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Agricultural Price Rise – Addressing the Supply Side Constraints

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Venkata Subramanian

Panel discussion on “Agricultural Price Rise – Addressing the Supply Side Constraints” held on 26th August 2011 at TAFE’s MDCC [Management Development Consultancy Centre], 105, Dr Radhakrishnan Salai, Mylapore, Chennai between 1500 hrs and 1730 hrs. This programme is being organised to obtain the views of the stakeholders. Presentation by In this regard, we will be happy if you could confirm your presence as a panelist, during the panel discussion and provide your inputs on the topic. Your valuable inputs will be helpful in recommending solutions on the issue, to the Government.

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Confederation of Indian Industry “Agricultural Price Rise” Addressing the Supply Side Constraints 26th August, 2011: TAFE’s MDCC, Chennai BY: VENKAT SUBRAMANIAN MD & COO MVS EFARM PVT LTD CHENNAI
overview  How is Price being Set Today in Market ?  What is a ‘good price’ ? Who should determine this ?  Why is Price rising ?  Can we have stable agri prices ? How ?  Solutions 1. Supply Side data 2. Demand Prediction, KYC – Know Your Customer 3. Cost of Production – set MRP 4. Planning and Supply Chain Management 5. Promote Agri-Entrepreneurship – target Youth & Educated
How is Price being Set Today in Market ?  What is price of tomato , potato, onion today ?  Who has most influence in this price ?- farmer, wholesaler, retailer, customer, government  Who is the middlemen ? How do they set a price ?  Is ‘middlemen’ the REAL cause ?
What is a ‘good price’ ? Who should set it?  Why farmer is unable to set his own price ?  Who is the ‘end consumer’ ? The housewife ?  Will increasing the ‘yield’ automatically give ‘better price’ ?  Should price be ‘one sided’ – what about ‘customer affordability’ ?  ‘Customer satisfaction’ – absent in agri sector !
Why is price rising ?  Demand/Supply mismatch – Daily ‘satta’ bazaar  Land under cultivation is shrinking by over 20% each year - Land value is several times agri output value !!  1 acre land = 10 lakhs  Avg .Income from 1 acre land = 50,000 per year  What farmer would earn in 20 years = spot cash !  It is more profitable to ‘sell’ the land than ‘work’ on it  Over 20% farmers+family each year quit and move to cities – supply is going down
Can we Set a stable price ?  Demand/Supply Match  Standardisation is the key – Weight,Grade  5th P : perishability – Fire sale ?  Stable prices : Product v/s Brand
Why current solutions have failed? “MOST SOLUTIONS IN AGRI SECTOR ARE DRIVEN BY EMOTIONS ,SENTIMENTS AND URBAN MYTHS RATHER THAN „ACTUAL END USER NEEDS‟ , SUSTAINABLE AND LOGICAL” By trying to solve a problem , we have created more problems ….
From Constraints, To Solutions 1. Know The Supply Side : Data collection 2. KYC – Know Your Customer – Retail and Wholesale 3. Calculate Cost of Production – Set MRP 4. Baseline standards and measures 5. Plan and Manage the Entire Supply Chain 6. Promote Agri-Entrepreneurship – target Youth & Educated
Supply Side data  Current data is all government owned, redundant and outdated  Key Supply Side data :  Farmer Contact Info  Land Info  Produce grown , Variety  Harvest dates  Expected Yield  DATA SHOULD BE UPDATED FREQUENTLY
Customer Demand Prediction  ONE SIZE DOES NOT FIT ALL !  Retail customer – HIG, MIG, LIG, BPL  Hotels & caterers  Food processors  Export
Cost of production eFarm Farmer's guide How to calculate the sale price of a produce (sample : Ladies finger / Vendaikaai) A . Expenses Enter approximate monthly expenses 1 Land cost ( Owned or leased) Rs 0 2 Labour expenses Rs 9000 3 Seeds Rs 500 4 Fertilisers Rs 750 5 Pesticides Rs 500 6 Ripening costs Rs 1000 7 Water Rs 50 8 Electricity Rs 50 9 Tractor & equipment rentals Rs 2000 10 Transportation Rs 500 11 Bagging Rs 50 12 Other expenses Rs 0 B . Loans and repayments 1 Monthly loan repayment Rs 100 Total expenses (A + B ) 14500 C . Yield (aggregated per month) 1 Land area (in acres) 1 Based on data for over 200 farmers across 10 items 2 Approximate yield (in tonnes/acre) 5 Total yield (in tonnes) 5 D. Farmer's Returns Labour cost is MOST significant 1 Monthly minimum return or profit expected Rs 10000 cost (70%) E . Wastage ( in percentage of volume of produce) 5% F. Min. Sale price Rs 5.16 per kilo Avg. cost of production of most local G . Current Market price Rs 12.00 per kilo H . Profit/ Loss 34211 horti. Crops = rs 5/kg
Price Analysis •Analysis of past price trends reveals ‘patterns’ of UPS and DOWN swing •Most price variations can be mapped back to farmer sowing seasons
Standardisation of weights, grades 1) Weighing machine = standardise agri business transactions ! Bundles, baskets , bags  Kilograms , Counts  2) Simple grading = right quality to right customer!! Mixed grades  S / M / L (Or) excellent / OK /bad 
Focus on ‘entire supply chain’ constraints .. not JUST SUPPLY SIDE Value added resellers Sorting , Grading , Processing, Packing Storage Warehouses Bulk buyers Exporters Farmers Cooperatives Collection centers Kiranas Self Help Groups Hawkers Village ICT kiosks Phone booths Logistics Small Independent transporters Mobile operators Fleet Intra-city small tempos operators
Technology driven supply chain Other industries have gained immensely from IT solutions Agri sector – poor usage of technology solutions Price Decisions need to be ‘system driven’ than ‘people driven’
Promote Agri Entrepreneurship – bring the youth and educated BACK into agriculture •Stop thinking ‘farmer is a superman’- he cannot do everything , nor does he WANT to •Scope for agri-entrepreneurs in various categories •Other industries growth is fuelled by entrepreneurs •Government should set policies and guidelines and should NOT interfere in ‘running’ the agri sector

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Agricultural Price Rise – Addressing the Supply Side Constraints

  • 1. Confederation of Indian Industry “Agricultural Price Rise” Addressing the Supply Side Constraints 26th August, 2011: TAFE’s MDCC, Chennai BY: VENKAT SUBRAMANIAN MD & COO MVS EFARM PVT LTD CHENNAI
  • 2. overview  How is Price being Set Today in Market ?  What is a ‘good price’ ? Who should determine this ?  Why is Price rising ?  Can we have stable agri prices ? How ?  Solutions 1. Supply Side data 2. Demand Prediction, KYC – Know Your Customer 3. Cost of Production – set MRP 4. Planning and Supply Chain Management 5. Promote Agri-Entrepreneurship – target Youth & Educated
  • 3. How is Price being Set Today in Market ?  What is price of tomato , potato, onion today ?  Who has most influence in this price ?- farmer, wholesaler, retailer, customer, government  Who is the middlemen ? How do they set a price ?  Is ‘middlemen’ the REAL cause ?
  • 4. What is a ‘good price’ ? Who should set it?  Why farmer is unable to set his own price ?  Who is the ‘end consumer’ ? The housewife ?  Will increasing the ‘yield’ automatically give ‘better price’ ?  Should price be ‘one sided’ – what about ‘customer affordability’ ?  ‘Customer satisfaction’ – absent in agri sector !
  • 5. Why is price rising ?  Demand/Supply mismatch – Daily ‘satta’ bazaar  Land under cultivation is shrinking by over 20% each year - Land value is several times agri output value !!  1 acre land = 10 lakhs  Avg .Income from 1 acre land = 50,000 per year  What farmer would earn in 20 years = spot cash !  It is more profitable to ‘sell’ the land than ‘work’ on it  Over 20% farmers+family each year quit and move to cities – supply is going down
  • 6. Can we Set a stable price ?  Demand/Supply Match  Standardisation is the key – Weight,Grade  5th P : perishability – Fire sale ?  Stable prices : Product v/s Brand
  • 7. Why current solutions have failed? “MOST SOLUTIONS IN AGRI SECTOR ARE DRIVEN BY EMOTIONS ,SENTIMENTS AND URBAN MYTHS RATHER THAN „ACTUAL END USER NEEDS‟ , SUSTAINABLE AND LOGICAL” By trying to solve a problem , we have created more problems ….
  • 8. From Constraints, To Solutions 1. Know The Supply Side : Data collection 2. KYC – Know Your Customer – Retail and Wholesale 3. Calculate Cost of Production – Set MRP 4. Baseline standards and measures 5. Plan and Manage the Entire Supply Chain 6. Promote Agri-Entrepreneurship – target Youth & Educated
  • 9. Supply Side data  Current data is all government owned, redundant and outdated  Key Supply Side data :  Farmer Contact Info  Land Info  Produce grown , Variety  Harvest dates  Expected Yield  DATA SHOULD BE UPDATED FREQUENTLY
  • 10. Customer Demand Prediction  ONE SIZE DOES NOT FIT ALL !  Retail customer – HIG, MIG, LIG, BPL  Hotels & caterers  Food processors  Export
  • 11. Cost of production eFarm Farmer's guide How to calculate the sale price of a produce (sample : Ladies finger / Vendaikaai) A . Expenses Enter approximate monthly expenses 1 Land cost ( Owned or leased) Rs 0 2 Labour expenses Rs 9000 3 Seeds Rs 500 4 Fertilisers Rs 750 5 Pesticides Rs 500 6 Ripening costs Rs 1000 7 Water Rs 50 8 Electricity Rs 50 9 Tractor & equipment rentals Rs 2000 10 Transportation Rs 500 11 Bagging Rs 50 12 Other expenses Rs 0 B . Loans and repayments 1 Monthly loan repayment Rs 100 Total expenses (A + B ) 14500 C . Yield (aggregated per month) 1 Land area (in acres) 1 Based on data for over 200 farmers across 10 items 2 Approximate yield (in tonnes/acre) 5 Total yield (in tonnes) 5 D. Farmer's Returns Labour cost is MOST significant 1 Monthly minimum return or profit expected Rs 10000 cost (70%) E . Wastage ( in percentage of volume of produce) 5% F. Min. Sale price Rs 5.16 per kilo Avg. cost of production of most local G . Current Market price Rs 12.00 per kilo H . Profit/ Loss 34211 horti. Crops = rs 5/kg
  • 12. Price Analysis •Analysis of past price trends reveals ‘patterns’ of UPS and DOWN swing •Most price variations can be mapped back to farmer sowing seasons
  • 13. Standardisation of weights, grades 1) Weighing machine = standardise agri business transactions ! Bundles, baskets , bags  Kilograms , Counts  2) Simple grading = right quality to right customer!! Mixed grades  S / M / L (Or) excellent / OK /bad 
  • 14. Focus on ‘entire supply chain’ constraints .. not JUST SUPPLY SIDE Value added resellers Sorting , Grading , Processing, Packing Storage Warehouses Bulk buyers Exporters Farmers Cooperatives Collection centers Kiranas Self Help Groups Hawkers Village ICT kiosks Phone booths Logistics Small Independent transporters Mobile operators Fleet Intra-city small tempos operators
  • 15. Technology driven supply chain Other industries have gained immensely from IT solutions Agri sector – poor usage of technology solutions Price Decisions need to be ‘system driven’ than ‘people driven’
  • 16. Promote Agri Entrepreneurship – bring the youth and educated BACK into agriculture •Stop thinking ‘farmer is a superman’- he cannot do everything , nor does he WANT to •Scope for agri-entrepreneurs in various categories •Other industries growth is fuelled by entrepreneurs •Government should set policies and guidelines and should NOT interfere in ‘running’ the agri sector