CAPSTONE PROJECT (PART I) REPORT

(Project Term August-December, 2012)

(Comparative Analysis of traditional vs modern vegetable supply chains in the
states of Punjab,Himachal Pradesh and New Delhi.)
Submitted by:
(Akshi Prashar ) Registration Number: 10803262
(Payal Mahajan) Registration Number: 11111158
(Faheem Ahmad) Registration Number: 10802635
(Bhisham Lohra) Registration Number: 11113062
(Sourabh Gond) Registration Number: 10801109
Project Group Number: 1
Under the Guidance of
(Mr. Mandeep Singh Hayer, Assistant Professor )
Department of Management.
Lovely Professional University, Phagwara
August to December, 2012

DECLARATION
We hereby declare that the project work entitled (Title of the project) is an
authentic record of our own work carried out as requirements of Capstone Project
(Part-I) for the award of degree of MBA in Operations( Programme Name ) from
Lovely Professional University, Phagwara, under the guidance of (Mr. Mandeep
Singh Hayer), during August to December, 2012).
Project Group Number: 1
Name of Student 1: Akshi Prashar
Registration Number: 10803262
Name of Student 2: Payal Mahajan
Registration Number: 11111158
Name of Student 3: Faheem Ahmad
Registration Number: 10802635
Name of Student 4: Bhisham Lohra
Registration Number: 11113062
Name of Student 5: Sourabh Gond
Registration Number: 10801109

(Signature of Student 1)
(Signature of Student 2)
(Signature of Student 3)
(Signature of Student 4)
(Signature of Student 5)

CERTIFICATE
This is to certify that the declaration statement made by this group of students is
correct to the best of my knowledge and belief. The Capstone Project Proposal
based on the technology / tool learnt is fit for the submission and partial fulfillment
of the conditions for the award of MBA in Operations from Lovely Professional
University, Phagwara.
Name : Mandeep Singh Hayer
U.ID : 12358
Designation : Assistant Professor

Signature of Faculty Mentor

INDEX
1.
2.
3.
4.
5.
6.

Introduction
Objectives
Review of literature
Research methodology
Appendix
Bibliography

ACKNOWLEDGEMENT
A journey is easier when you travel together. This project report is the result of two
months of work whereby, we accompanied and supported by many people. We
would like to extend our gratitude to Mr. Mandeep Singh Hayer who kindly
accepted to guide us in the project. We are thankful to him for spending his
valuable hours to review and analyze our project at every stage and suggested
necessary changes. We feel our self extremely fortunate to have had the

opportunity of associating our self with him. His constant encouragement and
positive words were greatly instrumental in making this work a success.
For most, we would like to thank God for His grace and blessings. Last but not the
least I would like to thanks my parents and family members for their affection and
inspiration all the time.
Akshi Prashar
Payal Mahajan
Faheem Ahmad
Bhisham Lohra
Sourabh Gond

Introduction:
Foreign direct investment (FDI) is direct investment into production in a country
by a company in another country, either by buying a company in the target country
or by expanding operations of an existing business in that country. Foreign direct
investment is done for many reasons including to take advantage of cheaper wages,
and/or for special investment privileges such as tax exemptions offered by the
country as an incentive to gain tariff-free access to the markets of the country or

the region. Foreign direct investment is in contrast to portfolio investment which is

a passive investment in the securities of another country such as stocks and bonds.
Inward and outward direct investment (FDI) stocks and flows tend to go together,
across countries and over time. The countries that invest extensively abroad are
usually also large recipients of FDI. There is little evidence that flows of FDI are a
major influence on capital formation.
One of the advantages of foreign direct investment is that it helps in the economic
development of the particular country where the investment is being made.
But as we all know every coin has two sides, same way FDI do possess pros and
cons to a country. It can be seen when 51% approval is proposed by Indian
government a debate in parliament is held which is concluded below:
Favor:

This will bring a modern technology to a country

Improve rural infrastructure
Help create competitive market
Reduce wastage of agricultural produce
Enable our farmers to get better price for their jobs
Consumer will get low price commodity
Biggest beneficiary will be small farmers, who would be able to improve
productivity and realize higher remuneration by selling directly to large
organized players and shorten the chain from farm to consumers
Government too stands to gain by this move through more transparent and
accountable monitoring of goods and supply chain management systems. It can
expect to receive an additional US$25-30 billion by way of taxes
Against:
Our interest rates today are as high as 14% to 16% how do we compete with the
economies which have a 4% interest rate. Our infrastructure our trade

facilitations our labor laws, all these factors collectively dont make India low
cost. So do you want India to become a center where we allow foreign
companies to come in and set up these large chains which eventually instead of
selling domestic products outsourcing internationally the cheapest sources and
selling those products. Please remember the domestic retail normally sources
domestically, international retail sources internationally because the source
from the cheapest sources.
Even if big retail companies help the farmers in resurrecting their economy,
what plan does the government has for millions of middlemen who are part of
the business process chain that ensures manufactured products reach end users.
We engage millions of uneducated and semi educated people of various stages
of retail business spread across towns and cities but we are afraid that Tesco and
Wal-Mart will only engage smart and educated work force in small strength,
comparatively.
Summary of the political debate on FDI:
Government is taking decision in good faith. Few persons and lobbies controlling
the rates of food commodities in India. And bringing more competition in market
will bring better prices for buyers as well as sellers of commodities. Parties
protesting against FDIs in retail have choice to not to allow FDIs in the states they
are ruling. Government should make a regulatory body for commodity trade as we
have for cellular services.

Objectives of project

1. To do the comparison of vegetable prices in modern stores versus traditional

vendors
2. To find out the benefits accruing to farmer of higher prices
3. To find out the benefits accruing to consumer of lower prices

FDI in India

FDI in retail

FDI in setting-up
Agri suppy
com chain
paris
ion
of
price
s

FDI in India

Source: world investment report, IHAS Global Insight, CIA, DIPP, Ministry of Finance, World
economic Forum, Media Reports, Booz & Company analysis, April 2009

Benefits of FDI to a country

One of the advantages of foreign direct investment is that
it helps in the economic development of the particular country
where the investment is being made.
This is especially applicable for developing economies. During the 1990s, foreign
direct investment was one of the major external sources of financing for most
countries that were growing economically. It has also been noted that foreign direct
investment has helped several countries when they faced economic hardship.
An example of this can be seen in some countries in the East Asian region.
It was observed during the 1997 Asian financial crisis that the amount of foreign
direct investment made in these countries was held steady while other forms of
cash inflows suffered major setbacks. Similar observations have also been made in
Latin America in the 1980s and in Mexico in 1994-95.

FDI in Retail

Source:

Source:

Pros and cons of FDI in retail

Real benefits of retail FDI are limited:The political fallout of the governments
decision to increase the FDI limit in the retail sector continues. Yet Deep

Mukherjee, Director, India Ratings and Research, a unit of Fitch Ratings, believes
that the real benefit of retail FDI is limited. While the measures may benefit the
sector and the economy in the long run, India Ratings believes that the near term
impact is limited. India Ratings also says that it expects Indian retailers to reorganize business operations along geographical lines in order to take advantage of
the new rules

Source: Booz & Company and AMCHAM Survey: DIPP, Global Insight; Booz & company analysis

Farmers, consumers will benefit from policy reforms: The bold policy moves
made by the government are in the interest of farmers, manufacturers, consumers,
everybody. I feel that India is back on the move said Rajan Mittal. Large
investments will pour in and huge employment opportunities can be expected.
Rajan Mittal, Vice-Chairman and Managing Director of Bharti Enterprises, speaks
exclusively to NDTV on how the policy measures unleashed by the government
would plan out.

Source: Booz & Company and AMCHAM Survey: DIPP, Global Insight; Booz & company analysis

Comparison of impact of FDI in India and other Countries

Following key observations could be made from the comparison of FDI and other
countries (China, Brazil, Chile, Argentina, Russia, Thailand, and Germany)
Brazil, Chile, Argentina, Russia have sectoral caps higher than those of India
implying that their FDI policies are more liberal
The sectoral caps are lower in China than in India in most of the sectors like
agriculture, forestry, and insurance. A note worthy aspect is that China
permits 100% FDI in agriculture while completely prohibits FDI in media.
In 2009 starting of foreign business took around 46 days with 16
procedures in India as compared with 99 days with 18 procedures in China
and 166 days with 17 procedures in Brazil.
In terms of indicatoraccessing industrial landIndias position is mixed. In
China it takes comparatively less time to lease private and public land as
compared to other countries including India. This becomes an important
factor while making decisions on investment by the foreign companies.
In terms of the indicator arbitrating commercial disputes India is on par
with Brazil and Russian federation. Although the strength of the laws index
is fairly good, the extend of judicial assistance index is moderate.

Source: Economic Forum; Media Reports, Booz & Company analysis

Reasons for failure of FDI in Germany

Clearly dominating the US retail market, Wal-Mart expanded into Germany (and
Europe) in late 1997. Wal-Marts attempt to apply the companys proven US
success formulain an unmodified manner to the German market, however, turned
out to be nothingshort of a fiasco. Upon closer inspection, the circumstances of
the companys failure toestablish itself in Germany give reason to believe that it
pursued a fundamentallyflawed internationalization strategy due to an incredible
degree of ignorance of thespecific features of the extremely competitive German
retail market. Moreover, insteadof attracting consumers with an innovative
approach to retailing, as it has done in theUSA, in Germany the company does
not seem to be able to offer customers any compelling value proposition in
comparison with its local competitors. Wal-Mart Germanysfuture looks bleak
indeed.

Review of Literature

The review of past studies helps us in framing objectives, developing research

design, variable selection, interpreting the results and in drawing meaningful
conclusions. In accordance with the objectives of the study, a brief review of
literature is presented here under the following headings.
1. Foreign Direct Investment Flows to India
During the recent global crises FDI inflows to India did not show as much
moderation as was the case at the global level. However, when the global FDI
flows to EMEs recovered during 2010-2011, FDI flows to India remains sluggish
despite relatively better domestic economic performance ahead of global recovery.

2. The Agri Millionaires: A new generation of farmer entrepreneurs is on the rise

and it means business
India produces nearly 11 per cent of the worlds vegetables and 15 per cent of all
fruits. The country is the largest producer of mangoes, bananas and pomegranates,
globally, though its share in the international trade of fruits and vegetables
remains a meagre 1 per cent.. Indian farmers are mostly small and marginal with
fragmented landholdings. And the small size is making adoption of farm
mechanisation and modern techniques difficult. Until pooling of landholdings
becomes easy, achieving economies of scale will remain difficult, points out the
Economic Survey 2011-12.

3. The Devil in the Retail

The present government decision to open up the fast-growing organized multibrand retail sector to FDI will be one of the biggest game-changing reforms that
will touch everyones life: farmers, industries, traders, retailers, job-seekers and,
not the least, millions of consumers. This change may take years, even decades, to
play out to its full potential
4. Obama's FDI remark draws sharp criticism from Government, Opposition
Barack Obama's statement that the investment climate in India is
"deteriorating" seems to have politically united India and raised
hackles across party lines. On Twitter, the Prime Minister's Office
(PMO) pointed out that according to a recent UNCTAD report,
India is the third most desirable destination for Foreign Direct
Investment (FDI). "FDI inflows to South Asia turned around as a
result of higher inflows to India, the dominant FDI recipient in the
region. The two large emerging economies, China and India, saw
inflows rise by nearly 8 per cent and by 31 per cent,
respectively," the PMO tweeted.

5.Real benefits of retail FDI are limited: India Ratings

The political fallout of the governments decision to increase the FDI limit in the
retail sector continues. Yet Deep Mukherjee, Director, India Ratings and Research,
a unit of Fitch Ratings, believes that the real benefit of retail FDI is limited. While
the measures may benefit the sector and the economy in the long run, India Ratings
believes that the near term impact is limited. India Ratings also says that it expects
Indian retailers to re-organize business operations along geographical lines in order
to take advantage of the new rules
6. Farmers, consumers will also benefit from policy reforms: Rajan Mittal
The bold policy moves made by the government are in the
interest of farmers, manufacturers, consumers, everybody. I feel
that India is back on the move. Large investments will pour in and
huge employment opportunities can be expected. Rajan Mittal,
Vice-Chairman and Managing Director of Bharti Enterprises,
speaks exclusively to NDTV on how the policy measures
unleashed by the government would pan out.
7. India is not hostile to FDI flows, says Nilesh Shah
In a discussion with NDTV Profit, Axis Direct'sNilesh Shah shares
his views on how the Indian economy is going to perform ahead.
"The economic growth is under pressure. However, India is not
hostile to FDI flows. FII flows may resume once concerns over
GAAR are over," he said. He feels that the rupee will depreciate
further.

8.FDI in retail will bring investment of $ 700 million: Narayanasamy

Defending FDI in retail and other sectors, Union Minister V
Narayanasamy on Monday said the country was expecting an
investment of about $700 million besides provision of huge
employment and creation of agro-infrastructure.
9. An investigation into the relationship between producer,
wholesale and retail prices of Greek agricultural products
In this paper price relationships and patterns of price transmission
among farm, wholesale and retail levels are analyzed for potato,
tomato, orange and milk markets in Greece. Lag length, direction
of causality, and asymmetric relationships are empirically verified.
The analysis is performed using the co-integration approach
introduced by von Cramon-Taubadel (1998), on monthly price data
for the period 1995-2003.

The results indicate that a long-run

relationship exists between each pair of producer and retail prices

for all products. The direction of Granger causality runs from retail
to producer prices for all products except oranges and milk where
it runs from producers to retailers. Perfect price

transmission

between farmers and retailers is accepted in the case of potato

and tomato. The results support the hypothesis of asymmetric
price transmission between farm and retail levels for all products.
In contrast, symmetric price transmission between farm and
wholesale levels

exists for all products. Especially, for potato,

asymmetric price transmission was found between the two

marketing levels. The empirical results indicate that the inclusion

of the wholesale level in the marketing chain plays an important

role in the analysis of price transmission.

10. Food Retailers' Pricing and Marketing

The paper draws on relevant theoretical approaches and the results of an
explorative investigation to find out conditions for cooperative coordination of the
supply chain for vegetables. Interview participants included 5 retailers, 7
wholesalers/marketing cooperatives and 5 producers in Germany, with
supplementary information collected in Sweden and the Irish Republic. Two
fundamental directions that fresh vegetable suppliers can go in order to stay
competitive are: offering products which fulfil special requirements of consumers
or consumer segments; and gaining an advantage by means of better supply
performance compared to competitors. Some practical consequences are discussed
for producers of vegetables.
11. How can the poor benefit from the growing markets for high value
agricultural products?
This paper aims to identify critical areas for trade, marketing, capital market
development and regulatory reforms that can facilitate the integration of smallscale farmers (small-scale farmers) in domestic, regional and global markets for
high-value agricultural (HVA) products in particular high value crops, livestock,
fish and non timber forest products in a sustainable manner and to increase and

diversify the incomes of small-scale farmers in the long-run. The paper places
particular emphasis on the issues that may need to be addressed through research
and development undertaken by the international, regional and national research
communities. Research and Development is required to support and guide public
and private policy interventions to improve the access of small-scale farmers to
HVA markets. However, to achieve poverty reduction the international research
community must also go beyond the usual technical solutions in research and
development to fully incorporate policy and interventions that effects the required
changes. They need to beware of what failed previously with traditional
commodities such as over dependence, oversupply and declining prices in real
terms and not focus solely on supermarkets as a panacea for agricultural sector and
product market problems. Supermarkets may not be the most profitable outlet for
all small farmers, especially where the upgrading of traditional markets is both
viable and easily accessible to small-scale farmers.
12. Retail-farm price margins growing rapidly in Finland
The share of the wholesale and retail trade in the consumer price of food has
increased rapidly in Finland over the past five years. At the same time, a declining
share of the consumer food euro is allocated to farmers, according to marketing
margin calculations from MTT Agrifood Research Finland.
Marketing margin calculations by MTT indicate the share of the retail price going
to each sector along the supply chain: farmer, processing and trade (=marketing
margin) as well as government taxes. The new figures for the period 1999-2004
reveal considerable growth in both unit and percentage marketing margins for
many basic food products. Farmers in Finland, in turn, have been receiving an
increasingly lower proportion of the retail price of food. The farmer's share in the

price of minced meat, for example, has declined from 33.6 per cent in 1999 to just
over 23 per cent in 2004. The farmer's share for pork chops have declined from
19.4 per cent to less than 15 per cent over the past five years.
Rising marketing margins and a declining share for the farmer have come during a
period of considerable change in the structure of both the retail and wholesale
sectors. The concentration of the retail sector, with fewer outlets and the growth of
the large supermarket chains, has been particularly rapid in Finland. The two
leading retail chains of food and daily goods increased their market share from 55
per cent in 1990 to nearly 80 per cent by 2005. The increased concentration of
retail power means that large retail outlets now exert significantly more control
over others in the food supply chain.
13. Intertemporal pricing efficiency in agricultural markets: The case of
slaughter hogs in West Germany
It is generally believed that the structure, degree of organization and centralization
of many agricultural markets is such as to warrant the provision of price
information services by public bodies. However, if a case for information services
is to be founded on pricing efficiency grounds it has first to be shown that prices do
not reflect available information.
In this paper, the hypothesis that prices reflect available information is tested for
three important markets for slaughter hogs in West Germany. Results from
statistical tests performed on the weekly price series did not lead to rejection of the
hypothesis. Therefore it is concluded that since pricing efficiency prevails in these
markets, the case for government agencies in providing information on prices is
weakened.

14. Organized Retailing in India : Challenges and Opportunities

The retail landscape in India is changing rapidly and is being scrutinized by large
scale investments by foreign and domestic players. Market liberalization and
changing consumer behaviour have sown the seeds of a retail transformation.
Indian retailing is growing fast and imparting the consumer preferences across the
country. Today retailing is largest contributing sector to country's GDP i.e. 10% as
compared to 8% in China, 6% in Brazil. Modern retailing is capable of generating
employment opportunities for 2.5 million people by 2010 in various retail
operations and over 10 million additional workforces in retail support activities.
Organised retail which presently account for only 4-6 percent of the total market is
likely to increase its share to over 30% by 2013.It offers huge potential for growth
in coming years. India is becoming most favoured retail destination in the world.
15. Marketing Losses and Their Impact on Marketing Margins
The explicit evaluation of the post-harvest losses at different stages of marketing
and their impact on farmers net price, marketing costs, margins and efficiency have
been presented. It has been found that the existing methods tend to overstate the
farmers net price and marketing margins of intermediaries. In fact, the margin of
the retailers after taking into account the physical loss during retailing has been
found to be negative (loss), which otherwise, was positive (profit) in the
conventional estimation. Similarly, the producers net share and wholesalers
margins also decrease substantially. It has been shown that marketing efficiency is
inversely proportional to the marketing losses. The co-operative marketing has
been found to be a more efficient system in terms of both operations and price.

Marketing cost has been identified as the major constraint in the wholesale
marketing channel and bringing down the costs, particularly the commission
charges as demonstrated in the co-operative channel, will help in reducing the
price-spread and increasing the producers margin. The need for specialized
transport vehicles for perishable commodities has been highlighted.
16. Cold storage chain
Agriculture in Azerbaijan provides 39.3% of all employment or 2.3
million workers (as compared to approximately 1% or 58,000
workers from oil) but only 6% of GDP or 4.5 billion USD (2008).
Azerbaijans major cash crops are grapes, cotton, tobacco, citrus
fruits, and vegetables and all of these but cotton and tobacco are
dependent upon an effective cold chain if they are to be
economically viable and sustainable. The UN Food and Agriculture
Organization estimates that approximately 40% of the value of
these crops (or over US$2 billion) is currently lost due to the lack
of adequate cold chain facilities. Accordingly, improvements in
the countrys cold chain segment of major cash crops such as
fruits and vegetables will have a very significant monetary
impact. For this reason, PSCEP selected the cold chain segment of
the value chain of many agricultural products as a cross-cutting
independent sub-sector. Of course, it is not accurate to speak of
cold chain and warehousing as one segment of the value chains.
As describe below, in practice effective cold chain operations run
from immediate post-harvest handling to consumers. The analysis
and recommendations herein presented are based on extensive
visits with 19 cold chain operators, discussions with numerous

other stakeholders. They are also based on the authors extensive

experience in this sector worldwide, as well as a review of cold
chain literature in Azerbaijan and other countries.

Research methodology:
Data collection:
Data from retailers, farmers, distributors, shopkeepers from
different states.
Opinions of retailers, farmers and shopkeepers
Political data from media and newspapers
Voice of the people
Data analysis:
Comparison of prices of vegetables within and outside states
Debates
Surveys

Appendix: