Case Study:

ABC Food Processing Company Limited established Onion processing plant in the state
of Maharashtra.
The plant had processing capacity of 10 tonnes of Onion per hour. On three shifts of
eight hours each per day and for processing season of 90 days the capacity was adequate
to process 21000 tonnes of Onion per season.
The average yield of Onion grown in the region was recorded at 60 tonnes per hectare.
In 2013 Onion prices ranged between Rs. 2000 to Rs 6000 per tonne over the period of
90 days. Since the price of Onion in the consumption market would not permit ABC
Food Processing Company Ltd. to pay more than Rs 2500 per tonne. The net returns
from Onion cultivation were Rs.50000 per hectare; these were Rs. 20000 from
sunflower and only Rs. 16000 from wheat. With the assurance of higher yield and
assured price of Rs2400 per tonne the company contracted the supply of Onion with
identified contract growers into 10 production zones. To ensure quality of raw material,
the company raised seedling on its own (leased) farm and distributed them to the
growers. Demonstrations were also given to the growers on the package of practices
covering all stages from planting to harvesting.
Over the first two years, the yield was raised by 30% from the existing level and the
procurement price was maintained at the same level. The market price in the initial two
years remained low and more than 80 per cent of the targeted quantity procured.
Mr Anupam who took over as Executive Director of the company in charge of Onion
processing activity in Oct. 2015 was quite confident of achieving the full utilization of
capacity in 2016. His optimization was based on the area contracted, price behavior for
last two seasons and expected yield. However, just at the beginning of the Onion harvest
season of 2016 the price of the Onion in the open market started rising. It reached Rs
7000 per tonne compared to the contracted price of Rs 2400. As a consequence the
procurement got disrupted causing occasional shut down of the plant and under
utilsation of its capacity. At the end of the season the total procurement stood at 12000
tonnes compared to16000 tonnes in 2014 and 17000 tonnes in 2015 respectively. Mr
Anupam was all the time wondering as to what he should have done to arrest the
diversion of onion to open market by the contract growers. He was not sure about the
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measures to be taken to check future occurrence of similar situation. In August 2016 he

called a meeting of senior managers dealing with Onion (research and extension,
contracts and purchases, production, finance and marketing) to chalk out a strategy for
the year 2017. Mr Anupam made the following remarks:
We are aware that due to adverse climatic conditions and spread of the diseases the
Onion yields were reduced considerably. But these uncertainties are known in the
agriculture and we should have managed the contracts better. As we have not been able
to meet our export commitment to buyers of Onion powder abroad it could have
damaged ABCs reputation as a reliable supplier of quality product. We have to rebuild
the reputation. Keeping in view the competitive international price of the Onion
Powder offering a higher price than Rs 2400 per tonne for quality Onion would take
away our competitive advantage. Gentlemen and ladies, I need your input so that a
sound strategy could be formulated for the coming season.
In response to Mr Anupams request the Marketing Manager wanted to impress that unreliability in the supply of onion powder would damage the reputation of the company
among the international clientele .He, therefore, suggested paying a higher price to buy
onion from the open market if such circumstances arise in the future. The manager
production scanned the Onion environment and pointed out that immediate action
should be taken to increase the area under onion and also introduce new hybrids to
extend the availability of onion over 70 days for processing. The manager contracts and
procurement pointed out that procurement was highly sensitive to the market price. It
goes down with the rise in the market price. Some growers partly diverted their
production to the market instead of supplying to ABC. This phenomenon was more
pronounced during 2016 irrespective of well-coordinated procurement efforts. Manager
R & D informed that efforts were on to evolve disease resistant early and late maturing
hybrids for all the regions of the state and also from adjoining states of Rajasthan,
Gujarat and Madhya Pradesh. Success in procurement of Onion for 2017 season posed a
challenge to Mr Anupam.
In view of above, would you like to give any suggestions?