Article by Alexander Hitzemann
“China’s engagement with African agriculture represents perhaps Africa’s biggest opportunity in history. China’s partnership with Africa has evolved from the donation-aid model of assistance to a more sustainable donor investment engagement.”
All across the African continent the effects of Chinese interests can be seen. Some journalist even jokingly refer to Africa as China’s second continent. In the last few years that seems to have become more true. This is mostly due to the large amount of money China has to invest in it’s own territories and across the world.
Dealing with Chinese businessmen was not first choice for most Africans, the United States was the investment partner Africa would have rather had. However, western investors have failed to see the long term strategic opportunity Africa presents or have the equity to place in such a plan. China has experienced the same losses as other investors, except they have continued to partner with Africans in order to execute a much longer plan which could take decades to reach fruition.
Right now, China’s main business in Africa is the extraction of valuable resources. They have invested nearly $10 billion in these operations so far and they will continue. What separates Chinese operations from other extractive institutions is their national interest in forming continueing partnerships, in industries like agribusiness. Additionally, they “pay back” African nations for their resources by building infrastructure such as roads, hospitals, and university campuses. So far China has been a very subsitive partner for Africa,
In order to learn more about how China’s involvement in Africa has affected African Agribusiness AAM met with scholar Donald Cassell. Cassell is a Senior Fellow at the Isoko Institute and directs the African portfolio of the Sagamore Institute, an Indianapolis based think tank. In recent years he has published on China’s Role in African Agriculture which analyzes the subject.
Cassell states, “China’s engagement with African agriculture represents perhaps Africa’s biggest opportunity in history. China’s partnership with Africa has evolved from the donation-aid model of assistance to a more sustainable donor investment engagement.” (Cassel 33) The Chinese, themselves being a rising world power, bring their own experience of rapid development and growth to the African continent. They are almost presenting their own development as a model for African nations to follow. A proven model to follow, since it has eradicated more poverty than any other in human history. The Chinese come from a very poor background, like Africans, and have built their economy from almost nothing very quickly. Additionally, China has successfully solved its major food security problems in the last thirty years.
However, how Africa manages how it does business with the Chinese is critical to maximizing the opportunities and minimizing the risks. This is the type of investment and involvement Africa has sought from other world leaders, but is now only receiving from China. Africa must be very careful dealing with the shrewd Chinese businessmen. Being the only region in the world that has seen no appreciable agribusiness development, Africa is in desperate need to reverse this decline. It’s hard to turn away Chinese investments in that agribusiness climate.
Seneglese and Chinese workers observe a ceremony at the national theater construction site financed by China on February 14, 2009 in Dakar, during a visit by Chinese president Hu Jintao and Senegalese president Abdoulaye Wade. AFP Photo
Cassell explained that the nature of Chinese involvement in African agribusiness has been complex. However, overall China views Africa as a strategic development partner. China already has a significant presence in trade and national development. According to Cassell much of this has been done in the framework of the One China policy, cooperation based on respect for national sovereignty, national interest, non-intervention, and non-imposition of conditionalities. At the core of this business philosophy is mutuality, trust, partnership, and win-win cooperation. China realizes that its relationship with it’s allies in Africa were weak, so they are build relationships.
Ghana is a good example of this Chinese model of cooperation. China sends excess skilled and unskilled laborers to Ghana for employment opportunities. Also, in Tanzania China has developed some of its most advanced agriculture experiments.
China’s relationship with Africa is just the early stages of it’s going global strategy, really it’s still trial and error. As the Chinese enter Africa they will learn that to do business in Africa they cannot easily separate politics, religion, and culture. In order to create these types of partnerships, at least the business cultures will have to meld. We can see some of this happening especially as Chinese migrate to Africa and intermarriages begin to happen. Since this is a relatively new partnership, overtime more people will have interest as it develops.
But China also has interest in its own food security needs. The FAO has determined that food production will have to increase by 70% to meet the worlds growing urbanized affluent population. At the moment china is meeting its own food demands by diminishing its own arable land. It sees Africa as a vast agricultural opportunity. China says that its interest is in global food security, not just to grow food and export it to China. However, there is already a high demand for African agricultural commodities in China.
Changing people changes history. If people do not change, little else changes in the long run. The only real revolution is in the enlightenment of the mind and the improvement of character.
China has done more to alleviate poverty in Africa than anything ever attempted by western colonialism or the initiatives of traditional partners. The Chinese engagement may be even more meaningful if the Africans do business carefully. So far China has really taken the lead, if the Africans can become more participatory it could become an even more lucrative relationship. Especially, if this could be done in the development framework.
Why is China so interested in Africa? They see investing in the African people as having the possibility of infinite returns.
Cassell, Donald L., Jr. “China’s Role in African Agriculture.” Marketplace: Liberia 2.1 (2013): 33-37.
“Chinese Involvement with African Agribusiness.” Personal interview. 05 May 2015.
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By Dave Ramaswamy, Africa Agribusiness Magazine
Sunny Verghese is Co-Founder, Group Managing Director & CEO of Olam International, one of the world’s biggest agricultural commodity trading companies. Verghese established Olam in 1989 and leads the company’s strategy, planning, business development and management.
Dave: What is your view on pricing natural capital? People have talked about the carbon tax. What option do you prefer, and what’s more economically and environmentally sound?
Sunny: It’s a catch-22 situation. No country wants to bell the cat, to perform the difficult task. They say that if they are the only country that applies the carbon tax, then their producers and exporters will get a disadvantage compared to another country. So while intellectually a lot of countries accept that in order to change behavior in terms of carbon emissions, we need to price carbon, nobody wants to bell the cat. So unless this will be something that all [UN] member countries will implement concurrently, I don’t think this will happen. Nothing’s going to change.
Dave: Okay. So based on your work in Africa and being vertically integrated in commodities from sourcing to branded products, why did you decide to fully integrate from being just a trader of commodities? Going up and down the value chain?
Sunny: The way we look at where to participate in the value chain is we do profitability analysis as to where the profit resides. Is it upstream of the grower/planter? Is it mid-stream at the processor? Then we ask ourselves how we can attract a slice of the profit.
If it is distributed upstream, do we have an ability? Can we really enter upstream and successfully capture the production economics in terms of farming and plantation management skills? If we believe that it’s doable, then we want to invest there. It is very nuanced, so there is no strategic orthodoxy as to where we will similarly invest.
We only invest when we know that we have a competitive cost to production, both capital cost of production and cash cost of production. That will allow us a cost position below the marginal cost producer’s cost of production.
Dave: Can you give an example with a particular commodity, like coffee?
Sunny: If you take coffee, you know Brazil produces coffee at about roughly $1.25 per pound for Arabica coffees.
So we know the commodity prices are cyclical. If you go upstream and become a producer/grower in a deep down cycle you start bleeding. You will not bleed, however, if your cost structure is below the marginal cost producer’s.
Therefore [we look at] the capital cost of producing in a particular country and the cash cost for producing. If your cost structure is below the marginal cost producer’s then even in a deep down cycle in coffee prices you are profitable. You can ride it out. In a normal cycle, and especially in an up cycle, you’ll be significantly more profitable.
These are long-term investments. To plant coffee, the first full maturity is in seven years. So you have to wait for seven years. You can’t make a speculative guess that coffee prices are going to be high seven years in the future. But, if you know that you’ve got a cost structure that is competitive and below the marginal cost producer you’ll be riding through every cycle.
Dave: That is impeccable logic.
Sunny: So, we invested in Laos, we invested in Tanzania and Zambia, Ethiopia, Brazil. Win 4 of those countries we have a high margin of safety between our total cost of production and the marginal cost producer’s cost of production. So in Laos we produce coffee at roughly 80 cents, in Zambia at about 85 cents, in Tanzania at about 90 cents, in Ethiopia at about a dollar, but all this is significantly lower than Brazil’s cost of coffee.
When coffee prices start going down, as they are now, it will still hold, we believe, above the marginal producer’s cost of production. And if it dips that way it can’t hurt anything. So that is the strategy.
In every commodity we look at that. We saw cashews were grown in 19 countries around the world, with millions of small owner/farmers and fragmented production. The farmer makes 6% to 7% of the profit.
When we looked at almonds, 75% of the profit was made by the grower. And almonds can really only can be grown in four countries because the crop is quite sensitive to the agro-climactic conditions.
Dave: For almonds, it is places like California in the U.S., Australia, Chile and South Africa.
Sunny: If you understand where the profit pools are, and you believe you have an ability to organize and capture the production of economics, then you invest on that basis. That’s what we do in 21 crops that we farm and produce ourselves across 26 countries.
Dave: Let us look at comparative advantage. You know China and India can be looking at consolidating farm holdings, and being self-sufficient in food. But sub-Saharan Africa has a comparative production advantage for key food commodities. So, how do you think Africa plays a role in supplying the food needs of India and China?
Sunny: Well, 55% to 60% of the world’s arable land is in Africa, but considerable investment needs to go in to build that infrastructure to make that arable land fully productive. You need to make long-term bets in farming, because it’s not something you can pull out and abandon a year after you invest it. You need the certainty of being able to make agriculture investments—whether it is governance or good infrastructure. For Africa to realize the potential is a long way off. And there have to be significant private/public partnerships to really exploit the potential.
Dave: Which countries in Africa—please name your top three preferences—are better producers compared to others in the next five years?
Sunny: Typically we look at a few factors. One is we want countries with low population density where land is not a big issue. So Gabon is a good example. It has 1.6 million people, a lot of land and not too much cultivation. So, one factor is population density, availability of land.
Second is labor, cost of labor and the trajectory of wage/price inflation. If you’re feeling wages are going to go up very fast in this country because of the developing economy, then you might be priced out. So, you need to understand not only what current wage costs are, but you also need to have a point of view on wage/price inflation.
Also, what is the capital cost of production? What does land cost? How are land prices increasing? Are the focus of government policies pro-business and pro-investment? Can you look at the communities and be equal partners to manage your supply chains? Because you will need them to support it. If they are against you, you have no hope of establishing assistance long term.
Dave: I know you mentioned Gabon, but what are two other countries?
Sunny: We have farm plantations in Nigeria. We’ve got a couple of [oil palm] plantations in Ghana and Liberia. We’ve got rice farming in Nigeria. We have forestry interest in Congo and in Gabon.
Dave: I know you would like most farms to consolidate into clusters or cooperatives. You have this outgrower model where you give input and you have buyback arrangements for the output.
Dave: In the last seven years there has been a huge issue made of these large land deals in Africa. And many of them have failed. Going forward, how do you think this land acquisition process will evolve?
Sunny: Many people made the mistake of believing that the [central] government confers the land to you. The government can transfer legal title to you, but in our view customary rights are more important. If a person’s forefather has cultivated that piece of land, then—according to human rights convention—that has precedence over any legal right. A lot of people come from overseas to invest there, they don’t understand this. They feel the government has given them the title and therefore the title is clear.
Dave: Sure, that has been the case in most instances.
Sunny: You have to go through a pretty intense farm consent process with the local population. You need to understand what the customary rights are and you want to respect those rights. So people make lots of mistakes in not going through a proper evaluation process. If you don’t recognize customary rights, things can blow up.
Dave: Based on your experience in African countries, what would be your message to regulators or policy makers?
Sunny: Clearly they have to make agriculture the priority sector and they have to ensure an environment that allows planning for long-term investments. It should not be ad hoc, but the law, a law of parliament so that investors have predictability when they are investing. It should not be the case that in four or five years, the government changes and a new administration might reverse all these policies. Foreign investors need the security of policy lasting for the lifetime of the project. That has to be through an act of parliament. It should not be politically partisan; it should be consensual and broad-based.
Second, is for them to facilitate upscaling in terms of agricultural training. Very few people in Africa want to do any agriculture. The average age of the African farmer is 64 years old.
Very few want to do farming by choice. It’s a tough job. So you have to make it more exciting and you have to have programs to encourage younger farmers wanting to come into the business. Unlike the U.S. or other places, in Africa land is not very expensive, so you won’t need an inter-generational transfer of wealth to enter the business. For a new entrant, land is relatively cheap. So even a young guy who has an entrepreneurial streak can contemplate getting into it.
Dave: I know you have to run now. Thanks for your time, Sunny.
Sunny: You are welcome.
By Dave Ramaswamy, for Africa Agribusiness Magazine
B. Soundararajan, Chairman and Founder of Suguna Holdings
Suguna Foods Limited, a division of Suguna Holdings, is India’s largest poultry company. Started with a seed capital of about $500, it has grown to $1 billion annual revenue (Rupees 6000 Crore) Suguna operates an innovative contract farming model—with a network of 20,000 farmers—that it now wants to adapt in African countries with suitable local partners.
Dave: How many farmers are there in Suguna’s farming network, and what is your pitch to them? What does Suguna offer to them?
Soundararajan: We work based on a contract farming model. A contract farming model, whether in India, Africa or any other region of the globe, works in a similar way [and is] based on inputs and outputs. Investments in fixed assets, such as land and buildings, have to be made by the farmer. The management practices have to be implemented by the farmer.
Suguna will provide all the working capital requirements to the farmer. This starts with the poultry chicks, feed, medicines, vaccines, advisory on best management practices and supervision techniques. Suguna will also make all the working capital investments. The farmer will then become an “outgrower” for the company. A farmer will then go on to raise fully grown chicks in about 40 to 45 days. Suguna will take back the live birds on payment of growing charges, based on weight gained by the bird.
Dave: So are you guaranteeing buyback?
Soundararajan: Yes. Suguna’s role is producing the chicks, producing the feed, supplying these to the farmer, educating the farmer, supervising the growth of the chicken to ensure health, and then marketing of the chicken to distributors. In India we have about 20,000 farmers in our network.
Dave: What does marketing involve? You mean the grown, live birds?
Soundararajan: Yes. In India, 95 percent of the chicken is sold as live birds. In Africa, too, it would be a similar proportion. Frozen or processed chicken is the remaining 5 percent share of the market. Wherever processing is needed we have our own processing plants. With proper packaging and branding, we take this product to the consumers directly.
Dave: Through your own branded Suguna retail outlets?
Soundararajan: Yes. We have our own branded shops, about 170 to 180 of them now. Through those we are doing retailing of the processed chicken. For marketing live birds, there is a two-tier structure below us. We sell to distributors in each Indian city, who then turn around and sell to retailers. The distributors take delivery of chickens at farm gate, and then distribute to retailers.
Dave: What is a typical investment required by a farmer on land and buildings? Do they approach Suguna, or do you approach them?
Soundararajan: At this point in our history—we have been operating for 30 years, and with our good reputation—the farmers approach us. For investments, it is tough to say because there is no fixed amount. We have contract farmers who have poultry sheds ranging from 2000 birds to 20,000 birds. The per bird investment required would range from 120 Rupees to 150 Rupees, as you know what return you will get, and then figure out what working capital you will need. (Note: $2 to $2.50 at prevailing exchange rates)
Dave: What is the typical return delivered to the farmer?
Soundararajan: The annual returns for farmers ranges from 16 or 17 percent to 20 percent. They usually recover their investments in four to five years. Also, once farmers join our network, we succeed in at least doubling their incomes.
Dave: Now I want to talk about the genesis of the company. How did you get the contract farming idea, and what were the challenges in the first few years of growth?
Soundararajan: My brother and I started Suguna in 1984, with seed capital of 5000 Rupees, (about $500 at that time), as a trading company dealing with poultry feed and medicines. In 1990 there was a situation in India where farmers were producing surplus chicken and unable to sell at the right time and at the right price. Due to this, farmers lost a lot of money and many went bankrupt.
We then saw an opportunity to implement the contract farming model. The farmers are good at growing chicken but not good at marketing it. They also cannot standardize things on the input side. At that time on the input side, there were many middlemen, up to 14 in some cases, between the supplier and the farmer. Money was going to the middlemen or the retailer, but not to the farmer, who did the most work.
To protect the interests of the farmer, we decided to implement a contract farming model. We had a chance to eliminate many middlemen on the input side. As I said, the role of up to 14 middlemen was taken over by Suguna.
First we became a supplier of inputs, then we standardized the product offering—poultry feed, medicines etc. We also standardized the quality of the inputs. By buying in bulk, we were able to control the prices for farmers, as well as increase negotiating power with our suppliers, in obtaining bulk discounts. We were able to deliver a complete “packaged offering” to the farmer with the right quality/price combination.
This way we allowed a farmer who joined our network to be focused purely on production, without having to run around to banks, suppliers or customers. The sales and marketing part of the chicken was also taken over by Suguna. Through our work, we also came to know about market supply and demand and the variation in pricing across seasons. We could take steps so that the farmers would not be adversely impacted. There was no way the farmer “would lose out” at any time with this contract farming model in place. Suguna would manage all the risks on their behalf. The company would handle any pricing fluctuations and make sure that the farmers were protected. Over the course of the 1990s, many farmers started becoming a part of our network as word of our pioneering model spread.
Now in India, 100,000 farmers are involved in the contract farming model for poultry, and we have about 20,000 farmers. We have become India’s largest poultry company, with over a one billion dollars in revenue.
Dave: In the 1990s and 2000s, there were periodic avian flu outbreaks. How did that impact your business?
Soundararajan: It did not impact our business too much. Wherever you have backyard poultry, there are multiple bird species, not just chicken. Other species got affected, not broiler or layer birds. Of course, in the early days, once the outbreak hit, consumers were fearful of eating chicken. So demand dipped initially during this period, but soon recovered. Nowadays, we feel consumers are more confident about the industry’s ability to handle such outbreaks, and they buy and eat chicken from different brands. The Suguna brand offers consumers peace of mind. There have been a few other outbreaks in the last two or three years in India, especially in the eastern part of the country. But this has not affected the rest of the country.
Now demand is stable in India and there is no drop in consumption, but instead we see a steady year-on-year increase. While the Indian poultry sector is growing at 10 percent annually, Suguna is expected to post 20 percent annual growth, and we see a growth of about 30 percent a year in our ready-to-eat and ready-to-cook chicken products.
Dave: Now in the US and Europe, there is a push to treat birds humanely. There is marketing of cage-free eggs. Do you see consumer demand for this in your Middle Eastern export markets?
Soundararajan: We see this trend mostly in Europe. It is still early days in the US. Such a product demand is only 5 percent of the total need. Only a small percentage of consumers request such products. We are ready to cater to this demand as and when required. The markets where we operate now—in India, Sri Lanka, Bangladesh and the Middle East—are quite price-sensitive, and we don’t hear of such requests now from our customers. In the next five years, we don’t see any change in this demand scenario. In Africa, it would also be a similar situation where consumers are price-sensitive.
European producers are losing their competitive edge to Brazilian suppliers. In Europe, there are bans in place for growing and marketing GMO food products. But Brazilian chicken sold in Europe is raised on GMO feed. In contrast, all of Suguna’s chicken is raised on non-GMO feed. The chicken we sell at our retail outlets has no added hormones.
Dave: Could you speak about your growth trajectory? How long did it take you to have 1000 farmers, 5000 farmers etc. in your network?
Soundararajan: In 1990 we had three farmers. In 1997 we had 40 farmers. In the year 2000 we had 1000 farmers. Now we are in excess of 20,000 farmers.
Dave: If you’re starting the company now in a new African geographic location with a local partner, what would you do differently? It took you about 25 years to reach 20,000 farmers? How long would it take you to reach 20,000 farmers knowing what you now?
Soundararajan: If there are no financing constraints and not much emphasis on margins, we can reach that number in about 10 years.
In India, markets are quite competitive now. We cannot expect the same level of growth we had before. We are producing 7.5 million chickens per week. If Suguna produces an additional million chickens per week, we would be oversupplying the market, and our margins will take a hit.
Dave: You talked to me earlier about your interests of entering African markets because of similarities with India, especially with comparable purchasing power levels. Also some African markets now are where India was 20 years ago, and so you could utilize your experience to serve those markets in a high-quality yet cost-effective way. What markets are you interested in entering?
Soundararajan: We have made exploratory visits to Kenya, Tanzania and Rwanda. There we found the contract farming model in poultry has yet to be started. And just like in India, the majority of the demand there now is in live birds. Those markets are not as developed as in India, so we could increase incomes of local farmers there while lowering prices for customers based on our 30 years of experience and knowledge.
In Kenya, they do about 600,000 to 1 million birds per week. Margins are much better than in India. Farm gate prices are much higher. There is a problem with procuring feed. Soya meal is imported. White corn/maize and not yellow corn/maize is grown.
The challenge will be getting the feed. Lot of good agricultural areas, but yellow corn is not allowed to be produced. They are worried about cross-pollination of white and yellow varieties. So we would have to compete with food grain. That is one problem. The other problem is getting soybean meal.
We don’t want to rely on imports for our feed. It would not be efficient and we cannot be assured of stable supplies and prices. We would be subject to political forces beyond our control, putting our operations at risk.
In any market we enter in Africa, we would like to lower the production cost for chicken to benefit local customers and help correct nutritional deficits, especially in proteins. For this, streamlining the regulatory system is most critical. For example, COMESA exists on paper, but there are still lot of regulatory barriers for free trade across these member countries.
Dave: If you enter an African country, would you go it alone or work with a local partner?
Soundararajan: We would definitely want a local partner. We would like and need the support of the local community. Also, a local partner can help us manage political risks and local complexities with their on-the-ground presence. We cannot do that sitting in South India.
Dave: Who would be a good candidate for a local partner?
Soundararajan: Based in India, we cannot assume an operational role in Africa. So we want someone there who knows the poultry business well. If we don’t have someone like that, we have to send people from India, both senior and operational people, to manage the business. This is not viable. Plus, this is not our philosophy. We want to train and develop local African manpower. We can give inputs, expertise and management guidance. That is easy for us. But the operations need to be fully handled by local people in Africa.
So we want an African partner who knows poultry, understands poultry and can be hands-on in running the business. Someone who we can trust and shares our values in promoting inclusive economic growth, raising farmer incomes and encouraging social development.
Dave: What would be the investment required by an African partner? How many birds per week?
Soundararajan: We would look at doing/reaching 100,000 birds per week. We could reach this level in three to four years. If you consider individual East African countries, they typically do half a million birds per week now. So we could help our local partner there to capture 20 percent of the market. In India, 50 million birds per week is the overall market. In each East African market, it varies from 400,000 to 600,000 birds per week now. That is, each country averaging about half a million birds per week. We cannot expect big volumes there.
In five to seven years, we can help an African country partner reach 20 percent to 25 percent of the market share doing 150,000 to 200,000 birds per week. You cannot reach 80 percent market share in any country; 15 to 20 percent market share is a viable target and is doable. To do 100,000 birds per week, about $4 million would be the total required investment. We can discuss with the potential African local partner how this investment commitment would be split, whether it would be 50-50 or some other ratio.
Dave: Does this investment amount include the feed business and input supply business like poultry medicines and enzymes?
Soundararajan: In African countries, that might be our ideal entry point. That would be to enter or start with the poultry breeding business and feed-milling business with a local partner. This would allow us to understand the market and then, after a few years, launch a contract farming business. You travel a lot in Africa and/or meet a lot of agribusiness people from there based in the United States. If you come across some good people in the poultry business, please put us in touch. They need to have poultry domain expertise. We would be happy to explore joint venture options with them.
For a market size of 500,000 birds per week, we can think of setting up a feed mill plant; 8000 to 10,000 tons per month would be the total required feed capacity, so we could try target 25 percent of that. So that would require a 2500 tons per month or 100 tons per day feed mill plant. This plant would require about $1.5 million dollars in investment.
I earlier talked about a $4 million dollar investment. Out of that two-thirds would go toward setting up breeding and feed milling operations.
Dave: What about the market for poultry medicines and enzymes?
Soundararajan: We have to handle that differently, through the distributor model. We have a company headquartered in Delhi, Bovian Healthcare Pvt. Ltd., which manufactures those. They are selling poultry medicine, vitamins and therapeutics all over India.
Dave: What about poultry equipment? Do you manufacture and export them?
Soundararajan: Yes, we do manufacture poultry equipment and sell within India. We currently export only to Bangladesh, and not to African markets. We could consider those on a case-by-case basis.
Dave: What about European and American manufacturers of poultry equipment?
Soundararajan: Their equipment is too big for most African markets. The investments required to purchase them would be ten times as much as Suguna’s equipment. So for most individual buyers in Africa, European/American equipment would be way over capacity, at least for the next 20 years.
Dave: In Africa, there is talk now of how to get youth interested in agriculture? How would you address this?
Soundararajan: The agribusiness sector has to give confidence to youth graduating from high school or college. Only then they will step in to this sector. Currently, many aspects of this sector are not integrated and/or there is lack of proper infrastructure.
Let us talk about agriculture in India, [where conditions are similar to much of sub-Saharan Africa]. Here even the older smallholder farmers are fed up. That is why they tell their children not to enter the farming business. They encourage their children to leave the village and go to the city for higher education. They advise their children to study engineering, medicine or information technology, and not return back to the farm.
In India, we see that after 10 or 15 years in the big crowded city, these children are stressed out and yearn to return back to their rural agricultural roots. In the IT sector, most people cannot work more than 10 years without feeling burnt out. In the manufacturing sectors, 70 percent to 80 percent of the product cost is the cost of the underlying input commodities or materials. In the IT sector, 70 percent to 80 percent of the software delivery cost are the people. So in the IT sector, they will cut costs by asking a given number of people to work more—to the point of burnout. So many of these IT professionals after seven to 10 years want to do something different. If they are from an agricultural background, many would think of returning to their rural roots. But when they come back home to their small town or village, the rural infrastructure is still weak, with no comforts and conveniences of the big city, like power, water, hospitals, restaurants etc. So, if you talk to ten smallholder farmers in India, all ten farmers will say, “Farming is not a future I want for my children.”
I think we could consider the kibbutz—group or collective farming—model to revitalize India and African agriculture. Israel was forced to adapt to this model in the wake of World War II. Now we can consider collective farming in a very structured way to meet looming food security challenges. Achieving farmers’ unity is a big problem with individual land holdings of two to three acres. In India, individual land holdings are much smaller than that. So we need to consider a farming unit of at least 1000 acres. On this plot size, five to ten young people can handle all farm functions if machinery rental and farming services are made available by third parties. Other young entrepreneurs could come together and provide these support services. Currently on one acre, you have two or three people working to achieve meager returns. This is not a lucrative opportunity for young ambitious people.
We have started the Suguna Institute of Poultry Management (SIPM) to train youths who want to enter this sector. Our aim is to help unemployed and underemployed youths to get self-employment opportunities across rural and urban India. SIPM imparts education and training on scientific poultry production, poultry farming, poultry breeder management, hatchery and incubation techniques, feed manufacturing and disease control measures. Our desire is to give hands-on training in various operations at different poultry farms and in its allied sectors, such as feed mills, processing plants, and disease quality control laboratories.
We welcome African officials and businessmen to visit our facilities so there can be an exchange of ideas.
Dave: There are a lot of donors who want to encourage smallholder farming in Africa, while you are saying even smallholders, at least in India, don’t want their children to follow in their footsteps.
Soundararajan: Farming on one acre is simply not economically viable or attractive. Your income is capped at a few hundred dollars a year after backbreaking work. No young person will choose this kind of life. Even their parents do not want this for them.
When you’re doing farming, out of total expenditure or total input costs, one of the topmost is that of labor. The second is fertilizers. Third may be pesticides and agrochemicals.
To gain confidence of youngsters, collective farming needs to be implemented at adequate unit sizes of at least 1000 acres. Then necessary support structures need to be put in place—like having access to farm equipment rentals, adequate water facilities for irrigation, uninterrupted power supply. All these things are needed. If these things are in place, a young person in India or Africa might be attracted to agriculture.
Dave: If I can summarize what you said, it is that “the network is the farm,” and we need adequate infrastructure and support systems to protect against downside risk from weather etc. Standalone farming with no irrigation on one-acre plots of land is just too risky.
Soundararajan: That is correct. In India, there are subsidies to buy new tractors—50 percent of the tractor cost is borne by the government. Where available, power to pump groundwater is free. Fertilizers and agricultural inputs for farmers are subsidized. Banks lend to farmers at 6 percent to 7 percent, well below lending rates to other sectors. Yet few young people want to enter agriculture because individual landholdings are capped at 15 acres. So governments need to get all the pieces of the agriculture support ecosystem right to encourage youth participation in agriculture.
Dave: Sir, thank you for your comments and time.
Soundararajan: You are welcome.