India’s richest billionaire says he has no ambitions to dominate the country’s farm sector. But his other plans may leave an imprint on it anyway.
After weeks of farmer protests, Mukesh Ambani’s Reliance Industries (RIL) announced this month that the company wasn’t going to embark on “corporate or contract farming.” It also promised to ensure its suppliers would always provide farmers a fair deal. The statement aimed to address farmer fears that farm reforms passed last year will exploit them and will benefit large corporations such as Reliance that are expanding in the grocery business.
Last week, the Supreme Court put a stay on the laws, but farmers are demanding they be completely rolled back. The new laws propose allowing farmers to enter into contracts to sell their output directly to private players, bypassing the government-regulated markets, or mandis, where produce sales presently take place.
The future will tell if Reliance will be true to its word. Nevertheless, as the oil-to-telecom conglomerate scales up efforts to build an online grocery empire in India, using technology to knit together the network of small mom-and-pop stores that dominate these sales, its presence will definitely be felt along the food supply chain.
“Even if firms such as RIL stay away from directly doing business with farmers, they have the power to open up opportunities for new corporates to enter the supply chain,” explained Prateek Goyal, senior analyst at New Delhi-based rating agency India Ratings & Research.
With the help of relaxed rules for foreign investment and growing numbers of urban consumers, the grocery market is forecast to reach $800 billion by 2024, up from $600 billion at present.
Cultivating a farm-to-fork supply chain
Reliance has an offline retail business that operates grocery stores, and last year launched an online grocery app, JioMart.
As the retail needs of these two grocery lines grow, Goyal explains the sector could see the entry of small entities to provide facilities including cold storage and food processing. Others could pop up to create logistics chains to buy produce directly from local farmers, displacing some of the middlemen that presently dominate the agricultural sector and contribute to a gap between wholesale and retail prices. As a result, farmers don’t get a large piece of the profits made from selling to urban India.
For example, this month, more than 1,000 farmers in Karnataka agreed to sell their entire rice crop output to Swasthya Farmers Producing Company, a supplier to Reliance Retail, a subsidiary that operates more than 10,000 stores and supermarkets. Swasthya paid above the minimum support price (MSP), a government mechanism to cushion the blow of a steep fall in prices, which farmers worry might be diluted by the new laws.
Last year, Business Standard reported that Reliance itself is working on setting up a farm-to-fork supply chain with its agro-tech app JioKrishi. The app, which is still in beta version, will help farmers decide the right time to sow, irrigate, and fertilise their crops. While more details about JioKrishi are yet to be released, the report said that app will focus on developing a 12-hour delivery cycle from harvest to the store.
“These kinds of ventures will lead to the enhancement of crop growing practices,” said Kavita Chacko, senior economist at credit agency CARE Ratings.
Farmers, on the other hand, fear that private players will exploit them as they seek to grow their share of the grocery market.
Kiranas: JioMart’s secret sauce
When the prime minister imposed a nationwide lockdown on March 25, older players such as Grofers, an online grocery delivery service founded in 2012, struggled to cater to the sudden rise in demand. But Reliance’s JioMart had a smoother ride, mostly because of its partnership with small grocery stores known as kiranas. Reliance has said that JioMart clocked big numbers during the lockdown—over 400,000 orders on a single day. (Other platforms, such as BigBasket, reportedly clock around 300,000 orders a day on average, while Grofers and Amazon reach over 100,000 orders a day.)
Launched in 2019, Reliance’s new grocery app is housed within tech subsidiary Jio Platform, which Facebook took a nearly 10% stake in last year. Facebook’s WhatsApp is at the core of JioMart’s operations as the company looks to take orders and payment through the messaging app. While JioMart had been largely fulfilling customers’ orders from Reliance’s own stores, it soon plans to ramp up its aggregator model to serve as an Uber of kirana shops.
India has around 12 million of these stores, according to market research firm Nielsen, which along with about a million wholesalers make up the lifeline of India’s food retail sector. JioMart reportedly has 6,000 kirana shops onboard, and will expand further with the help of WhatsApp’s base of 400 million subscribers in India.
“The kirana network is the largest untapped network and a tough cookie to crack, which demands a lot of patient capital and fast scaling to excite the customers, the stores, and the brands all at the same time. But JioMart is well-positioned to crack the code with all three,” said Samarth Agarwal, co-founder and CEO at Delhi-based B2B e-commerce firm MaxWholesale.
Some experts believe this could bring new opportunities for Indian farmers, given a large share of these store sales are made up of agricultural products.
“Such a partnership will drive efficiencies in the last-mile delivery and will provide more availability of the product to consumers in urban and rural households alike,” which will boost consumption, said Goyal. “The farmers will be positively impacted as there will be a constantly growing demand for their produce.”
Online competition for offline partners
Last year, JioMart was downloaded more than any other grocery aggregator, and is now more widely available than first movers such as Grofers and BigBasket. And while global players, namely Amazon and Walmart-owned Flipkart dominate e-commerce, their Amazon Fresh and Flipkart Supermart grocery offerings are still nascent and available in less than 10 Indian cities.
JioMart’s early efforts to bring local stores online have given it an edge—and Amazon and Flipkart have taken note.
For example, in April last year, Amazon India announced that it will invest 10 crore rupees ($1.3 billion) to strengthen its pilot “Local Shop on Amazon” program that added over 5,000 local shops and retailers into its platform from more than 100 cities. The new venture will coexist with Amazon’s plans to expand its grocery entity Amazon Fresh’s infrastructure in the country.
“In a first for Amazon anywhere in the world, we will use our technology, training and enablement capabilities to power local shops across India to sell online,” the e-commerce giant had said.
Likewise in September, the Flipkart group partnered with at least 50,000 kiranas (pdf) to grow online sales during its annual Big Billion Days event.
For now, though, industry experts are placing their bets on JioMart.
Analysts at Goldman Sachs expect JioMart to have a 50% market share of India’s online grocery segment within four years, thanks to its already established retail network and supply chain.
“RIL is by far the largest retailer in the country with over 11,000 stores, and we expect the company to be among the top three platforms in India’s e-commerce industry” by the financial year ending March 2025, the firm added in a recent report.