Friday, March 29, 2013

Who Moved My Tomato?

While the book ‘Who Moved My Cheese’ by Spencer Johnson is about how people can adapt to change in their lives, this blogpost ‘Who Moved My Tomato?’ is about the entrepreneurial spirit within the informal tomato markets in India which rests on the belief that ‘change is constant’.

It may be that the onion wholesale markets or the potato wholesale markets are not so different. However, we had the chance to visit the wholesale tomato market at Vaddahalli and observed what goes on there. It is in the Mulbagal taluk in Kolar district,  just off the NH4, about 90km from Bangalore and has been functioning since the past 25 years. We saw how farmers, commission agents, wholesale dealers and retailers involved in the tomato trade accept that ‘change happens’ and how they adapt to it.  Each year and each season, the output from the field is likely to differ and the demand from the markets is also differs. Every day a new price is fixed for the tomatoes that depends on how many crates the farmers bring in and how many kilos the commission agent thinks he can sell.

The tomato traders can “anticipate change” in that they know from their informal interactions with fellow workers or with customers that there will be an increase in the demand in the coming season, either because there was a sudden rise in demand at the same time the previous year or because they have been told that in the current year, a particular crop season coincides with the marriage season, i.e. there may be many days in those months that are auspicious for marriages and the demand for tomatoes will be high.

The traders can “monitor change” or “smell the cheese often so you know when it is getting old”. In the case of the market for tomatoes, it is about knowing whether the crop must be harvested early or late. If the demand is high in the local areas, the tomatoes can be harvested when they are almost fully ripe. If the demand is low in the local areas but is fairly good in faraway towns and cities, the tomatoes must travel longer distances and need to be harvested when they are still green. The green tomatoes fetch a better price than the ripened, red tomatoes. The ripening of the tomatoes is a function of the weather. At certain times of the year, the tomatoes ripen faster and while they are still small in size.

There is a multitude of ways in which the tomato moves from the hands of the farmer in the village to the hands of the small retailer in the city. The market at Vaddahalli has 43 commission agents. Anyone can start a commission agency, however, the challenge is in getting farmers who would be willing to supply the tomatoes. Most farmers live and work within a radius of 50km from this market and have already established a relationship with a Commission agent. For a new Commission agent, business can only come from bringing in new farmers by assisting them with loans or providing them with saplings for a better crop.

The tomatoes are brought in every morning by the farmers and handed over to the Commission agents who then auction them at the Vaddahalli market starting at 9am every day. The farmers also spend money on transporting the tomatoes from their villages to the Vaddahalli market. The tempo drivers charge Rs.6 per plastic crate for the transportation. This includes picking up the tomatoes from the farmer and then, taking the boxes back to the village, so that the farmer can bring his produce again, which is done once in three days. Some Commission agents own 5000 plastic crates. During circulation some of the crates get misplaced and this loss is borne by the commission agent. Each empty plastic crate costs him Rs.15.

The selling of tomatoes between the farmers and the commission agents is based on volume and not by weight. It is ‘how many’ crates, where each crate of tomatoes can weigh upto 14-15 kilos and can be priced at anywhere from Rs.15-20 per crate to Rs.300 per crate. This means that the lower price range can bring the farmer Rs.1/kg. The pricing is based on the size, the colour and the firmness of the tomatoes.

The commission agent gets about ten percent of the final price. So, if a crate of tomatoes is sold for Rs.20 at the Vaddahalli market, the tempo driver gets Rs.6, the labour for plucking in the village costs Rs.3 and the commission agent gets Rs.2. The farmer’s profit is Rs.9 for every 14 kilos of tomatoes that he brings. A farmer gets 100 crates per acre for every 3 days.

The buyers at the auctions are the “agents” of the wholesale traders from various cities. It could be Chennai in Tamil Nadu or Guntur in Andhra Pradesh where the tomatoes are supplied to. These agents get a five-day credit period from the commission agents. However, the commission agents have to make the payment to the farmer almost immediately. In addition, the commission agents have to ensure that good saplings go to the farmer. The price of the saplings is deducted from the sale proceeds. So, the commission agents are crucial cogs in this entire market process.

Last year, at this time, each crate of tomatoes was selling at Vaddahalli market for Rs.300. Because of the high demand, this year more farmers planted tomatoes and the price has dropped drastically with supply being in such abundance. The agents need to be in the know of what is happening in the cities so that they can fix the price accordingly. If they don’t do that, they may sell the tomatoes at a much lower price than what the market is willing to pay and it is the local intermediaries that make large profits as a result.

There are two varieties of tomatoes: the natti (indigenous) variety and the hybrid variety. The Vaddahalli market is the hub for the natti variety. There are other wholesale tomato markets at Madanapalle, Kolar and Malur. Each of these markets have their own commission agents and their own set of farmers. The farmers sometimes can sell at multiple markets, so it is in the best interest of the commission agent that he doesn’t let his farmer go away to another agent or to another market. This is done by getting nurseries to give them saplings when they need them, ensuring that the farmers get a good price for their produce and giving them their payments on time.

Coming back to the Who moved my cheese analogy where cheese is representative of happiness and success, what does the tomato here represent? For the Bazaar entrepreneur, ‘finding new cheese’ is about ‘finding new opportunities’. The key to success in the tomato trade seems to lie in knowing how much to grow, how often to harvest, how to deliver to the rural and urban markets, how to distribute, how to price and how to reinvest in the business again. You need to be innovative, efficient and productive whilst the environment around you is constantly changing.  And, it seems that those who find new ways to respond to the ground reality are likely to experience greater success.

(I would like to thank Keshava Reddy for identifying this market for us and for conducting the interviews on which this blogpost is based)

No comments: