Professional Documents
Culture Documents
N. Madhavan
Wipro Chairman Azim Premji doesn’t often take time off his busy schedule to visit
companies not connected with his business. But having heard of Suguna Poultry Farm’s
radical business model, which has spawned about 15,000 rural entrepreneurs across 10
states, he made an exception. In June 2007, he went down to Coimbatore and spent an
hour understanding the company and its IT infrastructure first hand. And he went away
impressed.
Suguna’s promoters may not have been to college, but brothers B. Soundararajan (Class
11) and G.B. Sundararajan (Class 12) can write a book on how to convert a crisis into an
opportunity, on the benefits of forward and backward integration and on the importance of
risk management. What’s more, they can write all this from personal experience, having
converted a nondescript chicken and egg shop in Udumalpet, 75 km from Coimbatore in
Tamil Nadu, into a major player in India’s Rs 40,000-crore poultry industry. Suguna, which
claims to be the largest player in the Indian broiler market and fourth-largest in the world in
that segment, has operations across 10 states, where it sources chicken and eggs from
15,000 poultry farmers.
“It was initially tough for us, but we put our faith in the farmers and nurtured them; and there
was no looking back,” says Soundararajan, Managing Director of the company.
Contract farming
Suguna does not own most of these farms. They are owned by farmers who it has
contracted to rear the birds for a fee. And it is this business model that has enabled it to
grow at over 30 per cent year-on-year (see A Lot More Than Chicken Feed). Suguna
supplies the farmers with day-old chicks, the required feed and medicines. Its field staff
makes daily visits to each farm to check the health of the birds, their feed intake, growth and
mortality levels. After six weeks, the birds are weighed and sold by Suguna. The farmers
are paid a fee for managing the birds.
The business model
It’s a win-win situation for the
farmers and the company.
For Suguna, the model offers faster scalability as it does not have to buy or lease the farms.
This has enabled it to keep its total investment till date to about Rs 1,000 crore. Then, the
model improves efficiency by cutting the number of cost centres from 14 in traditional farms
to just four, and allows Suguna to leverage economies of scale in the procurement of raw
materials, feed and medicines. Adds Soundararajan: “It’s also very good from the country’s
point of view—we have created 15,000 rural entrepreneurs over the last 17 years.”
But the success the brothers now enjoy was won only with great effort. Initially, they found it
difficult to convince people that their model was viable. Till 1998, no bank was willing to
finance Suguna. The story is very different now; 10 banks lend money to the company and
several others are pitching to add it to their list of borrowers.
The accident
The Suguna model emerged by accident. In 1986, the two brothers set up a poultry farm,
with 200 layer (egg-laying) birds at Udumalpet. They also set up a small shop to sell eggs
and to trade in poultry feed and medicines. This business ran into trouble in 1989-90, when
prices crashed because of an over-supply of birds in the local market. Poultry farmers, who
had bought feed and medicines on credit, could not settle their dues. To recover their
money, the brothers began to provide feed and medicines to indebted farmers in return for
the end product— eggs. The success of this exercise gave birth to the Suguna model.
Most poultry farmers, who had burnt their hands during the crisis but still had the
infrastructure for poultry farming, readily agreed to Suguna’s contract model. That’s when
the brothers faced their second major crisis. In 1992, fearing the rapid rise of Suguna, their
regular supplier of day-old chicks stopped deliveries. “It was a major problem for us. Without
chicks, our growth would end. So, we decided to set up a hatchery to supply day-old chicks
to our network of contract farmers,” says Sundararajan, the younger brother and Joint
Managing Director of the company. “This taught us an important lesson—we had to
integrate backward if we had to grow and make it big in the business.”
Fast food
Suguna already has several major achievements to its credit. It...
Claims to be the largest producer of broiler chicken in India and the fourth-largest in the world
Will soon commission Asia’s largest feed mill near Bangalore. It currently operates 38 feed
mills across the country
Operates 35 hatcheries with an aggregate capacity of 350 million eggs per annum
Has 132 “grandparent” and “parent” farms and 15,000 broiler farms*