B Y :

V E N K A T S U B R A M A N I A N

M D & C O O

M V S E F A R M P V T L T D

C H E N N A I

Confederation of Indian Industry“Agricultural Price Rise”

Addressing the Supply Side Constraints26th August, 2011: TAFE’s MDCC, 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

“ M O S T S O L U T I O N S I N A G R I S E C T O R A R E D R I V E N B Y E M O T I O N S

, S E N T I M E N T S A N D U R B A N M Y T H SR A T H E R T H A N

„ A C T U A L E N D U S E R N E E D S ‟ , S U S T A I N A B L E A N D

L O G I C A L ”

Why current solutions have failed?

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 guideHow 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

2 Approximate yield (in tonnes/acre) 5

Total yield (in tonnes) 5

D. Farmer's Returns

1 Monthly minimum return or profit expected Rs 10000

E . Wastage ( in percentage of volume of produce) 5%

F. Min. Sale price Rs 5.16 per kilo

G . Current Market price Rs 12.00 per kilo

H . Profit/ Loss 34211

Based on data for over 200 farmers across 10 items

Labour cost is MOST significant cost (70%)

Avg. cost of production of most local 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

Farmers

Cooperatives

Collection centers

Village ICT kiosks

Phone booths

Mobile operators

Storage

Warehouses

Value added resellers

Sorting , Grading , Processing, Packing

Small Independent transporters

Intra-city small tempos

Kiranas

Self Help

Groups

Hawkers

Bulk

buyers

Exporters

Logistics

Fleet

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 agrisector