NATIONAL TRAINING COURSE

ON
Supply chain management and marketing of cereals,
legumes and horticulture produce in Indian dry land
(November 6-10, 2017)

SPONSORED BY
Vasantrao Naik State Agriculture Extension Management Training Institute
(VANAMATI), Nagpur.
Department of Agriculture, Government of Maharashtra

COMPENDIUM OF LECTURES

COMPILED BY
Pratibha Tewari
B.L. Manjunatha
V. Avinashilingam

ORGANISED BY
DIVISION OF TRANSFER OF TECHNOLOGY, TRAINING AND PRODUCTION
ECONOMICS

ICAR-CENTRAL ARID ZONE RESEARCH INSTITUTE

JODHPUR- 342003 (RAJASTHAN)

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 Value Chains of Cereals and Millets in Dry Lands: A case study of ITC
Pratibha Tewari, B.L.Manjunatha and Vijay Avinashilingam
Division of Transfer of Technology, Training and Production Economics, CAZRI

History of trade in India: An Introduction

Historic evidences are available to prove that trade existed with in country and
between countries since time immemorial. Silk route and Eurasia steppe route were ancient
networks of trade. The silk route network of Changan Tianshan corridor was a 5000 km section
of the extensive Silk Road networks stretching from Changan Louyang the central capital of
China in the Han and Tang dynasties to the Zhetysu region of Central Asia. It took shape
between II century BC and I century AD and remained in use until 16 th century, linking multiple
civilization and facilitating far reaching exchanges of activities in trade, religious beliefs,
scientific knowledge, cultural practices and the arts. The routes are falling 154 meters below sea
levels and rising 7,400 meters above sea level. This route touched great rivers, alpine, lakes,
crusty salt flats, vast deserts, snow capped mountains. The route served principally to transfer
raw material, food stuffs and luxury goods. Buddhism transmitted from India via Karakorum to
China and Japan on this route. Silk was used as currency for trade along the silk roads. The Silk
Road is recognized by UN as world heritage site. Trade in ancient times followed barter system
(Exchange of goods). Very limited means of travelling like either pedestrian or carrying goods
on animal’s back were available. Mortality in animals was serious problem. Long distances were
to be covered before reaching a place where any human settlement could be found.

After 16th century Portuguese established the sea route to India through Goa. At
this time India had no vessel in the sea which made India impossible to challenge Portuguese. In
1602 States General of the Dutch republic decided to form a Company to have a tax free
monopoly of the spice trade for 21 years. By the end of the 17 th century the East India Company
of Britain securely established its trade. Trade remained in British control until independence in
1947. After independence a global General Agreement on Trade and Tariff (GATT) was signed
by twenty countries along with India on 30 th Oct1947. GATT was a multilateral agreement
regulating international trade for substantial reduction of tariff and other trade barriers. One of
the provisions of GATT says that member countries must accept some of the trade rules to form

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a common international trade organization (ITO) charter commonly known as Havana Charter.
The ITO charter was drafted and finally agreed in Havana in March 1948, but US announced that
it will not seek congressional ratification of the ITO charter in their country. ITO thus never
became effective.

Prior to GATT a Bretton woods conference was held to develop a system for
global coordination. It established the US dollar as the global currency, taking the world off the
gold standard. It also sought to rebuild Europe after II world war. Bretton woods conference
succeeded in creation of World Bank and International Monetary Fund. Under the agreement
member countries agreed that their central banks would maintain fixed exchange rates between
their currencies and the dollar. If a country’s currency value became too weak relative to the
dollar, the bank would buy up its currency in foreign exchange market. That would decrease the
supply which can raise the price. If its currency became too high the bank would print more.
That would increase the supply and lower its prices.

As GATT was not agreed by member countries it ended with replacement by

formation of more robust World Trade Organization in 1995. For 20 years, after its formation
WTO was unable to make any negotiation between member countries, until the Trade
Facilitation Agreement was signed in 2015 by maximum member countries. Thus TFA is a
prestigious instrument for global trade and tariff regulation in modern times.

Right to Food: Entitlements and Poor People

UN Charter of Human rights envisages right to food to every ind ividual. Food
subsidy, stamping and public distribution system are different mechanisms, adopted by
governments around the world to ensure food to every individual. The food subsidy system, so
developed by different nations allocates food to people, but surveillance to ascertain everyone
has been fed well is lacking. Amartya Sen explains ownership or entitlement is still the biggest
system to ensure food to a large section of population. An entitlement relation applied to
ownership connects one set of ownerships to another through certain rules of legitimacy. It may
be law of inheritance or exchange of labour for earning food. The segment of people who could
legitimize their food is beyond risks or can be termed as risk free. Another segment of population
that does not have assets by inheritance, and are unable to sell their labour (due to any reason

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like less demand, unskillfulness, lacking transport to reach to required site) are threats to hunger.
The latter segments are generally poor people.

Amartya Sen has described poverty as the characteristics of poor, if real income
reduces sufferings of all the poor increases, irrespective of its adverse effects on the rich. He
agrees to J.B.S. Haldane’s views on problems of poverty ‘‘it is not so much the misery and plight
of the poor, but the discomfort it causes to community is crucial.” People must not be allowed to
be so poor that it is hurtful to society, or economically well off people are offended by poverty,
Sen has termed this as ‘‘effect of poverty”. Global assessment of multi-dimensional poverty,
covering more than 100 developing countries is an international measure of acute poverty. This
measure uses ten indicators across three dimensions which are equally weighted. A person is
identified as multi-dimensionally poor if he is deprived in at least one third of the weighted
indicators. World bank has recently started reporting poverty rates for all countries using two
new international poverty lines: a lower middle income line, set at $ 3.20 per day and an upper
middle income line set at $ 5.50 per day based on data of Human development report. These are
in addition to the main poverty line of $ 1.90 per day. The new lines are supposed to serve two
purposes, one they account for the fact that achieving the same set of capabilities may need a
different set of goods and services in different countries and specifically a costlier set in richer
countries. Second they allow for cross country comparisons and benchmarking both within and
across developing regions. Poverty assessment based on new income lines has been released by
World Bank(Table 1). Word bank statistics are derived from available data, based on country
National Sample Surveys which is most reliable data base reported for more than 100 countries
in Human Development Report from 2014 onwards.

Table-1: Poverty in India & China (2017)

Income lines % of India poor India’s % of % of china poor China’s % of

global poor global poor
$5.50 (368/-) 87% (1.1 bn) 30% 49% (661 m) 18%
$3.20 (214/-) 60% (763 m) 33% 24% (316 m) 14%
$1.90 (127/-) 21% (268 m) 28% 8% (106 m) 11%
Data source TOI, 2017

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Some Important Aspects of Dry Land Agriculture

People residing in dry lands of the world (Arid 12%, semi-arid 20-22% and dry
sub humid 10%) suffer from desertification threats and land degradation. They face problem of
low agriculture production along with low yields from livestock. Economic viability of
population in these regions is uncertain as people practice traditional agriculture / livestock
keeping. Climatically they face hardship of high temperature, extreme wind movement, high
transpiration losses and very low vegetation. Drylands of world cover 25% of the forest resource
and 33% of population (2bn). Not all people living in dry lands are poor, as urbanization is an
integral phenomenon of dry lands of world.

Migration from dry lands is high, but it is considered a sign of development.

Characteristics of migratory people are deprivation of ownerships by inheritance/ entitlements.
Therefore, people who have skills, choose to move out of their residential territory. It is
estimated that 50 million people will migrate from dry lands in next ten years. Economics of dry
lands can be regenerated through improved agriculture, stall feeding of livestock wealth,
migration, tourism, mining, industrialization etc. However, the economics will sustain only when
people who earn higher livelihoods outside drylands, come back to drylands and invest in their
own lands. If increased income of migrants is spent in cities the countryside dry lands will not
improve.

Management of dry lands is based on four major resource management inputs

· Management and conservation of natural resources land, water, forest, livestock

· Strong social institutions for capacity building of people specially youth and women
· Integrated farming system management (as mono-cropping is not sustainable) are
recommended along with tree, forest and rangeland management.
· Overcoming financial resource constraints through giving additional opportunities for
dry lands through financial institution, governments and international aid, because
implementation of all improved technologies requires high financial resources.
Agriculture enterprise engages 48% population of our country and contributes
17% to GDP, therefore power of agriculture to remove poverty is highest compared to other
sections like merchandized goods or services. Retaining youth in agriculture is becoming
difficult, as traditional agriculture is neither remunerative nor sustainable. The annual rate of

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withdrawal of work force from agriculture is 1.3%, it is expected to rise if agriculture is not
modernized. Doubling famer’s income by 2022 is an important government initiative to address
distress in agriculture. This will require famer’s income to rise by 16.66% every year from 2017
in nominal terms (without any adjustment for inflation). It will further require increase in
resources by 33% to meet demand of income increase.

Agriculture is a function of rainfall in Indian sub-continent particularly in North-

Western hot arid zone. Farmer faces twin problems of produce management. In poor rainfall
years production is less which lead to distress, but in good rainfall years when production is high,
prices are reduced, due to various market influences like demand and supply factors, availability
of old stock, middleman, export- import imbalances etc. This high price volatility need to
considerably drop in farmer’s favour as higher the volatility riskier is the investment.

Diversification of production systems with integration of resources like

multipurpose tree species, grasses, fruit trees and quality livestock are time tested management
practices in dry lands. Crops alone cannot meet the needs of human and livestock. Farming
system development approach with synergy among its various components i.e. arable farming,
livestock management, alternate land use system is a fruitful approach for mitigat ing poverty in
dry lands. Improved variety of seeds, integration of available weather forecasting method,
regular removal of weeds from crop field and utilizing conserved water in time of long dry spell
leads to higher total production in dry lands. The proportion of different alternation land use
systems studies at CAZRI on a 7 ha area had 30% agrihorticulture, 20% farm forestry, 25% agri-
silviculture, 15% agripasture and 10% silvi-pasture helped in soil fertility and microclimate
improvement besides increasing production of food.

Supply Chain Management of Commodities

Supply chain management is a systematic strategic co-ordination of the traditional business

functions and tactics across these business functions, with in a particular company and across
business within the supply chain, for the purpose of improving the long term performance of the
individual companies and the supply chain as a whole.

Commodity market in India has developed as a Marwari business model.

Marwaris were great grain traders of India. Marwaris represent only business community one
would truly call Pan-India. All bania communities like, Agarwal, Oswal, Khandelwas,

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Maheshwaris, Birla, Dalmia, Mittals were loosely clubbed as Marwari. They confined to their
homelands with large land holdings until Birla from Shekhawati moved out to do business in
cotton. Opium trading also began with cotton since cotton and opium require similar kind of soil
and water. Opium was transported from India upto Burma in early eighteenth century. Opium
trading earned high benefits to Marwaris. They faced practical problems in handling cash and
therefore generated indigenous model of business called Hundi. By the early 19 th century
Marwaris were significantly present across Delhi, the grain markets of Hapur, Khurja and
Hathras in western Uttar Pradesh and the river ports of Farrukhabad, Mirzapur, Patna and
Bhagalpur along the Ganges.

With development of railways they spread themselves to Kolkata and beyond to

Bangladesh, and from there, up the Brahmaputra Valley into Assam and across the bay of Bengal
into Burma. Within overall east ward movement marwaris also spread side ways into Jharkhand,
Orisssa, Bihar, Nepa, Jalpaigudi, Darjeeling and Kalinpond. Another large migration was to
Central India, Gwalior, Bhopal, Indore, Chattisgarh, Vidarbha. Some marwaris moved to Madras,
Mysore; while moving out Marwari banias took away their relatives, neighbours, also relatives
of neighbours to help in trade.Outside their homeland all were classed as marwaris irrespective
of their castes. Marwaris developed their own culture of faith and kinship amongst themselves.
They lived in unity outside their homelands. They generated huge money by grain trading along
with all other commodities trade. The characteristics of Marwaris that gave them recognition was
their habit of back spending in their homelands. They donated huge money for Gaushallas,
Education Institutes, hospitals and construction of temples. This generated a goodwill for them in
their homeland.

Marwaris developed their own indigenous commercial resources group using the
system of hundi. Hundi is an indigenous bill of exchange to move money and goods across the
length and breadth of the sub-continent. The fascinating system of supply and income chain
worked on principal of faith with in Marwaris is given in figure 1 (an example)

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 grain dealer
movement of grain
from kanpur
Sell in Kolkata

Agent

cash payment Draws Hundi

Kanpur dealer
Present hundi to
agent of Kokkata
Hundi transfer
at kanpur

Fig.I Hundi the traditional cashless system of remittance facility

This hundi served two purposes for 1700 nationwide produce mandis and 12 modal money
markets, a) avoid handling of cash and b) serve as a source of mobile cash. The practical trading
skills and financial ingenuity of its members, honed over generations, proved most powerful.

Supply chain management in modern times is a systems approach to manage the entire flow of
information, materials and services from raw materials suppliers through factories and
warehouses to the end customers.

Fig 2: Concept of supply chain management.

Quick Response
Supplier

in formation flow information flow

Supplier Manufactur Distributor
e
Move to a single source flexible system Material flow

A Case study of ITC

ITC is one of the elite Indian retail company currently focuses on four business groups
cigarettes and non cigrettes, hotels, paper & packaging and agri business. Because of vast

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networking ITC uses Rail, Road and Sea for transporting goods from 40 factor ies to ware houses
from around the globe. Under its corporate social responsibility it works in 26 states and Union
territories covering 184 districts. It has 22 green buildings, it supports 55,000 rural women in
various women empowerment programs, its primary education program benefits 5,25,000
children. Services are provided to over 15,00,000 milch animals under animal husbandry
programme. It has covered 12,500 acres under biodiversity programme, 213 vocational training
programme benefits 46,000 youths.

ITC agribusiness business group prepare aashirvaad flour and many other agro products
like ashirvaad spices, ashirvaad mix, multigrain flour especially sugar release control atta with
glycemic index <55. The business model of ITC is globally recognized for e-chopal by which
middle man is taken out of the supply chain. The farmers are being supported through e-chopal
Pradarshan khet and chopal sagar. It works on principal of forward buying.

I. ChopalPradarshanKhets (Demonstration farms)

To propagate best practices

II. Field Schools

Transfer and adoption of knowledge

Rural integrated hubs (chopalsagar)

(Aggregating center) Procurement center

Chopal haats

ITC conceived e-chopal as an efficient supply chain aimed at delivering value to its
customers around the world on sustainable basis. It is designed to face challenges faced by the
unique feature of Indian agriculture characterized by fragmented farms, weak infrastructure and
the involvement of numerous intermediaries.

e-chopal unshackles the potential of Indian farmers who has been trapped in a vicious
cycle of low risks taking ability low investment weak market orientation low va lue
addition low margin low risk taking ability.

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 e-chopal is a market led business model based on forward buying by which ITC is
enlarging competitive of Indian agriculture (Figure 3).

Input cost (seed Agriculture Input

stokist
fertilized chemical) retailer
P
Pakka Trader Brokers R
o
Farmer c
Govt, Univ. E
Dept. of
meteorology dept. dPpk S
Agri. VLW
vk<+r S
O
nder
Money lender R

Figure 3: ITC model of e-choupal

e-chopal leverage information technologies to virtually cluster all the value chain
participants, delivering the same benefits as vertical integration does in mature agriculture
economy like the USA.

e-chopal services reach to 4 million farmers growing soyabean, coffee, wheat, rice, pulses,
shrumps in over 35,000 villages through 6100 kisok across 10 states. (MP, Haryana, Uttrakhand,
UP, Rajasthan, Karnataka, Kerala, Maharashtra, AP & T.N. )

ITC has taken care to involve farmers in the designing and management of the entire e-
chopal initiative. A sense of ownership is created in farmers as aggregation, logistics , counter
party risk and bridge fria

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 e-chopal kiosk (computer
Terminal 1000)

Run by a
sanchalak
Sanchalak gives a
(farmer)
spot price
takes the sample
of products kiosk
if farmer accept sale farmer
price (6,00,000)

drive the produce

get the MSP from the

seller

Figure 4:

Summing up

Historic evidences are available to prove that trade existed within country and between countries
since time immemorial. Silk route and Eurasia steppe route were ancient networks of trade. UN
Charter of Human rights envisages right to food to every individual. Food subsidy, stamping and
public distribution system are different mechanisms, adopted by governments around the world
to ensure food to every individual. The food subsidy system, so developed by different nations
allocates food to people. Agriculture is a function of rainfall in Indian sub-continent particularly
in North-Western hot arid zone. Farmer faces twin problems of produce management. In poor
rainfall years production is less which lead to distress, but in good rainfall years when production
is high, prices are reduced, due to various market influences like demand and supply factors,
availability of old stock, middleman, export- import imbalances etc. This high price volatility

24
need to considerably drop in farmer’s favour as higher the volatility riskier is the investment. In
modern times of information revolution and emergence of global market where “Produced in
world” is becoming more relevant, it is necessary to develop farmers compe titiveness to give
quality produce, aggregate commodity at farmers level and sale in market to framer’s own
benefit. Supply chain management therefore, is a matter of strategic relationship with various
stakeholders like farmers, producer, company processor and retail market to reach customers
directly. However, it involves great risk which is required to be dealt with capacity building of
farmers and extension experts.

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