Corporates enter farm sector, but yet to boost India's agricultural economy
As Indian agriculture goes through change with agri-tech startups purchasing directly from farmers, incoming giant Walmart is also preparing farmers for the same. Walmart Foundation, the philanthropy wing of the international retailer Walmart, has granted close to USD 2 million for the two-year 'Farmer Market Readiness Programme' (FMRP) in India.
One reason why corporates are choosing to deal directly with farmers is to get their own supply chain management for better profitability. While the price at which the produce is purchased is lower than that of markets, these tie-ups also help the farmer get a fair price for produce.
The challenge that Indian farmers face from farm to mandai is distance; markets are often almost 20 kms away, which give rise to intermediaries. The produce goes through many hands and with as many commissions factored in, groceries become expensive. Besides, with minimal processing units and almost no storage facility, corporates buying produce on a regular basis might bring in stability.
Farmers come to know about the market price after they have spent on transport, and the basis of returns they get at the end of the day. Corporates coming into the picture and tying up with thousands of farmers, bring in their own logistics of supply chain management and price structure. For companies, direct buying is not just cost-effective, as commissions are not involved, and they also ask farmers to grow a particular crop as per need in the upcoming cycle.
For better sustainability, Walmart has also been developing technology to get better yield at a lower price. The FMRP will support and train over 6,000 farmers in Andhra Pradesh to improve market access for smallholder farmers. The foundation has spent close to USD 4 million on projects in Andhra Pradesh in the past six months. Along with International Crops Research Institute for the Semi-Arid Tropic (ICRISAT), the foundation will focus on doubling farmers’ incomes and addressing malnutrition in rural areas. The project will set up community-based millet and legume processing facilities, provide access to training and more productive plant varieties and educate buyers about the nutritional value of grain legumes to help boost demand. This deal with Walmart comes one month after the giant acquired 77% of Flipkart, an online retail giant in India for USD 16 billion.
Julie Gehrki, Vice-President of Philanthropy, Walmart Foundation, said: “Many of the 6 million farmers in Andhra Pradesh have very limited access to formal markets. We believe sustainable development in farming communities can be accelerated through direct skills building and growth of entrepreneurship, which creates new opportunities for farming communities across Andhra Pradesh.”
TRANSPARENCY IN PRICING
BigBasket.com, an online grocery store, too has been following the same practice for the past four years, where they purchase from the gate of the farmer. BigBasket is in touch with 5,000 farmers and operates through 25 centres. The company believes there is more transparency in online market prices, because farmers can check at what price their produce is being sold. “Direct sourcing from farmers is a fundamental business strategy and it makes more sense when it's perishable goods,” said Vipul Mittal, National Category Head, F&V, BigBasket.
With a large number of small farmers in India, BigBasket aggregates produce from them at their farm gate, saving them the hassle of transport and different pricing. Though BigBasket works on relation building basis, it also ensures it gives farmers a fair price for their produce. “What we know is that tomatoes have a production cost of Rs 5.5 per kg and sometimes, the market price goes as low as Rs 2 per kg. Then, we take a conscious decision to pay the farmer Rs 7 per kg and reduce our margins,” added Mittal. BigBasket has a team of 30 technical experts that gives the right advice to farmers, and also uses technology to maintain a database of farmlands, fields and farmers.
The May 2018 report 'E-commerce Retail Logistics in India -- Driving the Change' by KPMG says, "India is a market which has about 80-100 million online shoppers, is growing organically with the increasing employment ecosystem and new shoppers who are already among the 450 million+ internet users in India, predominantly from the tier II and below cities and towns in India. The Indian e-commerce retail industry has been on an upward growth trajectory with a lot of growth potential and logistics seen as a key enabler in its growth. The e-commerce retail logistics market is valued at USD1.35 billion in 2018, and is projected to witness a growth of 36 per cent in the coming five years."
Since 2000, ITC, one of India’s largest FMCG companies, has through its e-choupal initiative, set up kiosks in farms where they provide necessary information on climate change, quality of soil in different areas and even market rate to farmers. This initiative, that works with wheat, soyabean and coffee growers, among others, links 40 million farmers across 10 states. Due to their efforts, yield has increased and they are getting a better price for their produce. Started with 'farm to factory' aim, e-choupal also caters to the needs to markets.
It’s not just an Indian phenomenon. Even in China, for FMCG products, Bicaijia.com provides B2B services for agriculture supply chains. There are also startups like meicai.com that are changing the scenario by introducing tech applications to buy produce from farmers.
SMALL FARMERS OUT OF PICTURE
While the common expectation is that with these deals, the agriculture sector will get a boost, the amount of produce going to corporates from farmers is currently very low. More players joining in will give rise to competition, and an important beneficiary will be the farmer, but still, small-scale farmers are out of reach of corporates.
“Walmart funding is helping us with some of our ongoing activities, but the issue that remains is why farmers are not able to capture value. This issue has to be addressed and the focus should not be just on purchasing from farmers, but also building roads and better facilities. We work on increasing the farmers' share in consumer prices, and the funds will be used to introduce primary processing facilities,” said Dr K K Sharma, Deputy Director General, Research (Acting) at ICRISAT.
According to the Walmart Foundation website, the company also collaborated with 15 large suppliers, that currently represent 30% of their food and beverage sales in North America. By the end of 2013, Walmart and Walmart Foundation had contributed to training 3,07,332 farmers and farm workers in emerging markets, of which 1,32,405 were women. In addition, the Walmart Foundation funded six projects in Africa and Asia in 2013, which will reach another 3,70,000 farmers, an estimated 2,58,000 of them being women.
Famous for its efficient retail, logistics, inventory and supply chain management, the Walmart programme directly benefits farmers, yet the biggest profit maker or indirect beneficiary remains Walmart. With the company working with farmers for the past six months, it has become clear that India is being seen as a long-term strategic investment market for giants.
As Walmart uses its philanthropy wing and starts working on its supply chain, it is already trying to create goodwill among consumers in India. Walmart cannibalizes local businesses by providing ultra-low prices, and the Tamil Nadu Vanigar Sangankalin Peramaippu federation of traders has already warned the government of pan-India protests.
While private players can actually help in diffusion of information on new technologies and get better produce, implementation is still not being done. “Right now, some corporates are going to farmers who are close to cities. They have a specific agenda on the type and quality of food they need. So smallholder farmers and those in remote areas are not helped that much. It’s only the 5%-7% big farmers in the country who have been approached by corporates. The issues of a large majority are still not addressed,” added Sharma.