Sunstar Overseas Limited

Sunstar boasts a number of “firsts”: India’s (and the world’s) first rice milling company to be accredited with the fair trade label for organic basmati rice. The first company in India to multiply basmati seed organically, through a biodynamic program under Demeter biodynamic certification. The world’s largest exporter of organic basmati rice. For a company whose organic production is only 5-7% by volume and 8-9% by turnover of total business, these talking points underscore the priority the company places on its fair trade and organic products.

Originally a producer of milled and polished white basmati varieties, including packed rice for international brands like Uncle Ben’s, Suraj and President’s Choice, Sunstar decided in 2000 to try its hand in selling brown, unpolished rice to European millers. Says Ajay, “Not many Indian basmati exporters were concentrating on the EU at that time, given Europe’s high duties on imported white rice. That provided an opportunity for us to experiment. To avoid the EU duty on polished rice imports, Naresh Aggarwal, the chairman of Sunstar Overseas, decided to tie up with rice millers in Europe to sell them brown rice instead, which does not attract a duty.”

This commercial strategy continues today. Five millers in France, Germany, Belgium, and Italy import Sunstar’s brown rice and complete the polishing process themselves. Then, they resell the resulting polished, white rice to European retailers under their own brands, though some millers also sell the traditional brown rice. Sunstar is now India’s largest brown basmati rice exporter to Europe.

The idea of experimenting with organic rice production— another new, untapped market—quickly became wrapped up in Sunstar’s plans to export brown basmati to Europe. With the help of Fairtrade Labelling Organizations International (FLO), the company created the Sunstar Fairtrade Federation in 2001. Fair trade provided an incentive for small farmers working with the company to convert to organic production. Sunstar successfully obtained fair trade certification for its organic basmati production in 2003, and for its conventional basmati a year later.

To overcome farmers’ initial skepticism about converting to organic production, Sunstar contracted with them to buy 100% of the rice they produced in the first few years. Group organic certification was initiated in the 2001 through ECOCERT. Using an increasingly common process called an Internal Control System (ICS), Sunstar takes responsibility for inspecting its own farmers. “The third party certification bodies,” according to Narender Sidhar, vice president for finance and accounts, “then only have to inspect how well the system itself is functioning, along with random spot checks of individual smallholders for verification.” The ECOCERT certification rests with Sunstar. This reduces the cost of certification, but also means farmers cannot market their rice as organic if they sell individually to another buyer.

Aided by the farmers’ federations, Sunstar signs five- year contracts with farmers. These agreements spell out the type of crop to be cultivated, pricing and purchasing policies, terms of payment, additional premiums (which range from 10-25%, and vary by purchasing season), the responsibilities of Sunstar and the farmer, and conditions for non-compliance and termination of the contract. According to Narender, “Regular discussions between the company and the farmers focus on the use of agri-inputs, disease and pest attacks, soil fertility, and crop management.”

These arrangements have enabled Sunstar to realize its goal to “set up a system that would allow them to have complete control over the stages of the basmati value chain in order to ensure product quality,” notes Ajay. Sunstar no longer promises to purchase 100% of everything produced. Instead, says Ajay, it strives to be “selective in procurement” and “only purchases those crops that match our quality standard.” Farmers have the right to be choosy, as well: they are free to sell their produce to other buyers “if the price offered is not up to their expectations or is below market price.”

Sunstar also focuses on fair practices with its employees. Several years ago, they created a corporate social responsibility policy emphasizing good employment practices. According to Ajay, they are “one of the few companies in the [rice] business” who have taken this explicit step to serve employees.

While still relatively small compared to the market abroad, demand for basmati is picking up within India, and as a result the company has recently ventured into domestic markets with polished rice. In 2008 Sunstar introduced three domestic brands—Hello (Organic), Gateway to India, and Neel Kamal—which they are selling directly to large Indian retailers like Reliance Retail and Food Bazaar.

Sunstar’s practices have clearly benefited participating farmers. Fair trade farmers receive hands-on training in organic production techniques, soil protection and improvement, proper production and use of organic manure, and sustainable use of local resources. They also get access to improved inputs like certified seeds and biofertilizers, all through interest-free credit. As their product quality has improved, their income has grown.

Farmer Palla Singh reports, “Now I make sixty or seventy thousand rupees (US $1500-1750) annually; earlier it was twenty or thirty thousand rupees (US $500-750) annually. With the extra income we have built our house.” His wife adds, “We have been able to send our children to school, added rooms to our house, even married off our children.”

The wife of farmer Jabar Singh says that “with the extra income we can buy cattle, invest in small business, and improve our farming. Earlier, we had to travel long distances, over several days, to sell our paddy—sometimes even to other states—and there was also the danger of getting robbed on the way back.”

The living standards of entire farming villages improved as well, all without the use of child labor (which is prohibited in Sunstar’s purchasing agreements). Members of the Federation jointly and democratically decide how to use the fair trade premiums. Says the wife of farmer Rafal Singh, grinning, “Women are active participants in deciding which projects to undertake. When the improvement happens in the village, obviously everybody gains.”

The priority thus far for expenditure of the fair trade premiums has been infrastructure improvement. The monsoon season used to mean that tractors and bullet carts could not get through to the fields, and at times, even walking to farms was impossible. Now many of the participating villages have roads, bridges, drainage ditches, and bus shelters. Notes Rafal, “Since 2001, we have no problem reaching our fields. We can bring back the paddy to our village by tractors or carts.” Children who once fell sick from their waterlogged journeys can now walk to school. New fences around their schools protect them from stray cattle and garbage that used to be tossed onto the playgrounds.

With the assurance of a better price and organized procurement at their doorstep, farmers are now approaching Sunstar to join the federation, rather than the other way around. Even though the farmers’ contracts do not bind them to selling to Sunstar, “there is enough mutual trust between the parties where nobody abandons the other,” says Narender.