Agri Marketing Tip #3 : Know Your Customer (K Y C)

[Venkat (eFarm)]

Agri Marketing Tip #3 : Know Your Customer (K Y C)

The previous tips on calculating cost of production, had lot of responses/queries on how a buyer would agree to the price set by farmer, and how to keep price stable for longer term.

Just like there are Rs 1 lakh car (Nano) and Rs 1 Crore car (BMW), the price of a item depends on quality/service/brand value etc., You just dont goto a 'mandi' and buy a 'car' in kilos.. there are dealers/ distributors who form a whole chain which conencts the factory to the retailer and each having a 'markup' on the MRP.

The manufacturer typically determines his base price, adds up the markup for each intermediary and then sets final MRP which customer sees. So when customer pays a price, all people in the chain automatically get a stable income.

This is NOT the case in agri, because the manufacturer(in this case farmer) does NOT set his price, doesn't KNOW how to set his price, doesn't KNOW who the different end customers are, and most importantly is often STUBBORN and RESISTANT to change .

Know your customer :

Any bank you walk in will have a KYC form - just like that you need to KNOW who your END customers are, their specific needs/expectations before selling to them. Most of the time, farmers meet only the local agent in their village or maybe one hop to the next trader in nearby market. They NEVER go beyond in that chain. Or another MYTH is that the end buyer is the 'housewife' and they see lot of crowd in 'retail shops' adn assume that 'supermarkets' is the biggest customer for them . Or some have tried opening direct 'farm to home' retail shops - most of which have flopped .

Unfortunately, most of the biggest customer groups are often 'invisible' to the farmer :

Hotels/Caterers :
In most urban homes, both spouses goto work and hence there is hardly much time to cook meals at home.Most food is eaten in food courts/ hotels .

Hotels and caterers are a stable, relaible partner for farmers because they have fixed menus, have fixed customers (hence can predict demand well ahead) and typically prefer local vegetables for most of their preparations. They also buy in volume, and the chefs are all from villages/small towns so easy to interact with .
They pick most vegetables/fruits/cereals/pulses and often have fixed 'suppliers' who come and drop at THEIR door steps. They would prefer NOT to work with too many individual farmers, but if you have a cluster and can gurantee round the year supply , they would be ideal.
In hotels too there are various sub-categories :
from road side shops, to middle class single units, to multi branch outlets to star hotels each with unique needs. Best is to talk to the managers/chefs to map their wish list.

Several hotel chains have central kitchen , where in 1 palce they cook for 15-20 restaurants across the city. They will not give entire volume immdiately or to single perosn, but would maintain multiple suppliers to reduce risks .
They pay in cash on delivery or bill-to-bill and hence prompt paymasters.

Food Processors :
Pickles/Jams/Juices/Powders are often made from agri raw materials in bulk. They buy in large volumes, specific items and often when in season when prices are lower. Often the challenge in this industry is that availability of produce is erratric, prices fluctiate suddenly . They look for long term/advanced contracts whenever possible and would prefer direct large farmers/clusters as well.
Several self help groups are now getting organised by banks in food processing (good exmaple being the tn govt 'amma' canteens run by women SHGs) .

Retailers/Supermarkets:
Though they may purchase several items, often the individual quantities are very small per shop. Also wastages are high, especially weekedays as less customers come . Hence expect high fluctautions. Also paymentsa are slower/poor as lot of 'modern' shops run in loss.

Exporters :
Typically exporters have a license for generic products and do bulk purchases on behalf of customers/orders outside India. Lot of variations based on govt regulations , dollar/currency fluctions, international commodity markets . The key challenge for them is availability in bulk (typically 20 tonne containers) in short time , quality/grading is poor , lot of pesticides/unsafe techniques which get rejected in interntional ports . Lot of people have got busted in this as it is a high volume, high money, high risk game . Currently india's export performance is VERY POOR and even APEDA is struggling to market our 'brand india'.
Payment process is also more complex involving banks/LCs lot of documentations and approvals. Tread with Caution.

Government :
Indian govt is often the biggest procurer for farmer for its PDS and often as a 'relief measure' . But the biggest defaults in payments and biggest losses in poor storage are also classic in govt purchases. Agri being a 'state' subject , expect lot of differences between central govt run schemes and state level variations.
Most IAS officers have shared in private that 'agri dept' posting is like a 'punishment' - as it is always under fire, low budgets and more a 'vote bank politics' which drives its vision. With every change in govt or officer, expect policies and commitments to change as well.

Small Traders/Kirana :
In reality the biggest group of buyers is the small trader . But as they are scattered individuals , often they cant directly buy from farmers now. But with better transport and coordination the link between small farmer to small traders in city is the BEST , sustianbale preferred way .

The APMC act and the MYTH :

Most people quote the 'agri produce marketing ' act to state 'people cannot buy directly' from the farmers and hence have to go thru mandi. THIS IS NOT CORRECT.

Even the so called APMC laws have been SCRAPPED in several states so it is only a myth that one cannot buy direct from farmer. That was NOT the original intent of the law.

Even in states where APMC is followed, in the govt yards, it si only for certain commodities. The intent of the act was to ensure farmer gets fair price and has choice of buyers.. but the 'mis interpretation' in media is opposite !

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M Venkata Subramanian Founder/COO eFarm www.efarm.in | www.efarmdirect.com