Bird’s eye view of Agricultural

Marketing Reforms at the State
Level
Know how to grow
Agri-Marketing Summit –
2006
29
th
September, 2006
Dr. C.Prabhu
Associate Director
Rabo India Finance Pvt. Ltd.
Contents
1
2
3
4
5
6
Need for Agricultural Market Reforms
Proposed Reforms
Alternate Markets
Direct Selling
Linking Farmer to Commodity Market
Legal Reforms
• Headquartered in the Netherlands; rated among safest banks
in the world
• 108 year old Co-operative bank with current membership of
almost 1.5 million persons
• Amongst the world’s largest banks with over USD 650 bln in
assets
• Over 50% of international activities are Food & Agribusiness
related
• Knowledge driven banking services in Food and Agribusiness
supported by sector studies and dedicated research teams,
across the world
RABOBANK: Global Financial Powerhouse
Focused on Food & Agri (F&A)
business
Need for Agricultural Market
Reforms
Agricultural Marketing
• Objective
– Increase the farmer share in the consumer price through disintermediation
• Jurisdiction
– Agricultural production and marketing : State Subject
– Food security/ Market Intervention/ Implementation of MSP : Central Subject
• Role of State Government
– Agricultural Production : Limited
– Agricultural Marketing : Absolute
– Value Addition : Limited ( Many states don’t have a vision for food
processing)
– Key Legislations
– Agricultural Produce Marketing Act (APMC)
– Essential Commodity Act (ECA)
– Tenancy Act
Need for Agri Market Reforms: Value Chain of Processed
Foods
Example: Value Chain for Processed Fruits and Vegetables
Value chain of processed foods consist of a large number of intermediaries leading to
wastages, cost escalation, limited value addition and low value realisations for the farmer
High
prices
Limited
choices
Products routed through mandis
Primitive cleaning sorting& grading facilities
Rampant wastage
Lack of quality & hygiene consciousness
Poor infrastructure (cold chains)
Opportunistic profiteering
Non-
transparent
pricing
Limited
financial
capability
Issues
100%
20% 5% 22% 15% 6%
5%
Farmer
Village
Commission
Agent
District
Commission
Agent
Processor Wholesaler Retailer Consumer
27%
Wastage
Need for Agri Market Reforms: Cost Build-up in the Value
Chain

10¾
20¾
30¾
+0¾
50¾
60¾
/0¾
80¾
90¾
100¾
Potato Chips Sugar
Confectionery
Fruit Juice Covenience
Food (Nisc
Edible prep)
Jam Branded
Chicken
Nuggets
Branded Atta Skimmed Nilk
Powder + Ghee
Retailer's Nargin
Distributor's Nargin
Sales Tax
Discount / Scheme
Transportation / Distribution
Processor's margin
Packing Naterial
Excise duty
Nfg variable Cost / Processing
Freight / Octoroi
Novement to stockist
Nandi charges (Auction / Aadhat)
Farmer
Farmer share in end consumer price is typically less than 30-40% due to distortions in the
value chain
Why is Reform Required
• The objective of higher farmer share in the customer price has not been achieved
– Multiplicity of intermediaries
• The interaction between farmer and processor is very limited
– Heightened government controls
– This negatively affects the quality of the agricultural produce
• Major share of marketed surplus is transacted through private trade, but options for
private investments in agricultural marketing is limited
– This hinders the much needed investments in agriculture
Proposed Reforms
Proposed Reforms
Market
Infrastructure
Legal Reform Access to Market
Proposed Reforms
• Market Infrastructure
• Promoting alternate markets with a view to disintermediate and enhance investments
in post-harvest infrastructure
– Terminal Markets
– Rural Hubs/ Agri service centres
• Direct Selling by Farmer
– Facilitation by government promoted markets
– Contract farming
• Access to Market
• Governments role in linking farmer with the commodity market
• Legal Reforms
• Legal reforms required to achieve the above
Alternate Markets
Terminal Market: Proposed Ownership
Structure
• Government funding can be in the form of direct funding / land
• Government can provide upto 49% of equity, returnable at par on successful operation of the
project.
Government (Central / State)
Banks
Long term
debt
Equity
Contributio
n
Working
Capital
SPV (Company)
Private Enterprise
Commission Agents
& Traders
Association
Equity
Contributio
n
Equity
Contributio
n
51 Private participant and Stakeholders association (Commission agents,
Wholesalers)
49 Government (Central / State)
% Equity Contribution Stakeholder
Key features of successful Terminal Market Models
• Centralised selling system with reduced role of growers in selling
• Standardisation through the supply chain including in product quality, packaging,
unitisation etc.
• Concentration of demand and matching supply
• Transparent mechanism of price discovery
• Seamless information flow across all players in the marketing chain
• Higher efficiency and lower transaction costs due to systematic logistics of the
auction system.
International Infrastructure on F&V Trade
Aalsmeer: Flower Auction, The Netherlands
Auction Markets: Advantages
• Increase farmers’ share in end consumer price and reduce the role of intermediaries
• Farmer associations would aggregate supply from farmers at village level
– Reducing the role of village commission agent / consolidator
• Collection centres would ensure that farmers produce is properly graded and
farmers’ remuneration is fixed as per the grades
• Price discovery mechanism would be more transparent to farmers
• Farmers would have access to market information and auction prices
• As per Rabo estimates
– Farmer realisation in consumer price would increase from 27% to 50%
– Price for consumers to come down by 15-20%
– Wastage in the value chain to come down from 22% to 5%
Rural Hubs / Agri Service Centres
Is an innovative concept emerging in the rest of the world and many parts of India
• Retailing of products and services
• Offtake arrangements and contract farming
• Employment generation in rural areas
• Increased income for farming community
• Export potential
Government
• Assured Supply
• Superior quality produce
• Reduced wastages
Offtaker
• Enhanced interface with farmers
• Enhanced brand recall
• Effective farm extension / technology transfer
Agri input vendor / Others
• Assured supply of inputs
• Assured quality
• Improved yields
• Market linkages
Farmers
Benefits Stakeholders
Agri Service Centers: Current Scenario
Store area: 800-1200
sq. feet
-
Agri-inputs, rentals,
services
UP, Punjab, Haryana.
14,000 villages
Agri-inputs,
agronomic services.
Tata Kisan Sansar
Rs.1 to 5 lakhs/e-choupal
Procurement, sale of agri-
inputs, farm machinery, edible
oil/ semi durables, rentals.
MP, UP, Rajasthan,
Karnataka, AP, Maharashtra.
31,000 villages, 3.1mn
farmers.
Information, services,
procurement, products sale
ITC e-Choupal
On 8 acres of land,
15 people per store
Rs.2-4 crores
Procurement, selling
of consumer goods
and farm inputs,
services.
MP
Farm and non-farm
products,
Procurement
Choupal Sagar
Farm inputs, rentals
on equipment, crop
management
advisory
Farm inputs.
On the anvil- personal
products, staples.
Revenue
streams
- Rs.1crore Investment/
outlet
Store area-2000sq.ft.
Warehouse-
1000sq.ft.
On 2.5-3 acre, 6-7 persons
per store
Land area
TN, Rajasthan,
Punjab, MP,
Maharashtra, Gujarat
Punjab, Rajasthan, UP Geographic
reach
Agri inputs, farm
management
solutions
Agri-inputs, technical
guidance, crop finance,
petrol retailing
Value
proposition
Mahindra
Shubhlabh
DSCL Hariyali Kisan
Bazar
Time to reflect
Direct Selling
Direct Marketing: Facilitation by Government
• Examples
– Uzhavar Sandhai (Farmer market)
– Rythu Bazaar
• Research has shown that farmer profit has gone up
by almost 100% and the consumer price has decreased
by 15% as compared to the conventional marketing
• Complete disintermediation
• Market for only fruits and vegetables
Direct Selling: To processors & Traders
• Example
– Contract farming in seed production
– Contract farming in poultry
– Contract farming in Gherkin, Tomato etc
• Key requirements
– Ability of the contracting firm to offer higher returns to the farmer while being competitive in
pricing
– Ability to provide embedded services like inputs, credit and insurance
– Farmer level organizations for better negotiation
– Dispute settlement mechanism
• Drawbacks
– Can’t be practiced in all crops (crop characteristics is a critical factor in contract farming)
Linking Farmer to the
Market: Access to Market
Linking Farmer to the Market
• A well functioning and liquid market enhances
– Price discovery
– Price risk management through hedging
• State governments could permit electronic spot markets (by amending APMC act)
which could help
– Create a common market
– Reduce logistics cost
• State governments / private sector to enhance the storage capacity
– Avoid distress selling
– Enhances the liquidity of the stock through WHR finances
• Steps to enhance the tradability of the WHR
Legal Reforms
Legal Reforms
• Agriculture Production is free from controls, but Marketing & Processing of
agricultural commodities are not
– State Governments alone are empowered to set up markets
– Processing industries cannot buy directly from farmers
– Processed foods go through multi-level taxation
– Stringent controls on storage & movement of several agri commodities
Acts as disincentive to farmers, trade and industries
APMC Act: Amendments
Promotion of Agricultural Markets in private/cooperative sector
• For private players to take up market infrastructure projects, legal reform required in:
– Allowing private individual/ corporate entities/ co-operative bodies to set up market yards
– Model APMC act to be implemented by the state governments
– Deregulation of areas where new markets will be set up, alongwith backward & forward
linkages
Direct Marketing
• Allowing private individuals/ corporates to procure directly (at farm gate) from the
farmer under contract farming mechanism
• Creation of a dispute settlement mechanism for contract farming
• Tenancy acts to be amended for leasing of agricultural land for integrated farming
(specially for high tech agriculture)
Essential Commodities Act: Amendments
Essential Commodities Act
• Controls the production, supply, storage, movement of, trade & commerce in agri
commodities
Amendment is required to
– Prune the negative list which would allow bulk handling and storage
– Remove restrictions on the inter-state movement of goods s as to create a common market
Thank -You

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