Fresh Fruits and Vegetables marketing- constrains & opportunities

INTRODUCTION:
Horticulture Success story of India
Horticultural development had not been a priority until recent years in India. It was later in
the post 1993 period that focused attention was given to horticulture development through an
enhancement of plan allocation and knowledge-based technology. Despite of this decade being a
period of golden revolution productivity of the horticultural crops has increased only marginally
from 7.5 tonnes per hectare in 1991-92 to 8.4 tonnes per hectare in 2004-05 (NHB, 2005 In 2005
total area under fruits and vegetables had been 11.72 million hectares and total production had
been 150.73 million tones (NHB, 2005). Of the 456 million tons of vegetable produced in the
world, Indias share is 59 million tons. All taken together, Indias share of the worlds vegetable
market is 17 per cent. Presently, the horticultural crops cover 13.6 million hectares, i.e. roughly 7
per cent of the gross cropped area and contributes 18-20 per cent of the gross value of Indias
agricultural output. India is the second largest producer of fruits and vegetables in the world next
only to China and accounts for about 16% of the worlds production of vegetables and 10% of
worlds fruits production. Annual area and production growth under fruits and vegetables in the
period 1991-2005 was 2.6 per cent and 3.6 per cent respectively in India. Share of fruits and
vegetables in total value of agricultural exports has increased over years from 9.5 per cent in 1980-
81 to 16.5 per cent in 2002-03. But we are still lagging behind in actual exports of these produce.
For example, India produces 65 per cent and 11 per cent of worlds mango and banana,
respectively, ranking first in the production of both the crops. Yet our exports of the two crops are
nearly negligible of the total agricultural exports from India. It is a known fact that horticulture
sector in India is constrained by low crop productivity, limited irrigation facilities and
underdeveloped infrastructure support like cold storages, markets, roads, transportation facilities
etc. There are heavy post-harvest and handling losses, resulting in low productivity per unit area
and high cost of production. However, on the other hand Indias long growing-season, diverse soil
and climatic conditions comprising several agro-ecological regions provide ample opportunity to
grow a variety of horticulture crops. Thus, efforts are needed in the direction to capitalize on our
strengths and remove constrains to meet the goal of moving towards a horticulture lead agricultural
growth in India. The foreign trade policy 2004-09 emphasized that to boost agricultural exports,

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growth and promotion of exports of horticultural products is important. Horticulture contributes
nearly 28 per cent of the GDP in agriculture and 54 per cent of export share in agriculture.

ACREAGE UNDER HORTICULTURE: Includes fruits, vegetables, spices, floriculture, and

plantations-is expected to be 20 million hectares in 2006-07. With production of 53 MT and 108
MT, respectively, in 2005-06, India was the second largest producer of both fruits and vegetables
in the world. India occupies first position in the production of cauliflower, second in onion and
third in cabbage. The National Horticulture Mission (NHM) was launched in May 2005 as a major
initiative to bring about diversification in agriculture and augment income of farmers through
cultivation of high value horticultural crops. The National Horticulture Mission (NHM) aims at
doubling horticulture production by 2012.
Area and Production of Major Horticulture Crops (Area-Million ha,Production-Million tonnes)
Crops 2002-03 2003-04 2004-05* 2005-06*

Area Production Area Production Area Production Area Production

Fruits 4.8 49.2 5.1 49.8 5.3 52.8 5.9 54.4

7.2
Vegetables 5.9 84. 8 6.7 101.4 7.1 108.2 113.5

Spices 2.4 3.8 5.2 4.0 3.2 4.9 3.2 5.9

Plantation 3.1 13.1 3.3 9.4 3.1 10.4 3.2 9.8

Crops

Flowers 0.1 0.2 0.2 0.6 0.1 0.7 0.1 0.8

0.4
Others 0.09 0.9 0.1 0.3 0.4 0.4 0.5
20.6
Total 16.4 152.0 165.5 19.2 177.4 20.0 184.9
Source: National Horticulture Board * Estimated

PRODUCTION AREA:
Vegetables are typically grown in India in field conditions; the concept is opposed to the
cultivation of vegetables in green houses as practiced in developed countries for high yields. The
fruits and vegetables considered important by the horticulture board are mostly grown in the areas
of Jammu & Kashmir, Himachal Pradesh, hilly regions of North Uttar Pradesh, Bihar, Tamil Nadu,
Maharashtra, Karnataka, Gujarat, Andhra Pradesh, Assam, Madhya Pradesh, Rajasthan, Punjab,
Tripura, West Bengal and Orissa.

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GROWTH PROMOTIONAL ACTIVITIES:
Ongoing liberalization and the emergence of and integrated global market have opened new
vistas for Indian horticulture. In fact, till very recently, Indias main policy focus that until recently
was only on grains and cereals, has been changed in a timely manner, with the launch of National
Horticulture Mission in 2005-06 by Government of India with a mandate to promote integrated
development in horticulture, to help in coordinating, stimulating and sustaining the production and
processing of fruits and vegetables and to establish a sound infrastructure in the field of
production, processing and marketing with a focus on post harvest management to reduce losses. It
envisages to double the production of horticulture produce by the end of 1912. This enabled India
to exploit its true potential. Since liberalization and withdrawal of excise duty on fruit and
vegetable products there has been significant rise in the growth rate of the industry. No industrial
license is required for setting up Fruits & Vegetables Processing industries; setting-up 100% EOUs
require specific Govt. approvals. Many subsidies, irrigation plans, loans, pre and post harvesting
schemes led to the following figures of production.

FRUIT & VEGETABLE INDIA'S PRODUCTION STATUS

Mango, Guava, Banana & Peas World's largest producer
Lemon, Onion, Brinjal, Cabbage, Cauliflower, Pumpkins & World's 2nd largest producer
Gourds, Total Vegetables and Total Fruits
Coconut World's 3rd largest producer
Oranges World's 4th largest producer
Papaya, Lettuce & Pineapple World's 5th largest producer
Tomato World's 6th largest producer
Citrus Fruits/ Mosambi & Cassava World's 7th largest producer
Sweet Potato World's 9th largest producer
Apple World's 10th largest producer
Grapes World's 16th largest producer & World
record in productivity

COMPETITIVENESS OF INDIAN HORTICULTURE:

Commodity that a nation should produce and export is determined by the principal of
comparative advantage. The comparative advantage tells about that capability of the country to
export a commodity, while the competitiveness of the commodity in the world market is
determined by the measure of export competitiveness.

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Export Competitive Commodities

Fruits: Banana, Papaya

Vegetables: Brinjal, Cabbage, Cauliflower, Peas

Commodities with Comparative Advantage

Fruits: Mosambi, Mango and Guava and

Vegetables: Onion

FRESH FRUITS AND VEGETABLES - CHARACTERISTICS

1. Perishability of products: Involvement of many bio-physio-chemical processes make its
highly vulnerable to damages at short intervals and thus contributes to products limited
shelf life.

2. Seasonability of production: The inconsistent supply due to the close involvement of many
biotic and abiotic factors of production break the cycle of the produce availability in the
market throughout the year.

3. Bulkiness of products: The bulkiness of the fresh produce adds to the transportation,
handling and packaging charges. Alongwith makes its prone to pre and post harvest
damages in the supply chain accounting upto the extent of 20-40 percent.

4. Quality variation of products : Nonadherence to GAP practices leads to variation in quality

5. Irregular supply of products: Seasonability and non planned insufficient production creates
gluts and shortages in the market.

6. Small Holdings size & scattered production processing: As majority of the Indian farmers
falls in marginal and small category.

RISING
FRESH FRUITS AND VEGETABLES CONSUMPTION:

1. Rising income / Economic growth: Spurge in the sensex and improved living paved the
way for the fresh fruits and vegetables

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 2. Indias burgeoning middle-class: Emergence of the majority middle class and drastic
changes in the demographic figures mainly the substantial rise of the youth population viz.
more than 50 percent of Indian population is under the age of 35 years. This given the
needed thrust to fresh fruits and vegetables consumption.

3. Demographical changes : Due to vast cultural and social diversity available in India
majority of which is vegetarian, fresh fruits and vegetables found drivers seat in the food
palate of every

4. Health awareness: Due to emergence of new diseases and improvement in education level
provided the demand for the fresh fruits and vegetables among the population due to its
disease prevention and health promoting properties.

5. Increased literacy: Improvement in the education status backed with higher income and the
awareness about fresh fruits and vegetables indirectly leads the way for higher demand and
consumption.

6. New diseases prevalence: Eruption of new diseases due to the resurgent changes in the food
habits and lifestyle also created the much needed thrust for the fresh fruits and vegetables
among the masses, due to its disease prevention and health promoting properties.

7. Trade liberalization /Globalization: Aftereffect of the WTO and the globalization the fresh
fruits and vegetables are available almost round the year from one or the other production
pockets at reasonable prices and desirable quality in sufficient amount.

8.
8. Development of better infrastructure & transit facilities: Public-Private Partnership efforts
brought the necessary infrastructure viz. coolchains, better roads, transportation and storage
facilities for the perishable commodities in the investment shying sector to the satisfactory
status.

MARKETING OF FRESH FRUITS AND VEGTABLES:

Marketing plays an important role not only in stimulating production and
consumption, but in accelerating the pace of economic development. The marketing system plays a

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dual role in economic development in countries whose resources are primarily agricultural.
Marketing comprises all the operations, and the agencies conducting them, involved in the
movement of farm-produced foods, raw materials and their derivatives from the farms to the final
consumers, and the effects of such operations on farmers, middlemen and consumers. Agricultural
marketing deals with all the activities, agencies and policies involved in the procurement of farm
inputs by the farmers and the movement of agricultural products from the farms to the consumers.
The agricultural marketing system is a link between the farm and the non-farm sectors. It involves
all the aspects of market structure or system, both functional and institutional, based on technical
and economics considerations, and includes pre and post-harvest operations, assembling, grading,
storage, transportation and distribution. The expansion in the size of farm output stimulates
forward linkages by providing surpluses or food which requires transportation, storage, processing,
packaging and retailing to the consumers. Increasing demands for money with which to purchase
other goods leads to increasing sensitivity to relative prices on the part of the producers, and
specialization in the cultivation of those crops on which the returns are the greatest, subject to
socio-cultural, ecological and economic constraints. It is the marketing system that transmits the
crucial price signals. The fruit and vegetable marketing in India is highly decentralized having
wide capacities. There has been concern in recent years regarding the efficiency of marketing of
fruits and vegetables, and that this is leading to high and fluctuating consumer prices and only a
small share of the consumer rupee reaching the farmers. It is overviewed by many committees and
reports that Indian farmers are good producers but not good marketer. As early as 1976 National
Commission on Agriculture pointed about the inefficiency in agricultural marketing with particular
to fresh perishables and strongly recommended in following words that It is not enough to
produce a crop; it must be satisfactorily marketed. Marketing of horticultural crops is complex
especially because of perishability, seasonality and bulkiness. Fruits and Vegetables are an item of
daily consumption, they are essential in human diet but they are very perishable in nature.
Therefore, the cultivation of fruits and vegetables is generally concentrated around towns and
cities, so that they can be harvested and transported to the nearby market immediately and in fresh
form. With the increase in transport and communication facilities, fruits and vegetables cultivation
has spread in interior areas where irrigation facilities are available. This is because growing
vegetable crops is more profitable than any other seasonal crop particularly the foodgrain crops.
The spread of fruits and vegetables cultivation in rural areas has solved the perennial problems,
particularly of transport, handling, packing and storage. There is also some regional specialisation

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in growing some fruits and vegetables. They are grown in one area but marketed in other areas for
creating wider market and also to fulfill the demand of some people, who have liking for them.
This also involves long distance transport. For this purpose good roads in the interior villages is
necessary. Fortunately there are good state and national highways, but there are no good roads in
the interior. Sale of the fruits is generally through pre- harvest contactors, so that the farmer gets an
advanced payment and cover his risk. Vegetables are usually sold through commission agents and
very little of pre-harvest contacting is done. Due to this the net returns are generally low. Farmers
spend means to devote more time to their field crops rather than to the orchards. If the farmer does
the marketing of his produce himself then the net returns to him would be double. So also in the
marketing of fruits and vegetables, producer cannot go to wholesale market or long distant market
and he has to depend on some intermediaries to sell his fruits and vegetables. Therefore, in the
marketing of fruits and vegetables costs are involved for grading, packing, transport,
loading/unloading, fees, etc. In addition, the intermediaries also take some margins for them. These
costs and margins determine the final price to be paid by the consumer. After deducting market
costs and margins from the final price paid by the consumer, farmer gets his net price, which is
referred to "Farmers share in consumers price". This determines efficiency of marketing. Price
spread and producers shares in consumer prices of some vegetables is given in table.
PRODUCER'S SHARE IN SOME VEGETABLES
Channel Producer's share (%)
Tomato
I Producer - commission agent -retailer - consumer 80.00
II Producer - commission agent - masakhore - retailer 47.60
III Producer - commission agent - secondary wholesaler - retailer - consumer 66.9
IV Producer - commission agent - primary wholesaler - retailer - consumer 53.5
Cauliflower
I Producer - commission agent - retailer - consumer 54.60
II Producer - commission agent - Masakhore - retailer - consumer 52.10
Cabbage
I Producer - commission agent - retailer - consumer 54.90
II Producer - commission agent - Masakhore - retailer - consumer 52.50
Vegetables
I Producer - consumer 89 to 96
II Producer - retailer - consumer 69 to 84
III Producer - wholesaler cum - commission agent - retailer - consumer 63 to 73
Vegetables
I Producer - wholesale - cum- commission agent - retailer - consumer 51 to 55
Sometimes, agricultural commodities directly pass from producers to consumers. But in
indirect marketing agricultural commodities generally move from producers to consumers through
intermediaries or middlemen. The number of intermediaries may vary from one to many.

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AGENCIES

Producers: Most farmers or producers, perform one or more marketing functions. They sell the
surplus either in the village or in the market. Some farmers, especially the large ones, assemble the
produce of small farmers, transport it to the nearby market, sell it here and make a profit.

Middlemen: Middlemen are those individuals or business concerns which specialize in

performing the various marketing functions and rendering such services as are involved in the
marketing of goods.

Wholesalers: Wholeselling is the one ion of goods is the wholesale dealers. Wholeselling is the
one that covers activities of all individuals or businessmen, which sell to or negotiate sales with
customers, who buy for resale or industrial use. His position is that of an intermediary between
manufacturer and retailer.

Wholesalers are classified as:

1) Local wholesalers, who deliver their purchases to local retailer.
2) Provincial wholesalers some time called as distributor selling to the retailers of a particular
district or a state and
3) National wholesalers located at a strategic place and distribute goods all over the country.

Retailers: He is the last link in chain of middleman, who sells directly to consumer. He takes title
to goods, sells and sets up business usually amidst the consumer's groups. He buys his requirement
usually from the wholesalers. Retailers in producing areas may have direct contact with producers
and buys goods from them for resale.

Co-operative Marketing Societies

Main function:
1) Selling the produce of member's.
2) They also undertake outright purchases.
3) Provide storage facilities for storage and grading and
4) Save cultivators from exploitation by traders and help farmers in getting fair price for their
produce.

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 5) Performing functions of processing of raw produce.

Pucca Arhatias: He is the real purchase in the wholesale market on his own behalf of acting for
some businessmen, firms in consuming markets. Big industries play as their agent and order him to
purchase certain quantity within a given range of price. When pucca arhatia trades on his own, he
dispose of his produce brought by him through dealers in different parts of country.

Katcha Arhatia: He also advances money to the cultivators and village banias on the condition
that the produce will be disposed off through him alone and hence charges a very nominal rate of
interest on the money advanced. Katcha arhatia charges commission for services rendered by him.
Important link between the village cultivator or traders on the one hand.

Village Merchants: He is an important agency in the collection of produce and more so when the
mandi is situated at a considerable distance from the village. He advances from his shop either on
credit or for exchange of foodgrain or so price given for cultivator's produce. The quantities of
agril. Produce so collected are either disposed off in the mandi or retained for resale in the village
in the processed forms, such as rice, flour, oil etc.

Intinerant Traders: They are small merchants, who move from village to village and buy the
produce from cultivator's house. They give a lower price than selling in the nearby market and in
setting transportation take into consideration, the factors such as cost of transportation, market
charges and profit margin.

Transport Agency: This agency assists in the movement of the produce from one market to
another e.g. railways, trucks, bullock carts, camel carts, tractor trolleys.

Communication Agency: It gives information about the prices prevailing, and quantity available
and transactions e.g. post, telephone, telegraph, newspapers, radio.

Advertising Agency: It enables prospective buyers to know the quality of the product and decide
about the purchase of commodities e.g. newspapers, radio, television, cinema slides.

Auctioners: They put produce for auction and bidding by the buyers.

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Government Agencies / Institutions: In addition to individuals, corporate, co-operative and
government institutions are operating in the field of agricultural marketing. Some important
institutions are:-

The State Trading Corporation (STC)

1) To make available supplies of essential commodities to consumers at reasonable prices on a
regular basis;
2) To ensure a fair prices of the produce to the farmers so that there may be an adequate
incentive to increase production;
3) To minimize violent price fluctuations occurring as a result of seasonal variations in supply
and demand;
4) To arrange for the supply of such inputs as fertilizers and insecticides so that the tempo of
increased production is maintained;
5) To undertake the procurement and maintenance of buffer stock, and their distribution,
whenever and wherever necessary;
6) To arrange for storage, transportation, packaging and processing;
7) To check hoarding, black-marketing and profiteering.

THE VICIOUS MARKETING CHANNELS:

The channels of marketing is an important aspect of agricultural marketing affecting the
prices paid by consumers and shares of them received by the producer. The shorter the channel,
lesser the market costs and cheaper the commodity to the consumer. When the channel is long
with more intermediaries, prices are more and producers share is less. The channel which
provides commodities at cheaper price to consumer and also ensures greater share to producer
is considered as the most efficient channel Several studies have been carried out in India on this
topic for different commodities and in different regions and the results are of mixed nature due to
local socio-economic conditions and infrastructure facilities.

Normally producers shares in different commodity groups are as follows:

1. Food grains- 55 to 65%
2. Other commodities- 60 to 70%

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 3. Fruits- 30 to 40%
4. Vegetables- 40 to 50%

Channels of Vegetables:
i. Producersconsumer (village sale)
ii. Producerretailerconsumer (local sale)
iii. ProducerTradercommission agentretailerconsumer.
iv. Producercommission agentretailerconsumer
v. Producerprimary wholesalersecondary wholesaler retailer consumer (distant market).

Channels of Fruits:
i. Producerconsumer (village sale)
ii. ProducerTraderconsumer (local sale)
iii. Producerpre-harvest contractorretailerconsumer
iv. Producercommission agentretailerconsumer.
v. Producerpre-harvest contractorcommission agent retailerconsumer
vi. Producercommission agentsecondary wholesaler retailerconsumer (distant market).

These channels have great influence on marketing costs such as transport, commission
charges, etc. and market margins received by the intermediaries such as trader, commission agent,
wholesaler and retailer. Finally this decides the price to be paid by the consumer and share of it
received by the farmer producer. That channel is considered as good or efficient which makes the
produce available to the consumer at the cheapest price also ensures the highest share to the
producer.

CONSTRAINTS IN FRESH FRUITS AND VEGETABLES MARKETING:

1. Lack of basic infrastructure viz.cool chains, logistics and supply chain management. The
infrastructural problems, pertaining to the cold storage facilities are dual as some places
dont have the cold storage while some places have the problem of underutilisation of the
existing cold storages. The utilisation is even lower than 30 per cent of the total capacity in
many cases. Development of competitive international transportation, linked to domestic
air transport or road and rail transport would help in reduction of post harvest losses.

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2. Preponderance of Intermediaries in the channel results in unfair and exploitative practices
in marketing of fresh produce is very common.

3. Lack of proper grading and quality control system.

4. Scattered productions and sometimes in isolated places where even the transportation
facilities and other infrastructure is not sufficient for the perishables.

5. Lack of unity and organization skill among the farming community, which proves a major
impediment in the formation of cluster groups and co-operatives.

6. Inefficient & Imperfect markets: Due to prevalence of many intermediaries and

malpractices followed by them in the price fixation and auction of the perishables in
between the marketing channel results in uprise of consumers price in the producers
share.

7. Concept of consumer packaging practically unknown in domestic markets : Improper pre

and post harvest handling without any sound packaging leads to heavy loss ranging from
20-40 percent of the produce at the time when its reaches the final consumer.

8. Lack of forward & backward linkages: Absolute lack of the much needed quality inputs
and extension backup at proper time and after harvest processes.

9. Ignorance to new methods of cultivation and dependence on traders for extension

knowledge.
10. Perishability and Storability: Having limited shelf life due to its typical bio-physio-
chemicals constitutions, fresh fruits and vegetables penetration is restricted to the certain
niche markets and stakeholders. Besides the presence of insufficient numbers of storages
and coolchain facilities adding to the woes.

11. Low exports : Emergence of many competitive markets with comparative advantages in
awake of the globalization and the imposition of different Tariff and Non-tariff barriers to
save the domestic industry by the protectionalist nations using sanitary and phytosanitary
measures (SPS) as their benchmark resulting in the limited exports of the perishable

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 commodities. The window of international demand for the horticultural products is very
small. Thus a planned strategy is to be made to target the markets during that period.

12. Freight charges: High air freights are also hindrance for cost effective exports. For the
exports large fluctuations in the production of fruits and vegetables causes problem in
being a regular trade partners.

13. Long marketing channel: Prevalence of many of the intermediaries in between the supply
chain robbing the lions share of the producers by deeply penetrating the consumers
pocket.

14. Non-functional AEZ: Even after 10 years of starting of the Agri-Export-Zones in deferent
specific production pockets of different produces, full implementation is at its nascent stage
due to many socio-political reasons. Thus the final benefit doesnt reaching to the destined.

15. Poor Post harvest care & handling of the produce: Improper pre and post harvest care and
handling leads to heavy loss ranging from 20-40 percent of the produce.

16. Absolute lack in co-ordination b/w production targets of concerned department & action
plan of the marketing directorate

17. Prevalence of primitive methods of selling and price fixation like, secret sale, private
negotiation, under cover etc.

18. Meagre involvement of Government & other co-op. marketing agencies alike to the private
agencies

A study conducted by IIM, Ahmadabad to examine different aspects of marketing, focusing

particularly, on the wholesale markets for fruits and vegetables which have been established to
overcome deficiencies and improve the marketing efficiency. It indicated that in Ahmedabad the
direct contact between commission agents and farmers is very low. For vegetables this is 50
percent and for fruits only 31 percent. Further, in the system of transaction, secret bidding and
simple transaction dominate and open auction is relatively rare. In KFWVM, Chennai, the
wholesalers act as commission agents and receive consignments directly from producing centers

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through agents or producers. By and large the system of transaction remains traditional and open
auction is rarely seen. This is one major reason for poor efficiency. However, in the small Uzhavar
sandie in Chennai, the farmers sell directly to consumers. The share of farmers in the consumer
rupee in Ahmedabad was 41.1 to 69.3 percent for vegetables and 25.5 to 53.2 percent for fruits. In
Chennai KFWVM, the farmers' share was 40.4 to 61.4 percent for vegetables and, 40.7 to 67.6
percent for fruits. In the small Uzhavar sandie market in Chennai, where the farmers sell directly to
the consumers, the share of farmers was as high as 85 to 95.4 percent for vegetables. This indicates
that if there are few or no middlemen, the farmers share could be much higher. In the Kolkata
market the share of farmers ranged from 45.9 to 60.94 percent for vegetables and 55.8 to 82.3
percent for fruits. Thus, the shares are frequently very low, but somewhat better in Chennai, lower
in Kolkata and even lower in Ahmedabad. The margin as a percentage of farmer-consumer price
difference (an efficiency measure) shows that in Ahmedabad, the margins are very high and range
from 69 to 94 percent. In Chennai they range from 15 to 69 percent, and in Kolkata they range
from 46 to 73 percent. The high percentage of margin to farmer-consumer price difference is
indicative of large inefficiencies and relatively poor marketing efficiency. There is great need to
improve the marketing of fruits and vegetables. These regulated markets were established to
improve the marketing efficiency. The system of sale followed in these markets indicated that open
auction as a system of sale is yet to take roots in these markets and the marketing system was
dominated by open auction or secret bidding resulting to significant erosion of marketing
efficiency.

INDIA TRADE GAINS FRESH MOMENTUM

India is a land of huge potential, and always would be. It was a mood of resignation
captured that modern forms of food retailing would never take off in India during lifetime. Skip to
2007 and you cant open a newspaper in India without reading about the latest major corporate to
announce its entry to the countrys burgeoning modern retail sector. It is this retail revolution,
coupled with the economic boom that looks set to provide the impetus for Indias fresh produce
sector to make real strides. Everyone singles out the supply chain challenge, resulting from a
chronic lack of infrastructure, as the key hurdle to the modern retailers that are setting up shop in
India, but the real challenge will be at the front-end rather than the back-end, where they must
change the way fresh produce is marketed as well as the mindset and tastes of the Indian consumer.
For instance, the Indian consumer eats curry, not vegetables, making fresh produce a value-

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driven purchase. Fruit and vegetable retail in India is low margin, high cost, not the other way
around. Traditional small vendors with few overheads thrive in this climate, offering consumers a
service that inspires loyalty. Changing consumers behavior may be the main hurdle for Indias
modern retail sector, but there are plenty of others to overcome - poor infrastructure, shortage of
expertise, high real estate costs to name a few. Indeed, its possible that the fledgling retail
revolution will falter and fizzle out, given the size of the challenges ahead. But this looks unlikely,
as major corporates are driving the push and the momentum has already been gained. Indeed,
Fresh Produce India would have departed with a sense of the challenges and complexity of the
Indian market, but a genuine optimism that the country is finally on track to deliver on the huge
potential it offers.

ASIAN PERSPECTIVE:
Unsurprisingly, China and India remains the driving force in the region. Fruits and
vegetables prices in China have shown a double-digit upturn during 2006 over the previous year,
reflecting both rising production costs and increasing consumer demand (and incomes). In
particular, an off-year for Chinese apple crops in 2005/06 saw domestic prices scale heights that
made export a far less attractive option. Indeed, while low prices continue to drive Chinas export
expansion, volume growth has slowed down this year, while values have risen. New speciality
lines are coming to the fore as China turns its labour-cost advantage to value-adding and
innovation. Chinas increasing production costs should not be overlooked however, and rising fuel
prices are a key issue, especially as so many of the countrys best growing-regions are located
some distance into the interior. Food safety issues also continue to trouble Indias export trade,
with maximum chemical residue levels (MRLs) and microbial contamination impacting heavily on
the fruits and vegetables industry. While the SPS under WTO regime has caused confusion and
upheaval for European and other countries import trade, it could benefit consumers in the long-
term as it brings MRLs and filth problems into line with EU and US standards.
Meanwhile, South East Asian countries have been facing an influx of low-priced Chinese produce
under regional free trade deals, with farmers in Thailand and Vietnam feeling the heat.
Nevertheless, some good opportunities are clearly developing for high-value items in these
markets. The shift from tariff- to quarantine-based import restrictions in Asia has continued, with
Indonesia introducing new rules, Taiwan toughening its stance on pests and Thailand mulling a
move towards market regulation. The modern retail trade has also made further inroads across the

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region. Even India, the final frontier for global retailing, now appears to be poised for a retail
revolution led by local corporate giant Reliance. This market will be one to watch in 2007, as will
Vietnam, whose entry to the WTO is set to create new opportunities for retailers and the fresh
produce trade alike. India is a land of huge potential... and always will be. The snail-like progress
of the countrys fruit and vegetable industry in addressing fundamental issues such as lack of
infrastructure, fragmented production and poor quality standards. But recent developments in
Indias fresh produce sector and food retail industry are enough to persuade even long-term
sceptics that the worm has turned. Most notably, Indian business conglomerate Reliance has
unveiled plans for a US$5.6bn foray into the retail sector. Its move serves as an example of the
kind of money that is being invested by domestic companies into retailing and agribusiness sums
that are unprecedented and more usually associated with global retail giants. Reliance has several
major issues to overcome to live up to its media billing as the Indian Wal-Mart, but if it can pull
off its plans, it will improve the countrys entire retail and horticulture sectors. For Reliances
project calls for the creation of a whole new supply chain, including cold storage facilities and
contract farming. And it is not alone, with other local retailers such as Big Bazaar, Subikhsha,
Hypercity, Spencers and FoodWorld seeking to form similar systems. While the debate rumbles
on as to if and when the government will open its market to multi-brand global retail groups like
Wal-Mart and Tesco, local chains are already transforming Indias chaotic retail industry.
Meanwhile, big-hitters in the global fresh produce trade are now taking the opportunity to
capitalise on Indias vast procurement potential. Capespan and Fyffes recently set up joint ventures
for grapes and high-altitude fruits respectively, while Field Fresh, the alliance between Bharti
Enterprises and European equity firm Rothschild, is also ploughing substantial investment into the
horticulture sector. Indias own market for high quality fruit and vegetables is also growing
strongly as its middle-class expands. Moreover, this growth is not confined to the top four or five
mega-cities. Rather, Indias burgeoning middle-class, unlike Chinas, spans the length and breadth
of the country, with studies showing that the smaller cities actually boast the largest increase in
millionaire households. Such B cities are driving demand for imported fruits, and while suppliers
must deal with a restrictive import system and bottlenecks in distribution to reach their market,
things are improving as the import trade has consolidated and the governments threat perceptions
over foreign fruits have diminished. In short, India is beginning to deliver on its huge potential,
and the time is ripe for an international approach that enables the fresh produce trade to build on
this progress.

16
A CASE STUDY - Marketing of Banana:
Cauvery Delta (Tamil Nadu)
The practice of opting pre-harvest contractors at the time of 50per cent maturity of the crop
is commonly followed by majority ((88%) of the growers. The prime reason stated by the farmers
was that the pre-harvest contractors give advance payments before harvest of the bananas to meet
their immediate needs for production, consumption and social activities. Other reasons were
1. High fluctuations in prices (400%)
2. High winds during monsoon causing damage to the plants.
3. Absence of institutional credit.
4. Absence of crop insurance
5. Small production and uneconomic quantities available for marketing
6. Long association with contractors.
7. Price discrimination in the markets.
8. High marketing costs.

Constraints:
1. Non-institutional agencies and undesirable market practices in the markets.
2. Deduction of 2 bunches for every 100 bunches as Profit bunches.
3. Combining two small bunches as one bunch during counting for price fixing.
4. Non-harvest of small size bunches.
5. Delay in payment of balance amount after harvest
6. Violation of contracts i.e. abandoning the harvest if there is slump in prices.
7. Non-availability of institutional agency for banana which is highly perishable.
8. Non-availability of any viable storage preservation methods.
9. Non-existing institutional marketing agency like regulated market, co-op.marketing or
producer's association.

Suggestions:
1. Setting up banana based agro-processing industry.
2. Marketing banana through regulated markets.

17
 3. Bringing co-operative marketing as new channel in the existing channels which will
increase producer's share in the consumer's rupee

Jalgaon (Maharashtra):
In the marketing of banana in Jalgaon district three channels were identified.
Channel I Producer-co-operative fruit sale society-commission agent-wholesaler-retailer
consumer
Channel II Producer -Group sale agency commission agent - wholesaler - retailer consumer
Channel III Producer Private agency - commission agent - wholesaler - Retailer consumer.

Marketing costs, margins and price spread

Particulars Channels
I II III
Marketing costs 82.89 84.46 91.0
Marketing margins 282.26 282.86 287.58
Producer's share 32.57 32.47 31.31

All these indicators indicate comparatively greater economic as well as operational

efficiency of the marketing mechanism of channel I i.e. Co-operative Fruit Sale Society over
remaining ones. However, it is suggested that the producer's share in consumer's rupee in Channel
I can further be increased if the co-operative Fruit Sale Society directly deals with the markets in
terminal markets rather than selling the produce to the commission agent.

Jalgaon & Sangli: (Maharashtra):

The major proportion of produce was marketed through two marketing channels
I .Producer - Co-op. Society - retailer - consumer
II .Producer - wholesaler - retailer - consumer
The producer's share was 34.53% and 31.05% for member and non-member producer's
respectively. The members of producer's co-operative association could therefore derive relatively
higher profit margins.

Parbhani (Maharashtra)
Channel I: Producer - co-op. Society - wholesaler -Retailer - consumer
Comm. to society 8% and Comm. To wholesaler 5%

Shares of expenditure on:

18
i. Cultivation 65.6%
ii. Transportation 19.30%
iii. Commission 15.10% 100.00

Nanded (Maharashtra)
i. Producer - wholesaler - Retailer - consumers
ii. Producer - co-operative society - commission agent -cum-wholesaler- Retailer - consumer

Cost of marketing through

i. Co-op. Society Rs.58.37%
ii. Private 61.59

Producer's share through

i. Co-op. 51.65%
ii. Private 48.37%

Marketing Harichhal Banana in Gorakhpur (U.P)

Produce - Retailer - consumer channel for the sale of Harichhal banana was more profitable
compared to other systems of sale.
For increasing marketing efficiency, grower should develop:
1. Co-operative system of transport.
2. Storage facility should be developed on co-operative lines, so that the farmers will be
protected from stress sale.
3. Weights and measures should be standardized.
4. Market information should be communicated to the growers regarding prices of banana
INNOVATIVE DIRECT MARKETING MODELS IN INDIA:
It has been realized that the marketing channel for farm products which are highly
perishable (fruits, vegetables and flowers) should be as short as possible. Perishable farm produce
should move quickly from farmers to consumers. If farmers directly sell their produce to the
consumers, it will not only Save losses but also increase farmer's share in the price paid by the
consumers. Therefore, direct marketing by the farmers is being encouraged as an alternative
channel. Some examples of these channels are given below:

19
(I) APNI MANDI / KISAN MANDI
An innovative concept of 'Apni Mandi' has been introduced in some states. Apni Mandi is
also called 'Kisan Mandi', as it is different from the traditional mandi or market yard, where the
produce moves to the buyer through either a commission agent or trader. In Apni Mandi there is a
direct contact between the farmer producer and the buyer who is generally the consumer. This
system does away with the middlemen. In Apni Mandi, farmers sell their produce directly to the
consumers without involvement of the middlemen. The price spread in Apni Mandi is considerable
low. These are working satisfactorily in the case of fruits and vegetables. These, 'Apni Mandi' are
similar to the Saturday markets of United Kingdom and United States of America.

OBJECTIVES
The main objectives of popularising the concept of Apni Mandi are:
i. Better marketing of agricultural produce especially of fruits and vegetables.
ii. Ensuring direct contact of the producer-farmers and the consumers and thereby enhancing
the distributional efficiency of the marketing system.
iii. Increasing the profitability of agricultural crops for the producers by minimization of
marketing costs and the margin of the middlemen.
iv. Ensuring the availability of fresh fruits and vegetables and other farm produce at
reasonable prices to the consumers.
v. Removing social inhibitions among the farmers for retail sale of their produce .
vi. Encouraging additional employment to the producers and thereby enhancing their
incomes.
vii. Promoting national integration by inviting the farmers of other states to sell the produce
grown by them directly to the consumers in Apni Mandis of other states and
viii. Providing business techniques to the farmers so that in the long-run they may adopt this
practice for other crops and enterprises too.

HISTORY
The first Apni Mandi was started in Punjab by the Punjab Mandi Board at Chandigarh in
February, 1987. Punjab Mandi Board took the initiative with a view to providing small farmers
around cities a direct access to consumers. Similarly, in Haryana, the first Apni Mandi was started
at Kamal in 1988. In Rajasthan also, this scheme has been introduced in several district towns.

20
The initiative is worth emulating.

FUNCTIONING
The market committee of the area where Apni Mandi is located provides space, water,
sheds, counters, balances and other facilities to the farmers in . Apni Mandis. The Market
Committee Staff need to work hard with dedication for the success of Apni Mandis. The State
Marketing Boards provide financial assistance to the Market Committees for these services
rendered by them to the Apni Mandi. This scheme is being implemented with certain resistance
from middlemen. Some farmers also have reservations about the success of the scheme as it
assumes adequate skills of retailing on the part of farmers. However, farmers as well as consumers
would benefit from the Apni Mandi Scheme and its popularity may pick up after sometime.

(II) HADASPAR VEGETABLE MARKET

Hadaspar vegetable market is a model market for direct marketing of vegetables in Pune
city. This sub-market yard is situated nine kms away from Pune city. This belongs to the Pune
Municipal Corporation and the fee for using the space in the market is collected by the municipal
corporation from the farmers. This is one of the ideal markets in the country for marketing of
vegetables. In this market there are no commission agents/middlemen. The market has modern
weighing machines for weighing the produce. Buyers purchase vegetables in lots of 100 kgs. or
100 numbers. The produce is weighed in the presence of licensed weigh men of the market
committee and sale bill is prepared. The purchasers make payment of the value of produce directly
to the farmer. The purchaser is allowed to leave the market place along with the produce after
showing the sale bill at the gate of the market. Disputes, if any, arising between buyers and sellers
are settled by the supervisor of the market committee after calling the concerned parties. The
market committee collects one percent sale proceeds as market fee for the services and facilities
provided by the committee to the farmers and buyers.

(III) RYTHU BAZARS

Rythu bazars have been established in the major cities of. Andhra Pradesh state with the
prime objective to provide direct link between farmers and consumers in the marketing activity of
fruits, vegetables and other essential food items. Both producers and consumers are benefited from
Rythu Bazars as producer's share in the consumers rupee is more by 15 to 40 percent and

21
consumer's get fresh vegetables, fruits and food items at 20 to 35 percent less prices than the
prevailing prices in nearby markets. Further, marketing costs are at the minimum level as
middlemen are completely eliminated from the marketing activities in Rythu Bazars. The
maintenance expenditure of Rythu Bazars is being met from financial sources of Agricultural
Production Market Committee (APMC) nearer to the Rythu Bazars. Rythu Bazars started
functioning in the Andhra Pradesh State from January20, 1999. Presently there are 95 Rythu bazars
operating in all the 23 districts of the state. There is no government involvement in price fixation.
This function is left to farmers who organise themselves into committees and these committee are
fixing sale prices daily after taking into consideration the wholesale and retail prices prevailing in
the nearby towns. Generally, in the Rythu Bazar, prices are fixed20 percent over the wholesale
prices and 15 to 20percent less than local market prices. Prices fixed are displayed at several places
all over the Rythu Bazar for the benefit of the consumers. The major highlights of Rythu bazars
are: District collectors are making the land available for the Rythu Bazars. Permanent
infrastructure with all support system are being constructed in the Rythu Bazars by the concerned
Agricultural Produce Market Committee. The vegetable cultivators in the identified villages are
provided the photo identity cards and only these cultivators are remitted to sell vegetables in these
bazars. State Government arranges special buses on most routes for transport of vegetables.
Temporary storage facilities are on anvil. Coordination exists between revenue, marketing and
horticulture departments for smooth functioning of these markets. A distinct and common identity
of such markets across the state is being established. Other essential commodities like pulses and
edible oils are also sold in these markets at reasonable prices. Vegetable production programme in
the area is also undertaken by the horticulture department of the state to ensure regular supplies of
vegetables to the consumers. Rythu Bazars have generated a great deal of enthusiasm both among
farmers and consumers as farmers get better prices for their produce due to curtailment of
commission and overhead costs on account of the non-existence of middlemen and the consumers
get vegetables at low prices compared to the prices in other markets.

(IV)UZHAVAR SANDIES

22
 Uzhavar Sandies (Farmers' Market) were established in selected municipal and panchayat
areas of the Tamil Nadu by the state government. In these markets, farmers enjoy better marketing
infrastructure free of cost and also receive considerably high prices for the products than what they
use to receive from middlemen at village or primary markets of towns. Farmers are additionally
benefited in the form of interaction with other farmers and with departmental personnel. Farmers
also get good quality seeds and other inputs in the market yard itself. The consumers in these
markets are benefited by getting fresh vegetables at relatively lower prices. Farmers market /
Uzhavar Sandie is an innovative scheme introduced by the Government of Tamil Nadu, to help the
farmers at large. It is the first of its kind in whole India. Such a market was first started in Madurai
on 14.10.1999 and the State Government proposes to establish totally 100 farmers markets in the
important centres covering the whole State.

Mode of Operation:
The farmers market provides the place for the growers of vegetables and fruits to sell their
produce directly to the people without recourse to the middlemen. These markets are mainly
started to establish a direct link between the farmers and the consumers. There will be no place for
the middlemen to the consumers. When the goods are routed through middlemen, the farmers are
not getting remunerative prices for their produce. Likewise, as the middlemen at wholesale and
retail levels add their respective margins in the sale prices, the goods are sold at higher prices to
the consumers. By eliminating the middlemen, this scheme aims at benefiting both the farmers as
well as the consumers. The market place is established in the important centres to help the farmers
living in and around that centre. Every market has 80 to 100 small shops or sheds. Each farmer is
allotted a shop to sell his produce. The State Government appoints the marketing Committee to
regulate the marketing Centre. The committee will also have farmers as its representatives. This
Committee identifies the farmers and gives them a permit card. Such farmers alone are being
allotted the shops to market their produce. The farmers need not pay any rent or Commission for
selling their goods at the market. Farmers can transport their produce to the marketing centres free
of cost using State Transport Corporation Buses. The market is open for the public from 7.00 A.M.
to 7.00 P.M.daily. As and when the farmers bring their produce to the market, the committee will
fix the prices for the same. The same price will be ruling for that particular commodity for the
whole day. The prices are fixed for different commodities on the basis of previous day prices of
that commodity in the wholesale market.

23
Benefits to the farmers: In a short period of one month, since farmers market came into
existence, it was found that the income of the farmers, who are using the farmers market, has
doubled. This is made possible, as the farmers need not spend any amount towards handling and
marketing their produce. The rise in the farm income of the farmers is also due to the direct
marketing of their produce to the consumers. Wherever middlemen play their role in distributing
the farm produce, the farmers do not get remunerative prices. The middlemen of a particular area
usually form a cartel and accordingly fix low prices for the agricultural goods. But, the scheme of
farmers market enables the farmers to realise just prices for their produce by eliminating all types
of middlemen. As the sale at the farmers market is only for cash, the farmers are getting money
immediately. This is absent when they sell their produce to the middlemen. Most of the traders
make delayed payments to the farmers.

(V) SHETKARI BAZAR

On the lines of farmers' markets in other states viz., Apni Mandi in Punjab, Haryana and
Rajasthan since 1988, Rythu Bazar in Andhra Pradesh since January 26, 1999 and Uzhavar Sandies
in Tamil Nadu, the Shetkari Bazars were established in the state of Maharashtra for the marketing
of fruits and vegetables. The Shetkari Bazar, by eliminating intermediaries, links producers direct
to the consumers, reduces price-spread (marketing margin of intermediaries) and enhances
producer's share in consumer's rupee. Thus, these markets increase the farm income, well being of
the farmers and bring stability in prices of horticultural and plantation crops.

(VI) KRUSHAK BAZARS

On the lines of Rythu Bazars in Andhra Pradesh and Uzhavar Sandies in Tamil Nadu,
Government of Orissa has taken a programme of establishing Krushak Bazars in the state of Orissa
in the year 2000-01 with the purpose to empower farmer-producer to compete effectively in the
open market to get a remunerative price for his produce and to ensure products at affordable prices
to the consumers. The government provides following incentives for opening of the Krushak
Bazars in the state.
(a) Provides 1 to 2 acres of land at suitable place, free of cost, for establishing the bazar.
(b) A cluster/group of villages within the proximity of market area and farmers growing vegetable
are identified having the surplus produce for sale.

24
(c) The identified farmers are allowed to use marketing facilities so that there is no intervention of
middlemen and farmers get better prices for their produce.
(d) Public utility facilities viz., drinking water, electricity, toilet, canteen and rest house are
provided to farmers by the Krushak Bazars.
(e) Identified farmers are provided inputs like seeds and fertilizer at the reasonable prices in the
Krushak Bazars, and
(f) Storage facilities in the market area are also provided to the farmers in Krushak Bazars.

(VII) MOTHER DAIRY BOOTHS: Mother Dairy, basically handling milk in Delhi, was asked
to try its hand in retail vegetable marketing by direct purchasing vegetables from the farmers,
Moving them in specially built vehicles, storing them in air conditioned godowns and distribute
them to the consumers through its retail outlets if 1989afterthe notorious onion and potato price
crisis. Mother Dairy management has opened retail outlets in almost all important colonies of
Delhi for providing vegetables to the consumers at reasonable prices.

CO-OPERATIVE MARKETING SOCIETY

When producers of agricultural commodities or any other product form a society with an
objective of carrying out marketing of their produce, such society is called as co-operative
marketing society. The need for co-operative marketing arose due to many defects observed and
experienced in the private and open marketing system. Those are several malpractices prevail in
the marketing of agricultural produce. For example, arbitrary deductions from the produce,
manipulation of weights and measures and cheating the farmers, collusion between the broker and
the buyer while fixing the prices, delay in payment of amounts due to farmers, etc. The result is the
farmers are indebted to trader - moneylender. In such circumstances co-operative marketing
society can largely help the farmers reduce the malpractices and offer honest and correct services.
There exists a chain of intermediaries between the producer and the final consumer. They include
village merchant, itinerant trader, wholesaler, commission agent, pre-harvest contractor and
retailer. They take their own margins for the services, they render. But these margins are generally
exorbitant, making the commodities costly for the consumers and reducing the producer's share in
the consumer's price. A co-operative marketing society can eliminate some or all of the
intermediaries and can reach to the consumers and establish direct trade relations with them. This

25
will make commodities cheaper to the consumers and also ensure good quality of produce to them
because much of the handling is avoided.
There are some services such as transport, storage, financing, grading, packing,
loading/unloading, which are, carried out by some private functionaries who charge high rates for
these services. A co-operative marketing society performs these services efficiently and at cheaper
rates.A co-operative marketing society provides market finance to farmers and ensures better
returns to their produce. Besides marketing society can act as an agent of credit co-operative
society and help to recover loans advanced by credit societies. At present, most of the financial
needs of the farmers are fulfilled by trader - moneylenders at very high rates of interest and with
the condition that they will sell their produce through them. This can be avoided, if there is co-
operative marketing society.

Organisation: Under the system of co-operative marketing whole responsibility of marketing is

taken up by the farmers themselves, organized on co-operative basis. The area of operation of
marketing society is usually fixed with reference to local conditions - area based or commodity
based. The commodity-based societies related to grapes, oranges, banana, pomegranate, etc. have
wider jurisdiction covering the major areas growing each crop. There are societies at the producer's
level and they federate at state or national level to deal with bigger markets including foreign
markets for export of their produce.

Membership: Membership of a co-operative marketing society is open to individual farmer who

produces the crop for which the society is formed. Other co-operative societies in the area can also
become institutional members.

Functions:
1. To arrange for the sale of members produce to the best possible advantage.
2. To undertake activities in connection with grading, pooling and procurement of produce of
the members.
3. To provide storage facilitates to their members by renting or owning the godowns and
thereby facilitate to grant advances against pledge of produce.
4. To protect members from all types of malpractices eliminates the middleman in the chain of
marketing.

26
 5. Co-operative marketing society ensures grading, etc. and supply of good quality material to
consumers.
6. It teaches business methods to farmers and serves them as agency for supply market
information.
7. The society is able to stabilize prices over a long period by adjusting the supply with the
demand.
8. Marketing societies are also encouraged to undertake export trade so that they can give
better prices to their members.

Weak Co-op. Marketing: Although, many advantages are envisaged in the co-operative
marketing the structure has remained relatively weak as compared to credit co-operatives. There
are only about 1000 marketing societies as against 20,000 credit societies in Maharashtra. The
marketing is more difficult involving many technical and commercial aspects. Marketing of
perishable is still more different. Arranging quick transport, arranging storage to avoid losses, to
keep watch on demand supply position to ensure good prices to members are all matters need for
good marketing. For want of these managerial aspects, desired number of co-operative marketing
societies have not come up and those, which were started, could not succeed. Several marketing
surveys/studies at farmer's levels have revealed that among several marketing channels, co-
operative channel has offered greater share of consumer's prices to the producers. Whichever,
marketing is unorganized, farmer - producers have expressed that marketing co-operative societies
should be formed. This was particularly reported in the cases of marketing of perishables.

Few Successes:
Inspite of the difficulties encountered in the marketing of perishables like fruits, vegetables,
milk, etc. there are few examples of good success viz. Maha-grape - co-operative federation
marketing grapes in Maharashtra, Co-operatives marketing pomegranate, Co-operatives marketing
banana in Jalgaon district, Vegetables co-operatives in Thane District, Milk co-operatives in
Maharashtra, HOPCOMS,Bangalore and Gujarat and Co-operative cotton marketing society.
ORGANISED AND REGULATED MARKETS:
Organised marketing of agricultural commodities has been promoted in the country through
a network of regulated markets. Most of the State governments and Union Territories have enacted
legislations (APMC Act) to provide for regulation of agricultural produce markets. While by the

27
end of 1950, there were 286 regulated markets in the country, today the number stands at 7,521
(31.3.2005). Besides, the country has 27,294 rural periodical markets, about 15 per cent of which
function under the ambit of regulation. Progress in the production of food grains, commercial
crops and horticultural products depends critically on the marketing infrastructure available to the
farmers. Efficient marketing with a dynamic supply chain is essential for the development of the
agriculture sector. The number of regulated agricultural markets stood at 7,566 as on March 31,
2006. Besides, there were 21,780 rural primary/periodic agricultural markets, of which about 15
percent functioned under the ambit of regulation. Ministry of Agriculture had formulated a model
law on agricultural marketing in consultation with State/UT Governments to deal with emerging
trends in agricultural marketing. This model legislation enables establishment of private markets/
yards, direct purchase centres, consumers/ farmers markets for direct sale, and promotion of
public-private-partnership (PPP) in the management and development of agricultural markets in
the country. It also provides for exclusive markets for onions, fruits, vegetables, and flowers.
Regulation and promotion of contract farming arrangement has also been a part of this legislation.
A provision has also been made for constitution of State Agricultural Produce Standards Bureau
for promotion of grading, standardization and quality certification of agricultural produce. Several
state/UT governments have initiated steps for amending the Agricultural Produce Marketing
Committee (APMC) Act. So far 15 States and 5 Union Territories have amended their Agricultural
Produce Marketing Committee (APMC) Act to derive the benefits of market reforms.

The advent of regulated markets has helped in mitigating the market handicaps of
producers/ sellers at the wholesale assembling level. but, the rural periodic markets in general, and
the tribal markets in particular, remained out of its developmental ambit. Agriculture sector needs
well functioning markets to drive growth, employment and economic prosperity in rural areas of
the country. In order to provide dynamism and efficiency into the marketing system, large
investments are required for the development of post harvest and cold chain infrastructure nearer
to the farmers field. A major portion of this investment is expected from the private sector, for
which an appropriate regulatory and policy environment is necessary. Alongside, enabling policies
need to be put in place to encourage procurement of agricultural commodities directly from
farmers field and to establish effective linkage between the farm production and the retail chain
and food processing industries. Accordingly, amendment to the State APMC Act for deregulation
of marketing system in the country is suggested to promote investment in marketing infrastructure,

28
motivating corporate sector to undertake direct marketing and to facilitate a national integrated
market. The Ministry of Agriculture formulated a model law on agricultural marketing for
guidance and adoption by State Governments. The model legislation provides for establishment of
Private Markets/Yards, Direct Purchase Centres, Consumer/Farmers Markets for direct sale and
promotion of Public Private Partnership in the management and development of agricultural
markets in the country. Provision has also been made in the Act for constitution of State
Agricultural Produce Marketing Standards Bureau for promotion of Grading, Standardisation and
Quality Certification of agricultural produce. This would facilitate pledge financing, direct
purchasing, forward/future trading and exports. Several States have initiated steps for amending
the APMC Act.

CONTRACT FARMING/CONTRACT MARKETING

(Farmer-Processor Linkages)
Contract farming or marketing essentially is an arrangement between the farmer-producers
and the agri-business firms to produce certain pre-agreed quantity and quality of the produce at a
particular price and time. It can only be a pure procurement transaction or can extend to the supply
of inputs or even beyond. Contract farming is emerging as an important mode of procurement of
raw materials by agri-business firms in India due to the developments in the field of agricultural
marketing, changes in food habits and in agricultural technology in the new economic
environment. This is an important initiative for reducing transaction costs by establishing farmer-
processor linkages in addition to the already existing methods of linking the farmers to the
consumers. The distinction between 'sales' and 'contract to sell' needs to be understood clearly. In
the case of sale, the title or ownership of goods is transferred at once whereas in the 'contract to
sell', the goods are transferred at a later date. A contract to sell is not in the true sense of the word a
sale, rather it is merely an arrangement to sell. A contract is an agreement but an agreement is not
necessarily a contract. In contract farming, companies or organizations engaged in processing and
marketing of agricultural products are entering into contracts with the farmers. They provide inputs
to the farmers and buy back the product at a rate specified in advance.
Following type of inputs and services are normally provided by the company to the farmers.
Seeds of the variety they need for processing/marketing
Guide lines to grow the crops
Pesticides which do not result in residual toxicity

29
 Extension services
Fertilizers/hormones required for the crop
Other material if not locally available.
The contract may be entered into by parties anytime from the start of the sowing or
planting to the harvesting, processing, packaging and marketing stage of the crop. Normally, the
contract is entered before the start of the sowing or planting because the buyer can then stipulate
the conditions cultivation, use of the seed variety needed by them, use of pesticides and
insecticides, and requirement of on farm grading, sorting, packaging and processing. The buyer of
the product generally keeps the right to monitor the crop at every stage of its growth.
Following documents are obtained/given to selected farmers by the companies:
Application/Registration form
Contract farming agreement
Issue of pass book
Issue of ID Card

ADVANTAGES OF CONTRACT FARMING

Contract farming/marketing is beneficial both for the producer-farmers as well as to the processing
company in several ways:

To the farmer, contract farming -

(i) Reduces the risk of price/production
(ii) Ensures the price as market is assured
(iii) Increases the quality consciousness
(iv) Ensures higher production because of better quality seeds and pesticides.
(v) Reduces marketing costs
(vi) Provides financial support in cash or kind.
(vii) Ensures efficient/timely technical guidance almost free of cost.

To the company, contract farming-

(i) Ensures supply of quality agricultural produce at right time and at lesser cost to the company
(ii) Canalizes direct private investment in agricultural activities.
(iii) Ensures that the toxicity level is reduced as per requirement for export.

30
 Government is increasingly looking towards the corporate sector to augment the rural
incomes and employment through agro-processing. In this context, policy makers see the contract
farming/marketing as an important avenue to ensure greater private sector participation in
agriculture.

FLIP SIDE OF CONTRACT FARMING

The important weaknesses of contract farming are:
(i) Contract farming is involved mostly in cash crops which may lead to shift in area from food
crops which, beyond a limit may endanger food security, biodiversity and agricultural crops cycle
of the country.
(ii) Contract farming may create the danger of imposition of undesirable seeds.
(iii) The temptation of getting commercial profits from cultivation of a variety of the crop may
cause permanent damage to the land.
(iv) Market making outside the country may cause market breaking inside the country.

However, contract farming is a welcome development. But the contract should be made
under high scrutiny possibly because of exploitation of the farmers. The terms of the contract
should be spelt out in advance and a consent letter is obtained both from the farmer and the
company. The government should establish a monitoring mechanism and a dispute settlement
body to ensure that both parties adhere to the terms of contract.

EXPERIENCES IN CONTRACT FARMING

The following companies are presently under the tie-ups in India for contract farming
for the products specified:

1. Poultry- Contract farming of broilers between the hatchery with farmers in Coimbatore
2. ITC/WIMCO/JK Papers and farmers in Andhra Pradesh, Orissa, Punjab and Uttar Pradesh.
3. Organic dyes - Marigold farmers and extraction units in Coimbatore.
4. Dairy processing - Chitale of Pune and small farmers in Maharashtra and Gujarat.
5. Pepsi Company and farmers of Punjab and Rajasthan for tomato growing.
6. Exotic vegetables - Trikaya Foods NST and small farmers of Maharashtra and Andhra
Pradesh.

31
 7. NAFED and Sonepat (Haryana) farmers.
8. Exporters with farmers of Bangalore.
9. ITC Agro-Tech and sunflower cultivators in Andhra Pradesh and Karnataka.

Other areas where farmer processor linkage (contract farming) is being practiced in India are:
Baby corn cultivation
Tomatoes for manufacture of sauce and ketchup
Chillies for manufacture of chilly paste
Garlic and onion for manufacture of paste, powder and dehydrated products
Special varieties of Banana
Potato for making chips and wafers
Barley in making of bears
Onions and Mandarin Oranges
Durum Wheat
Pulpwood
Tomato pulp
Mushrooms
Gherkins
Edible oils

Presently contract farming is confined to few selected crops in selected pockets. However,
here is enormous scope for contract farming/marketing because with the increasing income,
consumers are becoming more health and quality consciousness and look for branded products.

INCENTIVES FOR PROMOTING CONTRACT FARMING

Contract farming is means of allocating/distribution of risk between processor and the
farmers. It will succeed if both the parties share the risks and rewards. The Ministry of Food
Processing Industries of Government of India has launched a scheme entitled 'Grant under
Backward Linkages' to promote contract farming. Under this scheme, a grant of 10 percent of
value of raw material purchased from the contract farmers (subject to a maximum of Rs. 10 lakhs
per annum) is provided to food processing units upto three years. The Ministry has also prescribed
a model agreement form. The criteria for the grant are:

32
(i) The processing unit should provide seed, insecticides, fertilizers and extension services to
contract farmers at reasonable charges.
(ii) The number of contract farmers should be atleast 25.
(iii) There should be an agreement prior to the period of contract farming for a maximum period of
one year.
(iv) The processing unit should give advance intimation about its contract with farmers to the
Ministry as well as State Nodal Authority (One Month before the contract comes into operation).
(v) The claim for reimbursement should be recommended by the State Nodal Authority.

THE FRESH (RETAIL) REVOLUTION IN INDIA : Causeofconcernorhappiness

Organized retailing in Fresh Fruits and Vegetables (FFV) is gaining a lot of momentum in India
with huge investment by leading Indian corporations in this area. Modern formats of supermarkets such
as Reliance Fresh, Choupal Fresh, Food World, etc. promoted by different companies are emerging
very rapidly in small and large towns around the country. Two of the major players in the supermarket
sector in the country are Reliance Industries and Bharti- Walmart tie up. Other key players include ITC,
Food World (JV of RPG Group of India and Dairy Farm International based in Hong Kong), Spencer,
Godrej, Pantaloon (Big Baazar and Food Baazar), Subhiksha and Aditya Birla Group. From the
development perspective, literature review of the evolution of supermarkets in other developing
countries suggests that these changes have strong implications for the small and marginal farmers.
Experiences of these countries suggest that the development efforts in this area are based on three
grounds: First, farmers associated with the modern value chains earn higher returns than selling to the
traditional markets. Second, the modern supply chains have specific quality requirements which are
easier to meet by the large and medium farmers and the small farmers tend to get left out of these
markets. Third, there are several successful examples of linking small farmers to these modern value
chains with effort from government agencies, NGOs and development agencies. The concept of
organised retail has been existing in India since early 80s with the existence of players like Mother
Dairy and Safal but it's only in past one year that the fever of retail in FFV has caught up fast.
Bargaining with the vendor to reduce price, moving out early in the morning for the mandi to get
fresh fruits and vegetables, sweating profusely and trying to find a way out in the hustle bustle of
the crowd, a nagging feeling of weighing machine not being correct and many more. On the
contrary, there is a fixed price shop with prices at par and sometimes even less than your nearest
vegetable vendor, getting fresh fruits and vegetables at any time of the day and shopping in the

33
luxury of ACs, paying for exactly 867gms of onion, etc. That's exactly where retail in fresh fruits
and vegetables (FFV) come into picture. India is the second largest producer of fruits and
vegetables, next only to China and the total cultivated area of fruits and vegetables is around 12
million hectares, which is close to 7% of the total cultivated area. India produces around 90 million
tonnes of vegetables and 40 million tonnes of fruit every year. This accounts for 13.7% of global
production in vegetables and around 10% in global production of fruits. The total market size for
fresh fruits and vegetables in India is Rs 145,000 crores and organised retail in this segment is a
miniscule 300 crores. Fruits and vegetables constitute about 22% of the average monthly
household consumption expenditure in urban areas of Rs 4,300. Food and groceries as a whole
accounts for about 50% of the monthly expenditure. This is the rationale for setting up exclusive
food and grocery stores, with at least 30% of space reserved for fruits and vegetables. These figure
reflects the huge untapped potential in the Indian FFV market. The concept of organised retail has
been existing in India since early 80s with the existence of players like Mother Dairy and Safal but
it's only in past one year that the fever of retail in FFV has caught up really fast. In the past three
months 60 new outlets have opened across various parts of the country. Earlier the marketing of
fruits and vegetables was undertaken by the farmers cooperatives only. Now a number of big
corporate houses like Reliance, ITC, Aditya Birla Group, Godrej, and Bharti have entered into the
retailing of fresh fruits and vegetables. Some of the retail and wholesale stores area already under
operations by the name of Reliance fresh, Choupal fresh, Namdharis fresh etc. ITC, Metro and
Adani fresh are also entering into wholesaling. Exports of fresh fruits and vegetables are being
done with EUREPGAP certification by Namdhari fresh and Bharti Airtel. They have developed a
supply chain with forward and backward linkages operating in an efficient manner with heavy
investments in infrastructure and cold chain. These business houses have indicated that contract
farming may get them timely, consistent and adequate supply of produce of good quality.

Challenges and Opportunities The present agriculture supply chain has tremendous amount of
inefficiencies at the farm level, the intermediary level and at the marketing and distribution level.
About 60% of the land is with small and medium farmers. These farmers are not left with much of
bargaining power and hence are left exploited at the hands of intermediaries. Until recently, the
private sector was restricted from directly purchasing agricultural produce from farmers. The
infrastructure of mandis is lacking and the mandis are mired with inefficiencies. Another
inefficiency existent in the structure is the large mark-ups between the farmers' realization and the

34
final consumers' price. Retail chain outlets reduce these inefficiencies to a significant level. Efforts
are seen from big retail players to improve the efficiency of the agriculture supply chain helping
both, the farmers, on one hand (by having fair prices for their produce) and the customer, on the
other hand (by giving them a fair price and a comfortable shopping experience). Better price for
farmers is the high point of the policy sales pitch of everybody, from the government to retail
chains. There is a great amount of wastage happening post harvest. This wastage is to the tune of
nearly 25-30 percent of the total produce. The reason for this loss is the shortages of the cold
storage facilities and refrigerated transport. Wastage will reduce when the same company handles
the produce from the farm to the fork, as against now, when farm produce goes through several
levels of wholesale and territory traders before reaching the retailer. Losses would further reduce
with investments in cold-storage. Add to this difficulty of cold storage, the opposition that the
retail outlets face is from the small vendors. The recent protests in three major cities (Ranchi,
Bhubaneswar and Lucknow) against the opening of Reliance fresh are evidence to the opposition
that comes from small vendors. Whether this fear of small vendors is founded in reason or hype
will be discussed in the next section and is there a reason at all for these small vendors to be afraid
of? Effect on Small Players India has an estimated 12 million street vendors in its cities-the 2004
National Policy for Urban Street Vendors pegs it at 10 million-and roughly 2.5 per cent of each
city's population is engaged in vending on streets. About one-fourth of these vendors sell
vegetables and fruits which brings their number close to 3 million.

The once ubiquitous push-cart vendors days look numbered. Many of the big retail players
are setting up fresh fruits and vegetables and daily needs stores close to your homes, with
innovative products and convenient options like shopping on the phone As you enter the Reliance
Fresh store, amongst the first things that catch your eye is this whole range of trays on a rack,
neatly packed with cut vegetables. There are cut vegetables for English salad, for Mexi, spicy corn
salad, for sambar. For harried working couples and lazy cooks, there are also options like cut
vegetables for pulav, for Chinese fried rice. For those who hate peeling pineapples, there are
peeled pineapples nicely wrapped in thin plastic filament. For those who want a quick bite of a
watermelon, but dont want to buy a full watermelon (which is typically the only option you have),
there are similarly wrapped watermelon slices. The rest of the air-conditioned and neatly arranged
store, with nearly 150 varieties of fruits and vegetables, is equally distinctive. Till now, the fruits
and vegetables section in organised retail formats have constituted a small fraction of the store

35
space, the only exceptions being Namdhari Fresh, and cooperative initiatives like HOPCOMS and
SAFAL. In Reliance Fresh, this proportion is 40% to 50%. In Spencers Express part of the
RPG Groups Spencers Retail, this proportion is 40%. It goes up to 75% if you include all
perishable items like milk, paneer, idli batter and fresh flowers. The idea of this emerging retail
format, as we perhaps guessed, is to tap into your daily needs, and wean you away from the local
vegetable seller, grocer and push-cart vendor by providing a better ambience, a wider range of
products, innovative offerings and the assurance of quality. A host of players Heritage Foods,
Fabmall/Trinethra and Subhiksha, apart from Reliance and Spencers are now beginning to set
up these neighborhood stores of an average size of 2,000 sq ft to 3,000 sq ft (the traditional kirana
store is no more than 100-500 sq ft). Since they are smaller than supermarkets, they find it easier to
find locations closer to your homes. Most players are trying to build distinctiveness by offering a
wide range of products. In traditional stores, we wouldnt find more than 30-40 varieties of fruits
and vegetables, Reliance Fresh will have some 150 varieties. There are products many people
would normally not seen , things like Chinese cabbage, jalapeno, broccoli, American corn, colour
capsicum, avocado and anchovies. There are both packed and loose options. About 80% of buyers
still prefer the loose option. Most Indians still like to touch and feel the products. Some customers
are wary of packed products partly because they are seen to perish faster. When the vegetables
breathe, they cause humidity inside the pack that could lead to fungal growth. But there are others
who think fewer people would have touched the packed stuff, so they prefer that. Besides, its very
convenient for those like working couples who are in a hurry. Reliance has thin plastic bag rolls
around the store which customers can pull out to put their vegetables or fruits into. Theres even a
weighing scale next to the racks for anybody who wants to check the weight before going to the
cash counter. Most are planning to offer the home delivery option, and even of taking orders on the
phone. But phone-ordering will require us to build a lot of confidence in peoples minds about the
quality. The prices in the newer stores are competitive with general market prices. In some cases, it
is actually lower, but whether these will be sustained remains to be seen. Most of these players
eliminate part of the middle-men costs and reduce wastage by handling the products better. But
against these benefits are the significantly higher infrastructure and retail costs, compared to those
borne by the roadside vendor. The cut vegetables are likely to offer higher margins. While
shredded carrots are sold by Reliance in a packed form at Rs 3.60 for 250 gms (or Rs 14.40 a kg),
the same carrot in its loose form is Rs 11.50 a kg. Part of this difference is on account of greater
wastage when a shredding machine is used. Farm connect Most players are investing heavily in

36
backend infrastructure and supply chain. There are collection centres of different companies across
the states , where farmers come and deliver the produce. Spencers has its own huge farm in
Hoskote. There are processing centres and distribution centres closer to the store locations. The
processing centres are where the products get cut and cleaned, most of those operations untouched
by human hands. Big investments have gone into setting up cooling facilities in every location
and in the transport vehicles to minimise wastage and increase shelf-life. Normally, a lot of the
capsicum and tomato are broken in transport. But as companies provide crates to farmers, which
ensure proper handling.
SAFAL MARKET CASE STUDY:

The supply chains to run on their efficiency level need to build a long term relation
between the retailers and farmers for procurement and to provide extension services regarding use
of inputs, production technology, information on harvesting, prices, precooling, grading, sorting,
packaging and on-farm sorting. There is a strong need of government initiative in removing the
infrastructural constraints like setting up of distribution centres, cold chains, roads to the markets
are important. Ensuring quality and quantity of the produce to the stores is another must
requirement for smooth functioning of the supply chain. If these constraints are removed then a
regular and uninterrupted supply of the produce is assured. Setting up of an alternate terminal
market by SAFAL Market is a move in this direction. The existing traditional system of wholesale
market is a set up where a commission agent procures the produce from the farmers at a price after
cutting for his charge and then sells the produce in the wholesale market to traders and retailers.
There might be more than one commission agent in between this chain. This market has the
problems of unorganised small farmers who lack market power, they have low share in the final
consumer price, the produce is distributed through the commission agents that have no incentive
for the quality and the wholesale markets are poorly designed and congested (Coulter, 2004). The
traditional Indian markets have a non-existent infrastructure of packing, grading, sorting and cold
storages. The commission agents and traders dominate the supply chain and are the major price
setters, thus most of the times farmers are dependent on them for credit. Farmers are not aware of
the price setting mechanisms as the system is not transparent and thus dont have any incentive to
produce efficiently. Wholesale markets are not clean, lack cold storage network and thus huge
wastage of fresh produce is observed, this wastage range between 20-40 per cent. Institutions like
cooperatives, contract farming and growers association are considered to improve producers access

37
to markets, minimise transaction costs and remove production constraints. It is believed that a
single gateway to the regulated markets would save time and improve efficiency. Ever since the
Indias National Agriculture Policy has envisaged the participation of the private sector through
contract farming and land leasing arrangements to allow accelerated technology transfer, capital
inflow and assured market for crop production, especially of oilseeds, cotton and horticultural
crops, investment in food processing industry on part of the private sector is being encouraged.
This would help farmers of fruits and vegetables through backward linkages of such investment. It
is a much felt need that the role of private institutions is to be encourages as the governments
ability to intervene is seriously constrained by resources (Chengappa,2006). Vertical coordination
of farmers with cooperatives, contract farming and retail chains would facilitate them to deliver
better output due to lower market risk, better infrastructure, public investment, acquired extension
services, created awareness to prevailing and new technologies, better prices stable income etc. Its
multiplier effect helps in increasing incomes, output and employment (Birthal et.al, 2007)..
National Dairy Development Board (NDDB) started with a Fruit and Vegetable Unit of SAFAL at
Delhi which was one of the first fruit and vegetable retail chain set up as a unit of Mother Dairy
Foods Processing Ltd. The retail unit provided a direct link between fruit and vegetable growers
and consumers. The other initiative was a fruit processing Plant of SAFAL at Mumbai, a 100 per
cent export oriented unit, which capitalizes NDDB's food processing strength. NDDB has set up an
alternate system of wholesale markets in Bangalore as a pilot project. The initiative is named as
SAFAL Market and is initiated to fine-tune horticultural growth in India, by a shift in their earlier
retail chain model to a wholesale market concept. This market is a move to introduce a transparent
and efficient platform for sale and purchase of horticultural produce by connecting growers
through Growers Associations with farmers and wholesale buyers in various markets across the
country. The model involves establishment of an alternate marketing structure that provides
incentive for quality and productivity thereby improving farmers income. Through this approach
there is an expected increased integration between growers, wholesalers and retailers into the
market system. SAFAL Market operates outside the purview of the APMC act and the Government
of Karnataka is the first State government to amend the Agricultural Produce Marketing
(Regulation) Act to enable NDDB to own and operate such a market. SAFAL Market is a
government initiative and located near Bangalore, Karnataka and emphasise on fresh fruits and
vegetables only. Bangalore is a major horticultural producing state with a total area under
horticulture of 15.3 lakh hectares. Bangalore has a huge floating population of around 8 per cent of

38
the total Bangalore population and the per capita demand of horticultural produce is very large,
because the city is fast growing with lot of information technology jobs. The state has a number of
horticultural satellite markets and four major wholesale markets. The existence of large and diverse
market functionaries like commission agents, pre-harvest contractors, push cart vendors etc.
indicate existence of competitive environment in the horticulture market in Bangalore (Chengappa
and Nagaraj, 2005). Bangalore has seen number of retail chains and new models being initiated in
last few years, but SAFAL market is the first one of its kind to establish a terminal wholesale
market. The impact of its operations are evident on farmers, traders and retailers. The following
sections would highlight on the structure and functioning, supply chain, forward and backward
linkages, constrains and achievements in this terminal market. A traditional commission agent was
charging them 8-10 per cent while the handling charges at SAFAL market are only 4.25 per cent
(Chengappa and Nagaraj, 2005). Farmers selling their produce to SAFAL realize 10 to 15 per cent
higher profit as compared with traditional channel (Chengappa and Nagaraj, 2005). SAFAL
Market on large has been operating successfully in over coming the constraints that the fresh fruits
and vegetables marketing is facing in India. It has been able to establish an efficient supply chain
both in backward and forward linkages. An experiment of backward and forward integration
provided by NDDB- SAFAL has benefited the farmers immensely (Chengappa, 2006). moving
ahead, SAFAL has recently set up a National Exchange of India, which is the country's first spot
exchange for trading on perishable agri-commodities including horticulture, floriculture, dairy
products and other allied commodities. This will provide on-line trading access to farmers, milk
producers organisations and traders across the country. The move to introduce high-tech farm
terminals will attempt to provide backward and forward linkages and is an outcome of change in
approach to agricultural marketing in India. Farmers are satisfied with the in time payment,
transparency, good price and quality of produce procured through SAFAL market.

FUTURES MARKET

Revival of agricultural commodity futures market in India in early 2000 after the ban in
1960s has helped in integrating the food grains and other agricultural goods markets through price
discovery and price risk management. Fruits and vegetables can also become a part of futures

39
trading through the national commodity exchanges. At the moment due to their perishable nature,
short shelf life, inefficient storage facilities and low year long availability the horticulture products
have not entered the futures trading. The involvement of the private institution in this process will
help in getting the horticulture produce linked to markets through more private investment.
Development of the infrastructure, availability of new techniques in this process will further help
in growth of the horticulture sector. SAFAL Market is collaborating with Multi Commodity
Exchange (MCX) for creating a SAFAL National Exchange exclusively for horticulture produce
spot trading and the operations are expected to begin by March, 2008. This would be an electronic
p[platform for perishable commodities and thus would help in integrating the producers and buyers
from different parts of the country. The transparent price system would be able to create price
awareness, leading to a creating a better price discovery. This would further lead to linking up of
all the stake holders and also reduce post harvest losses due to storage and transportation. The
system would facilitate delivery of the produce from the shortest possible production area, leading
to further reduction in transportation cost. This will be a step forward for the development of the
horticulture sector.

ONLINE /E- TRADING OF FRUITS & VEGETABLES

Overview:
Safal National Exchange of India Ltd. (SNX) provides a technology based competitive
market place with wide choice to farmers in Marketing of their perishables and other allied
produce in a fair and a transparent manner by using modern IT and improved Logistic. It is a joint
venture between Mother Dairy Foods Processing Limited(MDFPL)- a wholly owned subsidiary of
National Dairy Development Board of India (NDDB), MCX and Financial Technologies Ltd It
provides a platform, where seller can sell at the best possible rate, buyers can buy at the most
competitive rate and SNX would provide counter party guarantee in respect of all trades.SNX
facilitates provision of services like quality certification, Warehousing and Logistics and other
customized value added services .Thus SNX offers Power of Exchange technology in combination
with the F & V Expertise under a single banner, for the good of producer & consumer, in an
electronic spot market

1. Empower farmer in price discovery; Growers will have option to conclude price for their
produce for sale prior to harvest

40
 2. Minimal intermediation- better quality, lower transaction cost
3. Narrower price spread: Farmer-Consumer
4. Trading terminals all over the country, truly National
5. Payments are guaranteed
6. Quality certification protocol administered by SNX
7. Initially on a handful of crops, finally all F&V items with negative list
8. Improvement in post harvest practices for better shelf life and Quality of Grading, Packing
& Overall delivery, match with rapidly raising expectations of quality by average urbanite

Vision:
One India One Market: A national level transparent equal opportunity e- enabled market for all

Mission:
A seamless national electronic market an hour from every F & V farm enabled by
Transparent online trading and a rule based clearing system abd ensuring final settlement Price
discovery only by market forces enabling equal and fair opportunity to all Real time market
information dissemination availble to all Snx would derisk the farmer from price fluctuations
besides also maximising revenues Enable farmer on imrpoved post harvest practices imrpoving
shlef life and product presentation

Promoters:
(i) Mother Dairy: Mother Dairy, Delhi was set up in 1974 under the Operation Flood Programme.
It is now a subsidiary company of National Dairy Development Board (NDDB). Mother Dairy
sources its entire requirement of liquid milk from dairy cooperatives. Similarly, Mother Dairy
sources fruits and vegetables from farmers/ growers associations. It is Mother Dairy's constant
endeavor to ensure that milk producers and farmers regularly and continually receive market prices
by offering quality milk, milk products and other food products to consumers at competitive prices
and uphold institutional structures that empower milk producers and farmers through processes
that are equitable. Mother Dairy markets dairy products like Liquid Milk, Ice Creams, Flavoured
Milk, Dahi, Lassi, Mishti Doi, Ghee, Butter, Cheese, Dairy Whitener, UHT Milk, Dhara range of
edible oils and the Safal range of fresh fruits & vegetables, frozen vegetables and fruit juices at a
national level, through it's sales and distribution networks, for marketing food items. In times to
come, Mother Dairy shall strive to become a leading player in the food industry in India.

41
(ii) National Dairy Development Board: The National Dairy Development Board (NDDB) was
founded in 1965 to replace exploitation with empowerment, tradition with modernity, stagnation
with growth, transforming dairying into an instrument for the development of India's rural people.
In addition, NDDB also promotes other commodity-based cooperatives, allied industries and
veterinary biologicals on an intensive and nation-wide basis.NDDBs established dairy cooperative
movement and their expertise in post harvest management including quality control and supply
chain management will give the exchange a leading edge in taking the electronic Horticulture spot
market to the India farmers.

(iii) Multi Commodity Exchange of India Limited: MCX is an independent and de-mutualised
multi commodity exchange. It was inaugurated on November 10, 2003 and has permanent
recognition from the Government of India for facilitating online trading, clearing and settlement
operations for commodities futures market across the country. Today, MCX features amongst the
world's top three bullion exchanges and top four energy exchanges. MCX offers a wide spectrum
of opportunities to a large cross section of participants including producers/ processors, traders,
corporate, regional trading centre, importers, exporters, co-operatives and industry associations
amongst others. Headquartered in the financial capital of India, Mumbai, MCX is led by an expert
management team with deep domain knowledge of the commodities futures market. Presently, the
average daily turnover of MCX is around USD1.55 bn (Rs.7, 000 crore - April 2006), with a record
peak turnover of USD3.98 bn (Rs.17, 987 crore) on April 20, 2006. In the first calendar quarter of
2006, MCX holds more than 55% market share of the total trading volume of all the domestic
commodity exchanges. The exchange has also affected large deliveries in domestic commodities,
signifying the efficiency of price discovery. Being a nation-wide commodity exchange having
state-of-the-art infrastructure, offering multiple commodities for trading with wide reach and
penetration, MCX is well placed to tap the vast potential poised by the commodities market.
(iv) Financial Technologies India Limited: FTIL proven mettle of End-To-End exchange trading
technologies addressing trading/ surveillance/ clearing and settlement operations help enhance the
SNX Trade Life Cycle operations (Pre-Trade, Trade and Post-Trade). In addition to its
technological capabilities, FTIL also brings to SNX its associations with technology giants such as
Microsoft/ Intel and HP. FTIL has promoted India No 1 commodity exchange (Market share more
than 62%) worlds 2nd largest exchange in Silver & Natural Gas trading volumes and the worlds

42
3rd largest exchange in gold trading volumes. MCX also is among the top ten commodity
derivatives exchanges in the world.

BENEFITS:
Direct Benefits to Farmers
1. Transparent pricing mechanism: real time price quote accessible
2. Accessibility to National Level Markets: as buyers from all over the nation is connected in
the system
3. Price manipulation is restricted to larger extent: since the system allows the participation at
national level there is no room for manipulation by any group of traders. And the
Maximum allowable open position imposed at member level will restrict the volume
handled by individual member
4. Distress selling avoided to larger extent: unlike in the existing mechanism wherein farmer
sells the produce after brining the produce to market place. In the proposed mechanism
farmer will first sell his produce and than delivers at later stage
5. Assured and prompt payment: exchange will take the third party guarantee to all the trade
that takes place on the exchange platform

Indirect Benefits to Farmers

1. Increase in productivity
2. Reduction in cost of production
3. Reduction in post harvest losses
4. Increase in marketable yield
5. Increase in quality of the produce produced
6. Access to extension services
7. Increase in risk taking capabilities of farmers
8. Inspire co-operation
Benefits to Traders/Commission agents/Forwarders
1. Traders would get a bigger market, where they can sell huge quantity
2. In physical market, they always face the risk of counter party defaults, which will be totally
guaranteed on SNX platform. A settlement guarantee fund would be maintained for this
purpose

43
 3. Since large number of investors from all across the country would be available at SNX
platform, they can realize better price for their product
4. They can expand their activities to multiple commodities, because of operational ease,
availability of finance and absence of counter party risk under SNX system
Benefits to Exporters/Processors
1. Buy certified quality material through a secured platform
2. Avoid hassles relating to procurement of material in physical market
3. Looking at the price available at SNX, they can make export commitment and cover
themselves immediately by buying at SNX
4. Customized services regarding logistics can be provided

ASSOCIATES & PARTNERS:

TRADING:
Trading Mechanism
SNX follows the system of price-time priority for order matching. Members place orders
on their Trader Work Stations (TWS) and the orders get matched and executed through the order
book in the Trading engine. Members have a facility to download various reports, by connecting
FTP, through which they can access the reports such as Bhav Copy, Contract Master, Trade Report,
Margin Report at the end of trading.

Transparent trading mechanism and efficient risk management, combined with effective
surveillance, enhances the trust among the participants in SNX, for realizing reasonable price for
the produce of the farmers and other participants.

Risk Management:

Surveillance: The surveillance mechanism at SNX includes the monitoring of price movement,
volatility, through real-time alerts, etc. Surveillance is also carried out in monitoring positions,
granting limits, investigating, by adopting various techniques.

44
Exposure Limits: The Surveillance of SNX will fix the trading limits for each Member,
depending on the margin available to their credit and monitor their positions online.

Initial Margin (IM): SNX levies initial margin (IM) on open positions of Members and their
clients for both buy and sell. The percentage of IM varies depending on the commodity and its
volatility. IM is calculated and reduced from the total margin of a Member available with SNX.
Exposure is given to Members, based on the balance amount available with SNX. When the Initial
Margin increases, the exposure will automatically decrease.

Mark-to-Market Margin (MTM): SNX has devised a mechanism of MTM margin to prevent
any potential loss due to price volatility, in which case the Members or their clients may commit
default. SNX will mark all trades and open positions for the day on closing price, by which the
notional gain or loss is calculated compared to the trade price. Such gain / loss is credited / debited
to the respective Members account on T+1 day. The CnS software automatically calculates Mark
to Market margins on a daily basis.

Special Margin: Special Margin is levied by SNX whenever there is high volatility in trading in a
specific commodity / contract. This margin is levied when price reaches a particular level
compared to previous days closing price.

Clearing & Settlement: SNX has efficient system of clearing & settlement (CnS) of trades. All
open positions at the end of the trading day will be compulsorily settled by delivery. CnS Dept.
will receive the information about physical receipt of commodities at the Buyers place through the
concerned Delivery Centre. Thereafter CnS Dept. will release the funds pay-out to the Sellers.
Settlement of all trades in SNX takes place on the Settlement Price. The members positions are
computed on a daily basis, depending on the settlement cycle. The information regarding pay-in
and pay-out of funds arising out of settlement of transactions is calculated and transferred
electronically to the Clearing Banks, through FTP.
MEMBERSHIP CATEGORIES:
SNX offers Three Categories of Membership:
(i) Category "A"
The following are eligible to apply in this Category:

45
Growers Association, Co-Operative Society - (Agri or Consumer) ,SHG (self help group) -
promoted by recognized institutions or SNX ,Producer company under Section 581 (a) to (z)

(ii) Category "B"

The following are eligible to apply in this Category:
State level apex co-operative societies, Marketing Federations, Marketing Boards,
Similar bodies set up by the State Governments

(iii) Category "C"

Any entity or individual desirous of membership in this category may submit duly filled in
Membership Application as per the terms and conditions of the Exchange.

Advantages
Advantages of SNX over existing Market

SAFAL National Exchange of India Ltd (SNX) an online perishable commodity

Exchange, prompted by a joint venture of NDDB, Mother Dairy & FTIL-MCX. Headquartered in
Bangalore, SNX is led by an expert management team, with deep knowledge of the horticulture
markets.With the production estimated at around 140 million tonnes, one fourth of the global
output, the Indian commodities market offers unparalleled growth opportunities to a large section
of the market.SNX has opened its national membership, as Trading-cum-Clearing Member (TCM).
Membership on SNX offers benefits in more than one ways for market participants. It has sound
technology infrastructure through its association with market leaders such as Stratus for Fault
Tolerant Servers, Financial Technologies (India) Ltd. for Exchange Technologies, and a panel of
banks for funds transfer.

SNX V/S Existing Market

(i) Number of Buyers and Sellers: From every nook & corner of all producing centres in the
country simultaneously present, Limited to local participants

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(ii) Bargaining Power: Faceless bid, price offer by seller based only on grade with no other
inputs such as profile of seller, body language, etc., Small lots by small farmers would invariably
be at a discount

(iii) Right to reject offered price : Absolute right to define price expectation and also modify
based on the farmer's judgement/need, Virtually not an option to reject as the produce is out in the
market, besides pressures of having to return to the same trader next day

(iv) Dependence on Local Traders: Minimised as there are options of selling on the exchange
through Farmer Association, Perpetual dependence on local traders

(v) Trade system: Has the option to first conclude on the price and later delivers produce at
delivery center, Produce to be physically brought to the market for finding out price

(vi) Grades standardization: Standardization with dispute redressal system, Informal

standardization without an effective grievance redressal system for the farmer

(vii) Price Quotation: Both buyers and seller can quote their price, Seller is the price taker

(vii) Effect of supply- Demand balance: Based on demand and supply at national level, Limited
to local balance, impact of distant market situations leveraged by middlemen

(viii) Price dissemination: Multiple Channel- electronic-instantaneous-all key centres Limited

sources after a lag of a day often, more as data than as a decision tool for the farmer

(ix) Payment: Immediately after the sale, Varies from 1 week to 1 month

PRODUCTS:
Mango,Banana,Onion,Tomato,Potato,Aplle,Citrus and Grapes

Fruits
Apple : Royal Delicious, J & K Delicious, Mango: Bangenpalli, Totapari and

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 Banana : Dwarf Cavendish

Vegetables
Potato : Kufri Bahar , Onion: Nashik Red and Tomato:Hybrids

CONTACT :
Safal National Exchange of India Ltd. /SNX
Safalmarket
Whitefield-HoskoteHighway
Bangalore-560067
Ph:(080)25053000
Fax: (080) 28457382
Web:http::/www.snxindia.com or, safalindia.com
Email : info@snxindia.com

FINDINGS
1. India is a land of huge potential... and always will be.

2. Indias own market for high quality fruit and vegetables is also growing strongly as its
middle-class expands

3. Snail-like progress of the countrys F & V industry: Lack of infrastructure, fragmented

production and poor quality standards

4. Along with the desi-corporate houses big-hitters in the global fresh produce trade are now
taking the opportunity to capitalise on Indias vast procurement potential

RANDOM THOUGHTS.(PRESUMPTIONS)
1. After 5 years, with the most optimistic estimate the organized retailing sector will still not
handle more than 20% of the produce

2. Most of the fresh produce will still be going to fresh market

3. Importance of traditional markets and the efforts to upgrade the traditional market cannot
be ignored

4. Need to avoid dichotomy in the agriculture sector those selling to modern chains and
others caught up in the low value traditional chains

CONCLUSION: POLICY AND STRATEGIES

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 Development of agriculture in India needs some critical management inputs particularly
that of supply chain management- collaboration among various stake-holders along with efficient
vertical and horizontal integration. The horticulture sector in particular has to prioritize
development of research in the issues of genetics, biotechnology, integrated and sustainable
production systems, post harvest handling, storage, marketing and consumer education.
Government should create a policy environment that will ensure a mutually beneficial relationship
between farmers and organised sector. Along with investment in infrastructure, development of
extension activities and linkages with farmers is also important areas where government can play
influential roles. After the successful trials of SAFAL Market in Bangalore, many state
governments have expressed their desire to establish similar markets after they have amended their
State APMC acts (NDDB, 2004-05).

The two golden rules for successful development of the horticulture sector are to ensure
consistency in supply; and provide recorded and demonstrated traceability of products. Thus,
production and marketing strategies are the most crucial in strategy development. The
development strategy should be based on innovation. Production innovations initially focused on
efficiency and effectiveness in order to increase yields and lower costs.

India being a land of small and marginal farmers and studies have being advocating the fact
that small farmers are going to feed India, thus it is important to mobilise them and help them to
diversify to meet the increasing domestic demand of horticulture products. Small farmers are key
to initiate the horticultural revolution and with technical change and increase in international
competitiveness large scale operations and vertical integration takes place. Linking small farmers
with high value urban and export markets would lead to development and growth of the rural
sector. Horticultural crop diversification should be encouraged by intercropping horticultural with
non-horticultural crops without being a threat to the nations food security and biodiversity. This
will yield more food, more income, and better soil health. There is a strong need to strengthen
research on horticultural crops to develop demand driven technology by improved variety, pest
management, etc. in both public and private sectors. These technologies should be quickly
disseminated through government institutions, NGOs and even private participants by encouraging
farmers participation and upgrading their technical capabilities.

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 The horticultural development requires a minimum set of basic production factors, and
further requires an optimal crop management and developing a post-harvest infrastructure;
entrepreneurial management and horticultural expertise; logistical infrastructure; and supporting
financial infrastructure. Thus the production strategy should target not only meeting domestic and
export demand of fresh products but also of the processed products. Improving post harvest
operations related to handling, storage, and marketing of fresh and processed produce. Volumes
saved in post harvest losses are actually the surpluses generated, without additional cost.
Horticulture sector needs to be developed as an organised industry and has to be run collectively
by all the stake holders with farmers as the entrepreneurs. The marketing cost of fruits and
vegetables is almost 50 per cent of the total cost of production, thus, there is a need to set up
institutional agencies that can advance credit to farmer and motive them to market the produce
themselves.

Post harvest losses in horticultural crops range from 15-50 per cent. At micro level these
looses increase the marketing cost of the product and at macro level they also reduce the per capita
availability. Thus there is need to develop technologies, methods and mechanics to reduce these
losses. There is need to remove the distortions in the present supply chain, create more integration
between the different links of the supply chain and reduce these losses. This will result in net gain
to producers, consumers and to the nation. Farmers usually procure inputs from the retail market
and end up selling their produce in the wholesale market. Buying at retail price and selling at
wholesale price is the most uneconomic way of business. Thus the involvement of an institutional
structure in coordinating the demand of individual farmers of the village can reduce the total cost
of inputs to them. The market needs to be demand driven rather than supply driven. The price of
the produce should not be based on the prevailing whole sale price but on the basis of cost of
cultivation of that produce. Farmers should be their own price setters rather than price followers.

There is also an immediate need to integrate the production, marketing and processing
processes of the produce to get maximum benefits from fruits and vegetables cultivation. There are
problem with price structure in the marketing, the price offered by them is not justifying the
prevailing whole sale price or even the cost of production of the produce. Further successful
implementing of the core marketing strategies will help in future expansion of the domestic and
international markets. But the exports face certain tariff and non-tariff barriers too. To enhance

50
exports their is a need to develop air transport cargo system specialised for fresh fruits and
vegetables, along with the airports, road and rail connectivity with the area of procurements.
Countries capability to generate surpluses for exports depend on its ability to tab the potential of
small farmers. For this assistance from APEDA and exporters association as well as training to the
farmers is necessary. Quality control, longer shelf life is crucial for exports. Organic production of
fresh fruits and vegetable is important to capture markets in Europe.

Several steps are required to improve the agricultural supply chain. Farmers should start
dealing with large corporate, which in-turn would reduce large mark-up due to the large number of
intermediaries coming into picture. Contract farming is likely to start by large retail players who
will start dealing with the farmers, providing them with the right quantity and timely supply of
inputs and ensuring the forward links upto the disposal front. As competition by the private sector
players increase, investment in logistics and infrastructure would also increase which would lead
to an increase in the efficiency of complete agricultural chain.

One important measure would be to bring more markets under regulation and supervision
of a well-represented market committee. Another measure would be the promotion and perhaps
enforcement of open auctions in the markets. Yet another measure could be efforts to bring more
buyers and sellers into the markets, bringing them closer to perfect markets. The direct
participation of farmers should be increased. Market infrastructure should be improved through
storage (go-down) facilities, cold storages, loading and weighing facilities. Improvement in the
road network, and cold-chain facilities are also of substantial importance. Greater transparency of
the operations through supervision and systems can also help substantially. The market integration
and efficiency can also be improved by making up-to-date market information available to all
participants through various means, including a good market information systems, internet and
good telecommunications facilities at the markets. Thus, efforts are needed in the direction to
capitalize on our strengths and remove constrains to meet the goal of moving towards a
horticulture lead agricultural growth in India.
LITERATURES CITED

1. Chengappa, P.G. and N. Nagaraj (2005). Marketing of Major Fruits and Vegetables in and
around Bangalore. Report 2004-05. Department of Agricultural Economics. University of
Agricultural Sciences. Bangalore.

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2. Chengappa, P.G. (2006). Evolution of Food Retail Chains: Evidence from South India.
Paper presented at IFPRI-IEG Workshop on From Plate to Plough: Agricultural
Diversification and its Implications for the smallholders. September 20-21, 2006. New
Delhi.

3. Acharya, S. S. and Agarwal, N. L.2004.Agricultural marketing in India. Oxford & IBH

Pub. New Delhi

4. Acharya, S.S. (2006). Agricultural Marketing Reforms: Status and Road Map. National
Institute for Agricultural Marketing, Jaipur

5. Reddy, I.1995.Marketing of vegetables. Rupa Books Pvt. Ltd..Jaipur

6. Kumar, Praduman and Promod Kumar (2003). Demand, Supply and Trade Perspective of
Vegetables and Fruits in India.Indian Journal of Agricultural Marketing. Vol 17(3):121-
130.

7. FRONTLINE (July 13,2007 Fresh Retail special issue

8. BUSINESSWORLD (July 9,2007-Fresh Retail special edition )

9. SURVEY OF INDIAN AGRICULTURE-2007

10. Viswanadham, N (2006). Food and retail chains in India. ISAS Working Paper No 15. 6
October 2006, Singapore.

11. http://www.freshplaza.com

12. http://www.safalindia.com

13. http://www.snxindia.com

CONTENTS

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SN. Titles Page No.
1. Introduction and the turnaround 1-3
2. Fresh fruits and vegetables (FFV) 4-5
3. FFV Marketing 5-6
4. Constrains 7-9
5. Opportunities in FFV sector 10-12
6. The Way Out :
a) Regulated Markets 22-22
18-19
b) Direct Marketing
19-21
c) Co-operative Market 23-26
d) Contract Farming
e)Organized Retailing
7. Indian FFV Retail market -
8. Online /e-Trading of FFV 32-38
9. Conclusion 39-43
10. Literatures cited 44

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