FPO mango marketing: Delhi trader versus the pulp unit
A 40-member FPO in Nadia has 60 tonnes of Himsagar mango to be harvested over three weeks. The local wholesale market is absorbing about 15 tonnes a week at ₹14/kg farm gate; anything beyond that has been going at ₹9-10/kg. A Delhi trader offers ₹30/kg for 20 tonnes, but only fruit graded at 200-250 g, packed in 5 kg CFB boxes costing ₹34 each, delivered to his transport agent 30 km away (₹3.5/kg). His own grading trials show only about 55% of the harvested fruit falls in the 200-250 g grade. The trader's terms are 30-day payment, 5% transit and rejection loss, and no advance. A pulp unit 40 km away will take all cull-grade fruit at ₹19/kg, minimum 10 tonnes, with ₹2.5/kg transport, payment in 15 days. The FPO has ₹80,000 in cash and can borrow working capital at 12% per annum.
1. Compute the net realisation for the Delhi deal and for the pulp channel, and recommend what the FPO should commit tonnage-wise.
Read the worked answer
Delhi deal, per kg of delivered graded fruit
- Price: ₹30.00
- Box: ₹34 ÷ 5 kg = −₹6.80
- Transport: −₹3.50
- Transit/rejection loss 5%: to deliver 20 t he must send 20 ÷ 0.95 = 21.05 t, so the lost 1.05 t costs 1.05/20 × ₹30 = −₹1.58
- Grading, packing labour and handling (assumption): −₹2.00
- Net ≈ ₹16.12/kg
Pulp channel: ₹19.00 − ₹2.50 transport = ₹16.50/kg, paid in 15 days.
Which comparison matters: the correct benchmark is not ₹14/kg, because the local market only absorbs 15 t/week (45 t over three weeks). The 20 t sent to Delhi is fruit that would otherwise be sold at the glut rate of about ₹9.5/kg. So the Delhi gain is roughly ₹16.12 − ₹9.5 = ₹6.6/kg, about ₹1.3 lakh on 20 t.
Tonnage logic
- 20 t graded fruit at 55% recovery needs 20 ÷ 0.55 = 36.4 t harvested - feasible within 60 t, leaving 23.6 t, of which about 16 t is cull grade.
- Culls should go to the pulp unit (net ₹16.50 vs ₹9.5 in the glut), but only above its 10 t minimum, so pool culls from all members.
- Remaining fruit: local market, released in weekly lots.
Recommendation: commit 20 t to Delhi only after a trial consignment, send at least 10 t of culls to the pulp unit, and sell the balance locally.
2. Is working capital a real constraint, and what safeguards should the FPO write into the trader contract before dispatching?
Read the worked answer
Working capital check
- Boxes needed for 21.05 t: 21,050 ÷ 5 = 4,210 boxes × ₹34 = ₹1,43,140.
- Packing labour and grading, at about ₹2/kg on 21 t: ≈ ₹42,000.
- Total outlay ≈ ₹1.85 lakh; cash in hand ₹80,000, so roughly ₹1.05 lakh must be borrowed.
- Interest at 12% for 45 days: 1,05,000 × 0.12 × 45/365 ≈ ₹1,550. Trivial against a ₹1.3 lakh expected gain.
So finance is not the binding constraint - payment and rejection risk is.
Safeguards
- Dispatch a 3–5 t trial first and hold the balance until that payment is received on the promised date.
- Written grade specification (weight band, freedom from latex stain, maturity), sample photographs and joint weighment at both ends, with rejection criteria agreed in advance.
- A partial advance (20–30%) or payment through a bank/escrow arrangement; fallback clause allowing an alternative buyer after a stated delay.
- Staged consignments with separate invoices so one disputed lot does not freeze the whole payment.
- Insure the consignment and keep one member responsible for transit documentation.
3. The trader later insists on 40 tonnes. What is your answer and why?
Read the worked answer
Refuse - the volume is physically impossible at his own grade recovery.
- Total harvest is 60 t, and only 55% falls in the 200–250 g grade: 60 × 0.55 = 33 t of graded fruit at best.
- To deliver 40 t graded he would need 40 ÷ 0.55 = 72.7 t harvested, which does not exist, and buying in from non-members would break the FPO's own supply discipline and degrade grade consistency.
- Even 33 t would leave almost nothing for the local market, the pulp minimum of 10 t and member home consumption, and would concentrate all risk on a single 30-day credit buyer.
Counter-proposal
- Offer a firm 20 t now with an option on up to 8 t more from the later picking, subject to grade verification and a reduced payment period (15 days) for the additional lot.
- If the trader needs 40 t to fill a truck, explain that mixing lower-grade fruit to fill the vehicle is what causes rejection and price cuts at the destination; a smaller, correctly graded consignment protects the FPO's future price.
- Keep the pulp unit as the guaranteed outlet for culls, so the refusal does not leave fruit stranded.