August 03, 2010

Mumbai

Retail FDI to reduce fruit and vegetable wastages

A CRISIL Research study concludes that allowing foreign direct investments (FDI) in multi-brand
retail has the potential to reduce the prices of perishable food produce such as fruits and vegetables in
India over the long term. This policy measure is likely to stimulate a flow of investments from
organised retailers and logistics companies for establishing quality supply-chain infrastructure for
fresh fruits and vegetables. An efficient supply chain will enable large retailers to source vegetable and
fruit produce directly from agricultural cooperatives, lowering annual wastages, about Rs 630 billion
in 2009-10, and reducing commissions of trade intermediaries. This, in turn, will improve realisations
to farmers, reduce consumer prices of fruits and vegetables, and increase operating margins of large
retailers.

About 30 per cent of India's total production of fruits and vegetables is wasted every year due to
inadequate cold storage and transport facilities. CRISIL Research estimates that almost 50 per cent of
the annual wastages can be prevented if fruit and vegetable retailers have access to specialised cold-
storage facilities and refrigerated trucks. Further, large retailers will be able to save on commissions,
amounting to 10-15 per cent of the retail selling price of fruits and vegetables, to trade intermediaries
such as commission agents and wholesalers, if they are able to source the produce directly from
agricultural cooperatives.

"The wastage in the supply chain and the commission to trade intermediaries inflate the final price
paid by Indian consumers for fruits and vegetables. Indian consumers pay nearly 2-2.5 times the
price paid to a farmer as compared to 1-1.5 times in developed markets where the penetration of
organised retail is much higher," says Mr. Nagarajan Narasimhan, Director, CRISIL Research.

CRISIL Research estimates that Rs 650 billion will need to be invested over the medium term to build
the supply-chain infrastructure for fruits and vegetables. This estimate takes into account the number
of cold storage facilities and refrigerated trucks that would be required for handling India's production
of fruits and vegetables. The fruit and vegetable segment has so far not attracted adequate investments
since organised retailers account for less than 1 per cent of the total sales of fruits and vegetables in
India.

"Liberalisation of the retail-FDI policy will help increase organised retail penetration," says Mr.
Sridhar C, Head - CRISIL Research. "A likely increase in the sales volumes of fruits and
vegetables through modern store formats will encourage large retailers and logistics companies to
invest in cold storage and transport facilities."

Contd….

August 3, 2010 1 www.crisil.com

Media Contacts Analytical Contacts
Mitu Samar Nagarajan Narasimhan
Head, Market Development & Communications Director, CRISIL Research
CRISIL Limited Tel: +91-22- 3342 3536
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Mobile: +91- 98200 61934
Fax: +91-22- 3342 3001 Sridhar Chandrashekar
E-mail: msamar@crisil.com Head, CRISIL Research
Tel: +91-22- 3342 3546
Tanuja Abhinandan
E-mail: shridharc@crisil.com
Market Development & Communications
CRISIL Limited
Tel:+91-22- 3342 1818
Mobile: +91- 98192 48980
Fax: +91-22- 3342 3001
E-mail: tabhinandan@crisil.com

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August 3, 2010 2 www.crisil.com