Module II ABE Dynamics Cases - KVR-ENR

AGRI BUSINESS ENTERPRISE DYNAMICS
MODULE II: CASES
Prof KV Raju & Prof EN Reddy
Inclusive Development and Agrin Value Chains
Linking Farmers to Markets - MANAGE
MOVE Approach
CASE 01. Amul-Cooperative – Design and Operational Efficiency
CASE 02. AGROCEL
CASE 03. Farmers Producer Companies - VAPCOL
CASE 04. Aranyak Mahila Agri Producers Company
CASE 05. Livelihoods and Backyard Poultry

AJAB Volume 1 Issue 1 2016
Amity Journal of Agribusiness

1(1), (34-44)
©2016 ADMAA
Inclusive Development in Agri-Commodity Value Chain: Role

of Institutions and Institutional Models
Dinesh Jain
Entrepreneurship Development Institute of India (EDI) Ahmedabad, Gujarat, India
(Received: 26/10/2015; Accepted: 05/05/2016)
Abstract
In the twenty first century, Indian agriculture has moved beyond self-sufficiency and it is globally
oriented “industry” with inter sectoral linkages. In spite of modern technologies and policy support,
the agricultural value chains are experiencing various bottle necks, (e.g.), lack of sufficient quantity and
acceptable quality of raw material, adoption of the appropriate technology and practices, meeting working
capital requirements for processing and operations, delivering strong marketing efforts, sharing benefits
across the chain and sustainability issues. These bottle necks are primarily because of lack of efficient value
chains that minimise and address the issues of information asymmetry and high transaction costs. The
present paper examines the evolving environment for agri commodity businesses, identifies issues and
challenges, and explores various institutional arrangements that have emerged over the years to address
the above challenges. The study offers lessons and opportunities for intervention for institutions and policy
makers that may help in better designing of agri commodity value chain in developing countries.
Keywords: Agribusiness, Value Chain, Institution, Inclusive growth, India

JEL Classification: Q10, Q13, Q16
Paper Classification: Conceptual/Theoretic Paper
Introduction
In recent times, Indian agriculture is transforming drastically into technology driven,
innovation guided and business oriented “industry” that incorporates agrarian production, agri-
science, and agribusiness. It associates firmly to the national and worldwide economy. Numerous
individuals who work in farming really don’t take a shot at farming but they do agribusiness. In
the changing times, the agribusiness offers many opportunities for growth particularly for the
value driven chains.
Simply put, a value chain is a sequence that involves production, processing and marketing
activities, where products undertake various activities of the chain in a particular order and, with
each of activity, the product gains value. A typical agricultural value chain covers all the actors
along the chain and involves the whole range of activities that are required to transform a product
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Volume 1 Issue 1 2016 AJAB
from the initial input-supply stage, traversing through various phases of production, reaching
markets and finally delivering goods to consumers.
Figure 1. A generic value chain (Source: UNIDO, 2009)
Such value chains cannot work in isolation and requires support not only from vertical players
but also horizontal actors. With changing times, these chains have also seen a large number of
changes at various levels and there is a need for adaptations and upgradation of existing chains
and emergence of newer value chains.
Transformation in Agribusiness Environment

In recent times, it has been observed that the inputs like land and water have become limiting
factors. The land ownership is becoming more fragmented and the average land holding size
is showing a decreasing trend. This has made it essential for an intense focus on science and
technology for increasing crop yields which has led to the need for numerous modern inputs for
increasing production. As farmers see the advantage in using new technologies for increasing
production and profits, there is a growing demand for latest state-of-the-art technologies including
the harnessing of the potential of biotechnology. Labour becomes increasingly scarce and expensive
in rural areas and this gives an impetus to labour-augmenting or labour-substituting technical
change. There is a movement away from labour-intensive agriculture and towards capital use.
The growing off-farm food demand due to urbanization and the increasing use of externally
purchased cash inputs has led farmers to commercialization, or producing for the market. A clear
manifestation of this is the growing marketed surplus of the farmers. This growth in marketed
surplus has led to substantial development of agri-commodities businesses - for handling this
huge marketed surplus: including procurement/ purchase, transport, storage, processing,
and marketing, as well as providing services such as finance, information and management.
Commercialization has also led to diversification in the production and there is a shift to high
value crops/ products such as fibres, spices, vegetables, fruits, flowers and livestock products.
This has stimulated the development of various agri-commodity value chains.
Amity Journal of Agribusiness 35

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The rapid growth in the incomes of the people resulting from economic liberalization and
globalization is causing big changes in food consumption patterns. There is a shift away from
staples such as cereals, and towards other foods such as livestock products, vegetables, fruits and
edible oils (Gandhi & Zhou, 2010). It can be seen that the urban consumer expenditure on both
livestock products and vegetables & fruits has crossed that of cereals in the last decade. This has
created a substantial need to cater to these new demands. With the large and growing population,
this is leading to huge new opportunities for agribusiness development.
Apart from the change in the consumption mix, there is also a growing demand for processed,
branded and packed food of assured quality. Consumers are demanding convenient, processed
and ready-to-eat foods, and food services. This is leading to numerous new opportunities
for agribusiness development. Besides, as incomes rise, there is a reduction in the consumer
price sensitivity in food. With consumers willing to pay high prices for quality food products,
convenience, and food services, the scope and profitability of numerous agribusinesses involved
with this has increased substantially. This includes national and international firms engaged in
producing quality processed foods and various food services including fast foods.
The economic and agricultural transformation is leading to substantial increase in the rural
incomes as well a huge expansion in rural demand and participation of rural consumers as buyers
in the market. Thus, the rural areas are turning not only into large producer bases but also large
consumer bases. With general growth and development there is huge strain on transport, ports,
power, and other services. These substantially limit agribusinesses which need to connect to
distant rural areas. Changes in agri-food systems affect the capacity of agro-industrial enterprises
along with impacting input agribusinesses and production systems. Therefore to compete, all big
and small agribusinesses have to innovate, reduce costs and bring in efficiency in its processes,
builds in relationships with the chain partners while being more receptive to consumer needs.
Fit between the Existing Value Chains and Changing Agribusiness Environment
Over the years, agri commodity value chains have evolved but due the constraints and
policy lacunae the chains have become inefficient and less profitable. Further, there have been
drastic changes in Indian agribusiness and this call for redesigning agro supply chains. CII-
McKinsey (1997) has indicated that there is tremendous scope and potential for development of
agri commodity value chains in India. However, it has numerous constraints to its growth and
development. These have been brought out by Gandhi and Jain (2012), Gandhi, Kumar and Marsh
(2001); Boer and Pandey (1997); Gulati, Sharma, Sharma, Das and Chhabra (1994); Kejriwal (1989)
and Srivastava (1989). These include the following:
Production Processing Marketing Financial Policy Constraints

Constraints Constraints Constraints Constraints
o Seasonality and o Obsolete technology o Limited market o Requires more o Processed/ packaged
Short period of o Poor Efficiency and size/ working capital foods considered
availability - Quality o Nascent markets which is hard to luxuries and they are
o Fragmented o Poor capacity o Changing get and involves taxed heavily - affects
supplies, utilization because customer higher interest the economics
o Perishability of seasonality preferences rates o Many special regulations
o Inferior quality, o Inappropriate for o High costs for o High investment – e.g. MPO
inappropriate export and high product and brand requirements for o Squeeze between input
varieties, residues value markets development latest technology price support and output
o Competing o Limited market o Long inefficient price control
markets- feed, fuel size/ supply chains, o Ad hoc export and
o Nascent markets small retail stores import controls

These constraints can be addressed through better designing of agri- value chain supply
through effective institutional mechanisms/arrangements. The better designing can be done
by incorporating elements of effective institutions as well as the learnings from various models
that have been attempted to achieve better performance. The present paper is an attempt in this
direction.
Institutions, Innovations and Models: A Literature Survey

The institutional approach to study economic problem originates from the works of Ely
and Commons (Marothia & Phillips, 1985). Their approach was different from classical and
neo classical approach that is based on utility and voluntary exchange of utility maximising
individuals (Marothia & Phillips, 1985). This approach refers to the “institutions” as “working
rules” that decides the course of collective action and order the relationship among individuals
within society.
New institutional economics (NIE) use various approaches to justify and understand
institutions, (see North, 1997; and Drobak & Nye, 1997). Property rights and transaction costs are
two very well recognised approaches. While property rights argues for allocation of rights to a
property or common pool resource to internalise the conflicts externalities (Coase 1937, 1960),
transactions costs approach argues for minimising the costs of exchanges or transactions to do
so. Coase (1960) argued that the excessive government involvement might prove inefficient if
property rights are well established. He also argued that in absence of transaction cost, private
property rights seem to be most efficient system for governing land use. In other cases, transaction
cost approach is suggested.
Transaction costs refer to all costs associated with the creation, use and change of an institution.
According to North (1997), an important challenge is to evolve institutions that minimise
transaction costs and create incentives that favour collaborative solutions which utilise cumulative
experiences and collective learning. Williamson (2000) classifies the institutions into two groups -
“micro” and “macro”. The macro institutions are considered the rules of the game or the humanly
devised limitations that models political, economic and social interactions. It includes the informal
constraints – customs, traditions, taboos, sanctions, and codes of conduct; and formal rules –
constitutions, laws, property rights. The micro institutions are the institutions of governance
– market, quasi-market and hierarchical modes of contracting, or of managing transactions and
overseeing activities such as economic activities through.
Innovative Institutional models for Agri commodities Value Chain: Features

and Analysis
The literature and the experiences have highlighted some critical success factors or objectives
for efficient performances, that can be used for examining these models and approaches (see
Gandhi & Jain, 2011; and Gandhi, Kumar & Marsh, 2001). They are:
1. The effectiveness in organizing production and procurement from numerous small and
marginal farmers in cost efficient manner.
2. The adoption of modern technology and practices by the producers to ensure required
quantity and quality of the raw produce at a reasonable cost
3. The use of modern processing technology for producing quality products, along with
meeting high fixed capital and working capital requirements.

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4. The delivery of strong marketing effort in meeting consumer demand and compete in open
nascent product markets for processed agri-foods
5. Bring commitment, sustained benefit to the main stakeholders including producers,
consumers, supply-chain members and investors by creating an organization with
appropriate ownership, management and control structures.
Research Gaps
The challenges and complexities arising from constraints mentioned above on the one
hand, and the need for their continued growth with multiple objectives including efficiency,
profitability, sustainability and contribution to rural and small farmer development on the other,
creates the demand for innovative approaches and institutional models for the organization of
this agribusiness activity in India. Fortunately, many models and approaches have emerged and
can be evaluated to provide lessons to design an efficient agri commodity value chain. Following
section gives a brief overview of the models (see Gandhi & Jain, 2011 for details)
Research Objectives and Methodology

The present research aims at studying various models that are in practices, prepare case
studies on them and draw lessons from the various models. Further, an attempt is made to
draw elements of effective institutions from existing literature (particularly New Institutional
Economics) and analyse how can existing models be adapted in changing times. The clubbing
of the two may help draw a road map for effective institutional framework for creating effective
agri-commodity value chain.
The unit of analysis is various value chain models (e.g. Amul). The research uses case studies
to critically explore the challenges associated with agribusiness development and understand the
structure and implementation framework along with performance of various models. The case
studies are prepared using secondary data and complimented by field visits to understand various
models’ functioning and execution. The secondary information is collected through literature
available in form of books, journals, newspapers, magazines, online databases and internet. The
information so collected is analysed through descriptive and tabular methods to draw various
conclusions along with new insights.
Lessons and Key Takeaway from Case Studies and Field Visits
An attempt has made to compare and evaluate different models (see Table 1). As can be seen,
the strengths vary substantially across the models. Whereas Amul and ITC e-choupal are strong in
reach to small farmers, Suguna and Pepsi are strong in ensuring adoption of the right technology
for quality and quantity. Nestle, Pepsi and Amul are strong on investing in modern processing
technology as well as at delivering a strong marketing effort to reach a huge food market. Amul
is strong on commitment and benefits to all stakeholders, Suguna is good at it too, and Pepsi is
reasonably good.

Table 1: Broad Comparison of Different Models on Performance Parameters

Agri Unique Feature Reaching Ensuring Use of modern Delivering Organization
business numerous adoption processing strong of ownership/
Model small resource of good technology marketing management
poor farmers technology by &meeting effort and control
& procuring farmers for the capital to bring
quantity quantity & requirements benefits to all
quality stakeholders
Milk and Milk Products
AMUL Institutionalised Strong Reasonable Strong Strong Strong
Cooperative
Culture,
Nandini Cooperative with Good Limited Limited Reasonable Good
more powers to
district union
Nestlé Commission agents Limited Reasonable Strong Strong Limited
internalisation
Heritage Reverse Logistics Good Limited Good Good Limited
Mother Government run Limited Limited Good Good
Dairy model on lines of
AMUL
Poultry
Suguna Providing Good Strong Strong Good Good
Newer Source of
Livelihoods
Food Grains
ITC ICT Adoption Strong Limited Strong Strong Limited
e-Choupal to address
Information
Asymmetry, and
Asset specificity
Cargill Hub and Spoke Limited Reasonable Strong Limited Limited
Model, One Stop
Solution
Spices
APMC Modern Semi Reasonable limited Reasonable Strong Limited
Unjha Government,
Immediate Cash
Payment for
Produce
Fruits and Vegetables
Safal Market Online Limited Limited Good Limited Limited
HPMC Government Reasonable Limited Good Poor Poor
Run Model,
Competitive,
Capacity Problems
(Continued)

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Desai Locals Producing Reasonable Good Good Strong Reasonable

Fruits & for Exports Markets
Vegetables
Pepsi Contract Farming, Reasonable Strong Strong Strong Reasonable
Public Private
Partnership
McCain Committed Reasonable Strong Strong Strong Limited
Contract Farmers
Amalsad Producer and Reasonable Limited Limited Strong Good
Marketing
Cooperative
As shown in Table 1, cooperatives have often done better in bringing benefits to the rural
poor, sometimes with the assistance of NGOs as intermediaries. The AMUL and similar
cooperatives have cut transaction costs for itself on three counts—information asymmetry,
opportunism and asset specificity—by evolving grass root institutions and governance structures
which harmonise exchange relations across parties. As indicated in Table 1 above, the AMUL
cooperative model is one promising approach that ensures benefits to small farmers and provides
them ownership of the enterprise. However, the cooperative models require overcoming political,
legal and managerial limitations.
The evaluation of various models reveals that for the better adoption of technology, not only
provision of best available technology is required, but its best implementation is must. Amul
though a follower in good technology, implements it on mass basis and put it in use in a much
better way. The reason seems age old trust and experience with the system. Other private models
may have superior technology but it is difficult for them to know the adaptability in first place.
With experience and limited scale of McCain Foods and Pepsico seem getting good results. One
very good thing noticeable is in Suguna model, is that, it uses of sophisticated technology for
processing and burden farmers with use of very basic knowledge in chick care. So, the important
thing which come out of the study on this aspect is there is enormous need of modern technology
but adaptability and applicability of it is more crucial.
Various models procure agri-produce from their respective farmers and have good processing
technology to generate various useful products. Private players like Pepsico, McCain Nestle
and Suguna had excellent processing technology. But when it comes to HPMC, Nandini and
other players, the raw material quantity and quality hinders them from getting to heavy capital
intensive processing technology. HPMC plants work at only 15-20 percent of their capacity which
stops them from upgrading much. It is Government body so they are still putting in money to
have better processing technology. Amul uses good processing technology and keep on upgrading
it to increase its range and quality of product.
Little information is available about the modernization of processing technology adopted by
modern agri value chains agroindustries. There is gradual upgradation of facilities at processing
plants of agroindustries to produce products that matches the markets. AMUL earlier was making
only few milk products and mainly concentrated on pouch milk, milk powder and ice creams. But
with changing consumer preference it moved to whole range of products like srikhand, chaas,
chocolates, flavoured milk etc. Similarly, Pepsico used to make chips only but now makes other
products with potato as well. McCain, Suguna etc., are adding on its present facilities to have
more products. ITC, HPMC and other players are also modernising their processing facilities
depending upon their need and market demand. APMC is not in processing agri-produce, but it

is modernising its system of procurement and transaction. A very good example here is APMC
Unjha. Thus, it appears that private players are way ahead in processing technology upgradation
but AMUL also competes well. The others players are market prone and will modernise with
growing market.
It is very difficult to compare models on basis of their efficiency in fulfilling their working
capital requirements. The models under study needs to have best of the distribution and
marketing strategies and channels for implementing those for effective outcomes. It has been
found that Amul use very simple but highly effective advertisement campaigns as compared to
star studded campaigns of Nestle or Pepsico. It keeps the tag of grass root player intact and is
highly successful. Other players have got their presence felt and created supremacy in their
respective niches. The potential of Indian market is huge in terms of growth and expansion thus
there is little place for everybody. But one can say that Amul, Pepsico, ITC and Nestle models are
highly successful in marketing strategies for their produce.
Ownership, at times play a very important role in performance of the models because the
producers are first constituent of the supply chain and the ownership and operational freedom
have important effects on any human being. Amul model gives both ownership and operational
freedom to the producers. There is little bit of control through village society but it is mutual
control, just like SHG. This control also is well compensated by higher value of the produce and
continuous procurement. In contract farming models, the ownership is up to procurement and
certainly not till the product is processed and sold in the market, but assured purchase and high
income compensated this drawback. Quality is very important for companies due to their market
obligations so the control is somewhat with company. This brings about quality and productivity
enhancement along with experiencing high cost inputs. So it depends upon the area, the type of
crop/commodity, the culture and parties to actually determine the best model and it will not be
right to say that the model with which ownership remains with producer is good.
It has been found that the supply contracts with small farmers are rarely formal and there is
lack of legislation in this regard. Most of the contracts are non-enforceable in India – as elsewhere
in developing countries – remaining agreements that are only morally-based. In order to make
contract farming a win-win case, there is a need of longer-term relationships between agro-
industries and farmers through transparent contract terms, fair pricing, effective extension, and
good marketing. The institutionalisation of process of exchange between the producers and
private party through newer governance mechanisms and public private partnership may yield
benefits. Pepsico, Mcain and ITC have shown the potential of such arrangements. It is critical
that alternative agro-industrial models are encouraged and receive strong Government backing,
especially those models which contribute positively to rural employment, poverty alleviation and
sustainable development.
Conclusions and Suggestions

If the development objectives of agri- commodity businesses are to be served, small farmers
must benefit from this growth, and the landless should at least benefit indirectly. The study
highlights that the good institutional models must address the critical issues of information
asymmetry, opportunism and asset specificity—by evolving grass root institutions and
governance structures which harmonise exchange relations across parties. Further, in order to
make contract farming a win-win case, there is a need of longer-term relationships between agro-
industries and farmers through transparent contract terms, fair pricing, effective extension and
good marketing.

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The public sector and policy makers can undertake the following policies to improve the
institutional environment, thereby facilitating the formation of large number of institutions and
organisations. Farmer Producer Organisations may act to enhance small farmers’ integration in
agri commodity value chains in the following ways:
• Better access to timely and adequate finance
• Utilise scale to procure inputs at lower prices
• Enable market linkages
• Farm mechanisation through integrated production
• Build capacity in production/processing/marketing
• Collate produce and more selling power
• Improve infrastructure and telecom networks
• Stimulate private market information systems:
• Promote commodity exchanges:
• Integrate marketing and value chain aspects into existing extension systems:
• Introduce and enforce standard marketing contracts
• Promoting partnerships between small producers and agro-businesses or commodity
wholesalers
• Help small farmers to comply with market standards and supermarket requirements
• Enhancing the management capacities of small farmer as¬sociations
• Legal Support and facilitation
Limitations & Scope of Further Research

The study draws lot of its information through case studies, complimented by field visits. The
information so collected is subjective in nature, and may involve bias on various counts. Models
from different subsectors are difficult to compare, e.g., Amul model for milk compared with ITC
e choupal. This has been done due to dearth of good innovative models in a sub sector. The paper
broadly aims at theory building and test if the critical success factors, as identified by the literature
are really important for the effective performance of institutional models.
The present study can be extended further with inclusion of other models. Further, the models
can be compared using primary data involving farmers, processors, marketers and consumers.
The outcome of the study can then be statistically justified.
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Author’s Profile
Dinesh Jain is a fellow of Indian Institute of Management (IIM), Ahmedabad with expertise in
management studies including agribusiness, entrepreneurship, economics, research methods and marketing.
He is presently working as Assistant Professor in Entrepreneurship Development Institute of India,
Ahmedabad, India and teaching agribusiness, management and development. He has gained extensive
field experience in India, Australia and South Asia by working on diverse projects of International Food
Policy Research Institute (IFPRI), Australian Centre for International Agriculture Research (ACIAR), Global
Development Network (GDN)-World Bank, Ministry of Agriculture-Govt. of India, and National Centre
for Agricultural Economics and Policy Research (NCAP), India. Besides, Dr Jain has authored multiple
research papers/reports/book/book chapters for Food and Agriculture Organisations (FAO) of United
Nations, Global Development Network (GDN), IIM Ahmedabad and various peer reviewed journals. His
current research interests include agri-entrepreneurship, institutional innovations and design, institutional
economics, impact assessment of development initiatives, natural resource management, agro and food
industries, commercialisation of agriculture, investment behaviour in Indian agriculture, food security, and
technology innovation and adoption in agriculture.

Training Programme on
LINKING FARMERS TO MARKETS
READING MATERIAL
National Institute of Agricultural Extension Management

(An Organization of Ministry of Agriculture, Government of India), Hyderabad
(MANAGE)
CONTENTS
S.No. Particulars Page No.

1. LINKING FARMERS TO MARKET
1.1 Challenges and Issues 1
1.2 Opportunities For Small Holders in Different Systems 3
1.3 Alternative Approaches for the linkage 4
1.4 Measures for better Access/Linkage 5
2. REGULATED MARKETING SYSTEM IN INDIA AND
REFORMS
2.1 Characteristics of Traditional Agricultural Marketing 7
System
2.2 State Marketing Departments 8
2.3 Regulation of Agricultural Marketing 9
2.4 Objectives of Regulated Marketing 9
2.5 History of Market Regulation 9
2.6 Reforms 10
2.7 Regulatory Reforms undertaken 11
3. MODERN MARKETING METHODS
3.1 The various forms of alternate marketing 13
3.2 Direct Marketing – Farmers’ Markets 14
3.3 Farmers’ Organizations in Marketing 16
4. CONTRACT FARMING IN INDIA 24
5. GRADING AND STANDARDIZATION OF AGRI- 29
COMMODITIES
6. PACKAGING OF FRUITS, VEGETABLES AND ROOT 36
CROPS
7. STORAGE OF HORTICULTURAL CROPS 45
8. TRANSPORTATION 50
9. IT – BASED MARKET INFORMATION SYSTEM 54
1|Page
1. LINKING FARMERS TO MARKET
Linkages between farmers and market call for priority attention to issues
on access to technology, information on institutional arrangements, support
services, policies, capacity building, identification and development of markets.
The problem of access to market is more pronounced for small and marginal
farmers. Being smallholders, these farmers suffer from some inherent problems
such as absence of economies of scale, access to information and their inability
to participate in the price discovery mechanism.
There is an added importance attached to linkage to market for the
farmers in the context of new challenges and issues relating to market. Also,
there is a shift in demand and opportunities for a rapidly changing market
environment brought about by trade liberalization and globalization. Rising
incomes, population growth, urbanization, changes in tastes and preferences
have brought about some changes in the consumption pattern. The consumers
are increasingly becoming aware about food safety and quality. Globalization
offers opportunities for increased agricultural exports. The capacity of the farmers
in India, most of whom are small and marginal, to respond to these issues is
limited. Consequently, there is a need to enhance the capacity of the farmer to
enable him to meet the new challenges.
1.1. Challenges and Issues
The role of small farms in development and poverty reduction is well

recognized. In the current agricultural marketing scenario of the country, the
following are some of the formidable challenges to be tackled for strengthening
linking of the farmers to the market.
Low marketable surplus: Most of the farmers are producing multiple

crops on small/marginal holdings leading to low marketable surplus of
each crop. Farmers generally don’t find it profitable to take such a small
quantity of surplus to the market resulting in heavy village-sale
immediately after the harvest. Also they are often compelled to sell it to
the village traders due to indebtedness or immediate need for cash. Even
today, there is prevalence of pre-regulatory shortcomings like delayed
payment and unauthorized deduction like Karda, Dhalta, Muddat,
darmada etc.
Long marketing channels: The long marketing channels with multiple

intermediaries for different agricultural produce is the major cause for low
share of farmer in the consumer’s rupee. As reported by the Millennium
Study of the Ministry of Agriculture, it varies from 32 to 89 percent in
different commodities.
2|Page
Poor Access to markets: The National Commission on Agriculture, 1976,
recommended that a market should ideally serve 80 sq. Km. area. The
average area served by each regulated market now in the country is 435
sq. km., varying from 103.20 sq. km. in Punjab to 11214 sq. km. in
Meghalaya.
Poor marketing infrastructure: There is conspicuous paucity of

infrastructure such as auction platform, drying platform, grading facilities,
cold storages etc., in the present markets. The government, in XI Five
Year Plan, envisaged investment in agricultural marketing infrastructure to
the tune of Rs 64,312 crore with Rs 30,625 crore to be mobilized from
private sector.
Non-transparent price discovery mechanism: The traditional price

discovery mechanism prevailing in a typical regulated market is not
transparent. The method prescribed for sale of agricultural produce in
regulated markets is either by open auction or by the close tender method.
The cumbersome process of manual tender and open auction systems in
the regulated markets provide ample scope for manipulation of price
formulation process. In order to overcome this problem, some states like
Karnataka have introduced electronic tender of agricultural commodities in
some of the selected markets.
Lack of market information system: Farmers have got to be

empowered with right information at the right time and place so that they
can improve their bargaining capacity in the market. The existing market
information system leaves much to be desired in this respect. The last
mile linkage in the existing marketing information system has got to be
made to benefit the small, marginal and illiterate farmers.
Fledgling rural periodical markets: Rural periodical markets are the first
touch points of the farmers with the market circuit. Since the strength of
the chain lies in its weakest linkage, the rural markets need to be
equipped with requisite infrastructure to reduce post-harvest losses and
ensure higher returns for the farmers. Majority of these markets lack even
basic infrastructure, though 15 percent of these markets are now under
the ambit of regulation. These markets may be effectively utilized for
improving the access of farmers to market.
Enabling free play of market forces: The system may be improved by

allowing free play of market forces for better price formation. There is a
need to do away with avoidable licensing, restriction on storage and
movement of agricultural produce. With these measures, the system will
go a long way towards bringing about integration in the marketing system.
3|Page
Reforms in Agricultural Marketing: It is heartening that 17 States of the
country have brought about reforms in agricultural marketing in conformity
with the Model Act, 2003 of Government of India. However, these States
have confined themselves to only three aspects of reforms viz., contract
farming, direct marketing and setting up of private markets. These states
should adopt the rest of the reform measures and other States should
reform their agricultural marketing system.
1.2. Opportunities for Small Holders in Different Systems
Several innovative marketing models have evolved across the country in

isolation like contract farming, cooperative and producers’ companies. The
collaborative efforts of the stakeholders have contributed to the success of these
models. These models, by and large, are able to address the shortcomings of the
traditional marketing system. These are found to be effective in aggregating the
small holders also. In view of the reforms process initiated by Government of
India, there is better scope for implementing these models with customised
approach. An analysis of the suitability of some of the innovative marketing
models for small holders in linking them to market is placed below.
Details of Innovative Marketing Channels Evolved In India
Problem Contract Farming Cooperative Producers’
marketing Company
Knowledge & Introduction of new Group approach helps Providing advice to
information technology and skill in sharing knowledge farmers on various
transfer and information technical issues
Input supply Provision of quality Scale of operation Facilitate purchase
inputs and helps in procurement of inputs
production services of quality inputs
Credit Access to credit Provided by the Facilitate provisions
cooperatives of credits
Price Guaranteed and Competitive price Competitive prices
fixed pricing through arraignments through forward
structures of sale proceeds linkages
Long marketing Buy back Effective forward Aggregation and
channels arrangements linkages collection from
Direct link with doorstep
buyer
Poor market Assured market Group approach helps Assured market by
availability in enhancing access providing forward
to market linkages
Infrastructure Backward linkage Managed by Managed by
barrier through collection cooperative through company
centre/ purchase at pooled resources
doorstep
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Prompt Immediate Standardised Immediate payment
Payment procedure specially to small
holders
Value addition Processing Processing Processing
Successful Successful in some HOPCOMS, NDDB, Indian Organic
models of the crops like Mahagrapes, Farmers’ Producer
soybean, Amalsad, etc Company Limited,
vegetables, Kochi, Kerala, Eco
medicinal and Tasar Private Ltd.
aromatic plants, etc.
gherkin etc.
1.3. Alternative Approaches for the linkage
Institutional, informational and developmental were the three approaches

proposed for linking farmers and markets (Table). These three approaches,
having proven successful in many developing countries, cover aspects like
developing skills, knowledge, competencies, information needs of learners for
effective adoption of practices and helping people with problem solving and/or
coping strategies.
Approaches to Linking Farmers and Markets

Approach Content Delivery Audience
Institutional Market Intelligence, Training, Extension agents,
Marketing Information, Seminars, Farmers,
Agri-business, Workshops, Private agencies,
Value addition through Extension Market operators,
processing, programmes Cooperatives,
Post harvest Agri-businesses
Informational Market reports, Radio, Farmers,
Price forecasting, Television, Market operators,
Post harvest Distance Cooperatives,
technology, education, Rural women and
Grading and News letter, youth
standardization, Farm and home
Quality control visit
Developmental Storage, Demonstration, Supply chains,
Sustainability, Field visits, Cooperatives,
Agri-business, Face-to-face Wholesalers,
Cost-benefit, meetings, Extension agents,
Group Farmers
discussion
Source: Radhakrishna & Jackson, 2013
http://globalfoodchainpartnerships.org/india/Papers/Posters/RamaRadhakrishna.pdf
5|Page
1.4. Measures for better Access/Linkage
In order to give the farmers better access to market, a number of reform

measures have been undertaken by Government of India in recent years.
The scope of marketing reforms adopted by the GOI widened and the
pace of reform hastened during the last decade. The most critical actions were:
(1) in 1998, repeal of the Cold Storage Order 1964, which eliminated the
licensing requirement and government control over cold storage fees;
(2) in 2002, lifting the licensing requirements, stocking limits, and

movement restrictions for wheat, paddy/rice, coarse grains, edible
oilseeds and edible oils, and removing restrictions on access to credit
under the Selective Credit Control Policy;
(3) also in 2002, amending the Milk and Milk Products Order 1992 to
remove restrictions on investments by the private sector in dairy
processing and to focus on food safety issues;
(4) in 2003, eliminating the ban on futures trading of 54 commodities

including wheat, rice, oilseeds, and pulses 3 and
(5) since 1997, removing several agricultural products from small-scale

reservation. In 2003, the GOI formulated the Model Act to reform the
Agricultural Produce Marketing (Development and Regulation) Act 1951.
The Model Act aims to foster a single market in the country by removing
the restriction on selling agricultural commodities wholesale only in state-
regulated markets and permitting the private sector to develop and
operate wholesale markets. In 2006, parliament approved the Food and
Safety Standards Act, which rationalizes the complex and overlapping
web of regulations governing food processing and the Warehousing
(Development and Regulation) Act, which will facilitate access to trade
credit. The GOI also repealed the Cess Act, thus eliminating the 0.5 %
cess on agricultural and plantation exports.
6|Page
Major GOI agricultural marketing policy reforms, 1998/99-2005/06
Year Policy reform

1998/99 • Cold Storage Order 1964 repealed
2001/02 • Restrictions on domestic and foreign investments (up to 100
percent) in bulk handling and storage removed
• Inter-Ministerial Task Force and Committee of State Ministers
on Agricultural Marketing Reforms established
2002/03 • Licensing requirements, stocking limits, and movement
restrictions on wheat, paddy/rice, course grains, edible
• Oilseeds, edible oils, and selective credit controls lifted
• Milk and Milk Products Control Order (MMPO) amended to
remove restrictions on new milk processing capacity,
• while continuing to regulate health and safety conditions
• Leather and leather and paper products removed from small-
scale reservation list
2003/04 • Ban on futures trading of 54 commodities, including rice, wheat,
oilseeds, and pulses, removed
• Levy on sugar reduced from 15 percent to 10 percent
• Model act for State Agriculture Produce Marketing
(Development and Regulation) formulated
• Processed food items exempted from licensing under Industries
(Development and Regulations) Act 1951, except
• Those reserved for small-scale industries (SSIs) and alcoholic
beverages
• Food processing included in list of priorities for bank lending
• Automatic approval for foreign direct investment up to 100
percent for most processed foods, except alcohol and beer
and those reserved for SSIs
2004/05 • Group of Ministers established to formulate modern integrated
food law
2005/06 • National Horticulture Mission initiated
2006/07 • Food Safety and Standards Act approved
• Warehousing (Development and Regulation) Act approved
• Repeal of Cess Act
• Forward Contracts (Regulation) Amendment Bill submitted to
parliament
Source: Ministry of Finance 2002, 2003a, 2004a, 2004b, 2005a, 2006; Ministry of
Food Processing Industries 2002,2004,2005a; Department of Food and Public
Distribution 2005.
7|Page
2. REGULATED MARKETING SYSTEM IN INDIA AND
REFORMS
It goes without saying that marketing and production of agricultural

produce are inextricably intertwined with each other. In the post-WTO regime, an
effective agricultural marketing system is the key driver of the agricultural
economy of a country. An effective marketing system aims at ensuring
remunerative prices to the producers at cost effective marketing costs and
smooth supply of commodities to consumers at reasonable prices. In order to
protect the interests of the various stakeholders of the agricultural marketing
system of the country, a number of governmental interventions have been taken
from time to time. However, the present agricultural marketing system of the
country leaves much to be desired. There are many imperfections in the
marketing system for agricultural commodities. Some reform measures by the
government have already been initiated to address these issues and some are in
the pipeline. This chapter includes a description of the traditional marketing
system for agricultural commodities and the steps taken by the government from
time to time to overcome the defects and to improve the marketing system.
2.1. Characteristics of Traditional Agricultural Marketing System
The problems of agricultural marketing have received the attention of the

government for a long time. As early as in 1928, the Royal Commission on
Agriculture had pointed out that the then existing system did not meet the
requirements of an ideal marketing mechanism. Some of the important
characteristics of the traditional marketing system for agricultural commodities
have been discussed below: Many of these still exist, though efforts are under
way to improve them.
(i) Heavy Village Sales of Agricultural Commodities
A majority of farmers in India sell a large part of their produce in villages

resulting in low returns for their produce. There is a difference in the price
prevailing at different levels of marketing, i.e., the village, the primary wholesale
market, the secondary wholesale, and retail levels. The extent of village sales
varies from area to area, commodity to commodity, and also with the status of
the farmer. The village sale is 20 to 60 percent in food-grains, 35 to 80 percent in
cash crops and 80 to 90 percent in perishable commodities. This practice is very
common even now. The factors responsible for village sales are –
a) Farmers are indebted to village moneylenders, traders or landlords.

They are often forced either to enter into advanced sale contracts
or sell the produce to them at low prices.
8|Page
b) Many villages are still not connected by roads. Adequate transport
means are not available even in villages connected by roads. It is
difficult to carry the produce in bullock or camel carts to markets,
which are often situated at long distances.
c) There is only a small quantity of marketable surplus with a majority
of the farmers because of the small size of holdings.
d) Farmers are hard-pressed for money to meet their social and other:
obligations, and are often forced to sell their produce right in the
villages.
e) Most of the perishable products need to be marketed in the villages
because of their low “keeping” quality and the non-availability of
quick transport means.
f) Many farmers disliked city markets mainly because of their lack of
knowledge about prevailing market practices, the possibility of theft
or robbery in transit and problems faced by them for selling their
produce in city markets.
g) The information on the prices prevailing in the nearby primary and
secondary wholesale markets is not readily available to the
farmers.
(ii) Post-Harvest Immediate Sales by Farmers
A majority of the cultivators tend to sell their produce immediately after the
harvest at low prices prevailing at that time. Because of substantial supplies,
Indian markets are glutted in the post-harvest season. Traders often take
advantage of this situation. About 60 to 80 percent of the food grains are still
marketed in the first quarter of the harvest season.
(iii) Inadequacy of Institutional Marketing Infrastructure and Lack of

Producers’ Organizations
(iv) Multiplicity of Market Charges
(v) Existence of Malpractices
(vi) Lack of Reliable and up-to-date Market Information
(vii) Low Marketable surplus of a Large Variety of Products
(viii) Absence of grading and Standardization of Produce
(ix) Absence of Quick Transport Means
(x) Strong Associations of Traders and Market Functionaries
2.2. State Marketing Departments
Marketing Departments were set up in the States as counterparts of the

Central Marketing Department. The structure of the State Departments varies
from State to State, and their status ranges from that of a full-fledged department
to a cell under the Agriculture Department. However, all the States now have a
marketing department/cell to look after the marketing problems of farmers.
9|Page
With increasing role of agricultural marketing in the economic
development of the state and the increasing activity of market regulation, State
Agricultural Marketing Boards were set up in States and Union Territories. These
State Agricultural Marketing Boards look after the regulation of markets and bring
about an effective level of coordination in the functioning of the regulated markets
at the State level. The market regulation scheme received momentum after the
establishment of State Agricultural Marketing Boards in the State. In some states
Agricultural Marketing Departments were merged with boards. However, National
Commission on Agriculture in 1976 again recommended establishment of
separate Directorate of Agricultural Marketing in every state.
2.3. Regulation of Agricultural Marketing
The features like high marketing cost, unauthorized deductions and

prevalence of various malpractices prompted regulation of agricultural marketing
in different states of the country. Establishment of regulated markets has been
able to overcome the problems of traditional marketing system to a great extent.
However, these problems still persist in the case of village sales.
Definition of Regulated Market:
A regulated market aims at ensuring correct weighment of produce,

prompt payment to the farmers and avoidance of exploitation of farmers by
middlemen. Regulated market is one that aims at the elimination of the unhealthy
and unscrupulous practices, reducing marketing costs, and providing facilities to
the producer-seller in the market. A legislative measure designed to regulate
marketing of agriculture produce basically focuses on establishment of regulated
markets.
2.4. Objectives of Regulated Marketing:
a) To prevent exploitation of farmers by helping them overcome the

handicaps in the marketing of their produce.
b) To make the marketing system effective and efficient so that farmers may
get remunerative prices for their produce and the goods are made
available to consumers at reasonable cost.
c) To provide incentive prices to farmers for inducing them to increase the
production both in terms of quantity and quality.
d) To promote an orderly marketing of agricultural produce by improving the
infrastructure facilities.
2.5. History of Market Regulation
The need for regulation of markets arose from the anxiety of the British
rulers to make available supplies of pure cotton at reasonable prices to the textile
mills in Manchester. The first regulated Karanjia Cotton Market was established
10 | P a g e
Since 2003, Govt. of India has initiated a number of reforms in Agricultural
Marketing, while some others are in the pipeline. As a major initiative, the Govt.
prepared a Model Act called Agricultural Produce Marketing (Regulation &
Development) Act, 2003. All the States/UTs have agreed to amend their
respective State APMR Acts in the line of the Model Act to bring about requisite
reforms in the sector. The Salient features of the Model Act are setting up
markets in the private/co-op sector, rationalization of market fees, promotion of
contract farming, direct marketing and grading and standardization, including
setting up of a Grading and Standardization Bureau in each State/U.T. The
states have amended their Acts in respect of three aspects, i.e. contract farming,
direct marketing, setting up of private markets only.
Agriculture being a State subject, the States have got to play a proactive role
to adopt the desired reforms and push the frontiers of the agricultural marketing
system of the country to the next level of excellence. It is time the States should
go beyond the three areas of reforms and should adopt other areas of reforms
such as setting up of Bureau of Standards and Grading at State level, promotion
of marketing extension and setting up of responsive market information system
etc. These reforms would go a long way towards attracting private investment to
the sector, putting in place an integrated supply chain management system and
promoting processing.
As regards other reforms, the Government of India has taken up the

following measures:
A warehouse Development and Regulation Authority has been set

up. This is entrusted with the task of negotiable warehouse receipt in
the agriculture sector. This will go a long way towards saving the
farmers from distress sale of their produce
A Food Safety Regulatory Authority has been set up to look after the
food safety and quality issues.
Strengthening of the Forward Markets Commission through
amendment of the FCR Act is in the pipeline.
Launching of the infrastructure scheme (AIGS Scheme) and the
Rural Godown Scheme has gone a long way towards attracting
private investment to agricultural marketing sector.
Market Research Information Scheme of Government of India has
been successful in disseminating price and arrival related
information from almost all the wholesale markets of the country.
The terminal market scheme of the government has the potential to
promote setting up of a chain of Hub and Spoke model of markets
through the country in PPP mode.
18 | P a g e
3. MODERN MARKETING METHODS
Introduction
Many growers, especially the new ones, are inclined to start production
without giving any thought to the business of marketing. Good marketing is an
absolute must for a successful agricultural enterprise. Some would even argue
that it ranks higher in importance than production itself, especially for farmers
planning to diversify. After all, of what good is a product if one cannot sell it for a
profit? Diversification of crops entails familiarizing the farmers with creating new
marketing systems for the new products. Existing marketing channels, very often,
do not accommodate the producers of the new produce well, especially the small
producers.
Alternative Marketing
Formal research on alternative marketing mechanisms has been scattered

and hard to access by producers. It is mostly experiential and unrecognized by
the agricultural establishment and official information channels. Small farmers
and grassroots farm groups are the most likely to develop and use innovative
marketing methods. The assumption that farmers must either "get big or get out"
is being challenged. By the emergence of alternatives, it is possible for innovative
farmers to stay small or medium-sized and make a comfortable and successful
living from agriculture.
Exploring Alternatives
Sustainable farming, which received a boost following the farm crisis of

the 1980s, has given impetus to diversified, decentralized systems in which
farmers take greater control of marketing by bypassing traditional channels and
marketing directly to consumers at the local and regional level. Foods that do not
require much processing before consumption—like fruits, vegetables and meat—
are ideal for one-on-one marketing. Direct marketing is often quite unorthodox
and may take the form of roadside stands, pick-your-own operations, farmers'
markets, and sales to restaurants, upscale retail or specialty stores—even
supermarkets and institutional food service. Prospects for direct farmer-
consumer interaction are particularly promising at the rural-urban fringe, where
producers can take advantage of specialty market niches and the demand for
local and ethnic food and non-traditional products, while promoting agricultural
tourism and education.
3.1. The various forms of alternate marketing
(a) Direct marketing,

(b) Marketing through farmers’ interest group,
19 | P a g e
(c) Co-operative Marketing,
(d) Forward and future market,
(e) e-commerce,
(f) Setting up of mega markets
3.2. Direct Marketing – Farmers’ Markets
Direct marketing by farmers is being encouraged as an innovative

channel. Some examples of these channels are Apni Mandi, Rythu Bazars, and
Uzhavar Sandies. These channels are mostly adopted in sales transactions of
agricultural commodities like fruits, vegetables and flowers, which are highly
perishable. In this channel, the produce moves quickly from farmers to
consumers due to lack of middlemen. If farmers directly sell their produce to the
consumers, it not only saves losses but also increases farmers’ share in the price
paid by the consumer.
Farmers’ Markets were introduced with a view to eliminate the middlemen

and arrange facilities for the farmers to sell their produce directly to the
consumers at reasonable rates fixed every day. On account of the scheme, both
the farmers and the consumers are benefited.
Apni Mandies in Punjab and Haryana
Punjab’s and Haryana’s Apni Mandis (Our Markets), established in the

mid-1990s, were the first ones directly linking vegetable producers and
consumers. Farmer-producers bring the produce for sale directly to the buyers or
consumers. The Agricultural Produce Market Committee of the area, where Apni
mandi is located, provides all necessary facilities like space, water, shed,
counters and weighing balances
Rythu Bazaars in Andhra Pradesh
Government of Andhra Pradesh initiated the Rythu Bazaars on January

26, 1999. Rythu Bazaars are located on government lands identified by the
District Collectors. The locations are decided in such a way as are convenient to
both farmers and consumers. The criteria for opening of new Rythu Bazaars are
the availability of at least one acre of land in strategic location, and identification
of 250 vegetable growing farmers including 10 groups. The price fixation in Rythu
Bazaars is through a committee of farmers and the Estate Officer. Adequate care
is taken to fix the prices realistically. If the prices in Rythu Bazaars are higher
than the local market rate, there is no incentive to consumers. And if the prices
fixed are lower than the wholesale market rates, there are no incentives to
farmers. The prices in Rythu Bazaars are generally 25 percent above the
wholesale rates and 25 percent less than the local retail price. The maintenance
expenditure of Rythu bazaars is being met from the financial sources of
Agricultural Produce Market Committees.
20 | P a g e
Uzhavar Santhai in Tamil Nadu
Farmers’ Markets are under the administrative control of the State’s

sixteen Agricultural Marketing Committees, which, in turn, are part of the
Department of Agricultural Marketing. The Committees are also responsible for
the administration of Regulated Markets, where farmers sell directly to traders
without the intermediary of commission agents, and under a tender system
supervised by Committee officials. Regulated markets also offer storage facilities
to producers, to whom an advance is paid once the produce is deposited.
Regulated markets deal with a predetermined list of commodities and especially
food grains and other non-perishable items. With regard to the Farmers’ Markets,
the Committees are responsible for their overall administration.
All Farmers’ Markets open at 6.30 in the morning, and usually close at
2.00 in the afternoon, although marketing committee staff remains until 5 p.m. to
complete all the paper work. A notable exception is Maharaja Nagar Farmers’
Market in Tirunelveli, which is open until 7.00 in the evening. This allows farmers
to bring in their produce twice a day, and has, therefore, attracted larger number
of farmers, who would otherwise find it difficult to dispose of higher volumes of
produce in Farmers’ Markets.
A committee including Marketing Committee officials and farmers’

representatives fixes the price of the vegetables each day. Committee members
collect the details of prices in the central and retail markets before 3.00 a.m. in
the morning, and by 6.30 a.m. the maximum selling prices in the Farmers’ Market
are fixed at 15 to 20 percent more than the night sale price at the central market,
and 20 percent lower than the price in the retail markets – whichever is higher.
Farmers are not permitted to sell above the maximum price, although they are
allowed to sell at a lower price. Prices are displayed on a blackboard at each
stall, and staff constantly monitor that they are honoured. Farmers also get good
quality seeds and other inputs in the market itself.
Hadaspar Vegetable Market in Pune
Hadaspar vegetable market is a model market for direct marketing of

vegetables in Pune city. This sub-market yard, situated 9 kms away from Pune
city, belongs to Pune Municipal Corporation and fee for using the space in the
market is collected by the Municipal Corporation from the farmers. This is one of
the ideal markets in the country for marketing of vegetables. In this market, there
are no commission agents/middlemen. The market has modern weighing
machines for weighing the products. Buyers purchase vegetables in lots of 100
kgs or 100 numbers. The produce is weighed in the presence of licensed
weighmen of the Market Committee and sale bill is prepared. The purchasers
make payment of the value of produce directly to the farmer. The purchaser is
allowed to leave the market place along with the produce after showing the sale
21 | P a g e
bill at the gate of the market. Payment is made in cash. The supervisor of the
Market Committee settles the disputes, if any, arising between the buyers and
sellers, after hearing the concerned parties. The Market Committee collects one
per cent sale proceeds as market fee for the services and facilities provided by
the Committee to the farmer-sellers and buyers.
A common problem faced by the direct market systems is the infiltration of
the bazaars by middlemen in the guise of farmers. Though identity cards have
been introduced and periodical checks performed, the problem still persists in
many bazaars.
3.3. Farmers’ Organizations in Marketing
A study reveals that inefficient marketing system has led to an avoidable

waste of around Rs. 50127 crores. Introducing scale and technology in
agricultural marketing can save a major part of this wastage. Milk and eggs
marketing are two success stories of the role of scale and technology in
marketing. The extent to which the farmer-producers will benefit (out of saving of
avoidable waste) depends on the group-marketing practices adopted by the
farmers. In this sense, farmers’ organizations need to be promoted for
undertaking marketing activities on behalf of the individual members of the group.
Promotion of such organizations should be assisted or helped to create

basic infrastructure for their effective functioning. This could even include
assistance for professional management. In the following paragraphs, some
examples of successful models are discussed.
MahaGrapes
MahaGrapes came into existence in 1991. It owes its origins to the

Maharashtra State Agricultural Marketing Board (MSAMB). MahaMangoes and
MahaBanana were also set up subsequently for mangoes and bananas
respectively. The objective of the MSAMB was to promote the marketing of fruits
by assisting farmers technically and financially and linking them to new domestic
and international markets.
The active role of the State Government in bailing out MahaGrapes in

times of crisis along with the financial support and subsidies by APEDA and
NCDC bailed out MahaGrapes. After this initial backing and assistance,
MahaGrapes has not looked back and has been steadily growing; MahaGrapes
currently exports grapes to Europe, the Middle East and in recent years to Sri
Lanka. Thompson seedless is the main variety of grape exported.
The firm does not retain the profit it earns. It charges a nominal fee (Rs. 4
per kg.) for grapes exported by the firm for a farmer. This amount helps in
covering the operational costs of the firm. This broadly includes wage cost of the
firm’s employees and transportation cost of sending the product to distant
22 | P a g e
markets. The rest of the profit earned is passed on to the farmers. In addition,
MahaGrapes/Cooperatives charges Rs. 7 per kg of grapes for pre cooling and
cold storage charges.
When amounts marketed by individual members vary across members,

conflict over the cost allocation rule adopted by the cooperative is likely to occur.
In MahaGrapes, the allocation of costs related to the storage and cooling or
contribution to operational costs is proportional to the amount marketed by the
farmers. Since the contribution relates to the output marketed, conflicts over cost
sharing have not been an issue in MahaGrapes.
In terms of risk mitigation, the MahaGrapes farmer bears the entire risk in
production and marketing. However, the level of risk itself is lower to the extent
that the cooperative provides technical expertise so that the crop can be saved
from damage and satisfies the quality norms.
Thus, unlike in a situation where the farmer sells to intermediaries who

bear the entire marketing risk (from rejection of the assignment), here the risk is
shared across all farmers. The firm itself covers against such risks by rejecting
procurements that do not meet the specifications but once they accept the
produce from the farmer, the risk is totally borne by the firm where everyone
owns a share.
MahaGrapes stands out as an encouraging example of public-private

partnership that has delivered favourable outcomes for both large and small
farmers. Ownership of MahaGrapes lies solely in the hands of farmers; as they
have collectively contributed their share in the fixed and operating costs of
MahaGrapes and they also handle the governance of the firm. However, the
State initiative from institutions such as MSAMB was essential.
With assistance from a spectrum of government bodies, the government

assumed the role of a mere facilitator. In contrast to the system of other
cooperatives in India (in dairy and sugar for example), the government was not
assigned any direct role in the decision-making processes of MahaGrapes.
Infrastructure provision – MahaGrapes with partial financial aid from the

State government and partial self-finance have installed pre-coolers and cold
storages at all the 16 cooperative headquarters. The pre cooler technology was
imported from California and helps to cool the grapes to one degree centigrade.
This, by removing the heat from the grapes, extends its storage life to up to three
months. After being pre-cooled, the grapes are stored in the adjacent cold stores
and then carried in refrigerated trucks to the port. A nominal part of the price / Kg
received by the MahaGrapes farmers namely Rs. 4 goes to fund the activities
and pay for the costs of running the MahaGrapes firm and paying salaries to its
employees. An additional Rs. 7 is charged for the cooling, and the charge on
23 | P a g e
storage facilities provided at the cooperative headquarters goes to the
cooperative fund.
Amalsad and Gadat Co-operatives in South Gujarat
The Amalsad co-operative was registered in 1941. It has a membership of

more than 8000 of which about 50% are active members. Out of the total
business of about Rs. 8.5 crore for various fruits, chickoo dominates the scene
with as much sales as Rs. 7 crore from the crop. Mango, a major contributor
once upon a time, has been reduced to just Rs. 60 lakh, and banana has almost
disappeared. In fact, paddy has acquired somewhat an important place in
business of the co-operative with sales contribution of Rs. 90 lakh. The decline in
relative as well as absolute share of mango is attributed to the uncertainty of
crop, fluctuations in its price and short season, which have led to area shift away
from mango in favour of chickoo and paddy in the South Gujarat belt.
Similarly, the Gadat co-operative, registered in 1944, has 3152 members

of whom about 1800 are active members. The co-operative covers 800 hectares
across 7 villages. Like Amalsad, it has chickoo as its main business though
banana and mango are also procured. Out of a turnover of Rs. 4.075 crore,
chickoo accounts for as much as Rs. 4 crore. It also has tried selling mango pulp
under the brand names of ‘Tripti’ and ‘Amidhara’.
In Amalsad co-operative, every day about 200 farmer members bring

graded produce to the society at its two collection centres, one of which is at
Amalsad itself. The grading is done on the basis of size, shape and fitness of the
fruits. A sample of 10-kg.of chickoo from a lot is drawn in order to judge the
quality. The number of fruits in the sample lot size determines the quality. The
lesser the number of fruits, the better grade of quality is awarded to that lot. The
system is known locally as ‘Jantri’ count. These quality and grade parameters are
fixed for the season and can be changed from season to season or during the
season itself depending on the behaviour of and price realization in terminal
markets, agro-climatic situation, and general levels of quality in a season.
In the Gadat co-operative, grading is done in such a fashion that every 5

fruits more per 10 kgs. of chickoo will lead to a Rs. 0.70 cut in price per kg. This
leads to the entire pooled produce being graded into three types – A, B and C.
For procurement from member within each grade, penalty for more number of
fruits per 10 kg. pack is imposed. The minimum number of fruits (chickoo) in a 10
kg. pack could be 90 (A grade) and maximum 250 (C grade).
The Amalsad co-operative has two types of members – ‘A’ grade and ‘B’
grade. It has its own shop (outlet) in each village to cater to the needs of the
members in 17 villages, which have a population of the order of 35,000.
24 | P a g e
Similarly, in the Gadat co-operative area, each village has a retail outlet of
the co-operative along with a flour mill. This outlet supplies various agricultural
inputs as well as consumer goods to farmer members. Besides, there is a rice
mill owned by the co-operative and it sells rice under the brand name of
“Ambica”. In the Gadat co-operative, the produce is pooled after the farmer has
been paid up to 75 percent of the value of his produce as per the grade of the
produce.
The Amalsad co-operative works through the commission agents to

dispose of the produce in markets like Delhi, Bombay, Indore, etc. In fact, Delhi
alone accounts for 90 percent of the total chickoo sales of the co-operative.
Amalsad co-operative works in a highly competitive market. There are more than
10 private traders in the Amalsad market. But the co-operative accounts for 50
per cent of the total market arrivals of fruits, and 95 percent of the produce from
the 17 villages, which are catered to by the co-operative. The co-operative has its
own chickoo packaging machine, worth Rs. 14 lakh, which is used to pack and
load chickoo in trucks mechanically. Besides, the co-operative is also in the
business of cleaning, packing, branding, and selling various food commodities at
its main complex and through its various outlets.
In the case of Gadat, mango is sold to an American Dry Fruit Company

(60 percent) as well as in the fresh fruit retail market (40 per cent) through its
own outlets, which are located in Ahmedabad and Surat (2 each). Chickoo is
sent to distant markets like Delhi as in the case of Amalsad. In fact, the co-
operative is also planning to sell chickoo through retail outlets. Major factor in
efficient marketing management in these co-operatives is the use of market
information in decision-making. They are equipped with various modes of
communication and are in constant touch with the relevant markets and buyers.
One more feature of these co-operatives is that the membership does not
come as a free option for the members. The members are expected to deliver
produce to the co-operative and loyalty is valued. In fact, in order to keep the co-
operative viable and manageable, the Gadat co-operative is planning to close its
membership. The limited membership may not be in tune with the principles of
co-operation, but it is crucial for the financial health of the co-operative. In fact,
this has been one of the factors in ensuring viable functioning of the so called
“New Generation Co-operatives” in the US and of the sugar co-operatives in
South Gujarat along with other factors like value added processing, linking of
producer equity and product delivery rights, sale of tradable equity shares to
raise capital and efficient use of market information.
HOPCOMS, Banglore
The present HOPCOMS was established as ‘The Banglore Grape

Growers’ Cooperative Marketing and Processing Society Ltd.’ (BGGCOMS) on
10th September, 1959 with the main objective of encouraging grape vine
25 | P a g e
cultivation by providing the required inputs, technical know-how, marketing
facilities etc. The society started handling fruits and vegetables apart from grapes
from the 1965. In 1983, the name of the society was changed as ‘The Banglore
Horticultural Producers’ Cooperative Marketing and Processing Society Ltd.
(BHOPCOMS) and subsequently in 1987 it became HOPCOMS.
The membership of the society consists of four categories viz. ‘A’ class
members, who are the producers of horticultural crops in the area of operation;
‘B’ class members, who are admitted as associate members and include
cooperative institutions; ‘C’ class earmarked for the Government of Karnataka;
and ‘D’ class members comprise traders and commission agents.
The society is authorized to raise share capital worth Rs. 10 crore by

issuing 4.9 lakh shares to ‘A’ class, 10,000 shares to ‘B’ class and 5 lakh shares
to the Government. Each share is valued at Rs.100/-.
The jurisdiction of the society extends to 8 districts of Karnataka, namely

Banglore (both rural and urban), Mysore, Dakshina Kannada, Kolar, Mandya,
Tumkur and Shimoga. The society has one branch each in 6 districts barring
Shimoga and Banglore (Rural).
HOPCOMS is run under the guidance of the Department of Horticulture and is

managed by a Board of Management consisting of 15 members-11 elected from
‘A’ class and 4 Government nominees. The director of Horticulture is Ex-Officio
President of the society. The main business of HOPCOMS is procuring and
disposal of fresh fruits and vegetables.
1. Procurement of Fruits and Vegetables
The society procures fruits and vegetables, both from cultivators

(members as well as non-members) and the open market, as discussed below:
(i) Supply from Cultivators
(a) Supply at the Head Office/Branch: Producers at the nearby places

bring their produce on their own and supply at the H.O. or at the
branches. The cultivator has to take an indent from the society for the
supply of fruits and vegetables and, normally, produce in excess of the
indented quantity will not be accepted.
(b) Supply at the Procurement Centres: During 1970s, the society was
procuring hardly 35 to 40 percent of fruits and vegetables from the
field. However, in 80s, there was a change in the policy of HOPCOMS
in favour of field procurement, and with the help of the procurement
centres, at present, the society purchases nearly 85 percent of fruits
and vegetables from the cultivators directly. Almost entire quantity of
26 | P a g e
tomato, cabbage, cauliflower, cucumber, raw banana, pomegranate,
papaya and mango is now being procured from the field.
(ii) Procurement from the Market
A part of the produce is also bought from the local markets to meet the
requirements of the bulk buyers like Government hospitals, hostels,
factories etc. On an average, the society loses Rs. 3 per kg. of fruits and
vegetables by purchasing from the market. It was observed that the policy
of buying more from the market followed by the society in the 70s resulted
in net losses to the society (Subramanyam etal., 1979). The society buys
about 15-20 per cent of fruits and vegetables from the market. If this is
also purchased from the members’ field, then the society not only gains
Rs. 3 per kg. in terms of price but also helps the producers in better
marketing of their produce.
(iii) Supply from other States
In addition to procurement from producers and market, HOPCOMS gets a

small quantity of the produce from other states too. It gets apple from
NAFED, the Himachal Pradesh Horticultural Produce Marketing and
Processing Corporation (HPMC), National Dairy Development Board
(NDDB) and GROWREP, Delhi, kinnow orange from GROWREP, orange
from NAFED, Nasik and onion from Vegetable and Fruit Cooperative
Marketing society (VEFCO), Nasik. The procurement of fruits and
vegetables is made on consignment basis.
(iv) Grading of Fruits and Vegetables
Though HOPCOMS does not classify fruits and vegetables into grades
like A, B, and C, the society claims that it maintains the quality of fruits and
vegetables by accepting only the good quality produce from the growers. It
rejects the injured, damaged and the diseased.
(v) Indent System
It is understood that the society follows the ‘indent system’, which it used
to follow even in the 70s, while procuring fruits and vegetables from the
growers. This system, no doubt, helps the society in regulating the supply
based on the demand. In fact, it is understood that the disposal of the
produce is the major problem of the society and, hence, in order to avoid
losses due to surplus, HOPCOMS resorts to this system.
27 | P a g e
2. Disposal of the Produce - Sales through Retail Outlets
HOPCOMS has a good network of 256 retail outlets spread over 8

districts. The salesmen of the society who get a commission of 3.7 per cent from
the society run these outlets. The H.O. Bangalore sold about 71 percent of
vegetables and 79 percent of fruits though these retail outlets. Further, about 80
percent of vegetables like cowpea, bhendi, knolkhol and tondekai (coccinea) and
over 60 percent of tomato and brinjal were sold through these retail outlets. As
regards fruits, around 95 percent of sapota, papaya, pomegranate, pineapple
and banana (yelakki) and over 65 percent of orange, grape and banana reached
the consumers through these outlets. It may also be observed that HOPCOMS
gets higher price for fruits and slightly less for vegetables when they are sold in
these outlets.
Sales to Bulk Buyers:-
HOPCOMS sells fruits and vegetables on bulk basis to certain ‘Institutions’

like Government hospitals, hostels, and factories and also to processors like
KISSAN and Karnataka Agro Fruits. Normally, HOPCOMS supplies fruits and
vegetables on credit basis and the records reveal that it charges 40-50 paise
more per kg. of vegetables than the stall price when vegetables are sold to the
factories. In case of processors, transport cost is added to the price of the
vegetables. This, perhaps, is the reason for the higher price HOPCOMS gets for
vegetables like tomato, bhendi, cucumber, onion etc. when it sells them to the
bulk consumers. This portends that HOPCOMS can think of increasing their
sales of vegetables by having contractual arrangements with these bulk
consumers.
Sales to HOPCOMS Branches:-
The society sends fruits and vegetables to its branches to be sold through
their retail outlets. About 40 percent of fruits and vegetables procured by the
branch come from the Head Office. However, it is felt that the branches of
HOPCOMS, instead of acting as mere distribution centres, should function as
independent units of fruit and vegetable growers of the respective district. In
order to help the fruit and vegetable growers, unlike the Mangalore branch (which
has not enrolled any producers as its members even after 5 years of its
existence), membership enrolment drive should gain momentum in the branches.
They can procure the produce from their members and sell them through retail
outlets.
3. Production Related Activities
HOPCOMS supplies production requisites like vegetables seeds,

fertilizers, PPC (fungicides and insecticides) and garden implements to the fruits
and vegetables growers at reasonable price. It may be observed that inputs
28 | P a g e
account for 8-10 percent of the total sales of HOPCOMS. Further, it is also to be
noted that there has been a 3-fold increase in the value of inputs supplied to the
fruits and vegetables growers. This is perhaps due to the opening up of the
fertilizer and PPC godowns at Kolar, Chikkabballapur and Vijayapur.
4. Process Activity
HOPCOMS carries out preparation of juice from grapes, mango, orange,

apple etc., in Banglore, Mysore and Mangalore branches and sells it in bottles of
200 ml in their retail outlets. Although, with the opening up of the procurement
centres, there is an increase in the supply of fruits, a corresponding increase is
not observed in their processing and juice sales. These account for hardly 1
percent of the total sales of HOPCOMS, as specific efforts are not made either in
the juice preparation or its sales. Juice has been fetching a higher margin than
any other activities of the society. This is to suggest that it is profitable to take up
processing of fruits on a large scale and concurrent improvements need to be
made for the marketing of the processed products.
Self Help Groups in Andhra Pradesh – a case study
1. The success story of women empowerment in Andhra Pradesh, through

Self Help Groups (SHGs) and MACTCS (Mutually Aided Co-operative
Thrift and Credit Societies), has been widely appreciated across India.
2. Over 5.4 million women have organized themselves in 380 thousand
groups.
3. Farmers’ Groups have also been formed in the state to facilitate
implementation of participatory projects at grass-roots level.
4. These village level organizations of the farmers and farm families have
grown to a level of self-sustainability where they are now demanding more
and more access to Information. They are demanding Information on
public sector schemes, market prices, weather etc.
5. They market their products collectively to obtain more bargaining power.
6. Under Mission Mode NATP Empowerment of women in agriculture, 540
farm women were grouped into 36 SHGs for starting different enterprises
based on the needs and preference of farm women, resources available
and marketing potential in the area.
7. Trainings were organized for capacity building of farm women of the SHGs
in the enterprises.
8. The members of SHGs were also trained to handle different equipments.
9. Empowerment of women SHGs have been made by skill training and
orientation to project management aspects.
10. All the members of SHGs started enterprises as per their interest. The
women have started generating income from enterprises.
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4. CONTRACT FARMING IN INDIA
The new market realities due to focus on liberalization, privatisation and

globalisation of the post-WTO regime are here to stay, bringing in its wake new
opportunities and challenges as well. The agriculture sector, like any other sector
of the economy, has got to put its act together to evolve a response mechanism
to face this ineluctable reality. This may call for a paradigm shift in its focus and
approach. Introduction of reforms in agricultural marketing is the need of the hour
to bring the requisite changes in its structure and to push the sector to take off
from its low growth rate of 2-3% to at least a respectable 4-5%. In this context
some reforms have already been initiated, while some others are in the offing.
However, the blitzkrieg of reforms for growth should in no way be allowed to push
the interests of the millions of small and marginal farmers to the background.
Against this backdrop, contract farming is billed to be a veritable instrument to
address many of the traditional ills affecting the agriculture sector and the
farmers, such as fragmentation of holdings, long chain of market intermediaries,
ignorance about the requirements of the buyers, low farm mechanization,
inadequacy of capital and distress sale and consequent heavy losses to farmers
etc.
Contract farming is an exciting way of giving the power of scale to the small
farmers, of marrying the small farmer efficiency to the scale economy,
transferring corporate management skills to the agriculture field, providing
assured markets for the produce, reducing the transaction costs involved in the
value chains of the commodities and of ensuring vertical integration through
forward and backward linkages.
Contract farming system: -
Definition: Contract farming arrangements of different types have existed in

various parts of the country for centuries for both subsistence and commercial
crops. The commercial crops like sugarcane, cotton, tea, coffee etc. have always
involved some forms of contract farming or the other. Even in the case of some
fruit crops and fisheries, contract farming arrangements, involving mainly the
forward trading of commodities have been observed. However, in the wake of
economic liberalization, the concept of contract farming in which national or
multinational companies enter into contracts for marketing of the horticultural
produce and also provide technologies and capital to contract farmers has
gained importance. Contract farming is generally defined as farming under an
agreement between farmers and a sponsor (processing and/or marketing firm)
for the production and supply of agricultural products under forward agreements,
frequently at predetermined prices. Within this broad framework, there are
different variants of contracts depending on the intensity of contractual
arrangements. The basis of such arrangements is a commitment on the part of
the farmer to provide a specific commodity in quantities and at quality standards
determined by the purchaser and a commitment on the part of the sponsor to
30 | P a g e
support the farmer’s production and to purchase the commodity. Thus, under
contract farming, the farmers grow selected crops under a buy back agreement
with an agency called sponsor engaged in trading or processing and the latter
contributes directly to the management of the farm through input supply including
planting materials as well as technical guidance through intermittent crop
supervision and also markets for the produce. Thus, the farmer assumes the
production related risks, and the price risk is transferred to the company. In
some cases, the company also bears the production risk, depending on the stage
of crop growth at which the contract is made. If the contract is made at flowering
or fruiting stage, the company bears the production risks also. It is this variant of
contract farming which is said to be one of the ways by which small farmers can
participate in the production of high value crops like fruits, vegetables, flowers
etc. and benefit from market-led growth.
Variations of contracts:-The intensity of the contractual arrangement varies

according to the depth and complexity of the provisions in each of the following
three areas:
Market provision: The grower and the buyer agree to terms and
conditions for the future sale and purchase of a crop or livestock product.
These conditions often specify price, quality, quantity and timing etc.;
Resource provision: In conjunction with the marketing arrangements, the
buyer agrees to supply selected inputs, extension of credit , land
preparation and technical advice covering production practices, quality
and standardization of the crop etc. These conditions directly shape and
regulate the production and labour processes of the grower;
Management specifications: The grower agrees to follow recommended
production methods, inputs regime, and cultivation and harvesting
specifications.
Crops suitable for contract farming:-
In general contracting is practiced by companies in case of crops that are:
Perishable: cannot be stored for long periods and needs to find market
immediately
Bulky: and, therefore, costlier to transport
Plantation crops: growers cannot abandon the plantations or the estates
and are locked into relationship with processor
Processible: need for processing-based inter-dependence between
growers and processors which can be explored
Variations in quality: where crops vary in quality and quality is important
for processing
Unfamiliar: medicinal plants like safed musli, ashwagandha etc. and new
products for new markets like gherkins etc.
31 | P a g e
Models of contract farming:- There are five models of contract farming namely,
the centralized model, the nucleus estate model, the multipartite model, the
informal model, and the intermediary model that are in vogue in the country. A
sponsor decides to follow a model depending on the market demand, production
and processing requirements and economic and social viability of the farmers.
In a centralized model a sponsor (a processor/packer) buys from a large

number of small farmers. It is vertically coordinated with quota allocation
and tight quality control. It is used for tree crops, annual crops, poultry,
dairy etc., and products often requiring high degree of processing, such as
tea or vegetables for canning or freezing. The model is also useful for
products where market requirements necessitate frequent changes in the
farm technology with fairly intensive farm-level support from the sponsor.
Sponsor’s involvement in production varies from minimal input provision to
the opposite extreme where the sponsor takes control of most of the
production aspects.
Nucleus estate model is a variation of the centralized model where the

sponsor also manages a central estate or plantation. The central estate is
usually used to guarantee throughput for the processing plant but is
sometimes used only for research or breeding purposes. The sponsor
provides significant amount of material and management inputs under the
model. The model is appropriate for crops such as tea, sugar and oil palm
with which farmers may have had little or no experience. Such crops
require significant long-term investment and generally immediate
processing after the harvest.
The multipartite model may involve a variety of organizations, frequently

including statutory bodies. This model can develop from the centralized or
nucleus estate model, eg: through the organization of farmers into
cooperatives, or the involvement of a financial institution.
The informal model is characterized by individual entrepreneurs or small

companies. It involves informal production contracts, usually on a
seasonal basis. It often requires government support services such as
research and extension.
The intermediary model involves sponsor in subcontracting linkages of

farmers with intermediaries. There is a risk of the sponsor losing control of
production and quality as well as prices received by farmers.
All the above models are very much adopted by different sponsors for
different commodities. The National Institute of Agricultural Marketing
(NIAM), in its recent study (2004) on contract farming covering Karnataka,
Madhya Pradesh, Punjab and Tamil Nadu, has identified four types of
32 | P a g e
contract farming model in these states in terms of the different entities
involved in a contract. The various types of contracts are:
Type-I-involving none other than the contracted farmers and the

sponsoring firms mainly providing the planting materials to the farmers.
The extension wing of the procuring wing of the company takes care of the
registration and other issues of pre-production and production. As there is
no credit facility given by the sponsor, there is a risk of farmers running
into the hands money lenders. Some of the Companies following this
model are Nijjer Agro (Tomato and Chilly in Punjab), Tinna Oils (Soya
bean in Maharashtra), SNC Oil (for Dhavana in karnataka), Himalayan
Drugs Private Ltd. (Ashwagandha, Karnataka), Pepsico (Basmati, Punjab)
etc.;
Type II-This is a three-tier model involving the sponsor, the farmers and
an implementing agency which could be a public or a private body or a
local NGO. The implementing agency conducts contract farming with a set
of quality specifications and guidelines set by the corporate, which is the
ultimate buyer. The implementing agency conveys the contracted price as
agreed by the purchaser of the commodity under contract to the farmers.
The implementing agency may charge some minor share of the value of
the produce from the buyer and from the farmers as an extension charge.
“Ion Exchange Enviro Farms” is following this model in Maharashtra for
contract farming of organic produce.
Type III- The model is similar to type-II as it has three tiers and a
traditional channel member like artiya replaces the middle tier. These
channel members help the corporates in identifying the farmers, arranging
for the cleaning and grading of the produce and also procuring the
produce. At the same time, the company is in direct contact with the
farmers for provision of extension services. The model provides
transparency but provides ample scope for the arthiyas to cut corners for
their benefits. The companies that adopt this model are United Breweries
Limited (Barley, Punjab),ITC-IBD (Soya bean, wheat in Madhya Pradesh)
etc.
Type-IV- This model is the most elaborate model, under which all the
services are provided under a single umbrella. The implementing agency
in this model, which could be an independent corporate or an arm of the
buying company, coordinates with all the agencies such as seed
companies, input providers, banks and insurance providers for providing a
plethora of services under the same roof. The implementing agency
renders its services for a nominal fee from the farmers for extension
services and a meagre share of 0.5% to 1% share on the interest
received by the bank and the value of the produce purchased by the
buyer. The companies adopting this model are Mahindra Subhlabh
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Services Ltd. (Basmati, Non-basmati, Maize - in Punjab & Tamil Nadu),
Escorts Machinery Group (Basmati in Punjab), Super Spinning Mills
(Cotton in Tamil Nadu), Cargill India Pvt. Ltd (Soya bean, wheat, maize in
Madhya Pradesh and U.P), Appachi Cotton India (Cotton in Tamil Nadu),
Gherkin exporters (Gherkin in Karnataka, Tamil Nadu & Andhra Pradesh)
34 | P a g e
5. GRADING AND STANDARDIZATION OF AGRI-
COMMODITIES
The quality of agricultural products brought to the market by the producer-

farmers over time and over regions varies considerably from lot to lot. It is
essential to grade the produce on scientific lines in order to remove these
variations and also for fetching good prices for the produce marketed in different
markets. Scientific grading should be based on objective evaluation of quality
aspects so that the sellers could be able to describe the quality that they are
offering and the buyers should understand what is being offered to them in the
market. In view of this, efforts have been made to organize the marketing of
agricultural commodities on scientific lines after the enactment of The Agricultural
Produce (Grading and Marking) Act, 1937. This Act empowers the Central
Government to prescribe grade standards for agricultural commodities and
livestock products and stipulate conditions governing the use of grade standards
and lay down the procedure for grading. At present, there are 212 agricultural
commodities for which grade standards are available. Graded agricultural
produce in India bear the AGMARK label. The different colour AGMARK labels
indicate different grades of the product. The AGMARK label is indicator of purity
and quality of the product. It ensures consumers protection. Agmarking exists in
the country for the purpose of
(i) Domestic consumption of agricultural commodities;

(ii) Export of agricultural commodities;
(iii) Agmarking at producer’s level.
Grading and standardization:
Grading and standardization is a marketing function, which facilitates the

movement of produce. Without standardization there is confusion and unfairness
as well. Standardization is a term used in a broader sense. Grade standards for
commodities are laid down first and then the commodities are sorted out
according to the accepted standards. The products are graded according to
quality specifications. But if these quality specifications vary from seller to seller,
there would be a lot of confusion about its grade. The top grade of one seller may
be inferior to the second grade of another. This is when buyers lose confidence
in grading. To avoid this eventuality, it is necessary to have fixed grade
standards, which are universally accepted and followed by all in the trade.
“Standardization is determination of the standards to be established for

different commodities. The standardization can be defined as the determination
of the basic limits on grades or the establishment of model processes and
methods of producing, handling and selling goods and services.”
35 | P a g e
Standards are established on the basis of certain characteristics-such as
weight, size, colour, appearance, texture, moisture content, staple length amount
of foreign matter, ripeness, sweetness, taste, chemical content, etc. termed
grade standards. Thus, standardization means making the quality specifications
of the grades uniform among buyers and sellers over space and time.
Grading can be defined as the sorting of the unlike lots of the produce into
different lots according to the quality specifications laid down. Each lot has
substantially the same characteristics in so far as quality is concerned. It is a
method of dividing products into certain groups or lots in accordance with
predetermined standards. Grading follows standardization. It is a sub-function of
standardization.
Type of Grading:-
Fixed Grading/Mandatory Grading–Sorting out according to size, quality & other

characteristics, which are fixed.
(i) Permissive / valuable grading: standards vary over time.

(ii) Contrived / de-centralized grading – the packer either sets up his own
lab-approved grading lots set by purpose.
(iii) Grading of producers’ level:- Under this programme, free grading
services are provided in market yards to farmers for sorting the
produce before offering for sale.
CRITERIA FOR GRADE STANDARDS
The criteria, which determine the adequacy of standards, are:
(i) Standards should be built on the characteristics, which the users

consider important, and these characteristics should be easily
recognizable. More weightage should be given to the users’ opinion.
(ii) Grade standards should be built on those factors, which can be
accurately and uniformly measured and interpreted. The grade
standards based on subjective measurement will be difficult to apply
uniformly, particularly by different graders and factors, which will
reduce the usefulness of the grade itself.
(iii) The grade standards terminology should be uniform at all levels of the
marketing channel.
(iv) The cost of operating the grading system must be reasonable.
The best practical test of the adequacy of grade standards is their

acceptance and use by practical test of the adequacy of grades that are widely
used; it means they are fairly adequate and meaningful; but, if the large segment
of the market functionaries does not use the standards, it may be assumed that
some of the criteria that satisfy the consumers have not been adequately met.
36 | P a g e
Advantages of Grading:
The advantages available to producers and consumers due to the

adoption of grading are:
(i) Grading facilitates marketing, as consumers are well aware about the
grade designations of different products, so that sellers do not have to
make much effort to convince the buyers about the quality of the
product.
(ii) Grading widens the market for the product as buying and selling of
graded products can take place between the parties located at distant
places without physical inspection of the product.
(iii) Grading reduces the cost of marketing by minimization of expenses on
advertisement, costs due to storage losses, costs on account of
personal inspection, etc.
(iv) Grading enables producers to get higher prices for good quality
produce, as most consumers prefer buying of better quality products at
higher prices.
(v) Grading helps in performance of various market operations such as
better packaging, pooling of produce, improving of keeping quality of
the produce and in claim-settlement from a transport agency in case of
occurrence of damages during the process of movement etc.
(vi) Grading helps the consumers in getting quality products at fair prices
and hence minimize the purchasing risk of the consumers.
(vii) Grading increases pricing efficiency through creation of better market
competition etc.
Inspection and Quality Control
To ensure the confidence of consumers, it is essential that grading is done

in accordance with the standards that have been laid down. For this purpose, the
inspection of the goods at regular intervals by a third party is essential.
Inspection involves the testing of the graded goods with a view to

determining whether they conform to the prescribed standards. It ensures quality
control. For purposes of inspection, samples of the product are drawn at various
stages- from the manufacturers, the market middlemen or the consumers at their
doorsteps – and are tested in the laboratory. Inspectors appointed by the
government, and not by a producer or a buyer, carry out these inspections.
37 | P a g e
The network of Agmark laboratories in the country is shown below:
Central Agmark Laboratory, Nagpur
(Apex and Appellate Laboratory)
Regional Laboratories Commodity –specific

Laboratories
Banglore, Mumbai, Kolkata Calicut, Whole spices grading unit at
Cochin, Guntur, Jamnagar, Kanpur, mumbai; Wool Testing
Chennai, Mangalore, Patna, Rajkot, Houses at Mumbai and
Gaziabad, Tuticorin, Aleppey, Jamnagar; Cotton Classing
Virudhnagar, Bhopal; Bhubneshwar, Centres at Surat, Tirupur,
Jaipur, Guwahati Abohar, Khandawa and
Raipur; Sunhemp Analysis
unit at varanasi, Tobacco
Testing Laboratory at
Nagpur, Mumbai, New Delhi,
Kolkatta and Chennai
Regular inspection creates confidence among the buyers. Producers too

know that there is someone who checks the standards of the produce graded by
them. This avoids the temptation of adopting malpractices in the grading such as
mixing of inferior grade produce, etc. After laboratory tests, if the produce is
found to be below standards, the license of the grader is cancelled and legal
action is initiated against him.
Labeling
The graded products, according to the standards fixed by the Agricultural

Marketing Advisor, Government of India, bear the label ‘AGMARK’. AGMARK is
the abbreviation of Agricultural Marketing. It is a quality certification mark under
the Agricultural Produce (Grading and Marking) Act, 1937. This label indicates
the purity and quality of the product on the basis of the standards that have been
laid down. The Labels of different colours are used to indicate the grade of the
product. The AGMARK labels are printed on special quality paper and issued to
the packer who is required to maintain the account of the labels, which are
issued to the grader, in a register. It is a voluntary scheme. Interested traders
and manufacturers are given license to grade their products under AGMARK
quality certification mark.
AGMARK label is attached to the container of the product in such a way

that it will not be possible to remove the contents of the packages without
tampering the AGMARK labels. Each AGMARK package bears the date of
packing and date of expiry of the product. AGMARK products are pre-tested and
certified for their quality. AGMARK products are of assured quality and different
38 | P a g e
from adulterated and spurious goods. If any AGMARK product purchased by the
consumer is found defective, the consumer gets the products replaced or gets
the money back as per the procedure laid out.
The grading can be popularized by:
(i) Creating awareness about advantages of Agmark-graded products

among the consumers of the country by mass media advertisement.
(ii) Educating the producers about the economic benefits of selling graded
products over non-graded products.
(iii) Introduction of compulsion in grading especially grounded spices,
edible oils, ghee, honey, wheat flour etc. in internal market along side
the foreign market.
(iv) Taking steps for removing the problems, which have discouraged the
producers for adopting grading and the consumers for preferring to buy
graded products.
(v) Encouraging the farmers and the other entrepreneurs to avail the
subsidy available under the Infrastructure Scheme of Government of
India to set up grading and packing units.
The National Commission on Agriculture (NCA) had made the following

suggestions to make grading and standardization popular in the country:
(i) Grading and standardization have to be made compulsory for

transactions in agricultural commodities at all levels for local, interstate
and export trade.
(ii) Grading and standardization must cover all types of agricultural
commodities, viz., crops, including horticultural and plantation crops,
livestock and livestock products, fish and fish products, and minor
forest products. Grade standards should be formulated for the
commodities, which have not been covered so far.
(iii) The duplication and overlapping of functions linked with the formulation
of grades and grade standards for agricultural commodities must be
done away with. Only one authority should be entrusted with the
function of formulating grade standards instead of the present practice
of formulation of different grade standards by different authorities for
the same product, which include the Health Ministry, the Bureau of
Indian standards and the Directorate of Marketing and Inspection
(iv) The work should be distributed between the central and State
Government departments to avoid duplication. The authority to enforce
grading at the interstate level and for the export trade should be vested
in the Directorate of Marketing and Inspection, Government of India,
and for internal trade in raw, semi-processed and processed in the
State Marketing Department.
(v) Samples of graded commodities should be displayed in all the markets
for verification, both by graders and participating consumers.
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(vi) The grading system should be made efficient and foolproof. For this
purpose, trained and well-qualified graders should be appointed, and
they should be unconnected with either buyers or sellers.
International Organization for Standardization
International organization for standardization (ISO) and the Codex

Alimentarius Commission (CAC) are the two prominent international
organizations engaged in standardization of agricultural products.
International organization for standardization (ISO) came into existence

formally on 25th February 1947. The objective of ISO is to promote the
development of standards in the world with a view to facilitating international
exchange of goods and services and to develop cooperation in the spheres of
intellectual, scientific, technological and economic activities. At present, 89
countries are members of ISO and 117 countries are corresponding members.
India is a founder member of ISO. The ISO is presently engaged in the
formulation of standards for a large number of agricultural commodities, covering
spices and condiments, lac, essential oils, cereals and pulses, food products and
stimulant foods. The results of ISO technical work are published as international
standards (ISO standards). This work is carried out by a setup of 191 technical
committees covering different committees (ISO/TC 34) that deals with agricultural
food products. This technical committee had 15 sub-committees dealing with
various food committee groups such as fruits and vegetables; milk and milk
products; meat and meat products; and spices and condiments. The sub-
committees have participating members, observer members and liaison
members. The ISO –9000 is a series of international standards for a quality
oriented system and is applicable both to manufacturer and service industry.
The Food and Agriculture Organization (FAO) of the United Nations and
the World Health Organization established the Codex Alimentarious Commission
(CAC) in 1963. The CAC establishes food standards, which are termed as codex
alimentarious. The words ‘codex alimentarious’ in Latin mean food law or food
code. The primary objective of the commission is to offer protection to consumers
and facilitate world trade by establishing uniform international standards. The
codex standards can play a vital role in every aspect of food security system, i.e.,
production, storage and transportation. These standards include guidelines, code
of practices and other advisory provisions that aim at promoting the purpose of
these standards. At present, there are 144 countries as members of this
commission. The establishment of the international food standards under CAC is
a long-drawn process. The commission appoints subsidiary bodies or
committees to prepare preliminary proposed draft standards. The standards so
formulated are circulated to all member countries for getting their comments.
Finally, the draft standards are circulated for implementation. The commission
meets periodically to review these standards.
40 | P a g e
Group-wise List of the Commodities for AGMARK Grade Standards:
Sl. Name of the Group No. of commodities

No.
1. Food Grains & other products 30
2. Fruit & Vegetables 51
3. Spices and Condiments 26
4. Edible Nuts 08
5. Oil Seeds 17
6. Vegetable Oils & tab 19
7. Oil Cakes 08
8. Essential Oils 08
9. Fiber Crops 05
10. Live stock, Dairy & Poultry products 10
11. Other Products 30
Total 212
Mechanics of Grading:
A commodity to be marked with AGMARK label is subjected to various

(physical, sensory and chemical) tests to establish its purity and quality. For this,
the following procedure is commonly adopted in grading of different commodities:
Drawing a representative sample from the lot of commodity.
A representative sample from the lot of the commodity, to be graded, is

taken as under:
(a) In case of liquids, about half kg or so quantity of the commodity is

taken from the homogenized lot.
(b) In case of grains (seeds) packed in bags, sample is taken with a
wooden or metallic shovel or by mechanical triers.
(c) In case of fruits, few pieces are picked up randomly from the heap of
fruits.
Analysis of the sample:
The sample so drawn above is analysed as under:
(a) The commodity is examined for defects and blemishes by inspection.

(b) The presence of extraneous matter, produce of other variety, damaged
produce, moisture etc., is determined in percentage terms.
Different laboratory tests as per requirements of the commodity are

carried out in ghee, oils and other products
41 | P a g e
6. PACKAGING OF FRUITS, VEGETABLES AND ROOT CROPS
Packaging is the first function performed in the marketing of agriculture

commodities. It is required for nearly all farm products at every stage of
marketing process. The type of the container used in the packing of commodities
varies with the type of commodity as well as with the stage of marketing.
Packing means wrapping and crating of goods before they are

transported. Goods have to be packed either to preserve them or for delivery to
buyers. Packaging is a part of packing which means placing the good in small
packages like bags, boxes, bottles or parcels for sale to the ultimate consumers.
In other words, it means putting goods on the market in the size and pack, which
are convenient for the buyers.
Why packaging is necessary
Most fresh produce ready for market is composed of large numbers of

small units of similar size, which must be moved in amounts to be conveniently
handled by one person. This is best achieved by using containers of capacities
from 3 to 25 kg, up to dimensions of about 60 x 40 x 30 cm. Some commodities
(e.g. potatoes) may be marketed in 25 or 50 kg sacks, and other large items,
such as whole bunches of bananas, are moved without packaging. Leafy
vegetables can be sold loose or tied in bundles and not packaged.
Most developing countries use traditional baskets, sacks and trays to carry
produce to markets. These are usually of low cost, made from readily available
materials such as dried grass, palm leaves or bamboo. They serve the purpose
for fresh produce carried over short distances, but they have many
disadvantages in big loads carried long distances.
Large commercial quantities of produce need better packaging in order to

minimize losses and achieve the most economical use of transport. The aim is to
protect the produce from damage in handling, transport and storage and to
provide easily handled and counted containers of uniform size.
Packages of standard size can reduce the need for repeated weighing and
can facilitate handling, stacking and loading. A wide variety of package types is
fabricated from paper and paper products (compressed cardboard and
corrugated cardboard, called fibre board in some areas), wood and wood
products (sawn timber and compressed chips) and plastics, both pliable and
rigid. Each type must be considered in terms of its utility, cost and capacity to
enhance the value of the produce.
Economy in packaging is always a desirable goal. A study in Thailand

showed that a plastic crate, while costing five times as much as a traditional
bamboo basket of similar capacity, was still useful after 20 times the number of
42 | P a g e
journeys, putting the cost per journey of the plastic crate at about one-quarter of
that of the bamboo basket. The crate also provided better protection of produce,
easier handling and better stowing, and was easier to clean.
Perhaps improvements in the design and construction of indigenous

containers might, in the context of the small-scale grower, prove to be a better
solution than buying plastic crates.
Damage suffered by packaged produce
From injuries
Cuts or punctures
Cause: sharp objects piercing package; splinters in bamboo or wooden

containers; staples or nails protruding in containers;
Effect: deep punctures or cuts in produce, leading to water loss and rapid
decay
Impact (shock)
Cause: throwing or dropping of packages; sudden starting or stopping of

vehicle, causing load movement; speeding vehicle on rough road;
Effect: bursting of packaging, bruising of contents
Compression (squeezing or squashing)
Cause: flimsy or oversized containers; containers overfilled or stacked too

high or both; collapse of stacked containers during transport;
Effect: bruising or crushing of contents
Vibration (shaking)
Cause: vibration of the vehicle itself and from rough roads;

Effect: wooden boxes come apart, damaging produce
From the environment
Heat damage
Cause: exposure of packages to external heat, e.g. direct sunlight, or

storage near heating system; natural buildup of internal heat of produce
owing to poor ventilation within package, in storage or vehicle;
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Effect: fruit becomes overripe or softens; produce wilts and develops off-
flavours; decay develops rapidly; cardboard cartons may become dry and
brittle, easily damaged on impact;
Chilling or freezing damage
Cause: low or subzero ambient temperatures; exposure of sensitive

produce to temperatures below chilling or freezing tolerance level during
storage;
Effect: damage to chilling-sensitive produce; breakdown of frozen produce

on thawing; plastic containers become brittle and may crack;
Moisture and free-water damage
Cause: exposure to rain or high humidity; condensation on packages and

produce moved from cold store to damp atmosphere at ambient
temperature; packing wet produce in cardboard containers;
Effect: softening and collapse of stacked cardboard containers; squashing

of produce in collapsed containers; decay promoted in damaged produce;
Damage from light
Cause: plastic sacks and crates not treated with ultraviolet inhibitor will
eventually break up when exposed to direct sunlight;
Effect: disintegration of plastic sacks damages produce when it is moved;

fracturing of plastic crates can cut or bruise produce;
From other causes
Chemical contamination
Cause: contamination of containers stored near chemicals; damage to

produce by containers treated with preservatives, e.g. boxes made from
wood treated with pentachlorphenate (PCP); contamination of produce
from boxes affected by mould growth;
Effect: flavour contamination or surface damage and discoloration of

produce in contact with container; decay of produce owing to
contaminating moulds; wood-rotting moulds cause collapse of boxes;
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Insect damage
Cause: insects present in packed produce; wood-boring insects in wooden

boxes;
Effect: consumer resistance and legal problems from presence of insects

(e.g. spiders, cockroaches) in packed produce; spread of wood-destroying
insects in infected boxes;
Human and animal damage
Cause: contamination and eating by rodents and birds; pilfering by

humans;
Effect: rejection of damaged produce by buyers or inspectors; loss of

income through loss of produce.
The cost-effectiveness of packaging
The use of packaging represents an added cost in marketing and the price of
the marketed product must take into account the capital outlay and unit-
packaging cost as well as expected profit. To make an exact assessment of the
added value is difficult because many factors may offset the cost of packaging,
for example:
losses should be significantly reduced;

presentation and quality of the product may make it more desirable, a
competitive advantage;
marketable life of the produce may be extended.
It is clear, however, that packaging must not exceed the willingness of the
market to accept the added value of the product, i.e. the extra cost involved.
Prevention of injuries to produce.
Suitable packages and handling techniques can reduce the amount of

damage to which fresh produce is exposed during marketing:
to keep the packaging itself from damaging produce during handling and
transport, wooden boxes or cardboard cartons must be properly
assembled; nails, staples and splinters are always a danger in wooden
boxes;
individual items of produce should be packed to avoid rubbing against
each other during handling and transport; loose fill packs are particularly
susceptible to vibration damage;
45 | P a g e
bruising results from overfilling containers or from the collapse of boxes;
collapse may be caused by weak walls of boxes, by the softening of
cardboard walls because of moisture or by the failure to stack boxes so
that the side and end walls support those above; stacks of boxes should
never exceed the height that has been recommended by the maker;
produce in woven jute sacks or nets is especially susceptible to shock
damage; sacks of 25 or 50 kg capacity are normally used for relatively
low-value produce, such as root and tuber crops, and are often roughly
handled on account of their weight; where possible, handling of bagged
produce should be minimized by stacking sacks in unit loads on pallets or
in pallet boxes.
Effect of packaging on other types damage
Heat, chilling or freezing
Packaging in general has poor insulating qualities and will have little effect
on preventing damage from heat or cold. Lack of ventilation in packaging
delays cooling and may contribute to high-temperature damage arising
from heat generated by the produce itself. Recently developed expanded
polystyrene packages have good insulating properties and are used,
topped with ice, to transport vegetables with high respiration rates. The
availability and cost of such packages make them inappropriate in most
developing countries.
Moisture and free water damage
High humidity and free water (e.g. rain) quickly weaken cardboard boxes,
which get soggy and collapse when wet. This problem can be addressed
during the manufacturing stage itself by waxing the cardboard or by
facing it with moisture resistant plastic. Decay of produce packed in wet
sacks or in wet wooden or cardboard boxes will be accelerated.
Chemical contamination
Packaging will not protect produce from contamination by outside sources

of chemicals. The containers themselves become impregnated and contribute to
the contamination.
Sacks and "knocked down" wooden or cardboard boxes awaiting

assembly should not be stored in the same area as chemicals.
46 | P a g e
Selection of packaging for fresh produce
Packaging can be a major item of expense in produce marketing, so the

selection of suitable containers for commercial-scale marketing requires careful
consideration.
Besides providing a uniform-size package to protect the produce, there

are other requirements for a container:
it should be easily transported when empty and occupy less space than
when full, e.g. plastic boxes which nest in each other when empty,
collapsible cardboard boxes, fibre or paper or plastic sacks;
it must be easy to assemble, fill and close either by hand or by use of a
simple machine;
it must provide adequate ventilation for contents during transport and
storage;
its capacity should be suited to market demands;
its dimensions and design must be suited to the available transport in
order to load neatly and firmly;
it must be cost-effective in relation to the market value of the commodity
for which used;
it must be readily available, preferably from more than one supplier.
Size and shape of packages:
Packages should be of a size which can be easily handled and which are
appropriate to the particular marketing system. The size should be no larger than
is compatible with these requirements, especially with wooden boxes. The ratio
of weight of the container to that of the produce it contains is important. Where
transport charges are calculated on a weight basis, heavy packaging can
contribute significantly to the final cost of the saleable product.
The shape of packages is also significant because of the loading factor:

the way the load is positioned on the transport vehicle for maximum capacity and
stability. Round baskets, whether cylindrical or tapered, hold considerably less
produce than do boxes occupying the same space. A cylindrical basket contains
only 78.5 percent by volume compared with a rectangular box occupying the
same space.
The need for ventilation in packages:
Suitable packaging for any product will consider the need to keep the
contents well ventilated to prevent the buildup of heat and carbon dioxide. The
ventilation of produce in containers is a requirement at all stages of marketing,
but particularly during transport and storage. Ventilation is necessary for each
package, but there must also be an adequate air flow through stacked packages.
47 | P a g e
A tight stack pattern is acceptable only if packages are designed to allow air to
circulate through each package and throughout the stack. Sacks and net bags
must be stacked so that air can circulate through the contents. The effectiveness
of ventilation during transport also depends upon the air passing through the
load.
Packaging materials: Packaging for fresh produce is of several types:
Natural materials: Baskets and other traditional containers are made from
bamboo, rattan, straw, palm leaves, etc. throughout the developing world. Both
raw materials and labour costs are normally low, and if the containers are well
made, they can be reused.
Disadvantages are:
they are difficult to clean when contaminated with decay organisms;

they lack rigidity and bend out of shape when stacked for long-distance
transport;
they load badly because of their shape;
they cause pressure damage when tightly filled;
they often have sharp edges or splinters causing cut and puncture
damage.
Wood. Sawn wood is often used to make reusable boxes or crates, but less so
recently because of cost. Veneers of various thickness are used to make lighter
boxes and trays. Wooden boxes are rigid and reusable and, if made to a
standard size, stack well on trucks.
Disadvantages are:
they are difficult to clean adequately for multiple use;

they are heavy and costly to transport;
they often have sharp edges, splinters and protruding nails, requiring
some form of liner to protect the contents.
Cardboard (sometimes called fibre board): Containers are made from solid or
corrugated cardboard. The types closing with either fold over or telescopic (i.e.
separate) tops are called boxes or cases. Shallower and open topped ones are
called trays. Boxes are supplied in collapsed fore, (i.e. flat) and are set up by the
user. The setting-up and closing of boxes requires taping, gluing, stapling or the
fixing of interlocking tabs. Cardboard boxes are lightweight and clean, and can
readily be printed with publicity and information on contents, amounts and
weights. They are available in a wide range of sizes, designs and strengths.
48 | P a g e
Disadvantages are:
they may, if used only once, prove an expensive recurring cost (if multiple
use is intended, the boxes may be easily collapsed when empty);
they are easily damaged by careless handling and stacking;
they are seriously weakened if exposed to moisture;
they can be ordered economically only in large quantities; small quantities
can be prohibitively expensive.
Moulded plastics: Reusable boxes moulded from high-density polythene are

widely used for transporting produce in many countries. They can be made to
almost any specifications. They are strong, rigid, smooth, easily cleaned and can
be made to stack when full of produce and nest when empty in order to conserve
space.
Disadvantages are:
they can be produced economically only in large numbers but are still
costly;
they have to be imported into most developing countries, adding to the
cost and usually requiring foreign currency for their acquisition;
they often have many alternative uses (as washtubs, etc.) and are subject
to high pilferage rates;
they require a tight organization and control for use in a regular go-and-
return service;
they deteriorate rapidly when exposed to sunlight (especially in the
tropics) unless treated with an ultraviolet inhibitor, a factor adding to the
cost.
Despite their cost, however, their capacity for reuse can make them an
economical investment. The Thailand study mentioned above showed plastic
containers are still usable after more than 100 journeys.
Natural and synthetic fibres: Sacks or bags for fresh produce can be made
from natural fibres like jute or sisal or from synthetic polypropylene or
polyethylene fibres or tapes. "Bags" usually refers to small containers of up to
about 5 kg capacity. They may be woven to a close texture or made in net form.
Nets usually have a capacity of about 15 kg. Bags or sacks are mostly used for
less easily damaged produce such as potatoes and onions, but even these crops
should have careful handling to prevent injury.
Disadvantages are:
they lack rigidity, and handling can damage contents;

they are often too large for careful handling; sacks dropped or thrown will
result in severe damage to the contents;
49 | P a g e
they impair ventilation when stacked if they are finely woven;
they may be so smooth in texture that stacks are unstable and collapse;
they are difficult to stack on pallets.
Paper or plastic film:
Paper or plastic film is often used to line packing boxes in order to reduce
water loss of the contents or to prevent friction damage. Paper sacks can have
walls of up to six layers of kraft (heavy wrapping) paper. They can have a
capacity of about 25 kg and are mostly used for produce of relatively low value.
Closure can be done by machine stitching across the top (recommended only for
large-scale crop production) or in the field by twisting wire ties around the top by
means of a simple tool.
Disadvantages are:
walls of paper are permeable by water or vapour and gases (walls may be
waterproofed by incorporating plastic film or foil, but sacks retain gases
and vapour);
heat can be slow to disperse from stacks of sacked produce, thus
damaging fruit or leafy vegetables;
limited protection to contents if sacks are mishandled.
Plastic-film bags or wraps are, because of their low cost, widely used in
fruit and vegetable marketing, especially in consumer-size packs. In many
developing countries, however, large polythene bags are and should not be used
to carry produce, especially to market.
Disadvantages are:
they offer almost no protection from injury caused by careless handling;

they retain water vapour thus reducing water loss from the contents; but
where temperature changes occur, they cause a heavy buildup of
condensation leading to decay;
they cause a rapid build-up of heat if bags are exposed to sunlight;
they permit only slow gas exchange; this combined with vapour and heat
leads to very rapid deterioration;
they should not be used for carrying produce; even with perforations for
ventilation, plastic bags should not be used unless the package can be
refrigerated.
Consumer packs wrapped in plastic are not recommended under tropical

conditions except perhaps in stores with refrigerated display cabinets.
50 | P a g e
7. STORAGE OF HORTICULTURAL CROPS
Storage constitutes an important link of the value chain of a horticultural

produce. Hence it is imperative to learn the dynamics of the storage aspects from
the marketing viewpoint.
Controlled conditions:
The term "storage", as now applied to fresh produce, is almost automatically

assumed to mean the holding of fresh fruits and vegetables under controlled
conditions. Although this includes large-scale storage of some major crops, such
as potatoes, to meet a regular continuous demand and provide a degree of price
stabilization. It also meets the demands of populations of developed countries
and of the richer inhabitants of developing countries, providing year-round
availability of various local and exotic fruits and vegetables.
In many developing countries, however, where seasonally produced plant foods

are held back from sale and released gradually, storage in a controlled
environment is not possible because of the cost and the lack of infrastructural
development and of maintenance and managerial skills. Even in developed
countries, however, there are still many people who, for their own consumption,
preserve and store fresh produce by traditional methods.
Storage potential:
Much fresh produce (i.e. that which is most perishable) cannot be stored without
refrigeration, but the possibilities for extending the storage life of even the most
durable fresh produce under ambient conditions are limited.
Organs of survival: The organs of survival which form the edible parts of many
crops such as Irish potatoes, yams, beets, carrots and onions have a definite
period of dormancy after harvest and before they resume growth, at which time
their food value declines. This period of dormancy can usually be extended to
give the longest possible storage if appropriate conditions are provided. This
factor is called the storage potential.
It is important to recognize the variation in the storage potential of different

cultivars of the same crop. Experienced local growers and seed suppliers can
usually provide information on this subject.
Edible reproductive parts: These are largely confined to the fruits or seeds of
leguminous plants (peas and beans). In their fresh condition, these products
have a brief storage life, which can be only slightly extended by refrigeration.
They can also be dried, and then are called pulses. Pulses have a long storage
51 | P a g e
life, provided they are kept dry, and do not present a storage problem of the sort
affecting fresh produce.
Fresh fruit and vegetables: These include the leafy green vegetables, fleshy
fruits and modified flower parts (e.g. cauliflower, pineapple). The storage
potential of these is very limited under ambient conditions. They quickly
deteriorate because of their fast respiration rates, which cause rapid heat buildup
and the depletion of their high moisture content.
Traditional methods of preservation are sun-drying or simple domestic

processing into conserves (with sugar) and pickles (with brine or vinegar). Most
fresh fruit and vegetables have a storage life of only a few days under even the
best environmental conditions.
Factors affecting storage life:
The natural limits to the post-harvest life of all types of fresh produce are
severely affected by other biological and environmental conditions:
Temperature. An increase in temperature causes an increase in the rate of

natural breakdown of all produce as food reserves and water content become
depleted. The cooling of produce will extend its life by slowing the rate of
breakdown. (Refer appendix 1)
Water loss. High temperature and injuries to produce can greatly increase the
loss of water from stored produce beyond that unavoidably lost from natural
causes. Maximum storage life can be achieved by storing only undamaged
produce at the lowest temperature tolerable by the crop.
Mechanical damage. Damage caused during harvesting and subsequent

handling increases the rate of deterioration of produce and renders it liable to
attacks by decay organisms. Mechanical damage to root crops will cause heavy
losses owing to bacterial decay and must be remedied by curing the roots or
tubers before storage.
Decay in storage. Decay of fresh produce during storage is mostly caused by

the infection of mechanical injuries. Furthermore, many fruits and vegetables are
attacked by decay organisms, which penetrate through natural openings or even
through the intact skin. These infections may be established during the growth of
the plant in the field but lie dormant until after harvest, often becoming visible
only during storage or ripening.
Storage structures:
Ventilated stores. Naturally ventilated structures can be used for the storage of
produce with a long storage potential, such as roots and tubers, pumpkins,
52 | P a g e
onions and hard white cabbage. Such stores must be designed and built
specifically for each intended location. Any type of building can be used provided
that it allows the free circulation of air through the structure and its contents.
The following essentials must be observed:
the building should be located at a site where low night temperatures

occur over the required storage period;
it must be oriented to take maximum use of the prevailing wind for
ventilation;
the material covering the roof and walls should provide insulation from the
heat of the sun; grass thatch on a bush-pole frame can be very effective,
particularly if it is wetted to provide evaporative cooling;
double-skinned walls will provide better insulation, if cost allows;
white paint applied to surfaces of man-made materials will help to reflect
the heat of the sun;
the structure should be built in the shade of trees if they do not interfere
with the prevailing air flow; beware of bush fires and of trees falling during
storms;
provide ventilation spaces below the floor and between walls and roof to
give good air flow;
if the store is subject to cold night temperatures, fit movable louvers and
adjust them to limit the flow of warm air into the store during the day.
These are the basic requirements of a ventilated store. Such stores may
be constructed to various levels of sophistication, using, where it is economically
acceptable, fan-assisted ventilation controlled by differential thermostats. This
type of store is in common use in Europe for the bulk storage of Irish potatoes
and onions in locations where external winter conditions make possible the
accurate control of the storage temperature.
Simple open-sided, naturally ventilated structures may be used to store

seed potatoes at high altitudes in warm climates. They cannot be used for table
potatoes, which will turn green, develop a bitter taste, or even become toxic if
exposed to light for more than a few hours.
Clamps. These are simple, inexpensive structures used to store root crops,
particularly potatoes in Europe and Latin America.
The potatoes are placed on a bed of straw I to 3 m wide, but not more
than 1.5 m wide in warm climates. A ventilating duct should be placed along the
bottom. The piled potatoes are covered with about 20 cm of compacted straw,
which can subsequently be encased in soil, applied without compaction up to 30
cm deep.
53 | P a g e
The clamp system can be modified for different climatic conditions. In
warm climates, extra straw casing may be used instead of soil in order to give
added ventilation. (Reproduced from Principles of potato storage, International
Potato Centre, Lima, 1981)
Other simple storage methods: Windbreaks are narrow, wire-mesh, basket-like

structures about 1 m wide and 2 m high, of any convenient length, on a raised
wooden base, and are used for short-term storage of dried onions in the field.
The onions are covered on top with a 30 cm layer of straw, which is in turn held
down by a polythene sheet fastened to the wire mesh. The windbreak is built at
right angles to the prevailing wind to obtain maximum drying and ventilation.
Onions can also be woven into plaits on twine and hung in a cool dry place,
where they will keep for several months.
Refrigerated and controlled-atmosphere storage: For large-scale commercial

operations, refrigerated storage may be used in a cold-chain operation to carry
regular consignments from production areas to urban markets and retailers. This
can be a highly complex operation requiring expert organization and
management. Cold storage can also be used for long-term storage of seasonal
crops such as potatoes and onions. The storage life of some fruits, such as
apples, can be extended by combining refrigeration with a controlled environment
consisting of a mixture of oxygen and carbon dioxide. These are expensive
operations with high maintenance and running costs, and demand skilled and
experienced management. They have relatively little application to small-scale
production in developing countries.
Controlled atmosphere (C.A.) storage: Controlled or modified atmosphere

storage should be used as a supplement to and not as a substitute for, proper
temperature and relative humidity management. Some simple methods for
modifying the composition of air in the storage environment are listed below
(from Kader, 1992). Air coming into the storeroom or being re-circulated within
the room must pass through a monitoring and control system.
Oxygen gas control: to Decrease
purging with nitrogen

from liquid nitrogen through an evaporator
from a membrane system nitrogen generator
from a molecular sieve system nitrogen generator
Carbon dioxide control: to Increase
dry ice
pressurized gas cylinder
54 | P a g e
to Decrease:
Molecular sieve scrubber
activated charcoal scrubber
sodium hydroxide scrubber
hydrated lime (use 0.6 kg of hydrated lime to treat the air used to ventilate
100 kg of fruit Air can be directed to pass through a box, located inside or
outside the C.A. storeroom).
Ethylene control: to Decrease:
potassium permanganate
activated charcoal
55 | P a g e
8. TRANSPORTATION
Transportation is a big and often the most important factor in the
marketing of fresh produce. Ideally, transport would take produce from the
grower directly to the consumer, as in many developing countries. In more
complex marketing systems (those serving towns, cities or distant countries) the
cost of transport contributes significantly to the price paid by the consumer, and
sometimes exceeds the value of the raw product.
Losses directly attributed to transport conditions can be high. The goal of

every person concerned with transport should be that the produce be kept in the
best possible condition during transport and that the haulage of produce be quick
and efficient. To this end, produce should be properly packaged and properly
loaded on a suitable vehicle.
Causes of loss
The damage and loss incurred during non-refrigerated transport are

caused primarily by mechanical damage and by overheating.
Mechanical damage. Damage of this type occurs for many reasons, including:
Careless handling of packed produce during loading and unloading;

Vibration (shaking) of the vehicle, especially on bad roads;
Fast driving and poor condition of the vehicle;
Poor stowage, which allows packages in transit to sway; the stow may
collapse
Packages stacked too high; the movement of produce within a package
increases in relation to its height in the stack.
Overheating. This can occur not only from external sources but also from heat
generated by the produce within the package itself.
Overheating promotes natural breakdown and decay, and increases the

rate of water loss from produce.
The causes of overheating include:
Use of closed vehicles without ventilation;

Close-stow stacking patterns blocking the movement of air between and
through packages, thus hindering the dispersal of heat;
Lack of adequate ventilation of the packages themselves;
Exposure of the packages to the sun while awaiting transport or while
trucks are queuing to unload at their destination.
56 | P a g e
Reduction of losses during transport
The risk of deterioration of produce during transport can be reduced in

several ways.
Trucks used to transport fresh produce: Most fresh produce is now moved in
road vehicles, with lesser amounts by sea, air or inland waterways. The vehicles
in most common use are open pick-ups or bigger trucks, either open or enclosed.
The use of road vehicles is likely to increase, so users should give attention to
the following:
Closed vehicles without refrigeration should not be used to carry fresh

produce except on very short journeys, such as local deliveries from
farmers or wholesalers to nearby retailers;
Open-sided or half-boarded trucks can be fitted with a roof on a frame.
The open sides can be fitted with canvas curtains which can be rolled up
or moved aside in sections to allow loading or unloading at any point
around the vehicle. Such curtains can protect the produce from the
elements but still allow for ventilation. Where pilfering is a problem, the
sides and rear of the truck must be enclosed in wire mesh;
A second, white-painted roof can be fixed as a radiation shield 8 or 10 cm
above the main roof; this will reflect the sun's heat and help to keep
produce cool;
For the ventilation of long-distance vehicles, more elaborate air intakes
can be fitted in conjunction with louvres, to ensure a positive air flow
through the load;
Refrigerated trucks or road, rail or sea containers may be used for long
journeys, but the cost of such transport makes it uneconomical for small-
scale operations.
Handling and storage practices: Although the shape and condition of trucks
are important factors in fresh produce transportation, the loading and stowing
methods in vehicles are pertinent to damage and loss:
The best loading factor must be achieved, that is the maximum load that
can be carried economically under satisfactory technical conditions: a
stable and well-ventilated load;
The size and design of packages should give adequate levels of
ventilation of contents with the minimum of wasted space, and the
packages should be strong enough to protect the contents;
Loading and unloading of vehicles should be properly supervised to
prevent careless handling of packages; loading aids such as trolleys, roller
conveyors, pallet or forklift trucks should be used where possible to
reduce the handling of individual packages;
57 | P a g e
Stowage should be carefully done to avoid collapse of the stow during
transport; packages should not be stacked higher than the maximum
recommended by the maker, otherwise the bottom layers may collapse
under the weight of those above
Packed produce should be protected from sun and rain at all times
including during loading and unloading.
Packages should be loaded on dunnage (pieces of lumber or slatted
racks) on the beds of vehicles, or on pallets in order to allow the
circulation of air around stacks during transport;
If the load is to be distributed to several locations, packages should be
loaded in reverse order to that in which they will be unloaded, i.e. last on,
first off; at the same time the load should be distributed evenly on the
vehicle.
Although every care may be taken to observe all the above precautions, the
standards of driving remain a difficult problem to overcome. In many cases,
drivers are induced to speed in order to make more money for themselves or
their employers. Whenever possible, only experienced and responsible drivers
should be employed.
Other modes of transport: Fresh produce is transported by many other means,

from head-loads to air-freighting. In all cases, the same conditions should be
observed. Produce must be:
Kept as cool as possible;

Kept dry;
Moved to market as quickly as possible.
Rail transport. In some countries a large amount of produce is carried by rail.
The advantages are:
Transport damage to produce while moving is slight as compared with that

from haulage over rough roads;
Costs are lower than transport by road.
Rail transport, however, requires extra handling since road transport is needed to
and from the rail journey; transport by road alone usually is a door-to-door
service.
Water transport
Inland. Waterway transport is used in some countries to move produce to

markets. Much of the produce carried in this way is packed in locally made crates
or sacks. The vessels employed are often mixed passenger-cargo craft, and no
special handling is provided for fresh produce.
58 | P a g e
Sea. Short-distance transport of fresh produce in small ships without refrigeration
is common in countries of island communities (e.g. the Philippines). Ships often
accommodate passengers and general cargo, and no special provision is made
for fresh produce, which may be stowed in unventilated holds. Losses are high,
owing to rough handling by porters, inadequate packaging and overheating in
unventilated holds or near engine rooms.
There is much room for improvement in this mode of transport. A model for
organized and efficient sea transport is the refrigerated shipment of commercial
crops such as bananas, although a modest investment by the small-scale
shipper could greatly improve performance.
Air freight: As with shipping, the international trade in the air-freighting of high-
value exotic crops is generally well organized. In some countries where road
links are poor (e.g. Papua New Guinea), produce is carried by air from
production areas to urban markets. Costs are high and losses often heavy
because of:
Poor, non-standard packages;

Careless handling and exposure to the elements at airports;
Consignments left behind in favour of passengers;
Flight delays owing to bad weather or breakdowns;
Intermittent refrigeration followed by exposure to high temperatures;
Relatively small produce shipments.
Even though changes are made in packaging and handling, it is unlikely that the
overall situation will improve much until road links are established between
producers and consumers.
59 | P a g e
9. IT – BASED MARKET INFORMATION SYSTEM
Agricultural produce marketing requires connectivity between the market

and exporter/growers/traders, industry consumers, through wide area network
(WAN) of National and International linkages in order to provide day-to-day
information with regard to commodity arrivals and prevailing rates etc., to provide
links for online International Market Information; to provide export-related
documentation, to inform about the latest research in agricultural marketing,
packaging/storage etc. related information and to provide linkage/connectivity
with the World Trade Centers (WTCs), APEDA, NIAM, NBB, DNH, IIP, State
Agricultural Marketing Boards, universities etc.
A national level IT-based integrated Agricultural Marketing Information

service (AMIS) with a Decision support System (DSS) plays an useful role in
helping the different stakeholders for taking decisions related to storing, pricing,
marketing etc. One of the major problems in designing AMIS is that the
information needs of the individual target groups are diversified. For evolving an
information system, assessment of information needs of the diverse target group
is very important so that the information management is holistic and integrated.
The following tables indicate the diversity of information required by different
stakeholders of agricultural marketing:
FARMERS
Decision Information Required

What crop to plant? Historical prices of different crops
What Variety? Prices of different varieties
Production cost of different crops and
varieties
When to plant? Seasonal variations in prices
When to sell?
Should I harvest? Current prices in different markets
Where to sell? Marketing costs for alternative markets
TRADERS

What crop to sell? Historical prices of different crops
What Variety? Prices of different varieties
What to pay the farmer? Current prices
Where to sell? Current prices in different markets
Quantity demanded in different markets
Quantity supplied to different markets
Marketing costs
60 | P a g e
CONSUMERS

What to buy? Current prices of different crops
Where to buy? Current prices in different markets
Cost involved in purchasing at
alternative markets
POLICY MAKERS
Are improvements in marketing Historical prices at different levels of
information needed? sale (wholesale and retail)
Seasonal price variations
Quantities supplied
What specific measures needed? Market Margins
Price trends in different markets
E-Catalogue for Commodity Profiles: In the present time of export

competitiveness, each and every product needs to be publicized highlighting its
characteristics on nutrition values, chemistry, quality standards, seasonality,
quantity for supply and prices etc. A brief commercial profile of the commodity
would help the buyer in making comparative analysis on account of cost and
margins. Therefore, it is necessary that each commodity has specific commercial
profile giving the details as mentioned above. Profiles should be transmitted to
international markets through "Web Pages". Main objective of the scheme will be
(a) to prepare commercial profiles of exportable commodities and (b) to give
exposure of commodities to the international markets.
National Atlas of Markets: The mapping of the agricultural markets of the

country is a prerequisite for carrying any planning/developmental activity. All the
regulated markets along with their classification on the national maps will give
synoptic view of the distribution of the markets. The infrastructure facilities, the
quantum transacted, the area and population served, the outflow and the inflow
of the commodities are the various aspects, which should be mapped out. This
would be useful for research and policy making. The National Atlas of Agricultural
Markets should be based on the application of GIS tools; such mapping activity
then can also be put on the Internet for it's greater usage.
AGMARKNET: As a step towards globalisation of agriculture, the Directorate of

Marketing & Inspection (DMI) has embarked upon an ICT project: NICNET based
Agricultural Marketing Information System Network (AGMARKNET)" in the
country, during the Ninth Plan, for linking all important APMCS (Agricultural
Produce Market Committees), State Agricultural marketing Boards/Directorates
61 | P a g e
Market
Oriented
Value
Enhancement
Creating Sustainable
Livelihoods
Best Practices Foundation participants to begin viable businesses or income

generating activities and significantly reduces their rate of
The Best Practices Foundation (BPF) is a knowledgebased failure.
innovation agency, which documents, innovates and
disseminates best development practices to improve the MOVE reverses the traditional methodology. MOVE
quality of life for poor and marginalised communities. trainers provide participants with the tools to understand
BPF’s branch office in Dharwad, Karnataka, serves as an any market and determine demand and supply before
incubation site and testing ground to experiment with new choosing and starting a business. MOVE participants
ideas and innovations. Together, the teams in Bangalore therefore choose a business after they have adequate
and Dharwad offer a wealth of information and expertise in knowledge of the local market and determined sufficient
research, innovation and implementation at both the demand for their products or services.
grassroots and policymaking levels.
The MOVE Programme
History of MOVE The MOVE programme comprises 12 modules, which
In 2002, BPF developed the Marked Oriented Value teach motivation, market orientation and general business
Enhancement (MOVE) programme to teach illiterate, concepts, and enable participants to conduct market
landless and economically vulnerable individuals, research. approached using these techniques for market
particularly women, to run successful and sustainable education.
micro-enterprises and small businesses to lift themselves In addition, specific strategies for rural participants to study
out of poverty. MOVE’s success with socio-economically and penetrate urban or even international markets can be
diverse populations (e.g. rural women, urban youth, quarry developed.
workers, SHGs) and continued refinement of the
programme over the By using the process of PMA, the participants' capacities
years, has are built to research the market themselves without relying
encouraged BPF to on the expertise of an outside source.
Traditional Livelihood
now scale its model to Model The participants then
improve livelihoods MOVE Livelihood Model begin retailing or
for the poor across u Focus on skill enhancement small scale
India. to teach participants to u Focuses on marketing production, sample
produce. concepts to teach selling, and gradual
participants to adapt to up-scaling of the
What is u Require huge capital market conditions products with the
MOVE? investment and risk for
u Enables participants to highest chance of
participants to acquire success in their
The MOVE machinary/raw materials to choose businesses only after
programme was evaluating their market. After a few
begin production for their sales cycles, they
developed to improve businesses resources/skills & identifying
the livelihoods and market demands conduct in-depth
income generating u Cause participants to be customer feedback
activities of the poor. product and sector u Allows participants to be sessions and adjust
With a central focus dependent, making moving laterally mobile in the their products
on market needs, to another product virtually market, constrained neither accordingly. Finally,
MOVE teaches asset- impossible by product, service or sector MOVE culminates in
poor and landless the formulation of
Creating Sustainable
Livelihoods
small enterprises and business development plans. Thus

far, MOVE graduates have realised assured profits from Mahanthesh
their businesses. Badigier, fondly
BPF has adapted the MOVE model to allow even the referred to as
illiterate to understand the market. Every step of the MOVE “Muthu”, had worked
process is driven by the knowledge of its participants. as a carpenter for
Varied contexts such as veterinary services, health over a decade. At the
services, natural resource based products, and many other age of 29, he was
enterprises can be approached using these techniques for introduced to MOVE.
market education. In addition, specific strategies for rural Talking about the
participants to study and penetrate urban or even changes in his life,
international markets can be developed. Muthu says,“I joined
MOVE to understand
Orienting to the Market business better. I feel
Module 1: Motivation Module 2: Business Concepts like I just worked like
a labourer in the
past. MOVE taught
Understanding the Market me to estimate cost, profit, deal with customers,
branding and promotion of my services, and earn
Module 3: Understand Markets Module 4: Understand Customer
Module 5: Experience Business
better. I used to earn an average of Rs. 2,000 a
month and now I make Rs. 8,000 in profits from my
wood carving business... It has changed things for
all of us in the family. My mother who runs a grocery
Researching the Market store has improved her business with the lessons
Module 6: Assess Demand Module 7: Access the Market from MOVE. I am now taking full contracts for
carpentry work. I also have a screen printing
business. MOVE has made an impact on all
Preparing for Business businesses.
Module 8: Assess Skill Needs and Training ….As a child, I wanted a government job but now, I
want to own a big factory for carpentry and wood
carving work and give jobs to others.”
Running the Business
Module 9-11: Launch Business (Sample Production, Pricing, Branding)
Module 12: Future Plan
Contact Us
MOVE Impact Best Practices Foundation

Since 2008, BPF has successfully transferred the 1 Palmgrove Road
MOVE programme to four locales in Karnataka and Victoria Layout
West Bengal, training about 500 participants and Bangalore 560047
contributing to the launch of approximately 160 viable Karnataka, INDIA
businesses. BPF follows a holistic approach, also Phone: +91 80-25301861
linking participants with other local businesses for Email: [email protected]
skills training and future employment.
and DMI regional offices located throughout the country, for effective information
exchange on market prices. NIC implements this project on a turn-key basis.
This AGMARKNET project has already networked more than 1000 Agricultural
Produce Wholesale Markets (APWMs), 75 State Agricultural Marketing Boards/
Directorates and DMI Regional Offices so far and planned to cover about 2000
Markets during the Tenth Plan Period (2002-2007). AGMARKNET appears to be
filling a huge gap by providing access to information at reasonable cost. The
AGMARKNET venture is a heartening initiative from the much criticized and
slow-to-react government, especially on the issue of easing the infrastructure
constraints on agriculture.
Advantages:
The advantages of AGMARKNET database accrue to the farmers, as they

have choices to sell their produce in the nearest market at remunerative prices.
In addition to this, the Country witnesses:
Nationwide market information for wholesale produce

Project supported by various Departments and State Boards of
Agricultural Marketing
Access mainly through the Internet
Information dissemination progressively through local Languages
Computer facilities at the markets
Software for downloads - Daily market prices
Information collected by nodes in the various markets
Weekly trends
Information on loans, policies and regulations
Bypass middlemen
Data Dissemination through NGOs, SHGs, KVKs, GISTNIC,
Cooperatives etc.
This Digital Advantage Project is progressively achieving the following:-
Reaching the Unreached i.e. resource poor farmers

Reduction of distress sale
Right to information
Base for production planning
Base for marketing-led agricultural extension
Increased competition
Reduced marketing margins
Vertical linkages in export crop
Markets that connect multiple nations
Traders to domestic traders
AGMARKNET is an effort to bring rural people into the mainstream economy.
62 | P a g e
Potential Expansion
This AGMARKNET venture benefits the farming communities from the

new global market access opportunities and also strengthens the internal
agricultural marketing system in India. This project has the potential of expansion
to about 7000 Wholesale Markets located through out the country and further to
30,000 Rural Markets in India. This ICT Project is a 'farmer centric" project to put
the progressive farmers on "global free trade zone on Internet" and a broad
Framework to usher in Rural Prosperity. AGMARKNET Programme plays a
catalytic role for ushering in "market-led agricultural extension" in India, highly
scalable, planned through bottom-up process, and implemented through active
involvement and collaboration of Agricultural Produce Market Committees
(APMCs) in India. This "digital development in rural areas" of India facilitates
rural prosperity, rural empowerment, and a warehousing of "data for
development"- a step towards digital inclusion to foster rural enterprises in India.
Market Information Contents of Agmarknet
Market related information such as market fee, market charges, costs,

method of sale, payment, weighment, handling, market functionaries,
development programmes, market laws, dispute settlement mechanisms,
composition of market committees, income and expenditure etc.
Price-related information such as minimum, maximum and modal

prices of varieties and qualities transacted, total arrivals and
dispatches with destination, marketing costs and margins etc; price
trend analysis, international prices etc.
Infrastructure related information comprising facilities and services
available to the farmers with regards to institutional credit, storage,
direct markets, grading, re-handling and re-packing etc.; and
Promotion related information such as accepted standards and grades,
labeling, sanitary and phyto-sanitary requirements, pledge finance,
marketing credit and new opportunities available in respect of better
marketing
Important producing areas and volumes of commodity grown;
Important varieties in demand in national and international markets
Wholesale and retail outlets and important trading and consuming
centers;
Facilities for direct marketing to consumers and processing units;
Marketing related schemes of the government and public sector
organizations
Prospects and opportunities for agricultural marketing, both at
domestic and international level
63 | P a g e
Collecting Market Information
Static information about markets, infrastructure etc. are compiled by

conducting surveys from time to time.
Dynamic information (e.g. prices and arrivals) are collected from each
market on all functional days
Supply Chain Analysis; Good marketing practices, Emerging
opportunities, both at domestic and international levels, emanate from
research studies
Schemes related information from respective Departments
Covering the last mile for disseminating Market Information
Since all the farmers in India do not have access to ICT-based information, there
is a need for the following for disseminating the information generated through
the IT-based network.
A mixed approach needs to be adopted.

All channels to be used e.g. Radio, TV, Newspapers, Phones, Internet,
Word of mouth
Farming community need to be educated about changing competitive
scenario and Govt. initiatives through massive publicity campaigns
Extension workforce needs to be sensitised about their role and it
needs to be re-defined. Agricultural marketing aspects need to be
given more emphasis.
Besides Agmarknet, following are some of the other information networks

relevant for agricultural marketing:-
AGRISNET: An infrastructure network up to block level agricultural offices

facilitating agricultural extension services and agribusiness activities to
usher in rural prosperity.
ARISNET: Agricultural Research Information System Network
SeedNET: Seed Informatics Network
CoopNet: To network 93000 Agricultural Primary Credit Societies (PACS)

and Agricultural Cooperative Marketing Societies to usher in ICT enabled
services and rural transformation
HORTNET: Horticultural Informatics Network
FERTNET: Fertilisers (Chemical, Bio and Organic Manure)
64 | P a g e
Informatics Network facilitating “Integrating Nutrient Management” at farm
level
VISTARNET: Agricultural Extension Information System Network
PPIN: Plant Protection Informatics Network
APHNET: Animal production and Health Informatics Network networking

about 42000 Animal Primary Health Centres
FISHNET: Fisheries Informatics Network
LISNET: Land Information System network linking all institutions involved

in land and water management for agricultural productivity and production
systems, which has now evolved as “Agricultural Resources Information
System” project during the Tenth Plan being implemented through NIC.
AFPINET: Agricultural and Food Processing Industries Informatics

Network
A number of other public agencies/NGOs/non-profit-agencies and private

agencies are also disseminating information. A diagrammatic presentation of
these agencies is placed below:
Agriculture Market Information in India
DISSEMINATION OF NEWS
Public Private NGOs Others
1. NHB 1. ITC 1. M.S.S.R.F 1. Electronic & Print

2. APEDA 2. Cargil 2. Tarahat.com Media
3. Spices Board/ 3. Chambal Fert 3. Gram Haat 2. Mobile
Commodities 4. Commodity World 4. Drishti 3. Doordarshan
Board 5. Rallis 5. Village KIOSK 4. FM Channel
4. DGCIS 6. Haryali.com 6. Akshay
5. NAFED 7. EID-Parry 7. Bhoomi
6. State Agricultural 8. NCDEX 8. Warna
Marketing Board 9. MCEX 9. e-seva
7. KVK & 10. nlogue
Universities 11. Tata Kisan Kendra
8. V. Darpan 12. Agriwatch
65 | P a g e
International Journal of Scientific & Engineering Research Volume 4, Issue 1, January-2013 1
ISSN 2229-5518
A CASE STUDY OF AMUL CO-OPERATIVE IN INDIA IN RELATION TO ORGANIZATIONAL

DESIGN AND OPERATIONAL EFFICIENCY
FIRST AUTHOR
Dr. Ruchira Prasad

Lecturer in Management
Seth Padam Chand Jain Institute of Management
Agra University, Khandari, Agra
Utter Pradesh, India
Email: [email protected]
SECOND AUTHOUR
Dr. Rupali Satsangi
Assistant Professor
Department of Economics
DEI. Dayalbagh Educational Institute
Dayalbagh, Agra-2822005
Utter Pradesh, India
Email: [email protected]
IJSER © 2013
http://www.ijser.org
ISSN 2229-5518
A CASE STUDY OF AMUL CO-OPERATIVE IN INDIA IN RELATION TO

ORGANIZATIONAL DESIGN AND OPERATIONAL EFFICIENCY
Dr. Ruchira Prasad and Dr. Rupali Satsangi
ABSTRACT
Organizational Structure can improve the working condition of an organization and a poor structure can ruin all the possibilities of openness,
dynamism and decision-making. Organizational effectiveness on the other hand, is the extent to which an organization, given certain resources and
means, achieves its objectives without placing undue strain on its members. Another important role is played by the technology. More an
organization is able to adapt itself to the changing technology the better will be its efficiencies.
In the present research paper a relationship between the designs of an organization with its operational efficiency indicators has been examined in
the context of Amul.. The factors were studied in context to a cooperative form of organization and while comparing with the corporate form, it was
found that the design of the basic structure is somewhat different as it believes in the federal form of structure each unit is independent of each
other. It is a popular belief that co-operatives are a failure, but Amul with Co-operative Structure is a grand success. Amul has an appropriate blend
of policy makers, technology and a support system to the milk producers without disturbing their agro-economic system and ploughing back the
profits, by prudent use of men, materials and machines.
Keywords: Organizational Structure, dynamism, Organizational effectiveness, operational efficiency, federal, agro-economic system.
1.1 INTRODUCTION 1)
To study the significance of Amul co-operative in
India.
An organization is a social unit or a group of people
2) To identify the relationship between
structured in such a way that they work for achievement
organizational design and operational efficiency
of specific goal. Structure can improve the working
of Amul co-operative in india.
condition of an organization and a poor structure can
3) To suggest an action plan for smooth functioning
ruin all the possibilities of openness, dynamism and
of Amul co-operative in India.
decision making.
1.4 RESEARCH METHODOLOGY
Organizational effectiveness is the extent to which an
organization, given certain resources and means, achieves To evaluate the success of Organizational Design the two
its objectives without placing undue strain on its types of data sources are considered. Primary Source as
members. Another important role is played by well as Secondary Source. Primary data was collected
communication among the employees and the through a structured closed / open-ended questionnaire
technology. More an organization is able to adapt itself to and interviews with senior officials of AMUL, its
the changing technology the better will be its efficiencies. employees and customers.
Amul’s structure was founded on the basis of cooperative Research Design Table
system.
1.2 SIGNIFICANCE OF THE STUDY Geographical Area Anand in Kaira district of Gujrat
In the present research paper a relationship between the of the research
designs of an organization with its operational efficiency Sample population Kaira district milk producer’s union
indicators has been examined. It was found that these Ltd
indicators play a very important role in the success of the
Type of Sample Convenient sampling
organization. The factors were studied in the context to a
Respondents Employees of different hierarchal
co-operative form of organization and while comparing it
level of the AMUL and the producer
with the corporate form, it was found that the design of
members.
the Amul structure is somewhat different as it believes in
Size of sample 200 (100 farmers and 100 employees
the federal form of structure each unit is independent of
of different hierarchal level of AMUL)
each other.
Type of research Analytical
1.3 OBJECTIVE OF THE STUDY Secondary data was collected trough internet, news
To make study more scientific and systematic the papers, magazines, journals and annual reports.
researcher frame following objectives: 2.1 ORGANIZATIONAL DESIGN
IJSER © 2013
ISSN 2229-5518
Organizational design is a formal, guided process for operative viz., the village society- procurement unit, the
integrating the people, form of the organization as closely union- which is the processing unit and the federation
as possible to the purpose of an organization. It is used to which is the marketing unit all being an institution in
match the organization seek to achieve. Through the itself. The institutions at each tier have the bond of
design process, organizations act to improve the organic and inter-institutional linkages and obligations
probability that the collective efforts of members will be which provide sense of purpose and directions in their
successful. Organizational design involves the creation of activities. To manage these units efficiently the leaders
roles, processes and formal reporting relationships in an felt a need of the professionals. These professionals have
organization. a hierarchy similar to that of the corporate structure with
the managing director as their head. The Managing
Director of all these units is appointed by the board of
2.1.1 THE AMUL MODEL
directors. The board of directors comprises of the farmers
Amul has a Co-operative form with a blend of members who come from the respective societies. So, at
professionalism. In the corporate form of an organization each level the decision making lies in the hands of the
the shareholders are non-participative members whereas producers only, which give them a feeling of ownership
in this form the members are the participative owners of to them.
the organization. There are basically three tiers a dairy co-
2.1.2 COMPARISON OF AMUL MODEL WITH OTHER CO-OPERATIVES

In this study a comparison has also been done on the deputation. As he is not in one federation permanently
working of other states co-operatives with that of the that does not give him the feeling of ownership which is
AMUL Model. It was found that the basic Anand Pattern very essential for a co-operative to be successful. Since in
is the same everywhere, but the professional most of the co-operatives the government still has share,
management is different from the AMUL model. In the so various representatives are there in the board of
case with other dairy cooperatives the managing Director directors and they become the decision making
of the federation which is apex body is an IAS on authorities. The elections of the village society, union and
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federation are not politicized at GCMMF, whereas in provided to the professionals to implement the policies as
other states these are influenced by the political parties at well as to manage the operations
the state. At AMUL the employees are hired by their own 3.1 OPERATIONAL EFFICIENCY
recruitment pattern by the Human Resource Section
Operational Efficiency of an organization is based upon
whereas st other milk co-operatives there has not been
the nature of a firm’s operations strategy. This comes
any recruitment since last many years. The recruitment
from the mission of the firm itself and is tied to the notion
system is dependent on state government.
of achieving competitive advantage through operations.
Cooperatives works for the same purpose i.e. maximising
A key subsequent decision is what type of process a
return for milk producers by adding value in different
business needs. Design must follow strategy; so given
ways in the whole value chain. The organistion design is
priorities from the strategic plan, a process can be
done taking into consideration the mission of the
designed that will support these priorities. There should
organization. That is why the design is done in such a
always be flexibility in the strategy adopted by an
way so that there is maximum participation of its
organization. Strategies ensure organizational
members and the benefits can reach the members in a
effectiveness and efficiency because with the help of
proper way.
strategies the resource can be put to the best of their
Even at the profit-sharing level, the distribution is made
efficiency and maximum contribution to organizational
in proportion to the volume of business contributed by
objectives. Thus, strategies ensure that resources are put
each member; therefore, bonuses etc. are determined
in action in a way in which they are specified. The
from the value of the commodity supplied by the
strategies can be implemented only when we have a
members. This in turn ensures that while the co-operative
proper organizational design.
does business, it also makes its members quality
conscious.
3.1.1 DYNAMIC LOGISTICS SYSTEM AT AMUL
In Anand Pattern Co-operatives, while the producers
themselves determine the policies, the opportunity is
Any dairy is able to survive if the amount of milk provided by the unions to the farmers like cattle feeds,
procurement increases. For this various aids have been the mineral mixture powder, the veterinary services, for
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better breeding of the cattle they have artificial 3.1.3 E-REVOLUTION

insemination. It has been found that all these inputs
AMUL is the first company in the co-operative form to
haeve helped in the production of milk. The procurement
adopt the e-revolution. In this information-
at Amul has increased from 41.42 lakh kg to 64.38 lakh kg
communication-Entertainment age, the barriers between
resulting a growth of 55.42% in last 10yrs . In Gujrat, the
the business organization and consumers, between
village societies have got so much profit that they have a
manufacturers and end-users are all breaking down. This
fund from which they are able to contribute some money
is what was started fifty years back by AMUL by
for the upliftment of their village like opening a school,
eliminating the ‘middlemen’ and bringing the ‘producers’
building a hospital etc. This gives a good impact on the
closer to the ‘consumers’. The organization believes in
villagers and encourages them to become a part of the co-
innovations in product as well as process. For rapid
operative. These village societies are a link between the
communication access to Veterinary Health Assistance
members and the union. The co-operative helps the
they have introduced the GIS facility. The adoption of the
farmers to get remunerative price as well as continuous
electronic milk testers to ensure efficient testing and
market for the milk. In addition to the price of the milk
measurement of milk constituents is a step in this
they also get a bonus at the end of the year from the profit
direction. This is first organization to have its own
of the organization. The professionals utilize it by
website – www.amul.com They have nationwide
diversifying the products and finding suitable market. To
cyberstores, functioning in some 120 cities, and an AMUL
further improve the efficiency of the procurement the
cyber stores gifting service capable of serving consumers
organization has used the technology for this. Every
in more than 220 cities, on special occasions. This has
society has its own computerized system where the
been possible by creating an IT network, which links the
testing of milk is done and payment is made according to
production, centres with sales offices and dealers by
the quantity and quality. Milk being a perishable
VSAT and e-mail connectivity.
commodity it is necessary to preserve it properly. To
maintain its quality the society maintains a Bulk Milk 3.1.4 BRAND –A POWER
Cooling system which preserves the milk below 40oC.
Brand is the power of any organization. This can be
This also reduces the expenses of the transportation as the
developed only with the marketing skills and by giving
society which has this unit the van goes only once a day
the customers value for money. This was done with the
to collect the milk. Further to prevent the sourage of the
formation of GCMMF in 1974. It became the marketing
milk the union has its own chilling centers which help in
unit of the organization helping in the centralization of
preserving the milk procured from the far off societies
the marketing of all p0roducs except liquid milk which
3.1.2 QUALITY MANAGEMENT the unions had to do on its own. AMUL has a strong
support of the rural Managers for IRMA. This institution
Quality is very important for any food industry. Quality
also forms an integral part of the AMUL model. This
implies maintenance of functional values of the product
institute has helped sufficiently in building these traits at
as well as improving the style of management by keeping
the federation and conducting Management development
customer in focus. The milk producers of the member
programme. The distribution channel is well equipped
unions have a commitment to achieve quality in basically
with 48 depots situated in five zones.
six priority areas – Cleanliness of the dairy cooperative
societies, Planning and Budgeting of the Dairy Society,
Artificial Insemination Service, Quality Testing and Milk
measurement at Dairy co-operative Societies and
Management Practices and Self-leadership Development.
This TQM movement has also been extended to the
wholesale dealers by organizing workshops for them.
Quality circles that work in tandem with the sales force .
This movement also involves the process of policy
deployment known as Hoshin Kangri. This involves
strategy formulation and implementation, involving
every member of the value chain.
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Exports: AMUL has the export of products also. The As viewed by the employees mission plays a very
organization is getting the APEDA award for excellence important role in effective working of the organization.
in exports of dairy products. Amul has recently started making members and
employees aware of the mission statement of the
Growth Dynamics : According to the study conducted it organization, but at certain levels people are not aware
was found that the revenue has increased from Rs.2218.52 about it. Amul should try to disseminate its mission
to Rs.8005.36. The exports have also gone up by 50% and statement to member & employee so that they can
the foreign exchange earnings have crossed a mark of Rs. contribute their best for attainment of mission &
100 crores.Amul is the no.1 most popular brand in the objectives of Amul.
country and in this process the organizational design has
been instrumental. As the survey indicates approximately 4.1.2 Enlargement of Membership
80% of the employees report that the operational
efficiency is the outcome of the dynamic organizational The number of producer members at Amul has been
structure of Amul. increasing but on having a closer look we can find the
Table 1.1 Showing the growth dimensions of AMUL percent growth has been decreasing. This might block the
Year Sales Milk Production future growth of the organization. They can conduct
(in Procurement of Milk(in cultural shows showing the developmental aspects of
billions) (in million million cooperatives. They can organize free cattle care camps for
Kg) MT) them which may motivate the villagers to become
members.
2011- 116.68 10.30 127
12
4.1.3 Participative Management
2010- 97.74 9.45 112
11 Although the structure of GCMMF demands participative
2009- 80.05 9.28 110 management and it has been, of course trying to
08 implement it. On the one hand, participative
2008- 52.55 7.37 108 management involve much time impost yet there they
07 need a clearly defined the areas where participation
management can be implemented. On all critical areas
affecting participative decision making whereas routine
4.1 AN ACTION PLAN TO STRENGHEN THE decisions can be taken by the managers in the spot.
RELATIONSHIP BETWEEN ORGANIZATIONAL
DESIGN AND OPERATIONAL EFFICIENCY 4.1.4 Changes in Cooperative Law
Like any other organization Amul too has its own The cooperative act had been framed some eighty years
strength and some grey areas. The strength of Amul lies back by the colonial government. It was under the
in the dedication of its producer members, the pressure of these farmers the English government had to
technology, the supply chain management, the values, form a cooperative. The Englishman did not have faith in
the HR initiatives taken by the organization, their the Indians, so they included in the cooperative act that
visionary leadership. the registrar of the cooperatives would be a member of
the board. In independent India, we must understand the
And the grey areas include certain structural as well as role of cooperatives in rural development. The real
operational bottlenecks which need to be tackled by development can take place when we depoliticize the
Amul for smooth & steady operations and for taking the cooperative act.
organization to new heights. On the basis of in-depth
analysis of operations and based on the feedback 4.1.5 Avoiding Delay in Decision Making
collected from the farmers, vendors, employees and
officers at Amul. The following actions were suggested Decision making plays a very important role in the
for improving the efficiency. growth of the organization. Right decision at right time is
very important. Generally delayed decisions spoil the
4.1.1Mission Statement urgency and significance of the methods in question.
GCMMF is advised to spot the decisions where from
decision making is much warranted. Only with firm
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decision making Amul can stay much ahead of its Bournvita. Most of the people they are not aware of their
competitors. Nutramul brand. They should have advertisement
campaign in this segment first to make the consumers
4.1.6 Availability of the Products aware of the product. They can also have a feedback from
the consumers what they want from the product. In this
Amul has been trying to make the products available to way they can capture the market and will be able to
its customers easily. In this context they have opened compete with the other companies.
Amul Parlours so that its products are available to its
customers under one roof. From the survey it has been 1.4.10 Availability of Power
deducted that although Amul is doing all such efforts but
still the availability has increased in western parts of Although Amul has developed itself a lot in the field of
India and in Metros but still rest of India these parlours Information Technology, still it has been realized that the
have a problem of Non-availability due to which they are acceptance of the technology is difficult in the villages
not able to meet the consumers demand. Amul must which are slightly backward. There are problems of
increase its milk production base and processing capacity electricity also. For this they can have proper power back-
so that they are able to meet the growing needs. ups and they can even use generators. They can also
request the electricity department for the supply of
4.1.7 Awareness in Unexplored Areas electricity for running the BMC unit and the chilling
plants during the peak times of collection.
Although Amul has been doing lot of projects for the
awareness of the people in regards to cattle care and 1.4.11Attrition Rate
better breeding facilities. But unfortunately these
programs have been concentrated in those areas which Manpower is the force of the organization. In case of
have higher literacy rate. The remote areas which are the Amul producer members are the most important factor.
potential zone for milk production must be taken up by The organization works upon the principle of giving
Amul. Extensive programs should be done to attract the maximum benefits to its members, but professionals play
farmers to become members of the society. Some an equally important role in the success of the
demonstrations or some experience of the producers like organization. They also have to be satisfied in order to
them should be taken there to share their experience. This realize the dreams of the producer members. The rate of
way they can be convinced easily attrition at Amul is high. The salary and perks are not at
par with that of the multinationals. Amul has started with
1.4.8 Coping with the Competition taking a bond for three years with the employees who are
inducted. The promotions must be on the appraisal basis
The largest share of Amul’s turnover comes from Fresh and with every promotion; the increment amount should
Milk and then from butter, one of the earliest product. If be good enough to retain back the employees.
Amul has to increase its turnover, it has to concentrate on
increasing its fresh milk sale which will be done only if 1.4.12 Supply Chain Management
the procurement of the milk increases.
Although Amul has a very good supply chain with a
1.4.9 Product Development good number of Retailers and wholesalers, but the
number of depot which they have in each state is low as
Although Amul believes in innovation, but still in many compared to the demand of their product. In bigger states
segments requires upgradation in some of the aspects. also they have only one depot which is not sufficient to
Amul chocolates and Nutramul hardly has 10% market cater to the requirements of the retailers. In order to meet
share which is far behind their competitors. Moreover the demands of the customers Amul must increase the
this 10% market share of Nutramul comes from the army number of depots which they have.
supply. The malted drink is mainly dominated by
The Superior End of Value Chain of GCMMF
Data of Production
Members Data
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Village Co-Operative Milk Unionhttp://www.ijser.org GCMMF
Society
ISSN 2229-5518
Milk Supply Milk Supply Data
UNINTERRUPTED INFORMATION FLOW

(Adapted from the paper ICT application in a dairy industry: The e-experience of Amul)
1.4.12 Application of Six Sigma aware of the latest technological development in the field
of dairying.
Amul has implemented TQM very successfully, but this 5.1 CONCLUSIONS
concept has grown old. In order to succeed in this Looking back at the path traversed by AMUL, the
competitive environment Amul must use the concept of following features make it a pattern and model for
Six Sigma, which means putting the customer first and emulation elsewhere. Producing an appropriate blend of
using facts and data to drive better solutions. Six Sigma the policy makers, farmers board of management and the
generally focuses on three key areas: Improving customer professionals, bringing the best of the technology to rural
satisfaction, reducing cycle time, reducing defects. producers, providing a support system to the milk
Improvements in these areas usually represent dramatic producers without their agro-economic system and
cost savings to businesses, as well as opportunities to plugging back the profits, by prudent use of men,
retain customers capture new markets, and build a material and machines. Even though growing with time
reputation for top performing products and services. This and on scale, it has remained with the smallest producer
is a system that combines both strong leadership and grassroots members. AMUL is an example par excellence, of an
energy involvement. This system is not owned by the intervention for rural change.
senior leaders or middle level management; it takes place
at the front lines of the organization. This will help the REFERENCES
organization tom put more responsibility into the hands
BOOKS
of the people who work directly with customers.
1.4.13 Improving Human Resource 1. Folke , Dubell,(2001) “Organizational Development

in Co-operative”,CDD Publication,India.
In a cooperative organization the farmers are more 2. Khandwalla.Pradip(2005),“Organizational Design for
important than the professionals, as the latter are the Excellence”, Tata McGraw Hill Publishing Company
employees of the former. It is the prime duty of every Limited, New Delhi.
employer to see that their employees are satisfied. 3. Kurien.V(1998),“Co-operative Leadership and Co-
Although Amul has a good system of induction and operative Values”, The Co-operative Perspective
training of the employees as well as the wholesalers, but (special commemorative issue-9, published by
they do not have a continuous development program for VAMNICOM.
the executives like any other organization. To develop the
people and to increase the effectiveness of the working, 4. Patel, Dr., S.M., Thakur, Dr. D.S. & Pandey,
Amul should have a training centre where they can have M.K.,(1977), “Impact of the milk Co-operatives in
a regular training programs for the employees as well as Gujarat”,United Publisher,India.
for the wholesalers and retailers. This will enhance the
productivity level.
In the end the researcher recommends that organization
5. Ram Kishen,Y (2003), “Management of Co-
operatives”,Jaico Publishing House,Delhi,India.
should have a centralized training centre for the training
of the farmers as well as the employees. This will enable 6. Ruth. Heredia (2002), “Amul India Story”, Tata
them to organize continuous workshops for them. This McGraw Hill Publishing House, New Delhi.
will also enable the farmers and the members to be well
IJSER © 2013
ISSN 2229-5518
7.Varma. Mini (1996), “Amul: The Taste of India:  Annual Report of Jaipur Dairy; 2006-07.
Utterly Delicious Too,” The Asian Age, March 3.  Gupta Ashish; Amul India: The taste of success;
ANNUAL REPORT Outlook Business.
 Case Folio, ICFAI University.
 Annual Report of AMUL; 2006-07; 2007-08.
WEBSITES
www.amul.coop www.rcdf.com
www.mpcdf.com www.upgov.co.in
www.amul.com www.india-seminar.com
www.amul.com/organization.html http://sify.com/finance
www.icmrindia.org/casestudies www.scribd.com
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1
AGROCEL: Linking Small and
Marginal Farmers in India to the
Organic and Fair-trade Movements1
Introduction
This case describes how AGROCEL Industries Ltd., a private company (with partial
equity participation of the state government), aligned its commercial and social goals
to generate wealth for its client groups — farmer households in agriculturally backward
regions of India. The case demonstrates that by developing a sustainable business
model, it is possible for ‘modern’, integrated value chains to include the poorest
producers (rather than further marginalize and exclude them), and for all parties in the
chain to be independently profitable.
The case specifically focuses on AGROCEL’s experience of cotton farming (with the
small producers of Gujarat and other Indian states), and its marketing through different
export channels, including a high-end retail chain store, namely, Marks & Spencer in
the U.K. By linking Indian farmers in backward regions with the organic and fair trade
movements, AGROCEL shows how even marginal producers can be included in the
modern value chain, and made to benefit substantially from it.
AGROCEL Industries has two major divisions, representing two different types
of businesses: a) Marine Chemicals Division, and b) Agriculture Service Division
(ASD). Though unrelated, the two businesses complement each other, and provide
financial stability. In the years of good rain, the agricultural division performs well.
The marine chemical division produces bromine and its derivative compounds from
the bittern found in one of the world’s largest natural saltpans in the Banni area
of Kutch District. When the monsoons fail, the agriculture division is bailed out by
the chemical division because it is not dependent on rain. The bromine factory is
run almost entirely by the local people, who have overcome their illiteracy through
hands-on training provided by AGROCEL. It represents an altogether different model
of inclusive industrial development.2
The current case study, however concentrates only on AGROCEL’s ASD. The case
traces the genesis and evolution of the company, and provides insights into the
workings of a private company that has succeeded to uplift small and marginal
farmers in backward regions and at the same time remained profitable and has grown
over the years.
106 Livelihood Augmentation in Rainfed Areas: Volume II

Page 314 of 409
Genesis
The late Mr. C.C. Shroff, founder of Excel Industries and Mr. Kantisen Shroff, well
known Gandhian and Chairman Emeritus, Excel Industries, dreamt of developing the
land of their origin — Kutch — and of carrying out developmental activities for the uplift
of farmers and rural communities. The long and frequent drought spells in Kutch made
Kantisenji, alias ‘Kaka’, realize that short-term relief measures, though necessary, did
not provide any worthwhile long-term solutions to the problems of drought. A business
visionary, he thought of developing Kutch through various mutually supportive
initiatives. With the help of like-minded people, Kaka formed the Shri Vivekananda
Research and Training Institute (VRTI) in 1978. VRTI’s main objective was to develop
agriculture and horticulture in Kutch, and work closely with the farmers (mainly small
and marginal) to solve local problems and eliminate poverty. Kaka’s wife, Chandaben
Shroff, started Shrujan, an institution devoted to tapping and developing the local
embroidery skills of the Kutchi women. It linked them to the elite market in urban
India and in foreign countries so that may have an alternative source of employment,
especially during drought years. Some of the other institutions that work with SHGs
of poor women and established with similar developmental goals include the Krishi
Vigyan Kendra at Mundra, Vivekanand Gramodyog Society and C.C. Shroff Self Help
Centre in Mumbai.
AGROCEL Industries Ltd. (originally AGROCEL Pesticides Ltd.) was first established
in 1984-85 as a joint venture company of the Gujarat Agro Industries Corporation Ltd.
(a public sector undertaking) and Excel Group of Companies, as a result of the dialogue
between Kaka and the Secretary, Government of Gujarat. The initial idea was to set
up a pesticide company in the Kandla Free Trade Zone, with the specific objective
of producing pesticide formulations for export. Due to unforeseen circumstances,
this did not materialize. Not to be deterred, the Shroff family infused the company
with a new mission of serving the farmers of Kutch and other agriculturally backward
regions of India. In 1989–90, the company started operations of its AGROCEL Service
Centre, under the leadership of Mr. Hasmukhbhai Patel, and the Marine Chemical
Factory under Mr. Manoj Gohil. In the changed circumstances, the stake of the Excel
Group grew to 89%, and the company was renamed as AGROCEL Industries Ltd.
In 2007, Gujarat Agro Industries Corporation (GAIC) divested its 11% holding and
the company is now controlled entirely by its promoters from the Excel group and its
shareholders.
The ASD of AGROCEL was established with the following mission:
To make all possible agri-inputs and marketing support available to farmers at the right
time and at a reasonable cost, with all necessary technical assistance and guidance
AGROCEL: Linking Small and Marginal Farmers in India to the Organic and Fair-trade Movements 107
Page 315 of 409
under one roof, so that farm productivity and farmer’s income levels increase along
with national productivity — all these through fair deals.
ASD is committed to working for ‘progressive, regenerative and sustainable

agriculture’. It has two main lines of business. The first comprises farmer services,
including agricultural extension, input supply, hiring of equipment, etc. The second is
the marketing of organically grown produce through fair trade3 channels. The first is
aimed at building up the value chain, starting from the primary producers. The second
is aimed at realizing better prices for the primary producer through better control over
the value chain and by linking up with clients with similar values. As the events unfold,
it becomes evident that these high-end clients can also contribute substantially to
strengthening the value chain, more specifically, the primary producers.
Building the Value Chain

ASD began operations with one service centre at Koday in Kutch. Over the years,
several more centres have come up in other parts of the country. As on date, there
are 25 centres in 11 states run by a total of 200 employees. Together, these centres
service about 45,000 farmers, covering about 5,40,000 acres of land. The turnover in
agri-business has been rising steadily over the years (Table 1).
Table 1: Growth of Agriculture Service Division
Year Farmers Increase Domestic Exports Total % Land %
in (INR in (INR in (INR in Increase Area Increase
Farmers lakhs) lakhs) lakhs) in Sales (Acres) in Land
(%) Area
1999 500 348 - 348 6,000

2000 1,150 130.0 223 - 223 (35.92) 13,800 130
2001 2,575 123.9 300.99 72.74 373.73 67.26 30,900 123.91
2002 5,056 96.3 533.24 74.4 607.64 62.6 60,672 96.35
2003 6,098 20.6 686.13 75.28 761.41 25.3 73,176 20.61
2004 9,143 49.9 1,198.42 43.69 1,242.1 63.1 1,09,716 49.93
2005 12,978 41.9 1,171.59 154.22 1,325.8 6.7 1,55,736 41.94
2006 15,700 21.0 1,307.86 284.45 1,592.3 20.1 1,88,400 20.97
2007 25,000 27.4 2,130.15 288.84 2,419 51.9 2,40,000 27.39
2008 45,000 125.0 NA NA NA 5,40,000 125
2009 60,000 33.3 0 7,20,000 33.33
Exptd
Source: Purohit (2008)

Page 316 of 409
About 80% of this turnover comes from input and output marketing, the remaining being
the fees for certain services (mainly installation of drip-irrigation systems) offered to the
farmer. The entire export sales represent output marketing, and include products such
as cotton and basmati rice. Ninety-five per cent of the domestic sales represent sale of
inputs like seed, organic fertilizer, and integrated pest management to farmers.
AGROCEL started working in an area by setting up a small office and hiring enthusiastic
local youth with moderate education. A team comprising an agricultural field officer and
a commerce graduate or chartered accountant runs each centre. The team is expected
to establish a close rapport with the farmers to get a good understanding of local needs.
It concentrates on designing and providing the most appropriate agronomic advice,
working on the assumption that if farmers benefit from the advice, they will naturally
turn to them for input supply as well. Agricultural advice is offered free of charge. This
strategy has been vindicated over the years because centre after centre have been
able to break even after 3-4 years of operations, and each one is now making profit.
The specific services provided by an AGROCEL Service Centre include:
■ Providing Farm extension
■ Aggregating demand for farm inputs and providing all kinds of inputs under
one roof at a reasonable price
■ Disaggregating supply and ensuring that its logistics match the time and
volume requirements of farmers.
■ Providing output marketing support.
■ Providing, in the case of organic farming, organic certification support, and

linking with the organic export and fair trade channels.
Marketing Strategy for Organic Cotton

During the course of its work, AGROCEL came across the cotton farmers of Kutch
and Surendranagar Districts, who were facing economic crisis due to unstable crop
prices, high use of chemical pesticides leading to increase in debt burden, degradation
of environment, and consequent impact on the health of farming communities. To
overcome these problems, AGROCEL came up with the idea of converting these
farmers into organic/fair trade cotton producers and providing them access to the high-
end European markets through fair trade distribution channels.
Initially, AGROCEL bought the organic cotton from the farmers, and sold it to the fair
trade channels in Europe through its contacts. These contacts were developed over
Page 317 of 409
time through participation in various international
fairs such as BioFach at Nurnberg in Germany,
InNaTex (International Fair of Natural and Organic
Textiles), World Organic Trade Fair, etc. During
one of these interactions, it came in contact with
Ms Abigail Garner of UK, a fair trade specialist.
On Kaka’s invitation, Ms Garner stayed in India
for over 18 months to train the AGROCEL team in
different areas of cotton processing. Thomas Petit,
a Frenchman, with expertise in textile production,
joined her.
Under their supervision, many improvements

were made in the processing of cotton at various
stages. One of the problems faced was the old-fashioned, chemical-intensive method
of washing fabric. This was contrary to the philosophy of manufacturing organic fabrics;
therefore, chemicals had to be eliminated from the process. A new washing unit was
designed, which used only hot water, and no chemicals whatsoever. The waste
water was found to contain natural wax, and this was used for irrigation purposes at
AGROCEL’s demonstration farm. The unit, set up at a cost of Rs 20 lakhs, is the only
one of its kind in India.
Ms Garner also assisted AGROCEL in developing a strong business model that included
an integrated farming package, and management of cotton supply chain, which featured
ginning, spinning, tailoring and access to the retail market. In this model, AGROCEL
maintained its prime focus of providing various agro inputs and extension services
to the farmers while outsourcing the task of cotton processing through its various
stages to different units, usually identified by its customers. AGROCEL retained the
task of marketing the output produced at each stage. The first consignment of T-shirts
produced in this manner was sold through fair trade channel to OXFAM, Belgium,
which turned out to be a success.
After returning to UK in 1999, Ms Garner continued to support AGROCEL. She

established a company called Vericott (Vertical Integration in Cotton) Ltd. Vericott
was started with the aim of working downstream to create markets for the organic and
fair trade cotton produced by AGROCEL and other such organizations. Ms Garner
lobbied on behalf of AGROCEL with various fair trade organizations, and helped it
to get more international presence and market. Thanks to her efforts, AGROCEL
connected with the NGOs, Traidcraft Exchange, and Shell Foundation. The last of
these partnered with AGROCEL to help 500 farmers adopt organic methods of cotton

Page 318 of 409
cultivation through a project called ‘Straight from the Cotton Fields’ in 2002. Shell
Foundation provided seed capital to cover the start-up costs, and provided business
mentoring and assistance to farmers converting to organic. It also helped AGROCEL
set up global market links to ensure that the venture became successful in the long
term. The project was a huge success. This project was followed by another project
called ‘More from the Cotton Field’.
In autumn 2005, Marks & Spencer, a multinational, high-end, retailer chain set up fair
trade standards for cotton to be stocked in its stores. This opened up a new avenue
for clothes made from fair trade cotton to be marketed through its stores. Given the
existing work with organic cotton, organizing farmers, ensuring traceability, and record
-keeping, much of the work to become certified for fair trade cotton had already been
done. It was the combined effort of Shell Foundation and Vericott Exchange that led
Marks & Spencer in 2006 to stock clothes made from fair trade cotton supplied by
AGROCEL. As a result of this strategic move, the demand for organic cotton shot
up, and more farmers were needed to supply cotton in a short time. In early 2008,
AGROCEL had an order for more than 8,000 tonnes of organic cotton. It was faced
with the challenge of meeting with this huge demand.
As part of this partnership, Marks & Spencer offered pre-financing, and a commitment
for purchase of specified volumes of cotton. It found willing spinners in its chain, for
example, Maral, instrumental in developing a working relationship with the farming
groups, giving feedback on quality issues and developing a joint understanding of
the needs of the supply chain. It facilitated communication between all partners in the
fair trade chain, making it transparent and fostering collaborative action to achieve
targets. Shell Foundation, on its part, funded development of processes to improve
quality and creation of a cotton storage facility so that AGROCEL could guarantee
its customer’s orders throughout the year. It helped AGROCEL build its business
capacity so that it could interact with an international business entity such as Marks
& Spencer.
Besides Marks & Spencer, AGROCEL has over 45 domestic and international clients.
Following are some of its clients:
■ Bheda Brothers, Mumbai
■ Mahesh Agri, Mumbai
■ Maral Overseas Ltd., Indore
■ Vericott Limited
■ Traidcraft Plc., UK
■ Oxfam, Belgium
Page 319 of 409
The marketing side of the intervention, therefore, is now on a strong footing.
AGROCEL’s growth potential can be considered bright because it is linked to the
growth of the organic and fair trade movements, which are increasingly making inroads
in international markets. The growth in sales over the past eight years can be seen in
Table 2.
Table 2: Growth of Sales – Organic and Fair Trade Cotton (Rs. Lakhs)
Year G. Cotton Yarn Fabric Garments Cotton Others Total

Seeds
2000–01 18.27 0 2.46 14.08 2.10 0 36.93
2001–02 36.35 30.23 0.55 9.57 3.47 0.68 80.87
2002–03 17.82 29.62 1.83 34.68 11.87 0.75 96.60
2003–04 187.28 49.14 0.88 15.60 0 0.65 253.56
2004–05 264.12 56.94 6.54 25.17 29.46 0.18 382.43
2005–06 419.87 97.26 10.66 26.94 63.20 0.40 618.34
2006–07 561.93 273.06 4.80 30.08 92.13 0 962.02
2007–08 998.16 519.96 12.07 57.76 194.69 0 1,782.65
Figure 1 shows the map of the pro-poor organic cotton value chain developed by
AGROCEL.
Organizational Strategy
AGROCEL is a registered private limited company. The ASD has adopted a
decentralized organizational structure. A skeletal head office, located at Mandvi, Kutch,
guides 25 service-centres spread all over the country. The Executive Director (ASD)
reports directly to the Managing Director and the Board of Directors. He is supported
by Finance and Administration unit and assisted by eight Project Managers. Whereas
some projects deal with sectors such as drip irrigation, cotton, food crops, and export;
others are based on regions, for example, South India, West Bengal, and Orissa.
Different centres are aligned to different projects and work under concerned project
managers. Each service centre has a Centre-in-Charge, who is assisted by one or two
field officers, a person with a background in accounts, and a storekeeper.
The Garment Production and Export Division, located in Mumbai, manages the
marketing function with a four-member team. The Mumbai office works closely with the
Executive Director to coordinate the supply of produce. It handles the export of yarn
through a clearing and forwarding agent, who gets the customs clearance. For the
manufacture of garments, it coordinates with C.C. Shroff Centre, which has a tailoring
wing. The centre has 50 employees. In addition, it works with teams of ten tailors and
a master tailor, who can be given job work when the orders are large.

Page 320 of 409
Figure 1
AGROCEL ORGANIC COTTON VALUE CHAIN
Markets
Value Domestic Market Export market

Addition
Stages
Other
Exporter AGROCEL
Exporters
Designers and C.C. Shroff

Designer Clothing Textile Factory AGROCEL
textile factory Center
Wholesale fabric
Private Traders
Trade
Weaving Weaving Mill 1 Weaving Mill 2 AGROCEL
Private Traders
Spinning Spinning Mill 1 Spinning Mill 2 AGROCEL
Private Traders
Ginning, fabric
Ginning Mill 1 Ginning Mill 2 AGROCEL
Washing
Ginning mill
Wholesale Trade Private Traders
Agents of
Local Trade Small Traders Commission agents
Processor
Organic Cotton Farmers’

Production FARMERS
Associations
Agri - inputs &

Private Traders Cooperatives AGROCEL
Farm Advisory
Page 321 of 409
As for the knitted fabric, the marketing division outsources the work to a garment unit
in Mumbai, which makes the T-shirts as per the designs specified by AGROCEL and its
clients. The centre relies on Shrujan and Vericott Exchange to provide inputs for design
and embroidery. Customers too send their designers, and get samples made and
approved, three seasons in advance. This is done during a week-long, annual, design
workshop organized by the marketing division on behalf of all the Shroff institutions.
Being a part of the fair trade movement, AGROCEL has started taking several new
initiatives to strengthen the movement in India. It has started a new support institution
for fair trade in Mumbai called International Resources for Fair Trade as a nodal
agency of Tradecraft. It is setting up an Organic Park near Dhrangadhra in Gujarat,
with the objective of promoting organic and fair trade practices among producers and
consumers.
Under the fair trade project, AGROCEL has initiated farmers’ associations, which
will form the project executive body whereas AGROCEL will function as the project
promoting body. The fair trade people wanted cooperatives to be registered. However,
since the local people have burnt their fingers with this form of institution,4 they decided
to register their organization as a society or a trust. So far, nine such institutions have
been formed, each with a membership of between 1,500 and 2,000 farmers. These are
named after the commodity with which the farmers work. For instance, AGROCEL Pure
and Fair Cotton Growers’ Association in Gujarat, AGROCEL Rice Growers’ Association
in Haryana, AGROCEL Fruits and Nuts Growers’ Association etc. AGROCEL is in the
process of empowering the associations to take up much of the work being done by the
Agri-service centres. Already the Field Officers have been withdrawn in some cases,
and the associations have taken up the management of the centres.
Another strategy being deployed by AGROCEL is to work through other local NGOs.
For example, in Syala, it has collaborated with Aga Khan Rural Support Programme-
India (AKRSPI) to work with cotton farmers under the organic and fair trade project. It is
working with the Centre for Environmental Education to establish sugar beet cultivation
and popularize drip irrigation. In Raichur, Karnataka, it is working with the Navnirman
Trust to revive cultivation of cotton.
Figure 2 shows the Actor-Function matrix of the initiative. The matrix shows that
currently AGROCEL undertakes major commercial functions in tandem with its partner
company Varicott India Pvt. Ltd.5 Other partners contribute to design, outsourcing, etc.,
and finance is raised from commercial banks. The welfare function is entirely taken care
of by farmers’ associations. These organizations have, of late, also started taking up
some responsibilities of organizing crop advisories, providing finance to farmers, and

Page 322 of 409
Figure 2: Actor-Function Matrix of Organic Cotton VCI
Functions Farmer Farmers’ AGROCEL - C.C. Shrujan Shell Vericott Retail International Spinning Commercial
Associations ASD Shroff Foundation India Customers Resources for and Banks
Centre Pvt. Ltd. such as Fair Trade Weaving
Marks & Mills
Spencer
Cotton
Production
Production √
Crop Advisory (√) √
Pre-finance √ √ √
Input Supply (√) √
Aggregation of (√) √
Produce
Procurement √
Organic and √
Fair Trade
Certification
Ginning
Ginning (In- √
Page 323 of 409

house)
Marketing √
Organic Cotton
Storage and √
Logistics
Financing √ √
Ginning
Spinning
Outsourcing √ √ Maral
Spinning Overseas,
Storage and √ Sri
Logistics Ramkrishna
AGROCEL: Linking Small and Marginal Farmers in India to the Organic and Fair-trade Movements
Financing √ √
Spinning
115
Marketing √
Yarn
Continued...
116
Functions Farmer Farmers’ AGROCEL - C.C. Shrujan Shell Vericott Retail International Outsourcing Commercial
Associations ASD Shroff Foundation India Customers Resources for Companies Banks
Centre Pvt. such as Fair Trade
Ltd. Marks &
Spencer
Weaving
Outsourcing √ √ Arvind
Weaving and Mills,
Dying
Storage and √ Colour of
Logistics Nature, etc
Financing √ √ √
Weaving
Inputs for √ √ √ Credit
Design
Marketing √ √ √
Organic Fabric
Livelihood Augmentation in Rainfed Areas: Volume II

Garment
Making
Page 324 of 409

Tailoring √ √
Outsourcing √
Knitted
T-shirts
Design Inputs √ √ √ √ Maral
Overseas,
Ashima
Garments
Storage and √ √
Logistics
Financing √ √
Garment
Making
Customs √
Clearance and
Exporting
Continued...
Functions Farmer Farmers’ AGROCEL - C.C. Shrujan Shell Vericott Retail International Outsourcing Commercial
Associations ASD Shroff Foundation India Customers Resources for Companies Banks
Centre Pvt. such as Fair Trade
Ltd. Marks &
Spencer
Export
Marketing
Attending √ √ √
International
Fairs
Fair Trade √ √ √
Fortnight for
Consumer
Awareness
Sector
Development
Organic and √
Fair Trade Park
Standards √ √
Research √
Page 325 of 409

& Policy
Advocacy
Consumer √ √
Awareness
Natural √
Resource
Conservation
Welfare
Functions
Health √
Education √
AGROCEL: Linking Small and Marginal Farmers in India to the Organic and Fair-trade Movements
√ Main Function (√) Supporting Function
117
aggregating produce for procurement by AGROCEL. This is also seen as a strategy
to scale up the project, in line with fair trade ethics and values. However, at present,
the legal framework of the association prevents it from taking a more active role in the
commercial functions. In future, they may have to establish producers’ companies if
they want to take over commercial functions from AGROCEL. The farmers are averse
to forming cooperatives because of past experiences, which were rather negative.
At present, farmers’ committees are implementing three functions. The first is a
development function because it involves the conservation of natural resources, with
activities such as rainwater harvesting, social forestry, horticulture development, drip-
irrigation, etc. The other two are mainly welfare functions, namely, health (life insurance
of farmers, medical camps, medical help to the poor, etc.), and education (scholarships
to deserving students, drinking water in schools, provision of uniforms, computers,
science kits, etc.).
Impact on Farmers
An independent study by Traidcraft, UK, (Pereira and Betts 2005) found that cotton
farmers working with AGROCEL had shown, on an average, a 15% increase in their
income. A more recent study by Jackson (2008) concluded, “Yields of organic cotton
in Kutch are similar to and in individual cases often in excess of those obtained under
the preceding non-organic system.” The study, however, cautioned that similar results
would be difficult to emulate in wetter and more highly irrigated parts of India where
climatic and other factors make cotton more susceptible to pest attacks.
To measure the impact on cotton cultivators, Purohit (2008) carried out a price-spread
analysis on behalf of the International Resources for Fairer Trade. Tables 3 and 4 show
the margin analysis, with and without intervention. As the tables show, the value per
kilogram of cotton fibre increases tremendously after the ginning stage. The analysis
shows that the margin received by farmers as percentage of sales value under
conventional methods is only 16.67%. This margin has increased to 25.92% under
intervention. (The fair trade and organic premium is 10-13% and approx 8% of the farm
gate price). The share of price obtained by farmers as percentage of the terminal price
increased only marginally from 5.86 to 6.67%.
The profit margin of ginning units is very low (2–2.5%) because the activities involved in
ginning is very little whereas the margin of spinning units is higher as compared to others
in the supply chain because it requires a very high start-up capital investment. These
also generate substantial returns because the minimum batch size for spinning at most
spinning mills is 15 tonnes. While outsourcing the spinning activity, AGROCEL works
on optimum batch size, which helps in keeping the final product price competitive.

Page 326 of 409
Table 3: Margin Analysis: AGROCEL Model (Rs)
Particulars Farmer Ginning Spinning Weaving Dying Garment Global

Making Retailer
Procurement 22.00 29.70 38.55 63.82 74.53 114.83 181.79
Cost
Processing/ 8.00 16.00 7.50 28.00 25.00 210.00
Marketing
Cost
Average Cost 22.00 37.70 54.55 71.32 102.53 139.83 391.79
Price
Average 29.70 38.55 63.82 74.53 114.83 181.79 450.55
Selling Price
Profit 7.70 0.85 9.27 3.21 12.30 41.95 58.77
Profit Margin 30 to 2 to 2.5 13 to 20 4 to 5 10 to 25 to 35 15–25
(Per Cent) 35 15
Margin as % 25.92
Sales Price
Farmers’ 6.67
Share in
Terminal Price
(%)
Table 4: Margin Analysis: Conventional Model (Rs)
Particulars Farmer Ginning Spinning Weaving Dying Garment Global

Making Retailer
Procurement 22.00 26.00 32.72 56.07 67.07 98.77 151.62
Cost
Processing 6.00 15.00 7.50 27.00 25.00 200.00
Cost/
Marketing Cost
Cost Price 22.00 32.00 47.72 63.57 94.07 123.77 351.62
Average 26.00 32.72 56.07 67.07 98.77 151.62 450.00
Selling Price
Profit 4.00 0.72 8.35 3.50 4.70 27.85 98.38
Profit Margin 15 to 2 to 2.5 15 to 20 5 to 6 3 to 7 20 to 25 20 to 35
(Per Cent) 20
Margin as % 16.67
Sales Price
Farmers’ 5.86
Share in
Terminal Price
(%)
Page 327 of 409
As on 2008, AGROCEL’s product-mix, representing cotton at various stages of
processing, is as follows: fibre (40%), yarn (40%), fabric (5%), and ready-made
garments (15%). At each level, AGROCEL charges 1–3 % service charge, which
contributes to its profitability, and makes the system financially sustainable.
Besides the economic impact, there have been clear environmental gains in terms of
better health practice, soil conservation, better usage of water and energy, and use
of appropriate technologies. Young people in the area are taking up agriculture rather
than migrating to cities in search of employment. Decreased migrations to urban areas
have been observed from the project area. Parents are able to retain their children in
schools, and material prosperity is observed in the fair trade/organic cotton farming
areas. There is a definite shift towards empowerment of marginal farmers through skill
development and farmers’ organizations.
Future Plans
AGROCEL is planning to take the production of organic and fair trade cotton and other
crops to the next level through a futuristic project. The project, called Organic Park, has
been planned near Dhrangadhra, about 60 km from Ahmedabad. The total investment
in the project is about Rs 80 million, for which finance has been arranged from the
Bank of Baroda. The main features of the project are:
■ Training school for farmers and field officers, with a capacity of 50 per
batch
■ Soil water and cotton testing laboratory
■ Organic seed bank
■ Input depot
■ Ginning and pressing oil mill for organic cotton seed
■ Cleaning, grading and packaging houses for organic pulses, food grains,
and oil seeds
■ Fibre yarn bank
■ Agri-output warehousing facility
■ Retail outlet for organic produce
■ Eco-tourism and organic restaurant
■ Knowledge centre for farmers
This futuristic centre will serve the dual purpose of serving as a resource centre for
potential organic and fair trade farmers, and as a means of creating awareness among
potential customers in India.

Page 328 of 409
In addition, AGROCEL is planning three retail outlets — in Mumbai, Dhrangadhra, and
Mandvi — for fair trade and organic produce.
In order to facilitate its expansion plans, AGROCEL plans to become a listed company
in the near future and increase its equity base. When this happens, farmers associated
with its projects will be given priority in shareholding.
References
Jackson, Geoff. (2008) “Organic Cotton Farming in Kutch, Gujarat, India.” Outlooks on Pest
Management. Vol. 19(1), pp. 4–6.
Kamath, M. V. (2000) The Excel Story: A Study in Excellence. Mumbai: Excel Institute of
Technology, Environment and Management.
Pereira, M. & Betts, J. 2005. “The Development of Environmentally and Socially Sustainable
Livelihoods for Independent Smallholder Cotton Farmers in Gujarat, Rural India.” (www.livelihoods.
org/lessons/case_sutdies/)
Purohit, Anamika. (2008) AGROCEL: A Holistic Business Model. Mumbai: International Resources
for Fairer Trade. Pgs. 19.
Shell Foundation and Marks & Spencer. (n.d.) “An Unusual Partnership.” (www.shellfoundation.
org. accessed in Sept. 2008).
End-notes
1. Based on various studies (see references) and information provided by Hasmukhbhai Patel, General
Manager Service Division, Agrocel
2. For more information on the bromine factory, see Kamath, M.V. 2000. The Excel Story: A Study In
Excellence pp. 160-163.
3. “Fair trade is a trading partnership, based on dialogue, transparency and respect, which seeks greater
equity in international trade. It contributes to sustainable development by offering better trading conditions
to, and securing the rights of, marginalized producers and workers – especially in the South.” The above is
the currently accepted definition of fair trade, as agreed by FINE, an informal association of four international
fair trade networks (Fairtrade Labelling Organizations International, International Fair Trade Association,
Network of European Worldshops, and European Fair Trade Association).
4. Cooperatives have suffered from political problems, leading to the ultimate closure of many successful
cooperatives. The latest example in the list of cooperatives that faces liquidation is GROWFED.
5. AGROCEL has a 10% stake in Vericott India Pvt. Ltd. The company takes care of the design inputs and
marketing of organic produce abroad.
Page 329 of 409
See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/227472660
Farmers' Producer Companies in India: A New Concept for Collective Action?
Article in Environment and Planning A · March 2012

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Environment and Planning A 2012, volume 44, pages 411 ^ 427
doi:10.1068/a44143
Farmers' producer companies in India: a new concept for

collective action?
Anika Trebbin, Markus Hassler

Department of Geography, Philipps-University Marburg, Deutschhausstrasse 10, 35037 Marburg,
Germany; e-mail: [email protected], [email protected]
Received 14 March 2011; in revised form 26 July 2011
Abstract. Producer companies can help smallholder farmers participate in emerging high-value markets,
such as the export market and the unfolding modern retail sector in India. As elsewhere in the
developing world, in India, small farmers' livelihoods are being threatened due to the liberalization
and privatization of Indian agriculture and the increasing interest of private capital in the agribusiness
sector. The withdrawal of the state from productive and economic functions, and changes in the
organization of marketing channels, present new challenges for small-scale farmers. In this environ-
ment of greater instability and competition, organization and collective action can help to enhance
farmers' competitiveness and increase their advantage in emerging market opportunities. We build on
the ideas of value-chain governance and collective-action literature and introduce the functions and
organizational structure of producer companies in India within this context. On the basis of a case
study of a specific producer company in Maharashtra, which produces and markets mango and
cashew nuts, we discuss the potential benefits for rural communities and the reempowering effect of
this form of farmer organization.
Keywords: collective action, value chains, governance, agrifood network, smallholder, India
1 Introduction
In comparison with many other countries, the transformation of the agrofood system
in India started relatively late. Here, the corporatization of retail, and later of agri-
culture, started from 1991, when the Indian government started to deregulate and
liberalize the economy. A major focus in political strategies has been placed on
economic, trade, and industrial policies. This has had, and continues to have, a par-
ticular impact on India's population in the nonindustrialized sectors, such as agriculture.
The deregulation and the subsequent decline in state subsidies for production inputs such
as water, electricity, fertilizer, and seeds created an economic environment of unknown
competition for many smallholders (Motiram and Vakulabharanam, 2007; Sharma, 2007).
At the same time, the Indian market environment changedöalso affecting small-
holder farmers. Along with changing consumer demands, new corporate actors are
entering Indian agrofood networks, such as corporate retailers, processors, or export-
ers of quality produce. These firms are often aiming to execute vertical coordination in
their supply chains, which ensures them greater control over the production processes
and thus to source produce which meets their strict requirements and standards
(Barghouti et al, 2004). Within the frame of vertical coordination, links between farm-
ers and buyers are becoming tighter to replace conventional open-market relations
(Humphrey and Memedovic, 2006). This type of procurement organization is also the
result of the changing national policy orientation in India, following somewhat neo-
liberal tendencies, which is also affecting agriculture and trade (Landes, 2008; Pitale,
2007).
However, the Indian government not only aims to initiate new organizational forms
in agricultural production and marketing to integrate large firms, but also aims to
encourage groups of small-scale primary producers to connect with corporate buyers.
With the amendment of the Companies Act 1956 in 2002, the Indian government
412 A Trebbin, M Hassler
introduced the concept of `producer companies', which constitute an attempt to establish

basic business principles within farming communities, to bring industry and agriculture
closer together, and to boost rural development (Kumar Sharma, 2008).
Farmers' producer companies can be seen as hybrids between private companies
and cooperative societies. The producer-company concept is aimed to combine the effi-
ciency of a company with the `spirit' of traditional cooperatives. Producer companies
aim to integrate smallholders into modern supply networksöminimizing transaction
and coordination costs, while benefiting from economies of scale (Lanting, 2005). They
are run and owned by farmers, financially facilitated by the government or donor
agencies, and managed by professionals. The concept of producer companies is still
in its infancy in the agricultural sector and has captured almost no attention in the
literatureöparticularly outside India. Our general intention in this paper, therefore, is
to analyze the potential of the producer-company model as a bottom-up approach for
smallholder participation in emerging markets.
The paper is based on material collected in India during two visits, in 2008 and
2010. In total, forty-five in-depth interviews were conducted with representatives of
producer companies, buyer organizations, interest groups, and government agencies.
The methodological idea was to gather information at different scales of organization.
Therefore, representatives of higher level organizations were approached, to collect
material to aid our conceptual understanding about producer companies and the
regulatory framework behind them. In addition, interviews were conducted with local
actors at producer-company level, for specific case-study data, at seven producer
companies and their supporting organizations in the states of Karnataka, Tamil
Nadu, Gujarat, Madhya Pradesh, and Maharashtra. The specific information on
VAPCOL, the case-study described in this paper, is based on six interviews with
representatives of this particular producer company, in addition to a three-day field
visit to various VAPCOL sites in Maharashtra in 2008. The selection of VAPCOL as an
analytical case study for producer companies was based on the impression gained
during field work, and the subsequent analysis of the primary data, that VAPCOL
represents a rather successful example of this type of farmer organization. It has been
running for more than one season and, therefore, its organizational structures and
procedures were fully operational.
The paper is organized into four sections. In section 2 we outline an analytical
framework in relation to arguments from the value-chain governance and the collective-
action debates. In section 3 we deal with the structural characteristics of agriculture in
India and the regulatory framework on which the concept of producer companies is
based. In addition, in this section, we outline the ideal and typical characteristics of
producer companies. In section 4, the case study of VAPCOL is presented and analyzed
in relation to the success of this producer company in empowering farmers and
improving their livelihood. In the final section, we conclude that producer companies
are a promising new model of smallholder organization, but one which needs continued
support and further critical analysis.
2 Reempowering farmers through collective action

The global food system is characterized by high levels of influence of powerful firms
from the trading, processing, manufacturing, and retail fields. Large retailers, for
example, are able to control agricultural production in more and more regions of the
world through rapid internationalization and their increase of market share in food
sales across the globe (Brown and Sander, 2007; Pimbert et al, 2001; Reardon et al,
2009; Reardon et al, 2004). Along with the spread of supermarkets, public and private
Farmers' producer companies in India 413
standards related to food quality and safety are gaining in importance öincluding in
developing countries (Coe and Hess, 2005; Henson and Reardon, 2005).
As outlined in a more general perspective by Gereffi et al (2005), increased specif-
icity of products and higher standards requirements in globalized production and trade
systems lead to tighter governance of value chains. This assertion is based on the
transaction-costs approach, which states that more complex transactions lead to
greater segments of the production process being controlled by, or integrated into,
the same firm (Gereffi et al, 2005). In the case of smallholder agriculture, transaction
costs for firms dealing with small farmers are particularly high for a number of
reasons: for example, the small units of output per farming household, low capacity,
low information levels of farmers, uncertainties in dealing with farmers, as well as
simple physical distance because of underdeveloped infrastructure.
In a scenario of (1) high complexity of transactions, (2) low ability to codify
transactions, and (3) low capabilities of the supplier base, high levels of explicit
coordination occur in value chains (Gereffi et al, 2005, page 87). Within the literature
on agrofood systems, the term `vertical coordination' is used to describe the explicit
coordination of agricultural production processes by lead firms, such as retail chains
(Humphrey and Memedovic, 2006). In this context, vertical integration describes the
most explicit types of agrofood chain governance where buyers have strong control
over the means of production. Network coordinations of vertical integration include
food-production systems, such as contract farming or outgrowing schemes. Therefore,
vertical integration in agrofood networks falls into the governance typology of Gereffi
et al (2005, pages 87 ^ 89) of `captive' and `hierarchy', in which lead firms have strong
control over suppliers.
Product and logistic requirements are especially high in the case of high-value
agricultural products such as fresh fruits and vegetables, which makes transactions
complex. Many case studies have shown, for a number of countries and product
groups, that large retail chains tend to integrate transactions between the farm gate
and the retail outlet vertically to ensure product quality and safety, traceability, and
timely aspects of supply (Brown and Sander, 2007; Dolan and Humphrey, 2004; Key
and Runsten, 1999; Masakure and Henson, 2005; Shepherd, 2005). As Dolan and
Humphrey (2000; 2004) have shown for the case of vegetable exports from Kenya to
the United Kingdom, increasing requirements lead to increases in explicit coordination
and vertical integration of farm production, when they are not accompanied by either
codification or higher supplier competence.
It can be argued that such reorganization in contemporary agrofood networks does
not predominantly lead to an increase in production, which should equate to value
creation but, rather, changes the mode of value distribution through a reorganization
of power structures (Chossudovsky, 2003; Dicken, 2011; Harvey, 2003; 2006). Accord-
ing to Harvey (2006), redistributive rather than generative economic strategies lead to
the movement of assets from the less to the more powerful, or from the more to the
less vulnerable. Applied to contemporary agrofood networks, the ongoing trends of
concentration lead to less income going to the less-concentrated parts of the network ö
that is, the producers' end (Humphrey and Memdovic, 2006). Here, disempowerment
occurs because farmers risk becoming simple pieceworkers on their land, while corpo-
rate enterprises control the means of production and the output, and capture most of
the value circulating in the system (Potter and Tilzey, 2007; Wilson, 1986).
The risk for farmers becoming exposed to and suffering from unequal relationships
with large firms, if they are integrated into their supply networks, is particularly high in
developing countries with a large number of smallholder or subsistence farmers. Here,
agrarian structures are less suited to feed into the industrialized model of producing,
processing, and selling food. A number of case studies have shown that small farmers
in particular in developing countries struggle to cope with the aforementioned trends in
the global agrofood system, which confront them with challenges they find difficult to
meet (Markelova et al, 2009; Maskaure and Henson, 2005; Narrod et al, 2007; 2009;
Reardon et al, 2009). As a result, only the most productive and competitive, and
usually the largest, farmers have the potential to be recast as suppliers of inputs into
a much larger network of processors, distributors, and retailers (Potter and Tilzey,
2007; The Guardian 2005). Many small and family farmers who are not included
in these networks find themselves on the margins, and with increased threat to
their livelihoods. This is especially the case in India where smallholder farmers, who
cultivate less than 2 ha of land, account for the overwhelming majority of farming
households (Misra, 2008).
Smallholder agriculture faces several constraints related to the small size of the
operation. These include the inability to create scale economies, low bargaining power
because of low quantities of marketable surplus, scarcity of capital, lack of market
access, shortage of knowledge and information, market imperfections, and poor infra-
structure and communications (Barham and Chitemi, 2009; Biënabe and Sautier, 2005;
Mercoiret and Mfou'ou, 2006; Teshome et al, 2009). Against this backdrop, a renewed
interest in farmer organization has developed in recent years (Barham and Chitemi,
2009). Much emphasis has been placed on its potential role for poverty alleviation
within a so-called `smallholder revolution' in the 2008 World Bank report (World
Bank, 2007a). Most of the collective-action literature emphasizes increasing economies
of scale as well as the lowering of transaction and coordination costs as the main
benefits of organizing farmers (Bernard and Spielman, 2009; Biënabe and Sautier,
2005). The creation of countervailing power, access to capital markets on favorable
terms, risk management, and income improvements are other major reasons for
establishing farmers' organizations (Datta, 2004). Most farmer organizations act as
multipurpose organizations and offer a wide range of services to their members,
independent of the specific type of organization (see table 1).
In view of the trends within global agrofood systems and the strong power concentra-
tions in buyer organizations, farmers' organizations, especially in the Western world, are
in the process of adapting their organizational structures. This includes strategies
to develop structures as regular commercial companies (Datta, 2004; Singh, 2008).
Strategic reorientations are largely reactions to problems at several organizational scales.
Table 1. Services provided by farmers' organizations (source: Hellin et al, 2009; Markelova et al,
2009; Narrod et al, 2009; Rondot and Collion, 2007).
Organizational services organizing farmers, catalyzing collective action,

building (strategic) capacities, establishing internal
monitoring systems
Production services input supply, facilitation of (collective) production
activities
Marketing services transport and storage, output marketing, processing,
market information and analysis, branding,
certification
Financial services savings, loans, and other forms of credit, financial
management
Technology services education, extension, research
Education services business skills, health, production
Welfare services health, safety nets
Management of resources water, pasture, fisheries, forests, soil conservation
Policy advocacy
Cooperatives in particular, as a prominent form of farmer organization, experienced

problems in relation to their leadership, member commitment, as well as opportunism
and free riding. This has resulted in a lack of performance, as well as problems with
financial and managerial resources (Datta, 2004; Singh, 2008). Therefore, cooperatives
are developing towards greater market orientation in the form of so-called `new
generation cooperatives' for which examples exist in the agricultural sector of the
USA and Canada (Singh, 2008).
Also with regard to developing countries there is a demand for farmer organizations
to engage in the improvement of market performance and to create an èntrepre-
neurial culture' (Barham and Chitemi, 2009) in rural communities (Lundy et al,
2002; Markelova et al, 2009), because impeded access to markets is viewed as one of
the major factors preventing smallholder farmers from prospering in the global econ-
omy. However, as Hellin et al (2009) emphasize, there is still a need to clarify: (1) the
most appropriate type of farmer organization; (2) the type of cropöundifferentiated
or high-value cropöfor which organization makes more or less sense; (3) whether the
public or the private sector is best-placed to support these organizations; and (4)
the conditions necessary to ensure their economic viability.
Within this context of hybrid organizations between institutions of collective action
and market-driven private enterprises, we aim to analyze the model of farmer producer
companies which is emerging as a new type of formal farmer organization in the
agricultural sector of India. Producer companies are an example of changes towards
more profit-oriented forms of organization arising among farming communities. In
India these changes can be seen as reactions to a new market and regulatory environ-
ment. Unlike top-down models of smallholder market integration, such as contract
farming or outgrowing, producer companies create and nurse an entrepreneurial spirit
at the community level. By leaving production decisions and major assets in the hands
of farmers, they contribute to their reempowerment. At the same time, producer
companies try to enable access to new markets by establishing flexible linkages to
highly specialized demand.
3 The reorganization of agrofood production in India

These new forms of demand are largely the result of socioeconomic and sociocultural
changes within India. Throughout the last two decades, this country has experienced sig-
nificant changes within both its economy and its society. However, despite the decreasing
contribution of agriculture to the Indian GDP, its role as a source of employment
remains significant: 55% of India's economically active population was employed
within the agricultural sector in 2009 (FAO, 2010). This figure had dropped only very
slowly over the course of the past three decades, as it was 68% in 1980 (FAO, 2010).
In this context the number of people depending on agriculture and allied activities
for their livelihoods increased by around 35% in the past three decades, from 434 to
585 million between 1979 and 2009 (FAO, 2010).
One key characteristic of India's agricultural sector is the fragmentation of land-
holdings: around 80% of India's farmers cultivate small and marginal holdings of up to
2 ha. For vegetable crops the share of small and marginal holdings increases to around
90% (Datanet India, 2010). Over the past two decades there has been an increase in the
total number of small and marginal holdings, while the trend in the case of medium
and large holdings has been the reverse (see table 2). Between 1995/96 and 2005/06, the
number of marginal holdings increased by around 17.6%, while the total area cultivated
under marginal holdings increased by only 13.9%. In 2005/06, 83.3% of all holdings
were small and marginal, and covered 41.1% of India's arable land (see table 2).(1)
(1) In India, the financial year runs from 1 April to 3 March.
Table 2. Number and area of holdings by size group in 1995/96 and 2005/06 (source: Government
of India, 2010).
Size of holding Total holdings
1995/96 2005/06
number area number area

(million) (million ha) (million) (million ha)
Marginal (<1 ha)

total number 71.12 28.1 83.7 32.0
percentage of total holdings 61.6 17.2 64.8 20.2
Small (1 ± 2 ha)
total number 21.7 30.7 23.9 33.1
Semimedium (2 ± 4 ha)
total number 14.3 39.0 14.1 37.9
Medium (4 ± 10 ha)
total number 7.1 41.4 6.4 36.6
Large ( 5 10 ha)
total number 1.4 24.2 1.1 18.7
This fragmentation in Indian agriculture creates problems for the supply side as
well as the demand side of the market. On the supply side, farmers of small holdings
are often unable to apply knowledge and technologies. Low levels of technology input
usually result in low levels of output productivity, low incomes, and low creation of
surplus value to support the family livelihood. On the demand side of the markets, it is
often difficult to find a sufficient supply of produce meeting certain quality standards
at the required time. In addition, large-scale distribution organizations, such as the
evolving retail chains in India, are searching for alternatives to the existing supply
models, in which a number of independent intermediaries such as small aggregators,
traders, and wholesalers are also involved between smallholder production and retail
distribution (Trebbin and Franz, 2010). Therefore, supplying a growing domestic or
export demand for, for example, high-value produce, from smallholder agriculture is a
challenge in terms of constant volumes as well as quality.
A common mode of production in many developing countries, especially in the
case of high-value produce, is the implementation of contract farming or similar forms
of vertical integration of production. In this case, `vertical integration' has to be under-
stood as captive supply relations or explicit coordination of production processes (see
section 2). In India, until 2003, such practices were prevented by the Agricultural
Produce and Marketing Act (APMA) 1951. After the APMA amendment in 2003,
almost all Indian states removed restrictions which constrained wholesale of agricul-
tural commodities to only state-regulated markets and promoted the setup of markets
in the private and cooperative sector. This happened in a context in which the national
government implemented neoliberal policy strategies following almost two decades
under the `ìndirect rule of the IMF'' (Chossudovsky, 2003, page 169). As a result,
contract farming is expanding, for example, in the fertile and irrigated areas of Punjab
and Maharashtra, while the establishment of a regulatory framework lags somewhat
behind (World Bank, 2007b, page 51).
In this current setting, without effective organization, Indian farmers `àre likely to
face either a life of continued poverty and exploitation at the hands of those controlling
value chains, or progressive isolation from active involvement in economically viable

agricultural activities'' (Croucher, 2010, page 6). Therefore, and in view of the various
problems facing Indian farmers and agriculture as a whole (such as sluggish growth,
stagnating productivity, ecological degradation of the production base, and climate
change), there is a need not only to improve the situation through technology-driven
solutions but also through institutional reforms.
In an attempt to move into this direction, the Indian government introduced a new
form of organization which offers farmers the opportunity to compete with other
business organizations: the Companies Act 1956 was amended on 6 February 2002.
Since then, producer companies have been recognized as a fourth form of corporate
entityöalongside companies limited by shares (public limited and private limited
companies), companies limited by guarantees, and unlimited companies. The new
legislation ensures that producer companies maintain unique elements of cooperatives
while the regulatory framework is similar to that of other company types. By the end of
2009 around 150 producer companies were established across India, either as start-ups
or through the transformation of existing cooperatives (AOFC India, 2009).
``The concept of producer companies in India is a very recent development. These
are just like cooperatives, but they are registered as companies. The requirement
is that the members, the shareholders of this company, are producers themselves.
No nonproducer can be a member of the company. They get together; they combine
their share capital, register as a company, employ a professional to run the com-
pany and do value addition, whatever is possible. Some of them even have their
own processing units'' (interview with representative of the National Bank for
Agriculture and Rural Development, NABARD, in 2010).
The emphasis on the collective spirit of these new producer companies stems from
the idea that groups of stakeholders (that is, primary producers) are best suited to
commonly and sustainably manage and develop community resources such as land
and water. As land and water scarcity are likely to be the largest constraints in
Indian development, large corporate enterprises engaged in Indian agriculture, through
organizational forms such as contract farming, have used these resources rather
exploitatively (Singh, 2002). In contrast, farmers' organizations are, as outlined in
section 2, concerned with a wider range of activities, such as environmental conserva-
tion, in addition to their overall business goals. Small farmers and their organizations
can, therefore, be regarded as critical for local food security and as managers of key
environmental services in the self-interest of those living from and working the land
(Seville et al, 2011).
However, the reason why producer companies as a new form of farmer organiza-
tion was needed in India is only partially explained by the changing economic and
regulatory environment. It also correlates with the decline in success and the increasing
problems of cooperatives. Cooperatives are a very prominent form of collective action
in agriculture, and have long been established in India, and especially Maharashtra, in a
vast range of sectors. However, the direct benefits for the farmers involved and con-
fidence in this form of organization has continuously decreased over the last decades.
``Cooperative farming was up to the 1970s, 80s very successful. They tried to be
entrepreneurs, to improve the productivity, the land cultivation and to improve
the incomes of farmers. However, that attitude has gone. There is nowadays an
exploitative attitude they have developed'' (interview with representative of EPW
research foundation, in 2008).
To prevent the same problems occurring in the cooperative sector, the producer-
company legislation contains some important changes. Government control is very
limited, as no state representative is part either of the organization as such or of
its management. Producer companies are formed only among primary producers, that
is, only people engaged in activities connected to primary production can join the
company. The minimum number of founding members is ten individual members, or
two institutional members such as self-help groups (SHGs), cooperatives, or any other
formal farmer organization. The seed capital of the company is generated through an
initial sale of shares. The producer companies studied made it an obligation for farmers
interested in becoming a member to buy at least one share in the company. The share
value, on average, is very low, ranging from 50 to 200 Indian Rupees (information
gathered on field visits). As it is difficult to raise high levels of capital stock among
small-scale producers, the Companies Act allows the suspension of the requirement for
capital companies to have a minimum capital stock of 100 000 Indian Rupees, so that
producer companies are free of this requirement. Instead, the liability of the members
is limited to the amount they have spent on shares. Hence, farmers do not risk losing
their land or any other assets should the company go bankrupt. Shares cannot be
publicly listed and traded; they are only transferable among members. This ensures
that successful producer companies do not risk takeover by other companies or TNCs
(interview with the Agricultural Finance Corporation, AFC, in 2010).
Managerial capacities are regarded as key capacities for farmer organizations
integrated into contemporary agrofood networks, and are generally hard to find among
smallholder farmers (Barham and Chitemi, 2009; Biënabe and Sautier, 2005). There-
fore, the producer-company legislation requires the appointment of a professional
manager, at least in the form of a chief executive, selected by the board of directors.
Every producer company must have a minimum of five but not more than fifteen
directors. The members of this board of directors are appointed from within the
participating farming communities. Hence, the farmers also have direct voting rights,
which is a source of democratic power. The directors are a group of members of the
village community and are, in consequence, deeply embedded within local social
structures. This kind of recruitment practice and representation ensures leadership
acceptance from within the community, and is a crucial point in successful farmer
organizations (Wilson, 2009).
In producer companies, the professional manager's wages are variable: they are
basically paid an incentive on their business performance. However, fieldwork evidence
suggests that the recruitment of qualified managers is a major problem for most Indian
producer companies:
``The professional leadership is a major problem. In this model there has to be a
manager, or a CEO. Most producer companies I visited had either no one in that
capacity or, if there was one, the handling and experience was not very good''
(interview with the Indian Tobacco Company, ITC, in 2010).
The primary goal of producer companies is to link smallholders to markets. There-
fore, they predominantly work on the downstream end of the production system (see
table 3). The benefits of the entire concept, however, can be seen both on the supply
side as well as on the demand side of the market. Individual smallholders would be
unable to deliver directly to and interact with large-scale customers. The producer-
company organization replaces intermediaries between market participants. Through
this, profits which otherwise would be paid to intermediary organizations such as
wholesalers are captured by the farmers themselves because they are shareholders in
the producer company. In addition, through the collective market appearance, small-
holders are able to access market information in terms of required standards and
prices and to integrate this information into their production planning and methods.
Producer companies are also implementing programs to upgrade farmers' production
methods. In particular, production organization, production planning, and knowledge
Table 3. Fields of assistance from producer companies (PCs) to farmers.
Field of assistance Smallholder farmer Producer company
Marketing small volumes, limited aggregation and marketing

bargaining power
Market information limited access, but increasing direct links between PC and
with the spread of mobile phones potential buyers
Transportation often time-consuming and/or transportation is organized within/
costly facilitated by the PC
Cold storage no facility set up of cold/ripening chambers
as shared infrastructure
Irrigation no irrigation facility, or establishment of community wells;
dependence on the well owner/ construction of collecting tanks;
water supplier laying of pipes
Extension services no access/one-sided information farmers' education and regular
and technology training sessions from farmer to
farmer, preservation of traditional
farming practices
Input supply need to buy in the market, credit provided by the PC at lower than
problem market price through bulk buying,
in-house production of organic
manures and pest killers; links to
banks
Production short time horizon constant information flows of
planning market processes to the farmerÐ
allow a more systematic planning
approach
Excess production risk of distress sales or waste further processing, value addition
Branding none brands might be introduced by the
PC or the buyer
and technology transfers are critical aspects increasing the chances for farmers to work
profitably and, therefore, to enhance their livelihoods. This also involves the timely supply
of production inputs, such as seeds and fertilizer. These inputs are procured centrally in
bulk, and can therefore be supplied to farmers at lower cost. This procurement and supply
of inputs also includes the organization and facilitation of finance credits to farmers to
allow such procurement. With these activities listed in table 3, producer companies cover
much of the services which farmer organizations generally provide for their members
(see also table 1). This is an important aspect, because it means that concentrating on
generating a profit in a market does not mean that an organization cannot be of greater
service to its members, the community, and the environment. As such, producer compa-
nies prove that organizations beneficial to the public need not necessarily be nonprofit
organizations.
4 The Vasundhara Agri-Horti Producer Company (VAPCOL)

As stated in the literature on collective action and farmers' organizations, facilitating
agencies, such as nongovernmental organizations (NGOs), have an essential roleönot
only in the establishment of any form of producer organization, but also in organizing
and maintaining its operations (Barham and Chitemi, 2009; Hellin et al, 2009;
Kaganzi et al, 2009; Markelova et al, 2009; Murray, 2008; World Bank, 2007a). This
is also true in the case of VAPCOL, which has been promoted by an Indian NGO,
the Bharatiya Agro Industries Foundation (BAIF).
Our case study, the Vasundhara Agri-Horti Producers' Company Ltd (VAPCOL),
transformed into a producer company through the merger of various farmer organizations,
including cooperative societies, farmers' associations, and SHG federations. VAPCOL

commenced its operations in 2008, and within its first year had already generated a
turnover of 34 million Indian Rupees through the sale of mango and cashew products
(BAIF, 2011). Currently, VAPCOL includes thirty-seven members from districts in the
Indian states of Gujarat, Karnataka, Madhya Pradesh, Maharashtra, and Rajasthan, but
is centrally managed from its headquarters in Pune, Maharashtra (BAIF, 2011). It is one of
the largest producer companies presently existing in India. The internal organizational
structures, therefore, are relatively complex, but are similar in the different federal states.
Our case study is based on the analysis of the VAPCOL Maharashtra branch.
Figure 1 outlines the hierarchical organization and structure of VAPCOL Maharashtra.
Groupings are formed at different organizational and spatial scales. The basis of the
organization is individual farmer families (wadi families). Their average annual family
income lies between 10 000 and 30 000 Indian Rupees (MITTRA, 2008). Between eight
and twelve families form together into wadi tukdis (participant groups). As wadi tukdi,
they are able to access finance capital, as group-based microcredits, and market
information. The next organizational level is the vibhag, which includes ten to twenty
wadi tukdis. This level of organization is responsible for the collection of produce from
and the distribution of revenues back to wadi tukdis.
VAPCOL
VAPCOL Maharashtra (Peint)

7 clusters
Harsul Jogmodi Karanjali Kumbhale Barhe Kathipada Mokhada

29 11 11 8 14 13 12
Collection of cashew 98 divisions (vibhags) as field offices

and mango crop community accountant paid by the community
3 10 to 20 wadi tukdis
1 division
participant group (wadi tukdi)

3 8 to 12 families
Links to banks 1 wadi tukdi
wadi family
Figure 1. Organizational structure of Vasundhara Agri-Horti Producer Company (VAPCOL)

Maharashtra.
In total, there are ninety-eight vibhags within VAPCOL's Maharashtra branch,

which are bundled into production clusters. Within Maharashtra there are seven of
these clusters of farming activity. These clusters, which are managed from a head-
quarters in Peint, in Nashik district, form VAPCOL Maharashtra. In September 2010
a total of 13 848 families in 258 villages were organized into the Maharashtra branch
(MITTRA, 2011). As shown in table 4, the cultivated land totalled 4975 ha (12 294
acres), in which 67% of the families worked on land of around 0.40 ha (1 acre), 31%
of the plots had an approximate size of 0.2 ha (0.5 acres), and only 2% of the plots
reached 0.61 ha (1.5 acres). The average wadi size was around 0.34 ha (0.85 acres)
(MITTRA, 2008). The incongruity between the number of wadi and the number of
participating families in table 4 stems from the fact that some of the participants are
Table 4. Vasundhara Agri-Horti Producer Company Maharashtra participant coverage details

(source: MITTRA, 2008).
Name of Name of Number Number of Estimated wadi areas (rounded) Total

the block the cluster of villages participating area
families 0.20 ha 0.40 ha 0.61 ha (ha)
(0.5 acres) (1.0 acres) (1.5 acres)
Peint Harsul 77 3 681 985 2 667 55 1 297

Jogmodi 30 1 363 515 905 51 496
Karanjali 31 1 716 355 1 358 76 661
Kumbhale 30 1 037 354 793 11 395
Surgana Barhe 35 2 475 873 1 589 74 855
Kathipada 32 1 891 559 1 301 36 654
Mokhada Mokhada 23 1 685 726 1 017 17 562
Totals 258 13 848 4 367 9 630 320 4 920
landless families, and some of the families are also working together on one wadi. Since
the agricultural sector of India predominantly consists of smallholders, this hierarchy of
VAPCOL outlines how producer companies create structures to manage the enormous
number of actors involved. It also shows that producer companies allow even very poor,
marginalized families as well as very small farmers, who would otherwise be ignored as
potential business partners, to participate in a marketing enterprise.
VAPCOL has a focus on the marketing of mango and cashew nuts. In Maharashtra
in the case of cashew nuts, the produce is collected at vighag level and transported
to one of the four village-level processing units set up by this producer company.
The main activities here are the boiling, cutting, peeling, and drying of the cashew
nuts [see figure 2(a)]. From there, the semiprocessed nuts are transported to VAPCOL's
headquarters in Peint, where they are graded and packed for sale under VAPCOL's own
brandöVrindavan.
Whereas the value-creation processes for cashew nuts are primarily conducted within
four decentralized processing units, the processing of mango is conducted in a single
modern processing facility in Peint [see figure 2(b)]. In the case of mango processing,
value creation is a centralized process because of the relatively high demand for finance
capital required for the purchase of the machinery, as well as for hygienic reasons.
VAPCOL's main goal as a producer company and multistate marketing company is
to establish market linkages between producers and corporate bulk buyers. They
conduct negotiations with buyer organizations centrally, and transfer information on
Figure 2. [In colour online.] A landless woman peeling cashew nuts (a) and the mango-processing
facility in Peint (b) (source: (a)öauthor; (b)öBAIF, 2011b).
market demand to lower spatial and organizational scales. The relatively loose linkages
within the network of participating farmers allows a relatively flexible reaction to
changes in demand. The potential to react on the elasticity of demand, therefore,
increases the chances of avoiding unfavorable market lock-ins of farmers.
``Producer companies organize farmers. They link them right up to the final market.
For example: the Pune area farmers may be having some 80 000 hectares under
their command. Basically, they are growing vegetables and flowers. They can be
organized into some of a network. The network plans and tells them: ``this is what
is feasible for us. If we do this, probably we get the best out of the market next year.
These kinds of flowers we will have to grow in this season and this is what we
should do in the vegetable growing area'. They tell people how to produce and then
help them to bring their produce to a place where it could be processed, preserved,
and then taken up for further marketing. The second part is to invest in processing
capacities. It is very difficult to do a diversified cropping in some regions. So you
might do the same crop, but you need to know how to safely take out the excess
production'' (interview with an independent agroconsultant, in 2008).
In 2008 VAPCOL managed to organize the sale of the mango crop through various
channels. Through their organizational market proximity, they were able to sell 21% of
the entire crop (around 54 tonnes) to ITC, which also operates as a large food retailer
within India. Of the remaining crop, 47% was sold to local traders and 32% consumed
at household level (by the wadi family or extended-family members). Prices realized
with corporate buyers in 2008 were considerably lower than those paid by local traders.
For semiripe Kesar mangos sold in bulk to ITC, the retail company paid only 15
Indian Rupees per kilo and 8 Indian Rupees for semiripe Rajapuri mangos. In the
open market the farmers realized prices between 35 and 50 Indian Rupees per kilo for
Kesar mangos and 15 to 20 Indian Rupees per kilo for Rajapuri mangos per
kilo (MITTRA, 2008). As reported by Singh (2010), for the following year VAPCOL
closed a deal with ITC for 40% of the VAPCOL farmers' mango crop, for 15% ^ 20%
more than the market price. This agreement with ITC included various processes along
the value chain, including the production and aggregation, as well as the sorting and
grading of produce.
As this example shows, prices vary, with differing results for the producer company
in relation to the average market price each year. However, selling bulk volumes to
larger business partners at preagreed prices also has significant advantages for actors
on both sides of the market. For example, on the supply side, this allows farmers some
economic-planning security and reduces dependency on short-term market changes:
highly volatile and fluctuating market prices are common in India's agrofood markets.
Especially during times of peak harvest for perishable produce, there is an immense
volume of produce available on the market: this affects the price mechanism and often
results in extremely low prices levels and negative incomes for farmers. In these
circumstances, sustaining the livelihood of the farming household and making
investments for the new season become problematic. To avoid this market situation,
VAPCOL's efforts to generate preagreed contracts for large quantities of perishable
produce help farmers to plan their economic situation for longer periods.
The organization by VAPCOL, as well as the value addition and collective market-
ing done by the company, had positive effects on participating farming families in
addition to opening another marketing channel for them. These effects are related to
the producer companies' additional beneficial services for its members (see table 3). The
introduction of vegetable cultivation, for example, of tomatoes, radish, bitter gourd,
chilli, beans, cucumber, and pumpkins in kitchen gardens, has not only improved the
nutritional basis of the families but also allows them to earn extra income through
their sale in local markets. In addition to the introduction of new marketable crops
among participating families, soil-conservation and rainwater-harvesting methods were
introduced in the community form via regular training and farmers' meetings ökisan
melas. In similar meetings, called mahila melas öwomen's meetingsöbasic health and
hygiene issues were discussed.
These core and additional activities conducted by VAPCOL improved the aware-
ness of the participating families of a wide range of issues. Most importantly, VAPCOL
also generated employment opportunities among the community, and hence allowed
wadi families to improve their economic situation and, at the same time, reduced labor
migration: 42.5% of the participating adult family members had employment through
VAPCOL for between 8 and 12 months in the company's first year. Another 38.7%
were employed for between 4 and 8 months. Only 6.5% of the participants had no
additional employment opportunity during this time period (MITTRA, 2008). This
creation of employment opportunities has led to a considerable reduction of labor
migration, both in time and in distance. Before VAPCOL started, 865 family members
were migrating to find labor for a period of 80 to 180 days a year and travelled as far as
45 to 180 km. After VAPCOL's first year, the number of migrating participants
decreased to 211; the number of days away fell to between 60 and 90, while the
migration distance remained almost the same (MITTRA, 2008).
And producer companies like VAPCOL can have positive effects not only among
the farming community, but also on the demand side of the market. There they offer the
significant advantage to the buyer that transaction costs for procurements are lower
when dealing with a single representative of producers. In addition, buyers will get an
agreed volume of produce at prearranged prices and times. This makes this form of
business transaction relatively calculable for buyers; otherwise, they would have to
search market places to secure and satisfy their demand. Therefore, the long-term
goal of VAPCOL is to intensify and create more links between participating families
and corporate buyers.
``There are so many small farms there, hardly 1 hectare plots. I don't see a large-scale
movement towards large farms in the near future. It is going to be the other way. But
to have many, many small farms working for you as a buyer also has potential for a
lot of flexibility. If I am a supermarket and I want 100 kilos broccoli, fresh corn of
about 2 tonnes, and maybe 500 kilos of egg plants, there is no problem for this
within the given frame of a producer company. If you take a large farm, they will
deliver on contracts only. You need several farms to get all this. For a producer
company it is no problem'' (interview with representative of MITTRA in 2008).
This interview quote highlights the potential for the producer company to organize a
network of individual farmers to react relatively flexibly to changes in market demand.
The producer-company concept allows farmers to obtain their independence and to
improve their position of power within the production system. Given the increasing
flexibility requirements, producer companies can successfully collaborate with larger
organizations of retailing and processing industries. In the medium to long term,
this form of producer organization might allow farmers to move into a more relational
form of value-chain relationship with corporate large-scale buyer organizations.
5 Conclusions
The start of the Indian IMF-inspired national policy framework of neoliberal orienta-
tion in 1991 also changed the potential ownership structure and access to community
resources. In general, this policy orientation represents an increasing threat of farmers
being expelled from their landöwhich is often their only economic resource and
security. The disempowerments of smallholder farmers and the takeover of primary
production by large private enterprises has occurred within the integration of Indian
agriculture into the global economy. Nevertheless, and paradoxically, the importance of
smallholder agriculture is emphasized not only in international strategy papers dealing
with rural development and poverty reduction, but also in the Indian government's
Eleventh Five Year Plan. Indeed, the Indian government mainly supports private enter-
prise activity in agriculture, but also tries to encourage groups of primary producers to
connect with corporate buyers. A strategic step in this direction has been the introduction
of the concept of `producer companies' which try to establish principles of profit-
oriented contemporary business organizations within farming communities, to connect
these with corporate buyers from the rapidly transforming Indian retail landscape.
The concept of producer companies can be analyzed within the general trend of
farmer organizations transforming into more market-oriented and business-oriented
forms of institutions. It represents a tool for smallholder farmers to get organized and
to reap benefitsönot only from joint action, but also from links to evolving high-value
markets in India's urban centers. The organizational structure of producer companies
borrows much from the cooperative idea, but they are professionally managed to
ensure economic viability and to prevent political leverage. The success of producer
companies, however, depends on more or less the same factors as for cooperatives,
because it depends on farmers' commitment to the company. The integrity and quality
of the leadership, its acceptance within the community, as well as the market environ-
ment are the most crucial factors for a successful producer company. It has to be
economically beneficial for the participating farmers to market their excess production
through the company. At the same time, the company has to provide appropriate
knowledge to generate excess production from within the community in order to
maintain linkages to the target markets. Nevertheless, concerns can be raised when it
comes to the role of NGOs in the support of producer companies. Setting up a
producer company is a lengthy and demanding undertaking, which cannot be done
on smallholders' individual initiatives alone. Nevertheless, there is a need to define
limits of support, especially when the aim of the new model is to establish competitive
and independent business units.
Furthermore, the fact that, to date, the concept of producer companies has captured
so little attention, even in India needs to be addressed. The Indian government does not
actively promote those companies, but leaves their setup to civil society organizations.
This suggests that there is little belief on the government's side in this concept as an
alternative to the privatization of agriculture as designed by the WTO. However, with
farming being a rather risky enterprise due to the natural processes underlying it, and
assuming that these risks will increase over time, producer companies might become
attractive trading partners for corporate buyers seeking to avoid the risks of production
themselves. Producer companies have the advantage of flexible production methods,
they integrate local knowledge, are locally embedded, they are more sustainable with
regard to the environment and to the livelihoods of the people involved, and, last but
not least, they leave the means of production and most of the decisions related to the
production process in the hands of the farmers. In this way, they empower smallholder
farmers while giving them the opportunity to deal with contemporary market actors and
to enter high-value markets within the Indian economy and abroad.
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ARANYAK MAHILA AGRI PRODUCERS COMPANY
Amrita Dhiman I E N Reddy I Sridhar Telidevera I K V Raju
Abstract
The districts of Khagaria, Madhepura and Purnea in the north east of Bihar are major producers of rabi
maize crop but they are at the mercy of market intermediaries like village traders and commission
agents when it comes to marketing their produce. Keen on taking the focus of Self Help Groups (SHGs)
beyond member savings and internal loaning with bank linkages, the Bihar Rural Livelihoods Promotion
Society (BRLPS)/JEEVIKA decided to form Producer Groups (PGs) in these districts. To demonstrate the
increased returns to farmers through produce aggregation and collective marketing, a pilot project was
started in Purnea district through the registered Producer Company “Aranyak Agri Producer Company
Limited” (AAPCL).
In documenting the business model, the study team has adopted a modified Customer Value Proposition
(CVP) Business Model that emphasises four elements, namely: a value proposition that fulfils an
important need for the customer in a better way than competitors’ offerings do; a profit formula that
lays out how the venture makes money while delivering the value proposition; the key resources; and
key processes needed to deliver that proposition. The study maps the maize value chain from the seed
production and supply agencies, suppliers of other key production inputs, producer farmers, local grain
traders and brokers, wholesalers, commodity exchanges, and to end-use buyers.
An important finding of the study was that the formation of the PGs and the AAPCL has impacted the
entire maize value chain by way of reduced cost of cultivation, dilution of lock-in of the farm output to
local trader who traditionally supplied farm inputs on credit; and a better price realisation which was
20% higher than what had been realised in previous years from sales to local traders and mandi sales.
The benefits to the members have led to an increase in the maize procurement by the AAPCL from
10,060 quintals in the first year of its operation (2014-15) to 30,348 quintals in the following year and
both the number of PGs and the scale of procurement by the AAPCL are expected to grow in the coming
years with improved livelihood support to the farmers participating in the project.
1.0 Introduction
1.1 Maize Intervention of Bihar Rural Livelihood Promotion Society (BRLPS)
BRLPS/JEEVIKA is an autonomous society functioning
under the Department of Rural Development,
Government of Bihar, with the mandate of
implementing the activities of State Rural Livelihoods
Mission. In order to improve the livelihoods of rural
poor, JEEVIKA has built a strong base of community
institutions in the form of women Self-Help Groups
(SHGs) and federated them into Village Organisations
(VOs) and Cluster Level Federations (CLFs), which has
brought more than one million households into this
network. While these grassroot-level institutions have
1
mainly focused on member savings and internal loaning along with bank linkages; in order to improve returns from
farm based/non-farm based economic activities, it is necessary to increase their productivity and create appropriate
market linkages. Towards realising this objective, the project therefore formed Producer Groups (PGs) comprising
of 40-120 producers related to paddy, wheat, maize, pulses, vegetables, etc. It was expected that members of
Producer Groups would be able to participate better in the value chain and reap benefits on account of lower input
costs due to economies of scale, strength of collective bargaining, and better returns due to produce aggregation
and gaining access to efficient and sustainable markets. Thus, with an aim to demonstrate the increased returns to
farmers through produce aggregation and collective marketing, a pilot project was started in Purnea district through
the already-registered Producer Company “Aranyak Agri Producer Company Limited” (AAPCL).
2. The Customer Value Proposition

The study team adopted the
Customer Value
Proposition (CVP) Business
Model articulated in
“Reinventing your Business
Model”, by Johnson, M. W.,
Christensen, C. M., &
Kagermann, H. Harvard
Business Review, 50–60
(2008) with a producer
centric perspective. The
underlying assumption is that
successful ventures already
operate according to a
business model that can be
broken down into four
elements: a customer value
proposition that fulfils an
important job for the
customer in a better way
than competitors’ offerings
do; a profit formula that lays
out how the venture makes
money delivering the value
proposition; and the key
resources needed to deliver
that proposition. Picture:
Pro-Producer Value
Proposition Business Model
2
2. Aranyak Agri Producer Company Limited
2.1 Genesis
Aranyak Agri Producer Company Limited (AAPCL) is a federation, promoted by the Bihar Rural livelihood Project (a
poverty alleviation project of Government of Bihar), of small & marginal women farmers organised into Producer
Groups (PGs) and individual farmers.
The company was incorporated in the month of Nov' 2009 with its registered office at Purnea. The Producer
Company has an authorised share capital of Rs. 5 Lakh and it was able to initially mobilise a paid up share capital of
Rs. 1 lakh by issuing 20 shares each (with a face value of Rs.10/-) to 500 families. The present membership of the
company is 2,465.
The vision of AAPCL is to improve rural livelihoods, especially of poor, small and marginal women farmers through
income enhancement by establishing their self-governed, sustainable & efficient backward & forward support
systems. To fulfil its vision, it has also spelled out a comprehensive mission statement, whereby it is working towards
“enhancing productivity & net returns of shareholders (small and marginal women farmers) by developing market-
led production system & enable farmers’ and their institution to flourish independently in the competitive
agribusiness environment.”
The foremost long-term business goal of AAPCL is to be a successful and viable farmers’ institution in order to:
 Fulfil the needs of small & marginal women farmers by timely supply of all major, quality agricultural inputs
like good seeds, fertilisers, pesticide, farm machineries, farm tools & others with competitive price to all
shareholders.
 Provide support to the members for better marketing of their produce, having shareholders of minimum
2500 farmers along with coverage of 40% of SHG members.
Thus, the objectives of the producer company may be spelled out as under:
1. Production, procurement, processing, packing, storage, marketing, selling, distribution and trading of all
Agriculture commodities.
2. Production, Procurement Processing, Storage and marketing of Vermi compost.
3. Supply of agriculture inputs like quality seeds, compost, chemical fertilisers, pesticides and farm machineries
& farm equipment to support the good agriculture production in time and with appropriate price.
4. Extension activities relevant for effective and efficient agribusiness management at farm level and providing
consultancy services to both shareholders and other interested farmers for profitable agri-business
ventures.
Thus, AAPCL was formed by JEEVIKA to improve the livelihoods of women farmers of Purnea district The Maize
producers groups were formed out from already members of SHGs promoted by JEEVIKA and thus were aware of
the benefits joining community-based institutions. In the initial years the PC played a very limited role like promotion
of usage and supply of Vermi compost and other agri-inputs and suffered losses and almost became dormant.
During the year 2014, a baseline survey was conducted by JEEVIKA and Technoserve, an international not-for-profit
organisation, among 20 PGs to understand the Maize cultivation and marketing practices, i.e. average area under
cultivation, source of inputs, cost of production, average production and productivity, marketable surplus,
marketing channels and price realisation, etc. The base line survey clearly established that the Maize producers have
no access to modern agricultural practices and they have been selling their produce mostly at the village level itself
to local traders. The producer members of PGs and Aranyak PC had no access to modern, fair marketing channels.
JEEVIKA in partnership with Technoserve, decided to undertake a pilot in Dhamdaha block of Purnea to demonstrate
the possibility of increased returns through Maize aggregation and collective marketing through the farmer
producer organisations (PGs and PC).
3
In order to ensure better prices to maize producers the pilot aimed at:
 Establishing a transparent, scientific price discovery mechanism on a daily basis by factoring the prices of
local/village trader and prices prevailing in Gulab Bagh mandi and NCDEX.
 Adopting modern, fair electronic weighing systems as against the manual weighing practices adopted by the
village trader.
 Adoption of fair grading practices for determining the grade of Maize (A,B or C) by using digital moisture
meter and scientific grading chart, as against the manual grading process followed by the local trader which
is highly subjective
 Implementing timely, transparent payment system by crediting the amounts in farmer member’s bank
account directly within a maximum period of 5 days.
 Eliminating multiple market intermediaries like village level trader, commission agent and large trader at
Gulab Bagh mandi among others, before the produce is sold to institutional buyers.
Based on the baseline survey, ten most potential PGs have been selected by the Producer Company for the Maize
aggregation and market linkage operations during 2014-15. The coverage of PGs has been increased to 27 in the
next year (2015-16).
2.2 Price Realisation

Though the maize yield of Purnea at 35-40 quintals per acre is high, the producer group members expressed that
break even for a farmer happens only if the maize production is greater than 30 quintals. The harvest prices realised
by the farmers in the state as well as the district are lower than the minimum support price (MSP) of Rs.1325 per
quintal, despite the fact that Rabi maize produced in the area has fetched a very good price in the Asian markets.
Main reasons for lower price are:
 Absence of an effective agricultural produce marketing mechanism,
 Lack of proper drying facilities, high costs of tarpaulins and
insufficient storage space
 Credit linked sale - farmers borrow necessary working capital from
local traders and thus forced to sell their produce to the local trader
 High logistics cost of transporting maize to local mandi
2.3 Buying Practices of Local Traders

The local traders may, at times, purchase the produce at a higher price than the existing market price but incorrect
weighing and grading practices adopted by them fetch a lower price. The members felt that the loss on account of
unfair practices is as high as 5 kg per quintal. The percentage of members who borrow from the local traders is
around 75% of the total producer group members.
2.4 Availability of Labour

The availability of agricultural labour in the region is not a problem as the household members who migrate on
seasonal basis return home at the time of sowing and harvest of the crop. The agriculture labour is paid in either in
kind or cash. The labour costs for male and female are Rs 200 and Rs 100 per day with lunch being an added benefit.
However, the PC is experiencing difficulty in finding labour for collecting the produce and to transport the produce.
Due to uncertainty in the collection quantities on any given day, some days the procurement team and labour either
remain idle or have too much on demand to do. Labour and transport vehicles are engaged on throughout the
season contract on substantial fixed plus little variable payments basis.
4
Picture: Grain moisture measured by moisture meter and manually by traders
Source: Field survey in Bihar grain market, 2016
2.5 Members Expectations

The members expressed the need for development of complete
package of services including supply of inputs like seed, fertiliser,
pesticides and working capital for crop production. They were in
complete agreement that collectivisation has given them an
advantage in the market and the necessary backward linkages can
decrease the input costs into production and free them from ‘credit
linked-sales’ to the local traders on whom many of them are
dependent for inputs including seeds and fertilisers on credit. They
desire that PC obtain dealership license for fertiliser and pesticides
supply so that the same can be made available at lower prices to members. Similarly, they discussed the advantages
of having own seed production plan and processing unit or a tie-up with key seed manufacturing companies.
The members as well as the directors of the company stressed on the importance of mobilising savings to meet
capital requirements for setting up feed industry as part of developing forward linkages as it adds more value to the
production process. The directors of the company and some of the members of the producer group have visited
model collectives in places like Mulukanoor in Telangana state to study, understand and strive for implementing
integrated value chain in their company. Further to the visits the promoting institutions have developed training
material and provided the members with appropriate training in good practices for maize cultivation.
2.6 Operations of PC
The overall quantity available for procurement from producer groups is approximately estimated to be 30,000
tonnes and in the year 2016-17. PC has procured 3100 MT up to June 18, 2016. The reasons for lower procurement
quantity are lock-in with traders who supplied inputs on credit, PC’s access to limited working capital, and members’
strategy to sell to the PC when the prices are higher. The members of Producer Groups have gained sufficient market
insights as to when to sell their produce so that it fetches a higher price. The spot prices are announced every day
and the members decide whether to sell the produce or not on that day.
2.7 Member Participation in Producer Company’s Commercial Operations

The Aranyak Agri Producer Company started its Maize procurement activities during FY 2014-15 with 10 Producer
Groups (PGs) spread over two clusters viz., Amari and Meerganj. During the year, a total quantity of 10060 quintals
was procured from 243 members spread over 10 PGs. Thus in the initial year 9.78% of total membership of 2485
participated in the commercial operations.
5
On an average each member contributed to 41.40 qtls. of Maize at an average realisation of Rs.1008/- per quintal.
Additionally members were paid a patronage bonus of Rs.50/- per qtl. The supply of Maize from different PGs ranged
from 372 qtls (Dhanteras PG) to 1709 qtls. (Khushiali PG).
During the second year, Maize aggregation from PGs registered a substantial increase of around 202%, from 10,060
qtls to 30,348 qtls. Simultaneously, the farmer member participation in the procurement also showed a significant
jump with a total of 817 members from 27 PGs (32.88 % of total membership) contributing to the procurement, at
an average of 42 qtls. Members realised an average price of Rs.1,149/- per qtl. As the PC is yet to make patronage
bonus payment ,assuming that same level of Bonus payment would be made during second year, the average
realisation works out to y Rs.1200/- per quintal (approx.), an increase of over 13% .
It is significant to note that there has been no increase in per member contribution (around 42 qtls.) indicating that
higher procurement could be made due to an increase in number of PGs. The PC needs to take up intensive member
awareness programme to encourage members to trade a maximum share of their produce through PC.
An analysis of performance of different PGs which participated in Maize aggregation during both 2014-15 and 2015-
16 reveals that a majority (7 out of 10) of the PGs have either maintained or improved their contribution, implying
members confidence in the collective enterprise.However,incase case of Khushiali PG and Dhanteras PG there has
been a sharp decline in procurement. While Khushiali PG, which made handsome procurement of 1,710 quintals in
2014-15 made a poor procurement of only 907 quintals in the following year, in case of Dhanteras PG the
performance has been even more disappointing with a procurement of only 118 qtls in the second year as compared
to 372 qtls made during the first year. In case of Dhansahyog PG, there has been a marginal decline in procurement;
against a first year procurement of 1,287 qtls the PG procured 1,214 qtls in the next year. The Producer Company
needs to look in to the reasons for this reduction in procurement and take necessary remedial measures to build
members confidence in the system. The Producer Group wise procurement details are given at Annexure.
3.0 Profit Formula

3.1 Revenue Model
The Revenue model adopted by the Producer Company envisaged realisation of best possible price by selling the
same to national level institutional traders rather than local traders. For this purpose, the PC has partnered with
NCDEX e-Markets Limited (NeML) and also hired a NeML/NCDEX accredited warehouse for storing the material to
enable off season sale for better price realisation.
In the initial year of operations a total of 1006 MT could be procured from 279 farmer members spread over 10 PGs.
The PC sold 290 MT through the electronic platform of NCDEX (spot basis), at an average sale realisation of Rs.
1132/-per quintal while 490 MT was sold through NCDEX Forward sale, at an average realisation of Rs.1440/-per
quintal. The PC also sold around 118 MT of A grade material in the open market with a price realisation of Rs.1152/-
per quintal. The balance quantity being B and C grade quality was also sold in the local Gulab Bagh mandi at an
average realisation of Rs.1044/quintal. Thus it may be seen that sale through Forward trading has fetched a 20%
higher price realisation in comparison to spot sales and local mandi sales. Going forward the PC should put suitable
infrastructure like accredited warehouses and grading & material handling systems and risk mitigation measures in
place to participate in spot and futures trading through electronic trading.
3.2 Cost Structure

Considering the fact that agri commodity markets operate on very thin margins the PC aims at reducing the cost by
achieving higher volumes in the future years. At present the PC is not having significant manpower costs and other
overheads as the CEO and other key managerial and field level staff are on deputation from JEEVIKA. However, once
the operations stabilise the PC has to plan to recruit these personnel and other staff.
6
3.3 Working Capital Arrangements for Business
Each Producer Group has been given a onetime support of Rs.6.10 lakhs by JEEVIKA, Rs.1.10 lakhs towards
establishment cost for purchase of electronic weighing equipment, tarpaulin, moisture meter, registers etc., and
balance Rs.5.00 lakhs as revolving fund for business. For the first year of operations 10 PGs have deployed an
amount of Rs.50 lakhs towards working capital; further, an amount of Rs.10 lakhs was provided as loan by Cluster
Level Federation (CLF) @0.6% interest per month i.e 7.2% per annum. For the current year the PC has been
successful in sourcing an amount of Rs. 100 lakhs from State Bank of India, Rs.50 lakhs from Friends of Women
World Banking (FWWB), Ahmedabad, besides using internal resources of Rs.2 crores from PGs and CLF.
3.4 Price Realisation by Producer Members

During the first year of operations the members realised an average price of Rs.1008/- per quintal besides an assured
Patronage Bonus of Rs. 50/- per quintal. This is an increase of 10.55 % as compared to the sale realisation of Rs.
957/-per quintal, when produce was sold to local trader.
4.0 Key Resources

4.1 People
The company has a 5 member Board which is responsible for the overall decision making and governance. The Board
appoints a Chief Executive Officer, an officer on deputation from JEEVIKA, for managing the affairs of company. The
CEO is assisted by an Accountant and other Field staff involved in supporting the PGs in the areas of commercial
operations and agriculture extension activities. The COO post has not been filled up yet. At present the Producer
Company has very limited staff on its rolls. However, JEEVIKA, the promoting agency has provided senior and middle
level managers on deputation basis.
4.2 Technology, Equipment

At each of the maize collection centres, the PC has provided electronic weighing equipment for proper weighing,
digital moisture meters for moisture testing, tarpaulin, set of basic registers, etc. Furthermore, the Village Resource
Person (VRP), Extension workers and Women producers have been trained in moisture testing, grading and
weighment methods, which has instilled confidence among the members in the new system owing to its
transparency. The members can now understand the exploitative practices of local traders. Moreover, every
morning the Price Discovery Team- i.e. team of officials of PC, JEEVIKA and Technoserve- collect prices offered by
the local trade, Prices of Gulab Bagh Mandi; and after factoring in the expenses involved in weighment, loading and
unloading and final deliver at the warehouse, warehouse rentals, gunny bag expenses, etc. arrive at a procurement
price, which is communicated immediately to all VRPs and women producers through SMSes.
4.3 Alliances, Partnerships

The JEEVIKA forged an important alliance with Technoserve in its effort to take up the maize aggregation and
collective marketing at Purnea. Bill and Melinda Gates Foundation has funded a project to provide technical
assistance for developing and supporting Producer Organizations, through which Technoserve is able to support
the pilot project at Purnea.
Another important partnership of JEEVIKA/PC is with NCDEX e Markets (NeML) and NCDEX. The reason Aranyak Agri
Producer Company has taken membership of these national level commodity trading organisations so that the
producers will have access to the best possible, transparent marketing channels and vast network of buyers trading
on these electronic platforms. The membership enables the Producer Company to trade Maize in both spot markets
7
as well as Futures markets. The company also entered into an agreement with StarAgri Warehousing and Collateral
Management Limited which is an established name in warehouse management. The NeML accredited warehouse
hired by the company at Gulab Bagh Mandi is managed by M/s Star Agri. As per the arrangement M/S Star Agri is
responsible for safe keeping of material stored, undertaking periodical fumigation and other quality assurance
measures and receipt and delivery of material stocked.
4.4 Brand
The Producer Company is yet to take up serious brand building exercise as currently it is focusing on bulk trading
through electronic platforms of NeML and NCDEX. However, it is heartening to note that even on electronic trade
channels the “JEEVIKA Maize” sold by Aranyak Agri Producer Company generates more interest and possibly higher
price due to its better quality.
4.5 Information
The company, through a daily price discovery mechanism ensured that the members receive market prices on a
daily basis, through Short Messaging Service (SMS).This had a very positive effect as the members felt confident
about the transparent and scientific process. An unintended positive effect of this has been that the private trader
also many a time is compelled to raise the price and offer even slightly better price.
4.6 Key Processes

The entire business model and process flow has been systematically mapped and documented to avoid
communication gaps amongst the stakeholders. Realising the need for accurate information flow across the
organisation and also among the stake holders, ICT has been given great thrust. The factors considered for daily
price discovery are communicated through SMS on mobile, covering the grading norms, charges applicable for
various services like weighment, loading/unloading transportation.
5.0 LESSONS
 Maize trading is influenced by domestic/international supply and demand conditions. Maize, besides being an
important food crop, has several industrial/pharmaceutical applications. In view of this high price volatility is
observed in the bulk prices. In the Indian context, as most of the Maize is grown in Kharif season, there is also a
production risk leading to price volatility. Since the markets are getting increasingly integrated, through national
electronic trading platforms, it is safe to assume that going forward there will be a business risk for Maize as a
commodity trading.
 In order to manage the trading risk in futures markets the company must go for hedging. Further, to mitigate
high level of commodity trading risk, the Producer Company should explore the opportunities to enter value
added products like poultry feed manufacturing, for which captive market from JEEVIKA promoted poultry
ventures would be available.
 The company should also enter in a long-term arrangement with well designed, modern warehouses accredited
by NCDEX so that there is no uncertainty for storage for undertaking futures trading.
 The day-to-day and month-to-month maize price fluctuations are reasonably high and so the bonus payment
system should account for both quantity sold by and prices paid to members.
 It was suggested to the Board members that the PC could consider batch wise weighted average procurement
price as basis for deciding on the patronage bonus in order to even out the price fluctuations. The producer
members and Board members realised the importance of such a practice as it encourages farmers to sell their
8
produce to the company in a predictable manner. The farmers could set a particular calendar date for the
material pickup without any concern for price fluctuations and doing so would also optimise their procurement
costs related to logistics. This would enable the company to optimally utilise their collection vehicles by
designing the collection routes and scheduling the pickup times for material pick up as against traveling in
random directions not knowing early which farmer would be interested in selling on a particular day. The latter
practice lead to delay in pickups and farmers selling their produce to local traders.
 For implementing an effective input supply system it is suggested that at the beginning of the sowing season,
the quantity requirements of key inputs for different members may be taken with some advance payment (say
25% of cost) so that the farmers are committed to purchasing quantities that they have indented. This would
also partially meet the working capital requirement.
 Another important backward linkage to enhance quality of maize is to adopt maize drying technology that uses
skinned maize cobs as fuel. It is capital intensive and members felt that they can adopt this technology after
mobilising more savings. However, the optimal size of the dryer and its location are important parameters that
need to be considered at the time of design.
9
SUPPLEMENTING LIVELIHOOD WITH BACKYARD POULTRY
Surya Bhushan I K V Raju
Abstract
The intervention by JEEViKA – the Bihar Rural Livelihoods Promotion Society (BRLPS) to promote a low
inputs-low output based backyard poultry rearing pilot project provides a compelling case of livelihood
support and nutritional security for the poorest of the poor (PoP). The dual purpose pilot project
implemented across seven districts of Bihar was studied sampling the Nalanda district. The key success
factors for a poultry farm include – Feed conversion ratio (FCR), i.e., amount of feed consumed to gain
per unit weight (a healthy 60 per cent here), time taken to attain desired weight, rate of laying eggs
(varies from 150 to 210), mortality rate (varies from 2-4 per cent at mother units to maximum 20 per
cent at individual rearers) and disease resistance (the bio-security is the major concern BRLPS takes into
account).
Keeping these factors in view, the project identifies, engages, trains and integrates various actors
involved in the entire value chain from farm to fork of the backyard poultry system from the initial input
supply stage, through the various phases of production, to its final market destination,. The three key
activities are: 1. Production Line, the initial input supply, which consists of Mother Units (Day old Chicks
(DoCs) rearers and 28 old day chick suppliers) and individual rearers; 2. Supply Line, which comprises of
DOCs, Feed, Vaccine/Medicine; and 3. Provision of services, which comprises group formation to provide
social capital, credit, training and extension. Beneficiary households have increased their consumption
of eggs, with positive returns in terms of household nutrition and health.
The experience shows how simple, cost-effective interventions, with adequate extension and support
systems can contribute to the improvement of poultry and the farm-management capabilities of the
PoP in Bihar, thereby contributing to poverty reduction. This project has the potential for replication
and economic scalability and it has promoted rural household poultry successfully in one of the poorest
state in the country. The project has now expanded to 24 districts covering almost 60,000 beneficiaries
of the state. Its strength lies in building on and mainstreaming the backyard poultry rearing into the
existing farming systems. The major constraints reported by the household rearers were: increasing
feed costs, extreme climate conditions like hot and cold temperature, high price volatility affecting the
cash flows, high vulnerability to disease outbreaks and shortage of feed.
1.0 Introduction
Poultry provides twin purpose of income generation and has the potential to correct household level nutritional
imbalances, especially among low protein intake poor ones (Dolberg 1 , 2004). JEEViKA - State Rural Livelihoods
Mission (SRLM) sponsored Bihar Rural Livelihoods Promotion Society (BRLPS) - with the objective of enhancing the
social and economic empowerment of the poorest of the poor (PoP), especially through formation of community
1
Dolberg, Frands. 2004. “Review of Household Poultry Production as a Tool in Poverty Reduction with Focus on
Bangladesh and India”, in Anuja, Vinod (editor), Livestock and Livelihoods: Challenges and Opportunities for Asia in
the Emerging Market Environment, National Dairy Development Board, India and Pro-Poor Livestock Policy Facility
(South Asia Hub) of FAO.
institution of microfinance among women, provides a
compelling case to understand the impact of livelihood
intervention of backyard poultry farming.
JEEViKA adopted a strategy to promote backyard poultry
through a model of mother unit which function as a hub for
the backward and forward linkages serving individual
household level units. BRLPS had undertaken convergence
with the Department of Animal and Fishery Resource,
Government of Bihar, under the Integrated Poultry
Development Scheme (IPDS) with the objective of leveraging
benefits pertaining to initial investments made by the
participating households. Based on FAO's (2014) criteria, such
as size of flock, management, and purpose of production
including degree of commercialisation and location, JEEViKA
intervention can be categorised as semi-intensive poultry
production system.
The poultry intervention by BRLPS, started in 2013-14, has
expanded exponentially in a short span of time, in terms of coverage. In the first year, 2013-14, for Patna and
Bhagalpur districts, DOCs were lifted from Central and Regional Poultry Farm under the IPDS. However, the
increasing demand resulted into the setting up mother units in these districts as well. The massive expansion
resulted into an almost nine fold increase in the beneficiaries as well as Mother Units in the state.
2.0 Poultry Intervention Model

A Poultry Business Group (PBG),
comprising 300 members, and
represented by IRs of women SHG.
This is an informal group at Nodal
VO/CLF level and management of
this group i.e. done by Board of
Directors (BOD) of CLF /Nodal VO, a
secondary level co-operative at
cluster. CLF BOD, represented by-
President and Secretary- from VO,
also manages supply chain and
marketing in poultry business.
Figure 1 essentially captures the
basic elements and the rationale of
the poultry intervention done by
JEEViKA. Fig. 1 - The Value Chain of
JEEViKA Poultry Intervention
The three major components of the Backyard poultry Model are explained below:
2.1 Production Line
 Mother Units- These units, owned and operated by an experienced individual entrepreneur, are main
functional unit for "Backyard Poultry Farming" and involved in rearing of day-old chicks (DoCs) up to four
weeks of age, completing the necessary vaccination schedule and balanced feeding and then selling them to
individual households would be making available/providing them to PBG group members. JEEViKA in
collaboration with Department of Animal Husbandry and Fisheries, Government of Bihar monitors and
evaluates DoCs from procurement from Government of India approved private hatcheries. The DOCs are
reared for 28 days in Mother Units in intensive production system due to bio-security risks.
 Individual Rearers– They are key
rearers who are smallholders and rear
150 birds after 28 days rearing at
Mother Units, including male and
female, each over 18 months. The
birds are provided with shelter made
from locally available material. The
female birds are kept by key rearers to
produce eggs that find their way to the
market directly. These are also
available for household consumption.
The male birds are used for meat
purpose and sold after attaining a
weight of 2 to 2.5 kg within the 2
months of procurement from mother
units; while female egg laying birds are
slaughtered and sold for meat purpose
after laying 180 eggs. The next step for some key-rearers is to increase their flock size to 35-100 hens primarily
for egg production. These flocks are then reared in semi-intensive conditions and provided with domestically
available feed (including leftovers of homemade foods), basic vaccines and medication. The birds get
supplement feed from the scavenging in the backyard, especially the vegetables leaves, which improves their
immunity and reduces their vulnerability as well.
2.2 Supply Line

 Day-old-chicks (DOCs) – The day old chicks are sourced from Private Hatcheries, identified by the Government
of India. They transports the DoCs to its regional offices in the state and sells them to mother units at market
price.
 Feed – The feed is supplied by a number of big private and small feed-sellers.
 Vaccine/Medicine – At every District level office in the state, Poultry Workers are trained to vaccinate the
birds.
 Marketing – The huge gap in the demand and supply with former outstripping the latter, the model does not
emphasise too much on marketing.
2.3 Provision of Services
 Group Formation – JEEViKA organises landless women into groups of Self Help Groups (SHGs), which are in
turn federated into Village Organisations (VOs) and then Cluster Level Federations (CLFs).The groups hold
weekly meetings to discuss progress and emerging issues.
 Training – All participants receive relevant training on poultry keeping.
 Credit – JEEViKA and Department of Animal Husbandry and Fisheries provides credit supports at various level,
from Mother Units to SHG supported Poultry producer Households (Please see tables 2-3 for the details).
 Extension – Extension services are provided by PRPs, who are trained by the JEEViKA. Moreover, since women
poultry farmers are members of village organisation (VO), they are able to raise their concerns in the monthly
meetings of the VO.
Poultry’s feed conversion ratio (FCR) represents a major contribution to the profitability of the industry in terms of
reduced feed inputs as well as in waste output. For 28 days at mother units, the chicks gain a weight of 450 gram
with input of around 750 grams of combination of maize and soymeal, making a FCR, i.e., amount of feed consumed
to gain per unit weight, close to 60% with an assumption of mortality rate of 5%. Feed costs form more than 60% of
costs for a poultry farm with maize and soybean meal being the key feed ingredient. Maize is the primary source of
energy for the Indian poultry industry and constitutes 60% of compound feed, while soybean is the main source of
protein and forms 30-35% of the feed.
3.0 Key Learnings and Way Forward

The development narrative of breaking the vicious cycle of poverty for the poor has been changed in the recent
times. In this context, market oriented backyard poultry is increasingly recognised as a stepping stone for the poor
to move out of poverty in developing countries, particularly among small farm holders. JEEViKA showcases how
livelihood intervention can create a viable business model by anticipating on the traditional know-how of women
rearing backyard poultry. Another key feature of this practice is in widening the common understanding of poverty
with the availability of an invaluable nutritional source which built household capabilities. Finally, rearers valued
this business because of low rearing costs and the fact that the enterprise fit well within their limited resource base,
social hierarchies, anxieties and gender-based household dynamics.
4.0 Scaling up: Generating a Virtuous Cycle

To generate a virtuous cycle of the intervention, which was socially inclusive, we need to transform this into forward-
looking and market-oriented to scaled-up. The business model presented here shows that point interventions are
clearly crucial, but the impact of each is limited by the weakest link in the value chain. This may constrain capacity
of mother units and the SHG supported household producers. The challenge ahead demands approaches that will
fundamentally shift the way the system operates.

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AGRI BUSINESS ENTERPRISE DYNAMICS

MODULE II: CASES

Prof KV Raju & Prof EN Reddy

Inclusive Development and Agrin Value Chains

Linking Farmers to Markets - MANAGE

CASE 01. Amul-Cooperative – Design and Operational Efficiency

CASE 02. AGROCEL

CASE 03. Farmers Producer Companies - VAPCOL

CASE 04. Aranyak Mahila Agri Producers Company

CASE 05. Livelihoods and Backyard Poultry

Amity Journal of Agribusiness

Inclusive Development in Agri-Commodity Value Chain: Role

Keywords: Agribusiness, Value Chain, Institution, Inclusive growth, India

ADMAA 34 Amity Journal of Agribusiness

Figure 1. A generic value chain (Source: UNIDO, 2009)

Transformation in Agribusiness Environment

Amity Journal of Agribusiness 35

Production Processing Marketing Financial Policy Constraints

ADMAA 36 Amity Journal of Agribusiness

Institutions, Innovations and Models: A Literature Survey

Innovative Institutional models for Agri commodities Value Chain: Features

Amity Journal of Agribusiness 37

Research Objectives and Methodology

ADMAA 38 Amity Journal of Agribusiness

Table 1: Broad Comparison of Different Models on Performance Parameters

Amity Journal of Agribusiness 39

Desai Locals Producing Reasonable Good Good Strong Reasonable

ADMAA 40 Amity Journal of Agribusiness

Conclusions and Suggestions

Amity Journal of Agribusiness 41

Limitations & Scope of Further Research

Commons, J. R. (1924). Legal foundations of capitalism. New York: Macmillan.

ADMAA 42 Amity Journal of Agribusiness

Commons, J. R. (1934a). Institutional economics. New York: Macmillan.

Elly, R. T. (1914). Property and contract. New York: Macmillan.

FAOSTAT (2013). Retrieved August 19, 2013, from www.faostat.fao.org: http://faostat.fao.org/site/612/default.

India, Ministry of Agriculture, Agriculture statistics at a glance. New Delhi, Government of India,

India, Directorate of Economics and Statistics (2011, 2012). Ministry of Agriculture, Government of India,

India, Ministry of Agriculture. (2013). Annual Report 2012-13. New Delhi: Department of Agriculture and

Amity Journal of Agribusiness 43

ADMAA 44 Amity Journal of Agribusiness

LINKING FARMERS TO MARKETS

National Institute of Agricultural Extension Management

S.No. Particulars Page No.

1.1. Challenges and Issues

The role of small farms in development and poverty reduction is well

Low marketable surplus: Most of the farmers are producing multiple

Long marketing channels: The long marketing channels with multiple

Poor marketing infrastructure: There is conspicuous paucity of

Non-transparent price discovery mechanism: The traditional price

Lack of market information system: Farmers have got to be

Enabling free play of market forces: The system may be improved by

1.2. Opportunities for Small Holders in Different Systems

Several innovative marketing models have evolved across the country in

1.3. Alternative Approaches for the linkage

Institutional, informational and developmental were the three approaches

Approaches to Linking Farmers and Markets

In order to give the farmers better access to market, a number of reform

(2) in 2002, lifting the licensing requirements, stocking limits, and