Ind. in. ofAgri. Econ. Vol. 56, No. 4, Oct.-Dec. 2001 Costs and Margins in Coconut Marketing: Some Evidence from Kerala
R. Ramakumar*
This paper attempts to understand certain aspects of marketing of coconut in Kerala through a field survey in four districts. It tries to identify some of the major issues and then focuses on one of them, that is, the persistence of middlemen in the marketing channels and the margins that they obtain in the marketing process. It attempts an analysis of the costs and margins in various channels of trade and formulates a composite index of marketing efficiency for each channel. The study is arranged as follows. Section I introduces and highlights the problem at hand. Section II presents the analytical framework of the study. Section III deals with important features of coconut marketing in the study areas with special reference to the various marketing channels in the trade. Section IV presents the major findings of the study, i.e., the spread of marketing costs and marketing margins in these channels and the comparative efficiency in these channels with respect to selected indicators of marketing efficiency. Section V gives an account of the importance of and the experience with coconut marketing co-operatives in the state. Section VI presents a summary of the study and some policy suggestions.
INTRODUCTION AND ISSUES
Kerala is the largest producer of coconut and copra in India.' Though the area under coconut and production have increased over the years in Kerala, the productivity has remained stagnant (Narayana and Nair, 1989). It is noteworthy that the marginal increase in the area cultivated with coconut has been mainly due to the conversion of lands previously cultivated with paddy and tapioca (see Unni, 1983). The stagnation in productivity has been due to a number of factors. The major influencing factors that the literature identifies are the widespread prevalence of root- wilt disease in some districts (Thampan, 1986), increasing percentage of older palms
* Junior Research Fellow, Social Sciences Division, Indian Statistical Institute, Kolkata-700 108 (West Bengal). The author is grateful to Madhura Swaminathan, V. K. Ramachandran, Vikas Rawal and Pallavi Chavan for useful discussions and comments. However, errord-omissions, if any, are the responsibility of the author. COSTS AND MARGINS IN COCONUT MARKETING: SOME EVIDENCE FROM KERALA 669
(Bavappa, 1983), primitive cultivation practices and inadequate use of inputs, significantly irrigation (Narayana and Nair, 1989). Marketing of coconut mainly involves coconut, copra and coconut oil. Price instability - annual and seasonal - is an important feature of the prices of coconut, copra and coconut oil.' In 1990, the price of coconut oil in the Kochi market was Rs. 5,000 per quintal while in 1994, it fell to Rs. 3,100 per quintal. In 1997, the price again rose to over Rs. 6,000 per quintal. In July 2000, the price of coconut oil fell to a five-year low of Rs. 3,025 per quintal while copra prices dropped to Rs. 2,150, which was Rs. 1,100 below the minimum support price of Rs. 3,250 per quintal. As coconut farming is a small farm enterprise in Kerala, these price variations affect the incomes of a large number of small cultivators and consequently their purchasing power (George and Pillai, 1998). The importance of price fluctuations and its reasons have been discussed in many earlier studies. The seasonal price behaviour of coconut is primarily influenced by the seasonality in its production (Ramakumar, 1998; Babu and Sebastian, 1996). Coconut oil prices show an inverse relationship with the production cycle in Kerala. During the months of February to April, when production reaches its peak, coconut oil prices show a fall and vice versa when production reaches the lowest level in July. While intra-year price behaviour is attributed to the production cycle, there are two major reasons that have led to inter-year price fluctuations. First, there have been major shifts in the consumption pattern among the various end users of coconut. George and Joseph (1974) argued that although the supply of coconut had remained stable over years, the prices were subject to fluctuations mainly due to the changes in demand.3 In the industrial sector, where a major part of the demand for coconut oil came from the soap industry, the upward and downward fluctuations caused a substitution of coconut oil as an important ingredient with other cheaper vegetable oils. Studies show that the demand for coconut oil in the industrial sector is inelastic in the price range of Rs. 2,500 to Rs. 3,000 per quintal and at prices above that, increasing substitution occurs (Markose, 1993). According to some estimates, the demand for coconut oil in the soap industry came down from 15 per cent to about 3 per cent in a span of nearly three to four years. Similar substitutions took place simultaneously in other industrial segments as well where coconut oil is a major ingredient. The consumption pattern of coconut oil in the household sector also declined and its effect was two-fold. Among high-income families, the campaign that the use of coconut oil raises the susceptibility to heart diseases led to a fall in its'consumption (Aravindakshan, 1996). Among the low-income families, data do not show any significant consumption of coconut oil after the advent of unpredictable price movements.4 In this way, lack of demand emerged as a major bottleneck in the maintenance of a stable and remunerative price for coconut. According to an estimate, by April 2000, edible oil consumption in Kerala that was around one lalch tonnes, had fallen by around 30 per cent to around 70,000 tonnes.5 670 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS
Secondly, the imports of coconut oil and palm oil in sizeable quantities and increased linkages with the international markets have led to a steep decline in the local market prices.6 In India, coconut oil imports were restricted since 1966 and completely stopped since 1974 (Thampan, 1988; Paul, 1982). This protection was offered to the domestic sector as an incentive to increase production (Isaac et al., 1992). Consequently, the domestic prices started moving up from the 1960s along with production. One estimate for this period found that nearly 77 per cent of the price changes in coconut oil were governed by the import policies of the Union Government (Mathew, 1978, cited in Isaac et al., 1992). Consequently, whenever the Government announced decisions to import coconut oil, prices started falling. Such effects were noted when imports were resorted to in 1971-72, 1975-76 and 1985-86 (Isaac et al., 1992). With the import policies becoming more liberal in the 1990s, this problem has intensified. The response of the Government to this crisis was in the form of announcing support prices. However, support prices were of little help to the farmers due to two reasons. First, the support prices announced by the Government have been too low and hence for most of the periods, the market prices were higher than the administered prices. In such a situation, procuring agencies like National Agricultural Co-operative Marketing Federation (NAFED) did not undertake procurement operations. Secondly, support prices were announced only for copra and not for coconut. Given the fact that majority of the farmers do not enter into processing activities (i.e., sell as coconut itself), the benefits did not percolate down the marketing chain and help the farmers gain a better price. The benefit had been to traders, copra makers and commission agents. Though the studies cited above identify a number of factors, the issue of the presence of middlemen in the marketing channels, which prevented farmers from obtaining a higher share of the final product price, is seen to be ignored by many.' The findings of the few studies that have focused on this aspect indicate that this is an important factor. We review some of the major studies here. Harikumar (1991) found that trade in coconut was essentially monopsonistic in nature with a large number of cultivators selling to only a few village traders, local copra makers and agricultural co-operative societies and this was the reason for the cultivators not being able to get a fair price. He identified three types of coconut pur- chasers, viz., merchants/traders, copra makers and agencies of wholesale dealers. The three types of marketing channels identified were, (i) Producer - Village trader - Consumer; (ii) Producers - Agencies of wholesale dealers/local copra makers - Wholesale dealers (mills); and (iii) Producers - Marketing societies - Wholesale traders (mills). In channel (i), the price spread was 16 per cent of the price received by the producer and 14 per cent of the price paid by the consumers. In channel (ii), these values were found to be 19 and 16 per cent respectively and in channel (iii), the values were only 6 and 5 per cent respectively. He concluded that marketing through channel (iii), i.e., marketing societies,was most beneficial to the farmers. COSTS AND MARGINS IN COCONUT MARKETING: SOME EVIDENCE FROM KERALA 671
Nair (1984), in a study on coconut marketing in Calicut district, Kerala State, found that all her sample farmers resorted to farm sales of coconuts to local buyers who were copra makers. The marketing costs of copra makers ranged from Rs.16.80 to 23.40 for 100 nuts. The costs of millers averaged Rs. 9.41 for copra equivalent of 100 nuts. The net margins of copra makers ranged from 11.48 to 14.33 per cent in the total realisation from all products. The same for oil millers constituted 1.21 per cent of the total realisations. Radhakrishnan (1988) also came up with similar findings from a study covering major districts of Kerala. Studies from other states also point to the pervasiveness of the middlemen in the marketing chain. Studies from Karnataka (Suryaprakash et al., 1979; Khan, 1972), Orissa (Sahu, 1995; Raveendran, 1990; Ali et al., 1995), Maharashtra (Patil and Borude, 1993), and Lakshadweep islands (Raveendran, 1984), indicated that the proliferation of middlemen deprived the farmers of a major share of the final price. In many cases, the margin of the middleman like the copra makers, oil millers was above 30-35 per cent of the final price. These studies indicated that the exclusion of intermediaries from the marketing channel could help in fetching a higher price for the farmers. The objective of this study is to answer the following questions. First, what are the major channels of trade for coconut and its products in Kerala and how do these channels operate? Secondly, what are the costs and margins for various agents during the marketing process in each cham41? Thirdly, which of these channels is the most efficient?
II
DATA AND METHODOLOGY (a) Data Used•
The data used for this study were collected through a field survey in four districts of Kerala, viz., Thiruvananthapuram, Alappuzha, Thrissur and Kozhikode. As the objective of the study was to understand the different activities involved in the marketing of coconut and its products, three kinds of respondents, viz., farmers, copra makers and oil mills were selected (Table 1). From each of the four districts, one panchayat was randomly selected. From each of these panchayats, 30 farmers were randomly selected for a detailed survey. Thus 120 sample farmers were surveyed from the four districts. Information about establishment and marketing costs and problems in marketing were collected from copra makers and oil millers who were randomly selected. Through these intermediaries, the marketing channels were traced to the oil mills. The reference year for the study was the agricultural year of 1996-97 and the collection of data from the sample respondents was taken up during the months of November and December 1997. 672 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS
TABLE 1. DETAILS OF THE SAMPLE OF RESPONDENTS SURVEYED DISTRICTW1SE
Number and type of respondents
Selected district Selected panchayat Coconut Copra Oil farmers makers mills (1) (2) (3) (4) (5) I. Thiruvananthapuram Kanjiramkulam 30 6 6 2. Alappuzha Aryad 30 6 6 3. Thrissur Thalikkulam 30 6 6 4. Kozhikode Kavilumpara 30 6 6 Total 120 24 24
(b) Estimation ofMarketing EfficiencyV
Marketing efficiency is essentially the degree of market performance. It is defined as having the following two major components: (i) the effectiveness with which a marketing service would be performed and (ii) the effect on the cost and the method of performing the service on production and consumption. These are the most important because the satisfaction of the consumer at the lowest possible cost must go hand in hand with the maintenance of a high volume of farm output. There could also be a differentiation of the technical and economic notions of marketing efficiency. Technical efficiency denotes the efficiency in the physical handling of the product that is a matter of procedure, technique and scale of operation. Economic efficiency should ensure that the improvements in technical efficiency are passed on to the producers and consumers in the form of reduction in money costs (Subbarao, 1991). In this study, we concern ourselves more with the economic notion of marketing efficiency as the available data and resources do not permit an exhaustive analysis of the former. The movement of goods from the producers to the ultimate users at the lowest possible costs and margins, consistent with the provision of services desired by the consumer, may be termed as efficient marketing.. There are two broad approaches to measure marketing efficiency. The first one refers to the analysis of marketing margins and the other to the analysis of market structure, conduct and performance. Though these two methods are not mutually exclusive and could be used concurrently to study a given situation, an adoption of either or both of these should base upon the historical evolution of trading practises and relationships in the given situation (Subbarao, 1991). Keeping these arguments in view and considering the restrictions of data availability, in this study, we limit ourselves to the first approach alone. Here, we identify the different marketing channels and the marketing efficiency (R) in the alternate marketing channels is computed by ranking different performance indicators. The indicators included are producer's share in the consumer's rupee, marketing costs of intermediaries, marketing margins of intermediaries and returns per rupee of investment.' Ranks COSTS AND MARGINS IN COCONUT MARKETING: SOME EVIDENCE FROM KERALA 673
were attached to each performance indicator. By pooling all the indicators, the marketing efficiency is calculated.
R = Ri / Ni Ri = Sum of ranks in each channel; Ni = Number of performance indicators.
The channel with the lowest composite index is the most efficient channel. There are limitations in the use of such a composite index as we have assigned equal weights to all the selected indicators. Hence, the composite index should be interpreted only as a pointer to the efficiency of the channel and not as an index that comprehensively covers the embodied elements.
III
MARKETING PRACTICES IN COCONUT
The analysis of survey data showed that most of the farmers did not resort to any processing activity after harvesting (Table 2). About 77 per cent of the farmers sold their harvest as coconut itself. This included farmers who sold coconuts with husk (56.67 per cent) and those without husk (19.17 per cent). The latter was noticed mostly in parts of Thrissur district where the buyers got the nuts- husked by engaging their own labourers. In this process, the buyer resorted to some slight downward adjustments in his price as compensation for getting the nuts dehusked and for leaving the husks at the farmer's disposal. Only about 24 per cent of the farmers undertook any processing activity. This included farmers who sold as milling copra (3.33 per cent), ball copra (11.66 per cent) and coconut oil (9.17 per cent).
TABLE 2. PATTERN OF SELLING BY FARMERS IN THE STUDY AREAS, FINAL PRODUCTWISE
Per cent of farmers selling as
Coconut Coconut Milling Ball Coconut Total (with husk) (without husk) copra copra oil (1) (2) (3) (4) (5) (6) 56.67 19.17 3.33 11.66 9.17 100
Source: Survey data.
The distribution of farmers according to the type of buyers to whom they had sold the product is presented in Table 3. A majority of farmers - nearly 74 per cent - sold coconut to copra makers who purchased nuts from the farmers and converted these to copra. The second major buyer was the oil miller (12.5 per cent), followed by the commission agent, co-operative society and direct market sales in that order. 674 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS
TABLE 3. PATTERN OF SALE OF COCONUT IN THE STUDY AREAS, BUYERWISE
Per cent of respondents selling coconut to
Copra Oil Co-operative Commission Direct maker miller society agent sales/retails (1) (2) (3) (4) (5) 74.17 12.50 4.17 7.50 1.65
Source: Survey data.
Four different kinds of marketing channels could be visualised as being common in the study areas. They were (1) Farmer - Copra maker - Oil miller - Consumer;(2) Farmer - Oil miller - Consumer; (3) Farmer - Commission agent - Upcountry consumer; and (4)Farmer - Co-operative society - KeraFed9 - Consumer. In channel I, the farmers harvested the nuts after informing the local copra makers about the day of harvest. The copra maker visited the farm on the day of harvest with his truck, and transported the harvested produce to his place where he converted it into copra and transported the same to the oil mill of his choice for sale. In the oil mill, copra was milled into oil and sold the same to the retailer who in turn sold it to the local consumer. Accordingly, in channel I, the copra makers and oil millers are the prime intermediaries. In the second channel, the farmer himself converted the produce into copra, transported the copra, at his own cost, to the nearby oil mill, milled the copra into oil at a pre-fixed charge and sold the oil and oilcake to the miller himself. The oil miller transported the same to urban markets for sale. Limited number of intermediaries is the main advantage of this channel. In the third channel, the farmer transacted ball copra instead of milling copra. For this, he stored the harvested nuts for a period not less than nine months at a place where a fair amount of heat was available for conversion into ball copra. The ball copra was then sold to the commission agent at his place. The commission agent resorted to processing activities like cutting, drying, sorting and packing. Cutting involved splitting the ball copra into two equal halves. The split copra was then dried either in the sun or by using mechanical dryers and sorted into small and big pieces. The pieces were then packed in good quality gunny bags and transported to upcountry markets. Edible copra is in demand as a dry fruit and in the preparation of sweets for social and religious purposes in North Indian states. In the fourth channel, the farmers transported their harvested produce to the nearby co-operative societies. The societies converted the nuts into copra and transported them to the godowns of KeraFed. The Federation later milled the copra into coconut oil and marketed the same in packs and bottles of different capacities. COSTS AND MARGINS IN COCONUT MARKETING: SOME EVIDENCE FROM KERALA 675
IV
ECONOMICS OF THE CHANNELS
An examination of the marketing costs and margins in the channels would help us understand the transactions better and thus quantify the gains and losses of the transacting agents (see Table 4).
TABLE 4. PRICE SPREAD FOR COCONUT IN DIFFERENT MARKETING CHANNELS IN THE STUDY AREAS (Rs./1000 nuts or equivalent ofcopra or coconut oil) Item Channel 1 Channel 2 Channel 3 Channel 4 (1) (2) (3) (4) (5) 3,997.53 3,953.30 7,512.30 5,020.00 I. Price of coconuts received by farmer (69.83) (72.25) (89.22) (89.94)
16.13 1,163.43 2. Marketing costs of farmer 901.98 118.35 (0.28) (20.26) (10.71) (2.12) 3,981.40 6,212.47 6,610.32 3. Actual (net) realisation of the farmer 4,901.65 (69.55) (108.20) (78.51) (87.82) 4. Marketing cost of the copra maker(Cl)! 573.22 commission agent(C3) / co-operative 760.25 188.03 (10.01) society(C4) (9.03) (3.37) 5. Realisation of the copra maker(Cl) / 5,199.12 . commission agent(C3) / co-operative 8,420.15* 5,397.93 (90.82) (100.00) society(C4) from copra, husk and shell (96.71) 6. Marketing margin of the copra maker 628.37 • (Cl)/commission agent(C3) / co- 147.60 189.70 (10.98) operative society(C4) (1.75) (3.40) 204.37 104.50 7. Marketing cost of the oil miller 280.45** (3.57) (1.82) (5.02)
733.21 114.50 8. Marketing margin of the oil miller 277.19 (12.81) (1.99) (4.97)
5,724.70 5,741.55 9. Realisation of oil miller from oil and cake 5,581.46 (100.00) (100.00) (100.00) 10. Producer's share of the consumer's price 69.83 • 87.94 78.51 (per cent) 89.94 793.72 1,267.93 11. Total marketing cost 1,662.23. 586.83 (13.86) (22.08) (19.74) (10.51)
1,361.58 12. Total marketing margin 114.50 147.60 466.89 (23.71) (1.99) (1.75) (8.37)
Source: Survey data. Notes: (i) Assumed copra recovery rate/1000 nuts = 15.12 per cent; Assumed oil recovery rate/1000 nuts = 65 per cent. (ii) Figures in parentheses denote percentages to the final price. (iii) The figure 108.20 in the fourth row is due to the non-inclusion of husk and shell price in the final price. * Only for copra. ** Here the oil miller is KeraFed. 676 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS
In channel I, the gross price received by the farmer was Rs. 3,997.53 per 1000 coconuts and it constituted 69.83 per cent of the final price. The assembling charges incurred by the farmer after the harvest of nuts are also included as the marketing costs of the farmer as it falls outside the purview of the harvesting charges. The net price received by the farmer amounted to 69.55 per cent of the final price. The total marketing costs incurred by the copra maker accounted for 10 per cent of the final price. The marketing costs of the copra maker consisted of the costs in transporting the nuts from the farm to his place, dehusking, breaking the nuts, drying, deshelling the copra and transporting the copra to the oil mills. The total realisation of the copra maker from copra, coconut husks and coconut shell formed 90.82 per cent of the final price. The miscellaneous costs included 2 per cent purchase tax on coconut oil and oil cake, brokerages and market cess. The total marketing cost of the oil miller formed only 3.57 per cent of initial price, while the marketing margins earned by the copra maker and oil miller were 10.98 per cent and 12.81 per cent of the final price respectively. Considering the magnitude of the marketing costs, the marketing margins were relatively higher which was an indicator of inefficiency in marketing. The producer's share of the consumer's rupee was only 69.83 per cent. In channel II, i.e., Farmer - Oil miller - Consumer, the functions carried out by the copra makers in channel I were bypassed with the farmer himself carrying out these functions. He converted the nuts into copra, milled it and sold it to the oil miller. The costs incurred by the farmer for the above functions formed 20.26 per cent of the final price. The net realisation of the farmer was Rs. 5,049.04, which formed 87.94 per cent of the final price. This is a major advantage of this channel. If the farmer had sold as coconut itself, he would have obtained only Rs. 3,953.30 per 1000 nuts. This meant that he obtained an additional amount of Rs. 1,095.74 per 1000 nuts after entering into the first stage of processing, i.e., copra making. This was due to the exclusion of the marketing margins of the copra maker and oil miller and also due to the additional amount realised through the sale of husks and shells. The marketing cost of the oil miller was Rs.104.50 per 1000 nuts equivalent oil, which included the transporting cost incurred by him in taking the oil to the urban market. His margin was only 1.99 per cent of the final price. The producer's share of the consumer's price was found to be 87.94 per cent. In channel III, i.e., Farmer - Commission agent - Upcountry consumer, the farmer himself converted the nuts into copra (ball copra) and sold to the commission agent, who exported it after processing to upcountry markets like Mumbai. The final price used here was the price of `Rajapur Copra' in the Mumbai market and not coconut oil as in the case of other channels. The marketing cost of the farmer constituted the costs of copra making, transporting costs to the commission agent's place, loading and unloading charges and the interest lost had he deposited the amount realised by the sale of coconuts at the harvesting stage itself. (The period of selling as ball copra was 10 months after harvest.) The cost of copra making was 37.76 per cent of the COSTS AND MARGINS IN COCONUT MARKETING: SOME EVIDENCE FROM KERALA 677
total marketing cost. The share of the producer in the consumer's price was found to be 78.51 per cent. The fourth channel was Farmer - Co-operative society - KeraFed - Consumer. In this channel, the farmer after the harvest transported the nuts to the societies for selling. The net realisation of the farmer for 1000 nuts was 87.82 per cent of the final price. The marketing cost of the society accounted for 3.37 per cent of the final price. Further, the society as a middleman provided better working conditions to the workers by way of medical aid. The marketing margin was only 3.40 per cent of the final price. This was another indication of efficiency in the channel. The total marketing cost of KeraFed to whom the societies sold the copra was Rs. 280.45 per 1000 nuts equivalent copra. The final realisation of KeraFed was Rs. 5,581.46 for 1000 nuts equivalent, which meant that the marketing margin of KeraFed was Rs. 277.19 for the same quantity. The producer returns per consumer's rupee was 89.94 per cent.
Marketing Efficiency in the Channels
The results of the analysis of marketing efficiency in the channels are given in Table 5. Only three channels - channels I, II and IV - are taken up for a comparative study as channel III dealt with ball copra, which cannot be compared with the other channels that deal with milling copra. We first discuss the individual indicators and then discuss the composite index. Regarding the consumer's share in the final price, the channel IV was the most efficient; it could provide the farmers with 89.94 per cent of the final price. With respect to marketing costs also, this channel was the most efficient; only 10.51 per cent of the final price was spent on this. This indicated that the handling of bulk material by the co-operatives helped to reduce per unit marketing costs as indicated by the difference in the costs between the channels. The marketing costs were least in channel II, in which the farmer himself did most of the marketing operations.
TABLE 5. ESTIMATES OF MARKETING EFFICIENCY IN THE MARKETING CHANNELS OF COCONUT IN THE STUDY AREAS
Components of composite index Channel I Channel II Channel IV (1) (2) (3) (4) (a) Consumer's share in final price (per cent) 69.83 87.94 89.94 Rank 3 2 1 (b) Marketing cost(Rs. per 1000 nuts) 13.86 22.08 10.51 Rank 2 . 3 1 (c) Marketing margin (Rs. per 1000 nuts) 23.78 1.99 8.37 Rank 3 1 2 (d) Rate of return 1.72 0.09 0.80 (Marketing margin/marketing cost) Rank 3 1 2 (e) Total score 11 7 6 (f) Mean score 2.75 1.75 1.50 Source: Computed from Survey data. 678 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS
The results of the composite index method indicated that channel W, i.e., Farmer- Co-operative Society - KeraFed - Consumer was the most efficient channel. This channel had the lowest composite index indicating their comparative efficiency over other channels. However, it was in channel III, i.e., farmer - commission agent - consumer, that the farmers received the maximum price per nut, i.e., Rs. 6.61 per nut. Obviously, this price advantage was due to the higher value additions that occurred in the channel where ball copra enjoyed a higher price compared to coconut oil. It needs no elaboration that the low net prices in channel I were due to the presence of intermediaries in these channels.
CO-OPERATIVE MARKETING IN KERALA
Kerala is one of the few states where there was an effective implementation of land reforms which drastically turned around the land ownership system and accelerated the social transformation process in the state. After land reforms, a number of co-operative societies were set up to make cheap credit available to the farmers for cultivation. However, these societies did not address any issues in marketing like procurement, price stabilisation and post-harvest processing. The cropping pattern in Kerala being dominated by highly market oriented cash crops like coconut, rubber and spices, the farmers were often left helpless during adverse market conditions. Growing more market dependent crops required that the small farmers be more protected from market fluctuations and exploitation from intermediaries. Co-operative marketing was the best solution for this. However, the potential of the co-operative sector - one of the largest mass movements in Kerala covering nearly one-third of the population - in the field of marketing, was not fully utilised. Such institutions not being in place, exploitation of the small farmers continued. It is noteworthy to mention that wherever co-operative institutions exist, the results have been highly encouraging. The case of rubber marketing is an example. The establishment of rubber marketing societies has helped the farmers to obtain better prices in the state. Since the 1970s, the rubber co-operative sector has graduated from their initial supplementary role in the market to a price stabilising institution in the 1990s (George and Chandy, 1996). Not only did it bring down the influence of intermediaries exacting high margins on the small holder's crop, but also helped to reduce the intra-year price fluctuations largely. Today, the co-operative sector is the largest supplier of natural rubber in the country. However, in the case of coconut, as many studies have shown, the aggregate picture at the state level is not encouraging. Hameedicutty (1987) argues that the co- operative interventionary measures for coconut in Kerala have failed, mainly due to the collusion between the rich cultivators and traders in the management of the societies. Collusion occurred in many forms. Sometimes the big growers did not care to sell coconuts to the societies instead they sold to the traders, thus damaging the COSTS AND MARGINS IN COCONUT MARKETING: SOME EVIDENCE FROM KERALA 679
economics of functioning of the co-operatives. The effective hold of large farmers and traders ensured that the societies did not undertake large-scale processing activities, which was imperative in increasing the farmer's prices through value addition. In many other places, coconut co-operatives diverted their attention towards non-agricultural sectors like banking that were more profitable. Thus the very objectives of their formation of the co-operatives were sabotaged (Aravindakshan, 1996). Very few studies exist on the efficiency of the activities of the KeraFed (Kerala Coconut Growers Co-operative Society, a co-operative society under the Government of Kerala), which was formed to effectively intervene in the marketing of coconut oil and influence the market prices. Some conclusions about the technical efficiency in marketing coconut through KeraFed could be arrived at from these studies (see APB, 1997). The conclusion of these studies was that KeraFed's effectiveness in influencing prices was minimal. KeraFed had captured only 4-5 per cent share in the branded oil market, thus rendering it as a 'price taker' rather than a 'price maker' in the market(APB, 1997). Further, although KeraFed possessed the largest oil milling capacity in India (KeraFed, 1998), its capacity utilisation was less than 15 per cent. Consequently, the unit cost of production of coconut oil was high. The plants did not work year round due to the non-availability of copra, as the member societies regularly defaulted in supplying. One study reported that nearly half of the 896 member societies registered under it never supplied copra to it during the four to five years prior to the survey (APB, 1997). However, the member societies contacted in the study complained that the KeraFed was not regular in procuring copra year round, which created problems for them. There were also complaints that it was profitable for the societies to sell copra to the private traders when they offered a higher price than KeraFed. A number of problems regarding the absence of proper norms in fixing prices of procurement according to the quality of copra supplied also prevailed."' The bottom line could be made out like this. The co-operative movement in Kerala is strong and deep-rooted, as evident in the large number of credit co- operatives successfully operating in the state. Considering the fact that more market related cash crops is the mainstay of the state economy, and that most of the farmers are small and marginal, the need for co-operative marketing becomes more essential. Though it is proven that the existence of these societies bring much benefit to the farmers, the growth of the coconut marketing co-operatives has not been impressive due to many reasons.
VI
CONCLUSIONS
Agriculture in Kerala is dominated by cash crops. The markets for these crops are only partly situated in the state and are either strongly dependent on trader sentiments in other parts of the country, as is the case in coconut, or market sentiments in the 680 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS -
international market, as is the case with spices and plantation crops. Thus prices and market dynamics have emerged as the crucial factors that govern agricultural performance. Integration with international markets is also rapidly entering into the price formation of the domestic market-dependent commodities like coconut; one important factor has been the increased imports of these commodities and their substitutes from the international markets during the 1990s. Thus the agricultural sector in Kerala is bound to remain more sensitive to market sentiments as compared to any other state. .This paper was an attempt to study the marketing of coconut and its products, viz., copra and coconut oil in Kerala. The most important problem identified in marketing was the lack of adequate and fair price for coconut and its products and the fluctuation - annual and seasonal - in the prices. Three major reasons were identified. First, price instability led to a decline in the consumption pattern of coconut and coconut oil among its different users in the industrial and household sectors. Secondly, the cheaper imports of coconut oil and substitutes like palm oil depressed the local market prices. Thirdly, the presence of intermediaries in the marketing channels led to a low price realisation to the producers. In this study, we focused only on the last aspect. We analysed the costs and margins in various channels of trade and formulated a composite index of marketing efficiency for each channel. Among the farmers, there existed a reluctance to enter the processing sector like copra making and oil milling. Most of the farmers sold their produce as coconut, at the farm gate itself, to copra makers who collected the coconuts, converted to copra and sold to oil mills. In this processing chain, middlemen appropriated large margins. This was not the case when the farmers either did the copra making thern—s-elves or sold through co-operative societies. When sold through co-operative societies, they obtained a higher price for coconuts as well as benefits accruing from being a member of co-operatives like availing of credit facilities, medical care, etc. This shows that the existence of free trade in coconut, without any organised body controlling the market, has not resulted in stabilising coconut prices and the need is emphasised for a very effective intervention in the market. We conclude that the formation of marketing co-operative societies of farmers is the most efficient way to help the farmer obtain a better price. Any other alternative can only be a second best. More co-operative ventures would be worth encouraging, not wily in the coconut oil segment but also in the field of various diversified products from coconut."
Received July 2000. Revision accepted November 2001.
NOTES
1. Copra is not a popular item of consumption in Kerala, and is produced either for production of oil or is exported to other states. The share of Kerala in the production of milling copra was 55.56 per cent while that in edible copra was only 30 per cent in 1995-96. COSTS AND MARGINS IN COCONUT MARKETING: SOME EVIDENCE FROM KERALA 681
2. The movements of coconut and coconut oil prices in Kerala are in close tandem. This arises from the peculiar method of price fixation of coconut, where the price of 1000 coconuts is equated to the price of one quintal of coconut oil in the market. Thus the demand for coconut is a derived demand from the demand for coconut oil as nearly half of the total demand for coconut comes from the coconut oil milling sector. 3. One study found that the prices were mainly determined by the wholesale dealers in large markets like Cochin and Alleppey, which in turn reflected the sentiments of Mumbai market(Ramakumar, 1998). 4. Observations made by M.V. George, Chairman of the State Agricultural Prices Board in The Business Line, July 11, 1998. 5. Source: The Business Line, April 27, 2000. 6. The quantity of edible oils imported since 1958 were to the tune of 1 to 2 lakh tonnes every year. The major oils imported were soyabean oil from U.S.A., sunflower oil from U.S.S.R., palm oil from Malaysia, all for subsidised supply of oil to the vanaspati industry, which was the only commodity among oilseeds for which prices were controlled (Achaya, 1990). 7. Copra makers, commission agents and oil millers are the major middlemen in the marketing channels of coconut. Evidences found as early as in the forties (Government of India, 1944)show that in the erstwhile Travancore and Cochin areas of Kerala, copra makers were the major assembling agents. In Malabar district (then in Madras State), commission agents prevailed. 8. Throughout the current discussion, marketing costs would refer to the costs incurred by the agents in the marketing process and the marketing margins as the profits accrued to the agents in the marketing process, both for an equivalent quantity of produce. 9. The Kerala Kerakarshaka Sahakarana Federation Limited (KeraFed) is an apex body in the co-operative sector to implement an integrated coconut production, procurement, processing and marketing project. The European Economic Community and National Co-operative Development Corporation fund it with a financial component contributed by the State Government of Kerala. The primary objective of KeraFed is to organise coconut growers by bringing them under the co-operative umbrella and to provide them with supplies and services to augment their income base by increased productivity and value additions. This was proposed to be achieved through an integrated system of production, procurement, storage, processing, product diversification and marketing of coconut and coconut products, at prices the remunerative to the producers and acceptable to the consumers on a sustained basis. KeraFed aims at procurement of 50 to 60 per cent of the total coconut/copra produced in the state which will be processed at its own processing units and marketed. 10. The Expert Committee has commented that if a minimum of 120 societies out of the 896 societies registered under KeraFed can be made active and if they supply an average of eight tonnes of copra (one load) per week regularly, it would be possible for KeraFed to utilise at least 50 per cent of its capacity and reach break-even point within a short period (APB, 1997). 11. Presently, most of the existing coconut marketing co-operatives do not undertake any marketing or processing activity. One of the reasons for this, apart from those mentioned elsewhere, is the lack of scientific drying and storage facilities in the co-operatives. Owing to these reasons, most of the small farmers prefer selling to the private copra makers. Estimates show that more than three-fourths of the member co-operatives of KeraFed do not possess adequate drying or storage facilities (APB, 1997). Hence, equipping the co- operatives with scientific drying and storage facilities should become a pre-requisite for the spread of co- operatives. Provision to supply such infrastructure to societies at subsidised rates does exist at present, which needs to be improved. Only such a package of measures can help in fetching the farmer a better and stable price and the demand from other sectors to remain firm.
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