FFV Marketing

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Fresh Fruits

&

Vegetables / FFV

Marketing- Constrains & Opportunities

ABID HUSSAIN, MSc, Horticulture([email protected] / [email protected] )

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CONTENTS

SN. Titles Page No.

1. Introduction and the turnaround 1-3

2. Fresh fruits and vegetables (FFV) 4-5

3. FFV Marketing 5-6

4. Constrains 7-9

5. Opportunities in FFV sector 10-12

The Way Out :

22-22

18-19

19-21

6.

a) Regulated Markets

b) Direct Marketing

c) Co-operative Market

d) Contract Farming

e) Organized Retailing

23-26

7. Indian FFV Retail market -

8. Online /e-Trading of FFV 32-38

9. Conclusion 39-43

10. Literatures cited 44


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INTRODUCTION & THE TURNAROUND

Horticulture – Success story of India

Horticultural development had not been a priority until recent years in India. It was later in the post

1993 period that focused attention was given to horticulture development through an enhancement

of plan allocation and knowledge-based technology. Despite of this decade being a period of

“golden revolution” productivity of the horticultural crops has increased only marginally from 7.5

tonnes per hectare in 1991-92 to 8.4 tonnes per hectare in 2004-05 (NHB, 2005 In 2005 total area

under fruits and vegetables had been 11.72 million hectares and total production had been 150.73

million tones (NHB, 2005). Of the 456 million tons of vegetable produced in the world, India’s

share is 59 million tons. All taken together, India’s share of the world’s vegetable market is 17 per

cent. Presently, the horticultural crops cover 13.6 million hectares, i.e. roughly 7 per cent of the

gross cropped area and contributes 18-20 per cent of the gross value of India’s agricultural output.

India is the second largest producer of fruits and vegetables in the world next only to China and

accounts for about 16% of the world’s production of vegetables and 10% of world’s fruits

production. Annual area and production growth under fruits and vegetables in the period 1991-

2005 was 2.6 per cent and 3.6 per cent respectively in India. Share of fruits and vegetables in total

value of agricultural exports has increased over years from 9.5 per cent in 1980-81 to 16.5 per cent

in 2002-03. But we are still lagging behind in actual exports of these produce. For example, India

produces 65 per cent and 11 per cent of world’s mango and banana, respectively, ranking first in

the production of both the crops. Yet our exports of the two crops are nearly negligible of the total

agricultural exports from India. It is a known fact that horticulture sector in India is constrained by

low crop productivity, limited irrigation facilities and underdeveloped infrastructure support like

cold storages, markets, roads, transportation facilities etc. There are 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 constrains tomeet the goal of moving towards a horticulture lead agricultural growth in India. The foreign trade

policy 2004-09 emphasized that to boost agricultural exports, growth and promotion of exports of

horticultural products is important. Horticulture contributes nearly 28 per cent of the GDP in

agriculture and 54 per cent of export share in agriculture.


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ACREAGE UNDER HORTICULTURE: Includes fruits, vegetables, spices, floriculture, and

plantations-is expected to be 20 million hectares in 2006-07. With production of 53 MT and 108

MT, respectively, in 2005-06, India was the second largest producer of both fruits and vegetables

in the world. India occupies first position in the production of cauliflower, second in onion and

third in cabbage. The National Horticulture Mission (NHM) was launched in May 2005 as a major

initiative to bring about diversification in agriculture and augment income of farmers through

cultivation of high value horticultural crops. The National Horticulture Mission (NHM) aims at

doubling horticulture production by 2012.

Area and Production of Major Horticulture Crops (Area-Million ha,Production-Million tonnes)

Crops 2002-03 2003-04 2004-05* 2005-06*

Area Production Area Production Area Production Area Production

Fruits 4.8 49.2 5.1 49.8 5.3 52.8 5.9 54.4

Vegetables 5.9 84. 8 6.7 101.4 7.1 108.2 7.2 113.5Spices 2.4 3.8 5.2 4.0 3.2 4.9 3.2 5.9

Plantation

Crops

3.1 13.1 3.3 9.4 3.1 10.4 3.2 9.8

Flowers 0.1 0.2 0.2 0.6 0.1 0.7 0.1 0.8

Others 0.09 0.9 0.1 0.3 0.4 0.4 0.4 0.5

Total 16.4 152.0 20.6 165.5 19.2 177.4 20.0 184.9

Source: National Horticulture Board * Estimated

PRODUCTION AREA:

Vegetables are typically grown in India in field conditions; the concept is opposed to the

cultivation of vegetables in green houses as practiced in developed countries for high yields. The

fruits and vegetables considered important by the horticulture board are mostly grown in the areas

of Jammu & Kashmir, Himachal Pradesh, hilly regions of North Uttar Pradesh, Bihar, Tamil Nadu,

Maharashtra, Karnataka, Gujarat, Andhra Pradesh, Assam, Madhya Pradesh, Rajasthan, Punjab,

Tripura, West Bengal and Orissa.

Growth promotional activities:Ongoing liberalization and the emergence of and integrated global market have opened new vistas

for Indian horticulture. In fact, till very recently, India’s main policy focus that until recently was

only on grains and cereals, has been changed in a timely manner, with the launch of National

Horticulture Mission in 2005-06 by Government of India with a mandate to promote integrated

development in horticulture, to help in coordinating, stimulating and sustaining the production and


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processing of fruits and vegetables and to establish a sound infrastructure in the field of

production, processing and marketing with a focus on post harvest management to reduce losses. It

envisages to double the production of horticulture produce by the end of 1912. This enabled India

to exploit its true potential. Since liberalization and withdrawal of excise duty on fruit and

vegetable products there has been significant rise in the growth rate of the industry. No industrial

license is required for setting up Fruits & Vegetables Processing industries; setting-up 100% EOUs

require specific Govt. approvals. Many subsidies, irrigation plans, loans, pre and post harvesting

schemes led to the following figures of production.

FRUIT & VEGETABLE INDIA'S PRODUCTION STATUS

Mango, Guava, Banana & Peas World's largest producer

Lemon, Onion, Brinjal, Cabbage, Cauliflower, Pumpkins &

Gourds, Total Vegetables and Total Fruits

World's 2nd largest producer

Coconut World's 3rd largest producer

Oranges World's 4th largest producer

Papaya, Lettuce & Pineapple World's 5th largest producer

Tomato World's 6th largest producer

Citrus Fruits/ Mosambi & Cassava World's 7th largest producer

Sweet Potato World's 9th largest producer

Apple World's 10th largest producer

Grapes World's 16th largest producer &

World record in productivity

Competitiveness of Indian Horticulture:

Commodity that a nation should produce and export is determined by the principal of

comparative advantage. The comparative advantage tells about that capability of the country to

export a commodity, while the competitiveness of the commodity in the world market is

determined by the measure of export competitiveness.

Export Competitive Commodities

Fruits: Banana, Papaya

Vegetables: Brinjal, Cabbage, Cauliflower, Peas


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Commodities with Comparative Advantage

Fruits: Mosambi, Mango and Guava and

Vegetables: Onion

FRESH FRUITS AND VEGETABLES - CHARACTERISTICS

1. Perishability of products: Involvement of many bio-physio-chemical processes make its

highly vulnerable to damages at short intervals and thus contributes to product’s limited

shelf life.

2. Seasonability of production: The inconsistent supply due to the close involvement of many

biotic and abiotic factors of production break the cycle of the produce availability in the

market throughout the year.

3. Bulkiness of products: The bulkiness of the fresh produce adds to the transportation,

handling and packaging charges. Alongwith makes its prone to pre and post harvest

damages in the supply chain accounting upto the extent of 20-40 percent.

4. Quality variation of products : Nonadherence to GAP practices leads to variation in quality

5. Irregular supply of products: Seasonability and non planned insufficient production creates

gluts and shortages in the market.

6. Small Holdings size & scattered production processing: As majority of the Indian farmers

falls in marginal and small category.

RISING FRESH FRUITS AND VEGETABLES CONSUMPTION:

1. Rising income / Economic growth: Spurge in the sensex and improved living paved the

way for the fresh fruits and vegetables

2. India’s burgeoning middle-class: Emergence of the majority middle class and drastic

changes in the demographic figures mainly the substantial rise of the youth population viz.

more than 50 percent of Indian population is under the age of 35 years. This given the

needed thrust to fresh fruits and vegetables consumption.


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3. Demographical changes : Due to vast cultural and social diversity available in India

majority of which is vegetarian, fresh fruits and vegetables found driver’s seat in the food

palate of every

4. Health awareness: Due to emergence of new diseases and improvement in education level

provided the demand for the fresh fruits and vegetables among the population due to its

disease prevention and health promoting properties.

5. Increased literacy: Improvement in the education status backed with higher income and the

awareness about fresh fruits and vegetables indirectly leads the way for higher demand and

consumption.

6. New diseases prevalence: Eruption of new diseases due to the resurgent changes in the

food habits and lifestyle also created the much needed thrust for the fresh fruits and

vegetables among the masses, due to its disease prevention and health promoting

properties.

7. Trade liberalization /Globalization: Aftereffect of the WTO and the globalization the fresh

fruits and vegetables are available almost round the year from one or the other production

pockets at reasonable prices and desirable quality in sufficient amount.

8. Development of better infrastructure & transit facilities: Public-Private –Partnership efforts

brought the necessary infrastructure viz. coolchains, better roads, transportation and storage

facilities for the perishable commodities in the investment shying sector to the satisfactory

status.

MARKETING OF FFV:

Marketing plays an important role not only in stimulating production and consumption, but in

accelerating the pace of economic development. The marketing system plays a dual role ineconomic development in countries whose resources are primarily agricultural. Marketing

comprises all the operations, and the agencies conducting them, involved in the movement of

farm-produced foods, raw materials and their derivatives from the farms to the final consumers,

and the effects of such operations on farmers, middlemen and consumers. Agricultural marketing

deals with all the activities, agencies and policies involved in the procurement of farm inputs by


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the farmers and the movement of agricultural products from the farms to the consumers. The

agricultural marketing system is a link between the farm and the non-farm sectors. It involves all

the aspects of market structure or system, both functional and institutional, based on technical and

economics considerations, and includes pre and post-harvest operations, assembling, grading,

storage, transportation and distribution. The expansion in the size of farm output stimulates

forward linkages by providing surpluses or food which requires transportation, storage, processing,

packaging and retailing to the consumers. Increasing demands for money with which to purchase

other goods leads to increasing sensitivity to relative prices on the part of the producers, and

specialization in the cultivation of those crops on which the returns are the greatest, subject to

socio-cultural, ecological and economic constraints. It is the marketing system that transmits the

crucial price signals. The fruit and vegetable marketing in India is highly decentralized having

wide capacities. There has been concern in recent years regarding the efficiency of marketing of

fruits and vegetables, and that this is leading to high and fluctuating consumer prices and only a

small share of the consumer rupee reaching the farmers. It is overviewed by many committees and

reports that Indian farmers are good producers but not good marketer. As early as 1976 National

Commission on Agriculture pointed about the inefficiency in agricultural marketing with particular

to fresh perishables and strongly recommended in following words that “It is not enough to

produce a crop; it must be satisfactorily marketed.” Marketing of horticultural crops is complex

especially because of perishability, seasonality and bulkiness. Fruits and Vegetables are an item of

daily consumption, they are essential in human diet but they are very perishable in nature.

Therefore, the cultivation of fruits and vegetables is generally concentrated around towns and

cities, so that they can be harvested and transported to the nearby market immediately and in fresh

form. With the increase in transport and communication facilities, fruits and vegetables cultivation

has spread in interior areas where irrigation facilities are available. This is because growing

vegetable crops is more profitable than any other seasonal crop particularly the foodgrain crops.

The spread of fruits and vegetables cultivation in rural areas has solved the perennial problems,

particularly of transport, handling, packing and storage. There is also some regional specialisationin growing some fruits and vegetables. They are grown in one area but marketed in other areas for

creating wider market and also to fulfill the demand of some people, who have liking for them.

This also involves long distance transport. For this purpose good roads in the interior villages is

necessary. Fortunately there are good state and national highways, but there are no good roads in

the interior. Sale of the fruits is generally through pre- harvest contactors, so that the farmer gets an


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advanced payment and cover his risk. Vegetables are usually sold through commission agents and

very little of pre-harvest contacting is done. Due to this the net returns are generally low. Farmers

spend means to devote more time to their field crops rather than to the orchards. If the farmer does

the marketing of his produce himself then the net returns to him would be double. So also in the

marketing of fruits and vegetables, producer cannot go to wholesale market or long distant market

and he has to depend on some intermediaries to sell his fruits and vegetables. Therefore, in the

marketing of fruits and vegetables costs are involved for grading, packing, transport,

loading/unloading, fees, etc. In addition, the intermediaries also take some margins for them.

These costs and margins determine the final price to be paid by the consumer. After deducting

market costs and margins from the final price paid by the consumer, farmer gets his net price,

which is referred to "Farmer’s share in consumer’s price". This determines efficiency of

marketing. Price spread and producer’s shares in consumer prices of some vegetables is given in

table.

PRODUCER'S SHARE IN SOME VEGETABLES

Channel Producer's share (%)

Tomato

I Producer - commission agent -retailer - consumer 80.00

II Producer - commission agent - masakhore - retailer 47.60

III Producer - commission agent - secondary wholesaler - retailer - consumer 66.9

IV Producer - commission agent - primary wholesaler - retailer - consumer 53.5

Cauliflower

I Producer - commission agent - retailer - consumer 54.60

II Producer - commission agent - Masakhore - retailer - consumer 52.10

Cabbage

I Producer - commission agent - retailer - consumer 54.90

II Producer - commission agent - Masakhore - retailer - consumer 52.50

Vegetables

I Producer - consumer 89 to 96

II Producer - retailer - consumer 69 to 84

III Producer - wholesaler cum - commission agent - retailer - consumer 63 to 73

Vegetables

I Producer - wholesale - cum- commission agent - retailer - consumer 51 to 55

Sometimes, agricultural commodities directly pass from producers to consumers. But in indirect

marketing agricultural commodities generally move from producers to consumers through

intermediaries or middlemen. The number of intermediaries may vary from one to many.


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AGENCIES

Producers: Most farmers or producers, perform one or more marketing functions. They sell the

surplus either in the village or in the market. Some farmers, especially the large ones, assemble the

produce of small farmers, transport it to the nearby market, sell it here and make a profit.

Middlemen: Middlemen are those individuals or business concerns which specialize in

performing the various marketing functions and rendering such services as are involved in the

marketing of goods.

Wholesalers: Wholeselling is the one ion of goods is the wholesale dealers. Wholeselling is the

one that covers activities of all individuals or businessmen, which sell to or negotiate sales with

customers, who buy for resale or industrial use. His position is that of an intermediary between

manufacturer and retailer.

Wholesalers are classified as:

1) Local wholesalers, who deliver their purchases to local retailer.

2) Provincial wholesalers some time called as distributor selling to the retailers of a particular

district or a state and

3) National wholesalers located at a strategic place and distribute goods all over the country.

Retailers: He is the last link in chain of middleman, who sells directly to consumer. He takes title

to goods, sells and sets up business usually amidst the consumer's groups. He buys his requirement

usually from the wholesalers. Retailers in producing areas may have direct contact with producers

and buys goods from them for resale.

Co-operative Marketing Societies

Main function:

1) Selling the produce of member's.

2) They also undertake outright purchases.

3) Provide storage facilities for storage and grading and

4) Save cultivators from exploitation by traders and help farmers in getting fair price for their

produce.

5) Performing functions of processing of raw produce.


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Pucca Arhatias: He is the real purchase in the wholesale market on his own behalf of acting for

some businessmen, firms in consuming markets. Big industries play as their agent and order him to

purchase certain quantity within a given range of price. When pucca arhatia trades on his own, he

dispose of his produce brought by him through dealers in different parts of country.

Katcha Arhatia: He also advances money to the cultivators and village banias on the condition

that the produce will be disposed off through him alone and hence charges a very nominal rate of

interest on the money advanced. Katcha arhatia charges commission for services rendered by him.

Important link between the village cultivator or traders on the one hand.

Village Merchants: He is an important agency in the collection of produce and more so when the

mandi is situated at a considerable distance from the village. He advances from his shop either on

credit or for exchange of foodgrain or so price given for cultivator's produce. The quantities of

agril. Produce so collected are either disposed off in the mandi or retained for resale in the village

in the processed forms, such as rice, flour, oil etc.

Intinerant Traders: They are small merchants, who move from village to village and buy the

produce from cultivator's house. They give a lower price than selling in the nearby market and in

setting transportation take into consideration, the factors such as cost of transportation, market

charges and profit margin.

Transport Agency: This agency assists in the movement of the produce from one market to

another e.g. railways, trucks, bullock carts, camel carts, tractor trolleys.

Communication Agency: It gives information about the prices prevailing, and quantity available

and transactions e.g. post, telephone, telegraph, newspapers, radio.

Advertising Agency: It enables prospective buyers to know the quality of the product and decide

about the purchase of commodities e.g. newspapers, radio, television, cinema slides.

Auctioners: They put produce for auction and bidding by the buyers.


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Government Agencies / Institutions: In addition to individuals, corporate, co-operative and

government institutions are operating in the field of agricultural marketing. Some important

institutions are:-

The State Trading Corporation (STC)

1) To make available supplies of essential commodities to consumers at reasonable prices on a

regular basis;

2) To ensure a fair prices of the produce to the farmers so that there may be an adequate

incentive to increase production;

3) To minimize violent price fluctuations occurring as a result of seasonal variations in supply

and demand;

4) To arrange for the supply of such inputs as fertilizers and insecticides so that the tempo of

increased production is maintained;

5) To undertake the procurement and maintenance of buffer stock, and their distribution,

whenever and wherever necessary;

6) To arrange for storage, transportation, packaging and processing;

7) To check hoarding, black-marketing and profiteering.

THE VICIOUS MARKETING CHANNELS:

The channels of marketing is an important aspect of agricultural marketing affecting the prices

paid by consumers and shares of them received by the producer. The shorter the channel, lesser

the market costs and cheaper the commodity to the consumer. When the channel is long with

more intermediaries, prices are more and producer’s share is less. The channel which provides

commodities at cheaper price to consumer and also ensures greater share to producer is

considered as the most efficient channel Several studies have been carried out in India on this

topic for different commodities and in different regions and the results are of mixed nature due to

local socio-economic conditions and infrastructure facilities.

Normally producer’s shares in different commodity groups are as follows:

1. Food grains- 55 to 65%

2. Other commodities- 60 to 70%

3. Fruits- 30 to 40%

4. Vegetables- 40 to 50%


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Marketing Channels of Fresh Vegetables:

i. Producers–consumer (village sale)

ii. Producer–retailer–consumer (local sale)

iii. Producer–Trader–commission agent–retailer–consumer.

iv. Producer–commission agent–retailer–consumer

v. Producer–primary wholesaler–secondary wholesaler– retailer– consumer (distant market).

Marketing Channels of Fresh Fruits:

i. Producer–consumer (village sale)

ii. Producer–Trader–consumer (local sale)

iii. Producer–pre-harvest contractor–retailer–consumer

iv. Producer–commission agent–retailer–consumer.

v. Producer–pre-harvest contractor–commission agent– retailer–consumer

vi. Producer–commission agent–secondary wholesaler– retailer–consumer (distant market).

These channels have great influence on marketing costs such as transport, commission charges,

etc. and market margins received by the intermediaries such as trader, commission agent,

wholesaler and retailer. Finally this decides the price to be paid by the consumer and share of it

received by the farmer producer. That channel is considered as good or efficient which makes the

produce available to the consumer at the cheapest price also ensures the highest share to the

producer.

CONSTRAINTS IN FFV MARKETING:

1. Lack of basic infrastructure viz.cool chains, logistics and supply chain management. The

infrastructural problems, pertaining to the cold storage facilities are dual as some places

don’t have the cold storage while some places have the problem of underutilisation of the

existing cold storages. The utilisation is even lower than 30 per cent of the total capacity in

many cases. Development of competitive international transportation, linked to domestic

air transport or road and rail transport would help in reduction of post harvest losses.

2. Preponderance of Intermediaries in the channel results in unfair and exploitative practices

in marketing of fresh produce is very common.

3. Lack of proper grading and quality control system.


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4. Scattered productions and sometimes in isolated places where even the transportation

facilities and other infrastructure is not sufficient for the perishables.

5. Lack of unity and organization skill among the farming community, which proves a major

impediment in the formation of cluster groups and co-operatives.

6. Inefficient & Imperfect markets: Due to prevalence of many intermediaries and

malpractices followed by them in the price fixation and auction of the perishables in

between the marketing channel results in uprise of consumer’s price in the producer’s

share.

7. Concept of consumer packaging practically unknown in domestic markets : Improper pre

and post harvest handling without any sound packaging leads to heavy loss ranging from

20-40 percent of the produce at the time when its reaches the final consumer.

8. Lack of forward & backward linkages: Absolute lack of the much needed quality inputs

and extension backup at proper time and after harvest processes.

9. Ignorance to new methods of cultivation and dependence on traders for extension

knowledge.

10. Perishability and Storability: Having limited shelf life due to its typical bio-physio-

chemicals constitutions, fresh fruits and vegetables penetration is restricted to the certain

niche markets and stakeholders. Besides the presence of insufficient numbers of storages

and coolchain facilities adding to the woes.

11. Low exports : Emergence of many competitive markets with comparative advantages in

awake of the globalization and the imposition of different Tariff and Non-tariff barriers to

save the domestic industry by the protectionalist nations using sanitary and phytosanitary

measures (SPS) as their benchmark resulting in the limited exports of the perishable

commodities. The window of international demand for the horticultural products is very

small. Thus a planned strategy is to be made to target the markets during that period.


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12. Freight charges: High air freights are also hindrance for cost effective exports. For the

exports large fluctuations in the production of fruits and vegetables causes problem in

being a regular trade partners.

13. Long marketing channel: Prevalence of many of the intermediaries in between the supply

chain robbing the lion’s share of the producer’s by deeply penetrating the consumer’s

pocket.

14. Non-functional AEZ: Even after 10 years of starting of the Agri-Export-Zones in deferent

specific production pockets of different produces, full implementation is at its nascent stage

due to many socio-political reasons. Thus the final benefit doesn’t reaching to the destined.

15. Poor Post harvest care & handling of the produce: Improper pre and post harvest care and

handling leads to heavy loss ranging from 20-40 percent of the produce.

16. Absolute lack in co-ordination b/w production targets of concerned department & action

plan of the marketing directorate

17. Prevalence of primitive methods of selling and price fixation like, secret sale, private

negotiation, under cover etc.

18. Meagre involvement of Government & other co-op. marketing agencies alike to the private

agencies

A study conducted by IIM, Ahmadabad to examine different aspects of marketing, focusing

particularly, on the wholesale markets for fruits and vegetables which have been established to

overcome deficiencies and improve the marketing efficiency. It indicated that in Ahmedabad the

direct contact between commission agents and farmers is very low. For vegetables this is 50

percent and for fruits only 31 percent. Further, in the system of transaction, secret bidding and

simple transaction dominate and open auction is relatively rare. In KFWVM, Chennai, the

wholesalers act as commission agents and receive consignments directly from producing centers

through agents or producers. By and large the system of transaction remains traditional and open

auction is rarely seen. This is one major reason for poor efficiency. However, in the small Uzhavar

sandie in Chennai, the farmers sell directly to consumers. The share of farmers in the consumer


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rupee in Ahmedabad was 41.1 to 69.3 percent for vegetables and 25.5 to 53.2 percent for fruits. In

Chennai KFWVM, the farmers' share was 40.4 to 61.4 percent for vegetables and, 40.7 to 67.6

percent for fruits. In the small Uzhavar sandie market in Chennai, where the farmers sell directly to

the consumers, the share of farmers was as high as 85 to 95.4 percent for vegetables. This indicates

that if there are few or no middlemen, the farmers’ share could be much higher. In the Kolkata

market the share of farmers ranged from 45.9 to 60.94 percent for vegetables and 55.8 to 82.3

percent for fruits. Thus, the shares are frequently very low, but somewhat better in Chennai, lower

in Kolkata and even lower in Ahmedabad. The margin as a percentage of farmer-consumer price

difference (an efficiency measure) shows that in Ahmedabad, the margins are very high and range

from 69 to 94 percent. In Chennai they range from 15 to 69 percent, and in Kolkata they range

from 46 to 73 percent. The high percentage of margin to farmer-consumer price difference is

indicative of large inefficiencies and relatively poor marketing efficiency. There is great need to

improve the marketing of fruits and vegetables. These regulated markets were established to

improve the marketing efficiency. The system of sale followed in these markets indicated that open

auction as a system of sale is yet to take roots in these markets and the marketing system was

dominated by open auction or secret bidding resulting to significant erosion of marketing

efficiency.

THE FRESH MOMENTUM

India is a land of huge potential, and always would be. It was a mood of resignation captured thatmodern forms of food retailing would never take off in India during lifetime. Skip to 2007 and you

can’t open a newspaper in India without reading about the latest major corporate to announce its

entry to the country’s burgeoning modern retail sector. It is this retail ‘revolution’, coupled with

the economic boom that looks set to provide the impetus for India’s fresh produce sector to make

real strides. Everyone singles out the supply chain challenge, resulting from a chronic lack of

infrastructure, as the key hurdle to the modern retailers that are setting up shop in India, but the

real challenge will be at the front-end rather than the back-end, where they must change the way

fresh produce is marketed as well as the mindset and tastes of the Indian consumer. For instance,

the Indian consumer ‘eats curry, not vegetables’, making fresh produce a value-driven purchase.

Fruit and vegetable retail in India is low margin, high cost, not the other way around. Traditional

small vendors with few overheads thrive in this climate, offering consumers a service that inspires

loyalty. Changing consumers’ behavior may be the main hurdle for India’s modern retail sector,


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but there are plenty of others to overcome - poor infrastructure, shortage of expertise, high real

estate costs to name a few. Indeed, it’s possible that the fledgling retail revolution will falter and

fizzle out, given the size of the challenges ahead. But this looks unlikely, as major corporates are

driving the push and the momentum has already been gained. Indeed, Fresh Produce India would

have departed with a sense of the challenges and complexity of the Indian market, but a genuine

optimism that the country is finally on track to deliver on the huge potential it offers.

ASIAN PERSPECTIVE:

Unsurprisingly, China and India remains the driving force in the region. Fruits and vegetables

prices in China have shown a double-digit upturn during 2006 over the previous year, reflecting

both rising production costs and increasing consumer demand (and incomes). In particular, an “off-

year” for Chinese apple crops in 2005/06 saw domestic prices scale heights that made export a far

less attractive option. Indeed, while low prices continue to drive China’s export expansion, volume

growth has slowed down this year, while values have risen. New speciality lines are coming to the

fore as China turns its labour-cost advantage to value-adding and innovation. China’s increasing

production costs should not be overlooked however, and rising fuel prices are a key issue,

especially as so many of the country’s best growing-regions are located some distance into the

interior. Food safety issues also continue to trouble India’s export trade, with maximum chemical

residue levels (MRLs) and microbial contamination impacting heavily on the fruits and vegetables

industry. While the SPS under WTO regime has caused confusion and upheaval for European andother countries import trade, it could benefit consumers in the long-term as it brings MRLs and

filth problems into line with EU and US standards.

Meanwhile, South East Asian countries have been facing an influx of low-priced Chinese produce

under regional free trade deals, with farmers in Thailand and Vietnam feeling the heat.

Nevertheless, some good opportunities are clearly developing for high-value items in these

markets. The shift from tariff- to quarantine-based import restrictions in Asia has continued, with

Indonesia introducing new rules, Taiwan toughening its stance on pests and Thailand mulling a

move towards market regulation. The modern retail trade has also made further inroads across the

region. Even India, the final frontier for global retailing, now appears to be poised for a retail

revolution led by local corporate giant Reliance. This market will be ‘one to watch’ in 2007, as

will Vietnam, whose entry to the WTO is set to create new opportunities for retailers and the fresh

produce trade alike.” India is a land of huge potential... and always will be. The snail-like progress


17



of the country’s fruit and vegetable industry in addressing fundamental issues such as lack of

infrastructure, fragmented production and poor quality standards. But recent developments in

India’s fresh produce sector and food retail industry are enough to persuade even long-term

sceptics that the worm has turned. Most notably, Indian business conglomerate Reliance has

unveiled plans for a US$5.6bn foray into the retail sector. Its move serves as an example of the

kind of money that is being invested by domestic companies into retailing and agribusiness – sums

that are unprecedented and more usually associated with global retail giants. Reliance has several

major issues to overcome to live up to its media billing as the ‘Indian Wal-Mart’, but if it can pull

off its plans, it will improve the country’s entire retail and horticulture sectors. For Reliance’s

project calls for the creation of a whole new supply chain, including cold storage facilities and

contract farming. And it is not alone, with other local retailers such as Big Bazaar, Subikhsha,

Hypercity, Spencer’s and FoodWorld seeking to form similar systems. While the debate rumbles

on as to if and when the government will open its market to multi-brand global retail groups like

Wal-Mart and Tesco, local chains are already transforming India’s chaotic retail industry.

Meanwhile, big-hitters in the global fresh produce trade are now taking the opportunity to

capitalise on India’s vast procurement potential. Capespan and Fyffes recently set up joint ventures

for grapes and ‘high-altitude fruits’ respectively, while Field Fresh, the alliance between Bharti

Enterprises and European equity firm Rothschild, is also ploughing substantial investment into the

horticulture sector. India’s own market for high quality fruit and vegetables is also growing

strongly as its middle-class expands. Moreover, this growth is not confined to the top four or five

mega-cities. Rather, India’s burgeoning middle-class, unlike China’s, spans the length and breadth

of the country, with studies showing that the smaller cities actually boast the largest increase in

millionaire households. Such ‘B’ cities are driving demand for imported fruits, and while suppliers

must deal with a restrictive import system and bottlenecks in distribution to reach their market,

things are improving as the import trade has consolidated and the government’s threat perceptions

over foreign fruits have diminished. In short, India is beginning to deliver on its huge potential,

and the time is ripe for an international approach that enables the fresh produce trade to build onthis progress.


18



A CASE STUDY on Marketing of Banana:

Cauvery Delta (Tamil Nadu)

The practice of opting pre-harvest contractors at the time of 50per cent maturity of the crop is

commonly followed by majority ((88%) of the growers. The prime reason stated by the farmers

was that the pre-harvest contractors give advance payments before harvest of the bananas to meet

their immediate needs for production, consumption and social activities. Other reasons were

1. High fluctuations in prices (400%)

2. High winds during monsoon causing damage to the plants.

3. Absence of institutional credit.

4. Absence of crop insurance

5. Small production and uneconomic quantities available for marketing

6. Long association with contractors.

7. Price discrimination in the markets.

8. High marketing costs.

Constraints:

1. Non-institutional agencies and undesirable market practices in the markets.

2. Deduction of 2 bunches for every 100 bunches as Profit bunches.

3. Combining two small bunches as one bunch during counting for price fixing.

4. Non-harvest of small size bunches.5. Delay in payment of balance amount after harvest

6. Violation of contracts i.e. abandoning the harvest if there is slump in prices.

7. Non-availability of institutional agency for banana which is highly perishable.

8. Non-availability of any viable storage preservation methods.

9. Non-existing institutional marketing agency like regulated market, co-op.marketing or

producer's association.

Suggestions:

1. Setting up banana based agro-processing industry.

2. Marketing banana through regulated markets.

3. Bringing co-operative marketing as new channel in the existing channels which will

increase producer's share in the consumer's rupee


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Jalgaon (Maharashtra):

In the marketing of banana in Jalgaon district three channels were identified.

Channel I Producer-co-operative fruit sale society-commission agent-wholesaler-retailer–

consumer

Channel II Producer -Group sale agency commission agent - wholesaler - retailer –

consumer

Channel III Producer –Private agency - commission agent - wholesaler - Retailer – consumer.

Marketing costs, margins and price spread

Particulars Channels

I II III

Marketing costs 82.89 84.46 91.0

Marketing margins 282.26 282.86 287.58

Producer's share 32.57 32.47 31.31

All these indicators indicate comparatively greater economic as well as operational efficiency of

the marketing mechanism of channel I i.e. Co-operative Fruit Sale Society over remaining ones.

However, it is suggested that the producer's share in consumer's rupee in Channel I can further be

increased if the co-operative Fruit Sale Society directly deals with the markets in terminal markets

rather than selling the produce to the commission agent.

Jalgaon & Sangli: (Maharashtra):

The major proportion of produce was marketed through two marketing channels

I .Producer - Co-op. Society - retailer - consumer

II .Producer - wholesaler - retailer - consumer

The producer's share was 34.53% and 31.05% for member and non-member producer's

respectively. The members of producer's co-operative association could therefore derive relatively

higher profit margins.

Parbhani (Maharashtra)

Channel I: Producer - co-op. Society - wholesaler -Retailer - consumer

Comm. to society 8% and Comm. To wholesaler 5%


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Shares of expenditure on:

i. Cultivation 65.6%

ii. Transportation 19.30%

iii. Commission 15.10% 100.00

Nanded (Maharashtra)

i. Producer - wholesaler - Retailer - consumers

ii. Producer - co-operative society - commission agent -cum-wholesaler- Retailer - consumer

Cost of marketing through

i. Co-op. Society Rs.58.37%

ii. Private 61.59

Producer's share through

i. Co-op. 51.65%

ii. Private 48.37%

Marketing Harichhal Banana in Gorakhpur (U.P)

Produce - Retailer - consumer channel for the sale of Harichhal banana was more profitable

compared to other systems of sale.

For increasing marketing efficiency, grower should develop:1. Co-operative system of transport.

2. Storage facility should be developed on co-operative lines, so that the farmers will be

protected from stress sale.

3. Weights and measures should be standardized.

4. Market information should be communicated to the growers regarding prices of banana

INNOVATIVE DIRECT MARKETING MODELS IN INDIA:

It has been realized that the marketing channel for farm products which are highly perishable

(fruits, vegetables and flowers) should be as short as possible. Perishable farm produce should

move quickly from farmers to consumers. If farmers directly sell their produce to the consumers, it

will not only Save losses but also increase farmer's share in the price paid by the consumers.

Therefore, direct marketing by the farmers is being encouraged as an alternative channel. Some

examples of these channels are given below:


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(I) APNI MANDI / KISAN MANDI

An innovative concept of 'Apni Mandi' has been introduced in some states. Apni Mandi is also

called 'Kisan Mandi', as it is different from the traditional mandi or market yard, where the produce

moves to the buyer through either a commission agent or trader. In Apni Mandi there is a direct

contact between the farmer producer and the buyer who is generally the consumer. This system

does away with the middlemen. In Apni Mandi, farmers sell their produce directly to the

consumers without involvement of the middlemen. The price spread in Apni Mandi is considerable

low. These are working satisfactorily in the case of fruits and vegetables. These, 'Apni Mandi' are

similar to the Saturday markets of United Kingdom and United States of America.

OBJECTIVES

The main objectives of popularising the concept of Apni Mandi are:

i. Better marketing of agricultural produce especially of fruits and vegetables.

ii. Ensuring direct contact of the producer-farmers and the consumers and thereby enhancing

the distributional efficiency of the marketing system.

iii. Increasing the profitability of agricultural crops for the producers by minimization of

marketing costs and the margin of the middlemen.

iv. Ensuring the availability of fresh fruits and vegetables and other farm produce at

reasonable prices to the consumers.

v. Removing social inhibitions among the farmers for retail sale of their produce .vi. Encouraging additional employment to the producers and thereby enhancing their

incomes.

vii. Promoting national integration by inviting the farmers of other states to sell the produce

grown by them directly to the consumers in Apni Mandis of other states and

viii. Providing business techniques to the farmers so that in the long-run they may adopt this

practice for other crops and enterprises too.

HISTORY

The first Apni Mandi was started in Punjab by the Punjab Mandi Board at Chandigarh in February,

1987. Punjab Mandi Board took the initiative with a view to providing small farmers around cities

a direct access to consumers. Similarly, in Haryana, the first Apni Mandi was started at Kamal in

1988. In Rajasthan also, this scheme has been introduced in several district towns.


22



The initiative is worth emulating.

FUNCTIONING

The market committee of the area where Apni Mandi is located provides space, water, sheds,

counters, balances and other facilities to the farmers in . Apni Mandis. The Market Committee

Staff need to work hard with dedication for the success of Apni Mandis. The State Marketing

Boards provide financial assistance to the Market Committees for these services rendered by them

to the Apni Mandi. This scheme is being implemented with certain resistance from middlemen.

Some farmers also have reservations about the success of the scheme as it assumes adequate skills

of retailing on the part of farmers. However, farmers as well as consumers would benefit from the

Apni Mandi Scheme and its popularity may pick up after sometime.

(II) HADASPAR VEGETABLE MARKET

Hadaspar vegetable market is a model market for direct marketing of vegetables in Pune city. This

sub-market yard is situated nine kms away from Pune city. This belongs to the Pune Municipal

Corporation and the fee for using the space in the market is collected by the municipal corporation

from the farmers. This is one of the ideal markets in the country for marketing of vegetables. In

this market there are no commission agents/middlemen. The market has modern weighing

machines for weighing the produce. Buyers purchase vegetables in lots of 100 kgs. or 100

numbers. The produce is weighed in the presence of licensed weigh men of the market committee

and sale bill is prepared. The purchasers make payment of the value of produce directly to the

farmer. The purchaser is allowed to leave the market place along with the produce after showing

the sale bill at the gate of the market. Disputes, if any, arising between buyers and sellers are

settled by the supervisor of the market committee after calling the concerned parties. The market

committee collects one percent sale proceeds as market fee for the services and facilities provided

by the committee to the farmers and buyers.

(III) RYTHU BAZARS

Rythu bazars have been established in the major cities of. Andhra Pradesh state with the prime

objective to provide direct link between farmers and consumers in the marketing activity of fruits,

vegetables and other essential food items. Both producers and consumers are benefited from Rythu

Bazars as producer's share in the consumers rupee is more by 15 to 40 percent and consumer's get


23



fresh vegetables, fruits and food items at 20 to 35 percent less prices than the prevailing prices in

nearby markets. Further, marketing costs are at the minimum level as middlemen are completely

eliminated from the marketing activities in Rythu Bazars. The maintenance expenditure of Rythu

Bazars is being met from financial sources of Agricultural Production Market Committee (APMC)

nearer to the Rythu Bazars. Rythu Bazars started functioning in the Andhra Pradesh State from

January20, 1999. Presently there are 95 Rythu bazars operating in all the 23 districts of the state.

There is no government involvement in price fixation. This function is left to farmers who organise

themselves into committees and these committee are fixing sale prices daily after taking into

consideration the wholesale and retail prices prevailing in the nearby towns. Generally, in the

Rythu Bazar, prices are fixed20 percent over the wholesale prices and 15 to 20percent less than

local market prices. Prices fixed are displayed at several places all over the Rythu Bazar for the

benefit of the consumers. The major highlights of Rythu bazars are: District collectors are making

the land available for the Rythu Bazars. Permanent infrastructure with all support system are being

constructed in the Rythu Bazars by the concerned Agricultural Produce Market Committee. The

vegetable cultivators in the identified villages are provided the photo identity cards and only these

cultivators are remitted to sell vegetables in these bazars. State Government arranges special buses

on most routes for transport of vegetables. Temporary storage facilities are on anvil. Coordination

exists between revenue, marketing and horticulture departments for smooth functioning of these

markets. A distinct and common identity of such markets across the state is being established.

Other essential commodities like pulses and edible oils are also sold in these markets at reasonable

prices. Vegetable production programme in the area is also undertaken by the horticulture

department of the state to ensure regular supplies of vegetables to the consumers. Rythu Bazars

have generated a great deal of enthusiasm both among

farmers and consumers as farmers get better prices for their produce due to curtailment of

commission and overhead costs on account of the non-existence of middlemen and the consumers

get vegetables at low prices compared to the prices in other markets.

(IV)UZHAVAR SANDIES

Uzhavar Sandies (Farmers' Market) were established in selected municipal and panchayat areas of

the Tamil Nadu by the state government. In these markets, farmers enjoy better marketing

infrastructure free of cost and also receive considerably high prices for the products than what they

use to receive from middlemen at village or primary markets of towns. Farmers are additionally


24



benefited in the form of interaction with other farmers and with departmental personnel. Farmers

also get good quality seeds and other inputs in the market yard itself. The consumers in these

markets are benefited by getting fresh vegetables at relatively lower prices. Farmer’s market /

Uzhavar Sandie is an innovative scheme introduced by the Government of Tamil Nadu, to help the

farmers at large. It is the first of its kind in whole India. Such a market was first started in Madurai

on 14.10.1999 and the State Government proposes to establish totally 100 farmers markets in the

important centres covering the whole State.

Mode of Operation:

The farmer’s market provides the place for the growers of vegetables and fruits to sell their

produce directly to the people without recourse to the middlemen. These markets are mainly

started to establish a direct link between the farmers and the consumers. There will be no place for

the middlemen to the consumers. When the goods are routed through middlemen, the farmers are

not getting remunerative prices for their produce. Likewise, as the middlemen at wholesale and

retail levels add their respective margins in the sale prices, the goods are sold at higher prices to

the consumers. By eliminating the middlemen, this scheme aims at benefiting both the farmers as

well as the consumers. The market place is established in the important centres to help the farmers

living in and around that centre. Every market has 80 to 100 small shops or sheds. Each farmer is

allotted a shop to sell his produce. The State Government appoints the marketing Committee to

regulate the marketing Centre. The committee will also have farmers as its representatives. ThisCommittee identifies the farmers and gives them a permit card. Such farmers alone are being

allotted the shops to market their produce. The farmers need not pay any rent or Commission for

selling their goods at the market. Farmers can transport their produce to the marketing centres free

of cost using State Transport Corporation Buses. The market is open for the public from 7.00 A.M.

to 7.00 P.M.daily. As and when the farmers bring their produce to the market, the committee will

fix the prices for the same. The same price will be ruling for that particular commodity for the

whole day. The prices are fixed for different commodities on the basis of previous day prices of

that commodity in the wholesale market.

Benefits to the farmers: In a short period of one month, since farmers’ market came into

existence, it was found that the income of the farmers, who are using the farmers market, has

doubled. This is made possible, as the farmers need not spend any amount towards handling and


25



marketing their produce. The rise in the farm income of the farmers is also due to the direct

marketing of their produce to the consumers. Wherever middlemen play their role in distributing

the farm produce, the farmers do not get remunerative prices. The middlemen of a particular area

usually form a cartel and accordingly fix low prices for the agricultural goods. But, the scheme of

farmers market enables the farmers to realise just prices for their produce by eliminating all types

of middlemen. As the sale at the farmers market is only for cash, the farmers are getting money

immediately. This is absent when they sell their produce to the middlemen. Most of the traders

make delayed payments to the farmers.

(V) SHETKARI BAZAR

On the lines of farmers' markets in other states viz., Apni Mandi in Punjab, Haryana and Rajasthan

since 1988, Rythu Bazar in Andhra Pradesh since January 26, 1999 and Uzhavar Sandies in Tamil

Nadu, the Shetkari Bazars were established in the state of Maharashtra for the marketing of fruits

and vegetables. The Shetkari Bazar, by eliminating intermediaries, links producers direct to the

consumers, reduces price-spread (marketing margin of intermediaries) and enhances producer's

share in consumer's rupee. Thus, these markets increase the farm income, well being of the farmers

and bring stability in prices of horticultural and plantation crops.

(VI) KRUSHAK BAZARS

On the lines of Rythu Bazars in Andhra Pradesh and Uzhavar Sandies in Tamil Nadu, Government

of Orissa has taken a programme of establishing Krushak Bazars in the state of Orissa in the year

2000-01 with the purpose to empower farmer-producer to compete effectively in the open market

to get a remunerative price for his produce and to ensure products at affordable prices to the

consumers. The government provides following incentives for opening of the Krushak Bazars in

the state.

(a) Provides 1 to 2 acres of land at suitable place, free of cost, for establishing the bazar.

(b) A cluster/group of villages within the proximity of market area and farmers growing vegetable

are identified having the surplus produce for sale.

(c) The identified farmers are allowed to use marketing facilities so that there is no intervention of

middlemen and farmers get better prices for their produce.

(d) Public utility facilities viz., drinking water, electricity, toilet, canteen and rest house are

provided to farmers by the Krushak Bazars.


26



(e) Identified farmers are provided inputs like seeds and fertilizer at the reasonable prices in the

Krushak Bazars, and

(f) Storage facilities in the market area are also provided to the farmers in Krushak Bazars.

(VII) MOTHER DAIRY BOOTHS: Mother Dairy, basically handling milk in Delhi, was asked

to try its hand in retail vegetable marketing by direct purchasing vegetables from the farmers,

Moving them in specially built vehicles, storing them in air conditioned godowns and distribute

them to the consumers through its retail outlets if 1989afterthe notorious onion and potato price

crisis. Mother Dairy management has opened retail outlets in almost all important colonies of

Delhi for providing vegetables to the consumers at reasonable prices.

CO-OPERATIVE MARKETING SOCIETY

When producers of agricultural commodities or any other product form a society with an objective

of carrying out marketing of their produce, such society is called as co-operative marketing

society. The need for co-operative marketing arose due to many defects observed and experienced

in the private and open marketing system. Those are several malpractices prevail in the marketing

of agricultural produce. For example, arbitrary deductions from the produce, manipulation of

weights and measures and cheating the farmers, collusion between the broker and the buyer while

fixing the prices, delay in payment of amounts due to farmers, etc. The result is the farmers are

indebted to trader - moneylender. In such circumstances co-operative marketing society can largely

help the farmers reduce the malpractices and offer honest and correct services.

There exists a chain of intermediaries between the producer and the final consumer. They include

village merchant, itinerant trader, wholesaler, commission agent, pre-harvest contractor and

retailer. They take their own margins for the services, they render. But these margins are generally

exorbitant, making the commodities costly for the consumers and reducing the producer's share in

the consumer's price. A co-operative marketing society can eliminate some or all of the

intermediaries and can reach to the consumers and establish direct trade relations with them. This

will make commodities cheaper to the consumers and also ensure good quality of produce to them

because much of the handling is avoided.

There are some services such as transport, storage, financing, grading, packing, loading/unloading,

which are, carried out by some private functionaries who charge high rates for these services. A

co-operative marketing society performs these services efficiently and at cheaper rates. A co-


27



operative marketing society provides market finance to farmers and ensures better returns to their

produce. Besides marketing society can act as an agent of credit co-operative society and help to

recover loans advanced by credit societies. At present, most of the financial needs of the farmers

are fulfilled by trader - moneylenders at very high rates of interest and with the condition that they

will sell their produce through them. This can be avoided, if there is co-operative marketing

society.

Organisation: Under the system of co-operative marketing whole responsibility of marketing is

taken up by the farmers themselves, organized on co-operative basis. The area of operation of

marketing society is usually fixed with reference to local conditions - area based or commodity

based. The commodity-based societies related to grapes, oranges, banana, pomegranate, etc. have

wider jurisdiction covering the major areas growing each crop. There are societies at the producer's

level and they federate at state or national level to deal with bigger markets including foreign

markets for export of their produce.

Membership: Membership of a co-operative marketing society is open to individual farmer who

produces the crop for which the society is formed. Other co-operative societies in the area can also

become institutional members.

Functions:

1. To arrange for the sale of members produce to the best possible advantage.

2. To undertake activities in connection with grading, pooling and procurement of produce of

the members.

3. To provide storage facilitates to their members by renting or owning the godowns and

thereby facilitate to grant advances against pledge of produce.

4. To protect members from all types of malpractices eliminates the middleman in the chain

of marketing.

5. Co-operative marketing society ensures grading, etc. and supply of good quality material toconsumers.

6. It teaches business methods to farmers and serves them as agency for supply market

information.

7. The society is able to stabilize prices over a long period by adjusting the supply with the

demand.


28



8. Marketing societies are also encouraged to undertake export trade so that they can give

better prices to their members.

Weak Co-op. Marketing: Although, many advantages are envisaged in the co-operative

marketing the structure has remained relatively weak as compared to credit co-operatives. There

are only about 1000 marketing societies as against 20,000 credit societies in Maharashtra. The

marketing is more difficult involving many technical and commercial aspects. Marketing of

perishable is still more different. Arranging quick transport, arranging storage to avoid losses, to

keep watch on demand – supply position to ensure good prices to members are all matters need for

good marketing. For want of these managerial aspects, desired number of co-operative marketing

societies have not come up and those, which were started, could not succeed. Several marketing

surveys/studies at farmer's levels have revealed that among several marketing channels, co-

operative channel has offered greater share of consumer's prices to the producers. Whichever,

marketing is unorganized, farmer - producers have expressed that marketing co-operative societies

should be formed. This was particularly reported in the cases of marketing of perishables.

Few Successes:

Inspite of the difficulties encountered in the marketing of perishables like fruits, vegetables, milk,

etc. there are few examples of good success viz. Maha-grape - co-operative federation marketing

grapes in Maharashtra, Co-operatives marketing pomegranate, Co-operatives marketing banana in

Jalgaon district, Vegetables co-operatives in Thane District, Milk co-operatives in Maharashtra,

HOPCOMS,Bangalore and Gujarat and Co-operative cotton marketing society.

ORGANISED AND REGULATED MARKETS:

Organised marketing of agricultural commodities has been promoted in the country through a

network of regulated markets. Most of the State governments and Union Territories have enacted

legislations (APMC Act) to provide for regulation of agricultural produce markets. While by the

end of 1950, there were 286 regulated markets in the country, today the number stands at 7,521

(31.3.2005). Besides, the country has 27,294 rural periodical markets, about 15 per cent of which

function under the ambit of regulation. Progress in the production of food grains, commercial

crops and horticultural products depends critically on the marketing infrastructure available to the

farmers. Efficient marketing with a dynamic supply chain is essential for the development of the

agriculture sector. The number of regulated agricultural markets stood at 7,566 as on March 31,


29



2006. Besides, there were 21,780 rural primary/periodic agricultural markets, of which about 15

percent functioned under the ambit of regulation. Ministry of Agriculture had formulated a model

law on agricultural marketing in consultation with State/UT Governments to deal with emerging

trends in agricultural marketing. This model legislation enables establishment of private markets/

yards, direct purchase centres, consumers/ farmers markets for direct sale, and promotion of

public-private-partnership (PPP) in the management and development of agricultural markets in

the country. It also provides for exclusive markets for onions, fruits, vegetables, and flowers.

Regulation and promotion of contract farming arrangement has also been a part of this legislation.

A provision has also been made for constitution of State Agricultural Produce Standards Bureau

for promotion of grading, standardization and quality certification of agricultural produce. Several

state/UT governments have initiated steps for amending the Agricultural Produce Marketing

Committee (APMC) Act. So far 15 States and 5 Union Territories have amended their Agricultural

Produce Marketing Committee (APMC) Act to derive the benefits of market reforms.

The advent of regulated markets has helped in mitigating the market handicaps of producers/

sellers at the wholesale assembling level. but, the rural periodic markets in general, and the tribal

markets in particular, remained out of its developmental ambit. Agriculture sector needs well

functioning markets to drive growth, employment and economic prosperity in rural areas of the

country. In order to provide dynamism and efficiency into the marketing system, large investments

are required for the development of post harvest and cold chain infrastructure nearer to thefarmers’ field. A major portion of this investment is expected from the private sector, for which an

appropriate regulatory and policy environment is necessary. Alongside, enabling policies need to

be put in place to encourage procurement of agricultural commodities directly from farmers’ field

and to establish effective linkage between the farm production and the retail chain and food

processing industries. Accordingly, amendment to the State APMC Act for deregulation of

marketing system in the country is suggested to promote investment in marketing infrastructure,

motivating corporate sector to undertake direct marketing and to facilitate a national integrated

market. The Ministry of Agriculture formulated a model law on agricultural marketing for

guidance and adoption by State Governments. The model legislation provides for establishment of

Private Markets/Yards, Direct Purchase Centres, Consumer/Farmers Markets for direct sale and

promotion of Public Private Partnership in the management and development of agricultural

markets in the country. Provision has also been made in the Act for constitution of State


30



Agricultural Produce Marketing Standards Bureau for promotion of Grading, Standardisation and

Quality Certification of agricultural produce. This would facilitate pledge financing, direct

purchasing, forward/future trading and exports. Several States have initiated steps for amending

the APMC Act.

CONTRACT FARMING/CONTRACT MARKETING

(Farmer-Processor Linkages)

Contract farming or marketing essentially is an arrangement between the farmer-producers and the

agri-business firms to produce certain pre-agreed quantity and quality of the produce at a particular

price and time. It can only be a pure procurement transaction or can extend to the supply of inputs

or even beyond. Contract farming is emerging as an important mode of procurement of raw

materials by agri-business firms in India due to the developments in the field of agricultural

marketing, changes in food habits and in agricultural technology in the new economic

environment. This is an important initiative for reducing transaction costs by establishing farmer-

processor linkages in addition to the already existing methods of linking the farmers to the

consumers. The distinction between 'sales' and 'contract to sell' needs to be understood clearly. In

the case of sale, the title or ownership of goods is transferred at once whereas in the 'contract to

sell', the goods are transferred at a later date. A contract to sell is not in the true sense of the word a

sale, rather it is merely an arrangement to sell. A contract is an agreement but an agreement is not

necessarily a contract. In contract farming, companies or organizations engaged in processing andmarketing of agricultural products are entering into contracts with the farmers. They provide inputs

to the farmers and buy back the product at a rate specified in advance.

Following type of inputs and services are normally provided by the company to the farmers.

Seeds of the variety they need for processing/marketing

Guide lines to grow the crops

Pesticides which do not result in residual toxicity

Extension services

Fertilizers/hormones required for the crop

Other material if not locally available.

The contract may be entered into by parties anytime from the start of the sowing or

planting to the harvesting, processing, packaging and marketing stage of the crop. Normally, the

contract is entered before the start of the sowing or planting because the buyer can then stipulate


31



the conditions cultivation, use of the seed variety needed by them, use of pesticides and

insecticides, and requirement of on farm grading, sorting, packaging and processing. The buyer of

the product generally keeps the right to monitor the crop at every stage of its growth.

Following documents are obtained/given to selected farmers by the companies:

Application/Registration form

Contract farming agreement

Issue of pass book

Issue of ID Card

ADVANTAGES OF CONTRACT FARMING

Contract farming/marketing is beneficial both for the producer-farmers as well as to the processing

company in several ways:

To the farmer, contract farming -

(i) Reduces the risk of price/production

(ii) Ensures the price as market is assured

(iii) Increases the quality consciousness

(iv) Ensures higher production because of better quality seeds and pesticides.

(v) Reduces marketing costs

(vi) Provides financial support in cash or kind.

(vii) Ensures efficient/timely technical guidance almost free of cost.

To the company, contract farming-

(i) Ensures supply of quality agricultural produce at right time and at lesser cost to the company

(ii) Canalizes direct private investment in agricultural activities.

(iii) Ensures that the toxicity level is reduced as per requirement for export.

Government is increasingly looking towards the corporate sector to augment the rural incomes and

employment through agro-processing. In this context, policy makers see the contract

farming/marketing as an important avenue to ensure greater private sector participation in

agriculture.


32



FLIP SIDE OF CONTRACT FARMING

The important weaknesses of contract farming are:

(i) Contract farming is involved mostly in cash crops which may lead to shift in area from food

crops which, beyond a limit may endanger food security, biodiversity and agricultural crops cycle

of the country.

(ii) Contract farming may create the danger of imposition of undesirable seeds.

(iii) The temptation of getting commercial profits from cultivation of a variety of the crop may

cause permanent damage to the land.

(iv) Market making outside the country may cause market breaking inside the country.

However, contract farming is a welcome development. But the contract should be made under high

scrutiny possibly because of exploitation of the farmers. The terms of the contract should be spelt

out in advance and a consent letter is obtained both from the farmer and the company. The

government should establish a monitoring mechanism and a dispute settlement

body to ensure that both parties adhere to the terms of contract.

EXPERIENCES IN CONTRACT FARMING

The following companies are presently under the tie-ups in India for contract farming

for the products specified:

1. Poultry- Contract farming of broilers between the hatchery with farmers in Coimbatore

2. ITC/WIMCO/JK Papers and farmers in Andhra Pradesh, Orissa, Punjab and Uttar Pradesh.

3. Organic dyes - Marigold farmers and extraction units in Coimbatore.

4. Dairy processing - Chitale of Pune and small farmers in Maharashtra and Gujarat.

5. Pepsi Company and farmers of Punjab and Rajasthan for tomato growing.

6. Exotic vegetables - Trikaya Foods NST and small farmers of Maharashtra and Andhra

Pradesh.

7. NAFED and Sonepat (Haryana) farmers.8. Exporters with farmers of Bangalore.

9. ITC Agro-Tech and sunflower cultivators in Andhra Pradesh and Karnataka.

Other areas where farmer processor linkage (contract farming) is being practiced in India are:

Baby corn cultivation


33



Tomatoes for manufacture of sauce and ketchup

Chillies for manufacture of chilly paste

Garlic and onion for manufacture of paste, powder and dehydrated products

Special varieties of Banana

Potato for making chips and wafers

Barley in making of bears

Onions and Mandarin Oranges

Durum Wheat

Pulpwood

Tomato pulp

Mushrooms

Gherkins

Edible oils

Presently contract farming is confined to few selected crops in selected pockets. However,

here is enormous scope for contract farming/marketing because with the increasing income,

consumers are becoming more health and quality consciousness and look for branded products.

INCENTIVES FOR PROMOTING CONTRACT FARMING

Contract farming is means of allocating/distribution of risk between processor and the

farmers. It will succeed if both the parties share the risks and rewards. The Ministry of Food

Processing Industries of Government of India has launched a scheme entitled 'Grant under

Backward Linkages' to promote contract farming. Under this scheme, a grant of 10 percent of

value of raw material purchased from the contract farmers (subject to a maximum of Rs. 10 lakhs

per annum) is provided to food processing units upto three years. The Ministry has also prescribed

a model agreement form. The criteria for the grant are:

(i) The processing unit should provide seed, insecticides, fertilizers and extension services tocontract farmers at reasonable charges.

(ii) The number of contract farmers should be atleast 25.

(iii) There should be an agreement prior to the period of contract farming for a maximum period of

one year.


34



(iv) The processing unit should give advance intimation about its contract with farmers to the

Ministry as well as State Nodal Authority (One Month before the contract comes into operation).

(v) The claim for reimbursement should be recommended by the State Nodal Authority.

THE FRESH (RETAIL) REVOLUTION IN INDIA : Cause of concern or happiness

Organized retailing in Fresh Fruits and Vegetables (FFV) is gaining a lot of momentum in India with

huge investment by leading Indian corporations in this area. Modern formats of supermarkets such as

Reliance Fresh, Choupal Fresh, Food World, etc. promoted by different companies are emerging very

rapidly in small and large towns around the country. Two of the major players in the supermarket

sector in the country are Reliance Industries and Bharti- Walmart tie up. Other key players include

ITC, Food World (JV of RPG Group of India and Dairy Farm International based in Hong Kong),

Spencer, Godrej, Pantaloon (Big Baazar and Food Baazar), Subhiksha and Aditya Birla Group. From

the development perspective, literature review of the evolution of supermarkets in other developing

countries suggests that these changes have strong implications for the small and marginal farmers.

Experiences of these countries suggest that the development efforts in this area are based on three

grounds: First, farmers associated with the modern value chains earn higher returns than selling to the

traditional markets. Second, the modern supply chains have specific quality requirements which are

easier to meet by the large and medium farmers and the small farmers tend to get left out of these

markets. Third, there are several successful examples of linking small farmers to these modern value

chains with effort from government agencies, NGOs and development agencies. The concept of organised retail has been existing in India since early 80s with the existence of players like Mother

Dairy and Safal but it's only in past one year that the fever of retail in FFV has caught up fast.

Bargaining with the vendor to reduce price, moving out early in the morning for the mandi to get

fresh fruits and vegetables, sweating profusely and trying to find a way out in the hustle bustle of

the crowd, a nagging feeling of weighing machine not being correct and many more. On the

contrary, there is a fixed price shop with prices at par and sometimes even less than your nearest

vegetable vendor, getting fresh fruits and vegetables at any time of the day and shopping in the

luxury of ACs, paying for exactly 867gms of onion, etc. That's exactly where retail in fresh fruits

and vegetables (FFV) come into picture. India is the second largest producer of fruits and

vegetables, next only to China and the total cultivated area of fruits and vegetables is around 12

million hectares, which is close to 7% of the total cultivated area. India produces around 90 million

tonnes of vegetables and 40 million tonnes of fruit every year. This accounts for 13.7% of global


35



production in vegetables and around 10% in global production of fruits. The total market size for

fresh fruits and vegetables in India is Rs 145,000 crores and organised retail in this segment is a

miniscule 300 crores. Fruits and vegetables constitute about 22% of the average monthly

household consumption expenditure in urban areas of Rs 4,300. Food and groceries as a whole

accounts for about 50% of the monthly expenditure. This is the rationale for setting up exclusive

food and grocery stores, with at least 30% of space reserved for fruits and vegetables. These figure

reflects the huge untapped potential in the Indian FFV market. The concept of organised retail has

been existing in India since early 80s with the existence of players like Mother Dairy and Safal but

it's only in past one year that the fever of retail in FFV has caught up really fast. In the past three

months 60 new outlets have opened across various parts of the country. Earlier the marketing of

fruits and vegetables was undertaken by the farmer’s cooperatives only. Now a number of big

corporate houses like Reliance, ITC, Aditya Birla Group, Godrej, and Bharti have entered into the

retailing of fresh fruits and vegetables. Some of the retail and wholesale stores area already under

operations by the name of Reliance fresh, Choupal fresh, Namdhari’s fresh etc. ITC, Metro and

Adani fresh are also entering into wholesaling. Exports of fresh fruits and vegetables are being

done with EUREPGAP certification by Namdhari fresh and Bharti Airtel. They have developed a

supply chain with forward and backward linkages operating in an efficient manner with heavy

investments in infrastructure and cold chain. These business houses have indicated that contract

farming may get them timely, consistent and adequate supply of produce of good quality.

Challenges and Opportunities The present agriculture supply chain has tremendous amount of

inefficiencies at the farm level, the intermediary level and at the marketing and distribution level.

About 60% of the land is with small and medium farmers. These farmers are not left with much of

bargaining power and hence are left exploited at the hands of intermediaries. Until recently, the

private sector was restricted from directly purchasing agricultural produce from farmers. The

infrastructure of mandis is lacking and the mandis are mired with inefficiencies. Another

inefficiency existent in the structure is the large mark-ups between the farmers' realization and the

final consumers' price. Retail chain outlets reduce these inefficiencies to a significant level. Efforts

are seen from big retail players to improve the efficiency of the agriculture supply chain helping

both, the farmers, on one hand (by having fair prices for their produce) and the customer, on the

other hand (by giving them a fair price and a comfortable shopping experience). Better price for

farmers is the high point of the policy sales pitch of everybody, from the government to retail


36



chains. There is a great amount of wastage happening post harvest. This wastage is to the tune of

nearly 25-30 percent of the total produce. The reason for this loss is the shortages of the cold

storage facilities and refrigerated transport. Wastage will reduce when the same company handles

the produce from the farm to the fork, as against now, when farm produce goes through several

levels of wholesale and territory traders before reaching the retailer. Losses would further reduce

with investments in cold-storage. Add to this difficulty of cold storage, the opposition that the

retail outlets face is from the small vendors. The recent protests in three major cities (Ranchi,

Bhubaneswar and Lucknow) against the opening of Reliance fresh are evidence to the opposition

that comes from small vendors. Whether this fear of small vendors is founded in reason or hype

will be discussed in the next section and is there a reason at all for these small vendors to be afraid

of? Effect on Small Players India has an estimated 12 million street vendors in its cities-the 2004

National Policy for Urban Street Vendors pegs it at 10 million-and roughly 2.5 per cent of each

city's population is engaged in vending on streets. About one-fourth of these vendors sell

vegetables and fruits which brings their number close to 3 million.

The once ubiquitous push-cart vendor’s days look numbered. Many of the big retail players are

setting up fresh fruits and vegetables and daily needs stores close to your homes, with innovative

products and convenient options like shopping on the phone As you enter the Reliance Fresh store,

amongst the first things that catch your eye is this whole range of trays on a rack, neatly packed

with cut vegetables. There are cut vegetables for English salad, for Mexi, spicy corn salad, forsambar. For harried working couples and lazy cooks, there are also options like cut vegetables for

pulav, for Chinese fried rice. For those who hate peeling pineapples, there are peeled pineapples

nicely wrapped in thin plastic filament. For those who want a quick bite of a watermelon, but don’t

want to buy a full watermelon (which is typically the only option you have), there are similarly

wrapped watermelon slices. The rest of the air-conditioned and neatly arranged store, with nearly

150 varieties of fruits and vegetables, is equally distinctive. Till now, the fruits and vegetables

section in organised retail formats have constituted a small fraction of the store space, the only

exceptions being Namdhari Fresh, and cooperative initiatives like HOPCOMS and SAFAL. In

Reliance Fresh, this proportion is 40% to 50%. In Spencer’s Express — part of the RPG Group’s

Spencer’s Retail, this proportion is 40%. It goes up to 75% if you include all perishable items like

milk, paneer, idli batter and fresh flowers. The idea of this emerging retail format, as we perhaps

guessed, is to tap into your daily needs, and wean you away from the local vegetable seller, grocer


37



and push-cart vendor by providing a better ambience, a wider range of products, innovative

offerings and the assurance of quality. A host of players — Heritage Foods, Fabmall/Trinethra and

Subhiksha, apart from Reliance and Spencer’s — are now beginning to set up these neighborhood

stores of an average size of 2,000 sq ft to 3,000 sq ft (the traditional kirana store is no more than

100-500 sq ft). Since they are smaller than supermarkets, they find it easier to find locations closer

to your homes. Most players are trying to build distinctiveness by offering a wide range of

products. In traditional stores, we wouldn’t find more than 30-40 varieties of fruits and vegetables,

Reliance Fresh will have some 150 varieties. There are products many people would normally not

seen , things like Chinese cabbage, jalapeno, broccoli, American corn, colour capsicum, avocado

and anchovies. There are both packed and loose options. About 80% of buyers still prefer the loose

option. Most Indians still like to touch and feel the products. Some customers are wary of packed

products partly because they are seen to perish faster. When the vegetables breathe, they cause

humidity inside the pack that could lead to fungal growth. But there are others who think fewer

people would have touched the packed stuff, so they prefer that. Besides, it’s very convenient for

those like working couples who are in a hurry. Reliance has thin plastic bag rolls around the store

which customers can pull out to put their vegetables or fruits into. There’s even a weighing scale

next to the racks for anybody who wants to check the weight before going to the cash counter.

Most are planning to offer the home delivery option, and even of taking orders on the phone. But

phone-ordering will require us to build a lot of confidence in people’s minds about the quality. The

prices in the newer stores are competitive with general market prices. In some cases, it is actually

lower, but whether these will be sustained remains to be seen. Most of these players eliminate part

of the ‘middle-men’ costs and reduce wastage by handling the products better. But against these

benefits are the significantly higher infrastructure and retail costs, compared to those borne by the

roadside vendor. The cut vegetables are likely to offer higher margins. While shredded carrots are

sold by Reliance in a packed form at Rs 3.60 for 250 gms (or Rs 14.40 a kg), the same carrot in its

loose form is Rs 11.50 a kg. Part of this difference is on account of greater wastage when a

shredding machine is used. Farm connect Most players are investing heavily in backendinfrastructure and supply chain. There are collection centres of different companies across the

states , where farmers come and deliver the produce. Spencer’s has its own huge farm in Hoskote.

There are processing centres and distribution centres closer to the store locations. The processing

centres are where the products get cut and cleaned, most of those operations untouched by human

hands. Big investments have gone into setting up cooling facilities — in every location and in the


38



transport vehicles — to minimise wastage and increase shelf-life. Normally, a lot of the capsicum

and tomato are broken in transport. But as companies provide crates to farmers, which ensure

proper handling.

SAFAL MARKET CASE STUDY:

The supply chains to run on their efficiency level need to build a long term relation between the

retailers and farmers for procurement and to provide extension services regarding use of inputs,

production technology, information on harvesting, prices, precooling, grading, sorting, packaging

and on-farm sorting. There is a strong need of government initiative in removing the infrastructural

constraints like setting up of distribution centres, cold chains, roads to the markets are important.

Ensuring quality and quantity of the produce to the stores is another must requirement for smooth

functioning of the supply chain. If these constraints are removed then a regular and uninterrupted

supply of the produce is assured. Setting up of an alternate terminal market by SAFAL Market is a

move in this direction. The existing traditional system of wholesale market is a set up where a

commission agent procures the produce from the farmers at a price after cutting for his charge and

then sells the produce in the wholesale market to traders and retailers. There might be more than

one commission agent in between this chain. This market has the problems of unorganised small

farmers who lack market power, they have low share in the final consumer price, the produce is

distributed through the commission agents that have no incentive for the quality and the wholesale

markets are poorly designed and congested (Coulter, 2004). The traditional Indian markets have a

non-existent infrastructure of packing, grading, sorting and cold storages. The commission agents

and traders dominate the supply chain and are the major price setters, thus most of the times

farmers are dependent on them for credit. Farmers are not aware of the price setting mechanisms as

the system is not transparent and thus don’t have any incentive to produce efficiently. Wholesale

markets are not clean, lack cold storage network and thus huge wastage of fresh produce is

observed, this wastage range between 20-40 per cent. Institutions like cooperatives, contract

farming and growers association are considered to improve producers access to markets, minimisetransaction costs and remove production constraints. It is believed that a single gateway to the

regulated markets would save time and improve efficiency. Ever since the India’s National

Agriculture Policy has envisaged the participation of the private sector through contract farming

and land leasing arrangements to allow accelerated technology transfer, capital inflow and assured

market for crop production, especially of oilseeds, cotton and horticultural crops, investment in


39



food processing industry on part of the private sector is being encouraged. This would help farmers

of fruits and vegetables through backward linkages of such investment. It is a much felt need that

the role of private institutions is to be encourages as the government’s ability to intervene is

seriously constrained by resources (Chengappa,2006). Vertical coordination of farmers with

cooperatives, contract farming and retail chains would facilitate them to deliver better output due

to lower market risk, better infrastructure, public investment, acquired extension services, created

awareness to prevailing and new technologies, better prices stable income etc. Its multiplier effect

helps in increasing incomes, output and employment (Birthal et.al, 2007).. National Dairy

Development Board (NDDB) started with a Fruit and Vegetable Unit of SAFAL at Delhi which

was one of the first fruit and vegetable retail chain set up as a unit of Mother Dairy Foods

Processing Ltd. The retail unit provided a direct link between fruit and vegetable growers and

consumers. The other initiative was a fruit processing Plant of SAFAL at Mumbai, a 100 per cent

export oriented unit, which capitalizes NDDB's food processing strength. NDDB has set up an

alternate system of wholesale markets in Bangalore as a pilot project. The initiative is named as

SAFAL Market and is initiated to fine-tune horticultural growth in India, by a shift in their earlier

retail chain model to a wholesale market concept. This market is a move to introduce a transparent

and efficient platform for sale and purchase of horticultural produce by connecting growers

through Growers’ Associations with farmers and wholesale buyers in various markets across the

country. The model involves establishment of an alternate marketing structure that provides

incentive for quality and productivity thereby improving farmer’s income. Through this approach

there is an expected increased integration between growers, wholesalers and retailers into the

market system. SAFAL Market operates outside the purview of the APMC act and the

Government of Karnataka is the first State government to amend the Agricultural Produce

Marketing (Regulation) Act to enable NDDB to own and operate such a market. SAFAL Market is

a government initiative and located near Bangalore, Karnataka and emphasise on fresh fruits and

vegetables only. Bangalore is a major horticultural producing state with a total area under

horticulture of 15.3 lakh hectares. Bangalore has a huge floating population of around 8 per cent of the total Bangalore population and the per capita demand of horticultural produce is very large,

because the city is fast growing with lot of information technology jobs. The state has a number of

horticultural satellite markets and four major wholesale markets. The existence of large and

diverse market functionaries like commission agents, pre-harvest contractors, push cart vendors

etc. indicate existence of competitive environment in the horticulture market in Bangalore


40



(Chengappa and Nagaraj, 2005). Bangalore has seen number of retail chains and new models being

initiated in last few years, but SAFAL market is the first one of its kind to establish a terminal

wholesale market. The impact of its operations are evident on farmers, traders and retailers. The

following sections would highlight on the structure and functioning, supply chain, forward and

backward linkages, constrains and achievements in this terminal market. A traditional commission

agent was charging them 8-10 per cent while the handling charges at SAFAL market are only 4.25

per cent (Chengappa and Nagaraj, 2005). Farmers selling their produce to SAFAL realize 10 to 15

per cent higher profit as compared with traditional channel (Chengappa and Nagaraj, 2005).

SAFAL Market on large has been operating successfully in over coming the constraints that the

fresh fruits and vegetables marketing is facing in India. It has been able to establish an efficient

supply chain both in backward and forward linkages. An experiment of backward and forward

integration provided by NDDB- SAFAL has benefited the farmers immensely (Chengappa, 2006).

moving ahead, SAFAL has recently set up a National Exchange of India, which is the country's

first spot exchange for trading on perishable agri-commodities including horticulture, floriculture,

dairy products and other allied commodities. This will provide on-line trading access to farmers,

milk producer’s organisations and traders across the country. The move to introduce high-tech

farm terminals will attempt to provide backward and forward linkages and is an outcome of change

in approach to agricultural marketing in India. Farmers are satisfied with the in time payment,

transparency, good price and quality of produce procured through SAFAL market.

FUTURES MARKET

Revival of agricultural commodity futures market in India in early 2000 after the ban in 1960s has

helped in integrating the food grains and other agricultural goods markets through price discovery

and price risk management. Fruits and vegetables can also become a part of futures trading through

the national commodity exchanges. At the moment due to their perishable nature, short shelf life,

inefficient storage facilities and low year long availability the horticulture products have not

entered the futures trading. The involvement of the private institution in this process will help ingetting the horticulture produce linked to markets through more private investment. Development

of the infrastructure, availability of new techniques in this process will further help in growth of

the horticulture sector. SAFAL Market is collaborating with Multi Commodity Exchange (MCX)

for creating a SAFAL National Exchange exclusively for horticulture produce spot trading and the

operations are expected to begin by March, 2008. This would be an electronic p[platform for


41



perishable commodities and thus would help in integrating the producers and buyers from different

parts of the country. The transparent price system would be able to create price awareness, leading

to a creating a better price discovery. This would further lead to linking up of all the stake holders

and also reduce post harvest losses due to storage and transportation. The system would facilitate

delivery of the produce from the shortest possible production area, leading to further reduction in

transportation cost. This will be a step forward for the development of the horticulture sector.

ONLINE /E- TRADING OF FRUITS & VEGETABLES

Overview:

Safal National Exchange of India Ltd. (SNX) provides a technology based competitive market

place with wide choice to farmers in Marketing of their perishables and other allied produce in a

fair and a transparent manner by using modern IT and improved Logistic. It is a joint venture

between Mother Dairy Foods Processing Limited(MDFPL)- a wholly owned subsidiary of

National Dairy Development Board of India (NDDB), MCX and Financial Technologies Ltd It

provides a platform, where seller can sell at the best possible rate, buyers can buy at the most

competitive rate and SNX would provide counter party guarantee in respect of all trades.SNX

facilitates provision of services like quality certification, Warehousing and Logistics and other

customized value added services .Thus SNX offers Power of Exchange technology in combination

with the F & V Expertise under a single banner, for the good of producer & consumer, in an

electronic spot market

1. Empower farmer in price discovery; Growers will have option to conclude price for their

produce for sale prior to harvest

2. Minimal intermediation- better quality, lower transaction cost

3. Narrower price spread: Farmer-Consumer

4. Trading terminals all over the country, truly National

5. Payments are guaranteed

6. Quality certification protocol administered by SNX

7. Initially on a handful of crops, finally all F&V items with negative list

8. Improvement in post harvest practices for better shelf life and Quality of Grading, Packing

& Overall delivery, match with rapidly raising expectations of quality by average urbanite


42





(iii) Multi Commodity Exchange of India Limited: MCX is an independent and de-mutualised

multi commodity exchange. It was inaugurated on November 10, 2003 and has permanent

recognition from the Government of India for facilitating online trading, clearing and settlement

operations for commodities futures market across the country. Today, MCX features amongst the

world's top three bullion exchanges and top four energy exchanges. MCX offers a wide spectrum

of opportunities to a large cross section of participants including producers/ processors, traders,

corporate, regional trading centre, importers, exporters, co-operatives and industry associations

amongst others. Headquartered in the financial capital of India, Mumbai, MCX is led by an expert

management team with deep domain knowledge of the commodities futures market. Presently, the

average daily turnover of MCX is around USD1.55 bn (Rs.7, 000 crore - April 2006), with a

record peak turnover of USD3.98 bn (Rs.17, 987 crore) on April 20, 2006. In the first calendar

quarter of 2006, MCX holds more than 55% market share of the total trading volume of all the

domestic commodity exchanges. The exchange has also affected large deliveries in domestic

commodities, signifying the efficiency of price discovery. Being a nation-wide commodity

exchange having state-of-the-art infrastructure, offering multiple commodities for trading with

wide reach and penetration, MCX is well placed to tap the vast potential poised by the

commodities market.

(iv) Financial Technologies India Limited: FTIL proven mettle of End-To-End exchange trading

technologies addressing trading/ surveillance/ clearing and settlement operations help enhance theSNX Trade Life Cycle operations (Pre-Trade, Trade and Post-Trade). In addition to its

technological capabilities, FTIL also brings to SNX its associations with technology giants such as

Microsoft/ Intel and HP. FTIL has promoted India No 1 commodity exchange (Market share more

than 62%) world’s 2nd largest exchange in Silver & Natural Gas trading volumes and the world’s

3rd largest exchange in gold trading volumes. MCX also is among the top ten commodity

derivatives exchanges in the world.


44



BENEFITS:

Direct Benefits to Farmers

1. Transparent pricing mechanism: real time price quote accessible

2. Accessibility to National Level Markets: as buyers from all over the nation is connected in

the system

3. Price manipulation is restricted to larger extent: since the system allows the participation at

national level there is no room for manipulation by any group of traders. And the

Maximum allowable open position imposed at member level will restrict the volume

handled by individual member

4. Distress selling avoided to larger extent: unlike in the existing mechanism wherein farmer

sells the produce after brining the produce to market place. In the proposed mechanism

farmer will first sell his produce and than delivers at later stage

5. Assured and prompt payment: exchange will take the third party guarantee to all the trade

that takes place on the exchange platform

Indirect Benefits to Farmers

1. Increase in productivity

2. Reduction in cost of production

3. Reduction in post harvest losses

4. Increase in marketable yield

5. Increase in quality of the produce produced

6. Access to extension services

7. Increase in risk taking capabilities of farmers

8. Inspire co-operation

Benefits to Traders/Commission agents/Forwarders

1. Traders would get a bigger market, where they can sell huge quantity

2. In physical market, they always face the risk of counter party defaults, which will be totally

guaranteed on SNX platform. A settlement guarantee fund would be maintained for this

purpose

3. Since large number of investors from all across the country would be available at SNX

platform, they can realize better price for their product


45



4. They can expand their activities to multiple commodities, because of operational ease,

availability of finance and absence of counter party risk under SNX system

Benefits to Exporters/Processors

1. Buy certified quality material through a secured platform

2. Avoid hassles relating to procurement of material in physical market

3. Looking at the price available at SNX, they can make export commitment and cover

themselves immediately by buying at SNX

4. Customized services regarding logistics can be provided

ASSOCIATES & PARTNERS:

TRADING:

Trading Mechanism

SNX follows the system of price-time priority for order matching. Members place orders on their

Trader Work Stations (TWS) and the orders get matched and executed through the order book in

the Trading engine. Members have a facility to download various reports, by connecting FTP,

through which they can access the reports such as Bhav Copy, Contract Master, Trade Report,

Margin Report at the end of trading.

Transparent trading mechanism and efficient risk management, combined with effective

surveillance, enhances the trust among the participants in SNX, for realizing reasonable price for

the produce of the farmers and other participants.

Risk Management:

Surveillance: The surveillance mechanism at SNX includes the monitoring of price movement,volatility, through real-time alerts, etc. Surveillance is also carried out in monitoring positions,

granting limits, investigating, by adopting various techniques.

Exposure Limits: The Surveillance of SNX will fix the trading limits for each Member,

depending on the margin available to their credit and monitor their positions online.


46



Initial Margin (IM): SNX levies initial margin (IM) on open positions of Members and their

clients for both buy and sell. The percentage of IM varies depending on the commodity and its

volatility. IM is calculated and reduced from the total margin of a Member available with SNX.

Exposure is given to Members, based on the balance amount available with SNX. When the Initial

Margin increases, the exposure will automatically decrease.

Mark-to-Market Margin (MTM): SNX has devised a mechanism of MTM margin to prevent

any potential loss due to price volatility, in which case the Members or their clients may commit

default. SNX will mark all trades and open positions for the day on closing price, by which the

notional gain or loss is calculated compared to the trade price. Such gain / loss is credited / debited

to the respective Member’s account on T+1 day. The CnS software automatically calculates Mark

to Market margins on a daily basis.

Special Margin: Special Margin is levied by SNX whenever there is high volatility in trading in a

specific commodity / contract. This margin is levied when price reaches a particular level

compared to previous day’s closing price.

Clearing & Settlement: SNX has efficient system of clearing & settlement (CnS) of trades. All

open positions at the end of the trading day will be compulsorily settled by delivery. CnS Dept.

will receive the information about physical receipt of commodities at the Buyer’s place through theconcerned Delivery Centre. Thereafter CnS Dept. will release the funds pay-out to the Sellers.

Settlement of all trades in SNX takes place on the Settlement Price. The members’ positions are

computed on a daily basis, depending on the settlement cycle. The information regarding pay-in

and pay-out of funds arising out of settlement of transactions is calculated and transferred

electronically to the Clearing Banks, through FTP.

MEMBERSHIP CATEGORIES:

SNX offers Three Categories of Membership:

(i) Category " A "

The following are eligible to apply in this Category:

Growers Association, Co-Operative Society - (Agri or Consumer) ,SHG (self help group) -

promoted by recognized institutions or SNX ,Producer company under Section 581 (a) to (z)


47



(ii) Category " B "

The following are eligible to apply in this Category:

State level apex co-operative societies, Marketing Federations, Marketing Boards,

Similar bodies set up by the State Governments

(iii) Category " C "

Any entity or individual desirous of membership in this category may submit duly filled in

Membership Application as per the terms and conditions of the Exchange.

Advantages

Advantages of SNX over existing Market

SAFAL National Exchange of India Ltd (SNX)” an online perishable commodity Exchange,

prompted by a joint venture of NDDB, Mother Dairy & FTIL-MCX. Headquartered in Bangalore,

SNX is led by an expert management team, with deep knowledge of the horticulture markets.With

the production estimated at around 140 million tonnes, one fourth of the global output, the Indian

commodities market offers unparalleled growth opportunities to a large section of the market.SNX

has opened its national membership, as Trading-cum-Clearing Member (TCM). Membership on

SNX offers benefits in more than one ways for market participants. It has sound technology

infrastructure through its association with market leaders such as Stratus for Fault Tolerant

Servers, Financial Technologies (India) Ltd. for Exchange Technologies, and a panel of banks forfunds transfer.

SNX Vs. Existing Market

(i) Number of Buyers and Sellers: From every nook & corner of all producing centres in the

country simultaneously present, Limited to local participants

(ii) Bargaining Power: Faceless bid, price offer by seller based only on grade with no other

inputs such as profile of seller, body language, etc., Small lots by small farmers would invariably

be at a discount

(iii) Right to reject offered price : Absolute right to define price expectation and also modify

based on the farmer's judgement/need, Virtually not an option to reject as the produce is out in

the market, besides pressures of having to return to the same trader next day


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(iv) Dependence on Local Traders: Minimised as there are options of selling on the exchange

through Farmer Association, Perpetual dependence on local traders

(v) Trade system: Has the option to first conclude on the price and later delivers produce at

delivery center, Produce to be physically brought to the market for finding out price

(vi) Grades standardization: Standardization with dispute redressal system, Informal

standardization without an effective grievance redressal system for the farmer

(vii) Price Quotation: Both buyers and seller can quote their price, Seller is the price taker

(vii) Effect of supply- Demand balance: Based on demand and supply at national level, Limited

to local balance, impact of distant market situations leveraged by middlemen

(viii) Price dissemination: Multiple Channel- electronic-instantaneous-all key centres Limited

sources after a lag of a day often, more as data than as a decision tool for the farmer

(ix) Payment: Immediately after the sale, Varies from 1 week to 1 month

PRODUCTS:

Mango,Banana,Onion,Tomato,Potato,Aplle,Citrus and Grapes

Fruits

Apple : Royal Delicious, J & K Delicious, Mango: Bangenpalli, Totapari and

Banana: Dwarf Cavendish

Vegetables

Potato : Kufri Bahar , Onion: Nashik Red and Tomato:Hybrids

CONTACT :

Safal National Exchange of India Ltd. /SNX

Safalmarket

Whitefield-HoskoteHighway

Bangalore-560067


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Ph:(080)25053000

Fax: (080) 28457382

Web:http::/www.snxindia.com or, safalindia.com

Email : [email protected]

FINDINGS

1. “India is a land of huge potential... and always will be.”

2. India’s own market for high quality fruit and vegetables is also growing strongly as itsmiddle-class expands

3. Snail-like progress of the country’s F & V industry: Lack of infrastructure, fragmentedproduction and poor quality standards

4. Along with the desi-corporate houses big-hitters in the global fresh produce trade are now

taking the opportunity to capitalise on India’s vast procurement potential

RANDOM THOUGHTS…….(PRESUMPTIONS)

1. After 5 years, with the most optimistic estimate the organized retailing sector will still nothandle more than 20% of the produce

2. Most of the fresh produce will still be going to fresh market

3. Importance of traditional markets and the efforts to upgrade the traditional market cannotbe ignored

4. Need to avoid dichotomy in the agriculture sector – those selling to modern chains andothers caught up in the low value traditional chains

CONCLUSION: POLICY AND STRATEGIES

Development of agriculture in India needs some critical management inputs particularly

that of supply chain management- collaboration among various stake-holders along with efficient

vertical and horizontal integration. The horticulture sector in particular has to prioritize

development of research in the issues of genetics, biotechnology, integrated and sustainable

production systems, post harvest handling, storage, marketing and consumer education.

Government should create a policy environment that will ensure a mutually beneficial relationship

between farmers and organised sector. Along with investment in infrastructure, development of

extension activities and linkages with farmers is also important areas where government can play

influential roles. After the successful trials of SAFAL Market in Bangalore, many state


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governments have expressed their desire to establish similar markets after they have amended their

State APMC acts (NDDB, 2004-05).

The two golden rules for successful development of the horticulture sector are to ensure

consistency in supply; and provide recorded and demonstrated traceability of products. Thus,

production and marketing strategies are the most crucial in strategy development. The

development strategy should be based on innovation. Production innovations initially focused on

efficiency and effectiveness in order to increase yields and lower costs.

India being a land of small and marginal farmers and studies have being advocating the fact that

small farmers are going to feed India, thus it is important to mobilise them and help them to

diversify to meet the increasing domestic demand of horticulture products. Small farmers are key

to initiate the horticultural revolution and with technical change and increase in internationalcompetitiveness large scale operations and vertical integration takes place. Linking small farmers

with high value urban and export markets would lead to development and growth of the rural

sector. Horticultural crop diversification should be encouraged by intercropping horticultural with

non-horticultural crops without being a threat to the nation’s food security and biodiversity. This

will yield more food, more income, and better soil health. There is a strong need to strengthen

research on horticultural crops to develop demand driven technology by improved variety, pest

management, etc. in both public and private sectors. These technologies should be quickly

disseminated through government institutions, NGOs and even private participants by encouraging

farmers’ participation and upgrading their technical capabilities.

The horticultural development requires a minimum set of basic production factors, and further

requires an optimal crop management and developing a post-harvest infrastructure; entrepreneurial

management and horticultural expertise; logistical infrastructure; and supporting financial

infrastructure. Thus the production strategy should target not only meeting domestic and export

demand of fresh products but also of the processed products. Improving post harvest operationsrelated to handling, storage, and marketing of fresh and processed produce. Volumes saved in post

harvest losses are actually the surpluses generated, without additional cost. Horticulture sector

needs to be developed as an organised industry and has to be run collectively by all the stake

holders with farmers as the entrepreneurs. The marketing cost of fruits and vegetables is almost 50


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per cent of the total cost of production, thus, there is a need to set up institutional agencies that can

advance credit to farmer and motive them to market the produce themselves.

Post harvest losses in horticultural crops range from 15-50 per cent. At micro level these looses

increase the marketing cost of the product and at macro level they also reduce the per capita

availability. Thus there is need to develop technologies, methods and mechanics to reduce these

losses. There is need to remove the distortions in the present supply chain, create more integration

between the different links of the supply chain and reduce these losses. This will result in net gain

to producers, consumers and to the nation. Farmers usually procure inputs from the retail market

and end up selling their produce in the wholesale market. Buying at retail price and selling at

wholesale price is the most uneconomic way of business. Thus the involvement of an institutional

structure in coordinating the demand of individual farmers of the village can reduce the total cost

of inputs to them. The market needs to be demand driven rather than supply driven. The price of

the produce should not be based on the prevailing whole sale price but on the basis of cost of

cultivation of that produce. Farmers should be their own price setters rather than price followers.

There is also an immediate need to integrate the production, marketing and processing processes of

the produce to get maximum benefits from fruits and vegetables cultivation. There are problem

with price structure in the marketing, the price offered by them is not justifying the prevailing

whole sale price or even the cost of production of the produce. Further successful implementing of

the core marketing strategies will help in future expansion of the domestic and international

markets. But the exports face certain tariff and non-tariff barriers too. To enhance exports their is a

need to develop air transport cargo system specialised for fresh fruits and vegetables, along with

the airports, road and rail connectivity with the area of procurements. Countries capability to

generate surpluses for exports depend on its ability to tab the potential of small farmers. For this

assistance from APEDA and exporters association as well as training to the farmers is necessary.

Quality control, longer shelf life is crucial for exports. Organic production of fresh fruits and

vegetable is important to capture markets in Europe.

Several steps are required to improve the agricultural supply chain. Farmers should start dealing

with large corporate, which in-turn would reduce large mark-up due to the large number of

intermediaries coming into picture. Contract farming is likely to start by large retail players who

will start dealing with the farmers, providing them with the right quantity and timely supply of


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inputs and ensuring the forward links upto the disposal front. As competition by the private sector

players increase, investment in logistics and infrastructure would also increase which would lead

to an increase in the efficiency of complete agricultural chain.

One important measure would be to bring more markets under regulation and supervision of a

well-represented market committee. Another measure would be the promotion and perhaps

enforcement of open auctions in the markets. Yet another measure could be efforts to bring more

buyers and sellers into the markets, bringing them closer to perfect markets. The direct

participation of farmers should be increased. Market infrastructure should be improved through

storage (go-down) facilities, cold storages, loading and weighing facilities. Improvement in the

road network, and cold-chain facilities are also of substantial importance. Greater transparency of

the operations through supervision and systems can also help substantially. The market integration

and efficiency can also be improved by making up-to-date market information available to all

participants through various means, including a good market information systems, internet and

good telecommunications facilities at the markets. Thus, efforts are needed in the direction to

capitalize on our strengths and remove constrains to meet the goal of moving towards a

horticulture lead agricultural growth in India.


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FFV Marketing

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