Supply chain management is a key success factor in organized retail. For competitive price - retailers need to buy directly from producers, avoiding middleman commissions. Worldwide, retailers tie-up with producers for bulk purchase of manufactured goods and agro commodities.
Given land holding pattern of India where average farm size has been getting smaller and smaller (from 2.27 Hectare in 1970-71 to 1.27 Hectare in 1995-96) - sourcing large agro commodities from producers is truly a nightmare for any supply chain management system.
Contract farming was thought to be a logical solution. However, there is a plethora of issues on land ceiling act, lack of homogenous land use etc. that any corporate desirous of setting up contract form has to overcome. As a result, contract farming in India has been dominated by very large corporates who need regular supply of agro commodities for their own production. Examples are Cadbury in cocoa, PepsiCo in potato, chillies and groundnut, Unilever in tomato, chicory, tea and milk, ITC in tobacco, wood trees and oilseeds, and Cargill in seeds. Among domestic corporates are Ballarpur Industries, JK Papers and Wimco in eucalyptus and poplar trees, Green Agro Pack, VST Natural Products, Global Green, Intergarden India, Kempscity Agro Exports and Sterling Agro in gherkins, United Breweries in barley, Nijjer Agro in tomato, Tarai Foods in vegetables, M Todd in mint etc.
Clearly, no retailer would like to get into contract farming, which in any case, is not among their core areas. Given such supply constraint - retailers are moving to co-operatives in increasing numbers for better supply chain management. The buyers list includes ITC's e-choupal, Reliance Fresh, Heritage Foods and many more are the in the process to join the co-operative movement.
Reason is obvious as the co-operatives are registered under the mutually-aided co-operative society Act. For instance, as pilot, the Federation of Farmers' Association (FFA) of Andhra Pradesh has initiated a move by setting up eight co-operatives in the state for mango which has helped in mitigating losses to an extent of Rs 2-3 crore. According to Mr. Chengal Reddy, chairman, FFA - about 4,000 farmers in over 1,40,000 acres are working across eight co-operatives in Chitoor for mango production. This is being sourced by Coca-Cola to an extent of 3,500 tonnes of mango. Owing to the increasing demand, we are planning to increase it to over 12 co-operatives by this year end.
Interestingly, FFA has forged relationships with ITC in Medak district in Andhra Pradesh for sourcing vegetables on about 200-300 acres with over 700 growers and is in talks with Heritage Foods for supplying over one lakh bags of Sona Masoori rice. On the same lines, a co-operative movement is already in place for dairy products in association with National Dairy Development Board (NDDB).