social business model for agricultural services mobile platform, philippines, jan 2013
DESCRIPTION
Participants on GIFT's 30th Global Young Leaders Programme (YLP), in partnership with IRRI - International Rice Research Institute, proposed a new business model to provide an information services platform for rice farmers in the Philippines and elsewhere.TRANSCRIPT
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Business Plan for an Information Service Platform for Rice Farmers – a Proposal for IRRI
Developed on the 30 th Global Young Leaders Programme
January 2013
2
Executive Summary 3
Introduction 7
Background 10
Business Model and Operations 21
Business Development and Strategic Partnerships 39
Sales and Marketing 43
Organisational Structure and Governance 53
Financial Projection 58
Risk Analysis and Mitigation 67
Recommendations and Action Plan 70
Appendices 79
Table of Contents
3
Executive Summary
Executive Summary (1)
• Global demand for rice will increase, particularly in Asia, alongside population placing increasing pressure on systems of rice production. The Philippines for example depends on rice imports to meet current domestic demands, in spite of having a long tradition of rice farming.
• The International Rice Research Institute (IRRI) plays an important role in performing leading edge scientific research into many aspects of rice production – headquartered in the Philippines but with a presence in rice producing countries around the world.
• Key challenges faced by smallholding rice farmers in the Philippines and elsewhere include landlessness, a vicious borrowing cycle difficult to escape from, insufficient access to credit and therefore a lack of processing tools and resources and very importantly a lack of critical information for both pre- and post-harvest activities in the rice production value chain.
• GIFT and the YLP team of participants was invited to explore ways that IRRI could consider commercialising its mobile platform: “Nutrient Manager for Rice” (NMR) in order to promote improved rice production in the Philippines, and to potentially apply findings and principles of the business model to other countries where IRRI operates.
4
Executive Summary (2) • Based on site visits to rice producing communities in Infanta and Victoria, meetings with
potential partners and stakeholders and extensive work with technical and management staff at IRRI, the team of participants recommends the establishment of a New Company to manage the development and delivery of the information platform for rice farmers – first as a pilot business in the Philippines, and then potentially applying the concept in other rice producing countries.
• The proposed New Company will:
• Manage the technology platform to provide rice farmers with valuable information from pre-production to post-harvest, including Nutrient Manager and extending beyond into other info services
• Connect farmers with service providers, financing and support the development of an inclusive value chain
• Bring together public, private and civil sector players through a new commercial entity and ownership structure that is financially viable and drives social benefit
• Promote the re-positioning of rice farming among rural communities and especially the younger generations in order revitalise rural communities and support the drive toward self-sufficiency in rice production for the Philippines, thereby helping build a future pillar of the community
5
Executive Summary (3) Key features of the new company include:
• New company to be established with a majority ownership for farmers. Details of equity stake for IRRI to be negotiated
• Impact investment opportunities for select partners or investors and shareholding options for farmers’ associations and employees, as well as ‘sweat equity’ for management
• A business model based on growing a significant subscriber base of farmers and others in the rural / agricultural community and then capturing revenue in the form of commissions from key service providers and commercial partners as well as market intelligence for sale and targeted marketing opportunities for companies seeking to market to rural customers
• A new concept for outreach and interface between the company and rice farmers in the form of a field-based sales force of “Sales & Service Agents (SSA)”, who are active members of the community and who will work to link the new company with farmers first by promoting subscriptions to the network and then to support the use of the ICT platform service as needed by farmer subscribers
The proposed company will require an initial injection of USD 6 million with a break-even at year 5 and an IRR of 54% by year 10. It is estimated that the company can reach and secure approximately 750,000 rice farmers as subscribers in the Philippines by year 10, thus promoting an increase in overall yield, improved livelihoods for farmers and enhanced rural environments.
6
7
Introduction
Project Partners
Entity Description
International Rice
Research Institute (IRRI)
• A non-profit independent research and training organisation
• Dedicated to developing new rice varieties and rice crop management techniques that help rice farmers improve the yield and quality of their rice in an environmentally sustainable way
• Works with public and private sector partners for agricultural research and extension to deliver training and knowledge transfer
Global Institute For Tomorrow (GIFT)
• An independent pan-Asian think and do tank dedicated to linking business, government and civil society to foster constructive dialogue and address global challenges
• Organises the Global Young Leaders Programme (YLP), an executive leadership programme based on real world, real time experiential learning for participants and on tangible and actionable outputs with positive social impact for partners
8
Participants from businesses and civil society worked with IRRI to propose a business model for the commercialisation of an integrated ICT platform to improve rice crop management in the Philippines, as well as strategic recommendations on managing partnerships in the future. YLP Participants came from companies and organisations below:
9
Global Young Leaders Programme (YLP)
10
Background • Global Food and the Role of Rice • Overview of the Philippines • IRRI and Rice Crop Management • Rural Mobile and Banking Markets • Identifying Gaps and Opportunities
Global Food and The Role of Rice
• A small increase in global food prices drives millions into extreme poverty
• Rice is a staple food for more than 3 billion people (almost half the population)
• More than 90% of rice is produced and consumed in Asia
• Green revolution in the 1960s introduced high yield variety seeds and agro-chemicals. Productivity doubled by late 1970s
• Continued pressure on food production driven by environmental degradation, climate change, population growth and urbanisation
11
• Adoption of effective crop management practices to maintain soil fertility and ecological balance is central to food security
• Strengthening and developing inclusive value chain is crucial to improving farmers’ livelihoods
Overview of the Philippines
Country information * Population: 104 million Capital: Manila Land area: 298 km2 Religion: 83% Catholic, 10% other Christianity, 5% Islam History and Geography Located in Southeast Asia 7,107 islands, with three main locations: Luzon, Visayas and Mindanao A Spanish colony for 300 years and under US influence for 50 years
A country of over 7,000 islands, reliant on agriculture and remittances and boasting one of the highest economic growth rates in Southeast Asia
* The CIA World Factbook, 2012
12
Economic GDP(2011): 224.7 billion USD (*2) GDP growth (1-3Qof2012): 7.1% (*3) GDP/Capita: 2369.5 USD (*2) Disposable income per household (2011): 8406.5 USD (*4) Unemployment Rate: 7.0% (*5) Poverty Rate (2009): 26.5% (*6)
Overview of the Philippines
Social Development Although the economy has been recovering steadily since 2004, the Philippines still has the highest income inequality in Southeast Asia.
A third of the population lives below the poverty level of USD1.25/Day (*7)
0
2
4
6
8
2004 2005 2006 2007 2008 2009 2010
GDP growth rate(%) in Philippines
The Philippines is emerging and promising, but still challenged by
poverty
*6 World Bank *7 CNN, What is driving the Philippines surprisingly strong growth, 2012 13
*2 World Bank 2012 *3 National Statistical Coordination Board, 2012 *4 Euromonitor International Ltd, 2012 *5 Global Finance
• Accounts for 13.2% of GDP and
employs 33% of labor force (12.27 million people) (*9)
• Crop production is 19.6 billion USD, with palay production at 6.2 billion USD
• Palay accounts for one third of the total harvest area or 4.5 M ha (*9)
• Rice production is not sufficient for national consumption needs
• A farm commonly produces rice, corn and coconut with a few livestock and poultry
• A majority of farmers have on average 2 hectares of land
Agriculture and Rice in the Philippines
*8 Philippine Daily Inquirer, ADB urges Philippines to address income inequality, 16 April 2012 *9 Bureau of Agricultural Statistics, Overview of Philippine Agriculture
14
2013 as the Year of Rice for the Philippines to reach rice self-sufficiency
Analysis of Rice Value Chain
Supply/ Production
Post-harvest Processing
Marketing/ Distribution/ Consumption
Input Supply
Production
Handling
Threshing
Drying
Storage
Milling
Wholesale
Retail
Consumption
Input Suppliers Seed, agrochemical dealers/ salesforce
Producers Farmers
Palay Traders Service units
Processors Small and large mills
Large Distributors
Retailers
Consumers
10%
18%
8%
22%
42%
15
Estimated Post-Harvest Value Loss:
90%
Significant loss in value of rice crop occurs in post-harvest due to lack of infrastructure and credit
Rice Farmers in Need of Support
• Despite land reforms, a majority of farmers are landless and are trapped in a cycle of borrowing for the purchase of agricultural inputs
• Farmers require a range of information and services, from pre-production to post-harvest, and from weather to market updates
• After labour, fertiliser is the second largest cost for farmers
• Currently the average rice yield is 3.7t/ha, lower than the world average
• Low yield partly due to the incorrect use of fertiliser (*10)
Rice farmers require additional information on farming techniques to improve livelihoods in rural areas
16 *10 FAO, USDA
IRRI and Rice Crop Management • IRRI has developed a series of ICT tools to
address rice farming, including the Site-Specific Nutrient Manager for Rice (NMR), the Rice Doctor, and the Rice Knowledge Bank
• NMR, a web and mobile based tool, to provide rice farmers with tailored recommendations on nutrient management
• 20,000 nutrient management guidelines provided to farmers in 2012
• NMR developed and tested in the Philippines and replicable in other rice producing countries
17
How to access and use Nutrient Manager
Web GSM mobile phone Smartphone
Interactive Voice
Response
implementation box
Farmer calls
dedicated number
Smartphone
output
Web output Smartphone
and mobile:
Text output Available in Philippines and
Indonesia
0
9
11 12 13 21 30 3
9
32 45 -
51
5
9
61 - 65 71 -
92
Key Findings: Nutrient Manager for Rice
Benefits
• Reduces fertiliser cost thus saving farmers money
• Potential to increase paddy yield when info is used by farmers
• Tailor-made advice for farmers
• Potential for print out service
• Net environmental and social benefits
Challenges
• NMR is beneficial but not comprehensive.
• Farmers also need assistance on weather, prices, post-harvest support to help maximise their crop
• Low penetration into farming community
• Many farmers unfamiliar with ICT interface
• Lack of availability of hardware and capital
Rural Mobile and Banking Markets
• Mobile operators achieved 67% household penetration in the Philippines
• Most prolific text messaging markers in the world – accounts for 10% of global SMS messages
• 1 million Filipino overseas workers transfer USD 50 million per month to relatives in Philippines through mobile banking
• Mobile Wallet – 8.6 million Smart Money and 1.3 million Globe G-Cash registered users
• 780 rural banks covering 85% of municipalities and cities
• BPI Globe BanKO is the Philippines’s first mobile phone-based, microfinance-focused savings bank, reaching over 400,000 micro-entrepreneurs in the past two years
19
Mobile presents good opportunities to reach rural farmers
http://www.malaya.com.ph/index.php/business/business-news/8408-billions-sent-thru-phones http://www.gsma.com/publicpolicy/wp-content/uploads/2012/03/universalaccessfullreport.pdf
Identifying Gaps and Opportunities
UNMET NEEDS OF FARMERS • Reliable technical information to
support sustainable farming practices • Access to suppliers, service providers
and buyers in the rice value chain • Access to post-harvest facilities • Access to credit, insurance and other
financial services
EXISTING INFRASTRUCTURE • Access to IRRI’s knowledge
repository and extension tools • Community organisations and
extension workers • Nationwide mobile network
infrastructure • Large mobile banking user base
RECOMMENDED OPPORTUNITY: Establish a commercially viable information service platform that leverages and expands on existing services. Beneficiaries will include: farmers, suppliers, buyers, extension workers and the larger agricultural community.
20
Integrated information service platform
can support the development of an inclusive rice value chain
21
Business Model and Operations • Introducing the New Company • Business Model • Operations • Summary of Revenue Streams
Introducing the New Company
Vision To support and connect farmers through an integrated platform to a suite of educational tools and product and services supplied by the company and key partners Mission • To bridge the gap between the needs of the farmers and those of the service
providers throughout the value chain • To support sustainable rice farming, particularly through the optimisation of
farming inputs (fertilisers, pesticides, herbicides, etc) • To develop and empower young farmers to become next generation agriculture
knowledge workers • To support farmers in improving their livelihoods • To achieve self-sufficiency in rice production
22
FarmSaya positively impacts farmers, rural communities and rice consumers, by helping farmers enhance their farming practices and livelihoods.
Farmers
Co-ops
Farmers Field
School
MFIs
Extension
Workers
Local Stores
NGOs
Business Model
23
Mobile Network Operators
Rural Banks Micro-insurance
Agri-inputs Suppliers
Agro buyers
Information Providers
Sales & Service Agents (SSA)
Mobile & Web Apps
IVR SMS
Printout
Market Intelligence
An Integrated Information Service Platform to support an inclusive value chain
Products & Services
Knowledge Providers
Core Partners
Service Providers
Farming Communities
Business Model
FarmSaya’s Network of Service Providers
24
Mobile Network Operators
Rural Banks Micro-insurance
Agri-inputs Suppliers
Agro buyers
Information Providers
Knowledge Providers
FarmSaya Accredited Local Dealers
Sales & Service Agents (SSA) work with service providers and local dealers to develop a network of accredited local dealers to provide products and services to the farming community.
Product & Services
Accreditation ensures credibility and builds trust
Core Partners
Service Providers
Business Model
FarmSaya’s Network of Subscribers
25
The success of the platform depends on the subscriber base. Higher volume of subscribers and higher usage per subscriber creates value for service providers. This is required for Farm Saya to be financially viable by monetising this value with other sectors.
Farmers
Co-ops
Farmers Field
School
MFIs
Extension
Workers
Local Stores
NGOs
Sales and service agents work with key actors in community to (a) Enrol farmers (b) Quickly scale the platform (c) Ensure regular use of the platform (d) Lower dependence on volunteers
or the overly worked extension workers
Farming Communities
Business Model
Core Services for Farming Community
26
Nutrient Manager and Crop Management
Knowledge and Tools
Organising Learning Groups
Micro-finance and Micro-insurance Group Purchase of
Agriculture Inputs
Coordination of Contract Farming with Millers / Buyers
Coordination of Farm Equipment Leasing
An information service platform to support an inclusive value chain
Coordination of Post-harvest Services
Nutrient Manager for
Rice
Rice Crop Manager
Voice service, SMS Alerts, Printouts
Knowledge Bank
Rice Doctor
Operations
Crop Management: Knowledge and Tools
Complementary Information Services
Weather Forecast
Market Information
Open Source Sustainable Farming
Knowledgebase
Local Specific Information
27
Knowledge delivery through mobile and web platforms
Primary Information and Technical Support Services provided by IRRI & PhilRice
Endorsement by Department of Agriculture will aid nationwide rollout and adoption
Operations
Micro-finance and Micro-insurance
28
Access to credit helps farmers gain access to agri-inputs, farm equipments and post-harvest services
Rural Banks Micro-finance Institutions (MFIs)
Micro-insurance Company Mobile Banking
Payment for products and services through micro-finance bundled with micro-insurance
Agri-inputs: Seeds
Fertilisers
Farm equipment
leasing
Post-harvest services: Treshing Drying Storage Milling
Farmers payback micro-loans after sales of produce
Accredited Service Providers
Linking farmers with Rural Banks and MFIs to provide access to credit
Operations
Group Purchase of Agriculture Inputs
29
Group purchase of agriculture inputs at discounted price
Accredited Agriculture Input Dealers
Farmers
Micro-financing for farmers provided through mobile banking
Nutrient Manager provides customised recommendations
Payment
Bundling group purchase with Nutrient Manager and micro-finance
Group purchase reduces cost for farmers and increases sales through the platform
Operations
Coordination of Farm Equipment Leasing
30
Coordinates leasing of farm equipment for farmers and cooperatives
Micro-financing for farmers provided through mobile banking
Leasing Company
Payment
Access to farm equipments such as combine harvester can help reduce post-harvest lost
Making farm equipments affordable with micro-finance support
Operations
Coordination of Post-harvest Services
31
Coordinates access to post-harvest services for farmers and cooperatives
Micro-financing for farmers provided through mobile banking
Drying paddy to 14% moisture content in time improves rice quality
Future opportunity may exist for FarmSaya to nurture local entrepreneurs to run post-harvest service hubs and broker members’ crops to processors.
Harvesting using combine harvesters reduces physical lost and paddy can be dried in time
Post-harvest Service Providers
Storage for 6-9 months to fetch higher prices in the market
Providing access to post-harvest service providers to ensure farmers capture and maximise crop value
Operations
Coordination of Contract Farming
32
Linking farmers to markets – ensuring accurate pricing
Links farmers and cooperatives to Millers / Agro Buyers
Facilitates access to post-harvest facilities and transportation
Payment for farmers provided through mobile banking
Contract Farming with Millers / Agro Buyers
Contract farming can help reduce post-harvest lost and capture more value for both farmers and buyers
Operations
Organising Learning Groups
33
FarmSaya SSAs may facilitate learning groups among members of farming communities. Content providers may also pay to sponsor.
Organises learning groups for farmers and cooperatives
Learning Group
Agri-inputs Suppliers
Agro buyers
Content Providers SSA Extension Workers
Farmers support and learn from each other and other mentors through learning groups
SSAs develop network of accredited local service providers and interact directly with farmers and rural communities to deliver the information on available services
• Relationship based on trust and familiarity as farmers prefer to interact with people rather machines – important for community building and growing the brand and subscriber network
• Most of farmers do not have strong technology background and some are intimidated by it
• SSAs act as the bridge and intermediary as well as service hub between the platform and farmers – certain subscribers will require more attention while others may prefer to use their own device or another device in the community. SSAs will need to be flexible to their needs
+
34
Operations
Sales and Service Agent (SSA) are a Human Interface
SSAs add a human touch to the platform when interacting with farming communities
Farmers
Co-ops
Farmers Field
School
MFIs
Extension
Workers
Local Stores
NGOs
Operations
Value Added Service: Monetisation of Market Intelligence
35
Capturing and monetising market intelligence provides targeted marketing opportunities for service providers and partners through FarmSaya
Capturing market intelligence from rural communities
Mobile Network Operators
Rural Banks Micro-insurance
Agri-inputs Suppliers
Agro buyers
Recipients
Operations Potential revenue: Market Intelligence
With the data generated from the use of the integrated platform by various parties, most notably the large numbers of farmers and rural communities, useful knowledge and insights can be extracted, organised and sold to existing partners or other businesses looking to reach rural consumers. (e.g. customer pattern, behavior, market opportunities, land usage, etc)
36
Sector Example Possible Benefits
Marketing/Retail Unilever, Nestle To use data to predict who will respond to the new marketing campaigns such as direct mail, online marketing campaign, etc
Finance/Banking Rabobank, Citibank, etc To allow banks to promote new and appropriate financial products to targeted customers
Manufacturing Kubota, etc To improve their products which suits customer better to increase sales and customer satifisation
Governments Philiphine,etc To include the data in national statistics
Data to be used ethically and as a key revenue stream to grow the business
Operations
Various Users Demand Unique Data
37
Enterprise
SME / Local Business
Community
Farmers
Mobile Network Operators
Rural Banks
Micro- insurance
Agri-inputs Suppliers
Agro Buyers
Agri-inputs dealers
FarmSaya meets information needs of Enterprises, SMEs, Community and Farmers
Local buyers, Rice Mills
Farmers Cooperatives, Extension Workers, NGOs, MFIs, Local Government
Nutrient Manager, Customers and Local Market Information
Farming Training Materials, Database of Local Farmers, Database
of Accredited Local Dealers and Buyers, Learning groups information
Personalised Farming and Post-harvest Information,
Database of Accredited Local Dealers and Buyers
Learning groups information
Market Intelligence to reach rural consumers
Summary of Revenue streams
Priority Revenue stream details
Primary • Service fee and commission for hosting and sale of
farming-related products/services through the platform
Secondary
• Service fee and commission for hosting and sale of non- farming-related products/services through the platform
• Monetisation of market intelligence • Future premium subscription model
Possible future revenue
• General sponsorships and display advertising • Sponsorship of Learning Groups available to relevant
companies (agri-inputs, etc)
38
Basic subscription service provided free of charge for farmers
39
Business Development and Strategic Partnerships • Strategic partnerships for FarmSaya • Types of partners and service providers
40
Strategic Partnerships for FarmSaya
Farmer
Rural Communities
Global Adoption
Phase I
Build a network of core partners
• Build platform and develop key features
• Meet farmers’ most immediate needs
• Increase the value proposition to encourage higher enrolments
• Encourage the use of FarmSaya as a vehicle to access farmers and sell products and services to a large subscriber base
Client base moves from farmer to rural communities elsewhere for global adoption
Phase II
Reach out to service providers
Approach to strategic partnerships expands from local to global
41
Types of Partners and Service Providers
Core Partners Service Providers
Knowledge Providers:
IRRI, PhilRice
Mobile Network Operators
Financial services: rural banks, MFIs, insurance
Agri-inputs suppliers, Agriculture products buyers
Agriculture information providers
Consumer products suppliers catering to the bottom of the pyramid and rural communities (not only farmers)
…
An integrated platform with bundled services from various service providers can off-set operation and distribution costs required to reach out to customers in rural areas
• Strategy for Phase II: Push for a differentiation of subscribers. • Service providers include companies that cater to the Bottom of the Pyramid, Fast Moving
Consumer Goods (FMCG) companies, Equipment manufacturers or Financial Services Companies
• Diversified partners provide enhanced value to the subscribers and ensures that the model moves from a farmer base to a more extensive rural community
Criteria for Partner Selection
Criteria for partnership
• Existing customer base
• Technology platform
• Access to investment and financial capital
• Strong government relationships and support
• Socially-minded companies will be given preference
Value proposition
• Prospect for potential partnerships to bundle products and services at reduced prices
• Reduce marketing cost per customer
• Large pool of service providers to entice farmers to becoming subscribers
• Opportunity to use a replicable platform
• Target large customer base across regions
• Aggregated market information
• Opens up new markets
• Nation building and social development
Accreditation of partners is critical to ensure FarmSaya achieves desired goals
42
Sales and Marketing • Objectives • Strategy • Role of the Sale and Service Agents • Reaching communities: Engaging Young
Farmers • Nationwide Campaign for Rice • Farmer Subscriber Targets
43
Objectives: Sales and Marketing
44
• To enrol farmers onto the platform, and establish a subscriber network in rural areas
• To broaden the subscription base to include other customers beyond the farming communities
• To create brand awareness and loyalty to FarmSaya by providing services needed by farmers and their household
• To turn farming into a desirable and profitable profession
• To attract young farmers and youth from rural areas
Strategy: Sales and Marketing
Shareholders
Farmer Subscriptions
Public Sector
NGOs and youth groups
Education Institutions
Media
Social Networks
Retail Chains
Agri Organisations
Religious Communities
Dir
ect
Ch
an
nel
(S
ale
s &
Ser
vice
A
gen
ts)
Ind
irec
t C
ha
nn
els
Various channels will be used to attract and enrol a critical mass of farmers and raise awareness about the benefits of joining FarmSaya to gain access to farming knowledge, products and services.
Enrolling farmers through Sales and Service Agents as well as indirect channels
Resources Required to Build Network
Direct Channel
Shareholder
Education Institute
Agri Orgs
Public Sector/ Gov Orgs
Religious Communities
Private/Corporate partners
Media
NGO
Retail Chains
Social Networks
-2
0
2
4
6
8
10
0 1 2 3 4 5
Est. Initial Resource Required (Index on the scale of 10)
Years
Note: The bubble sizes represent Est. # of farmers reached/attracted (index on the scale of 10)
46
Initial outreach driven by SSAs, public sector, NGOs and shareholders, later to be supplemented by other channels
Direct sales outreach is supplemented by a variety of marketing channels
Enrolment Strategy
• Combination of ICT tools and regular human interface to acquire farmer enrolment
• Using social media to attract young farmers
• Partners contribute with discounted and bundled services/products to attract mass enrolment
• Outreach and awareness raising through printed materials and campaigns via existing networks and multiple touch points in the community
47
Accredited dealers
Money changers
Convenience stores
Info kiosks
Pawn shops
Community centres
Religious communities
Corporate partners
PromotionPlatform Sales &
Service Agents
Farmer Subscriber Targets
15,000 60,000
135,000 225,000
285,000
345,000
417,000
518,400
622,080
746,496
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
YR1 YR2 YR3 YR4 YR5 YR6 YR7 YR8 YR9 YR10
Subscription Target by Year
48
Number of subscribers
Assumptions • YR 1 employs 42 SSAs,
each enrolling 2 farmers per day on average
• SSAs: responsible for 70% of enrolments.
• Remaining 30% from indirect channels (branding, campaign, farming community…)
Sales and Service Agents (SSAs) serve as a key channel to enrol farmers. They build relationships with local communities and become trusted representatives of FarmSaya at the grassroots level.
Subscription Target to reach 750,000 users by Year 10
49
Role of SSA in Selling Subscriptions
SSAs are clearly differentiated from public sector extension workers:
• Promote FarmSaya ICT platform and support delivering info services
• Work in best interest of farmers to improve crop management
• Highly motivated through private company incentives and potential employee shareholding options
• Well equipped with hardware and well supported with world-class knowledge resources from IRRI etc.
+
Sales & Service Agents present a new model for serving the needs of farmers
Reaching Communities: Engaging Young Farmers
50
How to achieve this?
Use of ICT devices (web and mobile) • To attract young people to get interested in IT and
bridge the digital – agriculture divide • To build an online network for young farmers to share
tips and experiences (e.g. Facebook / Twitter) • To support partner advertisement via local media
specifically targeting young generation
Deliver key messages through schools • Introduce and generate interest around agriculture and farming by promoting
the benefits of rural lifestyles as a positive alternatives to urban poverty • Generate enthusiasm by linking farming with national and cultural pride • Nurture agriculture-major students as Student Ambassadors • Fund student groups to conduct village education and registration service
Future sustainability of rice production depends on engaging and attracting the next generation of farmers
Staged Approach to Attract Young Farmers
Create awareness of FarmSaya, link to existing social media, technology & culture
Promote FarmSaya in schools, branding as cool, desirable and good lifestyle
Attract a new generation of young farmers to be active on FarmSaya, earn more and be proud of their career
• Build on the momentum from the Philippines’s 2013 Year of Rice
• Raise awareness on the importance of rice as a staple food for rural communities and urban dwellers
• Mobilise the Filipino population around a nationwide campaign in support of farming communities
Nationwide Campaign for Rice
It takes a nation to grow rice! IRRI campaign in support of the National Year of Rice
53
Organisational Structure and Governance • Shareholding concept • Organisational structure • Organisational Highlights • Governance on Intellectual Property
FarmSaya Shareholding Concept
• Core partnerships are invited for shareholding:
– IRRI
– Farmers associations
– Private sector
– Civil sector
– Government
• Equity opportunities will be offered to farmers and FarmSaya employees
• Exact shareholding breakdown to be determined by IRRI and partners during future negotiations
Potential Shareholders
IRRI
Government
Private sector
Civil sector
Farmers
54
Proposal for IRRI to invest and lead in new shareholding partnership
55
Organisational Structure
Information Technology
Responsible for: • Software development • Information management • Content development
Operations
Responsible for: • Human Resources • Finance • Legal structure • IP & Patents • Corporate affairs • SSA Training
CEO
Commercial Services
Responsible for: • Business & Product
Development • Customer data analysis • Sales & Marketing • PR & Comms
Technical Board • IRRI • Phil Rice • DA
Board of Directors
56
• Set-up of the company and development of the integrated ICT platform to be ensured by IRRI staff during the start-up phase
• Recommended secondments from IRRI and/or other partners in key functional roles to reduce overhead costs – also promotes development of commercial awareness and skills among IRRI staff, useful in future corporate partnerships
• Leverages on IRRI’s expertise and knowledge to develop the integrated platform, to include Nutrient Manager and other infomation services
• Equity opportunities to farmers associations and employees (incl. SSAs)
• Management team will be given “sweat equity” to ensure the long term interests of stakeholders and the proper incentives for growth
• Functional units headed by a CEO, solely responsible for P&L to ensure commercial targets are met
Organisational Highlights
57
Intellectual Property: Governance Issues
• IRRI should decide which knowledge should/should not be made available on the FarmSaya platform
• All IRRI research and data, including the Nutrient Manager, will continue to be hosted and protected by IRRI
• All other information and data generated by the platform, including customer information, will be hosted by FarmSaya and may be used for market analyses
FarmSaya provides IRRI a pilot opportunity to manage its Intellectual Property
58
Financial Projection • Overview • Financial Projection • Revenue Breakdown • Cost Breakdown • Scenario Analysis • Sensitivity Analysis • Assumptions
59
Financial Projections - Overview
• FarmSaya requires a start-up investment of USD 6M, according to the base case calculations, with No Additional Cash Call
• According to calculations based on assumptions, the company will break-even during the 5th year and recover the total capital investment in 6 years
• IRR over 6 years: 17%
• IRR over 10 years: 54%
FarmSaya projected to be a self-sustainable business starting in year 5
Financial Projection (Base Case)
60
(200,000)
0
200,000
400,000
600,000
800,000
1,000,000
(1,000,000)
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
1 2 3 4 5 6 7 8 9 10 (Persons) (1,000 PHP)
Revenue Net Profit Cost Acumulated Cash Flow No. of Perticipants (RHS)
Average Profit Margin of 8.7% over the first 10 years. IRR over 6 years of 17% and over 10 years of 54%
Revenue Breakdown (Base case)
61
0
100
200
300
400
500
600
700
800
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
1 2 3 4 5 6 7 8 9 10
(Persons) (1,000 PHP)
Service fee & commission from farming related sales of goods and services
Service fee & commission from non-farming related sales of goods and services
Fee from Premium Users
Data Sales
No. of Participants (RHS)
Service fees & commissions from goods and services provided through the platform are primary revenues for FarmSaya
Cost Breakdown (Base case)
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0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
1 2 3 4 5 6 7 8 9 10
(1,00 PHP)
Labor Marketing IT Occupancy Admin.
Labour costs, especially for SSA’s, is primary costs for the business
Scenario Analysis
Scenario Usage Growth Customised Data
(Revenue at Year 2) Break Even
Required Capital
Optimistic
Aggressive growth (+40%)
USD750k Year 3 USD 4.2M
Base Moderate growth USD500k Year 5 USD 6M
Pessimistic Weak growth (-60%) USD250k Year 6 USD 9.5M
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Base case shows break even in Year 5 with capital requirement of USD 6M
Sensitivity Analysis
-500,000
0
500,000
1,000,000
1,500,000
2,000,000
1 2 3 4 5 6 7
(1,000 PHP)
Accumulated Profit Accumulated Profit(Best) Accumulated Profit(Worst)
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Key Assumptions
• 70% of farmers’ total revenue is spent on farming costs. • 55% of total farming cost is labour cost and the remaining 45% is for agricultural
inputs • 30% of total farmers approached will subscribe to the platform • Once established as subscribers, 30% of farmers’ non-labour cost will occur
through the platform – thus providing commission-fee revenue • FarmSaya will cease the expansion of its sales force after year 5 • Each SSA enrols average 2 farmers per day, overall the SSA’s are responsible for
70% of the total enrolment • Remaining 30% of the enrolment comes from indirect channels • General staff salary increases at 5% annually on top of inflation • Compensation of SSA includes base salary of PHP 15,000/month, plus
suggested commission of PHP 100 per subscriber • General staff turnover rate is 10% annually
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Assumptions – Revenue and Costs
Key Revenue Streams
• Commission from sales of products and services through FarmSaya Platform
• Monetisation of market intelligence
• Future “Premium Subscription” opportunities once network is established
Key Costs
• Labor cost associated with Sales and Service Agent (SSA) is primary cost
• Marketing cost to reach additional subscribers
• IT development
• Additional operating costs
Risk Analysis and Mitigation
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Risk Assessment
IMP
AC
T
Low
Me
diu
m
H
igh
LIKELIHOOD
Low Medium High
High risk Medium risk Low risk
10 1
2
3 5
7
8
6
4
1 Demand not sufficient to match the supply provided through the platform
2 Service providers bypass platform to avoid paying commissions once establishing communication with customers
3 Expenses for managing SSA sales force too high to maintain strong cash flow
4 Competitive platforms similar to the Nutrient Manager for Rice enter the marketplace
5 Failure to build up sufficiently large subscriber network and failure to attract business partners
6 Higher than expected turn-over rate for SSAs
7 Weaker incentive for SSAs once subscriber base growth slows down
8 Natural disasters that affects business operations including projected subscriber growth targets
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Risk Mitigation
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No Risk Functional Area
Likelihood Impact Risk Mitigation
1 Demand not sufficient to match the supply provided through the platform
Business Model
H H Service diversification and continuous design to attract more customers
2 Service providers bypass the platform after establishing customer relationship
Market M M Conduct non-compete contracts with service providers
3 Expenses for SSA’s too high to maintain strong cash flow
Finance M H Need to create a secure system to outsource
4 Competitors making a platform similar to the Nutrient Manager for Rice
Market M M Leverage IRRI’s knowledge to differentiate
5 Fail to build up large subscriber group
Market M H Deploy more channels and partnerships to push sales
6 Higher than expected turn-over rate for SSAs
HR L L Good employee training scheme solid incentive plan; shareholding
7 Weaker incentive for SSAs once subscriber base growth slows down
Finance L L Good employee training scheme and solid incentive plan
8 Natural disasters that affects business operation
Nature H H Build strong local-based communities and service hubs
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Recommendations and Action Plan • Recommendations • Timeline
Recommendations for FarmSaya (1)
• An equity based model to be created for an integrated information platform called FarmSaya to enable IRRI to deliver existing and future research outputs and farming best practices to farming communities
• Develop comprehensive ICT platform with a suite of information features in addition to Nutrient Manager to include:
– Local and regional weather information and impact on farming
– Relevant information across the value chain, from pre-production to post-harvest resources
– Consider expansion to include information for other crops in addition to rice, to capture greater number of rural subscribers
– Other information solutions can come online to meet the needs of various organisations which come online at a later date
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Recommendations for FarmSaya (2) • IRRI owns the knowledge database. FarmSaya manages the platform,
distribution and operational processes to reach end users and business partners
• IRRI should take a stake in the venture while leveraging partners assets – this includes playing a leading role on the Board of Directors and contributing to the management team, potentially through secondments or rotations. Details of equity stake for IRRI to be negotiated
• Seek impact investors keen to support the development of Philippines agriculture and or rice production in other countries where IRRI has a presence
• Ensure strong government support, while being pragmatic about exact nature of collaboration and potential role in the new venture. Government can take a small stake to provide legitimacy to brand end mission
• Farmers and employees of FarmSaya to be made shareholders which will promote loyalty and retention. Formulae to be developed
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• Incentive scheme for SSA rural sales force which may include combination of salary, subscription commissions and share options
• Ensure that FarmSaya creates a movement bigger than the rice farmer alone
– Subscriber outreach should be campaign driven with nation-building approach
– Focus on ways of making farming desirable and attractive to young people from rural communities
• Seek ways for the business model to be expanded beyond the Philippines and provide ICT platform delivery and structure to be customised according to other countries’ needs and local context
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Recommendations for FarmSaya (3)
Recommendations for IRRI (1) • Pursue commercialisation as a complement to
traditional fundraising for research - IRRI recommended to seek private sector partners interested in implementation of commercial projects using IRRI scientific knowledge and network
• Use Science & Research to influence public policy outcomes and engage key private sector partners for measureable local benefits – ensuring that benefits from IRRI research are realised in the Philippines
• Consider the creation of a Public Policy department and a Business Unit and establish priorities aligned with IRRI mission and values – to be applied in Philippines as well as other countries where IRRI has a presence
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Recommendations for IRRI (2)
• Apply research and science to solving post-harvest challenges and develop creative solutions in order to return more value to farmers and to create greater economic incentives for the farming sector
• Strike a balance between high-end scientific research and the need to take existing scientific knowledge in the “field”
• Be more customer focused in practical ways and address existing problems with existing know-how
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Implementation Timeline Month 6-12 Month 12-18 Month 18-24
Initial negotiations and ‘go-ahead’
from shareholders
• Incorporate Board of Directors
• Nominate Chairman of Board and management secondments from IRRI
• Report back to Chairman/Board of Directors on Progress
• Initiate next steps
Establishment of business entity
• Incorporate legal entity • Raise funds & secure
start-up investment • Memorandum
association • Resister corporation • Set up business
infrastructure
• Start Phase I operating • Preparation for Phase 2 in the end of month 24
Human Resources
• Recruit key management staff
• Secure rental office and set up facilities
• Prepare talent hiring • Establish SSA training
procedures
• Launch staff hiring
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Pilot Scale up
Implementation Timeline Month 6-12 Month 12-18 Month 18-24
Business Development
(initiate communications with core partners)
• Negotiation with potential businesses partners and clients
• Launch brand awareness campaigns
• (communication with secondary partners)
• Start contract sign-off
Product development
• Launch re-developed integrated platform with additional services
• Validate data • Step 1: Quality Control
• Step 2: Ongoing R&D • Evaluate development
of new products to rice farmers
Sales & Marketing
• SSAs reach out to farming communities for extensive enrolment campaign (ongoing)
• Field visits all A category Farmers’ community
• Run nation-wide campaign around rice
• Field visits all B&C category Farmers’ community
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Implementation Timeline
Month 6-12 Month 12-18 Month 18-24
Finance
• Set up finance infrastructure
• Accounting and financial reporting
• Secure financing
• Accounting and financial reporting
• Financing • Financial monitoring
• Set up audit and control systems
IT Operations • Build/ buy/ lease
platform • Run platform efficiently
Corporate Affairs • Identify major/ key
stakeholders and key opinion leaders
• Build advocacy plan • Implement advocacy plan
Innovation • Look at adjacencies • Build new business models along with business
development
IP protection
• Set up framework and IP/ patents database
• Apply for IP/ patent relevant to platform
• Develop commercialisation plan for usage of IP/ patents
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Appendices
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• BanKO is the first mobile phone based in the Philippines • Set up under the aegis of the Bank of Philippine Islands (the largest
Bank in the Philippines), Globe Telecom (Largest Mobile Company in the Philippines) and Ayala Corporation
• The bank reaches its customers through partners and mobile technology
• The Bank carefully evaluates its partnership model and offers partnerships to institutions that possesses liquidity, open for long hours and is available across the country.
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Proposed Partner – Additional Info
• Phil Rice has better influence power within Philippines and IRRI can provide strong technology support to Phil Rice
• Phil Rice already has “Knowledge bank” which is adopted for Philippines – Local languages (4 local+ 1Engligh) – PalayCheck system through whole rice production process – Can be connected via facebook which farmers like
• Phil Rice can provide free “text center” 0920-911-1398 • Phil Rice has various media channels “ magazine, website and
broadcast” • Phil Rice can provide training programme to local farmers and
extension works
SSA projected numbers & costs
Estimated cost breakdown of SSA per year:
Salary 180,000
Travel expense 40,000
Mobile device 12,000
Total per year (PHP) 232,000
Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10
Enrolment 30,000 75,000 150,000 240,000 300,000 360,000 432,000 518,400 622,080 746,496
70% by SSA 21,000 52,500 105,000 168,000 210,000 (Organic growth CAGR 20%)
SSA effective 500 500 500 500 500
Number of SSA 42 105 210 336 420 420 420 420 420 420
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Potential Marketing Channels (1) Category Channel/ Execution How it works? Direct
Channel
SSAs/ Info Kiosk (Year1) Via incentivised SSAs (visits, walk-in) and info kiosks of our own, build
our own points of contact across the targeted region
Private
Sector
BanKO (Year1) Micro financing provider with its distribution channels readily available
(e.g. NMR posters/flyers distributed via BanKO’s branch offices)
Research
Institute
PhiRice (Year1) Disseminate NMR info via PhilRice FFS trainers or seedling distribution
channel (e.g. circulate NMR flyers along with seedling instructions)
Private
Sector
Jolibee (Year4) Utilise Jolibee’s restaurants as points of contact, disseminate NMR’s
posters and flyers at Jolibee restaurants
Farmers
Organisation
Seed-Grower/ Farmer Co-op
(Year 3)
Provide seed grower co-ops and farmers’ co-ops with NMR flyers and
farming guidance; with help of co-ops, select “Pilot Farmer” and build
up the success stories
Education
Institute
Ag College Students (Year 3) Designate agcri-major students as Student Ambassadors; Fund Student
Volunteer Groups for NMR Campaign/Education Initiatives; Hire
Student Ambassadors to conduct village-wide education and
registration service (with devices) on weekends
Farmers Org
/ Private Sec.
Post-Harvest Service Provider
(rice mill/storage) (Year 3)
Provide Post-Harvest best practices training/info sharing, and attracts
farmers who use targeted post-harvest services
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Category Channel How it works?
Public Sector/ Gov
Org
ATI/Extension Workers (Year1) Train the “Farmer scientists” nominated by the
extension workers
Religious
Community
Village Churches (Year1) Distribute flyers and conduct periodical education
sessions for community farmers
Private Sector New Agri Inputs Investing Partner
Network (Pioneer, Syngenta, Year 3)
Usage of their distribution channels
Private Sector Beverage Company (e.g. San Miguel)
(Year1)
Access rural communities via established sales
channels and national sales forces; bring marketing
expertise and $ (e.g. fund the social events of farmers,
in which NMR’s info will be disseminated)
Private Sector Telecom (e.g. Globe, Smart, Sun)
(Year1)
Mass info sharing/advertising (via text msg); hosting
the toll-free help hot line for farmers
Media Radio/ local TV channel (Year 2) Advertisement, brand image building
NGO Mercy Corps / Gawad Kalinga (Year1) Information referral
Retail Chain Seven Eleven/Supermarket (Year4) Putting up posters and distribute flyers in stores
Social Network Facebook / Twitter (Year 2) Building young farmers’ online community
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Potential Marketing Channels (2)
Estimated Impact of Nutrient Manager and FarmSaya
Increase yield of palay by 10 sacks/farmer * 2 season = 20 sacks x 50 kg / sacks = 1000 kg x 15 PHP/kg = 15000 PHP (Source: Farmer Interview)
1 ton palay annual
yield increase
15,000 PHP annual income increase
Small and Medium Miller: Conversion rate of palay to
milled rice is 60%
100,000 farmers x 1 ton x 60% = 60,000 tons of milled rice
increase in production
Subscription base: 10 % of 3 million farmers = 300,000 farmers 30% adherence to recommendations
100,000 farmers follow recommendations
Low rice yields and inferior quality of rice
Assumptions
PROBLEM
SOLUTION
IMPACT
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Thank you!
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