Marketing of Perishable Commodities - Role of Fruit and Vegetable Processing Industry

Agric. Econ. Res. Rev., Vol 8(2), pp. 39-47 (1995)

MARKETING OF PERISHABLE COMMODITIES - ROLE OF FRUIT AND VEGETABLE PROCESSING INDUSTRY

K.V. Subrahmanyam Indian Institute of Horticultural Research, Hesaraghatta, Bangalore

India is endowed with diverse climate suitable for producing different kinds of food crops, especially fruits and vegetables. The importance of fruits and vegetables for a balanced diet needs no emphasis, especially in countries like India where a majority of the population suffers from malnutrition. Besides nutritional aspects, the contribution of these crops to Indian economy both at micro and macro levels is quite significant. Horticultural product exports (both fresh and processed) account for 42.9 per cent of the value of agro-exports.

India with an estimated production of 28 million tonnes of fruits and 48 million tonnes of vegetables accounts for 8 and 12 per cent of the total world production, respectively. Unfortunately, because of poor marketing management (past harvest handling) nearly 30 per cent of the total production of fruits and vegetables is lost, resulting in not only monetary losses to the extent of nearly Rs.5000 crores to the economy but also reduces the per capita daily availability by about 25-34 grams (Subrahmanyam 1986). One way of reducing the post harvest losses is to divert the produce for processing. The processing industry also plays a vital role in combating the twin problems of perishable commodities viz. seasonal gluts which result in wide price fluctuations and also the problem of low share of producer in consumer rupee. How this can be achieved by the processing industry is examined in detail below:

Integration of Processing with Production and Marketing

A symbiotic relationship needs to be developed between the processing industry and the production and marketing of the raw material required for the industry. The linkages that exist in the relationship is presented in Figure 1. The processing industry is influenced by the production factors like variety and yield and marketing factors like market price, etc. 40

a. Production factors i. Influence of variety in processing: One of the major complaints/constraints faced by the processing industry is that because of non-availability of suitable varieties for processing, the raw material requirement for a unit of finished product is very high in India as compared to other countries (Table 1) and hence the cost of processing goes up.

Table 1 : Requirement of fresh fruits in tonnes per tonne of finished product in India and abroad

Product India Abroad Orange juice concentrate (65° Brix) 14 10 (Brazil) Pine apple juice concentrate(65° Brix) 16 08 (Philippines, Hawaii) Tomato paste (28° Brix) 7 04 (Italy)

ii. Influence of yield on Processing: The second major problem faced by the processing industry is the very high cost of raw material. This is directly linked to the production factor- yield. The yield of horticultural crops in India is very low as compared to the other 'countries (Table 2) which results in high cost of production and price. b. Marketing factors i. Marketing Channel & associated costs: At present most of the produce for processing is procured from market through intermediaries viz. contractors/commission agents/whole salers. The most popular marketing channel followed by the cultivators for marketing vegetables is producer-commission agents-retailer and in case of fruits, producer - pre-harvest contractor - wholesaler - retailer. Very few processing units are procuring the raw material from the cultivators. Hence the raw material cost will he high as large margin is taken away by the commission agent. The major item of the cost is the commission charges (Table 3). Hence establishing a direct link between the producers and the processing units will result in mutual benefit, as it will help the industry in procuring the raw material at a lower price and the cultivators in 41

Fig 1. Model showing linkages of processing with production and marketing

Producer

Variety Practices

Yield Cost of 0 cult.

cost of prod.

Returns

Price by Market Field/cont pross .unit price ract price

NG Raw material cost

RP ratio nvest cap

0 C . cost&return of process.

Raw material required 1 4,

Crop area required

RP ratio : raw material to processed product ratio Invest cap : investment capacity 42

Table 2: Comparison of yield of horticultural crops and raw material cost in India and Abroad

Crops Yield (t/ha) Raw material cost (Rs/t) India Abroad India Abroad

Potato 12 70 Onion 10 30 Tomato 15 60 1000 300-600 Cauliflower 8 25 Pine apple 1000-1500 250-400 Orange 1500-1800 400 saving commission charges. ii. Reducing price risk through contract arrangements: One of the major problems faced in marketing of perishable commodities is the wide price fluctuations and the associated risk. The processing industry also can help the cultivators in reducing the price risk faced by them by entering into contract arrangements for supply of the produce. For example, the price of tomato in Bangalore market during February 1992 has dropped as low as Rs. 30-40/quintal which made it difficult for cultivators even to realise harvesting and transportation costs. Most of them are willing to supply to the processing even at Rs 100/quintal.

The procurement price policy at present followed by the processing industry is arbitrary and does not take into. account the expectation of the cultivators regarding their margin. If the procurement price is not based on cost of production and market price, the contractual arrangement is likely to fail as in the case of Indo- Bulgarian Project experiment during 1976 (Subrahmanyam and Mruthyunjaya, 1979). A realistic and reasonable price and procurement policy as suggested in a recent study on tomato processing (Subrahmanyam and Sudha, 1992) should be followed to encourage the cultivators to supply the produce - directly to the processing units. 43

iii. Preventing post-harvest losses and associated costs: The big processing units by encouraging co-operative units for processing of intermediate products in production areas will help in preventing transport and handling losses and also easing seasonal gluts. The analysis

Table 3: Cost incurred by the cultivators for marketing the horticultural crops in Karnataka (Rs./Qt1.)

Crops Transport Loading & Commission Packing Market entry Grading Total unloading fees. etc

VEGETABLES . Tomato 6.87 1.52 11.71 1.33 0.32 21.75 (31.59) (6.99) (53.84) (6.11) (1.47) (100.00) French beans 8.58 1.35 11.84 0.59 0.33 22.69 (37.81) (5.95) (52.18) (2.60) (1.46) - (100.00) Brinjal 7.54 0.92 10.23 0.66 0.44 19.79 (38.10) (4.65) (51.69) (3.34) (2.22) - (100.00) Cabbage 8.63 1.42 10.71 0.59 0.11 21.46 (40.21) (6.62) (49.91) 2.75) (0.51) (100.00) Bhindi 5.66 0.64 10.82 0.67 0.37 18.16 (31.17) (3.52) (59.58) (3.69) (2.04) (100.00) Carrot 9.21 1.55 8.82 0.61 0.17 20.36 (45.24) (7.61) (43.32) (3.00) (0.83) (100.00) Cauliflower • 9.21 2.99 10.60 1.06 23.86 (38.60) (12.53) (44.43) (4.44) (1(10.00) FRUITS Mandarin 11.77 2.42 13.09 1.31 1.51 30.13 (39.06) (8.03) (43.45) (4.35) (5.11) (100.00) Banana 0.68 -.43 0.20 0 1.31 (51.91) - (3.82) (15.27) - (100.000) Pineapple 30.00 2.00- 24.24 1.00 57.24 (52.41) (3.49) (42.35) (1.75) (100.00) FLOWERS Chrysanthemum 6.41 3.06 46.50 1.56 1.05 585.8 (10.94) (5.22) (79.38) (2.66) (1.80) (100.00) Marigold - 4.85 3.65 21.13 1.15 1.55 32.33 (15.00) (11.29) (65.36) (3.56) (4.79) (100.00) Jasmine 7.33 3.24 142.35 52.71 3.33 208.96 (3.51) (1.55) (68.12) (25.23) (1.59) (100.00)

(1) Per 100 flowers, (2) Per 1000 fruits, (3) Per bunch - Figures in brackets are percentages. of transport losses and the resulting cost escalations for Nagpur oranges has shown that one per cent loss will result in increasing the transport cost by about 24 per. cent (Subrahmanyam, 1986). By encouraging processing of intermediate products in production areas, these costs can be saved which will benefit the industry by way of reduction in transport 44 costs, and instead of transporting fresh fruits/vegetables in bulk,- a concentrated product can be transported. The economic feasibility studies conducted have shown that it is desirable and profitable to encourage such type of units in production areas (Subrahmanyam and Sudha, 1992 a & b).

Present Status of Fruits and Vegetable Processing Industry , - a. Progress of the industry: At present there are 3846 licensed units with a capacity of 8.94 lakh tonnes. Majority of them (65 per cent) are in cottage and home scale (Table 4). The overall growth rate was around , 8 per cent during the period 1980- 90 with small scale Units recording the highest growth rate of 9.2 per cent per annum. 1 Table 4 : Sectorwise Growth Fruits and Vegetable Processing Units

Capacity 1980 1982 1987 1990 Growth rate per annum

Large Scale 218 233 371 442 7.6 (14.00) Small Scale -- A 236 261 312 331 5.4 (10.3) Small Scale - B 163 181 252 323 9.2 (10.5) Cottage Scale 398 456 636 768 8.1 (24.3) Home Scale 763 1147 1424 1303 5.9 (41.1) The Labeller 245 233 502 Total 2096 2611 3498 3846 7.8 b. Capacity utilisation : Though around 9 lakh tonnes capacity is available with the existing processing units, hardly around 40 per,cent is utilised (Table 5). Because of this around 1 per cent of the total production of fruits and vegetables is utilised for processing purposes as against 40-60 per cent in countries like U.S.A., Brazil, Australia and Israel. Majority of processed products are based on fruits and out of them mango accounts for the largest share.

c. Exports : Table 6 presents the trend of exports of processed fruits and vegetables from India. Though the exports have increased from ks. 255 millions in 1980-81 to Rs. 516 millions in 1988-89, the performance was not uniform and there are fluctuations. There is a vast scope for increasing our exports by taking appropriate measures like giving adequate publicity abroad etc.

Table 5: Fruit and Vegetable Processing Industry - Growth and Present Status

Year No. of Installed Capacity Production % Change Licences ('000 tonnes) ('000 tonnes)

1980 2026 275 69.6 (25.3) 1982 2611 300 136.6 (45.4) 51.8 1984 3006 379 131.1 (34.6) 9.4 . 1985 3100 405 179.2 (40.8) 36.7 1986 3343 447 . 161.5 (36.1) 1989 - 708 240.0 (33.9) 14.3, 1990 3846 894 -

Future Scope of the Industry

The fruit and vegetable industry has not taken an active role in development of horticultural crops, both production and marketing should take a lead role. Now with the present liberalised policy of the Government of India in allowing foreign collaboration and participation (51% of foreign equity), reduction of excise duties, abolition of industrial licensing, etc. the investment in this sector is likely to go up. Hence, the industry should play an active role in production and marketing of fruits and vegetables for getting right type and quality of produce and also for 46

Table 6: Trend in Export of Fruit and Vegetable Products in India

Year Quantity Value (in Metric tonnes) (in Rs. Million)

1980-81 29,966 225.6 1981-82 42,100 325.5 1982-83 70;026 624.0 1983-84 38,257 369.8 1984-85 60,910 569.1 1985-86 65,043 582.8 1986-87 46,993 489.3 1987-88 38,120 391.3 1988-89 42,974 516.7 reducing the cost of production to make them competitive in the international markets.

Conclusions

• The fruits and vegetable industry should develop a symbiotic relationship in marketing of perishable crops. The marketing constraint like wide price fluctuations, elimination of middlemen and high post harvest losses can be effectively tackled by participation of processing industry by way of contractual arrangements with the cultivators, encouraging intermediate products processing at production centres and by offering reasonable procurement prices.

References

Kejriwal, N.M. 1992. 'Development of Fruit and Vegetable Processing Industries and their Export Potential', Indian Food Packer. XLVI • (5): 13-19.

.• Fateh Singh Jasol, 1989. 'Export of Fresh Processed Horticultural Products - Present Status and Future Strategies', in Proceedings of National Symposium on Production & Post Harvest 47

Management of Vegetables, 27-28th March, 1989: National Horticultural Board, Gurgaon, pp. 86-117.

Sanjay Sinha and Saurabh Sinha, 1992. 'Small Scale Fruit and Vegetable Processing: Dynamics of Development', Economic and Political Weekly, 27 (26): A93-A99.

Subrahmanyam, K.V. and Mruthyunjaya, 1979. 'Economics of . Production and Marketing of Tomato around Bangalore'. The Indian Journal of Horticulture, 36(3): 294-300.

Subramanyam, K.V. 1986. 'Post-harvest Losses in Horticultural Crops: An Appraisal', Agricultural Situation in India, 41(5): 339-343.

• Subramanyam, K.V. 1988. 'Marketing of Horticultural Crops in Karnataka - Present Status and Future Requirements', Indian Journal of Agricultural Marketing, 2 (1): 19-22.

Subramanyam, K.V. and M.Sudha, 1992a. 'Economics of Linking Tomato Processing with Production and Marketing', I.I.H.R.

Contribution No. 26/92, Bangalore. •

Subramanyam, K.V. and M.Sudha, 1992b. 'Economics of Establishing an Intermediate Fruit Processing Unit : Case study of Mango (Bangalore) I.I.H.R., Contribution No.74/92, Bangalore.