Costs and Margins in Coconut Marketing: Some Evidence from Kerala
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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.