Varsha worked as an investment banking analyst at Goldman Sachs before switching to journalism. She started off at Business India and later moved to Forbes India where she writes across industries and companies but has a bias towards startups, technology and the FMCG sector. She was a national level athlete and now enjoys running half marathons.
(From left) Pablo Erat, co-founding partner, and Ron Pal, chairman and founding partner of Pioneering Ventures
Image: Mexy Xavier
Bhagubhai Patel stands tall, hands on his hips, in the shade cast by his vivid green banana trees. “My income has doubled over the last two years,” says the 70-year-old, pot-bellied farmer. “Because we are doing so well my son left his clerical job and has joined the farming business,” he chuckles.
Just a few years ago, Patel struggled to cultivate even two banana crops in three years on his two-odd acres farm on the outskirts of Navsari in southern Gujarat. Poor farming techniques, pest attacks and post-harvest losses would affect the quality and quantity of his crop. Besides, he didn’t even know how to package the bananas for export given their short shelf life, explains Patel.
Since joining hands with Desai Fruits and Vegetables (DFV) in 2016, his fortunes have reversed. The Navsari-headquartered venture imported best practices from the Philippines and helped Patel to change his growing habits. As a result, his productivity per acre more than doubled—he now grows three crops in two years—proportionally upping his income and creating a new, international quality banana.
As he speaks, a labourer deftly targets one of the banana trees’ uppermost buds, the size of two cupped hands. He pierces it with a tube-like device to which an injection is attached. It helps resist disease, says Patel, crediting his know-how to DFV. That green bud later grows downward, turns a deep purple and clusters of bananas sprout above it.
Over 3,000 smallholders across India, like Patel, are under contract with DFV, transforming the obscure farmer cooperative into India’s largest producer and exporter of bananas within a few years. The company shipped 850 containers of the fruit mostly to the Middle East in FY19, comprising 30-40 percent of the country’s exports. This fiscal, DFV is on track to ship more than 2,000 containers, says Ajit Desai, DFV’s reticent founder.
“The leap [from 850 to 2,000 containers] is possible because of PV,” says Desai, referring to Pioneering Ventures, a Swiss-and-Mumbai-based outfit that has been silently incubating and developing ventures across India’s agriculture and food supply chain for almost 15 years now.
The global population is expected to rise from about 7.5 billion to nearly 10 billion in 2050. The United Nations estimates that 70 percent more food will be needed by then, but it will have to be produced on just five percent more arable land. As sprawling cities gobble up farmland, climate change alters soil health and agriculture productivity reduces, supply is not keeping up with demand.
Ajit Desai, founder of Desai Fruits, Pioneering’s first venture in India
India, in particular, faces enormous challenges, says Ron Pal, chairman and founding partner of Pioneering Ventures. “We realised about 14 years ago the large disparity between agriculture production ability and market demand,” says the half-Swiss, half-Indian entrepreneur. The country has the world’s second largest arable land resource of 159 million hectares and fifteen agro-climatic zones, which means just about any crop can be grown. But small farm holdings, low productivity, high post-harvest losses and inefficient and fragmented supply chains are constraining supply. “What this means is that India not only has the largest production potential but also the largest overall improvement potential,” says Pablo Erat, Pioneering Ventures’ co-founding partner.
Therein lies the opportunity to create “industrial scale ventures” that “meticulously analyse and improve the entire supply chain—from farm to fork”, explains Pal.
Pioneering Ventures’ core strategy is to control the entire value chain from seed to end-buyer. Take the case of DFV. The thesis was clear: India was the largest producer of bananas in the world, but exports at the time, when Pal struck a partnership with Desai in the mid-2000s, were negligible because of critical gaps in the supply chain. Pal’s mission was two-fold—to improve farm productivity through modern practices and create access to new markets. In the process, he hoped to not just reap financial returns but also create lasting impact by lifting farmers out of poverty.
Pal incubated DFV, as it is known today, back in 2006-07 as Pioneering Ventures’ first venture in India. “We started by implementing modern farming practices, actively educating, using leading technology, thereby professionalising the industrial supply chain,” he says.
In 2011, Deepak Fertilisers snapped up a 49 percent stake in DFV for `61 crore and took management control. But because the fertiliser maker wasn’t implementing the strategies agreed upon, Pioneering Ventures invested another `14 crore to up its stake in the banana maker in late 2017.
Today, six months after the farmer plants the crop, DFV takes over, looking into its harvesting, cleaning, grading for quality and packaging for overseas and domestic markets. It also brands the fruit under the ‘Happy Banana’ label. “It’s a vertically integrated operation,” says Azhar Pathan, COO of DFV.
Most recently, DFV has also started “inclusive corporate farming” where large parcels of undeveloped land owned by corporations are used to grow bananas. DFV works with surrounding farmers, providing them with supply inputs, technical help and secured off-take agreements. “It’s an increasingly important part of our sourcing,” says Marco Klinge, CEO of DFV. “It allows for economies of scale, ensures consistency in quality and provides an opportunity to uplift the surrounding farmer community.” [Desai remains involved in the farming aspects of the business, while Pioneering Ventures has taken over the entire management.]
Pioneering Ventures picked up an additional 21.5 percent stake in DFV from Deepak Fertilisers for `28 crore in July 2019, taking its total holding to around 93 percent. It plans to acquire the remaining seven percent by October 2020.
“We have a majority position in practically all our ventures,” says Erat. Besides DFV, Pioneering Ventures has incubated and invested in Citrus Processing India, the country’s first industrial scale orange juice concentrate maker, FarmLink, a Mumbai-based entity that controls the end-to-end supply chain of fruits and vegetables, and dairy startup MilkLane. “This is very important for us,” continues Erat. “We are not investment bankers. We are entrepreneurs.”
Ravish Chavan, chief operating officer of FarmLink, which Pioneering set up to connect farmers with customers
Unlike traditional financiers, Pioneering Ventures finds gaps in the market and builds ventures to plug those gaps. To identify the gaps—or opportunities—the firm has a dedicated ‘venture development team’. “We look for a minimum $100 million business potential [in food supply and its adjacent sectors], a scalable business idea and synergies with our existing ventures,” says Klinge, who heads the team. If these criteria are met, the team undertakes a pilot study to gauge the feasibility of the idea after which it is scaled up.
“Think of Pioneering Ventures as a venture builder, rather than venture capitalist,” offers Sanjay Jain, CEO and director of Citrus Processing. Just as with DFV, Pioneering Ventures realised that despite being the third largest producer of oranges in the world, behind Brazil and the US, India was importing juice concentrates because there was no local processing capacity. Pioneering Ventures conducted a feasibility study, de-risked the case and in 2014 started building a factory in Maharashtra’s Nanded district with the backing of majority investor Proterra. Today, the company processes 15,000 tonnes of citrus fruits a year, used as essential ingredients for beverages, confectioneries, cosmetics, aromas and fragrances.
Pioneering Ventures has pumped ₹1,000 crore into its four ventures so far and hopes to achieve a consolidated revenue of ₹500 crore this fiscal, claims Erat. Each venture has a holding company abroad, which enables investors—mostly European institutional investors and high net-worth individuals—to put money directly into the operating companies in India. “A large part of the investments over the past years came from the founders. So practically we are welcoming investors to join us on the same terms as co-investors. We take them on our journey,” says Erat.
One such co-investor, Francisco Fernandez, founder and chairman of Avaloq, a Swiss software developer, says, “Ultimately I like scalable ventures with a great purpose. When I was introduced to Pioneering Ventures a few years ago, I realised they had it all…[besides] the team had already demonstrated exceptional execution capability in a an often-challenging environment,”
In July last year, Pioneering Ventures launched its Rural India Impact Fund with a targeted corpus of $70 million to provide growth capital to the ventures it has backed so far. The idea is to give investors with smaller ticket sizes the opportunity to invest in a diversified Indian portfolio of growth ventures, says Erat, adding that 90 percent of these investors are also Europeans. “Over the past one-and-a-half years, we have been seeing strong investor interest in agri-businesses. How to solve the world’s food problems is a huge global topic and India is an important part of the puzzle.”
Well before the crack of dawn, lorries loaded with fresh produce wheel their way into FarmLink’s collection and distribution centre in Vashi, near Mumbai. Suddenly there’s a burst of frenetic activity. Workers unload the trucks, others carry the crates of the fruits and vegetables into the facility, and still others start checking them for quality.
Set up by Pioneering Ventures in 2016, FarmLink, as the name suggests, links farmers with customers. The company currently has five distribution-cum-collection centres across Maharashtra and Tamil Nadu, through which it procures supplies from over 350 farmers. Largely catering to the B2B segment, FarmLink counts Star Bazaar, Vista Processed Foods, which services McDonald’s, and ecommerce food platform Amazon Fresh as clients. The startup has thus far raised `20 crore from Pioneering Ventures and Swiss agrochemical company Syngenta.
“Around 2014/15 when we were conceptualising the venture, the HoReCa [Hotel, Restaurants, Café] segment in India was taking off in a big way.” says Ravish Chavan, who headed investor relations at Pioneering Ventures India before being appointed COO of FarmLink, “New players were looking to enter the market and existing ones expanding. We knew how fragmented India’s supply chain from farmer to fork is…we saw a good opportunity to replace the middle man and provide quality food at fair prices.”
Seeing the positive uptick among its B2B clients, FarmLink piloted a B2C model on the suggestion of Pioneering Ventures’ venture development team. Fresh produce is taken to building societies—40 at present—and sold directly to consumers at competitive prices. Meanwhile, FarmLink provides farmers with all-round support to improve the productivity and quality of crops and secured income.
Moreover, just like DFV has an app that enables traceability, information symmetry and robust supply and demand planning of bananas, FarmLink created FarmTrace. The app gives buyers insights into how, when and where the produce is grown. “Technology is the backbone of what we do,” points out Erat.
Dairy startup MilkLane incubated by Pioneering Ventures in 2015 is also plugging supply chain inefficiencies, albeit in the case of fresh milk. Based out of Kuppam in Andhra Pradesh, MilkLane addresses some of the challenges in the unorganised collection and distribution of milk by working with a network of over 5,000 farmers spread across its home state as well as Tamil Nadu. Here too, technology-enabled processes play a key role, allowing for digital quality assurance and real-time monitoring.
MilkLane—which raised `27 crore in pre-Series A funding from Pioneering Ventures and an American dairy company Schreiber Foods in April 2019—collects 85,000 litres of milk everyday through these farmers, who fill buckets and drop them off to their nearest bulk cooling collection centre. This cuts down the time taken for delivery from 2-3 hours to about 45 minutes, explains Gaurav Haran, CEO of MilkLane, which, in turn, helps increase the shelf life and quality of the milk. Later, it is sold to industrial buyers.
MilkLane worked with farmers to help them better rear their cattle, manage their farms and improve milk yield. In fact, Pioneering Ventures created a “business within a business” when its venture development team called on experts to formulate a special kind of cattle feed, says Haran. MilkLane started selling it in the open market after a pilot project with its captive network of farmers reported increase in productivity and reproductive cycles, and fewer visits to the vet. Manufactured in-house and branded as ‘Ayush’ or long life, the startup today sells over 500 tonnes of cattle feed per month. “In this manner, the end-to-end value chain is controlled by us,” says Haran.
Similarly Samaaru, Pioneering Ventures’ latest investment in the financial services space, was borne out of the need to provide micro-loans and micro-insurance to its farmers. “Farmers would end up taking loans from informal money lenders at rates as high as 25-45 percent because they didn’t have a collateral,” says Ria Nisar, who works as a project associate in the venture development team. But using alternate sources of data, such as the quantity and frequency of milk collections from MilkLane, Samaaru will be able to provide small-ticket-sized loans, she explains.
So will Pioneering Ventures look at an exit any time soon? “Exit is a wrong term,” says Erat. “We would rather say liquidity event because we are here for the long run.” He envisions an IPO or another liquidity event over the next 3-5 years but for reasons other than just profit. “It’s a way to bring more money into the system, open up markets, and ultimately, lift millions of people out of poverty.”