Risk assessment of agricultural supply chain: case of coconut enterprises in Kerala

Abstract

In the agrarian economy of Kerala, coconut plays a significant role. The supply chain of an agricultural commodity consisted of the processes from its raw material procurement to its distribution as a final product. It is a network that encompasses the actors and activities where individuals, organizations, resources, credit, and information flow are present. The presence of this multitude of actors and activities make the supply chain vulnerable to risks. Risk can be defined as the possibility of the occurrence of any loss or harm. In order to manage the supply chain risks, effective supply chain risk management has become imperative. The study was undertaken with this rationale to map the major coconut supply chains, assessment and ranking of the major supply chain risks in terms of perceived probability and severity of occurrence. Also, assessment of the risk management behaviour of major actors along the supply chain was undertaken. A sustainable framework for effective risk management in the coconut supply chain was also attempted. The study followed ex-post facto research design. Through criteria-based random selection, the three districts of Kerala viz. Malappuram, Kozhikode, and Kannur were selected for the study. The criteria for selection was their lead role in the area and production of coconut and also the inclusion of coconut products as the highest ranked district product under the One District One Product (ODOP) under Pradhan Mantri Formalisation of Micro food processing Enterprises (PMFME) scheme of the Ministry of Food Processing Industry (MoFPI) implemented in Kerala. The details of the micro and small enterprises of the respective districts were collected from the District Industries Centres (DICs), State Department of Agriculture, Coconut Development Board (CDB), and Krishi Vigyan Kendra’s (KVKs). From the list collected, a proportionate sample of 50 enterprises were selected from each district to form a total sample size of 150. The study could map and delineate the coconut supply chain by using social network analysis (SNA) by fixing each district as the boundary of the network. From the upstream level of supply chain (SC), procurement supply chain network (SCN) has been delineated. The financial assistance and training and capacity-building SCN had been mapped to represent the midstream level of SC. The downstream level mainly consisted of activities related to the distribution of final product and thus marketing SCN was mapped at this level. By calculating the centrality measures, the out-degree centrality was found to be higher for coconut farmers within the district in case of procurement SCN in all three districts. In the case of financial assistance and training and capacity-building SCN the District Industries Centre (DIC) of the respective districts played the key role and for marketing the final local consumers secured the highest degree centrality. Thus, entrepreneurs with direct contact with these actors could attain more advantages in the supply chain through the reduction of intermediaries. For the procurement and marketing SCN, the significant presence of informal actors with more than 90 percent of the total actors were reported in the study. This implied the need for formal registered vendors as well as formal marketing support functionaries at the local level. The supply chain risks were assessed by through the estimation of risk perception. Risk perception was operationalized as the product of the likelihood and severity of the occurrence of risks. The obtained scores were then used to classify the risks into different categories following the risk matrix. The production and marketing risks scored the highest risk perception score and were grouped as the high-risk category. The medium risks were the environmental risks and the organisational risk while the supply risk was classified under the low-risk category. Ranking of the identified supply chain risks were done by following the analytic hierarchy process (AHP). The major risk dimensions selected were environmental risk, supply risk, organisational risk, production/manufacturing risk, and market risk. The triggering factors for each dimension were defined as sub-criteria. Pair-wise comparison between criteria’s and sub-criteria’s within each criteria were done and the ranks were obtained. The market risk ranked top among the major risks and the environmental risk, production/manufacturing risk, and organisational risk followed it. The supply risk was the least ranked risk in the supply chain of coconut. The results could obtain a consistency ratio of less than 0.1 which implied the stability of the results. The risk management behaviour of the entrepreneurs were found as the behavioural outcome of risk attitude towards the risk management strategies. The majority of the population derived were of risk-neutral type (60%). They are indifferent to the risks. They won’t averse or seek the risks. This population must be more focussed on the entrepreneurial ecosystem through capacity-building programs. The remaining 23.33 percent were of risk-averse nature and were highly calculated towards the risk. The risk seekers (16.67%) had the highest risk tolerating capacity and they will take risks in order to regain from the loss already happen. The profile attributes of the enterprises and entrepreneurs were also delineated. Based on the results the study formulated a framework for the effective management of the supply chain by incorporating the four delineated components. The components used were risk identification, risk analysis, risk evaluation, and risk treatment. In risk identification, the actors and activities involved in the coconut supply chain were identified. The risks identification was based on the supply chain analysis done at the respective levels. The risk score for risks at each level was analysed and classified as high, medium, and low according to their likelihood and severity of occurrence. The major risks were ranked based on evaluation along the supply chain. Mitigation practices were suggested for the upstream, midstream, and downstream level of supply chain risk management (SCRM). The results of the study could contribute to the sectoral policy and regulatory reform processes by apprehending the major risks and evolving the management strategies.