business model organic paddy, millets and vegetables · 2021. 1. 6. · 2 business model on organic...

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BUSINESS MODELORGANIC PADDY, MILLETS

AND VEGETABLES

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New Delhi, IndiaMay 2020

BUSINESS MODELORGANIC PADDY, MILLETS

AND VEGETABLES

CONTENTSABBREVIATIONS

1. BACKGROUND 11.1 Changing Paradigms in Agriculture 11.2 Key Highlights of the Organic Market 11.3 Organic Production in India 21.4 Export of Organic Products 31.5 Key Factors Impacting the Organic Market in India 4

2. PROJECT IDEA 52.1. Intervention strategies 52.2. Potential for upscaling 52.3. UPNRM Case Example: Sahaja Samrudha Organic Producer Company Ltd (SSOPCL) 62.3.1. Background of the FPC 62.3.2. Subsidiaries 62.3.3. Governance 72.3.4. Business Model 82.3.4.1. Field Operations 92.3.4.2. Package of farming practices 102.3.4.3. Procurement and Primary Processing 112.3.4.4. Storage and Packaginga 112.3.4.5. Marketing and Distribution 122.3.4.6 . Pricing 12

3. FINANCIAL DETAILS AND CASH FLOWS 133.1. Cost-Benefit to Farmers 133.1.1. Cost-benefit Analysis for Paddy 133.1.2. Cost-benefit analysis for Ragi 163.1.3. Cost-benefit Analysis for Beans 19

4. KEY CHALLENGES 234.1. Challenges in Arranging Capital 234.2. Competition 234.3. Low Crop Productivity Under Organic Farming 234.4. Insect and Disease Management 234.5. Lack of Awareness Among Consumers 23

5. IMPACTS AND SUSTAINABILITY 245.1 Impacts 245.1.1. Benefits to farmers 245.1.2. Impact on channel partners 245.1.3. Impact on consumers 24

5.2 Mainstreaming Options 24

5.3 Sustainability 25

5.4 Way forward 25

ABBREVIATIONSAPEDA Agricultural and Processed Food Products Export Development AuthorityCAGR Compounded Annual Growth RateFPC Farmer Producer CompanyFPO Farmer Producer OrganisationGMO Genetically Modified OrganismsSSOPCL Sahaja Samrudha Organic Producers Company LimitedUPNRM Umbrella Programme on Natural Resource ManagementUSD United States DollarUSDA United States Department of AgricultureSKU Stock Keeping Unit

1Business Model on Organic Paddy, Millets and Vegetables

India is an agrarian economy with nearly 59 percent of its total workforce employed in agriculture and allied sectors for livelihood in the year 2016 and Indian agriculture scenario is characterised by domination of cultivation of food grains contributing 70 percent share and horticulture contributes 30 percent share in total agriculture production. Nearly 86 percent of the farmers in the country have marginal (0-1 Ha) and small (1-2 Ha) operational holdings. India has 48 percent of the net sown area under irrigation. However, Indian agriculture remains largely dependent upon seasonal rainfalls as agriculture output is affected by temporal and spatial vagaries of monsoon.

1.1 Changing Paradigms in AgricultureIn the aftermath of the Green Revolution, the Indian agriculture sector underwent a sea-change. In particular, the increased usage of farm inputs such as hybrid seeds, fertilizers, irrigation, and pesticides led to self-sufficiency of food grains. While the Green Revolution had resulted with in increase in yields and total production with of wheat and rice, it came with certain setbacks. Pesticide consumption in India increased drastically over the next 50 years, finally leading to stagnant yields and environmental hazards. The other impact was lack of crops to withstand the impact of natural calamities, less viable small scale farming India has nearly 47 percent of farm households operating on plots less than one acre of land. Finally, farmers bear the brunt of vicious cycle of poverty, arising from low returns and excessive costs in conventional farming system.

It has been reported that conventional farming practices adversely impact soil health and environment. In this search for eco-friendly and farmer friendly alternate systems of farming, organic farming is increasingly becoming popular among the farming communities. With word Organic farming practices involve use of non-chemical inputs to provide safe and healthy options for consumers, while balancing the environment at the same time. The organic product market in India has been witnessing a very strong growth rate in the past few years due to the shift in the nature of agricultural product value chain. For a significant period of time, the agriculture value-chain was driven by production, however the last two decades have seen the shift towards demand-driven value chain due to consumer choice towards quality, safety, variety and convenience. In this context, organic products have got an impetus and considered the future of sustainable farming.

1.2 Key Highlights of the Organic Market As per the latest available statistics, the organic market size was valued at INR 4,000 Crores in 2018 and is expected to rise to INR. 10,000 -12,000 Crores in 2020, growing at a CAGR of 25 percent. Packed organic food and beverages is one of the growing segments within organic market. A snapshot of growth trends in organic food and beverages has been provided hereunder.

01 BACKGROUND

1MFAO - India at a Glance 2Horticulture at a Glance 2017 3Agriculture Census 2015-16

2 Business Model on Organic Paddy, Millets and Vegetables

1.3 Organic Production in IndiaThere are three categories of organic farmers in India. The first category of organic farmers are those who are in ‘no-input or low-input’ use zones, for them organics is a way of life and they practise it as a tradition. The second category of farmers are those who have recently adopted the organics in the wake of ill-effects of conventional agriculture. The third category comprise of farmers and entrepreneurs who have systematically adopted commercial organic agriculture to capture emerging market opportunities and premium prices. These third category commercial farmers attract the most attention. Emerging from hardly 42000 ha during 2003-04, the area under organic farming increased to 4.5 million ha in India during 2011-12, comprising 5.46 lakh producers.

According to the World of Organic Agriculture report 2018, India has 8,35,000 organic farmers, which would comprise 30 percent of the total organic farmers in the world. However, a remarkable section of Indian farmers are small and marginal farmers, therefore only a meager amount of 0.4 percent of arable land in India is used for organic cultivation. This presents a large scope for increase in organic commodity production in India.

Source: Euromonitor

100

2011

Market size of packed organic food and beverages (in INR Crores)

2012 2013 2014 2015 2016

160

300

380

460

520

4.43

5.554.72 4.9

5.71

2010-11 2011-12 2013-14 2014-15 2015-16

Area under organic cultivation in India (in million ha)


The area under organic cultivation in India increased at a Compounded Annual Growth Rate (CAGR) of 6 percent from 2010-11 to 2015-16 (with an absolute growth of 29 percent during the same period). According to the data by government of India, the area under organic cultivation is projected to grow at 8 to 10 percent till 2020.

The organic production is different under different crops in India. As per the available statistics, sugar crops is the largest category grown under organic practices. The other major crop categories under organic cultivation include oil seeds and fiber crops.

OthersFodder crops

Tuber crops

Dry fruits

FruitsMAPs

Plantation cropsPulses

CerealsFiber crops

Oilseed cropsSugar crops

VegetablesSpices and Condiments

Ornamentals and Flowers

0.27

0.040.17

2.367.35

10.8218.18

20.22

32.6633.93

34.7159.5

208.93

228.4

338.18

Production of organic crops in India 2014-15 (in thousand MT)

Source: ASSOCHAM

1.4 Export of Organic ProductsPresently, India is the second highest exporter of organic products after China, with the major export destinations being the US, European Union, Canada and New Zealand. The Indian organic export market is estimated to be USD 299 million in 2015-16. Industry reports indicate that active policy support from the Government of India is required to fillip the export of organic products in the coming years.

1%2%

2%

2%

17%

Dry fruitsPulses

TeaOthers

Cereals and Millets

Oilseeds25%

50%

Processed food

1%Spices

Cereals and millets

Processed food

Oilseeds

Spices

Tea

Pulses

Dry fruits

Others

Key organic products exported from India(percentage of total value of organic exports)

Source: APEDA


1.5 Key Factors Impacting the Organic Market in IndiaOver the last decade, the consumers in India have increasingly started to shift towards organic products due to the perceived health benefits of organic products. Taking cues from the shift in consumer preference, the farmers in India are also gradually shifting to organic farming. The key reasons for this shift from conventional towards organic have been reported as hereunder:

Health benefits of organic products

Organic agricultural products contain lesser pesticides and other chemicals. The strict standards and norms set by the various government agencies for the certification process and the periodical inspections of the crops (both during sowing and processing stages) ensure that fewer chemicals (or none) are used in cultivation.

Genetically Modified Organism (GMO) and toxin-free products

Strict inspection by officials from state government departments ensures that the certification of organic products is done after a thorough due-diligence. This ensures that no toxic-persistent pesticides, GMO and synthetic fertilizers are used in production.

Environmental benefits of organic products

The absence of intensive application of growth enhancing chemicals in organic farming reduces water and soil pollution. The synergistic process implemented in organic farming promotes conservation of biodiversity and enhances ecological functions through greater use of biofertilizers.

Economic benefits to the farmers

Most of the organic produce is procured by agribusiness companies and Farmer Producer Companies. Hence, the farmers are able to avoid the usual supply-chain which includes multiple handling through market intermediaries, who often take a huge mark-up on the products.


PROJECT IDEA02India has diverse of agroclimatic zones and different seasons, due to which the country produces a variety of crops to feed a population of approximately 1.3 billion and meet the export demand. However, there exists a huge gap between per capita demand and supply of food due to enormous wastage during postharvest handling and marketing. These losses are a missed opportunity to recover value for the benefit of farmers. The deployment of appropriate strategic and operating models can allow the efficient closure of gaps between demand and supply so as to contribute to doubling farmers’ income. The gaps between demand and supply are primarily due to ineffective market links and lack of consolidation on both the demand-side and supply-side. On the supply side, the government has an agenda to promote modern cultivation practices, lower input costs and most importantly to counter fragmentation of farmlands by promoting FPOs (Farmer Produce Organisations)/FPCs (Farmer Producer Companies) for collaborative farming.

The ‘organic’ segment has a huge potential to grow, particularly in the Tier-1 cities. However, farmers require a lot of support to sustain their farming operations as well as grow with the opportunities lying ahead. Technical support to the farmers on use of desirable agro-inputs and collective marketing can earn farmers remunerative prices for the organic produce.

Farmers of Karnataka have been pioneers in organic agriculture and they have developed different systems of cultivation through an indigenous knowledge base by using organic wastes and holistic pest control methods to control the pests and diseases. The organic movement started in the state since the last two decades and it is currently growing in the districts of Dakshina Kannada, Udupi and Chikmagaluru among others.

2.1. Intervention strategiesThe State government of Karnataka launched the 'Karnataka Organic Farming Policy 2017', in order to enable the developments in organic farming, by reforming the Organic Farming Policy of 2004. The new policy aims to bring organic farming into the mainstream and transform agriculture in Karnataka into a sustainable remunerative occupation, enabling production of nutritious food by promoting eco-friendly organic farming and marketing systems. The policy strategies include organic farming in mainstream agriculture, focus on region and season- specific crops to increase farm output and income, adoption of group-centric approaches to production, handling and marketing of organic produce, diversified farming for maximising production, productivity and farm income and promotion of nutra-cereals. The policy also focuses on conservation and management of soil and water and agri-ecosystem, improving supply chain and infrastructure for post-harvest management and authentication, quality control, branding, labelling and packaging of organic produce.

Providing direct market access to the farmers plays a crucial role in economic development. Farmers’ markets are an integral part of the rural-urban linkage and have continued to rise in popularity with growing consumer interest in obtaining fresh products directly from the farm. Developing a model which is led by farmers and farming experts can bridge the gap between farmers and consumers and create a win-win situation for both, better price realisation to farmers and better choices and product offerings to consumers.

2.2. Potential for upscalingThere is a large scope for up-scaling of collective production and marketing of organic products. A lot of agricultural commodities are grown in small quantities in areas which have less market access. The concepts of aggregation, value addition and marketing in organic products can help the producers, which are mostly small landholders on the one hand and the consumers seeking benefits of using organic products on the other hand. The model can be replicated in the following geographies:


Paddy Odisha, Chhattisgarh

Minor Millets Rajasthan, Odisha, Chhattisgarh, Jharkhand

Fruits and Vegetables Production clusters near Tier-1 cities

Non-Timber Forest Produce Jharkhand, Chhattisgarh

2.3. UPNRM Case Example: Sahaja Samrudha Organic Producer Company Ltd (SSOPCL)

2.3.1. Background of the FPCSahaja Samrudha Organic Producer Company Ltd (SSOPCL) was formed in the year 2010 and is wholly owned by farmers practicing organic farming. The primary objective of the company is to connect the organic produce to the markets. The company caters to the urban market through a connected network of producers and consumers for procurement and supply of its organic products. Currently, the company is one of the leading wholesalers of organic produce in Karnataka. SSOCPL was incorporated with 10 farmers as its founder members and currently has 724 members. Through its network, SSOPCL also works with farmers from Tamil Nadu, Telangana, Andhra Pradesh, Odisha, Chattisgarh, West Bengal etc.

2.3.2. SubsidiariesSahaja Seeds

Procuring traditional seeds from the farmers was a challenge. Realising the value of conserving seeds, another producer company was formed in 2013, named as Desi Seed Producer Company (Sahaja Seeds). Sahaja Seeds focuses only on the production and marketing of traditional organic vegetable and cereal crop seeds which are high quality and open-pollinated.

Sahaja Media

Sahaja Media is an offshoot of Sahaja Samrudha and engaged in publications related to organic produce. with the word It. Was started as a medium to create awareness amongst the populace on organic farming and produce. It provides information about traditional seeds, organic farming, and success stories of farmers. It also publishes books in the Kannada language to connect to farmers directly, with publications also including recipes for cooking millets.


2.3.3. GovernanceThe company is governed by a Board of Directors comprising 7 members. The CEO reports to the board of directors. There are four verticals (grocery, fruits & vegetables, branding & exports) under the CEO’s control, along with the verticals of Finance, Human Resources and Administration. Currently, SSOPCL is on the cusp of change, considering tapping of consumers through online retail channels as well as addressing the needs of the international markets. It is expected that the company might change its current organisational structure to adapt to the changing needs of consumers. A snapshot of the current governance structure of the company has been provided hereunder.

BOARD OF DIRECTORS

CEO

International Grocery

SALES

Exports & BrandingGM

W/H Dispatch

SALESCOORDINATOR

Sales Exe-Vacant

WH Sourcing

Sales Exe.

Packing Dispatch

Labour 2

Executive - Op.

Labour 6+1

Transportation

FnV

Sales

Oprtn Exe

Oprtn Exe

Labour 4

Production &Certification

Production

Finance

CFO

Accounts Exe

HR & Admin

GM-Prasad

Office Boy


2.3.4. Business ModelSahaja Samruddha works with farmers to preserve and improve indigenous crop varieties. It primarily started as a farmers’ initiative to exchange ideas, seeds and share knowledge on sustainable agriculture. Since Karnataka does not have an exclusive market to sell organic produce, farmers who followed organic methods of farming were unable to market their produce.

NABARD and Financial Institutions

FarmersSahaja Samrudha Organic

Producer Company Ltd Wholesaler

Certification

ConsumerRetailer

Organic Cultivation Infrastructure and Value AdditionPaddy

MilletsJaggary

Collection centerProcessingBranding and packaging

Input supplyOrganic certificationsTraining and capacity building

Branding and packaging

Sahaja Samruddha Organic Producers Company Ltd. has been formed to market organic products. The company developed a connectivity network of consumers and producers for procurement and marketing under the brand name “Sahaja Organics”. It facilitates farmers through marketing their produce, with a remunerative earmarked price. The produce is procured directly from the farmers and supplied to the network outlets. This chain has been created for the produce to reach the consumer directly. The company pays farmers a premium of 15-20 percent over the market price of the produce and retains a nominal amount for its sustenance.

Most of the farmers registered with the FPC have less than 2.5 acres of landholding. The company promotes only organic and traditional crops of rice, millets, pulses, and fruits and vegetables. These crops are in great demand in the urban areas for their nutritional value and medicinal value, especially millets and red rice. Being one of the largest wholesalers of organic grains in the state, it supplies organic products to around 80 retail outlets in Chennai, Bangalore, districts of Kerala and other distant markets.


Paddy farmers’ network Millet farmers’ network

On the outskirts of Bangalore, organic vegetable cultivation started in few villages surrounding Mayasandra village of Anekal Taluk. The farmers in the Taluk are mainly traditional vegetable and flower growers and mainly follow monocropping of a single vegetable along with flower cultivation. The area is renowned for beetroots and carrots. The company started with 150 farmers initially, converting conventional farmers into organic cultivation. It faced a lot of reluctance from farmers to start organic cultivation in the initial years as the farmers had to travel around 40 kms to reach the city markets. However, after realizing the benefits of premium in organic produce, farmers in the area eventually started growing organic vegetables.

2.3.4.1. Field OperationsSahaja has networked with organizers, consumer groups and farmer groups to work together in reviving the rice based system in Karnataka. The movement has contributed towards conserving approx. 700 varieties of traditional paddy and 68 varieties of traditional millets.


The activities of Sahaja Samruddha have resulted information in formation of four organizations namely Sahaja Samruddha, Sahaja Organics, Sahaja Seeds and Sahaja Media. Sahaja Samruddha realised the importance of seeds for farmers due to difficulty in finding indigenous variety of local seeds, which led to the formation of Sahaja Seeds (registered as Desi Seeds Producers Company Ltd.).

The missing link to market organic produce led to the formation of SSOPCL and finally to keep farmers and interested consumers aware about the information and trends on organic products, Sahaja Media was launched.

The company promotes organic cultivation practices, where farmers use non-chemical and non-GMO means for crop cultivation. Farmers use cow-dung, bio-fertilizer and green manure to meet the nutrient requirements of the crop. For management of insect-pests, mostly bio-based pest control practices or non-hazardous inputs are used, including neem cake, solar operated insect catcher etc. The field staff of the company supervise the farming practices of the registered farmers and advise them to use only recommended agricultural inputs.

2.3.4.2. Package of farming practices

Organic paddy cultivation Organic jaggery production

Source: Synergy Technofin Pvt. Ltd.

Solar operated insect trapUse of drip irrigation in organic beans cultivationComposting


Paddy drying and cleaning facilityFruits and vegetable collection center

2.3.4.3. Procurement and Primary Processing The company procures fruits and vegetables at its collection center at Mysandara and Nelamangala where these commodities are sorted, weighed and stored. Based on the indent from main office, these are moved to storage unit for quality inspection, cleaning and packing.

The company pays farmers on weekly basis. The farms are certified by IMO, which follows stringent monitoring and evaluation processes to ensure that the process and product is complaint to the organic standards.

2.3.4.4. Storage and Packaging The company procures both certified organic and non-certified (under conversion) from sentence should read produce from the farmers the farmers which is stored in the storage facility. To ensure traceability of the produce, the company uses proper tagging for segregation of certified organic and non-organic produce. It also uses bar coding for product identification. The storage area for each product is properly demarcated with labels.

The produce is certified, packaged and labelled in packaging and labelling unit. Packaging and labelling is done through machines while manual cleaning will be done in packaging unit. The company uses nitrogen sealing to avoid pest attack in packed products. The company also uses protective poly bags to control infestation of stored grain pests.

Packaging in cartonsMoisture proof packaging of millets


Packaged products contain two symbols on the product:

• USDA

• NPOP (Indian organic standard)

• NOP certified packs-For export

• NPOP certified packs-For domestic use

FPC also has the European certificate for products and transactions.

2.3.4.5. Marketing and Distribution The primary objective of the organisation is to ascertain that the organic produce procured from its farmer members reaches the end consumers. To achieve this objective, farmers have formed groups in their localities to consolidate produce and deliver to warehouses/markets. This practice saves on resources such as labour, transport and time, while also saving the cost for individual farmers. Currently the company supplies organic produce to 450 outlets in 14 states of the country.

2.3.4.6 . PricingFarmers were finding it extremely difficult to market their produce as mainly the market does not recognize the difference between organic and non-organic produce. Even after practicing organic farming, the produce was being sold in the market with non-organic products. There was no distinction between the two. SSOPCL pays 20 percent premium over the market price to farmers as well as 5 percent withheld price to be paid at a later date after declaring profits.

Branding of product under SahajaAssortment of packaged products


The FPC started in the year 2010 with an initial capital of INR 5 lakh, raised through pooled funds from farmers and farming groups. However, during the first year, the FPC incurred losses and also used the share capital. During 2011-12, the FPC raised an additional capital of INR 3 lakh and an additional amount of Rs.5 lakhs was received from bank to scale up the operations. Even with a turnover to INR 53 lakh, the company had to incur a loss of INR 1.5 lakh.

In 2012-13, the company raised funds from NABARD and also increased its volume to INR 83 lakh. However, the company lagged behind the targeted revenue of INR 1 Crore due to persistent drought situation. The company continued to be a loss making unit, with an accumulated loss of INR 10 lakh. However, the company reached the breakeven, with a turnover of INR 1.27 Crore in 2013-14. As per the latest financial detailing, the company earned a revenue of 7.5 crore in the year 2018-19.

UPNRM supported Sahaja Samruddha Organic Producers Company Limited to market organic produce. The total loan amount from UPNRM comprised of working capital loan of INR 3 million and term loan of INR 0.2 million. The term loan was utilized to build produce collection centers at the cluster level. The grant amount of INR 0.6 million (7,500 Euro) was utilised to train farmers on various post-production aspects such as handling of harvested organic produce, grading, on-farm processing, quality checking, packaging and marketing.

To assess the economic viability of the Sahaja model, cost-benefit and economic analysis has been conducted for key crops under the product portfolio of FPC. For this purpose, three crops, namely paddy, ragi and beans have been considered for assessing the effectiveness of model on key economic parameters, as detailed in the following sections:

3.1. Cost-Benefit to Farmers The major product segments of Sajaha Samruddha’s business are Millets and Fruits & Vegetables. In order to understand the effectiveness of the model, a cost benefit analysis has been conducted for major products, including Rice, Ragi, Beans and Guava.

3.1.1. Cost-benefit Analysis for PaddyThe following tables provides details of the expected cost of cultivation and the expected net revenue for individual farmers engaged in organic paddy cultivation on one-acre land.

A) Cost-benefits for individual farmers engaged in organic paddy cultivation (1 acre landholding)

FINANCIAL DETAILS AND CASH FLOWS

03

Sl. No. Activity Unit Quantity Unit Cost (INR) Year 1 Year 2 Year 3 Year 4 Year 5

A1 Sowing Operations

1 Hiring of tractor for tillage

Hours per acre

3 250 750 788 827 868 912

2Land preparation

Person days

3 250 750 788 827 868 912

3Seed procurement

Kg per acre

25 100 2500 2625 2756 2894 3039

4Nursery Preparation

Person days

8 200 2000 2100 2205 2315 2431


Farmers earn a net income of approx. INR 12150 from the organic farming in the first year of operation, which increases upto INR 28139 in the fifth year. Based on the feedback from majority of farmers, the crop yields under organic farming decline upto 80 percent in the first year and it takes 4-5 years to organic farming to achieve the normal yield.

5Transplanting

Person days

12 200 2400 2520 2646 2778 2917

Sub-total (A1) 7650 8033 8434 8856 9299

A2 Intercultural Operations

1Irrigation

Person days

16 200 3200 3360 3528 3704 3890

2Weeding

Person days

20 200 4000 4200 4410 4631 4862

3 Manure and biofertilizers

LS 8000 8400 8820 9261 9724

4 Harvesting, threshing

LS 9000 9450 9923 10419 10940

Sub-total (A2) 24200 25410 26681 28015 29415

Cost of Cultivation (A=A1+A2) 31850 33443 35115 36870 38714

Income generation (B)

1 Yield per acre Qtl. 17.6 18.7 19.8 20.9 22

2 Price of Paddy Rs. Per

Qtl

2500 2625 2756 2894 3039

3 Total Income Rs 44000 49088 54574 60486 66853

Net income (B-A) 12150 15645 19459 23616 28139


ParticularAmount in INR

Year 1 Year 2 Year 3 Year 4 Year 5

Capital cost 0

Recurring cost 31850 33443 35115 36870 38714

Total cost 31850 33443 35115 36870 38714

Total benefits 44000 49088 54574 60486 66853

Net benefits 12150 15645 19459 23616 28139

Net present value (NPV) of cost ` 1,16,400

Net present value (NPV) of benefits ` 1,79,082

Benefit Cost Ratio 1.54

Under the Sahaja business model, farmers are able to get a return of around INR 2.17 lakh as net present value over five years’ return. The benefit cost ratio for an individual farmer is calculated at 1.54 which is a notable economic benefit to farmers.

Sl. NoParticular Unit Quantity

Unit Cost (INR)


A1 Procurement Cost 44000 46200 48510 50936 53482

A3 Transportation cost Per Qtl 200 3520 3927 4158 4389 4620

A4 Training and capacity building

LS 1 500 500 525 551 579 608

A5 Certification and inspection cost (including overheads)

LS 1 10000 10000 10500 11025 11576 12155

A6 Operational, maintenance and staff expenses

Percentage of procurement price

10 4400 4620 4851 5094 5348

Total Cost 62420 65772 69095 72573 76213

B Income generation

B1 Sale of Paddy Quintals 15.84 16.83 17.82 18.81 19.8

B2 Sale price of paddy Per Quintal 4335 4299 4265 4244 4234

B3 Total sale value Rs. 68662 72349 76004 79830 83834

Profit 6242 6577 6910 7257 7621

B) Cost-benefits analysis for FPC (Per acre)

Economic analysis of paddy cultivation (1 acre landholding)


Sl. No Activity Unit QuantityUnit Cost (INR)


A1 Sowing operations

1 Land preparation LS 3000 3150 3308 3473 3647

2 Seed procurement Per Kg 10 30 300 315 331 347 365

3 Manure and Fertilizer

Tractor Loads2 4000 8000 8400 8820 9261 9724

Sub-total (A1) 11300 11865 12458 13081 13735


1 Weeding Person days 8 250 2000 2100 2205 2315 2431

2 Plant protection and fertilizers

LS 2000 2100 2205 2315 2431

3 Harvesting, winnowing, threshing

LS 10000 10500 11025 11576 12155

Sub-total (A2) 14000 14700 15435 16207 17017

A3 Post-harvest expenses

Drying Person days 4 250 1000 1050 1103 1158 1216

Sub-total (A3) 1000 1050 1103 1158 1216

It can be observed that the FPC earns a profit of INR 6242 per acre in the first year of procurement, which can increase over INR 7621 at the end of five years.

Economic analysis for FPC



Capital cost 0 0 0 0 0

Recurring cost 62420 65772 69095 72573 76213

Total cost 62420 65772 69095 72573 76213

Total benefits 68662 72349 76005 79830 83835

Net benefits 6242 6577 6910 7257 7621




The FPC operate a benefit-cost ratio of 1.1, as indicated through the above analysis.

3.1.2. Cost-benefit analysis for Ragi

A) Cost-benefits for individual farmers engaged in organic ragi cultivation (1 acre landholding)


Economic analysis of ragi cultivation (1 acre landholding)




Recurring cost 26300 27615 28996 30446 31968

Total cost 26300 27615 28996 30446 31968

Total benefits 36000 40163 42525 44888 47250

Net benefits 9700 12548 13529 14442 15282

Net present value (NPV) of cost ` 96,117



Under ragi cultivation, farmers realise a net income of INR 9700 in the first year, which increases upto INR 15282 in the fifth year as the crop reaches it normal productivity levels. One of the key benefits of growing ragi under organic cultivation is that the crop requires less water and also the infestation of insect-pest in the crop is low as compared with other crops (paddy, wheat, vegetables etc). The crop thrives even and rainfed conditions and natural farming practices.

Cost of Cultivation (A=A1+A2+A3) 26300 27615 28996 30446 31968

Income Generation (B)

Yield per acre Qtl. 12 12.75 13.5 14.25 15

Income Rs. Per Qtl 3000 36000 40163 42525 44888 47250

Net income (B-A) 9700 12548 13529 14442 15282

While cultivating ragi under organic farming conditions, farmers operate at a benefit-cost ratio of approx. 1.44, which indicates a notable level of profitability of crop to the farmers.


It can be observed that the FPC earns a profit of INR 6242 per acre in the first year of procurement, which can increase over INR 7621 at the end of five years.


The FPC operate a benefit-cost ratio of 1.1, as indicated through the above analysis.

B) Cost-benefits for FPO engaged in procurement and marketing of Ragi (from one acre of landholding)

Sl. No Particular Unit QuantityUnit Cost (INR)



A3 Transportation cost Per Qtl 200 3520 3927 4158 4389 4620


LS 1 500 500 525 551 579 608

A5 Certification and inspection cost (including overheads)

LS 1 10000 10000 10500 11025 11576 12155


Percentage of procurement price

10 4400 4620 4851 5094 5348

Total Cost 62420 65772 69095 72573 76213

B Income generation

B1 Sale of Paddy Quintals 15.84 16.83 17.82 18.81 19.8

B2 Sale price of paddy Per Quintal 4335 4299 4265 4244 4234

B3 Total sale value Rs. 68662 72349 76004 79830 83834

Income generation 6242 6577 6910 7257 7621




Recurring cost 62420 65772 69095 72573 76213

Total cost 62420 65772 69095 72573 76213

Total benefits 68662 72349 76005 79830 83835

Net benefits 6242 6577 6910 7257 7621





3.1.3. Cost-benefit Analysis for BeansA) Cost-benefits for individual farmers engaged in organic beans cultivation (1 acre landholding)

Sl. No Activity Unit QuantityUnit Cost (INR)


A1 Sowing operations

1 Hiring of trac-tor for tillage

Hours per acre

2 300 600 630 662 695 729

2 Land prepara-tion

LS 4000 4200 4410 4631 4862

3 Seed pro-curement

Kg per acre

5 1600 8000 8400 8820 9261 9724

4 Staking* LS 5000 5250 5513 5788 6078

5 Sowing Person days

6 300 2000 2100 2205 2315 2431

Sub-total (A1) 19600 20580 21609 22689 23824


1 Irrigation Person days

15 200 3000 3150 3308 3473 3647

2 Weeding Person days

6 300 1800 1890 1985 2084 2188

3 Manure and biofertilizers

LS 20000 21000 22050 23153 24310

4 Harvesting, threshing

Person days

110 300 33000 34650 36383 38202 40112

Sub-total (A2) 57800 60690 63725 66911 70256

Cost of Cultivation (A=A1+A2) 77400 81270 85334 89600 94080

(B) Income generation

Drying Person days

4 250 1000 1050 1103 1158 1216

Sub-total (A3) 1000 1050 1103 1158 1216

Cost of Cultivation (A=A1+A2+A3) 26300 27615 28996 30446 31968

(B) Income generation

Yield per acre Qtl. 80 85 90 95 100

Price of beans Rs. Per Qtl

2500 2625 2756 2894 3039

Total Income Rs 200000 223125 248063 274936 303877

Net income (B-A) 122600 141855 162729 185336 209796


Economic analysis of beans cultivation (1 acre landholding)



Capital cost 0

Recurring cost 77400 81270 85334 89600 94080

Total cost 77400 81270 85334 89600 94080

Total benefits 200000 223125 248063 274936 303877

Net benefits 122600 141855 162729 185336 209796



Benefit-Cost Ratio 2.88

The farmers growing beans realise high economic returns, as indicated through the benefit-cost ration. The benefit-cost ratio for bean cultivation has been calculated as 2.88, which is substantially high.




Capital cost 0

Recurring cost 77400 81270 85334 89600 94080

Total cost 77400 81270 85334 89600 94080

Total benefits 200000 223125 248063 274936 303877

Net benefits 122600 141855 162729 185336 209796



Benefit-Cost Ratio 2.88

B) Cost-benefits for FPC (Per acre)

The FPC earns higher income from procurement and marketing of beans as compared with grains and millets. In the fifth year, the FPC is earning approx. INR 28990 from procurement and marketing of organic beans.


The FPC operates at 10 percent margin, indicated through benefit cost ratio for the procurement and marketing activities.

Sl. No Particular Unit QuantityUnit Cost (INR)



A3 Transportation cost LS 8000 8400 8820 9261 9724


Nos. 1 500 525 551 579 608

A5 Certification cost (including overheads)

LS 10000 10500 11025 11576 12155


Percentage of Procurement

Price10 20000 21000 22050 23153 24310

Total Cost 238500 250425 262946 276094 289898

Income Generation

Sale of Beans Quintals 78.4 83.3 88.2 93.1 98

Sale price of Beans Per Quintal 3346 3307 3279 3262 3254

Total sale value Rs. 262350 275467 289240 303702 318888

Net income 23850 25043 26295 27609 28990


Assumptions for calculations

The following assumptions have been considered for working out the costs/revenues and other values provided in the aforementioned analysis.

• The cost of cultivation has been considered based on discussions with farmers registered with the FPC

• Inflation at the rate of 5 percent per annum has been factored in while calculating all costs as well as revenues

• From the third year onwards, it is assumed that the farmers would be able to get organic certification and a 20 percent premium in price of paddy has been taken.

• The capital costs have not been considered, since the FPC deals with numerous products/SKUs, with the processing/storage infrastructure taken on rental for carrying out its operations. Therefore, the cost of maintenance has been considered which is a recurring expense.

• The labour costs are included while calculating the above costs but in case farmer engages in performing various agricultural operations then the cost of labour may be a saving for the farmer.

• The discount rate for calculating Net Present Value (NPV) has been considered at 15 percent.


Organic farming in India is considered to be at a nascent stage, with low level of commercial production through commercial farming practice. One of the key hurdles to organic products is competition with the commodities produced through conventional farming methods, which results in low penetration of organic products in the market. Challenges exist at various stages of the value chain, as described hereunder:

4.1. Challenges in Arranging Capital For Sahaja Samruddha, arranging collateral was difficult since the organization does not own significant assets. As a result, it had faced difficulties in getting finance from banks. Since agricultural land cannot be considered as collateral, it was difficult to get a loan through land assets of members too. The company also plans to ramp up post-harvest infrastructure, for which the capital requirement might become a bottleneck. All the premises of the company are rented, and they are considering looking for CSR or state support to create infrastructure for their operations.

4.2. Competition Another key concern for the company is the presence of too many organic brands present in the market and the credit system. Retailers often make the payments to the FPC after the product is sold off the shelves. Large retailers like More, BigBazaar etc. ask for a listing price for new products from the companies other than the big brands (MTR, Nestle, Britannia etc). Retailers expect a minimum 25 -30% margins for organic products as a standard practice. However, despite the challenge, the company has been able to create a substantial customer base for its products.

4.3. Low Crop Productivity Under Organic FarmingAccording to the Indian Council of Agricultural Research, under organic farming conditions, the crop productivity declines by approx. 6.7 percent in the first year. The report on Doubling of Farmers’ Income by Ashok Dalwai Committee, also states the similar concern of the farmers who claim up to 30 percent drop in yields under organic farming. The farmers contacted in the operational areas of the Sahaja also reported a decline in yield in the initial years of conversion period.

4.4. Insect and Disease ManagementFor most of the farmers undertaking organic production, the organic cultivation practices are not very effective to control insects and diseases. The availability of effective bio-control measures is one of the issues faced by majority of farmers. It is therefore essential to build capacities of farmers in IPM and also ensure large scale multiplication of bio-fertilisers, vermicompost, bio-control agents and then distributing them to the farmers at reasonable rates.

4.5. Lack of Awareness Among ConsumersThe awareness about the benefits of organic products is directly correlated with the income and the location of the consumer. Most of the consumers of organic products are from urban areas with high disposable income and they consider the advantage of consuming organic products over the non-organics.

KEY CHALLENGES04


The business model of Sahaja Samruddha has impacted each player in the organic product value chain. Based on discussions with farmers associated with Sahaja Samruddha, wholesalers and customers of the organic products marketed by the FPC, a summary of key impacts has been prepared as provided in this section.

5.1 Impacts

5.1.1. Benefits to farmers a. Through the FPC, the availability of technical guidance and agricultural inputs has increased for the member

farmers, which is also helping the farmers in making crop decisions.

b. Farmers have reported lesser cost of production through organic practices. Many farmers own cattle and they prepare the farm-yard manure and jeevamrita themselves, which saves their input costs.

c. Farmers receive assured market and price for the product. The company pays 20 percent premium over the market price.

d. There has been a reduction in wastage of farmer’s produce due to timely procurement of the produce by FPC.

e. Timely payment realisation, as the FPC pays farmers within one week of procurement.

f. The direct procurement by FPC has controlled the exploitation of farmers by intermediaries.

5.1.2. Impact on channel partnersa. The wholesalers reported an increase in demand for Sahaja organic products, despite competition from other

brands

b. Through the consistent supply and quality, wholesalers are able to fulfill the customer demand and are receiving the orders in a consistent manner.

5.1.3. Impact on consumers a. Traceability and quality management practices ensure that consumers receive the right product as per their

expectations.

b. The company offers a variety of products from food and beverage to personal care products in different SKUs and is trying to meet the varied needs of consumers.

c. Consumers get the products at competitive prices, which are affordable and worth the benefits to the consumers.

5.2 Mainstreaming OptionsThe SSOPCL model has been implemented in other states beyond Karnataka, including Andhra Pradesh, Telangana Tamil Nadu, and Orissa. SSOPCL has a network with the state governments in which the Sahaja Organic model has been implemented. The management of the company believes that every state should have such models to cater to local commodities and local market. Currently, the market share of organic products is very less as farmers take interest in moving to organic farming only when they see their friends and neighbors shift and prosper.

05 IMPACTS AND SUSTAINABILITY


5.3 SustainabilityThe two major strategy shifts that the organization has made so far are in their go-to-market model specifically the branding for retail sales and spreading far and wide rather than working with few bulk buyers. Expansion of operations to international markets is also a recent change. At present, SSOPCL has completed the process to become exporters of organic products and will soon be making a shipment to Oman. The company has the required statutory compliance and is pursuing this as an avenue with growth potential.

The policies of the state of Karnataka have been conducive to the business of Sahaja Samruddha. Karnataka was also the first state to release a i.e. to release a policy for organic farming in the country in the year 2004. The chairman of Sahaja was a part of the panel and worked on the policy. Karnataka's government has supported the organic model and many farmers are making the shift to organic farming.

The union government also has a scheme for organic farming known as Paramparagat Krishi Vikas Yojana (PKVY). The government is also offering a lot of support for new players in the market with offers such as support for three years, matching grants, loan without collateral etc.

5.4 Way forwardIt is observed that in the organic segment, smaller Stock Keeping Units (SKUs) are more preferable, due to consumers mainly being small/nuclear families who have lesser requirement of product in volume terms. As a result, the company might focus more on smaller SKUs.

With the penetration of technology, the buying behaviours of consumers have changed drastically in the recent decade, shifting from offline to online options for buying with increasing focus on online aggregators. Considering this, the company might focus on online sales to drive business in the future. Also, the company is not very keen to release their products in too many retail stores at the same time, but rather to select few stores to build the brand.


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NOTES


Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

A2/18 Safdarjung EnclaveNew Delhi-110029 India

T: +91-11-494953535E: [email protected]/India

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