Retail chain, small farmers, agricultural marketing system, Agricultural and Food Policy, Q13, Q10,

Dhindsa, P.K.

Singh, Sukhpal

Singla, Naresh

English

Research Papers in Economics

Agricultural Economics Research Review
Vol. 24   January-June 2011   pp 155-159
*Author for correspondence,
Email: singla.naresh@gmail.com
§ This paper is a part of Ph.D. thesis of the first author under
the guidance of other two authors.
Linking Small Farmers to Emerging Agricultural Marketing
Systems in India—The Case Study of a Fresh Food Retail
Chain in Punjab§
Naresh Singlaa*, Sukhpal Singhb and P.K. Dhindsac
aNational Centre for Agricultural Economics and Policy Research, New Delhi – 110 012
bIndian Institute of Management, Ahmedabad – 380 015, Gujarat
cGuru Nanak Dev University, Amritsar – 1430 05, Punjab
Abstract
Linking primary producers with global and national markets through fresh food retail chains is seen as one
of the emerging agricultural marketing practices in India to improve small producer’s livelihoods. The fresh
food retail chains are investing from farm to fork to buy fruits and vegetables directly from farmers and sell
them to retail buyers. However, fresh food retail chains are largely found working with only large farmers
and exclude small farmers for various reasons. In this context, this paper has examined the operations of a
fresh food retail chain named ‘Easy Day’ and its interface with farmers in Punjab. The study has revealed
that fresh food retail chain primarily works with small intensive vegetable cultivators. It has been found
that the retail chain farmers could realize higher profits compared to non-RC (traditional market supplying)
farmers mainly because of higher yield and higher price realization in the traditional market because of
better quality produce. The retail chain procures only a part of the farmers’ produce and the remaining
produce has to be sold in the local markets. The retail chain has not made a genuine effort to provide agri-
inputs and extension services to the farmers. The study has proposed a number of strategies to further
facilitate the marketing of produce of small farmers.
Key words: Retail chain, small farmers, agricultural marketing system
JEL Classification: Q13, Q10
Introduction
Linking small primary producers with markets has
been identified as one of the major issues in both policy
and practice for improving livelihoods of millions of poor
in the developing countries like India. Recently, there
have been many corporate attempts in our country at
linking farmers with markets, including those by fresh
food retail chains. Retailing presently contributes about
10 per cent to India’s gross domestic product and 6-7
per cent of employment. But, only 4 per cent of retail
outlets are bigger than 500 sq ft area and most of them
are family-owned in our country. Investments in retailing
are constrained since only 51per cent foreign direct
investment is allowed in a single brand retailing.
However, the share of organized retailing is likely to go
up from the current level of 3 per cent to approximately
15-20 per cent in the next few years with expected
investments of more than $ 25 billion (excluding real
estate investment). Of the proposed investment, 60-65
per cent will go towards setting up supply chain for
food and groceries (Kalhan, 2007). Food retail chains
such as ‘Reliance Fresh’ of Reliance Retail, ‘More’ of
Aditya Birla and ‘Namdhari Fresh’ of Namdhari Seed
have brought many changes in the supply chain
Research Note156 Agricultural Economics Research Review    Vol.24   January-June 2011
management and logistics through the use of quasi-
formal and formal contracts to ensure timely delivery
of products with desired quality attributes, instant
demand and supply and, more commercial nature of
production and marketing at the farmer’s level.
In India, several exploratory studies have revealed
that though cost of production is higher across farmers
supplying to retail chains such as Mother Dairy Fruit
and Vegetable Ltd. (MDFVL) (Joseph et al., 2008;
Alam and Verma, 2007), transaction costs are lower in
retail chains such as Spencer’s and Namdhari Fresh in
Karnataka, resulting into higher profits for farmers
supplying to retail chain compared to those supplying
to the traditional markets. The prices paid to the
producers are also higher in retail chain channels
compared to those in mandi channels (Mangala and
Chengappa, 2008; Dhananjaya and Rao, 2009). It has
been found that farmers supplying spinach to MDFVL
in Haryana and cauliflower to a supermarket in
Bangalore could realize 8 per cent and 12 per cent
higher prices, respectively compared to the mandi-
supplying farmers (Birthal et al., 2005; Joseph et al.,
2008).
A significant observation has been that retail chains
work mainly with large farmers. The operational
landholding size of farmers supplying to retail chains
has been found 4.42 acres (through consolidator) and
9.38 acres (directly at collection centre) in the case of
a supermarket in Bangalore compared to that of
supplying to commission agents (4.39 acres),
wholesalers (2.31 acres) and Shandies/local villagers
(3.75 acres). Similarly, the landholding size of farmers
supplying to MDFVL in Uttarakhand was 3.25 acres
compared to 2.8 acres in non-retail channel suppliers
and 6 acres in the case of Spencer’s compared to just
2 acres in non-retail channel (Joseph et al., 2008;
Mangala and Chengappa, 2008; Alam and Verma,
2007). In the initial stages of establishment of Spencer’s
in Karnataka, rejection rate was higher but over time,
it has reduced to 8 per cent (Mangala and Chengappa,
2008).
In this context, the paper has examined the
procurement channels and practices of Bharti’s ‘Easy
Day’ retail chain in Punjab, and has compared the
profile and performance of the retail chain supplying
farmers with traditional market supplying farmers. It
has also outlined the possible policy and regulatory
provisions to protect and promote the livelihoods of
primary producers in the presence of retail chains in
Punjab.
Methodology
Before starting data collection, the functioning
details of the selected retail chain (hereafter, RC),
namely ‘Easy Day’ were collected. The primary data
were collected from this RC in the Sirhind town in
Punjab, and contact farmers supplying vegetables to
the RC. The retailing and processing operations and
supply chain management were the subject of
discussions with the Easy Day management; and the
procurement effectiveness and problems with the
farmers. The RC farmers were selected from the list
provided by the RC, while the non-RC farmers selling
to traditional market were identified with the help of
village leaders/key informants. A sample of 100 farmers,
50 each supplying to the RC and to the traditional
market (non-RC) was taken from the Malerkotla tehsil
in Sangrur district of Punjab for two major crops, viz.
cauliflower and okra (25 farmers for each vegetable)
as these were the major crops being procured by the
RC in terms of volumes and number of supplying
farmers.
The Retail Chain ‘Easy Day’ and its Functioning
Bharti Retail, the retail arm of Bharti Enterprises,
opened the first front-end convenience ‘Easy Day’ store
in Ludhiana in April, 2008. Since then, Bharti Retail
has opened 43 Easy Day convenience stores and two
hypermarket stores called ‘Easy Day Market’ in Punjab,
one each in Ludhiana and Jalandhar. The front-end
operations are managed by Bharti Retail while back-
end operations are handled by the Bharti-Wal Mart.
Each store usually carries 40-45 stock keeping units in
fruits and vegetables (F&Vs). About 10 per cent of
the store space is usually allocated to F&Vs. Ludhiana
and Jalandhar have the maximum number of retail
stores in Punjab, with 6 and 5 stores, respectively.
The processing and distribution of F&Vs is done
through the Agricultural Corporative Centre (hereafter,
ACC) located in Sirhind. The size of the ACC is around
40,000 sq ft. The daily arrival of F&Vs at ACC is around
15 tonnes. Of it, 4-5 tonnes is procured directly from
farmers. Potato and onion are procured from Agra and
Nasik mandis, respectively. Fruits comprise 20-30 per
cent of the total procurement and are mainly procured
from the Azadpur mandi in Delhi. Some of theSingla et al. : Linking Small Farmers to Emerging Agricultural Marketing Systems in India 157
vegetables like capsicum, French bean, arbi and palak
are bought from Ludhiana and Chandigarh mandis.
All the stores are supplied F&Vs through the ACC
only. The average quantity supplied once a day to one
store is around one quintal. ACC conducts checking
on weight and quality and also conducts another grading
if needed, and does store-wise allocation. The
procurement of F&Vs directly from the farmers is done
through collection centre (CC) located at Jamalpur near
Malerkotla. The procurement by ‘Easy Day’ from the
farmers is only through individual, oral and non-
registered contacts. There is no written contract
between the retail chain and the farmers. The price is
paid in cash to the farmers on the basis of daily morning
mandi price. Farmers are informed about the indent of
each vegetable for a particular day by phone or
personally. The retail chain picks up F&Vs from the
fields of nearly 150 farmers and offers a premium of
7-10 per cent over the Malerkotla mandi price. Although
Bharti Retail has value chain partnership with Bayer
Crop Science and the farmers are provided training on
producing good quality, healthy vegetables that meet
the specifications set by Bharti Retail, most of the
farmers have reported that the RC has not made a
genuine effort to provide agri-inputs and extension
services to the farmers.
 The RC has specified quality norms for each
vegetable. The RC procures only A and B grades of
vegetables for their retail stores. It does not buy any C
grade produce. Generally, 3-4 inch long okra is
considered for A grade, 2-3 inch for B grade and below
2 inch for C grade. In okra, rejection rate has been
found around 3 per cent. In cauliflower, the retail chain
prefers white, compact, disease and insect free, medium
to large-sized curds without brown spots and exposure
to sun light. Generally, 500-700 g curd is classified in A
grade, 200-300 g curd in B grade and less than 200 g
curd in C grade. The cauliflower supplied to retail chain
is packed in crates which are provided free of cost by
it. The rejection rate in cauliflower at CC has been
found around 4-5 per cent. The leftover and rejected
produce is sold in the local markets by the farmers and
is not the responsibility of the retail chain.
Farmer–Retail Chain Interface
The farm category-wise analysis revealed that
about 72 per cent of the farmers supplying vegetables
to the retail chain, ‘Easy Day’ were small and marginal
compared to only 40 per cent in the case of non-RC
farmers (Table 1).
The average size of operational holding was lower
in the case of this RC (6.25 acres) than non-RC farmers
(8.53 acres). However, leased-in practice as a
proportion of operated land was higher among RC
farmers (17%) than non-RC farmers (10%). On the
other hand, leased-out land as proportion of owned land
was higher in the case of non-RC farmers (24.3 %)
than RC farmers (8.5%). Thus, with leased-in and
leased-out practices, the average size of operational
holding of RC farmers increased to 6.25 acres from
5.68 acres, while that of non-RC farmers decreased to
9.9 acres from 10.15 acres. The ownership of farm
machinery was higher among non-RC farmers as
compared to RC farmers. The ownership of machinery
across both RC and non-RC categories increased with
increase in landholding size. The family size of RC
farmers was bigger compared to that of non-RC
farmers. The proportion of family members working
on farm in each farm category was higher among RC
farmers (78%) than non-RC farmers (59%). About
84-86 per cent of farmers across both RC and non-RC
categories owned milch cattle; however, the income
from dairying was higher among non-RC farmers
(` 2959/month) than RC farmers (` 1965/month).
Similarly, off-farm income was also higher among non-
RC farmers (` 2451/month) as compared to RC
farmers (` 1759/month). The proportion of literates
was about 36 per cent in RC farmers compared to 48
per cent across non-RC farmers. Further, decision-
makers on farming were younger among non-RC than
RC farmers. Thus, it could be concluded that this retail
chain was working relatively with small growers who
Table 1. Farm category-wise distribution of retail chain supplying (RC) and non-retail chain supplying (non-RC) farmers
Farmers Marginal farms Small farms Semi-medium farms Medium farms Large farms All
linkage (≤ 2.5 acres) (>2.5 to ≤5 acres) (>5 to ≤10 acres) (>10 to ≤25 acres) (>25 acres) farms
RC farmers 12 (24) 24 (48) 8 (16) 6 (12) - 50 (100)
Non-RC farmers 8 (16) 12 (24) 16 (32) 10 (20) 4 (8) 50 (100)158 Agricultural Economics Research Review    Vol.24   January-June 2011
were resource-poor in terms of farm machinery and
cattle ownership, were less educated, had lower off-
farm income and larger family size as compared to the
non-RC farmers.
The proportion of gross cropped area (GCA) under
vegetables in each farmer category was higher among
RC farmers than non-RC farmers. The share of major
vegetables procured, viz. cauliflower and okra in total
GCA was also higher across RC farmers than non-RC
farmers. The proportionate GCA under vegetables
declined with increase in average size of operational
holding. Non-RC farmers were dominantly growing
non-contact traditional crops like wheat, paddy and
fodder as compared to the RC farmers. The cropping
intensity was also found to be the higher among RC
farmers than non-RC farmers. Thus, RC farmers were
the intensive cultivators of vegetables as compared to
non-RC farmers (Table 2).
Cauliflower and Okra Production and
Procurement
The cost of production of both cauliflower and okra,
the major vegetables procured by the retail chain, was
found to be higher on RC farmers than non-RC farmers.
Across both crops, RC procured only about 20 per cent
of A and B grade produce. The average yield and
production costs in cauliflower and okra were higher
among RC than non-RC farmers. The RC farmers did
not incur any marketing costs for A and B grades sold
to RC as it picked the produce from the farm itself.
However, marketing cost for the remaining produce
sold in the market was higher among RC farmers as
compared to non-RC farmers for the total produce.
The net returns turned out to be higher for RC than
non-RC farmers. Thus, the returns were primarily higher
due to the higher yield and higher price realization in
traditional market by the RC farmers than that by non-
RC farmers (Table 3).
Regarding the major problems in the retail chain
linkage, more than 86 per cent farmers reported the
low volume of procurement by RC as the major problem,
and about 60 per cent reported that prices paid by the
RC for A and B grade produce were lower compared
to the quality aspect. Time saving, lower transportation
costs and less of the bargaining in the local market
were reported as the major benefits of linking with retail
chains.
Conclusions
The study has revealed that Bharti retail chain has
been working largely with less-resourceful small
vegetable cultivators who have higher productivity in
vegetables and higher GCA under vegetables as
compared to the non-RC farmers. The retail chain has
been found to pay a slightly higher price for A and B
grade produce. The RC has instituted quality
consciousness, and package of practices for certain
vegetables with the help of value chain partnership with
Bayer Crop Science. Farmers have reported the retail
chain to be better on transaction cost as RC picks the
Table 2. Farm category-wise distribution of RC and non-RC farmers across cropping pattern and cropping intensity in
Sangrur district of Punjab
( in per cent)
Farm category RC farmers Non-RC farmers
              Cropping pattern Cropping            Cropping pattern Cropping
Cauli- Okra GCA GCA intensity Cauli- Okra GCA GCA intensity
flower under under flower under under
contact non- contact non-
vegetables contact vegetables contact
crops crops
Marginal 25.8 17.3 80.0 20.0 218.6 21.7 10.1 68.2 31.8 212.3
Small 20.9 16.3 75.3 24.7 212.9 16.7 15.3 65.0 35.0 204.8
Semi-medium 16.0 11.6 74.6 25.4 193.3 9.9 8.3 48.0 52.0 180.6
Medium 16.3 8.4 66.3 33.7 192.4 8.2 5.8 32.6 67.4 184.8
Large ----- 6 . 8 2 . 5 20.4 79.6 183.8
All farms 19.1 13.3 73.2 26.8 203.3 9.6 6.7 38.0 62.0 185.4Singla et al. : Linking Small Farmers to Emerging Agricultural Marketing Systems in India 159
produce from the farmers’ fields which saves farmer’s
time and cost in selling the produce.
The retail chain has been observed to procure only
a limited proportion of the grower’s crop without any
firm commitment and, more so, on a day-to-day basis.
It has made no genuine provision for any agri-input or
other services and does not have any formal contract
arrangements with the farmers. The produce not
accepted by the RC has to be disposed off by the
farmers elsewhere. Thus, local markets act as a major
market for the producers for selling the vegetables.
The RC farmers have been found to realize higher
profits compared to non-RC farmers mainly because
of higher yield and higher price realization in the
traditional market because of comparatively better
quality. Hence, infrastructure of these local markets
should be improved to reduce the post-harvest losses
and markets for F&Vs should be regulated to reduce
exploitation of these farmers. Since retail chains use
these markets to determine their procurement price, a
systematic and quality-based price mechanism should
be evolved.
References
Alam, G. and Verma, D. (2007) Connecting Small-Scale
Farmers with Dynamic Markets: A Case Study of a
Successful Supply Chain in Uttarakhand. Centre for
Sustainable Development, Dehradun.
Birthal, P.S., Joshi, P.K. and Gulati, A. (2005) Vertical Co-
Ordination in High-value Food Commodities:
Implications for Smallholders. MTID Discussion Paper
No. 85, International Food Policy Research Institute,
Washington.
Joseph, M., Soundrarajan, N., Gupta, M. and Sahu, S. (2008)
Impact of Organised Retailing on the Unorganised
Sector, Indian Council for Research on International
Economic Relations, New Delhi. May.
Kalhan, A. (2007) Impact of malls on small shops and hawkers.
Economic and Political Weekly, 42(22): 2063-2066.
Mangala, K.P. and Chengappa, P.G. (2008) A novel
agribusiness model for backward linkages with farmers:
A case of food retail chain. Agricultural Economics
Research Review, (Conference Number): 363-370.
Received: March 2011; Accepted: May 2011
Table 3. Crop-wise per acre costs and returns of cauliflower and okra among RC and non-RC farmers in Punjab
Particulars                             Cauliflower                           Okra
RC farmers Non-RC RC farmers Non-RC
farmers farmers
A grade B grade Rest All A grade B grade Rest All
Yield (quintal) 90.0 85.0 40.0 37.6
 Sold (%) 12 8 80 100 10 10 80 100
Quantity sold (quintal) 10.8 7.2 72.0 85.0 4.0 4.0 32.0 37.6
Price (`/kg) 8.0 7.0 7.6 7.4 14.3 12.6 11.0 10.7
Gross returns (`/acre) 8640 5040 54720 62900 5720 5040 35200 40232
Production cost (`/acre) 35200 32550 25225 23535
Marketing cost (`/acre) - - 2160 2125 - - 1400 1128
Net returns (`/acre) 31040 28225 19335 15569
Net returns (`/kg) 3.45 3.32 4.83 4.14

A novel agribusiness model for backward linkages with farmers: A case of food retail chain.

Connecting Small-Scale Farmers with Dynamic Markets: A Case Study of a Successful Supply Chain in Uttarakhand. Centre for Sustainable Development,

Impact of malls on small shops and hawkers.

Impact of Organised Retailing on the Unorganised Sector, Indian Council for Research on International Economic Relations,

Vertical CoOrdination in High-value Food Commodities: Implications for Smallholders.

Linking Small Farmers to Emerging Agricultural Marketing Systems in Indiaâ€”The Case Study of a Fresh Food Retail Chain in Punjab

Linking Small Farmers to Emerging Agricultural Marketing Systems in Indiaâ€”The Case Study of a Fresh Food Retail Chain in Punjab

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