Business Today

Corporate farming, redux

By helping farmers till their land, Coromandel International has created a new revenue stream.

Nitya Varadarajan        Print Edition: August 8, 2010

At Cherlopalem village in Nellore district of Andhra Pradesh, an interesting sight awaits any visitor- uniformed farm hands either tilling the land or transplanting rice seedlings. The fields look a lot greener (read productive), too, and more orderly than those that one usually sees in paddy-growing areas.

The fields belong to 48-year-old Tatineni Ramesh, who has 32 acres in the village. He has no sons and his only daughter is studying in one of the bigger cities of Andhra Pradesh. Until recently, Ramesh had to depend entirely on hired labour. Even that changed when hired hands became scarce as they flocked to work for schemes under the Mahatma Gandhi National Rural Employment Guarantee Act offering better wages.

The predicament was the same for Ramesh's friend M. Raghuramaiah, 55. His two sons have moved to a town to work in a private company. "Our land is our pride - we own it. It cannot compare in intrinsic satisfaction to what a private company can offer as salary," says Raghuramaiah, hoping that his sons will one day come back.

In fact, many farmers in Nellore district are passionate about their land. But they increasingly worry that with their children not ready to take up farming and the ever increasing shortage of farm hands, they may have to exit farming altogether. But the seeds of hope have been planted by the Rs 14,000-crore Murugappa Group, which saw in farmers distress a great opportunity to create an allnew revenue stream by working more closely with them - its main customers.

"At our Mana Gromor centres, we were getting feedback about the farmers' distress," says N.S.B. Hariprasad, Area Sales Manager, Retail Operations. Mana Gromor chain of retail stores were set up by Coromandel International, formerly Coromandel Fertilisers, to peddle fertilisers, pesticides and nutrients along with lifestyle products to the farmers.

Coromandel drew up a unique model and decided to help farmers sow crops for a fee of Rs 4,500 per acre. Unlike contract farming, it did not involve taking over of the farmland on lease or buying back the produce. The farmer remained in charge of the land, chose what he wanted to grow and where to sell. All that Coromandel did was to help him sow the crop by using the latest machinery and advising him on the right mix of fertilisers, pesticides and nutrients.

In November 2009, Coromandel International began by handling 400 acres around Nellore - ploughing the land and transplanting seedlings using imported machinery indigenised for the purpose. The idea was tremendously successful and soon demand rose to 1,200 acres for the next season. The farmers happily paid for the service - they were relieved to see a crop in their fields.

"For the coming season in November-December, we hope to do 6,000 acres," says G. Raviprasad, Vice President for Fertilisers Sales and Marketing at Coromandel. He is very optimistic about covering 100,000 acres as part of the first tranche of the company's plan "very quickly" once the business plans are finalised.

The reasons for the immediate success of the model are many. Fragmented landholdings deter farmers from investing in mechanisation as it is not viable. Murugappa Group found a way to tap into this by spreading costs over many farmers. For instance, the conventional method of carrying the seedlings from the nursery and then planting them by hand requires intense physical labour and is done mostly by women.

At least 12 women work for eight hours to cover an acre. The rice planter, operated by two trained hands, does the job in two hours. The mechanised method also ensures better spacing leading to better sunlight and aeration for the crop and so better growth than in the conventional method of transplanting.

Some farmers were even willing to pay another Rs 4,500 per acre for completing the entire process of farming; harvesting, threshing and bagging. "We are now freeing the farmers to take up other activities such as dairy or poultry farming or shrimp cultivation and grow their income," says Raviprasad. In fact, large farmers like Ramesh Reddy, who owns 300 acres and had gone to become a government employee, have expressed their intention to return to farming.

For the Murugappas, the tangible and intangible benefits are many. Farmers do not mind waiting a day or two for the company's consignment of compost or fertiliser to arrive rather than buy a readily available brand from a competitor. Farmers are increasingly taking to specialty chemicals (bio nutrients and pesticides) made by the company. Coromandel expects sales of its compost to touch 90,000 tonnes this year.

It helps the company since increasing sales of non-subsidised items such as compost fatten its margins. "Also, by selling them things like footwear, T-shirts, and mixer grinders through the Mana Gromor chain, we aim to lock them in to be with us completely," says Raviprasad. That apart, there is also a new revenue stream to tap. The servicing income from paddy alone would eventually amount to several hundred crores.

The total potential is estimated to be around Rs 3,000 crore. Coromandel has a strong presence in Tamil Nadu, Karnataka, Andhra Pradesh and Chhattisgarh, which are predominantly rice-producing states. The company is also considering extending the mechanised method to other crops like maize and cotton. A. Vellayan, Chairman, Murugappa Group, is proud of this effort.

"We have sown many firsts in Coromandel. But this time, we have sown the beta seeds of farm mechanisation in the country, which should help in modernising agriculture," he says. Indeed, when an obsessive focus on productivity management is fast becoming a religion in Indian manufacturing, why should agriculture be left behind?

THE INITIATIVE

  • Coromandel International helps farmers with mechanisation of farm activities for a fee
  • Also provides the necessary farm hands
  • Offers farmers soil sampling and testing
  • Runs specialised retail stores to meet farmers' needs . they stock both farming and lifestyle products

THE OUTCOME

  • Gets deeper relationship with farmers that goes beyond point of sale, ensuring brand loyalty and market share
  • Helps bring mechanisation into the country for better productivity
  • Addresses farmers' problems of shortage of hands, the reluctance of the next generation to work on farms and avoid outright sale of farmlands
  • A new revenue stream for itself, and an opportunity to sell its products and other services, particularly financial services

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