42729 Series 1, Note No. 4 " L i v e l i h o o d s L e a r n i n g " Community Managed food Security Enterprises In Andhra Pradesh, INDIA Vijay Mohan, Mio Takada, Vijaysekar Kalavakonda, Shweta S. Banerjee & Parmesh Shah Rice is a staple food for people in Andhra Pradesh, The RCL aggregates demand and creates economies who buy most of it (70 percent) on the open market of scale through the bulk purchase of food grain so and get the balance (30 percent) from the Public that households can purchase grain at a lower unit Distribution System (PDS).1 Statistics show that the cost. It is an innovative financial "credit" product poor spend a substantial percent of their income on that helps villages purchase food grain, pack and food. For instance, in 2001­02, rural households in distribute the grain, and recover the outstanding credit Andhra Pradesh devoted an average of 55 percent which was taken out by the households to purchase of their total expenditures to buying food.2 Those the grain. This institutional mechanism makes food households that lack sufficient income either borrow accessible to the poorest. Now reaching 1.5 million from money-lenders and traders at very high interest households, distribution is based on participatory rates, or they eat less. This critical food security gap needs assessments and community demand, and has implications for the state's goal of reducing rural communities manage the system. poverty. Social and Economic Mobilization To address this issue, the Andhra Pradesh District in the Project Poverty Initiatives (APDPIP) and the Rural Poverty Reduction Project (APRPRP) have introduced the Rice The project has mobilized eight million women Credit Line (RCL)--a community managed credit into about 630,000 self-help groups,3 covering 90 and food distribution mechanism. The community percent of the poor. These groups have been federated managed RCL program addresses the imperfections into 28,282 village organizations, 910 sub-district of the government sponsored PDS system and the organizations, and 26 district organizations. The inefficiency of micro-markets--i.e., markets serving poor and their organizations have cumulative savings the buyers of half kilograms and one kilogram exceeding US$ 340 million and have leveraged more packages. The community through its organization-- than US$ 1.2 billion of credit from commercial banks i.e., SHGs and VOs--mediates between the market since 2000. Diversification of livelihoods and asset and the consumers and eliminates the inefficiencies. building has increased incomes sevenfold increase 1 Operated by the State-level Civil Supplies Department, PDS provides rationed amounts of basic food items (rice, wheat, sugar, edible oils) and other non food products (kerosene, coal, standard cloth) at below market prices to consumers through a network of fair price shops throughout the country. It is the most far reaching safety net operation in India, in terms of coverage and of public expenditure. 2 Consumer Expenditure Survey (2004), Government of India (2004), Ray and Lancaster (2004) 3 A typical self-help group comprises 10­15 women from the poorest of the poor and the poor. e members meet once a week, collect savings, and maintain books of accounts. e groups are then federated into village organizations. 2 Livelihoods Learning Series 1, Note No. 4 Figure 1: Community Institutional Arrangements and Mobilization First 2 Years: Building Social and Financial Capital for the Poor Accumulate savings, Managing money, Lending within small groups, Accessing credit Village Sub-district District Organization Federation Federation Commercial Banks Federates about 20 Federates about 300 VOs Federates about ·Secures links with Govt. Phase I SHGs 40 sub-district ·Strengthens SHGs Depts. federations ·Arranges lines of ·Audits VOs credit to SHGs ·Microfinance functions Self Help ·Social action Food Security Group 10?15 individuals (SHG) Year 2 Onwards: Converting Social Capital into Economic Capital Creating assets; developing technical, business and management s kills Members of different Phase 2 SHGs form a producer group based on a common activity Village District Organization Sub-district Federation Federation ·Markets · Manages bulk milk ·Interfaces w/ markets ·Manages procurement chillers ·Maintains MIS/IT centers · Links to system Markets, Private Sector ·Manages Community cooperatives, private ·Manages Community Health Fund companies Insurance ·Identifies jobs for youth in six years. The social and economic mobilization of community institutions, building strong community institutions and investing in human capital are a necessary pre condition for developing the rice credit line as well as making this activity achieve scale and sustainability. Figure 1 above provides the process at a glance, as well some of the other innovations which have been developed on the foundation of these institutions. How the RCL System Works The RCL system uses a bottom-up process to calculate demand. The village organization (VO) is central to the RCL system, anchoring the planning, financing, and procurement and distribution functions. First, an SHG uses a participatory process to create an SHG micro plan. This calculates the family size, monthly rice requirement, PDS entitlement, and balance of rice needed for each family in the SHG. Note: VOs can go to either the Mandal Samakya or a commercial bank for credit. Based on this assessment, the SHG estimates the total This diagram shows the MS route, and the details depicted remain the same regardless of the route. Livelihoods Learning Series 1, Note No. 4 3 Figure 3: The institutional graduation model cost of rice for one, three or six months; the repayment period, including the number and size of installments Every month we purchase 100 quintals of rice at a for each household and the interest rate. time for 40 SHGs. For the past two years we have been practicing this Rice Credit Line, and suddenly Each SHG presents its micro plan at a village meeting, we women started feeling very strong with this bulk after which, the village organization (VO) aggregates purchasing for all of us. the micro plans into a village plan. The VO presents S.K. Kasim Bee, Vice President that plan either to the Mandal Samakhya (a sub-district Unnava Grama Samakhya Rice Mill, federation of VOs) or to a commercial bank. Chilakaluripeta, Guntur District If the Mandal Samakhya or commercial bank approves the application, it then provides a loan to the VO. VO in weekly or monthly installments over the course This is a one-time loan that serves as seed capital to of one, three or six month cycle. establish funds to continue the RCL system at the village level. In one real-world example, the Edlapadu mandal samakhya extended US$2500 (or Rs 114,000) in credit The VO appoints a Food Security Committee, to the Unnava village organization. Unnava was able which purchases rice in bulk from the open market to recycle this amount to the extent of $44,000, and and acquires the PDS entitlements for all village procured 146 Metric Tons of rice over a year. It also inhabitants for a period ranging from one to six generated a surplus of about $1,936 against an initial months. The village plan specifies the amounts to credit line of $2,500 by charging a small margin of 50 get from each source. The VO stocks the food at the Paisa to Rs 1/kilogram of rice when recovering the loan village level for packing for no more than 24 ­ 48 from the SHG members. Unnava not only repaid the hours. It then distributes the packages of rice through US$2500 with interest to Edlapadu, it also achieved the SHGs. SHG members repay the amount to the a financial turnover of 18 times the initial investment 4 Livelihoods Learning Series 1, Note No. 4 (i.e., 18*2500=44,000). This example demonstrates Benefits and Impacts how a market-based mechanism to deal with food Currently, more than 1.6 million households in security can be sustainable. In the broader program, 7,000 villages (out of 28,000 villages) benefit from the repayment rate of credit was 100 percent. The VOs the RCL, and the program is expanding rapidly to the either used their surplus to increase the amount of remaining districts of Andhra Pradesh. VOs involved rice purchased or to support the most vulnerable and in the RCL from March 2005 to April 2006, handled destitute. 300,000 metric tons of rice or a financial turnover of $88 million. Reduced transaction costs resulted in estimated cumulative household savings of $77 million. The cumulative surplus funds generated by the VOs is estimated to be in excess of $12.8 million. By the end of 2007, the RCL will be extended to an estimated three million households across 12,000 villages and will generate a business turnover in excess of one million metric tons of rice or $300 million for the VOs. Economic Impact An impact assessment of the RCL was conducted in May-June 2006 as part of the mid-term review (MTR) of the World Bank- financed Andhra Pradesh Rural Poverty Reduction Project. The study found that Livelihoods Learning Series 1, Note No. 4 5 Every family needs 30-40 kg rice every month. Portrait of Yellamma Keeping this monthly stock of rice at home is a new change happened to our daily-wage lives. This also Yellamma, a member of the scheduled caste, gives a new dignity to our poor households. was caught in a cycle of poverty and debt. Her family of seven could not survive on their half Pullam Mariamma acre of dry land because of acute drought. At Unguturu Grama Samahkiya first skeptical of losing money by joining the Guntur SHG movement, she was enticed by the RCL program. Under the scheme she borrowed 70 buying grain in bulk lowered transaction costs and kilograms of rice at Rs7/kg. She repaid the saved households US$48 annually. It also showed money in several installments, even borrowing that the RCL reduced the proportion of indebted from her SHG when falling short. She has households from 21 to 13 percent--i.e., a 38 percent received rice regularly for 12 months in the last decline. Daily wages have also increased by 30 percent compared to the start of RCL intervention, year and has repaid the whole amount, which due to increased bargaining power exercised by poor makes her eligible for the next month's quota. farmers, a result of having more food available in the Twelve months ago, she was anxious, migrating household. with her family to major cities or towns like BangaloreandTirupathiinsearchofconstruction Food Security work. Now, since her family has access to a Moreover, the RCL has eliminated gaps in food access continuous supply of food, her children are that often occurred during the year. RCL ensured attending school regularly. Recently, she traveled food security for a period of 3-6 months at minimum, to Hyderabad to share her experience and although most beneficiaries have accessed a continuous motivate others to join. supply of food without any gap for a period of one year. Quantitative analysis showed that consumption compared to non-participants due to this institutional of quality food grains increased from 47 kgs of rice to arrangement. Now that they can get essential food 59 kgs per month, and 97 percent of the respondents items--such as, grains and oil--the PDS, RCL reported that their household food security situation participants can spend more on diversified food items had improved. and non-food items. Many communities have started expanding the food basket of essential needs to include pulses, vegetables, tamarind, sugar, edible oil, soap, and other hygiene items in addition to rice. The concept of RCL is now being expanded to the larger and more comprehensive concept--the Food Security Line (FSL). The Center for Economic and Social Studies (CESS), in an impact assessment of the Andhra Pradesh District Poverty Initiatives Project (2007), points to a significant difference in the amount of food items accessed from the PDS by participants of the RCL program 6 Livelihoods Learning Series 1, Note No. 4 Gender Roles that food assurance has led households to encourage girls to attend school since they no longer need to The RCL, and the projects of which it is a part, have work to meet the household's basic consumption had perhaps the most significant impact on gender needs. relations. The SHGs, and the other institutions operating the RCL, are all women's groups. According Some VOs have acted to improve maternal and infant to an assessment conducted by SERP, 66 percent of health by organizing nutrition centers for pregnant and respondents reported an increase in women's control lactating women with contributions from participants, over household resources, especially food. This has VOs, and the project (APRPRP). This has resulted in enabled women to counter the traditional patriarchal increased weight of pregnant women and improved system and gain a more favorable position in the birth weights of children. household. Institutional Development The program further upended the traditional role of women by building their skills in areas like quality The RCL experience has encouraged many VOs to control, book keeping, market scanning, and labor and establish community-managed enterprises in the logistics management. The women now negotiate with agribusiness sector. They procure commodities, wholesalers, rice millers, and traders to get the best check them for quality, and in some cases seek to add terms of trade for the whole community. value to the products by the network of grassroots professionals such as book keepers, quality controllers, Due to security of a continuous supply of food, and logistic managers. The RCL has increased the women are negotiating with employers for better wage efficiency of the PDS. For example, VOs have acted rates. This empowerment seems to be transmitting as franchises for the Civil Supplies Corporation, across generations. Qualitative assessments indicate the public sector body that is responsible for food Livelihoods Learning Series 1, Note No. 4 7 distribution. This has helped the PDS better target successful because it built on existing investments the poor, eliminate leakages, and transfer the burden that developing strong institutions supported of quality assurance to community members. The by grassroots functionaries promoting economic community-managed PDS is expects a $20 million empowerment. turn over for 2006-2007. In South Asia, and most likely in other regions, Participatory assessments conducted by SERP found there are a number of existing women's groups or that since the introduction of the RCL program, SHG community organization that have been hitherto used members have become more regular in attending the only for delivering food aid or other services and could SHG/VO meetings. The program has led to increased be trained to provide food as a credit product. Also, participation by members in SHG and VO activities there are a number of women's micro-credit groups and increased awareness levels of members. Moreover, that could include food credit and offer more holistic participating in the RCL program has led to a greater products to their members. discipline of repayment, which strengthens the core institutional model of microfinance promoted by the Second, program was tested and back-stopped by two sponsoring projects. World Bank projects before scaling up. Moreover, that scale-up relied on the private sector, not the Lessons Learned and Issues for Bank. The RCL was piloted using World Bank Wider Replicability project funds, and the pilot's success convinced financial institutions to adopt the system and offer The RCL experience provides a number of lessons lines of credit to VOs interested in either starting or for decision-makers and practitioners that are critical expanding the food security program. This is a win- to successfully replicating the model elsewhere. win situation for both the members of the SHGs First, it was not created in a vacuum. RCL was and the commercial banks. Consumers get a cheaper 8 Livelihoods Learning Series 1, Note No. 4 source of funding and the commercial banks get a quality control, and more--to establish enterprises. profitable line of business where the repayment rates This coupled with a sustainable savings and credit are 100 percent. model create conditions for a food security program to evolve and contribute to a viable local economic Finally, the capacity that the program builds system. within women's groups is the source of its viability. Participating women's groups are extending beyond the model--using their skills in market research, Series 1. Note No. 4. December 2007. Vijay Mohan is the Director of Food Security, Society for Elimination of Rural Poverty, Hyderabad, India. Vijaysekar Kalavakonda is a Senior Insurance Specialist, Finance and Private Sector of the World Bank. Shweta S. Banerjee is a Junior Professional Associate and the Learning Coordinator for the Rural Livelihoods Program, South Asia Sustainable Development of the World Bank. Mio Takada is a Rural Development Specialist at the South Asia Sustainable Development of the World Bank Parmesh Shah is the Lead Rural Development Specialist, South Asia Sustainable Development of the World Bank. Comments were provided by Mr. Vijay Kumar (CEO, Society for Elimination of Rural Poverty, Andhra Pradesh). Diagrams were courtesy Melissa Williams, who also reviewed the document (Knowledge Management and Communications), South Asia Sustainable Development of the World Bank. Photos courtesy: Society for Elimination of Rural Poverty, Andhra Pradesh. "Livelihoods Learning" Note Series is published by the Rural Livelihoods Cluster in the South Asia Sustainable Development Department of the World Bank, 1818 H Street NW, Washington DC 20433, USA. For additional copies contact livelihoods@listserve.worldbank.org The findings, interpretations, and conclusions expressed in this note are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations or to members of its Board of Executive Directors or the countries they represent.