2. Challenges In Cultivation Of Organic Spices(Constraints/Challenges In The Sector)

2.1 Low productivity

A major issue for Indian spice industry is low productivity as compared to other countries. Lack of good quality seeds, existence of uneconomic and senile genetic stock and high incidence of diseases, (particularly in cardamom and ginger) are major factors that result in low productivity of spices in our country.

2.2 High production cost

High production cost of spices can be partly attributed to low productivity, and also to the fact that the input costs of spice cultivation (including organic cultivation) are higher as compared to those in other spice producing countries. Indian ginger is costlier compared to Chinese and Nigerian produce and also cardamom is another commodity in which the country has lost its competitiveness in the international trade because of increased production cost.

2.3 Difficulties in organic certification

Farmers need handholding support in establishing Internal Control Systems (ICS) and in completing other necessary formalities for obtaining certification. Moreover, cost of certification of organic spices is high and beyond the capacity of an average Indian farmer. This has to be brought down to a reasonable and affordable level.

2.4 Integrated pest and disease management practices

Organic farmers have limited capacities on using integrated pest and disease management practices using organic inputs/bio agents. This may result in heavy crop losses and low productivity due to insect attack and diseases.

2.5 Poor product quality at farm level

Owing to lack of quality seeds, adequate storage and primary processing techniques at the farm level the quality of spices at the farm level is adversely impacted. This hinders reasonable price realisation for the farmers.

2.6 Inadequate surplus for exports

Owing to low productivity of organic spices in India the surplus available for exports is quite less and hence it makes it difficult for FPOs and other market players to target the export markets that offer a considerable premium for organic spices.

2.7 Aggregation, value addition and marketing opportunities

Post production farmers lack opportunities or aggregation, value addition and even marketing. This results in lower prices even for organic products that are generally sold at a premium.

2.8 Price fluctuations

Frequent and sharp fluctuations in the farmgate price of spices and the absence of a support price for the farmers is another critical issue for the farmers.

Considering the above constraints, it is envisaged that the proposed business model would help in overcoming most of these challenges through technical inputs, capacity building of farmers, development of Package of Practices (POPs) aggregation of produce, value addition and developing market linkages.

3. Project Idea

Spices are considered as high value, low volume products which have a good market demand. Organic spices have an additional advantage as they fetch premium prices and have a high demand in the export markets. Moreover, in farmlands located close to forest areas having an issue of animal interference, cultivation of spices helps in reducing crop losses due to wild animal interference.

The project idea is to support individual farmers to cultivate organic ginger and turmeric and providing them the necessary financial and handholding support. The objective is to significantly enhance the incomes of the farmers as organic products fetch premium prices in the markets. At the same time, organic cultivation shall result in the reduction of soil and water pollution, reduced health hazards for the consumers and also increased agri-biodiversity.

In order to provide support to the farmers and to link them with the markets the concept is to establish a FPO at the cluster level which would support the farmers in processing, value addition and marketing of organic spices.

This project idea envisages to support the farmers and FPO in the following manner:

1. Support (grants/subsidies and credits) to farmers groups (Farmer Interest Groups (FIGs)/Producer Groups (PGs) of smallholders) for conversion from conventional spices to organic certified spice cultivation.

2. Support (grants/subsidies and credits) to farmers FPOs (Cooperatives/Producer Companies etc. of smallholders) to strengthen the processing and also the supply chain of organic spices.

3. Credit support to FPO for procurement and trade of organic spices.

3.1 Intervention strategies

In order to achieve economies of scale and for ensuring financial viability it is proposed that these interventions must be taken up on a minimum of 300 acre of cultivated land. This would form a cluster wherein the targeted farmers would be organised into FIGs/PGs of spice cultivators. At the cluster level one FPO would be formed which would assist the farmers for aggregation, value addition, marketing etc.

Against this backdrop the following specific intervention strategies are proposed:

For farmers groups

The support may be provided through a local competent NGO or an established FPO for the following interventions.

1. Farmers mobilisation and sensitisation for the adoption of organic spices (grant/subsidy).

2. Training and extension services for the farmers on POPs for organic spices (grant/subsidy).

3. Facilitation of organic certification (grant/subsidy).

4. Facilitate farmers to obtain financial benefits under Paramparagat Krishi Vikas Yojana (PKVY) and other schemes.

5. Facilitate farmers to access quality seeds.

6. Facilitate farmers to go for crop insurance.

7. Buy-back of farm produce through the FPO.

The cluster development approach suggested under this model would help in minimising the overhead costs including administrative, monitoring, certification costs.

For FPOs

1. Farmer mobilisation and sensitisation for the adoption of organic spice cultivation.

2. Training and extension services for the farmers on POPs for organic cultivation.

3. Facilitation for organic certification (grant/subsidy).

4. Maintenance of a robust internal control system and system for traceability.

5. Procurement of quality organic seed and supply to members (credit).

6. Provision of credit to the farmer members for cultivation based on the need (credit).

7. Promote crop insurance and ensure farmers to go for crop insurance (credit).

8. Development of systems for aggregation and supply chain management.

9. Creation of post-harvest infrastructure namely; dryer, washer, peeler, slicer, grinder and storage.

10. Value addition.

11. Branding and marketing of produce.

12. Convergence with various enabling schemes.

The funds can either flow directly to the FPO or through an NGO, which will have the overall responsibility of achieving the project objectives.

3.2 Potential for upscaling

Demand for organic spices is growing in the national as well as international markets and hence there is bound to be a greater demand for organic spices in the time to come. Moreover, since under the model there is an FPO that acts as a facilitator and mentor for the FIGs, as an aggregating agency as well as a connect between the producers and the markets therefore the price and marketing constraints of individual producers would be effectively handled.

3.3 Comparison with conventional

As compared to the conventional or inorganic spice cultivation the cost of cultivation of organic spices is more or less similar although after three years. Once organic certification is obtained the organic products fetch premium prices between 10 per cent to 15 per cent at the farm gate level while moving up the value chain the percentage of premium increases.

In fact, based on a scan of the current retail prices of some common spices on online marketing portals it has been observed that organic products fetch a premium ranging between 50 per cent to 75 per cent at the retail level.

Table 1: Comparison of average retail prices of organic and conventional spices

3.4 UPNRM case example

This project idea is based upon the model established by Rajasthan Bal Kalyan Samiti (RBKS), Rajasthan under UPNRM. This model has been quite effective in promoting organic cultivation of spices, enhancing incomes of farmers and also in establishing a strong supply chain of organic spices through the establishment of a FPO.

Under this model cultivation of organic ginger and turmeric is being taken up on an area of about 300 acres involving around 300 farmers (directly) and 157 farmers (indirectly).

The following are the highlights of this pilot:

• 132 ha land was brought under organic cultivation.

• Approximately 20 farmers peer groups formed/promoted while one FPO was developed for running the business independently.

• Farmers have improved capacities and POPs for organic cultivation.

• Vermicomposting established as a viable business model for many farmers.

• Collective purchase of inputs and door step delivery of inputs, reduce input costs for farmers while result in revenue generation for FPO.

• Farmers able to earn between INR 12000 to 30000 additionally per annum post implementation of the project.

• Establishment of a brand for marketing of produce.

• Environment and biodiversity conservation owing to use of organic inputs/bio-agents and bio-fertilisers.

3.5 Business model with flow chart representation

The following flow chart represents the role of various institutions within the business model and also depicts the flow of inputs and outputs.

4. Impacts and Sustainability

4.1 Impacts- Social, Economic and Environmental

Social impacts

1. Increased availability of organic and healthy farm produce (farmers can harvest food crops from the same farms – alongside spice crop or after the cultivation of spices).

2. Organic certification of the entire farmland helps farmers to also produce other organic crops which can be either consumed or sold in the market.

3. Collectivisation of farmers groups and strengthening the social infrastructure.

4. Increased participation of women in livelihood activities.

Economic impacts

1. Reduced cost of production of spices (no purchase of chemical fertilisers, pesticides, insecticides etc. and the farm yard manure is prepared by the farmers themselves. Reduced number of spraying saves the labour costs).

2. Increased yield of spices as well as other crops contributing to increased income of the family.

3. Farmers are able to get extra premium for organic certified crops, which enables them to enhance their income levels.

Environmental impacts

1. Reduction of soil, water and air pollution because of use of organic manures, FYM and organic pesticides and IPM.

2. Reduction of health hazards because of no use of chemical fertilisers, pesticides, insecticides etc.

3. No pesticides residues in fibre, hence no carcinogenic threats to the users.

4. Increase in biodiversity, agri-biodiversity, micro-organisms etc.

5. Eco-balance between pests and beneficial insecticides.

6. Improved soil fertility and crop productivity.

4.2 ​​​​​​​Mainstreaming Options

This model has the potential to be replicated within Rajasthan as well as in various parts of the country (with suitable modifications based on local requirements). If required exposure visits can be organised to RBKS for interested organisations to understand this model in detail.

4.3 Climate resilience or adaptability of the model

Climate change and climate variability has become a major concern for the agriculture sector and in this scenario climate resilience of any farm-based model is critical for ensuring the success and sustainability of the model.

As far as the spice sector and particularly the cultivation of turmeric and ginger is concerned, these two crops can be grown in diverse conditions and are cultivated from sea level to nearly 1500 metres above sea level under both irrigated and rainfed conditions. Hence, it is noteworthy to mention that these two spices show a high degree of adaptability to varying climatic conditions.

Moreover, the practice of organic farming is expected to enhance resilience in farming systems, ensure better soil health with ecosystem services, bring sustainability in production and improve quality of produce.

It is also recommended that climate resilient varieties of turmeric and ginger may be used, although currently there is limited availabilities of such varieties in India.

4.4 Sustainability

Based on the experiences from Rajasthan, and also due to the manner in which this model has been designed, it is strongly felt that after initial support, this model comprising of FIGs and FPO would be able to achieve sustainability after 2 to 3 years.

The major factors that are expected to contribute towards sustaining this model are:

1. Facilitating agency to provide initial facilitation, startup and handholding support.

2. Capacity building of FIGs and FPOs in governance, business planning and financial management.

3. FIGs to be linked with banks and bank loans provided to farmers.

4. Convergence with ongoing government schemes to be achieved.

5. The economics of this model indicate moderate to high returns from the farmers and the FPO.

6. This model factors the cultivation of one crop only, however, farmers would be able to cultivate at least one more organic crop and hence this would result in even higher economic gains for the farmers.

5. Financial Details

5.1 Scope of financing and subsidy

At the FIG level, farmers would be requiring financial support in the form of loans for purchasing seeds of spices. For cultivation on one acre, a farmer would require around INR 30000 for ginger and around INR 70000 for turmeric. It is proposed that this requirement may be met partially through grant assistance from PKVY and partially from bank loans. In case culturable wastelands are to be brought under cultivation then funds from Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) may be utilised. The facilitating agency and/or the FPO would assist the farmers in convergence.

The FPO is expected to require capital assistance (for equipment) to the tune of INR 52 lakh and working capital assistance between INR 2.5 to 3.25 crores. The working capital requirement would be primarily met through loans from NABKISAN and other banks while capital costs would be met partially through loans and partially through grant assistance from NABARD and from Ministry of Food Processing industries.

PKVY: Under PKVY farmers taking up organic farming (minimum group size of 50 farmers) are provided grant assistance of INR 20000 per acre spread over a three-year period. Farmers could utilise these funds for purchasing seed, crop harvesting and transportation of produce.

Small Farmers’ Agribusiness Consortium (SFAC) Scheme: SFAC supports the FPOs by extending the loan guarantee and equity capital support schemes: The following two schemes of SFAC would be helpful for the FPOs to leverage the loan from banks:

1. Loan/equity guarantee cover scheme: Loans to POs/FPOs/FPCs under credit guarantee cover. Under this scheme FPOs can get term loan, working capital loan and or both. However, to be eligible to get the loan, the FPO must be 1 to 2 years old having audited balance sheet for at least one year and a minimum share capital of INR 3 lakh. The rate of interest is charged as per the NABARD refinancing rate. The loan is given up to 6 times of the net worth of FPOs or INR 1 crore whichever is less.

2. Equity Grant Fund Support to FPCs: The Equity Grant Fund enables eligible FPCs to receive a grant equivalent in amount to the equity contribution of their shareholder in the FPC, thus enhancing the overall capital base of the FPC. The Scheme shall address nascent and emerging FPCs, which have paid up capital not exceeding INR 30 lakh as on the date of application.

NABKISAN’s support to newly formed FPOs: There is provision for the loans to emerging/nascent POs which are not in a position to provide collaterals. However, funding to such FPOs up to INR 50 lakh in the form of loan which depend purely on the merits and prospects of their business plan.

Ministry of Food Processing Industries: Financial assistance is provided for setting up of primary processing centres/collection centres at farm gate and modern retail outlets at the front end upto a maximum of INR 10 crores per project. The Scheme envisages grants-in-aid of upto 35 per cent to 50 per cent subject to proportionate utilisation of bank loan and promoter’s equity.

MGNREGA: In case unculturable wastelands, erstwhile fallow lands are proposed to be used for spice cultivation then under ‘land development works’ component of MGNREGA labour cost for bunding and land levelling are provided under this scheme.

Spice Board India: The Spice Board offers following subsidies which may be obtained:

• Organic spice cultivation: Subsidy towards 12.5 per cent cost of production subject to a maximum of INR 12500/- per ha. for identified spices.

• ICS groups: 50 per cent cost of maintenance of ICS subject to a maximum of INR 75000/- as subsidy.

• Organic certification: Assistance to group of farmers, NGOs and Farmers Co-operative Societies/Associations in acquiring certification for their farms/processing units by meeting 50 per cent cost of the certification subject to a maximum of INR 1 lakh. Individuals are eligible for 50 per cent of the cost of certification subject to a maximum of INR 30000.

• Vermicompost units: In order to enable the growers to establish the vermicompost units, INR 3000/- is offered as subsidy towards 33.33 per cent cost of setting up a unit.

• Organic value addition units: 50 per cent of cost of the equipment/machineries for setting up of primary processing unit for organic spices subject to a maximum of INR 5.00 lakh as subsidy.

In addition, there are various schemes at the state level for promotion of organic cultivation. These may also be accessed by the facilitating agency.

5.2 Cost Economics

5.2.1 Cost-benefit for farmers

The following tables provide details of the expected cost of cultivation and the expected revenue for individual farmers engaged in the cultivation of organic ginger and turmeric, each crop being cultivated on one-acre land.

 It must be mentioned that the costing and yield taken under this model are based on experiences from Rajasthan. Therefore, the cost-benefit estimates would be valid under similar geographic conditions – particularly in the context of non-mountainous states of the country. However, costing and yield may vary in mountain states.

Cost-benefit of ginger cultivation

Table 2: Cost-benefit for individual farmers engaged in organic ginger cultivation (1 acre landholding)

Table 3: Cost-benefit for individual farmers engaged in organic turmeric cultivation (1 acre landholding)

Assumptions

In the above analysis the following assumptions have been made:

• The cost of cultivation may be sourced from the ongoing schemes of the Government – primarily PKVY wherein a subsidy for an individual farmer is provided for upto 3 years.

• Alternatively, the FPO has to arrange loan from the bank for the farmers - the loan amount will vary depending on the capacity of the farmer.

• From the above tables (Table 2, Table 3) it can be seen that the projected net returns from cultivation of ginger on 1 acre farm are nearly INR 130000 to 190000 per annum while that from turmeric are around INR 35000 to 60000 per annum.

• From the third year onwards it is assumed that the farmers would be able to get organic certification and hence a premium price of Grade A ginger has been taken. While for Grade B and C a price escalation of 10 per cent has been factored in.

• Each year inflation of 5 per cent in production costs has been factored in.

• The above assumption does not factor in drip irrigation system. In case drip irrigation is factored in then the yield are expected to increased around 20 per cent.

Economic analysis

Taking a discounting factor of 15 per cent it is evident from Table 4 and Table 5 that farmers are expected to get very good returns from the cultivation of ginger (BCR 2.06) and turmeric (BCR 1.51).

Table 4: Economic analysis of organic ginger cultivation in 1 acre landholding

Table 5: Economic analysis of organic turmeric cultivation in 1 acre landholding

5.2.2 Cost-benefit for FPOs

Details of cost-benefit of FPO engaged in processing and marketing of organic spices is provided in Table 6 below. It is evident from the estimates provided below that although the FPO would not be able to recover all its costs in the first year but subsequently it would be able to meet out its costs and make a reasonable profit.

Table 6: Cost-benefits for FPO engaged in processing and marketing of organic spices (300 acres)

Assumptions 

In the above analysis the following assumptions have been made:

• The above analysis assumes that the FPO is promoting cultivation of organic ginger and turmeric with about 100 to 300 farmers cultivating an aggregated area of 300 acres – 150 acres under each spice crop.

• The cost of cultivation/conversion to organic cultivation for the farmers will be sourced from different schemes of the Government including PKVY.

• The FPO would assist the farmers in obtaining organic certification.

• The FPO would also engage in capacity building of farmers related to improved POPs and primary processing.

• The storage infrastructure will be made of low-cost materials.

• Loan will be obtained for INR 2.50 crores during the first year as working capital for procurement of produce from the farmers while from the third year a loan of INR 3.25 crores would be required. The working capital is calculated as 50 per cent of the total cost of procurement of produce. Working capital loan would be taken for about 6 months each harvesting season.

• An increment of 5 per cent each year for price escalation in the market value of spices (selling price) as well as a premium of 15 per cent (after organic certification) has been factored in from the 3rd year.

• An increment of 5 per cent each year for price escalation and that of 10 per cent (for organic certification) in the purchase price of spices from the farmers has been factored in from the 3rd year.

• An increase of 5 per cent each year in the cost of processing of spices has been factored.

• An increase of 5 per cent each year in the administrative costs has been factored.

• The staff of FPO will coordinate the entire business operation including monitoring of conversion of conventional to organic farming.

• In the current analysis the working capital requirement of FPO is calculated at a 6-month cycle. However, FPO may also obtain advances from buyers and also sell on cash or extend credit for less duration this could reduce the working capital cycle and bring down the interest costs.

Economic Analysis

The economic analysis reveals that under the proposed business model the FPO would incur a small deficit in the first year and almost break even in the second year. Subsequently the FPO is projected to obtain a net return of about INR 40 to 60 lakh per annum. The benefit cost ratio is calculated to be 1.02 which is quite good and which indicates that this business model is viable.

Table 7: Economic analysis of operations of FPO

Loans

It is envisaged that for this business model the FPO would require a loan of INR 52 lakh for capital expenditure. For meeting its procurement costs a loan of INR 250 lakh in the form of working capital would be required (first and second years). The working capital would be required for 6 months each year and has been calculated at around 50 per cent of the total cost of procurement of produce from the farmers. From the third year the value of procured commodities is expected to increase with the result that the FPO would require working capital of INR 325 lakh.

Table 8: Working capital loan for FPO

As far as loan for capital expenditure is concerned, its repayment would be initiated from second year onwards (once the FPO starts generating surplus) and an annual instalment of INR 10 lakh would be paid. This loan is expected to be repaid over a period of 10 years.

Table 9: Capital expenditure loan for FPO