Growing in India: Food for the World

JALLOWAL, India Within days, the monsoon will arrive in India. If generous, it will lend another year of survival to hundreds of millions of villagers. If miserly, crops will wither and bankruptcy will run virally through the villages.

One-tenth of humanity resides in rural India, in villages haunted by the perennial specter of harvesting too little food. But now a country that long struggled to feed itself is making preparations to feed the world.

Multinational companies from Wal-Mart to Rothschild Group to PepsiCo are wagering that India could parlay its tropical climate and the latent energies of hundreds of millions of farm dwellers into a position as an agribusiness powerhouse, exporting fruits and vegetables, spices, flowers, wine, ice cream, poultry, shrimp, fish and even pasta.

"To my mind, this opportunity of agriculture is an opportunity which is larger than telecom, which is larger than IT," said Rakesh Mittal, vice chairman of Bharti Enterprises, a $16 billion Indian holding company that is heavily invested in both telecommunications and information technology.

Bharti runs a mobile phone company with 22 million subscribers and has new-economy interests ranging from call centers to offshore software development. But in a strategic shift, the company recently announced that it was investing with Rothschild Group, a European private equity group, in a venture called Field Fresh, which will export onions, chilies, okra and other vegetables to Western retailers, including Tesco of Britain.

The venture has already leased 1,860 hectares, or 4,600 acres, of land and sent its first shipments to Europe. It expects to be a leader in an Indian food export market for fruits and vegetables that the company expects will reach $5 billion by 2011.

"India has become the back office of the world," Mittal said during a recent interview at his headquarters in Delhi. Referring to business-process outsourcing, he added: "What we are trying to create here is BPO in the agricultural sector. We will grow for the world."

The vision is to link India's small farmers to global supply chains in agriculture, just as its software writers and call-center workers have been linked to other segments of the global economy. Farmers would move from staples like wheat to higher-value crops like okra and onions, Alphonso mangoes, spices, shrimp, Darjeeling tea, long-grain basmati rice, cashew nuts, milk and buffalo meat.

Big companies, foreign and domestic, would aggregate the crops harvested from scores of small farms, process them into value-added products like sausages or fruit purées, and get them to Western hypermarket customers through a "cold chain" of refrigerated trucks, ocean vessels and cargo planes.

Because land is the only thing most farmers possess, the companies probably will be prohibited from acquiring it. Executives say they will focus on working with farmers rather than replacing them.

The vision parallels what is happening in another emerging economy - Brazil - and it is attracting powerful patrons. Large investors and corporations are seizing on Indian agribusiness as an emerging market within the emerging market - with twin opportunities to feed a growing middle class here and to export premium Indian produce overseas.

The government of Prime Minister Manmohan Singh is backing the idea enthusiastically, for it holds a potential solution to one of India's gravest challenges: to spread prosperity to the two- thirds of Indians who live in villages and have largely been bypassed by more than a decade of economic growth.

"I see immense opportunities for private enterprise in the transformation of agriculture," Singh said in a speech last year. "There are opportunities both for supplying inputs and for processing and marketing the agricultural produce." He spoke of India "becoming a new granary of the world."

In a report commissioned last year by the Indian Ministry of Food Processing Industries, the Dutch lender Rabobank projected that India would double its share of global food and agricultural exports to 3 percent from 1.5 percent in the next decade, with the value of exports soaring to $30 billion by 2015 from $8 billion in 2003.

To be sure, obstacles remain. Wealthy countries have yet to dismantle the agricultural subsidies and other trade barriers that would make Indian farm exports more affordable.

There is a risk in leaders' embracing agribusiness too fervently, given widespread concerns that big companies will exploit farmers. Critics say companies will take over operations by lease and gradually replace small farmers with cheap migrant labor and mechanization. They cite numerous instances of farmers falling into debt, even killing themselves, because companies coaxed them to buy expensive seeds that never delivered the yields promised.

"They see the profit here," said Devinder Sharma, a writer and frequent critic of agribusiness in Delhi. "They're not coming to help agriculture."

Above all, the critics accuse global corporations of seeking to siphon food away from Indian mouths - an emotive charge in a country that is home to 57 million of the world's 146 million malnourished children.

Some experts argue, however, that malnutrition is caused more by the lack of purchasing power in rural communities than by the lack of food.

"The question is whether exports will offer families a better market for their products," said Dina Umali-Deininger, an agricultural economist at the World Bank. Farm exports, she said, "will help families because they have more income to feed their children, and that will reduce malnutrition."

Today, multiple forces prevent small Indian farmers from gaining access to wealthy countries' markets, and the country's farms remain places of unrealized potential.

According to the United Nations, India possesses 11 percent of the world's arable land, about 161 million hectares, and is the second-largest grower of fruits and vegetables, after China. Yet in 2004, it accounted for merely 1 percent of the world's $100 billion in exports of fruits and vegetables.

The reasons are varied. Farming methods remain largely unchanged despite the advent of time-saving, yield- raising technologies. Farmers cannot afford these new technologies because their farms are growing smaller and smaller as families divide properties among their children, and because a small farm generates too little produce to recoup the costs of expensive investments. Farmers also fail to invest because many of them, lacking collateral, have no access to bank credit.

Infrastructure is of such poor quality - from the potholed roads that cause truck-borne produce to bruise, to the ports with four-day turnaround times - that one-third of India's crops are lost between the farm and consumer. What survives is rarely processed into lucrative export items like frozen vegetables and ready-to-eat meals, because a history of socialist-era restrictions left India without efficient, large-scale food processing facilities. According to Rabobank, only 2 percent of Indian fruits and vegetables are processed, compared with 80 percent in the United States.

But Indian food exports are accelerating, according to recent Commerce Ministry figures comparing the nine months through December 2005 with the corresponding period a year earlier. The data showed that agriculture-related exports grew 16 percent to $4.9 billion. Processed-food exports - frozen- vegetable packets, ground lamb meat, bags of rice - grew 18 percent; fruits and vegetables increased 10 percent; meats, 47 percent; poultry, 64 percent; and spirits and beverages, 75 percent.

Global investors are pouring money into ventures to export Indian farm goods, or exploring ways to do so. The trend is fueled in part by the growth of a large Indian middle class, and companies interested in serving that market are betting that they can use their foothold in India to cater to the world.

PepsiCo has designated India as a farm-products hub for all of Asia. The company was originally forced to export farm products from India, in the late 1980s, as a condition for selling soft drinks in the country. But now the company has decided that what was once its obligation is now a profitable business opportunity, said Abhiram Seth, executive director for exports in India.

The company is contracting with Indian farmers to procure seaweed, potatoes, chilies, tomatoes and oranges for export. Jallowal, a village in Punjab state, in northern India, is one of the only places outside the United States that PepsiCo has chosen to transplant the Florida and California oranges used in its Tropicana brand of juice. The company aims to export orange-juice concentrate to its operations across Asia. PepsiCo sells farmers saplings, trains them and contracts with them to buy their harvest at an agreed price.

Wal-Mart, the world's largest retailer, is currently barred from opening its stores in India, because of fears that large-format retailers will displace India's millions of small shops. But the company is exploring India as a source of "premium exports," including items like long-grain basmati rice, spices and fresh fruits like mangoes, said Beth Keck, a company spokeswoman.

"We have stores in 15 countries, and there are some very attractive products grown in India that we would like to export," she said.

Rajesh Srivastava, managing director in India of Rabobank, said lenders now regard the Indian farm sector as the next outsourcing story after information technology. "If IT is serious business today," he said, "agribusiness will be three times as serious five years from today."