At first we only caught a whiff of it. But as we walked towards the tiny processing unit we were welcomed by that comforting and warm aroma that we’re all too familiar with. As we filed up on the short stairway, waiting for the doors to open, our minds conjured up images of what the scene would be like. And sure enough there they were: sliced, diced, mashed, and blanched — potatoes in different sizes and shapes. They each made their way to an industrial fryer, releasing a mouth-watering aroma that has earned this tuber a universal fan following. Hemant Gaur, an agri veteran who runs this potato processing plant in Chakan, is one such potato-lover. And this fondness for tuber combined with his 17-year experience led to the establishment of Siddhivinayak Agri Processing (SV Agri).
India sure loves its potatoes given that the country ranks second in the order of global production after China with an annual rate of 45 million tonne. But securing this cash crop from the farm to your local vegetable vendor or global snack producer, is a process fraught with loopholes. Produced mainly in Punjab, Haryana, Uttar Pradesh, Bihar, West Bengal and Gujarat, India produces two variants of the crop — one for consumers and one for food processors. A bumper crop in West Bengal and UP, for the second consecutive year has resulted in prices falling below the cost of production of Rs.3 per kilo in some states this year. With loan waivers and a minimum support price of Rs.8-10 being the clarion call among farmers, few of them have gone further to point out the need for more chips or other processing factories to absorb the excess crop.
Sowing it right
While the government mulls over a nationwide solution, two entrepreneurs from Pune seemed to have cracked the code of addressing the potato supply chain. Gaur and Ganesh Pawar, who boast of at least two decades of experience in the farm inputs sector, have created an end-to-end market linkage for the tuber. Gaur, the 46-year-old Institute of Rural Management graduate, gained experience across the farm inputs chain, right from sunflower seeds to potatoes during his stints at Marico, Dabur, PepsiCo and Walmart India. “I realised that the big food processors need an organised back end, either they had to do it themselves or have someone else do it for them. That’s the space I decided to work upon,” says Gaur.
So, Gaur called upon the network he had painstakingly built over the years. But the first-generation businessman, who comes from a family of government employees, in Patparganj Delhi was, in for his first lesson in entrepreneurship. “Not everything was going as per my plan initially. I realised that the people who I was counting on, didn’t back me. It was a completely new set of people, who showed their confidence in me and supported me,” he recounts. With an initial investment of Rs.1.5 lakh, SV Agri was set up in 2008. Initially, the duo went about establishing a more efficient link between farmers and processors. Soon, they realised that the MNCs were not happy with the quality of the produce, so the agri start-up began purchasing seed potatoes from the government-run Central Potato Research Institute in Shimla, and now even sources from a European firm. The seeds are then supplied to the farmers. Today, SV Agri offers a franchisee to individual farmers, cooperatives or small entrepreneurs in rural areas to act as distributors for its potatoes seeds as well as its fertiliser brands, Diamond Lifter and Diamond Grow — produced by an organic fertiliser company that SV Agri acquired a controlling stake in — among other forms of farm supplements and equipment. Typically, one franchisee serves the needs of farmers in two to three villages and there are 120 such outlets serving around 3,000 farmers across the seven states — Maharashtra, Gujarat, Rajasthan, MP, UP, Karnataka and Punjab. This business brings in about 25% of the company’s revenue.
The company has also invested in an aeroponics lab, in Talegaon, not very far from its head office in Pune. A patented farm technique, aeroponics, wherein the plant variety is secured in a test tube and then grown in a manner where it is suspended in the air while nutrient solutions are provided in a mist form. This technique speeds up the process of securing a tuber for plantation and can produce multiple such seed potatoes within a 120-day cycle.
Thus, a high-quality produce is guaranteed for the farmer sowing it. One such beneficiary belonged to a village called Manchar, almost 60 km from Pune city. Dressed in a traditional attire of the region with a Gandhi cap, is Balasaheb Kale, who owns a 16-acre plot that produces 7-8 tonne of potatoes annually. “I have been purchasing seed potatoes from Hemant since 2002 when he was still with PepsiCo. Then I switched to SV Agri when he launched it. Thanks to the quality of seed potatoes, we’ve made good money in the past decade. And the payment promptly comes within a week unlike with other traders,” he confirms as he further discusses the fall in potato prices with Gaur.
One farmer recalls a time two years ago when he switched to another trader for procurement of seeds owing to the lure of a lower price tag, but the final product didn’t quite make the cut for contract farming and that’s when he switched back to SV Agri.
With the farmers being provided process-grade potato seeds, SV Agri has managed to sign on brands such as PepsiCo India, Haldiram’s, ITC Foods, McCain, etc, as clients. The potato buyback contributes a chunky 45% to SV Agri’s turnover. In addition to this, it managed to secure a whole bunch of smaller food processors that take its total client count to 65.
Kushal Agrawal, CFO, Aspada Investment, which invested in SV Agri in 2011, calls this the company’s biggest advantage. He explains, “Typically, a seeds company is only interested in selling seeds to the farmer. But here, SV Agri not only sells potato seeds but promises a buyback by linking him to buyers in the market. Earning a farmer’s trust is the biggest IP in agri business. Also, with the franchisee model being run by a farmer and not their employee, the village farmers are at ease dealing with a local.”
“While the big brands do matter because of the volume of business they give, it is the smaller companies that have supported us throughout. The big guys have all the solutions but it is the small entrepreneur who cannot afford to hire engineers and acquire expensive machinery,” Gaur explains. That insight led to the creation of another business vertical, engineering, in 2012.
From something as simple as peelers and slicers to automated process lines customised for the Indian snack industry is an area of expertise SV Agri has been working to acquire. A walk into the agri firm’s workshop has engineers applying finishing touches to an automated process line for Haldiram’s. The larger players like Haldiram’s purchase equipment in the range of Rs.50 lakh-Rs.1 crore. “We compete with some of the biggest names across the globe in the engineering segment. But what gives us an edge is our ability to provide tailor-made equipment for the smaller businesses. We don’t sell machines, we give solutions,” Gaur proudly affirms. SV Agri has partnered with the likes of Schindler Consulting, Germany machine manufacturer Krüger & Salecker Maschinenbau and Dutch firm, Mooij Agro and few others to increase their technical know how. These engineering solutions are bundled up with consulting services on crop purchase and other business processes for small food processors.
One such manufacturer is the Pune-based Jaylaxmi Food Processing. The Rs.19-crore namkeen brand that has a franchisee network of 40 stores in and around Pune has been associated with SV Agri since 2008. Apart from sourcing process-grade potatoes, the snacks maker also consulted with SV Agri on marketing and branding for its retail brand of finger snacks and equipment purchase. “Earlier, to purchase potatoes, we would wake up at 4 am and rush to the local mandi where we would pick a few options, return to test fry them and then place an order. With SV Agri, we’re guaranteed a good quality and I can see the difference in the texture of the chips we make now. They advise us on equipment purchase, best production practices among other things. So, today my replacement rate of the product has reduced from 5% to 1%,” says Nitin Nakumparmar, founder.
SV Agri currently earns 30% of its annual revenue from the engineering division and Gaur is confident that the contribution is set to go higher. One of the reasons being, the company’s ability to tap into global markets and serve local food entrepreneurs in markets such as Kenya, Algeria, Croatia, Zambia and the UAE. Gaur adds that exports will make up a significant portion of the Rs.25 crore revenue that the engineering division will generate this year.
Seeing the potential for food processors and their ability to absorb much of the glut in the market, Gaur and his team began a little experiment three years ago.
What started out as a trial with a small batch of french fries in the office kitchen took the shape of a fully-functioning processing unit in Chakan in 2014. Marketed under the brand Pommagic, SV Agri sells frozen potato snacks such as fries, wedges, tikkis, patties, samosas to hotels, restaurants and cafes in Pune and Mumbai. “I was wondering how I can the stabilise demand for potatoes we sell. That’s when this struck me. And we set this up only to have a proven business model for a small entrepreneur. This entire infrastructure will cost someone Rs.2-2.5 crore to set up,” Gaur elaborates. The company hopes to sell the concept to smaller enterprises in and around the areas where they have procurement arrangements with farmers. SV Agri will provide the produce, consulting services and the machinery.
Defining the future
In 2014, the Acumen Fund along with Bain & Co published a report titled ‘Growing Prosperity’ that profiled several agri firms across the globe that had developed scalable models with notable innovations. SV Agri was one of the names, where its ability to introduce efficiency in an otherwise unorganised potato supply chain was commended. Not surprising that the firm caught the attention of impact investor Lok Capital, which in 2016 participated in the series-B round along with existing investor, Aspada, taking the total funding amount to Rs.25 crore. It raised Rs.5 crore in 2011 from Aspada-managed SONG, backed by Soros Economic Fund, Omidyar Network and Google.
“Usually, in agri sector results won’t be instant, thus the investor must be a long-term partner. We are fortunate to have found such investors,” says Gaur. SV Agri, which clocked a turnover of Rs.60 crore in FY17, is not keen on adding another crop to its portfolio. Gaur emphasises that he has enough on his hands with the current ecosystem for potatoes.
SV Agri gradually wants to increase the potato variants available in the retail market. Aspada’s Agrawal believes likewise when he says, “I think in the next four to five years, we will see a demand for a better quality ration potato (table potatoes that are produced for retail consumption). Even if it is only in the niche market that accounts for 10-15% of the urban market, that’s a significant chunk. Also, more seed varieties would help SV Agri have a greater control over the supply chain.”
Against the current seven to eight varieties, SV Agri is working on several other variants that Gaur believes would yield a premium in the market. He doesn’t rule out the possibility of SV Agri retailing ration potatoes in the next three years. “In Europe, one would find several kinds of potatoes on the supermarket shelf. There are different potatoes for different purposes — baking, frying, chips, for curry, etc. We believe once the Indian retail market matures, we could introduce the same here as well,” he says. Gaur is determined he wants to increase the number of franchisees in existing states and add more clients within India and abroad for its engineering services division. The processing unit model is one step in that direction. The company, which competes with names such as Mahindra Agri, Cadila (Agro), ITC and several other family-run potato seed companies, hopes to clock Rs.80 crore revenue in FY18.
For Gaur, the journey has just begun. “Even for the next 10 years, we will have our hands full. Entrepreneurship has often been romanticised. Making money is easy but building an organisation takes a long time,” he concludes.