Post Graduate Program in Management

Term I, 2010-2011

Society, Business and Management Course

Business Plan for Horticulture Business

Date of Submission: August 31st, 2010

Submitted by: Group 8, Section A Kishore Basa|Khyati Madaan|Kunal Thakur|Lalit Beniwal|Lokesh K Singh

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Contents

Executive Summary

.02

Company Overview

.04

Market Environment

.05

Marketing and Sales Strategy .09

Operations

.20

Financial Plan

.23

Annexure

.26

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Horticulture Business
Executive Summary
In the current scenario producers of grains, vegetables etc (farmers) encounter heavy burden for disposing off their cultivation particularly when production is high. Because of this there is wastage of their production along with quality going down and consequently results in lower returns to them. The intermediaries exploit them and take maximum advantage of the situation and the farmers. Peasants need infrastructural support and workforce for more effective operations. There is great potential in this area, particularly, Fruits & Vegetable sector, which could be very beneficial for both farmers as well as processors. Our plan concerns with fruits and vegetable related opportunities. This business relating to fruits and vegetables has 3 parts: Acquiring, sorting, evaluating and grading and transport. Cooling facilities for warehousing, storage, transportation and infrastructure support Retailing Food sector accounts for approx. 28% of Indian GDP. India leads in the world in production of cereals, milk, livestock, banana and Mango. India is second largest producer of fruits and vegetables and amongst top five in production of rice, wheat, groundnut, tea, coffee, tobacco, spices, sugar and oilseeds. India has a global share of 10 percent in production of fruits and for vegetables it is 13.7 percent.

Current scenario of horticulture in India

The current scenario of industry in India is not satisfactory. The average productivity of Fruits and vegetables produce is about 7 tons/hectare compared to 30 tons/hectare in many western countries. Indian share in global F&V trade is less than 1%, where only 2% of the F&V yield in India is processed as compared to 40% in other developing countries like Brazil and Malaysia. Indian share in global food processing business is about 1.5%. The most important factor which contributes for less developed fruit and vegetable industry is huge amount of wastage across the supply chain.

Reason
The reason of poor horticulture state in India is scattered and very long supply chain. The supply chain ranges from peasants to orchard farm owner to consolidator/aggregator (commission agent1) to Trader/Transporter (Commission agent 2) to wholesaler to small roadside vendor/Retailer/Super market/Handcart vendor to finally consumer. In the entire supply chain, each constituent in the supply chain functions independently with little or no overlap with the next level and limited exchange of information, therefore, the constituents -2-

are constrained in performing their roles effectively. An integrated supply chain may enable the critical linkages between various constituents. This may provide better information flow, material flow and money flow among various intermediaries.

Fruits and Vegetables

Tomato Potatoes Onions Cauliflowers Cabbages Papayas Litchis Grapes Apricot
Reference IARI

Percentage Wastage
30 22 25 49 22 40 28 27 28

Current Scenario of food processing Industry

The food processing industry in India is still in a sorry state. The rural population comprising 70% including small cities, consume less than 10% of the processed foods and vegetables, whereas 60% of the processed food is consumed in four major metropolitan cities and 30% in the state capitals and big cities. Another fact is that 40% of the processed food and vegetables produced in the country in terms of value are bought by institutional buyers like Hotels, Restaurants and Defence etc. The highest growth in domestic market has been in fruit drinks, tomato ketch up and Jams. There is another fact that India is the largest milk producer in the world, however, organized industry accounts for less than 15% of the milk produce in India. It is estimated that there may be a total production of 1100 million tons of production of food products mainly food grains, oilseeds, sugarcane and fruits/vegetables during 2011-12 and leaving marketable surplus of 870 million tons. The demand for high value commodities particularly fruits; vegetables and milk would go up significantly during 2010 and 2020 in India. It is expected that the demand for fruits would go up from 56 million tons to 77 million tons (2010-2020), vegetables 113 to 150 million tons (2010-2020) and 104 to 143 million tons (2010-2020) for milk, as projected by IARI.

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Company Overview
Being a new business it lacks the structure and hierarchy of an established organisation. As in a small business start-up the team lacks a set standard in structure that will actually work for them. The standards are yet to be set in place. We are looking at a time frame of around 2 years before we settle down to get a structural plan in place that works best for us. As of now the CEO and co-founders take all the decisions collectively. All the decisions and support come straight from the top in one centralized region of the company. The founder or co-founders take all the serious matters and address them appropriately until the company can grow enough to have people put into place to achieve this for them. When they can a proper hierarchy can put set in place. After reaching a certain stage we intend to have the structure and hierarchy as shown below.

CEO, Co- founders

VP R& D

VP Marketing

VP Finance

VP Operations

VP Consulting

Manager R& D Manager R& D Manager R& D Manager R& D

Manager Marketing Manager Marketing Manager Marketing Manager Marketing

Manager Finance Manager Finance Manager Finance Manager Finance

Manager Operations Manager Operations Manager Operations Manager Operations

Manager Consulting Manager Consulting Manager Consulting Manager Consulting

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Market Environment
What is Horticulture Business
This involves procurement/Aggregation of farm output, sorting, grading, logistics to processing units or to domestic markets, retail institution sale, export etc. Here, the very purpose is to eliminate the intermediaries to reduce the time, money and deterioration of quality of the produce.

Structure of Horticulture Business

Open Market Sorting/Grading/Logistics (Pack House Transportation) Procurement Domestic Market Farm Extension Retail Institution Sale

RURAL RETAILING
Business lines
Our firm will provide the following business lines.

First: F&V aggregation (Grading/sorting/primary process) Transportation & logistics Marketing of fresh & processed produce Second: Development of modern cold storage infrastructure Revenue generation from service provider business Cold Storage Van operation -5-

Third Creating own brand/own chain store/shop in shop (SIS) in Malls Contract manufacturing

Government support for F&V sector. Commercial Horticulture Production

Production of Horticulture crops Aromatic plants, Tissue culture, Bio-Pesticide, Organic Food, Beekeeping Grading/Washing/Drying, Packing Centres Pre-Cooling /Cold Storage Refrigerated Van Retail Outlets Ripening/Curing Chamber/Radiation Horticulture Ancillaries (Tools/Equipments/Packaging) Back ended Capital subsidy up to 20% of project cost or Rs. 25 lakhs( Max)

Cold Storage
Cold Storage, Controlled Atmosphere Storage Back ended Capital Subsidy up to 25% of project cost or Rs. 50 lakhs (Max)

Technology Development & Transfer

Introduction of new Technology Domestic Visit of Farmers Technology awareness through seminar

MIS for Horticulture Crops

MIS for produce prices Dissemination of info thro Media/Publication 100% Financial Assistance

Horticulture Promotion Service

Techno-Economic feasibility Studies through consultants Develop strategies Provide Consultancy Services 100% Financial Assistance -6-

Opportunity
Looking at the current horticulture scenario in India we see an opportunity for a new business. This opportunity will be driven by the needs of farmers for an appropriate system which can solve their problem of perishing F&V produce and earn them reasonable returns on it. An infrastructure at strategic locations supported by technically and professionally qualified manpower, financial soundness, quality consciousness and above all good partnerships with institutions & Govt. agencies/Departments. Many of them could create required infrastructure for F&V business and provide the farming communities required marketing support, information support, financial support and technological support. Some of our units will be located in the close proximity to fresh fruits and vegetable growing areas where they could act as farm aggregator, cold storage/ cold storage transport vans provider and food processor also due to the availability of uninterrupted power, water, steam, air/Nitrogen, Ammonia, surplus land etc at low incremental cost. Thus Encouraging farmers to cultivate crops which are marketable Use of improved post harvest technologies Strengthening infrastructure facilities including advance technology for cold

storage/warehouse at remote locations Increasing intensity of procurement centres Encouraging business houses to set up unit for value addition at village/block level

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Opportunity for New Business

Reduce farmer relationships for disintermediation, fresh produce sourcing and aggregation and post harvest infrastructure development.

Develop Relationships/Linkages

Farmer

through Agri Centre Disintermediation

Processor

Direct Linkage

Village Commission Agent

5-6% Replace 1-2%

Wholesaler

Bypass

Retailer

Direct Linkage

Transportation Engage
6-8% Consumer

Wholesale Mandi

Bypass

Wastage reduction to 5% Total 25-30%

Competition
ITC (FMCG giant) has been a key player in managing the Agri. Input as well as Agri Output marketing through its e-choupals & offering better prices for farmers produce, taking advantage of technological intervention for quality produce and thus facilitating in transforming farmers lives. Probably, the concept of corporate farming may be in place which might change the lives of rural masses by converting agriculture as a lucrative proposition. Similarly, there are other business houses also operating in rural areas like Reliance Fresh, Food Bazaar, EverFresh, Safal and Shubhiksha. The following table presents the major players and activities undertaken by them in brief:-

Major Players and their activities Players

Reliance Retail (Reliance Fresh) Pantaloon Retail (Food Bazaar) ITC (E-chaupal & Sagar Chaupal) Chambal (EverFresh) Mother Dairy (Safal) Subhiksha

Activities
Direct Sourcing (Producer) & Retailing Direct Sourcing (Producer) & Retailing Source thro farmers centres for processing IQF of vegetables & selling thro malls Modern A/C Fresh F&V stores Discounted Retailing (Neighbourhood store)

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Marketing and Sales Strategy

Marketing plays an important role not only in stimulating production and consumption, but in accelerating the pace of economic development. The marketing system plays a dual role in economic development in countries whose resources are primarily agricultural. Marketing comprises all the operations, and the agencies conducting them, involved in the movement of farm-produced foods, raw materials and their derivatives from the farms to the final consumers, and the effects of such operations on farmers, middlemen and consumers. Agricultural marketing deals with all the activities, agencies and policies involved in the procurement of farm inputs by the farmers and the movement of agricultural products from the farms to the consumers. The agricultural marketing system is a link between the farm and the non-farm sectors. It involves all the aspects of market structure or system, both functional and institutional, based on technical and economic considerations, and includes pre and post-harvest operations, assembling, grading, storage, transportation and distribution. The expansion in the size of farm output stimulates forward linkages by providing surpluses or food which requires transportation, storage, processing, packaging and retailing to the consumers. Increasing demands for money with which to purchase other goods leads to increasing sensitivity to relative prices on the part of the producers, and specialization in the cultivation of those crops on which the returns are the greatest, subject to socio-cultural, ecological and economic constraints. It is the marketing system that transmits the crucial price signals. The fruit and vegetable marketing in India is highly decentralized having wide capacities. There has been concern in recent years regarding the efficiency of marketing of fruits and vegetables, and that this is leading to high and fluctuating consumer prices and only a small share of the consumer rupee reaching the farmers. It is overviewed by many committees and reports that Indian farmers are good producers but not good marketer. As early as 1976 National Commission on Agriculture pointed about the inefficiency in agricultural marketing with particular to fresh perishables and strongly recommended in following words that It is not enough to produce a crop; it must be satisfactorily marketed. Marketing of horticultural crops is complex especially because of perishability, seasonality and bulkiness. Fruits and Vegetables are an item of daily consumption, they are essential in human diet but they are very perishable in nature. Therefore, the cultivation of fruits and vegetables is generally concentrated around towns and cities, so that they can be harvested and transported to the nearby market immediately and in fresh form. With the increase in transport and communication facilities, fruits and vegetables cultivation has spread in interior areas where irrigation facilities are available. This is because growing vegetable crops is more profitable than any other seasonal crop particularly the food grain crops. The spread of fruits and vegetables cultivation in rural areas has solved the perennial problems, particularly of transport, handling, packing and storage. There is also some regional specialisation in growing some fruits and vegetables. They are grown in one area but marketed in other areas for creating wider market and also to fulfil the demand of some people, who have liking for them. This also involves long distance transport. For this purpose, good roads in the interior of villages are necessary. Fortunately -9-

there are good state and national highways, but there are no good roads in the interior. Sale of the fruits is generally through pre- harvest contactors, so that the farmer gets an advance payment and covers his risk. Vegetables are usually sold through commission agents and very little of pre-harvest contacting is done. Due to this the net returns are generally low. Farmers spend means to devote more time to their field crops rather than to the orchards. If the farmer does the marketing of his produce himself then the net returns to him would be double. So also in the marketing of fruits and vegetables, producer cannot go to wholesale market or long distant market and he has to depend on some intermediaries to sell his fruits and vegetables. Therefore, in the marketing of fruits and vegetables costs are involved for grading, packing, transport, loading/unloading, fees, etc. In addition, the intermediaries also take some margins for them. These costs and margins determine the final price to be paid by the consumer. After deducting market costs and margins from the final price paid by the consumer, farmer gets his net price, which is referred to "Farmers share in consumers price". This determines efficiency of marketing. The whole idea to get into this business is also consist of honouring social responsibility by removing middlemen and provide maximum returns to farmers, a major chunk of our population. THE VICIOUS MARKETING CHANNELS The channels of marketing are an important aspect of agricultural marketing affecting the prices paid by consumers and shares of them received by the producer. The shorter the channel, lesser the market costs and cheaper the commodity to the consumer. When the channel is long with more intermediaries, prices are more and producers share is less. The channel which provides commodities at cheaper price to consumer and also ensures greater share to producer is considered as the most efficient channel Several studies have been carried out in India on this topic for different commodities and in different regions and the results are of mixed nature due to local socio-economic conditions and infrastructure facilities.

Sales and Marketing strategies Joint Ventures: The reason why starting a Joint Venture will be profitable should be: Two companies can achieve more together then each single company alone. When an organization has made a decision to enter in a market, there are a variety of options open to it. These options vary with cost, risk and the degree of control which can be exercised over them. The simplest form of entry strategy is Joint Venture. Many agricultural products of a raw or commodity nature use this or involve Government. Advantages of Joint Venture Because, in most agricultural commodities, production and marketing are interlinked, the infrastructure, information and other resources required for building market entry can be enormous. Sometimes this is way beyond the scope of new market player, so JV is - 10 -

imperative. It may not just to support a specific commodity, but also to help the "public good". Whilst the building of a new road may assist the speedy and expeditious transport of vegetables, for example, and thus aid in their marketing, the road can be put to other uses, in the drive for public good utilities. Moreover, entry strategies are often marked by "lumpy investments". Huge investments may have to be undertaken, with the investor paying a high risk price, long before the full utilisation of the investment comes. Good examples of this include the building of port facilities or food processing or freezing facilities. Moreover, the equipment may not be able to be used for other processes, so the asset specific equipment, locked into a specific use, may make the owner very vulnerable to the bargaining power of raw material suppliers and product buyers who process alternative production or trading options. Zimfreeze, Zimbabwe is experiencing such problems. It built a large freezing plant for vegetables but found itself without a contract. It has been forced, at the moment, to accept sub optional volume product materials just in order to keep the plant ticking over. In building a market entry strategy, time is a crucial factor. The building of an intelligence system and creating an image through promotion takes time, effort and money. Brand names do not appear overnight. Large investments in promotion campaigns are needed. Transaction costs also are a critical factor in building up a market entry strategy and can become a high barrier to international trade. Costs include search and bargaining costs. Physical distance, language barriers, logistics costs and risk limit the direct monitoring of trade partners. Enforcement of contracts may be costly and weak legal integration between countries makes things difficult. Also, these factors are important when considering a market entry strategy. In fact these factors may be so costly and risky that Governments, rather than private individuals, often get involved in commodity systems. This can be seen in the case of the Citrus Marketing Board of Israel. With a monopoly export marketing board, the entire system can behave like a single firm, regulating the mix and quality of products going to different markets and negotiating with transporters and buyers. Whilst these Boards can experience economies of scale and absorb many of the risks listed above, they can shield producers from information about, and from buyers. They can also become the "fiefdoms" of vested interests and become political in nature. They then result in giving reduced production incentives and cease to be demand or market orientated, which is detrimental to producers. Institutional Sale When producers of agricultural commodities or any other product form a society with an objective of carrying out marketing of their produce, such society is called as co-operative marketing society. The need for co-operative marketing arose due to many defects observed and experienced in the private and open marketing system. Those are several malpractices prevail in the marketing of agricultural produce. For example, arbitrary deductions from the produce, manipulation of weights and measures and cheating the farmers, collusion between the broker and the buyer while fixing the prices, delay in payment of amounts due to farmers, etc. The result is the farmers are indebted to trader - moneylender. In such circumstances co-operative marketing society can largely help the farmers reduce the - 11 -

malpractices and offer honest and correct services. There exists a chain of intermediaries between the producer and the final consumer. They include village merchant, itinerant trader, wholesaler, commission agent, pre-harvest contractor and retailer. They take their own margins for the services, they render. But these margins are generally exorbitant, making the commodities costly for the consumers and reducing the producer's share in the consumer's price. A co-operative marketing society can eliminate some or all of the intermediaries and can reach to the consumers and establish direct trade relations with them. This will make commodities cheaper to the consumers and also ensure good quality of produce to them because much of the handling is avoided. There are some services such as transport, storage, financing, grading, packing, loading/unloading, which are, carried out by some private functionaries who charge high rates for these services. A co-operative marketing society performs these services efficiently and at cheaper rates. A co-operative marketing society provides market finance to farmers and ensures better returns to their produce. Besides marketing society can act as an agent of credit co-operative society and help to recover loans advanced by credit societies. At present, most of the financial needs of the farmers are fulfilled by trader - moneylenders at very high rates of interest and with the condition that they will sell their produce through them. This can be avoided, if there is co- operative marketing society. Institutional sales can be done by following innovative ways: 1. Regulated Market- This will be done by getting into organized regulated market environment where prices are fixed but quantities are decent enough so this provide s substantial returns. 2. Co-op Marketing- This is primarily regulated by government and provide steady quantities but margins are not so high. Its great in terms of distribution and reach as it covers large geographical area of our country. 3. producer's association Main function: 1) Selling the product of members. 2) They also undertake outright purchases. 3) Provide storage facilities for storage and grading 4) Save cultivators from exploitation by traders and help farmers in getting fair price for their produce 5) Performing functions of processing of raw produce. Innovative Marketing Concept It has been realized that the marketing channel for farm products which are highly perishable (fruits, vegetables and flowers) should be as short as possible. Perishable farm produce should move quickly from farmers to consumers. If farmers directly sell their produce to the consumers, it will not only Save losses but also increase farmer's share in the price paid by

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the consumers. Therefore, direct marketing by the farmers is being encouraged as an alternative channel. SABKI MANDI An innovative concept of Sabki Mandi will be introduced in some states. Sabki Mandi will be different from the traditional mandi or market yard, where the produce moves to the buyer through either a commission agent or trader. In Sabki Mandi there is a direct contact between the farmer producer and the buyer who is generally the consumer. This system does away with the middlemen. In Sabki Mandi, farmers sell their produce directly to the consumers without involvement of the middlemen. The price spread in Apni Mandi is considerable low. These are working satisfactorily in the case of fruits and vegetables. These, 'Sabki Mandi' will be on the line of the Saturday markets of United Kingdom and United States of America.

Advantages of concept The main objectives of popularising the concept of Apni Mandi are: i. Better marketing of agricultural produce especially of fruits and vegetables. ii. Ensuring direct contact of the producer-farmers and the consumers and thereby enhancing the distributional efficiency of the marketing system. iii. Increasing the profitability of agricultural crops for the producers by minimization of marketing costs and the margin of the middlemen. iv. Ensuring the availability of fresh fruits and vegetables and other farm produce at reasonable prices to the consumers. v. Removing social inhibitions among the farmers for retail sale of their produce vi. Encouraging additional employment to the producers and thereby enhancing their incomes. vii. Promoting national integration by inviting the farmers of other states to sell the produce grown by them directly to the consumers in Apni Mandis of other states and viii. Providing business techniques to the farmers so that in the long-run they may adopt this practice for other crops and enterprises too. FUNCTIONING The market committee of the area where Apni Mandi is located provides space, water, sheds, counters, balances and other facilities to the farmers in . Apni Mandis. The Market Committee Staff need to work hard with dedication for the success of Apni Mandis. The State Marketing Boards provide financial assistance to the Market Committees for these services rendered by them to the Apni Mandi. This scheme is being implemented with certain resistance from middlemen. Some farmers also have reservations about the success of the scheme as it assumes adequate skills of retailing on the part of farmers. However, - 13 -

farmers as well as consumers would benefit from the Apni Mandi Scheme and its popularity may pick up after sometime. Competitors in Market 1. Hadaspar Vegetable Market in Pune 2. Rythu Bazar in Andhra Pradesh 3. Uzhavar Sandies in Tamilnadu 4. Shetkari Bazar in Maharastra 5. Krushak Bazar in Orissa 6. Apni Mandi in Punjab

CONTRACT MARKETING Contract farming or marketing essentially is an arrangement between the farmer-producers and the agri-business firms to produce certain pre-agreed quantity and quality of the produce at a particular price and time. It can only be a pure procurement transaction or can extend to the supply of inputs or even beyond. Contract farming is emerging as an important mode of procurement of raw materials by agri-business firms in India due to the developments in the field of agricultural marketing, changes in food habits and in agricultural technology in the new economic environment. This is an important initiative for reducing transaction costs by establishing farmer- processor linkages in addition to the already existing methods of linking the farmers to the consumers. The distinction between 'sales' and 'contract to sell' needs to be understood clearly. In the case of sale, the title or ownership of goods is transferred at once whereas in the 'contract to sell', the goods are transferred at a later date. A contract to sell is not in the true sense of the word a sale, rather it is merely an arrangement to sell. A contract is an agreement but an agreement is not necessarily a contract. In contract farming, companies or organizations engaged in processing and marketing of agricultural products are entering into contracts with the farmers. They provide inputs to the farmers and buy back the product at a rate specified in advance. Following type of inputs and services are normally provided by the company to the farmers. Seeds of the variety they need for processing/marketing Guide lines to grow the crops Pesticides which do not result in residual toxicity Extension services Fertilizers/hormones required for the crop Other material if not locally available. The contract may be entered into by parties anytime from the start of the sowing or planting to the harvesting, processing, packaging and marketing stage of the crop. Normally, the contract is entered before the start of the sowing or planting because the buyer can then - 14 -

stipulate the conditions cultivation, use of the seed variety needed by them, use of pesticides and insecticides, and requirement of on farm grading, sorting, packaging and processing. The buyer of the product generally keeps the right to monitor the crop at every stage of its growth. ADVANTAGES OF CONTRACT FARMING Contract farming/marketing is beneficial both for the producer-farmers as well as to the processing company in several ways: To the farmer, contract farming (i) Reduces the risk of price/production (ii) Ensures the price as market is assured (iii) Increases the quality consciousness (iv) Ensures higher production because of better quality seeds and pesticides. (v) Reduces marketing costs (vi) Provides financial support in cash or kind. (vii) Ensures efficient/timely technical guidance almost free of cost.

To the company, contract farming(i) Ensures supply of quality agricultural produce at right time and at lesser cost to the company (ii) Canalizes direct private investment in agricultural activities iii) Ensures that the toxicity level is reduced as per requirement for export. Government is increasingly looking towards the corporate sector to augment the rural incomes and employment through agro-processing. In this context, policy makers see the contract farming/marketing as an important avenue to ensure greater private sector participation in agriculture.

COMPETETION IN CONTRACT FARMING The following companies are presently under the tie-ups in India for contract farming for the products specified: 1. Poultry- Contract farming of broilers between the hatchery with farmers in Coimbatore 2. ITC/WIMCO/JK Papers and farmers in Andhra Pradesh, Orissa, Punjab and Uttar Pradesh. 3. Organic dyes - Marigold farmers and extraction units in Coimbatore. 4. Dairy processing - Chitale of Pune and small farmers in Maharashtra and Gujarat. 5. Pepsi Company and farmers of Punjab and Rajasthan for tomato growing.

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6. Exotic vegetables - Trikaya Foods NST and small farmers of Maharashtra and Andhra Pradesh. 7. NAFED and Sonepat (Haryana) farmers. 8. Exporters with farmers of Bangalore. 9. ITC Agro-Tech and sunflower cultivators in Andhra Pradesh and Karnataka. Creating own brand/own chain store/shop in shop (SIS) in Malls This is again a way which sounds familiar and profitable but should be tried after spending some time in market when cash flow is steady and brand is establish. Otherwise it can backfire as it involves high overheads, low margins and stiff competition. Bankruptcy of Subhiksha is one such example which expanded fast in urban retailing but failed to reduce costs and increase margins. Ideal strategy to try this concept is that to establish FARM TO SHOP VALUE RETAILING where product reaches straight from farm to retail store somewhat on the line of Amul, Mother Dairy and Safal. We But ideally our brand will like to explore this strategy three years down the line. Exports Exports are important especially in initial stages in f & v industry. Exports not only provide higher margins but also economies of scale at low cost. India is one of the leading exporter of vegetables and fruits ranking in top three in most of the varieties. That gives our company great advantage to leverage. Online trading of fresh vegetables and fruits Online trading is catching up especially in urban markets. This provides following advantages1. Empower farmer in price discovery; Growers will have option to conclude price for their produce for sale prior to harvest 2. Minimal intermediation- better quality, lower transaction cost 3. Narrower price spread: Farmer-Consumer 4. Trading terminals all over the country, truly National. 5. Payments are guaranteed 6. Quality certification by SNX. 7. Initially on a handful of crops, finally all F&V items with negative list 8. Improvement in post harvest practices for better shelf life and Quality of Grading, Packing & Overall delivery, match with rapidly raising expectations of quality by average urbanite

CONSTRAINTS IN FRESH FRUITS AND VEGETABLES MARKETING: 1. Lack of basic infrastructure viz.cool chains, logistics and supply chain management. The infrastructural problems, pertaining to the cold storage facilities are dual as some places

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dont have the cold storage while some places have the problem of underutilisation of the existing cold storages. The utilisation is even lower than 30 per cent of the total capacity in many cases. Development of competitive international transportation, linked to domestic air transport or road and rail transport would help in reduction of post harvest losses. 2. Preponderance of Intermediaries in the channel results in unfair and exploitative practices in marketing of fresh produce is very common. 3. Lack of proper grading and quality control system. 4. Scattered productions and sometimes in isolated places where even the transportation facilities and other infrastructure is not sufficient for the perishables. 5. Lack of unity and organization skill among the farming community, which proves a major impediment in the formation of cluster groups and co-operatives. 6. Inefficient & Imperfect markets: Due to prevalence of many intermediaries and malpractices followed by them in the price fixation and auction of the perishables in between the marketing channel results in up rise of consumers price in the producers share. 7. Concept of consumer packaging practically unknown in domestic markets : Improper pre and post harvest handling without any sound packaging leads to heavy loss ranging from 20-40 percent of the produce at the time when its reaches the final consumer. 8. Lack of forward & backward linkages: Absolute lack of the much needed quality inputs and extension backup at proper time and after harvest processes. 9. Ignorance to new methods of cultivation and dependence on traders for extension knowledge. 10. Perishability and Storability: Having limited shelf life due to its typical bio-physio- chemicals constitutions, fresh fruits and vegetables penetration is restricted to the certain niche markets and stakeholders. Besides the presence of insufficient number of storage facilities add to the woes. 11. Low exports : Emergence of many competitive markets with comparative advantages in awake of the globalization and the imposition of different Tariff and Non-tariff barriers to save the domestic industry by the protectionalist nations using sanitary and phytosanitary measures (SPS) as their benchmark resulting in the limited exports of the perishable commodities. The window of international demand for the horticultural products is very small. Thus a planned strategy is to be made to target the markets during that period. 12. Freight charges: High air freights are also hindrance for cost effective exports. For the exports large fluctuations in the production of fruits and vegetables causes problem in being a regular trade partners. 13. Long marketing channel: Prevalence of many of the intermediaries in between the supply chain robbing the lions share of the producers by deeply penetrating the consumers pocket.

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14. Non-functional AEZ: Even after 10 years of starting of the Agri-Export-Zones in deferent specific production pockets of different produces, full implementation is at its nascent stage due to many socio-political reasons. Thus the final benefit doesnt reaching to the destined. 15. Poor Post harvest care & handling of the produce: Improper pre and post harvest care and handling leads to heavy loss ranging from 20-40 percent of the produce. 16. Absolute lack in co-ordination b/w production targets of concerned department & action plan of the marketing directorate 17. Prevalence of primitive methods of selling and price fixation like, secret sale, private negotiation, under cover etc. 18. Meagre involvement of Government & other co-op. marketing agencies alike to the private agencies

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Operations
The food processing industry in India is a sunrise sector that has gained prominence in recent years. Availability of raw materials, changing lifestyles and relaxation in policies has given a considerable push to the industrys growth. This sector is among the few that serves as a vital link between the agriculture and industrial segments of the economy. Strengthening this link is of critical importance to improve the value of agricultural produce; ensure remunerative prices to farmers and at the same time create favourable demand for Indian agricultural products in the world market. A thrust to the food processing sector implies significant development of the agriculture sector and ensures value addition to it.

The Indian food processing industry holds tremendous potential to grow, considering the still nascent levels of processing at present. Though Indias agricultural production base is reasonably strong, wastage of agricultural produce is sizeable. Processing of fruits and vegetables is a low 2%, around 35% in milk products. By international comparison, these levels are significantly low - processing of agriculture produce is around 40% in China, 30% in Thailand, 70% in Brazil, 78% in the Philippines and 80% in Malaysia. Value addition to agriculture produce in India is just 20%, wastage is estimated to be valued at around US$ 13 bn (Rs 580 bn).

Following flow chart describes the operational activities of the start up business.

Various functions of the operations cell

Collection of fruits & Vegetables Transport by farmers Storage of the collected fruits & vegetables in the facility

Transport by storage facility

Retail selling of the fruits & vegetables

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According to national horticulture board the main fruits and vegetables grown in India are Apple, Banana, Lime / Lemon, Mosambi, Orange (Mandarin), Grapes, Mango, Papaya, Brinjal, Cabbage, Cauliflower, Okra, Onion, Peas, Potato and Tomato. In case of vegetables, potato, tomato, onion, cabbage and cauliflower account for around 60% of the total vegetable production in the country.

The fruits and vegetables considered important by the horticulture board of India are mostly grown in the areas of Jammu & Kashmir, Himachal Pradesh, hilly regions of North Uttar Pradesh, Tamilnadu, Maharashtra, Karnataka, Gujarat, Andhra Pradesh, Assam, Madhya Pradesh, Rajasthan, Punjab, Tripura, West Bengal and Orissa. Business will be conducted with base of operations and cold storage facilities set up at Indore, Madhya Pradesh with aggregation of the fruits & vegetables from near by 200 (Total - 649 villages in Indore district) villages producing vegetables and fruits.

Capacity of the Cold storage facility 1000 Metric tonnes Storage facility cost Rs.20, 00,000 Machinery and Equipment Cost Rs. 30, 00,000

Transport of the fruits and vegetable produce will be collected from the farmers located in the near by villages of the Indore district and the same will be stored in the facility for 1-35 week period (Depending on the cold storage life).

Fruit/Vegetable Bananas Cherries Guavas Mangoes Carrots Potatoes Tomatoes Ripe Mature (Greenish yellow)

Storage temp (0F) 55-60 30-32 47-50 45-50 32-35 37-38 40-45 55-60

Cold storage (Weeks) 2-3 2-3 3-4 4-6 13-17 26-35 1-1.5 3-4

life Remarks -

Table 1 General storage life of few of general fruits & Vegetables

Projected first year of operations

Operating cost estimation for the first year of operations are estimated approximately.

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With a total capacity of 1000 MT/annum, Raw material Total procurement costs of the raw material from the farmers = Rs.1, 15, 00,000 (Assuming an average cost of purchase of vegetables from farmers @ Rs.7/kg and fruits @ Rs.15/ kg) Utility cost and other related expenses = Rs. 5, 00,000 This implies a total inventory of 90MT/month with seasonal procurement of fresh produce on a quarterly basis.

Man power requirement Collection of fruits & vegetables : o Farmers from community - 50 (Liaisoning) o Overall supervisors - 4 o Manager - 1 o Trainer - 2 Storage facility : o Work force includes manager 1 o Maintenance supervisor 1 o Store keeper 1 o Accountant 1 o Skilled electrician 1 o Skilled workers 5 o Unskilled labourers -15 o Watchmen - 2 Retail units : o Sales manager 1 o Sales personnel 10 o Maintenance technicians 2 Approximately considering an industrial average salary for each employee, Total salary expenses Rs.10, 00,000

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Transportation requirements Transportation is required at two different stages of operation. Stage one being collection of the fresh produce purchased from farming community of the near by villages and stage two being the supply of the fruits & vegetables from storage facility to the retails outlets. Entire transport requirement will be outsourced to the transport service provider for the entire period on a contractual basis. Approximate estimated costs incurred in transportation Rs.12, 00,000 Approximate inventory losses (Transit, poor quality etc) Rs.3, 30,000

Total operational expenses (1st year) Rs.1, 45, 30, 000 Projections for the two to five years of operations are done in financial statements section. Following are different alternative modes of the sales Supply to fruit Juices, Nectar, Oil extraction, Bakery units Mango export Exports gherkins, jalapenos, preserved foods Farmers Mini Departmental stores Agri Inputs & Technology Stores Agri Inputs, Farm Machinery, FMCG Stores Source thro farmers centres for processing IQF (Individually quick freezing) of vegetables & selling outlets Discounted Retailing (Neighbourhood store) Modern A/C Fresh F&V stores

These can be utilised for further generation of revenue in the coming years of operation.

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Financial Plan
According to our financial planning, we are taking a loan of Rs.1 Crore from Bank at govt. subsidised interest rate of 6 %, to buy equipments and for other operational activities. A total investment of Rs. 2.1 Crore is required at initial stage out of which, Rs. 1.1 crore is invested as owners equity. We will repay this loan (of Rs. 1 Cr.) within two years from the cash flow of the business. The profit margin is normal per unit sales but volumes of sales are high so that company can earn good profits in future. This business will be beneficial for owners and farmers both. In addition, it will generate employment also. Break Even Analysis: First year projected sales are 1000 MT Tonnes of fruits and vegetables units amounting to Rs. 2.3 Cr. Fixed cost of the building & machinery is Rs. 75.0 Lac. As total initial cost of Rs. 2.1 Cr (Rs. 1.0 Cr through loan and Rs. 1.1 Cr through owners equity) will be offset by the end of 3rd year of operation and break-even point will be achieved.

Projected Financial statements for the next 5 years are given below: Projected Profit and Loss statement (Income Statement): By observing profit and loss statement, we can conclude that profits are steadily increasing with a good rate. There is an expansion of business every year by increasing the storage capacity of the plant and transportation capacity as well which results to more employment generation and increased benefits to the farmers. - 23 -

Projected Profit & Loss Statement Year1 (Rs) Sales 23000000 Cost of Sales 11500000 Gross Margin 11500000 Training to the farmers 50000 salaries 1000000 Building cold storage unit (1/5 each) 1000000 Storage costs, Utilities and Other expenses 500000 Advertisement/Marketing 500000 Transportation cost 1200000 Inventory Loss 330000 Insurance 200000 Interest Paid 600000 Rent for retail shops 120000 Depreciation 200000 Profit before tax 5800000 Tax 1740000 Net Profit 4060000

Year2 (Rs) 34500000 17250000 17250000 70000 1200000 1000000 530000 150000 1500000 450000 250000 360000 140000 200000 11400000 3420000 7980000

Year3 (Rs) 51750000 25875000 25875000 90000 1500000 1000000 550000 150000 2000000 550000 300000 0 200000 200000 19335000 5800500 13534500

Year4 (Rs) 64687500 31567500 33120000 105000 2500000 1000000 570000 150000 2500000 650000 335000 0 300000 200000 24810000 7443000 17367000

Year5 (Rs) 74390625 37881000 36509625 125000 3000000 1000000 590000 150000 3000000 750000 365000 0 400000 200000 26929625 8078887.5 18850737.5

Projected Balance Sheet: For the first year 2.1 Cr. is required to buy the equipment and other facilities and expenses. The below Balance sheet provides the details about different transactions. Balance Sheet Year1 (Rs) Assets Cash Inventory Machinery and Equipment Accumulated depreciation Liabilities Loans Loan Amount paid Owners Equity Paid in capital Owners capital paid Retained Earnings Sales Cost of Sales Training to the farmers salaries 10000000 11500000 1500000 200000 Year2 (Rs) 19200000 17250000 1500000 200000 Year3 (Rs) 28870000 25875000 1500000 200000 Year4 (Rs) 32500000 31657500 1500000 200000 Year5 (Rs) 45000000 37881000 1500000 200000

10000000 3400000 6600000 11000000 11000000 23000000 11500000 50000 1000000 34500000 17250000 70000 1200000 51750000 25875000 90000 1500000 64687500 31567500 105000 2500000 74390625 37881000 125000 3000000 - 24 -

Building cold storage unit (1/5 each) Storage costs, utilities and other expenses Advertisement/Marketing Transportation cost Inventory Loss Insurance Interest Paid

1000000 500000 500000 1200000 330000 200000 600000

1000000 530000 150000 1500000 450000 250000 360000

1000000 550000 150000 2000000 550000 300000 0

1000000 570000 150000 2500000 650000 335000 0

1000000 590000 150000 3000000 750000 365000 0

Assumptions This business plan was developed based on following assumptions: Income tax rate is 30%. Interest on loan is 12%. Customer base maintained for whole period.

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ANNEXURE Study by IIM Ahmedabad

A study conducted by IIM, Ahmadabad to examine different aspects of marketing, focusing particularly, on the wholesale markets for fruits and vegetables which have been established to overcome deficiencies and improve the marketing efficiency. It indicated that in Ahmedabad the direct contact between commission agents and farmers is very low. For vegetables this is 50 percent and for fruits only 31 percent. Further, in the system of transaction, secret bidding and simple transaction dominate and open auction is relatively rare. In KFWVM, Chennai, the wholesalers act as commission agents and receive consignments directly from producing centres through agents or producers. By and large the system of transaction remains traditional and open auction is rarely seen. This is one major reason for poor efficiency. However, in the small Uzhavar sandie in Chennai, the farmers sell directly to consumers. The share of farmers in the consumer rupee in Ahmedabad was 41.1 to 69.3 percent for vegetables and 25.5 to 53.2 percent for fruits. In Chennai KFWVM, the farmers' share was 40.4 to 61.4 percent for vegetables and, 40.7 to 67.6 percent for fruits. In the small Uzhavar sandie market in Chennai, where the farmers sell directly to the consumers, the share of farmers was as high as 85 to 95.4 percent for vegetables. This indicates that if there are few or no middlemen, the farmers share could be much higher. In the Kolkata market the share of farmers ranged from 45.9 to 60.94 percent for vegetables and 55.8 to 82.3 percent for fruits. Thus, the shares are frequently very low, but somewhat better in Chennai, lower in Kolkata and even lower in Ahmedabad. The margin as a percentage of farmer-consumer price difference (an efficiency measure) shows that in Ahmedabad, the margins are very high and range from 69 to 94 percent. In Chennai they range from 15 to 69 percent, and in Kolkata they range from 46 to 73 percent. The high percentage of margin to farmer-consumer price difference is indicative of large inefficiencies and relatively poor marketing efficiency. There is great need to improve the marketing of fruits and vegetables. These regulated markets were established to improve the marketing efficiency. The system of sale followed in these markets indicated that open auction as a system of sale is yet to take roots in these markets and the marketing system was dominated by open auction or secret bidding resulting to significant erosion of marketing efficiency.

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