The following points highlight the top eleven models of rural distribution. The models are:- 1. Public Distribution System 2. Distribution through Wholesalers 3. Distribution through Sub-Dealers 4. Distribution through Local Dealers 5. Sales through Rural Sales Force 6. Company Outreach Programmes 7. Village Entrepreneurs 8. Local Influencers 9. Rural Retail Chain 10. NGOs and Other Networks 11. Rural Value Chains.
Model # 1. Public Distribution System:
The PDS was started in India before independence with the objective of providing food security to the poor. Under the system, food-grains were sold from fair price shops at lower prices than the market rate. It was the first structured public distribution of cereals in India through the rationing of rice or wheat to ration card holder families. This was followed by successive governments over the years. In 1997, it was changed to Targeted Public Distribution System (TPDS) so that cheap rations could be delivered to BPL people, identified through a BPL survey.
In 2013, the National Food Security Act (NFSA) came into force, under which a rights-based approach was adopted instead of the earlier welfare approach. Under this Act, eligible beneficiaries—identified through Socio-Economic Caste Census (SECC) 2011 data—are entitled to receive 5 kg of food grain at subsidized prices. Some states have already adopted the NFSA while the rest of India still follows the TPDS system.
TPDS operates through a system in which the Central government procures food-grains from farmers at a minimum support price (MSP), allocates grains to each state, and transports them to the central depots in each state. State governments identify eligible households to which the grains are to be delivered from these depots to each ration shop. The ration shop is the last point of the distribution channel from where grains are sold to consumers.
Though the system is supposed to help poor and marginal populations, studies have revealed that is has not been very effective in its objective. For example, FAO’s ‘The State of Food Insecurity in the World, 2015’ report points out that 194.6 million people are undernourished in India, that is, India is home to a quarter of the undernourished population in the world (FAO 2015). It also says that 51 percent of women between 15 to 59 years of age are anaemic and 44 percent of children under 5 are underweight. The Global Hunger Index 2014 ranks India at 55 out of 76 countries, pointing to the weaknesses of government distribution system.
Studies have also shown shortcomings in implementation. Problems have been reported pertaining to inaccurate identification of households and a leaking delivery system. Studies show that PDS suffers from nearly 61 percent error of exclusion and 25 percent inclusion of beneficiaries. Regarding leakage, an ICRIER study found that at an all-India level, 46.7 percent or 25.9 MMTs of the grain did not reach the intended PDS beneficiaries in 2011-12. Leakage was seen to be higher in the poor states – Uttar Pradesh, Bihar, Madhya Pradesh, Maharashtra and West Bengal.
An NCAER study (NCAER 2015) found that there was inappropriate identification of BPL families and that the inefficiencies in the supply chain contribute to the high cost of delivery in most states. The study also found that the supply chain of the PDS is riddled with malpractices at distribution and administrative levels. It was found that in some states, people had paid Rs. 14-118 for getting a new ration card even though the government charges a token fee of just Rs. 1.
The PDS, thus, is in need of an overhaul. A case has been made for direct cash transfers through Jan Dhan Yojana and the UID generated by the Aadhaar scheme instead of providing subsidized food-grains, which is easily diverted. PDS is also not cost effective as its operations are too costly and the ratio between procurement and transportation is too high. Storage losses are also very high.
Saini and Kozicka (2014) write that there is a case for reducing the role of the government in food management systems of the country since the country no longer faces acute food scarcity of the 1960s. Today, the country is self-dependent and it exports a number of agricultural products. This is the right time, they write, to move from controlling price through high subsidies to income policy support that includes cash transfers to the poor. If India can make this switch, it can reap huge economic gains. Cash transfers would help in better targeting and reduce the huge costs associated with government intervention in the grain market.
Clearly, the PDS is not enough to serve the growing population of India. Private individuals and companies step in and build distribution channels to reach markets across India. They do this in various ways, working through their dealers or creating new models.
Model # 2. Distribution through Wholesalers:
This is the most common method of reaching rural areas. It entails no extra cost for the company since existing channels are used. Wholesalers load the goods in a small vehicle and send them to nearby villages. The driver delivers goods to village retailers and collects payments. Alternately, village dealers make weekly trips to the town and collect goods from different wholesalers, piling them up in their pick-ups, and collect goods from various sources for selling back home.
The village dealers add a mark-up and cost of transportation to their cost of purchase to arrive at the selling price. There are some disadvantages in the model. First, all villages cannot be covered through this method. Second, goods become quite expensive by the time they reach the customer. Village retailers thus have to charge more than the printed MRP to cover their costs and customers are not very happy about this. A third disadvantage is that sales are dependent on the wholesaler.
Model # 3. Distribution through Sub-Dealers:
In this model, the wholesaler or the company appoints sub-dealers in villages. Wholesaler commission is shared with these sub-dealers, who take up the task of supplying to rural retailers through their own salesmen. Sub-dealers are convenient because the wholesaler is assured of regular business and payment collections.
Model # 4. Distribution through Local Dealers/Partners (Hub-and-Spoke Model):
In this case, the company bypasses the town wholesaler and directly appoints local dealers or partners who are served through company depots in a nearby town. This resembles the hub-and-spoke model, where the company depot serves as a hub serving surrounding villages.
Either the company builds its own logistics to supply goods or it requires the dealers to collect goods from the depot. This model is more expensive than working through wholesalers as the company has to maintain many depots in towns. However, the company gains full control of its rural marketing and distribution and is not dependent on dealers.
Model # 5. Sales through Rural Sales Force (Direct Channel):
Some companies appoint rural sales force to visit dealers and retailers in villages. Goods are then supplied through the company depot in the town. Small companies follow this route and are able to achieve deep penetration in their areas of operation. Wholesaler commissions are avoided but the company bears the cost of distribution. This is an expensive option since the company has to add a large number of sales people on its payroll. The advantage is that the company can serve the areas it wants to cover and is not dependent on the wholesaler or the sub-dealer. The company is also able to establish direct relationship with the rural customers.
Model # 6. Company Outreach Programmes:
Outreach programmes are an effective way to reach villages, especially when demos or consumer education are required. The company uses BTL techniques to involve communities in their brands. Excitement is built by multimedia devices and direct customer experience. Consumers can experience products directly through this method, and brand loyalty can be achieved.
Model # 7. Village Entrepreneurs (‘Feet on the Ground’):
This approach is called ‘feet on the ground’ approach, in which the company trains and develops entrepreneurs in villages who act as distributors and brand ambassadors. Case studies of Essilor and Project Shakti, are examples of this approach. The advantage of this model is that the company can reach the remotest of the villages. The village entrepreneur creates customers for the company and works for mutual benefit.
Model # 8. Local Influencers:
In this case, the company works through people who can influence others. Well-known or respected people in the village arrange community meetings and product demos to influence consumers and inculcate brand loyalty.
Model # 9. Rural Retail Chains:
Companies can work with retail chains established to serve rural areas. Chains such as Hariyali, Aadhaar and Choupal, or tying up with petrol pumps, are easy ways to reach villages. However, many of these initiatives have failed.
Model # 10. NGOs and Other Networks:
Another way of reaching villages is to piggyback on existing networks of NGOs, microcredit groups or SHGs. Companies work with these groups to tap their existing members. This initiative was used by Tata Tea, which started its ‘Gaon Chalo’ initiative with NGOs and SHGs. This is a beneficial model as the company gets access to a set of people who are connected by a common cause. Building trust becomes much easier.
Model # 11. Rural Value Chains:
Supply chains are created not only to provide goods to villages but farmers can sell their produce through the same channel. Such chains help solve farmers’ problems and help them increase their income, which, in turn, is used to buy products from the supply chain. The approach, however, calls for huge investments to cover villages. ITC’s e-choupal and Jain Irrigation show that rural distribution is facilitated by helping deliver value to farmers, while at the same time solving a problem for village folk.
The aforementioned ten models of distribution serve rural markets in different ways but, in each case, they have to overcome severe difficulties that arise because rural areas have traditionally been neglected in public policy. Though the government has many rural development schemes, its approach has been to throw money at villages. But, it is estimated that only 10% of government spending reaches the beneficiaries. The development route followed in India since Independence has been city-centric.
The problems in rural distribution can be described as lack of infrastructure and logistical challenges. Villages lack basic infrastructure like roads, access to education, dependable electricity, Internet and public health investments.