ByAtul Kumar Singh (27) Nishanth G (79)

According to census 2011, 72.8 % population lives in rural areas. Agriculture is the predominant occupation, accounts for about 52 % employment and contributes 14.6 % to Indias GDP (2011). India is second largest fruit and vegetable producer, accounting for 10.9% and 8.6% of the world fruit and vegetable production respectively.

Diverse: Ranges from small to large farms Mainly look after by tenant farmers, owner farmers or full farmer families. Marginalized in Indian food chain Limited power to determine what is grown. Inadequate information on rainfall, watertable, weather and the market Unavailability of adequate power.

Farmers sell their produce to consolidators who in turn sells their produce to a range of wholesalers and retailers Cumulative wastages of fruits and vegetables may go up to 40 %. Poor post harvesting practices, improper transportation, storage and handling activities are the main reasons.

Unorganized Presence of several intermediaries Lack of transparency in prices Poor marketing Infrastructure Poor linkages of the marketing channels

Farmers realization as a percentage of the end consumers price is only a small proportion. Consumer ends up paying higher price.

To arrive at a Distribution Model that provides more income to the farmer while simultaneously reducing prices to the end consumer.

A field study was undertaken covering Tomato, Potato, Cabbage, Cauliflower (which altogether account for nearly 50 % of the total vegetable production) and Banana.

Price received by farmers vis-avis end consumer price Wastages at various stages of distribution system. Role of intermediary, relative risk taken by them, process cycle time and price realization in the traditional channel

Operation of agriculture market yards. Quality, hygiene and shelf life of agri-produce.

TABLE 1 Traditional Distribution System: Prices and Markup Price Per Kg of Produce
Price paid by end customers (INR) Price received by farmers (INR) Markup (%) (price paid by end consumer to the price received by farmer)

Tomato
8.20 2.00 310

Potato
12.00 6.60 82

Cabbage
9.00 5.00 80

Cauliflower
9.50 5.50 73

Banana
12.00 4.00 200

TABLE 2 Traditional Distribution System: Wastage, Packaging, Transport Material handling Costs Tomato
Cumulative Wastage (%) 40

Potato
24

Cabbage
36

Cauliflower
24

Banana
30

Packaging, Transport Material handling Cost (INR) (per kg of produce which reaches the end consumer)

1.37

0.84

0.78

2.27

0.58

Price: The absence of multiple outlets for sale, lack of price transparency at the rural market yards and compulsion to sell the produce brought to the yard led to poor price realization for the farmer. The uninformed farmer brought in undifferentiated mix of size, shape, and quality, preventing him from realizing better value for his produce. Majority of farmers has small harvest lot resulting in diseconomies of scale of transportation and hence lower net realization. Pilferage at various stages of supply chain also reduce the net realization further

At a broad level, there was wide variation in the price gained by farmer and price paid by end consumer. Wastages: The cumulative wastages across the supply chain varied from 24%(Potato) 40%(Tomato). Main reasons were poor and multiple handling, improper bagging without crating, lack of temperature controlled vehicles and storage facilities, poor infrastructure (Roads, warehouses and market yards)

Relative risk Vs. Realization: The incremental cost added on at each stage was disproportionate to the value added, time spent, or risk taken at each link of the chain Operation of Agriculture Market Yard: The legislation for market of operation yard has resulted in creation of a new set of regulatory agents overseeing the movement and sale of produce. In practice, it has only created Red Tapism and has not benefited the consumer and farmer. Dealing with unionized labor and regulated transportation system also adds to the problem.

Quality, hygiene and shelf life: Wholesale market was congested and lack storage capacity to handle sufficient volume. Overall conditions were unsanitary due to accumulation of waste and lack of drainage. The shelf life of vegetable was curtailed due to lack of preservation.

TABLE 3 Roles: Value Addition and Price Realization in Distribution System AgriProduce Role in the Risk Taken Cycle Time Gross margin Distribution Chain
Farmer Farming 4 2.5-4 months for vegetables and 11 months for banana 1 - 2 days Commission 5% - 10 % From 6.6% for cabbage to 28% for banana. From 2% of cabbage to 13.7% for banana. From 10% for cabbage to 55% for tomato

Consolidator

Consolidation. Sorting, packing, transportation Storage, bulk breaking, link b/w supplier and customer Storage, bulk breaking, assortment Storage, bulk breaking, assortment

Market wholesaler

1 2 days

Semi-wholesaler

1 2 days

Retailer

1 4 days

*Risk Taken: 1 Low, 2 Fair, 3 Medium, 4 High

Current System

Modern System
Realization Up by 25% due to reduction in wastage

Producer Price: INR 2.00 Wastage: 20%

Processor

Producer Price: INR 2.00 Wastage: 10%

Processor Consolidator Commission: 10% Wastage: 8% Agriculture market yard (trader/ commission agent 1-2% Commission) Consolidator Commission: 10% Wastage: 2%

Market Wholesaler Price: INR 2.50 Wastage: 5% Overall Price markup 310%

Organized Distribution outlets Price: INR 3.33 Wastage: 5%

Semi Wholesaler Price: INR 3.33 Wastage: 5%

Price markup 225%

Retailers Price: INR 6.50 Wastage: 10%

Retailers Price: INR 8.20 Wastage: 10%

Ultimate Consumers Price: INR 8.20

Price Down by 21%

Ultimate Consumers Price: INR 6.50

Current System

Modern System
Realization Up by 22% due to reduction in wastage

Producer Price: INR 5.50 Wastage: 10%

Processor

Producer Price: INR 5.50 Wastage: 5%

Processor Agriculture market yard (trader/ commission agent 1-2% Commission) Market Wholesaler Price: INR 6.50 Wastage: 5% Consolidator Commission: 5% Wastage: 2%

Organized Distribution outlets Price: INR 7.50 Wastage: 2%

Semi Wholesaler Price: INR 7.50 Wastage: 4%

Overall Price markup 73%

Price markup 55%

Retailers Price: INR 8.50 Wastage: 4%

Retailers Price: INR 9.50 Wastage: 10%

Ultimate Consumers Price: INR 9.50

Price Down by 11%

Ultimate Consumers Price: INR 8.50

TABLE 4 Modern Distribution System: Prices and Markup Price Per Kg of Produce
Price paid by end customers (INR) Price received by farmers (INR) Markup (%) (price paid by end consumer to the price received by farmer)

Tomato
6.50 2.00 225

Potato
11.00 6.60 67

Cabbage
8.20 5.00 64

Cauliflower
8.50 5.50 55

Banana
10.50 4.00 163

TABLE 1 Traditional Distribution System: Prices and Markup Price Per Kg of Produce
Price paid by end customers (INR) Price received by farmers (INR) Markup (%) (price paid by end consumer to the price received by farmer)

Tomato
8.20 2.00 310

Potato
12.00 6.60 82

Cabbage
9.00 5.00 80

Cauliflower
9.50 5.50 73

Banana
12.00 4.00 200

TABLE 5 Modern Distribution System: Wastage, Packaging, Transport Material handling Costs Tomato
Cumulative Wastage (%) Packaging, Transport Material handling Cost (INR) (per kg of produce which reaches the end consumer) 25 1.09

Potato
18 0.78

Cabbage
12 0.47

Cauliflower
12 0.63

Banana
20 0.52

TABLE 2 Traditional Distribution System: Wastage, Packaging, Transport Material handling Costs Tomato
Cumulative Wastage (%) 40

Potato
24

Cabbage
36

Cauliflower
24

Banana
30

Packaging, Transport Material handling Cost (INR) (per kg of produce which reaches the end consumer)

1.37

0.84

0.78

2.27

0.58

TABLE 6 Benefits to End Consumers: Traditional Distribution System Versus Modern Distribution system Price Per Kg of Produce
Traditional Distribution System (INR) Modern Distribution system(INR) Improvement (%)

Tomato
8.20 6.50 21

Potato
12.00 11.00 8

Cabbage
9.00 8.20 9

Cauliflower
9.50 8.50 11

Banana
12.00 10.50 13

TABLE 7 Benefits to Farmers: Traditional Distribution System Versus Modern Distribution System Realization by Farmers for 100 kg of produce
Traditional Distribution System (INR)
Modern Distribution system(INR) Improvement in Realization (%)

Tomato
79.15
98.76 25

Potato
561.60
583.44 4

Cabbage
426.00
430.13 1

Cauliflower
390.00
474.36 22

Banana
342.00
353.40 3

Benefits of Modern Distribution System:

Reduction in waste Increase in supplies Reduce in prices Lesser number of intermediaries Less Packaging, Transportation, and handling Costs

Role of Government:
Encourage long term relation Increase Facilities APMC Laws

Benefits From Private Players: (Amul, ITC, Metro and Mother Dairy)
Revolutionize Agriculture Distribution System Awareness Employment Impetus for rural growth

Effective flow
Competitiveness Efficiency Real-time Information

Major Changes Taking Place in Agriculture produce in India:

Encourage of direct dealing with farmers. Educating farmers to improve yield. Selecting best commercial crop based on consumer needs.

Multiple roles played by farmers.

Ensuring global standards. Improved handling and facilities. Freely accessible information.

The existing channels has no other option than to change and modernize itself. Given the constraints (technology, power, infrastructure), it may take time to change but in todays global economy, India cant deny opportunity to vast population whose livelihood is dependent on agrarian economy. Traditional retailers will become more competitive through improved business practices and technology upgradation.

Farmers benefit significantly from the option of direct sales to organized retailers.