The makhana value chain and the fast emergence of branding in food retail: Evidence from Bihar (India)

Minten, Bart and Singh, K.M. and Sutradhar, Rajib (2010): The makhana value chain and the fast emergence of branding in food retail: Evidence from Bihar (India).

Abstract

As part of the National Agricultural Innovation Project (NAIP), a makhana value chain study was organized in Bihar, in collaboration between the Indian Council of Agricultural Research (ICAR) in Patna, the International Fund for Agricultural Development (IFAD) and the International Food Policy Research Institute (IFPRI), as makhana is one of the core crops that the NAIP project in Bihar is focusing on. Primary surveys were fielded with producers, traders, processors, and retailers in 2009 and 2010 on the rural-urban makhana value chain in Bihar, more in particular from the disadvantaged districts part of the NAIP project (Darbhanga) to urban consumers in Patna. The most salient findings are presented below. Upstream. First, the average number of ponds cultivated by a makhana cultivator is 2. While almost half of the farmers only cultivate makhana in one pond, 13% of the households reported to cultivate more than 3 ponds. The average pond area cultivated per household is 4.8 acres. The average production per household in 2009 was 3.1 tons or about 635 kgs per acre. Second, 27% of the producers evaluated that the quality of seeds deteriorated during drying. Of these, all believed that the quality of pop would have been better if processed earlier. More than a quarter of the producers thus seemingly suffered losses because of late processing. Third, almost all the respondents agree with the statement that you have to be a family of the secretary of the fisherman’s cooperative society as to be able to obtain a lease to a government pond. This is important given that rates for these government ponds are often leased much below market rates. An average lease is for 3 years but the majority of the farmers agree that in the case that leases are longer, makhana production would increase because of more investments in the ponds. Fourth, the average production of makhana seeds per pond was about 18% lower than the expected harvest level during the cultivation period, possibly driven by incidences of floods and droughts as 12% of ponds were reported to have suffered from floods and another 12% from droughts. Improved technology adoption is happening as transplanting is now widely used and more than three-quarters of the cultivators indicate that they practice transplanting of the makhana seedlings (in contrast with broadcasting). Fifth, the NAIP project, through the Research Centre for Makhana, is heavily involved in not only improving makhana cultivation but also to extend better alternative income generating activities related to the pond as these can be important for the livelihoods of these farmers. Almost 40% of the makhana cultivators indicate that they also cultivate fish on top of makhana in their ponds. 8% reported that they grow fruit trees on the boundaries of the makhana ponds. Sixth, an average transaction at the farm level concerns 1.2 tons of makhana sold for a total value of 62,458 Rs (about 1,400 USD). Most of the makhana sold by farmers is marketed under the form of makhana seeds (55% of the transactions). Most of the sales of makhana happen in a short-time period and it seems that few farmers store makhana as to benefit from the (potentially) higher prices that might be offered in the off-season. In contrast with conventional wisdom, input advances are not very important as in only 3% of the transactions, input advances were reported to have been given by the buyer of the produce. Despite our efforts to field our surveys in areas where the processing company, Shakti Sudha Industries, were active, only 0.3% of the transactions were reported to have been done with them. Midstream. First, 96% of the interviewed wholesalers report that they are currently selling branded and packed products. Branded products now account for almost half of their total sales. This compares to only 23% five years ago. Second, wholesalers involved in low-cost brands estimate that if the products that were in the bags were sold loose, they would only be able to obtain a price that is on average 15 Rs lower than when bagged. However, some wholesalers indicated that these products were not comparable as the quality of products that go in the branded bags is low and could not be sold loose. Third, despite a large number of interactions with the high-cost brand, Sudha Shakti Industries, as well as with key informants in several of their supposed production areas, only a handful of people could be identified that had direct linkages with the company. It thus seems that their direct procurement model has (mostly) fallen apart in recent years (and they might procure part of their products from traders). Downstream. First, quality is rewarded in retail markets and the price results show that the lava quality (the highest pop quality) is rewarded with a premium of between 7% and 11% in the market place, compared to a mixed quality. Second, significant rewards further exist to branding and packing in retail markets. Packaged products are sold at prices that are 9% higher and branding adds another 9% on top of this. Third, the high-cost brand has been successful in opening new markets that did not exist before. Because of the increasing product demand, it is thus important such initiatives are further encouraged. The value chain as a whole. Farmers in production areas receive about 55% of the final retail price in Patna, in the case that makhana is sold loose. As there are no benefits to the farmer of the branding process, this share declines to 50% in the case of the final price for branded products. In both cases, farmers are thus the agent in the value chain that gets most of the rewards, reflecting also most of his effort for the product. The retail margin is the second most important component in the final price, accounting for 19% and 22% in the final retail price of loose and branded products respectively. Processors and urban wholesalers count for equal shares in the final retail price. Way forward. The research indicates to several policy implications. First, it might indicate the importance of regulatory institutions and effective implementations of those as well as independent certification mechanisms. Several claims done by branding and packing institutions in Bihar are clearly false, i.e. claims are made about export quality while no export quality grades exist; claims are made about approval by research organizations while no such approvals exist; claims are made by the largest branding company on backward linkages while few of such backward linkages exist in practice. The lack of a consumer protection body or any effective regulations in this area leads thus to mis-information of consumers. Second, there are major differences with branding practices in other sectors and countries. No information on the manufacturers is available on the packing of the branding companies implying that companies are not accountable for their products given consumers can not trace back deficient products in the case of defaults. We also find that the quality of branded products, especially for the low-cost brands, is often lower than loose products in these transitional markets. In contrast with regular branding practices, a significant number of brands thus try to hide bad quality inside. Brands in this setting in India thus seemingly have little function except the packing function and signal little credible information to the consumer on other characteristics of the product. While there is little role for the public sector on this, it seems possible that most of these branding practices might disappear over time as consumers become more demanding and informed. Third, no improved varieties of makhana are currently available and the Indian research institute has only recently tried to set up research as to develop improved makhana varieties. Given the important market opportunities that exist and given that makhana is mostly grown by poor and vulnerable households in flood-prone production areas, there seems to be an important positive, and pro-poor, return to public investments in the development of improved varieties for pond cultivation. Fourth, due to the increased demand, makhana cultivation has endogenously diffused to flooded ricefields in the off-season. This might involve important new opportunities for increased production and seasonal income smoothening for rice farmers situated in these flooded areas. As most research has until now focused on pond cultivation, it thus seems important to better understand these systems and develop improved technologies for these types of production environments taking into account their specific constraints. Fifth, leasing arrangements seem to be hampered by important governance problems and the implementation of better auctions systems and longer leases seem called for as to ensure transparency in the allocations of these leases as well as to ensure better investments because of more secure property rights towards higher productivity of the ponds.

• Item Type: MPRA Paper
• Language: English
• Keywords: Value chains, Branding, Makhana, Food retail, Bihar, India
• Subjects: M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising > M31 - Marketing; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q10 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q12 - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q13 - Agricultural Markets and Marketing ; Cooperatives ; Agribusiness

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