Krishi Star, through its network linkages and interesting business model is making agriculture more profitable for rural farmers. From manufacturing crop-based products to getting into the right markets, rural farmers are gradually playing a larger role in the food chain.
In India, as per Agricultural census 2000-01, an estimated 98 million out of around 120 million land holdings in the country belong to small and marginal farmers. [i]
Small farmers are plagued with a host of problems like “imperfect markets for input/product; absence of access to credit markets; poor human resource base; poorer access to ‘public goods’ such as public irrigation, command area development , electricity grids.”[ii]
Krishi Star aims at making farming more profitable for Indian farmers.
What does an MBA student do when he comes to know about all these issues and more by talking first hand with farmers?
Well, he starts a social enterprise whose vision is “to end poverty for small farmers in rural India.”
Bryan Lee, an MBA graduate from Kellogg co-founded Krishi Star, a for-profit social impact organization which believes in two fundamental tenets:
Give farmers ownership of a larger part of the food chain
Give farmers access to higher profit margin markets
As part of his summer fellowship in 2011, Bryan worked in rural India and found that there are many things on the pre-harvest side that farmers have to deal with. So, he looked for areas where an enterprise could add value. He says,
“We (Krishi Star) have chosen to focus on market linkages. Farmers have the ability to produce crops/products but they don’t have consistent access to the market . As a result they are often squeezed on margin and have difficulty matching supply and demand.”
Business Model
Krishi Star works with farmer-owned companies called Producer Companies (PCs) to launch farmer-owned processing units. For financing the unit, they use either a joint venture model where both Krishi Star and Farmer Producer Organizations (FPOs) have equity ownership, or Krishi Star works with the FPO to secure bank financing.
The Krishi Star business model.
A Farmer Producer organization (FPO) is typically a co-operative society where only farmers can become members. FPOs are backed by non-profits like BAIF, VAPCOL and have advantages in sourcing and manufacturing. At the same time, FPOs have some serious deficits. They lack the capital investment, management expertise as well as market linkages for distribution across the country. This is where Krishi Star comes into picture.
“FPOs play a vital role in our business model. We partner with them on two ends, first – sourcing of raw material and second – manufacturing of our value added food products. By sourcing fresh produce from these farmer groups, we ensure that they get a fair market rate for their crops and also secure a long-term sales contract with us. On the other hand when we manufacture at processing units owned by FPOs, we utilize their idle capacity and the profits generated from it are distributed among the farmers who own the unit. Thus Krishi Star enables small farmers increase their income,” elucidates Reema Sathe, part of the management team at Krishi Star.
Currently, KS is working with a farmer co-operative called Vasundhara Agro in Gujarat which has about 2,500 farmer members. They are in talks with two other farmer producer companies in Maharashtra region.
Krishi Star Products
Currently, Krishi Star’s focus is on tomatoes and they are working with farmers in Maharashtra. “We have sold (processed tomato products) to 12 institutional customers in Mumbai and are in the process of signing annual contracts with some of the major restaurant chains in India,” says a jubilant Reema. Beginning 2015, Krishi Star will be offering onion based products as well.
Currently they offer only tomato-based products but they will soon expand to onion-based products too.
What’s in it for a Buyer?
From a buyer’s perspective, why would a restaurant chain want to buy products from Krishi Star? Here is what the General Manager Marketing Head had to say :
Import substitution + consistent supply: “Our products not only offer a competitive import substitution to our customers, but they are also assured of a consistent supply.”
Longer shelf life: “Our products typically have longer shelf lives because they are processed. For example, our canned tomatoes have a shelf life of two years. We undergo production during the season and manage our inventory in the remaining months to ensure year-round supply to our customers.”
International Quality: “Vasundhara Agro, the farmer-owned processing facility where we are currently manufacturing our products is ISO, FSSAI and FPO certified. We follow strict processing, packaging and food safety procedures to ensure top quality of products.”
And last but not the least, the social impact that a buyer will invariably make by working with an enterprise that gives the farmer his much deserved share of pie.
The Challenges
There are innumerable challenges of working in the rural part of the country, especially for someone who does not understand the local language, culture, traditions along with the norms of the traditional society. However, as per Bryan: “One of the key challenges we face is managing risk for these farmers. We have found farmers to be risk-averse by nature. As we get into approaching higher-value markets and at larger scale, there is a certain amount of credit risk that comes into play and we have to work to mitigate that for them.”
Krishi Star works with several FPOs to bridge the gap between farmers and the market.
The Road Ahead
Krishi Star’s focus is on strengthening rural linkages with strategically located FPOs along with expanding their product portfolio. They will continue to partner with farmer co-operatives and measure the social impact created by the enterprise on a per capita basis.
To know more about their work, contact- info@krishistar.com
[i]Small Farmers in India : Challenges and Opportunities. By Prof. S. MahendraDev http://www.igidr.ac.in/pdf/publication/WP-2012-014.pdf
[ii]NCEUS (2008) “A Special Programme for Marginal and Small farmers”,A Report prepared by the National Commission for Enterprises in the Unorganized Sector,NCEUS, New Delhi
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About the Author: Rahul Anand is interested in social innovation, enterprise and social impact. He is co-founder of Bloodaid