Returning To Our Roots

Rural Returns and its out-grower rice farmers look to traditional rice varieties to maximize returns

As a guarantee company, Rural Returns cannot pay dividends to shareholders. The surplus it earns retailing organically grown heirloom rice varieties, at premium prices, is ploughed back to financing the following season’s crop.

Rural Returns founder Charitha Ratwatte’s friends thought he was nuts for returning to build a business around rice farming in Sri Lanka; a broken industry no one really knows how to fix. Rice smallholders outnumber those farming larger tracts by nearly four to one and don’t make enough to live comfortably.

Rural Return’s out-grower organic farmers grow heirloom or traditional rice crops, earning an income twice as much and a profit four times as much than farmers growing newer seed varieties. While the yields on heirloom varieties are lower there is growing consumer preference for such rice which fetch premium prices. Traditional varieties – which have been grown in Sri Lanka for over a thousand years – are preferred by some consumers due to their unique aroma, taste and texture and nutritional value. Charitha is cagey about Rural Return’s sales, but says partner-farmers typically receive double the farm gateprice a nd because traditional rice varieties don’t need chemical fertilizer and pesticides, farmer input costs are far lower. Rural Return’s out grower network – now more than 200 smallholder farmers – is expanding quickly and sales have grown more than six fold in the last two years. Charitha expects sales will double again in 2015.

In poor Asian countries rice is an affordable carbohydrate source and consumed in large quantities. As they become more affluent, consumers are willing to pay premiums for rice varieties that are more nutritious.

We always hear about food shortages and gluts and farmer suicides. Travelling around the country exposed me to rural life and poverty in Sri Lankan villages

In 2009, as a MBA student Charitha won a Social Innovation Fellowship set up by his university to fund, advise and support students to start non-profit ventures to address pressing social or environmental needs. His goal is for Rural Returns – a social enterprise – to address poverty and income security among farmers.

A software developer with an MBA from Stanford University USA, Charitha wonders whether importing rice grown in the Golden State (California) makes more economic sense than growing it in Sri Lanka. The son of a former bureaucrat who was also one time treasury secretary, Charitha spent school holidays travelling with his father around the country. “We always hear about food shortages and gluts and farmer suicides. Travelling around the country exposed me to rural life and poverty in Sri Lankan villages. When Stanford announced the fellowship I knew this was an opportunity to make a real difference”.

He began researching Sri Lanka’s rice farming. “I did this from afar at first. This was difficult because central bank, statistics office and Department of Agriculture data were inconsistent. In California, I saw places selling Columbian or Brazilian coffee and this got me thinking. Does Sri Lanka have something it can offer, something different? Can we export rice from Sri Lanka? Do wehave differentiated rice varieties that can give us a comparative advantage
in global markets?” These questions motivated him to learn more about the complexities of the rice farming industry. For over 60 years, Sri Lanka’s agriculture policy, research and practices were aimed at feeding the nation at low cost. Seed paddy strains were selected for their high yields, but there was a price. “Rice grown by mainstream farmers has lost its taste, aroma and nutrition. The rice stalk has lost its resistance to weeds, disease and pests and needs chemical fertilizer, pesticides and weedicides to survive,” he explains.

The success of these rice strains depended on particular environmental conditions. The climate of the dry zone where fields are irrigated suit high yield rice crops. The size of the field also helps. Because of high cultivation costs, farmers with larger fields make better incomes.

Sri Lanka’s rice policy was aimed at supporting just such farmers, Charitha believes. “Five dry zone districts produce enough rice to feed the entire nation and these farmers mostly cultivate extents over two hectares earning enough to lead comfortable lives despite low prices. But rice farming is still an important way of life across the other 20 districts and the farmers there suffer because they adopt practices suited for larger rice farms in the dry zone,” Charitha argues.

“Smallholder rice farmers competing with efficient large dry zone farms locks them in a pervasive race to the bottom. Smallholders rarely produce enough to sell and when they do, the prices are so low they are lucky to break even,” Charitha says. This problem has paralyzed policy makers. Changing the rice policy is to mess with the Sri Lankan psyche and anything construed a misstep could be disastrous.

Researching rice farming, he learnt Sri Lanka had 2,200 varieties of rice listed at the International Rice Research Institute, in the Philippines. Some of these were high in nutritional value, resistant to weeds and pests, and more tolerant to drought, salinity and floods. Charitha realized smallholders could grow these rice varieties at lower cost, generating higher returns if only they had access to markets offering better prices. Farmers – in isolation – have cultivated heirloom rice varieties, but it was unsustainable at scale because of limited premium market access.

Charitha proposed he could supply the seeds, provide technical support and buy the crops at higher prices. Charitha won the Stanford Social Innovation Fellowship and then came the hard part; putting his hypothesis to the test. He was convinced that mainstream rice farming was not for everyone and best left to farmers in the dry zone with larger fields. Rice farmers cultivating small fields have an advantage because the limited extent makes it easier to provide the attention and care organics need. He had to convince both farmers about cultivating heirloom crops and retailers that higher prices were justified.

His advisors suggested he develop a domestic market first before going global. “I thought this was nuts. I strongly believed that export was the answer. But I went ahead and negotiated with large retail chains and our rice was on their shelves. I was soon surprised at the response, clearly Sri Lankans were demanding cleaner, healthier food and were prepared to pay a premium for it,” he says.

Smallholder rice farmers competing with efficient large dry zone farms licks them in a pervasive race to the bottom. Smallholders rarely produce enough to sell and when they do, the prices are so low they are lucky to breakeven

Convincing rice farmers was slow-going. “Rural Returns had to prove that it could generate sustainable market access at competitive prices so that these farmers could generate higher profits. We also had to prove to the market that the product was worth the price  and that supply would be consistent.” He was firm with farmers expecting handouts from Rural Returns. His was a business venture and heirloom rice seeds had to be bought, or paid for at the time the crop is sold to Rural Returns. “I had to keep reminding them that they needed to be motivated by profits themselves,” he says.

The first crop Rural Returns took to the market was the produce of four smallholders. By the next season the group had grown to over 50. “The good news spread fast,” Charitha says. Today Rural Returns sources organic heirloom rice from across the island and markets the produce of over 200 farmers including many from the former war ravaged districts in the North.

“This is about giving farmers the ability to make independent choices and more control over their lives. It is also about giving consumers healthier rice varieties to choose from. The mainstream rice varieties popular in the country are as good as serving-up diabetes on a plate,” Charitha says.

“We have room for domestic market growth. In fact, our farmers could see their net-profits per acre grow over five fold. We haven’t ruled out exporting”.

He believes Rural Returns would grow rapidly. But a national-level shift would take a lot more than one man’s vision and a couple hundred farmers’ hard work.