Gujarat is the country’s leading producer of bananas, and supplies large parts of North India with the fruit. However, the farmers who grow bananas don’t make as much as they should, since 20% to 50% of the fruit gets spoilt when sent across the country. Enter Gujarat’s new Dhirubhai—49-year-old Dhirubhai Patel, who shares more than just a first name with the state’s iconic businessman, Dhirubhai Ambani. The same spirit of enterprise that drove Ambani burns in Patel, and that made him see opportunity where others saw squashed fruit.
In 2010, Patel’s Rajkot-based agriculture company Champion Agro experimented with 25 truckloads of bananas to find ways to reduce wastage in transit. “We used big and small bunches and tried out packaging in foam and banana leaves to deliver the fruit in good condition,” says Shamender Sharma, chief operating officer, Champion Agro.
The company found that it would help to hire permanent labour and train them to handle the produce carefully, and packing in foam and leaves. The result: About 95% of the company’s produce today is delivered in perfect condition as opposed to 50% to 80% usually.
That’s the kind of efficiency that Champion Agro strives for. Champion Agro began its journey in 1994 as an irrigation pump manufacturer. Today, it has become a one-stop shop for farmers’ needs and also supplies quality produce to domestic and overseas markets. It is the biggest supplier of fruit and vegetables to Walmart in North India.
Hailing from an agricultural family in the Saurashtra region in Gujarat, Patel was aware of the problems faced by farmers. Merely making money did not inspire him, he says. He wanted to set up a business that would make a difference in farming. In those days, farmers in Saurashtra used oil-guzzling diesel pumps for irrigation instead of the cheaper submersible pumps running on electricity. When Patel asked why, the farmers said they were not aware of submersibles. So Patel, who had an MBA from Mumbai University, started Magnetic Electrical in 1994, with Rs 10 lakh from his family’s savings and Rs 10 lakh as bank loan, to manufacture submersible pumps.
In 1997, he found himself in a sticky situation in Madhya Pradesh. Instead of selling his pumps, which cost between Rs 6,000 and Rs 30,000, dealers leased them to farmers for six months. Before the one-year warranty expired, they returned the pumps to the company, citing defects.
Patel’s big idea emerged from this setback. “I realised I should sell the pumps from my own shops to prevent such a situation. What began as a solution to a problem transformed into a bigger idea: Provide everything a farmer needs instead of selling him only pumps,” he says. That resulted in the opening of the first Champion Agro outlet in 2005 in Rajkot. In 2009, Magnetic Electrical was renamed Champion Agro, and SIDBI Venture Capital acquired a 14.5% stake in it for Rs 30 crore.
Companies such as Coromandel International and StarAgri have similar models. Coromandel is part of the Rs 22,314 crore Murugappa Group that has a diverse range of businesses, including plantations, finance, and engineering. It started with two stores in 2007, and has expanded to 600 in rural Andhra Pradesh and Karnataka. StarAgri is in the rollout phase after receiving Rs 150 crore from finance company IDFC last year.
After the success of the Champion Agro World outlets, Patel started thinking of a business model that could use the existing links with the farming community to move into lease or contract businesses. “My aim was to turn farms into factories producing what’s in demand and, along the way, maximise the farmer’s productivity and profitability,” he says.
Today, Champion Agro runs six businesses: Champion Agro World stores, which fulfil agricultural needs ranging from seeds and equipment to insurance; Champion Agro Fresh, which grows and procures fruits and vegetables for domestic and overseas markets; greenhouse construction and equipment business; contract and lease farming; irrigation pumps manufacture; and cattle feed business.
“In the traditional system comprising mandis, aggregators, and wholesalers, there’s no exchange of information. So there may be a demand for something and the farmer may be producing something else,” says Sharma. “There’s also a lot of wastage because of handling at various levels, the cost of which has to be borne by the farmer or the consumer.”
Associating with farmers through its shops enables Champion Agro to tackle these issues. Based on feedback, it advises farmers on what to grow, and how to improve productivity and profit. It buys their produce at the best price, and after value addition and packaging, sends it to customers such as Walmart India, Carrefour, and Mother Dairy’s Safal.
Each Champion Agro World store stocks over 820 products and generates revenue of Rs 5 crore to Rs 6 crore annually. As for the benefits to the farmers—depending on how much of Champion Agro’s advice a farmer uses—his profits could increase between 20% and 70%. A farmer can earn up to Rs 7 lakh a year from one hectare.
Sharma points out that when a farmer goes to a trader, the trader tries to sell everything. But Champion Agro advises the farmer to buy only what is needed. If quality parameters are the same across brands, farmers are advised to take the cheaper option.
“You cannot continue to grow without passing on profits to the farmers and other stakeholders,” says Patel. That’s similar to what the other Dhirubhai believed in: not only building Reliance Industries into one of India’s largest conglomerates but making its shareholders rich.
Patel’s model of inclusive growth has taken Champion Agro’s turnover from Rs 116.6 crore in FY09 to Rs 435 crore in FY12. Its headcount has risen from 57 to 290 in the same period, with operations across Gujarat, Himachal Pradesh, Delhi, Maharashtra, and Uttar Pradesh.
As Jitendra Patel, his brother and joint managing director, Champion Agro, drives his black BMW 5 Series to a 10 hectare pomegranate farm on the outskirts of Rajkot, he recalls the time when the company was set up. “Our vision was to run a professional company and offer quality. We don’t claim to offer the lowest prices. Instead, we insist on delivering quality produce consistently and passing on the benefits to farmers,” he says.
Farmers hold Champion Agro in high regard. Sureshbhai from Pithadiya village in Rajkot district has been associated with Champion Agro for three years. “I used to grow only cotton on my 13 acre plot. Champion Agro has helped me not only to increase productivity by using modern methods but also diversify into pomegranate farming. My profits from cotton have risen 20% to 25%, and I now earn an additional Rs 15 lakh from pomegranates.”
Last year, some farmers were spooked when a seed variety they bought from Champion Agro produced five varieties of wheat in a single field. Though the seed company did not own up, Patel recompensed the farmers. Next season, they came back to him. When a farmer is hard up, says Patel, his company tries to help by offering easy payment options. “If a farmer has money, he won’t sit on it. He will pay.”
The Patel brothers only hire people who have the right qualifications and farming connections; family is kept out. “Dhirubhai seeks to engage employees for the long term. For our retail outlets, we tend to recruit local people because they can engage better with farmers,” says Sharma.
Rahul Kapur, director, strategy services, Grant Thornton India, says this is one of the many ways Champion Agro has built its business. Many private equity players have shown interest in Champion Agro, he adds, because the company ticks all the right boxes—professional team, growth prospects, and a successful business model. Champion Agro’s moves beyond Gujarat will be interesting, says Kapur. Tackling the intermediaries in other markets will pose a challenge.
Two Fortune 500 companies, which are Champion Agro’s customers and did not want to be named, say the scope for growth is high but the company has to prove its ability to find markets beyond modern retail chains.
Patel is clear: “I want to create value for all stakeholders.” His plans include increasing the number of warehouses and entering food processing. But he’s wary of high debt. When the time comes, he says, he’d rather take Champion Agro public.