Telugu states key cogs in ITC’s agribiz

How the ITC’s agribusiness is
doing now?
ITC has mega aspirations in FMCG (Fast Moving Consumer Goods) space. The company would like to be the Rs 1,00,000 crore company in the FMCG business by the year 2030.

The primary role of the Agri Business Division (ABD) is to procure identity-preserved high-quality raw materials for our FMCG products and give a competitive edge.

So, as our FMCG business grows, the agribusiness grows along. Secondly, we also source raw materials for other customers, both in India and abroad. This gives us economies of scale, as we are catering to multiple customers, in addition to our own needs.

Besides, it offers us more scope in terms of multiple varieties and multiple qualities that we can procure. The third dimension of the ITC agribusiness is leveraging the wider infrastructure and stronger relationships we have built in the hinterland as part of our sourcing activity, for rural marketing services.

The marketing services include category research, brand promotions, and handling distribution, for farm inputs, farm mechanization, and consumer goods.

Your Agri Business Division clocked 12.3 per cent growth to Rs 6,346 crore so far this financial year. It posted revenues of Rs 7,500 crore last fiscal. ITC has set a long-term goal at generating Rs 18,000-crore revenue from agri-business by FY21.

What kind of levers will drive this kind of growth?

As I said, all the three dimensions of our business will drive our growth - the growth of ITC's FMCG business, sourcing raw materials for other customers and rural marketing services. Our presence is spread across as many as 220 districts in the country.

And we deal in 21 different commodities. We will expand in all the commodities. So, it's possible for us to scale up to the targeted level. We are also banking on reforms.

As more reforms take place in agriculture sector and markets, there will be more enabling environment for us to achieve faster growth. Also, things like GST will create a level-playing field.

Our approach of triple bottom line helps raising farmer incomes and renewing natural resources like water and top soil, so that this growth is sustained over long term and all the stakeholders benefit.

What is share of exports in ITC's agribusiness?

At present, roughly a third of our revenues come from exports while the domestic business accounts for two-thirds. But this ratio doesn’t obviously remain constant.

It keeps varying from year to year because India exports when the country has large production and international prices are attractive. It imports when domestic production is low and international prices are not high. Therefore, we align our strategy to the prevailing conditions.

ITC has been encouraging contract farming in a big way. How has been the experience so far?

Contract farming is relevant only for some special products. For generic commodities, we can’t adopt this strategy as of now. This is so because they are open market commodities.

Therefore, one party (companies) gains when prices high (higher than contracted price) while the other party (farmers) stands to gain when open market prices are low. We engage in contract farming for organic produce, products of integrated crop management (ICM), for seeds, etc.

It’s a limited opportunity and hardly accounts for five per cent of our total procurement. However, it can be used for more number of commodities if the country’s forward contracts market develops and changes the current zero-sum game.

The Union Budget has been talking about the forward contracts market and options for the past couple of years. If that happens, contract farming can be taken up on a larger scale.

I think it will take another three to four years for this to happen. But still, contracting farming is a limited option. The total cultivation area in India is around 150 million hectares. Of this, less than 1 million hectares are under contract farming now. This can mostly expand to 10 million hectares, with even the best of the practices in place.

In the recent Union Budget, Finance Minister Arun Jaitley reiterated the Centre’s plans to double income of farmers in five years. As an expert in agribusiness, what is your take on this?

It’s very much possible, not easy as there are multiple layers of challenges. All the challenges are needed to be tackled simultaneously for this goal to turn into reality. The key challenge is to enhance productivity and expand market linkages simultaneously.

Otherwise, prices will fall if productivity is increased, but linkages are not improved. The productivity can be improved through knowledge, science-based inputs, technology transfer via extension work, etc.

Also, there is a need for working on value chains so that corporates can get engaged with farmers as well as the governments. There is an interesting PPP project currently going on in Andhra Pradesh for agricultural value chain development and we are also part of it.

We have taken up projects in chillies, shrimps and millets. The other challenges are to make agriculture weather-proof through proper water harvesting, and to provide supplementary income to farmers through livestock. Telangana Government’s Mission Kakatiya is good example of water harvesting for irrigation.

How much are AP, Telangana states contributing to ITC’s agribusiness? How this is going to shape up in future?

As I mentioned, we operate in 220 districts across the country, but the two Telugu states are significant because we have multiple crops in both the states. A sizable portion of our business comes from Andhra Pradesh and Telangana.

However, the contribution varies from season to season and year to year as agriculture heavily depends on weather conditions. Also, we are developing Guntur as the new headquarters for ITC Agri Business Division. The office campus construction is already underway.