Saaraketha is Emulating Sri Lanka's Apparel Industry to Transform Rural Agricultural Supply Chains
- 23 Jun, 2020
The brainchild of Prasanna Hettiarachchi, Saaraketha was an export-focused business when it began in 2008, but since 2013 it has been made available to the local market. The Sri Lankan market has seen “phenomenal growth”, Hettiarachchi says, and now accounts for 30% or more of sales or 18-20 tons of monthly sales.
Globally ,organic food sales are rising. The Organic Trade Association reports 10% annual growth in organic fruit and vegetable sales in the US to $14.4 billion in the year to March 2016. Europe is the largest market for organic produce, with many public institutions committing to the consumption of organic produce alone. Saaraketha competes with fair trade firms from Vietnam, Thailand and India in these markets. Their market leadership-commanding business model had its inspiration from an unlikely source: Sri Lanka’s apparel industry. Revenue is already growing in leaps.
Hettiarachchi registered his business in 2006 while employed at MAS Holdings, one of the island’s leading businesses, as a general manager. He had been toying with the idea for Saaraketha for years. Through his work for MAS, Hettiarachchi had been able to connect with researchers from the Bill & Melinda Gates Foundation, conducting research into agriculture and agroforestry in East Africa. Hettiarachchi’s years at MAS had imbued an entrepreneurial spirit in him, through which he became determined to bring agribusiness to Sri Lanka.
“When I started at MAS, Sri Lanka was a sweatshop and apparel wasn’t a very healthy industry to get into,” Hettiarachchi begins his MAS story. “Factory workers were called ‘jukie kaella’; that was the indignity associated with the vocation, unfortunately.”
But industry leaders, the Omars, the Amaleans and the Hirdaramanis, were visionaries. They transformed the apparel industry from a supplier of cheap labour to a solutions provider. As a “lieutenant” to Mahesh Amalean, Hettiarachchi witnessed this first hand. He witnessed the process as they vertically integrated the industry, attracted foreign partners and gained supply chain control. He supported Amalean in forward integration, setting up design education and vocational training in Sri Lanka with government aid.
“We created an entire value chain approach for apparel,” Hettiarachchi proclaims.
He was convinced that the same strategic thinking could be applied to Sri Lanka’s laggard agriculture sector. Hettiarachchi also drew inspiration for Saaraketha from Inditex, the company behind fashion brand Zara. The company’s strategy is lightweight travel, and their value proposition is fast fashion: design to storefront can reportedly happen in as short a span of time as 15 days.
“They don’t own anything!” Hettiarachchi enthuses. “They manage compliance and the entire value chain. That inspired me.”
Similarly, Saaraketha is a marketing company that invests and engages in driving traceability and product compliance. Organic produce sourced from around the country is transported daily to its pack house in Kaduwela, where 50 staff working in two shifts sort, grade, clean and pack 500-600 kilograms of produce daily. From here, packaged products are transported to the airport for shipment or to local stores. In effect, Saaraketha is a trade hub.
Saaraketha’ Pelawatte supply chain office forecasts daily the amount of produce that is expected to pass through the pack house based on feedback from customers, similar to how Inditex relies on continuous feedback from customers to refine styles and push out new products to Zara stores weekly.
A staff member prepares peppers for packaging at the Saaraketha pack-house in Kaduwela
Hettiarachchi refers to the Saaraketha model as “very simple”. Their supply chain’s strength comes from years of tweaking. Saaraketha sources their produce from farmer collectives in Kilinochchi, Hambantota, Thanamalwila, Mahiyanganaya, Matale, Kandy and Trincomalee among other locations, in a variety of categories including spices, heirloom rice, upcountry vegetables and low country vegetables. Their producers are either large formal organisations or informal smallholder farmer collectives that are known at Saaraketha as “clusters”.
Saaraketha does not contract with individual farmers along the supply chain.
“We can’t work with individual farmers who don’t have scale,” Hettiarachchi explains, “because logistics then become a nightmare.”
Financing is also a challenge working with individual producers, an issue that Hettiarachchi believes needs to be addressed at policy level.
“You can’t purchase [from farmers] on credit, but our customers don’t pay us cash,” Hettiarachchi explains. “They take 40-60 days to pay, so it’s a huge capital drain.”
Saaraketha leverages their credibility to acquire packing credit to manage this capital drain. In Hettiarachchi’s thinking, the ideal scenario would include established instruments of microfinance that will support entrepreneurial ventures in rural agriculture.
“I’m not saying farmers should be given handouts. I’m suggesting that micro lending facilities be made available to farmers based on purchase orders they get from customers like us. That will catalyse trade.”
In the absence of these, other support systems must be established to provide a safety net to farmers, as well as a legal entity with which larger corporations such as Saaraketha can do transparent business.
Kilinochchi is one of a number of localities in which Saaraketha has been instrumental in facilitating such establishments. In 2013, the International Labour Organization (ILO) initiated a project, ‘Local Empowerment for Economic Development’, to resettle farmers displaced by the war and help them set up livelihoods. This was a philanthropic effort in a place where Hettiarachchi believed the need was for entrepreneurship. Saaraketha joined ILO on the project as consultants and helped in setting up infrastructure, a collection centre, a packing house, a logistics/transport system and a cooperative that allowed famers to do business as a unified body of professionals.
The ILO recognised Saaraketha Holdings for this contribution in 2014, and in September 2016, the National Chamber of Exporters recognised Saaraketha Holdings for their work and achievements with a Gold Award in Value-Added Agriculture.
“It was not easy. These people come at different intellectual levels and they have been exploited before, so there is an aura of mistrust.”
Building trust-based relationships, investing in farmer training for organic practice, and setting up a business model different to what rural farmers are accustomed to are “huge changes” to be approached carefully and sensitively, Hettiarachchi says. But the hard work pays off. The Kilinochchi cluster originally set up by the ILO now connects 1,600 farmers to a number of exporters, including Saaraketha Holdings.
“Today, we take the community’s product to France, Belgium, Germany and Holland,” Hettiarachchi declares, proud.
Exports from Saaraketha to European customers are certified organic by a third-party Dutch auditor, Control Union. Saaraketha’s produce also carries US, Japanese and UAE organic certifications. An organic certification covers three main areas: product compliance, process compliance and human capital compliance. Samples are taken annually from soil, water, leaf and product to be tested by the certifying body for chemical residue, i.e.: product compliance. Process compliance requires that every link in the value chain is also certified organic and chemical free. “For example, if it’s rice and it goes into a mill, contamination can happen there,” Hettiarachchi explains. “So the mill has to be audited and certified too.”
While the previous two establish the chemical-free nature of the product, human capital compliance aims to establish the ethicality of its sourcing. “It’s not just responsibility for the product, but responsibility for the environment and the people in the value chain. Are they educated? Do they have welfare? How is their hygiene, their health? The whole gamut!”.
The conversion of farmers from chemically enhanced to fully organic produce, and to globally accepted standards of living and agricultural practice takes at least six months, and sometimes up to four years. Saaraketha employs over 15 Sri Lankan graduates and trained agriculturists who are responsible for these conversions, and for ensuring that converted clusters and farmers follow certification guidelines at every stage of production. Many of these graduates are field officers who move from site to site. The company also employs domicile field officers and members of the community who work in one area, consulting under the guidance of the agriculturists on managing certifications.
Saaraketha initially focused primarily on a mindset change to convince farmers to convert.
“These tree-hugging philosophies won’t work with them,” Hettiarachchi waves his hand dismissively. “Do it for your child, do it for the environment, it’s all just rhetoric, and it doesn’t make sense.”
What does make sense is trade premium. Saaraketha offers farmer clusters premium prices between 20% and 200% higher than fetched by conventional produce, for organic produce. The company offers a guarantee of premium prices for produce supplied even within the transition period when chemical residue is still too high for organic certification.
A rural farmer’s biggest challenge, as Hettiarachchi sees it, is finding a market and aggregating a product. After bearing the expense of hired help for ploughing, sowing and harvesting, and then of transporting his goods to the market, the farmer is at the mercy of the market price. Saaraketha meets the farmer at his pain point and offers a fixed price, on contract, for a fixed amount of produce in predetermined categories, weekly, for a fixed term.
“Even if the market price goes to zero, you will still be paid that fixed price,” Hettiarachchi guarantees.
The venture started with 150 farmers hard-won through careful relationship building and persuasion, and now connects 3,000 rural farmers island wide. Another 3,000 farmers are currently in assessment for organic certification or in various stages of conversion from conventional to organic production. Saaraketha is not simply anticipating growth in demand, but proactively working to increase it because Hettiarachchi believes in sustainable consumption and the power of a conscious consumer to change production.
Thanks to a millennia of medical knowledge and understanding Ayurveda, Sri Lanka’s eating habits are healthy. Sri Lanka boasts vegetation that provides over 34 edible varieties of greens and over 80 varieties of vegetables, Hettiarachchi claims.
“We eat four or five,” he says, in a quiet exasperation.
Unlike traditional greens and vegetables, which need time for careful preparation, imported varieties of carrots, beets, beans and leeks (staples in an urban home) are quickly prepared and look attractive. An urban population seeks out these products, and farmers in turn opt for fast production, higher yields and what Hettiarachchi calls “cosmetic looking” produce.
“This cycle is driving a very unhealthy practice of irresponsible pesticide and chemical use,” he says. “But we are in a world where the consumer wants to know what they are doing, how they are contributing. What is the impact of my purchase decision? Not just on myself, but on others?”
Hettiarachchi understood this clearly during his time as a general manager at MAS Holdings, while working on a particular Victoria’s Secret garment that was marketed “from women to women”. The raw material for this organic cotton bra was sourced from Burkina Faso, Africa, where village women engage in a fully organic process of weaving cotton. It was then shipped to India to be milled into a yarn, and next to Sri Lanka where a 100% organic bra was manufactured for sale in wealthier nations. While an average upper body intimate garment would sell for $20 apiece, these organic bras sold at $60.
“Being involved in that process, I saw how to position a product, not simply for what it is, but telling the story about the people and the whole value chain,” Hettiarachchi says. “And I was inspired to see if that could be the differentiator for agribusiness in Sri Lanka.”
Saaraketha, meaning “fertile field”, was founded on the expectation that the company would catalyse abundance in Sri Lanka’s rural lives and landscapes. The business operates on the premise that by creating awareness at a local and global level, there will be created a demand for fresh produce that is sustainably and ethically sourced.
“Then there will need to be a supply chain that provides what you are demanding,” Hettiarachchi says.
While the business now runs on a front (marketing) to back (farming) methodology, this wasn’t always the case.
What Hettiarachchi took away from his experience at MAS is how a value chain approach could transform an industry. Through integrating upwards and forwards, bringing in international partners and creating educational pathways that led locally to secure employment in the garment industry, Sri Lanka metamorphosed from an inglorious sweatshop to a sought-after solutions provider. Hettiarachchi’s vision was to create that integrated solutions provider in the agribusiness landscape of Sri Lanka, at Saaraketha.
The people Hettiarachchi shared his “crazy ideas” with during his MAS days saw something in what he said, and Hettiarachchi was invited to present a paper on how an entrepreneurial approach to agroforestry can catalyse economic development in smallholder farms at the International Centre for Research in Agroforestry in Nairobi, Kenya.
Hettiarachchi took gifts for the other participants when he went to Kenya: briefs and bras for the globe’s leading scientists and thinkers in agricultural economics.
“It was funny!” he laughs, “They would say ‘What kind of guy are you?’”
Hettiarachchi was undeniably different in that lot. He was a lateral thinker, applying his learnings from the transformation of the apparel industry in Sri Lanka to the global agribusiness. He was also, in his own words, “arrogant” and “cocky”.
“As a high flying corporate executive at MAS, you get blown away. You lose your sense of self and you think bigger of yourself than you really are.”
As the apparel industry grew, Hettiarachchi and his colleagues flourished. They earned US dollar salaries, travelled business class and had the company pick up nearly all of their expenses. And then, Hettiarachchi’s father passed away, leaving him a three-acre plot of bare land in the dry southern jungles at Weerawila.
“It was probably the best thing that happened to me,” Hettiarachchi says.
Hettiarachchi’s father, Kingsley Hettiarachchi, had been a public servant who was often transferred from station to station, and his youngest son, Prasanna, most often went along with him while the older children did exams in Matara and Kandy. As a little boy, Prasanna Hettiarachchi accompanied his father to this property in Weerawila multiple times, and watched failed attempts at cultivating the arid land. When his father died, leaving him this property, Hettiarachchi made a commitment to seeing his father’s dream come true, and began planting in it. As the hard brown earth slowly metamorphosed into weak fluorescent saplings and then towering green trees, Hettiarachchi fell in love.
“I realised that, in this life, we have a calling. I realised I was living a lie. MAS was a university to me, and I will always love and have an immense amount of respect for that place; but I felt I could contribute better. I wanted to lead something that benefited somebody other than myself.”
In 2008, before he had even hit the dreaded four-zero, Hettiarachchi quit not simply a job, but a career and a way of life. His friends and family thought he had finally lost it, but Hettiarachchi knew what he cared about.
“You drive that car, you live in that house, you go on that cruise. You’re ticking all the boxes, but it’s actually about whether you’re living in a manner where true contentment is a part and parcel of life,” he explains.
Hettiarachchi set up the business literally with a million-dollar agenda. He was going to build the MAS of agribusiness. Saaraketha was a 25-acre farm in Mahiyangana, with a high-tech training centre digitally connected to the Bill & Melinda Gates Foundation, with equipment gifted by NASA and Google.
“We did some crazy things,” Hettiarachchi laughs. “We had foreign graduates interning at my farm and working there. I wanted to bring about a change.”
From robotic cameras to designer-made functional clothing, Saaraketha had it all. It had the stories to tell, the marketing, the differentiation, the traceability, fair trade and cutting-edge technology. It was also supposed to aggregate produce, sell it and make a profit.
“To cut a long story short, in two and a half years, whatever MAS had given me, my life’s savings, I had busted it all.”
Hettiarachchi invested close to $5 million on the project, aiming to encompass the entire value chain in organic fresh produce export. It was a utopia of sorts, but it brought him no returns. The sustainability project had proven impossible to sustain. Thirty five administrative staff, 25 farmers and 20 young entrepreneurs in training lived a dream and then went back to reality. Hettiarachchi had to sell his Mahiyangana property.
“We did a hell of a lot, and with good intention,” he says, regretful. “But I was this cocky, arrogant man who thought I could do in one day what MAS took 25 years to do. It brought me to my senses, and kicked me in the gut. I realised your head and your heart need to operate separately.”
Hettiarachchi went back to his apparel roots and figured out that you have to travel light in big business. He took a step back and played to his strengths, working at the frontend of the value chain to create a demand that would then drive supply. He stripped the business down and got focus. Now that Saaraketha Organics has grown into a recognised brand, they are thinking about forward integration and have plans to roll out more complete solutions such as prepped vegetables for busy executives: a single portion neatly packaged, with a recipe idea. They also work on kitchen-to-table connections such as alternative preparations for greens including smoothies and sandwiches versus the traditional sambol or mallum. Hettiarachchi believes that the future of business lies in resources, like food, and plans to firmly get his foot in the door, and push forward and backwards to achieve it. Just differently now, from how he did before.
“Earlier, I carried so much of the weight, so much of the pain and a burden that I’m never going to get into owning anything again,” he says. “I will try and outsource as much as possible because it passes on a benefit to other people, to hopefully evolve to entrepreneurs as well. So, hopefully, we will catalyse not only our business, but several other businesses as we go.”