When Mahindra & Mahindra (M&M) is talked about, the focus is invariably on the company's SUVs and tractors. Those are the two segments where M&M enjoys a dominant market share. M&M: The agriculture betHowever, over the last five years the Mumbai-based conglomerate has been quietly putting in place a strategy to expand its agriculture business. In fact, during this period M&M's agri-vertical has seen overall sales jump 8-times. It is interesting to note that at a time when India is facing an acute agricultural crisis, one of India's leading groups is increasing focus on the sector with an aim to improve productivity for the farmers and bottom lines for the group. Speaking to CNBC-TV18, Executive Director of the company Pawan Goenka, explains M&M's agriculture strategy and the growth potential for the sector.Below is the verbatim transcript of the interview..Q: We have seen Mahindra & Mahindra (M&M) making some key announcements in the agriculture business in the recent past. Talk us through the philosophy and the thinking of the group as far as the agriculture vertical is concerned?
A: When we started our agri business formally, structurally about five years ago and when I say agri business, I am not talking about tractor and agri machinery because that was there in a very big way but rest of the agriculture ecosystem infrastructure. We were very small player. Rs 70-80 crore of business we had at that time and today we have grown in five years to about Rs 600 crore in agri business. We are still very small but a very good growth of eight times in the time frame. So, we have worked with three philosophies during this time to decide which business do we get into and what do we do once we get into that business.
The first very important part and I say this with all sincerity and honesty this is a big driver for us in Mahindra Group that whatever business that we get into we must bring value to the farmer because farmer is our primary target in terms of the rice philosophy that we have of driving a positive change. When I say bring value to the farmer it comes in two or three different forms. We have worked in very closely with the farmers, no matter which sort of output or agriculture field that we are talking about to improve the productivity and as you know very well in India the productivity of most farm products is very low compared to the global average and significantly low compared to the overall - the best in class. We work closely with the farmers. Second is help to reduce the input cost, bring in better practices and help in some cases to get better revenue for the farmer. So, that is the part that we must find ourselves to be able to add value to.
The second part is add value to the customer. The customer is going to consume the product and there our primary focus is to bring in consistent good quality whether it is grapes or banana or pulses or mustard or oil or whatever it might be to bring in good consistent quality to the consumer. We are not playing a low price game, we are playing a game of bringing consistent quality.
Third of course is it has to make business sense and for Mahindra it has to make business sense and for Mahindra it has to mean good sort of business plan a good sort of business plan in terms of revenue growth and financial return. So, when we look at these three we find many opportunities in the agri business and so far we have done two merger and acquisitions (M&A), we have done two joint ventures, we have launched four brands now. We have 800 people working in agriculture business and we expect to continue the growth that we have seen in the last five years.
Q: Can you give us a sense of what is the potential for the agriculture business for M&M going forward? If you can give us an idea of what percentage of revenues comes from agriculture at this point?A: Today the overall revenue that comes from agriculture business is less than one percent of the overall Mahindra Group revenue, so that is very small. Clearly the potential that we have in agriculture business is enormous. Agriculture is such a huge industry if you were to combine everything. Pluses itself is Rs 2 lakh crore or USD 30 billion industry and we are just starting with Rs 60 crore right now. So, the opportunities are very high and therefore the pace of growth certainly will be higher in agriculture than in many of our mature businesses and therefore I would expect that agriculture will contribute a higher and higher share to our revenue and profit.Q: Is it fair to assume that in the coming few years that share will only increase to about 4-5 percent?A: If I say 4-5 percent for agriculture the other businesses may become very unhappy with me because everybody is competing for that share of the pie. I certainly would think that agriculture will have in five years time a fairly significant ranking in the size of businesses in the Mahindra Group. Today it might be somewhere 10-12 it will certainly move up.Q: The ultimate plan it seems and objective is to be present across the value chain because through your tractors you are already a household name. Are you leveraging that then to be an end to end player?A: Undoubtedly. The common thread for us in the business that we are in is the customer. Whether we are in grapes business, whether we are doing pluses or whether we are doing tractors or mechanisation, in all cases our customer is the farmer and therefore all of this businesses are drawing a stronger connect with the farmers. The Samriddhi centres that we have, 200 of them today in India are our sort of primary vehicle or primary channel by which we connect with framers and that is what we are trying to do, that can we become everything? Can we become a company that provides a tractor, that provides mechanisation equipment, provides seeds, crop care, water and buys the output that I produce in my field and therefore become the company that helps me as a farmer to rise in my life. That is really the objective that we have.Q: When you made your announcement a couple of days back to enter into the branded pulses, it sort of coincided with pulses prices all over India reaching a new high, do you feel that more private sector participation may perhaps help address some of the concerns on food inflation?A: It is a very interesting question and gets asked often and there is a fear that corporates entering agriculture would increase retail prices. I don’t think so. The reason for it is that what the corporates will do is bring in a scale in what is being done and therefore make agriculture more efficient, more productive.One of the biggest concerns that we have in Indian agriculture today is that our productivity overall that is yield per unit of land is very low except for wheat where we are kind of the world average, everywhere else where we are maybe two-third, half of world average in terms of overall yield. Corporates coming in can bring in the latest technology both in terms of agronomy as well as in terms of equipment, tractors whatever you have and that will improve the productivity and we already have seen that -- whatver we have done with farmers in Nasik for grapes, what they are already doing on Banana, even in mustard seed. We are not doing any rocket science, we are just bringing in good business practice that are there for anybody to pick up. We are just becoming the enabler.If you are able to remove all the inefficiencies that we in transport, inefficiency in storage then we are basically bringing the cost down and if we bring the cost down, I would expect the retail prices will come down and not go up.Q: Do you think that if the middleman goes away then that could have an impact on the end prices?A: The middleman certainly goes away but you must not forget that this is a very powerful and value add ecosystem that we have. So I am not the one who considers middleman as a villain in this whole system. I think middleman plays a very important role. The difference is that they are largely unorganized and therefore they are largely not using what I would call scientific practices for doing whatever they are dong to do it well largely.Therefore if business coming in is able to even for the middleman helped the middleman to become more organized in the value that they are adding to the whole food chain, the whole value chain of agriculture, their value will go up, not go down.Q: Agriculture is still continues to be a very politically sensitive issues infact private sector involvement a lot of time is seen with a lot of concern and suspicion, does that concern you?A: Agriculture today is about 12-13 percent of GDP therefore the total value that is being generated in agriculture today, in my opinion, is not sufficient to create jobs for as many people as are involved in agriculture today and to provide a good income level to the number of people who are dependent on agriculture.So when we talk about corporate involvement, it is about how do we take Indian agriculture from a total revenue or the total value generation of X to 2X. If you take it from X to 2X, even if 0.2X is taken out of that by corporate, there is 0.8X more on the table which is available to the people who are involved in agriculture and will benefit those people.So the political sensitivity of corporates getting in is probably misguided and misguided because of perhaps some past experience with corporates getting in not being very right.Therefore some kind of regulation might be put in place to ensure that corporates don’t take undue advantage of opening of agriculture to them.Q: Therefore do you support perhaps more regulation in agriculture, is that what you mean?A: That is right but by and large we should not get into everything being regulated, everything should work as a free economy. However, if there is any situation where you find that a certain sector or a certain section is taking advantage of the power that they have then there is no harm in regulating.I do tend to think that there will be exceptions but by and large, the large corporates are not getting into agriculture simply from the viewpoint of increasing their revenue and profit. They are getting into agriculture with a viewpoint that they want to make Indian agriculture more efficient, more rewarding.
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