Rythu Bazaar: A Study of the Supply Chain of the Farmers' Markets of Andhra Pradesh Rythu Bazaar: A...

43Rythu Bazaar: A Study of the Supply Chainof the Farmers’ Markets of Andhra Pradesh

Rythu Bazaar: A Study of the SupplyChain of the Farmers’ Markets

of Andhra Pradesh

Subhendu Dey*

* Associate Dean, Academic Affairs and Head, Knowledge Cell, Globsyn Business School, XI-11and 12, Block-EP, Sector V, Salt Lake Electronics Complex, Kolkata 700091, India.E-mail: [email protected]

© 2012 IUP. All Rights Reserved.

IntroductionRythu bazaar, the farmers’ market of Andhra Pradesh, was a social initiative taken byChandrababu Naidu in 1999, the then Chief Minister of the state. The principal objectiveof rythu bazaar is to help farmers bring and sell their produce without the involvementof any middleman or marketing intermediary. Rythu means farmer in Telugu (the locallanguage of Andhra Pradesh), and bazaar is derived from the Persian word bâzâr, theetymology of which goes back to the Pahlavi word baha-char ( ), meaning ‘theplace of prices’. These bazaars provide a platform for direct interaction between thefarmers and consumers. While the farmers benefit by selling directly to the customerswithout paying any commission to the agents, the customers get good quality produceat lower prices.

Relevance of Establishment of Rythu Bazaars in Andhra PradeshThe State of Andhra Pradesh was formed in the year 1953 separating certain districtsfrom the erstwhile composite Madras state, with state capital at Kurnool. Later, on

Some studies reveal that farmers’ share in the consumers’ rupee is just40 paise. In addition, the estimated loss in handling of vegetables in thetraditional channel of marketing is about 30-35%. This becomes more acute,as the marketing system for fruits and vegetables is mostly in the hands ofmiddlemen who exploit the poor farmers through malpractices in weighing,handling and payments. The Andhra Pradesh Government established rythubazaars in 1999 to create a platform where farmers could sell their producedirectly to the consumers without the interference of middlemen or marketingintermediaries. This paper makes an attempt to study the supply chain of rythubazaars and looks at areas that, if addressed, can result in increased incomegeneration for the farmers operating from these market yards. The currentsupply chain is studied and a supply chain model is proposed in the paperto address this issue.

The IUP Journal of Operations Management, Vol. XI, No. 3, 201244

November 1, 1956, Andhra Pradesh was created by merging the Telangana districtssituated in the Deccan Plateau and delineating Bellary area which eventually mergedwith Karnataka. The state has 23 districts—10 in the coastal part, four in Rayalaseemaand nine in Telangana. Andhra Pradesh is the fifth largest state of India both interms of geographical area and population comprising of 23 districts, 1,105 revenuemandals, 29,994 villages spreading over an area of 276,814 sq. km. It is the secondlargest producer of fruits, vegetables and flowers in the country. It is the leader inproduction of citrus fruits, chillies, turmeric and oil palm and also is the major producerof cocoa, cashew, guava, coriander, banana, ginger and coconut.1 Regulated marketyards for fruits and vegetables are functioning only in a few centers in the state. Themarketing system for fruits and vegetables is mostly in the hands of middlemen.Middlemen exist at various levels between the farmers and the consumers and exploitthrough malpractices in weighing, handling and payments. The farmers’ share inthe consumers’ rupee is estimated to be just 40 paise. In addition the estimated lossin handling of vegetables in the traditional channel of marketing is about 30-35%.2

In this backdrop, rythu bazaars can play an active role in saving the farmers fromgetting exploited.

Rythu Bazaars – Eliminating Middlemen Through DirectMarketingDirect marketing has been a long felt need of the farmers and consumers, as it helps inthe elimination of middlemen and commission agents who charge high level ofcommission fee from the farmers coming to the market yards for selling their produceand then artificially inflate the retail prices. The efficacy of direct agricultural marketinginfrastructure facility can be increased by providing market users with common facilitiesfor proper weighing, cleaning, grading, and packaging of agricultural produce beingbrought to the market yard by the farmers for sale. Rythu bazaars, located on governmentplots convenient to farmers as well as consumers, is an attempt to address this need.The market yards are built on a minimum 1 acre vacant land, and the infrastructureprovided by the government includes sheds, arrangement for supply of drinking water,toilets with sanitation facility, parking for vehicles, arrangement for removal of garbageand cleaning of market by local body, facility for storage of unsold produce, provisionsof weighing scales for all farmers, telephone, fax, etc. The government of AndhraPradesh meets all the capital expenditure which varies according to the land pricesprevailing in an area. At present, market yards are set up by the state government. Forsetting up of agricultural markets, funds are sourced from the National Bank forAgriculture and Rural Development (NABARD) through Rural InfrastructureDevelopment Fund (RIDF) and National Cooperative Development Corporation(NCDC). As mentioned earlier, rythu bazaar is an initiative to create infrastructure

1 apshm.ap.nic.in/Andhra_Pradesh.html2 www.rythubazars.com/Functional%20manual18.9.06.doc


facilities to enable farmers to sell their products directly to retail consumers, therebyensuring that farmers realize better prices and consumers receive fresh vegetables,fruits, etc., at reasonable prices and thereby address the constraints in agri-marketinginfrastructure. The goal for each bazaar is to generate its own income in order to coverup key expenses and, in the long run, become cooperative societies managed directlyby the farmers.

It is widely known that inefficiencies in the wholesale markets result in a longchain of intermediaries, multiple handling, loss of quality and increase in the gapbetween the producer and the consumer prices. It is therefore pertinent to have amarketing strategy where both growers and consumers are benefited, and rythu bazaarattempts to do just that.

Objectives of Rythu BazaarsThere are currently 9 rythu bazaars in Hyderabad and Ranga Reddy district and 96 inthe state. Typically, a rythu bazaar covers 10-15 villages, and at least 250 farmers including10 self-help groups are selected by a team consisting of mandal revenue officers,horticulture officers and agriculture officers in the villages to operate in the bazaars.

Rythu bazaars were started with the following objectives:

• To provide direct interface between farmers and consumers and eliminatingintermediaries.

• To ensure that farmers get remunerative prices for vegetables and agro-basedproducts like eggs and mushrooms that they grow, and that consumers getthem fresh and cheap.

• To make sale proceeds available to farmers without any deductions andcurbing malpractices in weighing.

• To act as a hub for different activities related to farming, farm families, etc.

• To help stabilize prices in other related markets.

• To provide an understanding of consumer needs to the farmers and helpmerge the production system to the consumer requirements, and

• To help the local administration streamline all operations relating tomarketing, at one place.

Concept of Supply Chain ManagementSupply chain management in very simple terms is all about a set of organizations thatare engaged in the delivery of a product or a service to the customer or the end user.Organizations in the supply chain include suppliers, intermediaries, transportationlogistics providers, and customers. Since the organizations in the supply chain involveparticipants from the start to the end of the process, there is a great deal of coordinationthat is required from the organizations in the supply chain for the supply chain


management to be effective. Supply chain management is thus the management of allthe activities involved in sourcing, procurement, and logistics management to deliverthe right quality product or service in the right quantity at the right place and time,keeping cost-effectiveness in mind.

Therefore, it is useful to look at each of the entities, i.e., suppliers, manufacturers,distributors, retailers, transporters, and warehouse operators, to understand how supplychains function and to address their effectiveness wherever necessary. Supply chainmanagement plays a major role in achieving sustainability. The management of thesupply chain is an important element as it attempts to lower its environmental andsocial impacts (Wycherley, 1999). In the past supply chain models were verticallyintegrated, where the processes and activities were managed within the sameorganization. In addition manufacturers supplied their own parts and services, andenvironmental and social impacts came from a single company. Over a period of time,supply chain models have changed drastically with companies depending on a muchmore complex and fragmented supply chain to acquire their product components,services and even labor. This is, to a large extent, due to globalization which hasresulted in the supply chain becoming more complex and diverse. In this regard,Welford (2002) emphasized on the supply chain’s effectiveness to be critical for anorganization’s profitability in today’s globalized world.

Referring to Figure 1, a usual flow of produce in a typical vegetable market is madeup of a chain of participants that includes the following entities. This is discussed laterin the paper also in the context of rythu bazaars.

Consumers: Who demand the products, based on which certain kinds of products getinto the market. In other words, consumers are the ultimate users of the productsoffered by the markets.

Farmers: Who are primarily engaged in the distribution and sale of vegetables toconsumers. Unlike a retailer in a typical supply chain that includes departmentalstores, specialty stores, retail chains, supermarkets, discount stores, outlets, etc., farmersoperating from vegetable markets require a space from where the sale could takeplace. A similar example of these farmers would be that of retailers who sell undertheir own private labels. Such retailers go beyond their traditional role as distributorsand become directly involved in the design and sourcing of their products and sellingthem to the ultimate consumers through a retail outlet.

Middlemen: Are located locally or regionally and they work as intermediaries betweenthe farmers and the markets where the produce of the farmers is sold. Many of the

Figure 1: Flow of Produce in Vegetable Markets

Farmers Middlemen Vendors Consumers


farmers depend on middlemen to sell their produce primarily because of two reasons:(1) lack of adequate cash to bring their produce to the market; and (2) lack of adequatespace to store the produce.

Vendors: Many a time, in the conventional vegetable markets, those who sell to theend consumers are neither the farmers nor the middlemen. The farmers sell it to themiddlemen who in turn sell it to vendors who make the final sale to the consumers.This has a considerable impact on the price at which the vegetables are finally soldto the consumers.

In Figure 1, we can see a two-way interaction between farmers and middlemen,middlemen and vendors and vendors and consumers. The various agri-marketingchannels are described later in the paper.

Literature ReviewFeenstra and Lewis (1999) found that farmers’ markets offer the producers opportunitiesto expand their businesses by developing new market venues (including community-supported agriculture, institutional food buyers and government food programs) creatingvalue-added products, and making connections with the agritourism industry. Theyconcluded that the size and location of host communities contribute different kinds ofbusiness expansion opportunities and markets in rural areas offer some of the strongestcommunity support to vendors and link them with the tourist industry. They alsocontend that managers can help growers capitalize on these opportunities throughthe rapport and connections they develop with community businesses, associationsand institutions. Chengappa (2005) in his study focused on the increasing importanceof agricultural marketing in the current times, especially in the context of economicliberalization and globalization. He probed into the inefficiency of the marketing systemand also reviewed the institutional developments in agricultural marketing in thecountry and assessed their efficiency and adequacy in the present economic andagricultural scenario. The study concluded that the regulated market model has beenin vogue in India for more than a century and will continue so for many more years.He further concluded that the efforts have been to regulate the trading practices,especially buying and selling and, to some extent, standardization and grading. Headvocated that in the changed global scenario, emphasis should be on the performanceof all marketing functions and therefore all-out effort should be made by providingrequired infrastructure, price transmission and policy support to the agriculturalmarkets. He further suggested that an increase in public investment is desired for thedevelopment of market infrastructure. He suggested that the government should comeup with a comprehensive policy framework to encourage private investment under thesystems of ‘build, own and operate’, ‘Build, Own, Operate and Transfer’ (BOOT),etc., for the development of rural marketing infrastructure.

Viswanadham (2006) looked at inefficiency apart from the other things, becauseof the existence of several intermediaries and manual handling in the supply chain


that connects the vast natural resources and the farmers to both organized as well asthe unorganized retail, which results in wastage of as much as 30% and is also lessremunerative for the farmers. The study concluded that there is no supply chainintegrator or channel master for Indian retail channels. It further concluded thatthough agriculture that has been a part of the Indian rural life for a long time haschanged little over the decades with very little attention towards value-addedagriculture in the entire country, research on improving the farm productivity, pre-harvesting, post-harvest methodologies, processed food product development,packaging, distribution, transport, cold chain, store management, warehousemanagement and the entire supply chain management are very much neglectedboth by the central and state governments and also by the corporates. Also the efficientoperations of high volume retail supply chains are dependent on the availability ofsupply chain assets such as containers, pallets, racks, cages, totes, trays, trucks andtrailers to meet the day-to-day operational needs of the retailer in supplier depots,retail distribution centers and retail stores. The paper also concluded that the farm-to-shop supply chain is fragmented, inefficient and has no supply chain integrator,and therefore there is a need to make the supply chain integrated, efficient andcustomer-centric. He suggested that farmers should produce fruits and vegetables,etc., with increased shelf life and international appeal and for food processing ratherthan for raw consumption.

Sudha and Gajanana (2005) reviewed the developments and performance ofagricultural marketing institutions in India with a focus on horticultural sector.The objective of the study was to examine the mechanism to link production withconsumption. They concluded that though India has achieved comparativeadvantage and self-sufficiency in the production of a number of agricultural crops,yet the predominance of pre-harvest contractor and commission agent as animportant marketing channel continues till date; institutional innovationsintegrating production with marketing and trade are yet to emerge; and institutionsintegrating small farmers with domestic and international markets (with a focus onvalue addition) are nonexistent. They highlighted that there exists a gap withrespect to marketing and post-harvest handling of agricultural produce in India.They further concluded that direct interventions in agricultural markets by thegovernment have been an important mechanism for improving marketing efficiencyand these interventions have been through a number of agencies, which haveevolved over a period of time. They contended that the impact of these efforts hasbeen mixed and efforts to improve the efficiency of agricultural marketing institutionsare still being pursued on a high priority. They identified that the weakest link hasbeen the inability to integrate production with marketing and processing forachieving the ultimate objective of improving access of small producers to expandingmarkets and trade.

Taylor (2006), in his work, reviewed the research that has been carried out in sixUK agri-food chains, each spanning the entire chain from farm production to


consumer. The focus of his study was on demand management practices andsystems. The methodology was case-based. The research concluded that demandmanagement is an area which, in practice, is beset by difficulties and inefficiencies,which in turn affect the operational performance of the supply chains. An analysisof the characteristics of demand along the chains demonstrated a propensity formisalignment of demand and activity due to issues such as demand amplificationand inappropriate production policies. The study also identified a number ofoperational inefficiencies and inconsistencies, which typically occur in theinformation systems and data handling procedures within these chains.

Jain et al. (2008) studied the increase in agricultural production post-GreenRevolution. They observed that one of the prevalent channels in the marketing ofagricultural produce in India has been through the middlemen and traders. Theintroduction of Regulatory Market Act in India has changed the scenario of marketingof agricultural products but did not have a significant impact and the farmers arestill dependent on middlemen to sell their produce because farmers do not havestorage capacity. Also the present market mechanism does not have any competitionamong the middlemen (artees). The study suggested involvement of unemployedrural youth in the marketing system to minimize the margin of middlemen. Theyalso suggested training of the farmers and the rural youth in modern marketingmechanism for higher farm income and generation of employment by way of directmarketing. This work aimed at helping extension agencies and farmers to learnabout the concept of direct marketing.

Kitchen (1949) analyzed the growth of wholesale distribution of fresh fruits andvegetables. He suggested that development has been concurrent with and largelyas a result of the development of protective transportation services by railways inAmerica. He stressed its importance in the context of the fact that fresh fruits andvegetables are delivered to the consumers in an average of 21 days after harvesting.The system of distribution under which they are marketed is both vast and complex,and the complexity increases because the commodities are themselves both highlyperishable and highly complex as to varieties, grades, brand names, and sizes orbecause of the seasonal nature of most fresh fruits and vegetables apart from a hostof other factors. Further, complications arise when certain areas come into productioneither earlier or later than anticipated, causing gluts or famines. The study concludedthat practitioners of the future should focus on developing scientific marketingand suggested that one such frontier is the more efficient handling of fresh fruitsand vegetables by retailers. Anupindi (2003) undertook a case study of ITC’se-choupal initiative and reviewed how International Business Division (IBD) ofthe ITC has created an IT-enabled rural channel (called e-choupal) that todaytouches 2,500 villages. He suggested that the primary objective of this channel isto drive enormous efficiency in the procurement of commodities resulting in valuecreation for both the company and the farmer. Farmers benefited from more accurateweighing, faster processing time, and prompt payment, and from access to a wide


range of information, including accurate market price knowledge, and market trends,which helps them decide when, where, and at what price to sell, which were notachievable through the mandi system. He demonstrated how through the e-choupalmodel a large corporation could play a major role in recognizing markets and increasingthe efficiency of an agricultural system, and create a win-win situation for farmers,rural communities, and shareholders. The case also shows the key role of IT whichwas created and maintained by a corporation, but used by local farmers in helpingbring about transparency, increased access to information, and rural transformation.He further concluded that ITC’s extensive knowledge of agriculture, the effort ITChas made to retain many aspects of the existing production system (includingmaintenance of local partners), the company’s commitment to transparency, and therespect and fairness with which both farmers and local partners are treated have allcontributed to the success of e-choupal. In another case study on the impact of ITC’se-choupal on rural India, Garg and Marwah (2008) studied the impact of e-choupalswhich bypassed the old mandi system and purchased the produce directly from thefarmers. e-Choupal was conceived by ITC’s International Business Division as a moreefficient supply chain which aimed at delivering value to its customers around theworld on a sustainable basis. The study also focused on the working of e-choupals andthe benefits that farmers have got from e-choupals. The objective of the study was toidentify farmers attitudes towards e-choupals and the extent of empowerment of farmersby e-choupal. The study concluded that the e-choupal initiative provides the power ofexpert knowledge to even the smallest individual farmer.

Acharya (2005), in his study, undertook a critical review of institutional frameworkfor Indian agriculture in terms of both rules and organizational structure. The studyconcluded that the institutional framework for agricultural marketing is important asthese institutions regulate the market conduct, structure and hence, the performance(efficiency). In the Indian context, these include regulation of primary agriculturalproduce markets, and legal and regulatory provisions relating to storage,transportation, packaging, processing, buying/selling and quality specifications. Hefurther concluded that in the context of changes in the economic environment, owingto the liberalization, privatization and globalization initiatives, there is a need toreview the role as well as rationale of many components of the agricultural marketinginstitutional framework that have evolved over the years. Salin (1998) studied theimportance of IT in agri-food supply chains. He acknowledged that high-techinformation systems can offer competitive advantages to agri-food firms when thesystems support a supply chain strategy that suits the demand for the product. Heconcluded that the right kind of supply chain depends on the product and thereforeit is important to categorize the product as ‘functional’ or ‘innovative’. Agri-foodsupply chain therefore has to do a lot with food quality and safety. Also with thesupply dependent on weather, the supply chain management in the case ofagri-products has to be distinctly different from that of the product-based approachstrategy adopted generally by manufacturing units.


Agricultural Supply Chain

Supply Chain in Grocery Market/Food Marketin the Global ContextThe global agri-food industry is undergoing a lot of change due to a number offactors including increasing concentration of demand into a small number ofsupermarket retailers and increasing globalization in sources of food supply.

The fresh produce market has changed markedly over the last two decades.There has been a marked shift in consumer demand, considerable technologicalchange in production and marketing, and consolidation in retail. These have alteredthe traditional market relationships amongst producers, wholesalers and retailers.The west has, especially seen the continued rise of supermarkets and the steadydecline of small traditional retail outlets resulting in the emergence of a high degreeof concentration in the retailing sector. This has had a bearing on the edifice ofwholesale distribution of fresh produce. Food retailing has become increasinglyconcentrated in Europe. In the US, mergers and buyouts of grocery stores havebeen widespread over the 1990s. This led to an increase in national grocery storeconcentration. To elucidate, in 1992, the top four firms in the US served about 18%of the market. A decade later, they were controlling 32.5% of the market. By thattime, the share of the 20 largest retailers had reached 57.2% of total grocery sales,up by about 15 percentage points as compared to a decade ago (Maruyama andHirogaki, 2007), resulting in an overwhelming change in the supply chainorganization for fresh produce; parallelly, wholesale produce markets have sufferedfrom a declining role in the distribution of food. During this period, in the US, anincreased tendency to purchase fresh produce directly from the shipping pointwas observed as the number of large retailers grew, and there has been a decreasein the use of wholesale terminal markets (Dimitri, 1999). Similarly, in the UK, formore than two-and-a-half decades starting from the early 1970s, the role of thewholesaler in the distribution channel greatly declined, and supermarkets dominatedthe distribution channel in terms of requirements. On certain occasions,supermarkets have had direct contracts with farmers who found it convenient tosell their produce directly to the supermarkets, something similar to the strategyadopted much later in India by supermarket chains like Reliance Stores.Supermarkets seldom use wholesale markets to purchase their produce (Cadilhonet al., 2003). In Australia, research has been done to understand the motivationsfor developing direct trade relationships in the Australian fresh produce industry.The research shows that buyers and suppliers are ultimately attempting to minimizethe inherent risk associated with operating in a volatile environment regardingprice, quality, supply, demand, and perishability. Added to that, the recent advancesin the availability, transmission and capacity to use IT have contributed greatly tothe coordination of commodity production under various contractual arrangements,which have introduced efficiencies throughout the supply chain, reducing


production and marketing costs. Retailers are playing an increasingly importantrole in quality management, logistics and inventory management in chains. Withthe supermarkets gaining more strength, there have been efficiency gains due tocloser vertical coordination of activities and transmitting market information betweenbuyers and sellers.

In sharp contrast, farmer-to-consumer direct marketing is a way by which farmerssell their products directly to consumers (Henderson and Linstrom, 1982). There areseveral outlets through which farmers sell their products directly to consumers. Themost familiar types of outlets are Pick-Your-Own (PYO) farms, roadside stands, farmers’markets and direct farm markets. PYO operations are farms where retail customersharvest their own agricultural products. Roadside stands are mostly temporarystructures erected by the farmer to sell his or her produce. Farmers’ markets, on theother hand, are places where farmers bring their produce to be sold, while directfarm markets are structures located at the farm and are used to sell their own produce.Items frequently sold through direct marketing outlets are fruits, vegetables, flowers,nursery products, eggs, and dairy products (Adelaja et al., 1994). Farmers’ marketsare a common phenomenon in many countries. A regular site and schedule is usuallyset for a particular farmers’ market. The market sponsors frequently include a businessgroup (such as a Chamber of Commerce), consumer groups, county extension, and/or producers.

Agricultural Supply Chain in the Indian Context

According to Mentzer et al. (2001), “A supply chain is defined as a set of three ormore entities (organizations or individuals) directly involved in the upstream anddownstream flows of products, services, finances and/or information from a source toa customer.” Agricultural supply chain consists of small enterprises, such as farmers,raw material producers, suppliers of agricultural inputs, processors of agriculturaloutputs, farmers’ cooperatives, middlemen, suppliers, distributors, wholesalers andretailers, that either tend to operate independently or in cooperation. The mainobjective of supply chain management is to keep costs as low as possible andprofitability as high as possible. It is therefore important that the supply chain ishighly efficient so that the inefficiencies in production, processing, storage andtransportation can be addressed and as a result the marketable surplus can beincreased. This will have a cascading effect starting with increased revenue for thefarmers. The farmers can invest more in certain essential ingredients for increasedproductivity and thereby increased revenue. Farmers’ markets provide goodopportunity to the farmers for marketing their produce. This addresses the demandside as well as helps farmers in planning their produce both in terms of variety andquantity in advance, since they know the kind of demand that exists in these markets.Also there is a need for improving the economic efficiency which is defined as theproduct of technical and allocative efficiency (Farrell, 1957). For a firm to be


economically efficient, it must first be technically efficient. Profit maximization requiresa firm to produce the maximum output given the level of inputs employed (i.e., betechnically efficient), use the right mix of inputs in light of the relative price of eachinput (i.e., be input allocative efficient) and produce the right mix of outputs giventhe set of prices (i.e., be output allocative efficient) (Kumbhaker and Lovell, 2000).In other words, while marketing the produce, the technical efficiency is said to haveincreased if while performing a function for each unit of output, operational cost getsreduced. Some of the ways of achieving this are, reducing physical losses, improvingtransportation, storage, handling and processing, etc. Allocative efficiency is said tobe achieved when the price that consumers are willing to pay for a product or aservice at least equals the cost of the resources that have gone into theproduction. Therefore, allocative efficiency depends on technical efficiency. Changein cost per unit helps protect the interests of not only the farmers but also theconsumers.

There are other methods employed in agriculture with the sole purpose ofachieving efficiencies in the system. These are contract farming, direct purchasesfrom farmers, purchases from government sponsored centres, purchases fromwholesalers, or purchases through self-help groups of farmers or cooperatives. Thetraditional agricultural supply chain in India is disjointed with the presence of alarge number of intermediaries and agents. Also, a few traders’ associations dominatethe existing market yards with the result that any organized process will immediatelythrow up several advantages. The organized process may include large retailers orfarmers’ markets. The idea is to bring in new knowledge in marketing and reducingexisting inefficiencies in the supply chain. Say for example, contract farming modelis used by large retail groups for meeting its requirements for retailing, processingor export purposes. ITC’s e-choupal is a case in point. Contract farming is a way oforganizing agricultural production whereby farmers supply their produce tocompanies as per mutually agreed pre-decided price, quality, quantity or acreagewith a limit of maximum and minimum, and time. Contract farming also lowerstransaction cost for the company and is perceived to reduce market risks for thefarmers, while in reality that may not be the case.

Notwithstanding all the advantages of contract farming, the coverage continuesto be limited. One of the major weaknesses of contract farming comes from thecontract that is made between farmers (weaker party) and companies (strongerparty). More often than not in such situations, farmers accept the contract even if itis not fair, because of lack of options, thereby losing his bargaining power. Alsooften firms do not follow the spirit of the contractual agreements if marketcircumstances change owing to changes in government policies or other extraneousfactors.

Figure 2 illustrates the various agri-marketing channels that are especially relevantto our country. Like any other product agri-products also move into the market through


The agri-marketing channels, as can be seen in Figure 2, can be divided into threemajor categories:

• From farmers to consumers through wholesalers and retailers;

• From farmers to consumers through processors; and

• From farmers to consumers through cooperatives.

Apart from these channels, there is another channel, i.e., direct from farmers toconsumers, which one finds in the farmers’ markets.

Introduction to Wholesale Markets – Indian ScenarioThe burgeoning population along with substantial income growth notwithstanding,the recent downturn has put tremendous pressure on the country’s available landand other resources to meet its food requirement. This has resulted in an additionaldemand of 2.5 mt of food grains annually. Assuming a very low growth of 3.5% ofthe per capita GDP, the demand for food grains in the year 2020 is projected to be256 mt (Agricultural Policy: Vision 2020, Indian Agricultural Research Institute).While this should have been music to the ears of the small farmers, sadly, into theseventh decade of independence, the scenario even today is very bleak. This isprimarily because a large majority of farmers even today are dependent on

Figure 2: Agri-Marketing Channels

Farmers

Farmers

Farmers

Farmers

Farmers

Middlemen

Middlemen

Middlemen

Middlemen

Retailers

Wholesalers Retailers

Processors Consumers

Consumers

Cooperatives Retailers Consumers

ConsumersHotelsProcessors

Consumers

various channels. However, the major difference between manufacturing goods andagri-products is on account of the market functionaries involved in carrying the producefrom the farmers to the ultimate consumers.


middlemen to sell their produce because either they do not have enough money tobring their produce to the market or they do not have any space to store the produce.The middlemen have therefore been utilizing this to their maximum advantageeven when they know that they cannot do full justice to the farmers’ produce. As aresult, their average profit margins have been retained at the cost of the profitmargins of farmers which have always been very low. Also, the nexus betweenthese middlemen and private moneylenders makes it doubly difficult for the farmers.Apart from lending money at exorbitantly high rates, these moneylenders alsoadvice the farmers on what, when and how to produce, while they themselves areill-equipped to do so. Moreover, they hardly have the right intentions to give thecorrect guidance, even if they have the competence to do so. Thus farmers, becauseof their own gullibility, have seldom been guided properly; as a result, it is onlythe middlemen and private moneylenders who have prospered at the expense ofthe poor farmers.

Sales of agricultural goods in India is mainly through middlemen, traders(wholesalers and retailers), and cooperatives. This has forced governments of manystates to encourage direct marketing by farmers by eliminating the middlemen. Thereis therefore a need for providing better infrastructure to farmers to facilitate marketingof their own produce.

Justification of the StudyThis research examines the use of supply chain management as a modernmanagement tool in the functioning of rythu bazaars. In the past an increasinginclination towards fresh vegetables with nutritional concerns as well as securityand food safety concerns has been observed. This has increased the interest in freshlocally grown vegetables, and with the increasing demand for fresh agriculturalproduce, small farmers get an opportunity to increase their individual returns if theyare provided the right kind of support.

This research attempts to understand the functioning of these bazaars, and looks atidentifying and addressing the inefficiencies that may exist in the system and exploreoptions to improve conditions of functioning in rythu bazaars, with the primary objectiveof studying the existing supply chain model and suggesting ways to improve theearnings of the farmers. Though the Andhra Pradesh Government has done a goodjob by setting up these bazaars, yet it has been found that the income of the farmersoperating from these market yards is still very low. As per the researcher’s findings,the average annual income of the farmers operating from rythu bazaars is 56,000which though is 20.45% higher than India’s current average per capita earning of46,492. The researcher also feels that there exists enough scope for improving the

farmers’ earnings. In this context, this research looks at the functioning of these bazaarsand its stakeholders so that the proposed supply chain model is able to address theinefficiencies existing in the system.


Integrated Supply Chain at Rythu Bazaars

Supply Chain at Rythu Bazaars – A Simple ModelA simplified example of a supply chain for rythu bazaars is shown in Figure 3. Thefigure shows the interactions between farmers and consumers through rythu bazaars.Please note that since rythu bazaars only act as facilitator, therefore it is shown differentlyfrom farmers and consumers with dotted lines.

Members of Rythu Bazaars and Their RolesAnother supply chain model is shown in Figure 4 which exhibits the participants.A more detailed context analysis model is shown in Figure 5. In reality, as we cansee from Figure 5, supply chains are much more complex than the one shown inFigure 3 or 4 since they may have more supply chain participants. Figure 4 howeverprovides enough to understand supply chain as an extended enterprise that crossesthe boundaries of individual firms to span the related activities of all the companiesinvolved in the total supply chain. This extended enterprise should attempt to executeor implement a coordinated, two-way flow of goods/services, information, andfinancials (in this case, cash). These flows are very important to the success of thesupply chain.

Figure 3: Supply Chain at Rythu Bazaars – A Simple Model

Farmers Rythu Bazaar Consumers

Figure 4: Integrated Supply Chain in Rythu Bazaars

Estate Officers

Farmers

Consumers

ProductInformation andFinancial Flow

Information Flow


The product flow from farmers to consumers is an important element in the supplychain process. The expectation of consumers is to receive timely, fresh, hygienic,and good quality vegetables. For this to happen, transportation is the key. Unlike inthe case of manufacturing where reverse logistics is assuming great importance, inrythu bazaars there is no possibility of reverse logistics. This is because oncevegetables are sold by the farmers they are not returned by the consumers. In thecase of rythu bazaars, certain factors are of prime importance. These are the locationof the bazaars, layout of the bazaars, transportation facilities, and storage facilities.Information flow is also very important since it gives the farmers an idea about theconsumption patterns of the consumers and hence helps to plan his productsaccordingly. Information in this context relates to the knowledge of demand or salesdata, which becomes vital for the farmers to bring their produce to the market everyday.Unlike in traditional manufacturing where an uncertain pattern of demand may createthe bullwhip effect, farmers operating from the rythu bazaars are not affected by it.This is primarily on account of the bazaar being modeled in a manner that dailystocks are replenished. However, the information available to the farmers on a dailybasis about the rates and quantity of each of the vegetables available provides farmerswith sales information on an almost real-time basis. This removes uncertainty that isusually associated with marketing of agri-products. Financial flow, which relates tocash, is completely one-dimensional in rythu bazaars. The immediate cash receivedby farmers has been a major boon for the farmers operating in these rythu bazaars.The bazaars are managed by estate officers under the control of Revenue Departmentof the Government of Andhra Pradesh. As can be seen from Figure 4, the farmershave a two-way dialogue with the estate officers. The various players in the supplychain are described below.

Consumers: Who Demand the Products.

Farmers: Who are primarily engaged in the distribution and sale of vegetables toconsumers.

Administrators of Rythu Bazaar (called Estate Officers): Are responsible for all theadministrative activities of the market. Infrastructure at the rythu bazaars plays animportant role in the success of the markets, because it is perceived that goodinfrastructure will help attract more consumers. The estate officers play a veryimportant role in ensuring that good facilities are provided to both farmers andconsumers at rythu bazaars and hence there is a two-way connect between these twovery important stakeholders. The facilities include stall space, power supply, drinkingwater facility, restroom facilities, storage facility for produce, seed supply at subsidizedrates, advisory services provided for all operational requirements of the farmers,supervisory services provided for checking prices, supervisory services provided forcurbing malpractices in weighing, supervisory services provided to avoid entry ofmiddlemen, system of price fixation, and providing technical know-how by the rythubazaar appointed experts.


Figure 5: Current Supply Chain of Rythu Bazaars

Support Provided by Rythu Bazaars

Policy Framework

Identification ofMarket

Yard andInfrastructureDevelopment

Identification andAuthorization

of FarmersTransportation

Rythu BazaarInformation System

(RBIS)

• Reason forestablishingthe markets.

• Process ofestablishmentof the market

• Responsibilityforestablishingthe markets.

• Sourcing offunds for theestablishmentof themarkets.

• Identificationof the marketyards withthe site beinga raised land.

• Location ofthe marketyards nearmain road,railwaystations, busstops, etc.

• Facilities tobe providedin RythuBazaars.

• Farmers areidentified from acluster of 10-15predominantlyvegetablegrowing villages.

• Identificationdone jointly byMRO,horticultureofficer, andagriculturalofficer of thevillages.

• Issue of photoidentity cards.

• Transportfacility for pickup anddropping ofthe registeredfarmers to theRythu Bazaarare to bearranged bythe marketfunctionariesthrough tie-upwith statetransportdepartment.

• Farmers’ entry tothe RythuBazaars is doneafter checkingtheir identitycards.

• Their namesalong with theparticulars likethe name of thevillage, quantityof vegetablesbrought areentered in aregister.

• A token is thenissued to them.

• Done through acommittee offarmers and theEstate Officerdaily based on (1)the wholesaleprices ofvegetablesreceived throughfax between 7.30AM and 8.00 AM;and (2) 20-25%higher than thewholesale priceand lower thanthe local retailmarket prices inthe area.

• Stalls areallotted to thefarmers onfirst comefirst servebasis daily.

• The farmersare notallowed tooccupy thestallspermanently.

• No fee iscollected fromthe farmersfor the stalls.

• On the basis ofthe tokenissued, allfarmers areprovided withweighing scales.

• No fee iscollected forthis.

• The farmersreturn back thescales aftercompleting theirsales every day.

• An area ofapproximately 15sq. m is providedfor the office tohouse the staffand equipmentslike computer,printer, typewriter,telephone, faxmachine, etc.

• Provision is alsomade forconstruction of awatch and wardroom near theentrance gate ofthe Rythu Bazaars.

Farmers Estate Officers Consumers

Entry ofAuthorized

FarmersPrice Fixation Stall

Allocation

Supply ofWeighing

Scales

DailyAdministrationand Security

(Prohibiting Entryof Middlemen)

RecordKeeping and

SendingUpdates to

RBIS

Administrative Support Provided by Estate Officers

• Managed bythe AndhraPradeshAgriculturalMarketingDepartment.

• Provide dailyand monthlyreports givingthe price,arrivalquantities andthe type ofvegetables.


Current Supply Chain of Rythu BazaarsFigure 5 depicts the detailed context analysis model that describes the current supplychain of rythu bazaars. In the model, there is a link shown between the farmers andthe consumers through estate officers (shown in dotted lines since they only act asfacilitators in the entire process of the business). The supports extended by rythubazaar officials is given in the top which includes framing of policy for setting up ofthese market yards, identification and infrastructure development of these market yards,identification and authorization of the farmers who will operate from these bazaars,providing the farmers with transportation facilities to bring their produce to the markets,and maintaining of the Rythu Bazaar Information System (RBIS). All these act asincentives to the farmers to operate from these bazaars. On receiving this support,only the authorized farmers can enter the rythu bazaars, take part in a collaborativeprice fixation mechanism through their representatives, are allotted stalls, and aregiven weighing scales so that they can conduct their business as per the policyguidelines. The estate officers also are required to look after the daily administration,security, and maintain proper records. These records are then fed into RBIS. However,during the course of this study, certain inefficiencies were observed in the currentmodel and this research attempts to propose a supply chain model that will addressthe existing inefficiencies in the system.

Variables of Supply Chain Addressed in Studyand the Proposed Supply Chain ModelThe major variables of supply chain that have been covered in the study aretransportation, storage, material handling, order processing, distribution planning,customer service and information system. As mentioned earlier the farmers’ share inthe consumers’ rupee is estimated to be just 40 paise. In addition, the estimated lossin handling of vegetables in the traditional channel of marketing is about 30-35%.

A large number of small farmers are unable to effectively bargain for a better pricein the wholesale markets. As mentioned earlier, there exist inefficiencies in the wholesalemarkets resulting in a huge gap between producer and consumer prices. Intermediariesand system inefficiencies consume a disproportionate share of consumer prices. Largenumber of small retailers, each handling small quantities, create high overheads leadingto high margins on produce. Rythu bazaars operate outside the purview of AgriculturalMarket Committees and are managed by the estate officers under the control of JointCollectors. It was in this backdrop that the necessity to evolve an alternate marketingstrategy where both growers and consumers are benefited was felt. Rythu bazaarswere thus planned for direct interface between the farmers and the consumerseliminating middlemen.

There are 96 rythu bazaars in existence, benefiting 4,500 farmers and a large numberof consumers. India is estimated to have over 5 lakh villages and almost 60% of thepopulation is employed in the farm sector. However, agriculture contributes to only


25% of the national income. Lack of marketing information, inadequate access to marketsas well as supply chain inefficiencies inherent in the farm sector contribute to lowrealizations and incomes of the farmers. Rythu bazaars can play a key role in addressingsome of these problems, and there is a clear need to facilitate similar marketinginfrastructure throughout the country. To ensure that this happens, the following needsare to be looked at urgently:

Transportation SystemThere is a need for an efficient state transportation system to facilitate expansion ofmarkets. Reduction in the transportation time would have a positive impact on theprice and hence the profits on the agricultural produce. Rythu bazaars are connectedby APSRTC buses but they have to be increased in number. For example, at Erragada,a Model Rythu Bazaar, farmers come from the nearby areas of Medak, Ranga Reddy,Vikarabad, Nawapet, Shankarapally, etc. For them, there are nine APSRTC busesearmarked for ferrying the produce to the market. The transportation charges arehighly subsidized. Farmers are not charged anything for commuting. They pay anominal sum of 1 per bag of 100 kg. Despite all these, their problems get compoundedsince as per regulations, farmers of rythu bazaars cannot use private vehicles, thoughit is very clearly evident from the survey carried out by the researcher that manyfarmers use their own transportation to bring their produce to the market yards.Farmers from Vikarabad, Nawapet, and Shankarapally usually prefer trains whichwell connects these areas with Hyderabad. From the response of the estate officers,the researcher found that for the other rythu bazaars, the number of buses are stillless. This needs to be addressed at the earliest. Also it could be derived from thefarmers’ responses that some inconsistency does exist with respect to the availabilityand the number of APSRTC buses.

StorageScarcity of storage facilities results in heavy losses to farmers. A large part of thefarmers’ produce gets wasted as they are highly perishable. Although there is a pricefixation mechanism at work in rythu bazaars which is monitored by representativesfrom the Revenue Department, yet farmers resort to distress selling because of theabsence of storage facilities. Farmers resort to selling their vegetable at a much cheaperrate in the evenings as compared to the rate fixed by the price fixation committee inthe morning. Proper storage facilities would help increase the earnings of the farmers.Apart from distress selling, proper scientific storage facility could also reduce seasonalfluctuations in prices of these perishable goods. Rythu bazaars are yet to come up withthis facility. Despite the Agricultural Produce Corporation Act enacted in 1956, andthe Warehousing Acts during 1957-58, a storage capacity of about 150 MT is stillrequired all over the country to address this issue. The problem gets more accentuatedwhen one looks at the availability of cold storage in India. As per the statistics available,the present cold storage capacity is sufficient for only 10% of the total production ofperishable agricultural products.


Material HandlingThe transportation issue that the farmers have is also on account of the distance betweenthe bus stop and the stalls where they operate from. Apart from lacking awarenessabout the transportation facilities provided by the rythu bazaars, they are also forcedto hire auto trolleys to bring their produce to the market yards, since it is difficult forthem to carry the huge load from the bus stops to their stalls which could be as far as200-300 m. To address this issue rythu bazaars may provide push carts to the farmersto bring their produce from entry point of bazaar to the stalls. A process similar to thedistribution of weighing machines, where on entering the rythu bazaar farmers entertheir names along with other particulars, such as the name of the village and thequantity of vegetables brought by them, based on which they are issued a token whichforms the basis of their getting weighing scales, may also be adopted in the case ofissuing of the push carts to the farmers. Similar to the weighing scales, farmers haveto return back the carts at the end of the day.

Order ProcessingIn order to attract more customers, especially to those who cannot come to the marketyards quite often because of lack of time, and to extend benefit to this section, therythu bazaars can start home delivery of vegetables. This has the potential to addressthe issue of the farmers getting lower rates in the evening as they resort to distressselling during evening. This could benefit both farmers and consumers, since by thetime most of the office going consumers can come to these bazaars for purchasingvegetables the rythu bazaars would have closed its operation. By placing the ordersconsumers can get their vegetables delivered at their doorstep and the farmers can geta higher opportunity to get their produce sold. The orders from customers may betaken by estate officers through telephone, and then depending on the following thevegetables may be procured for sending to the customers.

Distribution PlanningOnce the order has been processed, to execute the order a proper distribution planningshould be in place. Following is the proposed plan for distribution:

• Each mandal to be allocated a day in the week when the estate officers willprocess the order from farmers of that mandal.

• Selecting the farmers from whom vegetables are to be taken in order to executethe order will be the sole prerogative of the estate officer and the members ofthe farmers committee.

• In the event of the farmers of the earmarked mandal for the day not havingthe required amount of vegetables, the same may go to the next day’s mandaland so on.

• It will be the prerogative of the estate officers to ensure that the order sent isof good quality.


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Con

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• Orders may be taken during any time of the day. Dispatch will happenonly after the closure of the bazaars. Farmers willing to do so will get savedfrom distress selling. A prior study undertaken by Ahmed and Dey (2012)provides enough data to believe that with the addition of this service, rythubazaars can pose a serious challenge to the supermarkets, more importantlyto the crowd which likes to consume fresh vegetables but face severe timeconstraints.

Customer ServiceA database of the customers may be created where essential information regarding thecustomer, i.e., name, address contact number, is kept. With the RBIS working fine,developing a system as suggested may not be difficult. On receiving the details fromthe consumers for the first time, a key identification number may be generated to eachconsumer so that he does not have to give all his details every time he makes a call tothe bazaar. This along with good service will only add to the delight factor of theconsumer.

Information SystemThe RBIS is already in existence and provides valuable information on prices ofvegetables in various rythu bazaars across the state, and also helps consumers see thedifference between the rates of these markets and those of the retail stores.

However, to make the information system more useful for the consumers, it can bemoved to a Web 2.0 platform, thereby engaging the consumers more with the bazaars.A detailed feedback mechanism is suggested to be kept in the information system forthe consumers to give their feedback in their free time through this platform, though acomplaint/suggestion mechanism already exists. This will help the administrators ofthese markets to understand the customer requirements better and hence improvetheir services accordingly. This platform, by virtue of being interactive will also helpadministrators understand the concerns of the consumers better. Further the databasewill also get built and can help undertake focused research to increase business inthese markets.

In order to address the mentioned inefficiencies in the system, the supply chainmodel given by Figure 6 is proposed for better functioning of the rythu bazaars. Thechanges suggested in the proposed model are given in bold in the figure.

ConclusionIdentifying various variables of supply chain, a model has been developed which canhelp remove the inefficiencies in the existing system. The major findings are:

• There is a need for an efficient transportation system to help farmers bringtheir produce to rythu bazaars. Many farmers hire private vehicles to bringtheir produce to rythu bazaars.


• Lack of storage facilities for keeping vegetables for short duration results infarmers resorting to distress selling because of the absence of storage facilities.

• There is no system of getting vegetables delivered to the houses of workingpeople who cannot come to the bazaars because of paucity of time during theworking hours of the rythu bazaars.

• The RBIS provides valuable information on prices of vegetables in variousrythu bazaars across the state. However, there could be a need for improvingit as suggested in the paper.

Recommendations• The number of APSRTC buses should be increased.

• Push cart facility should be introduced for bringing the produce from the busstop to the stall.

• In all market yards a godown should be constructed for farmers to store theirnon-perishable goods.

• Construction of cold storage should be considered. Facility of cold storage inthe market yard will help preserve the perishable vegetables at least for alittle longer to ensure that farmers receive good price for their produce. Thiswill have a positive impact on the earning of the farmers.

• Home delivery should be seriously considered as it is a win-win proposition.

• The RBIS should be made interactive.

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