India serves up a global gherkin

Over a rain-swept corner of a field in the southern Indian state of Karnataka, dark monsoon clouds are massing. Farm workers scuttle along muddy embankments heading for the shelter of a nearby seed store as strong winds pull at their clothes and a heavy shower begins to fall.

Yet the gherkin farmers of Medleri village in Rannebanur district are taking no chances with the monsoon. Their fields are criss-crossed with small rubber hoses fed by Israeli drip irrigation technology. Next to the seed store is a newly dug reservoir and a shiny pump.

It is not just the water that is different. Gherkin plants are sown and fertilised according to European methods. Experiments are tried from far afield. In one row, gherkins are grown up poles as they are in Vietnam. In another, the ground is under plastic sheeting, similar to what is found on the so-called Costa del Plastico in southern Spain. Mechanisation is also being slowly introduced, and Global Green, the company the farmers work for, has already developed a harvester to suit small acreages of its Indian operations.

However, gherkins - otherwise known as cornichons or pickled baby cucumbers - are shunned by Indian consumers.

Instead, the crops, which were once the preserve of US and European farmers, are now produced exclusively for export to suit the tastes of consumers in the US, Canada, Israel and Europe.

While India's outsourcing prowess has become well known during the past decade in areas such as IT and back office business processing, the same trend is now under way in the global food supply chain - thanks to low labour costs and a climate that allows for three crops a year.

"Cheap labour and climatic conditions are the key drivers of agricultural production being outsourced to another continent," explains Vineet Chhabra, Global Green's managing director.

"It's more than about quality when you are supplying to the developed markets. You have to be 50 per cent better than others. The cucumber out of India is a wonder. It's nothing to do with me. It's the climate and the weather."

Large supermarket groups are seeking out the cheapest agricultural suppliers and India is among a competitive peer group that includes Turkey, Ukraine and Mexico. Food company executives talk glowingly of the opportunities of "arbitrage at the Indian farm level", where a day's wage is a little above $1.

In Global Green's sorting and bottling plant on the outskirts of Bangalore, Karnataka's capital, bottles spin off the production line labelled for Lidl, the German discounter, Sobey's, the US supermarket chain, and Safeway.

Global Green, a subsidiary of the Delhi-based Avantha Group, markets itself as the "World's Pickle Packer". It entered the gherkin business 15 years ago. Then, says M.R. Chandra Mouli, the company's head of agri-business, it was a "small business". Now, Global Green, which is headquartered in both Bangalore and Belgium, is the largest gherkin supplier outside of the US, the third-largest in the world, and accounts for a third of India's production. Rival local producers include Natural Fresh Fruits, Green Pickles and Balaji Agro.

Global Green's €26m ($39m, £24m) acquisition of InterGarden in 2006 gave it assets in Belgium, Turkey and Hungary. In addition to gherkins, the company supplies customers in 50 countries with onions, capers, peppers, cherries and sweetcorn. International expansion is still on the cards. In pursuit of year-round crop availability or four growing seasons a year, it is weighing acquisitions in Chile, Peru and Vietnam.

The company's forecasts are bullish. It expects to treble turnover in the next four years from current revenues of $130m. When equity markets recover, it also has ambitions of a public listing on a stock exchange, possibly a foreign one. Gherkins will feature prominently in the prospectus. Last year, the company produced 65,000 tonnes of gherkins for global markets; 55,000 tonnes came from India. And, in spite of the global downturn, orders have held up. "Pickles are recession proof," says Mr Chandra Mouli. "People are eating much more at home . . . Pickles sales - like peanut butter - are going up . . . But India has to be competitive. The yields have to be better."

As a result, a productivity revolution is under way among the contract farmers of Rannebanur, most of whom tend small holdings. At one level they are like many farmers in India, concerned about the water table, subsidies, the availability of credit and labour shortages. But at another level they are at the sharp end of agricultural experimentation, contracted by a company pushing out middlemen with "seed-to-shelf" control and trying to bring them up to European standards.

Greater productivity among these farmers will widen Global Green's profit margins. That quest has been championed in the Avantha boardroom where Gautam Thapar, group chairman, speaks of the benefits to be reaped by making Indian farmers even a little more like their highly productive German counterparts. The founders of India's globally known IT companies, such as Wipro, Genpact and Infosys, once had similar conversations about how Indian graduates could take on the characteristics of their US counterparts.

If India's "seed-to-shelf" agricultural outsourcing story seems to good to be true, it probably is. Mr Chhabra acknowledges the swift success of India's gherkin crop and the bankable relationship it has opened up with big retailers. But he is under no illusions about the sheer unpredictability of farming. "It looks like a simple business. You grow a few cucumbers and put them in a jar," he says. "It's far more complex than that because there are so many moving parts. There's the rain, the weather, fruit flies, the logistics, warehouses, barrel prices, foreign exchange and the customers. It's hugely variable."

The heavy reliance on nature, in a country where farmers depend on seasonal monsoon rains, makes some investors nervous. One UK-based analyst says India's vulnerability to changing weather could dull investor appetite in Global Green if it tried to raise capital on global equity markets. But that caution is unlikely to slow Indian agri-business. Almost 200 years after the jar of pickled gherkins became a commercial product in France, at least one Indian company has taken it for its own.

Global Green digs deep in search for its next super crop

In Global Green's boardroom, executives are searching for another crop to match the company's success with the gherkin in global export markets.

The jalapeno pepper has shown the most promise. Favoured among the world's Hispanic population, the pepper is one way of making further inroads into the US market. The company already has a prized contract supplying between 300 and 400 containers of jalapenos a month to the US prison service.

However, Vineet Chhabra, Global Green's managing director, says that the jalapeno is too specialised and he is after a higher-consumption product.

The tomato is the crop that could really propel Global Green into the big league, he says, and into competition with farmers in California. The tomato tops fresh retail produce sales in the US.

Alternatively, the company might wait for demand for processed foods to rise in India as the urban middle class expands. He expects retailers such as Tesco and Carrefour to overcome regulatory obstacles in India to set up store.

"When they come in they will be like another cylinder of oxygen for us," says Mr Chabbra.

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