ECONOMIC ANALYSIS OF SUPPLY CHAIN OF FRESH POTATO IN MIDDLE GUJARAT

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1 Indian J. Agric. Res.., 45 (4) : , 2011 AGRICULTURAL RESEARCH COMMUNICATION CENTRE / indianjournals.com ECONOMIC ANALYSIS OF SUPPLY CHAIN OF FRESH POTATO IN MIDDLE GUJARAT K.S. Jadav, A.K. Leua * and V.B. Darji B.A College of Agriculture, Anand Agricultural University, Anand , India Received : Accepted : ABSTRACT This investigation was undertaken with a view to study different approaches of supply chain of potato and analyzed their efficiency and constraints faced by vegetable growers of middle Gujarat. The district, talukas and villages from the study area were chosen purposively by adopting multistage sampling technique. A sample of 200 potato growers spread over ten villages of three talukas of Anand and Kheda districts of middle Gujarat were selected for the detailed inquiry. The results revealed that of the total production of potato, the marketable surplus was 91.93% and about threefourth of total quantum was dispatched to distant markets by the sample growers. The Producer - Wholesaler cum Commission agent - Retailer - Consumer was the major marketing channel as more then 60% of marketed surplus moved through this route. The major marketing constraints faced by the vegetable growers were of higher production expenditure, higher price fluctuation, lack of marketing information and lack of transportation facilities. To overcome the problems, the provision of cold storage facilities to the farmers at village level, adequate transport facilities for the movement of vegetables from the places of production to various market centers, dissemination of market information to the farmers, establishment of vegetable co-operative marketing societies and fixation of minimum/maximum prices of vegetables are some of the means suggested to improve the efficiency of marketing of potato in the state. Key words : Marketing efficiency, Potato, Price fluctuation, Supply chain. INTRODUCTION India is the second largest producer of vegetables in the world after China contributing about 9 per cent (10.14 million tones) of the world production from an area of about 7 million hectares. India occupies first position in production of cauliflower, second in onion, potato and brinjal and third in cabbage production in the world. Like potato, onion and brinjal are the major vegetables available around the year. In terms of income, the vegetables give four times more returns as compared to food crops (Shrivastava, 1997). In India, the per capita availability of vegetables is only 135 grams per day against the ICMR recommended quantity of 285 grams per capita per day (Wadhwani and Bhogal, 2003). West Bengal, Uttar Pradesh, Bihar, Orissa, Maharashtra, Karnataka, Gujarat and Tamil Nadu are the important vegetables producing states in the country. The state of Gujarat contributes about 5 per cent area as well as total production of vegetables in India. The share of middle Gujarat districts viz., Anand, Dahod, Kheda, Panchmahal and Vadodara in vegetable area and production of state was about *Institute of Agribusiness Management, Navsari Agricultural University Navsari, India.

2 23 and 21 per cent, respectively. The cultivation of vegetables is largely confined to the districts of Kheda and Anand, which together account for about 18 per cent of the total vegetable area of the state. Considering the share of vegetables area in the state as well as in the middle Gujarat, the present study was restricted to Anand and Kheda districts of middle Gujarat only. The major vegetables grown in the area are potato, brinjal, cauliflower, tomato, cabbage, chilies and cluster bean. Among these, potato contributes per cent to total vegetable area of middle Gujarat and thus occupy important place in vegetable production. Potato is used to produce most popular value added products viz., chips, French fries, potato powder, potato starch, potato flakes and baby food. OBJECTIVES: (1) To study different supply chain approaches of fresh potato and analyze their efficiency. (2) To study production and marketing constraints of potato cultivation. MATERIALS AND METHODS (a) Selection of Sample: The state of Gujarat comprises of 25 districts. Among these, Kheda, Anand, Vadodara, Panchmahal and Dahod are covered under middle Gujarat agro-climatic zone. Kheda and Anand districts have fertile land with good irrigation facility. In order to justify the objectives, a multi-stage sampling technique was adopted. In the first stage, Kheda and Anand districts were chosen purposively on the basis of their maximum vegetable area and at the subsequent stages, talukas and villages were chosen. Finally, from each selected village, 20 vegetable growers were selected at random. Borsad and Anand talukas of Anand district and Nadiad taluka of Kheda districts were considered for the study. Among 10 villages selected on the basis of highest acreage, 7 villages comprised of Kheda and 3 villages of Anand district. Thus, in all 200 potato growers comprising of 78 marginal, 71 small, 35 medium and 16 large farms were selected for the detailed inquiry. The information pertains to Vol. 45, No. 4, agricultural year For studying price spread in marketing of potato 10 market functionaries of each type from the feeding regulated market area were chosen at random. The producer s share, marketing costs and margins of middleman in marketing of potato was worked out by using the formulae as given by Acharya and Agarwal (2003). (b) Tools Used: 1. Marketing margins of middlemen: The absolute and percentage margin of middlemen involved in marketing were estimated as under by employing the following formula suggested by Acharya (2003). Absolute margin of i th middleman = P Ri (P Pi + C mi ) Percentage margin of i th middleman P Ri (P Pi + C mi ) = X 100 P Ri Where, P Ri = Sale price of the i th middleman, P Pi = Purchase price of the i th middleman, and C mi =Cost incurred on marketing by the i th middleman. 2. Modified measure of marketing efficiency : It was computed by employing the following formula suggested by Acharya (2003). MME = [RP / (MC + MM)] -1 RP = FP + MC + MM. Where, MME = Modified measure of marketing efficiency, RP = Prices paid by the consumer, MC = Total marketing costs, MM = Net marketing margins, FP = Prices received by the farmer. The higher the ratio more will be the marketing efficiency and vice-versa. RESULTS AND DISCUSSION 1. Supply chain of potato: Considering the perishable nature, bulkiness and seasonal nature of potato, the profitability depends upon how marketing of these vegetable is undertaken by the producers. Therefore, different aspects of marketing viz., disposal pattern and agency through whom sold,

3 268 INDIAN JOURNAL OF AGRICULTURAL RESEARCH place of sale, marketing costs and margins etc. were studied. Marketing cost of selected vegetables at producers level varies according to the selection of market, method of sale, channels through which quantity passes from producers to the ultimate users, quantity of marketed surplus, distance from production point to market and type and cost of packing material used. 1.1: Agency-wise sale of potato Like other crops, the profitability of vegetable crops depends upon how marketing is undertaken by the producers. Agency through whom it is sold, place of sale and time of sale are some of the important factors which influence the net price received by the farmers. The farmer s decisions with respect to agency for sale of potato influenced by number of factors such as mode and transportation facilities available, distance and location of markets, price of the produce, transportation cost, marketable quantity and economic conditions of the farmers. The agencywise sale of total marketed surplus of potato is presented in Table1.1. The total marketed surplus of potato was quintals. Out of this, the major share of 60% was sold through wholesalers-cumcommission agents, followed by wholesalers (24%) and village merchants (14%) by sample potato growers. Further, it was observed from the Table that per cent sale of potato to village merchant decreased as size of farm increased, except in large sized farms. The quantity sold to wholesaler-cum-commission agents ranged from 39 % in large farms to 79 % in medium size potato farms. The selection trend by different categories of potato growers for sale of potato was to wholesaler-cum-commission agent. Thus, major channel of marketing was from a producer to wholesalers-cum-commission agents to retailers to consumers. Similar results were reported by Singh et al. (1993) in the state of Gujarat. Table 1.1 : Agency-wise sale of potato. (Quantity in qtl.) Channel Particulars Category of farms No. Marginal Small Medium Large All farms I. Village merchants (21.60) (18.19) (4.32) (14.95) (14.46) II. Wholesaler-cum (74.78) (68.70) (78.55) (39.06) (61.66) commission agents III. Wholesalers (3.62) (13.11) (17.13) (45.99) (23.88) TOTAL (100.00) (100.00) (100.00) (100.00) (100.00) Figures in parentheses indicate percent to total. Table 1.2 : Place wise sales of potato on sample farms. (Quantity in quintal) Particulars Marginal Small Medium Large All farms In Field (25.19) (18.21) (21.47) (6.00) (15.79) Nearby /Local markets (21.98) (21.27) (15.38) (9.10) (15.88) Distant markets (52.83) (60.52) (63.15) (84.90) (68.33) Total marketed surplus (100.00) (100.00) (100.00) (100.00) (100.00) Figures in Parentheses indicate percentage to total.

4 Vol. 45, No. 4, 2011 Table 2.1 : Marketing cost incurred by potato growers on the sample farms. 269 (Rs./qtl.) Particulars Category of farms Marginal Small Medium Large All farms Preparation for market 2.35(8.84) 2.65(9.23) 2.57(7.78) 2.68(7.48) 2.52(8.62) Loading, unloadingcost 6.37(23.95) 6.73(23.44) 7.11(21.51) 5.43(15.13) 6.55(22.42) Packing charges 12.57(47.26) 12.59(43.85) 14.20(42.97) 15.20(42.36) 13.07(44.73) Transporting cost 4.37(16.42) 4.07(14.18) 5.90(17.85) 3.93(10.95) 4.50(15.40) Local tax 0.25(0.94) 0.18(0.63) 0.15(0.45) 0.14(0.39) 0.20(0.68) Other expenses 0.69(2.59) 2.49(8.67) 3.12(9.44) 8.50(23.69) 2.38(8.15) Total marketing cost 26.60(100.00) 28.71(100.00) 33.05(100.00) 35.88(100.00) 29.22(100.00) Figures in parentheses indicate percentage to total. 1.2:Place-wise disposal of potato Place wise disposal adds place utility as well as possibility of benefit to the producers. Therefore, farmers sell their produce elsewhere where they get higher prices considering the cost of transportation and other facilities. Keeping this in mind, selection of places by the farmers for disposal of potato was studied and the results are given in Table 1.2. The total marketed surplus of potato was quintals on sample farms. Of this, the highest contribution was made by large sized farmers (about 34%), followed by small (28%), medium (23%) and marginal (15%) sized farm holders. Out of total surplus, about 68% potato was disposed in distant markets viz., Ahmedabad, Baroda, Bombay and Surat. About 16 per cent of marketed surplus was sold directly from field and the remaining 16 per cent was disposed in nearby local markets. The category wise sale of surplus directly from field ranged from 25.19% by marginal and to very low quantity of potato (6%) by large farmers. About one-fifth of quantity was disposed by marginal as well as small farmers in nearby local markets. Due to poor economic conditions, urgent needs of cash and higher charges of transportation, small and marginal farmers preferred to dispose their potato from field and nearby local markets. About 85 per cent of Table.2.2 : Marketing cost incurred by wholesaler -cum-commission agent. Particulars Cost (Rs./qtl.) % to total cost Transportation cost Grading and packing Loading and unloading Local tax Commission Spoilage Others Total marketing cost Table 2.3 : Marketing cost incurred by retailers. Particulars Cost(Rs./qtl.) % to total cost Transportation cost Grading and packing Loading and unloading Local tax Spoilage Other expenses Total marketing cost The results are in the line with the findings of Shiyani et al. (1998). large sized farmers disposed their produce to distant markets due to high quantity of surplus, well awareness of market prices and risk bearing ability.

5 270 INDIAN JOURNAL OF AGRICULTURAL RESEARCH 2: Cost incurred by different agencies Majority of the vegetable growers sell their produce in distant markets and as such they have to incur high marketing cost as compared to sale in field at village market. Though commission and other market charges in the regulated markets are to be borne by buyers, unauthorized deductions are made by middlemen. Potato is sold in gunny bag of about 50 kg. The commission agents involved in marketing do not take the title of the produce and they merely negotiate for the purchase or sale of the produce. Marketing cost incurred by producers, wholesalers and retailers are given in Table 2.1 through Table Marketing cost incurred by potato growers It is evident from the Table that on an average, marketing cost incurred by potato growers amounted to Rs per quintal. Among the various components of marketing cost incurred by the growers, packing cost (including cost of gunny bag) was highest (Rs /qtl.), accounting for about 45 per cent to total marketing cost, followed by cost of loading and unloading (22.42%), transportation cost (15.40%) and preparation of product for market (8.62%).Further, the results revealed that per quintal total cost was highest on large farms (Rs ), followed by medium farms (Rs ), small farms (Rs ) and marginal farms (Rs ). Thus, it is inferred that as the size of farm increased the marketing cost also increased. Similar results were reported by Singh et al. (1993) for the state of Gujarat. 2.2 Marketing cost incurred by wholesalercum-commission agent The details about marketing cost incurred by wholesaler-cum-commission agent in the marketing of potato are depicted in Table 2.2. It can be inferred from the table 4.8.2, that the total marketing cost borne by wholesaler-cumcommission agent for potato was Rs per quintal. The higher marketing cost was due to higher commission charges incurred by wholesaler as a buyer while buying from distant markets. 2.3: Marketing cost incurred by retailers Generally, retailers operating in selected APMCs market area purchase vegetables from wholesaler-cum-commission agents as well as from wholesalers and sell to consumers through their retail shops. In case of potato, retailers incurred Rs as total marketing cost per quintal. Among different items of expenditure, the maximum share was noticed for spoilage (45.02% to total marketing cost). The other important components were the cost of grading and packing (21.73%) and the cost of transportation (14.40% to total cost) Study the efficiency of different supply chain Price Spread: The difference between the price paid by the ultimate consumer and the price received by the farmer for an equivalent quantity of produce is known as price spread. It includes cost of performing various marketing functions and margins of different agencies associated in the marketing process of the commodity. The extent of price spread helps policy makers in devising suitable policies for increasing marketing efficiency either by way of reducing the marketing costs or eliminating unwanted middlemen from the marketing process by both. The marketing costs, margins and price spread in marketing of potato through major channel have been presented based on the data collected from farmers and market functionaries. As such, details of cost, margin and price spread were studied for channel II only. The costs incurred and margins earned by various market functionaries as well as price spread in marketing of potato through Channel II are given in Table The total margin earned by different functionaries was Rs per quintal of potato. It was higher at retailers level (Rs per quintal) compared to wholesaler (Rs per quintal), constituting 20.62% and 5.50% of consumer s price, respectively.

6 Vol. 45, No. 4, Table 2.4.1: Cost, margin and price spread in marketing of potato (Rs./qtl.). Particulars Rs./qtl. % Producer s net price Cost incurred by (a) Producers (b) Wholesaler-cum- commission agent (c) Retailers Total Margins of (a) Wholesaler-cum- commission agent (b) Retailers Total Price spread (cost + margins) Retailer s sale price/ consumer s purchase price The marketing cost incurred by different functionaries was Rs per quintal of potato, accounting for 26.28% of the consumers price. Further, it was observed from the table that producer s share was 47.60% of the price paid by potato consumers. Table indicates that the price spread (marketing cost + marketing margins) was higher (52.40%) compared to producer s share in consumer s price in the marketing of potato. It can be inferred from the study that the perishable nature of vegetables, lack of proper storage facilities at reasonable charges and unorganized marketing system in the study area resulted in lion s share of retailer s margin and higher proportion of marketing cost : Marketing efficiency Efficiency of marketing for an agricultural produce in general is assessed by the size of share which producer-farmer obtains in the price paid by the consumer. These results were further substantiated by working out market efficiency as suggested by Acharya (2003). The marketing efficiency for potato has been worked out by considering Acharya s modified formula and the results are presented in Table In case of potato the total marketing cost and marketing margins involved in the selected Particulars Table : Marketing efficiency of potato. Potato Consumer s price (Rs. /qtl.) Producer s net price (Rs. /qtl.) Marketing cost (Rs. /qtl.) Marketing margin (Rs. /qtl.) Marketing efficiency 0.91 marketing channel (Channel II) was Rs ( ) per quintal. Considering this with producer s net price per quintal, the modified marketing efficiency was lower than unity (0.91). This was due to higher marketing costs and margins incurred by wholesalers and retailers. 3: PRODUCTION AND MARKETING CONSTRAINTS The potato growers were asked to state the production and marketing related constraints faced by them. Their responses were collected and intensity of particular constraint was computed by calculating percentage according to their frequency and they were assigned rank on the basis of percentage as presented in Table 3.1. It is observed from table that the higher production expenditure (82%), higher prices of plant protection materials (67.50%), lack of information

7 272 INDIAN JOURNAL OF AGRICULTURAL RESEARCH about high yielding variety (63.50%), lack of credit to meet the need higher variable cost (63.00%) and unavailability of labour as and when needed (54%) were the major constraints encountered by the sampled farmers. The major problems faced by marginal farmers were lack of credit (73.08%), higher production expenditure (70.51%), lack of high yielding variety information (66.66%) and high prices of plant protection materials (65.38%). Higher production expenditure (87.32%), high price of plant protection materials (74.75%), lack of credit (73.24%) and lack of information about high yielding variety (67.61%) were the major production constraints experienced by the small farmers. In case of medium and large category of farmers, the major constraints of production of potato as explained by them were higher production expenditure (97.14% and 81.25%), unavailability of labour as and when needed (80% and 87.50%), higher prices of plant protection materials (57.14% and 68.75%) and lack of information about high yielding variety (57.14% and 43.75%). Thus, it can be inferred from the above discussion that potato farmers faced the problems of higher production expenditure due to higher prices of seeds coupled with higher transportation cost when purchased from out of state. So far, marketing constraints were concerned, more than 90 per cent potato cultivators felt the problem of higher price fluctuations. It might be due to perishable nature and seasonal production of potato. Other major marketing problems faced by sample potato growers on overall basis were low prices due to less marketable quantity (65%), lack of marketing information (61%) and non-availability of labour for transportation (50%). In addition to these, they also faced the problems of lack of transportation facilities and loss of produce during transportation. Table 3.1 : Production and marketing constraints in potato. (Percentage) Problem/Constraints Marginal Small Medium Large All Related to production Lack of information about high yielding variety Plant protection problems Higher prices of insecticide/ pesticide Lack of credit Lack of irrigation facility Non availability of labour when needed Higher labour charges Deterioration of soil Higher production expenditure Problem related to marketing Lack of marketing information Lack of transportation Higher margin of middlemen Lack of labour for transportation Losses during transportation Low price due to less quantity Higher price fluctuations

8 Vol. 45, No. 4, Further, the results indicated that higher price fluctuation (92.31% and 98.59%), low prices due to less quantity (78.21% and 67.61%) and lack of marketing information (65.38% and 69.01%) were the major marketing constraints realized by marginal and small farmers. The higher price fluctuations and lack of labour for transportation were the major problems faced by 97.14% and 74.29% of medium category farmers, respectively. Problem of higher price fluctuations (100%) lack of labour for transportation (68.75%) and low prices due to less quantity (62.50%) were the major marketing constraints faced by large sized farmers (Parmar et. al, 1994; Satapathy and Das, 1996 and Bilonikar et al., 1998). About 60% potato moved through wholesaler-cum-commission agent to retailers to consumers as major channel. Out of total marketed surplus about 68% potato was disposed in distant markets and remaining 32% was sold directly from field to local market. The total marketing cost incurred by potato growers amounted to Rs per qtl. The cost and margins in potato marketing together amounted to Rs (26.88%) and (26.12%) per qtl. respectively. Thus, it can be concluded that majority of marginal and small farmers faced the problem of high fluctuations in prices of potato. It was due to lack of market intelligence by marketing agencies for potato and less quantity of marketable surplus offered for sale. Lack of labour for transportation and higher price fluctuations were found as the major constraints on medium and large farms. So, policy implication should required like promote processing of potato for value addition, provision of cold storage facilities nearer to the farmers at village level and to encourage continuing in production price should be stabilized by fixation of minimum and maximum prices. REFERANCES Acharya, S.S. and Agrawal, N.L. (2003). Agricultural Marketing in India. Third Edition, Oxford and IBH Publishing Co., New Delhi.: Bilonikar, K.V.; Tilekar, S.N.; Nawadkar, D.S. and Kamble, S.S. (1998). Marketing efficiency and operational problems of vegetables co-operative marketing societies in maharashtra state. Bihar J. Agric.Marketing, 6(2) : Deodhar, S.Y. and Pandit, P.S. (2002). Quality issues in supply chain: a case of Kesar Mango at Saurashtra Region. Indian J. Agric. Marketing, 45 (3) : Diop, N. and Jaffee, S.M. (2005). Fruits and vegetables: global trade and competition in fresh and processed product markets. In: Global, Agricultural Trade and Developing Countries, (Aksoy, M.A. & Beghin, J.C. eds). pp , WorldBank, Washington, D.C. Gadre, A.V., Talathi, J.M. and Wadkar, S.S.( 2002). Price spread in marketing of white onion in Raigad District of Maharashtra State. Indian J. Agric. Marketing, 45 (3) : Government of Andhra Pradesh. (2005). Area, production and productivity of horticultural crops in Andhra Pradesh, season and crop report. Government of Andhra Pradesh. Mahendra Dev, S. and Rao, N.C. (2004). Food processing in Andhra Pradesh, Opportunities and challenges, Working Paper no. 57. Centre for Economic and Social Studies (CESS), Hyderabad, AP, India. Parmar, G. D.; Khunt, K.A. and Desai, D. B. (1994). Marketing of Vegetables in South Gujarat. Indian Agric. Marketing, 8 (2) : Satapathy, C. and Das, R.N. (1996). Marketing problems of vegetable growers : A Case Study. IX National Conference on Agricultural Marketing, Souvonir, February : 1-9. Shiyani, R.L.; Kuchhadiya, D.B. and Patel, M.V. (1998). Marketing of vegetables in South Saurashtra Zone of Gujarat. Indian J. Agric. Econ., 12(1&2) :

9 274 INDIAN JOURNAL OF AGRICULTURAL RESEARCH Singh, P.K.; Kakadia, B.H. and Patel, V.M. (1993). Marketing of Potato in a major potato producing area of Gujarat. Indian J. Agric. Marketing, 7 (2) : Shrivastava, G.S. (1997). Production, Marketing and Export Potential of Fruits and Vegetables. The Bihar J. Agric. Marketing, 5 (1) : Sudha, M. and Kruijssen, F. (2006) Economic analysis of value addition along the supply chain of freehand semiprocessed products the case of totapuri mango in South, International Symposium on Fresh Produce Supply Chain Management. Wadhwani, M.K. and Bhogal, T.S. (2003). Price Behaviour of Seasonal Vegetables in Uttar Pradesh - A Comparative Study of Western (Plain) and Hill Regions. SAARC J. of Agric. 1 :