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What's with Mukesh Ambani & fruits?
Sangeeta Singh | October 24, 2005
Mukesh Ambani talking fruits and vegetables. Rakesh Mittal crowing over his crop of okra. Abhiram Seth planning rows of citrus cultivation. Ajay Shriram chortling over crushing sugarcane. Vineet Chhabra going ecstatic over gherkins. Planning their retirement? Turning gentlemen farmers?
It's just corporate India realising the potential of the agricultural sector. And figuring out that the next green revolution in the country is probably the stuff of mega-bucks.
No wonder ministers and bureaucrats in Le Corbusier's Chandigarh can't stop smiling after Mukesh Ambani, chairman, Reliance India, hinted on October 17 that Punjab could be a goldmine for the supply of fruits and vegetables. Or are pleased with the fact that Bharti's experiment with agri-exports has begun from a pilot farm near Ludhiana.
Ambani's holding his cards close to his chest. His visit to Chandigarh was probably just an attempt to suss out the market. But Bharti's plans are out there for everyone to see, and spearheading the effort is the group's vice chairman, Rakesh Mittal.
The cap he's wearing these days is that of director, FieldFresh Foods, a joint venture between Bharti Enterprises and Rothschild. And as India's first major corporate farmer, he's less likely to be found in his office in New Delhi than checking out the soil conditions of his pilot farm. Alongside, PepsiCo India is developing saplings of kinnows in its greenhouses in the state.
Why this sudden interest in agriculture? What has Bharti's telecom business to do with agriculture, or for that matter, Reliance's existing businesses? "If the country's GDP has to grow at 8 per cent, the agri-sector has to grow by 4 per cent," says Mittal.
That's the politically correct spiel. But under the feel-good factor of contributing to the development of the country is a nose for hard business.
"Over 25-40 per cent food products in India are destroyed for lack of a supply chain." Clearly, here's an opportunity, and what the state can't or won't do, corporate India will. Progressive states such as Punjab and Maharashtra have realised that large companies can bring in technology, investment, modern best practices and crop diversification techniques.
But what's in it for the state governments? Well, it does relieve their creaking machinery of the legacy of minimum support prices given to paddy and wheat growers across the nation.
The orchard business, for instance, has already proven its merit. It rakes in important revenues for everyone from the government to the farmer as well as the corporate house.
Any wonder Reliance has planted 100,000 mango trees in Jamnagar, PepsiCo has an arrangement with its vendors to grow grapes in Belgaum, and ITC's mango and grape business has already touched sales of Rs 50 crore (Rs 500 million). FieldFresh too is tying up with orchards in Maharashtra for planting grapes and mangoes.
Corporate interest might be new, but it isn't entirely without precedent. In the 1990s, PepsiCo had shown that corporate initiatives could help farmers shift from a single crop to more than one through its tomato ventures. Today, Punjab produces 300,000 tonnes of tomatoes and the yield per hectare has gone up from 20 to 50 tonnes per hectare.
Abhiram Seth, executive director, exports and external affairs, PepsiCo India, will tell you that while wheat and paddy crops yield Rs 20,000 per acre a year, the comparative yield from vegetables is Rs 40,000, and from citrus Rs 60,000 per acre per annum.
Mittal adds: "While a farmer gets Rs 8,000 for an acre per annum when he grows only wheat, he gets Rs 12,000 for paddy and anywhere between Rs 15,000-20,000 when he grows cash crops. Add another Rs 5,000 if he grows an additional vegetable."
If there's more money to be made from changing crop patterns, the good news is that a farming family can remain employed for a longer period in the case of horticulture.
"If under traditional crops, one member of the family is employed over a typical holding of 4 acres, under horticultural produce 4-6 persons can be employed on the same land for longer periods, raising the employment potential 16 times and income levels 2-3 times," explains Mittal. If the logic holds, farmer suicides in Punjab or elsewhere could be a thing of the past.
India's untapped potential in the sector has the corporates enthusiastic. "Oranges comprise 60 per cent of Tropicana juices in India, and in an 18-month cycle, a sapling of good quality citrus fruit can be developed and sold to farmers," says PepsiCo's Seth. PepsiCo, therefore, will be ready with five greenhouses by March 2006, investing Rs 5 crore in the venture.
"We will have the capacity to grow 4.3 million plants, the highest in the world," he says. With 22,000 plants in 2005, the company will have 250,000 plants ready by 2006.
"Captain Amarinder Singh's vision is to bring 1 million acres under citrus production by 2015, and our objective is to be self-sufficient in citrus fruits. It's a win-win situation for both," adds Seth. No wonder 22 farmers from Punjab were flown to Florida to study orange cultivation.
What's good for oranges and okra works just as well for the paper industry, which depends largely on the farm sector for raw materials. So while the Ludhiana-based Trident group is using agri-waste to make paper, BILT, which produces quality paper products, sources pulp wood through farm forestry.
For its paper unit in Jeypore, Orissa, BILT had to transport wood from distances ranging between 500-1,000 kilometres resulting in high freight costs and delays. Five years back, the company got into a buy-back arrangement with marginal farmers to grow eucalyptus for which it provided the seedlings.
"In 4-5 years time we will require 10 lakh million tonnes of pulp wood, which we plan to grow within a radius of 250 kilometres of our four manufacturing units," says Praveen Tugnait, vice president-Fibre and Resource Development, BILT. Over 9,000 farmers are involved in BILT's social forestry initiatives. "If the paper industry has to be successful, all those making paper will have to take the farm forestry route," says Tugnait.
A similar relationship model is being tested by DCM Shriram Consolidated. With increased inputs, technology and modern farm practices, the company achieved a sugar recovery of 10.4 per cent, the fourth-highest in the country, for the financial year 2004-05. Its productivity at 40 tonnes an acre was achieved due to the combined initiatives of the farmers and the company's 350-odd field workers.
"With two more factories coming up in central Uttar Pradesh and a total of 33,000 tonne crush per day, we will be working with 200,000 farmers by 2006," says Ajay Shriram, chairman and senior managing director, DSCL.
Though DSCL has no formal buy-back arrangement with farmers, the loose structuring seems to be working just as well. "They know the next year they will not get our support if they act funny," suggests Shriram. He swears by the prosperity that farmers in Uttar Pradesh have achieved in the last 7-8 years.
"In 2-3 years, our factories will be crushing 500 lakh (50 million) quintals of sugarcane per year. With Rs 110 per quintal, this will translate into Rs 550 crore (Rs 5.5 billion) of cash money for farmers. There can't be a better business model for growers of sugarcane and producers of sugar," adds Vikram Shriram, vice chairman and managing director, DSCL.
The company is also experimenting with crop diversification. In Rajasthan, it brought in the technology to grow kalonji in place of wheat, which resulted in farmers getting an extra Rs 6,000 per acre. Farmers in Punjab grew moong with paddy and wheat and earned Rs 5, 000 more per acre.
Others, like the Thapar Group's Global Green Company are helping farmers in Andhra Pradesh and Karnataka grow gherkins. The business has become a big money spinner in hard currency. Over 95 per cent of GGCL's products are exported to 23 countries through 15 leading retail chains. The company produces 30,000 tonnes of gherkins and has a contract farming arrangement with 12,000 farmers.
"These gherkins give farmers the option of getting into short crops with a cycle of 75-90 days with a 100 per cent buy-back arrangement," says Vineet Chhabra, managing director, Global Green.
What does the business mean for the Thapar group? " GGCL has total sales of Rs 100 crore primarily from gherkins." Does that suggest higher margins for the company in the overseas business? Not on a per unit basis. While a 350 ml jar costs $1 overseas, in India the MRP for the same jar is Rs 66 (sold under the Tify label).
"It gives us tremendous volumes business in international markets," says Chhabra, "and the Indian farming community a good name." With the yield per crop cycle at 5-7 tonnes per acre, GGCL is one of the top 10 suppliers in the world.
These landmark figures have been achieved in the last three years after the company zeroed in on pickled food, though it's been in the agri-business for 12 years. "The production went up from 5,000 to 30,000 tonnes, the number of farmers grew from 4,000 to 12,000."
Global Green is now expanding its basket with salsa, relish silver onion, jalapenos and different kinds of peppers. Modern agronomic practices like raised beds, deep roots sowing and laser levelling are coming in handy in improving land productivity. Crop diversification is helping check soil degradation, nitrogen fixation and raising the water level. PepsiCo, for instance, is into low water guzzling peanuts.
"Practices like laser levelling, sloping gradients, timely cutting and pruning of crops has led to yields as high as 6 tonnes of okra per acre per crop cycle, raising productivity five times," says Mittal.
To concretise these practices, FieldFresh Foods is leasing large tracts of land in Punjab and Rajasthan and is part of a consortium arrangement with a group of farmers in Uttaranchal. The business model is contract farming; the markets are international.
Currently working on leased land spread over 60 acres, the company is raising it to 600 acres, spreading its activities to include 200 acres in Jaipur and 250 acres in Uttaranchal.
Interestingly, Mittal has roped in a farmer, Gurnihal Mann, to develop and monitor the contract farms in Punjab.
According to Mittal, the leased arrangement can do wonders to a farming family: "The going lease rate is anywhere between Rs 12,000-15,000 a year, which the farmer earns over and above his annual income. And with a wage rate of Rs 77 per person per day, if a family of four gives its land for leased cultivation, its annual income can be as high as Rs 125,000."
The company's operations are based on a hub-and-spoke model. "FreshField Agri Centre of Excellence, to be spread over 300 acres, will serve as the hub to disseminate knowledge to our grower partners," says Mittal. Similar facilities are being developed in western India.
"By March 2006 the company plans to have 2,000 acres and will add another 1,000 acres by 2007. By then we would have roped in 8,000-10,000 farmers," says Mittal, asserting that a substantial chunk of this will be women. For all this, FieldFresh Foods has planned an outlay of $50 million in the first phase.
FieldFresh, however, needs to watch out if it aims to export all of its produce. The lack of a cold chain can prove a dampener. But Mittal is confident that government bodies like Agricultural and Processed Food Products Export Development Authority and the Airports Authority of India are on the job.
FieldFresh has tied up with refrigerated trucks supplied by Snowman of Japan. By mid-2006, more cargo planes for transporting farm produce will come up and more space will be created in passenger planes.
Even so, things are not hunky dory. His brother Sunil Mittal, chairman, Bharti Enterprises, in an interview to the Financial Times on October 19, admitted FieldFresh's first brush with exports has been disappointing.
"So far FieldFresh has sent the first 30-40 shipments, but it has been much tougher than we thought." Twenty containers of grapes went to Holland. Only five survived. Mushrooms were a "100 per cent wash-out". They grew tonnes of okra, but found it died on the shelf. Mangoes were "ok", as were lychees. Pomegranates were "mixed", said Sunil Mittal to FT.
Even while disappointment and failures continue, information technology is playing a critical role in the sector. PepsiCo is training farmers through Power Point presentations, video shows and distribution of print manuals; DSCL is using IT for dissemination of information; ITC is facilitating farmers through e-Choupal.
The portals at e-Choupal provide information on prices of crops across different mandis, tips on best practices in farming, weather forecasts, and answers by experts in vernacular languages.
"Through information and knowledge, we have connected 35,000 villages with 3.5 million farmers," says S Sivakumar, chief executive, agri-businesses, ITC. It is now getting into larger format Choupal Sagars, developing 30 of them by March 2006 at a cost of Rs 5 crore each.
"These will have a retail store, a warehouse, health clinics, fuel centre and so on, and they will act as a one-stop store for farmers," says Sivakumar. The company will connect 1 lakh villages and 10 million farmers through e-Choupals by 2010.
ITC's business model is that of empowering the farmers. "What we are developing is strong social collateral. Contract farming does not work because when prices go up, farmers sell in the open market," says Sivakumar. ITC's agri-business, at around a Rs 1,800 crore (Rs 18 billion), comprises 15 per cent of the total business. Of this, over 50 per cent comes from export.
There's no clear writing on the wall yet, but the stage is set for corporate India's thrust into the agri-business. Mukesh Ambani might not slip into a dhoti any time soon, but if he's looking at parking Rs 5,000 crore (Rs 50 billion) in the agri-business, it could be the moment for Rural India Shining.