Analysis: Farm to fork: Wal-Mart faces India sourcing challenge

Mon Oct 15, 2012 5:00pm EDT
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By Nandita Bose

NARAYANGAON, India (Reuters) - As Wal-Mart Stores Inc (WMT.N: Quote) ramps up its operations in India, it needs to find more farmers like Yogesh Todkari.

His acre of cauliflowers is big, leafy, and a deep shade of green, thanks to modern irrigation and quality nutrients and seeds - all provided by the world's largest retailer. Most farmers in India, though, don't meet Wal-Mart's standards.

"They train us and assist us right from when the crop is sown to when it's harvested. They give us a higher price than the market for better quality," said Todkari, 29, who works the field in western India with his elderly father.

Investing in farmers to help them improve quality and efficiency, and getting around the army of costly middlemen, will be key to whether global chains like Wal-Mart and Tesco Plc (TSCO.L: Quote) succeed where local operators have failed to make a profit. It will also be a test of whether India's politically fraught decision to allow in global supermarkets in order to modernize its food supply chain proves to be the right one.

"We plan to procure as much as we can via direct farming so the procurement from traders in local markets is as little as possible," said Krishnakant Reddy, who is in charge of direct farming in south and west India for Wal-Mart, which already operates in India through 17 wholesale stores.

Under the reforms, foreign retailers must source at least 30 percent of their goods from local, small industries.

India recently let in global supermarkets, despite heavy political opposition, in the hope of improving the supply chain and bringing down wastage and costs in a country where one-third of fresh produce rots and food inflation is persistent.

Wal-Mart, by far the most aggressive foreign supermarket operator in India, expects to open its first store selling directly to the public in 12-18 months, and aims to turn a profit in 10 years, something it hasn't managed in China after 12 years.   Continued...

Customers wait to pay for their goods at a Best Price Modern Wholesale store, a joint venture of Wal-Mart Stores Inc and Bharti Enterprises, at Zirakpur in the northern Indian state of Punjab September 14, 2012. REUTERS/Ajay Verma