Monday, 20 October 2014

How much money from your grocery budget actually ends up in farmers’ pockets?

- more efficient value chains and cold storage facilities could help West Bengal’s producers of fruits and vegetables improve their profit margins

It is 07:30 in the early morning of a hot and humid day at Sealdah station in Kolkata buzzing with commuters, “coolies”, and travelers going about their business. We, two members of the IGEN-RE team of the German Development Corporation, catch one of the local trains taking us through and out of Kolkata and its peripheries, through rice paddies and jute fields up North to Nadia District. We meet Ekta Jaju from SwitchOn, a grassroot organization working on creating an ecosystem to facilitate last mile access to energy.

Increasing farmers’ incomes is not synonymous to increasing productivity levels as is often commonly believed. To the contrary, a more efficient point of intervention could be tackling the post harvest value chain of fresh agricultural produce, which, at its current state, is far from optimal. “For us, it is important to take an integrated approach”, says Ekta; “one-sided approaches will not necessarily have the greatest impact in a multidisciplinary and complex sector such as agriculture.” Possible points of intervention, which have partly already been undertaken by SwitchOn while others are yet to take off in the near future, are the establishment of an adequate cold storage facility for perishable produce, the support of pump entrepreneurs to switch from diesel to solar, the establishment of a farmer producer company – short FPO - , the improvement of marketing chains, as well as business ventures into organic farming and  food processing.

Local market where farmers' produce is auctioned 
to middlemen - the process is facilitators often 
reap a significant share of the total profit margin
Due to inefficient marketing chains not much of the money paid by consumers for fruits and vegetables actually ends up in producer’s pockets, but is reaped by a range of middlemen who cannot be considered to add much value to the overall transaction. The establishment of a FPO is supposed to change this by enabling producers to gain greater profit margins from their goods. Currently, few farmers market their own produce but instead depend on brokers and wholesalers to do so leaving farmers in poor bargaining positions. This is where the FPO comes in: the FPO has a small truck which enables them to collect large amounts of produce and sell it at the market where prices are highest on that day. In order to be a member of the Farmer’s Producers Company, 5 shares for 500 INR have to be bought. In return, minimum prices for produce equaling the best available market price on this day are being offered. FPO members will further benefit from less tangible services such as soil testing, better access to high quality and good price seeds and fertilizers, and technical trainings, for example on organic farming.

Construction of the cold storage facility in September 2014
But this is not all. Today, about 30% of fruits and vegetables that are harvested in India go to waste. Most food consumed in India is perishable; however, adequate storage facilities are lacking resulting in a dilemma for producers who are forced to sell their harvest as soon as possible, regardless of market prices. This leads to price fluctuations for producers and consumers alike since price crashes during peak seasons and price hikes in off-seasons are the natural consequence. The main influencing factor in shelf life and product quality is temperature control; however, cold storages are capital and energy intensive making them inaccessible for small-scale farmers. With the support of IGEN-RE programme, SwitchOn is in the process of installing a hybrid cold storage facility powered by PV panels during the day and grid electricity during night hours. The plan is to store high value as well highly perishable produce, which is expected to yield higher market prices in the near future.

The role of IGEN-RE is to monitor the set up and operation of the facility ensuring data collection of the type and quantity of produce stored, running cost incurred, and price differences achieved. The aim is to test the economic viability of the hybrid system and to generate lessons learned regarding the scale-up and replicability of similar projects.

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