Sylvan [Issue: July 2011]

“Witheachdropofwater,thepitchergraduallygetsfilled.Similarlyknowledge,

meritandwealthareacquired.”

From the Editor 4The Business of Green-RaghavMishra

Fertilizer Subsidy: Are Farmers Being Benefitted? 5N.VijayKumar

Cover Story

8Agribusiness: What’s Next? Prof.KritiBardhanGupta

The Good, the Bad & the Ugly: Microfinance in India 11PrashantRishi

-DeoDattSingh&DonaldM.Taylor 13

The Micro-finance Crisis in Andhra Pradesh 21Dr.ManojDubey

Real Encounter

24 JasdeepMandia

27Environment Update

ManishAnand

29The Returns of Revolution: Need of the Hour 31Dr.SugandhaBisht

What’s inside…?

From the Editor…

Whetheritisfairtrademovementinwest,KyotoProtocoltoUNFCCC(UnitedNationsFrameworkConventiononClimateChange), comprehensivesustainabilityreportsby corporates,Energy Starfor energyefficiency, greenchemistrypromotingrecyclability,goingdigital -printing less,beingwastewise, green IT initiatives like ‘Blackle’ or supporting vegetarianism; the list is endless buttellingthesamestory:‘Theworldisturningcrazy’,andthistimefor“Green”!Now ‘Green’isnotjustacolor,itisa‘brand’;abrandbringingpositiveimagery,preservingnature,promoting sustainability, driving prosperity, cracking problems, winning CSR medals forcorporates&reapingprofits.India is also harboring its share in the ‘Green Train’. It is earnestly demanding for ‘The SecondGreenRevolution’,alongtimeafteritspredecessorin1960s.Andwhynot,itiswellsoughtafterina country where the Government approves a draft of Food Security Bill which guaranteessubsidized foodgrains toat least90percentof ruralhouseholds,and50percentof their urbancounterparts.Asgoinggreenbecomesmore&morepopular,‘ecopreneurs’seemtobetheprimarydriversofthebandwagon. Consumers want more sustainable choices for all their needs & ecopreneurs arelistening. Here ecopreneur refers to the established corporates providing a green product or anentrepreneur intogreenbusiness.Like itornot,wearea global societydominatedbycorporateinterests.Ofthe100largesteconomies,51arecorporations&theother49arecountries.Weareheading rapidly towards ‘green’, yet problems are standing tall. Globalwarming, food shortage,energyinsufficiency,waterscarcity,increasingcarbonfootprintsareafewtoname.Thestakesarehigh &we needmassive change to steer us on a path towards sustainability. Now or ever, theweaponis‘FollowGreen’.Eachofuswantstheworldtofollowsustainablepractices,fairtradephilosophies;andtostriveforasafer&greenerfuture.Andyes,weareenlivenedenoughtobringthechange&carveapathforasustainableplanetforourfuturegenerations.Thewordsofinspirationswouldbe:“bethechangeyouwishtoseeintheworld”,judiciouslysaidbyourFatheroftheNation,‘MahatmaGandhi’.-RaghavMishraPGPABM[2012],IIMLucknow

The Business of Green

Interest Group in Food & Agribusiness

Fertilizer Subsidy- N.VijayKumar

After twenty years of reforms initiation, country is still discussing ways to provide subsidy for a major input of Agriculture.

The nutrient based subsidy is solving only part of the problem. Nutrient based subsidy which involves moving from product based subsidy to nutrient based subsidy re-orients subsidy towards enhancing productivity of fertilizer usage by farmers rather than its mere application. However, this is not yielding results as it is only restricted to a change in methodology for computation of subsidy. The government, no doubt is able to curtail its subsidy extent; but there is no much qualitative change in application of fertilizers. The two vital parts of the problem remain the same even now. The provision of direct subsidy has been conveniently forgotten by government and not even a mention of it has been made anywhere; second, Urea is still controlled and manufacturers engaged in urea production still continue to get subsidy for themselves in the earlier way irrespective of being efficient or not. In this scenario, a discussion on computation of subsidy process; role of industry and apprehensions on new nutrient based subsidy along with need of providing direct subsidy to farmers’ merits discussion.

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About the Author

Theauthor,N.VijayKumar,ispresentlyworkingasDirector–MarketingLinkagesinAgriBusinessSystemsInternational,anAssociateofACDIVOCA,aUSbasednonprofitConsultancyCompany.Theorganizationis involved in implementingtheBillgatesFoundationSUNHARAprojectinUttarPradesh.Theauthor,anEconometricianbystudy,isintowritingarticlestovariousnewspapersinSouthalongwithcontributingarticlestoresearchjournals.


Faulty Subsidy Formula The subsidy model has changed the case of complex fertilizers involving micro nutrients; but for Urea, old model of Group pricing scheme is being followed. The Group pricing system involves statutory keeping of fertilizer selling prices largely static. The subsidy being difference between retention prices and selling price; for imported fertilizers it is difference between imported material and selling price. The government reimburses to Industry; excess of production cost over selling price. The quantum of payment to Industry use to be determined by government through a formula of fixing ex-factory retention price for various products of manufacturers allowing reimbursement of reasonable cost of production including a margin of profit, at 12 % on net worth. Each industry is paid a price/subsidy specific to it, though all farmers pay uniform price. Due to twin objectives of fertilizer pricing policy with farmers getting fertilizers at low rate and manufacturer being paid retention price high enough covering costs & 12% post tax returns; Fertilizer subsidy became necessary evil. Due to increased consumption, subsidy payments have risen enormously with increase in difference between production costs and selling costs due to international increase in farm nutrient prices; from just Rs.505 crore in 1980; Rs.13800 crore in 2000-01; Rs. 43319 crores in 2007-08; Rs.99494 crores in 2008-09 and 49000 crores in 2009-10. The vital question evolved here was that whether subsidies being provided are resulting to reduce their input costs reaching the farmers and ultimately helping the consumer with less farm costs. The answers lies somewhere between yes and No; It is Yes in sense that fertilizer price rise is absorbed by government shielding farmers from price onslaught; No in sense that total subsidy said to be spent on farmers is not really reaching them but only a fraction of it. The subsidy being given to fertilizer industry enabled it to benefit with whatever increase in price they seek from government was compensated. The government was paying increased costs of production irrespective of the reason for increased costs. The subsidy model does not encourage any competition among industries. Each industry is required to sell at same price and all of them are enabled to recover their cost in full. In case of inputs cost increasing; government simply subsidizes additional reimbursements. The present 50 % quota of urea sales of country under distribution controls; makes Industries not to look for any strategy as their quotas of supply to the markets is pre allotted and government pays money accordingly. The Industries also were not producing other micro nutrient fertilizers as urea production will give assu-

-red sales and money collection. The farmers, with stagnated urea prices, despite rising costs, and with no pressure to optimize its use; began excessive use of urea leading to imbalance in nutrient use and resultant adverse effect on soil and environment and government too never gave any thought on soil health. With heavy subsidizing of urea; demand for urea went up from 214.07 lakh tonnes in 2004-05 to 249.46 lakh tonnes in 2006-07 while DAP demand increased from 70.59 lakh tonnes to only 81.29 lakh tonnes and MOP from 23.02 lakh tonnes to only 33.23 lakh tonnes during the period. The production of urea also increased to a record level of 203.09 lakh tonnes in 2006-07 from 196.24 lakh tones in 2000-01. However, production of DAP remained stagnant at 48.57 lakh tonnes after reaching a peak at 52.36 lakh tonnes in 2003-04. All this has increased the subsidy costs. Several committees during last decade and a half have pronounced that naphtha and fuel-oil-based plants in India are high-cost, inefficient routes to fertilizer production and, therefore, must be disbanded. Yet, these survive under GPS/RPS, benefiting producers at cost of exchequer. Even if some industry wants to decrease the costs of production; say from switching from naphtha to natural gas which is cheaper; RPS/ GPS model of subsidy provides no incentive for this; and subsidy entitlement will be correspondingly reduced as per reduction achieved. The official estimates say that fertilizer companies on an average recover less than 15% of actual cost of farm nutrients by selling at MRP, while rest is borne by government through subsidy bill.

In this scenario, government last year brought Nutrient based subsidy system. The fertilizer subsidy, which in earlier system was fixed on product, is being calculated based on percentage of nutrients contained in it. Subsidy on DAP is being calculated based on nitrogen and phosphorus content in it at 18% and 46 % respectively. The last year’s budgeted fertilizer subsidy bill of Rs 50,000 crore distributed over 100 crore bags sold annually, would mean a subsidy of Rs 500 per bag. The unit subsidy could be set higher or lower depending on the underlying nutrient content of fertilizer in the bag under new system unlike old system where there is a uniform subsidy for each irrespective of inputs in it. The diversity in product mix will start now to show greater differentiation between producers. The procurement efficiencies and cost price structures of different companies will eventually begin to matter more; as the subsidy is not per bag but only to the content. So if costs of companies in making those inputs grow; overall costs also grow. The Centre has fixed subsidy on fertilizers based on nutrient content of nitrogen, phos-

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-phorus and potash in them in the range Rs 23.22-26.27 per kg under the new policy effective April 1. Under this scheme, the Centre will announce subsidies on each nutrient before every fiscal, which will be valid for the whole year. NBS may help usher in an environment where innovative products coupled with micronutrients are introduced which are soil- and crop-specific. However, as the nutrient-based subsidy proposes to do away with maximum retail price and replace with MRP system; the government was not able to get assurance from industry to retain current prices. Since industry has not given any assurance to not increase prices, there is an apprehension that implementation of this scheme could lead to hike in fertilizer prices.

Direct Fertilizers Subsidy to Farmers The nutrient based subsidy is only part of the problem. Fertilizer industry has been largely a government driven industry with entire cost price and even profit being paid by government making industry forgetting about being competitive. There is a need of efficient and transparent system for delivery of fertilizer subsidy to farmers. The direct fertilizer subsidy should be initiated as promised by UPA three years ago and not being perused with same enthusiasm. The issue at hand is mammoth requiring to cater to 12 crore farmers on a regular basis and not an easy task. But breaking the problem into parts would makes things easier, more so in a country that has no dearth of IT manpower and solutions with suggestions ranging from RIFD cards to Smart cards to accessing cooperatives etc. There will be many practical problems including assessing the quantum of fertilizer needs for each farmer to the acceptable proof that fertilizer was really purchased as receivable subsidy would be based on that. This should not make the GOI to shun the proposal altogether. The State Governments should be assisted in devising and implementing based on situation specific conditions. The local bodies should be integrated. When the land revenue used to be so diligently collected from farmers even a century back; there is nothing which stops in doing this now.

The role of the banks with huge reach in the country is critical in the entire mass of operations. However, with majority of the farmers outside the realm of banking system; the work on hand is still huge. The Bankers will need to look for innovative financial inclusion solutions like smart card system used for NREGS. The Primary Cooperative Societies (PACS) which number almost a lakh in the country; if linked to scheduled commercial banks through respective district cooperative banks; last mile problem could be resolved. The Unique Identity Card system that is being developed under Nandan Nilekani should be involved from primary processes to dovetail aspects of fertilizer subsidy into their overall plan processes. The above technology interventions should be used in conjunction with proposed NBS scheme which will make direct disbursal regime a reality. The government though three years after declaring has swung into action and started with nutrient based subsidy. However for UREA, the same old system continues. Dismantling the present RPS/ GPS model and going for a direct subsidy model would force all stakeholders to change gears and get in to right action modes. The industries that perform better through effective restructuring, spending on R&D; supply of new technologies efficient forecasting of deals in terms of raw materials; feedstock fuels; expanding capacity etc will thrive in the market making the others exiting the market. The exchequers money needs to be spent only for the people and not for other stake holders should be the major premise. The NBS and direct subsidy will go a long way in promoting efficient usage of fertilizers and preserving soil fertility which can result in real ‘SECOND GREEN REVOLUTION’ that country desperately needs.

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?What’sNextProf.KritiBardhanGuptaChairman, Centre for Food & Agribusiness Management Indian Institute of Management Lucknow

Agriculture sector has been the engine of growth for the Indian economy and is very important for the food and

nutritional security of the country. Although the percentage contribution of Agricultural and Allied sectors to the national GDP has declined from 17.4 percent in 2006-07 to 14.2 percent in 2010-11, the absolute contribution has increased from Rs. 619190 crore to Rs. 692499 crore during the same period (at 2004-05 price level). Therefore, the declining share of agricultural sector in national GDP is more due to the higher growth in industrial and services sectors rather than very dismal performance in agricultural sector.

Although India’s share in total world land area is only 2.3 percent, the country has to ensure the food security of its

Cover Story 8


large growing population, which is currently about 17.5 percent of the world population. Hence, there is much higher pressure on land in India compared to other countries for the supply of food and fiber. In recent period there has been an increasing demand of biofuel in the whole world as clean source of energy for sustainable environment. This is even more important for a country like India where the petroleum import bill drains the national exchequer to a great extent every year. Increasing agricultural production with limited natural resources in a sustainable manner for providing income security to farmers are the major challenges before the country.

Despite the fact that volume of agricultural production has increased over the years, the agricultural supply chain in India has traditionally been highly inefficient. This results in wastage of a large proportion of agricultural production every year. About 25 percent of Indian fruits and vegetables are wasted even before reaching the consumers, mainly due to the poor infrastructure facilities in the country. Inefficiency lies at both the farm and the firm levels. At farm level, most farmers are marginal ones who operate on a very small piece of land in an environment where availability of various types of quality inputs (like seed, fertilizer, irrigation water, electricity etc.) in sufficient quantity, at appropriate time and at a reasonable price is highly uncertain. Even after production, the farmers are not sure about what price they will get for their produce. Quite often they have to sell their produce at a throw away price due to lack of proper marketing infrastructure, absence of locally available food processing facilities and improper information about market. At firm level, the organizations were earlier accustomed to operate under protected environment and efficiency was not the prime concern when there were a large number of buyers willing to accept agricultural commodities and processed products even with not so good quality because for them quantity was more important than quality in an era of food scarcity.

However, the scenario has changed in recent periods. Consumers are willing to buy large varieties of products of reasonably good quality due to increased household income. In the post-WTO era, with the globalization of Indian economy, the efficiency at each level of supply chain has become very important to survive in view of increased competition from domestic as well as international players. Now it is not a matter of choice, weather to compete with efficient foreign players in various sectors or not. Even if a firm is not willing to compete in international market, it will have to compete with those international players even in its own domestic market. Under WTO framework, no member

country can insulate its economy from the rest of the world. The globalization has taken Indian agriculture into the global level, which has opened up various opportunities as well as several challenges and threats. Agribusiness has opened up vast opportunities for value addition, packaging, retailing and exports of agricultural products with the use of breakthrough innovations in technology and management. During the last decade, several new domestic players have jumped into the agricultural and allied sector. Several new international firms have also entered into the Indian market with their new and innovative products. Many firms have tried to go for backward and forward linkages for bringing more and more efficiency in their production system. Firms have started making contractual agreements with farmers and joining hands with other stakeholders in the supply chain for enhancing the overall benefit from their operations. India being at the hub of the high growth Asian region, there is wide scale corporate interest in the country across the whole world. The world looks with surprise and optimism the fast growing Indian rural market, which has become crucial to the success of corporate growth strategy in the country. Many studies have pointed out that the total rural market in India is even larger than the urban market. Agribusiness can be defined as a set of activities consisting of supplying agricultural production inputs and subsequently producing, processing and distributing food, fiber and now even biofuel. Agribusiness involves all operations required for manufacturing and distribution of farm supplies; production activities at farm; storage, processing and distribution of farm commodities and items produced from agricultural commodities after various level of processing activities. Apart from basic agricultural sector, it includes all the allied sectors of agriculture like dairy, poultry, fisheries, forestry etc. Given the importance of agriculture sector in a developing Indian economy, agribusiness management has a major role to play in boosting the development of the country and also for the overall economic welfare of the global economy. To fully utilize the Indian comparative advantage in agricultural sector, and to convert comparative advantage into the competitive advantage, the country needs to inculcate high degree of professionalism into the agricultural and allied sectors, which can be achieved through high quality agribusiness management programmes in the country. To cater to the need of agriculture and agribusiness, there is huge growth in agribusiness management education system in India during the last one decade or so. Apart from the two premier nati-

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-onal level institutes (IIMA and IIML) there are several other autonomous institutions, universities and state agricultural universities (SAUs) that have started offering regular agribusiness management programmes. To enhance the quality of agribusiness management programmes at SAUs, the Centre for Food and Agribusiness Management of IIML initiated a series of short-duration programmes especially for faculty members who are either teaching agribusiness management courses or are going to teach such courses in near future with active support of National Agriculture Innovation Programme (NAIP). The agribusiness management graduates of IIMs are well trained to be agribusiness leaders, entrepreneurs, and entrepreneurs with a vision, competence and appropriate attitude for promoting/ growing agribusiness and agro-based enterprises with a strong international orientation. They are well trained to understand dynamics and complexities of the field of agribusiness in the emerging global context. They acquire professional skills in using appropriate management tools and techniques in the context of agribusiness; and strive for excellence, commitment with positive attitude to work with the farmers towards their economic upliftment. Risk and uncertainty are inevitable characteristics of the modern business. The agribusiness graduates are exposed to tools and techniques to manage such risks. The current period is the golden period, when there are so many changes taking place in the domestic market and also at the global level at such a fast pace. It has brought several challenges before the budding managers but at the same time sky is the limit for them to grow. There is very high expectation from agriculture and agribusiness to cater to the need of food, fiber and fuel for such a growing population in the world. For fulfilling these demands, humans are not going to get another earth. We have to use the same land and available water resources to cater to the need of increasing population. This can be done with suitable investment in better infrastructure so as to increase efficiency at each and every level of agri-food supply chain. There is very fast development on technology front like in the fields of biotechnology, packaging, communication etc., which are likely to support the agribusiness to reach to a new higher level. Sustainable development of agriculture and agribusiness is also very important in the current scenario not just for charity purpose but also because it makes business sense to go for such form of development. There have been several examples of business organizations whose profitability has even soared after taking the sustainable route to business development. The growing popularity of organic food also suggests that now people give much higher weights to the food safety so as to avoid health hazards. These are some of the challenges and opportunities being always explored by a young bright graduate in agribusiness management from an institute like IIML.

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The Good, the UglyPrashantRishi

PGP Student | Batch of 2012 Indian Institute of Management Lucknow

Developing nations have since the 70s seen a remarkable change in their mainstream economics. The concept of micro-

credit and the idea of financial inclusion have taken root and continue to flourish. So much so that many hail microfinance as the panacea for eradicating poverty from the third world. For the layman, microfinance is defined as the gamut of ‘activities’ aimed for the financial inclusion of the less privileged. These activities include micro loans, savings accounts, remittances and insurance. The pertinent question here is: Why do we need specialized financial services for the economically disadvantaged? Don’t they have banks?

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The answer is three-fold. Opening a bank or a branch is unviable unless there is a guarantee of sufficient volume, both in terms of number of clients, and the amount of money loaned out. The simple financial rule of breaking even is improbable in rural regions, primarily due to low population density and the modest financial needs of the demographic group. Moreover, banks usually are not keen to lend to those with high probability of default. Finally, the poor don’t have any collateral for loans. Even if they happen to own land, they may not have effective title to it. This means that the bank will have little recourse against defaulting borrowers. In the absence of financial services, they are forced to knock on the doors of the informal money lenders for their monetary needs. These money lenders charge a very high interest rate on the loans they provide (sometimes even more than 100%), much to the misery of the borrowers.

It was to bridge this gap of financial inclusion that the first microfinance institution (MFI) - Grameen Bank - was established by Mohammed Younis in Bangladesh. The success of Grameen Bank inspired similar MFIs around the world, and many in India. Around 665 million client accounts are handled by MFIs worldwide, the highest concentration of which exists in India. Prominent Indian MFIs include SKS Microfinance, Spandana & Cashpor. These firms operate in company of (and sometimes in competition with) informal institutions called the Self Help Groups (SHG). An SHG can be defined as a group of people who pool in their resources to become financially stable by taking loans from the money collected by that group and by ensuring self-employment for everyone in that group.

Even though very little research exists to quantitatively prove the financial impact of MFIs and SHGs on rural wellbeing, it is hard to refute that they have had a positive influence. In a nation, where 87% of population has no access to bank credit, they have created a viable atmosphere of financial inclusion. A recent report shows that only 5% of the client list of Indian MFIs had access to bank credit in the past. In terms of cost, the interest rate on microfinance loans ranges from 14-41%, which is far lower than the rates charged by money lenders & pawn brokers. Today, it meets a substantial portion (about 34%) of its clients’ household needs.

While these statistics sound rosy, anyone following the news is aware that all is not well in Indian microfinance. Hopes of putting money lenders out of business have proven unrealistic, even in states where MFIs are very active. To add to that, MFIs themselves have demonized their image by engaging in coercive loan recovery practices

from farmers, driving many of them to commit suicide. Many MFIs have also been accused of indulging in over lending, without even verifying the borrowers’ ability to repay. Worst of all, politicians in some states have granted waivers on loans granted by MFIs, spoiling the entire credit discipline environment.

Alarmed by the high suicide rates, Andhra Pradesh government passed a bill called the AP Microfinance Act, which aimed to check the lending and recovery practices of MFIs in the state. Recently, RBI also set up a committee known as Malegam Committee. Even though the committee came up with a number of well-intentioned guidelines, experts feel that these recommendations defeat the very idea of financial inclusion. For example, the committee recommended a cap (of 24%) on interest rates charged by MFIs. If such a cap is enforced, many of the MFIs would close their shutters because it is financially unviable to loan out at such low rates, in the wake of miniscule client volumes and high default risks. Consequently, this would force the farmers to seek help from traditional money lenders for their needs, bringing the entire financial inclusion movement back to square one. Another recommendation made was conversion of the big MFIs into NBFC-MFIs, and prohibiting others from lending more than 10% of their total assets to the microfinance sector. To become an NBFC-MFI, an MFI must provide financial services predominantly to low income borrowers through unsecured loans that are meant for ‘income-generating activities’. It is well known that micro loans are used by the poor for consumption-related funds crunch, and not for income generating activities. While the intention was to encourage poor to achieve financial independence by directing these micro loans to income generating activities, enforcing this by law is equivalent to over-regulation of the lending mechanism.

In the end, the question that needs to be pondered is: Is Indian microfinance headed in the right direction? Or has it succumbed to the pressure of social & legal realities? There is no doubt that India needs better regulation of lending and recovery practices of its MFIs, in the wake of recent farmer suicides. But, enforcing interest rate caps and directing the use of loans are clearly not the steps in the right direction. While almost everyone agrees that the impact of microfinance has been largely positive, one should not make the mistake of seeing it as a silver bullet that can eradicate poverty from the country. Even if Indian microfinance penetrates into every village household, it will remain futile in fighting poverty unless it is complemented with other initiatives like employment programs, health facilities and investment in infrastructure.

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DonaldM.TaylorCountry Executive (India) ACDI VOCA

DeoDattSinghProgram Manager

ACDI VOCA

#ACDIVOCAisasubsidiaryofUSAID-UnitedStatesAgencyforInternationalDevelopment.

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The rapid development of the organized retail food sector (modern format supermarkets, hypermarkets and specialty stores) is a significant indicator of the economic and cultural revolution that India is currently undergoing. This development combined with the potential for India to become an important exporter of fruit and vegetables presents significant growth opportunities for small-scale farmers and the rural economy. In 2001, the latest year for which data is available, there were approximately 25.4 million Indian fruit and vegetable farmers. Some 70 percent of these farmed plots are of less than one hectare (2.5 acres). It requires an average of about 150 small-scale farmers to service a supermarket produce department year-round. Much of the current literature on the growth of the organized retail sector in developing economies focus on the difficulties that small-scale farmers encounter in attempting to sell to the supermarket sector; although there are also a number of cases where this has been possible. The following case study illustrates the successful incorporation of small-scale Indian fruit and vegetable farmers into organized retail supply chains.

The India Growth Oriented Micro-Enterprise Development (GMED) program is sponsored by the U.S. Agency for International Development and managed by ACDI/VOCA, a Washington D.C. based international development consultancy. The program began in October 2004. Its goal is to develop initiatives leading to increases in employment through fostering the growth of micro and small enterprises. After several permutations, GMED management decided to concentrate program efforts on linking smallholder vegetable and fruit farmers to firms engaged in the organized food retail sector.

The rationale for this decision was based on the current rapid expansion in India of supermarkets; hypermarkets and specialty fresh produce outlets. (Reference to supermarkets in the remainder of this paper will be taken to include all of the above types of retail outlets). Supermarkets first entered the picture in India in the early 1990s, but growth in number of outlets was quite slow. This situation began to change in 2004-2005 with the beginnings of a consumer shift from traditional retail outlets to supermarkets and the consequent entry of many of the major Indian corporate groups into the organized food retail sector.

According to the findings of a recent joint study conducted by the Federation of Indian Chambers of Commerce and Industry and Ernst and Young, organized retail will advance from the current five percent of total retail to 30 percent over the next 10 years. The same study forecasts a more than doubling of the organized retail market during the coming three years, from the present 14 billion dollars to 30 billion dollars. This forecast may even be too conservative, however. According to a more recent study by Deloitte, Haskins and Sells, organized retail grew at an unprecede-

-nted rate in 2007, accounting for eight percent of total retail sales compared with five percent in 2006. Food and groceries account for 74 percent of total Indian retail sales and food accounts for 44 percent of fast moving consumer goods sales (FMCG) according to the Indian Brand Equity Foundation.

The burgeoning consumer preference for the supermarket experience has its roots in the rise of the urban middle class, a growing number of whom are young, upwardly mobile and less wedded to tradition than their parents. (There are 400 million people under age 21 in India). GDP growth of eight to nine percent per annum is placing more disposable income in the hands of these urban middle class consumers. Today there are 100 million Indian consumers whose incomes are the same as 60 percent of Malaysians and 80 percent of all Brazilians.

In addition to the rapid growth of the organized retail sector, there exists good potential for India to become an important exporter of fruit and vegetables. The country possesses a wide variety of agro-climatic zones, ranging from tropical to desert to temperate climates in the foothills of the Himalayas. India has the highest proportion of arable land to total land area of any country in the world. The country’s location is favorable for trade with Europe, Southeast Asia and the Gulf. Rising transportation costs to these markets from North and South America caused by skyrocketing oil prices are significantly increasing India’s comparative advantage in the export of fruit and vegetables.

These favorable market prospects pose significant growth opportunities for small-scale farmers and the Indian rural economy. In 2001, the latest year for which figures are

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available, there were approximately 25.4 million Indian fruit and vegetable farmers. Some 70 percent of these farmed plots of less than one hectare (2.5 acres). According to GMED estimates, it requires an average of about 150 small-scale farmers to service a supermarket produce department year-round. Given the number of organized fresh produce outlets already on the ground (one firm alone has already opened between 500 and 600 stores and continues to open new outlets every week) and those on the drawing board, the organized retail food sector could conceivably involve several million small-scale vegetable and fruit farmers over the next few years. Taking advantage of the development opportunities, however, will require a significant shift in the manner in which farmers market their fresh produce. Regulations have long restricted farmer sales to a single, government-mandated marketing channel, licensed by individual state governments. Currently these regulations are being amended on a state by state basis to allow farmers to access alternative markets, including selling directly to supermarket buyers.

The Traditional Agricultural Marketing System

In late 2004, when the GMED program entered the scene, India had no modern fresh produce supply chains. Under the Agricultural Produce Marketing Committee Act (APMC), farmers were required to sell their products exclusively through government-mandated auction markets, known as mandis. Commission agents and brokers handle all mandi purchases, often in a collusive fashion. The mandis lack proper facilities for handling fresh produce, leading to excessive waste and loss of value. There is very little quality differentiation.

The farmer delivers his produce to the mandi, where he is charged a fee. He engages a commission agent, who does not take possession of the produce, to sell the produce to a broker. The farmer may need to spend an entire day waiting for the sale to take place. The produce often spends several hours exposed to the sun and heat before being loaded on a non-refrigerated truck for the journey to the next market or end user. The mandi system provides little or no incentive for farmers to improve their production and postharvest practices.

The central government has issued a revision to the APMC, providing farmers with alternatives to the mandi by allowing them to sell their produce to other buyers, including entering into contract growing arrangements. Agriculture is, however, a state subject in India, meaning that each state must enact its own version of the APMC revision. This is happening, slowly. There are still some problems, but the situation is improving.

FINAL VERSION FOR SIGN-OFF

© 2008 Accenture. All rights reserved. 1

Farm to shelf horticulture supply chain in India

Traditional model

Farmers

Aggregator

Retail Mandi

Wholesale Mandi

Transport

Unorg. retail(Push cart

vendor)

Wholesale Retail

Remarks

No crop schedulingSeasonal cropsMandi:– Opens 3:30 (inconvenient for

farmer)– Auction based– Commodity price (set by committee)– Mixed grades

Organ. retail

Source: Interviews, team input

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The Need for a Paradigm Shift in Procurement Practices

Vegetables and fruit are particularly important to the competitive success of Indian supermarkets. The “supermarket revolution” in other developing countries started with staple commodities and processed food and only later progressed to sales of fresh produce and other perishables. In marked contrast, however, Indian supermarkets accorded prominence from the outset to vegetables and fruit. Several chains, in fact, concentrated exclusively on fresh produce.

This significant departure from the norm is probably due to traditional dietary preferences in India, where approximately a quarter of the population are vegetarians, but where even many non-vegetarians only eat meat occasionally, and where consumption of processed vegetables and fruit is almost non-existent (India is the world’s second largest producer of vegetables and fruit, but less than three percent of total production is processed).

In addition to the growth of supermarket chains, many of the firms engaged in organized retail are also entering the “cash and carry” business, acting as suppliers to their own as well as competitors’ fresh produce departments. Most firms, however, are still procuring from the mandis or through company owned country collection centers. These sourcing alternatives do not satisfy the competitive needs of modern food retailing. The supermarket buyer procuring from the mandi or through ad hoc purchases from individual farmers through a country collection center has little control over the quality, variety or volume of the vegetables and fruit being procured. There is no possibility of introducing traceability, which will become mandatory with the entry of Wal-Mart, Carrefour and other multinational chains.

The Indian consumer is becoming increasingly conscious of quality and food safety considerations, particularly in the case of fresh vegetables and fruit. Supermarket managers consider their fresh produce departments to be a principle attraction drawing consumers into their stores. There is a basic contradiction between the increasingly competitive requirements for stocking better quality fresh produce and the current procurement practices of the majority of the country’s supermarket chains. The GMED program early on recognized in this contradiction is a significant opportunity to extend furthers the small farmer development goals of the program while helping improve the supermarket industry.

The GMED Approach

Once GMED decided to concentrate on linking small vegetable and fruit farmers to organized retail buyers, a strategic approach was needed. Donor programs aimed at small farmer development in the past have tended to focus on improving production, with a consulting team assigned to work directly with the farmers. This has too often resulted in losing track of the need for sustainable access to profitable markets. Another shortcoming of the traditional approach is the fact that most improvement efforts come to an end as soon as the project closes.

The GMED program, in order to ensure the sustainability and scalability of their efforts, adopted a value chain and embedded services approach. The value chain approach to development is based on the belief that the potential for growth and competitiveness for any industry is determined by the performance of firms at all levels of the value chain, large as well as small. The approach has the added benefit of shifting the development focus from a supply to a demand based model.

Rather than working directly with small farmers, the GMED consulting team decided to utilize an embedded services model as the delivery mechanism for providing farmers with technical and other assistance. This approach requires the purchasing firm to enter into a long term partnership with the farmers for fresh produce procurement. Extension services, demonstration plots and postharvest facilities are provided to the farmers by the firm purchasing the produce, as an integral part of the fresh produce procurement transaction. Introducing this approach required a long and sometimes painful learning process, for the farmers, the corporate buyers and the consulting team, but it ultimately proved successful. Initial Skepticism

The GMED program entered India in late 2004. This marked the first attempt at enterprise development by the India USAID Mission and the first India assignment in more than two decades for ACDI/VOCA. It also marked the American program manager’s initial exposure to India. Compounding the difficulties posed by the lack of familiarity with the local situation was the fact that there had been very few attempts in the past to organize small-scale Indian vegetable and fruit farmers to supply the organized retail sector. The lack of familiarity with the playing field was somewhat ameliorated, however, by recruiting a consulting team composed primarily of relatively young middle man-

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-agers recruited from leading Indian and multi-national agribusiness firms.

GMED initially approached several of the firms that at the time represented major players in Indian organized retail and offered assistance in setting up their fresh produce supply chains. (The present plethora of new investors in the sector was just beginning to appear on the scene). All of the firms that were approached indicated their interest in obtaining assistance in developing fresh produce supply chain facilities and systems.

When the GMED team queried these firms as to how many small-scale producers they intended to involve in their fresh produce supply chains, however, the universal reaction was “you cannot trust small farmers to be reliable suppliers to supermarkets”. The firms already in business were primarily purchasing through the mandi system. The new entrants into the sector planned to follow this system, or, alternatively, to either acquire land and operate their own production bases, or deal only with large farmers. These approaches were contrary to GMED’s mandate from USAID to promote the growth of small farmers, thus the program was circumscribed from working with these firms. As it turned out later, these approaches also did not match the realities of the Indian fruit and vegetable production sector, which as noted above is largely dominated by small farms.

GMED concentrated for the first several project months on program components other than FFV while continuing to search for a suitable supermarket partner. The search finally paid off when the GMED team met representatives of a major Indian conglomerate that was planning for the first time to enter the fresh produce wholesale and retail field. The firm was seeking technical assistance. GMED, after intensive discussions with the firm, was able to convince management to base their fresh produce procurement program on organized clusters of small-scale farmers.

The GMED Experience

GMED assisted the firm in setting up three pilot farmer clusters composed of approximately 500 vegetable farmers in Punjab, Andhra Pradesh and Maharashtra states. GMED developed criteria for cluster and farmer selection, designed a technical assistance and support program and recommended measures for building farmer loyalty.



Farm to shelf horticulture supply chain

GMED Model

Farmers

Lead farmer

Farmer Collection

Center Transport Transport

Retail OutletsTransportAggregate Process Transport RemarksGrading (A/B) at farmerPayment settlement with out-growers at lead farmerExtension services provided by ITCProcessing in FCC (grading, sorting, cool storage, washing, packaging)

Legend= ITC

= Other stakeholders


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The simple, inexpensive practices introduced by GMED did not represent high technology. They are common to farmers in many parts of the world. These practices include soil and water testing, installation of tray nurseries, shade netting for appropriate crops, raised beds with plastic mulching, staking of vine plants, implements to ensure uniform planting depth and spacing and proper field preparation, and similar measures. The introduction of drip irrigation and fertigation proved to be very important under Indian cropping conditions.

Indian vegetable farmers in many cases know about these practices, but given the traditional marketing system, have had no incentive to adopt them. Even if they had had the desire to adopt the practices, there was no one available to show them how to do so. Indian government extension services are seriously under staffed. Most Indian farmers seldom or never encounter a government extension worker. The provision of competent extension services by the buyer turned out to be the most important element in the continuity of the relationship with farmer clusters.

The buyer/farmer partnership satisfies the need of the farmer for access to assured, higher value markets and the ability to acquire the technical skills required to satisfy the requirements of these markets. It also provides a solution to the supermarket buyer’s requirements—the ability to acquire a reliable supply of the proper quality fresh produce at the time it is needed. In the case of the GMED pilot program, the farmers experienced reduced production costs averaging 16 to 18 percent, significant quality improvement, gains in productivity, and increases in net income that averaged more than 30 percent. The supermarket company gained the reputation, and the competitive advantage, of having the best quality fresh produce in the market. Two years after the pilot program commenced, the company has embarked on a major expansion of its retail outlets and its small farmer production base.

These results were not obtained without difficulty, however. The company had to be convinced that its field extension agents were the key to project success and should be given adequate compensation and recognition. There were initial misunderstandings between the farmers and the company as to how much of the farmers’ total production the company was committed to purchase. After several months of sourcing from one of the clusters, the company was informed by local government that since its retail outlet was located within the city limits, they would have to procure their vegetables in future from the municipal mandi. The start-up difficulties were subsequently solved, however, and the company remains firmly committed to the small farmer partnership model.

During the past three years, there has been significant progress in the Indian supermarket sector. Many more firms have entered the industry. Existing firms are rapidly expanding, both in the number of outlets and in their geographic area of coverage. Despite the fact that foreign investment in retail is still banned, several foreign firms have already taken advantage

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InSeptember2006thesoftopeningofacashandcarryoutletatHyderabadfeatured“standing room only” crowed of customers. One of the biggest draw was a bin ofpremiumqualitytomatoes,the“besttobefoundinHyderabad”accordingtooneofthecustomers.BhupalReddy, thefarmerwhoproducedthepremiumtomatoes, is sleadfarmer.HistwoacrefarmatAnnasagarvillageinAndhraPradeshhasbecomeashowcaseforimprovedproductionpracticessincetheGMEDprogrambeganhelpinghim develop demonstrationplot usingmodern farming techniques and equipment.Mr.Reddy,whohasbeenfarminginthesamelocationforthepast20years,wasableto increasehisdaily tomatopickingperacre fromanaverage250kg. toup to800kg.Hisincomefromthecurrentcropincreasedbyabout50percentcomparedwiththe last time he grew tomatoes. In addition to getting higher yields and premiumprices,Mr.Reddywasabletosavesome40%onfertilizerandpesticidecosts,and,bysellingdirectlytothestore,savedontransportationcostandthecommissionthathewouldhavepaidtotheManditrader.Inadditiontoworkinghisownfarm,Mr.Reddyasanleadfarmer introduced10ofhisneighborstotheGMEDpackageofpracticesandprocurementsystem.


of the provision allowing 100 percent foreign investment in cash and carry (wholesaling). Metro (Germany) now has four big box stores in three major metropolitan areas. Wal-Mart has entered into partnership with Bharti Retail, with Wal-Mart handling the supply chain backend and Bharti opening retail outlets. Carrefour is reportedly close to closing a market entry deal. Spar and several other multi-nationals are already set up, either through franchising or cash and carry.

The growing competition among the many corporate groups involved in attempting to attract consumer footfalls to organized retail food outlets is also changing the way that the industry is structuring their vegetable and fruit procurement programs. The supermarket produce department is seen as the major customer attraction. Quality and regularity of fresh produce supply are already important competitive factors. Food safety is becoming increasingly important to Indian consumers. (Pesticide residues on fresh vegetables and fruit purchases through traditional channels are considered by Indian consumers to be a serious problem).

Supermarket chains sourcing their fresh produce through the mandi system or through ad hoc purchases from traders or individual farmers have little or no control over day to day quality, reliability of supply or the varieties of produce available. Poor handling and lack of adequate postharvest facilities throughout the supply chain result in a high degree of waste and loss of value between the farm gate and the supermarket. Traceability will become an essential factor in the near future. Indian vegetable and fruit farmers will eventually, sooner rather than later, be required to meet Global GAP, HAACP and other applicable food quality and safety standards. The solution to these constraints is for the supermarket buyer to be involved in all aspects of the production and postharvest process.

In order to ensure quality, reliability of supply and food safety, most of the supermarket chains and their cash and carry suppliers are seriously considering forming ongoing supply chain partnerships with small scale vegetable and fruit farmers, following the example pioneered by the GMED program and its initial corporate partner. Several are already doing so. Three other organized retail and export firms have also sought assistance from the program for putting such a system into practice. While the GMED program cannot take full credit for the shift in organized retail procurement practices, GMED was the first to demonstrate conclusively that small-scale vegetable and fruit farmers could be successfully incorporated into organized retail supply chains.

Supermarkets, however, would prefer not to have to deal directly with small farmers. This is not one of their core competencies. As an alternative, a number of firms have begun to specialize in the cash and carry business, serving the needs of the supermarket chains. Some of the cash and carry specialists are independent, while others are subsidiaries of the supermarket firms. The majority of the cash and carry specialist are, however, are still procuring from the mandis. This will have to change if these firms are to be a competitive factor in organized retail.

A Second Model

The direct buyer to farmer model introduced by GMED in India pre-supposes that the initiative for the arrangement originates with the buyer. GMED has also initiated a second model, based on upgrading the capabilities of a 5,400 member vegetable and fruit growing cooperative to meet the requirements of organized retail.

GMED “adopted” this cooperative and began organizing a lead farmer-outgrower production system, upgrading farmer skills, and searching for market linkages. Several months ago GMED was successful in forging a procurement partnership between Nandani and one of the larger Indian wholesale and retail food distributors. The company is hiring extension agents to work with the farmers, putting up lead farmer demonstration plots, and providing on-site collection centers. The company will install a fresh cut line at the cooperative headquarters, and will assist in renovating a cold storage facility belonging to the cooperative. In addition to providing a market for cooperative-grown vegetables and fruit, the partnership will provide employment at the fresh cut operation to large numbers of local farm women. GMED is assisting the cooperative to seek links with other organized retail firms. The search should be made easier by the successful arrangement with the cooperatives initial organized wholesale and retail partner.

Another GMED affiliated development program, the IGP project, also sponsored by USAID and managed by ACDI/VOCA, is aimed at easing the task of introducing small-scale Indian vegetable and fruit farmers to high value organized retail and export markets through introduction of an ICT-enabled farmer technical information and supply chain management program based on mobile connectivity. GMED is partnering with one of the top-rated Indian IT firms, Infosys, in the design, development and commercialization of the application.

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The program will provide farmers with real time technical information on soil, water and crop management, pest and disease control measures, weather forecasts and other critical technical information. It will link retail outlets directly with farmers and with all other elements of the fresh produce supply chain, enabling the retailers and producers to jointly plan cropping schedules to meet retailer needs and facilitating control of the entire process from planting to placing products on retail shelves. It will provide the farmer with the means to produce for specific markets, rather than growing his crops and then hoping to find suitable markets at harvest time.

The key link in the program will be field extension agents equipped with handheld communication devices (high end mobile phones or PDAs). The agents will maintain direct personal contact with the producers. They will be linked to a technical data base and to on-call experts in order to provide the farmer with the technical information services. The extension agents will also be linked to retailer buyers in order to transmit information from the buyers to on cropping schedules, types of products to be delivered at specific times and other crop planning information, including scheduling of production inputs and of crop deliveries.

The GMED program ended in September 2008. The success of the efforts by the GMED team to integrate small-scale Indian vegetable and fruit farmers into organized retail and export supply chains has resulted in plans by the team members to establish a commercial company to carry on these efforts after the GMED program officially closes.

References

1. Bijapurkar,R.(2007).WeAreLikeThatOnly.UnderstandingtheLogicofConsumerIndia.ThePenguinGroup.2. Boselie,D.,S.HensonandDWeatherspoon(2003).SupermarketProcurementPracticesinDevelopingCountries:

RedefiningtheRolesofthePublicandPrivateSectors.AmericanJournalofAgricultural3. Economics85(No.5).4. FCCIandErnstandYoung2007.WinningwithIntelligentSupplyChains.FederationofChambersofCommerceofIndia.5. GMED(2008).January-FebruaryNewsletter.6. GMED(2008).March-AprilNewsletter.7. Hu,D.,T.Reardon,S.Rozelle,P.TimmerandH.Wong(2004).TheEmergenceofSupermarketswithChineseCharacteristics:

ChallengesandOpportunitiesforChina’sAgriculturalDevelopment.OverseasDevelopmentInstitute.8. IndianBrandEquityFoundation.IBEFwebsite,2008.



Farm to shelf horticulture supply chain

Cooperative model (e.g. Nandani)

Farmers

Transport Transport

Selected vendorsTransport Transport

Collection center

Aggregate

Remarks

Farmers don’t go to MandiCoop. arranges transportCoop. selects vendorsVendors can be wholesalers, retailers or exportersSome processing and cool storage offered by coop.

Legend= Cooperative

= Other stakeholders


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Dr.ManojDubeyAlumnus (PGPABM |Batch of 2011)

Indian Institute of Management Lucknow

The state of Andhra Pradesh (AP) has a unique leadership position within Indian microfinance. The state government has

not only made significant investments in subsidizing financial inclusion through SHG programs, but has (at least till now) also allowed the Grameen/JLG (Joint Liability Group) model to flourish. Andhra leaded all states in micro-loans, with a share of 35%. It is thus not surprising that the four largest MFIs in India are based in AP, alongside numerous other mid-sized MFIs. But they are now on the brink of closure because of the crisis in the sector in the state.

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Basics of an Operating MFI MFI borrows from banks at 11-14% and lends it (mostly to poor women) at an average lending rate of 28%. Even after accounting for operating expenses, it earns a generous spread, but that's not the only source of its profits. MFIs also profit from rotating the money. MFIs repay banks on a quarterly or half yearly basis; however, their borrowers repay MFIs on a weekly basis. The profit comes from the compounding effect, not just by having low distribution costs. Say, an MFI borrows 1 lakh from a bank at 10%, with quarterly repayment. The MFI uses the Rs 1 lakh to give 10 micro-loans of Rs 10,000 each, for one year, at an interest rate of 24%. So, it collects 230 as weekly installments from borrowers for 50 weeks — 200 towards principal, 30 towards interest. At the end of the first week, the MFI would have collected 230 each from ten borrowers, or 2,300. But it won't repay the bank for another 11 weeks. So, the interest MFI earned in the first week is free capital, which can be lent again. Similarly in the second week, the MFI will not only earn 2,300 from its original borrowers, but also 50 from the 2,300 it had lent from its first week collections. Weekly rotation of cash is critical to MFI operations and profitability. Since they are barred from taking cash deposits, MFIs functioning as a non-banking finance company (NBFC) rely on three sources of funds viz. Equity and grants, surplus from past operations, loans from banks. The government of AP had been struggling to cope up with the tragedies of farmers committing suicides in the state so it had to take some corrective and politically appealing measure to cope up with the situation. It did so but the MFI’s had to face the brunt of it. The government came up with an ordinance on Oct 15 which was issued to regulate the sector, it-

Required MFIs to take government approval before granting a loan Banned weekly collection of dues Stopped lenders from collecting installment from a borrower's house January 15 onwards: provisioning. Under the rules set by the Reserve Bank of India, if an MFI does not receive interest income for three months, it has to provide for 10% of the loan amount

Basically, it makes it almost impossible for MFIs to do business. MFIs have barely given 100 new loans since the ordinance came in, Trident an AP based MFI has seen its collections in Andhra drop from Rs 22 crore in September to

Rs 17 crore in October, to 2 crore in November, to 1.6 crore in December. MicroFin Society is a small NGO-MFI, with a loan portfolio of Rs 20 crore in Kurnool and Ananthapur districts in Andhra had 35,000 borrowers, 100 staff members and 11 branches. In last 15 years, they had 100% repayment, now; the repayment is down to zero in urban areas and 2% in rural ones. A report by credit-rating firm Crisil, released in November, said collections in Andhra had fallen below 20% of the loan amount due, from 99% just before the ordinance was issued. Some MFIs say the collection rate has fallen further. BANKS will feel the trickled down effect of MFI distress, as the three-month provisioning rule applies to them too. According to NABARD, as of March 2010, the banking sector had lent 20,000 crore to MFIs. When the ordinance was issued, it was 25,000-28,000 crore, of this, about 35% is in Andhra." On a base of Rs 25,000 crore, that is 8,750 crore. If only 20% of that is being serviced, as Crisil says, then Rs 7,000 crore is under stress. A 10% provisioning would mean an expenditure of Rs 700 crore by MFIs. For banks, it could be more if MFIs close down. Banks face a tough choice. If they don't restructure the loans, the MFIs could collapse, saddling banks with huge losses. If they give MFIs additional time to repay, they will have to make big provisions. Plus, unless the freeze in Andhra thaws, they can't be sure if they are throwing good money after bad. The reasons behind the promulgated ordinance were built on the basis of four premises: a. MFIs charge usurious interest rates; b. If clients fail to pay on time, MFIs use coercive methods

to collect the interest; c. These practices are forcing the poor to commit suicide; d. MFIs make huge profits and have no social mission to

help the poor. I personally believe the government has the best of intentions. But in promulgating this Ordinance, it has challenged the fundamental right of an individual to make choices – and perhaps even the rights of law-abiding MFIs to run businesses. The allegation that some MFIs, in pursuit of growth at any cost are pushing unaffordable loans and then using unethical measures to recover them, represents a very real issue. It also segues to a larger question on industry direction: Has the quest for commercial capital for scaling up, and for higher valuations, overtaken the mission of meaningful social impact through microcredit? These are issues that merit discussion and debate. But wholesale closure of the industry, even as the unintended consequence of an ineffective piece of legislation, damages India more than it punishes irresponsible or criminal lenders.

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INTEREST GROUP IN FOOD & AGRIBUSINESS

Articles are invited for the next issue of ‘Sylvan’. Kindly e-mail your articles to [email protected]

Please restrict your article to 1000 words [Standard Font: Calibri | Font Size: 12]. All published entries will get a letter of appreciation from

“Interest Group in Food & Agribusiness”, Indian Institute of Management Lucknow.

YOURARTICLE

CAN BE HEREClaim your space in ‘August 2011’ Issue of Sylvan!

August 2011


JasdeepMandiaPGP Student | Batch 0f 2012 Indian Institute of Management Lucknow

Today I happened to visit the rural India for my managerial economics projects. It’s good to visit rural India once in a while

to see the reality and realize that conditions are not as good as being projected by major business newspapers.

100’s

REAL ENCOUNTER

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A RENDEZVOUS


Some of the major newspapers project the Indian rural market to be the next big thing after the TV and mobile reach in the interims of the area and thus affecting the buying behavior of the rural people. Credit for the quadrupling of the rural spending has been attributed to the success of NREGA, mobile and TV reach, rotation of money and young people being the decision makers. All said and done, things doesn’t look that great as of now because of the child labor, lack of infrastructure and low income payment in the interims. In between these dark factors, I see a ray of hope through entrepreneurship that can be used as a tool to reach the desired results sooner.

The study of demand-supply and distribution of charcoal industry took my team to the numerous dhobis, hotels, and retailers in and around Lucknow and wholesale dealers at Aishbagh-Lucknow. Finally we reached the place where charcoal is manufactured from wood and distributed throughout the state – Beniganj. Beniganj is currently one of the major charcoal producer area in the state and caters to the areas of Lucknow, Muradabad, Meerut,Ghaziabad and Faizabad.

After hearing numerous stories from wholesale dealers, retailers and producers here is the excerpt. Earlier charcoal was transported from Gaya, Bihar to cater the needs of Uttar Pradesh. Only the major wholesale dealers who could bear the transportation cost and pay for the huge quantity transported were in existence. This scenario was prev-

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-alent till last 10 years. But scenario changed completely because of a step taken by one man. Some 25 years back, one ‘Miyaan Ji’ (could not find his name) started a charcoal production unit in Beniganj. He ran the unit to cater the needs of the nearby villages. By looking at him, few other villagers opened similar units and production of the charcoal increased. Boom came in the last 7 years and currently there are multiple people involved in the production and annual production rising to more than 10,000 ton. It has provided employment opportunities to almost 75 people but sadly most of them are children. Employment also got generated for transporting the material from one place to another. Interestingly, from a mere figure of 27, the number of dealers in Lucknow has risen to whopping 400 in the last 7 years.

Charcoal industry at Beniganj has not only brought it in a better position than its counterparts but also changed the market by bringing competition and numerous dealers stretched throughout the cities.

This case is a fine example of how an entrepreneur gives birth of 100’s of entrepreneurs. It also strengthens by belief of entrepreneurship in micro, small and medium enterprises as the crucial tool for building this nation.

But this is happening at a pace much slower than what is required. Charcoal industry requires permission from various governmental entities like ministry of forest, ministry of environment, local police, local fire department and local administration department. It has been found that getting permission takes lot of time and is highly bureaucratic. Moreover running a production unit also requires yearly operational permits, which makes it difficult for more entrepreneurs to enter in this industry. Being one the sector that is ignored by the government, it faces difficulties of labor laws and getting the raw material from a sustainable source. Tree cultivation is hardly followed in India therefore the chances of illegal cutting of the trees or forest areas for the raw material increases. Due to the lack of the financing options to the common man, only well to do rural people were able to enter in this industry.

If developed properly, this sector will not only provide employment opportunities to the rural people but will also lead to the development of other industries like planned tree cultivation.

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The United Nations General Assembly has proclaimed 2011 as the International Year of Forests (Forests 2011). Everyone

from Governments and the UN system, to major groups and other forest-related organizations are invited to come together to raise awareness on strengthening the sustainable management, conservation and sustainable development of all types of forests for the benefit of current and future generations.

Environment Update 27


Basics Goals: Forests 2011 is a unique opportunity to highlight the key role of forests in our lives. By showcasing success stories and solutions, the year will galvanize greater public participation in forest-related activities. Theme: “Forests for People” is the main theme of the Year. It highlights the dynamic relationship between forests and the people who depend on them. When: The official launch ceremony of the Year took place as part of the high level ministerial segment of the ninth session of the UN Forum on Forests at UN Headquarters on 2 February 2011. The launch ceremony featured high level guest speakers from around the world, clips of winning films from the International Forest Film Festival and media activities. Where: The Year is a global event to be celebrated at all levels – regional, national and local. A variety of events have already been planned worldwide, and more continue to develop. Activities include tree planting, reforestation efforts, forestry fairs, conferences, and competitions in areas ranging from photography and art to athletic triathlons in forests. Other activities include publication of books, educational materials, public service announcements and media campaigns. Focal Point: The UN Forum on Forests Secretariat (UNFF) was requested by the UN General Assembly to serve as the focal point for Forests 2011, in collaboration with Governments, the Collaborative Partnership on Forests (CPF), major groups and other relevant organizations. The success of Forests 2011 will be a combination of actions on the local, national and regional level. All organizations, from governments to schools, are encouraged to hold activities in celebration of the Year. These activities can be showcased through the Forests 2011 website, which is managed by the UNFF Secretariat, in cooperation with the UN Department of Public Information (DPI).

Promotions & Materials

The Forests 2011 website will create an interactive environment for dialogue and action. A searchable calendar of Forests 2011 activities worldwide will serve as one of the main platforms for actions. Photographs, videos, audio and other forms of multimedia will serve both as informational resources and inspirational messages on the importance of forests. Logo & Other Informational Materials: Since the launch of the logo in July 2010, the logo has been distributed to over 500 organizations and translated into more than 40 different languages. An animated version of the logo has been created for use in videos, on the website and for products such as e-Greetings. Templates for printing Forests 2011 bookmarks, folders and postcards will soon be available on the website. Forests 2011 Stamp Series: The UN Postal Administration is developing a UN commemorative stamp series for the International Year. The UN stamp series will be issued in New York, Geneva, and Vienna. Other countries have also produced or are working on a stamp series. Forest Messengers: The UNFF Secretariat is identifying individuals who can use their leader or celebrity status to help raise awareness and generate media attention. These “ambassadors” are being sought from around the world and would travel to events to promote Forests 2011 as part of public outreach efforts. Advisory Committee: An informal committee comprised of influential leaders and experts in communications and media, including well-known film makers, has helped guide Forests 2011 activities.

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Quick Facts

Forestscover31percentoftotalgloballandarea.Forestsstoremorethan1trilliontonsofcarbon.Over1.6billionpeople’slivelihoodsdependonforests.Tradeinforestproductswasestimatedat$327billionin2004.Forestsarehometo80percentofterrestrialbiodiversity.30percentofforestsareusedforproductionofwoodandnon-woodproducts.Forestsarehometo300millionpeoplearoundtheworld.Deforestationaccountsfor12to20percentoftheglobalgreenhousegasemissionsthatcontributetoglobalwarming.


THE CRUCIAL LINK IN AGRICULTURAL INFRASTRUCTURE ManishAnand

PGP Student | Batch of 2012 Indian Institute of Management Lucknow

Traditionally agriculture has been the chief occupation of Indians. Even today, it employs close to 60% of India workforce.

However, the paradox lies in the fact that its contribution to India’s GDP is under 20%.

The prime reasons behind the inefficiencies in the marketing of horticulture produce are the presence of a large number of intermediaries with inadequate storage facilities between the place of production and that of consumption. This amounts to spoilage of the horticulture produce to the tune of about 35% - more than the total produce of fruits and vegetables in Great Britain. This does calls for urgent steps to establish a robust storage infrastructure, mainly cold chains.

India is the largest producer of fruits and the second largest producer of vegetables in the world, with total production of 73.52 million tonnes of fruits and 136.1 million tonnes of vegetables. It is also the largest producer of milk with 105 million MT per year and produces 6.5 million tons of meat & poultry and 6.1 million tons of fish.

However, due to inadequacy of cold chain the wastage in fruits and vegetables is estimated at 25 – 30% of the total production. Most of the infrastructure uses outdated technology and is single commodity based.

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The cold chain industry is estimated to be as large as USD 2,000 - 3,000 million, growing at 20-25 per cent and is expected to touch USD 8,000 million by 2015. As per Government of India estimates, there are 5386 cold storages in India with a total capacity of 23.66 million MT which caters to less than 15% of the produce. India has about 250 reefer transport operators involved in business of transportation of perishable products. It is estimated that about 25000 vehicles are involved in business of perishable products. The value of reefer transportation business in India (both organized & unorganized segment put together) is estimated at about USD 250 million.

This leads to a very important question – “What are the issues that impede the development of world class cold chain facilities?” The main bottlenecks identified are:

1. Lack of knowhow and trained manpower

2. Lack of backward & forward linkages to supplement Cold Chain

3. Lack of trust on viability of Cold Chain projects

4. High capital investment

5. High operational costs due to high cost of power

6. Problems of optimization in reefer transport However, in spite of the many hindrances, the cold chain industry has begun to show signs of growth in the past couple of years. Some of the identifiable development and initiatives are:

A. In Financial year 2009 – 10, Ministry of Food Processing & Industries has sanctioned 10 cold chain projects under the “Scheme for Cold Chain, Value Addition and Preservation Infrastructure”

B. In last two years a number of private entrepreneurs have invested in cold chain infrastructure

C. A number of international majors in cold chain logistics have started operations in India during this period

D. An important development is the movement of refrigerated wagons through Railway network under Public Private Partnership model

Growth of Organized retail network including Cash & Carry operations by International retail chains is driving demand for value added perishable food products. However, even with all these initiatives, cold chain infrastructure is still in the initial stages of development and the growth has been much lower than expected. It’s high time the Govt. and private players come together to form a partnership that addresses the crucial issue of under productivity in agricultural sector on account of poor infrastructural facilities. Investments in cold chains and other infrastructural development would enhance the GDP of the country significantly, and would go a long way in ensuring that the growth of economy is not limited to the urban areas of the country, but is inclusive of those residing in the rural areas and engaged in agriculture.

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The Returns of

Dr.SugandhaBishtPGP, CABM

G. B. Pant University of Agriculture & Technology Pantnagar

In 1960s, a new chapter was added in the history of Indian Agriculture, The Green Revolution. It’s a well-known fact that

more than 60% of the India’s population is based on the agriculture for their livelihood. If we also included the agri-retail sector then, the count reach upto 80% of the population. The Green Revolution was mainly aimed to keep food supply ahead of rising demand over the past 30 years. It helped in raising the productivity of the three main staple food crops- Rice, Wheat and Corn. But, the revolution merely postponed the still-impending collision between the rapidly growing population and constantly decreasing food supply. One of the designers of the Green Revolution, Dr. Norman E. Borlaug quoted it only as a “Temporary Success”. He pointed out that it is not enough to boost yield on existing cropland; slowing the population growth is also crucial. Today, food production still suffers from wide fluctuations. The natural calamities and poor distribution leave a fraction of the India’s people hungry or poorly nourished.

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Why the Green Revolution Fails?

India is one of the fastest growing economies in the world, but it’s still unable to meet the food requirement of its ever growing population. The game of blaming is on, since the announcement of need of Second Green Revolution has been made by Prime Minister, Dr. Manmohan Singh. Experts blame government to not emphasizing on the prime focus of the Green Revolution viz. introduction of high-yielding varieties of rice and wheat, expanding the use of irrigation, and access to loans for farmers. Though, the food production soars post Green-Revolution period, it did not end the hunger in India. As per the UNICEF, 200 million children-one third of all the malnourished children in the world live in India. Nearly 47% of the India’s children are severely underweight. The use of fertilizers has been increased after 1960s. But, in due course of time, cost of synthetic fertilizers has risen sharply, in turn increasing the cost of food production. Also, the high cost of mechanization and high yielding variety seeds were not affordable by many farmers. Farmers also shifted from food crops to cash crops (e.g. cotton), which is a contributing factor of the reduction of land for traditional hardy and nutritious food grains like Sorghum and Buckwheat. All these issues result into inflation of food prices which puts an additional stress on Indian Economy. GR also failed to increase the productivity of all crops or in all regions. It was mainly focused on the food grains only, and the areas which were benefitted most were Punjab, Haryana and West Bengal. Rest of the country was not affected much.

Need for Second Green Revolution

The need of the hour is to meet the demands of steadily growing population and also facilitating poor to find his way out of the poverty by generating self-employment. The idea of the “Second Green Revolution” was put forward by George W. Bush during his 2006 speech in Delhi as a new agricultural development initiative, which was further supported by Obama government. The foremost goal of this initiative was to increase the agricultural productivity to promote food security. The target of SGR is to achieve 400 million tons of food grain production by 2020. And for this a growth rate of 5-6% has to be maintained over next 9 years. The major difference between FGR and SGR is that FGR was for gaining mass agricultural production, while SGR is to promote agricultural production for masses.

What is required to start the “Second Green Revolution”?

The availability of the Mexican high yielding variety of Wheat, electrification of the farms and various land reforms are some of the factors which made the First Green Revolution possible. But, that golden period didn’t continue for long. Government has to be seriously prepared for the forthcoming mayhem. The crop yields are rising at a slow pace, water tables are dropping and agricultural growth rate is not up to mark. According to Borlaug, four factors which should be peeped on are:

1. Scientists

2. Service (Production and Distribution of quality seeds/ power distribution)

3. Political system

4. Farmer’s enthusiasm

The last one is most important and very difficult to achieve. That’s why the SGR is not yet initiated in the country. The NSSO survey says 45% of the Indian farmers (if given a chance) would not want to continue farming. The government has to re-instill the lost passion of the farmers by increasing their incomes.

New technologies have to be adopted to realize the business potential and employment opportunities in agriculture sector to boost up the income of farmers together with growth and development of the sector, says ASSOCHAM study. The introduction of genetically modified crops has been an important step for improving productivity. Lots of criticism has been seen after the adoption of this novel technology but it’s all political driven. GM crops have been a huge success in the Western countries and it will surely be generating the same results in India. They are a sure shot key to improve the crop yield, pest resistance and herbicide tolerance. It has been proved that even if a small (20%) land comes under GM cultivation in India, it will add 30 to 60 million tons of additional food for the consumers. Considering this fact, if GM food will be continued it will definitely show a ray of light to the path out of poverty.

The entrance of private companies into the agri retail sector after the amendment of APMC act has been a major development towards the SGR. The companies like Bharti Airtel, Reliance, and Adanis have already jumped into this area. They aim to deliver better returns to the farmers. The main idea is to collect directly from the door step of the farmers (strengthening the distribution network) and sell-

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-ing the produce to the consumers. This concept runs on Public Private Partnership model and has led to the development of agricultural markets in the country.

Now, it’s the time for government to reconsider its policies and regulations. Funds have to be allocated for re-structuring the disrupted framework of the Indian agriculture. The proportion of irrigated land should be increased. Reducing the import duties on food import, reducing farm subsidies and new preservation policies are some of the topics of concerns for the govt. Barriers to retail trade also need to be loosened.

In a nutshell

India is the second largest populated country of the world but still not able to feed all its citizens. Post-independence period had also suffered with the circumstances of famines and droughts. Then, under the leadership of Indira Gandhi, Normon E Borlaug and M S Swminathan (father of Indian GR), India was able to come out successfully and was able to feed many generations but after decades it was realized that only one Green Revolution is not enough to sustain life in this country. The intensifying crisis in agricultural production and distribution is entrapping the entire nation in an unprecedented crisis. To face the upcoming predicament, a Second Green Revolution is needed. But it should be focused more on incrementing the farm yield, providing more and more opportunities for agricultural growth and boost the economy, along with the improvement in the living status of the farmers.

TRIVIA

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AsyoufinishreadingSylvan,wewouldliketorememberwithappreciation,allthose who helped us in bringing it to light. We would like to express our sinceregratitude to Prof. Kriti Bardhan Gupta for contributing his article to Sylvan. Weacknowledgetheconstantsupportandguidancegivenbythefacultyandthankthemfor spending their valuable time formaking this effort a success. And last butmostimportant, to the student community for being the mainstay for Sylvan, for theoverwhelmingresponseyougaveintheformofnumerousarticles.Finally,wewouldlike to thank each & everyone who remains a substantial part of this wonderfulendeavor.

Expectingyourwholeheartedencouragementinfuturealso…

Anurag|Raghav|Sumeet|Viplove|Yukti

Interest Group in Food & Agribusiness Indian Institute of Management Lucknow [email protected]

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Sylvan [Issue: July 2011]