Risk Management, Price Discovery & Cost Savings Through Shared Services Centres – An Examination of the Application of these to Agriculture

By | August 7, 2017
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  This research paper takes India’s agriculture as a living proof for dialogue and makes use of a easy to know language with none reference to advanced theories and jargons so that it connects to readers from a wider spectrum. Nevertheless, although the living proof for dialogue is with regards to India as geography and state, the readers are advised that the bottom idea mentioned within the paper could be utilized to any densely populated, growing financial system like Pakistan, Indonesia, Bangladesh, Philippines and so on the place Agriculture is an important sector of the financial system.

 The very goal behind this research is undisputable actuality that agriculture as a sector although is an important life blood for any densely populated growing financial system, little or no penetration of excellent industrial practices have seeped into this sector for quite a lot of causes like vastness of areas to be lined, resistance to good industrial practices from rural populace as a result of what could be referred to as as concern of unknown, and so on.

On the outset allow us to have a birds eye view of the agricultural construction in India (the geography taken for this research paper) by way of accessible land on one hand and the attention ranges of rural populace of assorted instruments and strategies, briefly varied industrial good practices / strategies which are in place.

 Of the full land accessible within the nation, (although a tropical nation with wealthy water sources) solely roughly 67.6% of the land is made as agriculture match and the world below irrigation is a mere 59 million hectares as at 1990. The nation’s inhabitants is slated to the touch roughly 1.68 billion mark by 2050 making it essentially the most populous nation on the planet. Connecting the dots right here we are able to simply see the true image. The image is similar for most of the growing economies within the area.

 Now lets talk about the modus operandi and software of every one of many company good practices / strategies talked about within the abstract and title to this sector.  

 Danger Administration in Agriculture               

 The danger that stares on the face of a farmer comes from a number of sources. Nevertheless all these could be capsuled collectively and labeled into broadly three main threats that account for bulk of all of the dangers confronted, particularly, climate, pests and poor (below) yeilds. 

 The danger of poor yields / below yields (this threat in lots of crops is so harmful that it stays largely invisible for the very best length of the crop, and exposes itself solely in the direction of the method of harvest time) could be mitigated largely by resorting to time examined / confirmed excessive yield excessive resistant hybrid seed varieties. Pleasantly, in India the attention of those seeds and their availability has of late penetrated into the ranks of the target market particularly the agricultural farmer. However the true problem is guaranteeing the supply of those seeds to each single farmer who’s prepared to purchase them for a value, and availability via the yr for all harvest seasons. Right here the provision chain (distribution chain) challenge could come up within the minds of the readers, however the identical could be resolved through the use of the publish workplace branches which are unfold via the complete panorama of the huge nation. It could be identified that although the enterprise of a publish workplace is totally completely different, the intensive distribution community of the postal division could be exploited for the distribution of those seeds, in addition to publishing the supply and non availability of various seeds at completely different intervals of time. This may also be embedded with checks and balances within the system, in such a method that farmers can register their grievances / complaints, if any,  within the distribution course of at instant subsequent greater stage workplace (say district head workplace of the publish workplace , regional head workplace and so on).The standing of the complaints could be discovered at any time by invoking the RT I Act (Proper To Info Act) or relevant legal guidelines within the related nations, if issues go to such an extent, because the propesed checks will mitigate most of such necessities. Additional the chance of poor yields (and the chance of pests) may also be mitigated to a very good extent by a considered use of proper fertilizers. The availability chain (distribution) challenge of the identical could be resolved in precisely the identical method as that mentioned for crop seeds.

 The danger attributable to uncertainty of realising the anticipated harvest as a result of adversarial climate on one hand and / or pest assault / an infection however could be mitigated by transferring the chance to a 3rd get together, that’s, by taking crop insurance coverage. Right here is the place a number of issues reside including to woes, this threat constitutes the most important of all dangers confronted by the farming group. Its a curse, this deadly threat which additionally comes with a really excessive chance of incidence (and having its greatest and finest mitigation guess in “insurance coverage”) faces the issue of abysmally poor penetration of crop and allied insurance coverage and it is a painful fact not simply in India however in lots of elements of the world. Throughout the geographies, crop insurance coverage schemes are subsidised by the respective governments however given the gaps within the schemes, it has been a failure. Lets talk about the case in India (once more as talked about earlier the identical is noticed in lots of nations in growing world with massive populations to feed). As a mechanism to handle the poor insurance coverage penetration in agricuture sector, the central authorities got here out with Complete Crop Insurance coverage Scheme (CCIS) in 1985 and the identical was quickly changed by Nationwide Agriculture Insurance coverage Scheme (NAIS). This NAIS didn’t ship on anticipated strains because it suffered from the identical flaws that scores of subsidised crop insurance coverage schemes suffered from in lots of elements of the world comparable to adversarial choice, space method, arbitrary premiums (based mostly on actuarial charges and administrative prices) to call a couple of, in addition to poor penetration. The failings in product construction / design must be addressed on the stage of insurance coverage supplier by analysing every of the talked about widespread flaws in its personal advantage and rectifying the identical. Instance, adversarial choice could be mitigated by charging greater premia for prime threat areas; by getting the schemes (which are financially subsidised by the Govt) to be administered by personal firms, and so on.  The  different perennial drawback is that of absymally poor penetration of insurance coverage within the farming group in many of the growing economies. Once more as mentioned in earlier paragraphs, the answer lies in creation of a viable, sturdy distribution community throughout the size and breadth of the agricultural hinterland and in an unlimited nation like India that might imply creation of a community unfold throughout greater than 5,00,00zero villages. Creating such a community from scratch is financially unviable, in addition to being time consuming in nature. Therefore the answer lies in exploiting any present community for firstly creating consciousness about advantages of crop insurance coverage to the target market particularly the farming group as a complete and secondly arranging for the cross promoting of the insurance coverage merchandise to the farmers and this will occur solely after a profitable consciousness marketing campaign. The attention marketing campaign could be carried out (execution stage) by tying up with the scores of excellent NGO (Non Authorities Organisations) with a confirmed good monitor file and Micro Credit score Establishments. Right here the NGO’s concerned could be inspired financially by offering them with funds for a similar on a piecemeal foundation in order that the outcomes of their consciousness marketing campaign are additionally intently monitored (thus guaranteeing tax payers cash not wasted) and a wholesome checks and balances system additionally will get created. Additional ethical encouragement additionally must be given by giving them the tag of “Mates of Farmers” based mostly on the outcomes produced and deep lasting connections established by them with farming group. (Readers could kindly observe that “deep, heat connections” in farming group (learn: the agricultural hinterland) is of utmost significance since most offers in rural areas are pushed by “belief” and that is significantly true for growing nations with huge rural populations like India, Pakistan, Bangladesh and so on). As soon as the attention of crop insurance coverage, its related advantages, and so on are created and implanted efficiently within the minds of the farmers (and this, given the vastness of the agricultural hinterland, will occur in phases, that’s space by space and never throughout the nation in a single roll) the following stage includes guaranteeing that the insurance coverage merchandise (about which the farmers have been made conscious in first stage) can be found to the farmers (to start with significantly in areas the place profitable consciousness campaigns have been accomplished by the NGO s and micro credit score establishments). The distribution community / chain for a similar would be the publish places of work (given the very fact they’re unfold all around the nation’s huge panorama and manned by competent individuals who can properly perceive the nuances of the insurance coverage merchandise and also can simply connect with the native populace). In addition to publish places of work, the community of petrol / gasoline stations unfold throughout the nation may also be exploited to will increase the density of the insurance coverage depot networks. Readers could observe that given the very fact most of those gasoline / petrol stations function based mostly on the permits given by Govt for distributing the gasoline from oil advertising public sector firms, getting them to cross promote crop insurance coverage to farmers in rural areas, could be simply attainable.

 It’s time that these elementary flaws within the insurance coverage product and product construction / design, in addition to the problem of lack of expertise & poor penetration, are rectified to allow the farming group to successfully hedge their dangers and on a distinct observe, to allow the world at massive to hedge its meals safety.

 Higher Worth Discovery

 Firms, be it manufacturing sector or those in companies sector, value their choices such that their backside strains are properly taken care of. In addition they take pleasure in the advantages of reaching the top client immediately in some circumstances and in some circumstances via shops like FMCG sector whereby the safety is there within the type of MRP (Most Retail Worth). Now take the case of farmers, their produce reaches the top customers after passing via a series of middlemen and each time it modifications fingers from one intermediary to a different, it undergoes a value change clearly in the direction of the higher facet. Thus, by the point the agricultural produce reaches the top buyer, the value is elevated many fold. The notable ache level on this complete course of is that the farmer will get solely a miniscule worth for his produce when in comparison with the value paid by finish client. Readers could observe that the agricultural produce doesn’t bear any worth addition by the point it strikes from farmers fingers to the kitchens of the top client – therefore there is no such thing as a rational for the various fold multiplication of value). There are a number of results of this ache level that we noticed. One, the farmer doesn’t get a very good worth for his produce (learn: poor value discovery) and second, equally essential impact is that the nation as such will face the issue of meals inflation. (Mathematically extrapolating this to world stage – the identical is discovered true for world financial system as such as a result of what could be referred to as as spill over results).

A method of guaranteeing that this twin drawback of poor value discovery for farmers and excessive meals inflation of the financial system could be addressed is by enabling the farmers direct entry to the markets of the top client by establishing what is named as “farmers market” at completely different places throughout the nation (excessive density inhabitants areas are preferable) whereby the farmers get to take their produce to that market on designated days of every week and promote the identical to the top client at a very good value.  This has been efficiently tried in lots of developed economies and to some extent even in elements of growing world. It will be sure that the farmers get a greater value discovery for his or her produce (and that might imply elevated rural revenue ranges for the financial system as such), customers get a good deal for his or her purchases and the dual impact of that is higher management over meals inflation.

 Value Financial savings & Improved Productiveness – Greater Yield At Decrease Prices

 Once more, firms, be it manufacturing sector or those in companies sector, have  multitude of how (comparable to six sigma, TQM, Lean, Organising of Shared Service Centres (SSC) and so on) to improvise their productiveness on a steady foundation and likewise to scale back their prices with out impinging on the product high quality and productiveness. These supply farmers numerous good classes as properly. As a result of bottlenecks within the type of vastness of the agricultural hinterland, insufficient literacy ranges in some locations and due to this fact as a by product of this, insufficient consciousness ranges, and so on. all these ideas can’t be taken to them as a complete. However as an alternative essentially the most important ones could be taken ahead and delivered to the discover of the farming group. On an evaluation of the present agricultural scene in India, the only greatest drawback hindering productiveness is “small land holdings” of the Indian farmer which isn’t conducive for mechanised farming and likewise which doesn’t allow the farmers to take advantage of any sort of economies of scale of their different associated actions like buy of seeds, buy of fertilizers, renovation to irrigation strains, and so on.

As an answer to this the Shared Providers Centres Mannequin of the company world could be borrowed right here successfully. Making use of the basic base of the identical, the farmers should be incentivised to go for “co-operative farming”. The mannequin for a similar could be simply created and infact one tried and examined mannequin is available, that’s that of the profitable white revolution.

 Milk farmers in India (within the white revolution) fashioned cooperative societies and a variety of cooperative societies of a selected area could have a mother or father cooperative society to which they are going to be affiliated members. In the identical method, the famers of a particular area (this may profit all farmers- particularly the small farmers stand to realize essentially the most) should be incentivised to return collectively to kind cooperative society and pool their land holdings collectively and carry out cooperative (learn: joint) farming. The advantages are numerous and we are going to really want a full e-book to comprehensively clarify them. Right here we attempt to compress the identical right into a nut shell by focussing on the prime benefits accruing to the farming group, particularly to the small farmers (that’s farmers with small land holdings). When small land holdings are pooled collectively in a particular geography (say, as mentioned earlier by formation of a cooperative society to provide it a robust authorized kind) the resultant massive single piece of land could be subjected tofull fledged  mechanised farming however nonetheless retain the financial viability of doing so. (For readers who’re unfamiliar to the operations features of agriculture, lets talk that an economically viable, produce smart viable, full fledged mechanised farming is unthinkable for a small farmer). In addition to this, a big single piece would additionally assist in bettering the possibilities for exploring and implementing a multi-crop farming thereby main a number of advantages by way of productive yield per hectare of land. Additional, the associated fee and earnings numbers by way of value incurred per hectare yield of land (and this may be additional sub divided into inputs value (ie. Value of seeds, fertilizers and water)  per hectare yield of land, labour value per hectare yield of land, ploughing value per hectare and different prices per hectare) and income earnings per hectare of land can even present a dramatic enhancements below a profitable, properly deliberate multi-croping system. And in addition to these there all the time exists the un-doubtable, vital advantages from economies of scale with reference to the core operations side of a giant pool below a system of joint farming.  

 Conclusion

Having mentioned, in easy plain phrases, with out utilization of any jargons and theories, the advantages of marrying a few of the easy ideas in threat administration, value financial savings, productiveness improvisations and value discovery mechanisms from the non agricultural sectors within the company to agricultural sector, it may be hoped that this may go a great distance in bettering the lives of farmers within the growing economies on one hand and in controlling meals inflation and improvising meals safety to the world as a complete however.

 References:

1. www.indiastat.com;

2. www.indianchild.com/agricultural_system_india

three. Analysis Internship Papers (2001), Centre for Civil Society (A paper by Jennifer          Ifft)

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