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
Mentor and Guide: Dr.M.S.Rao
Faculty Guide: Prof.K.V.Raju
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.E.V.Murray, GM, NABARD, APRO, for giving me this great opportunity of pursuing this
summer internship with NABARD APRO. I am thankful to Dr.M.S.Rao, AGM, NABARD,
APRO for his constant help and 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
22ndJuly,2011.
ii
EXECUTIVE SUMMARY
Title
:Study of fruits and vegetables value chain and potential for
organising small producers
Organisation
: National Bank for Agriculture and Rural Development, Andhra Pradesh
Regional Office
Reporting Officer
: Mr. E.V. Murray, GM, NABARD, APRO
Mentor and Guide
: Dr. M.S.Rao, AGM, NABARD APRO
Faculty Guide
: Prof. K.V.Raju
Participant Name
: 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.
iii
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.
TABLE OF CONTENTS
Table of Contents.......................................................................................................................iv
INTRODUCTION.......................................................................................................................1
1.1 Fruits and vegetables sector: An Overview......................................................................1
1.2 Fruits and vegetables sector: Andhra Pradesh..................................................................3
OBJECTIVES AND METHODOLOGY..................................................................................7
2.1 Objectives of the study......................................................................................................7
2.2 Area of study ....................................................................................................................7
iv
2.3 Methodology.....................................................................................................................8
2.4 Data Collection..................................................................................................................9
2.5 Data Analysis....................................................................................................................9
2.6 Constraints.......................................................................................................................10
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
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
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
ORGANISED RETAIL OUTLETS .........................................................................................25
6.1 The beginning..................................................................................................................25
6.2 Procurement and field operation.....................................................................................27
6.3 Pricing.............................................................................................................................29
6.4 Organised retailers: Merits and demerits........................................................................30
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
v
7.5 Selecting vegetable portfolio .........................................................................................37
...............................................................................................................................................37
7.6 New system: The concept ..............................................................................................37
7.7 Design of new system ....................................................................................................40
7.8 Barriers for new systems ................................................................................................42
CASE STUDIES.......................................................................................................................44
8.1 VFPCK, Kerala...............................................................................................................44
8.2 HOPCOMS, Karnataka...................................................................................................45
CONCLUSION.........................................................................................................................47
9.1 Summary of observations................................................................................................47
9.2 Suggestions and recommendations.................................................................................48
REFERENCES..........................................................................................................................49
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............................................3
vi
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
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
vii
Figure 5: Procurement and distribution process of FFV organised retailers............................28
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..........................................................................46
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
ix
Annexure 5: Photographs........................................................................................................viii
ABBREVIATIONS
AMC ......................Agricultural Marketing Committee
AP ........................Andhra Pradesh
CAGR....................Compounded Annual Growth Rate
x
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
xi
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 a 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
1
Banana, Mango
1
2
Ladies Finger, Green Peas
1
3
Cabbage, Brinjal, Cauli Flower, 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.
Table 4: Andhra Pradesh’s share in India’s total FFV production
Production
( million tonnes)
Fruits
Vegetables
3
Total
71
133
204
Andhra Pradesh
12.9
5.4
18.3
Share of Andhra Pradesh
18%
4%
9%
India
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
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
cthe 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
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
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, 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
12
Source: Primary data collection
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 SepemberOctober. 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
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
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 a 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
Demerits
Entire lot of produce of a farmer will get sold in
the market
Lowest returns to farmer
Credit facility extended by commission agents
Commission rates of 20% and sometimes
more
Farmer need not spend whole day in market for
selling
Transportation and labour charges
maximum
Spot payment through cash
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
weighments. 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: Rangreddy district
There are nine rythu bazars in Rangreddy 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 the short shelf life of it which makes it
less preferable among commission agents and wholesales 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
21
produced in 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:
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
Offer better price for farmers
Farmers need not pay commission to middlemen
Powerful lobby of brokers who buys
produce from wholesale market and sell
here
Farmers find it difficult to get a shops in
market
Economical rate for consumers
Inconvenient for farmers to sit whole day
to sell their produce
Farm fresh produce for consumers
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
CHAPTER –VI
24
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 fron 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 colour. 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
Cabbage
Rythu Bazaar
Local Retail
Organised Retail
Wholesale
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
11.33
14.00
12.68
7.00
Potato
st
Source: 1 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
Procurement at village level
Better prices than wholesale market prices and
less expenses
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
Reduction in handling losses
More share can be given to farmer in the
consumer price as the produce is sold at
premium
Reduction in transportation cost
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.
Assured market and assured price for the
intended quantity
Guidance to farmers in terms of crop scheduling
CHAPTER –VII
30
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)
Price realisation for Lowest
Medium
the producer
32
Highest
Quantities tradable
Unlimited. Huge
Only up to the
Small quantities sold at
quantities sold at
quantities specified.
a time as the buyers are
a time as buyers
end consumers
are merchants.
Credit availability
auction
Commission
None
Informal
agents provide
private
credit
financers
by
on
daily basis
Grading premiums
Commission
Buy
only
graded Consumers
pay
agents grade and products
premium
price realisation is
graded produce
for
a
the
on grades
Marketability
different grades
of All
grades
and Only specified grade All grades, but graded
mixtures
are and quantity bought, ones get premiums.
tradable, but price rest needs alternate
vary
Convenience
markets
Travel about 50- Deliver the produce in Reach early in the
70 km to reach day
time
to
market by early collection
morning
Commission charges 4%
& marketing costs
effectively
in
centre, till evening/till stocks
travel 5-10 km.
legally
but No
the morning and marketing
last.
commission No
commission
10%, charges, 1% deduction charges.
addition
But
selling
to on transportation costs through broker involve
transport cost of
a charge of 3-4%..
about 3-5% and
RTC
deduction
cheap
on
quality 2-4%
buses
transport
33
provide
means
of
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 Best
price
for Crop scheduling and
facility provided by farmers among all sowing plan given to
commission agents
the three chains
farmers
Advantages
Assured market for Farm fresh produce Assured market and
the entire quantity
to consumers
assured price for
intended quantity
Economical price for Procurement
consumers
farm level.
at
Low returns to Entire quantity may Cannot take the entire
farmers among the not get sold
quantity of produce of
three value chains
a farmer
Drawbacks
Handling
and Farmer needs to Quality standards
transportation losses spend whole day at leads to rejections and
maximum
market for selling
wastage
Incorrect
weighment systems
Strong
brokers
34
lobby
of Marketing
of
rejected and surplus
quantity creates a
problem for farmer
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
35
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.
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.
36
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.
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)
37
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 (P p). 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.
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 MICef.
Market surplus (Mks) can be defined as the sum of value proposition available and net of
market intermediation cost
Mks= VP-[MIC-MICef]
38
Distributive efficiency of a market determines what proportion of what consumer pays Cp is
passed on to the producer Pp 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).
Mks = Pfr +Infb +Ilp
Design of any new organisational set up for marketing has to thus address Inf b +Ilp, so that a
greater part of the Mks can be passed on to the primary producers.
Value expansion (Vex) 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.
39
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 (Mks), we need to reduce the loss that
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:
1
2
3
4
5
Particulars
Building for collection centre
Weighing machine
Crates/baskets
Workers
Manager
Qty
1
1
50
3
1
40
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.
Table 24: Design of collective
Design of Collective
I
Sales
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.
II
1,00,00,000
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
41
Salary
3,84,000
Weighments
700
Shed
40,000
Misc
60,000
Total FC
V
7,24,700
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
VI
7,247
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
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
42
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.
CHAPTER –VIII
43
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 a
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.
44
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)
45
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
46
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
47
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
•
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.
48
•
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.
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