Leadership and Change
VayuGrid Leverages the Power of Aggregation for Farm ProsperityPublished: March 07, 2011
A typical farmer in India would grapple with some or all of the following problems in varying degrees:
- Small land holdings of between one and five acres, which do not allow for economies of scale.
- Poor irrigation coverage, high dependence on rainfall and vulnerability to periodic droughts.
- Dependence on water-intensive food crops that have easier access to markets than non-food crops.
- Low or no mechanization in farm practices from sowing to harvesting, resulting in low productivity.
These factors combine to depress farm incomes that fluctuate wildly with the vagaries of rainfall, perpetuating a cycle of impoverishment.
Government programs, banks, microfinance firms, voluntary agencies and farmers' self-help groups have over time tackled individual pieces of these problems with varying degrees of success. But Gerard Rego, a social entrepreneur and CEO of Bangalore-based VayuGrid (vayu means "wind" in Hindi) believes he has found a business model that promises deliverance from many of the problems all at once. Rego, who is also a member of India Knowledge@Wharton's advisory board, describes the bare-bones model of the for-profit VayuGrid: It invests along with farmers in cultivating the dry-land oilseeds crops of castor and pongamia -- historically used as fuels -- bringing scientific farming technology and access to markets. Alongside, it pools farmers' requirements including those of seeds, equipment and insurance to secure volume discounts, creating a virtual marketplace for thousands of farmers. It powers entrepreneurship by identifying opportunities for mechanization of farm practices and guiding potential entrepreneurs to lenders and suppliers, while enabling higher productivity and incomes.
A Bangalore native and an alumnus of Wharton and Stanford, Rego worked as an IT entrepreneur before launching VayuGrid in 2008 with US$900,000 in start-up capital. Its business model has stood the test of at least one crop season, and in October it secured Rs. 20 crore (US$4.4 million) in equity financing from the Mumbai-based Mahindra & Mahindra (M&M) group, the country's largest tractor manufacturer, which also has a strong presence in vehicle financing in rural India. M&M will release its financing over three years as VayuGrid meets performance milestones and eventually will be a 51% owner, according to Anirban Ghosh, M&M's vice president, strategic planning for its farm equipment business.
Social Networks as Capital Stock
Rego says that VayuGrid's real capital stock is the social network it builds through contracts with farmers who pledge a portion of their land to growing oilseeds. Farmers, he says, benefit almost immediately with savings on farm inputs while VayuGrid earns revenue through commissions or transaction fees from the suppliers it connects with its network of farmers. "We will bring in all these large businesses and become the platform provider to those that sign contracts with us; we give them an aggregated market," Rego says. "If you want to provide education, we say 'Here are 500 villages.' They (the providers) don't have marketing costs, communication costs, etc; we are doing all that work."
VayuGrid has built an inventory of nearly 5,000 acres for castor from 2,000 farmers in 180 villages. It plans to add another 5,000 acres to castor in the current cycle and is working on an 8,000-acre community around pongamia, Rego says. In all, he expects to have 15,000 acres in the current crop cycle with pledges from 6,000 farmers. Rego's target is to build a portfolio of 500,000 acres in the next five years, increasing it to 2 million acres by the eighth year. He wouldn't disclose VayuGrid's revenue.
VayuGrid's core work is in aggregating small farmers, explains M.V.R. Prasad, the firm's co-founder and vice president of agri-renewables. Prasad is an agricultural research expert who favors castor and pongamia for their ability to grow in semi-arid conditions and their potential to augment farm incomes. "We don't encroach upon food production," he says. "We don't want irrigated fertile lands but need only marginal lands where farmers cannot grow traditional food crops." His team has trained 3,000 farmers in cultivating these two crops, and he wants to scale up that effort "on a war footing." Prasad is convinced the two crops will significantly help farmers find profitable uses for those portions of their land they considered unfit for cultivation. He says VayuGrid targets the three areas of vulnerability for the typical small Indian farmer -- credit, technology and marketing.
While the land portfolio will bring economies of scale, Rego is also looking at what he calls "economies of scope" -- the scope of activities widens with opportunities across the crop cycle. These include extracting eri silk from the weeds that grow with castor, using biochar (a form of charcoal) to replenish the soil, and selling waste biomass to users of biofuels to produce electricity. VayuGrid is working with government agencies including the National Bank for Agriculture and Rural Development and the Indian Council of Agricultural Research to support its activities in areas including lending and crop productivity.
VayuGrid's participating farmers could realize "big jumps in productivity" and opportunities for entrepreneurship, according to Sambhaji Mane, VayuGrid's general manager, workflow/mechanization services. Mane's task is cut out: lower the costs of doing business for farmers, and help them increase productivity with appropriate inputs through crop cycles. He oversees work in four districts of Karnataka state -- Chitradurga, Tumkur, Hassan and Davangere.
Mane offers an example of mechanization helping to improve yields and creating entrepreneurs. After a harvest, oilseed pods have to be threshed to separate the seeds from straw. Time is crucial to ensure that crops don't waste away; castor seeds, for example, have to be threshed within 15 days of harvest for best results. Farmers in VayuGrid target districts manually thresh their crop at the rate of 50 kilograms a day per worker. Their daily wages are about Rs. 200 (US$4.40). But the mechanized threshers VayuGrid encourages them to use can do up to 20 tons a day at about a sixth of the cost, Mane says.
H.D. Bhulingappa, a farmer in Devaramarikunte village in Chitradurga district, is the latest in VayuGrid's network to invest in a thresher. He bought his thresher in October for Rs. 105,000 (US$ 2,315), and expects to recover his investment within six months. Bhulingappa owns 20 acres and a tractor; he has added castor to his portfolio of sunflower, maize, cotton and other plantation crops like coconut and banana. So far, five farmers in the VayuGrid network have secured loans and invested in threshers and five others have applied for similar loans, Mane says.