Gramin Suvidha Kendra MCX & India Post Initiative Sarita Bahl, Vice President Group Corporate Social Opportunities, Multi Commodity Exchange (MCX) Introduction Inaugurated in November 2003, Multi Commodity Exchange of India Limited (MCX) 1 is a demutualised commodity exchange with permanent recognition from the Government of India. It has a market share of over 80% of the Indian commodity futures market, more than 2000 registered members, and in it 2010 was the world s sixth largest 2 commodity exchange. MCX envisions a unified Indian commodity market driven by market forces and provides a level playing field for all stakeholders bringing together farmers, consumers, traders, exporters, and importers on a single platform. Problem Despite India s rapid growth since the 1990s, the agriculture sector has stagnated. A farmer s decision to sow a crop is constrained by poor access to information, credits, inputs and technology. After sowing, they are constrained by lack of weather information and pests and diseases. Post-harvest, market access difficulties and inadequate market information limit their ability to obtain fair prices. This is often taken advantage of by unscrupulous agents. Solution In June 2006, MCX and India Post formed a strategic alliance to create rural service centres, Gramin Suvidha Kendra (GSK) 3 aimed to ensure benefits of commodity exchanges reach the recesses of rural India, through a single-window service for farmers pre- and post-harvest 1 For details on MCX, please visit www.mcxindia.com 2 MCX emerged as the sixth largest and amongst the fastest growing commodity futures exchange in the world, in terms of the number of contracts traded in 2010 3 Presently, MCX operates 24 GSKs in 6 States covering 2,381 villages through 404 branch post offices with more than 11,500 farmers registered. For more information visit http://gsk.mcxindia.com
requirements. A unique, innovative marketing Public Private Partnership (PPP) model based on trust and credibility, GSK brings transparent markets to farmers doorsteps thereby transforming them from mere producers to marketers. By providing price information, GSK benefits farmers by helping them decide what to sow and when to sell. GSK also provides services such as addressing technical queries, scientific warehousing facilities, and quality agri/ non-agri inputs and bank loans. MCX has entered into partnerships to bring these services under a single hybrid window making the model revenue generative and sustainable (see appendix). GSK: A hybrid value chain model Low-income Populations Gain: Better price information; Access to expert knowledge; Access to quality products and services; Access to loans; etc. (Other indirect improvements in livelihoods) Businesses Partners Gain: Creation of new markets; pioneering corporate image Core assets: Ability to operate on a large scale, investment capacity, operational capacity, infrastructure and logistics Hybrid Value Chain MCX (as service provider and broker) Gain: Creation of new markets; Knowledge about market and target segment; pioneering corporate image GSK Gain: New sources of revenue; Accelerated social impact Core assets: Understanding of community needs and dynamics, mobilization/change behaviors, social networks, enabling/complementary services Core assets: Domain expertise, investment capacity, operational capacity The Model GSK operates on a hub and spokes model, leveraging the existing multi-tiered structure of India Post head post offices (HOs) at city level, sub-post offices (SOs) at taluka/sub-city level, and branch-post offices (BOs) at village level with postal bags being exchanged on a daily basis between BOs and SOs. GSK uses SOs as hubs while BOs (usually one for a few villages and (wo)manned by a village branch postmaster - BPM) function as spokes. MCX provides each SO with computer hardware and internet connection. A local youth is appointed as GSK coordinator at each hub, thereby 2
promoting livelihood opportunities. MCX pays GSK coordinator a basic salary plus performancelinked incentive, and India Post receives rent for use of its space and services. Each BO is provided with blackboards for displaying information. Farmers who wish to use GSK services other than price information are required to register at INR 30 (< $1) 4 per annum. Tracking of number of beneficiaries, their profile (landholding, cropping and credit history) and the importance of services to them, helps MCX designs future services and identifies appropriate partners for the same. GSK Services Price Information: provided gratis by MCX; MCX organizes blackboards and ICT set up. Spot and futures market prices are displayed at relevant post offices. At SOs, prices are displayed on tickers and in BOs on blackboards. Daily end-of-day spot and futures prices of commodities relevant to a region are sent by a hub to the spokes. This information is, in turn, displayed on blackboards outside BOs, accessible to everyone. Village postmaster writing MCX rates on board 4 1 USD = INR 47 (as in January 2011) 3
Query Redressal: INR 5/$ 0.11 per query, equally shared with India Post Query forms available at BOs enable farmers to get expert advice on farming-related issues. Members write their query and submit to BPM, who forwards it to the relevant SO. GSK coordinator then sends the queries by e-mail to volunteering specialists. The response is sent by post directly to the farmer s address. On receipt, farmer pays the postman INR 5, which is shared across the chain. The whole process is completed within a maximum of four working days. Farm Input Supply: Registered farmers can safely order inputs through GSKs. Farmers can obtain quality agri inputs from reputed suppliers (MCX has tied up with 11 credible agri-input companies) at the post office. Input prices are displayed inside the BO and SO. Farmers place orders paying just 10% of the price upfront. BOs send these orders to the SO, where the coordinator collates information and sends it to company distributor, and also arranges for the ordered goods to reach the relevant BO. BPM then informs the farmer who takes delivery by paying the remainder. The complete payment model is cash based thereby breaking the existing vicious credit cycle. MCX organizes numerous awareness programs wherein experts from input companies meet farmers and share technical knowledge. GSK Agri Input service 4
Through GSK, farmers get good quality, genuine products right at their doorstep; safe from market fluctuations and assured of expert on-field guidance. GSK coordinator addressing farmers during training program Storage and Warehouse Receipt Financing: For proper storage of produce, MCX uses the services of its ecosystem partner, National Bulk Handling Corporation (NBHC), which manages storehouses. Stocks stored in its warehouses are insured against damage/ decay. On depositing their goods, farmers are issued a quality certificate and a warehouse receipt, which they can use to avail bank loans. This permits farmers to time their sales to realize a fair price, and pre-empts the need for approaching extortionist village moneylenders. Spot Trading: GSK members have the opportunity to sell their produce through National Spot Exchange platform (NSEL), a sister concern of MCX. This helps farmers save on brokerage and labor charges and use NSEL s warehouse facility if they want to postpone their sale. Other Services GSK offers non agri input services such as rural water purifiers, weather insurance, solar lanterns, educational booklets and adult literacy classes. 5
Business Integration: GSKs create a sound basis for a more professional, market-oriented farming system. Market knowledge along with the futures prices disseminated result in MCX prices becoming the main reference price for physical market transactions, which will encourage processors and traders to use the MCX futures platform for risk management. Once regulations permit, the market awareness created by GSKs will increase farmers participation in MCX s risk management markets through effective aggregation models. 6
Appendix: GSK: A revenue generative sustainable model Using existing network of India Post makes the model innovative at low cost, extremely scalable and replicable.mcx pays India Post rent for usage of space and revenues generated through services/collaterals are shared across the value chain including the BPM. GSK is financially viable from the second year itself based on the registrations and sales that occur on the platform. Revenues model across the value chain Services % to India Post % to BPM % to % to GSK Coordinator Farmer registration 40% 10% 16% 34% Query service 30% 20% 20% 30% Agri input 2.25% of net sales 0.75% 1% 2% Additional services (non agri related) 3% of net sales 1% 2% 4% GSK Expenditure over 2 years (in $) Expense Head Per month ($) 1st Year ($) 2nd Year ($) Infrastructure Set Up 1,556 0 Postal rent 78 933 933 Blackboards (20 BO s and 1 One time 933 0 SO s) Collaterals Printing charges 467 222 Domain Knowledge Cost 2 Programs 444 GSK coordinator stipend 78 933 933 Miscellaneous expenses 756 622 Total expenditure 6,022 2,710 GSK Revenue over 2 years (in $) Revenue Heads Units $/unit 1st Year ($) 2nd Year ($) Sales in 1st Year Sales in 2nd Year Registration (No.) 500 1000 165 330 Query Services (No.) 50 150 2.5 8 Advertisements (on collaterals) 638 1,556 Agri inputs sales Sale of $ 5000 Sale of $ 10200 220 532 Weather insurance commission 100 policies 200 policies 106 222 Non Agri products commission Sale of $ 1500 Sale of $ 2500 75 125 Total revenue 1,207.5 2,773 7