1996 BROOKE BOND LIPTON INDIA LIMITED CHAIRMAN'S' STATEMENT Brooke Bond Lipton India Limited is India's biggest foods and beverages company, and its business is based on agricultural raw materials. During 1995, the company used 123,000 tonnes of black tea and 97,000 tonnes of green leaf tea, 15,700 tonnes of coffee, 7.530 tonnes of chicory 49,600 tonnes of fruits and vegetables, 74,300 tonnes of edible oils, 65,000 tonnes of milk and 293,000 tonnes of cereals and agro proteins for animal feeds, and 12,500 tonnes of sugar. The company's fortunes are closely linked to agriculture. The management, therefore, has an abiding interest in linkages with agriculture. Over the years several entities/business have been absorbed into the company. I wish to share the cumulative experience from these sources -- Hindustan Lever Limited and the erstwhile Lipton India Limited in milk, the erstwhile Brooke Bond India Limited in chicory, Pepsi in tomato, Doom Dooma India and Tea Estates India in tea. Despite lower growth rates, India's agricultural performance in absolute terms is laudable. We have moved from food scarcity to food surplus; the per capita food availability has moved up from 395 grams in 1957 to 466 grams in 1993. The country even exports agro commodities worth more than Rs. 1,000 crores annually. This improvement can be traced to the Green and White Revolutions. While foodgrain production has peaked, India has also become the second largest milk producer with 10 per cent share of the world output. We are also the world's second largest producer of fruits and vegetables. However, the future direction for agriculture cannot only be determined by enhancing production but also by a clear focus on value-added agri outputs, for better realisations for the farmers. I would like to highlight some of the company's experiences in building linkages with agriculture. 1. The Etah Experience In 1964, a 30,000 TPA dairy plant was set up in the backward Etah district of Uttar Pradesh, based on a survey indicating an abundance of cattle. The optimism that this investment would provide a fillip to the region's economy began to fade with poor capacity utilisation due to inadequate milk supplies. In spite of substantial investment in manpower, capital and technology for 10 years, the company's losses mounted. The task was to increase milk availability. In 1976, the company launched an Integrated Rural Development Programme. For that, a relationship of trust based on mutual benefit had to be built with the farmers. Company personnel and management trainees went to live with the farmers to understand their problems and conceive simple solutions. The low productivity of cattle was merely a symptom. The real issue was the farmers' beliefs, rooted in their traditions. Untrained in scientific animal husbandry, they could not give their milch animals balanced feeds. Small holdings and poor soil conditions made agriculture uneconomical Awareness of balanced fertiliser use, animal health care and credit facilities was low People could not accept the idea of selling milk, as it was against tradition. To make relevant technology available, we set up a centre, the Krishi Pashu Vigyan Kendra (KPVK), to conduct trials and demonstrations of agriculture, animal husbandry, renewable energy resources, village level industries and so on. It also trained farmers in better animal management, bank loan procedures, the management of reclaimed land, and community development programmes. Farmers learnt intensive farming and remunerative crop rotation to grow more than one crop a year. Commercial crops like chicory and peas were also introduced. The farmers now sell their milk directly to the company, by passing middlemen. The village-based milk collection centres have been further transformed into growth centres. Through the villagers' involvement in managing their own programmes, the growth centres provide services like village-based payments, dispensing hybrid seeds, vaccinations and artificial insemination. Subsidies have gradually been reduced and farmers now pay for the services. Today, the rewards of these efforts are visible. The company now sources 27,000 tonnes of milk per annum from Etah district compared to a mere 2,500 tonnes in 1976. With increasing use of better seeds and practices, the cropping intensity has gone up from 1.43 in 1976 to 2.22 in 1995. This has had a synergistic effect on improving milk productivity, which has gone up from 500 kg per animal per year to around 700 kg. and in some breeds, upto 1,400 kg. Community development programmes have led to visible improvement in the villages. The outbreak of cattle diseases has been checked, with less than 1% of cattle dying of them. Our experiences in Etah provide some lessons on how to increase raw material supply by providing a broad range of services. It entails shaping development in small steps and making simple ideas work for reviving a loss-making project. 2. The Jamnagar Experience An equally unique experience has been the introduction of an exotic crop like chicory in India. The use of chicory as a beverage was popular in France as French Coffee. It was only after the Second World War that French Coffee was introduced in India to provide economy and richer taste. Commercial success was dependent on sourcing chicory locally instead of imports. Suitable climatic conditions and low irrigation requirements led us in 1956 to Jamnagar. In a drought-prone area where farmers have small holdings, we demonstrated our commitment to them by installing basic processing facilities for chicory, assuring 100 per cent buyback, providing seeds free and implementing best agricultural practices. By 1960, we had 130 acres of land belonging to 50) farmers under chicory cultivation on a contract basis. Today, the area under chicory cultivation has grown to 4,500 acres and the number of farmers to 1,700. Their sincere efforts coupled with the use of appropriate technology have doubled the yield to 3 tonnes per acre. One of the pillars of our four-decade relationship with the farmers has been a willingness to contribute, albeit in a shall way, to the efforts of the administration. This indicated our commitment to the farming community and the region's welfare. It is gratifying to note that other companies are now emulating our pioneering efforts in Jamnagar to establish backward linkages. 3. The Zahura Experience The acquisition of Pepsi's tomato paste manufacturing plant, along with the contract farming system, at Zahura in Punjab in 1995 has provided a platform for the rapid development of our tomato business. This successful tomato extension programme has some valuable insights into the development of effective agricultural linkages. Though tomato was not a natural fit with the agro-climatic profile of Punjab, the state was chosen because of the progressive profile of its farmers, their large land holdings and water adequacy. Custom-made technology and its' dissemination through farmers linkages has ensured marketable surpluses. Altogether 50 hybrid tomato seed varieties were tried on 53 acres for over two years from 1990 to test yields, disease resistance, climatic response and quality of fruit. Research focused on developing new agricultural implements. Consequently. tailor-made technologies and agricultural practices were developed to increase productivity and reduce the cost of cultivation. With education and constant interaction, all contract farmers have adopted best practices. Today, the model encompasses the raising and supply of disease-free seedlings, tomato-specific agro-implements, training camps, crop health monitoring and post-transplantation care. Field offices train farmers on harvest prediction and quality control, and also provide critical services like payments directly to their accounts in the villages. The results achieved illustrate the advantages of such backward linkages. The per acre yield of tomato has increased from a mere 8 tonnes to 20 tonnes. The peak available season has increased from 30 days to 60 days. The production of tomatoes in the state has increased from 30,000 MT to 1,30,000 MT Employment potential of almost 35,000 jobs has been generated. Rapid process has been made in creating marketable surplus for processing. We learnt that without effective linkages, no agricultural system can be supported very long. HOwever, there are problems. In times of gult, some factories cannot accepts the entire produce, and farmers are put to great hardship. Similarly, companies have little recourse when contract farmers sell their produce in the fresh market at relatively higher, prices. Some kind of quasilegislation which protects the interests of both farmers and processors will give a fillip to this activity. Introducing crops like peas for processing will help forge stronger relationships. 4. The Tea Experience The tea industry is one of the best organised agro industries in India. Although there are thousands of tea estates in India with a number of small growers, over the years tea plantation has emerged as a corporatised activity. This has resulted in substantial gains in productivity, quality and value realisation. Between 1960 and 1995, tea acreage went up by 28 per cent from 3.3 lakh hectares to 4.2 lakh hectares, but output went up from 320 million kg to 754 million kg in 1995, an increase of 135 per cent. This is productivity at its best. This increase of yield from around 900 kg per hectare in the sixties to around 1,800 kg today is a result of systematic experimentation, varietal development, investment in research and best agronomy practices by the industry. Without these major productivity gains, India could have had to import large quantities of tea to meet the growing consumer demand. The company is among the five largest producers of tea in India and also among the pioneers inproductivity. Our yield per hectare is among the best in the industry. Our Doom Dooma Plantation Division in Assam has achieved yields of 2,422 kg per hectare with some of its estates reaching well above 2,600 kg per hectare, through continuous innovation. Doom Dooma is the only large plantation to have segregated field management from factory operations, thus allowing development of specialised skills in the respective spheres. Our Tea Estates Plantation Division in the South introduced shear plucking in 1985 and now the plucking yield is 50 per cent higher than the average there. In quality improvement, both plantations are the best examples of a bush-to-brand integrated supply chain. This has led to the translation of consumer needs to tea manufacturing and field operations, and both plantations occupy the higher positions in quality and price. The tea auction system too has played a valuable role in the development of the industry, protecting the interest of all sections. The auction centres allow producers to sell their product to buyers from all over India. Apart from providing payments security, auctioning is also the most transparent transaction, ensuring best possible prices to the producers. The system handles around 60 per cent of the tea produced in India. We must preserve the best value of this system. Despite the problems that the industry has faced over the years, it can provide a role model to other agro industries. lt shows that given the right management systems, India's agricultural productivity and quality can be improved. For this, it is important to encourage corporatised farming and large land holdings. The other lesson is that an integrated approach to growing, processing and marketing protects all sections of an industry. FIVE LESSONS 1. Demonstrate continuously to initiate change Developing successful backward linkages in the Food Processing Industry is not a short term target. Our experiences in tea, milk, chicory and tomato show that it requires commitment, patience and perseverance. The farmer must be convinced of new technologies. Continuous demonstration is thus essential. The mostuccessful vehicle for change is to show the benefits to farmers, through demonstrations in nurseries or on the field like we do in Zahura and Etah. This experience in their own backyards is the key motivator for change. 2. Establish quality parameters early Establishing exacting quality standards right from the inception, at every stage of the operation, is an important aspect of the relationship. No effort is too great, especially in the initial period, to highlight the importance of quality. The farmer will understand that process quality is key to product quality, and. adopt necessary practices. 3. Incorporate a range of relevant inputs In a conservative society, it is often desirable to plan and provide inputs across a wide range and not just for the raw material needed. Our Etah programme illustrates this. It was the transformation achieved, through usar (alkaline) land reclamation, better roads, new crops, better animal husbandry, women's groups and a host of activities, which increased milk availability. Given small land holdings, it is all the more important that the farmer benefits on a scale that motivates him to do better. This is achieved through a combination of technology, service and networking. Technology involves providing the best inputs and proper harvest and post-harvest conditions. Service ensures that the resources are made available in time and that the post-harvest offtake is efficient. Networking assures government support, infrastructure, banking facilities and so on. 4. Invest in building trust Earning the farmer's trust is fundamental to success. This comes from mutuality of benefits. A host of small, timely and regular steps help build trust. Some examples are, prompt payments, being available on site, sharing and updating best practices. The best catalyst is increasing demand from the company which improves farmers' profitability. 5. Upfront investment in processing reassures farmers Upfront investment in processing is the surest way of showing farmers the company's commitment. Even as we were asking farmers to plant new crops or adopt new practices, our investments in plant and machinery at Etah, Jamnagar or Zahura proved to be confidence builders. FIVE SUGGESTIONS 1. Integrated approach to the Food Chain Issues are now dealt with by three Ministries: Agriculture, Food and Food Processing Managing the Food Chain as an integrated whole would ensure greater focus, continuity and quicker decision-making. Agriculture and food processing have great potential but will require mega investments. A unified policy by the government will be a welcome first step. 2. Urgent liberalisation of agriculture sector Investment and subsidy are two sides of the same coin. The agriculture sector, after 50 years of subsidy thinking, must now shift aggressively to investment mode. This will mean large investment in roads, power irrigation and farm equipment. It also entails a pragmatic approach to land reforms, as in the amendment made by the Karnataka government to attract new investments in agriculture horticulture and aquaculture. 3. Bring accountability to contract farming Contract farming should protect the interest of both farmers and the industry. For industry to achieve a reasonable scale of operation, contract farming is necessary under the current land ceiling laws. While the farmer, should be protected from being left with unsold crops, the industry, at times of shortages should no face a raw material crunch. A quasi-judicial system is therefore required for the enforcement of contracts. This may be done at the panchayat or district administration level. 4. Modern marketing to be encouraged Efficient marketing of farm output will help maximise farmers' returns. In tea, this is achieved through auctions. Internationally, auction systems and futures markets exist also for other agri products, helping the producer and the buyer to safeguard their decisions. Development of a nationwide chilled and refrigerated cold chain is almost a pre-requisite to the modern marketing of horicultural produce. The government should allow 100 per cent deprecation for investment in freezers, refrigerated transport and cold storages. 5. Encourage investment in processed foods The government has taken major steps to encourage the processed foods industry. But the industry can realise its full potential only with large scale investment. We need to consider how, within the framework of government policy, we can achieve large-scale commercial cultivation and channelise big investment in food processing. Equally, we must harmonize the various legislations and statutory provisions into a unified and comprehensive Food Act. CONCLUSION India has achieved a significant economic prosperity, as is reflected in the GDP growth rate. It is expected that in the year just concluded, the GDP growth rate will be above 6 per cent. A sharp refocusing of policy initiatives is needed to facilitate the growth of agriculture and food processing. This will significantly increase rural employment, improve the living standards of over 70 per cent of our population, and ensure more equitable distribution of benefits. Even in developed countries like the US, a focus on enhancing agri productivity in the initial years paved the way for sustained industrial development. The key to this restructuring, at the end of the day, will be a strong and symbiotic linkage between agriculture and industry. Earning the farmer's trust fundamental to success, comes from mutuality of benefits. A host of small, timely and regular steps help build trust - such as prompt payments, being available on site, sharing and updating best practices. The best catalyst is increasing demand from the company which improves farmers' profitability. Developing successful backward linkages in the Food Processing Industry is not a short term target. Our experiences in tea, milk, chicory and tomato show that it requires commitment, patience and perseverance. Place : Mumbai Date : 26th June, 1996.