BW Communities

Indian Farmer’s African Safari

Rajeev Dubey Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[April 2008. The government of Gambela state in Ethiopia had invited Sai Ramakrishna Karuturi to discuss his offer to lease 100,000 hectare for farming. Karuturi's expectations of a deal going through were so low that he sent his public relations officer Ashok Sharma and some  lawyers for the meeting. The managing director of the world's largest rose exporter, the Rs 645-crore Karuturi Global (KGL), had better things to do with his time than take a 700-km ride from Ethiopia's capital Addis Ababa for a deal that seemed unlikely to materialise. But his father, Karuturi Surya Rao, promoter of a Bangalore-based cable maker, and also chairman of Karuturi Global, offered to join the troupe. Though the deal seemed unlikely, Karuturi senior was worried about his son's soaring ambitions and wanted to make sure that no undue risks were being taken. As it turned out, Karuturi was both right — and wrong. The state would not offer 100,000 hectare (ha). Instead, it wanted him to take 300,000 ha (or 741,000 acre, an area twice the size of the National Capital Territory of Delhi) on a 99-year lease at 20 birr (about $1.5) per ha per annum. <table style="width: 600px;" align="center" border="0" cellpadding="7" cellspacing="7"> <tbody> <tr> <td><img src="/businessworld/system/files/images/KARUTURI-CROP-SHARE-lrg.jpg" style="vertical-align: middle; margin: 5px;" height="310" width="610"></td> </tr> <tr> <td>HOME ALONE: An empty village of pastoralists at Gambela farm (BW Pic By Rajeev Dubey)</td> </tr> </tbody> </table> Karuturi senior wanted nothing to do with the deal. The team was walking out when Ram called for an update. "Sign it right now," he shouted over the phone from Addis Ababa when he heard the terms. "I want it signed and sealed before they change their mind." Karuturi senior could hardly believe what was going on. "What's the point of taking land that you cannot walk (across)?" he asked his son on the phone. "I can't walk it, but I can fly over it, dad," Karuturi replied nonchalantly, "This is my company. Let me handle it." There was a deafening silence at the other end of the phone. Even as the agreement to make Sai Ramakrishna Karuturi the biggest land-holding Indian on Earth was being signed, Karuturi senior walked out in protest and sat in the car, fretting over the risk. <img src="/businessworld/system/files/images/karturi-farms-190px.jpg" style="float: right; margin: 5px;" height="411" width="190">The 25,274 sq. km  Gambela bordering South Sudan is among the poorer states of Ethiopia. A majority of its 300,000 populace is pastoral. Gambela and other states have since leased out land to others, including India's Shapoorji Pallonji & Co. (50,000 ha) to grow biofuel, and Spentex Industries (25,000 ha) to grow cotton. To understand what prompted Gambela to make Karuturi an offer he could not refuse (another 12,000 ha was leased to KGL at Bako, near Addis Ababa), swing across 2,400 km to this animated discussion in Nairobi, Kenya. A Chicken And Egg Situation April 2012: John M.N. Mututho is livid. "Mr Minister, this time you better take this seriously," he says. Tension hangs in the air in the 9th floor boardroom overlooking the Kenyan Parliament in Nairobi. It is from there that Mututho draws his powers to admonish the farm minister. He is the chairman of the Parliament-appointed Agriculture, Livestock and Cooperatives Committee. Mututho monitors the agriculture ministry's budget proposal for self-sufficiency in foodgrain. "Honourable minister, we feel really heavy at heart. We really don't like it," says Mututho, on the ministry's inability to achieve food security. The discussion that follows could well have been a Cabinet discourse in the Nehruvian-era when India was food-scarce. But this is the state of granaries in many African nations. In 2011, Africa imported food worth $50 billion, most of which came as aid from the US and Europe. "We have a very nasty situation. We import everything except air," Mututho tells BW just after the panel meeting. For the first time, Kenya is inviting foreigners for large-scale corporate farming. Land will be free of lease for 25 years. Kenya is facilitating deals by consolidating 131 agriculture laws into just four. There will be no restriction on exports either (but local prices are higher than international prices; farmers will find it lucrative to sell domestically). Kenya joins Tanzania, Mozambique, Senegal and Sierra Leone, in offering vast tracts to feed their growing populations. NGOs, human rights groups and activists call it corporate colonialism and land grab, and are mounting pressure to desist. "There is opposition from west Africa... that we not give foreigners any more land. For Kenya, that does not stand," says Mututho. break-page-break But it all began in Ethiopia which was a symbol of starvation in the 1980s. The $32-billion Ethiopian economy — about half the size of Reliance Industries — has the fastest-growing African GDP at 10 per cent. Around 75 million of its 120 million ha is arable. But only 15 million ha is cultivated. In 2003, Ethiopia set aside 3 million ha for commercial farming. Of that, 1 million ha has been leased, inviting the wrath of activists protesting natives' displacement. "No debate has taken place. In a country where you have 13 million people dependent on food aid, (if) you unleash this development model where human development and consensus is being ignored, the fallout is huge," says Anuradha Mittal, executive director of California-based policy research body, Oakland Institute. "They are trying to take potshots at non-European, non-American investors. It is almost racist," counters Karuturi. Acres Up To The Horizon The elevated but non-asphalt road stretches 72 km from one end of the KGL farm to the other. It's the highway to South Sudan, 100 km away. A white flag-waving party of 20 Sudanese refugees passes by. Acres of cultivable land meet the horizon as big bulldozers, earth movers and dumpers work round the clock to clear shrubs, anthills and trees; 65,000 ha have been cleared. The rest will be done by March, promises Karuturi during one of the gut-churning rides. The Gambela project has enormous implications for him. Success here could open the floodgates for similar deals in other African countries. Failure could consign him to obscurity, besides attracting the ire of investors and financial institutions. As the sowing season approaches, visits to each of the sites are mandatory, followed by marathon problem-solving sessions at the main camp in Ilea that start post-dusk and go on till midnight, over loads of tea, soft drinks and beer. Planning takes up most of the time. The last time he had a crop in the fields, Karuturi grossly underestimated nature's influence on his farm that lies between the Baro and Alwero rivers. Floods consumed 60,000 tonne of maize sown on 12,000 ha. It was a $15 million write-off. "We were caught napping. Later, when I spoke to villagers, they showed me (water) marking on trees. It is so simple. It was there. I felt like an idiot," says Karuturi. When he told the flood woes to rose buyers in the Netherlands, they had a ready answer: build dykes. The Dutch have mastered of it. Nearly 25 per cent of the Netherlands is below the sea level and 21 per cent of the population lives below sea level.  Another 50 per cent land is barely 1 metre above the sea. <table style="width: 600px;" align="center" border="0" cellpadding="6" cellspacing="6"> <tbody> <tr> <td>...WHAT WORKS FOR HIM <ul> <li>The world's largest exporter of cut roses, generates 40 per cent gross margin from rose business</li> <li>The Gambela farm between two rivers, Baro and Alwero, has high (6 per cent) organic matter in soil</li> <li>65,000 ha of 1,00,000 ha have already been cleared for farming, rest by the end of 2013</li> <li>Stable government in Ethiopia (ruling since 1991) ensures support to projects awarded by current regime</li> </ul> </td> </tr> <tr> <td>...WHAT DOES NOT <ul> <li>No experience in largescale farming. Lost a maize crop due to poor anticipation of the power of nature</li> <li>Gambela farm needs $380 million of investment for two crops a year; Karuturi has invested only $128 million till date</li> <li>Still learning to use modern farming equipment; training workers on new equipment</li> <li>Farm is still to be secured from wildlife from the Gambela National Park,especially deer </li> </ul> </td> </tr> <tr> <td>...WHERE THE OPPORTUNITY LIES <ul> <li>Africa is a net importer of food and requires vast tracts of land to be cultivated to feed population</li> <li>Food prices in Africa are 200-300 per cent higher than global prices, ensuring high margins</li> <li>Tanzania, Mozambique, Senegal, Kenya and Sierra Leone are opening up for large-scale farming</li> </ul> </td> </tr> <tr> <td>...WHAT COULD TRIP HIM <ul> <li>Inability to arrange funds or bring in agripreneurs for revenue share</li> <li>Anti-land grabbing activists and human rights bodies are raising the pitch against scale farming</li> <li>Ethiopia may decide to cap land holdings to 100,000 ha under political, NGO pressure</li> <li>Unexpected rains, floods or natural disasters could destroy crop </li> </ul> </td> </tr> </tbody> </table> If Karuturi is nervous, he hides it behind the bravado. "I'm not boasting. It's a wild west project," says the 6-foot-tall farmer. "It has never been done before." He expects to earn $500-700 million annually from this project when it is fully commissioned in three years. That's six times the revenues KGL generates from rose exports. The $380 million investment ($128 million has been invested so far) is 12 times KGL's FY11 net profit. But his dreams are not prisoners of scarcity. "In a few years (we will) develop at least 1 million ha (2.47 million acre) of farmland in Africa and produce 8-10 million tonne food," says Karuturi. What he does not say is, that could make his the world's biggest farming company. "Size mein kya rakha hai (why go after size)? We want to be the best." Kazakhstan's Ivolga-Holding and Argentina's El Tejar are the biggest with 600,000 ha (1.5 million acre) each. Karuturi believes at 1 million ha, he would be among the top 5 producers of maize, rice, palm oil, sugar and sesame. He says exploratory talks are on with Tanzania, Mozambique, Senegal and Sierra Leone. "We have sent reconnaissance teams. We are looking at these four and DRC (Democratic Republic of Congo) as a funnel." Discussions are at an advanced stage in Tanzania and Mozambique. "In Senegal, we have made an exploratory probe and in Sierra Leone we have made initial contacts," says Karuturi. Interestingly, the million ha dream cannot be realised by KGL all by itself. It does not have the $5 billion it will need. To realise the dream, KGL will have to morph into a farm management firm. For instance, the Gambela land itself will need $1.2 billion in investment — a tall order for the $115-million firm. "I want to be a farm-enabler. We want to build something like an agri SEZ. (We will) develop land suitable for farming, with irrigation, mechanisation, storage, post-harvest transportation and bring in agri entrepreneurs for a revenue share." His proposal to convert millions of ha of fallow land into cultivable land through agri SEZs is pending with the Ethiopian government. <img src="/businessworld/system/files/images/growth-matters-430px.jpg" style="vertical-align: middle; margin: 6px;"> The model is evolving, but for now Karuturi has brought in a farmer from Punjab, a Uruguayan and an Australian firm in a 30:35:35 model for 5,000 ha parcels each. While the agripreneur and KGL would share 35 per cent each of the produce, 30 per cent would be the cost of sowing, equipment, maintenance and land lease. Up Against The Real World Farming at this scale throws up problems of equal magnitude. The region was not introduced to electricity. KGL had to import 30 gensets from India to power the farm, even supply to nearby village Ilea for free. Karuturi imported Indian equipment — earth movers from BEML, tractors from TAFE, trucks from Tata and Scorpio pick-ups from Mahindra. Only to realise he made the wrong choice. Frequent breakdowns and lack of support made him change his mind. The last straw, he says, was when BEML told him to wait three months to supply spares, after receiving payments. He now buys Toyota Land Cruisers to traverse the dirt roads. And the monstrous 500 HP tractors from John Deere and Case New Holland — almost 50 of them at $1 million each — to take over from the 55 HP TAFE tractors. The John Deere tractors, he says, cover 50 ha a day, as against TAFE's 4-6 ha. break-page-break It's time for site visits. Two 1.7 km-long airstrips are to be readied at two ends of the farm for the two planes arriving in November to spray  insecticides, fertilisers, etc. The Chinese, when they were searching for oil, left one airstrip. It can do with recarpeting. Work on the second one is up to Karuturi's satisfaction. But the 5,000 ha rice farm at Jikao is not. The previous evening, Karuturi pitted the progress of the Uruguayans manning the site against the American representatives manning the maize site. The Uruguayans lost badly. The site is lagging. Karuturi is anxious. About 1.5 km away, he notices only three of the five 500 HP tractors emitting exhaust smoke. "Why are only three of them ploughing, Jagdeesh?" he asks the farm in-charge. "They might have stopped for greasing or cleaning filters," replies Jagdeesh. These are million-dollar properties. They should work 24x7 to eke out maximum productivity. As the Land Cruiser closes in, Karuturi's instinct proves right. One tractor is stationary. Jagdeesh jumps out even before the car stops. "He was cleaning the filter, sir," he says. Karuturi bursts out, "Your tractors will function for 100 years, but I won't be there for 100 years." Dissatisfied, he hops on to the driver's seat of a TAFE tractor himself, apparently to time the distance from one end to the other. By the time he finishes, his white shirt is covered in soot patches. Before proceeding, he turns to Jagdeesh: "I want crops. I want production. Come to the AGM and see how investors roast me." By the next afternoon, executive director Birinder Singh is dictating marching orders at the Addis Ababa office. Jagdeesh is transferred from Jikao. A Love-Hate Relationship Investors have been vicious since KGL's first crop — maize — in Gambela was destroyed in August 2011, a month before it was to be harvested. The stock has fallen nearly 60 per cent since then and has languished between Rs 4 -6 for the past eight months ( 31 May: Rs 4.8). At its peak, the Rs 10 share (before it split into 10 shares of Re 1 each on 4 April 2008) closed at Rs 430.85 on 8 January 2008. "A lot of growth was expected. It has not happened," says Rohit Inamdar, senior vice-president, ICRA Equity. "It is the floods. This will be a blip on the horizon," says Karuturi. "In October, I give you a harvest; it is going to be back to where it was." <table style="width: 600px;" align="center" border="0" cellpadding="8" cellspacing="8"> <tbody> <tr> <td style="text-align: center;">OTHER BIGGIES</td> </tr> <tr> <td> <table style="width: 155px;" align="left" border="0" cellpadding="7" cellspacing="7"> <tbody> <tr> <td><img src="/businessworld/system/files/images/Gustavo-Grobocopatel-Los-reu-mdm_0.jpg" style="float: left;" height="155" width="155"></td> </tr> <tr> <td style="text-align: left;">FARMING PASSION: Gustavo Grobocopatel is among the world's largest farmers (Reuters) </td> </tr> </tbody> </table> Among conglomerates, Kazakhstan's Ivolga-Holding and Argentina's El Tejar manage 600,000 ha (1.48 million acre) each. Ivolga operates in Kazakhstan and Russia and El Tejar in Argentina, Uruguay, Brazil and Bolivia. As an individual, Argentina's Gustavo Grobocopatel's firm Los Gobo manages 300,000 ha. With most of its land devoted to wheat, Ivolga has emerged as one of the biggest wheat-producing firms in the world. El Tejar, on the other hand, is the world's biggest grain producer, but it also raises cattle for meat production. Los Gobo grows soybeans, corn, wheat and sugar in Brazil, Argentina, Uruguay and Paraguay. Increasingly, large agri companies are listing on stock exchanges. Argentina's Adecoagro, Los Gobo came out with an IPO in Brazil in 2011. Now, El Tejar has declared it will tap the stock market in 2012.</td> </tr> </tbody> </table> "There were two setbacks: an entire crop got washed out; expansion has suffered since Axis Bank did not disburse $180 million... the company could not meet a condition that the National Bank of Ethiopia should approve repatriation of funds," adds Narendra Dokania, senior analyst at ICRA. "It was a syndication. It lapsed. We didn't seek re-approval," says Karuturi. Axis Bank declined comment. "The major challenge is towards fund-raising," says Inamdar. Developing 100,000 ha needs an investment of $380 million over three years. KGL has invested $128 million. Where will the rest come from? "It will be debt, over three years. We have got financial closure for $50 million from the Indian Overseas Bank," says Karuturi. Water And Dykes The rains are due in June and Karuturi knows his future is at stake. Going by the Dutch advice, KGL has been building 78.9 km of 15-metre-high, 15-metre-wide dykes along the farm. But heavy machine operators are in short supply. Karuturi shouts at his cook in his native tongue. "I was telling him I have brought you here at three times your salary. Why can't you double up as an operator?" he explains. Machine operators building the dyke spotted a pride of lions the previous evening. Perhaps, they had strayed from the Gambela National Park, looking for water on the dry bed of Alwero. Karuturi is at the spot at 8.30 am. Not for the lions, but because of the dry bed. He rubs his eyes in disbelief. "I can't believe this is dry," he says."I have asked my people to build a dyke and divert the Alwero outside of our land," he says. <img src="/businessworld/system/files/images/KGL-expert-comments-lrg.jpg" style="vertical-align: middle; margin: 5px;" height="332" width="450"> But what happens when rain water drains from higher areas (423 metre above sea level) to lower areas? It will destroy the crop. The project's vice-president gets the flak over the phone for not anticipating this. Karuturi sits on a plough and begins calculating the pumping capacity to ease water over dykes. The calculation goes all wrong, causing him anxiety. "Who can build this level of capacity? This kind of water goes through Sardar Sarovar," he mutters. To his amusement, he finds he had over-calculated. A gasp and a sigh later, he shoots off instructions with details of locations. The pumps must be installed by the time he is back the next fortnight. In the main camp, it's problem-solving time, just seven days short of sowing time, the first crop of the season. Also the first since floods. Anxiety is high. Chief representative of Farmers' National Corporation, the US firm contracted to farm, is upfront: "My big worries: Floods, deer, weeds and bugs." KGL has imported chemicals to tackle weeds and bugs. Dykes should save the crop from floods. But deer? There are thousands of them. Protests from environmentalists forced the government to create a 10,000 ha deer corridor dissecting the farm for a million-strong migration of white-eared kob from Gambela National Park to Baro. A 30-km solar electric fence is being imported to keep the deer out. break-page-break Will It, Won't It? It's uncertain whether KGL will get the remaining 200,000 ha from Ethiopia. According to the Land Rent Contractual Agreement signed between KGL's 100 per cent arm Karuturi Agro Products and Ethiopia's agriculture ministry  on 5 November 2010, KGL was handed over 100,000 ha with the promise of the rest on completion of farming on the first parcel within two years. But pressure mounted from anti-land grab activists and the West. So Ethiopia has set up Agricultural Investment Support Directorate to monitor land allotment. Its chief Essayas Kebede has said land allotment to KGL will be capped at 100,000 ha. Any cap on land, however, will be a setback for KGL's ambition. "We are lobbying the international community to see if we can stop the land grab by KGL, Ruchi Soya and others," says Nyikaw Ochalla of Anywaa Survival Organisation, which represents the 100,000-strong Anywaa tribe of Gambela. In a letter to Karuturi (November 2011), Human Rights Watch highlighted "Villagisation and Rights Abuses in the Gambela region". It asked: "There is evidence that Anuaks used and occupied land that is part of KGL's lease area. What process has KGL undertaken to ensure appropriate compensation, as per Ethiopian law and international best practices?" <img src="/businessworld/system/files/images/no-bed-of-roses-600px.jpg" style="vertical-align: middle; margin: 6px;" height="297" width="600"> Karuturi responded: "Anuaks use and occupy land within KGL's lease area without any disturbance. KGL has made no effort to disturb them." But with rising pressure, is he confident of getting the remaining land? "Absolutely. There is no way this country will go back on the contract," he says. "If there is a macro element because of politics and social pressure, we are fine. We have not invested on 200,000 ha." He pauses. "Honestly, I don't care. I have got Tanzania. They want to give me a million ha. Mozambique, they have a 100,000 ha. DRC has so much of land."  "There are social issues, but Ethiopia is supportive," says ICRA's Dokania. "Agriculture is a big focus for Ethiopia and so is manufacturing," says Mayur Kothari, convenor, India Business Forum in Ethiopia. Opponents, though, do not relent. "You can say, well, it's the Ethiopian government's fault, but you have to look at the role of the investor too," says Mittal. "Oakland Institute! I don't even know who they are. We have invited them over. Come and have a look. What are you guys talking about? They quote us but they still besmirch us. What can we do?" Karuturi asks. A lot will depend on how deftly KGL tackles Human Rights Watch, Anywaa and Oakland, among others. Karuturi says there are five villages with 1200-odd people on his farm."I have not displaced anybody. These are pastoralists. We leave 5 km around the village for them to graze cattle," he says. "This is a myth. In Gambela, land belongs to the indigenous people," says Ochalla. <img src="/businessworld/system/files/images/time-for-africa-450px.jpg" style="vertical-align: middle; margin: 5px;" height="328" width="448"> Even before he gets over that hurdle, Karuturi has a lot to prove. "All of them are going to make a loss. There is no infrastructure there. How will you sell?" asks Ajay Jakhar, chairman of the Bharat Krishak Samaj. Karuturi plans to use river navigation via Baro to access markets up to 2,000 km away. KGL has commissioned 500-tonne barges to be pulled by tugboats. "We can go up to North Sudan upstream. Down the Nile, we can go up to lake Victoria, 2,000 km away. Lake Victoria has Tanzania, Kenya, Uganda and Rwanda along its shores," says Karuturi. As the government does not subsidise food or farming in Africa, local prices are higher. Wheat and maize quote at about $250 per tonne on the Chicago Board of Trade. But in Africa, they are sold at about $400 per tonne. But what could trip the world's largest farmer dream? Fund-raising and ability to bring in agripreneurs will be key. Karuturi is still $200 million short on funding Phase 1 of the 300,000 ha. Besides, "there are political risks in Ethiopia and Kenya," says Inamdar. Ethiopia is stable today, thanks to its autocratic Prime Minister Meles Zenawi Asres. If the 57-year-old PM loses his hold, his detractors may attack projects he has okayed. Karuturi may seem prepared, but he knows he is in a zero-tolerance zone. After all, he wouldn't want to live his late father's worst fears. "I promised myself that never again will we be caught napping," says Karuturi. That's as far as predictions go. But in a project of this scale, who can account for the unpredictable? rajeevdubey(at)abp(dot)in (This story was published in Businessworld Issue Dated 11-06-2012)