Draft Report

Feasibility study on Fresh Produce supply chain

KIIT School of Rural Management P Krishna Bharath Varma

TABLE OF CONTENTS
Contents
1. 2. 3. 4. INTRODUCTION: .................................................................................................................................... 3 OBJECTIVE OF STUDY: ........................................................................................................................... 4 METHODLOGY: ...................................................................................................................................... 4 Findings ................................................................................................................................................. 5 4.1. 4.2. Village Details ................................................................................................................................ 5 Existing Marketing Structure: ....................................................................................................... 6

4.3. Crop Cycle and Productivity of Vegetables ........................................................................................ 8 4.4. 5. 6. Availability of Vegetables in Rangareddy District throughout the year ..................................... 10

Proposed Marketing Model ................................................................................................................. 12 Cost Analysis ....................................................................................................................................... 15 Non Recurring Cost ................................................................................................................................. 15 Recurring cost (per month) for shop ...................................................................................................... 15 Recurring cost per month for supply chain............................................................................................. 16

7.

Risk factors & mitigation ..................................................................................................................... 17 Marketing/Price Risks ...................................................................................................................... 17

8.

Conclusion ........................................................................................................................................... 18

1. INTRODUCTION:
India is fortunate to be endowed with a variety of agro-climatic zones and has a tradition of growing a wide range of horticultural crops. Among the horticulture produce, vegetables have the largest share of production (60.8 %). Vegetables not only contribute to the food basket of the country but are also a highly remunerative crop, providing quick returns to the farmer per unit of area. Production and productivity of crops and profitability of farmers can be enhanced by encouraging 'off-season' production under protected cultivation in green houses, shade net houses etc for generating income round the year. Moreover, vegetables form the most important component of a balanced diet. There has been great concern in the recent years regarding the efficiency of marketing of vegetables in India. It is believed that poor linkages in the marketing channels and involvement of more intermediaries are leading to high and fluctuating consumer prices, and only a small proportion of consumer price reaches the farmer. There is also substantial wastage of agricultural produce, lack of quality-standards and frequent mismatch between demand and supply spatially and over time. With growing demand and the accompanying supply response, fruits and vegetables have assumed great importance, and India now ranks second in the world in the production of vegetables. Horticultural crops are mostly labor intensive in India and provide substantial employment - not only in production but also transportation, processing and marketing. The marketing of horticultural crops is also quite complex and risky due to their perishable nature, seasonal production and bulkiness In the light of these issues the paper examines the feasibility of fresh produce supply chain. The paper particularly focuses on a model which would mainly involve linking of small and marginal farmers directly to markets at the consumer end. It also aims at understanding present marketing structure of vegetables and involving SHG women in the proposed marketing model. The paper examines various aspects of market including its functions, marketing practices, as well as the value chain from the farmer to agent to retailer to consumer.

2. OBJECTIVE OF STUDY:
The objective of the study is 1. To analyses the current production system of vegetables in the villages. 2. To analyze the SHG capabilities to be linked with model. 3. To understand the present existing markets structure of vegetable and their function. 4. To analyze the infrastructure requirement and cost efficiency of the proposed model.

3. METHODLOGY:
Sample design: The sample design is based upon the representative of the whole population by taking 10% of the total SHG women farmers who have land area of minimum .5 acre of land. Primary Data Collection: 1. Focus Group Discussion: 2. Structures questionnaire 3. Direct observation Secondary data collection: 1. Internet 2. SERP Resource persons. 3. Agriculture Department Direct Field Observation

4. Findings
4.1. Village Details
Peddashapur is one of the Villages in Shamshabad Mandal in Rangareddy District in Andhra Pradesh, India. Peddashapur is located 6.4 km distance from its Mandal Main Town Shamshabad. Peddashapur is 25.5 km far from its District Main City Rangareddy. It is 22 km far from its State Main City Hyderabad. This is one of the villages where SERP has taken CMSA intervention. There are 68 SHGs in these villages out of which 40 SHG groups adopted NPM practice. There are more than 12 varieties of vegetables grow in this area. On an average, daily vegetables production in these villages is more than 3 tons. Agriculture sector Village Total Agri land (acres) Land under NPM (acres) 950 Vegetable Vegetable Cultivation (acres) Cultivation- NPM (acres) Kharif Rabi Summer Kharif Rabi Summer 80 40 50 30 18 30

Pedhashapur 1500 village and its adjacent villages

Agro climatic /ecological zone Agro ecological sub region south Telangana plateau and eastern ghat, Hot dry semi arid. Agro climatic Region Agro climatic zone Southern Plateau and hill region. Southern Telangana Zone.

Though there are many SHG farmers registered under CMSA but not all farmers follow Non pesticide management in these villages. Yet there are some farmers who managed to reduce the use of pesticides. Famers in these villages mainly prefer to grow paddy in kharif season and vegetables in Rabi and summer season. Even though they produce vegetables, the land allocated particularly for vegetables throughout the year is less because of high fluctuations in rates of vegetable and better profit realization in Paddy than vegetables. All the farmers who grow vegetables go to Shamshabad market (mandi). But it has been observed that only women go to market for selling their produce and as it is a strenuous job of

sitting all day for selling their produce and (they leave at morning 6am to farm for harvesting produce and again at 10a.m they go to market for selling their produce and return home by evening) most of them prefer selling it to the middlemen. Daily a minimum of 3 tons is going in to market from these villages. Despite of these efforts, by the end of the day when some of their produce is not sold they dump it on the road as they cannot afford taking it back. The other market where the farmers prefer to sell their produce if they have less produce is the Shamshabad vegetable market; they also sometimes buy vegetables for the household needs from here. Farmers have to pay a commission of Rs.10 per bag of produce for selling in the vegetable market.

4.2.

Existing Marketing Structure:

Traditional Vegetable market model followed in Pedhashapur village and its habitat villages is very complex. It is predominantly followed in traditional retail marketing. The above figure shows the logistical route of vegetable market and the players involved in the market. Players involved in this model are commission agents, cart vendors, retailers, local vendors and consumers. In fact there are at least 5 intermediaries in traditional supply chain who do not add any value to the produce but they earn more profit margins than the farmers. Agents and retailers are main traders for the vegetables produced by farmers in Pedhashapur village. Traders charge 7 to 10 percent commission for every sale. The commission rate depends upon the relationship between farmer and the commission agent. If the farmer is a regular supplier then the commission agent would charge less commission as compared to the amount charged from other farmers. The farmers of these villages grow vegetables in a small land. Mostly these farmers

prefer to sell their produce to agents to save time, so that they can come back and work in their fields. Mandi agents generally dont reject the produce even if its quality is lower than specified. Most of the agents in Shamshabad market deal with specific vegetables, depending upon the demand or orders they receive from retailers or hoteliers. Normally, agents dont get involved in transportation either inward or outward transportation. Farmers have to bear the transportation expenses for supplying their produce to local mandis or local market. Most of the farmers supply their produce through mini truck by spending 50rs per bag while some farmers would carry their produce travelling in bus which costs around 30 per bag and 30rs per person. Vegetable logistics in the existing model has 3 phases - producer to agents, agents to local vendors or retailers or cart vendors and then to customers. In the first phase, farmers would supply their produce to agents at their own expense. In the second phase retailers, hoteliers, local vendors and cart vendors buy vegetables for which they bear transportation cost themselves. In the final phase customer is the player. Domestic customer shop and retail stores are nearly located near the consumers residence. Vegetables are delivered at the door steps by the cart vendors. Grading is done at the farm level by farmers before supplying it to the agents. Then retailers purchase it from agents and pack it thereby adding value to the produce. In this traditional model of marketing, cost adds largely due to transportation cost. In every phase each intermediary adds their profit percentage depending upon expenses incurred by them.

4.3. Crop Cycle and Productivity of Vegetables

Vegetable Name Duration of crop Start of harvest Duration Season for of Harvest sowing Production Average per acre production /per day 3 3.5 tonne Cold storage Duration

French Beans 70 days

40 days 30 days onwards from germination 50 to 80 Days after plantation 30 -35 days

July , January

7-9 quintal 3-6 weeks per picking

Cabbage

120 days

July, august, October.

50

16 quintal per day quintal per during acre Harvest Duration 75 quintal per acre

3 Months

Bitter gourd

150 -180 days

After 100 days

50 -80 days

February and July

1.5 quintal 4 weeks per alternate day picking 3-4 quintals 4-6 weeks per picking

Carrot

120 days

After 50 days

30-35 days

August to Nov Nov-Dec/ Dec-Jan/ Jun-July Jun-Jul/ Oct-Nov/ Jan-Feb Jan-Feb/ May-Jun/ Oct-Dec Jun-Jul, Aug Jan-Feb/ Jun-Jul/ Oct-Nov

60 quintal per acre

Bottle gourd

100 days

After 60 65 30 days days

6 tonnes per 3 quintal per 3 weeks acre pick

Brinjal

180 days

After 60 days

90 days

20 tonne per acre

Weekly one 7 to 10 days pick

Okra

90 days

After 60 days

30 days

40 quintal per acre

Alternate day pick

7-10 days

Cluster bean

100 days

After 65 days After 60 days

30 days

20 quintal per acre 160 190 quintal

Alternate picking

5-6 days

Tomato

90 days

30 days

Alternate 4-7 days day picking

Mirchi

150 -180

After 140

60 days

April -may 5 to 6 tonne Weekly once

2 weeks

days Onion 160-180 days

days After 150 days One day Mar-Apr/ May-June/ Sep-Oct Mar-Apr/ May-June/ Sep-Oct 3.8 tonne

picking Once -nil-

Garlic

150 -180 days

After 150 days

Once

2 tonne

One day

6 months

Ginger

240 days

After 230 days After 45 days

Once

3.5 tonne

One day

-nil-

Ridge gourd

60 days

Weekly twice or thrice

Feb-Mar/ Jun-Jul/ Oct-Nov

4 tonnes per Weekly acre three picks

2 weeks

Colocasia

7 -8 months

After 7months

Once pick Feb

6.7tonne per acre

Once

No need

4.4.

Availability of Vegetables in Rangareddy District throughout the year

UOM Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec

DESCRIPTION VEGETABLES TOMATO LOCAL TOMATO HYBRID POTATO BOTTLE GOURD RIDGE GOURD BITTER GOURD SNAKE GOURD OKRA (BHENDI) CABBAGE-GREEN CAULIFLOWER CAPSICUM-GREEN CHILLY-GREEN BRINJAL-ROUND GREEN BRINJAL PURPLELONG BRINJAL - PURPLE ROUND BRINJAL VARAKATRI Bottle Brinjal

KG KG KG NO KG KG KG KG KG NO KG KG

y y y y y y y y y y

y y y y y y y y y y y

y y y y y y y y y y y y

y y

y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y y

KG

KG

KG

KG KG

y y

y y

y y

BEANS - CHIKADI BEANS - FRENCH ROUND BEANS CLUSTER (GOKARA) BEANS COW PEA CUCUMBER (KHEERA) CUCUMBER SAMBER (DOSA) RADDISH WHITE ONION LEAF MINT BUNCH (PUDHEENA) DRUMSTICK COCCINIA(DONDA) AMERICAN SWEET CORN

KG

KG

KG KG

y y

y y

y y

y y

y y

y y

KG

KG NO NO y y

y y y

y y y

y y

y y

y y y y

y y y

y y y

y y y

NO NO KG

y y

y y y

y y y

y y y

NO

5. Proposed Marketing Model

Farmers Farmers Farmers Production and grading at village level.

SHG Group

SHG Group

SHG Group

SERP (CMSA)

Production Plan

Village Organization

Master Farmer will take care of proper implementation of production plan.

Marketing Activist (Will collect produce form collection center and transport to Secondary processing center and outlets)

Collection Center and processing center Distribution center and cold storage

SHG women at the Mandal Level will receive information from the Zilla and according send the required quantity and mix of vegetables. Supply to retailers, vendors, mandi, wholesalers etc.

Zilla Samakhya Urban Samakhya (Managing Retail outlets Phase 1: and promoting Business) ) ) Demand and supply forecasting. (They will use the infrastructure present at the zilla level and process information)

Retail Outlet

Consumers

Phase 1: The model concentrates on SHG farmers who in the existing structure come together in an SHG comprising of 10-15 women (both farmers and non-farmers). The farmers in such SHG`s form the base of the model as producers of the vegetables. The farmers who are interested in the model register themselves with the CMSA. Then CMSA resource person would provide the farmers with the crop calendar detailing them regarding the rules and guidelines to be followed in this model. The CMSA resource person would select a Master farmer from 3 SHG`s (each SHG should have a minimum of 4 farmers registered with the model) .The Master farmers would take care of the implementation of the model by visiting the fields of the registered farmers and informing the staff about the crop progress. All the registered farmers of a village will grade their produce at the farm level and bring both grades A as well as grade B to the village organization building where the produce would be collected by the CMSA resource person. The master farmer will also be responsible to tie up with the vendors or shops in the local market where the grade B produce would be put for sale. The grade B produce thus, shall move directly from the VO to the local selling points. A vehicle (Tata Ace) would reach every village in the morning between 8 to 10 am and collect the Grade A produce from the VO building of the village. The CMSA resource person would take note of the quantity each farmer brings to the VO and also ensure that the selling price is realized by the farmers. A Tata Ace (2.5 tons capacity) will thus be able to cover 2 to 3 villages and will carry the produce to the Collection center. Phase 2: A collection center will be set up in the center of a Mandal where procurement from villages up to 60 km radius around the collection center is collected so as to minimize the transportation cost per kg of the vegetable. The collection center will employ 6 SHG women (landless) or grading and sorting of the vegetables and also would employ a collection center manager for supplying required quantities of vegetables to the store according to the forecast indent sent by the Zilla Samakhya. The CMSA resource persons from every village would regularly update the

production status and intake of produce from each village to the Collection center manager (CC manager) and in turn the CC manager would inform him the requirements for the next day. There is a Distribution center which collects the produce supplied from each CCs. In a distribution center the required quantities for each vegetable for a single outlet would be weighed and sent to that particular store. The main idea of having a distribution center is to bring different varieties of vegetables grown in different areas or mandals at one central point and distribute all the varieties of vegetables to different stores, thus ensuring the availability of a wide range of vegetables to our customers. A Distribution center manager and an analyst will be working in the distribution center. The analyst would take the demand forecasts from each outlet and prepare a forecast indent and send it to the CC managers. Both the distribution center manager and the analyst would be from the Zilla Samakhya and would be trained by CMSA about the operations. Phase 3: From the distribution center the specified quantity and variety of vegetables would reach the retail outlet in a vehicle (Tata Ace) which would operate in between the distribution center to the outlets. The vehicle driver would also procure certain vegetables from the mandi which are seasonal and thus not available in our procuring areas. The outlet would be managed by the members of the Urban Samakhya which are being managed by MEPMA (Mission for eradication of poverty in Municipal areas).The urban Samakhyas consist of slum level federations which are situated in the urban municipal areas. At present there are 656 slum level federations spread across the twin cities. The left over produce from the distribution center will be sold in another market in which we target the wholesalers (who buy produce from the mandis and sell it to vendors) ,slums, push cart vendors, etc. Direct delivery of vegetables to door step by online orders or orders through phone can also be implemented in this model. As vegetables (except leafy vegetables) can be stored without spoilage for 2 days and because we have 3 markets to sell our produce we do not suggest for a cold storage (at least in the initial stages). If the forecast indent and production planning is well managed and coordinated there will be no use of a cold storage.

6. Cost Analysis
Non Recurring Cost
Transportation(Tata ace-3) Collection (2) plastic crates(2000) fork lifter(3) electronic weighing machines(6)(including shop) Grading tables(2) washing table overhead tank Pipelines bore well washing sheet computer(5) printer(4) shop accessories Total Less Subsidy total cost per shop(fixed cost) 1050000 440000 60,000 90000 30000 300000

100000 40000 100000 2210000 884000 1326000 265200

Recurring cost (per month) for shop

urban Samakhya Helper(1)(urban Samakhya) electricity(shop) shop rent Miscellaneous Total per day per day(total recurring cost) If we procure at Rs.10 per kg Costs total cost Profit total price per kg price yearly profit 5000 3000 3000 20000 1000 32000 1066.667 1801.6 6000 1801.6 7801.6 780.16 8581.76 14.30293 284758.4

Recurring cost per month for supply chain

electricity(collection center) electricity(distribution center) Distribution center manager security guard(1) zilla level (1)(distribution center) 10 women @two Collection supervisor at collection center ace driver(2) Diesel CMSA resource person(2) distribution center Rent auto(for local work) Total per shop per day per shop 1000 2000 4000 2000 4000 15000 3000 10000 30240 4000 20,000 15,000 110240 22048 734.9333

Break even Return on Investment (%)

1 year 107.375

Cost for infrastructure Rs.2210000 and getting a subsidy of 40% from horticulture department and total cost after subsidy will be Rs.1326000. If the materials are procured at Rs.10 per kg for 600kgs than the yearly profits would come to Rs.284758 Recurring cost for 5shops including collection and distribution center comes to Rs.110240. So cost per shop would be Rs.22048 and on daily basis it would be around Rs. 734. Breakeven will be achieved with in through sales of 500Kg of vegetables per day per shop. Return on Investment 107.375

7. Risk factors & mitigation

Production risk: Production risks relate to the possibility that your yield or output levels will be lower than anticipated. Major sources of production risks arise from inclement weather conditions (such as drought or excessive rainfall at harvest), but may also result from damage due to insect pests and disease. Tools and Strategies Adopt appropriate technology such as drip irrigation or resistant varieties. Follow recommended production practices. Diversify enterprises by growing different crops and varieties.

Marketing/Price Risks Marketing risks relate to the possibility that you will lose the market for your products or that the price received will be less than expected. Common sources of marketing risk include lower prices due to increased supply or decreased consumer demand; loss of market access due to the relocation or closing of a processor or other buyer; and, lack of marketing power due to the small size of farm sellers relative to others in the market. Tools and Strategies Develop a marketing plan with realistic sales forecasts and target prices. Increase direct marketing efforts to capture a higher price. Market through multiple channels or outlets to reduce reliance on a single market. Enter into sales or price contracts with buyers. Spread harvest and sales over the season by scheduling planting and considering storage options.

Financial Risks
Financial risks relate to the possibility of having insufficient cash to meet expected obligations, lower than expected profits, and loss of net worth. Sources of financial risk commonly result from the production and marketing risks described earlier. In addition financial risks may also be caused by increases in key input costs, increases in interest rates, excessive borrowing, lack of adequate cash or credit reserves.

Tools and Strategies:

Control key farm expenses. Conduct a trend analysis to assess whats happening with farm income and net worth over time.

Management flaws: One of the main risks in this model is the possible management flaws. A business can sustain only if it is managed as a business. As our model is more service oriented and is being managed by SHG women alone so, loop holes in the business can be expected. All the activities and participants in the model right from the base to the top should be monitored properly. The farmers who have registered with us should be sustained and the chain should grow or else the whole model can collapse. Tools and Strategies: Proper monitoring system should be established with a designated staff in CMSA looking after the whole project. Accounts should be checked and verified fortnightly and suggestions should be given to the staff to increase the sales. Training and support to the staff from CMSA is inevitable.

8. Conclusion
Based on the analysis of data and field observations it can be concluded that the Marketing model proposed above will be successful if farmers are provided with agri support by CMSA to enhance production and reduce post harvest losses at farm level. To ensure efficient supply chain the representatives of SHG who are taking part in management of supply chain need to be imparted with proper training so that loss can be minimized and self sustainable supply chain network can be established. If self sustainable supply chain network can be established it will ensure three things. Firstly the end user price of the vegetables which the consumers pay will reduce, secondly the farm gate price and profit of the farmers will increase and finally it will help in employment generation by incorporating SHG women in the supply chain network.