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Pepsico’s successful foray in agribusiness

Ramesh Vangal, President, Seagram Asia Pacific, Hong Kong, spearheaded PepsiCo’s entry into India. PepsiCo integrated its diverse food and beverage businesses under a single entity. It did not confine its attention to soft drinks but made innovative and extensive forays into contract farming of potatoes and tomatoes.

We give below excerpts from Vangal’s description of Pepsico’s tomato experience:

“Before the advent of PepsiCo Punjab was not a large producer of tomatoes. PepsiCo went extensively for contract farming providing quality seeds, assured market and a fair price. During 1989 to 1995, land under tomato increased five’fold, yields improved from 7.5 tonnes to 12 tonnes per acre and total production shot up from around 15,000 tonnes to around 180,000 tonnes in six years. Today income from tomato farming is much higher than that from cereals and other crops.”

Vangal said that contract farming assumed tremendous significance in India. If given a reasonable growth in income, India will become the agro-dynamo of the next century. “You have to do a few simple things. Create a food chain, provide integrated lab to land to market linkages. If India could liberalise her farm sector like China, the opportunities will be unlimited,” he said.

“In Pepsi’s contract, there was an assurance to take only 30-40 per cent of the farmer’s production. The farmer is not often familiar in handling surplus production. In times of high demand, some Punjab farmers were tempted to move tomatoes to remunerative markets in UP. But they did not reckon with the problem of packaging and transportation. Tomatoes sent to Ghaziabad turned into ketchup,” he added.

Vangal was confident of contract farming succeeding in any part of India, not just in Punjab. But it is a core competence that India has to assiduously build.

Vangal has truly and greatly expanded the horizons for India excelling in production, processing and export of agriproducts.
– Excerpts from IE, Oct/Nov 1996

When ready to skim the butter, the container broke…

Soon after liberalisation, VST Industries, decided to take to contract farming of hi-tech agricultural products. Anil Kumar V Epur, Executive Director, VST Natural Products: “VST has done pioneering work in introducing crop insurance, spreading the banking habit to farmers and introducing competitive price support mechanisms…

“VST’s farmer advisory service covered 35,000 farmers, cropping in an area over 100,000 acres. The products included paprika, spice used in the West, herbs like rosemarie, sage, basil… various types of peppers and pickle products like gherkins, babybeets and vegetables like silver skin onions, asparagus, broccoli, cabbage, lettuce, tomatoes…The company also set up processing facilities… identified good demand for these products from several developed countries.

“The company took model farms of 10 acres each on lease in Andhra Pradesh and 30 different crops were studied under different field conditions…

“We took on lease 2000 farms on the sixth year of trial and continued with the exercise. The results were quite encouraging and started yielding good results. The company emerged a consistent quality supplier and the largest supplier of such products to the US.
“We started with export of 200 tonnes last year. It increased to 1500 tonnes and it will further expand to 2500 tonnes. We have emerged as a consistent quality supplier and the largest supplier of such products to the US.”
Epur referred to the considerable R&D work done that helped introduce new varieties for exports. Silver skin onion was one such.
At VST’s processing facilities, state-of-the-art technology and practices were applied subjecting the products to stringent quality checks, processing and storing these at controlled atmospheric conditions and ensured that these conformed to the stringent sanitary standards. This assured quality seeds for shipment.

Epur pointed to the weaknesses in the Contract Farming Act that did not ensure the sanctity of contracts entered into by farmers. It is not unusual for an unscrupulous trader to skim off the products from the farm on contract with the company, VST Natural Products was sold off. – Excerpts from IE, 29 Feb-14 March 2000

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