India is an agrarian economy with nearly 59 percent of its total workforce employed in agriculture and allied sectors for livelihood in the year 2016 and Indian agriculture scenario is characterised by domination of cultivation of food grains contributing 70 percent share and horticulture contributes 30 percent share in total agriculture production. Nearly 86 percent of the farmers in the country have marginal (0-1 Ha) and small (1-2 Ha) operational holdings. India has 48 percent of the net sown area under irrigation. However, Indian agriculture remains largely dependent upon seasonal rainfalls as agriculture output is affected by temporal and spatial vagaries of monsoon.
2. Project Idea
India has diverse of agroclimatic zones and different seasons, due to which the country produces a variety of crops to feed a population of approximately 1.3 billion and meet the export demand. However, there exists a huge gap between per capita demand and supply of food due to enormous wastage during postharvest handling and marketing. These losses are a missed opportunity to recover value for the benefit of farmers. The deployment of appropriate strategic and operating models can allow the efficient closure of gaps between demand and supply so as to contribute to doubling farmers’ income. The gaps between demand and supply are primarily due to ineffective market links and lack of consolidation on both the demand-side and supply-side. On the supply side, the government has an agenda to promote modern cultivation practices, lower input costs and most importantly to counter fragmentation of farmlands by promoting FPOs (Farmer Produce Organisations)/FPCs (Farmer Producer Companies) for collaborative farming.
The ‘organic’ segment has a huge potential to grow, particularly in the Tier-1 cities. However, farmers require a lot of support to sustain their farming operations as well as grow with the opportunities lying ahead. Technical support to the farmers on use of desirable agro-inputs and collective marketing can earn farmers remunerative prices for the organic produce.
Farmers of Karnataka have been pioneers in organic agriculture and they have developed different systems of cultivation through an indigenous knowledge base by using organic wastes and holistic pest control methods to control the pests and diseases. The organic movement started in the state since the last two decades and it is currently growing in the districts of Dakshina Kannada, Udupi and Chikmagaluru among others.
3. Financial Details and Cash Flows
The FPC started in the year 2010 with an initial capital of INR 5 lakh, raised through pooled funds from farmers and farming groups. However, during the first year, the FPC incurred losses and also used the share capital. During 2011-12, the FPC raised an additional capital of INR 3 lakh and an additional amount of Rs.5 lakhs was received from bank to scale up the operations. Even with a turnover to INR 53 lakh, the company had to incur a loss of INR 1.5 lakh.
In 2012-13, the company raised funds from NABARD and also increased its volume to INR 83 lakh. However, the company lagged behind the targeted revenue of INR 1 Crore due to persistent drought situation. The company continued to be a loss making unit, with an accumulated loss of INR 10 lakh. However, the company reached the breakeven, with a turnover of INR 1.27 Crore in 2013-14. As per the latest financial detailing, the company earned a revenue of 7.5 crore in the year 2018-19.
UPNRM supported Sahaja Samruddha Organic Producers Company Limited to market organic produce. The total loan amount from UPNRM comprised of working capital loan of INR 3 million and term loan of INR 0.2 million. The term loan was utilized to build produce collection centers at the cluster level. The grant amount of INR 0.6 million (7,500 Euro) was utilised to train farmers on various post-production aspects such as handling of harvested organic produce, grading, on-farm processing, quality checking, packaging and marketing.
To assess the economic viability of the Sahaja model, cost-benefit and economic analysis has been conducted for key crops under the product portfolio of FPC. For this purpose, three crops, namely paddy, ragi and beans have been considered for assessing the effectiveness of model on key economic parameters, as detailed in the following sections:
4. Key Challenges
Organic farming in India is considered to be at a nascent stage, with low level of commercial production through commercial farming practice. One of the key hurdles to organic products is competition with the commodities produced through conventional farming methods, which results in low penetration of organic products in the market. Challenges exist at various stages of the value chain, as described hereunder:
4.1. Challenges in Arranging Capital
For Sahaja Samruddha, arranging collateral was difficult since the organization does not own significant assets. As a result, it had faced difficulties in getting finance from banks. Since agricultural land cannot be considered as collateral, it was difficult to get a loan through land assets of members too. The company also plans to ramp up post-harvest infrastructure, for which the capital requirement might become a bottleneck. All the premises of the company are rented, and they are considering looking for CSR or state support to create infrastructure for their operations.
Another key concern for the company is the presence of too many organic brands present in the market and the credit system. Retailers often make the payments to the FPC after the product is sold off the shelves. Large retailers like More, BigBazaar etc. ask for a listing price for new products from the companies other than the big brands (MTR, Nestle, Britannia etc). Retailers expect a minimum 25 -30% margins for organic products as a standard practice. However, despite the challenge, the company has been able to create a substantial customer base for its products.
4.3. Low Crop Productivity Under Organic Farming
According to the Indian Council of Agricultural Research, under organic farming conditions, the crop productivity declines by approx. 6.7 percent in the first year. The report on Doubling of Farmers’ Income by Ashok Dalwai Committee, also states the similar concern of the farmers who claim up to 30 percent drop in yields under organic farming. The farmers contacted in the operational areas of the Sahaja also reported a decline in yield in the initial years of conversion period.
4.4. Insect and Disease Management
For most of the farmers undertaking organic production, the organic cultivation practices are not very effective to control insects and diseases. The availability of effective bio-control measures is one of the issues faced by majority of farmers. It is therefore essential to build capacities of farmers in IPM and also ensure large scale multiplication of bio- fertilisers, vermicompost, bio-control agents and then distributing them to the farmers at reasonable rates.
4.5. Lack of Awareness Among Consumers
The awareness about the benefits of organic products is directly correlated with the income and the location of the consumer. Most of the consumers of organic products are from urban areas with high disposable income and they consider the advantage of consuming organic products over the non-organics.
5. Impacts and Sustainability
The business model of Sahaja Samruddha has impacted each player in the organic product value chain. Based on discussions with farmers associated with Sahaja Samruddha, wholesalers and customers of the organic products marketed by the FPC, a summary of key impacts has been prepared as provided in this section.
5.1.1. Benefits to farmers
- Through the FPC, the availability of technical guidance and agricultural inputs has increased for the member farmers, which is also helping the farmers in making crop decisions.
- Farmers have reported lesser cost of production through organic practices. Many farmers own cattle and they prepare the farm-yard manure and jeevamrita themselves, which saves their input costs.
- Farmers receive assured market and price for the product. The company pays 20 percent premium over the market price.
- There has been a reduction in wastage of farmer’s produce due to timely procurement of the produce by FPC.
- Timely payment realisation, as the FPC pays farmers within one week of procurement.
- The direct procurement by FPC has controlled the exploitation of farmers by intermediaries.
5.1.2. Impact on channel partners
- The wholesalers reported an increase in demand for Sahaja organic products, despite competition from other brands
- Through the consistent supply and quality, wholesalers are able to fulfill the customer demand and are receiving the orders in a consistent manner.
5.1.3. Impact on consumers
- Traceability and quality management practices ensure that consumers receive the right product as per their expectations.
- The company offers a variety of products from food and beverage to personal care products in different SKUs and is trying to meet the varied needs of consumers.
- Consumers get the products at competitive prices, which are affordable and worth the benefits to the consumers.
5.2 Mainstreaming Options
The SSOPCL model has been implemented in other states beyond Karnataka, including Andhra Pradesh, Telangana Tamil Nadu, and Orissa. SSOPCL has a network with the state governments in which the Sahaja Organic model has been implemented. The management of the company believes that every state should have such models to cater to local commodities and local market. Currently, the market share of organic products is very less as farmers take interest in moving to organic farming only when they see their friends and neighbors shift and prosper.
The two major strategy shifts that the organization has made so far are in their go-to-market model specifically the branding for retail sales and spreading far and wide rather than working with few bulk buyers. Expansion of operations to international markets is also a recent change. At present, SSOPCL has completed the process to become exporters of organic products and will soon be making a shipment to Oman. The company has the required statutory compliance and is pursuing this as an avenue with growth potential.
The policies of the state of Karnataka have been conducive to the business of Sahaja Samruddha. Karnataka was also the first state to release a i.e. to release a policy for organic farming in the country in the year 2004. The chairman of Sahaja was a part of the panel and worked on the policy. Karnataka's government has supported the organic model and many farmers are making the shift to organic farming.
The union government also has a scheme for organic farming known as Paramparagat Krishi Vikas Yojana (PKVY). The government is also offering a lot of support for new players in the market with offers such as support for three years, matching grants, loan without collateral etc.
5.4 Way forward
It is observed that in the organic segment, smaller Stock Keeping Units (SKUs) are more preferable, due to consumers mainly being small/nuclear families who have lesser requirement of product in volume terms. As a result, the company might focus more on smaller SKUs.
With the penetration of technology, the buying behaviours of consumers have changed drastically in the recent decade, shifting from offline to online options for buying with increasing focus on online aggregators. Considering this, the company might focus on online sales to drive business in the future. Also, the company is not very keen to release their products in too many retail stores at the same time, but rather to select few stores to build the brand.
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