Wednesday, August 20, 2014

Empowering farmers to improve their livelihood

Krishi Star’s mission is "to empower farmers to improve their livelihood". It seems like a daunting task to solve this huge problem and seems too easy to fall into trap, raise the white flag and call it quits. The persistence and courage of Krishi Star to shoulder this responsibility is one that I admired most working in this company and this is clear from the passionate work and dedication from its founders and directors.

To alleviate poor farmers out of poverty, I first tried to understand what role and position farmer holds in the value chain. One of my first tasks is to map out the value chain analysis for the vegetable market in India. Getting credible data and information is a challenging hindrance, as I needed to cross-checked multiple resources to ensure the credibility of the information obtained. Primary research conducted by fellow team members revealed themes: contract farming and hoarding at mandis, which spurred my interest to learn more. By understanding the roles taken by various multinational and local agri companies, I was able to map out my analysis of the vegetable value chain in India.

 Vegetable Value Chain Analysis
Figure 1: Vegetable Value Chain Analysis in India

Figure 1 summarized my findings. Seeds, fertilizers, and pesticides are crucial inputs to farmers by an Input supplier. Farmers then provides labor inputs, plough the land, tender to the vegetables over a duration of time, and doing whatever necessary to ensure good harvesting and healthy produce outputs. Upon harvesting, traditionally, farmers then sell produce to small village traders, who then aggregate, sort, grade, package, and transport to the designate Mandi. Mandis are auction houses that facilitate vegetable trade for a designated geographic area. It is where sale activities and price negotiations of produce takes place. Commission agents, large traders, and wholesalers are primary actors in every Mandi. From here, produce are then sold to wholesalers, retailers, and food processors before reaching the final consumer. As can be seen from the diagram, a certain produce goes through a long chain of actors before reaching the final consumer. Farmers have option to sell directly to retail consumers for a higher margin, but this only exists in small percentage in localized market. A more progressive option is via contract farming,  where farmers can directly sell to food processing companies at an agreeable price and quantity without going through any middle men. In contract farming, farmers are given a guarantee of produce purchase at a certain agreed price. However this alternate guaranteed option is not widespread and still remains a progressive option. And here is to why this is the case.
What is Mandi and who governs it?
So just who are the Mandis and who governs it? My analysis took a dive into the controversies clouding Mandi government off late. Mandis are created to prevent produce being sold at throwaway prices at the farm gate to intermediaries. Every state is divided into market areas, which are declared as Mandis. Mandis are governed by the Agricultural Product Market Committee (APMC) and <the government mandated all produce to be sold there>. Some notable problems are:
  • APMC committee are too bureaucratic and auctions are not entirely fair
  • There are no minimum support prices for fruits and vegetables
  • Farmers payment were often delayed
  • Market cess money collected from sale transactions were not used for its purpose to improve infrastructure-sorting, grading and storage
  • Hoarding by large traders and agents, who buy from farmers at low prices and stored in large hoarding houses
In 2003, the Agricultural Produce Marketing (Development and Regulation) Act was established by the government to address problems above. It contained provision for direct marketing, contract farming, and setting up of marketing in private and cooperative sectors. States are encouraged to adopt the Act into State rules governing its respective Mandis. The new rule also called upon public-private partnership to develop post-harvest handling, cold storage, and packing facilities. It also held the APMC committee liable for paying farmers on the same day, publishing data on arrivals, promoting transparency in pricing systems, and promoting public-private partnerships. Although the government has taken the first step to give farmers more options, state Mandis are slow to integrate the new system. Some states went as far as repealing the new rule. The following news is an example of protests and resistance from traders at Azadpur Mandi in New Delhi.
Who takes the most money? Produce price fluctuation
Figure 2: Headlines of Tomato price-hike
Farmers put in their laborious work to use to plant and harvest fruits and vegetables, but are they getting enough returns for the hard work? With the traditional long value chain involving layers of middlemen, farmers earnings are squeezed. There are no shortfall of farmers committing suicide reports because they could not earn enough to pay back their loans. Some lost their lands, their only source of cultivation to money lenders. To further exacerbate the situation, produce price is unpredictable. Just this summer, tomato prices skyrocketed to RS100 per kg due to weather reasons and shortfall. Tomato is not the only crop affected by price fluctuations. Although India is a net exporter of onion, it has to import from Pakistan in 2011 and from both China and Egypt in 2013 due to domestic shortages. Price-hike to Rs60-70 per kg (As comparison, local market in Mumbai sells for Rs20-30 per kg) have also forced government to imposed minimum export price on export of onions to discourage overseas shipments.
My research has opened my eyes to the difficult issue the company is working to address. As daunting as the task can be, the progress that Krishi Star is making this summer assured me that the company may someday live up to its dreams to become the "Amul of Vegetables" in India.
Note to future interns #3:
  1. Be prepared to be flexible with your work plan as the environment in startup can be unpredictable and work can be re-allocated very quickly.
  2. Monsoon season is excellent time for mosquitoes to breed, so always have a mosquito repellent handy.

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