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: 10801109Project Group Number: 1Under the Guidance of(Mr. Mandeep Singh Hayer, Assistant Professor )Department of Management.Lovely Professional University, PhagwaraAugust to December, 2012

DECLARATIONWe 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: 1Name of Student 1: Akshi PrasharRegistration Number: 10803262Name of Student 2: Payal MahajanRegistration Number: 11111158Name of Student 3: Faheem AhmadRegistration Number: 10802635Name of Student 4: Bhisham LohraRegistration Number: 11113062Name of Student 5: Sourabh GondRegistration 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 : 12358Designation : Assistant Professor

Signature of Faculty Mentor

INDEX1. Introduction2. Objectives3. Review of literature4. Research methodology5. Appendix6. 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 taxesAgainst: 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 prices3. To find out the benefits accruing to consumer of lower prices

FDI in India

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

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Pros and cons of FDI in retailReal 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 re-organize 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 analysisFarmers, 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 analysisComparison of impact of FDI in India and other CountriesFollowing 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 analysisReasons 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 LiteratureThe review of past studies helps us in framing objectives, developing researchdesign, 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 IndiaDuring 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 businessIndia 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 RetailThe present government decision to open up the fast-growing organized multi-brand 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 rules6. 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: NarayanasamyDefending 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 productsIn 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 small-scale 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 GermanyIt 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 OpportunitiesThe 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 MarginsThe 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 chainAgriculture 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: