South Asia Agriculture and Rural Growth Discussion Note Series Mar 2020 1 13 LEVERAGING FARMER PRODUCER COMPANIES TO TRANSITION TO MARKET- BASED PRODUCTION SYSTEMS IN JHARKHAND Key achievements JOHAR’s1 strategic marketing interventions to support Farmer Producer Companies (FPCs) increased sales for poultry and tomatoes 19 FPCs, covering 1.4 lakh households, promoted to avail quality inputs and access more lucrative output markets Context Small and marginal farmers in India struggle for access to good quality inputs in farming of crops (seeds, fertilizers, crop protection) and livestock (stock species, breed, density, feed consumption); credit; market acceptance (such as for a new product); connectivity (for bulk marketing); and storage facilities. Aggregation of farmers into Farmer Producer Companies (FPCs)2 has shown to overcome many of these problems. JOHAR has planned to promote 30 FPCs membership base (7,000–8,000 per FPC), covering 2 lakh households of which shareholder composition (only women), JOHAR FPCs are unique 19 FCPs are operational, to enhance and product basket with produce that helps compared to existing ones agricultural incomes of rural producers by double incomes. because of their huge increasing productivity, improving market Ensuring market access would further boost membership base (7,000– linkages and providing value addition. farmer livelihoods. For this, it is important for FPCs formed under the JOHAR project 8,000 per FPC), shareholder FPCs to have sustainable market linkages were successful in increasing production composition (only women), with different types of buyers, such as and farmer incomes by opening up a new wholesale markets (intra- and inter-state), and product basket with source of earning. modern retail chains, business-to-business produce that helps double JOHAR FPCs are unique compared e-commerce players and corporates dealing incomes to existing ones because of their huge with food processing. However, capacities 1. Jharkhand Opportunities for Harnessing Rural Growth 2. Many organizations such as NABARD, SFAC, FORD Foundation, Rabobank Foundation, HIVOS, State governments, Tata Trust and Corporates have taken initiatives to support the promotion, registration, and growth of these FPOs. In the process, thousands of FPCs came into existence throughout the country. 2 of FPCs may not be sufficient to explore and logistic functions have to be developed. This note includes experiences and and maintain such linkages. FPCs thus For this, linkages with institutional buyers learnings of the implementation of marketing require guidance and support in the initial and development of marketing strategies initiatives for: (i) a new poultry product, stages as systems and processes need to for the brands to be promoted by the FPCs and (ii) increasing the marketing of tomato be followed to capture markets. Systems on need to be initiated at the state level. produce through post-harvest management procurement, sorting, grading, packaging practices and technologies. Problem Analysis: Kuroiler3 Kuroiler (a breed that produces more eggs sold for meat), is being promoted in the income of beneficiaries by selling of live than the native or desi breed can also be JOHAR project to increase household birds. JOHAR Kuroiler has the following advantages over broiler: • Less food safety risk as it is less exposed to antibiotics • Reared in natural semi-intensive environment • High content level of protein, calcium and vitamin • Low level of fat content; and flesh and tastier meat Characteristics Kuroiler Desi Color Multi-color Multi-color Annual egg laying capacity 150 40 Time needed to start laying 22 weeks 33 weeks eggs Weight after 6 months Male: 4 kg, Female: 2.5 kg Male:1 kg, Female: 1.2 kg Food requirement Normal household food Normal household food Bird price per kg (INR) 140 250-300 (wholesale) 3. Kuroiler is a hybrid breed of chicken developed by Keggfarms Group in Gurgaon, Haryana during early 1990s. It has been derived from crossing over either Coloured Broiler male with Rhode Island Red Female or White Leghorn Male with Rhode Island Red Female. 3 However, various poultry wholesale markets De-motivating for farmers as they Competition from substitutes such in and around Ranchi had low demand for could not envision the benefits of rearing as Cockrail (another poultry breed very Kuroiler resulting in it selling at the price of Kuroilers due to low price realization and similar to desi breed). a broiler. The reasons for the low demand sales volumes, because it was being sold at were attributed to existing market dynamics the price of broilers or as an adulterate. Absence of retailers accepting and customer perceptions regarding Kuroiler; except a few counters where Kuroiler, such as the following: Lack of customer awareness about adulteration was noted. Kuroiler made it unpopular with producers It is considered an adulterate and to consumers. Confusion in positioning of of the native (desi) breed which Kuroilers because these birds were resulted in very low number of these birds Lack of product validation before neither considered premium like desi birds sold per day. entering the market resulted in poor nor like broilers in the marketplace. Farmers understanding and communication about were incurring high cost of production with Lack of rearing of Kuroiler for the added value proposition of Kuroilers respect to broilers (popular backyard poultry commercial viability through FPCs or over broilers and desi breeds, and hence, bird) and were expecting to sell Kuroilers at cooperatives did not secure it as a product FPCs were not able to create a pragmatic the price of desi birds. category in the marketplace. market entry strategy. Rearing cost for Kuroiler is higher than that for the broiler breed. Rearing for 15 days at the mother unit incurs a total cost of INR 39.50; rearing for another 30 days at the rearing unit incurs a total cost of INR 85–90 and by this time period a chick develops into a bird weighing 1–1.25 kg. However, the market was offering just INR 90–100 for a kg (i.e. at same price as that of broiler). Interventions: Kuroiler Market positioning and segmentation. The FPC targeted the Geographic Segmentation educated consumer in the age group 30 plus years with a sedentary job or lifestyle, dwelling in urban posh areas of Ranchi Ranchi Urban Posh Areas city to position Kuroiler meat as safe for consumption. Pricing mechanism. Kuroiler appears as an alternative to the native (desi breed) bird which can be available to consumers at an affordable (comparatively cheaper) rate. Demographic Segmentation Thus, it was planned to manage pricing to a maximum retail price of INR 200 per kg so that the retailer could profit by a margin of Age: 30+ Educated Class Occupation: Sedentary Job 43 percent with FPC and as a member or grower profit by 12 percent and 25 percent, respectively. Positioning in retail outlets. Through a buyer-seller meet, 10 retailers Psychographic Segmentation were chosen and provided a 3 feet length, 6 feet width, 2 feet depth cage each, at no cost for their retail counters. They were also Health Lifestyle: Consumer in search supported through promotional materials. Conscious Extravagant/ for a fleshier & better Depending upon the retailer’s demand, Consumer Lavish taste birds were supplied at their doorstep. 4 Mother Unit Rearing Unit Trader/Dealer Wholesale/ Consumer Retailer Premium product: Premium product: Due to JOHAR’s intervention Showed readiness to incurs high incurs high Kuroilers were positioned as a Enhancement in pay higher price production cost rearing cost premium product; and traded brand image and sold on a higher margin at premium More Transfer of Values Streamlined supply of birds. Murhu birds in plastic cages. Losses incurred due to communicate that Kuroiler meat is safe Nari Shakti Kisan Producer Company Ltd. to mortality and shrinkage during and available readily. Each retail outlet/ was given the responsibility to ensure a transportation were borne by the FPC. counter was provided with pamphlets and regular supply to the 10 retail outlets. The standees to communicate the benefits FPC took responsibility for the arrangement Marketing communication. Regular of consuming Kuroiler meat and its of logistics, weighing and loading of news items were published in newspapers advantages over other substitutes. Problem Analysis: Tomato Marketing Tomato was selected as one of the key percent), usually sold through modern retail adds to wastage due to mismanagement vegetables to be grown because it: (i) outlets (such as Reliance Fresh, Spencer’s) and damage during transportation. can be cultivated in all seasons and in all are sourced from other states. types of lands, (ii) has a good shelf life, Produce from local farmers growing tomato Jharkhand’s varied (iii) is conducive for high scale production, varieties are not accepted due to lack of (iv) provides a good profit, (v) can be sold topography and climatic product standardization. Inconsistency in through all types of channels, and (vi) has tomato varieties is due to huge variation in zones allows growing of an established market both within and seed types used by the farmers. Moreover, tomatoes even during off- outside the state. farmers who produce tomatoes in small season Jharkhand’s varied topography and climatic volumes sell in local markets at retail price zones allows growing of tomatoes even and do not know the benefits of trading during off-season. The majority of farmers through FPCs. Size and weight variations In addition, farmers in Jharkhand prefer under JOHAR grow cooking variety lead to weighing of each crate before sales to know the selling price of their produce tomatoes accounting for 60 percent of the adding to the selling cost, which annoys before committing to sales and usually market share. Salad variety tomatoes (40 buyers. Sometimes, overloading of crates choose to settle for a stable lower price over 5 an unstable higher price. They also prefer to such as demand estimation (seller and manner. Furthermore, not having adequate collect cash at the time of transaction. FPCs buyer), price information, demand fulfilling, number of staff at the FPC office, and not do not prefer transacting in cash as it could Goods Receive Note issue, payment to having a financial management system for lead to malpractices. farmers, credit management, as well as data producer groups and FPCs resulted in many In the beginning, aspects of agri-marketing validation/reporting were done in an ad-hoc inefficiencies during operations. Image Credit : JSLPS Interventions: Tomato Marketing Agri-marketing on a large scale consists of Company Limited. Post workshop, three Package of Practices to create standardized key activities such as demand estimation rounds of data validation exercises were products. In addition, to growing popular from buyers and suppliers, quality and price conducted for realistic production data. salad varieties (Vaibhav and Vaishali), verification, demand aggregation, billing, Based on refined data, prospective buyers discussions were initiated with interested logistics and payments. A technical support were contacted by the FPCs. organizations for conducting pilots for agency (TSA) with experience of setting Intense handholding support to the three varietal trials. up processes for agri-marketing was hired FPCs was planned for execution of agri- to set up processes for FPCs and train marketing activities. FPC staff and board Streamlining supply. A new FPC staff to operate in a process driven members were able to positively influence parameter called ‘number of saplings environment. farmers to sell through the FPC and transplanted’ was introduced to achieve During the peak operation season, mobilize produce from farmer members more accuracy in calculating the number many FPCs did not have accounts and through the following strategies: of plants and in turn, expected yield. FPC computers. A marketing plan workshop was collection centers (CCs) were planned at conducted to set up targets for three FPCs Establishing product segments. strategic locations in existing trade routes to – Murhu Nari Shakti Kisan, Dakshin Koel FPCs in JOHAR started providing inputs have better access to farmers for inputs and and Churchu Urja Shakti Kisan Producer (seed, fertilizer, and crop protection) and output sales. Physical presence of FPCs in 6 the form of CCs infused confidence among FPC farmer members to access a definite buyer/seller and switch from their existing trading partners. Demand aggregation. The Board of Directors were tasked to participate in monthly farmer group meetings to explain the benefits of selling through FPCs. Haat campaigns were organized for each local haat, where FPC products were displayed, new farmers were mobilized and prospective suppliers traced for aggregation. Packaging. Farmers were trained both on- and off-field to provide graded products with a uniform weight in FPC-provided crates. A regular training and messaging system for quality and weight reminders showed benefits in the marketplace. Price discovery. Synergy Technofin (TSA for agri-marketing for JOHAR) did a three-month pilot to list the critical features and design requirements for developing a market intelligence system. The current offline system collected data from all relevant markets related to tomato trading for JOHAR FPCs. The proposed market intelligence App would provide pricing information to farmers at their doorstep. Payments. Commercial wallets were used for instant payment to farmer’s bank accounts (with a fee of INR 5 for INR 1,000 transaction value). It was operated manually to pay farmers instantly. Chief executive officers and accountants were allowed to hold cash value equal to their monthly salaries for immediate cash payments. This would help new farmers to gain confidence in transacting with FPCs. After a few rounds of transactions, these farmers will be motivated to transact digitally with FPCs. Image Credit : Synergy Technofin Pvt. Ltd. Setting up business processes. for transparency and accountability for engagement activity to motivate farmers to Accountants (hired on priority basis segregating procurement activities from feel connected with the FPCs and in turn and trained on operating Tally) created trading activities. sell their produce via them. Because of the standard line items to capture revenue marketing plan’s match-making process, and cost, leading to standardization, which Marketing plan. A data validation farmers obtained practical experience of resulted in significant improvement in exercise was planned to ascertain realistic understanding time, quality, packaging and reporting frequency and time. A Financial numbers at the right time for execution of payment requirements of different types of Management System was designed the marketing plan, and initiate a customer buyers. 7 Key Results JOHAR’s strategic marketing interventions FPC successfully placed 1,700 birds ready to offer a price of INR 130-132 per to support FPCs increased sales for poultry and recovered more than 70 percent of kg at the farm gate. and tomatoes. payments within one month of starting ࢠࢠ 263 metric tonnes of tomatoes worth INR operations. ࢠࢠ Strategic marketing interventions created 5.1 million were sold by the three piloting an increase in demand for Kuroiler. ࢠࢠ Increasing demand from retail markets FPCs during the intervention period by On alternate days, the FPC received a pushed the wholesale market to following process-driven aggregation demand for about 150-200 birds, and restructure its benchmark pricing for and sales. on Sundays it increased to 250 birds. Kuroilers. As a result, a wholesaler was 2019 September October November December Number of birds 1,077 790 907 1,145 Weight (Kg) 982 742 877 1,111 Sale was high on Sale started with an Low stock of birds was account of Christmas expected jump due to Sale dropped due to Reason noticed at the rearing and New Year and promotional activities in onset of festive season units severe winter (non- print media vegetarian eating trends) Time period of data: September to December 2019 8 Key Learnings ࢠࢠ FPC was able to capture and monitor plans. counting number of live plants and their data related to mortality and shrinkage in expected yield in a periodic manner to ࢠࢠ Simple principles related to sorting, weight for each transaction. This helped increase the accuracy related to tomato grading, and packaging helped FPCs to the FPC to set standards for operational availability. create a niche for tomatoes in wholesale efficiency during transportation. markets. This created a positive impact ࢠࢠ Bringing FPCs and market leaders ࢠࢠ A clear positioning strategy aided with on farmers to supply graded products. together through a buyer–seller meet to regular communication in mass media explore possibilities for each other is an ࢠࢠ Rural business hubs were positioned helped retailers to accept Kuroiler as effective way to build relationships and as a strategic tool which operated as a premium product and increase their start transactions. Hence, a buyer–seller permanent CCs for both inputs and order size for chicks. meet was organized with market leaders, outputs. This physical proximity to such as Big Basket (Kolkata), Big ࢠࢠ Regularly educating FPC members farmer locations helped farmers in Bazar (Kolkata), Nature’s Cart (Ranchi), about customer preferences and quality addressing initial trust issues related to Reliance Retail (Ranchi), Mother Diary adherences, and providing training procurement and payments. In addition, (Ranchi), Spencers (Kolkata), SMP to respond to these market demands rural business hubs became focal Agro (Ranchi) and Jubilant Consumers resulted in increase in number and points for communicating the benefits (Noida) to initiate market led production volume of transactions. of transacting with FPCs and motivating and delivery systems and processes. farmers to join FPCs. ࢠࢠ Need for market driven production to This event not only cleared the doubts meet the significant demand for table ࢠࢠ Initially, tomato availability in any cluster of FPCs relating to transaction activities variety tomatoes in Jharkhand. Standard was calculated based on the number such as quality requirements, payment varieties are not grown locally and as a of tomato samplings distributed and terms and conditions, and logistics but result these varieties are sourced from their expected yield as suggested by also gave confidence and vision to adopt far away states such as Karnataka and experts. These data were not helpful these practices that are followed by Andhra Pradesh. Hence it is important to to the marketing team as real outputs private sector players. conduct market assessment to find gaps have large deviations. Later, yield and accordingly reshape production calculation method was changed by Image Credit : JSLPS 9 Challenges Existing relationships between network. FPC’s procurement practices are FPC attained enough production during farmers and local traders. different from that of traders, which are mid-September, demand declined due to Local traders source products from farmers generally exploitative in nature. To break onset of the Durga Puja festival. FPC was either by pre-booking through various this nexus between farmers and traders is a forced to hold the inventory during this time instruments such as supplying seeds, huge challenge. and started supply of birds after the end inputs, and offering token amounts as of the festival when demand for birds was advance or by paying cash at the time of Unable to match demand and revived. purchase. These relationships are age-old. supply during festival season. FPC is not only a new entity in the market There was a surge in market demand at the Need for optimizing logistics. but also a competitor of the existing trader end of Sawan month (July). By the time, The cost for transporting live Kuroilers was INR 9 per unit whereas the industry average is INR 4 per unit. This high cost of transportation resulted from underutilization of capacity during transportation, which has squeezed the profit margin of the FPC. Weight and size issues. Customers prefer birds of weight around 1–1.5 kg, but FPC was providing underweight (600 gm) birds, which is creating scope for customer dissatisfaction and loss of revenue for farmers. Unexpected decrease in production because transplanting season for tomatoes was delayed by one-and-half months due to excessive rain for prolonged periods of time. The yield of tomato crops was affected, and many plants grew in size but did not bear fruit. This decrease in production led to forgoing of commitments made with buyers. Lack of regulated markets in the state. Jharkhand does not have an Agricultural Produce Market Committee (APMC) Act and the markets do not have the required infrastructure (roads, shops, parking facilities, drainage, waste disposal, storage facilities, price and quantity monitoring) to operate efficiently. Most marketplaces are haats that operate on a specific day of the week. Jharkhand is popular for off-season production of many essential vegetables which are sourced by traders from the neighboring states. These outstation buyers need better support and infrastructure while transacting with these markets. Increase in retail sales. Decreased yields led many farmers to sell their produce Image Credit : JSLPS themselves in retail markets as prices were 10 quite attractive. FPC could not motivate many were misshapen due to prolonged rewarding markets and buyers due to wrong farmers to sell through it as it was offering rains. Due to poor quality, the quantity sold estimations. wholesale prices. As FPC is planning to and sales price realization in wholesale increase the production volume for farmers, markets were affected. Lack of market information and it will face hurdles in future in aggregation intelligence system. Data collection of produce due to misunderstanding of the Aggregating demand, standardizing related to market information are on need pricing mechanism in retail and wholesale supply and estimating production volume basis and reactive in nature. The decisions markets by farmers. for such a large number of farmers spread related to buyer engagement are taken over 17 districts was difficult without in haste. Many times, farmers miss good Quality issues. Tomatoes had dark use of technology. Many times, desired opportunities existing in nearby markets due spots and white lines on their surface, and volumes were not available to transact with to lack of prior knowledge. Image Credit : Rohit Jain 11 Way Forward Image Credit : Rohit Jain Expansion of rural business hub Contract farming. FPCs are planning data communication. network. Rural business hubs will help to undertake pilots on select crops, such FPCs to reach farmers in a strategic way. as potato, tomato, watermelon, which FPC member training. Continuing This physical presence will be aided with have longer shelf-life and strong market awareness and training programs to technology driven processes to carry out requirements. These trials would be in educate FPC members about customer input and output businesses. Currently, collaboration with corporate buyers who preferences and quality adherence JOHAR is using facilities provided by will dictate quality specifications and would enable farmers to respond to government to set up rural business handhold the production process by sharing market demands. JOHAR will engage hubs and in the future, FPCs will set up and implementing Package of Practices, with business-to-business e-commerce temporary rural business hubs as CCs to extending financial support, and buying companies for hands on training on setting facilitate output procurement. back the produce. Based on the on-field up CCs, quality management and periodic experience, these pilots will be scaled for training on grading and packaging. Developing market led production large scale production. clusters. FPCs are planning to start Robust supply chain. Efficiency new production clusters by increasing the Establish farmer’s wholesale is required in every step of the supply area of cultivation for existing varieties market. To address the lack of marketing chain (such as bird availability, rearing, and by introducing new varieties as per infrastructure in the state, JOHAR FPCs feed conversion ratio, vehicle occupancy, market demand. This would have the plan to establish wholesale farmer’s mortality of birds during transportation, following implications: minimum scale will markets in which bulk volume trading placement of bird retail counters be available for transacting with big buyers; activities will be undertaken. Based on the (occupancy, fill rate), and payments and increase in yield and volume will increase learning from existing markets of Karnataka credit management), and for each step the total income for farmers; and for new and Maharashtra, activities will be scaled up there is an industry standard to achieve. varieties, FPCs will have competitive for creating more marketplaces, increasing JOHAR’s large geographic presence would advantage as a supplier. capacities of existing markets, and allow the capture and reporting of data introducing technology for automation and related to the above operational processes 12 for different socio-economic conditions and would facilitate in creating area-specific operational standards. Price fixation and monitoring. For Kuroilers in Jharakhand, price fixation is not yet scientific. With a sizeable customer base, demand volume, and distribution network, JOHAR will devise a price fixation mechanism for Kuroilers for the whole state and will regulate the price dissemination systems and processes. Making marketing intelligence App reachable and usable. Regular trainings will be facilitated to use this App for extracting market information before making transactions. A feedback system will be implemented to understand the difficulties in the use of this App, and based on the responses new versions will be launched. Image Credit : Rohit Jain ABOUT THE DISCUSSION NOTE SERIES This note is part of the South Asia Agriculture and Rural Growth Discussion Note Series, that seeks to disseminate operational learnings and implementation experiences from World Bank financed rural, agriculture and food systems programs in South Asia. Author: Paresh Sethy & Bipin Bihari Series editor: Vani Kurup Publication Design & Illustrations: Parth Varshney We are grateful for the generous support from DFID. Disclaimer: The findings, interpretations, and conclusions expressed in this note are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations or to members of its Board of Executive Directors or the countries they represent.