Horticulture Supply Chains in India: A Private Sector Perspective

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1 Horticulture Supply Chains in India: A Private Sector Perspective S Sivakumar, ITC Limited SASKI & SASSD BBL World Bank Washington, 26 th March 2007

2 Composition of Diet is diversifying across consumer groups Annual Per Capita Food Consumption (Kg) Cereal Lower Income Group (30%) % Change Upper Income Group (30%) % Change Pulses Edible Oil Vegetables Fruits Milk Meat,Egg,Fish Source: Kumar & Mruthyunjaya (2002) using NSSO Data

3 induced by Sustained economic growth and rising per capita incomes Supporting affordability Demanding quality & safety Urbanisation and globalisation Seeking variety & convenience

4 Production System Responded well % Share of VOP TE1982/83 TE1992/93 TE2002/03 Foodgrains Oilseeds Horticulture Dairy Poultry Red meat Fish High-value Source: Birthal et al 2006 using CSO data

5 despite a predominantly small farmer base Small Medium Large % households land holding (ha)

6 with the base continuously expanding Less than 2 hectares 2-4 hectares 4 and above hectares Area of Holdings 100% 80% 60% 40% 20% 0% Ave Size % Number of holdings 80% 60% 40% 20% 0% Source: Gulati (IFPRI) using data from Agricultural Census Division, India

7 Indeed, horticulture is more attractive for small farmers e.g. Vegetable crops yield higher and more regular returns, and more labour intensive too Labour Use Mandays / Ha Rice Wheat Sorghum Millets Potato Tomato Onion Cauliflower Cabbage Egg Plant Source: Joshi et al (2002)

8 but, with some inherent limitations too Higher capital outlay, requiring access to low-cost credit Higher food safety & quality standards, requiring more knowledge on crop management Higher production costs & risks, requiring access to crop / weather insurance Higher market risks due to product perishability and consequent extreme price volatility, requiring more information & coordination along the value chain with processing / retailing

9 First, let s look at the routes for Value Creation in this sector 1. Innovation at the Consumer end of the Chain: Product & Purchase experience improvements through processing, packaging & retail format innovations > delivering variety, quality, food safety, shopping convenience, better shelf life, ready to eat etc Demand growth, price premiums 2. Efficiency along the whole chain: Lower industry cost structures through integration, coordination, disintermediation, infrastructure investments etc Pricing flexibility, traceability

10 Multiple farming models co-exist around the world and multiple farm-market linking mechanisms Farmer Main Driver of the Chain Corporate Independent Farmer Farmer Cooperatives Farm Management Captive Farming Farmer Main Linking Mechanism Corporate Auctions echoupal Contract Farming

11 Which model & mechanism will work well in which context depends on Type of crop Intensity of technology Length of value chain Stage of market evolution Risk transfer mechanisms Social infrastructure Strength of regulatory system

12 When will contract farming work? Crop & Market : (No Zero Sum Game) Natural Reciprocal Dependency (Produced to special specs, highly perishable, early stages of technology adoption, early stages of market evolution) Mature Risk Transfer Mechanisms (Price Risk through Derivative Markets, Yield Risk through Crop / Weather Insurance) Environment : (Regulate opportunity to exploit) Strong Regulatory Framework (Create Competition, Quick Dispute Resolution) Conducive Social Infrastructure (Farmer Awareness Levels i.e. Informed, Bargaining Power i.e. Empowered)

13 ITC Horti in Market Leveraging the ITC Group wide Strengths

14 ITC Horti in Market: Choupal Fresh Retail in India

15 ITC Horti in Market: Choupal Fresh Exports

16 ITC Horti in Market: Branded Processed Foods

17 ITC Horti in Market: Processed Food Exports in Private Labels

18 ITC Horti at the Backend Supported by GMED (set up by ACDI / VOCA with USAID s assistance)

19 ITC Horti at the Backend: Crop Calendaring for Farmers in the Cluster

20 ITC Horti at the Backend: Area Specific Improved Varietal Selection

21 ITC Horti at the Backend: Support through Equipment

22 ITC Horti at the Backend: Quality Improvement through Nurseries

23 ITC Horti at the Backend: Happy Farmer with Better Quality Produce Name: Bhupal Reddy (ITC Lead Farmer near Hyderabad); Land: 2 acre Farming experience: 20 years Tomato Yields: Increased from ton/acre to tons/acre Saved 40 percent on fertilizer and pesticide costs Saved 10 % on commissions, etc. paid to mandi traders through direct selling to ITC

24 A few thoughts on Policy Issues before closing

25 Policy Goals for Indian Agriculture Supply Side Global Competitiveness Ecological Sustainability Demand Side Food & Nutrition Security Meeting the changing Food Habits The Means and The Ends Effective linkages of production systems with processing and consumption Employment Generation & Poverty Alleviation

26 Caveats Majority of the farmers are small & resource-poor they need to be inducted in to the new structure responsibly Physical infrastructure & new market institutions are still evolving This needs to be appropriately factored in Understanding of most of the agri business players is insufficient Government has a significant role to play

27 Reform Agenda Global Trade Integration Imports managed through tariffs APMC Act Direct Marketing, Contract Farming, Private Markets Taxation Uniform across States & Moderate Food Laws Move away from Recipe to Restriction & Labelling Risk Management Futures & Options, Weather Insurance Credit Warehouse Receipt Negotiability, SHG / mfi

28 Thank You