Unilever’s Inclusive Tomato Supply Chain in India. A case study from the Sunrise project.

1. Sunrise 2.0 Case Study:
Unilever’s Inclusive Tomato Supply Chain in India
Written by Michele Bruni and Hannah Schiff
epven, Ltd.

2. CONTENTS
• Critical Success Factors
• Market Structure and Enabling Environment
• The Chain Analysis
• Value Propositions
• Business Models
• External influencers
• NBM Scorecard
• Inclusivity
• Sustainability
• Open Questions
• Reflections and Lessons

3. SUMMARY
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• Market opportunities for new sourcing strategies and business models
• Value- and trust-based chain relationships (strong shared social capital)
• Conducive political and policy environment
• UL leadership in generating collaboration
• Evolving role of processor co-investing with farmers
• Potential for UL to scale-up and replicate in India

4. COMMITTMENT
• Terms of payment – Terms of payment of 7 days (at delivery of product to UL factory)
• Co-investment and guarantor role of buyer
• Bayer Food Chain Partnership Model – providing extension, monitoring, training and inputs to directly to
farmers.
• Internal Structures - Both Unilever and Bayer have proven their commitment by creating dedicated teams and
support structures to deliver sustainability and inclusion beyond traditional procurement and sales functions.
SOFT SKILLS AND MIND-SET
• Leadership from UL Sustainability and Supply Development – generating commitment and trust, and bringing
together the actors needed to success with a fragmented supply base.
• Transparency and shared social capital - between Varun Agro and farmers and between UL, processor and
other actors allows to understand incentives and gains.
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CRITICAL SUCCESS FACTORS 1/2
“Other buyers aim at volume
and price only, while Unilever
understands what are the
deep issues and problems”.
Varun Agro
WIN-WINS
• Partnering with Public Sector – sharing risks and transaction
costs, aligning visions (more local value addition)
• Substituting import from China – Lower cost to UL, benefits to
smallholders
• Contract farming – allows increased resilience to volatility and
price spikes, better crop planning, reducing risk perception, and
transaction costs.
• Increasing sustainability and yield through IPM, hybrid varieties,
drip-irrigation, sound technical assistance, monitoring,
information flow.

5. 2 – Aligning Lead Firm Procurement with
Strategy
- Cost-savings on top of sustainability
- Risk sharing and favorable time to payment
- HUL Sustainability and Supply development
function fundamental for delivering sourcing
strategy and relationships
3 – Evaluating Product Nature and Chain Structure Fit for
Inclusivity
- Opportunity and need (119M small-scale farms in India)
- High crop suitability and value addition opportunties
- Win-win with farmers through reduced volatility
- Postive feedback loops between sustainable sourcing
and inlcusion, mainly yield increase
- UL can absorb more grades than mandis at a stable price
- Alignment with Government priorities
CRITICAL SUCCESS FACTORS 2/2
1 – Setting a Clear Strategy for Sustainable Development
Global level partnerships generating on the ground collaboration:
WEF & GoM, Bayer CropScience Global and Bayer CropScience India.
5 – From Pilot to Scale and
Mainstreaming
-Supplier as enterpreneur
embed in farming
community
-HUL Staff intrapreneurship
-Increased demand and
GoM support to value
addition
- Better infrastructure and
support networks
-Shared vision with Bayer
and solution-based
approach
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2
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4
5 1
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4 - Supporting Suppliers to Apply Inclusive
Business Models
- Collaboration, leadership, long-term
committment and trust-based partnership
- Enterpreneurship in Varun Agro
- 7 days time to payment, flexibility and
understanding in times of crisis and volatility
- Holistic support to supply-base
development and essential role of Bayer
- Successful PPP and supportive policy
environment

6. MARKET STRUCTURE AND ENABLING ENVIRONMENT
Influencing Inclusion
• Importance of aggregation from a
fragmented supply base (reducing
transaction cost)
• Access to information and services
and investment for upgrading
• Long-term investment on
smallholder sourcing from GoM
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Policy dimension
• Changes in APMC Act
• Changing consumption patterns
and growing market
• Government investment and
subsidies reducing transactional
cost and helping “raising all boats”
• Availability of a good asset-base
for smallholders
• Government willingness to double
PPPs on Ag value addition by 2018
Challenges
Government of india current account balance defcit might
generate trade-offs between recently introduced food security
strategy (32Bn USD/year) and investment and subsidies for
farm upgrading (5Bn USD/year)
Business Environment
• Interest and investment flow to
increase value addition capacity
• Upgrades in water, road, and
power infrastructures
• Increased availability of affordable,
durable, and SHF tailored
technology
“We [Gov and Companies] will have to
live with smallholders. Production base
is not going to change any tme soon”.
Government of Maharshtra

7. Tomatoes
42,000MT
Technical assistance
Mandi
(wholesale)
Support Services: Transport , ICTs, Industrial areas, credit,
investment
PPP
CHAINANALYSIS

8. Consistent delivery of significant volumes of high-
quality and residue free tomatoes. Ease of
communication and providing lead points of contact
for partners.
To HUL: Delivery of large volumes of
sustainably sourced, high-quality
tomato paste with lower
transportation and transaction costs
compared to imports. To farmers:
Commitment to purchase up to 100%
of produce that meets quality
standards at pre-set price, while
facilitating access to other services,
inputs, information, and training.
To consumers: High-quality, affordable domestically
and sustainably sourced Kissan ketchups. To Varun
Agro: Commitment to absorb up to 100% of
production of sustainably sourced tomato paste at
pre-negotiated prices, while providing support in
terms of risk-sharing, access to finance, and
international exposure.
Solution-based approach
improves the economic
and agronomic
performance of farmers
and procuring
companies, as well as the
compliance to health and
safety standards in crop
protection.
Bayer Crop Science:
Smallholders:
Varun Agro:
Hindustan Unilever:
To farmers: Support innovation that can increase
value addition capacity and returns to farmers.
To Companies: Commitment to build a conducive
agrifood value addition SME sector able to reach 80
billion USD annual sales by 2018, improving
companies confidence to invest in SHF
Government of Maharashtra
VALUE
PROPOSITIONS

9. Scarcity of labor during
festivity and holidays,
conflicting with crop
schedule.
Industrial development –
conducive ecosystem
Industrial areas
competing for labor
India-wide crop failure
influencing prices heavily
Consumers demand
driver for smallholder
inclusion
Unpredictable
weather patterns
Heavy rains
generating crop
failures
Risk: water
prioritized to
industrial use
Industrial dev. and
processing set basis to
bring innovation in ag.
Irrigation technology
availability, affordability
and durability increased
adoption rate
Improved energy
infrastructure enabling
business
Policy change and
investment shift from
GoM in support of high-
value production.
ECONOMIC ENVIRONMENTAL
TECHNOLOGICAL SOCIO-POLITICAL
EXTERNAL INFLUENCERS
“If we want to have
inclusion, we have to look
at the economics before
than the financials”. HUL
“Coordination and
understanding with
Government is difficult.
Procedures and guidance are
difficult to follow and generate
delays farmers cannot afford”.
Bayer

10. INCLUSION 1/2
Source: Local validation based on FAO, 2003 and India Agricultural Census, 2012.
8.7%
>4 ha
18.3% 2-4 ha
14.0% 1-2 ha
59.0% <1 ha
WHERE IS VARUN AGRO’S
SUPPLY BASE CURRENTLY ?
AVERAGE
LANDHOLDING
IN INDIA IN 2011
Estimated landholding segmentation in Maharashtra in 2010-11
“I trust Varun Agro and UL
because Manisha and the
Doctor [Vijay] are here
sitting with us”. Farmer
1.16 ha
1.31 ha Average

11. 11
MORE BETTER
Smallholders • The technological package
• Reduced price volatility
• Transparency
• Mechanization
• Schools in the production areas
• Tailored technological package
and assistance.
Women • Women leadership / role
model recognized
• Specific meetings and
trainings
• Persistent cultural norms
limit women’s decision-
making power at the farm
level
• Training
• Opportunities in value addition.
Labor • Increased yield
• Decent quality of labour
• Traditional contractual
arrangements
• Traditional payment terms
– savings
• Contract farming
• Varun Agro employment
generation
•
• Social enterpreneurship
reinvesting in schooling for
laborer children.
INCLUSION 2/2

12. SUSTAINABILITY
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Past
• Some investment in irrigation
• Unorganized farmers
• Trading only with Mandi (fresh market)
• High level of food waste
• UL sourcing mainly from China
Present
• SAC compliance
• Targeted treatment and fertilization
• Improved planting material
• 100% drip irrigation for tomatoes
• Reduction of resources unit by unit
of output
• Sustinability based technological package
adoption
• Testing solutions to reduce waste
• UL - Increased volume sourced locally
Future
• Reduced food waste
• Increased sustainable supply base
• Soil improvement programs
“Sustainability and smallholder
inclusion doen not come for free”.
HUL

13. OPEN QUESTIONS….
• Is the centralized decision-making on
“out-of-the-box” procurement
supporting or slowing inclusion?
• How to deal with future uncertainty
and volatility? Where does risk
management trade-offs with
sustainability and SHF sourcing.
• How feasible it is to source from
currently <1ha farmers?
• Exit strategies not fully clear, but
doesn’t seem a core challenge at the
moment
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14. KEY LESSONS
• Excellent example of how leadership, partnerships, and positive
relationships can lead to win-win arrangements.
• Roles and value propositions of the various partners are clearly
defined, which leads to effective coordination and gives farmers
access to the services and inputs they need for upgrading,
including credit.
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• The lead companies involved (Unilever and Bayer CropScience) have created the internal structures
and incentives necessary to ensure that principles of inclusion and sustainability are realized at the
ground level.
• Chain has taken advantage of a supportive policy environment has also helped drive benefits to
smallholders.
• The model of working through Varun Agro and in partnership with Bayer CropScience has managed
to reach an impressive number of farmers in a short period of time. However, there is an open
question about how scalable the model is.
• Positive feedback loops between sustainability and smallholder inclusion have emerged. The
increase of yields and the stabilization of prices have been considered key by farmers in determining
their willingness
• There is a potential risk relating to availability of on-farm labor.
• There is a challenge in convincing farmers to adopt SAC practices before seeing impact on yields
• Yield increase in a product with high opportunities, with clear boundaries in roles and
responsibilities, where chain-wide innovation is supported by strong communication among chain
actors.
• There are positive feedback loops between sustainable sourcing and inclusion, mainly yield
increase.

15. INPUTS FOR GUIDES
Buyer Guide:
1. Build trust and risk sharing into long-term trading relationships with suppliers.
2. Identify opportunities and resolve problems jointly.
3. Seek out driven entrepreneurs with local connections.
4. Interact and communicate frequently with all partners in the supply chain.
5. Look for a combination of soft and technical skills in hiring sustainability staff.
Supplier Guide:
1. Re-think your role in the chain.
2. Build a network of service providers
3. Help to reduce risk for producers.
4. Create proximity to farmers
5. Demonstrate a reduction in transaction costs for buyers.
NGO Guide.
1. Support marginal producers
2. Advocate policies that enable direct linkages.
3. Support government transparency and efficiency.
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16. KEY LEVERAGE POINTS
Where Unilever and its suppliers can effect positive change for
smallholder producer livelihoods
1. Payment terms.
2. Bringing on other partners.
3. Organizing smallholders to access other services.
4. Recruitment and staffing.
Incentive structures and support mechanisms within Unilever
1. Teams dedicated to operationalizing the USLP.
2. Supply development and procurement working together.
3. Alignment of procurement goals with sustainability.
4. High-level support keeps staff motivated.
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17. Partners
Key Activities Value
Proposition
Customer Relationships
Channels
Customers
Cost Structure
Revenue Structure>
Partners provide:
• Inputs and training
to support on-
farm upgrading
• Facilitation of
finance and
business
development
Key Resources
BUSINESS MODEL OF VARUN AGRO
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• Plant equipment
• Labor
• Social capital (with
farmers)
• Electricity
• Information/knowledge
• Access to finance
Consistent volumes of
high-quality tomato
paste
• Sustainably sourced
• Access to farmer base
for easy
implementation of
improved agricultural
practices
• Lead Farmer
background—
understanding of
supply base and
production system
• Color
• Competitive price
1. HUL
2. American and
German juice
companies
Relationship with main
customer, HUL, based on
commitment to
absorb/supply up to 100%
of tomato paste. Rich,
trust-based relationship.
Supporting farmers to
upgrade ag practices
Processing
tomatoes, guava,
and mango into
paste
HUL trucks pick up
paste at the factory in
Nasik to transport to
their factory in
Punjab, which takes 6-
7 days.

18. Partners
Key Activities Value
Proposition
Customer Relationships
Channels
Customers
Cost Structure
Revenue Structure>
Partners provide:
• Seeds (hybrids)
• Crop protection
• Fertilizer
• Knowledge/traini
ng
• Financial services
Key Resources
BUSINESS MODEL OF SMALL-SCALE TOMATO FARMERS IN NASIK
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• Tomato
(50% land)
• Other
vegetables
• Fruit trees
• Livestock
• Poultry
• Land
• Labor (scarce)
• Fertilizer
• Pesticides
• Social capital (groups)
• Water
• Electricity
• Information/knowledge
• Access to finance
Consistent, high-quality
tomatoes
• Residue free
• High solid content
• Not damaged
• Good size
• Good color
Well-organized
 Single point of
contact for groups
of 15-20 farmers
facilitates
communication,
production planning,
crate delivery, and
training
With contracts:
Varun Agro (75-
80% of tomatoes)
Without
contracts:
Mandis (20-25%)To Varun Agro: buyer
provides transportation
and packing materials
To mandis: own pickup
or rent space on
truck/pickup at Rs0.5-
1/kg.
Contrast between very
transactional, price-based
relationships at mandis
and long-term trust-based
relationships with Varun
Agro