Indian Government Is Exploring a New System to Reduce Food Waste : Implications for Investors

Indian Government Is Exploring a New System to Reduce Food Waste : Implications for Investors

The Indian Government’s Efforts to Reduce Food Waste with Johari

Analysis for Layman

The Indian government is considering implementing a technology system called Johari to combat food waste in warehouses and stores selling fresh produce. Developed by Amazon, Johari utilizes cameras and artificial intelligence to identify defects and damage in fresh fruits and vegetables automatically. This innovation aims to identify perishable items that are deteriorating faster, enabling them to be sold or used before they go bad. By minimizing food spoilage, the government aims to enhance efficiency and sustainability in food distribution networks. Terms like “IoT” stand for “Internet of Things,” which involves connecting physical devices like cameras to the internet for data collection. In essence, this technology seeks to digitize quality control in the food supply chain to reduce waste.

Impact on Retail Investors

The Indian government’s adoption of the Johari system could have mixed implications for retail investors. On one hand, reduced food waste may increase profit margins for businesses involved in food production, processing, and distribution, such as agricultural companies and grocery retailers. This could result in higher stock prices. Additionally, technology companies specializing in food digitization and tracking systems, like Amazon, may experience increased demand, benefiting tech investors. However, traditional fruit and vegetable vendors may witness a decline in earnings if improved supply chain tracking reduces the need for excess inventory. This could negatively affect small retail businesses focusing on fresh produce. Overall, investors should monitor food distribution companies and agricultural technology startups that could gain from sustainability efforts. However, traditional grocery stocks may face challenges in adapting to modernization.

Impact on Industries

The implementation of digitized supply chain tracking systems like Johari could significantly impact the food production and retail sectors. Reduced waste in warehouses and stores could substantially boost profit margins for food producers, distributors, and sellers. However, traditional wet market vendors and small-scale retailers may struggle to keep up with the demands of modernization and could experience declines in their businesses. This shift towards automated AI and camera systems for food quality inspection and monitoring could disrupt the food laboratory and auditing industries while benefiting tech startups specializing in inspection hardware and software. Additionally, there may be an increased need for cloud data storage and analytics as food tracking generates more data. Overall, key industries such as farming, food retail, technology, and sustainability analytics will witness significant changes due to these supply chain efficiency improvements.

Long-Term Benefits and Negatives

In the long term, the widespread use of advanced tracking technology like Johari throughout India’s food ecosystem could substantially reduce waste while increasing overall productivity and earnings. Reduced waste translates to lower real resource costs for the economy, and better control over food inflation can be achieved by optimizing demand forecasting to match supply. Transportation and storage expenses could significantly decrease as the need for excess inventory decreases. However, traditional small-scale vendors and established players may struggle to adapt without sufficient capital for technological upgrades. Job losses and vendor livelihoods being disrupted are downside risks. Initially, the costs of deploying new monitoring technology will be high, leading to higher food prices before efficiency gains take effect. Overall, while sustainability and productivity benefits will materialize over time, near-term transition costs and digitization requirements pose challenges for fragmented legacy food retail chains.

Short-Term Benefits and Negatives

In the short term, rolling out food digitization platforms like Johari, even through pilot projects, can be expensive, requiring substantial upfront investments in cameras, connectivity, cloud services, and more. This could impact the profitability of participating stores and warehouses until the benefits of waste reduction become evident. However, immediate improvements in inventory visibility through monitoring could allow for inventory optimization, saving on working capital requirements. Early technology partners that participate gain valuable proof cases for scaling up solutions. The displacement of manual quality checkers by automation may result in job losses, negatively affecting livelihoods. Consumers may briefly face higher prices as stores pass on the costs of tech deployment. However, once implemented, reduced waste should lead to increased affordability. Overall, short-term transitional costs exist but can set the stage for long-term sustainability gains.

Companies Benefiting

Listed companies likely to benefit from this development include:

  1. Tata Consultancy Services (TCS): India’s top IT services firm can benefit by offering tech integration, analytics, and platform deployment services related to supply chain solutions like Johari. This builds on their connected retail offerings.
  2. Infosys (INFY): Another leading IT services player well positioned to support food companies with sustainability platform deployments, analytics, and cloud migrations.
  3. HCL Tech (HCLTECH): Growing IT services company that can gain projects modernizing quality assurance and inventory monitoring systems at food storage warehouses, benefiting from increasing automation.
  4. Zoho Corp (Private): India’s SaaS giant providing warehouse and retail management software can further grow by supporting food digitization efforts with tailored solutions.
  5. ADF Foods (ADFFOODS): A midcap packaged foods producer that can benefit from pre-emptive defect detection, enhancing input quality.
  6. Varun Beverages (VBL): A leading bottled water and soft drinks maker better able to optimize production planning with predictive analytics based on storage condition data from technology like Johari.
  7. Avanti Feeds (AVANTIFEED): One of India’s largest shrimp feed producers that can reduce storage waste, enabling higher quality products.

Overall, technology providers, food manufacturers, and packaged goods companies stand to benefit from enhanced supply chain visibility and waste reduction resulting from emerging food digitization efforts.

Companies Facing Challenges

Listed companies likely to be negatively impacted by these developments include:

  1. Avenue Supermarts (DMART): A leading grocery chain may face margin pressure as it manages tech deployment costs across its store network before efficiency gains are realized.
  2. Adani Wilmar (AWL): A major food and grocery producer that could be affected by bandwidth limitations when rapidly adopting emerging technologies across its supply chains.
  3. Nestle India (NESTLEIND): A heavyweight packaged foods maker that may see rising overheads as it integrates smart warehousing and digitized vendor quality checks across its expansive legacy operations.
  4. ITC (ITC): A diversified conglomerate with a large agricultural sourcing footprint will have execution challenges when scaling up advanced food tracking across fragmented upstream supply chains.
  5. DMart (DMART): A value supermarket chain serving price-conscious consumers may be hesitant to make capital investments in emerging technologies like computer vision analytics.

Additionally, traditional fruit sellers, small retailers, and wet markets are likely to be disrupted by organized players that adapt better to food monitoring technology. Overall, both established large players and small vendors unable to adapt to the rapid modernization of supply chains will experience profitability impacts from this push for digitization.

Source: P, Suraksha. “Govt Plans to go Hi-tech to Reduce Wastage of Fresh Fruit and Veggies.” Economic Times, 16 Dec. 2023

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