Assignment

Dated: December 2009

Subject: Management of Agricultural inputsTopic: Input marketing Channel

Submitted to: Prof MokshapathySubject: Management of Agricultural inputsDepartment: Institute of Departmental StudiesUniversity: Mysore State: Karnataka

Submitted by: Pradeep Kumar VSubject: Management of Agricultural InputsTopic: Input marketing Channel Course: MBA - AgribusinessDepartment: Institute of Departmental StudiesUniversity: MysoreState: Karnataka

Agricultural Inputs Towards Rural

1

• Rural marketing is the process of developing, pricing, promoting, distributing rural specific goods and services leading to exchanges between urban and rural markets, which satisfies consumer demand and also achieves organizational objectives.

Rural marketing involves a two way marketing process, however, the prevailing flow of goods and services from rural to rural areas cannot be undervalued. Since the demands (‘wants’ for specific products backed by an ability and willingness to buy) of urban and rural folks are different, companies should manufacture products to suit the rural demand rather than dump urban products on rural consumers.

The process should also be able to straddle the attitudinal and socio-economic disparity between the urban and rural consumers.

With the growth and development of agriculture, large amount of industry products are being used as inputs for productivity improvement and maintenance. Similarly, a large number of industrial and urban manufactured products are being used for various consumption purposes in rural areas.

There is a definite trend in flavour of the industry laying a predominant role in rural/agricultural production and consumption process.

If we adopt the typical business management definition of marketing as an activity of identifying and satisfying customer needs, then rural marketing for our purposes amounts to dealing with various inputs/products/services meant for rural market. But, it is very crucial to precisely define a market in terms of its constituents and boundaries.

It is here, that we need to to differentiate marketing of agricultural inputs from other types of rural marketing activates.

Rural marketing in this sense is different from agricultural marketing, which means marketing of rural products to urban/rural consumer or institutional markets.

• It is also different from rural marketing of the consumer products, which deals with marketing of urban/rural products goods in rural areas for final consumption.

• Rural marketing of inputs is basically a process of delivering manufactured or processed inputs or services to rural producers, the demand for which is basically a derived demand.

2

Urban Rural

Rural

Rural

Urban

Rural

• Therefore, when we discuss marketing of inputs, we are concerned with a rural market in which an urban product has to be sold.

• So, the process of marketing becomes a case of urban to rural activity, which is characterized by various peculiarities of rural market in terms of nature of market, products and processes.

It is also different from rural marketing of the consumer products which deals with marketing of urban/rural produced goods in rural areas for final consumption.

Rural marketing of inputs is basically a process of delivering manufactured or processed inputs or services to rural producers, the demand for which is basically a derived outcome.

Therefore, when discuss marketing of inputs; we are concerned with a rural market in which an urban product has to be sold.

So, the process of marketing becomes a case of urban to rural activity, which is characterized by various peculiarities of rural market in terms of nature of market, product and process.

The rural marketing of agricultural inputs as an activity, differs from agricultural or consumer products marketing in terms of the nature of transactions, which includes participants, products, modalities, norms and outcomes.

All of these are significantly different from those of rural to rural flows which is also called rural marketing and rural to urban flows.

The participants in this case will be producers, sellers, facilitators, regulators, buyers and consumers.

The specific participants in the agricultural inputs markets are input marketers, dealers, farmers, opinion makers, government agencies and traders.

Similarly, the products are different because they are bulky, costly, used rarely, mostly being bought on credit and have derived demand

3

Seed

The different channels used of seed are as follows:

Purpose of seed storage: is to maintain the seed in good physical and physiological condition from the time there are harvested until the time they are planted.

Purpose of seed storage: is to maintain the seed in good physical and physiological condition from the time there are harvested until the time they are planted.

Stages of seed storage:

Storage on plants: (Physiological maturity until harvest) Harvest, until processed and stored in a warehouse

4

In storage (warehouses) In transit (rail wagons, trucks, cars, railway sheds, etc.) In retail stores On the user’s farm

The seed quality that is germination and vigor can be considerably affected at any stage unless sound principles involved in seed storage are practiced and the seeds properly handled.

Marketing: Seed marketing is the one of the most vital components of seed technology. On it depends the size and scope of the seed industry. Broadly, it includes such activities as production, processing, storage, quality control and marketing of seeds.

In narrow sense, seed marketing refers to the actual acquisition and selling of packed seeds, intermediate storage, delivery and sales promotional activities.

Seed marketing comprises the following

Demand forecast (assessment of effective demand)

The underlined principle is that the seed supply keeps space with seed demand in terms of quantity quality, price, place and time.

Marketing structure

It refers to the establishment of effective channel for seed distribution. The types of seed distribution system in India are farmer-to-farmer, distribution-to-distribution by co-operatives distribution by departments of agriculture

Arrangements for storage of seeds

In a sound seed marketing system it is desirable to establish seed marketing regional in the end-use areas and to arrange food go down

Sales promotional activities

A sound effective sales program must be based on the judicious use of three basic tools, i.e., advertising, publicity and public relations.

Post sales service

More emphasis must be placed on education of farmers, technical help

Economics of seed production and seed prices

Seed production cost must be kept as low as possible. Seed producer should be allowed sufficient margin, so that they are encouraged to produce good quality seed.

5

The Seed Sector chain – Organizational framework

6

Seed Legislation Seed regulations Seed acts Certification

notices People's

Biodiversity Register Legislation

Seed standards Seed licences

Agricultural Research

Germ plasma collection and conservation Plant breeding programmes (objectives,

methods, extension recommendation, maintenance of breeder seed)

Macro –Economic Policy

Raw material prices Transport policy Taxes and subsides Trade and exchange control Statutory wage rates Structural polices Price policy

Seed Multiplication Nuclear seed Breeder seed Foundation seed Certified seed

Central seed farm Contract growers Co-operative

growers Small farmers

seed multiplication schemes

Trader/farmers

Quality Control

Field inspection Certification Germination, viability

and purity test Law enforcement

Seed Processing

Cleaning Drying Grading Treating Packaging

Centralized DecentralizedSeed Storage

Processing plant Depots and sales

point Strategic reserves Centralized Decentralized

The Seed Chain

Flow of Authority

Flow of seed

7

Seed Transport Sales points

accessibility Market strategy

and info flow Loan finance

Marketing Seed company outlets Agricultural parastatals Private wholesalers and

retailers Farmer self-help groups Donor project Voluntary organizations Co-operatives

Agricultural Policy

Seed price policy Grain price Complementary input prices

Agricultural Services

Extension Farmer credit Complementary input supply

(fertilized pesticides, etc..)

Farmers Uptake

Commercial farmers Subsistence farmers

Cropping System

Resource endowment Social relations of

production Indigenous technical

knowledge

Market Situation

Industrial use Urban Consumption Subsistence

The Pesticides channel

The distribution of pesticides is carried out through state departments, com-operatives and private outlets. There is neither a fixed pattern nor any fixed terms, regarding the distribution of pesticides.

In the distribution of pesticides, there are problems of spurious products, lack of long term credit, high liability of non – sold stock, higher cost of small packs, lack of extension service and dependence on dealers for sales promotion.

The small firms which do not have a high brand image and customer pull, also run incentive schemes for dealers like target discounts, gifts on certain sales volumes, packaged tours, and incentives on advance booking of stocks.

8

Distribution System of Pesticides

The distribution of pesticides is carried out through state departments, com-operatives and private outlets. There is neither a fixed pattern nor any fixed terms, regarding the distribution of pesticides.

In the distribution of pesticides, there are problems of spurious products, lack of long term credit, high liability of non – sold stock, higher cost of small packs, lack of extension service and dependence on dealers for sales promotion.

The small firms which do not have a high brand image and customer pull, also run incentive schemes for dealers like target discounts, gifts on certain sales volumes, packaged tours, and incentives on advance booking of stocks.

Pesticides may pose risks to man and his environment from their stage of manufacture until they are used, disposed of safely or completely degraded. One source of risk is during storage and handling at the point of supply to users. The risks may be even greater in developing countries which usually lack the infrastructure and suitably trained personnel for their safe handling during the stage of distribution.

In most instances a pesticide may be imported from the country of origin and transported by sea, then by road or rail to the warehouse. This may be followed by

9

Manufacturers

Indian ForeignExports Imports

At least 50% of the output

Under 50% of the output

Formulators

Non - associated Associated

Wholesaler

Retailer

Farmer

transport by road to major distributors in the country who in turn send them to retailers or dealers most of whom may be situated in rural areas.

The pesticide may be stored under rather varying conditions, which could adversely affect its physical and chemical properties, and damage the packaging by the time the end-user receives it. Thus pesticides must be suitably packaged to withstand the rigours of transportation, loading, unloading and storage at various points from the manufacturing or packaging premises until supplied to the user. It must also be recognized that pesticides can pose danger to man and his environment through spillage directly on persons handling them, contamination of food and other articles, or leakage into the environment during the various stages of transportation, loading, unloading and storage. It is therefore imperative that due care be exercised to minimize the deleterious effects of the pesticide to man and his environment, and also to ensure that the quality of the pesticide remains unchanged within acceptable limits until it is used.

Transportation

General Advice

Pesticides should not be shipped or transported in the same container or compartment with cargo that could become a hazard if contaminated, such as food, drugs, toys, clothing, cosmetics or household furnishings. This is particularly so with trucks transporting pesticides, fertilizers, and farm produce to or from the farm.

Pesticides should not be carried in passenger compartments of transport vehicles. Care must be taken to ensure that persons travelling on the same vehicle with a cargo of pesticides are not subjected to exposure to the chemicals or their vapours. Vehicle-attendants should not ride with a pesticide cargo.

Vehicles transporting pesticides should carry "hazard warning or cautionary notices", prominently displayed.

Pesticides should at all times during transport be kept tightly secure and covered.

Steps to Prevent Leaks or Spills

Transport and handling operations should take the following steps to prevent leaks or spills:

Prior to or during loading, each chemical container should be inspected for tightness of closure of seal and for any evidence of leakage around the closure, on the top, along the sides, on the bottom and under the container. Containers showing any evidence of leaks should not be loaded. If a high percentage of containers in a shipment show evidence of leakage, the entire shipment should not be loaded.

Pesticide containers should be loaded into the carrier and secured inside the cargo compartment in such a way that they are held in place securely, without the possibility of damaging each other or being damaged in transit by other cargo.

In the loading and unloading of chemicals, equipment and tools must be carefully used, so that it does not damage the containers. In particular, the use of hooks might puncture or tear the containers, so it is not to be permitted.

10

Emergency Response

All supervisory personnel involved in the loading, transporting and the unloading of chemicals should be fully informed about the toxicity and the hazard potential of the pesticide (s) they are handling. They should be provided with information on how to deal with spills of the particular pesticide(s) they are handling, and whom to call in an emergency for medical and technical information.

Personnel, especially supervisory persons, should be trained in appropriate first-aid and rescue procedures

Record of Pesticides in Godowns

Receiving/Despatching

Data received Supplier/receiver Truck number Invoice number Trade name of pesticide Registration number Quantity

Note:

The above records must be kept on pesticides in godowns. In addition, retailers may keep similar records for certain highly toxic or restricted pesticides, and it should include the name and address of the purchaser.

Agricultural Credit

Agri credit flow seen slowing down

The credit flow to the agricultural sector has seen some slowing down due to the debt waiver scheme. National Bank for Agriculture and Rural Development (Nabard)

11

Around Rs 1,96,000 crore has been disbursed by banks to the agricultural sector till december 2008. Disbursement figure of private banks is not available.

For the financial year 2008-09, the disbursement target is around Rs 2,80,000 crore.

In October 2008, the Reserve Bank of India had temporarily provided a sum of Rs 25,000 crore under the Agricultural Debt Waiver and Debt Relief Scheme to banks and Nabard, as the first installment under the scheme.

12

Internal Constraints for Farmers and Agribusiness

Internal Constraints for Farmer

Lack of Business Management Skills

limited knowledge of commercial opportunities and realities; under-developed planning and business management skills; lack of technical skills in farming and processing; poor marketing knowledge and selling skills; little recognition of opportunities for product diversification or the links between

market research and product development; limited economies of scale in production capacities and/or under-utilized plants

Technology constraints limited access to modern farming and processing technology making products

often unfit for liberalized markets

Raw material procurement lack of reliable supplies especially off- season; lack of trusting relationships and formalized agreements with suppliers and

selling agents.

Quality Constraints problems meeting quality standards of processors; lack of access to appropriate seed material and pest management; storage constraints, outdated production technology.

Market access constraints poor negotiating and selling skills lack of trusting relationships and formalized

agreements with buyers.

Financial Constraints lack of access to capital for expansion of production or introduction of post-

harvest technologies; high costs of capital in relation to expected production and processing margins; lack of access to credit.

13

External Constraints Facing Farmers and Agribusiness1

External Constraints for Farmers and Agribusiness

Adverse Macroeconomic Conditions Inconsistent and not transparent business rules and regulations; High taxes, poor tax administration; High levels of corruption; High interest rates leading to high cost of finance and/or limited access to credit; Exchange rate devaluation leads to high costs of imported inputs; Insufficient margins in farming sector.

Market Constraints Limited purchasing power; Low demand for processed goods; Competition with imported raw materials and processed goods.

Lack of Institutional support lack of coherent government agricultural/business development strategy; lack of government industrialization strategy or problems with implementation poor access to support from educational, agricultural research institutions and

business support services; poor co-ordination and co-operation between government institutions and the private

sector; breakdown of governmental extension services / absence of direct farm business

support services.

Lack of Adequate Infrastructure road, water, electricity, communications, storage; erratic supply and high cost of public utilities.

Limited Availability of Inputs seeds, farm machinery, fertilizer/agro-chemicals etc; high cost of raw materials (some sectors) and low processing margins, high overhead

costs (utility prices and labor costs) poor services; lack of local/affordable supplies of ingredients, packaging materials and equipment; inadequate equipment production by local metal workshops and inadequate training

in hygienic and safe equipment design;Market Information little or no published information on markets, prices, trends, key market players. high cost / limited access to commercial market research.

1

14

The widening role of Information Technology in Indian Agriculture

With the fast changing global environment and the adoption of latest technologies in farming across the world, it seems apt for Indian agriculture to look into the possibilities of leveraging technology to stay competitive. The world is no longer a cluster of Standalone Islands; rather it has become a conglomeration of interconnected territories. Today if the price of a commodity is changed in one corner of the globe; it surely does impact the price of another in a distant land which is thousands of miles away. The current context thus calls for industries to be aware and updated about the changing trading policies. And agriculture is no exception to the rule.

As it has been widely accepted by most that in today’s world the way information is being gathered and shared would play a very significant role in developmental process. And agricultural sector is also going to be positively affected if the flow of information increases. However, it is easy to talk about the collection and dissemination of information. But it is a difficult task to achieve the same, and more so in agricultural sector where the information infrastructure is at the most primitive stage. So when we talk about increasing the information flow and management of the same we are talking about a lot of investment. However the cost associated to achieve this target can be minimized and the information flow to the participants in agriculture can be enhanced by leveraging information technology. Let us see how!

IT adoption in Agriculture

The effectiveness and efficiency of the information used in agriculture can be increased multifold by the adoption of IT in agriculture. Information access and improved communication is viewed as having direct implications for the socio-economic development of a nation. And in Indian context we can say that the social and economic development of the Indian agrarian community can be brought in with

15

the effective use of IT. The farmers still face the problems of inadequate information related to cultivation of crops, the presence of which could have enhanced the decision making capability of the farmers. IT seems to be a promising medium through which relevant information can be communicated to help in farming and post harvest processes.

Areas of Importance:

The following can be looked upon as the areas of development in IT to leverage information in an effective way to decrease the order and delivery time. It would also help in customer relationship management.

1. A database for crops can be maintained: The database repository can include important information about the types of crops and land holding pattern. This information can be transmitted via the internet to the database server. The information thus accumulated can play a significant role in the decision making process.

2. Production techniques and information inquiry system should be created. This repository should ideally be having the best and innovative techniques developed by R&D institutes or some progressive farmers. Would be a great source of information for the farmers to access and utilize.

3. System for inquiry about farm machineries: This system can be developed by the companies operating in the farm machinery sector. This can help the farmers to get information about the best equipments to use and similarly the companies can promote their farm equipments.

4. A similar system for agricultural inputs like seeds, fertilizers etc can be developed by the relevant companies.

The government is not only aware of these possibilities but they have also initiated steps to achieve significant goals in this regard. The National Agricultural Policy lays high importance on the implementation of IT for agricultural sector. And the Department of Agriculture has also led visionary plans for the same.

In future therefore we will witness a reduction in cost and time of information system through the use of Information technology. IT will enable farmers to take more precise and informed decisions through the enhanced control that they will have on the information channels.

Some of the key concerns that IT can address and help farmers decide better are:

a. Information about the benefits of increased irrigationb. Cost-effective use of fertilizers and chemicalsc. How and when to market the produced. How and when to order the agricultural inputs needed for farming

So it seems that the use of information technology will enable the farmers to come up with cost-effective and profitable marketing and distribution strategies. Further it would be possible to trade online thus reducing a lot of post-harvest cost. And it would lead to a collaborative system of information sharing among the various key players in the entire agricultural supply chain.

16

However the picture is not that rosy a lot of problems beset the effective implementation and use of IT faces a lot of challenges. When we talk about the use of IT we are talking about users who have very low literacy rate. This would act as a barrier since most of the applications and software are built on English language. Other key issues are :

i) The lack of proper communication infrastructureii) Cost of computersiii) Small individual farmers’ incapability to adapt to IT due to financial and education constraint.iv) Low adaptability to new technology due to lack of awareness.

In this regard India faces another problem of magnitude. Around 85 percent of farmers in India are small farmers who have less than 2 hectare of land. So to expect them to individually come up with information systems for their farmland would be an impossible proposition. Instead the Government should encourage small farmers to pool resources to form groups and start farming in groups so as to enhance their spending capabilities when it comes to use of IT. This would be beneficial and a commercially viable option for the farmers as it could lead to attainment of efficient trading and marketing practices for the farmers. It would not be an overstatement if we say that agricultural growth would be information driven and IT is going to be the solution for the growing challenges for the farmers, which are brought in by rising cost, increasing competition and globalization. Some of the companies like ITC have already realized the business potential that they can generate through effective use of IT. The Internet kiosks set up by ITC under their e-Chaupal initiative are a step towards that direction. The future has to be collaboration between agriculture and IT.

17

Agri Input - Fertilizers

As per Oxford Dictionary, Logistics refer to the “ Art of moving, lodging and supplying troops and equipment.

As per Philips Kotler, Logistics are “ Planning, Implementation and controlling the physical flow of material and final goods from the point of origin to the points of use to meet the customer needs.

In fertilizer marketing, logistics cover packaging, mode of transportation, handling, warehousing and channels of distribution i.e. placement

Proper management of logistics is very essential for moving the fertilizers from the Plant/Port to the consuming areas at the right time, in right quantity and in best conditions.

A dynamic and efficient logistics system helps in reducing the marketing cost. However, it calls for constant monitoring of activities within the fold of logistics.

Salient Features: India

o Agriculture continues to be mainstay of India’s economy.o Agriculture Contribution to GDP is 18%.o Two Third of population lives in the villages.o 57% of population depends on Agriculture Sector.o With growing population, land man ratio is declining.o Chances of bringing additional land under Cultivation are remote.o Future increase in agricultural production has to come by way of increasing

productivity of land already under cultivation.o Vital role of fertilizers for increasing agricultural productivity is universally

recognized.o Share of fertilizers for increasing food grain production is 41%.

Fertilizers Consumption in India

YearFertilizer Cons. (‘000 tonnes) Annual Growth Rate over

previous Period (%)N P K TOTAL N P K TOTAL

1951-52 59 7 0 66        1971-72 1798 558 301 2657 21.8 24.9 26.5 22.91991-92 8046 3321 1361 12728 7.1 9.7 7.3 7.71992-93 8427 2844 884 12155 4.7 -14.4 -35 -4.5

18

2002-03 10474 4019 1601 16094 2.8 4.1 7.3 3.52004-05 11714 4624 2061 18398 5.7 7.3 13.5 6.92005-06 12723 5204 2413 20340 8.6 12.5 17.1 10.62006-07 13773 5543 2335 21651 8.3 6.5 -3.3 6.42007-08 14419 5515 2636 22570 4.7 -0.5 12.9 4.22008-09 15117 6595 3328 25040 4.8 19.6 26.3 10.9

Import Of Fertilizers

o The Gap between the Consumption and Production of fertilizers will go up substantially as no new capacities of Urea and DAP are in the pipeline. Therefore, imports of Urea and DAP are inevitable in future.

o Entire requirement of MOP (60% K2O) is met through import, as there are no known sources of potash in the country.

o During 2008-09, 56.7 lakh MT Urea, 61.9 lakh MT DAP and 56.7 lakh MT MOP was imported respectively.

Logistics

Fertilizer Distribution

19

Fertilizers are produced at 147 locations in the country.

Volume of fertilizer (indigenous and imported) dispatched in the country during 2008-09 was 47 million MT.

The volume of fertilizers to be handled will go up in the coming years.

Distribution of above quantities to the Farmers scattered in about 6 lakh villages in the country is a Herculean Task.

This is more so due to the fact that fertilizer production is a continuous process whereas consumption is highly seasonal and confined to 3-4 months in a year and that too split into two seasons namely Kharif and Rabi.

Fertilizer being a bulk commodity, its logistics is complex activity.

Fertilizer Distribution Channels

Transportation

Fertilizers in India are moved by Rail & Road only

Rail transport is suited for larger volume and economical for longer distances

Fertilizer Movement is done by rakes only i.e. BG Rake - 2500 to 2700 MT for covered wagons and upto 3000 MT for open wagons & MG rake -700 to 800MT

20

InstitutionalAgencies

Private Trade

Company OwnedRetail Outlet

State Coop. MarketingFederation

InstitutionalAgencies

District/ Taluka LevelCooperative Societies

Primary AgriculturalCredit Societies

Own RetailOutlet

Marketing Wholesaler

Private Dealer

Private Retail Dealer

FARMERS

Fertilizer Manufacturer

Number of Fertilizer rake point: 730 out of which used by the Industry is 400-500.

Important Elements Of Logistics

o Transportation (70 to 75 %)

o Warehousing (3 to 4%)

o Handling (5 to & 7%)

o Handling, Transportation and warehousing expenses are controllable.

Comparative Energy Efficiency of modes of transportation

Transport Mode Energy Consumption (BTU/Tonne-Km)Railways (Electric Fraction) 84.6Road 1587.3Waterways 182.0

Fertilizer Movement by Rail & Road

YearAverage Lead(KM)

Quantum

movedby Rail (‘000 MT)

%Share by

Rail

1980-81 1100 8108 671990-91 940 18360 682000-01 862 27093 752006-07 827 34076 732007-08 827 34075 732008-09 827 34100 73

Availability of Railway Wagons

Year

Total Wagons on

line (in Units)

Percentage of the total number of

wagonsCovered Open

1980-81 400,946 53.3 28.31990-91 346,102 49.1 29.62000-01 222,193 34.1 412001-02 216,717 33.2 41.72002-03 214,760 31.9 42.42003-04 227,752 29.8 44

21

2004-05 222,409 29 45.82005-06 207,983 29.4 45.42006-07 207,719 28.8 47.2

Warehousingoo Fertilizer production is a continuous processo Fertilizer consumption is highly seasonalo Warehousing becomes imminento Storage capacity at plants limited to 3 to 4 weekso Storage facilities in India are provided byo - Central warehousing corporationo - State warehousing corporation.o - Cooperativeso - Privateo Strategic hiring of warehouse is critical for optimum utilization and effective

control of inventory and thereby marketing cost.

Storage Capacity In India (AS ON 31.3.2008)

AgencyNo of

Warehouses

Capacity

(Lakhs MT)

CWC 490 99SWC 1576 187COOPERATIVES 66513 149TOTAL 68579 435

Packaging

o Fertilizers are Hygroscopic in Natureo Tend to cake if exposed to Moistureo Lose Nutrient Valueo Packaging provides protection.o Packaging offers convenience of TPTN. Handling and Storageo HDPE bags are used Packagingo Normal Packaging Size - 50 KgHandling

o Handling of fertilizers is the controllable function of the marketing cost.

o Increasing the number of handling leads to loss of weight of material as well as damage to the outlook of the bags.

o Farmers in the present scenario gives due importance to the packaging.

o Efforts should be made to reduce the number of handling thru proper management

22

Marketing Channel

o Every manufacturer needs a link with the customers to sell his products.o The set of intermediates forming this important link is called the

marketing/distribution channel.o Selecting the right channel is the most important, complex and challenging

task for every business organization.

_Marketing Channel in India for Fertilizers can broadly classified into three categories:

_Institutional Agencies _Private Trade _Company owned outlets _Private trade accounts for 60%. _Institutional agencies including cooperatives accounts for 35%. _Manufacturers own 5%

Systematic Approach to logistics Rationalization

o The first and foremost step for logistics rationalization is the assessment of month wise / district-wise accurate demand of fertilizers.

o The demand should be assessed keeping in view the cropping area, irrigated / un-irrigated area, credit availability, introduction of new varieties, last years sale pattern, any new development in the area etc.

o Demand of fertilizers in the districts provides the basis for finalization of warehousing planning.

Warehouse planning is next important aspect i.e. Location of warehouse and how much space to be hired is the crucial factor in logistic management.

_ Majority of farmers in India are small and marginal and they do not have the resources to purchase material before the start of the season.

_ Warehousing allows continuity of production and helps in making the vital input to the farmers in time and in right quantity.

_ Fertilizer should be placed in the warehouses keeping the view the lead distance from the Plant/Port.

Placement of fertilizers in the warehouses should be well before the start of the season.

_ Wrong placement of fertilizer leads to loss of sales on one hand and increase in the inventory cost on the other hand.

23

_ Efforts should be made to make available fertilizers at the doorstep of the farmers at the appropriate time.

The ultimate should be that no sale is lost for want of material.

Fertilizer Monitoring System (FMS)

_ Department of fertilizers ensure sufficient availability of fertilizers in each state at macro level.

_ Distribution of fertilizers in different districts of the state is to be managed by state government.

_ There were complaints of shortage of fertilizers in some pockets particularly in far-flung and inaccessible areas.

_ Food grain production was almost stagnant or declining for the last few years.

_ Fall in food grain production blamed on failure in timely supplies of fertilizers.

_ Manufacturers/ suppliers on the other hand were facing cash crunch due to delayed subsidy payments.

In order to infuse more and more Transparency in the distribution and availability of fertilizers in the country, fertilizer-monitoring system was developed.

_ FMS is a web based fertilizer monitoring system launched by DOF ON 22nd JANUARY, 2007

_ FMS monitor the production, dispatch and receipt of Urea/DAP/MOP/ complexes upto the DISTRICT level.

_ This helps DOF to monitor Availability on a month wise/ District-wise/ company-wise format against the agreed supply plan.

Logistics Rationalization Under FMS

o _ Before the beginning of month, GOI communicate the month wise movement plan for Urea, NPKs and DAP to the States.

o _ State Governments, further bifurcate the same into manufacturer-wise/ district wise.

o _ Supplies are made as per the supply plan.

o _ In case, supply in a district is more than the plan, the same is regularized by State Governments.

o _ The revised plan are entered in FMS by LFS between 6 to 10th of following months every month.

24

Uniform Freight Subsidy Payment

_ Under FMS, GOI is giving Rail freight on actual basis.

_ Manufactures are uploading the copy of RR for dispatches by Rail into the FMS and also indicate the actual freight paid.

_ As regard further movement from Rake-point to the field warehouses, district-wise normative leads have been approved and uploaded into FMS for each State.

_ As regard direct movement by Road from Plant/Port, the distance from Plant/Port to the districts have been approved by GOI and the same is uploaded in FMS.

_ GOI has also uploaded the approved per tonnes per km rate for each State.

_ In case of Road Movement, the average of the rates of the dispatching state and the receiving state is applicable. The maximum permissible distance for Road Movement is 500 KM.

Presently on NPK/DAP, GOI is giving concessions (subsidy)as well as freight payment to the manufacturers thru FMS.

_ As regards Urea, concession based on the retention prices are paid thru the manual system. However, the freight payments are paid thru FMS.

_ The freight payments are calculated on the basis of the quantity received in the district directly from the rakepoint / Plant and multiplying it with the Statewise approved lead and rates.

_ No subsidy is paid for inter district-movement.

Suggestions

o Presently on NPK/DAP, GOI is giving concessions (subsidy) as well as freight payment to the manufacturers thru FMS.

o _ As regards Urea, concession based on the retention prices are paid thru the manual system. However, the freight payments are paid thru FMS.

o _ GOI reimburse the freight subsidy on the basis of first point of receipts.

o _ No subsidy is paid for inter district-movement.

25

o GOI allows road movement of fertilizers from Plant/Port upto a distance of 500 KMs.

o _ Therefore, economics of supplies by road from Plant/Port should be worked out keeping in view the rates reimbursed by GOI vs actual expenses involved.

o _ Efforts should be made to minimize the under recoveries on freight.

26