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Delivering Simultaneous Benefits to the Farmer and the Common Man: Time to Unshackle the Agricultural Produce Distribution

System
Intro. : - India, as the saying goes, lives in her villages; unfortunately poorly, one might add. Even though 72% of the population lives in rural areas and coincidently a similar number depends directly or indirectly on agriculture, the share of agriculture sector is so fragmented and undifferentiated that changes are indeed unavoidable and accepted as inevitable. Why then, we must ask ourselves, when improvements are happening in other Asian countries, has the Indian agri-produce value chain remained so stubbornly unchanged at traditionally low growth rates? Field Study:1) Price received by farmer vis--vis end consumer price. 2) Wastages at various stages of distribution system 3) Role of each intermediary, relative risk taken by them, process cycle time, and price realization in the traditional channel. 4) Operation of agriculture market yards 5) Quality, Hygiene, and Shelf life of agri-produce Highlight of Findings Price: - Lack of price transparency, Smaller harvest lots, Pilferage at various stage. Wastages: - Poor and Multiple Handling, Improper bagging, Lack of temperature-controlled vehicles and storage facilities and poor infrastructure. Relative risk versus realization: - The incremental cost added on at each juncture of the lengthy distribution chain was disproportionate to the value added, time spent or risk taken at each link of the chain. Operation of agriculture market yard: - New set of regulatory agents overseeing the movement and sale of produce resulting in having to deal with significant red tapism. Quality, Hygiene and Shelf Life: - Lack of storage capacity to handle the volume of daily arrival of vegetables, Lack of preservation under temperature-controlled condition. Suggested Changes to the Distribution System 1) Encouragement of direct dealings with farmers via dis-intermediation. 2) Educating farmers in methods to improve yield and in selecting the best commercial crop based on consumer needs. 3) Aggregating demand at the village level and carrying out the grading/packing activity at an appropriate infrastructure to ensure global standards of hygiene and quality. 4) Ensuring prices to the farmers/producers commensurate with their value added and risk undertaken. 5) Minimizing the wastage at each stage of the supply chain through improvements in handlings, packing, transportation and storage. 6) Establishing freely accessible information platforms for a transparent brokerage of prices and qualities of agricultural products. Conclusion In conclusion, the largest value-creating potential for the farmer and value-appropriation potential for consumers in waiting to be unleashed through better management of the agriculture produce distribution system.

TABLE 1. Traditional Distribution System: Prices and Markup


Price per kg of produce Price paid by end consumer(INR) Price received by farmer(INR) Markup(%)(price paid by end consumer to the price received by farmer) Tomato Potato Cabbage Cauliflower Banana

8.20 2.00 310

12.00 6.60 82

9.00 5.00 80

9.50 5.50 73

12.00 4.00 200

TABLE 2. Traditional Distribution System: Wastage, packaging, transport, and material handling costs Tomato Cumulative wastage (%) Packing, transport, and material-handling cost(INR)(per kg of produce that reaches the end consumer) 40 1.37 Potato 24 0.84 Cabbage 36 0.78 Cauliflower 24 2.27 Banana 30 0.58

TABLE 3. Roles: value addition and price realization in distribution system agriculture produce Role in the distribution chain/value addition Farmer Farming Consolidation, sorting, grading, packing, transportation/provides market reach Storage, bulk breaking, link between supplier and customer/market reach Storage, bulk breaking, assortment Storage, bulk breaking, assortment Risk taken Cycle time 2.5-4 months for tomato, potato, cauliflower, and cabbage. 11 months for banana* Commission 5%10% From 6.6% for cabbage to 28% for banana From 2% for cabbage to 13.7% for tomato From 10.5% for cabbage to 55% for tomato Gross margin

Consolidator

1-2 days

Market wholesaler Semiwholesaler

1-2 days

1-2 days

Retailer

1-4 days

TABLE 4. Modern Distribution System: Prices and Markup Price per kg of produce Price paid by end consumer(INR) Price received by farmer(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 5. Modern Distribution System: Wastage, packaging, transport, and material handling costs Tomato Cumulative wastage(%) Packing, transport, and material-handling cost(INR)(per kg of produce that reaches the end consumer) 25 1.09 Potato 18 0.78 Cabbage 12 0.47 Cauliflower 12 0.63 Banana 20 0.52

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 Wastage: 10%

Consolidator: Commision:10% wastage: 8%

Agriculture market yard(traders/ commission agent 1~2% commission)

Processor

Consolidator Commission: 10% Wastage: 2% Organized Distribution outlets Price: INR 3.33 Wastage: 5%

Market wholesaler: Price: INR 2.50 WASTAGE: 5%

Overall price markup 310%

Price markup 225%

Semi-wholesaler: Price: INR 3.33 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

TABLE 6. Benefits to End Consumers: Traditional Distribution System vs Modern Distibution syatem 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 vs Modern Distibution syatem Price per kg of produce Traditional distribution system(INR) Modern distribution system(INR) Improvement(%) 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