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Private Enterprises Spice Up India's Rural Incomes

Project Result / Case Study | 14 May 2015

Smallholder spice farmers in India receive training, advice, and financial support through a private sector initiative aimed at making the production of chilies, cloves, turmeric, and other food condiments into a sustainable, climate-proof, and profitable activity.

Watching the early morning drizzle, Shibu Anandarajan started to worry. Then dark clouds filled the sky, unsettling him even further. When the rain started to pour, he reached for his phone.

“Our contract farmers are scheduled to harvest their chili this week,” he said. “This early rain will spoil the crop. I’m concerned the quality could drop significantly.”

As a vice-president for global sourcing at Akay Flavours and Aromatic, one of India’s leading spice producers, Anandarajan is responsible for ensuring a steady supply of high-quality chili for the company’s spice-based products.

As he sped down the road to Bellary district in Karnataka, a southern state in India, Akay’s main source of chili, he called several farmers to get an update on the rains. After the third call he flashed a smile: “The rain lasted less than an hour. No crop damage.”

The morning’s excitement illustrates the challenges that Akay faces as it grows its business. In India, spice farming is dominated by smallholder farmers, only a few of whom have access to modern farming techniques and technology. A heavy rain or an ill-timed dry spell can seriously damage their crops - and the quality and reliability of Akay’s raw materials.

Supporting sustainable spice farming

Across India, Akay has built a network of about 3,000 smallholder contract farmers. ADB is providing the company with up to $16.5 million in equity and loans to support its drive to push that number to 8,000, expand the use of climate-resilient farming technologies in India, and extend its raw materials supply base through the expansion of a model farm in Cambodia.

“To make our business sustainable we have to make our sources of spices sustainable,” said Balu Maliakel, managing director of Akay. “Adapting to climate change using the right technology is part of our strategy for business sustainability and if this model is implemented properly it will lead to farmers’ prosperity.”

"Adapting to climate change using the right technology is part of our strategy for business sustainability and if this model is implemented properly it will lead to farmers’ prosperity."

 Balu Maliakel, managing director of Akay

Akay sources chili, black pepper, clove, cinnamon, and turmeric, through three channels. About 1% is grown on its own farms; just under two-thirds are purchased on the open market; and 35% come from its contract farms in India. To improve the reliability of supply, Akay aims to increase the proportion of its own-farm production to 10% and contract farming to 60% by 2018.

As part of the contract it signs with each farmer, the company provides training in integrated crop management, which promotes reduction of waste, and improved soil, social and environmental management, to boost quality and yields. The company also guarantees to purchase the farmer’s produce.

Improving yields for smallhold farms

Akay has been working with smallhold farmers in India for more than 15 years. It started by helping farmers build ponds to store water and harvest rain in Chamarj Nagar District in Karnataka. It later introduced drip irrigation systems and promoted the use of water soluble fertilizers to reduce waste. The new technologies boosted the production and quality of spices in the district, and supported long-term cultivation. Encouraged by this success, Akay mobilized local field coordinators to share this knowledge with farmers in different parts of India.

Ashok Kumar is one of the thousands who have benefitted. He signed a contract with Akay around 5 years ago to produce spices on a few acres of land he leased from a farm owner in Bellary. Under the contract, he plants Namdari, a high-value strain of chili known for its pungency, as well as capsicum used for food coloring and flavoring. “The company does more than just buy the chili from us, it also shares information to improve production and quality,” said Kumar. “I learned where to source high-quality seedlings, the best time to pick the chilies, and how to treat them after harvest so that I can get the best price for my crops.”

With the help of Akay’s field coordinator, Kumar also built a pond to store water from the nearby irrigation canal and to harvest rain. The pond allows him to regulate the flow to his fields, reduce waste, and make sure water is available throughout the year.

“Now I can pick chilies three times in one season. In the past, I would be lucky if I could have two pickings,” he said.

Kumar now produces around 2.5 tons of chilies per acre, an increase of about 25% since he started working with Akay. He has used his expanded income to lease more land and now produces between 20 tons and 25 tons of chilies annually.

“My parents were worried when I told them I wanted to become a farmer when I graduated from high school because farmers in their time could not earn good money. Now I can show them that I can live well as a farmer,” said Kumar.

A model for contract farming

An independent survey of Akay’s contract chili farmers in Karnataka and Andhra Pradesh found that they earn 10% more per acre on average than other farmers in the same districts.

Anandarajan and Abhisek Betgeri, Akay’s current field coordinator in Bellary, are counting on the success of partners like Kumar to encourage other farmers to sign on with the company.

“It’s not easy to persuade farmers to try new things because they have many beliefs and want to maintain their traditional ways,” Betgeri said. “Training alone will not be enough. They also want evidence of success before they try new farming techniques.”

Akay will replicate the approach it adopted in India to work with contract farmers in Cambodia by using Akay’s own model farm in the country as a training ground.