Case5-April-2014
Marketing agricultural commodities and other related products involves middlemen who make a dent in the income of producers and also costing consumers too much. There is a rapid transformation in agricultural produce marketing, the products are getting less exposed to open market sales through street vendors, weekly shandies especially in Cities. Big corporates are trying to capitalize the regular market which prevails for these commodities by establishing their own system of procurement and marketing, the cost of which in inbuilt in the product they market. Growing importance to vertical coordination through contract farming which includes input supply like seeds, fertilizers, technical guidance and credit lures farmers to grow high-value commodities is also a cause of concern. The demand for such produce will not remain uniform and drastic change may happen which will force the organizations to breech the contract as happening the case of Safed musli, Coleus, Aloe vera etc. There is also emphasis on quality, standards and traceability.
The consumer demands are also changing in the fast paced world, the type, form and quality of products deciding their demand. Increasing health consciousness among upper class and upper middle class has made them to seek produce which just doesn’t fill their stomach and satisfy their taste buds, but also which ensures that their body remains healthy. Ready to eat and fully processed products/value added products which are ready to cook are getting more popular. You can see attractively packed “Masalas” and ‘Ready mixes’ now even at a small grocery shop in a village. Quality and safety conscious also has increased (e.g., organic stores)
Linking farmers both with the input and output market is crucial and production push focus is no longer a viable option. Ad hoc sales of small surpluses are also not realistic as the farmers could not capitalize on the demand for the produce due to increased transaction and processing cost (for e.g. like in the sales of little millet – Samai in Jawadhu hills. A long term approach is needed in designing a market strategy and farmers must be kept ready to respond to the market demand (what produce to grow, how much and when). Also long term business partnerships offer great scope for increased earnings. Institutions play five potential roles in strengthening markets for commodities produced, bought, and sold by smallholders: reducing transaction costs; managing risk; building social capital; enabling collective action; and redressing missing markets.
As a facilitating institution Kalanjiam Thozilagam limited can offer services to reduce market cost and market risk and for enabling collective action. The people institutions promoted through different programs can provide the necessary support for increasing social capital and credit and facilitate formation of primary producer/marketing groups and their nested producer organization.
Market for agricultural produce is highly fluctuating, sometimes even forcing to break down of contractual arrangements, as experienced in marketing Coleus, Neem Leaves, Gerkhins, Aloe vera, safed musli etc. There is also a risk that the buyer will break on an agreement when he sees the opportunity of another potential customer through whom he can reap higher profits.
However they are likely to have some disadvantages like high transaction cost (may have to open different procurement centers), input diversion to other prospective crops, extra contractual marketing, traceability problems when buying from many farmers (different PPGs) and supply interruptions.
The produce from farm reaches the consumer through many means. Though different forms of marketing channels have evolved the basic system of reaching out the produce still remains intact in villages. The different forms of linkages can be broadly classified as follows
For a successful linkage there should be profitable market for the produce. The capacity of the linking organization, mutual trust between parties involved, enabling environment, scale of operation, organizing farmers into collectives through business orientation, maintaining linkages and managing such groups, realism in approach and ensuring sustainability are the key factors.
Markets must be available and profitable. Potential risks involved in market are rapid price fluctuations, highly competitive market and limited number of buyers. Not only the market but also the marketing chain must be fully understood to minimize the length of the chain
Capitalizing on the existing opportunities (gaps in the market) is crucial for success for e.g. developing a local market and import substitution. For example in case of small millets 90 % of them are transported to Nashik for processing and re-transported to Tamilnadu for Marketing, thereby escalating the cost for consumers. Such cost of transaction can be minimized by identifying potential spots for processing at local level. Promoting local consumption, High-value products (organic product marketing), Value addition, Niche marketing and fair trade will also facilitate effective marketing.
Many linking organizations lack a business orientation. This is especially true in the case of many Nongovernmental organizations (NGOs) as they are accustomed to non-profit activities. Difficulty in attracting right staff and residual suspicion of private sector also affects the capacity. To improve the capacity of linking organizations trainings on contract negotiations, market research, value chain analysis and business management are vital.
Contrary to the regular notion, subsidies are incompatible with efforts to develop profitable and sustainable business ventures. Non-profit organization and other linking organizations have in past often had a subsidy orientation, which is not viable option thinking on a long term basis. Available resources should be spent on linkage development, training, market assessment but not on farm inputs or marketing. The benefit through subsidy support for large-scale agro-processing machineries and equipment’s is also questionable. It is better not to rely on subsidies for marketing of farm inputs.
Developing mutual trust is very difficult with respect to marketing as each and everyone involved will operate with a profit motive. However a fair, long term and sustainable trade linkage through which everyone gets benefited to the optimum is possible if mutual trust gets established. Many linkage activities breakdown because of disagreements like lack of understanding of long term benefits, no social capital and parties remote to each other. From an agro-food company perspective the major problem is extra-contractual as in the case of sugarcane.
The policy environment should facilitate linkage development both directly by the private sector and through project interventions. In doing so governments need to avoid
Besides this stable macro-economic environment, good and clean government without corruption is necessary to attract investors. The legal and regulatory framework should facilitate adherence to contracts, promotion of farmers collectives (producer companies and cooperatives), fair trade and enhance value of the produce (Good Agronomic practices GAP, organic certification)
Infrastructure like transport (rural roads, highways, port
and airports), communication (not a problem now and
yet day to day market information is still unavailable
to farmers due to lack of appropriate systems), power,
water supplies and storage facilities (godowns, cold
storage units) are very crucial. Post-harvest loss of
produce is very high in our country (40 to 50 %)
contributing to a loss to a tune of र 2,00,000 lakh crore,
every year which implies explicitly that our post-harvest
facilities are very weak
In country like India with small and marginal farmers like fragmented landholdings, collective farming and collective marketing is the best way to reap higher profits. The NGOs and donor stress on organizing people into groups for any developmental intervention and the same holds good commodity based/activity based business groups. People may have reluctance to work together since it necessitates sharing of profit on uniform basis irrespective of their contribution of the activity in terms of labor (even though the investment is uniform).
So the economic benefits, group norms should be made clear to establish trust. However it is easy to involve people who are organized into groups as in the case of people institutions promoted by DHAN across various themes. The type of activity chosen may differ according to context and what is important is the scale, market demand for the produce, mutual trust and commitment among the members to undertake the business activity chosen.
However more stress should be given on capacity building of such farmers groups to run the business as a profitable activity. Training on market intelligence, account keeping, entrepreneurial skills, contracts negotiating, conflict management, maintaining transparency in activities and how to react quickly to changing demands of the market, planning and logistics, legal compliance etc., can be the part of such trainings.
Linking farmers to market is not synonymous with social welfare and there is a risk of sustainability, replication and scalability of such operation in such external linkage interventions. Hence more caution has to be exerted while devising the strategy for a particular intervention. Experts should be rope in to provide a clear guidance to farmers.
Many external linkage activities have large number of partners who may not always share the same approaches and motives, and if there are too many cooks like this it will spoil the sport. We should be realistic in planning, expectation and execution. Also should remain flexible and learn from mistakes.
Sustainable small improvements are better than unsustainable large one keeping in mind the principle of ‘Small is Beautiful’. Sufficient backup to farmers by way of appropriate credit with reasonable time scale and interest to meet the financial needs of the farmers will be an added asset. Last but not the least nonprofit organizations should not shy away from private sector enterprises with business motive. Linkage with suitable private sector will remain only as an additional benefit and not as a burden. Small traders can remain as an effective linkage as they always look forward and respond to new trends. There is no specific model available for success of collective farm business and it may vary according to the context and type of produce we market. The prime focus however should be on profitability. Kalanjiam Thozilagam Limited has good experience in guiding the farmers towards profitability.
The Kalanjiam Thozilagam Limited can provide production oriented backward linkage through supply of agricultural inputs and raw materials. Seeds, fertilizers, pesticides, organic inputs, technology, agricultural implements, transport and logistics, primary processing support, quality control, support for formation of primary producer groups and capacity building services can be provided by KTL. As a forward market oriented linkage KTL can facilitate marketing of the produce/product, price negotiation and fixation, market intelligence support, packaging and forwarding, branding and feedback on quality.
KTL has experience in marketing of Maize, chilies, charcoal, dry fish, fish meal, medicinal and aromatic plants, small millets and has floated producer organizations for marketing Ramnad chilies, Charcoal, Tamarind, Milk (Anandham dairy), Vegetables (Thottam initiative) and medicinal plants. This has been done by coordinating with existing people institutions promoted under various thematic programs of DHAN Foundation. The past experience shows that these interventions were not free from constraints.
Some of the constraints like priority of people institutions over welfare measures rather than business interventions, lack of business knowledge and skills among grassroots workers, insufficient manpower, no continuity of supply due to seasonality of the produce, though there is demand in produce, financial constraint to hold large volumes for future sales and competitors behavior has hindered the effect of KTL to some extent.
To overcome this in future capacity building of field staffs towards business oriented approach, long term planning with demand potential analysis, building a corpus at federation for such business interventions, making people institutions to work on target mode to enable formation of producer companies with sufficient scale for viability are to be done.
There is huge potential for KTL to link with the vayalagams, Kalanjiams, rainfed farmers groups and coastal agricultural groups. A clear base already exists. What is needed is a clear plan for business intervention on part of the locations and regions. Each location and region must come up with a livelihood plan with focus and scope for formation primary producer and marketing groups. Identify the product/products which have high degree of market potential. Assess the weakness in the existing system and how far it affects the producers and consumers. Do a detailed plan for an alternative system, which can do away with the gaps. A regional level planning will give a clear idea about whether we have the scale to make the business profitable. If there is good potential, they can join hands with Kalanjiam Thozilagam Limited to implement it in a most appropriate manner.
The planning should start from grassroots to analyze the need of the community and the same should be matched with market demand. Accordingly federations/regions can extend their support for forming producer groups with the guidance of Kalanjiam Thozilagam limited. There is no business without competition and we should plan with a long term vision to achieve solid results for benefit of the community with whom we are working.