Around 20% of agri business division's revenue last fiscal came from its value-added business. So, how would a highly commoditised agriculture-led business do value-addition?

A significant portion of diversified conglomerate ITC's growth in FY21 (Rs 53,155.12 crore), came on the back of its Rs 8,000 crore agri business division. And the highlight of the growth story of the agri business division has been the scale up of its value-added strategy, which it embarked upon a few years ago.

Around 20 per cent of the agri business division's revenue last fiscal came from its value-added business. So, how would a highly commoditised agriculture-led business do value-addition?
 

To begin with, the company in the past year has launched frozen vegetables such as peas, tinda and parwal under the Farmland brand. It has also launched frozen shrimps under ITC Master Chef. "The agri-business is the source of competitive advantage for our food business," points out Sanjiv Puri, Chairman and MD, ITC.
 

Agri business division's head S Sivakumar (group head, agri and IT), is confident that given the company's agricultural expertise, their value-added products are best-in-class. "We make sure the crop is harvested at the right time and is frozen in 4-14 hours, so the freshness is sealed. Frozen peas are available in the market, but by the time you open the pack and rehydrate for usage in the kitchen, the outer layer comes off. There is a particular time you should freeze so the sweetness is preserved and when you re-hydrate, the product is just like using fresh," he explains.
 

Though frozen vegetables and shrimps are the most obvious forms of value-addition, the company is also investing in offering value-added commodities. So, the characteristic of wheat that goes into atta from which we make rotis is quite different from the wheat that goes into making biscuits or even pizza base and burger buns.
 

ITC's agri business division, which supplies wheat and other commodities to a host of food brands and quick service restaurants, sees a huge business potential in specialised wheat and other commodities. "Many manufacturers find it difficult to source these specific kinds of wheat. MNC are importing in order to maintain consistency," explains Sivakumar.
 

"When it comes to value-added business, in addition to the value that we add to our own FMCG business, it will also help in bringing more stability to the business and expand the margin profile of the agri business division, which is otherwise a commodity business," he adds.
 

For instance, when it comes to spices, most global as well as Indian brands do stringent checks on pesticide residues. ITC's value-add here is to work closely with farmers, help them forecast potential pest attacks and therefore minimise the use of pesticide.
 

The diversified conglomerate has also forayed into medicinal herbs. It set up a 110-acre farm in Madhya Pradesh a few years ago, where it has been experimenting with medicinal herbs such as ashwagandha, tulsi and a host of other herbs. "We did the pilots, educated farmers, they have started growing them in the past year and we have started buying from them too. This process is scaling up," says Puri.
 

Over the next few years, ITC's backend, says Puri, will consist of nearly 4,000 FPOs. "That's going to create value for us and farmers."
 

e-Choupal 4.0
 

At the heart of ITC's agri-business is its e-Choupal, through which it works with over 4 million farmers. In order to facilitate its shift to value-added products, it has transformed e-Choupal into a digitised platform play. Not only are farmers able to discover prices of agri-products digitally (without having to meet in person), they also have access to data on weather forecast, remote sensing for pest surveillance, agronomy advice and output market linkage.
 

"The whole end-to-end chain is stitched together on this platform. We don't do all this ourselves. There are different players who offer these services and we integrate them on to the platform. That is the solution integration play," explains Sivakumar.
 

With the help of data, e-Choupal, today, is also able to offer personalised solutions to farmers as opposed to the generic solutions earlier offered. "A chilly farmer, for instance, has certain challenges and I need to pick the tools for him so that I can give a personalised solution. That is where the platform will play a role. It gives us sourcing efficiency, gives us traceability, we can embed sustainability and other kinds of certification, which can work as a competitive advantage for me," says Puri. The company has experimented with these personalised solutions with chilly farmers and their income, claims Puri, has improved by 27 per cent.
 

"The next generation of agriculture for us will be digitally empowered through e-Choupal, along with on-field demonstrations. It will have input and output market linkages and it will be akin to climate smart villages," Puri adds.
 

Unlike earlier, when hardly 10 per cent of transactions on e-Choupal happened digitally, Sivakumar says that digital adoption in the last couple of years has gone up by 40 per cent. On the other hand, around 20 per cent of ITC's agri business division's revenue comes out of value-addition and Sivakumar expects it to go up to 50 per cent in the next couple of years.

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https://www.businesstoday.in/latest/corporate/story/how-itc-is-churning-value-from-its-highly-commoditised-agri-business-division-301909-2021-07-20