Financial Times

Hayleys in agro-exports thrust
Sri Lankan giant Hayleys group is making a big push towards the export of agricultural products through its subsidiary HJS condiments, which supplies fast food chains like McDonalds, Burger King, and its plantations, seeds and agro-chemicals units with the sector seen as one of the group's core activities in the long run.

The conglomerate already accounts for 20 percent of Sri Lanka's fruit and vegetable exports although the contribution to the group from its agriculture sector firms is still one of the smallest.

HJS Condiments is the largest exporter of gherkins from Sri Lanka and the second largest exporter of gherkins in Asia. It bottles fresh and pickled gherkins, silver skinned onions, chillies, pumpkin paste and other exotic vegetables.

The firm, which also exports to hotels and supermarkets, is widening its product range and looking for new markets, managing director Anil Wikramanayake told The Sunday Times FT at the production facility at Biyagama.

"Our aim is to contribute to the rural economy." The company, 20 percent owned by Sanyo Food Products of Japan, processes 5,000 tonnes of gherkins a year, grown by a widespread out-grower network of farmers.

"We've started a new dicing line to produce relish for sauce manufacture, which is a growth area," said Wikramanayake. The relish, made from diced gherkins, is used for salad dressing. "This year we are planning to start a chutney production line - another growth area," he added.

Demand for mango and papaya is expected to pick up with the start of this venture, which will initially target markets in Japan through Sanyo Foods and then Australia. The company has already identified farms in Kalutara and Gampaha and a feasibility study is under way.

An investment of about Rs 30 million is required for the project which Wikramanayake said is expected to generate potential revenue of Rs 100 million a year. The contribution of agriculture, excluding plantations, to the Hayleys group bottom line is still around five percent and profit from operations among the smallest with HJS Condiments the biggest contributor.

But the return on capital employed of the agriculture sector is high - 23 percent last year. It is much higher than core areas such as environment, coir and rubber and exceeded only by the transportation sector. HJS Condiments is 10 years old and made losses for the first five or six years. But the Hayleys management was determined to make it a success and kept pumping in money and today it is "a good profitable company," Wikramanayake said.

Hayleys hopes to make use of the synergies provided by other subsidiaries in plantations and agro-chemicals operating with HJS Condiments in an integrated manner in the increased focus on value added agricultural exports. These include Talawakelle Plantations, Hayleys Agro Products, Haychem and Quality Seeds. The management has been pushing the plantations to grow exotic vegetables like red bell peppers, cauliflower, celery as they have the land and labour, while the other firms have expertise in providing seeds and in agricultural practices. "You need to identify the right varieties and to grow at the correct price," Wikramanayake said. "They have to match our climatic conditions and buyers' requirements."

Production has already started on a pilot scale. HJS Condiments will buy the produce and do the value addition. Wikramanayake said the secret of the company's success in competing with low cost producers such as India and China was that it had gone in for value addition and selling to up-market customers.

"We have to be a low cost producer and give a good quality product because competition is always knocking at the door." One of the main competitors, India, is still largely at the stage of exporting semi-processed fruits and vegetables stage.

Wikramanayake anticipates Indian exporters will try to get into the same markets but would need to maintain proper hygiene standards and quality, ensure reliability and earn a good reputation to be successful.

HJS Condiments exports to 17 countries and has an out grower network of 3,000 farmers who cultivate between a quarter-acre and a half-acre each. "We give them the seeds, fertiliser, and agro-chemicals on credit and buy back the crop at a guaranteed price - prices of other crops fluctuate depending on supply and demand," Wikramanayake said.

"We set off the input costs against the buy-back agreement - if there is a crop failure owing to drought, too much rain or insect attack, we take the risk." These cash crops helps farmers earn additional income before the paddy crop and also generate employment for others such as in plucking during the 30-day harvesting season.

Crops are grown in about 1,000 acres a year spread out in Anuradhapura, Polonnaruwa, Kurunegala, Mahiyangana, Mahaveli, Embilipitiya and Padaviya.

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