The “not-so-obvious” factors that make commercial farm investments succeed

SITA presents trade and investment opportunities at ITME 2016
February 17, 2017
Price cushioning for pulses farmers through Minimum Assured Price (MAP)
March 3, 2017

Akay Flavours and Aromatics' Dr. Balu examines crops before harvest

A conversation with Indian spices company and SITA partner, Akay Flavours and Aromatics

By Aman Goel, SITA Task Team Leader for Spices

Asothe, rural Cambodia: Making commercial farms work is difficult business. That is why Akay Flavours and Aromatics’ flourishing farm in Cambodia is an inspiration from which to learn and potentially replicate in SITA’s target countries in East Africa.

Here are some insights from my discussions with Dr. Balu Maliakel, Managing Director of Akay Flavours, to understand their secrets of success.

Akay Flavours is an Indian spice extraction company. They acquired this farm in Asothe, Cambodia as dense grassland in 2008. The farm now boasts 10 high value cash crops planted over an organically certified 400 hectares. “We came here because Cambodia produces the world’s best turmeric” said Dr. Balu. Cambodian turmeric has the highest known ‘curcumin’ content, an active ingredient that is believed to have valuable medicinal benefits.

Akay’s plan was simple – scale up turmeric production on their farm and enjoy fat margins. However, things did not go quite as expected according to Dr. Balu. “We thought if one small holder farmer produces 20 tonnes of turmeric on one hectare, we can replicate it on 400 hectares. However, agriculture does not work like an Excel spreadsheet. Too many factors contribute to its success. For instance, Cambodia has been hit by drought for the last 4 years. Further, managing workers on a large field is extremely difficult. Workers on a large field tend to treat the crop differently from smallholder farmers, who take extreme care of their crop. We didn’t factor this in when we invested.”

So, how did Akay respond? Dr. Balu explained that the key was to understand the local context better and adapt accordingly.

Some of the Akay’s learnings from the last eight years of operating in Cambodia include:

Invest beyond the farm boundaries for shared benefits: Akay found itself needing to build a road to their farm after waiting two years for the government to act without result. The new road reduced travel time to the farm by three hours. This not only benefited their farm, but also the surrounding community. “Hundreds of new shops have popped up in the region since it has become accessible”, explains Dr. Balu. In the meantime, the value of their farm has quadrupled. The World Bank has recognised Akay’s contribution to the development of infrastructure in the region as a good practice for foreign investments.

Develop skills in local staff: Akay has ensured that their local staff is trained to take management positions. Pisith is a Cambodian who had been working at the farm since 2010 and was recently promoted to the position of farm manager. Dr. Balu introduces him with great pride, saying that Pisith finished his MBA while working for Akay. This recognition and skills development in local staff is a major contributor to the farm’s success.

Hang in there during the bad times: Dr. Balu’s biggest regret is from 2007, a year before Akay made their current investment. Following the market trend at that time, Akay abruptly stopped buying turmeric from some Cambodian farmers due to the availability of cheaper turmeric in India. It has been nearly 10 years, but Akay still has not been able to make any inroads in that particular region. Letting farmers suffer from loss of business during the downturn has led to long-term mistrust. The lesson is simple – do not desert farmers even if the market does.

Engage the community: The importance of engaging with the local community cannot be overstated. Akay has taken various measures to provide a comfortable work environment for its farmers. The company has set up a crèche for farmer families, is funding a nearby school and organises regular social gatherings between Akay’s leadership, clients and local workers.

One point that Dr. Balu did not specifically mention, but I believe was critical to Akay’s success is the…

Availability of funds for continued investment: Agricultural investments take time to bear fruits. Too many factors can affect production and profitability including climate, market prices, seed varieties, and soil quality, among others. Akay Flavours’ continued success in the spice extraction business has given the company much needed mental and financial strength to continue investing in the farm despite setbacks.

Akay Flavours' farm in Cambodia

Akay Flavours’ farm in Cambodia

 

It is all about the story

Akay’s farm is only beginning to show signs of profitability after eight testing years. In the meantime, the value of the company has tripled, riding on strong brand image developed through the farm and numerous private and impact investors are eager to invest.

This is far from an exhaustive list of factors that can contribute to the success of commercial farm investments. One may argue that every place is different, and what works in Cambodia may not work elsewhere. Even so, these points are well worth considering when planning your next agricultural investment.

This work was carried out under International Trade Centre’s Supporting Indian Trade and Investment for Africa (SITA), funded by Department for International Development (DFID), United Kingdom. Akay Flavours and Aromatics is currently partnering with SITA to expand hybrid chilli production in Rwanda.

Voices of SITA
Voices of SITA

This blog provides a window into the SITA project. Through stories from India, Ethiopia, Kenya, Rwanda, Uganda and the United Republic of Tanzania, this blog showcases the project’s progress and impact.