is an approach to micro-enterprise development through which efforts are focused on the promotion of a specific economic sub sector. It involves analyzing the sector, addressing constraints and seizing opportunities to improve profit and sustainability.
In April 2001, the CBED Project initiated the process of sub selector analysis to identify most promising agriculture and NTFP (non-timber forest products) products (sub sectors) that can be promoted to diversify and develop cash income generating activities of poor farmers from the project area of Pithoragarh and Champawat Districts in Uttaranchal India.
The sub sector approach is based on the premise that development activities must be driven by real market opportunities and profit incentives. The success and sustainability of a project requires proper sub sector selection and technology and an ability to identify and adapt to markets. In the context of these principles therefore, Sub Sector Analysis and Market Development are critical components of the CBED approach.
The objectives of SSA are to increase stakeholder knowledge about the sub sectors, especially their marketing aspects, and to identify issues for intervention and/or further investigation. It is designed as a first step in identifying potential interventions, but also issues requiring further in-depth study in order to identify the most effective interventions.
Khetikhan farmers recently triumphed in the market place and in the process learned some very valuable lessons. Based on the marketing training they have received, they recognized they were confronted with a marketing challenge and did everything they should have in order to effectively deal with the challenge. At the same time however, they succumbed to the temptations offered by local traders and in the process ran the risk of alienating a valued market linkage and compromising the credibility and integrity of the AFSC. This, their first marketing experience as new AFSC members exposed them to the good, the bad and the ugly of market dynamics. Here is their story.
The members of Khetikhan’s Sri Sidh Baba Samiti AFSC in Champawat District knew they were going to have a marketing challenge when it became apparent the region was experiencing a bumper tomato crop that would most certainly create a glut in local markets and drive prices down. They were aware the time was right to further develop their capacity and demonstrate their solidarity as a cooperative.
At the end of June 2003, they took the initiative and approached the KAGAS office with their dilemma. They estimated 15 truck loads (45 tonnes) of hybrid tomato would be available for marketing from July 1st to mid August and local and nearby market prices were low at Rs 5/kg. Even though tomato is not a project supported sub sector, this presented an excellent capacity building opportunity in marketing. KAGAS staff suggested and quickly arranged a meeting with Mother Dairy Fruit & Vegetable Ltd. (A Delhi based fruit and vegetable procurement organization promoting and dealing exclusively with farmer federations). A market study tour of local and nearby markets was also recommended and arranged.
The meeting with Mother Dairy was productive in that not only did they express interest in tomato, but in apple and pear as well. Mother Dairy was satisfied with the quality of the samples of tomato presented by the AFSC however indicated that market rates in Delhi were low at the moment due to large supplies from the Gharwal area.
The market study tour by the AFSC President, Sri Bhagwan Singh, accompanied by KAGAS Field Facilitator, Manas Joshi was equally discouraging, however did confirm some of the marketing principles they had learned in previous trainings. They discovered for example that due to the over supply situation and lack of absorptive capacity in local and nearby markets, the price for bulk supply was Rs 2-3/kg lower.
After several days had passed, Mother Dairy called to inquire about the availability of tomato because rates in Delhi were on the rise.
Elated with the prospects of good returns, the AFSC called a meeting with producers and Mother Dairy. The timing was excellent as large supplies were ready to market. Local market rates for tomato had already been confirmed at Rs 7/kg and Mother Dairy was offering a minimum of Rs 10/kg, perhaps higher if prices strengthened on the date of dispatch. Prospects for apples and pears were also discussed. A truckload of tomatoes was committed. The arrangements were made and the truck arrived the next day.
Unfortunately, the truck arrived, but the farmers and their tomatoes didn’t. They were able to salvage a partial load by including apples and pears with the tomatoes, but still the truck was only one third full and dispatch was delayed by one day.
Another meeting was held with farmers and the price of the previous consignment of tomatoes was announced at Rs 12/kg, Rs 2/kg higher than the minimum committed price. Another truckload of tomatoes was committed and again, a second truck arrived, but the farmers and their tomatoes didn’t. The truck returned to Delhi with a half load.
As it turns out, the news of this marketing initiative had spread among the local traders. They increased their rates to Rs 9/kg and began ‘enticing’ producers with a pouch of liquor with every transaction. In addition to this, one local trader even tried to bribe the Mother Dairy representative with luxury accommodation if he would procure produce directly from the trader rather than dealing with the AFSC.
The Mother Dairy representative of course refused and declared his loyalty and goodwill towards the AFSC and its member producers. The farmers, and indeed the project team on the other hand were very excited. The market power paradigm they had learned about was working. Traders were now coming to them and competition was increasing. They felt they were gaining power in the market. Even though the price was slightly below that confirmed by Mother Dairy, there were the additional ‘incentives’. Furthermore, payment would be immediate from local traders and without regard for grading whereas payment from Mother Dairy would be delayed and subject to grading.
In their joy and excitement, everyone forgot one critical component. They had made a commitment to Mother Dairy and they had reneged on that commitment. In doing so, they compromised the integrity and goodwill of the AFSC and risked losing a valuable customer. They had cast a shadow on everything cooperatives stand for.
Subsequently, they discovered after a 3rd truck from Mother Dairy was cancelled due to insufficient volumes, that the market became less competitive and rates once again declined. They discovered the power they thought they had claimed in the marketplace was only temporary and the strength of the AFSC had been intentionally undermined by unscrupulous traders.
While CBED marketing training was developed and delivered to prepare producers for this type of dynamic in the markets, we certainly didn’t anticipate they would be lured so easily and to the point of breaking their commitment.
Part of the marketing training producers received concentrated on the power of collective marketing by illustrating the dynamics of the Market Power Paradigm.
Using the illustrations depicted above we demonstrated that as individual producers, their volume of production was not sufficient to appeal to larger markets and institutional buyers where prices are generally stronger. The local traders would therefore procure from individual producers at lower prices to meet the demand in the larger markets. Local traders therefore maintain control and power in the market. In the second illustration we demonstrated that by forming self help groups and federating at the cluster level as cooperatives, they could pool their production for collective marketing and thus amass sufficient volumes to appeal to larger markets and institutional buyers. By doing so, competition would increase in the market and in fact traders would begin to come directly to them. The power in the market would therefore begin to shift and be more equitably shared between the cooperatives and the traders.
Producers were also prepared for possible resistance from local traders and tactics to derail this development process. In this particular experience, this was the one part of the training that everyone overlooked.
Fortunately, Mother Dairy was not so surprised and in fact was very tolerant. With over 18 years experience in promoting and dealing with farmer federations, they expect these types of setbacks, especially with first time procurements.
As it turns out, there were problems with the produce due to poor grading and packing and spoilage due to the delay while trying to source a full truckload. These problems would ordinarily have resulted in a reduction of over Rs 20,000 on the total shipment. As a sign of continued goodwill, Mother Dairy did not deduct for the rejected volume and paid the full amount. They also made recommendations to assist in improving post harvest practices. They clarified the payment system and above all, they remain committed to dealing with the AFSC.
As soon as the underlying issue was discovered, it was promptly brought to the attention of the implementing partners, KAGAS and HSC, to be disseminated and addressed during the SARP meetings taking place at the time.
Celebrating success is cornerstone to effective capacity building. In the same vain we should also celebrate the experiences that generate less than desirable outcomes, as these are the experiences that present the greatest opportunities to learn and grow. The good, the bad and the ugly of this experience gave us some very valuable lessons to learn and grow from. The real good is what comes out of these good, bad and ugly experiences. The following are some of the positive outcomes and lessons learned:
Overall, notwithstanding the shortcomings, this marketing experience was a tremendous success in light of the many wonderful lessons learned. The key now is to generate positive activities and outcomes based on these lessons. Well done Sri Sidh Baba Samiti AFSC and KAGAS!
01/09/2003
