The Russian retailer Magnit announced the testing of a new model for working with farms – an aggregator for the purchase and supply of agricultural products with a wide range of additional services for small farms.
According to a company representative, the aggregator will allow deliveries both to Magnit stores and other retail chains, as well as to HoReCa enterprises and manufacturing companies.
The pilot project has been implemented by Magnit jointly with the Government of the Tula Region since November 2022. 36 farmers already participate in it, they supply milk and dairy products, meat gastronomy, fresh fish and vegetables. Magnit concludes simplified contracts with farmers, and the delivery of farm products is carried out by the retailer’s transport. In the shops of the region, special shelves are allocated for it.
On the basis of a pilot project, the retail chain is testing the entire range of business processes for the transportation, processing, storage and marketing of agricultural products, including IT solutions, management standards and long-term programs to centralize purchases, expand the geography of sales and create new processing capacities.
The aggregator operates a physical infrastructure for centralized procurement and storage of farm products. The goods are delivered by an aggregator from farms to a specialized site for primary processing and processing, and then to Magnit’s regional stores.
The main innovation of the implemented model will be the constant assistance to farmers throughout the entire cycle – from the field to the store shelf. The aggregator company will advise farmers on production and marketing issues, talk about existing assistance and subsidy programs for farms, help finance the purchase of seeds, fertilizers, feed and agricultural equipment, offer specialized training programs to employees, in a word, provide support at every stage of work .
“Our market research shows a high interest in farm products, with 90% of consumers surveyed willing to buy them,” a spokesman for the retailer said. “It is this need of buyers that we will try to meet, at the same time providing comprehensive support for small farms with quality products.”
The company expects that the use of the new aggregator model will open the doors to large retail chains for small manufacturers that supply high-quality products, but do not have enough of their own resources to enter chain retail stores. Based on the results of the pilot program, Magnit plans to make a decision on how and in which regions of the country the aggregator model will be scaled.
The Federation Council expressed support for the initiative. “As a rule, it is difficult for small farms to even enter the market. Let’s say five or seven people work on a farm, but you need to go, sell, stand at the counter all day. Retail also has great needs and requirements. That is, it is important for the farmer not only to present the products beautifully, to wash and clean if necessary, but also to bring them on time. Plus, you need to store goods somewhere, and farms do not always have premises suitable for long-term storage. Quality control is also important. The idea of Magnit is a kind of intermediary between small farms and sales markets, which can take on all these tasks. A good example, which we support in every possible way, ”Sergei Mitin, First Deputy Chairman of the Federation Council Committee on Agrarian Food Policy and Environmental Management, told Izvestia.
According to the Minister of Agriculture of the Tula Region Alexei Stepin, this kind of assistance to farms is more relevant today than ever. “The potential of the Russian market of farm products is huge. But farmers face many difficulties related to access to marketing channels, high cost of raw materials and equipment, shortage of working capital in the off-season, lack of qualified personnel, crop losses due to lack of storage capacity. The solution to these problems is offered by Magnit, Stepin said.
The initiative is also positively assessed by experts. “The difference between the new model proposed by Magnit is that for the first time a large retail chain creates this kind of tool for small farms. The advantages in this case are that the retailer has experience working with suppliers, its own quality and product safety control system, and a well-established logistics and sales system. Thus, we get an aggregator for farms of a completely different level than we saw before,” said Andrey Danilenko, President of the Agro-Food Fund Svoye.
Currently, Magnit cooperates with 420 farms and small agricultural producers. In 2022, the turnover of farm products in the network increased by 35% and amounted to 23.5 billion rubles.