Price cushioning for pulses farmers through Minimum Assured Price (MAP)

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By Dharmendra Pothuri, General Manager-Africa Agribusiness, Mahindra & Mahindra

The United Nations declared 2016 as International Year of Pulses (IYP 2016) with the objective of positioning pulses as a primary source of protein and other essential nutrients. Various initiatives were taken at local, national and international level to increase awareness and understand the challenges faced by pulses farmers and other stakeholders in the pulses value chain.

While stakeholders like government bodies, NGOs, farmer societies, educational and research institutes and private organisations actively took up these initiatives, a most unpredictable blow came in the form of a price crash in the pulses sector in India – the largest importer of pulses in the world.

The highest price crash came in the pigeon peas segment, which also affected the green mung and chickpeas segments, resulting in huge losses for many traders and farmers. The falling prices not only impacted farmers in India but also farmers in all east African countries including Kenya, Tanzania, Uganda, Malawi and Mozambique. Pulses are a cash crop for farmers and the sudden drop in market prices forced them to switch over to an alternate crop.

To motivate farmers to increase pulses production it is important to provide an assured offtake mechanism in terms of quantity and a price guarantee so that they are cushioned from price uncertainties to a certain extent.

With the intention of encouraging pulses farming by providing a stable price for farmers, Mahindra & Mahindra (www.mahindra.com) came up with innovative idea of Minimum Assured Price (MAP) in the pulses segment, piloted in Arusha, Tanzania. This concept is the first of its kind in the pulses segment, which guarantees farmers a minimum price based on the cost of production plus a fair profit margin.

Pulses farmers in Tanzania at contract signing with Mahindra representative and Tanzanian PS for Trade

With the help of the International Trade Centre (ITC), Supporting Indian Trade and Investment for Africa (SITA), Kingori SACCOS, a Tanzanian farmers’ organisation was shortlisted for this pilot project. Under this unique model, Mahindra and Kingori SACCOS have agreed on a minimum price based on the cost of production plus a fair profit margin. The cost of production was agreed by farmers and Mahindra through discussions facilitated by ITC and the Selian Agricultural Research Institute (SARI), Tanzania. Under the agreement, Mahindra guarantees the purchase of the August-September 2017 harvest of pigeon peas from over 100 farmers at the predetermined minimum price. If the market price drops below the predetermined price, Mahindra will bear the loss. If the market price rises above the minimum, Mahindra and Kingori will share the incremental margin.

This is a unique win-win model with following benefits:

Benefits for pulses farmers:

      • A guaranteed buyer before production begin
      • A reliable income without fear of a sudden price drop
      • A fair price for their pulses
      • An advance payment to finance their working capital requirements

Benefits for Mahindra:

      • Expanded footprint in Africa through socially responsible trade
      • A sustainable supply of pigeon peas
      • A pre-determined and stable purchase price

Signing at GPD with Mahindra

This agreement was formalised by a Memorandum of Understanding, signed in the presence of H.E. Adolf Mkenda, Permanent Secretary, Ministry of Industry Trade and Investment, United Republic of Tanzania.

This pilot initiative is being implemented under the International Trade Centre (ITC), Supporting Indian Trade and Investment for Africa (SITA), funded by the United Kingdom Department for International Development.

Based on the results of the project, Mahindra & Mahindra is planning to replicate a similar structure with farmer groups in other East African countries. In this way, Mahindra & Mahindra wants to be part of the inclusive development of pulses sector in Africa.

Voices of SITA
Voices of SITA

This blog provides a window into the SITA project. Through stories from India, Ethiopia, Kenya, Rwanda, Uganda and the United Republic of Tanzania, this blog showcases the project’s progress and impact.