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Karuturi's African Safari Shows Signs of Wilting

November 12, 2013
Business Standard

Karuturi Global, the Bangalore-based publicly-held rose exporter, has recently seen the troubles with its employees in Kenya escalating over a wage settlement. This has snowballed into a winding-up petition filed by a packaging company which is part of the Aga Khan Development Network. Karuturi Global, which rose dramatically onto the global stage as among the leading rose exporters to Europe from Africa, is already in various stages of untangling issues over its ambitious agriculture foray in Ethiopia, which is facing backlash and is midst of various problems.

According to Karuturi Global, it is facing a winding-up petition from Allpack Industries and discussions are in the preliminary stages. According to recent reports, as a result of the financial troubles which Karuturi Global is under, it has not been able to pay salaries to employees at its expansive rose farms.

However, Karuturi has refuted the charges stating that Kenya Planters and Agricultural Workers Union officials have advised their members to reject the salaries for August and September 2013, and instead engage in various violent demonstrations pending the hearing and determination of various suits filed in the industrial court in Nakuru.

"The matter between Karuturi Limited and Allpack is only its preliminary stage and we are unable to comment on the full implication, except to say that the claim in no way represents an ability to close down operations of the company which at present is valued at $93 million. We intend to defend against the petition in a court of law," Karuturi Global said in a statement. The company's management further noted that they are working with relevant employee unions to ensure that all employment issues are managed and employees have a good working environment, and receive a fair renumeration and most of the salaries have been paid. There have been reports that as many as 4,000 employees have not received their salaries.

Karuturi Global expanded its base in Africa by acquiring Kenya-based Sher Agencies (now Sher Karuturi) in September 2007 from Dutch horticulturists Gerrit & Peter Barnhoorn. The acquisition brought into Karuturi's fold a 188-hectare farmland in the rich Naivasha region of Kenya. Of this, about 135 hectares are under greenhouse cultivation and 42 hectares in open cultivation and has an average daily output of about 1.5 million stems that are exported from Kenya to Europe.

This latest setback for Karuturi is compounding the problems for the company, which over the past four years, has been trying to establish an expansive agriculture exports business in Ethiopia. It has embarked on an ambitious $300 million agriculture foray in Ethiopia by growing a range of cereals and plantation crops in which it suffered a severe setback in late 2011 due to heavy floods in the region and had to take a hit of $15 million as its first maize crop was hit severely.

The company has acquired 311,000 hectares on a lease-hold basis from the Ethiopian government in the Baka and the Gambela region to cultivate short, medium and long-gestation crops. In the first phase, the company intends to cultivate cereal crops (rice and maize) on 70,000 hectares and oil palm on 20,000 hectares. Even as the company is going through the painful recovery from the devastating floods, it has been facing allegations of land grab. Human Rights Watch (HRW), a global independent organisation dedicated to defending and protecting human rights, had earlier raised a red flag on corporates from India expanding in Ethiopia. According to the HRW, the Ethiopian government under its "villagisation" programme is forcibly relocating approximately 70,000 indigenous people from the western Gambella region to new villages that lack adequate food, farmland, healthcare and educational facilities.

State security forces have repeatedly threatened, assaulted and arbitrarily arrested villagers who resisted the transfers, the report added. Karuturi, on its part said that the report is biased and does not reflect the truth on the ground. "We are empowering the locals with jobs and we are not into grabbing land. The report is totally baseless," the company has maintained

Recently, globally-reputed Oakland Institute also came down heavily on Karuturi on various issues and also noted that the Kenyan government found Karuturi Global guilty of tax evasion to the tune of nearly $11 million, the first time an African government has taken a large global company to court for transfer mispricing through a fully public process.

Back home, on Tuesday Karuturi reported a 25 per cent drop in net profit to Rs 12 crore for the second quarter of FY14 compared to the corresponding previous year as its net sales dropped close to Rs 95 crore. As part of its financial restructuring, the company in September restructured FCCBs worth $55 million. The promoters hold a little over 8 per cent, and the stock is trading at a miniscule Rs 1.5 a share on NSE.