{"id":1860,"date":"2008-05-01T16:10:47","date_gmt":"2008-05-01T10:40:47","guid":{"rendered":"http:\/\/thirdeyesight.in\/blog\/?p=46"},"modified":"2022-11-08T12:33:22","modified_gmt":"2022-11-08T12:33:22","slug":"the-dis-economy-of-scale","status":"publish","type":"post","link":"https:\/\/myechoproject.com\/TES\/the-dis-economy-of-scale\/","title":{"rendered":"The Dis-Economy of Scale"},"content":{"rendered":"
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We touched upon food price inflation last month and \u2013 no surprises \u2013 it is still hogging the headlines. It is, after all, an emotive topic. We are terribly concerned not just as food and grocery professionals, but also as consumers and general public. After all, food and grocery are typically half of our monthly spend, give or take a few percentage points.<\/p>\n

Inflation often brings with it swift (sometimes knee-jerkingly quick) reactions \u2013 price controls, export controls, subsidies to farmers and food producers, and various others. Some of these measures work but only in the short term, while others may have no immediate visible impact on the market at all but may be truly insidious because of that.<\/p>\n<\/div>\n<\/div>\n

However, a significant set of questions has not really been touched yet: how the food supply chain is structured, how it is driving consumption, what impact that might have on food prices and several broader cost implications.<\/p>\n

Thousands of years ago, when hunter-gatherer human beings stumbled upon agriculture, it was a breakthrough similar to the discovery of controlled fire. Hunter-gatherers were dependent on the natural availability of food, while agriculture created the opportunity to have some control over food supplies and reduce the natural feast-famine cycle. Thereafter, farming, processing and storage techniques kept evolving incrementally to ensure that more food could be produced for each unit of land and effort, and stored for longer \u2013 all moving towards ensuring \u201cfood security\u201d. This led to the age of empire-building, where monarchs grew their wealth (essentially food territory) with the help of military-imperial complexes, and the greater wealth in turn supported the military-imperial complex.<\/p>\n

This remained the trend for a few thousand years, until the age of industrialisation and the age of petroleum. Through the industrialisation and the world wars, the military-imperial complex gave way to a military-industrial complex, which essentially became the military-industrial-petroleum-agricultural complex. Suddenly, there were not just machines to plant, reap, thresh, sort, clean and process, but also petroleum-based substances to dramatically increase output and to keep the produce fresher for longer.<\/p>\n

As US farms and then European farms industrialised, the parameters that began to be applied were the same as in any factory \u2013 how to produce more while spending less \u2013 and every year the target was to grow more for less. Underlying this was the principle of \u201cefficiency from larger scale\u201d. The same philosophy played out further down in the supply chain \u2013 from processing to extend the shelf-life of the product as it was (such as chilling, cleaning, sorting) to processing and packing in order to change the nature of the product itself and gain additional value (such as tomatoes to paste or potatoes to chips).<\/p>\n

Standardisation became a vital link in industrialisation \u2013 if you can standardise produce, you can cut down human handling \u2013 while you may lose product variety (including flavour and colour) you gain in terms of driving down the cost of production. By reducing unpredictability you can also concentrate on building the scale of business, because it becomes more repetitive.<\/p>\n

The interesting side-effect of this is that, gradually, we are converting ourselves (and people in many industrialised economies already have) into petroleum-burning machines rather than those running on solar energy, because increasingly the agricultural supply chain is dependent on non-renewable petroleum and its products, rather than by the natural energy of the sun being converted into food by the plants.<\/p>\n

And the important thing to keep in mind is that, in this switch-over, the energy efficiency is actually going down rather than up \u2013 we are using more calories of fuel source to produce each calorie of food energy.<\/p>\n

The issue is more acute now than ever before, because now the growth markets of choice for industrial agriculture companies are China and India. If these two countries move through the exactly same path as have the western economies in terms of agriculture and food processing, given the population base itself, clearly the impact will be 5-7 times (or more) on the demand for petroleum as well as the fall-out on the ecosystem.<\/p>\n

You may ask, why should retailers worry about this?<\/p>\n

Firstly, pure cost considerations \u2013 clearly, the costs of petroleum are not coming down, and explosive demand through industrialised agriculture will only serve to push them up. How far can you push the food bill every month, before people start buying less? What impact would that have on large retail supply chains and farmers whose processes are increasingly built around products of industrial agriculture?<\/p>\n

Secondly, what consumers are already beginning to express in western markets will possibly happen in India in the next few years as well: concern about where and how the product has been produced, what has been the fall-out on the environment and on the overall health of people involved with that supply chain as well as the health of consumers.<\/p>\n

Carbon footprint, food miles & locavores (people who only consume food that is produced within 100 miles of where they live) are terms that retailers are increasingly hearing.<\/p>\n

And an alternative set of questions is also being raised. Is it ok to burn non-sustainable fossil fuel if you get \u201ccarbon credits\u201d by planting trees somewhere else \u2013 have all the carbon costs been accounted for from the start to the finish of the production process? Is it better to reduce the food miles and have food produced locally in a high-cost economy\u2019s industrial agricultural model, or to have naturally grown foods from a more primitive farm in Africa or Asia where the environmental impact is only the \u201ccarbon debit\u201d of the air-freight. And, even if the produce is carbon-friendly, what about the nitrogen footprint (from the fixation of nitrogen into fertilisers) and the methane footprint (from large scale animal farming)?<\/p>\n

This one page is surely not enough to present any in-depth analysis, but I hope it will serve to kick-start the process of questioning how India (and China) should take the lead in creating an alternative and more sustainable model for food security for large populations. There is a lot of research being done, and much yet to be done, to quantify the true cost of blindly pushing for scale in the food chain. Truly \u201cprogressive grocers\u201d need to take an active role in supporting this.<\/p>\n","protected":false},"excerpt":{"rendered":"

India (and China) should take the lead in creating an alternative and more sustainable model for food security for large populations. There is a lot of research being done, and much yet to be done, to quantify the true cost of blindly pushing for scale in the food chain.<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[389,274,215,60,43,47,1],"tags":[167,390,455,250,214,216,293,391,59,466,456,166,70,71,467,345,200,65,124,66,208],"class_list":["post-1860","post","type-post","status-publish","format-standard","hentry","category-progressive-grocer","category-csr","category-food-grocery","category-india","category-retail","category-supply-chain","category-uncategorized","tag-agriculture","tag-column-progressive-grocer","tag-cost-competition","tag-fmcg","tag-food","tag-food-grocery","tag-food-processing","tag-grocery","tag-india","tag-industrialisation","tag-inflation","tag-modern-retail","tag-organised-retail","tag-organized-retail","tag-petroleum","tag-prices","tag-pricing","tag-retail","tag-strategy","tag-supply-chain","tag-sustainability"],"yoast_head":"\nThe Dis-Economy of Scale - Third Eyesight<\/title>\n<meta name=\"robots\" content=\"index,follow\" \/>\n<link rel=\"canonical\" href=\"https:\/\/myechoproject.com\/TES\/the-dis-economy-of-scale\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Dis-Economy of Scale - Third Eyesight\" \/>\n<meta property=\"og:description\" content=\"India (and China) should take the lead in creating an alternative and more sustainable model for food security for large populations. 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