Value Chain Development

VALUE CHAIN DEVELOPMENT

FOR EFFICIENT AGRICULTURAL MARKETING

Dr. Narayan G. Hegde

BAIF Development Research Foundation, Pune

Marketing: Weakest link in Agricultural Development

There has been a significant progress in Agricultural production in India during the last six decades. Indian food grain production increasedfrom 50 million tons in 1950 to 262 million tons in 2011-12. Indian Green Revolution which was initiated in the sixties, accelerated the growth in crop production, which ensured food security for the increasing population during the next four decades. This phenomenal success which transformed the country from a food deficit region to a food surplus nation, was possible because of a coordinated effort by variousMinistries of the Central and State Governments and private industries associated with agricultural development. Good efforts were made to develop an efficient value chain, but agricultural marketing was the weakest link.

Realising thedifficulties faced by the farmers in marketing their produce,the Government of India assured minimum support price for major food grains and even established procurement centres for a few important crops, where farmers could not sell theirsurplus produce in the local markets. This practice is being continued even today for paddy and wheat in advanced states like Punjab and Haryana. It is feared that withdrawal of procurement may pull down the price, which in turn might jeopardise the production. This highlights the problem of agricultural marketing in the country. In the absence of a fair and efficient marketing system, neither the farmers will get a fair deal nor canthe country boost the agricultural production to feed the growing population.

Poor Market Scenario

Market is a place where the individuals have freedom and right to sell and buy. A fair market should ensure efficient and reasonable pricing where large number of buyers and sellers are active and the process is fair and transparent. Market should be friendly to both buyers and sellers.The National Commission on Agriculture defined agricultural marketing as a process starting from the decision to produce saleable farm commodity until reaching the consumers. This can be termed as backward and forward integration or a complete value chain, which will bring all the stakeholders on a common platform to add value to theproduce and reduce the cost of transactions. Although the general perception of marketing is to dispose off the surplus produce, the challenge lies in encouraging even small farmers to accelerate their agricultural production, by facilitating better market conditions at the village level by offering remunerative prices to their produce. Marketing plays a critical role in determining the profitability of any production unit and more significant role in agriculture because of widely decentralised production by millions of farmers and fragile and bulky nature of the produce, which are seasonal in production while the demand is spread all round the year. Most of the farmers grow such crops which can be conveniently grown, depending on the season and available inputs without understanding the demand for the produce. As themarketing efficiency has been poor due to inadequate infrastructure, weak information system, outdated policies, unscrupulous traders and unfair practices, helpless farmers are exploited to such an extent,that cultivation of many crops is becoming an uneconomic activity.

Problems of Marketing Agricultural Produce

Marketing of agricultural commodities suffers due to several factors. Over 75% farmersbeing small holders,they have verylittle surplus to sell. Whatever little surplus they grow, does not fetch better price in the local market, whileitis cumbersome to sell in the urban market. In the absence of remunerative prices,small farmers are not motivated to increase their production, particularly by investing in expensive external inputs. There are many small farmers who avail of credit from local moneylenders or traders during the cropping season, with a condition to sell their produce ata predetermined price, which is generally low. Such farmers are neither benefitted by improved production technologies nor by increasing price for the produce. One good example is small farmers in arid regions of Western Rajasthan who prefer to grow pearl millet or anyhardy pulse crop for their household consumption instead of cultivating high value crops such as cummin, fennel, coriander, Psyllium (Isabgol), cluster beans, senna, etc. which fetch very high price, leading to very high income. If there was a reliable service to provide finance, critical inputs like improved seeds, storage facilities for holding the stock whenever necessary and a fair market, thentheywould have opted for high value crops and become prosperous, while making significant contribution to theNational GDP. In the absence of backward and forward linkages,these distressed poorare left with no enthusiasm, missing the golden opportunity to cultivate many elite crops which can be grown only in this part of the country.

While the small farmers have no opportunity to sell their produce, medium and large farmers are compelled to send their surplus produce to the market yard(Mandi),where they have to face many problems either due to peculiar nature of the produce or due to exploitation by many,resulting in poor price realisation. Following are the major problems encountered by farmers in marketing their produce:

Seasonal production: As agricultural crops are harvested during particular periods in a year, the production and supply will be confined to a particular season for a few days or weeks, while the demand is spread all round the year. Therefore, there will be a glut in the market when the produce is harvested at the same time by most of the growers and brought to the market, accelerating the fall in the price. The price starts rising again as the volume of supply drops after a few weeks or months. Inthe absence of storage facility or ability to stock their produce, most of the farmers sell the produce immediately after the harvest, earning lower income or even ending up in losses.

Unpredictability about supply:As the crop production is dependent on nature, there are severe variations in yield, quality and time of supply of produce,while the consumers expect certain standard quality produce all round the year. With regard to fruits and vegetables, consumers prefer different varieties and hence, do not wish to buy the same vegetables and fruits every day. Thus, there will be a heavy fall in the price and inferior quality producewill find no buyers. For instance, many customers who are consuming ber and oranges, will discontinue buying these fruits when grapes arrive in the market, shifting their preference. Many cut flowers such as marigold,have demand during certain festivals. If there is delay in harvesting even by a day, there will not be any takers in the market.

Variation in Quality: Agricultural commodities vary in shape, size, colour, taste and nutritional composition, depending on the variety, weather, soil fertility, moisture availability, exposure to agro-chemicals and post-harvest handling. However, it is difficult to assess the quality externally and fix the price. For instance, there is no way to distinguish between pesticide-contaminated fruits and vegetables and organic products in the market. Presently, there is no reliable system of certification and valuation in India, before the products are sold in the market. Hence, there is confusion among buyers and superior quality produce, particularly fruits and vegetables,often fetch better price.

Short Shelf life: Most of the fruits and vegetable are highlyperishable and are subject to damage during harvesting, packing and transportation. Harsh weather and bumpy roads accelerate the process. As a result,there has been 25-30% wastage causing heavy loss to farmers, which can be reduced through careful handling, neat packing and better infrastructure of roads, cold storage and specialised vehicles for transportation.

High cost of Transportation: Fruits and vegetables are bulky and fragile with 80-90% moisture content, which are required to be transported in loosely packed containers, preferably after pre-cooling in refrigerated containers for avoiding wastage, retain freshness and better price realisation. However, it is cumbersome and expensive and beyond the reach of small farmers.

Lack of Storage and Grading facilities: In the absence of proper storage facilities, either at the farm or aroundthe market, farmers are compelled to sell the produce immediately after the harvest, when the prices are generally at the lowest level. If there is any opportunity to hold the stock for a few weeks, the inflow of the produce to the market would taper down and there would be a steady rise in the price. If these products are properly graded into different categories and packed in small packages of different weights, then theprice realisation can be higher by 15-20%, adding to the profit of farmers.

Need for Credit Facilities:Many farmers do not have the capacity to hold the stock and wait for better price, unless they get some advance cash against their stock, to settle pending debts and even to arrange grading and transportation. Facilities for availing loan for crop productioncan empower them to enhance crop yield and quality.

Exploitation by Middlemen/Traders: Traders play a dubious role in exploiting the farmers in many ways. Firstly, they serve as moneylenders with a claim on the produce at a lower price. There are many traders who go to farmers to pressurise them to sell immediately after harvest, cheating them in price as well as weight. Even the large farmers are being cheated in the market yards by recording lower weight, levying various service charges and offering lower charges by forming a cartel among the traders. Infact, it is extremely difficult for farmers to bring back the produce once it is taken to the market yard for selling, contrary to the philosophy of fair marketing.

Presently, small farmers have very few options to sell their produce at a competitive price. Apart from selling to local traders,the other options are to sell in local weekly markets (haats), to cooperative marketing societies or through e-choupals. Of late, there are new options opening up to supply to retailers or to other private entrepreneurs under the contract farming agreement. However, there is a long way to gobefore small farmers across the country become part of the value chain to get a fair deal.

As efficient marketing of agricultural produce has direct impact on the productivity and profitability of small farmers, it is necessary to address their marketing problems on priority.

Scope for Improving Marketing System

Realising the problems faced by farmers in market yards, the Government of India has now introduced Model Laws on agricultural marketing. Under these Laws, provision has been made to operate private market yards and direct purchase centres,such as e-Chaupals,Ryat Bazaars and Public Private Partnership in market yard management. Market Standard Bureau has also been established to set standards for various produce and issue quality certificate for graded produce.

Several Marketing Boards and Federations have been established to provide marketing support to growers. Most of them are managed by the Government with varying degree of success but their sustainability without the involvement of the Government, is doubtful. Provision for establishment of Terminal Markets has also been made under the National Horticulture Mission, to promote marketing of fruits and vegetables by the cooperatives and private agencies. Under this programme, Hub and Spokes type network has been proposed, with collection and grading facilities created at the village or block level. These graded produce can be sent to different markets and processing units depending on the demand and utility. Provision has also been made to establish cold storages and godowns for storing the products till processing and marketing.

Establishment of Producers’ companies has been recently introduced to organise the producers and to ensure value addition to the produce through processing and marketing. These companies are established by producers’ groups / cooperatives, processors and other stakeholders as members, for facilitating various services to farmers, with a major focus on value addition and marketing.This company is expected to professionally manage the business of procurement, processing and marketing of produce. These organisations have the strength to negotiate with processors and retailers for better price, while assuring superior quality produce and time bound delivery. The Government of India has made provision in the budget of 2013 for supportingeach producer company up to Rs.10 lakhs.

Reformations required to Improve Marketing

1. Regular Market Survey ondaily and weekly basis on demand and supply of various agricultural commodities withtheir price ranges and transmission through radio, TV, internet and newspapers,can give a clear idea about the demand and supply situations during different months and on different occasions. This data will be helpful to farmers and Agricultural Extension agencies to organise staggered sowing of crops which can be harvested when the demand is high.Relay of market prices on daily basis, can empower farmers to bargain for higher price.

1. Grading of the produce, based on standard colour, size, shape and quality will help insending specific consignments to particular markets, to fetch better price. Proper method of harvesting of fruits and vegetables without any scratches and damages, proper cleaning before grading, packing in different quantities and in good packages, can fetch better price. Farmers should be oriented about consumers’ preferences and good management practices.

1. Provision of warehouse and credit facilities will be helpful to hold the stock awaiting for a price in the near future. Farmers’ organisations and producer companies should be encouraged to take an active role in facilitating these services.

1. Fixation of minimum support price for the produce can be a great boon for small farmers. Presently, only a small number of crops have been covered with minimum support price where farmers can predict their income much before selling their produce.

1. Suitable measuresshould be adopted to bring transparency and fair trading in Mandis /market yards and to ensure provision for direct sale of produce by producers to retailers and processing agencies.
2. Offering suitable price to farmers by traders based on the sample of the produce, with a condition to deliver the agreed quantity within a stipulated period, the system adopted by private e-choupals,should be encouraged. This would empower farmers to sell their produce whenever and wherever they are offered a better price.

Support for Small Farmers

All the above problems associated with marketing were mostly related to market yards and traders. However,for small holders apart from orienting on good agricultural practices, infrastructural and financial supportare also required. Above all, they need someone for hand holdingfor cropping plans, resource mobilisation, adoption of good production practices, etc., as they neither have self confidence nor access to reliable agencies on whom they can count on for help.

Most of the small farmers start thinking about their cropping plan, based on their traditional cropping practices or depending on the available resources. They are often stuck at this stage itself, either due to lack of finance or wrong choice of crop and struggle throughout, to end up with another season of disappointment. These farmers cannot benefit from any reforms in agricultural marketing, until some support is provided to come out of the clutches of the moneylenders and receive help from agricultural extension services. This highlights the importance of backward and forward linkages, as a part of Value Chain development.

Promotion of Value Chain for Inclusive Development

Value chain is a platform where all the stakeholders associated with a particular crop or commodity, share a common platform and interact among each other with a goal of optimising the production and value addition. These are the intermediaries between the farmers and consumers. They include scientists, extension experts, development agencies and farmers’ organisations, input producers and distributors, financial institutions and insurance agencies, traders, warehouse owners, transporters, processing establishments and marketing organisations. Local farmers’ cooperatives, dedicated civil society organisations or Producer Companies can take the lead in coordinating the value chain platform.

For effective functioning and inclusion of small farmers, producers’ groups of 20 -50 farmers, preferably belonging to a homogeneous land holding and socio-economic category, may be formed for sharing inputs, technology, infrastructure, services and experiences. A field technician or a trained field guide can be appointed for providing hands-on technical guidance to individual farmers, under the supervision of an expert, while organising input distribution, credit facilitation, development of water resources, promotion of agro-engineering services and post harvest management of the produce such ascollection, cleaning, grading, packing and transportation of the produce to various destinations. With such an organisational set up either in the form of informal or registered groups or cooperatives, even the small farmers can sell all the surplus produce without any exploitation by moneylenders and middlemen. With timely availability of inputs and technical guidance, these farmers can take up production of even high value crops and increase their crop yields and income.