Agricultural Value Chains - Advantages from a Smallholder Perspective
Day: 8 (29-07-2014) Project Management in Rural Finance – A Training Workshop Offered by B-A-LAMP, ILRT, BASIX, Hyderabad B-A-LAMP
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Its all about bringing Agricultural Produce
From the Producer B-A-LAMP
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To the Market
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In the most efficient manner
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Challenges in Indian Agricultural Markets from the Smallholder Perspective
• Small producers are scattered all over, with small marketable surplus • Poor physical infrastructure: Roads, Storage
• Too many intermediaries, deeply entrenched, well networked, many not adding much value • Information asymmetry for small producers • Non transparent operations • Outdated regulations B-A-LAMP
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Pro-producer Value Chain • Where the producer is adequately compensated for his investment in capital, time and enterprise • Fair value distribution across the chain
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Poultry Market • Big & growing market • Round the year demand although dynamic • Need for constant & regular supply • Consistent quality demand of consumers
• High holding cost of birds • Fast rotating operating cycle
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Challenges faced by small poultry farmers* • Procuring quality chicks in small numbers • High cost if buying readymade concentrate, inefficient if prepared on farm • Veterinary care is remote and expensive and of suspect quality • Marketing small number of birds is cumbersome and not cost effective *Small being 5 to 10 thousand birds
B-A-LAMP
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Poultry Value Chain Sells Fully Grown Birds
Day 45 - 60
Pays the Balance amount
Poultry Company
Repays the loan with interest to the bank Day 2 - 45
Poultry Company. Poultry Company
Provides veterinary support Constant monitoring Sells Day Old Chick, Feed, Medicine
Corporate Risk Sharing Day 1
Credit Assistance
Bank Loan
B-A-LAMP
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Project economics of Independent Farmer Average Weight Survival Rate Chick Price Batch Size No of batches per year
Cost of Chick Feed Cost Medicines / Vaccines Growing COSTS Direct Costs
1.6 Kg 0.93 10 Rs/chick 2500 24
FCR Feed Price
Weight per Year Kg
Rs/bird 10
31.22
Average Selling Price
32.00
Gross Margin per Kg
0.78
Gross Profit per Year
69600
COLLECTION FROM MARKET FCR
B-A-LAMP
89280
Rs/Kg 6.72 20.00 2.50 1.50 0.50
Total Cost per Kg
KEY VARIABLES SELLING PRICE SURVIVAL RATE
2.0 10 Rs/Kg
FEED COST
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Project Economics of Poultry Farmer with Suguna Farm Size Capacity No. of batches per year Kg produced per batch @1.9 Kg per bird with 95% survival
10000 sft 11000 birds 6 19855
Growing Charges Payable
Rs/Kg Rs/year
2.65 315694.5
Less Expenses per year
Rs/Kg Rs/year
1.5 178695
Gross Margin to meet Capital Costs Capex @Rs.80 per bird Own Funds Loan Component Pay Back Details O/Bal of Principal Principal Repayment C/Bal
136999.5
Year 1 500000 100000 400000
800000 300000 500000 Year 2 400000 100000 300000
Year 3 300000 100000 200000
Year 4 200000 100000 100000
Year 5 100000 100000 0
45000
35000
25000
15000
5000
Total Outflow towards Capex
145000
135000
125000
115000
105000
Inflow
137000
137000
137000
137000
137000
-8001 -8001
2000 -6001
12000 5999
22000 27998
32000 59998
Interest on Average Balance @10%
Net Cash Flow Cumulative Cash Flow
Critical Parameters
No. of batches per year Own Funds Invested B-A-LAMP
Capex per bird Cost Control 12
Integrating Small Producers to Global Markets Desai Cold Storage, Navsari, Gujarat
Bank Finance facility Desai Cold Storage Exports Farmer
Banana (Middle East)
Mangoes (U.K)
Infrastructure - Grading/Packing
Vegetables (U.K. / Mumbai)
- Ripening - Cold Storage
These initiatives increased farmers realization by 30% B-A-LAMP
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Dairy models to increase farmer revenues as compared to prevailing agent model Stages
Current Model – Agents
Proposed Models Co-op Dairy
Private Dairy
BMCU
Price Paid to Farmers*
₹ 24.0
₹ 26.0
₹ 26.0
₹ 26.0
Price retained by agents
₹ 3.2
₹ 0.0
₹ 0.0
₹ 0.0
Quality testing & transportation
₹ 1.1
₹ 1.1
₹ 1.1
₹ 1.1
Royalty to Milk aggregators
₹ 0.8
₹ 0.6
₹ 0.6
₹ 0.6
Chilling
₹ 0.4
-
-
₹ 0.4
Transportation Processing, Packaging and Admin
₹ 0.9
-
-
-
₹ 4.0
₹ 4.0
₹ 4.0
-
Packaged milk distribution
₹ 0.6
₹ 0.9
₹ 0.6
-
Retailer commission
₹ 0.8
₹ 1.5
₹ 0.8
-
Marketing
₹ 0.1
₹ 0.1
₹ 0.1
-
Dairy
₹ 2.1
₹ 2.5
₹ 4.8
-
Passed on to farmers
₹ 0.0
₹ 1.3
₹ 0.0
-
Market Price for consumers
₹ 38.0
₹ 38.0
₹ 38.0
-
Total Value To Farmers
₹ 24.0
₹ 27.3
₹ 26.0
₹ 26.0
Procurement
Milk Value chain
Factors
Chilling (BMCU)
Processing Sales and Marketing
Margins
Part of the dairy margins in co-op and private dairy are transferred through benefits and extension services. B-A-LAMP
Agents retain around INR. 3.2 per litre of milk price apart from Rs. 0.8 royalty
Lower scale increases the per capita transportation No extension benefits can be extended in a BMCU model
Higher margin increases the attractiveness for dairy players * For full cream milk that contain 6% fat
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Project Uptech Grape of State Bank of India in Maharashtra
• A bank who saw the a larger role for themselves than just lending to Grape Growers • Invested in building commodity / sector
competency
in
a
• Networking (of institutions working in isolation) National Research Centre on Grape, Indian Metrological Department • Patience to build partnerships • Willing to be there in the long term
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The ITCs eChoupal Model ICT Kiosk with Internet Access In the house of a trained farmer, Sanchalak Within walking distance of target farmers
Warehousing Hub Managed by the erstwhile middleman, Samyojak Within tractorable distance of target farmers
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Transaction Costs in Mandi Chain Soybeans Example Rs per MT
Farmer Incurs
Processor Incurs
Trolley Freight to Mandi = 120 Labour = 50 Kacchha Adat = 150 Handling Loss = 50
Commission to Agent Cost of Gunny Bags (net) Freight to Factory Handling at Mandi
= 100 = 75 = 120 = 40
370
335
705
Total Chain B-A-LAMP
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Transaction Costs in Choupal Chain Soybeans Example Rs per MT
Farmer Incurs
Trolley Freight to ITC Hub = 120 Labour = 50 Kacchha Adat = 150 Handling Loss = 50
370
120
50 Processor Incurs
Commission to Sanchalak = 100 Cost of Gunny Bags (net) = 75 Freight to Factory = 120 Storage & Handling at Hub = 40 Cash Disbursement Costs
335 215
= 50 705
Total Chain B-A-LAMP
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Frito Lays Hundekari Model PI - INDIA SNACKS
Commission ,Infrastructure & equipment for testing Potatoes, Assistance in getting right inputs, implement rentals
Assured & quality Produce at factory gate
Farmer
Hundekari
PepsiCo
Network assistance. Supervision & extension. Recovery of dues. Field intelligence.
Credit, right inputs & extension support, assistance in evaluating the quality of produce & aggregation Assured rate, extention
support & quality inputs B-A-LAMP
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Gherkin – Value Chain Industry growing at 30% per annum
Ingredients/ Glass jars suppliers
Retail chain
Facilitators
Processing Centre
Small Farmers
Subsidiaries/a gents
Private labelers
95% of the crop exported
90 day crop; can take 2-3 crops in a year
B-A-LAMP
Processed Gherkins shelf life2-3 years
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Key Factors in Building Sustainable Value Chains
• Constancy in supply – A sale lost is lost forever • Consistency in quality
• Reliability - Reputation • Relationships – Fairness, Transparency & willingness for shared risk • Returning value
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Role of Credit in Development of Value Chains • Credit provides the ability to invest in the factors of production • A value chain approach helps looking at the chain rather than in parts • It enhances the negotiating ability of the producer
• It moderates market prices / improves market efficiencies
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Benefits from AVCs to Small Farmers • De-risking market risks • Technology up-gradation • Better price realization • Can undertake long-term investment
• Farmer uses his competencies fully
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Benefits of AVC to Company • Price stability • Assured supply • Better Quality Control • Economies of Scale • Positive Brand Image
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Key element to assess the efficiency of the Value Chain
Is investment going back into the chain or going out of the chain If Dairy is seen as a Value proposition by farmers, the evidence would be: Green Fodder cultivation
Concentrate feed fed to animals Better care of the animals
An indication of both efficiency and fairness
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Indicators that provide evidence of a Value Chain doing well
• Increase in volume of the business • Greater interest of those outside to come in • Producers investing further in the activity
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Economically Sustainable Value Chains The ability to provide adequate returns to the actors in the chain to – To compensate them adequately for the investments made and To provide an adequate surplus to enable them to improve their economic status and living standard.
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Emmanuel Murray
[email protected] Deputy Managing Director Maanaveeya Development & Finance Ltd (Indian subsidiary of Oikocredit)
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