Dynamics of fresh vegetables retail marketing system- A case study in greater Hyderabad city of Andhra-Pradesh.
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Date
2010
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ACHARYA N.G. RANGA AGRICULTURAL UNIVERSITY RAJENDRANAGAR, HYDERABAD
Abstract
Most of the high-value commodities such as vegetables are very perishable and
are highly prone to production and market risks, which may act as deterrent to farmers
participation in high value agriculture. Local markets for high value commodities are
thin and marketable surplus of individual small holder’s is too small to be traded
remuneratively in distant urban markets due to high transaction costs. Their prices are
volatile and fall drastically even with a small increase or decrease in their above
normal market arrival. Besides, farmers are constrained by lack of access to improved
technology, quality inputs, information and credit. Institutions like cooperatives,
contract farming and grower’s associations are considered to improve producer’s
access to markets, minimize transaction costs and alleviate marketing constraints.
Institutional innovations in marketing enhance their access to market quality inputs,
improved technology, information, and services which eventually lead to
improvement in productivity and reduction in marketing and transaction costs. Under
this perspective the present study was conducted with the following specific
objectives.
1. To examine the recent developments in institutional innovations
adopted by different agencies in vegetable marketing system.
2. To assess the impact of institutional innovations on farmers productivity and
profitability.
3. To estimate the marketing cost and price spread under different retail
marketing system.
4. To analyze the determinants of channel choice selection by the farmers and
consumers.
5. To suggest policy measures for strengthening and sustenance of the modern
vegetable marketing system.
The present study was conducted on three selected vegetables i.e., tomato,
brinjal and bhendi in two districts of Andhra Pradesh i.e., Rangareddy and Medak
districts and two mandals from each district were selected randomly. Further six
villages were selected from each mandal and thus giving a total of twenty four
villages. Within these villages’ 117 farmers linked with supermarkets and 117
farmers who were linked with traditional markets were selected taking all the three
category of farmers into consideration. 30 intermediaries i.e., 10 commission agents
10 wholesalers and 10 retailers were selected. Two consumer focus groups i.e. those
who are purchasing from supermarkets.(90 participants) and those who are
purchasing from traditional markets.(90 participants) in Hyderabad city were
randomly selected to describe the nature and motivations of consumers shopping in
supermarkets versus traditional retail outlets across product groups and income
classes. Both primary and secondary data was used for the present study. The
primary data on age, family particulars, literacy status, size of farm holdings and the
information pertaining to marketing cost, at producer, intermediary level and the
socioeconomic characteristics of consumers was obtained with the help of a well
structured pretested schedule.
Different statistical tools were used in order to fulfill the objectives of the
study. Cost concepts and income measures were used in determining the profitability
of the vegetable production for supermarket and traditional market supply farmers.
Cobb-Douglas production function was used to estimate resource productivity of
selected vegetables in supermarket and traditional farming situations. Regarding
marketing aspects marketed surplus, marketable surplus and factors effecting
marketed and marketable surplus of the three vegetables by SURE were calculated.
Multiple linear regressions for factors effecting marketing efficiency, Garrett’s
ranking technique, to prioritize the marketing constraints, Kendalls Rank correlation
coefficient (W) test were used to test the agreement in ranking the marketing
constraints.
Multiple Discriminant function was used to identify the factors responsible
for discriminating the two groups in vegetable cultivation and logistic regression
coefficients of determinants of farmers selecting supermarket channel choice were
estimated. In case of consumers Probit and Ordered logit models were employed to
estimate the retail outlet choice and shopping frequency of consumers. Levens test,
Brown forsythe test and Mann- Whitney test were used to find significant agreement
in ranking the reasons for retail outlet choice by both supermarket and traditional
consumers.
The major findings of the study were that the mean age of supermarket
supplying small farmers for tomato, brinjal, and bhendi was relatively less than that
of traditional market supplying farmers and the average years of education of
supermarket supplying farmers was more implying that younger and literate farmers
entered into tie ups with the supermarket supply system. Corporate houses procure
perishable commodities like vegetables from their collection centers which have
been set up in their niche production regions which are considered to reduce
marketing and transaction costs and risks to the farmers by providing ‘markets’ to
the farmers at their doorsteps. However, there is no formal contract between the
collection centres and farmers and the transaction is based on mutual trust.
The per hectare cost of cultivation of the three selected vegetables on
supermarket and traditional market supply farms revealed that cost of cultivation of
vegetables was remarkably higher for traditional farms than supermarket supplying
farms. This was mainly due to excessive use of manures and fertilizers, irrigation,
PPC and human labour. All costs in cost concepts in terms of rupees per hectare for
tomato, brinjal, bhendi crops in both the selected districts were more in traditional
market supply farms than supermarket supply farms. The average yields in quintal
per hectare of all the three selected vegetables were slightly higher on small farms
category when compared to large farms. The average yield of supermarket supplying
Medak district farmers was high than the Rangareddy farmers. The reason being
more concentration paid by the small farmers in vegetable production relatively and
thus achieved higher yields and returns.
Different measures of profit namely gross income, net income, family labour
income, farm family investment income and farm business income per hectare also
revealed high degree of profit from supermarket supplying farms. The linkage of
supermarket with farming changed the method of farming especially of small and
medium farmers, through their intensive cultivation, and they have been able to earn
considerably higher incomes. Break even output in quintals per hectare for
supermarket supplying farmers pertaining to tomato, brinjal, bhendi crop imply that
supermarket supplying farms breakeven point is reached earlier than the traditional
market supplying farms. The Cobb-Douglas production function revealed that for
supermarket supplying tomato farmers of Rangareddy district and for brinjal
supplying traditional farms of both the districts human labour utilization was
excessive. Seeds were underutilized in tomato and bhendi of Rangareddy district
supermarket supplying farmers while in traditional market supplying farmers of
tomato and bhendi, seeds were over utilized. The returns to scale was high in
supermarket supplying farms compared to traditional market supplying farms.
Multiple discriminant function for the factors discriminating the two groups
viz., supermarket and traditional market supplying farmers of Rangareddy and
Medak districts indicates that the D2 value was found to be statistically significant in
both the districts indicating that the variables considered in the function are useful in
distinguishing the two groups of farmers. The price, manures and fertilizers, yield,
hired labour and net income contributed mostly to discriminate between two groups
in Rangareddy, while in case of Medak district transportation cost, rent for owned
land, human labour, price received per quintal contributes mostly to discriminate
between the two identified groups
The marketed surplus and marketable surplus of Medak district supermarket
supplying brinjal all farms category was 96.90 9 and 93.21 per cent to total
production, which was higher than traditional market supply farms of 90.20 and
84.18 per cent . The marketed and marketable surplus were higher for tomato in
Rangareddy district and bhendi in Medak district. Magnitude of marketed surplus
was relatively higher in the case of respondents of supermarket supplying farmers
compared to traditional market supplying farmers. The restricted Seemingly
Unrelated Regression Estimates SURE for factors effecting marketed surplus and
marketable surplus shows that for tomato, area of the crop , education level of the
head, farming year’s experience have a significant effect on the marketable surplus
implying that more the farm size a farmer posses more the area can be brought under
cultivation of tomato. In brinjal the area of the crop, in bhendi area and education of
the head has positive significant influence on marketed and marketable surplus
implying that educational status of the farmer plays a vital role in the adaption of
new technology innovative ways in marketing.
Three marketing channels were identified in the study area i.e., one
supermarket supply channel and two traditional market supply channels.
Channel-I : Farmer- collection centre- distribution centre- retail outlet- consumer
Channel- II : Farmer-commission agent (wholesaler) - retailer-consumer
Channel- III : Farmer-commission agent-retailer-consumers
Among the identified channels the net price received by the farmer in
Rangareddy district supermarket channel-I was more compared to Medak district.
The price received by the farmer declined with the increase in the number of
intermediaries. The total marketing cost incurred by growers was high in traditional
market channels-II &III because of the high transportation costs incurred by the
farmers to carry the produce to the wholesale markets. In both the districts the
producer’s share in consumer’s rupee was highest for bhendi crop than tomato and
brinjal crops which may be attributed to the efficiency and reduction in the respective
marketing costs. The supermarket channel-I seems to be more efficient than that of
traditional marketing channels for the three selected vegetables as calculated by
Acharya’s method.
Multiple Linear Regression (MLR) for factors effecting marketing efficiency
indicates that Supermarket channel-I incurred no margins as there were no
intermediaries or middle men participation in marketing of the produce. The negative
regression coefficients of marketing margins and transportation costs in channel-II &
III indicates that with the increase in transportation cost the marketing efficiency
decreases. The Garrett ranking technique employed for ranking the constraints
identified in vegetable marketing indicate that rejection of low grade produce, and
procurement according to indent were the most important constraints on supermarket
farms while on traditional farms middle men problem , more distance of the market
and high market charges were the most important constraints. The Kendall’s
coefficient of concordance (W) test revealed that there was significant agreement
among the vegetable farmers in ranking the marketing constraints.
The binary logit analysis indicates that farmers getting phone orders has a
high positive impact on selecting the supermarket channel as the collection centers
mostly order the produce from the farmers according to the daily indent requirement
from the higher authority. With the improvement in the level of education, and
farming years experience the probability of choosing supermarket channel increases.
From the consumer perspective the buying of food and fresh vegetables from
supermarkets was more from upper middle income class and upper high income
group where as traditional markets are dominated by lower middle income
consumers and low income group.
Probit and ordered logit models used for estimating the factors influencing
the retail outlet choice and shopping frequency of consumers revealed that the
income, credit cards, refrigerator ownership were consistently significant
determinants in the shopping behaviour of the consumers at supermarkets. Especially
refrigerator ownership and the storage capacity it represents, appears to be the key
driver for purchasing vegetables frequently from supermarkets. Reasons for retail out
let choice by the supermarket consumers were mainly the low prices, friendly
services offered, nearness of the market, packaging, freshness retained. The values of
Levens test, Brown forsythe test, Mann whitney test were significant at one percent
level of probability indicating that there was significant agreement among the
consumers in ranking for their retail outlet choice.
The farmers are very important as transformers of food markets especially
from small holders, and act as agents in developmental programs and hence
Government should aim to improve market access to small scale producer farmers.
Developmental programs should assist small holder farmers to access the
supermarket sector and would have to make sure that farmers meet the major portion
of supermarket requirements. Formation of small holder farmers as groups
(throughout grower schemes or associations) very much necessary condition.
Production of most of the high-value agricultural commodities is capital- and
information/knowledge- intensive and riskier, while smallholders lack access to
capital, improved technologies, quality inputs, extension services needed for entry
into the high- value segment. It is therefore essential to strengthen institutional
mechanisms that improve smallholders’ access to credit, technology and support
services.
Description
Keywords
Dynamics, fresh, vegetables, retail, marketing, system-,case ,study, greater, Hyderabad, city, Andhra-Pradesh