managing Director, Dynamic Vertical Software Pvt. Ltd.) and Puneet Kumar Bhatia (Director, Enterprise & ITS, Internet Business Solutions Group, Cisco Systems).

Other speakers at the conference include Vinod Sawhny (President & Chief Operating Officer, Bharti Retail Pvt. Ltd.), Mukul Rastogi (Vice President – Human Resources, Lifestyle Retailing Business Division, ITC Ltd.), Sanjay Verma (Executive Managing Director – South Asia, Cushman & Wakefield), Tim Eynon (Chief Executive Officer, Prozone-Liberty &, Director, Provogue (India) Ltd.) and several other senior executives from the Indian retail sector.

Posted in EVENTS, Retail, Supply Chain | No Comments »

The Dis-Economy of Scale

May 1st, 2008 by Devangshu Dutta

We touched upon food price inflation last month and – no surprises – it is still hogging the headlines. It is, after all, an emotive topic. We are terribly concerned not just as food and grocery professionals, but also as consumers and general public. After all, food and grocery are typically half of our monthly spend, give or take a few percentage points.

Inflation often brings with it swift (sometimes knee-jerkingly quick) reactions – price controls, export controls, subsidies to farmers and food producers, and various others. Some of these measures work but only in the short term, while others may have no immediate visible impact on the market at all but may be truly insidious because of that.

However, a significant set of questions has not really been touched yet: how the food supply chain is structured, how it is driving consumption, what impact that might have on food prices and several broader cost implications.

Thousands of years ago, when hunter-gatherer human beings stumbled upon agriculture, it was a breakthrough similar to the discovery of controlled fire. Hunter-gatherers were dependent on the natural availability of food, while agriculture created the opportunity to have some control over food supplies and reduce the natural feast-famine cycle. Thereafter, farming, processing and storage techniques kept evolving incrementally to ensure that more food could be produced for each unit of land and effort, and stored for longer – all moving towards ensuring “food security”. This led to the age of empire-building, where monarchs grew their wealth (essentially food territory) with the help of military-imperial complexes, and the greater wealth in turn supported the military-imperial complex.

This remained the trend for a few thousand years, until the age of industrialisation and the age of petroleum. Through the industrialisation and the world wars, the military-imperial complex gave way to a military-industrial complex, which essentially became the military-industrial-petroleum-agricultural complex. Suddenly, there were not just machines to plant, reap, thresh, sort, clean and process, but also petroleum-based substances to dramatically increase output and to keep the produce fresher for longer.

As US farms and then European farms industrialised, the parameters that began to be applied were the same as in any factory – how to produce more while spending less – and every year the target was to grow more for less. Underlying this was the principle of “efficiency from larger scale”. The same philosophy played out further down in the supply chain – from processing to extend the shelf-life of the product as it was (such as chilling, cleaning, sorting) to processing and packing in order to change the nature of the product itself and gain additional value (such as tomatoes to paste or potatoes to chips).

Standardisation became a vital link in industrialisation – if you can standardise produce, you can cut down human handling – while you may lose product variety (including flavour and colour) you gain in terms of driving down the cost of production. By reducing unpredictability you can also concentrate on building the scale of business, because it becomes more repetitive.

The interesting side-effect of this is that, gradually, we are converting ourselves (and people in many industrialised economies already have) into petroleum-burning machines rather than those running on solar energy, because increasingly the agricultural supply chain is dependent on non-renewable petroleum and its products, rather than by the natural energy of the sun being converted into food by the plants.

And the important thing to keep in mind is that, in this switch-over, the energy efficiency is actually going down rather than up – we are using more calories of fuel source to produce each calorie of food energy.

The issue is more acute now than ever before, because now the growth markets of choice for industrial agriculture companies are China and India. If these two countries move through the exactly same path as have the western economies in terms of agriculture and food processing, given the population base itself, clearly the impact will be 5-7 times (or more) on the demand for petroleum as well as the fall-out on the ecosystem.

You may ask, why should retailers worry about this?

Firstly, pure cost considerations – clearly, the costs of petroleum are not coming down, and explosive demand through industrialised agriculture will only serve to push them up. How far can you push the food bill every month, before people start buying less? What impact would that have on large retail supply chains and farmers whose processes are increasingly built around products of industrial agriculture?

Secondly, what consumers are already beginning to express in western markets will possibly happen in India in the next few years as well: concern about where and how the product has been produced, what has been the fall-out on the environment and on the overall health of people involved with that supply chain as well as the health of consumers.

Carbon footprint, food miles & locavores (people who only consume food that is produced within 100 miles of where they live) are terms that retailers are increasingly hearing.

And an alternative set of questions is also being raised. Is it ok to burn non-sustainable fossil fuel if you get “carbon credits” by planting trees somewhere else – have all the carbon costs been accounted for from the start to the finish of the production process? Is it better to reduce the food miles and have food produced locally in a high-cost economy’s industrial agricultural model, or to have naturally grown foods from a more primitive farm in Africa or Asia where the environmental impact is only the “carbon debit” of the air-freight. And, even if the produce is carbon-friendly, what about the nitrogen footprint (from the fixation of nitrogen into fertilisers) and the methane footprint (from large scale animal farming)?

This one page is surely not enough to present any in-depth analysis, but I hope it will serve to kick-start the process of questioning how India (and China) should take the lead in creating an alternative and more sustainable model for food security for large populations. There is a lot of research being done, and much yet to be done, to quantify the true cost of blindly pushing for scale in the food chain. Truly “progressive grocers” need to take an active role in supporting this.

Posted in COLUMN-Progressive Grocer, Corporate Social Responsibility, Food & Grocery, India, Retail, Supply Chain, Uncategorized | 1 Comment »

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