Growing opportunity

The country's largest agri conglomerate has reasons to believe corporate contract farming could be the future of rural India.

The first export shipment in 2005 was a complete disaster. By the time the containers of mushroom, grapes and okra reached the Middle East, much of the produce had rotted.

It would have broken the back of any budding exporter, but the Bharti-Rothschild FieldFresh joint venture survived the setback. And a fortnight ago, fortune seemed to be smiling on it when Prime Minister Manmohan Singh visited Ladowal village, near Ludhiana, to be shown its 300-acre model farm.

The visit was both an acknowledgment of the importance of the agriculture business as well as telecom major Bharti's ability to focus public attention on whatever it does.

So moved was the Prime Minister that he abandoned his prepared speech to speak extempore. "We need more corporates to enter farming for the creation of wealth," he said. That hope, at least, may take a little longer to fulfill.

Corporate India has traditionally not seen agriculture as a big business opportunity. Barring the likes of ITC and PepsiCo, not many have entered the field. Even with these two, the reasons have been different.

While ITC has traditionally grown tobacco in Andhra Pradesh for its cigarette business, the company is now exploring the possibility of entering the spice trade. Cola major PepsiCo started with contract farming in the nineties as part of its mandatory export obligation, and now grows potatoes, tomatoes, chilli and rice in Punjab, Maharashtra, Karnataka and West Bengal.

Ask him about the initial foray into the agri-business, and Sunil Mittal, the second of three brothers who have promoted Bharti Enterprises, says the intention was to set up another pioneering project like the extraordinarily rapid build up witnessed in Bharti's telecom business.

"Two-three years ago it was in our minds to pioneer another project "" not only what we did with the mobile in 1994-95, but also in 1982 with India's first push button phone that marked private sector entry in telecom. After looking at several options, we zeroed in on growing fruits and vegetables. And, like we did in telecom, we decided to look at processing and go up higher in the value chain. The beginning was to be with fresh produce."

Set up as an equal joint venture between Bharti Enterprises and Rothschild's ELRo Holdings, right at the outset it was decided that FieldFresh would target the overseas markets.

"We realised that it would be very difficult to compete with the unorganised sector "" the sabzi mandis. We decided to focus on exports. Most of the building blocks are in place: India has irrigated land, lots of labour and plentiful sunshine. What is missing are things like the cold chain, perishable centres and freight forwarding infrastructure," says Sunil Mittal.

At about the time Bharti was exploring the idea, Rothschild was looking for an India project to sink its teeth into. "They were partial to food retail. When we proposed the idea of a complete food chain, they liked it and gave us the go-ahead, which is how the plan germinated and FieldFresh was formed."

Starting with 7-8 people, today FieldFresh has a team of 85-90 people and that number if being scaled up further. With $50 million by way of initial investment pumped in by the two partners, the company plans to expand to all corners of the country and have 20,000 acres under cultivation.

If the pairing appears a surprise for many "" Rothschild is largely perceived as an investment bank "" insiders would suggest that a peek into Bharti's history will point to tie-ups that have been with British (and European) companies "" whether British Telecom or Vodafone. Its proposed tie-up for the retail business is also largely centred around another British company, Tesco.

Rothschild also brings on the table considerable clout and market access with leading European retailers. That has made the marketing of FieldFresh produce a little easier, as a host of intermediaries help in fixing up buyers in overseas markets. Some deals are direct too "" Tesco, for instance, has purchased FieldFresh grapes.

For the Mittals, the choice of Punjab in general, and Ludhiana in particular, was equally emotional. Punjab is the Mittals' home state, and Ludhiana the city of their birth.

"We decided our first foray would be in Punjab, and I believe this project has real transformation capabilities. If it succeeds, it will transform India's rural hinterland. It is bigger than telecom in terms of sales, but it is much tougher than telecom. If successful, India can feed the world," Sunil Mittal says.

Elder brother Rakesh Mittal, who is incharge of the project and spends considerable time handling the operations, says the initial start was small but the venture is now reaching take-off stage.

"Starting with 63 acres in May 2005, we now have over 4,000 acres under collaborative farming in Punjab. We also have 250 acres in Uttaranchal and another 200 acres in Rajasthan, again under a collaborative farming arrangement," he says.

This is key to FieldFresh's plans. Instead of owning the land and taking on the associated risk (the law in any case does not allow anyone to own more than 19-22 acres of cultivable land, depending on the state), the company has struck pacts with local farmers by assuring them of sustained support in the entire value chain of farming "" beginning with the latest soil management techniques, better seeds and implements and ultimately assured prices for the produce.

"I felt we needed to strengthen the space ourselves," explains Sunil Mittal. "We deal with 100-plus farmers who have leased 4,000 acres to us. We have to go into the fields and share the best farming practices and techniques. Unless we do that, exports become a question mark. While the farmers grow very good vegetables for domestic consumption, clearly the global customer's requirements are of a totally different variety for the same vegetable. A lot of work is being done for that."

The farmers themselves seem happy with the initial results, with many apparently approaching the company to take their land on lease. Others are also impressed with the foray.

Mayank Jalan of Keventers Agro, the company that makes Frooti, says: "I think it's a brilliant idea. We need companies like Bharti to enter agriculture so the market will be driven further with better and fresher produce. Ultimately, the common man will gain."

Like the initial export fiasco, the road to becoming India's largest corporate agriculturist with 30,000 tonnes of various farm produce this year has not been easy. Littered as it is with immense regulatory hassles, working the land in India has had its hurdles.

It is not just the soil that needs to be turned around (it costs a minimum of Rs 60,000 per hectare to do that) but also the mindset of the average farmer, as well as the lack of a proper infrastructure, that bedevils this business.

"When my vegetables would reach airports, the doors of the trucks would have to be opened. The insides have an air-conditioned environment of 20-25 degree Celsius and when the doors were opened "" poof, there is hot air. In just a couple of hours, this thermal shock deteriorates the vegetables. After that, the vegetables go to a cold storage at the airport perishable centre. Prior to the departure of the flight, the vegetables are again taken to an open shed where the vegetables suffer another thermal shock for four hours. On top of this, since passenger bags are priority, there is no guarantee of our produce being boarded," Rakesh Mittal says.

This is where Bharti's expertise in working the system and collaborating with the government has come into play. Knowing well that it would be impossible to do everything on its own, Bharti has worked with local authorities to get things sorted out.

The results have been encouraging. Agencies like the Airports Authority of India have set up a perishables centre (air-conditioned storage facilities) in Delhi and Amritsar, for instance. Money has also been sanctioned by the National Horticulture Board for a permanent perishable centre at Amritsar, to handle 160 tonnes per day.

Field Fresh is expanding into other states and expanding its farm produce portfolio. At the moment it produces around 20 vegetables and nine fruits . The varieties will go up as cultivation in other climate zones starts. Of the 30,000 tonnes of produce this year, almost 60 per cent will be exported, while 20 per cent is meant for domestic sales.

The remaining 20 per cent is meant for food processing. Processing in itself is a challenge and the company is looking at juicing carrots, pineapples and mangoes, as well as pulping the fruit. Since there are no opportunities for acquiring capacities to undertake processing, the company is planning greenfield projects to this end.

While FieldFresh produce will increasingly be available in stores overseas and supermarket chains, there is very real possibility of FieldFresh stores being set up in India. "That would be a good idea, but it will have to wait for a product portfolio to grow further," adds Sunil Mittal.

The future could well see FieldFresh stores selling veggies and fruits at prices that, Mittal promises, will compete with those on the street. "That is the game and we will play it," he promises.

The Brothers Mittal on unleashing an agri-revolution

On competition
Rakesh Mittal: You have to hand it to Pepsi for doing a good job. They were instrumental in increasing productivity from 20 tonnes per hectare to 55 tonnes. We're still behind the world. California produces more than 500 tonnes per hectare and Holland produces 600 tonnes a hectare. That's 10 times more than India. We would have grown 30,000 tonnes by the end of this year, which is only one-third to one-fourth of our target. To my mind, no other corporate in this country grows this much.

On the size of FieldFresh
Sunil Mittal: We don't know how FieldFresh's target of 20,000 acreage was reported. It could be 20,000 acres or 2,00,000 acres at the end. We still don't know how big our scale will be. The idea is to have more and more farmers joining this movement. In the west it will be in Maharashtra in the Nashik-Sangli belt. We will obviously grow mangoes and grapes here. One of our major achievements has been that we were the first in 25 years to export a tonne of mangoes to Japan.

However, it was the tailend of the season so were not able to export any more. We are now investing in a vapour heat treatment facility, which is required to export to Japan. We will also try to get farmers to grow vegetables in Maharashtra so that we can build longer relationships with them. In the south, we will grow mangoes in Karnataka and Andhra Pradesh. We will again try to collaborate with farmers to grow vegetables. I can then ensure supply through the year to my customers in Europe. In the east we are in talks with the governments of West Bengal and Bihar.

On the impact
Rakesh Mittal: Clearly, what we are doing in Punjab will be replicated across the country. While we say India can grow everything that Europe can consume, there are many obstacles and bottlenecks. When you grow one winter crop in Punjab, the very same vegetable has to be grown in the south as well as western and eastern parts of the country depending on the different climatic conditions.

In Kenya and Australia they grow the same vegetable for 52 weeks. Every week they sow a seed and every week they harvest the crop. We don't enjoy the same luxury due to our agri-climatic zones. If I look at the domestic market, we can grow at a faster place. When I look at exports, I see the bottlenecks created by the cold chain and perishable centres that still need to be put in place.

On government support
Sunil Mittal: The commitment and support we have from the Prime Minister's Office, the ministry of agriculture, the ministry of civil aviation and other agencies has really motivated us. In 30 years, I have never seen the government as responsive.

On doing it all
Sunil Mittal: We are great outsourcers "" even in telecom. We would like to collaborate with third parties for logistics, trucking, shipping et cetera. We don't need to do that ourselves. We are in the business of growing fresh produce. Companies like Snowman and Mitsubishi will come forward when many others enter this sector. Two to three such large companies from the US have shown interest in entering India and have been calling us. Even for retail to succeed in India we need these logistics companies and cold storage in place.

After all, fresh food will have to be moved across the country. Companies like Wal-Mart, Tesco, Carrefour and Reliance will need good logistics. I alone cannot change the eco-system. Like telecom, we will need competition to change it. Similarly, logistics at airports cannot be ignored. GMR and GVK will have to work on perishable centres. We will concentrate on techniques of growing, increasing our efficiencies, high value products and eventually get into processing such as juicing carrots and pineapple or making mango pulp. This will be a logical investment carry on.

On its benefits
Rakesh Mittal: There is a spark in the rural areas. Farmers are already earning more with us. They are approaching us and saying take our land as well. From our point of view, this could be the agriculture BPO equivalent in India. We provide a consolidation opportunity. With divisions in families, a farmer only gets to hold 2-3 acres of land and earns only Rs 20,000-25,000 per acre.

On other spin-offs
Rakesh Mittal: In my mind, this project is more a corporate social responsibility activity. We are empowering women who comprise 70 per cent of our workforce. You can see how charged they are. They are getting the same salary as men and that has never happened before in Punjab or anywhere else in the country. We are giving them minimum wage, which is Rs 100 plus per day. Earlier, women would earn Rs 40-60 and men would make Rs 80. So there is already extra liquidity in farmers' hands.

Those who have leased land to us do not have to go to moneylenders and borrow money at high costs. They lease their land to us and we make them work on the very same land and pay them minimum wages. Their income is doubled overnight without the worry of a failed crop.