Organic Farming

(The Economic Times : 14th December 2008)

Azamgarh gives a radical thumbs-up

ON A visit to Azamgarh in UP, you expect to find many things radical but hardly a business model that overturns way agri-business companies handle and share risk. Yet there it was — triumphant, recession-proof and wildly popular among the locals. 
    Like all truly smart ideas, it’s blindingly simple. Moreover, it creates value in a way that is sustainable, creative and transforming. The $10-million Lucknow-headquartered Organic India (OI) is one of India’s top manufacturers of organically-grown herbal and ayurvedic health products. It exports proprietary health supplements, brands such as Tulsi Tea Collection, as well as organic spices, pulses, fruits and veggies, and grains around the globe. It claims to be the only Indian company that complies with the toughest US standards. 
    From inception, OI was committed to working chiefly with marginal farmers and tribal villages. Put the two objectives together and you get a farming-based company that requires highly specialised and premium medicinal crops to sell in a ruthlessly competitive international market but has suppliers with few resources. Usually a company planning to export farm produce rarely thinks beyond contract farming — the tried-and-tested formula for halving risk and doubling profit. Low on mutual trust, most experiments end with dismay and defaults as both parties find it hard to keep their side of the bargain. We all know the names. 
    OI took a different approach. It decided it would bear the cost of production, and the risks of crop failure and market volatility. Farmers were to only tend and harvest the crop. In short, each one contributes according to his ability. An OI supplier contributes only what he owns — half-acre plot, labour and farm wastes. He need not worry about investment or prices. OI contributes the seeds, organic fertilisers (converted from farm waste), extension services, organic certification and an assured purchase price. It also assumes the risks of crop failure (this year floods drowned the fields) and market competition. 
    It normally takes a few seasons before a farm can be certified organic. In the interim, a farmer has to grow organically but gets few buyers offering a premium. It’s a risk he is forced to bear in hope of future profits. OI decided to eliminate even this challenge. It starts buying from season one even though the produce can’t be used in its factories. Though it may sound zany, the model worked. On dozens of struggling, rain-fed farms around Azamgarh, where cane, gram and wheat have failed for several years due to water scarcity, this zero-risk business has brought amazing prosperity and peace of mind. 
    “My mother and I have been growing tulsi for seven years. We get the seed and fertilisers free. Plus the company helps look after the crop. After three months, we pluck the green leaves, dry them and sell at a pre-fixed rate. The three varieties — Ram, Shyam and Vana tulsi — are sold at different rates, which are higher than what traders offer. When floods washed away our fields, the company helped us re-plant. I made Rs 28,000 net profit this year from tulsi. It’s less than last year because yields were low but I’m satisfied,” says farmer Ravindra Nath Sharma, who owns half acre, and now lives in a pucca house. 
    It’s a view echoed by most small farmers in the area. They have realised that with missing government support, no irrigation, erratic power supply, and no marketing opportunities, partnering with OI is their only chance of a half-decent life without mortgaging land or migrating. There is an additional benefit. Now trained in organic farming, crops they grow for rest nine months are also certified organic and fetch a premium. The benefits from no chemicals to their soil and their own health is an unexpected bonus. 
    For Organic India, the benefits are equally large and not limited to assured supply of organic products. It allows the company to fulfil its vision of doing business “without greed” in a way that is sustainable and benefits farmers, consumers, and the bottomline. “We don’t do charity. We want to practice eco-friendly agriculture through market-driven sustainability,” says co-founder Bhavani Mitra. OI has replicated this model from Bundelkhand in UP to Rajasthan, Gujarat, and Madhya Pradesh. South India and the North-East are next on the anvil. With 50,000 acres under its belt, OI today has the largest and most widely spread certified organic cultivation plan in India. 
    Interestingly, it’s a model that migrates well not just across crops but industries as well. Suguna Poultry Farm is a classic example. Across 10 states, it has got 15,000 farmers to raise chicken for a fee. It identifies farmers with requisite infrastructure (sheds, water supply and labour). It supplies them day-old chicks, along with feed and medicines. Suguna staff visit the farms daily to check the health of its chicken. After six weeks, birds are weighed and sold. Farmers are paid for growing the birds, apart from incentives. 
    Farmers have no risk because they don’t own the chicken. They don’t worry about feed prices, vets, or chicken prices. For Suguna, the model offers faster scalability as it does not have to buy or lease farms. It keeps costs low, and allows economies of scale while buying raw materials, feed and medicines. By 2013 Suguna says it intends to have 60,000 contract farmers. 
    Indian farmers are mostly entrepreneurs producing for the market. But with small farms, expensive credit, poor margins and high costs of doing business, their ability to take risk is extremely low. Companies like Organic India and Suguna understand farmer psychology. Then they courageously go a step further and harness it to create wealth for themselves, the economy and these farmers. It’s a radically new way to stay ahead of the game in these tough times.