Explore Ebooks
Categories
Explore Audiobooks
Categories
Explore Magazines
Categories
Explore Documents
Categories
February 2006
Submitted by:
Cesar Flores
East-West Management Institute Inc.
Executive Summary
1.0 Introduction
Executive Summary
1.1 Background
1.2 Comparison of Greenhouse Systems
1.3 Constraints
1.4 Objectives
Executive Summary
This report provides an analysis of the market potential and a recommended market
strategy for greenhouse grown vegetables and other fresh produce from the Rural
Economic Development project demonstration farms in Azerbaijan. It is intended to
offer guidance to the producers on ways to approach decision making in their efforts
to enter domestic and international markets. A number of simple and practical
implementations can be made in individual and joint greenhouse operations to
optimize production and make marketing choices that will maximize prices and sales
volume as well as return the highest profits to the producers.
1.0 Introduction
1.1 Background
IRC’s Rural Economic Development Project was initiated in September 2004 with a
goal to establish profitable and sustainable agricultural production and processing
systems in order to improve food security, increase farmer income and assist in the
building of integrated rural market chain systems in nine targeted regions of
Azerbaijan. A central objective was the creation of nine demonstration farms with
greenhouses that incorporate a blend of advanced technology and local materials. The
greenhouses feature hydroponic systems and the capability for both vegetable and
seedling cultivation with the flexibility to divide or change production to meet market
conditions.
The farms have community limited liability shareholder ownership, with an average
of 5 shareholders per farm. The shareholders have a wide range of business
backgrounds, but in general, they are entrepreneurs with little direct farming
experience, and are new to the commercialization of agricultural products.
Flood Irrigation
Soil
Thermostat controlled
Forced air heating
Drip irrigation
Sterile media
Both styles of greenhouses have advantages and disadvantages from both operational
and production perspectives (Tables 1 and 2):
In general, the demonstration greenhouses are more expensive to construct and install,
but less expensive to operate. The lower operating costs are due to savings in fuel,
pesticide application and labor. Fertilizer applications may also be less expensive,
when controlled doses delivered by Fertigation are compared to bulk applications of
commercial fertilizers on soil.
Equally important, the traditional Azeri greenhouses are in use precisely because they
are able to produce crops at a profit. They are not an inferior system, and may be the
more appropriate choice in some cases, especially for the undercapitalized investor.
The key existing constraints that must be confronted to ensure a greater chance of
success for the demonstration farm enterprises include:
• Cool season greenhouse crops generate much higher per kilogram production
costs than field crops and must be offset by buyers willing to pay higher
prices to the growers
• Horticultural crops have volatile seasonal price movements and require careful
planting schedules to capture the market trends
• Fresh horticultural crops have a limited shelf-life and demand fast time-to-
market logistics. The demonstration farms are located in regions with poor
road conditions and are generally far from urban markets
These pre-production issues may be resolved with a strategy that incorporates product
varieties which give higher likely net yields, techniques that take maximum advantage
of the greenhouse ability to extend production into the higher priced periods, and a
focus on reducing losses through post-harvest product quality management.
1.4 Objectives
• Identify crops with the highest returns in the highest priced target market
Rural and regional markets are unlikely to support sufficient demand in the price and
volume necessary for a profitable greenhouse operation. Thriving urban markets for
horticultural crops are the Azerbaijan capital, Baku; and Moscow in the Russian
Federation.
Russia was estimated to purchase almost $15 billion of food and agricultural products
in 2005. Retail sales are growing at impressive rates, 12% in 2004. Forty four percent
of products sold through retail are imported from abroad. And according to experts,
90 percent of food prepared in restaurants and cafes in Western Russia is imported
(USDA GAIN Report: RS5318, 2005).
It is generally estimated that 60-80% of fresh Azeri produce is grown for export to
Moscow. Much of the Azeri-Russia trade, although well established; is
undocumented, moves through unofficial channels and is little understood by
outsiders. However, it cannot be accidental that immigrants from Azerbaijan have a
well-known reputation for firmly controlling Moscow’s outdoor vegetable markets.
In just one example, the region centered on the town of Shamkir in northern
Azerbaijan has several dozen sustainable greenhouse operations that enjoy a robust
trade in fresh tomato, cucumber and greens with Russia. This evidence indicates that
the high transport and transaction costs to Russia can be overcome. Additionally, this
provides a ready model for the newly established demonstration farms for potential
export market development.
Fresh vegetable trade with Russia should not be rejected as a target market for this
project’s produce when considering the traditional trade relationship and considering
that Azerbaijan’s neighbor is now one of the world’s fastest growing economies.
At this time, technology has been provided in the nine demonstration farms for only
greenhouse cucumber and tomato crops.
• Long shelf-life to withstand potentially long, difficult road transport and other
post-harvest delays
Appropriate cultivars that meet these criteria and available in Azerbaijan are:
Marissa F1. An early-maturing indeterminate tomato hybrid with vigorous plants and
a high yield potential. Produces firm, round to flat round fruits that weigh 150-170 g,
have good shipping capability and hold well, without loss of quality, for over two
weeks after picking. Suitable for the fresh market. Resistant to Tobacco Mosaic Virus,
Cladosporium fulvum (races 1-5), Alternaria stem canker, Verticillium wilt, Fusarium
wilt (races 1 and 2), Fusarium crown and Root rot . Recommended for trellis culture
under glass, plastic and in the open field.
Marfa F1. An indeterminate tomato hybrid with an early maturity, very good vigor
and excellent root system. Produces firm, round fruits that weigh 130-160 g and hold
for up to 15 days at room temperature after picking. Suitable for fresh market. Fruit
setting is very good even at subnormal temperatures (1-2 C lower than for other
hybrids in its class). Resistant to Tobacco Mosaic Virus, Verticillium wilt, Fusarium
wilt (races 1-2), Cladosporium, Nematodes, Gray leaf spot and Fusarium crown and
Root rot. Recommended for trellis culture under glass, plastic and in the open field
Tomatoes prices follow a steep seasonal pattern in the Baku markets (table 3).
10
R
8
4 W
1000 J F M A M J J A S O N D
AZM
Generally, prices are high in winter and early spring, and are low in the summer
reaching their peak in early April. An optimal planting schedule includes two cool-
season crops, timed to harvest during the highest price months:
Nine identical greenhouses producing similar products provide the opportunity for
strong economies of scale. The larger the volume of product marketed, the greater the
scope for lowering unit costs. Leveraging of financial resources is possible through
interfirm collaboration. A marketing group formed with the nine demonstration farms
will encourage the following cooperation:
Opportunities can be created for the growers themselves to become input suppliers, as
in the case of a single greenhouse propagating seedlings for distribution to all nine
greenhouses; or one of the growers can undertake the manufacture of packaging for
use by the group.
Establishing a single trade brand has the advantage of building consumer recognition
and loyalty. Agricultural Brands are often associated with a geographic reference.
This will leverage the existing value and fame Russian consumers attach to
"Azerbaijan grown" tomatoes. The graphic images and the name itself should be
associated with Azerbaijan culture to add impact to the recognition. Appropriate
examples are:
A generic brand for second grade produce can also be created for either the domestic
or export market.
It is not sufficient for growers to have accurate final market price information to
negotiate the prices they receive. They must also be aware of marketing margins.
Knowing the real costs that accumulate after the product leaves the farm, gives the
grower negotiating strength. Tables 4 and 5 describe sample market value chains for
tomatoes in the Baku and Moscow markets during the peak price season:
1431 2
6821
3241 100
Analysis of the price increases in the supply chain also helps the growers make
decisions about possibly capturing more of value by integrating forward. For
example, by supplying their own transport and acting as their own intermediary.
0.75
US Dollars per
kilogram
0.10
0.17 3.00
0.44
0.20
1.34
Product uniformity and coordinated operations across all nine demonstration farms is
essential to sell under a single brand. This can be achieved by all growers in the group
by:
Tomatoes. After growing out the crops using similar fertilization regimes, tomatoes
are best harvested when “mature-green” and not “firm-ripe” as is common practice
for local consumption. Tomatoes should be uniform size when packed: the difference
of the most cross diameter between tomatoes should not exceed 0.5 cm.
Mature means: that the tomato has reached the stage of development which will
ensure a proper completion of the ripening process, and that the contents of two or
more seed cavities have developed a jelly-like consistency and the seeds are well
developed. (USDA)
Green means: "the surface of the tomato is completely green in color. The shade of
green color may vary from light to dark (USDA)
Tomatoes are then sorted and packed at the greenhouses using agreed upon standards
In Russia, wholesale buyers are often small grocery shops that prefer a smaller weight
container that can be used for retail display and will sell out before spoiling. Prices
paid per kilogram are higher for this smaller size crate.
The ideal new packaging is a 6-8 kilogram double or single layer tomato “flat” made
of corrugated fiberboard (photos 6 and 7). This packaging is not currently available
in Azerbaijan and will need to be imported. Costs for this packaging can be expected
in the USD 0.06 to 0.12 per kilo range.
Approximately 11,250 8 kg crates are needed to pack one complete growing season
The total transport cost could be as high as USD 0.20 per kilo when computing lease
of truck and driver and assuming no backhaul cargo.
The goal in planning a crop schedule is to align the supply chain with the marketing
strategy. The following are sample crop schedules for 2006 and 2007:
1. Sow a minimum of 9000 certified "Marissa F1" seeds into plug seedling trays
in one centrally located greenhouse on or about June 30th
3. Distribute 1000 seedling starts to each greenhouse and transplant into beds no
later than August 14
6. Pack into standard crates at the rate of approximately 13 crates per greenhouse
per day.
7. Load a 10 ton truck every ten days with 130 crates from each of the nine
greenhouses making up 1200-1300 total crates. Transport 3 days to Moscow.
Sell out in 2 days and return
ACRONYMS
Acknowledgments