by Ankit Priya, Research and Advocacy Lead at the Foundation for Democratic Reforms

Global trade is being disrupted by geopolitical tensions – from the US-China tariff war to the recent Israel-Iran conflict. These disruptions have a direct impact on global shipping, commodity markets, and inflation trajectories. 

Amidst this, the upcoming US-India trade deal is drawing attention to India’s agriculture industry. While India will seek to balance US imports with Indian agri-exports, the larger lesson is clear: India must urgently rethink and strengthen its domestic agricultural trade systems to reduce vulnerability to global shocks. As global uncertainties persist, building resilient internal systems is no longer optional, it’s imperative.

Fragmented and Inefficient Markets 

In India, the Agriculture Produce and Market Committee (APMC) system requires that farm produce be sold only at regulated markets through registered intermediaries.¹ This, along with unpredictable export policy, and restrictions placed on storage and movement of agricultural produce under the Essential Commodities Act (ECA) has ensured that the agricultural supply chain is still heavily fragmented. Farmers sell at local mandis where middlemen, price volatility, and a lack of infrastructure often leave them with a minimal share of the final consumer price.² According to a FICCI report, with 6-7 intermediaries between the farmer and end consumer, the farmer realises only 20% of the final consumer price. On the other hand, urban voters constantly complain of food inflation during elections. Between these two ends, there is enormous value leakage.

Retail chains can plug this gap. Organised retail players in agriculture can provide farmers with a stable, remunerative market while offering consumers quality produce at better prices. They can invest in infrastructure like cold chains, sorting-grading-packaging units, and last-mile logistics – areas where the government and traditional mandis have often struggled. 

Need for Organised Retail Chains

Although being one of the largest producers of foodgrains and horticulture produce, India lacks significantly in post-harvest marketing infrastructure. As per an RBI report, the total production of foodgrains, fruits and vegetables in the country in 2023-24 was 317 MMT and the cold storage capacity available was merely 38 MMT (March-end, 2022), indicating nearly 90% gap between production and storage.³ Organised retail chains provide end-to-end services by procuring from farmers directly or through Farmer Producer Organisations (FPOs) and adding value through services like sorting-grading-packaging which enables the produce to be sold via retail stores or e-commerce platforms. Organised retail chains significantly reduce the intermediaries ensuring predictable prices and reducing farmer’s exposure to price fluctuations. With better storage infrastructure, post-harvest losses that currently range between 4-10% for various crops in India⁴ can be reduced and surplus production in bumper crop years can be routed to the food processing industry. In advanced economies like USA and Germany, the share of organised retail is 85% (2017) and 80% (2016) respectively, while in India it still hovers around 12%.⁵ 

Fears of Organised Retail Chains are Unfounded

A widespread fear of allowing large scale foreign investment in the retail sector has been that it would adversely affect the unorganised sector comprising small and medium kirana stores and vendors. However, these fears are misplaced. A study by ICRIER to measure the impact of organised retail on traditional retail done in 2008 found that unorganised retailers in the vicinity of organised retailers experienced a decline in their volume of business and profit in the initial years, but the adverse impact on sales and profits weakened over time and there was a competitive response from traditional retailers through improved business practices and technology upgradation.⁶ The same study also found that while all income groups saved through organised retail purchases, lower income consumers saved more. Profit realisation for farmers selling directly to organised retailers was about 60% higher than that received from selling in the mandi. 

Conclusion

Geopolitical tensions and the herald of a new world order predicated on transactional international relations make it imperative for us to reimagine our supply chains. The agriculture sector contributes about 16% to our GDP and employs nearly 46% of our population.⁷ While production of foodgrains and horticultural crops are increasing year-on-year, the supply chains need a complete overhaul. Policy reforms like allowing 100% FDI in multibrand retail inviting global retail giants with deep pockets and technical know-how should be explored while ensuring adequate local sourcing requirements. Other countries like China, Thailand and Indonesia have reaped huge benefits⁸ by allowing 100% FDI and India should follow suit.

Footnotes

1. Committee on Doubling Farmer’s Income Report 2017, Volume 4 Post-production interventions: Agri-Marketing, p. 28. Accessed at https://agriwelfare.gov.in/en/Doubling ↩︎
2. Feeding a Billion: Role of the Food Processing Industry, September 2013, ATKearney, FICCI. Accessed at https://ficci.in/public/storage/SPDocument/20312/Feeding-a-Billion_Role-of-the-Food-Processing-Industry.pdf ↩︎
3. Handbook of Statistics on Indian States, 2024. Accessed at https://www.rbi.org.in/Scripts/AnnualPublications.aspx?head=Handbook%20of%20Statistics%20on%20Indian%20States ↩︎
4. Discussion paper on Agriculture: From Poverty to Prosperity, Foundation for Democratic Reforms, July 2020. Accessed at: https://fdrindia.org/wp-content/uploads/2025/01/Agriculture-From-Poverty-To-Prosperity.pdf ↩︎
5. Ibid. ↩︎
6. Impact of Organized Retailing on the Unorganized Sector, ICRIER. Accessed at https://icrier.org/publications/impact-of-organized-retailing-on-the-unorganized-sector/ ↩︎
7.  Agriculture and Food Management: Sector of the Future, Chapter 9, p. 245, Economic Survey 2024-2025. Accessed at https://www.indiabudget.gov.in/economicsurvey/ ↩︎
8. Supra note 4. ↩︎