Tuesday, September 18, 2018

COMPANY SPECIAL ....Seeds of Change


Seeds of Change

Food giant Cargill is recasting itself in step with the shifts in the way the world grows and consumes food today. Changes are being felt in its Indian outpost, too

Some memories live forever. Siraj A Chaudhry, chairman of Cargill India, wishes they sometimes didn’t.
In the first flush of liberalisation in the early 1990s, the $115 billion Cargill Inc entered India with a lot of hope and enthusiasm. Under pressure from the International Monetary Fund, India had just opened up its economy, including the state-owned seed supply system. Companies like Cargill were vying for a toehold in what was considered a lucrative market. But soon, cries of corporate colonialism started reverberating around the country, as genetically modified (GM) crops, farm debt and rising farmer suicides made headlines. MNCs brought in highyielding but high-priced seeds. However, crops failures put farmers in deep debt. Cargill eventually exited the seeds business globally in 1996 due to other reasons.
But its ghosts continue to haunt the company every now and then. “I still have to deal with that (seeds controversy) question sometimes. Seeds brought bad publicity,” says Chaudhry, as he settles down for a chat on a Saturday morning at his residence in DLF’s Windsor Court in Gurgaon. The 153-year-old Cargill is the world’s largest agri-trader and also the largest privately held multinational in the US. The giant is now slowly but steadily pivoting to the new dynamics that are reshaping the industry as the world of food, its demand, supply and consumption is witnessing changes. Over breakfast, the native of Lucknow shares his perspective on agriculture business, his leadership mantra, his thoughts on social media and how having teenaged kids help leaders make better sense of the world.
It has been a long journey at Cargill for the 51-year-old, who joined the company that has operations in 70 countries in 1994.
The corporation — known as the middleman to the world — is now undergoing a significant business recast. “Our business was built on demand-supply information arbitrage,” Chaudhry says. In the pre-internet era, information around weather, demand forecasts, output, currency fluctuations and shipping logistics were secret weapons that could be used to make fortunes in the commodity trading business. “That is gone. Information has become universal in the era of smartphones. Margins have decreased. Uncertainties have increased,” says Chaudhry.
Climate change is a big X factor in agri business. In a world where trade barriers are rising, political engagements with trade and government intervention in agriculture are also on the rise. “We have moved from being grain merchants to grain processors. Instead of trading in wheat, soyabean and corn, the focus is now on their derivatives,” he says.
Several other shifts have also been happening alongside. Consumption patterns have changed. Rising incomes in developing countries have fuelled food consumption, which has opened new markets for MNCs like Cargill. The biggest explosion of food demand is coming from Asia, where China, India and Indonesia contribute to 70% of the food consumption growth. China and India are the two largest wheat-producing and consuming countries. Today, the Asian giants top the league tables in several other agriculture, dairy and meat categories. India, for example, is the largest producer and consumer of milk. There is more growth in store. A report by consultancy firm Asia Research and Engagement Ptd Ltd says rising population and incomes and widening urbanisation will see meat and seafood consumption in Asia increasing by 78% between 2017 and 2050.
Over the past two-three decades, Cargill’s sourcing patterns have evolved with the shifting consumption patterns. Latin America and the Black Sea belt have become major sourcing hubs for Cargill. Indonesia and Malaysia are now big suppliers of palm oil. “From the US to Europe to Latin America and Asia — we have moved in that order in our geographical thrust,” says Chaudhry. Sustainable food and traceability of what people consume are important trends shaping Cargill’s future.
These undercurrents have triggered a string of sell-offs and acquisitions within the Cargill empire. Between 2015 and 2018, it acquired at least eight companies, including EWOS and ProPet LLC, besides investing in several startups. In 2015-16 alone, said media reports, Cargill paid $2.1 billion to buy new businesses and sold businesses worth $2.4 billion. Cargill isn’t alone in ploughing the M&A field. The agriculture sector is seeing a wave of consolidation — Dow Chemicals-DuPont, Bayer-Monsanto, ChemChina-Syngenta are some prominent examples — “all in the pursuit of size, scale, cost management and business portfolio reshuffle,” says Chaudhry.
Back in 1986, when Cargill entered India, the country was not self-sufficient. The challenges in agriculture were bigger then. India has come a long way since. “From rice to wheat, India is largely a self-sufficient country now. Today, we grow almost everything here,” he says. That is something unique about India’s agriculture.
It sometimes sees deficits in agri products, fertilisers and commodities like sugar. India is surplus in rice and soyabean. Cargill crushes these products here to make soyabean oil and animal feed. India is a big consumer of rice and pulses but these products are not hugely popular crop outside the country. Due to India’s recent demand growth in pulses, countries like Myanmar and Australia have emerged as new supply bases. All this means, “we don’t have a great trade flow here, say, as compared with China,” says Chaudhry. Even the meat market in India is largely a wet market — a market selling fresh meat, fish and other such produce — and has small, unorganised players. China, in contrast, has a very large meat market. This makes the country a big consumer of soyabean and corn, used as animal feed, making it attractive for Cargill. Supplying processed meat to big firms — such as KFC, McDonald’s and hotel chains — in China is also a major business for the US MNC.
Isn’t India’s self-sufficiency a good thing? “From a country standpoint, it’s a good thing. But we have to be strategic and agile about it, as the consumption basket will never be static,” Chaudhry says. It is important for India to secure internal supply of commodities such as pulses and rice, which we consume a lot but there are no major producers in the world. But India need not do it in, say, wheat, which the world produces enough, he says.
What ails India’s agriculture? Chaudhry has a theory: The Green Revolution did help India achieve self-sufficiency in staples and the government put in place mechanisms such as the public distribution system and minimum support price to absorb the growth bump. Similarly, India increased milk production through Operation Flood. Dairy cooperatives like the NDDB, Mother Dairy and Amul channel the supply and demand well.
India’s agriculture has been evolving. At 4.4 lakh crore (in FY15), horticulture (fruit and vegetables) output today outpaces those of paddy and wheat, at 3.6 lakh crore. Milk is even bigger at 4.9 lakh crore. While production evolved, the infrastructure backbone didn’t. “From milk to wheat, the government set up mechanisms to take produce from the farmers and supply to consumers. In horticulture, we have missed this piece,” says Chaudhry. Neither the government nor the industry stepped in. Challenges such as the Agricultural Produce Market Committee laws, missing cold storage infrastructure and power deficit have made it too daunting for players to enter the space.
Cargill isn’t present in fresh agri produce business, like horticulture, anywhere in the world, and typically has a business-to-business focus. In India, though, it is learning to customise its strategy. India is one of the very few countries where it has forayed into the business-to-consumer segment with oil and wheat flour, using brands such as NatureFresh and Sweekar. “In India, 70% of food is still cooked inside homes, unlike in other parts of the world, where the share of ready-to-eat and ready-to-cook food has risen sharply,” Chaudhry says.
Cargill plans to focus on areas such as corn processing, baby food, blended oil and import of cocoa & chocolates — areas in which India is deficient.
Animal feed is another area it sees as promising, given the rise in India’s protein consumption.
The biggest task for an MNC honcho in India, says the chief of Cargill India, is to establish trust with the government and the society. “As a trader, we inherited our history with its baggage. So, building trust is as important as building business. We have identified that as a challenge to deal with.”
Besides managing the India business, Chaudhry spends his time working with the government and industry bodies like FICCI on global food trends and helping them shape policies. He is also helping build India Food-Banking Network, a not-for-profit that helps donate food nearing expiry dates to the needy. MNCs like Kellogg’s, Mondelez and Cargill have already signed up for it. Also, Cargill is working on a five-year programme with 5,000 farmers in Karnataka to boost their incomes and build sustainable and smart farming.
In his early 50s now, Chaudhry says he has become disciplined about his health; he works out for at least an hour every morning. He relives his college days using social media, especially WhatsApp. “They (posts on social groups) can be overwhelming but are hard to ignore.” He stays clear of Twitter.
Having grown-up children – daughters aged 24 and 21 and a son aged 17 years – has helped him stay abreast of new technologies and understand millennials well. “This generation is a lot more exposed. You need to trust and give them space,” he says. That’s the leadership mantra he practices both at home and office.
malini.goyal@timesgroup.com
9SEP18

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