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Scope of local ployment as value addition in the Dhruva program

By Samantha Lewis,2014-09-30 04:44
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Scope of local ployment as value addition in the Dhruva program

     1Dhruva

     1 Case study prepared jointly by Dr. Sankar Datta, Annapurna and Mihir Sahana a part of the LLG activities of ISLP, BASIX, Hyderabad. Financial support by the Ford Foundation is gratefully acknowledged. This case study is prepared to serve as a basis of discussion on diverse issues and dimensions connected with the task of using market access for promoting livelihoods.

    Copyright Indian School of Livelihood Promotion, BASIX, Hyderabad

Context

    Dhruva, the tribal rehabilitation project was aimed at eventually reducing migration and bring in comprehensive development of the tribals. It initiated the well-known wadi

    programmes. Of direct relevance is the successful effort of sustaining tribals on the wadis

    by engaging in the market for horticultural produce and its downstream products. The marketing intervention has opened up a huge local market while at the same time promoting tribal livelihoods. While developing a market and maximizing returns for the

    local produce was the commercial objective, the social objective of the program was to convert wastelands into viable orchards. The program supports more than 20,000 wadis

    and has a turnover of Rs. two crores from selling processed mango in the form of pulp and pickle, and graded cashew. Some revenue is earned from direct sales of mango, small quantities of mixed pickle and tomato sauce.

Introduction and Background

    Vansda in Maharashtra was a place with huge tracts of wastelands. However the irony was, despite good rainfall, water was scarce in non-monsoon months due to undulating nature of land; the tribal farmers though owning land, migrated to nearby mango orchards for work as nothing grew on their lands. To address these issues. Arvind Mafatlal invited Manibhai Desai, a renowned livelihood interventionist to the Vansda area.

    Manibhai Desai, a Gandhian with a firm belief in peoples’ ability to make choices, started Bharatiya Agro Industries Foundation, BAIF, in 1967 in Pune. He was determined that technocrats and managers would run BAIF as a profitable, self-sustaining business. He conceptualized delivery system for services by taking up door to door service, and encouraged local youth to take up management of the processes.

    Drawing on his Urulikanchan experience in soil conservation, production optimization and co-operative management, Manibhai Desai took up the task of formulating a multi-pronged approach to ‘Market-led Livelihood Intervention’ for the Vansda area under the

    banner of Dhruva. The Dhruva banner was based on the wadi [orchard] model for

    promotion of community-based organizations, which succeeded in linking individual tribal farmers to the market. As developing orchards required high investment, it was supported with grants, whereas marketing, a commercial activity, was carried out with the help of technocrats and management professionals. Both required the tribal farmers to achieve the goal of self-sufficiency.

    Dhruva envisages a local economy based approach that aids production of goods that can be marketed locally as well as in the outside markets. It saw its work as building a local market network, interlinking groups of producers such as farmers, vermi-compost suppliers, sapling growers, and technical expertise with other service providers for their mutual benefit.

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    When Dhruva started its work at Vansda, the land was undulating and degraded, soil and water conservation had to be taken up; saplings and compost had to be provided from external sources. To compete with the richer orchard owners, capacity for providing inputs had to be built locally. As the scale of operations grew, procurement, processing and marketing of the produce had to be taken up. Finally, capacities of local organizations had to be built for the management of the entire process. Dhruva had to first internally build and then transfer to the group the necessary technical, managerial and marketing skills required as well as raise resources for support during the long gestation period of four years, a period after which the wadi was expected to become

    income generating.

Evolving from the individual wadi for the farmers to the management and marketing of

    the product of 20,000 wadis has been the achievement of Dhruva. The wadi idea, which

    converts locally owned wasteland into orchards making them a permanent asset for tribal farmers, illustrates this process. Today Dhruva constantly engages with the design of its intervention in order to build capacities and structures that carry the work forward without centralizing or creating dependence on the promoting agency.

    Development of Organizational Set-up and Inter-linked Economy

Organizational Structure

    VASUNDHARA was promoted by BAIF in 1995 as an independent organization to take up marketing of the produce from the wadis. The set of organizations through which

    procurement, processing and marketing of the produce from the wadis is managed

    include:

    ; BAIF/Dhruva, the promoting organization

    ; The individual production units, the wadis or orchards owned by each tribal

    family, SHGs for women which take up vermi-composting inputs for the wadi, as

    well as marketing

    ; The Ayojan Samitis, the informal village organizations which manage the

    processing

    ; Their federations, the tribal co-operatives. VASUNDHARA, the mango and

    cashew marketing co-operative is one of them. The marketing co-operative has

    processing agencies for cashew and mango, for e.g. Kaprada for cashew and

    Vansda for mango pulping and pickling.

     2Production-Marketing System

    The complete production-marketing system of Dhruva has three elements:

    ; Wadi: the production system

    ; Ayojan Semite: Procurement and primary processing system and

    ; VASUNDHARA: Marketing system

     2 For tier-wise details of production, management and marketing activities see Annexure I. 3 706304712.doc

The Wadi Idea: Wasteland Development Activities

    Tribals were migrating to work in nearby mango orchards, but the reality was, the tribal farmers aspired to own the orchard that they worked in. The farmers each typically owned 3-5 acres of wasteland. While some paddy was grown during the monsoon, water was a scarce resource in the non-monsoon months because of the undulating nature of the land. There was ample rain and the farmers had skill and experience in growing mango, but the challenge was to supply a working model that would transform the land of each farmer into a mango orchard.

    Dhruva coupled the skill of farmers with the agro-climatic suitability of the land to come up with the wadi

    idea. Dhruva had to raise the capital for supporting the activity of each wadi, as well as for fertilizers and

    pesticides for four years.

    Manibhai’s credibility as an agriculture expert, his assurance that each tribal could own an orchard, and that BAIF/Dhruva would not take over their land, motivated some tribals into taking up the activity. Starting with the tried and tested soil and water conservation methods, Dhruva compensated farmers who took up soil conservation and pit digging activities on their own land. Before planting mango, Dhruva experimented with various different combinations of trees for maximizing returns and reducing risks. Mango varieties were chosen with the market in view, but grafted saplings were used to increase sturdiness and adaptability to the local terrain. An agricultural expert from KFW, Germany, did a survey and recommended that cashew should be included. Understanding the need for fodder in the cattle rearing area, fodder plants were planted around the border. Eventually the farmer moved into the orchard, and grew a kitchen garden for his family’s consumption.

    Today Dhruva motivates farmers into taking up the activity through a combination of exposure visits; free input supply and technical expertise; and assuring income to the farmer during initial phase. The farmer is reimbursed for the water and soil conservation activity he takes up on his own wadi, in the form of wages

    till the wadi becomes income generating. The mango and cashew cross subsidize each other incase of a glut in either markets, fodder grown supports dairy activity and the intercropped kitchen garden provides subsistence level nutrition for the family.

Employment to landless

    As the agricultural activity scaled up, Dhruva recognized the need to include landless and women into the program. Grafted mango saplings for planting in the wadis were being transported from outside at great

    cost, identifying this as an opportunity to develop local capabilities, Dhruva promoted nursery as a commercial activity. Individuals with not much land took up grafting along with their other livelihood activities, earning income during the six months of planting.

Employment to women

    Women were organized by Dhruva into SHGs, to take up supply of the other inputs that the wadi needed in

    quantity like the vermi-compost. As production capability of these SHGs increased, they also marketed the vermi-compost to orchard owners outside of the wadi program as well as the finished product of pickles in

    one-rupee sachets. Two of these women members are also on the board of the marketing co-operative VASUNDHARA

Market intervention

    While production was growing, as the early orchards started fruiting, the produce was sold to contract buyers from outside the area. In this mode, the contract buyer paid an advance at a fixed price, regardless of eventual market value. While the profit in the case of a higher price went to the buyer, he usually haggled for a lower price for the produce when the market was in the slump, in the bargain, the farmer lost out both ways. Dhruva realized that this was not remunerative to the farmers, as they had no other access to the agriculture produce market. Dhruva therefore had to take up value addition and marketing in order to make the wadi program viable.

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Wadi-Production

    The production unit is the individual owned wadi, the one-acre land with 20 mango and

    40 cashew plant orchard. An individual tribal farmer or family cultivates the wadi.

Ayojan Samiti- Procurement

    Dhruva convinced the wadi owners to form informal village organizations called Ayojan

    Samitis that could take up the activity of procurement and trading of the produce of the wadis. Usually five wadi owners select a representative to the Ayojan Samiti. An Ayojan

    Samiti typically represents 80 wadis, with 16 wadi owner/members. The Samiti provides

    technical and managerial inputs to the wadis. The Ayojan Samiti, members included wadi

    members with organizational capability.

    The Ayojan Samitis act as agents of the co-operative in the village, procuring and semi-processing mango and cashew. They hire local women and men; preferably landless, to cut and pre-process mango in readiness for finishing by the VASUNDHARA co-operative, which in turn does further processing. The Ayojan Samiti charges a

    commission of one rupee per kilo of produce for procurement and pre-processing. These Ayojan Samitis also employ barefoot accountants, technical staff and health guides; local youth are trained by Dhruva to provide support to the wadis at a cost.

    Ayojan Samitis decide and implement most of the relevant matters in Dhruva, giving the community a great sense of participation and ownership, a fact not seen in a purely commercial venture.

VASUNDHARA- Marketing

    Ten Ayojan Samitis federate to form a co-operative such as VASUNDHARA that

    processes and market the produce. The Ayojan Samiti acts as an agent of the co-operative

    at the village level for procuring and processing the produce. There are a total of eleven tribal co-operatives, each a federation of ten-village level Ayojan Samitis. A tribal co-

    operative employs one accountant for procurement, food technicians and staff for processing or marketing, depending on the activity it takes up.

     The marketing organization VASUNDHARA, was originally conceived as a co-operative of wadi members for promoting forestry and irrigation, but took up marketing to meet the need. The fluctuating prices of mango persuaded Dhruva to take up value addition activities through pulping and pickling in the case of mango, and grading in the case of cashew to stabilize the marketing of the produce. Thus while VASUNDHARA provided marketing services for the entire produce of the wadis, it also

    had to organize the value addition chain for processing the produce.

    The co-operative could take up processing and marketing or create agencies like Kaprada cashew processing unit. All products are marketed under the brand of VRINDAVAN, which is promoted by VASUNDHARA. While the tiers appear hierarchic, control by primary producers is maintained by giving clear roles to each tier, and adequate representation in decision-making.

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Production Process

    The production process involves the following steps: * 1. Wadi Production

    2. Collection by Ayojan Samiti

    3. Decentralized primary processing centers

    4. Finishing unit in the co-operative VASUNDHARA, Kaprada

    5. Federated marketing team.

The produce of the wadis in the form of mango and cashew is procured by the Ayojan

    Samitis. The quantities of mango are notified wadi wise to the Ayojan Samiti, which fixes

    a particular date and time for the produce to be brought for processing at the primary processing centers. This ensures that the fruit does not perish due to lack of facilities in the temporary premises, the village schools in this case, for processing of mango. On receipt of the semi-processed product the marketing co-operative routes the payment to the individual wadi owners, with an additional commission of one rupee per kilo to the Ayojan Samiti.

    The Ayojan Samiti also manages the cashew processing, but the pre-processing units in this case have their own premises. Employees are hired by the pre-processing units and paid by the Ayojan Samitis. They are generally trained by Dhruva or on the job.

Once the semi-processed product reaches VASUNDHARA’s processing units-mango in

    Vansda and cashew in Kaprada-the final finishing activity takes place. Cashew is regraded and packed for direct sale to wholesalers. Staff in the pickling unit in VASUNDHARA converts the pre-processed mango into pickle, and also prepare the one-rupee sachets. Pulping is also done here, supervised by trained food technicians. The pulp is packed for three different channels, first to the retailer through a distributor in a handy size, a slightly larger can for AMUL, an unsweetened version for use in ice cream, and finally a large can used during marriage seasons and for hotels, sold directly by the company. The different quantities of product packs also defined the target segments. The excess pulp as well as pickle is packed into the larger size retail cans and stocked on the premises. There is an option of converting these into fast moving sachets in case of over stocking.

    On an average, cashew procured at Rs.137 from the farmer is sold by VASUNDHARA at Rs.210, of which Rs25 is the wage component during processing and Rs.12 is the profit to the co-operative. In case of mango, procured at Rs.9 per kilo, sold at Rs.15.50; labour cost in value addition is 12 paise, mango procurement costs is Re. 1 and returns to VASUNDHARA is 74 paise. The amount of expense for which Dhruva is reimbursed is 44 paise. The difference between cost and sale price is expended on raw material, transport, storage and packaging.

    Processing of food product needs several licenses, as well as technical staff; the

     * The details of Wadi Production are given in the box and in Annexure 1.

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    responsibility of meeting these stringent conditions is borne mainly by VASUNDHARA.

    Value addition and constant innovation to the produce with active participation of the people involved generated livelihoods for the people and benefited the local economy. The capacity building and participation in the process were critical elements of the process of empowerment that enabled the tribals to negotiate with the

Marketing Intervention

Markets

    The market identified by Dhruva has two distinct components:

    1. Wadi as a market for inputs

    2. Market for the Wadi produce

Wadi - A Market for Inputs

    When aggregated, the wadis’ buying power was strong enough to support several local input supply agents. Local nurseries took up the commercial supply of grafted saplings, creating employment for landless. Women formed themselves into SHGs, whose income generating activities included manufacture and sale of vermi-compost to the wadis, as

    well as marketing services. The local processing and finishing units generated employment both during the procurement season, as well as on a regular basis for different activities such as accounting. The marketing activity provided employment to staff of VASUNDHARA, as well as others such as tribal youth and SHGs who took up the activity all year round.

Market for Wadi Produce

    The wadi’s marketable produce consists of mango as well as cashew. Processed cashew

    is sold directly to traders who buy on cash basis, and the rates generally are remunerative to the producer, due to added value of processing and grading. Overall three different varieties of mango are grown, two of which are made into pulp, and a third into pickle, a strategic use of multiple products instead of only one.

Market Strategy

    As this program is conceived as a self-sustainable profit-making commercial enterprise marketing of produce achieves significant importance. Thus VASUNDHARA had to devise a strategy that is produce specific, locale specific and targeted to particular 3segments of buyers.

    ; The local market is reached through the one-rupee sachets of pickle, which are

    sold through different channels such as urban distributors; and SHGs and tribal

    youth in rural areas

    ; Larger quantities are sold directly by VASUNDHARA during the marriage

    season, as well to hotels at wholesale rates

     3 For details on the marketing strategy see Annexure II.

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    ; Retail marketing of pickle and pulp under the brand name of Vrindavan is taken

    up through distributors-local people who have been associated with

    VASUNDHARA almost since inception

    ; Processed cashew is sold directly in the market to wholesalers at 60% more than

    the production cost, making the value addition profitable for VASUNDHARA.

    ; Semi-processed product, unsweetened mango pulp, is sold to larger brands such

    as AMUL, and Bedekars’ and reaches national markets

Direct Marketing

    The initial foray into marketing was through marketing pulp. The initial year when the mango was processed into pulp was a very bad year, with most of the product perishing before it could be sold. This was because of pulping different mango varieties into a single mixture, which the market did not buy. In order to make good this loss it was decided that a strategic shift would be made into pickle making. This was also facilitated by the demand from Apna Bazaar, a local supermarket chain. VASUNDHARA entered into direct marketing, as Apna Bazaar could not pick up the entire production. Looking at the character of the limited individual buying power in the local market, a strategy of selling pickle in one-rupee sachets was made. Dhruva continued its approach of building local capacities to take up the necessary services; in this case marketing.

Appointing Distributors

    A shift from selling one rupee packets themselves to using a distributor happened when a local entrepreneur who ran a guesthouse approached them for the distribution rights. A six-month trial where the entrepreneur doubled the sale convinced the organization of the usefulness of the strategy. Subsequently the pickle was sold through distributors who approached VASUNDHARA and proved to be more efficient in reaching customers. In some cases, when there was an increase in demand, VASUNDHARA took up a re-labeling license and bought comparable quality pickle, which they relabeled and sold, in order to meet targets and keep their credibility with the bulk buyers.

Packaging

     Plastic pouches and metal tins are used in combination with glass bottles to distribute along the different channels. Being a perishable product, packaging mango pulp in sealed tins provided longevity, allowing for sales up to a year after manufacture. After an attempt to sell product outside which resulted in loss due to leakage, a decision was taken to stick to local customers. The decision to limit to local market rather than invest in better packaging technology was a strategic one.

Branding

    The brand of Vrindavan was selected early on, and promoted, using different strategies; glow signs, wall painted signs, calendars and through visiting government officials were a few of them.

    The product continues to be promoted using information on the competitors deals; on products where margins are more, extra quantities are given away free after extensive advertising. A close eye is kept on market feedback on quality as well as turnover. The 8 706304712.doc

    distributors who are contracted to sell exclusively obtain information on brand standing. This information is then used to come up with deals for attracting consumers. Also the strategy of having different channels comes in useful, as any increase in demand in one channel is immediately used to increase sales through it. Further, growth is not viewed only in terms of building brand, but also exploring other market opportunities like tie-ups with other pickle companies, trading, as well as through new market channels. Some amount of product diversification is also being considered.

    4Impact on People, Policy, Market

Local Economy Approach

    The local economy approach which creates a local supply-demand chain interlinking communities of people who provide input and services to the wadi, and the processing

    units- form the backbone of Dhruva. Understanding the limitation of local market, Dhruva has achieved a position of strength in the open market through a judicious use of network and information, keeping customer and producer interests closely linked. The result is a quality product driven by customers’ feedback, and a production process that is in the control of the primary producer.

Multiplier Effect

    The program has succeeded in linking the profit from the Wadi to different suppliers of

    goods and services locally, reducing costs of networking and transport; while leveraging local capability and buying power. Linking their income to a common goal ensures that the entire community is working towards increasing the returns from the Wadi, creating a

    multiplier effect.

Risk Mitigation

    The overall risk of the business has been managed by offsetting the different varieties of mango, combination of mango and cashew and the product mix of pulp and pickle. Combining cashew and mango plantations reduces the risk of crop failure. The price risk is mitigated by the marketing organization’s presence in the APMC yards, ensuring a minimum floor price. There is constant interaction between the producer and the market mechanism, making it competitive. Dhruva encourages variety in products, which reduces the risk of concentration in any one-product line. The risk mitigation measures of Dhruva, guaranteed price support and off take in times of difficulty have made the model stable and reliable.

Flexibility

    Dhruva, through VASUNDHARA distributes the product via wholesale and retail chains. Product distribution through multiple channels minimizes risk. There is a constant follow up on quality and product improvement, which helps it remain contemporary. While cashew is based on the open market price, mango pickle and pulp cater to a highly subjective local taste.

     4 For details of employment opportunities generated through the program see Annexure III. 9 706304712.doc

    Finally and most important, there is a fair distribution of value in the value chain and every constituent realizes a portion of this value, which keeps his input sustainable. Value addition stages include production, management, technical and clerical services, processing, distribution and marketing.

Factors Affecting Outcome

Choice of Intervention Strategy

    Two elements of the intervention strategy need attention. First, to address the problem of migration from the area, the intervening agency chose top work on strengthening the natural resource base of the area; and second, it chose to strengthen the local economy, instead of trying to tap the market outside. Both of these strategies show interplay of the various factors affecting the livelihood intervention choices. There were strong overtones of the ideology of the organization, which believed in strengthening the village economy. But this was also influenced by their understanding of the factor conditions of the area, which had undulating terrain with profuse rainfall, a condition requiring soil-water treatment, supporting orchard plantation. This was also informed by an understanding of the demand conditions as we see them choosing mango and cashew for plantation in the wadis, which had good internal and external markets, with potential to absorb large volumes. Even a deep understanding of the people, their exposure to plantations during their migration, and implication of working on a land based activity on the landless and women in the village, has been a factor influencing the strategy of the intervention.

    But what needs to be noticed is that the organization took up a wide range of activities in consonance with this strategy; design of an appropriate organization, building interdependence between various groups in the local economy, developing appropriate HR system, creatively responding to the local needs were some amongst them.

Design of Organization

    While designing the intervention, Dhruva paid due attention to the design of appropriate organizations at various levels. It had designed a multi-tier organization structure. These organizations had carefully crafted the workflow, where only those components of the work that needed higher levels of aggregation were undertaken by the higher level of the organization. Individual land development and the first level production of mangoes and cashew were taken up by individuals, while the primary processing was done collectively at the village level and further processing to meet the FPO requirements and accessing the external market, which could not be best done by the village level organization, was done by the district level federation of the co-operatives.

    Another interesting part of their design of the organization was the participation of the landless and the landed community on the same forum. But this was also aligned with the interdependence created between these groups, which in the long-run was designed to strengthen the local economy.

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