Planting a Seed for Higher Standards in Indian Agriculture

The controversy earlier this year around Nestle’s Maggi noodles in India has brought the country’s guidelines on food safety under scrutiny. While the Nestle noodle tangle remains to be resolved, the debate has highlighted that one key element lacking in India’s food safety norms is standardization.

In the small town of Talakad, located some 130 kms from Bangalore, India’s Silicon Valley, brothers M.V. Naveen and M.V. Nameet, along with their cousin K. N. Prasad, are raising the bar by following global standards. Their firm, First Agro, is India’s first commercial grower organization with zero pesticide produce and complying with Codex Alimentarius for the domestic market. Codex is the highest food safety standard globally.

Established by the United Nations’ Food and Agriculture Organization and the World Health Organization in 1963, Codex defines the maximum residue limits (MRL) of pesticides across thousands of products in order to ensure that consumers are not exposed to unsafe levels of hazardous and toxic elements. It is a de facto standard in global trade. Many countries have formulated their domestic food safety standards based on Codex guidelines.

In India, while it is mandatory for exporters to comply with Codex, this is not the case for products meant for the domestic market. In February 2013, the Food Safety Standards Authority of India (FSSAI) said that it would align India’s food safety standards for vegetables, fruits and other food products produced and sold in India with Codex. However, this has not been put in place as yet. First Agro, which sells its produce in India, has voluntarily opted for Codex certification.

First Agro was set up in 2010 and became operational in 2011. At the company-owned farm spread over 80 acres in Talakad, it grows more than 120 varieties of vegetables, lettuce greens and herbs across categories such as tomatoes, gourds, root crops, cole crops, chillis and basils. The company ships more than 40 tons of fresh produce each month to retailers and institutional buyers across the country. Its customers include luxury hotels such as Ritz Carlton, Hilton, Hyatt, J. W. Marriot, Oberoi and Taj and leading retailers including BigBasket, More, Hypercity and Auchan.

“It is interesting and also impressive that they are leveraging natural methods which are not popular in modern agriculture.” –S. Raghunath

“We do not use any form of chemical pesticides. Our philosophy is that we will grow and sell food that is safe for people and good for the environment. We decided to adopt the Codex standards and certification to remove any ambiguity about the quality of our products. It also strengthens our position as early adopters of global food safety standards in India,” says Naveen, managing director. He adds that Zero Pesticide is a registered trademark of First Agro.

One of the biggest problems in Indian agriculture is that it is highly fragmented and unorganized. There are some 100 million farmers in India and the average landholding per farmer is around two acres. There are no economies of scale, investments are low and indiscriminate use of chemical pesticides is rampant. According to various studies, India is one of the largest users of pesticides globally.

Leveraging Nature

Nameet, who heads production and also Chef Garden, the business division for institutional customers, explains that First Agro follows an integrated pest and disease management system. “For every bad insect, there is a [beneficial] insect and many pests such as carrot flies or armyworms hate the presence of natural items like garlic and coriander. By using a combination of neem oil, beneficial insects, beneficial microbes, garlic-chili spray, pheromone insect traps and companion plants, we are able to manage about 90% of the common pest issues in agriculture. We leverage Mother Nature to balance the ecosystem.”

It is important to have a deep understanding of entomology (the study of insects) and olericulture (the science of vegetable growing) in order to use natural methods and bio solutions to manage pests. At First Agro, Nameet has compiled a database of more than 500 pests and how they can be controlled naturally. “This knowledge-base is a huge competitive advantage for us. Everything we do has science behind it,” says Naveen.

But how is First Agro different from what organic farmers typically do? The difference, says Naveen, lies not only in First Agro’s “scientific approach” to cultivating its produce, but also in the testing and certification methodology it follows.

Raising the Bar

Organic farming is basically a method of cultivation. Under this method, it is the farmland that is tested and certified and not the end produce. The certification is done by an authorized agency through an audit based on the processes and documentation maintained by the farmer. This certification at the farm level is valid between one and three years. Under Codex, however, it is the produce that is tested. “Organic farming is a method of farming. There is no guarantee that the end produce will be free of impurities. There is no vigorous testing method. Codex testing, on the other hand, is outcome-based and has precisely defined standards,” says Naveen. Adds Prasad: “At First Agro, every batch of produce undergoes Codex testing and every shipment from the farm can be traced to a production batch.”

According to S. Raghunath, professor of corporate strategy and policy at the Indian Institute of Management Bangalore (IIMB), First Agro stands apart because of “its ability to set new standards for pesticide free produce for the domestic market and to execute at a large scale as a corporate.” He says, “It is interesting and also impressive that they are leveraging natural methods that are not popular in modern agriculture.” Raghunath, who has known Nameet (who was a student at IIMB) and Naveen for more than a decade, adds: “I think their biggest strengths are sincerity and purpose. They have the ability to build strong processes and IPs and a brand that people can trust.”

The cofounders bring together a blend of horticulture, supply chain and information management expertise. Prior to setting up First Agro, Naveen (45) worked in senior positions with Hewlett Packard and iGate Global Solutions. Nameet (38), a licensed commercial pilot, worked with horticulturists in Canada before moving to India. Prasad (47) has some 25 years of experience working with Wipro, Xerox and a few startups across functions like operations, supply chain management and sales & marketing. Until now, the founders have invested about $5 million through the debt route. For the year ending March 2015, First Agro’s revenue was $1.5 million. Of this, 70% came from retailers and 30% from institutional buyers. The company is in expansion mode and yet to turn profitable. The founders expect to be cash-flow positive in about three years.

“I think First Agro could be a catalyst for improvement in the Indian fresh produce sector.” –Anupam Banerjee

Anupam Banerjee, executive chef at the Ritz-Carlton in Bangalore, has visited First Agro’s farm in Talakad and is familiar with their operations. He says: “Having spent many years in the international market, I am amazed and impressed with First Agro’s depth of knowledge and expertise to grow the natural way. There is no doubt that in a short span of two to three years First Agro has become a reference point in the Indian hospitality industry as a trusted and safe grower of fresh produce.” Banerjee adds that in his line of work he deals with importers, traders, suppliers and boutique farmers in India. “I have yet to see another organization that operates at this scale to consistently grow pesticide-free fresh produce. I think First Agro could be a catalyst for improvement in the Indian fresh produce sector Twitter .”

Vipul Mittal, national category head of the fruits and vegetables business at BigBasket, India’s largest e-grocer, agrees that First Agro has a differentiated product. “By going beyond what the law mandates, they are setting themselves apart.”

On the Expansion Trail

First Agro is currently in the process of setting up its second farm in Pali, 100 kms from Mumbai. Over the next seven to eight years, the founders plan to expand production to more than 1,500 acres across 16 locations pan India and mapped to 20 class A, B and C cities. The farms will be located at less than three-hours of driving distance from the cities to ensure speedy delivery of their produce. The farms will have pack houses, cold storage facilities and processing centers to enable integrated and end-to-end operations. At present, in addition to growing tomatoes in Talakad, First Agro also makes tomato puree. Going forward, it plans to expand to sauces, specialty pickles and flavored honey. This will not only take care of any excess production but also result in higher margins. The founders estimate that their expansion plans will require an investment of some $20 million.

“All our production and related operations will only be in company-owned and company-managed farms. That is the only way we can ensure that our produce adheres to the highest standards and is pesticide free. We will not opt for contract farming,” says Prasad. First Agro also has a seed bank of more than a million seeds of which 60% are produced by the company itself.

Expansion is likely to be challenging. Apart from the bureaucratic delays that are common with land acquisition in India, inadequate infrastructure, and building a knowledgeable employee pool, First Agro has to ensure that it can replicate its production process, which has been developed based on weather and soil conditions in Talakad. The company will need to reproduce its processes across different locations with diverse conditions. “They also need to strengthen their management team in order to preserve the growth momentum,” adds Raghunath.

An Exotic Mix

First Agro is raising the bar on another front: the product range. Its harvest includes exotic products like pink and chocolate cherry tomatoes, San Marzano Italian tomatoes, wild rocket and Peruvian peppers. Some of these have not been grown in India in the past. Take Peruvian peppers, which are typically grown in the Andes Mountains in South America. Nameet has worked at making it compatible with Talakad weather conditions. “First Agro has many vintage and lost-in-time heirloom and specialty tomatoes. These are unique varieties preserved by Nameet as well as developed over time by First Agro’s production teams,” says Naveen. The formal IP filing based on cultivars is expected to happen in the future.

Raghunath thinks that the mix of volume business through retailers and value business with exotics for luxury hotels is “a smart way” to capture both these markets. “This approach translates into higher market share and better margins,” he says. Aparna Krishnamoorty, professor of economics at the Welingkar Institute of Management Development and Research in Bangalore, adds: “First Agro has recognized the potential for exotic vegetables in India, especially in the high-end hotels and restaurants. Typically, hotels and restaurants import these products which results in high cost for them. By supplying exotic vegetables which are also zero pesticide, First Agro has created a strong position for itself. It also has the first-mover advantage.”

According to Ritz-Carlton’s Banerjee, First Agro’s combination of pesticide free produce and a wide range of exotics “aligns with the growing maturity of consumers in India.” He points out that for hoteliers, freshness and traceability [back to a farmer] is a big challenge when they import or buy from traders. In addition, they have to buy in dollars but earn in rupees. “With First Agro we have easy access to a wide range of exotic fresh produce. This opens up many new menu and cuisine ideas and translates into a major competitive advantage for us.”

“I don’t see First Agro becoming a mass product at any point in time. I see it more as a low volume, high margin player.” –Vipul Mittal

BigBasket’s Mittal offers another perspective. “There is a novelty factor to First Agro’s range but it has a limited market. Only connoisseurs can appreciate the availability of such products. It may not have a strong appeal for the average buyer.”

Mittal sees First Agro as a niche player. He points out that as a retailer that caters to the entire spectrum of consumers, BigBasket keeps First Agro’s products, but their contribution to the e-grocer’s business is “very limited.” Adds Mittal: “I don’t see First Agro becoming a mass product at any point of time. I see it more as a low-volume, high-margin player.”

Branding for Success

First Agro however has a different game plan. It is gearing up to sell directly to the end customers through its e-commerce venture named Sakura Fresh. This is currently in its beta phase and expected to be launched soon. The last-mile delivery will be done by distributors.

The founders are also looking to build a strong brand. “We want to be an end-to-end player. We already have a strong backend from seeds onwards. Our aim now is to build a strong brand in fruits and vegetables,” says Nameet.

But is the Indian market ready for zero-pesticide food? While brands such as Chiquita, Dole and Del Monte are popular globally, in India consumers typically buy fruits and vegetables from street vendors or neighborhood stores. Organic produce itself as a category is nascent and sold primarily through modern trade. Average consumers know little about the impact of toxins in fresh produce. Even the more aware consumers resist paying a premium for organic and pesticide-free produce. There is another hurdle – lack of awareness among most retailers. For instance, First Agro produce is priced at an average of 15% to 30% more than regular produce, and most retailers are not comfortable with premium pricing in this category. “First Agro will have to change the mindset of consumers and retailers if they want to increase their presence,” says Krishnamoorthy of Welingkar.

Mittal believes the best way to promote organic produce in India is to price it at the same level as conventional produce. Pointing out that the country has a large number of small and subsistence organic farmers who don’t have easy access to markets, Mittal says that his team is in the process of identifying such farmers and bringing them within the BigBasket fold. “We will not only provide them market linkage through BigBasket, we will get experts to visit their farms to provide knowledge and other inputs and also monitor their progress.” This produce will be sold under BigBasket’s Fresho brand and will be labelled as “organically grown.” At present, only 10% of fruits and vegetables sold at BigBasket is organic. Mittal is looking to increase this to 25% over the next year and over time to 100%.

Naveen, however, is confident about First Agro’s strategy. He reiterates the fundamental difference between organic and Codex. “We wanted to bring Codex standards to the India market to remove the arbitrariness about what is organic and what isn’t. It’s a journey, and we believe we have moved the needle significantly in the past four years. We expect that over the next few years there will be greater awareness about pesticide free food and consumers will look for a trusted brand and will be willing to pay a premium for it. We are in this for the long haul.”

 

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