Just Change
Business Plan To Operationalise Participative Capital
Changing The Role Of CapitalFor Sustained Growth In Rural India
Produced by the participants of the Global Young Leaders Programme, November 2011
Table Of ContentsExecutive Summary 3
Introduction 5
Background 6
Business Model 14
Business Development 27
Supply Chain Management 37
Community Benefits 44
Financial Analysis 50
Recommendations & Conclusion 65
Appendix 69
Executive Summary 1 of 2 • Just Change is a community led initiative that
grew out of the struggle of the Adivasis of Gudalur, Tamil Nadu to improve and sustain their livelihoods in the face of adverse market forces
• An examination was conducted in the way the currently economy is structured
• Just Change India has developed a concept to address this issue – an international cooperative of producers, consumers and investors, enabled through a Participative Capital business model
• The business model outlines the establishment of a new “Operational Company”, that links producers, consumers and investors to provide mutual economic and social benefits
3
Executive Summary 2 of 2 • To operationalise Participative Capital an
estimated capital investment of INR 100 million (10 crore) is required in which a return will be expected by the fourth year
• By sharing returns between investors and community groups, rural community livelihoods will be improved – returns are to be managed through a robust governance structure within a sustainable business model
• Community groups will re-invest the returns into community programs such as education, skills training and healthcare services as well as channel a portion into stability funds
• The recommendation outlines a pilot project with Tea and Paddy in Tamil Nadu , with the intention for expansion into neighbouring states and other commodity products
4
Just Change
Background and Objectives
I. Just Change IndiaII. Adivasis JourneyIII. Global Tea MarketIV. Global Paddy MarketV. The ChallengeVI. Investment Plan Objectives
3
Just Change India
• Just Change is a concept that grew out of the struggle of the Adivasi farmers of Gudalur, Tamil Nadu to secure their livelihoods and live in dignity
• Around 2003, “Market forces” saw prices of tea leaves plummet to a level that is threatening the farmers’ livelihoods, yet consumers worldwide continued to pay high prices
• “Just Change” pioneered an alternative way of doing business which links poor producers, consumers and investors to work together for mutual benefit
“a grassroots response to the global economy that has left the vast majority of people powerless with little or no control over factors that influence their lives...”
- Stan Thekaekara, Founder of Just Change
To foster a more just, equitable and sustainable economy for farmers
7
3
Global Tea Market - Overview• Tea is the highest consumed drink in
the world - production dominated by China, India, Kenya and Sri Lanka
• Export Market is dominated by Sri Lanka, China and India with the major players in the Import Market being Pakistan, Japan and China
• No global institution exists in the tea industry, only individual nations have national Tea Boards or Tea Associations
• Tea production is labour intensive where the livelihoods of millions in the rural areas are largely dependent on tea picking and processing
GLOBAL TEA PRODUCTION
Source: Tea Board of India, www.teaboard.gov.in
9
33
Tea Market – Sustainability Issues
• Global prices have been declining since 2000 due to the price collusion by the oligopolistic tea manufacturing industry
• A combination of price volatility and the domination of the tea supply chain by a few international companies is adversely affecting the sustainability of the tea sector
• Working conditions and livelihoods of plantation workers and small scale farmers in tea producing countries are under growing pressure - most earn less than Rs.100 a day.
10
3
Global Paddy Market – Overview• Rice cultivation is the principal activity and source of income for
millions of households around the world• At the beginning of the 1990s, annual production of rice was around
350 million tons and by the end of the century it had reached 410 million tons
• Globally, India has the largest rice area and is second in rice production, after China
• Among the exporting countries, Thailand, Vietnam, India and Pakistan are the major countries exporting rice in sizeable quantity
11
The Challenge
“The YLP participants work closely with Just Change to address the challenge of operationalising, on a larger scale, the concept of Participative Capital which is envisioned to generate a more equitable economic and social benefit for the network of producers and consumers as well as provide a return of investment to the investors.”
*Sources: International Fund for Agricultural Development www.ruralpoverty.org & China vs. India: A Tale of Two Plans, The Economist Network
Two thirds of India’s population are rural farming communities with 30% living below the poverty line. While the economy has been growing at 8% , agricultural output has risen at only 3.3% per year*
POVERTY
Commodity retail prices largely benefit the intermediary branding and packaging companies, wholesalers and retailers
MARKETINEQUITY
Access to basic commodities like tea, rice and spices have become disproportionately expensive for consumers and less profitable for producers
COMMODITYACCESS
RESTRICTIONS
12
Investment Plan Objectives • To create an investment framework for the operationalising of
Participative Capital• To allow investors with aligned interests to become active
participants of social change while realising a financial return• To ensure fair prices for producers so they have more control• To deliver good quality products at fair prices to consumers• To enhance and improve the overall societal development• To create an investor framework that can be applied across
different commodity products and states in India
Creating a more just, equitable and sustainable economy
13
Just Change
Business Model
i. Purposeii. Participative Capitaliii. Benefits of Co-Destinyiv. The Key Playersv. Business Modelvi. Organisational Structurevii. Governance Overviewviii. Governance Approach
Purpose• To outline the enterprise operating on the principles of sustainability to also be run as a profitable business • The bases of the enterprise is on the principle of Participative Capital, to include the participation of producers, consumers and investors• The governance structure of the enterprise is to ensure equitable returns are delivered to all stakeholders
15
16
•Relationship reinforced among participants via co-existence and co-operation towards a common destination and mutual economic and social benefits
Co-destiny
•The transactional value derived from the commodity, consumption and capital from the network of producer groups, consumer groups and investors results in surplus which in turn is redistributed equitably into the business or contributes to improving the standard of living of the people in rural India
Value and Surplus
•A structured Operating company linking consumer groups and producer groups, focusing on supply chain efficiency and surplus distribution
Central Governance
Participative Capital Participative Capital is a concept that generates a more equitable economic and social benefit for the network of producers and consumers as well as provide a
return of investment to the investors.
Sustainable business income and growth
Equitable distribution of economic benefits
Extend social benefits to the greater community
Participative Capital - Visual Model
17
Benefits Co-Destiny
Capital Investors
Producer Groups
Community & India
ConsumerGroups
Co-destiny• Receive goods at a fair
price• Improved quality of
products via improved supply chain model and governed process and federation aggregator
• Better price stability via Federation’s risk fund
• Enjoy economic & social benefits from surplus
• Improve standard of living in rural India
• Strenghting community relationships
• Fair price for their products
• More consistent demand via a more structured supply chain and loyalty incentives
• Enjoy economic and social benefits from surplus
• Financial return on investment
• Contribute to betterment of society e.g. minimise poverty and improve standard of living, healthcare and education
• Small investment – Big impact
18
The Key PlayersProducer Groups
Farmers represented through Local Societies at Village/Taluka
levels
Consumer Groups• Cooperatives• Mid-size wholesalers• Local consumers in villages
Operating Company(JCI Producer Company)
• Deploy ‘Capital’ provided by investors• Process commodities provided by the
Producing Groups• Distribute commodities to Consumer Groups• Distribute financial returns to all stakeholders
InvestorsProvide capital with the intent to generate financial return
19
Organisation Structure
ExternalAuditors
Board of Directors
JCIPC ( Just Change India Producer Company )
JCT PG Shareholders GM Investor
Oversight /Approval
Finance & Admin Operations
Supply Chain
Purchases
IT
General Manager (GM)
Community Relations
Marketing & Bus Dev Operation
Executive Director
Just Change Trust (JCT) Advisory/Think tank
21
Just Change India Producer CompanyJCIPC - an Independent Operating Company• JCIPC is to facilitate return on investment and build capacity to expand
product(s) and services• JCT will continue to operate as a think tank, independent of JCIPC but will also
take an advisory role on Board of Directors• Board of Directors consists of representatives from all the major stakeholders
to oversee and approve the major decisions made within JCIPC, ensuring the direction and purpose of the entity remains community driven
• The day to day operation of the entity is split into several business units including: Finance & Administration, Operations and Community Relations
22
23
Business Units 1 of 2Role of Finance & Administration• Investment management• Governance of capital and
surplus• Provide funding management
to Operations• Distribute funding to producer
members• Identify and manage financial
privileges for members (i.e., rebates)
• Human resource administration and management
• Internal audit
23
Role of Operations• Business Development & Marketing
• Marketing & communications• Promotional materials• Public relations• Brand awareness• Pricing
• Supply Chain• Manage the market place• Manage logistics• Manage warehouse
• Purchasing• Inventory management• Supplier management
• IT• Manage technology vendor• Provide day to day technology
support
Business Units 2 of 2
24
Role of Community Relations• Communication with
community• Community development
initiative• Community fund
Management
Business model and organisation structure will ensure:• Compliance with all applicable laws and regulations• Transparency and segregation of duties in the overall
administration of the Operating company (see business model)
• Accountability of key stakeholders• Effective management of the capital and financial surplus
distribution amongst investors, consumers and producers• Profitable management of a multiple commodity products
enterprise (Rice, tea) • Execution of strategy
Governance and management organisation structure is scalable for multiple product(s).
25
Key Aspects of Governance
26
Governance Approach
• Exclusive participation via shareholding in Operating company, assurance of fair price and quality goods and incentives to promote continuous supply and demand of commodity
• Selection criteria of participants in supply chain for worthiness
• Central governance on surplus management via Board of Directors of Operating company benefitting consumer groups, producer groups and investors
• Operating company to focus on business development; match demand and supply as well as ensure fair price, price stability and quality goods
• Central governance on surplus management via Board of Directors of Operating company
• Dedicated community relations personnel to focus on community development initiatives
• A structured Operating company linking consumer groups and producer groups, focusing on marketing and supply chain efficiency
• Selection criteria of vendors/suppliers for worthiness
Sustainable business income and growth
Equitable distribution of economic benefits
Extend social benefits to the greater community
Improved and efficient marketing and supply chain
Just Change
Business Development
i. Purposeii. Market Strategy Overviewiii. Marketing Planiv. Branding Strategy
Purpose• Participative capital is a new concept being introduced
amongst producers, consumers and investors and therefore a strong marketing plan is required for successful business development
• As a ‘start-up’ the main goal is to increase awareness and gain the confidence of producer and consumer groups
• A secondary goal is to develop a strong brand which will build trust and loyalty to JCPC
28
Marketing Strategy Overview
Top priority is “Attracting Consumers & Producer Groups”
Marketing Strategy
BrandingAttracting
Consumer & ProducerGroups
STEP 1 STEP 2
29
Marketing Plan – Year 1 and 2Main focus:To attract Consumer and Producer Groups
Method • Year 1 and 2 – focus on maintaining and extending consumer demands and ensure production levels increase accordingly as well• JCIPC will be using their in-house resources to achieve their first two years’ marketing goals• The approach in the first two years do not require substantial investment• After the first 2 years, once the base of producer/consumer have been founded with investment flowing in, more substantial marketing activities are planned in accordance with an increased budget for marketing expense• Plans to attract producer and new consumer groups are outlined in the next two slides
30
No substantial marketing expenses expected in years 1 and 2
Attracting Producer GroupsFor existing producer groups/circle:Suggested methods:• Supply contract: premium at signing of
contract: e.g: INR20/kg green leaves• Guaranteed fixed buying price: e.g:
INR45/kg green leaves• Share of surplus/volume unit • First right to invest• Group representative have aggregated
vote in decision making process • Access to education and health care as
members• All groups benefiting from
participative capital
For new producer groups/circle:Suggested methods:• Multi level marketing: producers
earn eventual share of surplus increases
• At signing supply contract: entitled to the benefit package offered to existing members
31
Attracting New Consumer GroupsSuggested methods
• Initially use word of mouth, going through trusted organisations and then using the success stories to attract others, highlighting all the benefits of participating
• Benchmarking against market price and offering discounts
• Partnership with cooperatives in Tamil Nadu, Kerala, and other states: % per total volume to the cooperatives ; mutual technical support;
• Referral scheme• Membership discount for loyal
consumers
32
Marketing Plan – Years 3-5
Year 3 Year 4 Year 5
Producers Educate and visit new villages on concept to get buy in and develop relationships
Roll out rewards scheme for new producers (commission)
Media campaign
Policy advocacy
Trade show
Best producer of the year award
Tea Consumers
Newspaper adsFlyersWebsite
TV adTea tastingProduct Promotion
Trade showStudy tour
Paddy Consumers
Newspaper adsFlyersRice tastingRoadshow
TV adsWebsiteRoadshow
Trade showStudy tour
*Eakgon Cellphone is a cellphone service for illiterate farmers to provide them with information on cultivation
Starting in year 4 the budgeted marketing expenses will increase allowing for additional efforts in scaling up JCIPC’s operations.
33
Market Expansion PlanTea to besold [MT]
No. ofSociety
Households
Year 1 100 5 20,000Year 2 125 6 25,000Year 3 188 8 47,000Year 4 281 10 132,070Year 5 422 15 557,335Year 6 633 25 3,527,933
Period Rice to besold [MT]
No. ofSociety
Households
Year 1 2000 8 20,000Year 2 4000 12 40,000Year 3 8000 18 160,000Year 4 14000 25 1,120,000Year 5 21000 35 11,760,000Year 6 30000 40 176,400,000
Period
In order to achieve the above mentioned figures, we will do the following steps:
Step 1: Promote brand and bring societies on board
Step 2: Branding
*Projections are conservative and expected to be exceeded based on selling goods in open market
34
Branding Strategy – Just Change Tea & Rice
Promotion
• The brand will be associated with certain communities i.e. Raitasanga
• Create sense of ownership / relationship with the brand
• Offer free samples to potential consumers
• Multilevel marketing• Use referrals and
word of mouth to increase awareness
• Business tie-up with entrepreneur groups in the society
• Price penetration within the different groups of society
• Premium pricing for different quality of tea / rice
• Leverage on existing retail chain outlets in YR1 to mid YR2
• Set up new exclusive retail outlets
• Location based brand will serve as potential tourist destination site
35
Product Place
PricePromotion
Just Change
Branding
“Supporting the communiTEA”
“Just Change your rice”
Enabling a sense of ownership within the community
36
Just Change
Just Change
Supply Chain Management
I. Traditional Supply Chain Model & IssuesII. Solution to the Traditional ModelIII. Benefits of 3 Tier Supply ChainIV. Why a Marketplace is NeededV. Marketplace FrameworkVI. Warehousing
Farmers
Mandis(Market)
Aggregator
ProcessingPackaging
State Procurement
System
IntermediaryDistribution Hubs
Consumer
RegisteredDealer
Traditional Supply Chain Model & IssuesIssues• Exploitation by dealers and
aggregators• No common marketplace to:
• Buy and sell product • Identify producers and
consumers beyond local boundaries
• Share information• No warehouse for temporary storage• Lack of logistics network
Lack of marketplace between Producers and Consumers limits fair trade and equitable growth
38
VillageFarmers
Producer Group
Operating Company
ConsumerGroups
Open Market
Consumer
Warehouse
Solution to the Traditional Model
Tier 3 : Consumer Groups• Sales & distribution to end consumer
Tier 2 : Operating Company• Marketplace to link up producers and
consumers• Warehousing/stock management
Tier 1 : Producer Group• Process goods, packaging• Sell goods to Operating Company
3 Tiers Supply Chain Model
3 Tier model links up producers and consumers directly
39
Benefits of 3 Tier Supply Chain ModelProducers enjoy:
• Increased margins due to direct sale to consumer groups
• Easy access to information• Ability to retain personal relationships
Consumers enjoy:• Ability to search and price compare• Lower prices due to direct purchase• Decreased costs through the use of online auction• Easy access to information to facilitate daily operations
These benefits are obtained by using the marketplace platform within the Operating Company.
Marketplace is the essence of 3 Tier Supply Chain Model
40
Why a Marketplace is NeededA marketplace enables Producers and Consumers to:• Communicate effectively
– Linking rural communities to consumer groups– Visibility of supply and demand beyond local networks
• Trade, Buy and Sell– Price creation and determination– Match up willing buyer and seller
Marketplace brings producer and consumer groups together
41
Marketplace Framework
• Concept• Create a marketplace platform online and through a mobile phone network for
Sellers and Buyers to go beyond the current limits of a traditional market• Role
• Enable Producers and Consumers to buy and sell products beyond current boundaries, by leveraging on the information and logistics network provided and recommended by the Operating Company
• Establish the connection between Producers and Consumers, allowing them to interact and communicate
Successful marketplace implementation needs warehousing
42
Warehousing • Concept
• Serves as storage of products when there is no immediate match in the Marketplace between producers and consumers
• Operating company manages logistics to Consumer for warehouse products
W arehousing enables sales at the right time and price
• Role• Provides Producers with stable income with stable sales of products • Provides Consumers with reliable supply of products • Operating company’s purchase of product during oversupply eliminates
price volatility for Producers
43
Just Change
Community Benefits
I. Community Services OverviewII. Impact Opportunities III. Financial BenefitsIV. Women EmpowermentV. Community Benefit Indicators
Community Services OverviewPrimary issues faced by the community:• Availability and usage of public health services and facilities is still
minimal at best - critical care services are often 100KM or more away.
• Significant school dropout rates among children• Market fluctuations often lead to significant income loss for rural
farmers who lack access to emergency funds, which results in the loss of land – this has also led to a disturbing increasing trend of alcoholism and suicide rates
45
Impact Opportunities A Board of Directors of the Operating Company is to allocate certain funds to address the community needs. This pilot program is to focus on:
• Education and Skills Training• Healthcare services• Improved communication
• As returns increase as the operations scales up, additional services may be introduced to address needs of other target communities, including:
• Women’s empowerment• Financial assistance through community funds for
contingencies• Community services will roll out all activities & services via
existing community structures
46
47
Financial BenefitsCurrent scenario, as is:• Currently the producers are
organised only to a limited extent while the power of collective financial capability is not realised so far
• The community borrow money from local money lenders at a very high interest rate when in need - interest rates are often 3% /month
New initiatives:Community loan fund• To address financial constraints caused by
unforeseen events• It is paid out as a low interest loan i.e.
interest sufficient to cover administration, supervision & loan loss cost with no element of profit taking
• Initial funding from Investors portion• Kept sustainable by a) repayment by
borrowers b) surpluses generated by business
Implementation Needs:• Group lending by way of cross guarantee• Cap on borrowing size per borrower, loans are short term in nature 1-2 years• Cap of number of loans to be lent in each financial year.• Governance at project level to ensure compliance of operational/administrative
procedures & policies.• Set up a team to operate the fund
48
Women EmpowermentCurrent scenario, as is:• Women’s power is not fully
utilised for the community’s benefit
• Each woman is an individual worker, therefore no leveraging on the power of women as a group
New initiatives:• Build a stronger, happier and value
driven community through the groups, focusing on: – Managing household financials and
savings– Collective bargaining of goods for
the community• Visit other communities and villages to
learn and share best practices• Reskill in areas to support execution of
the model (i.e., SNEHA group)• Increase awareness of government
schemes and ways to take better advantage of them
Implementation Needs:• X* salaried women to visit
communities• Driver(s)• Car(s)• Administrative support
*Number is scalable, depending on membership
Community Benefit IndicatorsCommunity Intangible benefits Tangible indicators
Producers Steady income Net increase in average income
Primary Education Number of children enrolled in primary schoolLiteracy rate: percentage of people
Healthcare Number of injury deaths
Number of deaths in children age 1-59 months
Skills training Percentage of revenue growth in community
Communications Number of people who has access to the broadband internet including common facilities
Consumers Lower retail price Discount rate: the percentage of deduction of price compared to the market price
49
*Additional details on community opportunities in appendix
Just Change
Financial AnalysisI. Key TargetsII. Shareholding PrinciplesIII. Capital Raising IV. Surplus DistributionV. Key AssumptionsVI. Financial Overview VII. Sensitivity AnalysisVIII. Future Growth Driver
Key Targets • Sustainable
• Multiple revenue streams creates surplus stability• There will be two rounds of capital raising to maintain stable
cashflow for working capital and business expansion• Scalable
• Profitability of business is highly dependent on scale and volume• Model is dependent on Just Change’s ability to attract producers and
consumers • Lowering marginal costs and capital expenditures create attractive
margins for business expansion• Large potential for growth
• Flexibility of business model promotes expansion into more commodities (such as spices, vegetable oil, cotton, cocoa etc.)
• Case study of tea and paddy is highly promising
The economics of participative capital delivers financial gains
51
Shareholding Principles
Investor – 90%
Producer – 10%
Capital Repayment
Investor – 90%↓
Producer – 10%↑
Stable Shareholding
Investor – 35%
Producer – 65%
Initial Shareholdin
g
Participative Shareholding
Model90 (Capital to be repaid) 10
218Surplus 20
90%
10%90-18 = 72 28
4272-14 = 58
14 6Surplus 20
72%
28%
52
The Shareholding structure is not only determined by capital contribution but also by participative contribution to the business
The shareholding of producers increases as the initial capital investment is repaid
Investors will provide the capital for the business, and producers will be providing their labour and
sweat capital
Example of Participative Shareholding
Capital Raising - Shareholding
PRODUCER
SHAREHOLDING COMPANY
Capital 10%
Capital 90%
INVESTOR
Capital 100%
Sweat Capital
Shareholding Interest on day 1
10% 90%
Producers become shareholders by investing labour capital
The operating company will make an upfront commitment of 10% of capital raised to invest in a community fund on day 1
The shareholding structure is linked directly to the amount of invested capital left to be repaid
The long term stable shareholding relationship will primarily benefit the producers
COMMUNITY FUND
FUND TO BUSINESS
53
Capital Raising - Overview
Bridging the gap
Investor Capital Breakdown
90%
10%
Business CapitalCommitment to Community
Total Participative Capital InvestmentINR 100M
Upfront commitment to communities
• Capital raising will occur in two rounds, both raising INR 50M
• Second round will take place in year three of operations
• Producer communities will have an opportunity to invest in the second round of capital raising
Business Capital Breakdown
50%
20%
30%
Working Capital MarketingStability Fund
54
Capital Requirements - Overview
50%
20%
30%
Working Capital Marketing Stability Fund
The capital raised will be primarily used for working capital
To mitigate financial risks arising from supply and demand mismatches and production shortfalls due to natural forces, a stability fund will be established
Marketing and brand building will be essential in establishing our business operations and is a key consideration during the capital raising process
The business will require a large provision of capital for working capital needs especially in the beginning stages of operations
INR 90M
55
Overview – Surplus Distribution
The distribution of surplus will filter through 3 levels
First 3 Years
Stable Distribution
Beginning Distribution
Stable Distribution
Multi-level surplus distribution
structure
56
Overview – Surplus Distribution • The operating company will retain 100% of the surplus in the first three years
to build the business
• Thereafter, the operating company will retain a constant 25% of surplus to maintain operations
• Of the remaining 75%, surplus will be distributed to both the producers and investors with the division skewed towards the investors until the original capital invested has been repaid
• The producers’ share of the surplus will be returned in the form of cash and community investments via the community fund
Investors benefit more at the start of the venture. Upon capital repayment, majority of surplus goes to producer
57
Key Assumptions
Assumptions provided from sources within the producer communities
Rice Tea
Y1 Y3Commodity Annual Growth Rate
Tea 25% 50%
Y1 Y3 Y5
Commodity Paddy Composition
Cost INR/kg Sell INR/kg
Unbroken Rice 68% 18.5 22 24 26.25 Broken Rice 7% 9 11 Husk 20% 4 5 Rice Bran 3% 27 37
Y1 Y2 Y3 Y4 Y5Commodity Annual Growth Rate
All Rice Products 100% 100% 75% 50% 43%
• Rice production anticipated for high growth in the first three years that will then taper off
• Conversely, tea’s growth rate is expected to accelerate after the second year of production
• No expected growth in broken rice, husk and rice bran in 5 years as their contribution in terms of value is small
Y1 Y2 Y3 Y1 Y2 Y3Commodity Cost INR/kg Sell INR/kg
Tea (Mass) 70 75 80 100 112 125
58
Financials – Income Statement
Margins increase with scaling efficiency
Financial Overview (INR M) Y1 Y2 Y3 Y4 Y5 Y6
Total Sales 45.7 85.4 177.2 304.3 488.6 702.0
Total Cost of Goods Sold 43.6 79.6 157.9 269.9 404.6 578.8
Net Profit -1.4 -0.5 9.3 17.5 49.8 72.9
Gross Margins 19.9% 20.4% 20.1% 19.8% 25.1% 25.1%
Net Profit Margin (%) -3.1% -0.6% 5.2% 5.8% 10.2% 10.4%
59
Financials – Gross Income
Higher margins obtained with economies of scale
Warehousing (INR M) Y1 Y2 Y3 Y4 Y5 Y6Total Paddy (MT) 2000 4000 8000 14000 21000 30000COGS 29.6 59.3 126.7 221.8 332.6 475.2Sales 35.7 71.4 153.6 268.8 435.3 621.9Total Tea (MT) 100.0 125.0 187.5 281.3 421.9 632.8COGS (INR M) 7.0 9.4 15.0 22.5 33.8 50.6Sales (INR M) 10.0 14.0 23.4 35.2 52.7 79.1Cash Surplus (INR M) 9.0 16.7 35.3 59.7 121.7 175.2Gross Margins 19.8% 19.6% 19.9% 19.6% 24.9% 25.0%
Participation Fee (INR M) Y1 Y2 Y3 Y4 Y5 Y6Paddy Volumes handled (MT) 1360 2720 5440 9520 14280 20400Paddy Value 29.92 59.84 119.68 209.44 314.16 448.8Tea Volumes handled (MT) 50 250 500 700 1200 1800Tea Value 5 25 50 70 120 180Participation Fees 0.35 0.85 1.70 2.79 4.34 6.29Participation & Vendor Fees 0.35 0.89 1.85 3.09 4.84 7.29
60
Financials – Operating Margins Operating Cost (INR M) Y1 Y2 Y3 Y4 Y5 Y6 Headcount 5 6 7 8 8 9 Salary and Wages 1.7 2.3 2.9 3.6 3.9 4.1 Office exp. Including rental(SGA) 1.2 1.2 1.8 1.8 2.2 2.2 Marketing(SGA) 0.9 1.8 1.4 2.3 2.5 3.6 Promotion(SGA) 0.9 1.8 1.4 2.3 2.5 3.6 Warehouse costs 0.3 0.6 1.2 2.1 3.2 4.5 Transport Costs 4.2 7.0 10.9 18.6 29.9 42.9 Training Camp costs(SGA) 0.9 1.8 1.4 1.6 2.5 3.6 Interest (10% rate) 0.0 0.0 0.0 1.2 3.0 6.0 Total Operating Cost 10.1 16.4 20.9 33.6 49.5 70.5 Operating Margin -4.3% 0.0% 7.7% 8.8% 15.3% 15.8%
Supply chain costs make up the majority of OPEX
61
Financials – Returns to Investors Investor Interests Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10
Investor Shareholding (%) 90.0% 90.0% 90.0% 88.7% 85.5% 69.5% 35.0% 35.0% 35.0% 35.0%
Surplus to Investors (INR M) - - - 6.3 11.6 32.0 38.0 21.1 23.2 25.5
Investor IRR (%) - - - -86.3% -48.8% -15.6% -0.6% 4.3% 8.1% 11.0%
Participative capital investing is a fairly new investment concept
The expected return is relatively lower in comparison with conventional investments
This model offers an investor the opportunity to enhance the community’s well being in India
Investors can fulfill an engaging relationship with a community for better living.
The investment gives the community a sense of purpose
62
Sensitivity Analysis Net Profit (INR M) Y1 Y2 Y3 Y4 Y5 Y6
Best Case (+20% Production) 5.0 11.4 34.1 60.1 118.2 171.2 Base Case -1.4 -0.5 9.3 17.5 49.8 72.9
Worst Case (-20% Production) -7.8 -12.5 -15.5 -25.1 -18.6 -25.4
Investor IRR Y4 Y5 Y6 Y7 Y8 Y9 Y10
Best Case -79.5% -39.0% -7.8% 3.8% 9.2% 13.1% 16.1%
Base Case -86.3% -48.8% -15.6% -0.6% 4.3% 8.1% 11.0%
Worst Case -93.5% -59.0% -26.4% -9.1% -1.6% 1.8% 4.7%
Water and weather conditions have a strong impact on crop production and financial performance
63
Because weather conditions will change year to year, the worst case scenario where production is consistently below estimates is highly unlikely
Future Financial Growth Driver
Scale up requires additional margins to be obtained through the optimisation of the supply chain
64
Recommendations & Conclusion
I. Implementation MilestonesII. Risk Assessment MatrixIII. Recommendations & Conclusion
Implementation Milestones
Create Operating Company
Source & Implement
Supply Chain
Year 2Year 1 Year 3
Secure Capital
Year 4 Year 5
Investor Surplus
Distribution
Community Investments
Attract and enlist Producer and Consumer Groups
66
Sign up producer, consumer groups
Community benefits defined
Create brand
Community benefits defined
5 year implementation plan
*Additional details on Implementation Plan in Appendix
Risk Assessment MatrixLack of alignment of goals of members of Operating Company and Board of Directors
Lack of transparency in the administration of the Operating Company and Board of Directors
Thin spread of surplus due to overwhelming community requests
Ineffectiveness of and lack of outreach of community programmes
Limited market penetration
Lack of confidence of investors in profitability of business venture
Commodity price volatility
Inability to secure funding to commence implementation of business model
Production downtime due to poor maintenance and power outages
1
2
3
4
5
6
7
8
9
Poor quality commodity10
Supply chain failure impacting commodity distribution11
12 Commodity supply outweighs demand
5
8
2
3
7
Likelihood
Imp
act
9
Low Medium High
Lo
wM
ed
ium
Hig
h
1
4 610
11
12
67
Recommendations & Conclusion• In keeping with the vision of Just Change, a methodology in
‘operationalising ‘ a Participative Capital business model has been created
• Recommendations include the establishment of a new ‘Operational Company’ that not only links the producers and consumers but also investors
• The recommendation outlines a pilot project with Tea and Paddy in Tamil Nadu and Kerala regions respectively, with the intention for progressive expansion
• With a capital investment of INR 100M, estimated initial investments will enable scaling resulting in operating profits from year 3 onwards
• The venture is expected to improve the livelihoods of rural communities, producers and consumers alike, whilst providing a sustainable business model for the success of stakeholders
68
Just Change
Appendix
I. AssumptionsII. Financial DetailsIII. GovernanceIV. Community OpportunitiesV. Detailed Implementation PlanVI. Risks and Mitigation
Assumptions• Governance and structure created with a focus on the tea and
rice business• Marketplace system can be set up to be used via mobile phone
network and online – platform software to be developed• All producer and consumer groups have access to mobile
phones (SMS)• Logistics infrastructure exists for the delivery of goods• Surplus distribution and implement plan assumes profit
70
Income Statement Brokerage Y1 Y2 Y3 Y4 Y5 Y6Volumes handled (MT)* 3660 7283 14331 24806 37359 53518Brokerage & Vendor Fees** 0.05 0.29 0.65 1 1.7 2.8 Warehousing Y1 Y2 Y3 Y4 Y5 Y6Total Tea (MT) 250 313 391 586 879 1318 COGS (INR M) 18.8 23.4 29.3 43.9 65.9 98.9Sales (INR M) 31.3 39.1 48.8 73.2 109.9 164.8
Gross Margin 12.5 15.6 19.5 29.3 43.9 65.9
71
With economies of scale, better margins can be generated
*Volume reflects the total volumes handled for brokerage as well as warehousing for tea and paddy** Brokerage & Vendor Fees are one of the income streams along with Warehousing, income from brokerage reflects only the brokerage volumes
Financial Overview
(INR M) Y1 Y2 Y3 Y4 Y5 Y6
lNCOME 67 110 192 323 485 701COGS 60 101 177 299 445 639PBIT 2.2 1.1 1.5 3.7 7.4 13.6
Y1Y2
Y3Y4
Y5Y6
0
100
200
300
400
500
600
700
800
Sales
COGS
PAT
72
Operating Costs(INR M) Y1 Y2 Y3 Y4 Y5 Y6
Salary and Wages 1.16 1.36 1.51 1.61 1.61 1.71
Offic exp. Inclu rental 1.2 1.2 1.8 1.8 2.16 2.16
Marketing 0.06 0.08 0.10 0.15 0.22 0.33
Promotion 0.06 0.08 0.10 0.15 0.22 0.33
Warehouse costs 1 1 0.8 0.8 1 1
Transport Costs 3.8 4.7 5.9 8.8 13.2 19.8
Training Camp costs 0.25 0.31 0.39 0.59 0.88 1.32
Total Operating Costs 7.49 8.72 10.51 13.83 19.27 26.62
73
Transport costs is the majority of operating costs – accounts for more than 50%
Capital Required
Investor Capital Breakdown
90%
10%
Business Capital
Commitment to Community
Business Capital Breakdown
50%
20%
10%
20%
Warehousing Working Capital
Marketing Stability Fund
Total required participative capital investment• 2M USD (100M
INR, 10 crores)
74
Investment :2M USD100 M INR
Business Capital1.8M USD90M INR
Member Role Hiring profile
General Manager [1] -Decision maker in General Management Group (GMG)
-A dynamic individual who is experienced in agriculture business (Min. 5 years experience)
Finance Manager[1] -Manage daily operation related to finance such as surplus management or capital management
-A dynamic individual who is experienced in agricultures business as well as with the financial industry (Min. 3 years experience)
Supply Chain Manager [1]
-Manage daily operation related to supply chain
-A dynamic individual who is experienced in agricultures business as well as with Supply Chain management and inventory control (Min. 3 years experience)
Purchasing Manager [1 ] -Manage daily operation related to procurement
-A dynamic individual who is experienced in agricultures business as well as with previous procurement experience (Min. 3 years experience)
Marketing & Bus Dev Manager [1+1member]
-Manage daily operation related to marketing & Business Development
-A dynamic individual who is experienced in agricultures business as well as experienced with marketing and business development in the rural sector (Min. 3 years experience)
IT Manager [1] - Manage daily operation related to Business Development such as distribution strategy
-A dynamic individual who is experienced in agricultures business as well as IT experience in the rural sector (Min. 3 years experience)
Community Relation Manager [1+1member]
-Manage daily operation related to community relations
-A dynamic individual who is experienced in agricultures business (Min. 3 years experience)
Detail of JCIPC General Mgmt Group
77
Community Opportunities: EducationCurrent State• High rate for school dropouts• Dominant child labor
New Initiatives • Increased access to education
facilities by actively engaging government in partnership with NGOs
• Extend financial assistance to impoverished households
• Obtain computers for schools through donations from corporations
Education for the Future
79
• Rural farming communities have limited skill sets that prevent them to pursue secondary sources of income
• Growers among the communities are not exposed to effective crop cultivation/production methods and have less than optimal output
Current State New Initiatives • Impart training to generate
secondary source of income• Partner with agricultural
agencies to provide trainings on latest cultivation/production methods
• Extend training in basic business for enterprising members so that they can successfully start and run small businesses
Community Opportunities: Skills Training
Training for Alternate Livelihoods
80
• Rural communities often under utilise the public health services mainly due to lack of awareness
• Insufficient specialists available: Critical cases referred to places of distances of 100KM or more
Current State New Initiatives• Increase awareness on the
need for healthcare with the help of local community organisations and public health officials
• Encourage expectant mothers to go for continued follow up checks
• Bring public health officials to villages for basic medical checks ups and immunisation for children and women
Community Opportunities: Healthcare Services
Healthcare is key for good well being
81
Current State New Initiatives • Lack of awareness of
government schemes• Very limited interaction
between producers and consumers resulting in lost opportunities
• Build community groups to influence government policies/decisions to protect community interests.
• Increase awareness on government schemes and programs related to development of rural communities
• Build communication channels (phone & internet access) to facilitate interaction & information sharing between producers, consumers, investors, government etc.
Community Opportunity: Access to Information
Keeping Communities and Stakeholders Connected
82
Community Opportunities: Additional Initiatives• Take initiatives that will
empower the community through creation of Stree-shakti groups
Improving Standards for Community Stability
• Develop a community loan fund to address emergency financial needs by extending a low interest loan
83
Implementation Plan – Year 1Identify Project Manager/Lead for Participative Capital Initiative JCT
Attract investors JCT
Secure 1M Capital JCT
Hire Operating Company resources (Finance, Operations, Business Development)
JCT
Establish fund to manage 1M capital Finance
Define and implement producer group membership requirements, needs & structures (i.e., tracking)
Bus Dev
Define and implement consumer group membership requirements, needs & structures
Bus Dev
Create outreach materials to attract producer/consumer groups Bus DevIdentify and attract producer and consumer groups (i.e., Tea/Rice tasting road shows, community visits)
Bus Dev
84
Implementation Plan – Year 1Hire additional Operating Company resources (Community relations, additional Operations)
JCT
Sign up producer and consumer groups Bus Dev
Source supply chain resources (warehouse, logistics, Market Place software)
Operations
Secure financing for supply chain resources Finance
Implement supply chain solutions Operations
Create Board of Directors & elect Chairperson JCT
Define methods to communicate with producers/consumers Bus Dev
85
Implementation Plan – Years 2-5Year 3
Research Community Service needs of producer communities
Design Community benefit indicators
Define and create branding and packagingYear 4
Prioritise community services based on needs
Design operation plan and budget for community services
Distribute surplus to investors
Year 5
Launch community services to producer communities
86
Risk Assessment & Mitigation
87
No. Risk Functional Area
Likelihood Impact Risk Mitigation
1. Lack of Alignment of Goals of members of the Operating Company and Board of Directors
Governance LOW HIGH 1. Define clear roles and responsibilities of each role in the Governance Structure
2. Rotation through election of key roles in Operating Company and Board of Directors
3. Just Change to play an intermediary role in any disputes or alignment issues
2. Lack of transparency of the administration of the Operating Company and Board of Directors
Governance LOW MEDIUM 1. Establishment of a strong corporate governance model, transparency in systems, processes, decision making with clear roles and responsibilities and segregation of duties embedded in the organisation
3. Overwhelming requests for community and social benefit programmes resulting in thin spread of surplus and minimising social impact of initiatives
Community MEDIUM MEDIUM 1. Community and social benefit programmes to be agreed upon and prioritised (eg. top 5) by the established Governance structures
Risk Assessment & Mitigation
88
No. Risk Functional Area
Likelihood Impact Potential Risk Mitigation
4. Community programmes are not effective and reach only a certain portion of the community resulting in minimal social impact, potential escalation of social issues, disparity, jealousy and conflict
Community MEDIUM MEDIUM 1. Establishment of Key Performance Indicators (KPIs) for measuring benefits of community programmes
2. Implementation of robust communication channels to the various stakeholders of the business model
5. Limited market penetration resulting in low revenue growth
Business Development
LOW HIGH 1. Implementation of effective marketing strategy striking a balance of economic and social benefits
6. Lack of confidence of investors in profitability of venture and supporting risk management and control processes
Finance MEDIUM MEDIUM 1. Establishment of a strong financial and risk management policies and procedures with clear segregation of duties and delegation of authorities framework embedded in the Finance Function of the Operating Company
2. Provision of a robust financial model outlining profitability and cash flow projections
Risk Assessment & Mitigation
89
No. Risk Functional Area
Likelihood Impact Potential Risk Mitigation
7. Commodity Price volatility resulting in uncertainty in revenue streams
Finance MEDIUM HIGH 1. Monitoring undertaken by Operating Company on commodity markets and pricing trends
2. Utilise Delayed Marketing mechanism to manage price volatility
8. Inability to secure funding to commence implementation of business model
Finance MEDIUM HIGH 1. Secure strong investors with like-mindedness on both the economic benefits and long term social view
9. Production downtime due to poor maintainence and power outage resulting in supply not being able to meet demand and a loss of revenue
Supply Chain LOW HIGH 1. Implement robust preventive maintenance plans
2. Implement backup generators to supplement primary source of electricity
Risk Assessment & Mitigation
90
No. Risk Functional Area
Likelihood Impact Potential Risk Mitigation
10. Poor Quality Commodity impacting business venture economic and social interests
Supply Chain LOW MEDIUM 1. Stringent Quality Criteria established by Operating Company
2. Quality Control checks undertaken by Operating Company
11. Failure in supply chain to distribute commodities to consumer groups on a timely basis
Supply Chain LOW HIGH 1. Establishment of Key Performance Indicators (KPIs) for measuring and monitoring supplier performance
2. Multi supplier strategy to ensure contingency suppliers in the event of supplier failure
3. Stringent Supplier Assessment as part of selection criteria
12. Supply outweighs Demand resulting in excess commodity and wastage
Supply Chain MEDIUM HIGH 1. Channel excess supply to auction houses and other trading houses
2. Stringent Demand and Production Planning undertaken by Operating Company
3. Maintain contingency funds to sustain farmers livelihood
Thank you
If you are interested in more details about the business plan please contact the Global Institute For Tomorrow
Suite 1111, CityPlaza One, 1111 King’s Road, Taikoo Shing, Hong KongTel: (852) 3571 8103 www.global-inst.com