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Tight relationship with farmers key to supply, botanical companies say

By Hank Schultz , 02-Dec-2012
Last updated on 04-Dec-2012 at 14:48 GMT

In an increasingly globalized world, botanical ingredient suppliers are taking steps to lessen the risks posed by Mother Nature, potential political unrest and the guys in suits with bags of money.

The ongoing strike that the harbors of Los Angeles and Long Beach brings into stark relief one potential weak link in that supply chain.  But that’s at the end of the process, a process that starts with one of the most ancient risks of all: Planting seeds in the hope, but not the certainty, that a crop will grow to maturity.

Longtime botanical ingredient supplier Sabinsa Corp. started a process almost a decade ago to manage those risks, and in the process to deepen its relationship with the small holding farmers who grow much of its raw material.

Deeper relationship with farmers

Starting first in fertile areas of the Deccan Plateau in south India, company found Dr. Muhammed Majeed set up a program for the farmers growing turmeric, coleus and other crops on a contract basis for the company.

“He first went to the banks and local insurance companies and said, ‘I want to make sure that these farmers are paid even at zero output,’ ” Shaheen Majeed, director of marketing for Sabinsa, told NutraIngredients-USA.

“So what can happen? You have floods, you have droughts; Mother Nature can screw this up,” he said.

In addition to the security of a guaranteed payout, Sabinsa, a supplier of a range of botanical ingredients, offered the seeds gratis as part of the incentive for farmers to come on board. And the company helped educate farmers on correct farming practices to grow the highest quality raw material.  The program proved popular.

“At that time we stared, in 2003 and 2004, we were not even a couple of hundred farmers. Within a few years we grew to about 6,000 farmers,” Majeed said.

Shady dealers

But Sabinsa became a victim of their own success in security their supply.  Competitors turned to Sabinsa’s farmers when supplies of various commodities in times of shortage.  Shady dealers would step in to intercept crops that Sabinsa had contracted for.

“There’s an old saying, ‘Beware of the guys in suits.’ ” Majeed said. “There were a couple of cases of scarcity.  Turmeric and coleus for example, just were not available.

“You think about your competition, but you think about them when it comes to powder, when you see them in the marketplace.  But you don’t think it would go back all the way to the farmers.

“We wanted to understand why our farmers did this.  Part of what we realized is that in the beginning and we give them the seeds, but there was no money up front.  The money was given at the very end.  So if someone comes in the middle and pays them half of what we would have paid them at the end, there was an enticement there,” he said.

In the end, Majeed said, some fields required monitoring including the involvement of law enforcement personnel.

Lutein supplier takes similar approach

Another botanical supplier, Omniactive Health Technologies, took a similar approach to securing their supply,  said Vice President Hiren Doshi. The company requires a huge annual supply of marigolds the lutein for its range of Lutemax 20/20 branded extract. The company sources from crops are grown in a couple of locations within India, and, like Sabinsa, Omniactive has a program for farmers that includes provisiton of seed and technical help and guaranteed buybacks regardless of output.

“This assures the farmers that after the effort of an entire season they won’t be without sufficient money in their pocket.  We have been doing this for over seven years now and recently we crossed over 10,000 farmers,” Doshi said.

But Omniactive, too, had trouble with shady dealers attempting to buy crops out from under their noses.

 “We experienced this in a very big way two years ago. There was a marigold shortage in the market and everyone was trying to poach our farmers,” Doshi said.

“We have to keep our farmers engaged we have to show them how we are there for the long haul and not there for just one and that we stand by them every year.

But what you also have to do is to incentivize them a tad bit more. And if you use these combination strategies you can ward off such situations. We do have an active team which helps in sustaining the farmer relationships,” he said.

Up to now Ominactive has focused it farming operations for supplement raw materials on India, but it is evaluating expanding beyond the subcontinent, Doshi said.  Sabinsa has already taken that step in a bid to further differentiate and secure its sources of supply.

“We realized about two years we had to step out of India, with all the nuances of dealing with the farmers and with the way that Mother Nature treats India sometimes.  And we started to see how other types of producers, be it for beans or for rice or for corn, they were doing this also,” Majeed said.

“We stepped down to Southeast Asia, to  places like Vietnam, Thailand, Malaysia. There are plots of land that we either own, co-own or lease.  In some cases the governments have leased the land to us because they really appreciate the programs we put in place like this buyback program,” he said.

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