Managing Demand-Supply Imbalance in Perishable Business due to Competing Requirements

Vijay Sardana

Everyone is now talking about demand-supply imbalance in food economy and the consequent increase of price of agriculture commodities. Common man is concerned about the prices of food items. In the whole episode of inflation, we are somewhere neglecting other aspects and important stakeholders i.e. livestock and agro-based industries. They are also competing players and legitimate stakeholders in the food supply chain. Are we thinking about them when we are planning our supply side strategy? Thankfully, futures markets were able to expose the weaknesses of food security and the implications of mismanagement of supply side of agriculture.

In the earlier article, discussion was based on external and indirect factors responsible for production of agriculture commodities. For a agro-based industry or as a supply chain organisation it is important to examine, analyze and estimate the amount that will be available for the existing or proposed agribusiness project. The task for the analyst’s is to identify and qualify the relative uses of the crop’s output to estimate the net quantity available for supply chain for the proposed agribusiness venture.

How to calculate net availability of the crop for supply chain?

For any crop or livestock product, the net availability can be computed by the following equation:


Gross Production in the catchments area

minus (-)   On-farm consumption

minus (-)   Farmers sold for Fresh consumption in the local area

minus (–)  Animal feed consumption in the local area

minus (–)  quantities committed for trade by the farmers by taking cash advances from local traders

minus (–)  Quantity booked by exporters and processing industry through backward integration or buy-back back arrangements

minus (–)  Other non-food industrial uses

minus (–)  Competitor' purchase

Minus (–) Losses due to handling and

Net availability for Supply Chain  =


It is important to note that, when every one is targeting the same crop in the area, there will be pressure on quality as well as price.

Let us discuss, each of the above mentioned component in detail to understand what can be the implication of each of these components on raw material sourcing for supply chain management and marketing.

Competition from On-Farm Consumption

In the country like ours where farmers are growing for their own consumption and where agriculture is not treated as part of knowledge based economy, the first off take of the crop is by the farmer himself. The first crop sharing is that quantity which does not enter the commercial market but is consumed on the farm by the farmers, his family and relatives. In general, when the farmers’ land holding is small and cultivated crops are main part of the dietary habits, the chances are that the greater proportion of the crop will be consumed on-farm.

It is important to note that a subsistence-farming pattern also reflects the lack of ready cash market outlet. If there is a market opportunity, a greater portion of the crop may be sold. This is a common experience in dairy business in India. If the market opportunity causes a crop switch from staple to cash crop, the nutritional well being of farm families (as well as of landless labourers) may suffer. This possible effect depends on the increased sales, the income and price elasticity of the families for food and nonfood items, and the prices of these goods. We shall ensure that while developing a good procurement strategy for the main food crop, companies should also work on balanced nutrition for the stakeholders to avoid undue criticism from the various sections of the society. Accordingly, the agribusiness project planners should also project and monitor the effect of the processing plants’ raw material requirements on the population’s nutritional intake, the price and the availability of the food in that area for local population. This calculation will help in meaningful analysis of the project.

Demand for food for Animals and Human will intensify due to population and nutritional requirements

Besides human food, the common use of many food grain crops is for conversation into animal feed. Farmers do use some proportion of food grains, oilseeds, coarse cereals, leafy crops, etc as part of the feed at their own farm. The main reason for the use of their own crop as feed is non-availability of feed materials at an affordable price. Very often these on-farm feed formulations are nutritionally inefficient due to losses in the biological conversion process or poor Feed Conversion Ratio. The competition between human and animals for good quality and nutritious diet will increase and intensify because of trade economics and health cost considerations. Please note that population of humans as well as animals is also growing, faster than food grain production. High yielding animals will also need high quality diet.

Demand from Competing Industries

Some raw material can be used in several processed end products for food as well as non-food applications. For example, maize can be used to produce animal feed, oil, starch, margarine, mayonnaise, noodles, detergent, flour, snack food industry or dextrose. Although one processor may often produce several of these by-products from the same material. The project manager should foresee this dilemma by documenting and quantifying the alternative end uses of the raw material.

Competitors are Competitors

The most direct competition for raw materials is among processing companies in the same business, and the competition can come from foreign as well as domestic processing enterprises. The new project advisor must assess the strength of competition for the same raw materials. Competitors should therefore explore the areas of collaboration so that overall cost of operation could come down and sustainability of the business, could be enhanced. They must compete for market share but when it comes to building supply base for long terms, they can collaborate to set-up extension services, health care services and related facilities for the people involved in supply chain.

Consumption of Fresh versus Processed Crops

In India, the major market is for fresh produce, rather than processed form. While serving the fresh market, the supply chain managers must understand that there are various quality requirements at the consumers’ end which varies due to usage requirements. For example the type brinjal will decide the type of vegetables to be cooked and vice versa. In case of festivals a particular crop is always in high demand, in certain weeks the consumption of certain crops like onions, garlic etc will go down drastically, and the success of supply chain management will depend upon the balancing act between these ups and downs.

For some crops, the fresh and processed markets are complementary rather than competitive. For example, tomatoes that are damaged in appearance could not be sold fresh but could be processed for tomato paste. This maximizes a crop’s recoverable economic value. When the price of fresh tomatoes goes very high the demand for processed tomatoes goes up.  This clearly indicates that majority of consumers are always looking for the “value for money” when they are spending on daily use items.

Losses in Supply Chain

Due to various reasons, like poor harvesting methods, poor handling at farm and off farm, poor handling at the time of loading and unloading, damage from rodents, insect pests and poor handling and storage, plus poor management skills, are leading to serious losses in the supply chain. Companies must investigate the cause of losses. A detailed investigation will help companies in reducing the losses. Poor storage facilities can be responsible for a sizeable portion of losses. Trade estimates production losses at 10-30 percent, depending upon on the crop and region. Low-cost storage facilities on-farm or in the village can cut these losses by as much as 50 to 80 percent.

Storage and handling losses are frequently the result of programmes to stimulate production that fail to incorporate adequate storage for the increase output.

Where Management should focus?

An examination of the quantitative adequacy of raw material supply is the logical starting point for the analysis of project’s procurement activities. Processing plants operating at less than planned capacity are all too common and costly in most parts of India. The cause of this diminished productivity is frequently inadequate analysis of the quantity of raw material available in the processing plant. The management should consider examining the quantitative aspect of raw material procurement for a supply chain and food processing project. The author and his team can also help companies in understanding supply chain issues. 


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