For those driving up the picturesque Nilgiri range to Ooty, eating crunchy and juicy 'Ooty Carrots' on the way is a must.
Ooty and its neighbouring areas are ideal for growing carrots. This region accounts for supplies of about 100 tonne a day to various states and for export. Farmers from Ooty take their harvest to the Mettupalayam mandi, pay the broker a fee and sell the produce at the prevailing rate. However, brokers discount the price for bad produce, sometimes as high as 30 per cent. Thus, many farmers are at the mercy of brokers.
Amid these goings-on, P Vijayaraghavan, a resident of Ooty, was keen to improve the lot of farmers and, at the same time, structure a business around this. After working closely with R Manoharan, an established carrot farmer, Vijayaraghavan came up with a plan to collect harvested carrots from farmers, pay for the produce on the spot, clean and segregate the produce according to size, pack these in clean bags and transport it in refrigerated trucks to retail stores in cities and towns.
And, Lawrencedale Estates & Farms (LEAF) was formed.
To start with, it was a difficult proposition, says Vijayaraghavan, CEO of LEAF. For the past four years, he has been convincing farmers of the benefits of this mechanism. Now, LEAF works with about 1,000 farmers, mostly those with one to two acres. It shares farming techniques, assists farmers for better yields, increases the harvest per acre and provides the full value for their harvest, without brokerage free. Importantly, it doesn't discount bad produce.
Deepak Vasu, who hails from a traditional farming family in Ooty and who has been providing supplies to LEAF for the past three years, says, "We need more entities such as LEAF to better equip us and encourage us to carry on farming. First, we get a fair price; second, we don't have to pay a commission at the mandi. And, transportation costs have come down drastically for us. The best part is the transparency in arriving at prices."
Now, after about four years of operations, LEAF transports about 10 tonne of carrots a day to various markets in Bangalore, Tamil Nadu and Kerala. The company accounts for annual sales of Rs 8 crore. It plans to raise this to 15 tonne a day by the end of this financial year and 50 tonne a day in five years.
Vijayaraghavan has added a corporate touch to the establishment and roped in professionals as co-promoters for business development, finance and related functions. "The key difference we bring to the buyer is he would not be faced with any sort of rejections in the lot he buys from us. We are working with farmers to reduce the bad produce from their harvests. Also, we take the responsibility to segregate bad-shaped produce, which would be used for the processed foods foray we are planning," Vijayaraghavan says.
It is this concern for farmers and the company's potentially sound business plan that drew the interest of private equity fund Aspada Investment, is backed by Soros Economic Develop-ment Fund. Aspada has committed an investment of $2 million to LEAF. On the rationale behind the investment, Thomas R Hyland, partner, Aspada Investment, says, "Currently, LEAF works with about 1,000 small vegetable farmers belonging to the Badaga tribe in the Nilgiris. Each owns between a tenth of an acre and three acres of land. The company has helped them achieve a rise in net realisations through improved farm productivity, savings in logistics and more consistent pricing for their produce. There is a significant opportunity to increase the scope and breadth of these activities and work not only with more farmers, but also at a greater level by offering additional farm extension services."
He adds LEAF's business had an exceptionally good model and immense strategic value. "Last-mile backward integration is a significant challenge for large retail and food processing players, given the organisational hurdles in managing an extremely fragmented and unorganised farm segment. LEAF's cold chain and processing infrastructure, coupled with the small farmer engagement model, could be a strategic asset for large players," he says.
Dinesh Kumar, managing director of Kovai Pazhamudir Nilayam, a neighbourhood chain of about 40 vegetable and fruit stores in Tamil Nadu, says, "We buy an average of 2.5 tonne of carrots from LEAF on a daily basis for 20 of our stores. We are actively looking to buy for the rest of our stores, too. Customers like these carrots more than those we used to buy from mandis. Despite the cost being at least Rs 10/kg higher, the stocks move out pretty fast. Their anti-fungal wash helps the produce and it doesn't perish fast, as was the case with local carrots."
On an average, LEAF buys at Rs 15-40/kg from farmers and sells these at a premium of Rs 10-12/kg. While carrots account for as much as 90 per cent of LEAF's volumes, Vijayaraghavan is working on expanding the range of vegetables and fruits to potatoes, cauliflower, lettuce, cabbage, radish, green peas, parsley, turnips, zucchini and celery, which Ooty can produce in good quantity.
LEAF's offerings include as many as 120 stock keeping units and these are being lapped up by large-format supermarkets across cities and towns. The company works with about 40 supermarket chains such as Nilgiris, Aditya Birla MORE, FoodWorld, Auchan, Star Bazaar and Total. However, it does not supply to mom-and-pop stores, at least not yet. "We are planning to go to those stores as we expand and as we have the bandwidth to do the milk run that would enable us to transport in smaller quantities," said R Balakrishnan, LEAF's director and chief financial officer.
Even as tricky logistics to hit the retail shelves are being streamlined, LEAF has embarked on an ambitious foray of branding the vegetables as 'LEAF' and hitting supermarkets, promising a different offering. "Ooty carrots are prized across south India for their taste and quality. This offers a large opportunity for building a fresh vegetable produce brand. And, a significant premium for LEAF produce already exists in the supermarket segment.
However, the concept of buying packaged vegetables is yet to become popular in India. We are at it," says Vijayaraghavan.
He adds given the issues of handling a commodity that is easily perishable, LEAF is fine-tuning its back-end infrastructure and securing firm orders, before going to farmers on a daily basis. "We work on a pretty thin schedule of securing orders, sourcing from farmers and processing and shipping the commodity within a day to retail shelves. This calls for a high level of back-end integration and planning at the front-end, which we are constantly working on."
Nature, LEAF's biggest benefactor, is also a foe. "We don't have any control on what the weather would turn out to be and, therefore, on the produce. This is a constant issue," says Balakrishnan.
Isn't the company's model an easily replicable? "Theoretically, it is. But gaining the confidence of farmers is not an overnight process. We have been working with them to enhance the produce, give them the visibility of a regular income cycle and support in the uplift of their livelihoods. We are aggressive in phasing out chemicals in cultivation," Vijayaraghavan says. EXPERT TAKE Mark Kahn
LEAF's business model is interesting and has the potential to gain scale. I believe there is a distinct space for identity-preserved, farmer-sourced fresh produce. Middle- and upper-class consumers are increasingly worried about chemical exposure, and are generally paying more attention to the quality of the food they eat. Just look at the tremendous response to Aamir Khan's Satyamev Jayate episode on toxic food and pesticides. Fresh produce grown without chemical residues and well presented to consumers (washed & bagged) could definitely get a price premium in an organised retail environment. Moreover, LEAF's direct connection to hundreds of small farmers means the company has full sourcing visibility in its supply chain. Therefore, it can assure consumers about transparency, safety and quality, something modern retailers value.
The risk I see is low barriers to entry for new competitors. Fundamentally, contract farming models can be easily replicated by aggressive competitors. For, there is negligible intellectual property and skilled employees can be poached. If LEAF achieves success, others would emulate its approach. Then, the company would find itself competing on the price front. Also, as the category grows, modern retailers might attempt to build in-house brands. So, LEAF would have to keep innovating and move up the value addition curve to differentiate and stay ahead of the competition.
Mark Kahn, Founder and partner, Omnivore Partners, an early-stage VC fund focused on agricultural technology and improved farm efficiencies
LEAF'S TRYST WITH CARROTS AND CONTRACT FARMING
- Lawrencedale Estates & Farms (LEAF), based in Nilgiris, sources, processes and transports 10 tonne of carrots a day
- It plans to take this up to 15 tonne a day by end-FY14 and eventually scale to 50 tonne a day in five years time
- Though it relies heavily on carrots, LEAF has diversified into other vegetables and fruits
- These include potatoes, cauliflower, lettuce, cabbage, radish, green peas, parsley, turnips, zucchini, celery
- It has already started on an ambitious plan of branding vegetables under the brand - LEAF
- Supplies to 40 major retail chains such as Nilgiris, Aditya Birla More, FoodWorld, Auchan, Star Bazaar
- It is actively pursuing strategies to get into food processing such as jams and juices