Let farmers decide the price’: Mani Chinnaswamy, Apache Cotton

Author(s): Jyotika Sood
Issue: Jan 15, 2012
Mani Chinnaswamy’s contract farming model has prompted IIM graduates to study his Appachi formula. After all, it gives farmers the right to bargain the price of their produce with the buyer. Talking to Jyotika Sood, the entrepreneur shares the hurdles in the implementation of the formula and its potential to change farmers’ lives

 

Mani ChinnaswamyMani ChinnaswamyWhat makes your formula a novel contract farming model?

Appachi formula differs from conventional contract farming models, especially on the price front. We do not create uncertainty by fixing the price of the produce in advance. Our contract allows farmers to sell their commodity at the prevailing market rate. Though we have the first right to negotiate, farmers are free to auction off the produce in case of a disagreement. We motivate them to form self-help groups to enhance their bargaining power.

Our pricing mechanism usually does not disappoint them as it takes into account the labour put in by the farmer and his family. My company, Appachi Cotton, deals only in cotton because it is a family business, but alongside we encourage our farmers to grow millets, legumes and vegetables, which helps them meet their daily needs and expenses.

Another component of the formula is to ensure that farmers never go short of money and material throughout the cultivation period. The contract assures them easy availability of credit from banks, quality seeds, doorstep delivery of unadulterated fertilisers and pesticides at discounted rates, expert advice and field supervision.

We hear you have stopped facilitating farm credits.

I developed the formula with a vision that everyone who is part of the contract will fulfil their responsibilities. If a farmer takes a loan, he must repay it. It worked well for 10 years. But in 2006, during the assembly elections in Tamil Nadu, some political parties promised waiving off agricultural loans in their manifesto. This led to wilful default by farmers and a bitter end to the idea. To fill the void we started looking for ways to reduce cultivation cost. This made us switch from conventional to organic cotton in 2009. Farmers are always under fear and defensive, applying fertilisers and pesticides indiscriminately, thus increasing cultivation cost. They would sanitise the entire field at the sight of a single insect. There was a need to teach them when to pick up their pesticide guns.

Is organic cotton more profitable than the conventional cotton?

In agriculture, profit can be increased either by increasing the yield or by reducing the cultivation cost. Chemicals and technologies like Bt are pushing up the yield, but they are also increasing the cost of cultivation.

Farmers are organic by default. Through Appachi, we remove middlemen, passing the benefits directly to farmers. An increasing number of farmers are switching from conventional to organic cotton lately. Since the yield reduces during the conversion period, we offer them financial support to keep up their interest in organic cotton. We help them get organic certification.

What are the challenges before organic cotton?

No doubt Bt cotton poses the threat of contamination to organic cotton, but the biggest challenge is seed. All our seed banks have run out of traditional cotton varieties. Hardly any company or agriculture university is coming forward with seeds suitable for organic farming. The government and universities are promoting Bt crops, while people want safe organic crops.

What are the other endeavours of your company?

We have an integrated model for organic cotton farmers and weavers. At present, we have 165 farmers and 50 weavers. We make products like sarees and dress material under the brand name, Ethicus. We put our craftsperson’s name and picture on every piece he creates and mention the time it took to weave the fabric.

Indian sugar prices jump to 11-month high

Indian sugar prices climbed four percent on Wednesday to their highest level in nearly 11 months after the government allowed exports of one million tonnes and traders looked to take advantage of higher global prices, analysts and traders said.

The December sugar contract on India’s National Commodity and Derivatives Exchange was 2.34 percent higher at 3,015 rupees ($57.9) per 100 kg at 1108 GMT.

 

 

The contract earlier hit a high of 3,059 rupees, the highest level for the front month contract since December 29, 2010.

In Kolhapur spot market in the country’s top producing Maharashtra state, sugar jumped 3.4 percent to 3,050 rupees per 100 kg.

Global prices eased on the promise of extra supplies.

 

 

India late on Tuesday decided to allow one million tonnes of white sugar exports under Open General Licence (OGL), double initial expectations from the world’s second-biggest producer.

It also decided to scrap the stock limit for traders.

“(Domestic) sugar prices will gain further as the market was expecting permission for 500,000 tonnes, but the government has surprised with one million tonnes,” said Vedika Narvekar, a senior research analyst at Angel Commodities Broking Pvt Ltd.

 

 

Traders and analysts all agreed domestic prices are likely to see a floor at current levels but expectations for gains ranged between two to seven percent in the next two months.

“We need to see at what prices mills will export sugar.

If they get good premiums over domestic prices, then local prices will harden further,” said Mukesh Kuvadia, secretary of the Bombay Sugar Merchants Association.

 

 

New York benchmark raw sugar futures traded down 0.64 percent at 23.29 cents a lb at 1109 GMT while Liffe white sugar March futures fell 0.7 percent to $609.6 a tonne on a free on board (FOB) basis.

Indian sugar futures prices currently equate to around $630 per tonne for white sugar, delivered to a domestic port.

The government expects India to produce 24.7-25.0 million tonnes of sugar in 2011/12, while the Indian Sugar Mills Association sees production at 26 million tonnes.

Consumption is about 22 million tonnes a year, leaving ample room for exports.

 

 

In the 12 months ending September 30, 2011, India allowed exports of 2.6 million tonnes of sugar, including unrestricted overseas shipments of 1.5 million tonnes, popularly termed as sales under OGL.

OGL sales are limited only in quantity, not by any other trade restrictions.

Exports will be welcomed by Indian sugar millers struggling with higher input costs due to a rise in cane prices.

 

 

“The exports will help millers in reducing inventory and ultimately cost of carrying extra sugar will go down.

It will also improve the cash flows for them,” Narvekar of Angel said.

Shares of sugar companies like Shree Renuka Sugars, Bajaj Hindusthan, Balrampur Chini Mills and Simbhaoli Sugars Ltd rose as much as four percent early on Wednesday, but ended as much as 7.5 percent lower on weakness in the broader stock market and as investors worried about production costs.

 

 

“Currently due to the weak rupee and higher prices in the international market, millers are getting better realisation from exports.

It should help them in improving their bottom line,” said a Mumbai-based sector analyst with an international brokerage.

“But its impact will be limited as this year they are going to pay farmers much higher prices for cane.”

 

 

In the biggest sugar producing state, Maharashtra, millers have agreed to raise the first instalment of payment – usually over 80 percent of the total cane price – by five rupees per 100 kg to 180-205 rupees per 100 kg.

In the second-biggest sugar producer Uttar Pradesh, the state government has raised the cane price by as much as 19 percent to 235-250 rupees per 100 kg.

Millers have been pressing the government for the past few months to allow this first tranche of exports and now hope in early 2012 it may allow second tranche, if there is more clarity over output levels.