Failure of Hariyali KISAAN Bazaar: an assessment

One of the celebrated Bottom of pyramid successes Hariyali kisan bazaar, a rural initiative of
DSCL corporation has closed almost all the seventy five plus rural outlet spread throughout
northern India. Hariyali was one among the initiative corporate India has taken to create
vibrant rural markets. Tata Chemicals Tata Kisan Sansar, ITCs E-Chaupal, Mahindra Krishi
Bihar called Subhlabh all started a decade ago. Much other such initiative stated during the
decade. These companies were intrigued by opportunities that rural markets offer and were
hailed as great experiments. But despite the hype none of them seems to have been able to
create a sizable business. Most of these initiatives are still evolving and struggling to scale
themselves and sustain the business model. With the closure of Mahindra Subhlabh earlier
and Hariyali in November last, a number of questions have arisen about corporate initiative in
Indian agriculture and rural markets.
Why has Hariyali failed as a business model? What are threats in terms of scaling and
sustaining such business models? Can such business model succeed in fragile rural business
environment? What needs to be done?
Hariyali Kisaan Bazaar: Introduction
Hariyali including all other initiatives have been the product of a very well thought out
business model. These initiatives had a good intent of streamlining agricultural supply chain
where farmers are constantly exploited by numerous agents and intermediaries in agricultural
chain. There is huge appropriation of surplus by these intermediaries making farmers,
processors and final consumer worse off. The Draconian APMC act in India has been one of
the biggest policy drag on agriculture in India just benefitting traders. What is interesting is
that when we profile the risk of the farmers and agribusiness company we find that they both
face price, quality and quantity risk. Farmers does not know what price he will receive for his
produce, will he be able to sell all that he has produced and will he get the right price for his
produce. Agri-commodity companies do not know at what price will they be able to source
their supplies, will they get the quantity they need and will they get the right quality of
supplies. This increases the cost of doing business as transactions cost soar up in term of
search, negotiation and monitoring amidst information asymmetry created by the
intermediaries in the Mandis. Most of the above initiatives had this as a part of their
integrated business plan for rural India. ITC for instance has been able to reduce transaction
costs both for farmers and itself creating a win-win situation. Others have been wanting to
strengthen this prominent aspect of this model but have failed to do so effectively.
Indian agriculture suffers from poor quality of crop protection chemicals on the one hand and
an inefficient and corrupt distribution system in almost all the other agricultural input
marketing primarily seeds and fertilizers. Quality and timely availability along with high cost
due to black marketing has been a matter of great concern. Farmers are also unaware of the
dynamics of optimal and sustainable use of these inputs. They often use overdoses of
fertilizers and pesticides. There is an absence of an effective e service centre which helps
them adopt modern inputs effectively and optimally. The government training and visit
extension system has not delivered like any other public services.
Hariyali Kisan Bazaar a unit of DSCL was primarily into retailing of Agri-inputs like
pesticides seeds and fertilizers and had diversified into consumer expendables and durables to
service the rural market through Hariyali rural retail chain. Disseminating right kind of
information and helping farmers adapt to modern methods and processes also becomes an
important aspect of this model as it helps build trust and also thus help in scaling the
business. Hariyali along with other similar initiatives have the good intent of adopting this
but they fail to make this component of their business model effective.
The reasons for Failure of such models
Hariyali stores are in the form of campus which provides one stop solutions to all the needs
of the farmers .Selling to the rural customer and farmers in rural villages are difficult and
inefficient. Local business unit has to generate its sales volume from the consumer base
living in a narrow geographical range. This is clear when we look at the distribution of
villages across the country. Only around 13.2 percent of the villages are with population more
than 2000. Serving these markets require low price point and high volumes business.
But Instead Hariyali kisan bazaar became high price point and fluctuating volume. The cost
of distribution in remote of villages along with its supply chain cost going haywire. Going
direct to the rural as structural options through has its own cons like huge proliferation of
billing parties (high cost of complexity. Ability of company depot to service these distributers
is limited resulting in high stock levels at some place and stock outs at other increasing
holding costs and managing these dispersed campuses requires increase in cost of sales force.
The cost of land and rent makes it difficult to service these markets with low price points.
High price points along with fluctuating rural incomes because of vagaries of rains and
drought makes high price point inevitable for a low price point market making all such
experiment unsustainable.
Such retail initiatives involving direct marketing to the dispersed rural markets where only
around 14 percent of the villages have population more than two thousands provides a major
challenge in terms of distribution and supply chain costs. These markets were traditionally
served through two major structural options vis-a-vis direct marketing initiatives.
These two options worked well for the corporate targeting rural customer. The two structural
options available to the corporate to reach the rural markets were super stockists model and
the van operation models. The preferred distribution network was super-stockists primarily
because of in this model the company exposure was limited to fewer large parties, high
service levels to sub stockist as they can create more frequent dispatches and credit and are
able to employ lower cost of sales force. The only problem is that this requires a very strong
controls, but if control can be ensured this becomes a lower cost alternative. Today the rural
markets have a share of 54 percent but what is also disturbing is that the penetration rates in
the Indian rural markets are as low as 27 percent in aggregate. Indicating that super stockist
model has not reached the last mile effectively. Though it is for most the most widely used
option.
Hariyali retail as I discussed in the last column is not a very sustainable structure as trade
margins are high along with higher credit period and higher freight charges since the
locations are remote. The net result is huge proliferation of the billing parties, and inability of
the company depot to service distributors directly. All these leads to the well known
variability issues which increases both inventory holding costs and cost of losing out on
customer. A market which requires low price points for price sensitive farmers ends up in
being a high price point and hence a big question on its sustainability. The whole dilemma
regarding reaching rural market with standalone initiative like Hariyali has become a question
mark for this reason.
What if a firm is able to map the supply chain so well that the variability issue is taken care
off? In that case there are two isues that need t being tackled. Is the dynamics of rural demand
sufficient enough to create a sustainable catchment area? Can a single firm build the
capability and still be viable in such a dispersed and uncertain market?
Lets deal with the issue of demand in rural markets. In January 2012, Hariyali kisaan bazaar
started complaining that it had seen a fall in demand in the past two or three months and
according to them this continued till November and hence the retail stores became unviable
and were closed .Income in agricultural sector has shown decline due to increasing cost of
inputs like fuel, fertilisers and labour on the one hand and decreasing revenue from sale of
various vegetables like tomato, potato and onion. Drought in the northern part of the country
further deteriorated the agricultural situation reducing rural demand. Here I recollect an
experiment started by Mahindras called as Mahindra Subhlabh services.
Mahindra Subhlabh had its first centre in Madurai, Mahindra world as it was called became
world of mouth by providing equipments on rent and seeds and fertilisers. The experiment
went on to earn a great reputation. A student of mine from Great lakes Institute of
Management visited these villages and a farmer mentioned to her that in the heydays, there
was business of Rs 2 lakhs a day in the MSSL office, but after the consecutive droughts in
2002, crop production fell and almost 20,000 acres worth of crop were destroyed due to the
droughts. The Usilampatti, Vadipatti, Periyar and other regions around Madurai were
severely hit, which were all under the MSSL ambit.
MSSL suffered with the farmers as it could not get back the loans advanced, but continued
with the operations for some more time. MSSL paid the supervisors for six months without
any work being done, hoping that things would improve, but the second monsoon season also
turned out a failure and the Vaigai-Periyar irrigation system did not receive any water and
both Vaigai and Periyar dams were dry. Same was the case with the Cauvery belt also, with
the Mettur dam becoming almost bone dry.
As a result, MSSL closed down its operations in that office.
The two examples of initiatives that made difference and closed down subsequently raises
many fundamental issues of managing the vast bottom of the pyramids markets in rural India.
The backward uncertain agriculture poses the biggest challenge for the businesses to succeed
in these volatile and uncertain markets.
Firms actually forget that demand in such markets is not an enigma but requires an concerted
effort on the part of the government to liberalise agriculture develop infrastructure and build
institutions and crate legislations which would reduce transaction costs of doing business in
India and help firms reach these markets cost effectively and sell to the market which has
stable demand.
We will in our next column explore the institutional, legal and economics rigidity that makes
rural supply chain inefficient.
The Way Forward
Rural retail experiments have failed to perform as expected. Experiments like Hariyali Kisaan
Bazaar and Mahindra Subhlabh Ltd., have died a natural death. An uncertain economic
environment with fluctuating low rural income and a high cost of reaching this last mile
poses a great challenge to any such experiment.
Corporate initiatives like these also have a major strategic drawback. They have been
operating within their own sphere of influence and hence are unable to create scale
economies which are essential for such experiments to succeed.But the big question emerges
is can these experiments be made viable, sustainable and scalable.
To answer this question, we need to look at the consumer demands in the rural and
agriculture markets because these experiments were largely agriculture details with some
element of rural retail incorporated.
Farmer segments in India largely consist of small and medium farmers who are the future of
Indian agriculture. Large farmers constitute around 1.5% of the total population and they
contribute around 35% of the food grain production. Small and medium farmers on the other
hand contribute around 65%. Thus, it is important to understand the role of these experiments
on how they can help small and medium farmers to adopt modern inputs and technology to
enhance overall agricultural productivity. The larger farmer is known to have clear
commercial focus, has limited credit means, makes his own brand choices and are leaders to
new technology practices. But the small and medium farmers need credit, do not adopt
modern technology, procures its inputs from the dealers and is heavily influenced by the
dealers, which lead to sub-optimal quality. In fact small and medium farmers are sustenance
farmers who produce for themselves and a small proportion of this is left for the market,
which is marred by multiple agents, from the village to the Mandi, thus, giving him a very
small part of the value of the product. This segment can be successful only when we can
promise lower costs of production, provide them with working capital, help them to get better
price realisation and also are able to help them to sell their output directly to the processors or
the final users.
It is clear that a collaborative model based on public-private partnership, like the terminal
markets would work in a brilliant way because it can aggregate in a farming requirement in
one place i.e. inputs, farm equipment, insurance, credit and consumer expendables and
durables. In such an experiment, these corporates have to move out from their own sphere of
influence and create an aggregate model, sharing the responsibility of a service approach by
creating an agricultural service centre as a part of this retail, which would help farmers to
adopt better practices, create trust and make them believe that these experiments are here to
benefit them. Only then, will these experiments get acceptance and will start making sense
and survive.

Dr. Rakesh Singh is Director, Durgadevi Saraf Institute of Management Studies,

Mumbai.

One of the celebrated bottom of pyramid successes Hariyali kisan bazaar, a rural initiative of
DSCL corporation has closed almost all the seventy five plus rural outlets spread throughout
northern India. Hariyali was one among the initiatives corporate India had taken to create
vibrant rural markets. Tata Chemicals Tata Kisan Sansar, ITCs E-Chaupal, Mahindra Krishi
Bihar called Subhlabh all started a decade ago.

Many other such initiatives started during the decade. These companies were intrigued by
opportunities that rural markets offer and were hailed as great experiments. But despite the
hype none of them seem to have been able to create a sizable business. Most of these
initiatives are still evolving and struggling to scale themselves and sustain the business
model. With the closure of Mahindra Subhlabh earlier and Hariyali in November last, a
number of questions have arisen about corporate initiatives in Indian agriculture and rural
markets.

Why has Hariyali failed as a business model? What are the threats in terms of scaling and
sustaining such business models? Can such business model succeed in fragile rural business
environment? What needs to be done?

Hariyali including all other initiatives had been the product of a very well thought out
business model. These initiatives had the good intent of streamlining the agricultural supply
chain where farmers are constantly exploited by numerous agents and intermediaries. There
is huge appropriation of surplus by these intermediaries leaving farmers, processors and the
final consumer worse off. The Draconian APMC act in India has been one of the biggest
policy drags on agriculture in India just benefitting traders. What is interesting is that when
we profile the risk of the farmers and agribusiness companies we find that they both face
price, quality and quantity risk.
The farmer does not know what price he will receive for his produce, will he be able to sell
all that he has produced and will he get the right price for his produce. Agri commodity
companies do not know at what price will they be able to source their supplies, will they get
the quantity they need and will they get the right quality of supplies. This increases the cost
of doing business as transactions cost soar up in term of search, negotiation and monitoring
amidst information asymmetry created by the intermediaries in the Mandis. Most of the
above initiatives had this as a part of their integrated business plan for rural India. ITC for
instance has been able to reduce transaction costs both for farmers and itself creating a win-
win situation. Others have wanted to strengthen this prominent aspect of this model but have
failed to do so effectively.

Indian agriculture suffers from poor quality of crop protection chemicals on one hand and an
inefficient and corrupt distribution system in almost all the other agricultural input marketing
primarily seeds and fertilizers. Quality and timely availability along with high cost due to
black marketing has been a matter of great concern. Farmers are also unaware of the
dynamics of optimal and sustainable use of these inputs. They often use overdoses of
fertilizers and pesticides. Hariyali Kisan Bazaar a unit of DSCL was primarily into retailing
of Agri-inputs like pesticides, seeds and fertilizers and had diversified into consumer
expendables and durables to service the rural market through Hariyali rural retail chain.
Disseminating right kind of information and helping farmers adapt to modern methods and
processes also becomes an important aspect of this model as it helps build trust and also thus
help in scaling the business. Hariyali along with other similar initiatives have the good intent
of adopting this but they fail to make this component of their business model effective.

But Instead Hariyali kisan bazaar became high price point and fluctuating volume. The cost
of distribution in remote of villages along with its supply chain cost going haywire. Going
direct to the rural as structural options through has its own cons like huge proliferation of
billing parties (high cost of complexity).
Ability of company depot to service these distributers is limited resulting in high stock levels
at some place and stock-outs at other, increasing holding costs and managing these dispersed
campuses requires increase in cost of sales force. The cost of land and rent makes it difficult
to service these markets with low price points. High price points along with fluctuating rural
incomes because of vagaries of rains and drought makes high price point inevitable for a low
price point market making all such experiment unsustainable.

The failure of such experiment forces one to think what needs to be done to make such
experiments viable and sustainable in future. Prahalads Bottom of pyramid market
frameworks do provide a framework for corporates to understand the complexity and help
create virtuous cycle of creating buying power, shaping aspiration, tailoring solutions and
finally improving access. For all these to happen, Indian firms must learn to collaborate and
succeed. Incremental business models will not work in these markets.