(IAP ’12) Sam Kornstein and Paul Artiuch ’12

Paul Artiuch and Sam Kornstein are graduate students at the MIT Sloan School of Management. Throughout the month of January they were in India researching market-oriented approaches to reducing agricultural food waste. They will be sharing their project scope and some of their findings in this blog series.

Concluding Thoughts on Food Waste

February 20, 2012

Paul Artiuch and Sam Kornstein are graduate students at the MIT Sloan School of Management. Throughout the month of January they were in India researching market-oriented approaches to reducing agricultural food waste. They will be sharing their project scope and some of their findings in this blog series.

Looking at the entire food supply system in India, the challenges are very different than ones faced by Western nations. In India, the downstream part of the supply chains is remarkably efficient. From the wholesale market to the consumer there is very little waste as there is a market for almost any type and grade of product. While the top quality is sent to high end shops, lower quality products are sold in pushcarts or fed to livestock. Most of the inefficiencies take place upstream of the wholesale market. In contrast, Western supply chains are highly efficient; however, households and restaurants tend to throw out huge amounts of perfectly eatable food.

Indian eating habits also provide a contrast to those of the Western world. Due to the structure (and perhaps limitations) of the supply chains most diets consist of seasonal, locally grown food with a bias towards vegetables, grains and pulses over meat.

Fresh food, especially the staples, is also an order of magnitude cheaper in India than in Western grocery stores, a requirement for a country where many live on $2 a day or less. The lower cost of food, however, makes investment in modern (and expensive) infrastructure and logistics more difficult as fewer projects can show a positive ROI through efficiency gains.

Due to these differences, solutions to the inefficiencies of Indian agricultural supply chains will have to be uniquely Indian. Innovation in low cost infrastructure and technology, education, enlightened policy, and the inevitable substitution of labor for capital will all likely be part of that solution. Fortunately, the issues of agriculture, food security and poverty reduction are firmly in the public’s eye and at the forefront of national debate in India.

For our team the next step is to disseminate our findings as broadly as possible in order to enable various stakeholders to act on our research and recommendations.  These include entrepreneurs (in India and elsewhere), companies who are participating in the current supply chain, Indian policy makers as well as advocates and our colleagues at MIT who are well positioned to drive innovation in this sector.  We feel privileged to have had a chance to contribute our time and effort to finding solutions to this problem and look forward to the day when food waste is no longer an issue in India and elsewhere.

Thoughts on Food Waste Solutions

February 19, 2012

The five months we spent researching Indian agricultural supply chains has given us a good understanding of both the infrastructural as well as sociopolitical issues behind food waste.

To address food spoilage, both innovative technological/entrepreneurial solutions as well as thoughtful policy changes are needed. With farming and food subsidies being politically sensitive issues in India we feel that technological solutions, such as low cost infrastructure, new micro entrepreneurship models and improved information transparency may have a greater impact in the short term. Below we outline a few possible solutions:

Packing & Storage

As mentioned above, improper packing and storage lead to significant losses both physically and in terms of lost value.

  • Grain Bags. With grain being stored outdoors and transported in uncovered trucks the only form of protection is the jute bag. The bags do nothing to keep out moisture (e.g., from rain) or to keep out pests such as birds and rats. There is a need for an ultra low cost 50kg storage bag which helps to keep out external moisture as well as pests while allowing for a limited amount of moisture to permeate from the grain itself to prevent rotting.
  • Storage Investments. While modern silo storage is being planned for high producing areas such as Punjab and Haryana, it is impractical to build similar facilities in more remote parts of the country. As such, there is a need for small, multipurpose, low cost storage facilities which can be constructed from locally available materials across India. These storage centers should provide protection from the elements, ensure at least minimal humidity and temperature control and be connected to a centralized database through mobile or internet based communications.

Distributed Food Processing   

With only roughly 2% of food grown in India being processed, there is a great opportunity to extend the shelf life of products through drying, curing, juicing, packaging or other food processing techniques. This would be especially valuable in cases where there is a bumper crop and prices for a particular item plunge to the point where it is not economical to harvest or distribute (e.g., potato crops in 2011).

Processing would allow for the crops to be stored until prices recover or to be exported to other parts of the world. This would require low cost, small scale, mobile processing technologies which could be applied to particular crops or groups of crops. A potentially effective means to achieve scale would be through a network of distributed franchises which would be provided as a service to farmers at the community level.

Information Management & Planning

Inadequate crop planning exacerbates the natural price volatility which occurs in agriculture. In addition, an individual farmer’s income varies with the daily supply and demand conditions at local markets as well as with the ability of commission agents and traders to collude in controlling prices. Both causes of volatility can, at least in some ways, be addressed with information.

On the system wide level, 4-5 year price cyclicality occurs due in part to millions of farmers making similar calculations in terms of what will be profitable to plant. This leads to too many farmers planting the same crop, and prices collapse at harvest time. What is needed is a mobile based system which would help farmers make planting decisions based on the expected behavior of other farmers in the region as well as weather forecasts and even global supply and demand projections. While planting decisions could never be imposed, farmers could benefit from a planning tool that would give them a sense of which crops could be most profitable and have the least volatile prices.

To help address price volatility and middlemen collusion during harvest time a similar, mobile based, tool would feed farmers daily price information for several of the closest markets.  Farmers would then be able to decide where and when to sell their crops.

Policy Recommendations

The politics of agriculture in India is highly complex and dynamic. Accordingly, making policy recommendations is challenging without an intimate understanding of the entire system. Notwithstanding, a few general suggestions may help address a number of the inefficiencies identified in our research:

  • Export Enablement. The Indian government limits exports for many crops in order to ensure food security and keep prices down. However, for farmers, exports provide a viable way to (1) learn how to improve quality and consistency, and (2) obtain a higher price for their goods. Encouraging the export of Indian foodstuffs would bring value to a number of stakeholders, and if done right, is unlikely to negatively affect India’s food security.
  • Accountability & Transparency at the Food Corporation of India (FCI). While better infrastructure will help reduce the waste in government purchasing and distribution programs, the problem of corruption will need to be addressed as well. In particular, more transparency and accountability is needed along each part of the supply chain. Low cost information technologies can help keep track of inventories, however, the political mandate is needed to help implement these at the lowest level (e.g., at individual storage depots).
  • Enabling Financial Independence. Most farmers rely on the income from each year’s crop to carry them through to the following year. There is relatively little scope for saving and for many, the only form of financing available is through commission agents. A more formalized system, perhaps involving commission agents as loan officers, would give access to financing to a larger share of the rural population and would eliminate the predatory practices that many farmers are currently subject to. Microfinance organizations and coops are viable models but are not yet prevalent in India.
  • Simplification and Reduction of Agricultural Transport Regulations.  Regulations that require transportation companies to stop at each state border to obtain permission to continue driving are time consuming and costly, and contribute to delays that can result in food waste. These regulations should be simplified to reduce duplicative regulatory burdens.

These recommendations represent only a few potential policy initiatives that would help reduce food waste in the Indian agricultural sector.

Pune: A (Nearly) Waste-Free City

January 26, 2012

Paul Artiuch and Sam Kornstein are graduate students at the MIT Sloan School of Management. Throughout the month of January they are in India researching market-oriented approaches to reducing agricultural food waste. They will be sharing their project scope and some of their findings in this blog series.

Until now, we’ve spent the majority of our time exploring upstream agricultural supply chains – learning about what happens to food between farms and markets, before it reaches end consumers. Unlike many western countries, Indian consumers waste remarkably little food, as a use is found for nearly all left-overs and food scraps. However, this doesn’t mean that there’s no waste, and Pune, a four million person city three hours southeast of Mumbai, is implementing an innovative initiative to change that.

The other day we spent our morning with Santosh Gondhalekar, an engineer, energy expert, and founder of a bio-energy start-up company, Gangotree Eco Technologies. We had coffee with Mr. Gondhalekar in a garden outside his office, while he enthusiastically described how Pune is on its way to being India’s first waste-free city.

Each day, Pune generates about 1,400 tons of waste – 800 tons of organic waste and 600 tons of dry waste (e.g., paper, plastic, glass, and metals). In addition to the city’s municipal waste collection agency, Pune also has a sizable waste-picking community, with over 2,000 individuals who work full time as part of a cooperative to collect and sort the city’s waste. Nearly all of the dry waste has value so it gets sorted out by the waste pickers before being sold to recycling companies. The organic waste remains, and historically has been placed in a municipal dump.

Just a few years ago, the Pune Municipal Corporation engaged in a number of public-private partnerships to extract value from this organic waste. Here’s how it works: the city puts up the required capital to build bio-digestion facilities that can convert organic waste to electricity. Private companies then operate the facilities, selling the electricity back to the city to be used to power street lights. Excluding the upfront capital costs, the operation is profitable for the private firms. And for the time being, the city is willing to invest the capital, essentially subsidizing the projects, as they reduce the city’s waste burden, lowering the cost of maintaining municipal dump sites.

Currently 10 of these bio-digestion plants are operational, each converting five tons of organic waste to electricity every day. Mr. Gondhalekar took us to one of the sites, where we got to see exactly how the process works.

Each morning, city trucks pick up organic waste, primarily from the city’s hotels, and deliver it to the bio-digestion facilities. The hotels are required by law to pay a fee for this service, which generally covers the transportation costs. Once the waste arrives on site, waste pickers sort it to ensure that it’s 100% organic as other inputs could disrupt the bio-digestion process. The waste, or feedstock, is then chopped up and put into the bio-digester, where bacteria converts it to methane and compost. At the end of the day, the gas is scrubbed to convert it to 99% methane, and then burned in a generator that creates electricity. The compost is given to local farmers.

So far the initiative has been very successful, and there are plans to have 20 additional plants operational by the end of 2012. Pune has 144 city wards, and if each ward had its own bio-digester, the city would be able to extract electricity from all of its organic waste.

Mr. Gondhalekar has been involved with the planning and execution of these projects, and showed his enthusiasm for the initiative’s success. However, his company, Gangotree Eco Technologies, is working a new project he finds even more promising. His plan is to convert municipal organic waste to what he calls green coal.

Green coal has been around for quite some time, and is essentially compressed bio mass that can be burned in place of coal in furnaces and power generators. It’s an effective substitute for coal, and large companies including Cadbury and Coca-Cola have recently converted furnaces in some of their Indian plants to now use 100% green coal. Historically, it’s been made from farm waste – inedible husks and stalks that are left over after harvests.

Gangotree Enterpises has developed a proprietary technology to make green coal from municipal organic waste, the same inputs used in the city’s bio-digesters. This feedstock is easier to acquire than farm waste, and transportation costs are lower since cities are geographically concentrated. And the economics are compelling: the upfront capital costs are half those of a bio-digester, and the green coal pellets can be sold for three times the value of methane. This means that green coal plants should be profitable, even without any capital investment subsidies from the city.

Mr. Gondhalekar told us that his firm’s pilot plant is nearly finished, and Gangotree Eco Technologies is planning to license the technology, using a franchising model, to businesses in the region. Between the bio-digester expansion and Gangotree’s green coal initiative, Mr. Gondhalekar is optimistic that Pune can be a nearly waste-free city, and believes this model could work in many other parts of India as well.

It’s clear, however, that while these types of projects offer promising methods to reduce waste in countries like India, the economics would not work in developed countries. The reason is simple: both the bio-digestion and green coal models rely on cheap labor to collect, sort, and process the organic waste. In developed countries, labor can cost twenty times as much as in India, which would prevent similar initiatives from being economically viable. For now, however, Gangotree Eco Technologies has plenty of work to do in India.

Large bricks of green coal:

Mr. Gondhalekar holds a green coal pellet:

One of Pune’s five ton bio-digestors:

This generators runs on the methane created by the plant:

Sam and Paul stand with Mr. Gondhalekar in front of the methane tank:


Four Problems with India’s Food Supply Systems

January 24, 2012

Paul Artiuch and Sam Kornstein are graduate students at the MIT Sloan School of Management. Throughout the month of January they are in India researching market-oriented approaches to reducing agricultural food waste. They will be sharing their project scope and some of their findings in this blog series.

We’ve spent the past three weeks in India researching agricultural supply chains to see if we could uncover the reasons why an estimated 30-40% of food grown in the country goes to waste. Over this time we’ve had a chance to speak with many stakeholders to gain their perspectives on the issue. Not surprisingly, the landscape that’s emerged is quite complex. At the risk of oversimplifying some of India’s largest agricultural challenges, we’ve outlined four of the main problem areas.

1. Infrastructure
The infrastructure challenges look different depending on both the region and crop grown. We spent time in Punjab and Haryana, where much of the country’s grain is grown, and found the roads to be in reasonably good condition. The close proximity to a major market, greater Delhi, also makes transportation logistics relatively simple.

However, storage is a serious issue. As we mentioned in a previous post, the government purchases and stores a large proportion of each year’s grain crops to be distributed later as part of public programs. Since the country lacks modern storage infrastructure such as silos, the grain is stored outside under plastic tarps, which provides little protection from humidity and pests. As a result, crops often spoil before they can be moved to other parts of the country for distribution.

In more remote parts of India, where transportation infrastructure is problematic, there’s often no effective means to transport crops to market in the first place. Poor roads, a lack of tractors and trucks, and long distances to city markets collectively make it difficult for farmers to extract fair prices. Further, the extra cost of getting to market means that in bumper crop seasons, when prices fall, it’s often uneconomical to harvest in the first place. As a result, crops are left to spoil in the field.

Sam and Paul with two Professors from Punjab Agricultural University:

2. Government Purchase and Distribution Schemes
Bureaucracy and corruption are well known problems in India and food supply systems are not immune. As we mentioned in a previous post, the Indian government buys certain food products at set prices and distributes them to the poor through ration shops. This massive program involves a number of government agencies and intermediaries. Farmers and Commission Agents told us that corrupt officials running storage depots often rig weighing scales to indicate less grain coming in, siphoning off the excess to the gray or black markets. We also heard that officials will sometimes allow, and then over-report, wastage in an effort to sell the excess supply. Similar issues arise during transport when portions of shipments have been known to go missing.

Most of the farmers we’ve spoken with were quite cynical about the government’s role in assuring food safety while simultaneously helping farmers make ends meet. Many mentioned that the private sector was much better at ensuring that food does not go to waste, as managers typically won’t be able to gain from sustained illicit transactions.

Sam and Paul with Mr. Rena, a farmer in Punjab:

3. Middlemen, Bargaining Power, and Price Transparency
Before food gets from a farmer to a consumer, it’s typically exchanged through a number of intermediaries: Traders buy and ship produce and Commission Agents arrange transactions between farmers and traders. Since the typical farmer only works a couple acres of land and is not an important supplier to Trader and Commission Agents, these middlemen have an advantage in terms of information and bargaining power.

Farmers often won’t know the price for their product before they get to the wholesale market. Once at the market, the Commission Agents can dictate the price as it’s not economical for the farmer to take the goods back in order to wait for a better price. We’ve heard that sometimes Commission Agents will even leave a load of rotting produce near the market as a warning to farmers who do not accept the offered prices. Commission Agents have little incentive to prevent waste as they are compensated based on the total transaction value, without ever taking ownership of the product. Since they generally receive only a 2.5-6% commission on sales, it makes little sense for them to invest time to find traders offering marginally higher prices – they can earn more income by completing many deals as quickly as possible.

Further along the supply chain, traders also have few incentives to minimize waste. It is easier for them to deal with fewer goods at a higher price than more goods at depressed prices. As such, waste often occurs when these middlemen collude to boost prices and lower shipment quantities.

Paul Stands with two Commission Agents:

Traders sit in front of their truck in a marketplace:

4. Price Volatility
All of these factors contribute to price volatility, or extreme and somewhat unpredictable fluctuations, which compounds the waste problem further. When future prices are difficult to estimate, farmers cannot plan to grow the most economically efficient crops. This is problematic for two reasons. First, farmers will often choose to grow crops that were profitable over the past couple seasons. When this herding behavior occurs, prices then plummet, and it becomes uneconomical to harvest. This is what happened to potatoes this year. Secondly, when farmers cannot estimate their income in the coming year, it becomes much more risky to make long term investments that would improve future efficiency.

Peppers in a Rajasthan market:

Broadly speaking, these four themes appear to be significant contributing factors to the food waste problem in India. To address food spoilage, both thoughtful policy and innovative technological/entrepreneurial solutions are needed. With farming and food subsidies being politically sensitive issues in India, any changes or new schemes are viewed with suspicion and take a long time to enact. Technological solutions, such as low cost infrastructure, entrepreneurial initiatives such as affordable methods to process and preserve food, and improved information transparency, may have a greater potential impact, especially if they are disseminated through private sector initiatives. In a subsequent post, we will discuss these ideas.


India’s Lack of Food Processing

January 21, 2012

Paul Artiuch and Sam Kornstein are graduate students at the MIT Sloan School of Management. Throughout the month of January they are in India researching market-oriented approaches to reducing agricultural food waste. They will be sharing their project scope and some of their findings in this blog series.

Fresh produce, such as fruits and vegetables, generally spoils quickly. As we’ve previously discussed, cold storage is an effective method of extending shelf life. In most cases, however, the cost of such storage is prohibitively expensive in India, stifling investment. Another way to preserve food is to process it into products, including juice, sauce, dried fruit, and jarred/canned vegetables. Processing can extend shelf life from days to years, and in many cases can add value to the product.

Countries such as the United States process as much as 70% of grown food, which is then sold under a variety of brand names in stores and supermarkets. India; however, currently processes less than 2%. This means that the vast majority of crops must be eaten by consumers within days or weeks of harvesting, and if there’s a supply and demand mismatch, prices become volatile and food goes to waste.

We met with International Development Enterprises India (IDE), a non-government organization that works on development projects throughout India. A number of years ago they completed a post-harvest processing project with tribal pineapple farmers in East India. These farmers work in remote areas, and twice each week would haul their pineapples by foot as far as 10 kilometers to the nearest road where they would sell their yield to traders.

Given the circumstances, the farmers didn’t have much bargaining power. If they didn’t sell their pineapples on the spot, they’d have to carry them back home, with the fruits likely spoiling a short time afterwards. The traders knew this, and would collude to offer only below-market prices. As a result, the farmers were barely getting by. We’ve heard that this problem is common across a variety of crops grown in remote regions throughout India.

IDE worked with the farmers for over a year to, among other things, train them to process the fresh pineapples into dried slices and juice. They also helped connect them with organizations that would purchase these items, therefore reducing their reliance on traders. The initiative was effective, but the project’s limited scope demonstrates just how much training and outreach would be required to replicate this success across other product categories.

A pineapple trader shows off his truckload in Rajasthan (unrelated to the IDE project):

On a much larger scale, the Indian government has also stepped in to increase the country’s food processing capacity. It operates a network of markets under the name Mother Dairy, selling both produce and processed items at affordable prices in many communities throughout the country. We visited a Mother Dairy processing plant in North Delhi.

Unfortunately, the head of security wouldn’t let us inside (apparently the process to get a visitor pass involves sending a letter to the Ministry of Food Processing and then, in all likelihood, waiting a few years for a response), but we were able to speak with a senior staff member who met us at the gate:

We learned that the government procures produce from all over the country. They then grade it when it arrives: undamaged goods get processed then sold under the Safal brand, lower quality items are rerouted to other markets, and spoiled food is dumped right into a bio-digester maintained on site which converts the waste to gas and compost.

This all sounds reasonably efficient, but obviously still doesn’t amount to much processing capacity when compared with large processing operations run by food companies such as Kraft or Dole. Scaling these government run organizations may also be an issue as they compete with other government programs for capital, and have less of an incentive than private firms to run efficiently and profitably.

For this reason, among others, the government has recently been considering allowing large international firms to increase their presence in India. These firms have logistics and processing expertise, and would in all likelihood improve India’s supply chain efficiency and food processing capacity. However, the government is worried that such changes could cause disruptions to stakeholders across the supply chain.

India needs to find its own balance between processing and supplying fresh produce. While processing can extend shelf life and therefore help farmers, it seems that only with an injection of foreign capital and expertise will processing capacity increase in a reasonable timeframe. The process may get slowed down by politics as well as the Indian preference for fresh food; however, it’s apparent that processing could go a long way in eliminating some of the waste that currently occurs in Indian supply chains.


India’s Grain Storage Problem

January 18, 2012

Paul Artiuch and Sam Kornstein are graduate students at the MIT Sloan School of Management. Throughout the month of January they are researching market-oriented approaches to reducing agricultural food waste in India. They will be sharing their project scope and some of their findings in this blog series.

India is one of the largest wheat producers in the world, with the most recent harvest bringing in over 80 million tons of grain. As we’ve mentioned in previous posts, the government buys a significant portion of each year’s harvest and distributes it to the poor through ration shops. As part of this program, the government also maintains a grain reserve as a food security measure, and provides farmers with purchase guarantees at a minimum support price. As a result, massive stocks of wheat are kept in government storage every year – 17 million tons was held by the program’s agency, the Food Corporation of India, at the beginning of 2011.

The inadequacy of government operated storage is often cited in the media as a major cause of food waste in the country. The Food Corporation of India has little modern storage such as grain silos, and instead maintains its stock of grains in outdoor depots scattered throughout the country.

As we drove through the countryside of Punjab and Haryana we saw hundreds of government-run grain storage compounds. We expected to see warehouses or at least covered enclosures, but instead most commonly observed 20 foot stacks of 50kg burlap sacks sitting in parking lots and covered with plastic tarps to keep out the rain. Most facilities are open air and offer no protection from humidity, birds or pests – common food waste causes. In many cases, the tarps don’t even fully cover the grain, and we’ve heard reports of entire grain depots spoiling after being hit by an unexpected rainstorm.

We did see one government warehouse near a local wholesale market which had a roof, but that was the extent of the protection.

Experts estimate that as much as 20% of the grain stored in these conditions goes to waste. The absolute wastage is worst in years when free market prices collapse and the government is forced to buy excess supply at the minimum support price.

When interviewing farmers and Commission Agents, we were also told many stories of corruption. Although unverified, we heard from cynical farmers about a supposedly well-known scheme: corrupt government depot operators will sell a portion of the stored grain on the black market, and then intentionally allow a portion to rot, covering up the illicit sale by over reporting the wastage.

The government, pressured by recent food waste scandals and increased media attention, is slowly beginning to act. One promising model is to build modern storage infrastructure with the help of the private sector. One recent project, arranged by the World Bank’s International Finance Corporation (IFC), recently added 50,000 tons of modern silo storage capacity. The facility was built and will be operated by a private company, and to facilitate the deal, the government of Punjab agreed to a set storage price for a decade, guaranteeing the company a return on its capital.

Experts at IFC told us that the public-private partnership model to build silos is economically viable if storage losses exceed 2.1% annually, far below current loss estimates. However, the government seems to be hesitant to move forward and often maintains that little to no waste occurs in their facilities.

Another hurdle to these types of projects is attracting private partners, as many prospects dislike working with government agencies such as the Food Corporation of India or their state equivalents. It’s not uncommon for these agencies to fall behind on their bills, and there would be little recourse for the companies who operate the facilities. To overcome this particular challenge, state governments are beginning to step in to guarantee the payments.

Notwithstanding these problems, the public-private partnership model to improve storage facilities is a promising solution, and additional deals are in the works. Other potential solutions include limiting the amount that the government purchases, and therefore has to store, by adjusting the minimum support price, and allowing for more exports in bumper years when there’s excess supply. However, all of these options require effective policy changes, and most of the supply chain participants we’ve spoken with remain skeptical, at least in the near-term.


The Punjab Potato Party

January 17, 2012

Paul Artiuch and Sam Kornstein are graduate students at the MIT Sloan School of Management. Throughout the month of January they are researching market-oriented approaches to reducing agricultural food waste in India. They will be sharing their project scope and some of their findings in this blog series.

As we mentioned in our post on cold storage, this year there’s an excess supply of potatoes in India, and prices have plummeted. After spending a day speaking with professors at the Punjab Agricultural University, we learned that there tends to be a 4-5 year cycle for the prices of certain staple crops such as potatoes.

When potato prices are high for a season, farmers decide it’s a good idea to abandon existing crops and grow potatoes instead. After all, they seem to be a fairly lucrative crop. The problem is that everybody has the same idea so when the next season comes around, prices fall a little bit. But they’re still profitable, so the farmers double down and grow even more.

By the third year, farmers are barely breaking even, but it can be costly to switch crops, and with hopes that prices will rise, they keep growing potatoes. At this point the market is completely saturated with potatoes, and prices plummet to unprofitable levels. This is what happened throughout India in late 2011. Potatoes were selling at 1 rupee per kilo. At current exchange rates, that’s $0.02 per kilo, or less than a penny per pound.

At those prices, it’s not even worth the cost and effort for farmers to harvest their potato crops, so many choose to let them rot in the fields. Others harvest them, but only in protest of the government, as described in this December 15th article:

Residents and motorists in Jalandhar city and some other parts of Punjab were greatly inconvenienced as farmers dumped hundreds of quintals of potatoes on the streets to lodge their unique protest Thursday against falling prices.

Having announced last week that they would dump their bumper crop in Jalandhar and other places Thursday, the farmers brought nearly 300 tractor-trolleys towards Jalandhar Thursday morning.

With tight police security at all entry points of Jalandhar city being tight, only about 50 tractor trolleys were able to get into the city and started dumping their potato produce on the roads. This led to traffic being affected on these roads. The rest of the trolleys were stopped at the city’s entry points.

Potato growers in Punjab, led by the Jalandhar Potato Growers Association, are protesting against the failure of the government to help them after a bumper crop this year has brought a glut in the market and potatoes are being sold at Rs.1 to Rs.1.50 per kg.

We stopped by a produce marketplace outside Chandigarh in Punjab and, not surprisingly, found a pile of potatoes rotting on the ground next to other fresh produce:

We also came across quite a few potatoes still in the ground in the countryside. The farmer who owns this crop has to decide whether to invest valuable time and resources into harvesting the potatoes. Given the recent drop in prices, it may be more economical or to leave them in the ground and let them go to waste:

This problem is challenging. But it could be at least partially solved through a combination of investment, information dissemination, and thoughtful policy. Investments in food processing – to convert the potatoes into higher-value non-perishable goods such as potato chips – could increase the value of the excess supply while significantly extending shelf life. Additionally, if both the government and farmers had better information about the expected supply of certain crops in the coming season – which could be achieved through a combination of surveying, outreach initiatives, and analysis of historical trends – prices could be estimated within a range, and farmers might have better information when deciding which crops to grow. For the time being, though, the information flow continues to be extraordinarily inefficient, and some are predicting a potato shortage next year as farmers abandon the crop altogether.


A Look at India’s Agricultural Supply Chain

January 15, 2012

Paul Artiuch and Sam Kornstein are graduate students at the MIT Sloan School of Management. Throughout the month of January they are researching market-oriented approaches to reducing agricultural food waste in India. They will be sharing their project scope and some of their findings in this blog series.

Over the past week, we’ve learned quite a bit about how food gets from farmers’ fields all over India to the plates of the country’s 1.2 billion people. What struck us most is the level of fragmentation across the supply chain, which hinders the country’s ability to plan and quickly make adjustments to the system when necessary. These challenges, coupled with the importance of India’s agricultural sector in feeding the population, have compelled the government to step in and regulate parts of the system. Sometimes this is a good thing – government programs provide food for millions of low-income families – however, these government programs can also be extraordinarily inefficient and wasteful, which we’ll discuss at length in later posts. In the meantime, we thought we’d share a brief overview of how the system works, which will hopefully provide some useful context for subsequent entries.

Agriculture in India contributes to just over 20% of the country’s GDP, but provides employment to over 50% of the population. Further, most land holdings are very small – averaging around just a couple acres – and are shrinking as properties are passed down and divided among children in subsequent generations. As a comparison, an average U.S. farm is over 400 acres. This lack of scale makes it difficult for the small farmers to invest in modern equipment and infrastructure, and as a result, most struggle to make ends meet.

There are two main types of agricultural supply chains in India – one which is highly-regulated by the government and another that is run by the private sector. In the 1960s, due to concerns over food security, the Indian government created special rules for five key agricultural products – wheat, rice, pulses, sugar and edible oils. Wheat is managed particularly closely as it serves as the majority of the government’s 55 million ton safety stock of food. Other products, such as fruits and vegetables, are generally unregulated and are handled almost entirely by the private sector. Both chains, not surprisingly, start on the farm.

Nearly all farmers sell their produce in government controlled markets, which are often just a few kilometers up the street from the farms. The transactions are handled predominantly by Commission Agents who negotiate prices with the farmers. The Commission Agents don’t own the produce at any point, but rather find a buyer, usually the government or a produce trader, and then charge a percentage commission which generally ranges from 2.5-6% of the transaction value.

The Commission Agents also often provide financing for the farmer throughout the growing period. This financing structure is particularly important because most farmers can’t get credit in excess of the value of their next harvest. Since most farmers have so little land, this means they can rarely afford to make investments that will increase efficiency and reduce waste.

At this point the supply chain splits between the government and the private sector. If the government is buying a regulated crop, the Food Corporation of India will transact with the Commission Agent at a regulated minimum support price. The Food Corporation of India, a government body, is by far the largest purchaser of wheat, as well as many of the other key agricultural products, which it stores and distributes to impoverished populations through the Public Distribution System. Most of the regulated produce is grown in Punjab and Hariana and moved by truck or train to the rest of the country. The Public Distribution System operates nearly half a million retail markets where government ration cards must be presented to receive subsidized food.

The private sector supply chain, which moves mostly fruits and vegetables, has traditionally been much more local and highly fragmented, especially on the retail side. The movement of a product from a farm to a market often involves 4-5 middlemen. The Commission Agents generally sell to one or more traders who arrange for the produce to be shipped to city wholesale markets. Once there, it is sold yet again to local retailers, who then sell the produce to consumers. Due to the lack of cold storage mentioned in the prior post, any disruption of this sequence can result in tons of food spoiling.

The recent emergence of larger food companies, often headquartered in other countries, is beginning to change this through direct purchases from farmers as well as investment in modern processing and logistics. However, these participants still play a minor role in the overall supply chain, as the government limits and regulates foreign direct investment in India.

Kotla market in Delhi:

A truck carries a shipment of wheat from a wholesale market:

A cow stands in the street outside a marketplace:

A man sells produce in a community market:


India’s Cold Storage Capacity

January 14, 2012

Paul Artiuch and Sam Kornstein are graduate students at the MIT Sloan School of Management. Throughout the month of January they are researching market-oriented approaches to reducing agricultural food waste in India. They will be sharing their project scope and some of their findings in this blog series.

Cold storage facilities, essentially refrigerated warehouses, can reduce agricultural price volatility, helping to minimize food waste and increase income for various supply chain stakeholders. The benefits of cold storage are simple: most types of produce have shelf lives ranging from just a few days to a couple weeks when kept at room temperature. Farmers and traders are forced to quickly get their produce to consumers, even if there’s too much supply in the market. This can result in low prices that often don’t even cover the price of production and transport. In the most extreme cases, when the market is flooded with a particular item, it makes more economic sense for farmers to just let certain crops rot in the field, rather than spend the time and money to harvest them.

Cold storage can extend the shelf life of produce for months or longer, buying farmers and traders valuable time. Fruits and vegetables can be stored while prices are low and there’s little demand, and then released into the market when prices rise again. Since this process regulates supply, it helps stabilize prices over time, which is one of the reasons produce prices in developed countries are less volatile than those in developing countries.

India lacks sufficient cold storage for the majority of the country’s produce. However, in recent years there’ve been significant investments made by both the private sector and the government to increase capacity. While this is a positive trend, enormous challenges remain. We met with two privately owned cold storage trading companies based in Delhi, and learned something interesting. Since cold storage can be so expensive, as it requires capital investments and large amounts of energy, it’s most profitable to use the capacity to store high-value imported goods that are generally consumed by the more affluent customers.

We took a tour of one facility, a giant nine story refrigerated warehouse in North Delhi, and were surprised by what we saw. Imported products such as apples from Washington State, tangerines from China, and kiwis from Italy filled the majority of the shelves. These products sell for as much as fifty times the value of many locally grown products, and as a result, paying to store them to avoid waste and maintain quality makes economic sense. There are exceptions though. One of the firms we met was investing in state of the art cold storage facilities to store and ship Indian-grown apples and other fruits from the foothills of the Himalayas to the rest of the country.

For less expensive products – such as potatoes, onions, and tomatoes – that are prone to rotting and are staples for the majority of the lower income population, the cost of cold storage can exceed the value of the goods. The government has stepped in and subsidized storage in many areas, but this support often doesn’t address the problem.

Potatoes are a perfect example. A couple years ago there was a potato shortage in India, and prices spiked. In response, many farmers grew potatoes in the following seasons, and as a result, there’s now too much supply and prices have plummeted. Many potatoes have ended up in subsidized cold storage facilities; however, in some regions, prices are so low it’s not even worth harvesting them. In protest, many farmers have been leaving piles of rotting potatoes in the streets to show the government their dissatisfaction.

While cold storage has clear potential to reduce food waste, it’s apparent that without innovation, price reductions, thoughtful policy, and subsidies, the storage capacity will not be filled with the low-value crops that are both food staples across India and are also most likely to go to waste.

Paul and Regina stand with boxes of imported fruit in a nine story refrigerator:

Apples shipped from Washington state sit in a cold storage facility in Delhi:

A refrigerated truck delivers cold produce between locations:


Azadpur Mandi – Delhi’s Wholesale Produce Market

January 10, 2012

Paul Artiuch and Sam Kornstein are graduate students at the MIT Sloan School of Management. Throughout the month of January they are researching market-oriented approaches to reducing agricultural food waste in India. They will be sharing their project scope and some of their findings in this blog series.

Soon after arriving in Delhi, we took a walk over to a local market and spoke with a man who runs the community produce stand. We asked him where he buys his fruits and vegetables. “I take my truck to Azadpur Mandi every day at five in the morning,” he said. “Is that where all of Delhi’s markets get their produce?” we responded. “Just about, except for the government-run shops.” We probed a bit more about seasonality, food waste, and prices, but found that his operation is fairly simple, and nearly nothing gets wasted at the retail level. Even if food becomes damaged someone in the community finds a use for it.

Azadpur Mandi turns out to be the largest wholesale produce market in all of Asia. Covering 80 acres in North Delhi, it not only supplies the city and its surrounding communities with fresh produce but also serves as a hub for the rest of India. We took a ride over to Azadpur at the break of dawn the following day, and walked around for a few hours talking to traders, truck drivers and storage managers. There were colorful trucks being unloaded everywhere, stacks of vegetables in bags being stored under tin roofs, and thousands of traders, commission agents, storage vendors and buyers haggling over quality and prices. It was chaotic, and messy, but it all seemed to work even though Azadpur Mandi is significantly over capacity.

We asked people where their produce had come from and found peppers that had traveled 24 hours from Gujarat, chilies that had been hauled for 17 hours from U.P., and onions that were grown only a few hours away. In short, Azadpur Mandi is an aggregation point for produce grown in virtually every corner of India.

Despite its dilapidated appearance, and with thousands of tons of produce moving through it each day, the market was remarkably efficient with minimal edible food waste. The highest quality goods get sold to high end markets, restaurants, or are exported. Medium grade items make their way to markets in less affluent areas. Finally damaged or irregular produce, even if discarded by larger traders, is picked through and sold in push carts on the street. The whole system works quickly enough that it’s rare for food to spoil once it arrives at Azadpur.

There was however quite a bit of inedible food waste generated by the estimated 12,000 tons of produce that moves through the market every day. Once produce shipments are received, leaves, husks, and clippings are typically removed before the items are sold. The approximately 2 000 tons of waste need to be moved from the market daily to make room for new produce to come in. The market operator, a government agency, loads it onto carts and dump the waste into sectioned off enclosures, where cows and dogs pick at it until dump trucks come twice daily to haul the waste off to the city dump.

Here we saw an opportunity. Organic waste can be converted into compost and bio-gas, useful commodities, using a process known as bio-digestion. This is often done on a small scale in villages, and has been successfully completed on a commercial scale in many places around the world, including by the Massachusetts based company Harvest Power. To do this commercially, you need a large, reliable, and constant supply of organic feedstock – exactly what we saw in Azadpur Mandi.

While we found untapped value in the form of an agricultural waste stream, value that could be recognized by communities surrounding wholesale markets, we still haven’t observed the massive quantities of edible food waste that is known to be present along the supply chain. In a few days we’ll be traveling outside the city to some rural parts of Punjab. We’ll be speaking with farmers, traders and logistics companies to see what happens between the field and the arrival of produce at wholesale markets such as Azadpur Mandi.

A girl drops garlic husks in the organic waste enclosure. A cow eats in the background:

A group of men shelling corn:

A man weighs some peppers:

A cow walks through the market:

Lemons are weighed and sold:

A man sells peppers:

Cargo is transported outside the market:

Hundreds of tons of onions are stored in the market:

Traders pose for a picture:


Battling Food Waste in India

January 9, 2012

Paul Artiuch and Samuel Kornstein are graduate students at the MIT Sloan School of Management. Throughout the month of January they are in India researching market-oriented approaches to reducing agricultural food waste.

Last fall, we each participated in the Development Ventures course in MIT’s Media Lab. The objective of the course was to identify ways to leverage for-profit business models to tackle some of the world’s most pressing international development challenges. As we both had an interest in finding ways to reduce or extract value from waste that occurs in the supply chains of many developing countries, we teamed up to think about how we could make an impact. In the process, we learned something staggering: research shows that 20-40% of the food grown in India ends up spoiling before it ever reaches consumers.

Sam Kornstein & Paul Artiuch

This problem isn’t unique to India. Many developing countries struggle to modernize and upgrade their agricultural supply chains to match the efficiency of those found in more advanced economies. Poor road quality, unreliable and expensive electricity, insufficient storage capacity, and uncoordinated logistics make it difficult for many countries to avoid food losses between farms and markets. However, we found India’s challenges to be particularly interesting for two reasons.

First, with one of the largest agricultural sectors in the world and a population exceeding 1.2 billion, India’s farming yield has a meaningful impact on global food-security. Studies suggest that in 2010 as much as 16 million tons of Indian-grown grain was lost to spoilage, enough to feed an estimated 118 million people for a year. Even a small improvement could save lives and stabilize food prices in a country that battles chronic mal-nourishment and double-digit food inflation.

Second, as a result of demographics and legislation that limits farm sizes, India’s agricultural sector is surprisingly fragmented when compared with other countries. The average farmer works with just a couple of acres. This means that while efficiency improvements could benefit farming communities rather than large agricultural corporations; typical farmers don’t have the scale or capital to make necessary technology and infrastructure investments that could bring about these efficiencies. This type of fragmentation occurs further down the supply chain as well with transportation companies, traders and wholesalers.

These two factors inspired us to learn more about what could be done and to think about how new business models or technologies could help address the significant waste and inefficiency that occurs. After speaking with dozens of researchers, start-up companies, and non-profit organizations, we kept hearing the same thing: there just isn’t enough accurate data about the supply chain breakdowns, incentives, and economics to fully understand the nature of the problem. And it doesn’t make sense to try and solve a problem that isn’t fully understood.

So we’ve come to India with the goal of understanding and characterizing the food waste problem. Over the next few weeks, we’ll be speaking with farming communities, traders, market operators, consultants, shipping companies, storage companies, policy-makers, and researchers. We hope to return to MIT at the end of the month with actionable information that can be leveraged by the broader academic and business communities to develop new technologies, appropriately disseminate existing ones, and craft business models that can address this enormous challenge. Over the coming weeks we’ll periodically report back on what we find and look forward to your comments.

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