Introduction

It all started with a group of farmers led by Mr. Vilas Shinde, that grow fruits and vegetables on
less than one hectare of land (marginal farmers). These marginal farmers contribute around 63%
of the total farmer population of India. They stared in 2000 year, faced with many challenges
such as lack of infrastructure, extension services, quality inputs, fragmented supply chain, poor
cold storage facilities, high post-harvest losses and exploitation by intermediaries. Later years,
the group with help of various schemes were able to solve few of their problems and achieved
quality production which met the standards for export to European market.

Sahyadri Farmer Producer Company Ltd. (SFPCL) is one of the India’s Leading Farmers’
Producer Company with membership over 8000+ marginal farmers to ensure their livelihoods
and for better living standards. Sahyadri works with the principle “of the farmers, by the
farmers, for the farmers”. The company works based on the revenue model ensuring better
remunerations to the farmers by producing quality and safe food for customers. Started in 2011
with annual turnover around 14 crores, reached to turnover around 330 crores rupees as of year
2018.

Brief about the founder- Mr. Vilas Shinde: He was a post graduate from MPKVV college,
Maharashtra. He had his background as agriculture. Over the years the Mr. Vilas has worked
towards the establishment of the FPC, seeing the potential of grapes export, started exporting
grapes directly. He mentored the FPC from his past experience. By identifying the demand for
the grapes in the European markets, started cultivating high quality grapes. stabilized the
fluctuations in the export trades and standards.

Sahyadri Farms have three tier structures, where there are 12 board of directories. Mr. Vilas
Vishnu Shinde is the chairman and Managing Director of the FPC. The permanent staff
comprising of supervisors, officers, executives, managers and heads of departments are 300 in
number (appx.). The number of contractual workers exceeds the figure of 2000, according to an
employee at Sahyadri Farms.

The company started its retail and processed food divisions in 2015. By 2017 SFPCL became the
leading exporter of grapes from India with a share of 14% of total grapes exported.

SFPCL has strengthened each node of the supply chain starting from the farm inputs to the
consumer quality preferences. Trackability of farm produce is one of the key activities that had
implemented to improve the overall benefits for the farmers as well as the consumer.

We were analyzing the procurement of the farm produced by the farmers, which has already
been improvised with help of block chain technology, which was introduced into the chain. The
implementation of technology in the farms has improved the productivity of farms and helped
farmers in following ways:
 1. The farmers were provided guidance based on the farm condition and advanced weather
forecasting. This extension services were provided based on the geo tagging of the farms
and regular monitoring of the inputs provided to the crops, weather conditions and to
meet the high-quality standards.
2. It improved the productivity of the crop
3. Reduce the input cost for the crop
4. Timely suggestion to resist from harsh weather, pest attacks, and to improve the quality.
5. Input supply

Traditional procurement/selling model:

Previous model was fragmented procurement, farmers were used to sell the farm produce to the
local mandis / markets, with their own travel expenses. The individual farmers have very small
quantity, which does not give bargain power and price realization. The farmer has to sell it to the
trader/agent through auction. There is less or no interaction between the producer and the buyer.
The trader charge percentage on the farmers and the local buyer as well. The below figure shows
various paths in which a farmer can sell the produce.
The production is concentrated in the Mumbai – Nasik region and south Gujrat belt. Farmers
mostly cultivate fresh fruits and vegetables such as Grapes, Mango, Strawberries, Guava etc. On
average a farmer cultivates 200 quintal per acer per year. Average income per acer per year
ranges from 1.2 to 2 lakhs. Average land under cultivation per farmer is less than hectare,
marginal farmers. The 80 – 90% produce was sold in local mandis/markets and rest is used for
self-consumption. The Weighing was done through traditional weighing equipment, which was
not accurate. Due to such practices, the farmer loses 2-3% per lot.

Commission agent charges both the farmer and traders, 6-7 % on total value of transaction for
traders and 3% for the farmers. Trader gets the benefit of lower transportation cost due to
economies scale achieved through aggregation.

Cold storage facilities are not available in the existing market areas, due to lack of cold storage
facilities on an average 10-12% of produce is lost due to spoilage.

Farmers:

Farmer grows both local and hybrid verities, they cultivate, harvest, collect, sort, and pack the
produce and take it to local market to sell it to commission agent.

Commission agents:

These are licensed agents providing common trading platform to farmers and traders. Farmer
bring their produce to the commission agent in the local mandis and commission agent provide
auction platform where traders/wholesalers visit to purchase the commodity. Certain amount of
commodity kept as inventory by the agent to deal with demand fluctuation at his own risk.
Payment is done to the farmers by commission agent in three ways, 1. Spot payment, 2. Adjusted
against loan taken for cultivation by farmers, 3. Next day or delayed payment

Trader/ wholesaler:

Trader quote a price as per their willingness to pay for the produce, commission agent verifies
the product manually and present to the trader. Negotiation is done on price and time of payment.
Buyer pack the material and takes it by himself. Labour is provided by the wholesaler for loading
and unloading. Average labour cost is Rs. 10-12 per kg. Wholesaler takes the produce to retailer
in near by city markets and charges 10-12% margin.

Retailer:

Retailer purchases from the wholesaler and sell it at a markup price in accordance with he cost of
selling. Final price to end customer varies from retailer to retailer.
 Farmer Agent Trader/Wholesaler Retailer End Customer

•Transportation •2-3% •Transport cost •markup pricing

cost to mandi commission •10-12 % based on cost
from farmers margin on of selling
•6-7% sales •inventory
commission •Labour cost holding cost
from traders
•Inventory
holding cost

The challenges faced by the farmers through traditional channel (without any FPC) are as
follows:

1. Has to travel to local mandi for selling the produce (Incur transport cost)
2. Price fluctuation in mundi
3. Losses due to improper weighing mechanism and traditional age-old weighing equipment
(even stones are used as weights) (average 2-3% of weight losses)
4. Quality assessment by agents (through visual and intuition) – manual grading.
5. Less bargaining power for farmer
6. Vicious circle of debt trap
7. Losses incurred in export due to rejection from importing country was not shielded,
directly transferred to farmers by trader.
8. No economies of scale

Business case for procurement model:

The current model of procurement is managed by the SFPCL (producer company), the company
act as the aggregator and collected the produce from the farm with transport by FPC.

Export
Farmer FPC
Local Trader/
Bulk purchaser

Farmer:
Farmer grows both local and hybrid verities, they cultivate, harvest, collect, sort, and pack the
produce and sell it to FPC through collection centers. By selling to FPC, the farmers avoid the
transportation cost and also the bypass the two intermediaries (i.e agents and traders)
commission. Hence, due to this FPC is able to provide 12-15% extra margin to farmers
compared to traditional channel.

FPC:

FPC collects the produce from the farmers through their collection centers and farms directly.
Since FPC acts as an aggregator and hence the gets the benefit of economies of scale through
reduced transport cost, labour cost. FPC bears the inventory holding cost and takes the risk of
dynamic prices in the market. The risk is divided among the members equally and built
resistance to such risk over the years by accumulating some part of profit as reserves and surplus.
FPC sell the collected produce to traders in domestic markets and export to foreign markets
(European market). Due to exchange rate advantage, they are able to sell the produce in export
market at average of 250-300% of procurement cost. For example, one kilo gram of grape is
procured at Rs.30 from a farmer and sold at Rs.100 -120 per kg in export market. This provide
higher price realization to the FPC and this is transferred to the farmer members in the form of
higher procurement price compared to traditional channel. Hence profitability of each
intermediary in the chain increases by adoption of FPC model. Farmers profitability increased by
12-15%. The profitability to FPC helps in covering the transport, labour and inventory cost.

Is there any commerce?

Yes, there is commerce in the above case, there are transactions happening among the different
stakeholders in the chain.

Is there any Business in the case?

Yes, fixed asset is created for transportation, inventory holding, transactions, relationships
between stake holders.

This is third type of model, Commerce is subset of business .

Business – Fixed asset

creation, relationship
building, brand
creation

Commerce
(Transactions)