STUDY OF FRUITS AND VEGETABLE VALUE CHAIN AND POTENTIAL FOR ORGANIZING SMALL PRODUCERS BY MILI ANTONY (P31086) Organisational Traineeship Segment PRM 31 Submitted to NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT Andhra Pradesh Regional Office, Hyderabad July, 2011 INSTITUTE OF RURAL MANAGEMENT ANAND i
ACKNOWLEDGEMENT I would like to express my gratitude to Mr. P. Mohanaiah, CGM, NABARD, APRO, and Mr. EV Murray, GM, NABARD, APRO, for giving me this great opportunity of pursuing this summer internship with NABARD APRO. I am thankful to Dr. MS Rao, AGM, NABARD, APRO for his guidance in undertaking and completing this report. I would also like to convey my sincere thanks to Mr. Pawan Kumar, AM, NABARD, APRO for his constant help and support provided during the internship period. I am also extremely thankful to Mr. K. I. Shariff AGM, NABARD APRO and the NGOs SEED and MV Foundation for the support and help provided in field work. I would also like to that the NABARD APRO team for making this study and the small stint with them a great learning experience. Finally, I would like to thank my family, friends and fellow interns for providing a constant support throughout this period. Mili Antony Summer Intern, NABARD, APRO 22 nd July, 2011. ii
EXECUTIVE SUMMARY Title Organisation Reporting Officer Mentor and Guide Faculty Guide Participant Name : Study of fruits and vegetables value chain and potential for organising small producers : National Bank for Agriculture and Rural Development, Andhra Pradesh Regional Office : Mr. E.V. Murray, GM, NABARD, APRO : Dr. M.S.Rao, AGM, NABARD APRO : Prof. K.V.Raju : Mili Antony Objectives: The objective of the study is to understand the different value chains existing in fruits and vegetables business in and around Hyderabad metro. It also covers an in depth analysis of each value chain in terms of the actors involved in it, domain factor conditions, flow of goods and prices and net benefit to farmers. Finally the study also aims at finding out feasibility of organising small farmers in the vegetable production clusters on the outskirts of Hyderabad district. This is includes an analysis of value proposition that can be distributed to farmers and identifying elements that can leverage for expansion of farmer s share on consumer rupee. Scope of study: Scope of study included the fruits and vegetable value chain in Rangareddy district which includes the Hyderabad urban markets and the production clusters in the outskirts of city. Methodology: Analysis of market demand in Hyderabad city for last three years was arrived at using the secondary data from rythu bazars and primary data from main AMC markets. FFV retail business volume was estimated by semi structured interviews conducted with each retail outlets. Functioning of AMC markets and rythu bazars were studied from perspectives of different actors in the value chain through structured interviews and observations. Focused group discussions were conducted at the villages with producers to understand the market linkages and the difficulties faced by them. Visits to pack houses and collection centres of FFV retailers were carried out to understand their farm level operations. Major findings: There are some areas of improvement in the vale chain wherein formation of a collective can bring in benefits to producers. A collective which can do functions like pooling, sorting and grading at village level and transporting together to market and selling together can definitely help in reducing transportation costs, handling losses and also help in increasing the bargaining power of the producer. Organised retailer value chain was not found to be a feasible option for the large quantities produced by the collective. Return to farmers is found to be highest in the rythu bazars of the city. Even though return is less in whole sale market, the factors like the huge volume of produce and services provided like the credit facility by commission agents make this market a viable option for a collective to begin with. Conclusion: A collective at a village level with a daily tonnage of 4 tonnes of acreage of 150 acres seems to be viable to operate so as to give a net value increase of 20% to the producers. iii
TABLE OF CONTENTS CHAPTER I INTRODUCTION... 1 1.1 Fruits and vegetables sector: An Overview... 1 1.2 Fruits and vegetables sector: Andhra Pradesh... 3 CHAPTER II OBJECTIVES AND METHODOLOGY... 7 2.1 Objectives of the study... 7 2.2 Area of study... 7 2.3 Methodology... 8 2.4 Data Collection... 9 2.5 Data Analysis... 9 2.6 Constraints... 10 CHAPTER III F&V VALUE CHAIN... 11 3.1 F&V Value Chain in Hyderabad... 12 3.2 Crops and seasonality... 14 3.2 F&V inflow from outside... 15 CHAPTER IV WHOLESALE MARKETS... 16 4.1 Wholesale markets in Andhra Pradesh... 16 4.2 Functioning as per A.P Markets Act... 16 4.3 Major markets in Hyderabad... 17 4.4 Present Scenario... 18 4.5 Open markets: Merits and demerits... 18 CHAPTER V RYTHU BAZARS... 19 5.1 The Concept... 19 5.2 The Design... 20 5.3 Rythu Bazar: Rangreddy district... 20 5.4 Rythu Bazar: Commodities... 21 5.5 Present Scenario... 22 5.6 Comparison with wholesale market... 23 5.7 Rythu bazar: Merits and demerits... 24 CHAPTER VI ORGANISED RETAIL OUTLETS... 25 6.1 The beginning... 25 iv
6.2 Procurement and field operation... 27 6.3 Pricing... 29 6.4 Organised retailers: Merits and demerits... 30 CHAPTER VII POTENTIAL FOR ORGANISING FARMERS... 31 7.1 Business dynamics... 31 7.2 Domain conditions... 32 7.3 Analysis of existing value chains... 32 7.4 Market option for new system... 35 7.5 Selecting vegetable portfolio... 36 7.6 New system: The concept... 37 7.7 Design of new system... 39 7.8 Barriers for new systems... 42 CHAPTER VIII CASE STUDIES... 43 8.1 VFPCK, Kerala... 43 8.2 HOPCOMS, Karnataka... 44 CHAPTER XI CONCLUSION... 46 9.1 Summary of observations... 46 9.2 Suggestions and recommendations... 47 REFERENCES... 48 v
LIST OF TABLES Table 1: Fruits and vegetable production in India... 1 Table 2: India s rank in commodity production... 2 Table 3: AP s rank in different crops... 3 Table 4: Andhra Pradesh s share in India s total FFV production... 4 Table 5: Crop distribution district wise... 4 Table 6: Fruit production in Andhra Pradesh for the year 2009-10... 6 Table 7: Vegetable production in Andhra Pradesh for the year 2009-10... 6 Table 8: Data Collection... 9 Table 9: Different F&V Value Chains in Hyderabad... 12 Table 10: Cropping pattern in Rangareddy district... 14 Table 11: F&V inflow to Hyderabad... 15 Table 12: Vegetable arrivals at major markets... 17 Table 13: Vegetable arrivals at rythu bazar... 20 Table 14: Rythu bazar share by different markets... 21 Table 15: Major vegetables at rythu bazaar... 22 Table 16: Comparison of net returns to farmers:... 23 Table 17: Distribution of FFV sores in Hyderabad... 26 Table 18: Market share in FFV retail business... 27 Table 19: Price comparison (Rs/kg) across different consumer markets... 30 Table 20: Analysis of value chains... 32 Table 21: Merits and demerits of value chains... 34 Table 22: Vegetable prices of 2009... 37 Table 23: Infrastructure details for the collective... 40 Table 24: Design of collective... 41 vi
LIST OF FIGURES Figure 1: District Map of Andhra Pradesh... 5 Figure 2: Vegetable production clusters... 8 Figure 3: Value chains in Hyderabad... 13 Figure 4: Rythu Bazar: Benefit to both farmer and consumer... 19 Figure 5: Procurement and distribution process of FFV organised retailers... 28 vii
LIST OF BOXES Box 1: Fruits and vegetable wastages in India... 2 Box 2: Different perspectives on rythu bazars... 23 Box 3: Tomato Project: A success story... 29 Box 4: Vegetable Initiative for Urban Cluster... 45 viii
ANNEXURES Annexure 1: FFV retail outlest survey... i Annexure 2: Whole sale market survey... ii Annexure 3: Questionnaire for farmers... iii Annexure 4: Questionnaire for commission agents... vi Annexure 5: Photographs... viii ix
ABBREVIATIONS AMC...Agricultural Marketing Committee AP...Andhra Pradesh CAGR...Compounded Annual Growth Rate FAO...Food and Agricultural Organisation FFV...Fresh Fruits and Vegetables F&V...Fruits and Vegetables GDP...Gross Domestic Product HOPCOMS...Horticultural Producers Cooperative Marketing and Processing Society NHB...National Horticulture Board NHM...National Horticulture Mission VFPCK...Vegetable and Fruits Promotion Council Keralam x
CHAPTER -I INTRODUCTION 1.1 Fruits and vegetables sector: An Overview India is a major fruit and vegetable basket of the world. With the annual production crossing 200 million tonnes in the last year, India occupies second place in fruits and vegetable sector across the world. The diverse agro-climatic zones of the country facilitate production of all varieties of fruits and vegetables. The last thirty years saw an enormous increase in the quantity and variety of commodities produced in this sector. There is also an overall increase in the consumption of fruits and vegetables. Horticulture has proved beyond doubt its potentiality for gainful and it contributes 29.65 % out of the 18.5% contribution from Indian agriculture to GDP. Fruits and vegetable production is gradually increasing every year. In the last decade fruit production increased by 65% and vegetable production increased by 51 %. The annual production of fruits and vegetables in the last year reached the figure to 204 million tonnes with a CAGR of 5%. (Refer Table 1) Table 1: Fruits and vegetable production in India Source: Indian horticulture database 2010, NHB 1
The major states where fruits and vegetables are grown in the country are Madhya Pradesh, Himachal Pradesh, Andhra Pradesh, Maharashtra, Karnataka, Uttar Pradesh, Jammu and Kashmir, Tamil Nadu, Gujarat, Punjab, Rajasthan, West Bengal and Orissa. India also enjoys world leader status in some of the fruits and vegetables. (Refer Table 2) Table 2: India s rank in commodity production Sl. No: Commodity Rank 1 Banana, Mango 1 2 Ladies Finger, Green Peas 1 3 Cabbage, Brinjal, Cauliflower, Lemons, Onions, Gourds 2 4 Potato 3 Source: FAO Statistics, 2005 In spite of all these, horticulture sector faces several constraints like inadequate irrigation facility, low crop productivity and poor infrastructure facility like cold storages, markets, roads, transportation facilities, etc. There are also heavy post-harvest and handling losses, resulting in low productivity per unit area and high cost of production. However, on the other hand, India s long growing-season, diverse soil and climatic conditions comprising several agro-ecological regions provide ample opportunity to grow a variety of horticulture crops. Thus, efforts are needed in the direction to capitalize on our strengths and remove constraints to meet the goal of moving towards a formidable horticultural growth in India. (Mittal, 2007) Box 1: Fruits and vegetable wastages in India But the real challenge starts after the production. More than 72 percent of the vegetable and fruits are wasted in the absence of proper retailing, P.K. Mishra, secretary in the ministry s department of agriculture and co-operation. The sector is constrained by widespread fragmentation in the supply chain, low productivity levels, and huge post-harvest losses arising out of inadequate storage, cold chain and transport infrastructure, logistics and supply chain management, Agriculture Minister Sharad Pawar said. Source: Fruit and Vegetable Summit 2008, Confederation of Indian Industry (CII). 2
1.2 Fruits and vegetables sector: Andhra Pradesh Andhra Pradesh is the second largest producer of fruits and vegetables in India. Varied agroclimatic zones, enterprising farming community, variety of soils equipped irrigation facility makes the state one of the prominent horticulture bowl of the country. The predominantly grown fruit crops are mango, banana, cashewnut, sapota, guava and pomegranate. Brinjal, lady s finger, onions, tomatoes, beans and gourds are the major vegetables produced in the State. The state comprises of 23 districts and has three well-defined regions viz., Telangana, Rayalaseema and Coastal Andhra. Agriculture accounts for 24 per cent of state GDP. The State with its seven agro-climatic zones and varied soils, produce various fruits accounting for 29 percent of the country s mango production, 25 percent of citrus, 12 percent of pineapple, 8 percent of grape and 7 percent of Banana and Guava. (Prof. N. Vishwanadham, 2006) Table 3: AP s rank in different crops Crops AP s rank Mango, Chillies, Sweet Lime, Papaya 1 Lemons / Lime, Coriander, Pomegranate, 2 Sapota 4 Banana, Guava, Grapes 5 Source: NHM, Action plan for Andhra Pradesh, 2005 While Andhra Pradesh accounts for 18 percent of fruit production and 4 percent of vegetable production in India, its share for some fruits and vegetables ranges from 24 percent to more than 50 percent of the all-india production. Total production for fruits and vegetables in the state for the year 2009-10 was 12.9 million and 5.4 million tonnes respectively. Consolidated figure on Andhra Pradesh s share in India s total FFV production is detailed in Table 4. 3
Table 4: Andhra Pradesh s share in India s total FFV production Production ( million tonnes) Fruits Vegetables Total India 71 133 204 Andhra Pradesh 12.9 5.4 18.3 Share of Andhra Pradesh 18% 4% 9% Source: NHB database and AP Horticulture database Horticulture crop is the best means for crop diversification and improving productivity and returns, nutritional security, employment opportunities raw material for agro processing industries. With a CAGR of 11% in fruits and vegetable consumption, the state could be the most preferred destination to register healthy growth in food processing industry driven mainly by export demand in the next 10 years. (K.Tejaswani Bhanu et al, 2010) District wise distribution for the major fruit and vegetable crops is mentioned in Table 5. Mango is produced in the districts of Chittoor, Krishna and Khammam. Kurnool produces vegetables like tomato, onion and brinjal. East and west Godavari have Banana as major crop. Rangareddy also is very rich in vegetable production. Table 5: Crop distribution district wise Sl No: Crops Districts 1 Mango Chittoor, Krishna, Khammam, Vijayanagara 2 Orange, Batavia Nalgonda, Mahbubnagar, Anantpur,Prakasam 3 Banana East Godavari, West Godavari, Cuduppa, Guntur 4 Tomato Chittoor, Cuduppa, Kurnool, Rangareddy Medak, 5 Onion Kurnool, Cuduppa, Mahbubnagar, Rangareddy 6 Brinjal East Godavari, West Godavari, Kurnool, Rangareddy Source: Andhra Pradesh horticulture statistics 4
Figure 1: District Map of Andhra Pradesh Source: www.mapsofindia.com Mango, citrus and banana are the major fruits grown and they contribute to almost 77% of total fruit production of the state. (Refer Table 6) Tomato, onion and brinjal are the major vegetables grown and they contribute to 50% of total vegetable production. (Refer Table 7). 5
Table 6: Fruit production in Andhra Pradesh for the year 2009-10 Source: Andhra Pradesh horticulture statistics Table 7: Vegetable production in Andhra Pradesh for the year 2009-10 Source: Andhra Pradesh horticulture statistics 6
CHAPTER -II OBJECTIVES AND METHODOLOGY 2.1 Objectives of the study The objective of the study is to understand the different value chains existing in fruit and vegetable business in and around Hyderabad. It covers detailed analysis of each value chain in terms of the actors involved, domain factor conditions, flow of goods and prices and net benefit to farmers. The study also tries to understand the drawbacks in current system of each value chain, the causes for it and examines the areas for improvement of same. The study also aims at finding out feasibility of organising small farmers in the vegetable production clusters in the outskirts of Hyderabad district. This is includes an analysis of value proposition that can be distributed to farmers and identifying elements that can leverage for expansion of farmer s share on consumer rupee. 2.2 Area of study Hyderabad is one of the Indian cities which have seen an enormous boom in FFV retailing and wholesale markets. The concept of rythu bazars in the city also attracts a lot of farmers, middlemen and brokers. Hyderabad city has major wholesale markets at Bowenpally and Guddimalkapur which supply vegetables to other districts of Andhra Pradesh and even to other states also. Gaddiannaram fruit market at Hyderabad is the biggest fruit market in the state and it attracts fruit growers and traders from across the country. In FFV retail business, in the city is growing at an annual rate of 18%.All these facts make it rationale to select the FFV business in this city to understand the sector in detail. The area of study is Hyderabad urban market and the vegetable production clusters in the suburbs of city which serves as the supply sources for this urban market. Urban markets include the fruits and vegetable markets under AMC, rythu bazars in Hyderabad. They also cover the FFV retail outlets spread across Hyderabad city. Vegetable production clusters includes the mandals of Shamirpet, Moinabad, Chevella, Shankarpalle and Shamirpet of Rangareddy district and also Mulugu and Shivampet mandals of Medak district (Refer Figure 2). 7
Figure 2: Vegetable production clusters Source: www.maps.google.co.in 2.3 Methodology Analysis of market demand in Hyderabad city for last three years was arrived at using the secondary data from rythu bazars and primary data from main AMC markets. FFV retail business volume was estimated by semi structured interviews conducted with each retail outlets. Functioning of AMC markets and rythu bazars were studied from perspectives of different actors in the value chain i.e. government officials, commission agents, wholesalers, retailers and producers. This was mainly conducted through structured interviews and observation at different markets. Focussed group discussions were conducted at the villages with producers to understand the market linkages and the difficulties faced by them. Visits to pack houses and collection centres of FFV retailers were carried out to understand their farm level operations. 8
2.4 Data Collection The study covers both qualitative and quantitative data. Quantitative data includes the fruits and vegetable production and their arrivals at market. For quantitative data both primary and secondary means of data collection were adopted. Secondary data for vegetable production in the state and vegetable arrivals at rythu bazar were collected from websites and publications... AMC market data on vegetable arrivals and prices were done primarily. FFV retail consumption data were also obtained through primary means. Qualitative data for the study includes market linkage system from farm to market, issues faced by producers, farm level operations of FFV retailers. All these data were obtained by primary means mainly through focussed group discussion, interviews and observations. Table 8: Data Collection Primary data Secondary data Quantitative Data Vegetable and fruits arrivals at wholesale markets Daily tonnage of different organized retailers Prices at retail outlets, rythu bazar and wholesale market Cost of production from farm to market Vegetable production in India and AP Vegetable arrivals at all nine rythu bazars in Hyderabad Qualitative Data Traditional value chain Farm level operations of organized retailers Perspective from producer, commission agents, government officials Functioning of VFPCK, Kerala 2.5 Data Analysis The quantitative data was analysed using percentages, bar graphs and pie charts. Some data like production and arrivals are compared over last three years. Extrapolation of data is also done to arrive at yearly tonnage of organised retailers. Data analysis is also done to understand the price flow across value chain. Various components of expenses incurred in produce flow from field to market are also studied. Different pricing mechanisms used by FFV retailers, commission agents and middlemen are also included in the study. Qualitative data is analysed to get insights about the gap in the existing system and to analyse the feasibility of improving it. 9
2.6 Constraints The extensive study of the topic had some constraints which has limited the depth of study to some extent. However, best effort has been put in to this study in spite of these constraints. Time: Two months is a very short duration to understand this complex business of fruits and vegetables. One month more would have helped in getting detailed quantitative analysis for this topic Mode of transport and human resource: Use of public mode of transport and lack of human resource was a constraint considering the project time of 2 months. Triangulation of data: Triangulation of data could not be done due to lack of time Unorganised business: Since this sector mostly involves unorganised business, the accuracy of data not assured to the fullest. Some figures used are not absolute and percentages are shown to do data interpretation. Fruit business: As fruits and vegetables business practices are different, the study on fruits had to be confined to secondary data. Primary data could not be included due to lack of time and also the area of study is known for vegetable production than fruit production. 10
CHAPTER -III F&V VALUE CHAIN Value chain is a concept developed by Michael, E. Porter which deals with a set of primary and support activities involved in delivering outputs to the end consumer. He defined value chain as a connected series of organizations, resources, and knowledge streams involved in the creation and delivery of value to end customers. The primary activities are those which are mainly linked with the production or delivery of products or services. Support activities are those which help in managing the primary activities effectively and efficiently. Fruits and vegetable value chain is one of the complex value chain. Its complex nature is attributed to the perishable character of fruits and vegetables, variety of produce in F&V business and difference in quality of produce. Produce procurement, transportation, grading and sorting, display and storage are the main activities in the traditional F&V value chain. Thirty percentage of fresh fruits and vegetables is lost because of inadequate post-harvest handling and lack of cold storage, processing facilities and convenient marketing channels. A proper management of these activities can lead to better value realisation for all the actors involved in the value chain i.e. from the producer to the end consumer. Increasing the shelf life and thereby reducing the wastage can improve the efficiency of value chain. Support activities like efficient inventory management, proper promotions and sales prices will result in increase in sales value and reduction in wastages. United Nations Industrial Development Organisation s (UNIDO) a manual for agro-food value chain development defines value chain development as a positive or desirable change in value chain participation that enhances rewards to participants in value chain and/or reduces their exposure to risk. It also suggests that, any effort to improve farm production may prove insufficient if the challenges in agro-food processing and marketing are not dealt simultaneously. 11
3.1 F&V Value Chain in Hyderabad Hyderabad fruits and vegetable business is one of the biggest in the country and deals with huge volume of business. Two major vegetable markets of Hyderabad are Bowenpally and Guddimalkapur which handle 0.26 million tonnes of vegetables (2010 data) and it accounts for 5% of the state vegetable production. The major fruit market at Gaddiananaran handles a volume of 0.3 million tonnes of fruits. The study of fruits and vegetable business in Hyderabad revealed the existence of three value chains in this lucrative business. 1. Traditional open markets 2. Rythu bazars 3. Organised retailers Traditional open markets are functioning under the department of agricultural marketing of Andhra Pradesh. There are four major markets in Hyderabad urban area. They operate in the traditional way of open auctions and different intermediaries like commission agents, traders etc. This is the longest value chain among all the three. Rythu bazars are the initiative by the state government to give a provision for the producers to interface directly with the consumers. This is in operation in the state for the last 13 years. The recent entry in this business is by the organised retailers like Reliance, Aditya Birla, and Heritage etc. They have set up a new trend in this business taking advantage of the shift to the consumerism phenomenon of the Indian metros. Table 9: Different F&V Value Chains in Hyderabad Open Markets Rythu Bazars Organised Retailers Bowenpally Erragadda Reliance Fresh Gaddiannaram Mehdipatanam ITC Choupal Fresh Guddimalkapur Kukatpally Heritage@Fresh Mahboob manison Alwal Aditys Birla, More Saroornagar Foodworld Vanasthalipuram Spencer s Qutubullahpur Food bazaar Ramakrishnapuram Falakunama Source: Primary data collection 12
Figure 3: Value chains in Hyderabad Source: Primary data collection 13
3.2 Crops and seasonality Andhra Pradesh follows the two main cropping seasons as practised in India i.e. Rabi and Kharif. Rabi crops are sown in winter from October to December and harvested from April to June.Whereas, Kharif crops are sown with the arrival of monsoon and harvested in Sepember-October. Sowing and harvesting pattern of major fruits and vegetables in Rangareddy district is as detailed in Table 10 Table 10: Cropping pattern in Rangareddy district Crops Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec SOWING PLAN Onion Kharif Tomato Kharif Bhendi Kharif Brinjal Kharif Onion Rabi Tomato Rabi HARVEST PLAN Mango Lemon Guava Banana Onion Kharif Tomato Kharif Bhendi Kharif Brinjal Kharif Onion Rabi Tomato Rabi Source: Agriculture statistics of Andhra Pradesh, 2009-10 14
3.2 F&V inflow from outside The vegetable clusters in the suburbs of Hyderabad are not sufficient to cater for the demand of the urban market. Main harvest season is from November to March. The production during this month is sufficient to meet the market demand during the same period. Many vegetables are imported from other districts and other states during off-season. (Refer Table 11) Table 11: F&V inflow to Hyderabad Sl No: Crops Shipped from 1 Cabbage, cauliflower Karnataka 2 French beans, cucumber Karnataka 3 Potato Uttar Pradesh 4 Onion Maharashtra 5 Carrot Karnataka, Tamil Nadu 6 Green Chillies Vijayawada, Kurnool (AP) 7 Tomato Chittoor (AP) Source: Primary data collection During the season, vegetables like tomato, carrot, cabbage are even exported to other districts and states. Mango is the major fruit which is exported to other states during the harvest period. 15
CHAPTER IV WHOLESALE MARKETS 4.1 Wholesale markets in Andhra Pradesh To enforce the provisions of Agricultural Produce Markets Act agriculture department was bifurcated and separate department of marketing was formed in the year 1962.Agriculture market committee (AMC) is the regulatory body which is responsible for the functioning of each market. These markets functions as per the norms of A.P Markets Act. Being horticulture bowl of India, Andhra Pradesh markets catches attention nationwide. Many traders and buyers across the country deal with these markets for fruits and vegetable trade. Huge volumes of commodities are traded through these markets and many states depend on these markets for FFV supply to their state. 4.2 Functioning as per A.P Markets Act Sales are conducted through open auctions by commission agents. AMC is empowered to issue license to commission agents. They are not allowed to conduct any trade in the market premises without license. Farmers bring in their produce to them and they conduct open auction in the presence of farmers. Traders buy huge quantities from local mandis and auction it in the wholesale markets and also bring produce to the agents apart from the farmers. Participants in open auction include both wholesale merchants and retailers. Farmers are paid the price finalised for their produce in the auction. Farmers pay 4% of the value as commission to these agents. They bear the labour charge and transportation cost involved in this whole process. Buyers pay 1% of the value as market fees to AMC and commission agents pay monthly rent of Rs.1875/- for the shop they operate in the market. Prices for some commodities are decided by the AMC officials whereas for others, prices are decided as per the open auctions held. Model prices are arrived at from these auctions and are reported to the market office. Prices in all other local markets and rythu bazar are arrived at based on these reported figures. 16
Produce from AMCs are sold in local retail shops, with some produce even shipped to rythu bazars and organised retail outlets. Produce is also supplied to other districts of the state and even to other states like Kerala, Maharashtra, Karnataka and Tamil Nadu. 4.3 Major markets in Hyderabad The major vegetable markets in Hyderabad city are Bowenpally and Guddimalkapur. Vegetable arrivals reported in these two markets in the last year was 0.26 million tonnes (Refer Table 12) Table 12: Vegetable arrivals at major markets Source: Primary data collection Major fruit market in the city is Gaddiannaram is the biggest in the state. The market has an annual fruit arrival of approximately 0.5 million tonnes. (Exact data of fruit arrivals are not available.) Fruits traded for local consumption accounts for only 30% of the entire arrivals. Remaining 70% is shipped to other districts and other states. 17
4.4 Present Scenario Traditional value chain of wholesale market is still being preferred by the producers in spite of the strong establishment of rythu bazars and the organised retailers in the recent years. Over these years the commission agents have become an important part of a farmer s agriculture life. They provide interest free credit to farmers to buy agricultural inputs which are very important as he could to get cash to meet his immediate need without any document submission and other formalities. Some commission agents extend credit support to farmers for their personal needs also. Thus commission agents ensure a steady supply of produce from these farmers. Majority of the commission agents have a set of permanent farmers who supply to them regularly. Study shows that the commission paid by the farmers is 10% even though it is 4% as per the market norms. Farmer shall bear the cost of unsold or damaged produce. Payment to the farmers is given immediately after the auctions. Sometimes farmers do not wait till auction and they leave their produce with the commission agents. In those instances farmers collect money later. Thus the mutual trust between farmer and commission agent is one of the major factor that runs this chain. Hence, even though the returns to farmer are low in this tradition chain, there are many binding forces which make this the preferable option for the farmers. 4.5 Open markets: Merits and demerits Merits Entire lot of produce of a farmer will get sold in the market Credit facility extended by commission agents Farmer need not spend whole day in market for selling Spot payment through cash Demerits Lowest returns to farmer Commission rates of 20% and sometimes more Transportation and labour charges maximum Longest food mile travelled by the produce. 18
CHAPTER V RYTHU BAZARS 5.1 The Concept Rythu bazar is an initiative launched by Andhra Pradesh state government in January 1999 for small farmers with small land holding. It is aimed to bring-in direct interaction between farmers and end consumers, thereby providing better returns for farmers and economical and farm fresh produce for end consumers. It is also implemented to serve as a means for price stabilisation in FFV markets. The main objective of this initiative is to ensure remunerative prices to the farmers and provide fresh vegetables to consumers at reasonable rates. Also this facilitates prompt realization of sale proceeds to farmers without any deductions and to remove malpractices in weighment. It also aims to provide direct interface between farmers and consumers eliminating intermediaries in trade. The whole sale market systems in the state were found to have some drawbacks i.e. not providing bargaining power to farmers, transportation and handling losses of produce and low quality of produce to end consumers as this entire value chain takes one to two days to reach end consumers. Thus this concept of rythu bazar was introduced to address all these issues. Figure 4: Rythu Bazar: Benefit to both farmer and consumer 19
5.2 The Design The design of rythu bazar is such that to identify vegetable production clusters and to provide a market for it in the nearby city for the farmers of the clusters. Transportation arrangements are provided to connect these villages to respective markets at a rate of Rs.4 per bag. All farmers are provided with identity card without which they will not be allowed to sell at the markets. There is no prior allotment of shops at market. It is allotted on first come first serve basis. Brokers and middlemen are not allowed to sell in the market. Also farmers are not allowed to sell produce which are not produced by them. Commodities which are not produced in that area or some essential commodities can be sold by self-help groups. An estate officer is appointed at each rythu bazar to monitor any irregularities in these norms. 5.3 Rythu Bazar: Rangareddy district There are nine rythu bazars in Rangareddy district. The business from these rythu bazaars in the year 2010 was around 0.2 million tonnes of vegetables which accounts for 3% of the total annual vegetable production of Andhra Pradesh. (Refer Table 13) Table 13: Vegetable arrivals at rythu bazar Source: www.rythubazar.com 20
Among the nine rythu bazaars in the districts, Erragadda market has maximum arrivals. It contributes to 37% of total vegetable arrivals in all the rythu bazars of Rangareddy districts. (Refer Table 14) Erragadda, Mehdipatanam and Kukatpally are the rythu bazars falling in the Hyderabad city area. This causes higher demand in these areas and thus leads to maximum vegetable arrivals in these rythu bazaars. Moreover, these rythu bazars has transportation services via state transport buses. Farmers of production clusters near to other rythu bazars like Vanasthalipuram prefer to sell at local markets as they do not have transport bus services to rythu bazars. Table 14: Rythu bazar share by different markets Source: www.rythubazar.com 5.4 Rythu Bazar: Commodities Rythu bazars mainly deal with vegetables. One noticeable feature of rythu bazar is the large volumes of leafy vegetables sold in all the nine markets. It almost equals the volume of tomato sold in the market, which is apparently the vegetable with maximum share in quantity sold. Leafy vegetables contribute to 9% of the total quantity sold. Main reason for the huge volume of sales of leafy vegetables in rythu bazar is their short shelf life which makes it less preferable among commission agents and wholesalers to buy in bulk. Also the transportation and handling losses for this commodity is more compared to others. Gourds form the next category of vegetables which is sold maximum in rythu bazars. Gourds are also produced in 21
large quantities in the nearby vegetable clusters. Tomato always tops the vegetable list in terms of quantity. It is produced in large areas across the state also. Onion and potato also has large share in terms of quantity. But these are produced in the state only in the months from December to March. All other months it is procured from outside sate and sold in rythu bazars through the self-help groups. Table 15: Major vegetables at rythu bazaar Source: www.rythubazar.com 5.5 Present Scenario As seen from the above data there has been a gradual increase in the arrivals of vegetables in rythu bazaars over the last twelve years. Farmers have also benefitted from this new system of markets. But, over these years it is the brokers and middlemen who could find a place in rythu bazaar and were able to benefit more from these markets than the farmers. Study also shows that broker lobby is so strong in these markets that the farmers find it difficult to get shops in the market. This in turn emphasizes the fact that more than 80% of people who sells at rythu bazar brokers. Thus they say rythu bazaar is no more a rythu s (farmer) place. Some incidents also show actions from the local government officials not favouring the farmers for whom these markets were established for. 22
Box 2: Different perspectives on rythu bazars Assistant Estate Officer at Rythu Bazar: Only farmers come and sell at rythu bazars. Only for items like onion and potato which are essential commodities and are not produced in state, non-farmer groups are allowed sell in the market. Commission agent at Guddimalkapur wholesale market: Most of the vegetables to rythu bazaar are taken from this market.one cannot find any farmer over there. 90% sellers are brokers Farmers at Navabpet: We prefer going to Bowenpally wholesale market. At rythu bazaar we need to sit for whole day and sometimes the entire quantity will not get sold. So we are forced to handover it to brokers for lower price and come back to our field for work. That is preferred than sitting there for whole day and finally thrashing the produce which do not get sold. Farmers at Chevella: Government officials are not issuing identity card to us. Brokers manage to get card and they sell at rythu bazars. They occupy most of the shops and we do not get shops to sell even if we go there. Nowadays rythu bazar is not rythu s place. Source: Primary data collection 5.6 Comparison with wholesale market Rythu bazaar pricing is such that farmer receives 20% more than what he receives from wholesale market and end consumer pays 30% less than the local retail price. Table 16: Comparison of net returns to farmers: Price flow in Tomato on 30.06.2011 Rythu Bazars Wholesale market Market rate (Rs/quintal) 1,000.00 Market rate (Rs/quintal) 800.00 Commission Nil Commission @ 10% 80.00 Farmer Price 1,000.00 Farmer Price 720.00 Labour @ Rs 7/ bag (80kg/bag) 8.4. Labour @ 1% 7.20 Transportation @ Rs 8/bag 10 Transportation Rs 40/quintal 40 Net returns to farmers 981.60 Net returns to farmers 672.80 Source: Primary data collection 23
Even though net returns to farmers are more in rythu bazars, there are more advantages for farmers in selling at wholesale markets. When quantity is huge, wholesale markets give them an assurance that their entire quantity will be sold. Also as mentioned earlier, commission agents give them interest free loans to buy fertilizers, seeds and other agriculture inputs. These factors make wholesale markets the first preference among farmers compared to rythu bazars, local market or retail outlets. 5.7 Rythu bazar: Merits and demerits Merits Offer better price for farmers Farmers need not pay commission to middlemen Economical rate for consumers Farm fresh produce for consumers Demerits Powerful lobby of brokers who buys produce from wholesale market and sell here Farmers find it difficult to get a shops in market Inconvenient for farmers to sit whole day to sell their produce Transportation facility not extended to all villages Farmers are forced to sell their produce to brokers at lower rates Government officials seem to support brokers and discard the needy farmers Credit facility missing which they get from wholesale markets through commission agents 24
CHAPTER VI ORGANISED RETAIL OUTLETS 6.1 The beginning Last six years have seen a strong penetration of organised retailing in fruits and vegetable business. Increasing urbanisation and rising income levels with changing dietary patterns towards high value commodities have also triggered corporate interest in food retailing in India. This has obviously had a strong influence on the consumer behaviour. In metros, people are willing to pay premium for fruits and vegetables for the convenience, hygiene and ambience provided by these organised retail outlets. History of organised food retailers in India can be traced back to 1905 when Nilgiris, established a dairy farm near Ootacamund in South India. Then in the year 1988, National Dairy Development Board (NDDB), established Safal which is the first organised retailing venture for fruit and vegetables in North India. This attracted many corporate into this business. RPG group entered in the year 1996 with the retail chain branded Food world. Slowly other players like Reliance (Fresh), Aditya Birla (More), Pantaloon (Food Bazaar), Heritage (Fresh) ITC (Choupal fresh) came and established themselves in this FFV sector. Much of the expansion in food and grocery retailing in India is currently concentrated in the southern states i.e. in and around Chennai, Hyderabad and Bangalore. Hyderabad had only two organised retailers of fresh fruit and vegetables till 2000 i.e. Trinethra and Food World. Trinethra established in 1986 as a multiple outlet retail store network in Hyderabad, Secunderabad and Vishakapatnam. Food World, which opened its first outlet at Chennai in 1996, extended its presence to Hyderabad the same year. RPG s Spencer followed suit in 2001 and Pantaloon Retails Food Bazaar in 2003. In the year 2006, Reliance and ITC opened stores at Hyderabad. Heritage also emerged on the scene with its @Fresh stores at the same time. (V. Sulaiman Rasheed et al, 2011) The contribution of organised retailers in food retail business of India is only 2% presently. However, with its rapid annual growth rate of 18%, its share is expected to reach 25-30% in food retail business within a short span of time. 25
At present Hyderabad city has 211 FFV stores spread across the city. Aditya Birla s venture More tops the list with 70 stores. ITC s choupal fresh has the least number of stores as they are focussing more on institutional sales nowadays. (Refer Table 17) There are other new entrants like Spar and Ratnadeep which came up recently and has 2-3 outlets in the city. Table 17: Distribution of FFV sores in Hyderabad Source: Primary data collection However, the number of stores does not reflect the volume of business of these retailers. Volume of F&V handled by these outlets is 0.9 lakh tonnes per annum. Reliance fresh leads the business in terms of volume of business. (Refer Table 18) Even though More has maximum number of stores, FFV contribution in each store is very small and they have only 12% share in the entire market. Institutional sales venture of ITC helps them to have a decent share in spite of very low number of retail outlets. The players leading in the market share has developed a very well organised supply chain to realise the farm fresh concept wherein the produce is made available at the stores to the end consumer within one day of harvest. 26
Table 18: Market share in FFV retail business Source: Primary data collection 6.2 Procurement and field operation With the ever growing demand and competition in FFV retail business, the concept of farm fresh is gaining momentum. Minimum possible harvest to shelf period for fruits and vegetables ensure fresh commodities at the store, increases the shell life and attracts more customers. So every player in this sector has realised the importance this and they have started procuring directly from farm. They are slowly curtailing their dependence on wholesale markets and far off vegetable production centres. They have identified vegetable production clusters in the villages on the outskirts of city and they are developing them as per the market demand. Heritage, ITC, Reliance and Aditya Birla are the players who have identified this opportunity and have already established very well network among the vegetable producers to meet the market demand in terms of quantity and quality. The investment put in for this activity has helped in shooting up sales figures and is very well reflected in volume of business handled. Other players still depend on FFV vendors and wholesale market for procurement of produce. 27
Figure 5: Procurement and distribution process of FFV organised retailers Source: Heritage pack house at Mulugu mandal These organized FFV retailers have a very strong supply chain which helps them to supply fresh produce at stores. (Refer Figure 4) Lowest level at the entire supply chain is the collection centre which is strategically placed at the vegetable production clusters. Major locations near Hyderabad where these collection centres are located are Vontimamadi, Shankarapally, Mulugu, Shamirpet, Chevallah, Moinabad. These places fall in close proximity of the city within a radius of 40-60 km. There are field assistants who are responsible for procurement from 4-5 villages. These field assistants are selected from the villages and they are trained in vegetable production. Monthly sowing plan is given for each field assistant. They ensure the activities are implemented in line with the plan. Another very important parameter is the quality of the produce. For each vegetable and fruit, these organized retailers have specific dimension and color. Farmers need to conform to these quality standards in order to supply to these retailers. Field assistants are trained in this and they give timely instructions to the farmers so that their produce meets the quality standards. 28
Daily requirement intend is given two days in prior by each store to the distribution centre. The information is passed on to the collection centre, field assistants and finally to the farmers. Farmers harvest the produce accordingly and they sort it at the field level as per the quality standards. The produce is collected at collection centre, then moved to pack house if required. Finally it reaches distribution centre wherein all the produce is distributed to each retail store as per intend raised by them. Thus the produce reaches stores in one day of harvest. For produce like onion, potato, cabbage, carrot etc. which are not grown locally round the year are procured from the wholesale market, vendors and sometimes shipped from their pack house in other states like Karnataka and Tamil Nadu. Box 3: Tomato Project: A success story Tomato is one vegetable which creates tension and panic among the sellers of FFV. It is a product which comes in basket of every purchase by all consumers. But short shelf life of this commodity and highly fluctuating price is a critical management issue for the procurement team. Even though tomato is produced locally in huge quantities, it is never able to meet the demand of the urban life. All the organised retailers depend on Madanapalle, which is known as Ooty of Andhra Pradesh to meet the ever increasing tomato demand of Hyderabad city. But the long supply chain, transportation cost, handling losses and the short shell life were always a constraint. This led to the launch of tomato project three years back by one of the major retailers in the city. They could arrange for tie up with quality seed grower and a started a pilot project with 12 farmers. It became a big success and now they are able to produce entire tomato locally. This in turn helped in reducing handling losses and increasing shell life. Source: Primary data collection 6.3 Pricing The retail outlets follow premium pricing strategy for fruits and vegetables to the end consumers. The premium is charged for the appearance, quality, convenience and the ambience they provide for the consumers. (Refer Table 19) These outlets also give special discount offers on couple of days in every week. With urbanisation at its peak and rising income level, consumers are also able to afford the prices. The busy life schedule force consumers to purchase from one stop shop for all than going to separate shops for each type of commodity. This opportunity is utilized to maximum by these retailers. 29
Table 19: Price comparison (Rs/kg) across different consumer markets Commodity Rythu Bazaar Local Retail Organised Retail Wholesale Cabbage 5.00 8.00 8.87 2.50 French Beans 38.67 40.67 49.79 - Ladies Finger 18.67 20.67 26.23 8.50 Tomato 5.33 8.00 7.51 3.00 Carrot 15.00 18.00 23.73 12.00 Green Chilly 13.33 14.67 22.36 8.00 Onion 7.67 10.00 9.20 6.00 Potato 11.33 14.00 12.68 7.00 Source: 1 st week of June 2011, Primary and secondary data collection Pricing to the farmers is done on the basis of the model price at wholesale market. Vendor commission of 10%, transportation cost and labour cost is deducted from the model price. The final price given to farmers will be 12% less than the model price. 6.4 Organised retailers: Merits and demerits Merits Procurement at village level Better prices than wholesale market prices and less expenses Reduction in handling losses Reduction in transportation cost Assured market and assured price for the intended quantity Guidance to farmers in terms of crop scheduling Demerits Farmers need to market the surplus quantity separately as these retailers do not take the whole quantity. Farmers find difficult in adhering to the quality standards specified by retailers More share can be given to farmer in the consumer price as the produce is sold at premium Farmers avail interest free credit facility from commission agents in wholesale markets which will not be available in retail world. This creates difficulty as they depends on these credit for buying agriculture inputs Some of the retailers follow fortnightly payment system and not on daily basis. 30
CHAPTER VII POTENTIAL FOR ORGANISING FARMERS The study on different value chains of fruits and vegetables that exist in Hyderabad gives some insights on the functioning of each, benefits and disadvantage for the producer. Perspective of each actor of value chain also gives an understanding of its drawbacks and scope for improvement. Being a nation with 70% of population in agriculture, our country has been witnessing debates and discussions on increasing returns to farmers, developing cold chain and eliminating middlemen. Any improvisation activity on value chain should aim at the benefit of all the actors involved in it. Any activity which is beneficial to only to a few actors will not be sustainable for a long run. Organising farmers and collective pooling are the concepts which many social workers and social leaders are trying to develop and implement over last few decades. Understanding the business dynamics and domain conditions of a region is very essential before implementing such concepts. 7.1 Business dynamics We have seen that the ever growing business of fruits and vegetables and the need for giving better returns to farmers gave rise to the establishment of rythu bazars in the state. Also this business has attracted lots of corporate into the retailing sector. However, the traditional value chain was able to retain its position in the market. The main reasons being Farmers are very much dependent on the interest free credit given by commission agents which is very essential to buy the agriculture inputs Commission agents and traders have a huge lobby and strong networking in this business which nobody can replace in a short span of time These traditional markets provide a platform for the farmers wherein the entire lot of produce can be sold 31
7.2 Domain conditions Domain conditions of a region should be understood well prior to planning of any venture in the region. The following domain conditions were understood from the study on the topic. There exist lots of vegetable production clusters in the outskirts of the city of Hyderabad. Thirty five clusters in eleven mandals have been already identified by government for implementation of a scheme for promotion of agriculture. These clusters are able to produce almost all varieties of vegetables Huge Hyderabad urban market demand wherein the produce can be sold round the year Well connectivity of villages to city by roads 7.3 Analysis of existing value chains The three chapters discussed above detailed the functioning and present scenario in all of the three value chains. Table 20: Analysis of value chains Parameters Wholesale Organised Retailers Rythu Bazar markets Price fixation Open auction and Bench marked with Bench marked with based on demand wholesale price and wholesale price with supply. net of the notional Rs 2-3/kg more than it. cost of transportation, labour, commission, losses (14-16% less than of wholesale price) Market shares Highest Lowest Medium Price realisation for Lowest Medium Highest the producer 32
Quantities tradable Unlimited. Huge Only up to the Small quantities sold at quantities sold at quantities specified. a time as the buyers a time as buyers are end consumers are merchants. Credit availability Commission agents provide None Informal credit by private financers on daily basis Grading premiums Commission Buy only graded Consumers pay a agents grade and products premium for the price realisation is graded produce on grades Marketability of All grades and Only specified grade All grades, but graded different grades mixtures are and quantity bought, ones get premiums. tradable, but price rest needs alternate vary markets Convenience Travel about 50-70 km to reach market by early morning Deliver the produce in day time to the collection centre, travel 5-10 km. Reach early in the morning and marketing till evening/till stocks last. Commission charges 4% legally but No commission No commission & marketing costs effectively 10%, charges, 1% deduction charges. But selling in addition to on transportation costs through broker involve transport cost of a charge of 3-4%... about 3-5% and RTC buses provide deduction on cheap means of quality 2-4% transport 33
From the above table and the previous sections, a consolidate table of merits and demerits of existing value chains are shown below. Table 21: Merits and demerits of value chains Wholesale markets Rythu Bazar Organised Retail Interest free credit facility provided by commission agents Best price for farmers among all the three chains Crop scheduling and sowing plan given to farmers Advantages Assured market for the entire quantity Farm fresh produce to consumers Assured market and assured price for intended quantity Economical price for consumers Procurement farm level. at Low returns to farmers among the three value chains Entire quantity may not get sold Cannot take the entire quantity of produce of a farmer Drawbacks Handling and transportation losses maximum Farmer needs to spend whole day at market for selling Quality standards leads to rejections and wastage Incorrect weighment systems Strong lobby of brokers Marketing of rejected and surplus quantity creates a problem for farmer 34
7.4 Market option for new system From the above analysis of the different value chains, the net potential benefits accruable to the collective with interaction with organised retail at the current levels of volume of business and pricing mechanism is not feasible. Interaction with Organised retail would become a viable option for the collective only if they are willing to pass on the 14-16% of premium that they charge from consumers to the producer and the volume handled increases to 20-25 tonnes/day. However the study shows that there are significant benefits in organising the producers in fruit & vegetable value chain if they interact with the wholesale markets and rythu bazars. Value proposition available for organising the producers in wholesale markets is primarily coming from Collective pooling, grading and sorting at farm level to give more bargaining power in terms of quality as the commission agents deduct weight on these criteria. Economy on common transportation, handling Economy of few representatives going to market rather than all farmers. Continue to receive the credits from commission agents which they used to get before Convenience of 2/3 of farmers, as on rotation the farmers can go to the auction. Introduction of weighing machines at the village will prevent the cheating at the auction centre and also bring credibility among the farmers. Auction of the produce as single lot as against current practice of multiple lots as number of suppliers, may offer common prices for a given fair average quality. Mixing as a lot offers sufficient volumes to take up size grading, which may unlock some more value in the market. Investments on crates/setting up of a crates exchange would help farmers handle the producers better and reduce handling losses Since this market offers no expertise for value expansion at the farmer level (crop scheduling, supply of quality inputs), collective has to take up this initiative. But this in house expertise would be too expensive for the collective to begin with. Hence, unless an external agency funds, this expansion of value at farm production is not feasible under this market. 35
Organising the farmers as producer group for interacting with the rythu bazar offers the following incremental benefits. Economy on common transportation, handling Collective can access the technical expertise available with rythu bazars and also take up collective procurement of seed and other inputs. Sorting & grading vegetables at farm level, so that the quality based premiums could be derived from the consumers. Institutional supplies are the next stage of Value expansion, where the producer group can supply to the hotels, caterers, as per their tailored demand by procuring a few components from the market. Congested places and unhygienic environment are the negatives in a rythu bazar, which is keeping the premium segment of consumers away from them. Providing convenience to consumers is another area of value proposition accruable to the farmers directly, as the cost of providing convenience is borne by the rythu bazar promoters. Investments on crates/setting up of a crates exchange would help farmers handle the producers better and reduce handling losses Thus, we can say that the new system designed should focus on wholesale markets and rythu bazars as viable market option during the initial days. Later it can expand to supply to organised retailers and institutional buyers if they allow passing on premium to the producers. 7.5 Selecting vegetable portfolio The collective should also decide on the vegetable portfolio it should handle. This can be decided based on the price of vegetables and the feasibility of growing the same in that region. It should be well informed about the market information and fluctuation in prices and demand-supply. According cropping schedule can be prepared and informed to the framers. This can also reduce the risk of creating a glut in production. 36
Table 22: Vegetable prices of 2009 Table shows the prices of different vegetables in the year 2009.It can be seen that some vegetables like raw banana, drumstick, and gourds give low price to farmers. Whereas, some like French beans, potato, ladies finger, field beans give high value. So selection of proper vegetable portfolio is very important and prices could be one factor in deciding the same. 7.6 New system: The concept Improvisation of the new system should aim at increasing producer s share on consumer price. This will eventually increase the producer surplus (Ps) for the producer. Producer surplus (Ps) is defined as the difference in the amount paid to the producer (Pp) and the cost of production for the producer (Pc) Ps= Pp- Pc Producer surplus (Ps) can be increased in two ways i.e., either by increasing the price paid to producer (Pp) or by decreasing the cost of production (Pc).This study deals with market linkages and hence the new system will be aimed at increasing the producer surplus (Ps) by increasing the price paid to the producer (Pp). The new system designed to organise small producers should address the drawbacks in the existing systems to increase the price paid to the producer (Pp). It should also take a note on the benefits and services provided to farmers in each of the value chain and should ensure that they are covered in the new system. 37
Value proposition (VP) can be defined the difference of the price paid by the consumer (Cp) and the price paid to the producer (Pp).VP is the maximum amount that can be passed on to the producer so that he receives receive 100% share of consumer price. VP= Cp- Pp Different components of costs are involved as the produce moves from producer s field to end consumer. This is termed as market intermediation cost (MIC). It includes the costs involved in the entire value chain, it can be split up into transportation cost (Trc), storage cost (Stc), handling cost (Hnc), holding cost (Hoc), packing cost (Pkc), infrastructure cost (Infc) MIC= Trc + Stc +Hnc + Hoc + Pkc+ Infc MIC is influenced by volume, geographical distribution of the producers and consumers. Efficiencies in volume, distance and capacity utilisations unlock an additional value form the efficiency of MIC which can be termed a MIC ef. Market surplus (Mk s ) can be defined as the sum of value proposition available and net of market intermediation cost Mk s = VP-[MIC-MIC ef ] Distributive efficiency of a market determines what proportion of what consumer pays C p is passed on to the producer P p It is estimated that this is about 70-75% in case of milk and about 60-70% in food and about 40-50% in fruits and vegetables. Components of a market surplus include the reasonable profit to the market intermediaries (Pfr) and profits generated due to information bias (Infb) (available with the market intermediaries vis-a-vis the producers) and the illegal practices (Ilp) (under-weighments, unclear grading system). Mk s = Pfr +Infb +Ilp Design of any new organisational set up for marketing has to thus address Infb +Ilp, so that a greater part of the Mk s can be passed on to the primary producers. 38
Value expansion (V ex ) is the key for increasing the incomes of the farmer, which is required to be undertaken at both producer (VexP) and consumer levels (VexC). (Vex) = (VexP) + (VexC) Value expansion at producer level (VexP) is possible by improving the productivity i.e supply of good quality seed, transfer of good agriculture practices which improve yields and reduce proportionate costs and increasing the value of output i.e crop scheduling, high value crops, crop combinations). Similarly, value expansion at consumer (VexC) can be generated by way of providing convenience, standardisation, branding, ambience, which is followed by the organised food retailers. 7.7 Design of new system The basic principle on which the new system is designed is that the whole is greater than the sum of its parts. Objectives: To address market inefficiencies/ opportunities in the existing value chain and make it advantageous to the producer. Redistribution of market surplus to the farmers Increase of producer s share on consumer rupee The collective is designed to have a small collection centre at the centre of the hub. Producers shall bring the produce to the collection centres. Wieghment, sorting and grading shall be done in front of them and the respective figures shall be noted. After the entire process whole lot will be shipped to the market. Two producers should accompany the vehicle on a daily rotation basis to take care of the selling at the market. Cash shall be disbursed to the farmers based on the market prices and quality supplied by them. Infrastructure required The collective should have a building for facilitating the pooling, sorting and grading activities. To increase the share of market surplus (Mk s ), we need to reduce the loss that 39
producer bear due to illegal weighing systems (Ilp). Thus, the collective should need to have a proper weighing system. To reduce the handling losses (Hnc), the produce should be properly sorted and graded and packed neatly in crates. It should also have workers and a manager for managing the entire operation. Table 23: Infrastructure details for the collective Sl. No: Particulars Quantity 1 Building for collection centre 1 2 Weighing machine 1 3 Crates/baskets 50 4 Workers 3 5 Manager 1 Breakeven volume and acreage for the collective A collective of nearly 170 farmers with average land holding of one acre should be able to produce 40 quintals of vegetables daily for 250 days in a year. Weighted average price of vegetables available in the market is Ra 1,000 per quintal. After deducting the commission of 10%, Rs 800 per quintal can be passed on to the farmers. The breakeven sales for this design will be Rs. 72 lakhs and 7,247 quintals. Annual turnover of collective will be Rs. 100 lakhs and 10,000 quintals. Considering a cropping intensity of 150% and 80 quintals yield per acre, total acreage required for this design is 83 acres. An average land holding of 1 acre per farmer leads to a figure of 83 farmers for the collective. However, considering the risk associated with these crops, a safety factor of 2 is considered and the number of farmers is arrived at a figure of 167. Thus, this design works out to give farmer Rs 800 per quintal which is 20% more than the previous vale of Rs.672 per quintal after deducting commission and transportation charges. 40
Table 24: Design of collective I Sales Design of Collective No: of days of operation for a year 250 Volume/day in quintals 40 Volume/year in quintals (250 days) 10,000 Price/quintal in Rs. 1,000 Total Yearly sales in Rs. 1,00,00,000 II Variable Cost Price paid to farmer/quintal in Rs. 800 Yearly payment to famers in Rs. 80,00,000 Commission at 10% in Rs. 10,00,000 Total VC 90,00,000 III Contribution(II-I) 10,00,000 IV Fixed Cost Transportation 2,40,000 Salary 3,84,000 Weighments 700 Shed 40,000 Miscellaneous 60,000 Total FC 7,24,700 V Financial Analysis Net Profit (III-IV) 2,75,300 Contribution Margin 10% Break Even Sales in Rs. 72,47,000 Break Even Volume in quintals 7,247 VI Acreage and Farmers Cropping intensity 150% Average yield per acre in quintals 80 Acreage required 83.33 Average acreage /farmer 1 No: of farmers required with a safety factor of 2 167 41
7.8 Barriers for new systems Availability of credit facility for farmers The collective formed should be able to provide credit facility for the farmers. Or else it should ensure the commission agents who were providing credit will not withdraw from the support upon the formation of the collective of farmers. Trust factor needed for a collective Success of any collective depends on the cooperation and trust among the members. The survey results show that farmers are hesitant to such a concept. The reason behind it is the risk in trusting a new system and new set of people. This fear of getting cheated makes them to compromise to a system even if it is fetching them very low returns. Apprehension among middlemen The formation of a new collective among the farmers will create a state of panic and tension among middlemen. There is a risk that they move out for other vendors. This may affect the producers. Market selection Among the three value chains explained, the new system should arrive at that the market it needs to serve. Rythu bazar seems a good option as the returns to farmer is highest. This option can be selected if the credit facility, which is now being facilitated through commission agents, can be supplemented through some external sources. Else, the viable option is the wholesale market. Cropping plan and portfolio of crops This has to be meticulously planned understanding the market behaviour and the agriculture practises in the area. A proper planning of this parameter can avoid the glut and can ensure stability in prices. Technical expertise is required to address this issue. 42
CHAPTER VIII CASE STUDIES 8.1 VFPCK, Kerala As a part of preliminary study for the project a brief visit was made to Vegetables and Fruits Promotion Council Keralam. It was started in 2001 as a successor organisation of Kerala Horticulture Development Programme. It is registered as company with 50% shares for farmers and 30% shares for state government. Main objective of the organisation is to improve the livelihood of vegetable and fruit farmers by empowering them to carry on production, value addition and marketing as a profitable venture in a sustainable way. Smallest operating unit of the organisation is farmer self-help groups (SHG) with 15-20 farmers.field centres are formed for marketing the produces which comprises of 7-15 SHGs. These field centres are now registered as Swashraya Karshaka Samiti also known as farmer markets. At present, VFPCK covers more than 6,699 SHGs and 130,000 farmers. More than 260 farmer markets are in operational at present. The organisation also has a seed production unit and it organises training programme for farmers and also give advices on farming techniques and practices. Farmer markets provide a platform for the farmers to exhibit their produce and it is a common place for traders to come and auction for the produces. Bargaining power of farmer increases and he fetches a better return. Exploitation of farmers by loading/unloading issues are taken care by VFPCK by getting an exemption for it for the farmers. Farmers are relieved from the exploitation that happens in usual open market. It is advantageous for the traders also as they are able to procure huge quantity of fresh vegetables from one single place. Also it gives an assured supply source for produces. The only risk associated with this is the glut in production. During this time VFPCK intervenes to lift the produce from one market to other thereby ensuring fair price for the farmers. Farmers have also started their own retail store under the brand name of Sasya which is running successfully. It is completely managed and controlled by farmers. 43
8.2 HOPCOMS, Karnataka Horticultural Producers Co-operative Marketing and Processing Society Limited (HOPCOMS) were formed in 1959 with an objective to provide the producer more share in consumer price. It incorporated the direct procurement method from village and made it them available to consumers. The objective is similar to rythu bazars but they differed in their operation. The societies were formed in all the districts and they had a huge network of farmer members. There are decentralized procurement centres at district levels and retail network across the districts. Indent is given to farmer members by procurement personnel as per the requirement of fruits and vegetables. Against the indent, farmers bring in the produce early morning and they get paid by the procurement centres. The produce collected from farmers besides from the open market (when there is a short supply of any F&V from its member compared with requirement) will be supplied to the retail outlets. Retail outlets personnel will come and collect the produce they require from the procurement centers on a daily basis. HOPCOMS have over 37000 farmer members across 19 districts. It is also preventing farmers from the exploitation of middlemen. HOPCOMS also have more than 600 retail outlets serving consumers (estimated at 60000) daily with fresh, directly procured F&V at a fair price. Large section of urban consumers prefers HOPCOMS produces as they fresh from the field and not from cold storages. The most significant benefit arises from the fact that HOPCOMS purchases its produce directly from the farmers. This eliminates the intermediaries, and consequently, a remunerative price is paid to the farmers - usually 10-15% higher than the open market prices. Furthermore, during periods when there is an excess supply of certain produce in the market, the open market price drops. HOPCOMS, however, assures a minimum price for produce during times of poor sales. Another major benefit is that cash is paid to farmers on the day of the transaction, thereby eliminating the need for extending credit, which is prevalent in private business. (UA Magazine, April 2003) 44
Box 4: Vegetable Initiative for Urban Cluster HYDERABAD: Thirty-five production hubs in 11 mandals have been identified in the Ranga Reddy district for implementation of the Vegetable Initiative for Urban Cluster' project promoted by the Central government under the scheme Rashtriya Krishi Vikas Yojana. The project, supposedly with an aim of setting in motion a cycle of production and income for the farmers and assured supply of vegetables for consumers, is proposed to be launched in one major urban centre with over 10-lakh population in each State during the year 2011-12. Three districts, Ranga Reddy, Medak and Mahabubnagar, have been chosen for implementation of the project for the city. A grant of Rs.16-crore will be made for the State from a total allocation of Rs.300-crore, of which Ranga Reddy district will get Rs.5.9-crore. The project envisages development of a few village clusters as vegetable cultivation hubs, each connected to the Aggregation Centre set up in mandal headquarters. The Aggregation Centres will tie up with farmers' groups or associations for offering collection, grading, and packaging services. Logistical support will be provided through post-harvest management, and transport and storage infrastructure. Rythu Bazars in the city will be the market spaces in the city from where mobile vans will reach out to colonies in different areas. Support to the farmers' associations will be in the form of subsidies for seed and seedling production, vegetable cultivation, shade-netting, Integrated Pest Management, Integrated Nutrient Management, Organic Farming, and other such aspects. The associations may be in the form of cooperatives or private sector enterprises too in the model of contract farming. Assistance will be provided at the rate of 50 per cent of the total cost for installation of pack houses, cooling units, cold storage facilities, transport vehicles, preservation units, and onion storage structures, among others. Also to be assisted is the setting up of rural markets, retail markets, aggregation centres, and static or motorised vending carts. A total extent of 51,185 acres spread out in Shamshabad, Maheshwaram, Kandukur, Yacharam, Ibrahimpatnam, Shamirpet, Medchal, Shankarpally, Chevella, Moinabad and Vikarabad is proposed to be brought under the initiative in Ranga Reddy district. Over 12,000 farmers in the district will be roped in for the initiative. The project will ensure consistency in supply of vegetables throughout the year by balancing the supply with the demand through post-harvest management, officials from the district Horticulture Department said. Source: V. Swathi Vegetable farms for the sake of farmers, consumers, The Hindu, Andhra Pradesh, Hyderabad, June 30,2011 45
CHAPTER IX CONCLUSION 9.1 Summary of observations Rangareddy district has lots of vegetable production hubs and the production is 4.48 lakh tonnes in the year 2009-10. Major produce from this area are tomato, gourds, leafy vegetables, brinjal, ladies finger, cabbage, cauliflower, mangoes and lemons. The produce from these clusters are routed through three main channels to serve the demand of the urban city of Hyderabad. The three channels are wholesale markets, rythu bazars and organised retailers. Two major wholesale markets i.e., Bowenpally and Guddimalkapur handle to 2.6 lakh tonnes of vegetables annually. Nine rythu bazars in Rangareddy handle a volume of 1.9 lakh tonnes of vegetables. Whereas, organised retailers handle a minimal figure of 0.9 lakh tonnes of fruits and vegetables in which vegetables constitute two thirds of it. Return that farmer receives is observed to be highest in rythu bazars and least in wholesale market. A difference of 25-30% in the prices was observed between these two markets.also, farmer has to pay 10% commission at wholesale markets. In the case of organised retailers, collection happens at village level and farmer can save the cost of transportation and labour. Also, this chain does not involve any commission. Price paid to farmer is 16% less than the whole sale market price. Thus, rythu bazar forms a viable option for a producer. However, study shows that farmers prefer selling to wholesale markets because, the entire lot of produce can be sold in one lot at wholesale market and they can avail credit facility from commission agents for buying agriculture input. It was also observed that farmers with small quantity of produce of 20-35kgs sell at local mandis and they struggle to get good price for it. Sometimes they have to leave the produce at market premises due to lack of demand for it 46
A small group of 4-5 farmers were observed to collectively transport the produce to market. But, they sold it individually at markets thereby not making use of the collective bargaining power Farmers were found to have apprehension about the formation of a collective, as they prefer to pay commission agent extra than trusting a stranger to handle their produce. Most of the farmers do not have market information like prices and demand. 9.2 Suggestions and recommendations The design for a collective explained in the previous section gives an increase of 20% in the net returns to farmer. The collective is designed keeping in mind the wholesale market as the market option. Return to the farmer can be improved if the produce can be sold at rythu bazars. Presently farmers depend on the credit extended by the commission agent for meeting their financial needs of agriculture. If an external support of credit to the farmers can be provided, then the option of rythu bazar can be adopted. Technical expertise needed to make crop planning and deciding the portfolio of vegetable to be produced. NGOs or any other agencies working in the village with the farmers can be selected to take up the initiative for the collective. As these people are already doing developmental works in village, they have a good rapport with the villages and it would be easy to convince the farmers and bringing them together for such an initiative. Linking the collective to receive good quality agricultural inputs at reasonable rate is also essential so as to reduce the cost of production. 47
REFERENCES 1. The Directorate of Economics and Statistics (2010), Agriculture Statistics at a Glance, Andhra Pradesh 2009-2010, Hyderabad: Government of Andhra Pradesh 2. Department of Agriculture and Cooperation (2011), Indian Horticulture Database 2010, Gurgaon: National Horticulture Board 3. Mittal Surabhi (2007), Can Horticulture be a Success Story for India, New Delhi: Indian Council for Research on International Economic Relations 4. Dixie Grahame (2005), Horticulture Marketing, Rome: Food and Agriculture Organisation of the United Nations 5. Pandey Mukesh et al (2010), Fieldfresh Fresh Foods :Linking Indian Fields to the world 6. Gandhi P. Vasant and Namboodiri N.V. (2000), Marketing of Fruits and Vegetables in India: A Study Covering the Ahmedabad, Chennai and Kolkata Markets 7. Thijssen Rik (2004) Reviewing post-harvest options with farmers, LEISA Magazine, September 8. Ministry of Agriculture (2005), National Horticulture Mission, Action Plan for Andhra Pradesh, New Delhi: Government of India 9. Reddy G.P.(2010), Value Chains and Retailing of Fresh Vegetables and Fruits, Andhra Pradesh, Agricultural Economics Research Review, Vol. 23,pp 455-460 10. Rao Parthasarathy P. (2008), Agricultural Diversification in Andhra Pradesh, India: Patterns, Determinants and Implications, Andhra Pradesh: International Crops Research Institute 11. Vishwanadham N. (2006) Food and Retail Chains: Case Study of Andhra Pradesh and Punjab, Singapore: Institute of South Asian Studies 12. Kumar Virendar et al, (2005), Behaviour of Market Arrivals and Prices of Selected Vegetable Crops: A Study of Four Metropolitan Markets, Agricultural Economics Research Review, Vol. 18, pp 271-290 13. Reddy G.P et al (2009), Managing Agri-Food Supply Chain: Food Retail Management, National Conference on Managing Agri-Food Supply Chain 14. Prakash Hari and Dhwevedi Kumar Sanjay (2009), Organized Food & Vegetable Retailing and its Impact on Upstream and Downstream, National Conference on Managing Agri-Food Supply Chain 48
15. London Business School (2008), Reliance Fresh Stores in Food Retailing, School reference : CS 08-029 16. Sulaiman Rasheed V. Et al,(2011), Organised retailing and fresh fruit and vegetables: Opportunities for putting research into use?, DFID: Department of International Development 17. Rajkumar Paulrajan and Jacob Fatima (2010), Business Models of Vegetable Retailers In India, Great Lakes Herald, Vol. 4, No 1 18. AMSAC (1985), Appropriate management system for agricultural co-operatives 19. UNIDO (2010), Agro-food value chain development 20. CRIDA (2008), Performance of Agriculture in Andhra Pradesh A spatial and temporal analysis 21. http://agro.indiamart.com/agricultural-commodities/fruits-vegetables.html 22. http://www.scribd.com/doc/32717425/andhra-pradesh-state-report 23. http://www.scribd.com/doc/24014612/value-chain-analysis 24. www.agrisolutions.com 49
Annexure-I Area Date Sl No: Commodity Choupal Fresh 1 Cabbage 2 French Beans 3 Brinjal Small 4 Ladies Finger 5 Tomato(Hybrid/Country) 6 Carrot 7 Green Chilly 8 Onion(Premium/Economy) 9 Potato(Premium/Economy) 10 Lemon (per pc) 11 Banana Robusta 12 Mango Baginapally 13 Mango Himayat 14 Mango Dusheri 15 Mango Kesar 16 Orange 17 Mousambi 18 Apple Fuji 19 Apple Washington FFV Retail Outlets Survey More Heritage Fresh@ Spencer s Food World Local market Rythu Bazaar Ergadda All figures in Rs/kg i
1. Name: 2. No: of registered wholesale sellers: 3. Area of market: 4. Catchment area: No: of districts No: of mandals: Annexure-II Whole Sale Market Survey 5. Arrivals in last 3 years Fruits Vegetables Total 2008 2009 2010 6. Areas in Hyderabad and Rangareddy catered by the market: 7. Financing and payment: Payment to farmers: Payment to commission agents: Payment by retailers: 8. Procurement from far off places? F&V Place Quantity Season ii
Annexure-III Questionnaire for farmers 1. Sample No: Sl No: Information Name 1.1 State Andhra Pradesh 1.2 District 1.3 Mandal 1.4 Village 1.5 Respondent s Name 2. Occupation Sl No: Name Age Occupation 3.1 3.2 3.3 3.4 3. Family income:... Rs 4. Income from agriculture:...rs 5. Land Details: i. Owned land :... acres ii. Cultivated land:... acres iii. Leased out land:... acres iv. Leased in land :...acres v. No: of regular labours:... 6. Procurement Details: Sl No: Items Retail Shops Govt Supply Comm Agents/ Traders 1 Seeds 2 Fertilizers 3 Pesticides. Companies/NGOs 7. Source of irrigation Rainfed Public resource Private Resource 8. Crops grown: Sl No: Crops Area Months Production(tonnes) iii
9. Marketing linkages Traders Rythu Bazaars Retail Outlets Post harvest contractors Vegetable Markets Others Specify... Specify... 10. How price decision happens? 11. Any grading or quality standard followed? 12. Financial assistance taken for agriculture 13. Transportation facility for agriculture 14. Exposure to market information 15. Availing any government schemes 16. Problems faced in agriculture 17. What sort of support needed to improve agriculture iv
18. Last year harvest details Sl No: Crops Production (tonnes) Area Sold to Rate per tonne Cost per acre v
Annexure-IV Questionnaire for commission agents 1. Name : 2. Age: 3. Market: 4. No: of years of operation: 5. Store Details: i. License fee: ii. Rent: iii. Area of store: iv. Unloading charges: v. No: of employees: 6. Vegetables Sold: 7. Places of procurement: 8. Sales Details: i.... tonnes/ day ii.... Rupees/day iii.... tonnes/month 9. Sources: i. Farmers ii. Traders 10. Wastages: 11. Commission percentage: vi
12. Buyer Details: 13. Risk in business: 14. Services given to farmers: 15. Payment mechanism Seller (Farmer): Buyer: vii
Annexure-V Photographs Vegetable clusters in outskirts of Hyderabad Produce sold at different rythu bazars in city viii
Whole sale market at Bowenpally ix
FFV store and pack house of organised retailer x
Local mandis Farmer not getting his produce sold at local markets Farmer destroying crops as there is no demand in market xi