INDIAN APPROACHES ANDEXPERIENCE IN LINKING FARMERSWITH MARKETS

P K Joshi Anjani Kumar & Shiv kumar

NCAP, New Delhi

Background

Integrated food supply chains serving urban areas are the fastestgrowing and most visible market phenomenon in most of thedeveloping countries.

Increasing dietary diversification and growing concern for food safetyand quality are accelerating transformation in food marketing system.

Traditional marketing channels are being replaced by coordinated linksbetween farmers, processors, retailers and others in the value chain.

The new marketing systems are improving efficiency in production andmarketing.

Smallholders’ participation may be contained Small scale business Inability to comply with stringent food safety and quality standards

Market integration models: Opportunities and threats

Type of integration

Opportunities Threats

Farmers-Traders Long term sustainability

Formalization not needed

Training in production and handling

Many supplementary services

Irregularity in payment

Limited access to high value markets

No hedging against unforeseen risk

Farmers-Retailers Availability of reliable market at agreed price

Opportunities for improvement in quality

Diversification towards niche product

Variety, quality and safety

Conflict with social obligation

Deferred payment period

High risk in absence of third party

Market integration models: Opportunities and threats

Type of integration

Opportunities Threats

Farmers-Exporters High returns

Access to inputs, technical assistance

Transport and packaging

Improvement in quality

Less post production losses

Increase in risk

Compliance with standards

Exclusion due to economies of scale

Farmers-Agro-processors

Secure market

Additional market

High quality inputs and technical assistance

Transport

Higher returns

Better post production handling

Sustainability in question

Exclusion

Variety, quality and safety specifications

Delayed payments

Restriction in access to open market

Market integration models: Opportunities and threats

Type of integration

Opportunities Threats

Contract farming Improved inputs

Technical know- how

Marketing by company

Reduction in price risk

Access to credit for subsistence expenses

Mistrust between farmers and companies

Breach of contract

Lack of alternate opportunities

Delayed payments

Difficulty in governance without State involvement

Promoted by leading farmers

Input and output marketing

Greater bargaining power

Economies of scale

Withdrawal by the leader

Deferred payment

Excessive dependence on an individual

Market integration models: Opportunities and threats

Type of integration

Opportunities Threats

Through Co-operatives

Improved inputs

Technical know- how/assistance

Marketing, packaging, grading storage, processing by co-operatives

Potential for scaling up

Greater bargaining power

Lower risk

Assured market

Dependence on subsidies and internal management assistance

Loss due to inefficient management

Supply of low quality inputs

Deferred payment

Static price fixation

Participation of smallholders in the market integration models

Percentage

Name/Herd size

Small Medium Large

Nestle 56 27 17

Rajasthan Co-operative

33 33 34

Venkateshwara Hatcheries

37 36 27

Participation of smallholders in the market integration models (%)Class PARAG

(UP)

COMPFED (Bihar)

MILKFED (Punjab)

Landless 0.0 0.0 8.5

Marginal 10.0 40.0 34.6

Small 30.0 33.3 14.6

Medium 40.0 13.3 23.1

Large 20.0 13.3 19.2

Participation of smallholders in the market integration models (%)Players Type of

ownershipNet profit (Rs./ton)

Contract farmers

Non-contract farmers

Milkfed-Verka Cooperative 5278 3960

Nestle Corporate (Multinational)

3651 1821

Venkateshwara Hatcheries

Corporate (domestic)

2255 2003

Rajasthan Co-perative

Cooperative 3044 1758

Determinants for participation in market integration Variables Coefficient

Education Positive and significant

Household size Negative and significant

Land-size Positive and significant

Herd size/scale of production Positive and significant

Transaction cost Positive and significant

State level factors Significant

Lessons from linking farmers with markets Assured off take; remunerative prices

Reduce transaction and marketing costs

Share risk (price and production)

Provide inputs, services and technology

Incentives (quality, price premium, low cost)

Timely payment

Good communication/monitoring

Long term commitment

Mutual trust

Credit for capital intensive commodities

Insurance (risky commodities)

Conclusion and policy implications Emerging market models offers both opportunities and

challenges

The formal market integration models do not explicitly exclude smallholders

But bigger land and herd stimulates the farmers’ participation in these market opportunities

The role of human capital in integrating the farmers with markets is important

Role of State to ensure the smallholders’ participation by

Improving education and skill

Facilitating in scaling-up of the business