Rajib Sutradhar

The Potato Value Chain in Bihar: An Assessment and Policy Implications

Introduction. As part of the National Agricultural Innovation Project (NAIP), a potato 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 potatoes are one of the core crops that the NAIP project in Bihar are focusing on. Primary surveys were fielded with producers, traders, cold storages, and retailers at the end of 2009 on the rural-urban potato value chain in Bihar, more in particular from the disadvantaged districts part of the NAIP project (Vaishali and Samastipur) to urban consumers in Patna. The most salient findings are presented below. Upstream. First, potato production in Bihar is largely in the hands of smallholders: farmers from the smallest half of potato producers cultivate 0.5 acres of potato. This compares to 1.8 acres for farmers from the largest group. Second, farmers suffer from an important late blight disease problem. Actual potato yields in 2009 were two-thirds lower than the expected yields due to that disease. Despite the incidence of this disease, reported potato yields in the districts are as high as the national level, casting doubts on the national agricultural statistics in vogue which consider Bihar a lagging potato state. Third, farmers rely relatively little on seed markets and almost all farmers store their own seeds in cold storages. Only on 18% of the plots were purchased seeds used, indicating that seed replacement ratios are about 1 out of 5 years. However, larger farmers replace seed more often. Fourth, despite the low use of seed input markets, important changes have happened over time and the white potato variety has now become much more important than the traditional red variety that was usually grown. Especially the larger farmers have switched relatively more to the white variety. Fifth, larger farmers are able to obtain higher yields, possibly because of their more intense use of inputs. Sixth, 70% of the potato farmers are now empowered by a mobile phone. While some farmers use it to do market transactions, this is still only a minority (20%). Seventh, sales in the harvest season are almost all to a village broker while in the off-season, potatoes are mostly sold to traders at the cold storage. Wholesale market sales by the farmers are of less importance. Eight, an important reason why a number, and especially the smaller, farmers sell after harvest is the urgent need of money. Little credit or advances are used in market transactions and the major reason for the choice of a trader is when he pays immediately. Ninth, while almost all farmers participate in cold storages as to store their seeds, larger farmers store relatively much more for sale at an expected higher price in the off- season. Midstream. First, an important boom in cold storage capacity - and thus in potato production - has happened in the two studied districts. The number of cold storages in the last decade doubled or tripled and rapid up-scaling of cold storages led to an even faster total capacity expansion, i.e. a triple and five-fold increase over the same period. Second, the boom is associated with increasing commercialization of potatoes from the two districts as the share of storage for seed potatoes is relatively on the decline. Third, several triggers explain the boom in this area. The rapid emergence of cold storage is linked with the better provision of public goods (such as roads, electricity, and governance), the deregulation of the cold storage sector, the investment subsidies given by national and state government, and the availability and spread of new technologies. Third, the rapid emergence and the up-scaling of cold storages are explained by important profit opportunities and high rates of returns to investments. However, cold storages charge prices that are significantly higher than those practiced in the neighboring state UP (1.5 Rs/kg versus 0.9 Rs/kg) and charges are similar to those practiced in Bangladesh where no subsidies to cold storage investments exist and where input costs (e.g. electricity and diesel) are significantly higher. While the government subsidies might have helped the farmers to have more access to cold storages, the availability of subsidies has thus not brought down the effective price paid for storage by farmers, or traders. Fourth, cold storages are currently little involved in input and credit markets with farmers and despite linkages with the banking system, little credit flows down to the farmers directly. It seems that most of the advances given by the cold storages using potatoes as collateral are thus with traders. Downstream. First, Bihar is still relying on potato imports from other states, especially UP and West Bengal but also from the Punjab, to supply potatoes to their retail markets in the off-season. Second, consumers in Bihar prefer red over white potatoes and are willing to pay a price premium for that quality. Third, potato prices in 2009 were characterized by significant variability with retail prices in the off-season twice as high as on-season. While prices in the off- season are always higher, the price hike this season was exceptional. Fourth, as the APMC has been repealed in Bihar, potato sales have moved away from auctions to direct on-on-one deals with traders. The value chain as a whole. First, wastage levels are estimated to be - and potentially have become - lower than most conventional estimates done before. The wastage level in the value chain is evaluated at 8% in the harvest period and 9.3% in the off-season. While public policies have encouraged the setting up of cold storage to bring down wastage, this might however be only one factor in influencing overall wastage levels. Farmers are often making conscious choices on the wastage they will incur and varieties that show higher wastage levels might be preferred by some farmers (because of a preference of shorter-duration cultivation periods or of varieties with less dry matter and higher yields). Second, the cost of the cold storage in the final price contributes less than 10% of the final retail price paid off-season by consumers in Patna. The most important contributor to the final retail price in the off-season is a reward to storage, which account for 40% of the final retail price. Third, the farmers’ share in the final retail price is as high as two-thirds in the harvest period, much higher than conventional estimates. This however drops to one-third in the off-season, except for these farmers that are able to postpone sales through storage. Way forward. First, the study has shown the importance of appropriate policies as to stimulate the take-off of agricultural businesses in Bihar. These policies should focus foremost on the provision of public goods such as reliable electricity, road infrastructure, and good governance. Given the still existing large deficiencies, Bihar should make further investments in this area as to allow private business to further flourish and to allow farmers in these disadvantaged districts to become better integrated in the market economy. Second, policy makers should further stimulate increased investments in the cold storage sector, but not necessarily through subsidies. More competition in the cold storage sector is desirable as to drive down the cost of storage. The further spread of cold storages as intermediaries in the potato value chains might also open some important opportunities towards upgrading the potato value chains as cold storages can serve as focal points for the distribution of better seed varieties, extension advice, marketing advice, etc. This could especially benefit smaller farmers who, because of liquidity constraints, are less willing to sell after storage and benefit from the higher prices off-season. Third, Bihar might further be a good area for the cultivation of processing varieties given its unique agro-ecological potential for those. As it is one of the areas in India where the growing period is later and where the minimum temperature during the production period is relatively high, leading to the required higher production of dry matter, the region is better suited for processing varieties than most other states in India. Given such comparative advantage, it seems that the state could benefit from the increased presence of the private sector interested in potato processing. However, some of the processing companies that are currently active in India are bringing in potato varieties (e.g. Lady Roseta, Atlantic) which might be prone to diseases that might be more difficult to control in the Indian setting. Close collaboration with local research stations as to introduce the most appropriate varieties seems thus called for. Fourth, our data illustrate the devastating effects that the late blight disease has in Bihar. The development and spread of better suited varieties by public or private research institutions seem thus of utmost importance.

The Potato Value Chain and Benefits of Cold Storages: Evidence from Bihar (India)

The Indian government has provided large subsidies to stimulate the take-off of the cold storage sector. However, the impact of this policy is not well understood. In a case study of the potato sector in Bihar, we find that there have been dramatic increases and rapid up-scaling of cold storages, seemingly driven by these government subsidies among others. While availability has improved, we further find that the subsidies do not show up in lower storage costs for the farmer. Wealthier farmers participate more directly and relatively more in cold storages, especially towards the commercialization of potatoes. Small farmers benefit relatively more indirectly, i.e. through the higher prices in the harvest period, as well through the cheaper storage of seed potatoes. However, a more competitive environment for the cold sector in Bihar seems called for as to drive down the relatively high cost of storage as well as to improve services delivery in input, output, and financial markets from these cold storages that especially the smaller farmers might benefit from.

Labour Migration to the Construction Sector in India and its Impact on Rural Poverty

The present article studies the impact of migration to the construction sector on rural poverty in India based on field survey. The survey has been carried out in two phases, the first phase involving the survey of construction workers in National Capital Region and the second phase comparing the well-being of migrant households with non migrant households in selected source villages. The study finds that at destination, workers have poor living and working conditions, lack citizenship rights, entitlements and voice. However, at the cost of hardship, low consumption levels, and possibly a smaller working life span, they manage to save a good portion of their income which they remit or take back home. At origin, migrant households report higher expenditure on consumption, residential housing, and children’s education, as well as some other assets. These differences are a result of higher employment and wage incomes among migrants. However, we were not able to control for differences in initial conditions, and life cycle and other issues, which influence both participation in migration, as well as long-term impacts.

THE QUIET REVOLUTION IN AGRI-FOOD VALUE CHAINS IN ASIA: UNDERSTANDING THE FAST EMERGENCE OF COLD STORAGES IN POOR DISTRICTS IN INDIA

In disadvantaged districts of Bihar, one of the poorest states in India and an area where smallholders dominate, we find that there have been dramatic increases and rapid up-scaling of modern cold storages, triggered by market reform, investment subsidies, and better overall public service provision and governance. Almost all potato farmers, small and large, participate in these cold storages. The availability of cold storages has seemingly led to improved efficiency in value chains because of lower wastages and some cold storages have become heavily involved in input, output, and especially credit markets. This emergence of cold storages thus leads to important changes in traditional potato value chains, with significant implications for smallholders.

The Makhana Value Chain and the Fast Emergence of Branding in Food Retail: Evidence from Bihar (India)

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.

The Rapid Emergence of Branding in Food Retail in Asia: Insights from Bihar (India)

Local brands are rapidly emerging in food retail in Asia. However, it is not well understood what impact they have in domestic food markets. In a detailed case study of makhana in Bihar, one of the poorest states in India, we see the fast emergence - a doubling over five years leading to a share of 50% in total trade - of more expensive packaged and branded products. Two types of brands can be distinguished. Low-price brands focus exclusively on attractive glossy packing with little consideration for quality. The high-price brands pay attention to quality beyond packing, invest in advertisements and promotion, explore options for value-addition, and employ specialized salesmen. We find that information provided by most of these brands is incomplete or misleading and that there are little direct benefits to the farmers from the emergence of either of these brands. However, farmers might benefit indirectly because of the expanding product demand.

The Benefit of Cold Storages: Evidence from Bihar (India)

The Indian government has provided large subsidies to stimulate the take-off of the cold storage sector. However, the impact of this policy is not well understood. In a case study of the potato sector in Bihar, we find that there have been dramatic increases and rapid up-scaling of cold storages, seemingly driven by these government subsidies among others. Wealthier farmers participate more directly and relatively more in cold storages, especially towards the commercialization of potatoes. Small farmers benefit relatively more indirectly, i.e. through the higher prices in the harvest period, as well through the cheaper storage of seed potatoes. However, more competition in the cold storage sector in Bihar is desirable as to drive down the relatively high cost of storage as well as to improve services delivery in input, output, and financial markets from these cold storages that especially the smaller farmers might benefit from.