2. Project Idea - Organic Rice and Milk

Agriculture, with its allied sectors, is the largest source of livelihoods in India. The country had gained self-sufficiency of food since independence. However, the sector is inflicted with a plethora of problems. The Indian agriculture remains largely dependent upon seasonal rainfalls as agriculture output is affected by temporal and spatial vagaries of monsoon. There exists 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 agenda to promote modern cultivation practices, lower input costs and most importantly to counter fragmentation of farmlands by promoting FPOs (Farmer Produce Organisations) for collaborative farming.

It is in the above scenario that the Farmer Producer Organisations (FPO) or the Farmer Producer Companies (FPC) be introduced as a solution for the problems faced by the individual organic farmers. The majority of the Indian farmers (nearly 88 percent) are small and marginal farmers who lack the capacity to grow and market organic products. Collectivising the farmers through an FPC can help mobilise the resources and increase the bargaining power. The recognition of FPC as a legal entity also helps in the farmers efforts to gain loans for cultivation and related purposes.

2.1.Intervention strategies

Providing direct market access to the farmers plays a crucial role in the economic development. Farmers’ markets are an integral part of the rural-urban linkage and have continued to rise in popularity with the growing consumer interest in obtaining fresh products directly from the farm. Developing a model which is led by farmers and farming experts can bridge the gap between farmers and consumers and create a win-win situation for both, better price realisation to farmers and better choices and product offerings to consumers.

2.2.Potential for upscaling

A huge area of Indian agricultural sector is still untapped by the organic methods of farming. If we look at Tamil Nadu itself, only 14,457 hectares out of the total of 43.47 lakh hectares of cultivated land is under organic cultivation. That translates to a mere 0.003 percent of the total land under cultivation. This denotes the lack of penetration of organic practices in a state like Tamil Nadu, which is the fourth highest producer of rice.As mentioned in the previous sections, the organic market in India has been gaining pace in the last few years. In addition to the increasing awareness amongst the consumers about the health and environment benefits of organic products, the rising disposable income amongst the consumers in the Tier-I and Tier-II has boosted the sales of organic products. According to the recent market survey observations, the consumers are ready to pay premium price of about 20 to 25 percent higher for the organic food products.With India being the second highest producer of rice in the world, several states in India have intensive cultivation of paddy. Shift towards organic cultivation in the major paddy producing states have only started on a minor scale till now. With the central government strongly advocating the shift towards organic farming (zero budge natural farming) in the Budget for year 2019-20, the policy orientation is ripe for farmers to exploit the benefits offered by the organic methods of farming.

2.3.Comparison with conventional farming

Study by government institutions like NITI Aayog states that the organic farming gives higher yields in the long term, as compared to the conventional farming. As per the study, the organic farming practices reduce the cost of cultivation by 30 percent in paddy. Though the yield reduces in the first two to three years of transition, it regains the natural fertility after a few seasons. The combined effect of both in reduction of costs and the increase of yield results in economic benefits for the organic farmers.

Organic farming is also believed to bring significant positive impact on the sustainability of farming, especially by improving the soil health. These farming practices also impact the social dynamics due to active participation of the members in the collaborative farming. Preparation of agricultural inputs like bio-fertilizer requires more labour, and mostly women members are engaged in such works, which ensures a greater women participation in the rural economy, as compared with the conventional agricultural practices.

2.4.UPNRM Case Example: Valanadu Sustainable Agriculture Producer Company Limited(VSAPCL)

2.3.1. Background of the FPC

Valanadu Sustainable Agriculture Producer Company Limited (VSAPCL) is a Farmer Producer Company situated in Sirkazhi in Nagapattinam. VSAPCL has farmers and women self-help groups as its members. It is incorporated under the Companies Act of on November 20th, 2013. VSAPCL presently provides technical support, credit support and market linkage to the member farmers.

The actual origin of the company is in 2005 when a federation of farmer’s clubs in Sirkazhi, Nagapattinam district, registered as a society. The society was named as Sirkazhi Organic Farmer’s Association (SOFA). The association was formed due to convergence of several farmers in Sirkazhi on the issue of organic farming. One of the farmers, Mr. Manikandan, was the first farmer who started to promote organic farming and traditional seed varieties, mainly paddy in 2002. The promotion gained momentum quickly with more farmers joining the efforts to cultivate using organic methods. This growing association of farmers to promote organic farming culminated in the formation of SOFA. SOFA was mentored by CIKS (Centre for Indian Knowledge System), an NGO working towards improving the livelihood security of small and marginal farmers through indigenous agriculture. CIKS also supported another federation named Thirumaraikadu Organic Farmers Federation in Vedharanyam, Nagapattinam district. Both these federations felt the need to scale up and do their business effectively. With technical support from Vrutti, Bengaluru and CIKS, Chennai, VSAPCL was incorporated as a Farmer Producer Company in 2013.

2.4.2 Governance

The company is governed by a Board of Directors comprising 10 members. A snapshot of the organisational structure of the company has been provided hereunder.

2.4.3 Business Model

2.4.3.1 Business Model Overview

From the initial operations like mobilising farmers who cultivate organic paddy, the FPC also markets other products like millets and pulses. In addition, the company also helps farmers in marketing of milk. It has obtained loan from NABARD, NABKISAN, Ananya Finance and a few other institutions to finance the shareholder farmers in several of the processes involved in organic cultivation, including input preparation, distribution of organic certified seeds, drying of the produce, SHG formation and sustenance, etc. A snapshot of the business model of the company has been provided hereunder.

The FPC is involved in various activities involving around farmer’s economy in the catchment areas. The key activities of the FPC are summarised here:

• Marketing of produce: VSAPCL is involved in marketing of both certified organic rice and truthfully labelled rice. Varieties of rice marketed include white Ponni, CR 1009, Mapillai Samba, Karungkuruvai, Kullakar, Idly rice. The company also markets millet based products, pulse products and value added products including flattened rice, flours, uppama mix and apalam etc.
• Seed production: The seed production activities of FPC includes organic paddy seed production. Through 6 of the shareholer farmers, the FPC had produced 9.9 MT of paddy seeds in 2018-19. The FPC also mediates

between the certifying agency (Department of Seed Certification) and the seed producing farmers by guiding the farmers on maintenance of seed quality parameters and conditions conducive to grow organic paddy.

• Agricultural inputs: The company also markets neem seed powder, neem oil soap, vermicompost, biofertilizers, panchagavyam and pheromone traps, which are used by farmers for organic cultivation.
• Need based services: The need based services include:

Milk procurement: The FPC has been working with women SHGs for agriculture allied activities such as rearing of milch animals, vermicompost, biopesticides, palm products preparation, rice based value added products etc. Presently, the marketing of milk is one of the major operations of the FPC.

Microenterprises: The FPC helps the farmers in setting up Microenterprises like biofertilizers, bio-gas units, Vermicompost units, bio-pesticides and rice-based value added products. The FPC helps set up business for the farming households and SHGs and facilitates the receipt of loans from the banks.

Other services: The company helps the farmers in the certification process, aggregation of farm outputs, capacity building and training, availing crop insurance, veterinary aid and provision of machinery at affordable rentals.

2.4.3.2 Package of farming practices

The company promotes organic cultivation practices, where farmers use non-chemical and non-GMO means for crop cultivation. Farmers use cow-dung, compost and bio-fertilizer to meet the nutrient requirements of the crop. The field staff of company supervise the farming practices of the registered farmers and advise them on use of organic inputs for cultivation.

2.4.3.3 Procurement and Storage

The company procures paddy from its member farmers to the collection centers located in different catchment areas. At present, the VSAPCL does have owned Godown for the aggregation and storage of paddy procured from farmers. In addition, the organization has taken a Godown in one of the mills in Nagapattinam on rent, which is situated 31 kms away from the FPC office. Grains are stored in gunny bags of 60 kg for upto 3 months of procurement.

2.4.3.4. Processing

The paddy produce is taken from the godown in Manganallur to the Rice Mill in Kumbakonam block of Thanjavur districts. The rice mill is situated another 31 kms from the storage facility unit and it is also a third party unit, where paddy is processed into rice. On an average, the recovery of rice from paddy is 55 percent. After the processing, the rice grains are packed in a 25 kg bag and sealed.

In case of other organic products like millets, pulses, rice based products, the processing is done by the member SHGs at the household level. In case of milk, there is no processing involved. Only in exceptional cases of surplus production, the surplus milk is converted into curd. The milk is collected from collection centres in 6 villages in and around Sirkazhi block.

2.4.3.5.Marketing

The rice from the mill in Kumbakonam is transported to the respective wholesale and retail points in the various parts of the state. Most of the wholesale and retail consumers are situated in the state capital of Chennai. These consumers are aware of the health benefits of organic rice and have sufficient disposable income to purchase organic rice which is mostly sold at a premium price. Approx. 70 percent of the rice is sold to wholesalers and the remaining 30 percent is sold directly to the retail consumers. The table below shows the major consumer locations for the products marketed by the FPCs.

In case of the milk, the milk collected is distributed within the Sirkazhi town. The town has a significant presence of schools, restaurants, banks and working class population, who make a considerable consumer base for marketing of milk. The milk sale has grown considerably from 3000 litres per month in 2015 to 12,000 litres per month in 2019.

3. Financial Details and Cash Flows - Organic Rice and Milk

3.1. Financing

Since the inception to September 2019, VSAPCL has availed loan from several financial institutions like NABARD for financing the farmers who wish to cultivate using organic methods of cultivation. The FWWB grants and loans have been availed in the recent years for financing the operations of the SHGs like milk production, processed rice products, vermicomposting, etc. The NABKISAN loans have been sourced to finance the production of bio-fertilizer and Vermicompost. The table below shows details about the loan facilitated and disbursed by VSAPCL.

3.2. Cost-benefits to farmers

The following tables provides details of the expected cost of cultivation and the expected net revenue for individual farmers engaged in organic paddy cultivation on one-acre land.

Cost-benefits for individual farmers engaged in organic paddy cultivation

(One acre landholding)

Assumptions:

The cost-benefit analysis at farmer’s level has been conducted based on the following assumptions:

• An increase of 5 percent has been factored into the cost of cultivation each year.
• The yield rate has been estimated in accordance with the changes observed in conversion from conventional to organic-

Year 1: 80 percent of the yield as compared to conventional method of cultivation. Year 2: 90 percent of the yield as compared to conventional method of cultivation Year 3: 95 percent of the yield as compared to conventional method of cultivation. Year 4: Same yield rate as that of the conventional method of cultivation.

• The FPC will be involved in the certification and the marketing operations of the produce
• The yield rates are based on the discussions with the farmers from the registered farmer

3.2.2. Economic Analysis of Paddy Cultivation

Under the VSAPCL model, farmers are able to get a return of around INR 1.58 lakh as net present value over five years’ return period. The benefit-cost ratio for an individual farmer is calculated at 1.19.

Assumption:

• Capital cost has been considered as nil since the value addition facilities are hired from third parties.

3.3.3. Economics Analysis of Milk Production and Marketing by VSAPCL

3.3.3.1. Economics of milk production - Farm level

A cost-benefit analysis for the farmers supplying milk to the FPC at collection center has been conducted. A farmer supplying 5 liters of milk to the FPC per day and also selling vermicompost and cow dung, will be earning a net income of approx. INR 1652 per month.

3.3.3.2. Economics of milk procurement and distribution - FPC level

The economic analysis for milk procurement and distribution by FPC indicates that the FPC earns a net income of INR 11.27 lakh per year from marketing of the milk

4. Key Challenges - Organic Rice and Milk

Organic farming in India has a low level of commercial scale. 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 value chain, as described hereunder:

4.1. Producer level challenges

4.1.1. Certification process

High certification cost, tedious certification procedure, and international validity of the certification are some of the common issues faced by farmers in every state of India.

4.1.2. Certification standards

There is a perceivable gap in the understanding of certification standards and labelling requirements, due to which farmers and processors do not fulfil the requirements of certification and approvals, ultimately leading to non- acceptance of product as organic.

4.1.3. High gestation period of organic farming

The transition from conventional farming to organic farming is a lengthy period and it has financial implications to the farmers. It usually takes three to four years for an organic farm area to reach the yield rates as the conventional farming method. As a result, farmers generally do not switch from conventional to organic farming practices.

4.1.4. 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 based 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.

4.2. Processor level challenges

4.2.1. Lack of market research

There is a lack of adequate marketing research on the export potential of organic produce. In order to promote organic cultivation of crops there is a need for proper research and for establishing market linkages that would enable the farmers and their organisations to obtain a better price for organic products.

4.2.2. Supply chain bottlenecks

Currently, organic production in India is in low volumes and scattered across different farmlands, which creates inefficiency in handling and logistics of organic produce.

4.2.3. Competition with global market

The high certification standards for organic products in international market put the Indian organic exports at a disadvantage. The global competitiveness in organic export market is remarkably high, which poses challenge for the Indian organic commodity processors in terms of meeting quality and safety requirements as per the international standards.

4.2.4. Lack of proper branding and packaging

The branding and packaging of organic products in India are mostly simple and non-sophisticated. But the simplicity comes at the cost of not being able to distinguish the organic products from the conventionally cultivated products, which leads to challenges in marketing of the organic products.

4.3.1. Lack of awareness among consumers

The higher cost of cultivation translates into higher price rate in the retail markets. A study states that the shift to organic farming would increase the average monthly expenditure by Rs. 1,200 to Rs. 1,500. The organic products face low acceptance in mass market due to higher price.

4.3.3. Limited availability of organic products

The retail shops for distribution of organic products to the end consumers are mostly concentrated in urban centers. Also, there is less choice for consumers of organic products in terms of brands and pricing.

In order to find out the exact challenges faced by the Valanadu Sustainable Agriculture Producer Company, a study was undertaken by the staff with support from Vikas Avnesh Foundation, Pune. The methodology of the study was interviewing of 60 farmers from two blocks, i.e. Sirkazhi and Kollidam, out of which 30 were practitioners of organic farming and the remaining 30 belonged to conventional farming. The respondents belonged to majorly two types of landholding farmers - small and marginal (40 percent) and medium and large (60 percent). The key issues identified based on the survey findings were as follows:

• Drudgery involved in input preparation - An overwhelming percentage (98 percent) of the respondents were of the opinion that the drudgery involved in the preparation of the inputs for the organic farming was a major challenge in practicing of organic farming. The time and labour commitment in case of organic farming is very high, as compared to the conventional methods of farming where the inputs are readily available.
• Weed Management - 85 percent of the farmers felt that the weed management in organic farming is a major challenge considering the amount of labour required for controlling and removing weeds.
• Low Yield - The yield in the first year of transition to organic farming drops by around 30 percent on an average and it takes around 3 to 4 years for the yield and productivity to come back to normal levels. According to the study by the staff, 70 percent of the respondents were of the opinion that the low yield is a major challenge.
• Price Realisation - The lack of structured and certain markets for organic products in the initial years are a major challenge for the farmers and FPC members to overcome. 62 percent of the respondents replied that price realisation is a major challenge for the FPC. Increasing awareness on the value of organic products and the methods of organic farming was identified as a means to counter the challenge.
• Agricultural Labour Availability - Due to increased migration to the urban areas, the labour availability has reduced in the recent years. On an average the labour rates in Sirkazhi is Rs. 550 to Rs. 600 for men per day.
• Increased cost of cultivation in initial years - The high cost of cultivation during the transition stage is a major challenge for the farmers. 93 percent of the organic farmers responded that the higher cost of cultivation in the initial stages of transitioning was a major challenge as it impacted the cash inflow.

5. Impacts and Sustainability -Organic Rice and Milk

The FPC has been able to create impact on multiple aspects of business. A summary of key impact of the FPC has been provided here, based on the discussion with key stakeholders in its business.

5.1. Impacts

Social impacts

• Greater participation of the women in the activities supplementing the functioning of organic cultivation. The formation of SHGs and the activities like vermicomposting have given the women the opportunity to engage in activities that lead directly to creation of monetary value.
• The capacity of the farmers in terms of agricultural domain knowledge is improved with the help of assistance and training from the FPC.
• The availability of safe food to the consumers has increased, which also includes the self-consumption by farmer households.
• The FPC has provided employment to the resources by engaging them in office works as well as fields to handle procurement, collection and distribution activities.

Economic impacts

• The financing for organic farming was not possible by the mainstream financing sources. After the incorporation of the FPC, the efforts by the FPC in getting grants and loans from various sources (NABARD, NABKISAN) have benefitted the farmers as easy access of credit to them.
• Use of biofertilizers has resulted in reduction in cost of paddy cultivation as reported by farmers, which has resulted in higher profit margins for them.
• The premium on organic paddy has benefitted the farmers, which is currently at 15% of market prices.
• The FPC model requires lesser or no middlemen, therefore the farmers are saved from the usual high mark-ups charged by the middlemen.
• The SHGs under the FPC had taken up installation of bio-gas units after the receipt of financing (mostly in subsidies) for the construction of the bio-gas units. These bio-gas units have improved the quality of livelihood for the women as they were able to shift to a clean and economic fuel. On an average, the saving per household per month by using bio-gas fuel is Rs. 780/unit.

Environmental impacts

• The reduction in the application of chemicals is reduced in the operational areas.
• Farmers are using less water in organic farming practices, which is a major advantage considering the serious groundwater shortage in the region.
• Reduction in soil, water and air pollution because of use of organic manures, FYM and organic pesticides.

5.2. Mainstreaming Options

The promotion of organic paddy cultivation through the help of FPCs can be done in the regions of India which intensively cultivates paddy - West Bengal, Uttar Pradesh, Punjab, Odisha, Andhra Pradesh, Telangana, Chhattisgarh and Haryana among others. The present model of FPC, with the help of grants and loans from NABARD, NABKISAN and others can help replicate and upscale the organic farming in these states. Further, VSAPCL is working as an integrated business model where FPC is also promoting the marketability of allied activities (dairy, small scale food processing etc.) and enabling farmers to utilize the safe and local inputs. These practices can be

adopted in the areas where livestock resources are in plenty and urban markets are in the vicinity of the major cities. The learnings of this model can be percolated to the states like Uttar Pradesh, Karnataka, Andhra Pradesh etc. for replication.

5.3. Sustainability and Way Forward

The continual trust of the farmers on the benefits of organic farming is a major factor when it comes to sustainability of the FPC. VSAPCL currently has 68 farmers (170 acres) who are certified organic farmers and 420 farmers (590 acres) who are self-certified organic farmers. These 420 farmers grow both organic and inorganic paddy. It is of utmost importance that the VSAPCL convince and support the farmers to shift eventually to fully organic farming.

The market for organic rice in Tamil Nadu is still in the nascent stage. In terms of arable land under organic cultivation, Tamil Nadu has very less land (0.03 percent) which is organically cultivated. Due to this, there is a huge scope for VSAPCL to expand the operations in organic paddy procurement and marketing as the demand for organic rice is increasing in the major urban areas like Chennai, Coimbatore and Madurai.

In terms of need for self-financing, VSAPCL have rightly identified milk procurement and marketing as an avenue to get income. The high presence of banking officials and teachers in Sirkazhi has provided the right market for the milk marketing by VSAPCL since it offers zero-adulterated milk which is preferred by the well-informed population. Due to the increase in milk procurement operations, VSAPCL has been getting a steady profit in the last few years.

Annexure