Akay Flavours & Aromatics: Why We Work with ADB
Project Result / Case Study | 14 May 2015
ADB is investing $16.5 million in Akay, an Indian spice company that engages directly with farmers and buyers, opening up income opportunities for poor farmers.
For hundreds of years, spices were sold through major trading houses based in New York or Hamburg. But Akay Flavours & Aromatics, one of India’s leading spice producers, decided to try a new approach by engaging directly with farmers and buyers, cutting out the middlemen and opening up income opportunities for poor farmers.
Headquartered in Cochin, Kerala, the company operates five processing plants across the country and exports its spice products to 70 countries. More than a third of its raw materials are sourced through contract farming with smallholder farmers in India. The company promotes the adoption of climate-resilient farming techniques and boosts farmers’ income.
ADB is investing $16.5 million in Akay in equity and loans as it expands its supply network in India and seeks to spread its unique approach to Cambodia.
ADB.org interviews Akay Managing Director Balu Maliakel about the Spice Value Chain Development project.
Question: Why did you approach ADB?
Balu Maliakel: Agriculture requires a lot of people and time to develop the system and the business model. Commercial banks are not interested because it requires big investment, and the return may take a long time. They find it too risky to finance because they only look at the short term financials, and not the development impact.
When we approached ADB, they came back to us quickly and they found the project was in line with ADB’s mission for poverty alleviation.
Q: What does the unique financing arrangement do for you?
Balu Maliakel: ADB offers an ideal arrangement for us through its loans and equity investment. We have 5 years to meet the target, and until then our financial obligations to ADB are minimal. With commercial banks we have to pay a high interest rate every year. Agriculture business takes time to mature so the ADB arrangement is really an advantage for us.
Q: Why did you use a contract farming approach?
Balu Maliakel: Sixty years after independence around 40% of Indians are still poor because people have not been enriched and supported on how they can improve their own life. We believe this project can help empower the people, step by step, by creating employment, and making people in agribusiness more enterprising. We used to work with middlemen, but now our involvement with farmers has become very direct. Our project coordinators work directly with the farmers to ensure quality control, and our involvement has helped reduce contamination by residue, dyes, and pesticides. We help farmers get more out of their small plot of land.
Q: How has your experience been working with ADB?
Balu Maliakel: ADB is very systematic and requires documents in proper format for every activity. As part of the deal, we also have to improve our gender and environmental standards, as well as labor and remuneration issues. But ADB is our partner and supports us all the way; for instance, ADB sent Credit Suisse to conduct a study of our market, and they came back with a report with recommendations on different markets that we can enter.
ADB also introduced us to a company that produces drip irrigation equipment for small farming. With its global reach ADB can share with us information, best practices, and knowledge that will help improve our business from its experience and networking in other countries. We do not get that kind of help from commercial banks.
Q: What are your plans for the next 5 years?
Balu Maliakel: We want to be a global spice house with various businesses: ground and sterilized spices, oleoresins for food coloring, seasoning, and even organic products. We will also continue to work in our domestic market, which is bigger now and with good prospects for growth, not as rural and traditional anymore. The domestic spice market is becoming more organized and showing healthier margins with scope for consolidation.