Great Projects in History: IFFCO
The founding of the Indian Farmers Fertilizer Cooperative (IFFCO) is one of the most important projects in ACDI/VOCA’s history, and it arguably ranks as one of the most effective projects ever undertaken by USAID. It has particular relevance to today’s food needs, just as it did in 1965 at the height of the Green Revolution when the idea was hatched by the Cooperative League of the USA (CLUSA) and implemented by ACDI/VOCA.
During the 1960s burgeoning food needs on the subcontinent prompted dire predictions of famine. New high-yielding varieties of wheat and rice were being introduced, but they needed chemical fertilizer to be most productive. Indian cooperatives, which distributed 70 per cent of Indian fertilizer consumption, offered an adequate distribution infrastructure but had no production facilities. To bridge the demand-supply gap, a new entity was conceived as a cooperative that would align with the pre-existing network and safeguard Indian farmers’ interests, while meeting the urgent need for critical inputs.
In 1965 CLUSA, which had worked many years with Indian cooperatives, asked ACDI/VOCA (then known as ICDA) to recruit a team to conduct a fertilizer feasibility study in India. ICDA picked Howard Gordon of Southern States Cooperative as team leader and management specialist, William Mitchell of Tennessee Farmers Cooperative as marketing specialist and Albert Soday of Mississippi Chemical as engineering specialist. They carried out a study in India in September and October of 1966, and issued a report in December stating that fertilizer production by Indian cooperatives would be not only feasible but desirable. Based on these findings, U.S. cooperative support for the venture was enlisted by ICDA at a special meeting on January 16 held in conjunction with the annual meeting of the National Council of Farmer Cooperatives in New Orleans, and a fuller market study was launched by another ACDI/VOCA team headed by Don Thomas (who later became ACDI/VOCA’s president).
ICDA’s original proposal called for six ammonia plants, one to be located in each of six Indian states. Fortunately, Central Farmers Fertilizer Director of Economics and Planning, Don Thomas reviewed the proposal only days before it was to be carried to India.
In the mid-60s, a new type of ammonia plant capable of producing 600,000 tons per day was beginning to replace the older plants that could produce only 100-300 tons per day. In spite of the desire for a plant in every Indian state and doubts about Indian capacity to adopt as-yet-unproven technology, Thomas pointed out that one 1,000 TPD plant would cost less than six 100 TPD plants, would produce at a lower cost per ton and, in offering the newest technology, would demonstrate good faith to AID and to the Indian cooperatives.
On June 21, 1967, the second team hit the ground running in India with the help of sound advance work by Allie Felder, CLUSA's India representative. His planning proved especially significant when it was learned that one team member would be available in India for only 10 days and another for 16, instead of the planned 6 weeks. Two team members stayed on through July 23, and then returned to Chicago. Working virtually day and night, they completed a 120-page report, Economics Analysis of the Cooperative Fertilizer Project for India, on August 2 and submitted it to AID/Washington, USAID/India, the Government of India and the Indian Cooperatives ad hoc committee.
The plan proposed a huge fertilizer venture to help make India self-sufficient in food production. Herb Fledderjohn, president of ICDA (ACDI/VOCA), reported to the organization’s 1967 annual meeting: "This is undoubtedly the most significant potential activity for ICDA, and it may very well be the most dramatic cooperative development project anywhere in the world.”
Details of the plan included: (1) plant location at the Port of Kandla with direct access to the 35-foot channel; (2) capacities of 1,000 TPD of ammonia, 1,200 TPD of urea, and 1,200 TPD of DAP and/or equivalent quantities of very high-analysis NPK grades; (3) capital needs of $119 million, consisting of $50 million foreign exchange and $68,100,000 local currency; (4) a capital structure of 30 percent equity and 70 percent debt with one-third of the equity to be paid in by the cooperatives and two-thirds by the GOI, with the cooperatives having the right to redeem the GOI's shares over time; (5) formation of a new all-India cooperative (IFFCO) to own and operate the proposed facilities and to market the output; and (6) formation of a separate technical assistance organization by ICDA and the U.S. fertilizer cooperatives to collaborate with the new Indian cooperative in achieving a successful operation. The income statement indicated that, by the end of year 12, the new Indian cooperative would have (1) paid off all $83 million of loans and $45 million in interest, (2) paid $12 million of dividends to the Government of India plus $24 million to redeem the GOI's shares, (3) generated savings of $165 million to its members due to lower fertilizer costs and (4) achieved a net worth of $49 million. Happily, subsequent results proved these projections conservative
Cooperative Fertilizers International was the entity created that year by ACDI/VOCA to provide U.S. co-op expertise and assistance for the project’s construction and start-up, and Thomas was elected its president. He had been on the selection committee, but after a day of interviews the committee deemed none of the candidates acceptable. Thomas was asked to leave the room for 15 minutes. When he was called back, he was offered the position and accepted. Despite the size and scope of the project, headquarters staff numbered only three.
By early 1968 CFI had taken charge of all project responsibilities, and IFFCO too was taking shape. CFI and its co-op sponsors agreed that U.S. cooperatives would donate $1 million toward the project and would contribute technical assistance at cost, or less. (The final contribution was actually $1,040,000.) USAID/India Mission Director John Lewis warranted a $50 million loan from USAID/Washington based on this commitment.
However, due to congressional funding cuts USAID was able to put up only $21 million. The GOI, assisted by the nascent IFFCO and CFI, scrambled to obtain loans of $16.8 million from the British government and $1 million from the Dutch government. Funding complications delayed groundbreaking until July 1, 1971, but the delay proved advantageous: Natural gas was found to be available for the project, displacing costlier naphtha for ammonia production; equipment sources were found in India that reduced foreign exchange requirements by $10 million; IFFCO personnel received training at U.S. cooperative facilities; advance marketing got underway; and rapport grew between CFI and IFFCO.
By July 1971, the project was expanded to build two plants, one producing ammonia/urea at Kalol and another producing NPK at Kandla, at a total projected cost of $125 million. Start-up was targeted for September 1974. When completed, the actual cost came to $127 million, a scant overrun of less than 2 percent, and the start-up was in November 1974. Such on-target accomplishments would have been considered excellent even in the United State, but in India they were considered nearly miraculous.
From 1968 through 1974, CFI employed 29 expatriates in India for periods of one to four years. Only two Americans remained in India after the start-up. They stayed on until 1978, at IFFCO's request, mainly to assist in the planning of IFFCO's next ammonia/urea plant at Phulpur, which went on stream at the end of 1980. Fertilizer production from the two original giant plants began in 1974. Prime Minister Indira Gandhi herself attended the inauguration of the ammonia and urea plant at Kalol.
Today IFFCO is one of the largest fertilizer producers in the world and the largest in Asia. It has been consistently profitable and hits around $3 billion a year in turnover. Its 5 Indian plants produce about 7 million metric tons, serving 600,000 villages and many millions of customers. It has diversified into financial services and power generation, and has facilities in Oman, Senegal and Jordan.
IFFCO has a broad scope—even for a cooperative. Besides conducting agricultural extension activities and selling inputs at 158 service centers, the company works for the welfare of farmers through such entities as the Indian Farm Forestry Development Cooperative Ltd., the Cooperative Rural Development Trust and the IFFCO Foundation. It provides free insurance to farmers with fertilizer purchases and promotes e-culture in rural India through a program known as ICT Initiatives for Farmers and Cooperatives.
In March 1982 IFFCO became a member of ACDI. It has maintained its support over the years, paying the same membership fees as U.S. cooperatives, and has been represented on ACDI’s and ACDI/VOCA’s boards of directors. Its seat is currently occupied by IFFCO’s CEO, Managing Director Sri Dr. U.S. Awasthi. Visits between the U.S. and India have become customary in recent years, and win-win joint programming is now in the offing that would tap IFFCO’s 38,000 member cooperatives and ACDI/VOCA’s value chain approach to develop smallholder horticultural capacity.
Although in the early 1960s India was predicted to face widespread famine, it never happened. In fact in 2006 it managed to export 4.5 million tons of rice. ACDI/VOCA’s work founding IFFCO was a Green Revolution triumph.
