Sourcing of Fruit & Vegetables – Let’s put first things first

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Decades back, when I was taking strategic sourcing decisions for large corporate, I was often told by top managers that what’s the big deal about purchasing fruit and vegetables, even kids can do it. Housewives do it day in day out. I used to get offended by such caustic, casual and derogatory remarks, but I always kept my cool but did contemplate on the subject later on.

Is f+v procurement job so easy and inconsequential? Time passed by, I got a lot wiser and experienced to understand and tackle the complexities encountered during wholesale procurement of fruit and vegetables. Believe me – Sourcing job is indeed far more tough and trickier than buying anything else. Yes, mark my word, ANYTHING! Why? I’ll elaborate on some other day.

The World has moved far since I donned my first sourcing hat. But the f+v trade, particularly in India and other developing economies, except for some bright spots here and there, has hardly changed. Hearing a live verification conversation between one of our bright Customer Service Executive and a prospective registered supplier of Mangoes from Telangana for our online portal http://vegfru.com, was all it took me pen down these musings on the subject. There was a DIY manual bursting out of my head on the whole subject but let’s put out the first things first.

Sourcing fruit and vegetables in wholesale for your business is always a challenge and an opportunity. It’s a challenge, of course, because a steady and reliable source of products that conforms to quantity, quality, packing, delivery and price demanded by your buyers is what makes your business tick and sing along. It is your opportunity as well, because you’ll like to find yourself surrounded every day with produce that you and your buyers care about and can sell proudly and profitably.

There is no doubt that sourcing require a great deal of time and effort, but finding the right products to build your business can bring you great satisfaction and reward. Nothing builds your own business quite like the efforts you’ll put into place for the purpose of stocking your and your buyers’ shelves. Whether you find the products you need to sell or resell in your neighborhood market or discover them on the other side of the globe, the stuff you choose will become central to your life. You’ll ultimately immerse yourself in those products and gain expertise in their various aspects, right from production to marketing.

During my times, sourcing f+vs, particularly from remote locations was extremely difficult. My favorite advice to young recruits initiated into the wonderful world of sourcing of f+vs was – Local market (Mandi) is the fountainhead of all information to get you on board of sourcing train. So visit markets during the trading time. However, what I found that even with all the information available on sourcing locations, seasonality and even supplier’s names on rare occasions, getting the products to our warehouse and retail outlets was still difficult. If I’m to point out a single reason for this difficulty, it was the lack of trust between the new prospective suppliers and the companies we represented.

Today, thanks to the Internet in general and more specifically to websites like http://vegfru.com, your sourcing opportunities have never been more abundant or varied. Once sourcing from far away production clusters was viewed as the province of only biggest and most experienced enterprises like NDDB, Mother Dairy, ITC, Reliance Retail or Aditya Birla Retail etc, now your supplies from remove suppliers is possible, no matter how small business or inexperienced you may feel. Now anyone with a bare Internet connectivity can search the remote suppliers in production belts, get in touch with them and request for quotes and subsequently arrange supplies.

Is it that easy as it sounds? A big NO. But the fact that it is possible and so many businessmen (read suppliers and buyers) have already done it over internet successfully should give anyone enough confidence to go forward.

Internet is so full of promise, so inviting, that by just reading above lines and googling Vegfru, one may be tempted to jump in. We understand and appreciate that. Who will not like to add a dash of growth and profitability in his or her business? But just as a child has to first learn ABC before starting to read a book, you will have to take some small yet very important steps to establish yourself before you embark upon your sourcing journey.

Please appreciate, you are no Tata, Birla, Ambani and Late Dr. Kurian or the organisations they represent or represented. You and are a small or medium business. Any supplier you approach has a right to ask you to prove that you are a legitimate business and valid prospective customer. After all, you are strangers to each other. Don’t be surprised that while you are doing a background check on your potential suppliers, your buyers are also doing the same checking on you. In nutshell, you must be prepared to present yourself as a bonafide business.

Traditional markets, instead of relying on trust building behaviors relied on instruments like advances or part payments which in f+v trade remained counterproductive because of the nature of products and trade. Simply put – it was and still is both expensive and time consuming. By the time cash advances are exchanged between parties, the nature of the product and the market behavior (prices specifically) changes because products have very short life cycles and markets have liquidity constraints because of the perishable nature of products. So what were the consequences – Limited number of buyers and suppliers who had gained initial trust with advances or were related to reach other, remained wedded to each other for generations. New relationships were very rare. Stagnation is the only word I can think of to describe this situation. THIS IS THE NAKED FACT.

What simple steps and behaviors demonstrate and build trust.

The first thing first here is to do some paperwork to ensure that your business is properly registered and authorized to do business within your jurisdiction. Suitable incorporation of your business be as partnership firm, a limited company, LLP or whatever may suits your needs, getting PAN, TIN, Aadhar, Service Tax no, your own website, even your credit rating scores etc are simple and cheap tools that would let you cross the first bridge.

We are going a step further. For a simple fee we are helping small businesses get a third party verification so that they can provide our trust seal to their prospective business partners. It is simply like providing your credit score when you shopping for a loan.

Watch out this space for more on sourcing f+vs.

What FPOs and farmers’ Coops can learn from Mandies? – 7 important learnings from a brief case study on Onion Trade in Maharashtra.

 

1.  Non availability of economic loads at farm location. – Availability of onion is widely scattered in Maharashtra. Land holding of onion growers is very less. Most of the farmers own less than 1.5 acre land and due to unfavorable weather conditions even one vehicle of 15 MT is not available with a single farmer field at a given time. Non-availability of full truck load of fresh onions at a farm has led to concentration of onion trading at market yards. Ready availability of desirable onion lots at a market yard in case of a shortfall to make a truck load, is another big plus point. Secondly, procurement cost of small lots in a scattered environment works out to be very steep. So market yards and traders help in pooling of produce and provide infrastructure for standardized sorting / grading at one central location.

2.  Marketing produce as per grade necessity of a particular market. Each market has its own grade requirement for Mahrashtra onions. While eastern / Bangladesh / Bhutan / Nepal markets prefer small sized onions, North and West Indian markets prefer bigger sized onions. Traders buy small lots from the market yards and pool the produce for sorting / grading at their pack houses and sends different grades to different markets all over India depending upon the grade requirements and price at a particular market. Onion trading involves huge risk and in depth knowledge of distant markets. Lack of trading expertise, market knowledge and risk bearing capacity has prevented most of growers or their organizations to make a significant dent in onion trading in Maharashtra. So, most of the trading is in private hands.

3.  Local mandies act as a reference market to small growers. Since Maharashtra onions have an almost year round pan Indian and export clientele, no market including Bangalore, is big enough to act as a price leader. Farmers generally take reference of the local mandies rates, while traders compare rates of all mandies, including major distant and export market and then decide where to send their produce of a particular grade. Significantly, most of the growers Coops handling onions are located in Market yards where their members bring produce for auction under supervision of local APMC’s. These Coops at best act as a commission agent operating from market yards. In case they have tie ups with retail organizations like

Safal, Nature’s Basket, Bigbasket etc, they buy produce from market yards from arrivals of their own members or from arrivals at other commission agents. However, their in ability to market rejections / commercial grades through organizations like us (because of reason # 2) or at distant markets has resulted in their losses and eventual discontinuation of supplies. Due to this reason, retailers end up with relying on its onion supplies from Maharashtra traders since so many years.

4.  Non sustainability of exclusive onion Coops / Associations / Producer Companies. Because of various agro-climatic reasons, onion belt in Mahrashtra is actually a scattered chunk of large number of smaller sub belts, crisscrossing a distance of almost 1000 Kms plus. It starts with Karnataka border on one side and continues till MP / Gujarat border on the other end. It almost covers all western Maharashtra and Marathwada region. For a particular distant market, for example Bangalore, most of these sub belts are active for a short period as far as fresh onion flows are concerned. Active period in some cases is only a fortnight or a month. Because of this reason, exclusive onion coops / associations have not been successful as short period of business can’t sustain their year long expenses. Many coops were organized for the purpose of purchasing / selling onions but over a period these coops have taken other businesses (credit and inputs) and onion trade because of above said reasons have been relegated to the back ground leaving field open only to private traders. In my view, multi F+V items would have succeeded as unlike onions, revenue could be expected to flow round the year. (I am anticipating sustainability problem for the Associations that few retailers or processors has formed or may form in future over the years. Selling other F & V items like tomatoes, grapes, fresh vegetables etc. through Bombay / Delhi platform shall definitely help.

5.  Concentration of large storage capacities with traders. For historical and market reasons, large storage capacities for onions has remained with private traders. State Govt. and Central agencies have promoted small sized storage structures at farms which are not conducive to standardized sorting / grading at central locations by trained labor. Usually growers do sorting / grading on their own, using family and farm hands and are prone not only to errors but smaller throughput. Our recent experience of supervising sorting / grading at many locations simultaneously has not gone well from logistics point of view. Traders can buy the whole stored lots and provide sorted / graded produce to us as per our requirement at their risk and cost. We are trying to pass this role to Coops in addition to facilitating storage capacity build up at Central locations. Finance for establishing such facilities, working capital and risk bearing capacity of Coops / FPOs will have to be taken care off. (A separate post in this regard is being put up in coming weeks). Till then we may have to rely on traders or live with short supplies and / or poor quality produce.

6Non availability of sorting / grading facilities with Co-Ops / FPOs at farm locations. Generally traders purchase un-graded produce from Mandies, then they do sorting and grading. Efforts are being made to establish sorting grading centers with some identified Coops in local market yards but it will take some time. So to ensure quality and standard packing, material has to be arranged from the traders.

7Non availability of sale proceed in time – Can’t help but include this reason though it is very much under both organizations’ control. Major reason for antagonizing farmers or their organizations in not supplying their onion to retail organizations / processors is that they are not being conveyed sale proceeds sometimes even after 10-15 days. At Mandies they get the sale proceed (even lot wise) on the same day. In such a situation even traders will not be willing to give their produce for sale if we do not convey their sale proceed immediately on reaching of their vehicles at retailers’ end.

Looking at the situation I think it is pertinent that there are organizations who should provide advisory and service to farmers organizations in countries like India with small holdings to help them bridge these few bridgeable gaps.