Uttarakhand Organic Commodity Board

supply chain for Basmati rice

India

Meeta Punjabi
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CONTENTS
Contents ................................................................................................................................. ii
Summary ................................................................................................................................ ii

1. Introduction ........................................................................................................................ 1
2. Basmati production and exports from India ......................................................................... 3
2.1 Factors affecting prices of Basmati rice ................................................................................... 3
3. Uttarakhand Organic Commodity Board............................................................................... 4
3.1 Background of the organic movement in Uttarakhand ........................................................... 4
3.2 Background of UOCB ............................................................................................................... 4
3.3 Activities of UOCB and COF ..................................................................................................... 5
4. Organic Basmati rice marketing chain of UOCB ..................................................................... 6
4.1 Maintaining quality through the supply chain......................................................................... 6
4.2 Certification ............................................................................................................................. 7
4.3 Marketing................................................................................................................................. 8
5. Margin analysis of farmers working with UOCB and farmers selling to the traditional market
............................................................................................................................................. 10
5.1 Long-term benefits ................................................................................................................ 11
6. Issues related to organic farming ....................................................................................... 13
7. Lessons learned and way forward ...................................................................................... 15

References ............................................................................................................................ 16

LIST OF TABLES AND FIGURES

Tables
Table 1: Districts of India cultivating Basmati rice............................................................................. 3
Table 2: Costs involved in organic certification at project level ........................................................ 8
Table 3: Gross margin in INR per hectare for organic and conventional Basmati rice growers...... 10
Table 4: Risks analysis for farmers working with UOCB and farmers selling to the traditional
market.............................................................................................................................................. 11

Figures
Figure 1: Marketing chain for agricultural produce in traditional channels in India ......................... 1
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SUMMARY
This article presents the marketing chain organized by the Uttarakhand Organic Commodity
Board to supply organic Basmati rice from smallholder farmers in the Uttarakhand region of
India. The state-sponsored project covers all aspects of setting up the marketing chain for organic
farming: identification of farmers for organic farming, provision of quality inputs and technical
assistance at the production level, and development of linkages for marketing through private-
owned export companies. Certification is a very important aspect of organic farming, especially to
access the export market. UOCB has developed an internal control system to support the third-
party certification process. Farmers selling to the Board get a premium over farmers undertaking
conventional Basmati rice production and their level of risk is lower. Farmers involved in this
programme have benefited from the marketing activities set up by the UOCB. This case is thus an
interesting model for public-sector support to quality improvement and marketing of agricultural
produce.
 1

1. INTRODUCTION
Agricultural produce in India is largely marketed through traditional channels. The typical
approach for grain marketing in India consists of several players as shown in Figure 1. In the
traditional marketing chain, where the produce is collectively sold, there is no premium for
quality, and hence no incentive for the producers to emphasize on quality. With increasing
private sector investment in processing, exports and retailing of agricultural commodities, there
is a strong emphasis by these companies to develop supply chains for quality produce. Quality of
produce is very critical in meeting the specific requirements for processing and export markets.
Thus, companies or organizations involved in agricultural marketing, processing or exports have
to work closely with farmers to meet specific and often very stringent quality requirements of the
export market.

Figure 1: Marketing chain for agricultural produce in traditional channels in India

Farmer  Consolidator  Wholesaler  Semi-wholesaler  Retailer

It is important to analyse the emerging modern marketing chains for agricultural produce so as to
understand their impact on farmers, and get insights into the involvement of small and marginal
farmers in meeting international quality standards. The marketing chain developed by the
Uttarakhand Organic Commodity Board (UOCB) for exports of organic basmati is investigated
here.

In recent years, organic farming has gained momentum because of demand side and supply side
factors. On the supply side, the after-effects of the green revolution and high use of chemical
fertilizers and pesticides have had severe implications for the sustainability of agriculture. These
concerns have forced farmers to look for more sustainable approaches to farming. On the
demand side, the premium obtained for organic produce, specifically in overseas markets is
leading governments and private entrepreneurs to put a high emphasis on organic agriculture.
With high premiums and the positive effects of organic farming on soil quality, the emphasis on
organic farming has only grown in recent years. However, allowing small and marginal farmers to
produce under organic practices requires special attention due to the initial loss of productivity,
the training required for farmers to adopt organic farming and the management skills and
financial capacity to carry out certification of organic crops. An in-depth look at the UOCB’s
supply chain for organic basmati study will give important insights on the issues related to
promoting organic agriculture. The specific objectives of this study are:

1. To analyse the functioning of the UOCB Basmati rice supply chain to see how small and
marginal farmers are involved in meeting international quality and standards;
2. To present a comparative analysis of organic Basmati rice growers working with the
UOCB with other Basmati rice producers selling to traditional marketing channels. Key
aspects of the comparison are quality of output, productivity levels, quality of inputs
used, access to inputs, price of output, price risk and access to marketing channels;
3. To understand the key issues in organic farming from the small farmers’ perspective.

The next section gives an overview of Basmati rice production, consumption and exports in India.
Before conducting a detailed supply chain analysis, the background on UOCB is presented in
Section 3. Section 4 describes in detail the supply chain of organic Basmati rice developed by
UOCB. A comparative analysis of “contact”1 farmers working with the organization and other

1 The farmers working with UOCB are called “contact” and not contract farmers. This is because the Agriculture

Produce Marketing Committee (APMC) act has not been modified in the state. In the states where the APMC has not
 2

farmers selling to the traditional market is presented in section 5. Section 6 focuses on the issues
related to the promotion of organic agriculture in the country. Section 7 concludes with some
experiences learned from this case.

been modified, contract farming which enables companies to procure directly from farmers is not permitted. In the
case of Uttarakhand companies procuring organic Basmati rice from farmers for marketing do not physically procure
from the markets, but they pay the APMC market tax call market cess, which is required in regions where the APMC
has not been modified. However, since the region now falls within an Agri-Export Zone, this market cess is being
waived.
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2. BASMATI PRODUCTION AND EXPORTS FROM INDIA

Basmati rice is a special variety of long-grain fragrant rice cultivated at the foothills of the
Himalayan mountain range in India for thousands of years. India and Pakistan are the only two
countries producing Basmati rice. Total annual production in both countries is around 2 million
tonnes, with about 1–1.5 million tonnes coming from India. India is the largest producer and
exporter of Basmati rice with about two thirds of the production being exported. Basmati rice is
grown exclusively in the northern part of Western Punjab (on both sides of the Indo-Pakistan
border), Haryana and Uttarakhand. Haryana accounts for around 50 percent of the area under
basmati rice in India, followed by Uttarnachal and Uttar Pradesh (earlier the joint state of Uttar
Pradesh) with 25 percent and Punjab with 18 percent, see Table 1. The productivity of Basmati
paddy in India is around 1 400–2 100 kg per hectare against the yield of non-basmati paddy of
4 500–5 000 kg per hectare. Some commonly known traditional Basmati rice varieties in India are
Basmati-370, Basmati-386, Type-3, Taraori, Basmati (HPC-19), Basmati-217 and Ranbir Basmati
(IET-11348). Evolved Indian Basmati varieties include Pusa Basmati-1 (IET-1064), Punjab Basmati-
1 (Bauni Basmati), Haryana Basmati-1 (HKQ-228/IET-10367), Mahi Sugandhi, Kasturi and Super
Basmati.

Table 1: Districts of India cultivating Basmati rice

States Districts
Haryana and Punjab Karnal, Panipat, Kurukshetra, Kaithal, Amritsar, Fatehgar,
Gurudaspur, Hoshiarpur, Jalandhar, Patial, Sangrur, Ropnagar
Himachal Pradesh Kangra, Solan, Una, Mandi, Sirmour,
Rajasthan Bundi
Uttar Pradesh Saharanpur, Muzaffar nagar, Pilibhit, Bareily, Bijnour, Moradabad,
Jyotibaphule Nagar, Rampur, Raibereily, Sitapur
Uttarakhand Udham Singh Nagar, Haridwar and Dehradoon
Jammu & Kashmir In lesser quantities in some areas

The Multi Commodity Exchange of India (www.mcx.com) presents a good snapshot of Basmati
rice production and exports from India. In the international market rice is traded under two main
categories: fragrant and non-fragrant. In case of fragrant rice, India dominates the trade with its
Basmati rice followed by Pakistan. Basmati rice is the leading aromatic fine-quality rice of the
world trade and fetches a good export price in the international markets. Basmati exports from
India peak during March–April and November–December. In 2001–2002, Basmati rice accounted
for 0.89 percent of India’s total exports, 6.24 percent of agricultural exports, 36.96 percent of
food grain exports and 58.14 percent of rice exports. The Gulf Region is the major market for
Indian Basmati rice and within the Gulf Region, Saudi Arabia accounts for the major share of
Basmati rice imports from India (accounting for two thirds of exports). The European Union is the
next important market for Indian Basmati rice followed by North America. Since Pakistan is the
only other producer, it is the sole competitor for India in the international market for Basmati
rice.

2.1 Factors affecting prices of Basmati rice

Weather has a profound influence on the production and the monsoon plays a key role in its
production and productivity. Since Basmati rice has a big export orientation, import demands
from other countries affect prices considerably; the economic performance of importing
countries, overall sentiments in the rice market and the supply of Basmati rice from Pakistan also
affect the international market. On the domestic side, the Indian Government’s export–import
policy and domestic consumption patterns also impact on the price of Basmati rice.
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3. U TTARAKHAND ORGANIC COMMODITY BOARD

3.1 Background of the organic movement in Uttarakhand
Uttarakhand is a newly formed state in North India consisting of the hill regions of Uttar Pradesh.
The Uttarakhand Organic Commodity Board (UOCB) is a state initiative to promote organic
agriculture in the state of Uttarakhand. The formation of UOCB is best understood in the light of
the organic movement in India and in the region. Generally speaking, organic farming has been
practiced in several parts of India for a very long time. In hilly and far flung areas, where it is not
easy to access chemical inputs, farming is organic by default. A conscious move towards organic
farming is more recent, largely driven by the deteriorating soil conditions and premiums on
organic produce. In the areas implementing the green revolution, the use of chemical fertilizers
increased immensely. The green revolution was very valuable in enhancing productivity, but the
high use of chemical fertilizers has severely affected the quality of soils. Long-term sustainability
of agricultural production under deteriorating soil conditions is a big concern. Moreover, high use
of fertilizers is also very expensive, as the yields will not increase in accordance with high inputs
because there are diminishing returns to scale after a certain level of input use is reached.
Agricultural growth is at an all-time low of 1.8 percent. In this situation, for long-term
sustainability of agriculture it is important to emphasize on low-input sustainable agriculture and
a move towards organic agriculture is a step in this direction. Consequently in recent years, there
has been increasing emphasis on organic farming in India.

The first move towards organic farming in India started in 1993 at Jawahar Lal College of
Agriculture in Indore, Madhya Pradesh. In Uttarakhand, a formal programme to support organic
farming started with the initiation of the World Bank’s Diversified Agricultural Support
Programme. Three districts – Nainital, Dehradun, and Udham Singh Nagar – were selected for
the organic village programme. Since then, several initiatives by different agencies and NGOs
have been undertaken in this region. When Uttarakhand was established as a new state in the
year 2000, the new government gave a high priority to organic agriculture. The Uttarakhand
Organic Commodity Board (UOCB) was set up to bring the various organic programmes in the
state under one umbrella to spearhead the organic movement in Uttarakhand. With the ongoing
initiatives in organic agriculture, Uttarakhand has carved a niche for itself as an “organic state”
with a “fresh mountain product” appeal.

3.2 Background of UOCB

This section draws on the information about the organization available online at
www.organicuttarakhand.org. The Uttarakhand Organic Commodity Board was established on 19
May 2003. The board was registered under the Societies Registration Act of 1860 and is acting as
the nodal agency of the state to enhance organic activities in agriculture and allied sectors like
horticulture, medicinal aromatic plants and herbs, and animal husbandry throughout the state.
As the nodal agency for promoting organic agriculture in the state, the functions of UOCB are
manifold: serving as the advisory agency to the state department for development of organic
infrastructure; initiating, supporting and nurturing institutions to develop backward and forward
linkages for organic farming; conducting research on all aspects of organic produce to make
available a database of activities; collaborating with other national and international agencies for
promotion of organic agriculture in the state. Currently several commodities such as rice, pulses,
spices, cereals are organically grown and sold. Organic Basmati rice contributed to about 50
percent of the total sales of INR9.5 million (approximately US$237 500) in the financial year
2005–2006. Currently, UOCB has 25 000 registered farmers with 11 000 hectares under organic
certification.
 5

Along with the larger role as the state nodal agency, UOCB is closely involved in developing all
aspects of the marketing chain including providing training to farmers, ensuring availability of
quality inputs, managing the internal control system (ICS) to support the certification process,
building post-harvest infrastructure for storage and processing and developing marketing
linkages. Details of all these steps in developing the organic basmati rice marketing chain are
discussed in the next section.

The Center for Organic Farming (COF) is a programme funded by the Sir Ratan Tata Trust and
anchored within the UOCB. Conceptually COF is an independent body, but the administrative
functions of COF are operated from within UOCB. COF provides assistance to the on-going
organic initiative, primarily in the form of technical expertise and human resources. The Organic
Basmati Export Programme (OBEP) is a major component of the COF project, which has focused
on developing the marketing chain for exports of organic Basmati rice.

3.3 Activities of UOCB and COF

Capacity building. UOCB has trained farmers, extension workers from government line
departments and NGOs in all aspects of organic production including certification and marketing
of organic produce. UOCB has organized exposure visits for farmers, middle- and senior-level
officers to seminars, exhibitions and other gatherings in the organic sector.

Facilitator for developing backward and forward linkages. UOCB develops production plans
according to market demand and delegates the plans to the different production agencies –
organic villages run by the agriculture department or the different partner NGOs. The organic
farmers are then assisted to form organic producer groups and to link with markets.

Implementing the internal control system. ICS is set up by the organization as a mechanism to
support the certification process. ICS works with the farmers to ensure proper documentation of
the procedures required by the certifying body. This means that the third-party certification
bodies only have to ensure the well-functioning of the system, and perform a few spot-check re-
inspections of individual smallholders (as discussed in detail in the next section).

Provide technical support. UOCB functions as the resource centre for the technical inputs of
organic production, knowledge that is constantly being updated. Inputs which can be used as per
standards compiled by the board, new products and technologies for organic production and
then information are passed on to the different stakeholders in the state.

UOCB is involved in resource generation in the form of funds, human resources and building
patronage for the organic development for the state. The Board also contributes to the
development and incubation of ideas, products as well as future strategies.
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4. ORGANIC BASMATI RICE MARKETING CHAIN OF UOCB

UOCB is currently working in an area of 2 024 ha with 2 200 farmers for organic rice production
(approximately 0.9 ha/farmer). The organic Basmati rice from Uttarakhand is third-party certified.
Certification for organic produce requires strong monitoring and control through the chain. The
entire crop can be rejected if the produce does not meet the quality requirement. A team of
UOCB technical experts works closely at the farm level to ensure compliance with all aspects of
organic farming. This section gives a detailed description of the monitoring and control of quality
through the supply chain, starting from selection of farmers, availability of quality inputs,
production, grading, packaging, and exporting.

4.1 Maintaining quality through the supply chain

Selection of farmers for organic farming
Site selection. The farm should not be located downhill as there are higher chances that uphill
use of chemicals and fertilizers by other farmers will get mixed in the area of the organic farm. If
there are polluting industries close by like a brick manufacturing facility, this is also likely to
enhance chances of rejection as organic.

Mentality. Farmers’ attitude towards organic agriculture is important. If they believe in the
concept then they are more likely to stick to this method.

Trustworthiness. As is experienced in most other cases of contract farming, even when there is a
written contract, trust is an important issue in the relationship between farmers and coordinating
agencies. Testing for quality compliance is not possible every time as these methods are time
consuming as well as expensive. Constant monitoring of all farmer actions is not possible. High
level of trust in farmers reduces the transaction costs of monitoring.

Quality of inputs
The board is in charge of ensuring availability of quality seeds to the farmers. Based on the
demand for the next season, seed production for a specified surface is contracted to certified
farmers under technical guidance and supervision of experts from UOCB and the Seed
Certification Agency of Uttarakhand. After production, other tasks including grading, processing
and packaging of seeds are also conducted under supervision of the Seed Certification Agency.
The seeds are processed at the seed processing plant located regionally and supplied to the
farmers working with the organization. Quality specifications for seed include size of the grain,
and insect-free or pest-free seed production. Farmers participating in OBEP use home-made
inputs. In case of use of off-farm inputs such as Trichoderma, Pseudomonas, B.T., UOCB is
involved in ensuring the availability of certified organic inputs which are sanctioned by the
certification agency.

Technical assistance at farm production level

One of the checks maintained in the field is that the same variety of Basmati rice grown under
organic production cannot be grown as conventional Basmati rice, a different variety has to be
planted. There are extension agents to provide technical support for production practices and to
monitor the production process. There is one field officer per block (a district consists of several
blocks), managing approximately 300 farmers.

Training regarding modern composting techniques is also provided to the farmers. Earlier the
farmers followed traditional composting methods, which took 8−10 months. UOCB has now
introduced modern vermicomposting and introduced composting methods that have allowed the
 7

composting time to be reduced to 2−3 months. UOCB is not directly involved in soil testing but
farmers’ federations, buyers or field demonstration heads assist the farmers in soil testing. The
NADEP method of producing compost is also used. The NADEP method of making miracle
compost was first invented by a farmer named N.D. Pandharipande (also popularly known as
“Nadepkaka”) living in Maharashtra State of India. The method, which has become quite popular
among the farmers in western India, now bears his name. Details about this method of
composting can be found at http://planning.up.nic.in. Some farmers are using the System of Rice
Intensification method (SRI method) for producing organic Basmati rice. In this method
transplantation of paddy starts 12 days after sowing; seed and water requirements in this
method are very low. The clapping method to remove stem borers is also a common practice of
organic farmers. This is a traditional approach, which has not been scientifically validated, but
seems to be working well on the ground. In effect the farmers gather in the fields and create a lot
of noise by clapping. This helps to control the damage by stem borers. Further research on the
scientific underpinning of this technique needs to be undertaken.

Harvesting, threshing and storage

The quality control process continues during harvesting and threshing. Thorough cleaning of
equipment is a must to ensure quality and avoid adulteration of organically grown rice with
conventional produce. Threshing is done carefully using manual labour. During storage also, the
key consideration is cleanliness and avoiding mixing of organic and inorganic produce. Mixing
with traditional produce can cause rejection of the crop. UOCB has promoted 11 warehouses for
storage of organic crops under organic certification.

4.2 Certification
Third-party certification is important to ensure quality and gain consumer confidence regarding
authenticity of produce. Third-party certification implies that the seller (first party) or the buyer
(second party) are not be involved in the certification. A neutral third party has to do the
certification. In India, only agencies accredited by the Agriculture and Processed Foods Export
Development Agency (APEDA) can carry out third-party certification. Initially international firms
like IMO and ECOCERT were certifying bodies for UOCB. As mentioned above, UOCB has installed
an internal control system to allow farmers to become certified as a group and make the task of
certifying easier for the certifying agencies. By definition, an ICS is “a documented quality
assurance system that allows the external certification body to delegate the annual inspection of
an individual group to an identified body within the certified operator” (IFOAM, 2003).
Documentation and different legal forms describe the certified operators’ management
structure. In the case of UOCB, the ICS has carried out the following:

• An internal regulation manual has been developed;

• Farm files have been developed, printed and distributed to field motivators;
• A farmer’s diary has been developed, printed and distributed to farmers;
• An inspector report format and a checklist have been developed;
• A systematic and well designed code system has been developed;
• Farmers, organic villages, districts and projects have been coded.
One of the major issues in promoting organic farming is the high cost of certification. To
overcome this constraint, the Government of Uttarakhand has established the Uttarakhand State
Seed and Organic Production Certification Agency (USS & OPCA). The ICS developed by UOCB
helps USS & OPCA and other certification bodies to carry out direct inspection of farmers; it also
allows the certification of small landholders who cannot afford to pay the high individual
certification fee. According to the National Organic Guidelines, certification agencies cannot get
directly involved in training and documentation through their extension team.
 8

In a study on costs associated with organic production and certification, Santacoloma (2007)
presents a detailed description of the costs associated with organic certification. The overall cost
of implementing projects and schemes for organic certification have three major cost
component:

• Costs associated with production;

• Costs related to certification; and
• Marketing costs.

At all these three levels, there are initial setup costs as well as maintenance costs. Along with
these costs at the project level, there are costs at the individual level as well. Based on the above-
mentioned study, a detailed description of all the costs at the project level are presented in Table
2. The study also estimates that the ongoing costs at the project level for UOCB are
US$238/ha/year. As mentioned earlier, these are costs involved at the project level. Costs
incurred at the farm level in terms of loss of productivity, are not included in these costs.

4.3 Marketing
UOCB also supports the farmers in providing market linkages. Currently, the marketing tie-up is
with Kohinoor Foods and KRBL Rice. Earlier the tie-up was with Tea Group for one year. The
farmers are involved in making decisions regarding the tie-up. The purchase price is fixed. Last
year the price was INR2 200 per quintal, this price will increase by INR50 per quintal per year for
the next two years. The price for Basmati rice going to the traditional market is approximately
INR1 300 per quintal.

It is important to note that during the conversion period, the prices that the farmers are given by
UOCB are higher than the prices paid for the conventional Basmati rice although lower than
those for the organic Basmati rice. This high price is given to farmers as an incentive to support
the organic movement. It is important to mention here that the European Union and the United
States of America have different standards for organic produce, which can sometime cause
problems in marketing. Produce of UOCB farmers comply with both standards.

Table 2: Costs involved in organic certification at project level

Setting up costs Ongoing costs
PRODUCTION
• Project planning: cost of project design and setting up the  Technical development and ongoing
required business support and technical services training
• Technology development: costs associated with
developing field technology directly at the farm by using
participatory methods
• Training and extension: costs of developing training
materials and staff time associated with providing farmer
training
• Cost of conversion: in some cases, project managers pay a
premium during the conversion period to support the
conversion process
CERTIFICATION
• Establishing farmer’s groups: as a condition to establishing
an ICS, a legal organization should be in place with a • Certification fees: the annual
documented description of the management structure and certification fees are often paid by the
internal regulations organization or project supporting
• ICS establishment: these costs cover development of farms organic farming; in this case, UOCB pays
and farm visits in order to gather information for ICS these certification costs
 9

documentation, farm pre-inspection and assessing farmers’ • Monitoring and social networking:
training needs these include participation in seminars,
• Training: this refers to particular training on standards and peer review visits to farmers, and direct
regulations of personnel, internal inspectors and farmers marketing in fairs, which imply
Record keeping and accounting system: this refers to costs transport and time costs
for preparing documentation and collecting information at
the farm level for internal and external inspection
MARKETING
 Marketing planning: all marketing activities and costs are  Marketing skills development: costs are
closely related to the type of certification, certification associated with participating in national
body appointed and type of markets targeted and international fairs in order to
research demand requirements or
install new shops
Source: adapted from Santacoloma (2007)
 10

5. MARGIN ANALYSIS OF FARMERS WORKING WITH UOCB AND FARMERS

SELLING TO THE TRADITIONAL MARKET
In assessing the impact of the project it is important to compare the group of farmers working
with UOCB with the group of Basmati rice growers who sell their produce to the traditional
markets. Table 3 presents a comparison of the gross margins of growers involved in organic and
conventional Basmati rice production. This table presents an overview of the variable costs
involved. Along with this, there are some fixed costs associated with initiating an organic farm, in
preparing the pit for vermicomposting and related costs.

Table 3: Gross margin in INR per hectare for organic and conventional Basmati rice growers
Conventional Organic
Item Qantity Unit cost Total cost Qantity Unit cost Total cost

Labour*
Nursery 37 100 37 100
preparation
Land preparation 12 100 12 100
Transplanting 30 100 3 000 30 100 3 000
Weeding 10 50 49 100
Water
Harvesting and 74 100 74 100
threshing
Seeds 30 26 780 30 26 780
Seed treatment 247 124
NPK 2 471
Vermicompost 618 2 471*
and plant
protection**
Total cost 7 116 6 375
Yield 20 quintal 20 quintal

Price/kg 13 22
Gross margin 18 626 37 158
(based on
assumptions)
Returns to 114 184
labour/day
* Mostly family and exchange labour is used, except in the case of transplanting when hired labour is used
**Assuming that only INR2 471/ha is spent on purchase of non-farm inputs such as manure and plant
protection, while the rest of inputs are on farm inputs

Table 3 presents an overview of the costs and returns for traditional as well as organic Basmati
rice production. As is evident, labour is the major cost in Basmati rice production. Hired labour is
used mostly for transplanting whereas exchange of labour between households is the norm for
other cropping activities. Organic Basmati rice production has a higher labour input because of
manual weeding. In the case of traditional Basmati rice production, other inputs include seeds
and seed treatment, NPK fertilizer and plant protection. In the case of organic basmati, apart
from seeds, vermicompost is a major requirement although most of this requirement is met from
the farms’ own organic matter. Approximately INR2 471 is spent on purchase of manure and
other plant protection equipment such as pheromone traps. Based on these considerations, the
 11

cost of production in the case of organic Basmati rice is INR6 375 per hectare and the same for
conventional Basmati rice is INR7 116. Note should be taken that only cash inputs purchased
have been used in calculating input costs, own and exchange labour and own manure have not
been accounted for.

The farm price offered by traditional traders for conventional Basmati paddy is INR13/kg. In the
case of organic Basmati paddy the purchase price has been fixed with the current buyer at
INR22/kg. Based on the cost of production and the farmgate price, gross margins and returns to
household labour were calculated based on the labour used for each production type. Despite
having higher labour usage for weeding, the return to labour per day is higher in the case of
organic Basmati rice by INR70/ha/day above that for conventional Basmati rice production.
Furthermore, producers of conventional Basmati rice also have to bear the marketing costs
typical in the traditional market which include market taxes, a commission to the traders;
discrepancies in weighing also significantly affect the prices received by the farmers. While
comparing the gross margins of the conventional and organic rice producers it is important to
bear in mind that margins of the organic producers might be overestimated because of non
inclusion of fixed costs and certification costs, which are currently borne by the UOCB.

5.1 Long-term benefits

In the case of organic farming focusing only on short-term gains is not enough. The long-term
health of the soil is important for sustainable and profitable farming over the years. Increasingly
higher costs of production because of chemical fertilizers and stagnant yields have led to
deteriorating earnings of farmers.

Not only is organic farming better for the producer, the benefits of organic farming for the
consumers are also very obvious. The large-scale reporting of misuse of chemicals and pesticides
and high levels of pesticide residue also have a very detrimental impact on consumer health.

Apart from gross margins, risk is another key aspect that affects farm level profitability. Table 4
shows the risk analysis between farmers working with UOCB versus farmers selling to the
traditional market. The third column shows whether the risk for UOCB farmers is higher, lower or
same as the risk borne by traditional farmers. Risks related to weather-related issues and
biological pests, financial risks are reduced in the case of the farmers working with the
organization as they have support on these fronts. As discussed above, risks from price
fluctuation are minimized because the prices are fixed by the buyer in the case of organic
Basmati rice.

Table 4: Risks analysis for farmers working with UOCB and farmers selling to the traditional market
UOCB farmers Comparison of risk: Farmers selling to
increased () traditional market
minimized ()
same ()
Weather- or drought- This risk is minimized as  The farmers themselves
related risks the extension agents have to decide what to
associated with UOCB do in a critical situation.
are in touch with the
farmers. In case of an
expected weather
outbreak or change,
they inform the farmers
to take the necessary
action.
 12

Risk from short-term This risk is also  Farmers selling to the

commodity price minimized as a spot market have to
fluctuation minimum support price bear the brunt of
is fixed for the UOCB fluctuating market
farmers. prices.
Risk from long-term 
price fluctuation
Asset risks There is no provision for 
asset risk management.
Financial risks (loans UOCB can be involved in  Farmers have to face
and credit) arranging the loans the financial risks on
between the financing their own.
company and farmers.
These farmers will
probably have more
leeway in the case of a
default.
Exchange rate risks In this case, the price of 
rice is fixed in rupee
terms. The exchange
rate risk is borne by the
marketing company.
Risks of poor or This risk is minimized as  Information gathering
deficient information the UOCB extension depends on the
workers inform the initiative of the farmer
farmers if a disease
outbreak is expected.
Biological risks These risks are also 
minimized as the
company extension
agents are scouting the
fields regularly.
Legal and governmental Currently, there are no 
risks regulations in the
country. Consequently
the risk of defaulting on
the contract and legal
implications are not
very high.
Farm management risks Organic farming has a  Continuing to use
(impact on technical positive impact on soil chemical fertilizers
production systems) sustainability. indiscriminately can
have a negative impact
on soil in the coming
years.
Personal Risks NA 
Note: NA = Not applicable
 13

6. ISSUES RELATED TO ORGANIC FARMING

Organic farming is gaining momentum in India and several new initiatives and projects to
promote organic farming are being launched. Hence it is important to take a closer look at the
issues regarding adoption of organic farming, especially for the small and marginal farmers. It is
widely recognized that it is not easy for small and marginal farmers to convert to organic
agriculture. There are some initial costs involved in setting up an organic farm. As mentioned
earlier, in the initial periods of conversion, yield is lower and the produce cannot be sold as
organic so there is no premium. For a farmer who is surviving only on 0.5 to 1 ha of land, getting
a lower income for 2−3 years is not a financially viable option. The farmer cannot bear the initial
income losses involved in conversion. Likewise, there are further costs associated with
certification and marketing, which are often borne by project sponsors.

During the survey for this study, discussion with some small and marginal farmers highlighted
that among other reasons, conversion to organic is difficult as they do not have cash to pay
labourers for the extra weeding. The payment to labourers usually is made in kind. Because of
the high value of organic Basmati rice, it cannot be given as in-kind payment. It is observed from
the field surveys that large farmers start converting small plots of their land to organic in
successive phases of 2 to 3 years. This ensures that their income does not change significantly
during the conversion period as they keep a steady income from the land under conventional
farming methods.

On the other hand, there are some factors that work in favour of small farmers converting to
organic farming. Availability of manure is an important requirement for organic farming. Small
farmers can meet this demand with their own animals. Large farmers with larger plots under
organic are likely to be constrained by the amount of manure available at the household level,
and might have to purchase manure which will affect the cost of production. Also, once the
farmers recognize the overall benefits of organic farming in long-term sustainability of the soil
they will take the initiative to convert to organic farming. In the case of small farmers, a special
focus is needed on training for organic farming and developing marketing linkages. With a more
detailed study of issues and constraints faced by the small farmers in undertaking organic
farming, appropriate incentive packages can be developed to involve more small farmers in
organic farming.

Some other issues regarding involvement of small and marginal farmers in organic farming
include pricing of organic crops (Singh, 2006). There is no specific price discovery mechanism for
organic produce, since it is a niche market. The price is not linked to the final price fetched in the
export market. Rather, the price for organic produce is a premium over the conventional crop.
Another issue relates to the ownership of the organic certificate. Often times, the ownership of
the certificate is with the companies who are coordinating the marketing. Thus, if the farmer
decides not to sell to the companies, he or she can no longer sell their crop as certified organic.

Another aspect of organic farming in India is the project mode for promoting organic farming.
Several approaches are being followed: state projects such as the one developed in Uttarakhand,
projects implemented through NGOs, and support to the private sector to undertake such
initiatives. The State of Uttarakhand has set an example in taking forward organic farming in the
state. Many other states are also following the example and are taking initiatives to undertake
organic farming projects at the state level. It is important to understand the costs and benefits of
undertaking such projects with different implementing agencies. The positive impact of a state
level initiative is that projects can be undertaken on a larger scale. However, the overhead costs
of the project are likely to be quite high.
 14

Another option is to undertake projects with NGOs. The advantage of this approach is the small
and focused activities that are likely to be more cost effective. The downside is that such efforts
are likely to be regional and cannot be scaled up easily. Also, not all NGOs perform well at the
ground level. As far as the private sector is concerned, the main approach has been to give
support to the private sector to initiate such projects through a subsidy to pay the costs of
organic certification. The limitations in this case are that the private sector will get involved only
in progressive areas and with resourceful farmers who can easily meet the quality requirements
of their customer. Another issue is that sometimes the subsidies do not get transferred to the
farmers. Providing support to the private sector for promoting organic farming is required at least
in the short run. However, steps can be undertaken to monitor these projects closely in order to
ensure that the farmers get some benefits. Some norms for involving a specific number of small
and marginal farmers can also be set up. Overall, no one approach will be enough to take forward
organic farming in a large country like India. More combinations based on the strengths and
weaknesses of the approaches can be explored.
 15

7. LESSONS LEARNED AND WAY FORWARD

The State of Uttarakhand has set an example for promoting organic agriculture at the state level.
The project covers all aspects of setting up the marketing chain for organic farming including
identifying farmers for organic farming, providing quality inputs and technical assistance at the
production level, and developing linkages for marketing. In this case, Kohinoor rice and KRBL are
the marketing companies which procure from UOCB farmers and sell in the international market.
Certification is a very important aspect of organic farming, especially to access the export market.
UOCB has developed an internal control system to support the third-party certification process. It
was evident that the farmers selling to the Board get a premium over the conventional Basmati
rice farmers. Also, since the prices are fixed for a three-year period, the price risk is low. Apart
from the price risk, biological and weather risks are also lowered, because of technical
backstopping by experts, which helps to minimize production losses. Obviously, farmers involved
in this programme have benefited from participating in the marketing chain created by UOCB.

Going forward, there are issues with organic farming, which need more attention. Specifically,
detailed farm level analysis needs to be undertaken in the case of small and marginal farmers to
understand the issues related to conversation at the ground level. These insights are necessary as
the number of projects for the promotion of organic agriculture in the country is likely to
increase.

Some other issues which need attention from the institutional perspective include:

• Price discovery mechanisms for organic produce;

• Farmgate prices linked to prices in the export market;
• Ownership of organic certificates; and
• Support to strong producer organizations.

Finally, regarding the implementation of the projects, the various approaches include state
agencies such as UOCB, NGO-supported projects and support to private sector initiatives in
promoting organic agriculture. There are benefits and costs associated with each approach. No
one approach will be effective in promoting organic agriculture. Appropriate models will be
based on crops and location, and the socio-economic status of the farmers.
 16

REFERENCES

IFOAM. 2003. Smallholder group certification. In Compilation of results. Proceedings of the three
workshops (February 2001, February 2002, February 2003). IFOAM, Bonn.

Santacoloma, P. 2007. Organic certification schemes: managerial skills and associated costs.
Agricultural Management, Marketing and Finance Occasional Paper No. 16. FAO, Rome.

Singh, S. 2006. Organic cotton supply chains and small producers: governance, participation and
strategies, Economic and Political Weekly, 30 December 2006.