The
customer is definitely not the king in the fruits and vegetable
market. In a supply driven market he has no choice but to consume
what is available. Adds Adhye, “There is inconsistency in supply
in terms of quality, quantity, specifications and yield. If I want
a particular quality of tomatoes throughout the year I will not
get it.”
At the producer’s end, the middlemen’s commissions eat into the
farmers’ margins. On the one hand the producer is denied a good
price for his produce during the peak marketing season, on the other
hand, the consumer pays a high price off-season.
One
reason for the value erosion is that there is no standardisation
in the marketing chain. While the middlemen often pay the producers
on the basis of weight, they sell to the consumers on the basis
of numbers. For example the Chettiars of Tamil Nadu buy bananas
from farmers by weight but they sell by numbers. This boosts up
their earnings.
The
middlemen’s earnings come without any risk whatsoever as they make
no investments. Moreover, as the commissions are charged on volumes,
they have no commitment to quality or building infrastructure and
they aren’t motivated to improve the product or innovate. The seasonality
of crops works to their benefit as they can manipulate prices. Their
main aim is to maintain status quo as they are in a win-win situation
and thus they have become the main hurdle to the much-needed change
in agriculture produce marketing.
Shaky
supplies
Retailers
and processors are the worst hit in this scenario, as they have
to contend with non-standard products and erratic supply. Food processing
companies can’t run their plants beyond 120 days in a year because
they are not assured of continuous supply of raw material throughout
the year.
Arvind
Sinha, CEO, RCS, a global marketing company, is an authority on
agriculture marketing, having gained rich experience at Wimco. He
says, “In the Indian scenario, no one is satisfied. The farmer is
like a frog in the well, he doesn’t know the buyer. The fruit broker
gives an advance to the producer, surveys the garden, etc. There
are no records or papers for advances. If the crop is poor, the
broker will mark up the price. The processor has no reliable crop
estimation to verify if the broker’s crop estimation is correct
or not.”
As the entire market is in the stranglehold of the middlemen and
commission agents, there is no control over the prices. For a food
processor, production becomes unviable beyond a price limit for
fresh raw material. Explains Sinha, “We should get tomatoes at 2.50
per kg at the factory. Beyond this rate, manufacturing is unviable.
As price fluctuations make costing very difficult, the processors
have to compute production cost on the basis of average price.”
As a rule, the larger the quantity of fresh raw materials required
by the food processor, the economies of scale should work in his
favour. However, in India, “larger the quantity of raw materials
required, larger the problems,” says Sinha. The processor can only
buy what is available in the vicinity. A plant in Andhra Pradesh
will not buy from Punjab, as the logistics are a problem. Freight
rates are high and steadily on the rise, and refrigerated vans come
with a price. Freight cost forms 30 per cent of the total cost on
purchase of fresh fruits.
According
to Sinha, in the absence of actual crop data and realistic estimates
of fruit availability, the impetus to the growth of food processing
is hampered due to fruit brokers taking advantage of season situations.
Most farmers are caught in the debt trap of fruit brokers. The closed
auction of fruits without enough transparency, the tendency of farmers
to sell crop when it is flowering or at the time of fruiting, the
reluctance of farmers to sell the fruit directly to processing factories
all add to the woes of food processors.
