The agricultural sector plays a very important role in India’s economic development making up around 17 per cent of the gross domestic product (GDP) of the country. However, being a highly unorganised sector, it offers plenty of scope for professional management. Amit Mundawala, director, Star Agriwarehousing & Collateral Management Limited (Star Agri) feels, “There is a desperate need for corporates to add value to this system by eliminating or reducing extra costs and offering better services to various participants of the sector.”
Jaipur-based Star Agri was set up with this precise aim for the benefit of farmers, agricultural processors, agricultural traders, bankers and central or state public sector undertakings. “We started this business not only to provide complete agri-business solutions under one roof, but, also to safeguard the interest of the farmers and provide modern scientific methods to help them implement better farm practices. We want to improve farm productivity and avoid distress- selling of their produce,” says Mundawala.
People behind it
There are four promoter-directors – Suresh Goyal, Amit Khandelwal, Amit Mundawala and Amith Agarwal – for Star Agri who all have varied experience of over three decades in the agricultural field such as running of commission-agent firm, agricultural financing, agricultural procurement, warehousing and seed- processing. Goyal offers his expertise in the corporate sector while Khandelwal oversees warehousing, procurement and field operation work. Mundawala’s contribution is towards the day-to-day functioning such as administration, operation and SOPs. Agarwal devotes his time in the area of banking and financial sector and also in human resources and public relations related matters.
“We started this business not only to provide complete agri-business solutions under one roof, but, also to safeguard the interest of the farmers and provide modern scientific methods to help them implement better farm practices.” – Amit Mundawala
“We understand the issues that plague this sector and have solutions for it,” says Mundawala. For instance, the company wants to remove unwanted links from the supply chain so that farmers get the maximum reward.
Star Agri is also very careful in building its team. Apart from professionals from agriculture-based universities and people with experience in agri-warehousing and marketing, it also has many traders employed for the smooth functioning of procurement activities on behalf of corporates and to judge trends in arrivals and rate fluctuations which enable them to forecast the market.
How it functions?
Earlier, a farmer would move with his produce to mandis to sell through commission agents at a price quoted by them, often leading to distress-sales. Besides this, there was no security for their produce during the journey from the farmhouse to sale centre. “We therefore mooted this innovative idea to safeguard the interests of the farmer,” says Mundawala.
Established in April 2006, Star Agri is a professionally managed company which deals with broad-based post harvest management operations of agricultural commodities which range from procurement of commodities to grading, packing and handling logistics. Besides arranging for commodity finance to farmers, processors and traders, it also provides allied services in the form of warehouse receipt financing and offers collateral management services as a custodian of goods pledged with the bank at the warehouses. Moreover, it provides information services through regular updates on quality, quantity and value of the commodity placed in the warehouse. In the public sector, it deals with the State Trading Corporation of India and serves almost all the agriculture-based corporate houses in the country.
Star Agri’s performance is directly dependant on the way the season has turned out for that year. The company helps the farmers secure good prices for their commodity and helps prevent distress-sales. Majority of its income comes from warehousing and assaying services along with service-provider fees and collateral management charges from the banks.
Mundawala explains, “We survive on our capital and service-provider fees. We do not depend on subsidies like the state and centre owned ventures do.” Star Agri has around 600 leased warehouse locations in Rajasthan, Punjab, Haryana, Gujarat, Madhya Pradesh, Maharashtra and UP. The company enjoys maximum utilisation of space and can de-hire where space is not required. Their aim is to convert warehouses into private marketing yards. “We have already created land bank in Rajasthan and are expanding in Madhya Pradesh, Gujarat, Maharastra, Haryana and Punjab for creation of private marketing yards.” Warehouse infrastructure, procurement space and testing and grading facilities will rest under a single roof. “With this, the farmers can directly go to our warehouse. Currently, he is going to the mandi, then the goods are shifted from the mandi to warehouse. If he can buy at our warehouse point, transportation cost will be saved,” shares Mundawala.
“We are delivering a group of services on a single platform which makes us more cost effective and allows us to add value to the complete supply chain for the agricultural sector,” says Mundawala. Critical success factors that the organisation has identified are the need to ensure free flow of funds arranged from banks and financial institutions, close monitoring of the interest rates and identifying viable financial institutions.
“Our margins are very nominal for each service provided which makes our clients very comfortable. If our client outsources all the services we provide to different entities it becomes very expensive,” says Mundawala. Their customer saves almost 30 per cent by taking the integrated services offered by Star Agri.
As a new entrant in this field, the company had to overcome a few hurdles to develop mutual trust. “It was very difficult to convince grass-root rural folk on the benefits of using our services,” reminisces Mundawala. The company created hub partners and set up kiosks for the farmers. It then identified farmers in that area and associated with them. Training these farmers and making them spread the benefits for a commission was one of the strategies adopted by Star Agri to break through to the rural community.
The next challenge was with the banks about documentation. “We convinced them and suggested alternatives on documentation so that the farmer gets funding,” says Mundawala. The company has an operations team at every branch that supports the banks for documentation. In the last three years, Star Agri has arranged for loans worth Rs 3,000 crore for all their customers. “There has been no default on them,” says Mundawala.
Where to from here?
StarAgri aims to reach a turnover of over Rs. 100 crore by 2012-13 as against the current Rs 15 crore. To make this possible, the company is exploring all avenues to start logistic transport for warehouse goods and household pest- control systems to relieve dependence on external agencies. “We also want to graduate to the next phase of creating our own infrastructure for single unit bulk warehousing and expanding activities in other parts of the country,” says Mundawala. The company has already crossed two stages in the business cycle – infancy and transition. It now aims to sustain its growth and move up the value chain. And for this it plans to raise capital from financial institutions. As a company dealing with the growth of rural India, which is slowly but surely gaining the limelight, it is surely on the right path.