International Food Policy Research Institute (IFPRI) in collaboration with the Ministry of Agricultural Development, Government of Nepal, and Institute for Integrated Development Studies (IIDS), and Federation of the Nepal Chambers of Commerce and Industries (FNCCI), organized a two day workshop on ‘Best Practices in Contract Farming: Challenges and Opportunities in Nepal’ on 10-11 February 2015 in Kathmandu, Nepal. IFPRI is engaged in Policy Reform Initiative in Nepal with overall goal to reform agriculture sector for accelerating agricultural growth and enhancing farm incomes. In view of large number of smallholdings in Nepal, contract farming is envisaged as one of the strategies to increase their incomes by linking them with remunerative domestic and global markets. At present, contract farming in Nepal is at its infancy and needs to be popularized. This would require enabling polices and appropriate institutional arrangements. The main aim of the workshop is to learn lessons from the best practices in neighboring countries to address the multi-faceted challenges and opportunities in promoting and up scaling pro-smallholder contract farming in Nepal.

1. The Triple Delight
“Cargills-Sri Lanka” Model Fresh Produce Value Chain
Haridas Fernando - DM.PGDM.MBA
Deputy General Manager(Agri Business)
Cargills Ceylon Plc.,
Sri Lanka

2. Cargills Group CCPLC
(Revenue of USD 440 Mn
in 2013/14)
Cargills Quality
Foods
Cargills Foods
Company
Dairy Meats Fruit processing Biscuits Distribution Restaurants
Private Label
Cargills Bank
(Associate)

3. Our Philosophy
Our Mission
Serve the rural community, our customers and
„FOOD WITH LOVE‟
BASED ON OUR THREE MAIN PRINCIPLES OF
Enhancing youth skills
Reducing the cost of living
Bridging regional disparities

4. Conventional supply chain and
Cargills Fresh Produce Value Chain

5. Conventional supply chain
CONSUMER
PROCESSOR
EXPORTER
RETAILER
GROWER
BROKER
REGIONAL
COLLECTOR
TRANSPORTOR WHOLESALER
Labourer
BANKER

6. Matching needs…
Stable market
Free From
Middlemen
More
opportunity to
grow
Stable Supply
Free From
Middlemen
More
opportunity
to grow
Farmer Buyer

7. The Mismatch
Highest possible price
expects a Buyer for full
production
When the harvest is ready
Irrespective of quality
Up-front
payment
Farm-gate
selling
In-put
finance
Lowest possible price
Buys only required quantity
at required quality
supplied just in time
Standard credit
period
factory-gate
buying
Risk
aversion
BUYERFARMER

8. Cargills Private- Public Partnership Model
Producer group
Direct market for quality produce
backed by technical/extension
assistance and funds for
further development
Service organization
Fund processing facility
at village-level and in puts
specified by the retailer
Retailer/Processor
manage the facility, purchase fresh
and value added produce contribute to farmer
welfare/development

9. Cargills Collection Centres
Exploiting ecological diversity

10. Sustainable value for farmer and
consumer
Extract from “Production Resources in
Lagging Regions”,
World Bank Report :
Case Study- Sri Lanka

11. Sustainable value for farmer and
consumer
Extract from “Production Resources in
Lagging Regions”,
World Bank Report :
Case Study- Sri Lanka
25
45.5
Cargills Supply chain
post harvest waste is
only 4% compared to the
national average of 40%

12. Cargills Value chain-a New Paradigm
Primary activities – Market related
Conventional Supply Chain Modern trade Value Chain
Inbound logistics Farmers supply what ever produce to the immediate
intermediary who will in return pass down to the link
in the chain
Produce is purchased on a pre-planned schedule based on
the sales forecast predicting daily customer needs.
Operations Farmers are highly product oriented
Clueless on market forecasting
Conventional packing/transportation
Farmers are market oriented,
Improved packaging
Transportation in cool trucks
Services Purchase of produce on credit,
Price not known until they are auctioned
No valid receipt for goods
Purchases on up-front cash
Pre agreed price,
Receipt is issued to the farmer indicating the weight, price
and etc.

13. Cargills Value chain-a New Paradigm
Primary activities – Market related
Conventional Supply Chain Modern trade Value Chain
Outbound logistics Produce auctioned at the highest offer.
Price merely decide by the supply/demand
Goods replenished on system generated orders in
early morning hours.
Sales and Marketing Goods purchased by the jobbers distribute to their
retail vendors.
Retailers clean and do primary processing and
display in their roadside outlets to attract the
customers
Fresh produce received at the outlets are displayed
according to planograms of the outlets in serve-over
counters.
Customers are allowed to touch and feel the quality of
the produce and are free to choose their goods

14. Cargills Value chain-a New Paradigm
Support Activities
Conventional Supply Chain Modern trade Value Chain
Procurement The wholesaler gathers the maximum volume of produce
at whatever the quality
The central processing unit arrange purchases from the
respective collection center at correct quality, correct quantity
at the correct price.
Technology Hardly any technology applied as the whole transaction
process is focus on the least cost and high volume
Farmers are trained and guided by the Company.
Human Resource
Management
Independent actors who work for themselves.
Every function is based on commission or piece rate.
Employees are highly trained in post harvest technology,
Information Technology, customer service etc
Infrastructure Rigid transfer process with a priority on speed but highly
inefficient in quality and transparency.
The set up is well structured based on the company
philosophy, transactions are highly transparent and fair to all
stakeholders.

15. Collection Centre- Allawedi, Jaffna
Over 200 farmers directly benefiting
Technical inputsPartnered by USAID

16. Collection Centre- Thanamalwila
 Collection center was set up by World Vision USDA project
 Over 400 farmers supply their produce direct to Cargills
 Rs 3,000,000.00 was accumulated in the Farmer welfare
fund in 2013.
 75 students from farmer families were awarded
scholarships in 2013.

17. Collection Centre- Norochcholai
 Partnership with World Vision
 Collection center for high quality vegetable and
fruits
 Over 300 farmers directly benefitted
 Over five tons of produce is purchased daily

18. New Processing Plant in Kilinochchi
Cargills Kist Fruit & Vegetable Processing Factory in Ariviyal Nagar, Kilinochchi – Direct Permanent employment given for
approximately 60 persons mainly women (majority of them are widows). Soft opening held on 23rd Oct 2013. Total employment to
be created- 150.

19. Benefits to Farmer
Farmer friendly extension service
Better price
Free from middlemen
Cropping calendar

20. Benefits to consumers
Affordable price
Wider range and availability
Safe and fresh produce

21. Benefits to the Company
▪ Higher margin due to reduced wastage
▪ High Customer satisfaction
▪ Enhances Corporate image
▪ Fulfillment of social responsibility

22. Success
▪ Reduction of transport loss from 40% to 3%
▪ Elimination of middlemen
▪ Improvement in quality and sales volumes
▪ Higher price to the farmer while offering low price to consumer
▪ Paradigm shift to Public-Private Partnership
▪ Image boost to Company and the Service Organization Partner.

23. 23
Changing Lives….Touching Hearts
Training and technical advise
New technology for sustainable
agriculture
Education
scholarships through
farmer community
funds
Better quality of life for
regional Sri Lanka

24. Next Move………From CSR to TBL
▪ Save our Soil program.
▪ Partnered by Department of Agriculture an island wide campaign to
educate farmers on prudent use of agro chemicals and fertiliser to
minimise the soil water contamination from agro chemicals application
▪ Soil test based fertilizer recommendations to individual farmers
▪ Joint training /follow up programs
▪ GAP
▪ Initiated awareness programs on Good Agricultural Practices
▪ Record keeping on all cultivation activities
▪ Traceability of origin through labelling produce by farmer names
▪ Development of „Safe Produce‟ with GAP certification

25. Cargills Approach at glance
Input finance Donor funds/Bank loans
Fame gate buying Regional collection centers in collaboration with Govt/NGO projects
Payments Transparent pricing/up front payments
Fair pricing Purchase 50-70% production at 15-20% higher than market.
Minimum guaranteed price 20% above COP
Higher returns to farmers Technical guidance for market oriented cultivation calendar.
CSR Financial support to farmer children, scholarships ,farmer insurance,
and etc.
TBL Guidance on good agricultural practices to ensure prudent use of
fertilizer and agro chemicals by farmers.

26. Thank you