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Agribusiness in India- Green shoots

Private investment is helping India’s farmers in a way government support cannot

INDIA is the third-biggest producer of potatoes in the world. The humble spud finds itself stuffed into flatbread, encrusted in cumin seeds or tucked into pancakes. But the truckloads of large, oblong potatoes that arrive at the McCain Foods plant in the Mehsana district of Gujarat face a more exacting ordeal. Ferried by a conveyor belt and propelled by water, they are sized, steam-peeled, sliced, diced, blanched, dried, fried (for precisely 42 seconds in vegetable oil at 199ºC), chilled, frozen, bagged and then boxed. The 15kg boxes of fries that emerge at the other end of this pipeline supply the growing chain of McDonald’s restaurants in India. When McDonald’s first entered India in 1996, the food-processing industry was confined largely to ice cream and ketchup. Even importing frozen fries was complicated by the fact that such an exotic item did not appear on India’s schedule of tariffs and quotas. It took McDonald’s roughly six years and $100m to weld a reliable supply chain together. For fries, that supply chain begins with 2,000 acres of potato fields in Gujarat, cultivated by 400 farmers under contract with McCain Foods. These cultivators belong to a profession which still employs about half of India’s workforce. In Gujarat, agriculture is growing almost as quickly as the rest of the Indian economy. But elsewhere, agriculture is said to be in crisis. The average size of farmers’ landholdings is only about 1.3 hectares. If their fields are irrigated at all, they are flooded wastefully, with water flowing down furrows on either side of the crop, taking valuable nitrogen with it. India produces more tractors than

any other country, but many farmers still use bullocks instead. They sell their produce at controlled prices in government mandis: marketplaces regulated by the state with the aim of protecting farmers from exploitation by unscrupulous traders. State governments once took it upon themselves to spread know-how, market intelligence and the fruits of agricultural research to smallholders. But the agricultural extension system is now in some disrepair. Public investment in agriculture has stagnated over the past few years as the government’s subsidy bill for food, fertiliser and fuel has risen. In the absence of public investment, Indian agriculture is increasingly dependent on private outlays, which now account for three-quarters of total investment in the sector. McCain Foods, for example, invested $25m in the Mehsana plant. And in the absence of government extension services, some private companies are finding alternative ways to let farmers know what the customer expects, and how to meet that expectation. Hitesh Patel, for example, used to grow cottonseed on his six hectares in Idar village, about 125km (80 miles) from the Mehsana plant. Four years ago he planted a hectare of potatoes at McCain Foods’ urging and under its guidance. Now he plants potatoes on all of the six hectares he owns and another 1.6 he has leased. McCain Foods offers him an assured price of 6.50 rupees ($0.14) per kilogram of potatoes, a better rate than the mandi. But they will not buy just any potato. India’s common varieties are too small, watery and sugary, caramelising when fried. Potatoes fit for processing are usually grown in more temperate latitudes. The tuber likes warm days and cool nights. “Wherever are the best regions for wine, potato is not far behind,” says Ghislain Pelletier, a McCain agronomist. Firms before McCain had tried and failed to produce potatoes in India that were suitable for processing into fries. Even Harrison McCain, one of the company’s founders, doubted it could be done. But after several years of experimentation, McCain can now supply all of McDonald’s needs in India, as well as producing some creations of its own, like Masala Fries. “We used to struggle for size; now we struggle to reduce the size,” says Devendra Kumar of McCain India. McCain’s agronomists would first visit farmers like Mr Patel every other day. Now they check in once a week. They insist that farmers give up flooding their furrows with water in favour of drip irrigation, which flows through a pipe punctuated with small nozzles laid along the crop-bed. Drip irrigation produces “more crop per drop”, as Mr Pelletier puts it. It moistens the soil at each root, but leaves the ground otherwise dry. This in turn reduces the humidity that attracts pests and blight. This kind of contract farming began with Punjabi farmers growing tomatoes for Pepsi’s food business in the 1980s. But its spread was hampered by tight regulations at the state level on who could buy produce and how. Most states have now eased those restrictions, raising hopes that contract farming—which

only accounts for a small fraction of India’s annual agricultural output of $220 billion—will flourish. As incomes in India rise, tastes are changing. Staples are receding in importance. In 1983 food grains accounted for 32% of India’s agricultural output; 15 years later they accounted for less than a quarter, according to Ashok Gulati of the International Food Policy Research Institute. But food grains still occupy nearly 64% of India’s farmland and an even higher fraction of government concern and energy. “In India, cereals are being increasingly overtaken by fruits, vegetables, milk, eggs and poultry,” Mr Gulati argues. McDonald’s, for example, recently introduced the Chicken McNugget to India, where it counts as a premium product: all white meat without any bone. When the firm first entered the country, it struggled to find poultry suppliers who could debone meat. Because the chain’s products are delicate or perishable they must be handled with far more care than rice or wheat. Frozen fries, for example, are so brittle that they must be handled like eggs. But McDonald’s also found that the few refrigerated lorries in the country were mostly devoted to transporting ice cream. Investments by multinationals like McDonald’s can spread into the wider economy. McDonald’s, for example, invited East Balt Commissary of Chicago, whose founder supplied buns to Ray Kroc’s first McDonald’s franchise, to go to India to train the Cremica bakeries in Delhi and Mumbai. East Balt is what Abhijit Upadhye of McDonald’s India calls a “good system player”. It also asked Schreiber International, which supplies sliced cheese, to tie up with Dynamix Dairy in India. As a result, many other companies, including Nestlé, Unilever and Pepsi, started doing business with Dynamix. The economic benefits to Gujarat’s farmers will also spread. Mr Patel, for one, cannot wait to harvest his potatoes and receive his payment from McCain. He wants to trade in his Maruti-Suzuki car for a grander model made by Honda.