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Just Change Business Plan To Operationalise Participative Capital              Changing The Role Of Capital           For ...
Table Of ContentsExecutive Summary              3Introduction                   5Background                     6Business ...
Executive Summary 1 of 2•   Just Change is a community led initiative that    grew out of the struggle of the Adivasis of ...
Executive Summary 2 of 2             •   To operationalise Participative Capital an                 estimated capital inve...
Just ChangeBackground and Objectives    I.     Just Change India    II.    Adivasis Journey    III.   Global Tea Market   ...
Just Change India                   “a grassroots response to the global economy that has left the                   vast ...
Global Tea Market - Overview                                                    GLOBAL TEA PRODUCTION• Tea is the highest ...
Tea Market – Sustainability Issues• Global prices have been declining  since 2000 due to the price  collusion by the oligo...
Global Paddy Market – Overview• Rice cultivation is the principal activity and source of income for  millions of household...
The Challenge                   Two thirds of India’s population are rural                   farming communities with 30% ...
Investment Plan Objectives• To create an investment framework for the operationalising of  Participative Capital• To allow...
Just ChangeBusiness Model i. Purpose ii. Participative Capital iii. Benefits of Co-Destiny iv. The Key Players v. Business...
Purpose• To outline the enterprise operating on the principles ofsustainability to also be run as a profitable business• T...
Participative Capital Participative Capital is a concept that generates a more equitable economic and  social benefit for ...
Participative Capital - Visual Model                  17
Benefits Co-Destiny • Financial return on                                       • Fair price for their   investment       ...
The Key Players        Producer Groups                                      Consumer Groups  Farmers represented through  ...
Organisation Structure                             Just Change Trust (JCT)                           Advisory/Think tank  ...
Just Change India Producer CompanyJCIPC - an Independent Operating Company• JCIPC is to facilitate return on investment an...
Business Units 1 of 2Role of Finance & Administration• Investment management• Governance of capital and   surplus• Provide...
Business Units 2 of 2Role of Operations                    Role of Community Relations • Business Development & Marketing ...
Key Aspects of GovernanceBusiness model and organisation structure will ensure:   • Compliance with all applicable laws an...
Governance Approach     Sustainable business income                          Equitable distribution of     and growth     ...
Just ChangeBusiness Development i.     Purpose ii.    Market Strategy Overview iii.   Marketing Plan iv.    Branding Strat...
Purpose• Participative capital is a new concept being introduced  amongst producers, consumers and investors and therefore...
Marketing Strategy Overview                     Marketing StrategySTEP 1                                               STE...
Marketing Plan – Year 1 and 2Main focus:To attract Consumer and Producer GroupsMethod• Year 1 and 2 – focus on maintaining...
Attracting Producer GroupsFor existing producer groups/circle:        For new producer groups/circle:Suggested methods:   ...
Attracting New Consumer Groups                     Suggested methods              • Initially use word of mouth, going    ...
Marketing Plan – Years 3-5 Starting in year 4 the budgeted marketing expenses will increase allowing for additional effort...
Market Expansion Plan             Tea to be No. of                                    Rice to be No. ofPeriod             ...
Branding Strategy – Just Change Tea & Rice  • The brand will be                                   • Leverage on existing  ...
Branding                               “Just Change your rice”“Supporting the                       JustcommuniTEA”       ...
Just ChangeSupply Chain Management  I.     Traditional Supply Chain Model & Issues  II.    Solution to the Traditional Mod...
Traditional Supply Chain Model & Issues         Farmers                                         Issues                    ...
Solution to the Traditional Model         Village                    3 Tiers Supply Chain Model        Farmers            ...
Benefits of 3 Tier Supply Chain ModelProducers enjoy:    • Increased margins due to direct sale to consumer      groups   ...
Why a Marketplace is NeededA marketplace enables Producers and Consumers to:• Communicate effectively   – Linking rural co...
Marketplace Framework•   Concept     • Create a marketplace platform online and through a mobile phone network for        ...
Warehousing•   Concept     • Serves as storage of products when there       is no immediate match in the Marketplace      ...
Just Change   Community BenefitsI.     Community Services OverviewII.    Impact OpportunitiesIII.   Financial BenefitsIV. ...
Community Services OverviewPrimary issues faced by the community:• Availability and usage of public health services and fa...
Impact OpportunitiesA Board of Directors of the Operating Company is to allocate certainfunds to address the community nee...
Financial BenefitsCurrent scenario, as is:                     New initiatives:•     Currently the producers are          ...
Women EmpowermentCurrent scenario, as is:                   New initiatives:•   Women’s power is not fully             •  ...
Community Benefit IndicatorsCommunity                 Intangible benefits                     Tangible indicatorsProducers...
Just ChangeFinancial AnalysisI.      Key TargetsII.     Shareholding PrinciplesIII.    Capital RaisingIV.     Surplus Dist...
Key Targets• Sustainable    • Multiple revenue streams creates surplus stability    • There will be two rounds of capital ...
Shareholding Principles  The Shareholding structure is not only determined by capital contribution but also by            ...
Capital Raising - Shareholding                            Shareholding                           The operating company wil...
Capital Raising - Overview                               •   Capital raising will occur in two rounds, both               ...
Capital Requirements - Overview                                                          To mitigate financial risks arisi...
Overview – Surplus Distribution   First 3      Stable                       Beginning        Stable   Years     Distributi...
Overview – Surplus Distribution• The operating company will retain 100% of the surplus in the first three  years to build ...
Key Assumptions                             Rice                                                                 Tea      ...
Financials – Income StatementFinancial Overview (INR M)               Y1     Y2      Y3      Y4       Y5      Y6Total Sale...
Financials – Gross IncomeParticipation Fee (INR M)          Y1            Y2             Y3            Y4            Y5   ...
Financials – Operating MarginsOperating Cost (INR M)                Y1     Y2     Y3     Y4      Y5      Y6Headcount      ...
Financials – Returns to InvestorsInvestor Interests              Y1          Y2          Y3           Y4       Y5         ...
Sensitivity AnalysisNet Profit (INR M)                  Y1           Y2           Y3             Y4            Y5         ...
Future Financial Growth Driver Scale up requires additional margins to be obtained through             the optimisation of...
Recommendations & Conclusion      I.     Implementation Milestones      II.    Risk Assessment Matrix      III.   Recommen...
Implementation Milestones                                  5 year implementation plan         Year 1                      ...
Risk Assessment Matrix                                                              1    Lack of alignment of goals of mem...
Recommendations & Conclusion• In keeping with the vision of Just Change, a methodology in  ‘operationalising ‘ a Participa...
Just Change        AppendixI.     AssumptionsII.    Financial DetailsIII.   GovernanceIV.    Community OpportunitiesV.    ...
Assumptions• Governance and structure created with a focus on the tea and  rice business• Marketplace system can be set up...
Income StatementBrokerage                          Y1         Y2          Y3          Y4          Y5         Y6Volumes han...
Financial Overview(INR M)             Y1         Y2         Y3          Y4          Y5                 Y6lNCOME           ...
Operating Costs              (INR M)     Y1          Y2           Y3          Y4          Y5          Y6    Salary and Wag...
Capital Required                          10%                                                                      20%    ...
Detail of JCIPC General Mgmt GroupMember                    Role                                       Hiring profileGener...
Community Opportunities: EducationCurrent State                          New Initiatives• High rate for school dropouts   ...
Community Opportunities: Skills TrainingCurrent State                         New Initiatives• Rural farming communities h...
Community Opportunities: Healthcare Services Current State                           New Initiatives• Rural communities of...
Community Opportunity: Access to Information Current State                    New Initiatives• Lack of awareness of       ...
Community Opportunities: Additional Initiatives                                    • Take initiatives that will           ...
Implementation Plan – Year 1Identify Project Manager/Lead for Participative Capital Initiative   JCTAttract investors     ...
Implementation Plan – Year 1Hire additional Operating Company resources (Community           JCTrelations, additional Oper...
Implementation Plan – Years 2-5Year 3Research Community Service needs of producer communitiesDesign Community benefit indi...
Risk Assessment & MitigationNo.               Risk                Functional   Likelihood   Impact            Risk Mitigat...
Risk Assessment & MitigationNo.                Risk                 Functional    Likelihood   Impact        Potential Ris...
Risk Assessment & MitigationNo.               Risk                 Functional     Likelihood   Impact        Potential Ris...
Risk Assessment & MitigationNo.               Risk                Functional     Likelihood   Impact        Potential Risk...
Thank youIf you are interested in more details about the business plan please contact the Global Institute For TomorrowSui...
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Changing the Role of Capital, India's Agricultural Supply Chains

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A business plan produced for Just Change India, to operationalize the concept of Participative Capital

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Transcript of "Changing the Role of Capital, India's Agricultural Supply Chains"

  1. 1. Just Change Business Plan To Operationalise Participative Capital Changing The Role Of Capital For Sustained Growth In Rural IndiaProduced by the participants of the Global Young Leaders Programme, November 2011
  2. 2. Table Of ContentsExecutive Summary 3Introduction 5Background 6Business Model 14Business Development 27Supply Chain Management 37Community Benefits 44Financial Analysis 50Recommendations & Conclusion 65Appendix 69
  3. 3. Executive Summary 1 of 2• Just Change is a community led initiative that grew out of the struggle of the Adivasis of Gudalur, Tamil Nadu to improve and sustain their livelihoods in the face of adverse market forces• An examination was conducted in the way the currently economy is structured• Just Change India has developed a concept to address this issue – an international cooperative of producers, consumers and investors, enabled through a Participative Capital business model• The business model outlines the establishment of a new “Operational Company”, that links producers, consumers and investors to provide mutual economic and social benefits 3
  4. 4. Executive Summary 2 of 2 • To operationalise Participative Capital an estimated capital investment of INR 100 million (10 crore) is required in which a return will be expected by the fourth year • By sharing returns between investors and community groups, rural community livelihoods will be improved – returns are to be managed through a robust governance structure within a sustainable business model • Community groups will re-invest the returns into community programs such as education, skills training and healthcare services as well as channel a portion into stability funds • The recommendation outlines a pilot project with Tea and Paddy in Tamil Nadu , with the intention for expansion into neighbouring states and other commodity products 4
  5. 5. Just ChangeBackground and Objectives I. Just Change India II. Adivasis Journey III. Global Tea Market IV. Global Paddy Market V. The Challenge VI. Investment Plan Objectives
  6. 6. Just Change India “a grassroots response to the global economy that has left the vast majority of people powerless with little or no control over factors that influence their lives...” - Stan Thekaekara, Founder of Just Change• Just Change is a concept that grew out of the struggle of the Adivasi farmers of Gudalur, Tamil Nadu to secure their livelihoods and live in dignity• Around 2003, “Market forces” saw prices of tea leaves plummet to a level that is threatening the farmers’ livelihoods, yet consumers worldwide continued to pay high prices• “Just Change” pioneered an alternative way of doing business which links poor producers, consumers and investors to work together for mutual benefit To foster a more just, equitable and sustainable economy for farmers 7 3
  7. 7. Global Tea Market - Overview GLOBAL TEA PRODUCTION• Tea is the highest consumed drink in the world - production dominated by China, India, Kenya and Sri Lanka• Export Market is dominated by Sri Lanka, China and India with the major players in the Import Market being Pakistan, Japan and China• No global institution exists in the tea industry, only individual nations Source: Tea Board of India, www.teaboard.gov.in have national Tea Boards or Tea Associations• Tea production is labour intensive where the livelihoods of millions in the rural areas are largely dependent on tea picking and processing 9 3
  8. 8. Tea Market – Sustainability Issues• Global prices have been declining since 2000 due to the price collusion by the oligopolistic tea manufacturing industry• A combination of price volatility and the domination of the tea supply chain by a few international companies is adversely affecting the sustainability of the tea sector• Working conditions and livelihoods of plantation workers and small scale farmers in tea producing countries are under growing pressure - most earn less than Rs.100 a day. 10 3
  9. 9. Global Paddy Market – Overview• Rice cultivation is the principal activity and source of income for millions of households around the world• At the beginning of the 1990s, annual production of rice was around 350 million tons and by the end of the century it had reached 410 million tons• Globally, India has the largest rice area and is second in rice production, after China• Among the exporting countries, Thailand, Vietnam, India and Pakistan are the major countries exporting rice in sizeable quantity 11 3
  10. 10. The Challenge Two thirds of India’s population are rural farming communities with 30% living below the poverty line. POVERTY While the economy has been growing at 8% , agricultural output has risen at only 3.3% per year* Commodity retail prices largely benefit the intermediary branding and MARKET packaging companies, wholesalers and retailers INEQUITY COMMODITY Access to basic commodities like tea, rice and spices have become ACCESS disproportionately expensive for consumers and less profitable for RESTRICTIONS producers“The YLP participants work closely with Just Change to address the challenge ofoperationalising, on a larger scale, the concept of Participative Capital which isenvisioned to generate a more equitable economic and social benefit for the networkof producers and consumers as well as provide a return of investment to theinvestors.” *Sources: International Fund for Agricultural Development www.ruralpoverty.org & China vs. India: A Tale of Two Plans, The Economist Network 12
  11. 11. Investment Plan Objectives• To create an investment framework for the operationalising of Participative Capital• To allow investors with aligned interests to become active participants of social change while realising a financial return• To ensure fair prices for producers so they have more control• To deliver good quality products at fair prices to consumers• To enhance and improve the overall societal development• To create an investor framework that can be applied across different commodity products and states in India Creating a more just, equitable and sustainable economy 13
  12. 12. Just ChangeBusiness Model i. Purpose ii. Participative Capital iii. Benefits of Co-Destiny iv. The Key Players v. Business Model vi. Organisational Structure vii. Governance Overview viii. Governance Approach
  13. 13. Purpose• To outline the enterprise operating on the principles ofsustainability to also be run as a profitable business• The bases of the enterprise is on the principle of ParticipativeCapital, to include the participation of producers, consumersand investors• The governance structure of the enterprise is to ensureequitable returns are delivered to all stakeholders 15
  14. 14. Participative Capital Participative Capital is a concept that generates a more equitable economic and social benefit for the network of producers and consumers as well as provide a return of investment to the investors. • Relationship reinforced among participants via co-existence and co-operation Co-destiny towards a common destination and mutual economic and social benefits • The transactional value derived from the commodity, consumption and capital Value and from the network of producer groups, consumer groups and investors results in Surplus surplus which in turn is redistributed equitably into the business or contributes to improving the standard of living of the people in rural India Central • A structured Operating company linking consumer groups and producer groups, Governance focusing on supply chain efficiency and surplus distribution Sustainable business Equitable distribution Extend social benefits to income and growth of economic benefits the greater community 16
  15. 15. Participative Capital - Visual Model 17
  16. 16. Benefits Co-Destiny • Financial return on • Fair price for their investment products • Contribute to • More consistent betterment of society demand via a more e.g. minimise poverty structured supply chain and improve standard of and loyalty incentives living, healthcare and • Enjoy economic and education social benefits from • Small investment – Big Capital Producer surplus impact Investors Groups Co-destiny • Receive goods at a fair • Improve standard of price living in rural India • Improved quality of Consumer Community Groups & India • Strenghting community products via improved relationships supply chain model and governed process and federation aggregator • Better price stability via Federation’s risk fund • Enjoy economic & social benefits from surplus 18
  17. 17. The Key Players Producer Groups Consumer Groups Farmers represented through • Cooperatives Local Societies at Village/Taluka • Mid-size wholesalers levels • Local consumers in villages Operating Company (JCI Producer Company) • Deploy ‘Capital’ provided by investors • Process commodities provided by the Producing Groups • Distribute commodities to Consumer Groups • Distribute financial returns to all stakeholders Investors Provide capital with the intent to generate financial return 19
  18. 18. Organisation Structure Just Change Trust (JCT) Advisory/Think tank Board of DirectorsAuditorsExternal Executive Director Oversight / Approval JCT PG Shareholders GM Investor General Manager (GM) Finance & Admin Operations Community Relations Marketing & Bus Dev Operation Supply Chain Purchases IT JCIPC ( Just Change India Producer Company ) 21
  19. 19. Just Change India Producer CompanyJCIPC - an Independent Operating Company• JCIPC is to facilitate return on investment and build capacity to expand product(s) and services• JCT will continue to operate as a think tank, independent of JCIPC but will also take an advisory role on Board of Directors• Board of Directors consists of representatives from all the major stakeholders to oversee and approve the major decisions made within JCIPC, ensuring the direction and purpose of the entity remains community driven• The day to day operation of the entity is split into several business units including: Finance & Administration, Operations and Community Relations 22
  20. 20. Business Units 1 of 2Role of Finance & Administration• Investment management• Governance of capital and surplus• Provide funding management to Operations• Distribute funding to producer members• Identify and manage financial privileges for members (i.e., rebates)• Human resource administration and management• Internal audit 23 23
  21. 21. Business Units 2 of 2Role of Operations Role of Community Relations • Business Development & Marketing • Communication with • Marketing & communications community • Promotional materials • Community development • Public relations initiative • Brand awareness • Community fund • Pricing Management • Supply Chain • Manage the market place • Manage logistics • Manage warehouse • Purchasing • Inventory management • Supplier management • IT • Manage technology vendor • Provide day to day technology support 24
  22. 22. Key Aspects of GovernanceBusiness model and organisation structure will ensure: • Compliance with all applicable laws and regulations • Transparency and segregation of duties in the overall administration of the Operating company (see business model) • Accountability of key stakeholders • Effective management of the capital and financial surplus distribution amongst investors, consumers and producers • Profitable management of a multiple commodity products enterprise (Rice, tea) • Execution of strategyGovernance and management organisation structure is scalable formultiple product(s). 25
  23. 23. Governance Approach Sustainable business income Equitable distribution of and growth economic benefits • Exclusive participation via shareholding in • Central governance on surplus management Operating company, assurance of fair via Board of Directors of Operating company price and quality goods and incentives to benefitting consumer groups, producer promote continuous supply and demand groups and investors of commodity • Operating company to focus on business • Selection criteria of participants in supply development; match demand and supply as chain for worthiness well as ensure fair price, price stability and quality goods Extend social benefits to the Improved and efficient greater community marketing and supply chain • Central governance on surplus • A structured Operating company linking management via Board of Directors of consumer groups and producer groups, Operating company focusing on marketing and supply chain • Dedicated community relations personnel efficiency to focus on community development • Selection criteria of vendors/suppliers for initiatives worthiness 26
  24. 24. Just ChangeBusiness Development i. Purpose ii. Market Strategy Overview iii. Marketing Plan iv. Branding Strategy
  25. 25. Purpose• Participative capital is a new concept being introduced amongst producers, consumers and investors and therefore a strong marketing plan is required for successful business development• As a ‘start-up’ the main goal is to increase awareness and gain the confidence of producer and consumer groups• A secondary goal is to develop a strong brand which will build trust and loyalty to JCPC 28
  26. 26. Marketing Strategy Overview Marketing StrategySTEP 1 STEP 2 Attracting Consumer & Producer Branding Groups Top priority is “Attracting Consumers & Producer Groups” 29
  27. 27. Marketing Plan – Year 1 and 2Main focus:To attract Consumer and Producer GroupsMethod• Year 1 and 2 – focus on maintaining and extending consumer demands andensure production levels increase accordingly as well• JCIPC will be using their in-house resources to achieve their first two years’marketing goals• The approach in the first two years do not require substantial investment• After the first 2 years, once the base of producer/consumer have been foundedwith investment flowing in, more substantial marketing activities are planned inaccordance with an increased budget for marketing expense• Plans to attract producer and new consumer groups are outlined in the next twoslides No substantial marketing expenses expected in years 1 and 2 30
  28. 28. Attracting Producer GroupsFor existing producer groups/circle: For new producer groups/circle:Suggested methods: Suggested methods:• Supply contract: premium at • Multi level marketing: signing of contract: e.g: INR20/kg producers earn eventual share green leaves of surplus increases• Guaranteed fixed buying price: • At signing supply contract: e.g: INR45/kg green leaves entitled to the benefit package• Share of surplus/volume unit offered to existing members• First right to invest• Group representative have aggregated vote in decision making process• Access to education and health care as members• All groups benefiting from participative capital 31
  29. 29. Attracting New Consumer Groups Suggested methods • Initially use word of mouth, going through trusted organisations and then using the success stories to attract others, highlighting all the benefits of participating • Benchmarking against market price and offering discounts • Partnership with cooperatives in Tamil Nadu, Kerala, and other states: % per total volume to the cooperatives ; mutual technical support; • Referral scheme • Membership discount for loyal consumers 32
  30. 30. Marketing Plan – Years 3-5 Starting in year 4 the budgeted marketing expenses will increase allowing for additional efforts in scaling up JCIPC’s operations. Year 3 Year 4 Year 5 Producers Educate and visit new villages Media campaign Trade show on concept to get buy in and develop relationships Policy advocacy Best producer of the year award Roll out rewards scheme for new producers (commission) Tea Newspaper ads TV ad Trade show Consumers Flyers Tea tasting Study tour Website Product Promotion Paddy Newspaper ads TV ads Trade show Consumers Flyers Website Study tour Rice tasting Roadshow Roadshow*Eakgon Cellphone is a cellphone service for illiterate farmers to provide them with information on cultivation 33
  31. 31. Market Expansion Plan Tea to be No. of Rice to be No. ofPeriod Households Period Households sold [MT] Society sold [MT] Society Year 1 100 5 20,000 Year 1 2000 8 20,000 Year 2 125 6 25,000 Year 2 4000 12 40,000 Year 3 188 8 47,000 Year 3 8000 18 160,000 Year 4 281 10 132,070 Year 4 14000 25 1,120,000 Year 5 422 15 557,335 Year 5 21000 35 11,760,000 Year 6 633 25 3,527,933 Year 6 30000 40 176,400,000 In order to achieve the above mentioned figures, we will do the following steps: Step 1: Promote brand and bring societies on board Step 2: Branding*Projections are conservative and expected to be exceeded based on selling goods in open market 34
  32. 32. Branding Strategy – Just Change Tea & Rice • The brand will be • Leverage on existing associated with retail chain outlets in certain YR1 to mid YR2 communities i.e. • Set up new exclusive Raitasanga retail outlets • Create sense of • Location based ownership / brand will serve as relationship with Product Place potential tourist the brand destination site • Offer free samples to potential consumers Promotion Price • Price penetration • Multilevel marketing • Use referrals and Promotion within the different groups of society word of mouth to • Premium pricing for increase awareness different quality of • Business tie-up with tea / rice entrepreneur groups in the society 35
  33. 33. Branding “Just Change your rice”“Supporting the JustcommuniTEA” Change Enabling a sense of ownership within the community 36
  34. 34. Just ChangeSupply Chain Management I. Traditional Supply Chain Model & Issues II. Solution to the Traditional Model III. Benefits of 3 Tier Supply Chain IV. Why a Marketplace is Needed V. Marketplace Framework VI. Warehousing
  35. 35. Traditional Supply Chain Model & Issues Farmers Issues • Exploitation by dealers and Mandis Registered aggregators (Market) Dealer • No common marketplace to: Aggregator • Buy and sell product • Identify producers andProcessing StatePackaging Procurement consumers beyond local System boundaries Intermediary • Share information Distribution Hubs • No warehouse for temporary storage Consumer • Lack of logistics network Lack of marketplace between Producers and Consumers limits fair trade and equitable growth 38
  36. 36. Solution to the Traditional Model Village 3 Tiers Supply Chain Model Farmers Tier 1 : Producer Group Producer • Process goods, packaging Group • Sell goods to Operating Company Operating Tier 2 : Operating Company Warehouse • Marketplace to link up producers and Company consumers • Warehousing/stock management Consumer Open Groups Market Consumer Tier 3 : Consumer Groups • Sales & distribution to end consumer 3 Tier model links up producers and consumers directly 39
  37. 37. Benefits of 3 Tier Supply Chain ModelProducers enjoy: • Increased margins due to direct sale to consumer groups • Easy access to information • Ability to retain personal relationshipsConsumers enjoy: • Ability to search and price compare • Lower prices due to direct purchase • Decreased costs through the use of online auction • Easy access to information to facilitate daily operationsThese benefits are obtained by using the marketplaceplatform within the Operating Company. Marketplace is the essence of 3 Tier Supply Chain Model 40
  38. 38. Why a Marketplace is NeededA marketplace enables Producers and Consumers to:• Communicate effectively – Linking rural communities to consumer groups – Visibility of supply and demand beyond local networks• Trade, Buy and Sell – Price creation and determination – Match up willing buyer and sellerMarketplace brings producer and consumer groups together 41
  39. 39. Marketplace Framework• Concept • Create a marketplace platform online and through a mobile phone network for Sellers and Buyers to go beyond the current limits of a traditional market• Role • Enable Producers and Consumers to buy and sell products beyond current boundaries, by leveraging on the information and logistics network provided and recommended by the Operating Company • Establish the connection between Producers and Consumers, allowing them to interact and communicateSuccessful marketplace implementation needs warehousing 42
  40. 40. Warehousing• Concept • Serves as storage of products when there is no immediate match in the Marketplace between producers and consumers • Operating company manages logistics to Consumer for warehouse products• Role • Provides Producers with stable income with stable sales of products • Provides Consumers with reliable supply of products • Operating company’s purchase of product during oversupply eliminates price volatility for Producers Warehousing enables sales at the right time and price 43
  41. 41. Just Change Community BenefitsI. Community Services OverviewII. Impact OpportunitiesIII. Financial BenefitsIV. Women EmpowermentV. Community Benefit Indicators
  42. 42. Community Services OverviewPrimary issues faced by the community:• Availability and usage of public health services and facilities is still minimal at best - critical care services are often 100KM or more away.• Significant school dropout rates among children• Market fluctuations often lead to significant income loss for rural farmers who lack access to emergency funds, which results in the loss of land – this has also led to a disturbing increasing trend of alcoholism and suicide rates 45
  43. 43. Impact OpportunitiesA Board of Directors of the Operating Company is to allocate certainfunds to address the community needs. This pilot program is tofocus on: • Education and Skills Training • Healthcare services • Improved communication• As returns increase as the operations scales up, additional services may be introduced to address needs of other target communities, including: • Women’s empowerment • Financial assistance through community funds for contingencies• Community services will roll out all activities & services via existing community structures 46
  44. 44. Financial BenefitsCurrent scenario, as is: New initiatives:• Currently the producers are Community loan fund organised only to a limited extent • To address financial constraints caused by while the power of collective unforeseen events financial capability is not realised • It is paid out as a low interest loan i.e. so far interest sufficient to cover administration,• The community borrow money supervision & loan loss cost with no element of profit taking from local money lenders at a very high interest rate when in need - • Initial funding from Investors portion interest rates are often 3% /month • Kept sustainable by a) repayment by borrowers b) surpluses generated by business Implementation Needs: • Group lending by way of cross guarantee • Cap on borrowing size per borrower, loans are short term in nature 1-2 years • Cap of number of loans to be lent in each financial year. • Governance at project level to ensure compliance of operational/administrative procedures & policies. • Set up a team to operate the fund 47
  45. 45. Women EmpowermentCurrent scenario, as is: New initiatives:• Women’s power is not fully • Build a stronger, happier and value utilised for the community’s driven community through the groups, benefit focusing on:• Each woman is an individual – Managing household financials and worker, therefore no leveraging savings on the power of women as a – Collective bargaining of goods for group the communityImplementation Needs: • Visit other communities and villages to• X* salaried women to visit learn and share best practices communities • Reskill in areas to support execution of• Driver(s) the model (i.e., SNEHA group)• Car(s) • Increase awareness of government• Administrative support schemes and ways to take better *Number is scalable, depending on advantage of them membership 48
  46. 46. Community Benefit IndicatorsCommunity Intangible benefits Tangible indicatorsProducers Steady income Net increase in average income Primary Education Number of children enrolled in primary school Literacy rate: percentage of people Healthcare Number of injury deaths Number of deaths in children age 1-59 months Skills training Percentage of revenue growth in community Communications Number of people who has access to the broadband internet including common facilitiesConsumers Lower retail price Discount rate: the percentage of deduction of price compared to the market price*Additional details on community opportunities in appendix 49
  47. 47. Just ChangeFinancial AnalysisI. Key TargetsII. Shareholding PrinciplesIII. Capital RaisingIV. Surplus DistributionV. Key AssumptionsVI. Financial OverviewVII. Sensitivity AnalysisVIII. Future Growth Driver
  48. 48. Key Targets• Sustainable • Multiple revenue streams creates surplus stability • There will be two rounds of capital raising to maintain stable cashflow for working capital and business expansion• Scalable • Profitability of business is highly dependent on scale and volume • Model is dependent on Just Change’s ability to attract producers and consumers • Lowering marginal costs and capital expenditures create attractive margins for business expansion• Large potential for growth • Flexibility of business model promotes expansion into more commodities (such as spices, vegetable oil, cotton, cocoa etc.) • Case study of tea and paddy is highly promisingThe economics of participative capital delivers financial gains 51
  49. 49. Shareholding Principles The Shareholding structure is not only determined by capital contribution but also by participative contribution to the business Investors will provide the capital for the business, and producers will be providing their labour and sweat capital Example of Participative Shareholding Participative Shareholding 90 (Capital to be repaid) 10 Model Surplus 20 90% 18 2 10% 90-18 = 72 28 Surplus 20 72% 14 6 28% 72-14 = 58 42The shareholding of producers increases as the initial capital investment is repaid 52
  50. 50. Capital Raising - Shareholding Shareholding The operating company will Interest on day 1 make an upfront commitment PRODUCER INVESTOR of 10% of capital raised to 10% 90% invest in a community fund on day 1Sweat Capital Capital 100% SHAREHOLDING The shareholding structure is COMPANY linked directly to the amount of invested capital left to be repaid Capital Capital 10% 90% The long term stable COMMUNITY FUND TO shareholding relationship will FUND BUSINESS primarily benefit the producers Producers become shareholders by investing labour capital 53
  51. 51. Capital Raising - Overview • Capital raising will occur in two rounds, both raising INR 50M • Second round will take place in year three of 10% operations • Producer communities will have an 30% opportunity to invest in the second round of capital raising 20% 90% Bridging the gap 50% Total Participative Capital Business Capital Breakdown Investor Capital Breakdown Investment Business Capital INR 100M Working Capital Marketing Commitment to Community Stability Fund Upfront commitment to communities 54
  52. 52. Capital Requirements - Overview To mitigate financial risks arising from INR 90M supply and demand mismatches and production shortfalls due to natural forces, a stability fund will be established 30% Marketing and brand building will be 50% essential in establishing our business operations and is a key consideration during the capital raising process 20% The business will require a large provision of capital for working capital needs especially in the beginning stages Working Capital Marketing Stability Fund of operations The capital raised will be primarily used for working capital 55
  53. 53. Overview – Surplus Distribution First 3 Stable Beginning Stable Years Distribution Distribution Distribution Multi-level surplus distribution structure The distribution of surplus will filter through 3 levels 56
  54. 54. Overview – Surplus Distribution• The operating company will retain 100% of the surplus in the first three years to build the business• Thereafter, the operating company will retain a constant 25% of surplus to maintain operations• Of the remaining 75%, surplus will be distributed to both the producers and investors with the division skewed towards the investors until the original capital invested has been repaid• The producers’ share of the surplus will be returned in the form of cash and community investments via the community fund Investors benefit more at the start of the venture. Upon capital repayment, majority of surplus goes to producer 57
  55. 55. Key Assumptions Rice Tea Y1 Y3 Y5 Paddy Cost Y1 Y2 Y3 Y1 Y2 Y3 Commodity Sell INR/kg Composition INR/kg Commodity Cost INR/kg Sell INR/kgUnbroken Rice 68% 18.5 22 24 26.25 Tea (Mass) 70 75 80 100 112 125Broken Rice 7% 9 11Husk 20% 4 5Rice Bran 3% 27 37 Y1 Y3 Y1 Y2 Y3 Y4 Y5 Commodity Annual Growth Rate Commodity Annual Growth Rate Tea 25% 50% All Rice Products 100% 100% 75% 50% 43% • Rice production anticipated for high growth in the first three years that will then taper off • Conversely, tea’s growth rate is expected to accelerate after the second year of production • No expected growth in broken rice, husk and rice bran in 5 years as their contribution in terms of value is small Assumptions provided from sources within the producer communities 58
  56. 56. Financials – Income StatementFinancial Overview (INR M) Y1 Y2 Y3 Y4 Y5 Y6Total Sales 45.7 85.4 177.2 304.3 488.6 702.0Total Cost of Goods Sold 43.6 79.6 157.9 269.9 404.6 578.8Net Profit -1.4 -0.5 9.3 17.5 49.8 72.9Gross Margins 19.9% 20.4% 20.1% 19.8% 25.1% 25.1%Net Profit Margin (%) -3.1% -0.6% 5.2% 5.8% 10.2% 10.4% Margins increase with scaling efficiency 59
  57. 57. Financials – Gross IncomeParticipation Fee (INR M) Y1 Y2 Y3 Y4 Y5 Y6Paddy Volumes handled (MT) 1360 2720 5440 9520 14280 20400Paddy Value 29.92 59.84 119.68 209.44 314.16 448.8Tea Volumes handled (MT) 50 250 500 700 1200 1800Tea Value 5 25 50 70 120 180Participation Fees 0.35 0.85 1.70 2.79 4.34 6.29Participation & Vendor Fees 0.35 0.89 1.85 3.09 4.84 7.29Warehousing (INR M) Y1 Y2 Y3 Y4 Y5 Y6Total Paddy (MT) 2000 4000 8000 14000 21000 30000COGS 29.6 59.3 126.7 221.8 332.6 475.2Sales 35.7 71.4 153.6 268.8 435.3 621.9Total Tea (MT) 100.0 125.0 187.5 281.3 421.9 632.8COGS (INR M) 7.0 9.4 15.0 22.5 33.8 50.6Sales (INR M) 10.0 14.0 23.4 35.2 52.7 79.1Cash Surplus (INR M) 9.0 16.7 35.3 59.7 121.7 175.2Gross Margins 19.8% 19.6% 19.9% 19.6% 24.9% 25.0% Higher margins obtained with economies of scale 60
  58. 58. Financials – Operating MarginsOperating Cost (INR M) Y1 Y2 Y3 Y4 Y5 Y6Headcount 5 6 7 8 8 9Salary and Wages 1.7 2.3 2.9 3.6 3.9 4.1Office exp. Including rental(SGA) 1.2 1.2 1.8 1.8 2.2 2.2Marketing(SGA) 0.9 1.8 1.4 2.3 2.5 3.6Promotion(SGA) 0.9 1.8 1.4 2.3 2.5 3.6Warehouse costs 0.3 0.6 1.2 2.1 3.2 4.5Transport Costs 4.2 7.0 10.9 18.6 29.9 42.9Training Camp costs(SGA) 0.9 1.8 1.4 1.6 2.5 3.6Interest (10% rate) 0.0 0.0 0.0 1.2 3.0 6.0Total Operating Cost 10.1 16.4 20.9 33.6 49.5 70.5Operating Margin -4.3% 0.0% 7.7% 8.8% 15.3% 15.8% Supply chain costs make up the majority of OPEX 61
  59. 59. Financials – Returns to InvestorsInvestor Interests Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10Investor Shareholding (%) 90.0% 90.0% 90.0% 88.7% 85.5% 69.5% 35.0% 35.0% 35.0% 35.0%Surplus to Investors (INR M) - - - 6.3 11.6 32.0 38.0 21.1 23.2 25.5Investor IRR (%) - - - -86.3% -48.8% -15.6% -0.6% 4.3% 8.1% 11.0% Participative capital investing is a fairly new investment concept The expected return is relatively lower in comparison with conventional investments This model offers an investor the opportunity to enhance the community’s well being in India Investors can fulfill an engaging relationship with a community for better living. The investment gives the community a sense of purpose 62
  60. 60. Sensitivity AnalysisNet Profit (INR M) Y1 Y2 Y3 Y4 Y5 Y6Best Case (+20% Production) 5.0 11.4 34.1 60.1 118.2 171.2Base Case -1.4 -0.5 9.3 17.5 49.8 72.9Worst Case (-20% Production) -7.8 -12.5 -15.5 -25.1 -18.6 -25.4Investor IRR Y4 Y5 Y6 Y7 Y8 Y9 Y10Best Case -79.5% -39.0% -7.8% 3.8% 9.2% 13.1% 16.1%Base Case -86.3% -48.8% -15.6% -0.6% 4.3% 8.1% 11.0%Worst Case -93.5% -59.0% -26.4% -9.1% -1.6% 1.8% 4.7% Because weather conditions will change year to year, the worst case scenario where production is consistently below estimates is highly unlikely Water and weather conditions have a strong impact on crop production and financial performance 63
  61. 61. Future Financial Growth Driver Scale up requires additional margins to be obtained through the optimisation of the supply chain 64
  62. 62. Recommendations & Conclusion I. Implementation Milestones II. Risk Assessment Matrix III. Recommendations & Conclusion
  63. 63. Implementation Milestones 5 year implementation plan Year 1 Year 2 Year 3 Year 4 Year 5 Secure Capital Source & Create Community Create Implement brand Investor Investments Operating Supply Chain Surplus Company Distribution Sign up Attract and enlist producer, consum Producer and Consumer Groups er groups Community Community benefits benefits*Additional details on Implementation Plan in Appendix defined defined 66
  64. 64. Risk Assessment Matrix 1 Lack of alignment of goals of members of Operating 11 Company and Board of Directors 9 7 8 High 5 2 Lack of transparency in the administration of the 1 Operating Company and Board of Directors 3 Thin spread of surplus due to overwhelming community requestsImpact 10 4 Ineffectiveness of and lack of outreach of community 3 4 6 programmes Medium 2 12 Limited market penetration 5 Lack of confidence of investors in profitability of business venture 7 Commodity price volatility Low 8 Inability to secure funding to commence implementation of business model 9 Production downtime due to poor maintenance and power outages Low 10 Poor quality commodity Medium High 11 Supply chain failure impacting commodity distribution Likelihood 12 Commodity supply outweighs demand 67
  65. 65. Recommendations & Conclusion• In keeping with the vision of Just Change, a methodology in ‘operationalising ‘ a Participative Capital business model has been created• Recommendations include the establishment of a new ‘Operational Company’ that not only links the producers and consumers but also investors• The recommendation outlines a pilot project with Tea and Paddy in Tamil Nadu and Kerala regions respectively, with the intention for progressive expansion• With a capital investment of INR 100M, estimated initial investments will enable scaling resulting in operating profits from year 3 onwards• The venture is expected to improve the livelihoods of rural communities, producers and consumers alike, whilst providing a sustainable business model for the success of stakeholders 68
  66. 66. Just Change AppendixI. AssumptionsII. Financial DetailsIII. GovernanceIV. Community OpportunitiesV. Detailed Implementation PlanVI. Risks and Mitigation
  67. 67. Assumptions• Governance and structure created with a focus on the tea and rice business• Marketplace system can be set up to be used via mobile phone network and online – platform software to be developed• All producer and consumer groups have access to mobile phones (SMS)• Logistics infrastructure exists for the delivery of goods• Surplus distribution and implement plan assumes profit 70
  68. 68. Income StatementBrokerage Y1 Y2 Y3 Y4 Y5 Y6Volumes handled (MT)* 3660 7283 14331 24806 37359 53518Brokerage & Vendor Fees** 0.05 0.29 0.65 1 1.7 2.8Warehousing Y1 Y2 Y3 Y4 Y5 Y6Total Tea (MT) 250 313 391 586 879 1318COGS (INR M) 18.8 23.4 29.3 43.9 65.9 98.9Sales (INR M) 31.3 39.1 48.8 73.2 109.9 164.8Gross Margin 12.5 15.6 19.5 29.3 43.9 65.9 *Volume reflects the total volumes handled for brokerage as well as warehousing for tea and paddy ** Brokerage & Vendor Fees are one of the income streams along with Warehousing, income from brokerage reflects only the brokerage volumes With economies of scale, better margins can be generated 71
  69. 69. Financial Overview(INR M) Y1 Y2 Y3 Y4 Y5 Y6lNCOME 67 110 192 323 485 701COGS 60 101 177 299 445 639PBIT 2.2 1.1 1.5 3.7 7.4 13.6 800 700 600 500 400 300 200 100 PAT 0 COGS Y1 Y2 Y3 Sales Y4 Y5 Y6 72
  70. 70. Operating Costs (INR M) Y1 Y2 Y3 Y4 Y5 Y6 Salary and Wages 1.16 1.36 1.51 1.61 1.61 1.71Offic exp. Inclu rental 1.2 1.2 1.8 1.8 2.16 2.16 Marketing 0.06 0.08 0.10 0.15 0.22 0.33 Promotion 0.06 0.08 0.10 0.15 0.22 0.33 Warehouse costs 1 1 0.8 0.8 1 1 Transport Costs 3.8 4.7 5.9 8.8 13.2 19.8 Training Camp costs 0.25 0.31 0.39 0.59 0.88 1.32Total Operating Costs 7.49 8.72 10.51 13.83 19.27 26.62 Transport costs is the majority of operating costs – accounts for more than 50% 73
  71. 71. Capital Required 10% 20% 10% Total required Business Capital 20% participativeInvestment : 1.8M USD 90M INR capital investment2M USD100 M INR 90% • 2M USD (100M INR, 10 crores) 50% Investor Capital Breakdown Business Capital Breakdown Warehousing Working Capital Business Capital Marketing Stability Fund Commitment to Community 74
  72. 72. Detail of JCIPC General Mgmt GroupMember Role Hiring profileGeneral Manager [1] -Decision maker in General -A dynamic individual who is experienced in agriculture Management Group (GMG) business (Min. 5 years experience)Finance Manager[1] -Manage daily operation related to -A dynamic individual who is experienced in agricultures finance such as surplus management or business as well as with the financial industry (Min. 3 years capital management experience)Supply Chain Manager -Manage daily operation related to -A dynamic individual who is experienced in agricultures[1] supply chain business as well as with Supply Chain management and inventory control (Min. 3 years experience)Purchasing Manager [1 ] -Manage daily operation related to -A dynamic individual who is experienced in agricultures procurement business as well as with previous procurement experience (Min. 3 years experience)Marketing & Bus Dev -Manage daily operation related to -A dynamic individual who is experienced in agriculturesManager [1+1member] marketing & Business Development business as well as experienced with marketing and business development in the rural sector (Min. 3 years experience)IT Manager [1] - Manage daily operation related to -A dynamic individual who is experienced in agricultures Business Development such as business as well as IT experience in the rural sector (Min. 3 distribution strategy years experience)Community Relation -Manage daily operation related to -A dynamic individual who is experienced in agriculturesManager [1+1member] community relations business (Min. 3 years experience) 77
  73. 73. Community Opportunities: EducationCurrent State New Initiatives• High rate for school dropouts • Increased access to education• Dominant child labor facilities by actively engaging government in partnership with NGOs • Extend financial assistance to impoverished households • Obtain computers for schools through donations from corporations Education for the Future 79
  74. 74. Community Opportunities: Skills TrainingCurrent State New Initiatives• Rural farming communities have • Impart training to generate limited skill sets that prevent secondary source of income them to pursue secondary • Partner with agricultural sources of income agencies to provide trainings• Growers among the on latest communities are not exposed to cultivation/production effective crop methods cultivation/production methods • Extend training in basic and have less than optimal business for enterprising output members so that they can successfully start and run small businesses Training for Alternate Livelihoods 80
  75. 75. Community Opportunities: Healthcare Services Current State New Initiatives• Rural communities often under • Increase awareness on the utilise the public health services need for healthcare with the mainly due to lack of awareness help of local community organisations and public• Insufficient specialists available: health officials Critical cases referred to places of distances of 100KM or more • Encourage expectant mothers to go for continued follow up checks • Bring public health officials to villages for basic medical checks ups and immunisation for children and women Healthcare is key for good well being 81
  76. 76. Community Opportunity: Access to Information Current State New Initiatives• Lack of awareness of • Build community groups to government schemes influence government• Very limited interaction policies/decisions to protect between producers and community interests. consumers resulting in lost • Increase awareness on government opportunities schemes and programs related to development of rural communities • Build communication channels (phone & internet access) to facilitate interaction & information sharing between producers, consumers, investors, government etc. Keeping Communities and Stakeholders Connected 82
  77. 77. Community Opportunities: Additional Initiatives • Take initiatives that will empower the community through creation of Stree- shakti groups• Develop a community loan fund to address emergency financial needs by extending a low interest loan Improving Standards for Community Stability 83
  78. 78. Implementation Plan – Year 1Identify Project Manager/Lead for Participative Capital Initiative JCTAttract investors JCTSecure 1M Capital JCTHire Operating Company resources (Finance, Operations, Business JCTDevelopment)Establish fund to manage 1M capital FinanceDefine and implement producer group membership requirements, Bus Devneeds & structures (i.e., tracking)Define and implement consumer group membership requirements, Bus Devneeds & structuresCreate outreach materials to attract producer/consumer groups Bus DevIdentify and attract producer and consumer groups (i.e., Tea/Rice Bus Devtasting road shows, community visits) 84
  79. 79. Implementation Plan – Year 1Hire additional Operating Company resources (Community JCTrelations, additional Operations)Sign up producer and consumer groups Bus DevSource supply chain resources (warehouse, logistics, Market Place Operationssoftware)Secure financing for supply chain resources FinanceImplement supply chain solutions OperationsCreate Board of Directors & elect Chairperson JCTDefine methods to communicate with producers/consumers Bus Dev 85
  80. 80. Implementation Plan – Years 2-5Year 3Research Community Service needs of producer communitiesDesign Community benefit indicatorsDefine and create branding and packagingYear 4Prioritise community services based on needsDesign operation plan and budget for community servicesDistribute surplus to investorsYear 5Launch community services to producer communities 86
  81. 81. Risk Assessment & MitigationNo. Risk Functional Likelihood Impact Risk Mitigation Area1. Lack of Alignment of Goals of Governance LOW HIGH 1. Define clear roles and members of the Operating responsibilities of each role in Company and Board of the Governance Structure Directors 2. Rotation through election of key roles in Operating Company and Board of Directors 3. Just Change to play an intermediary role in any disputes or alignment issues2. Lack of transparency of the Governance LOW MEDIUM 1. Establishment of a strong administration of the corporate governance model, Operating Company and transparency in systems, Board of Directors processes, decision making with clear roles and responsibilities and segregation of duties embedded in the organisation3. Overwhelming requests for Community MEDIUM MEDIUM 1. Community and social benefit community and social benefit programmes to be agreed upon programmes resulting in thin and prioritised (eg. top 5) by the spread of surplus and established Governance minimising social impact of structures initiatives 87
  82. 82. Risk Assessment & MitigationNo. Risk Functional Likelihood Impact Potential Risk Mitigation Area4. Community programmes are Community MEDIUM MEDIUM 1. Establishment of Key not effective and reach only a Performance Indicators certain portion of the (KPIs) for measuring benefits community resulting in of community programmes minimal social impact, 2. Implementation of robust potential escalation of social communication channels to issues, disparity, jealousy and the various stakeholders of conflict the business model5. Limited market penetration Business LOW HIGH 1. Implementation of effective resulting in low revenue Development marketing strategy striking a growth balance of economic and social benefits6. Lack of confidence of Finance MEDIUM MEDIUM 1. Establishment of a strong investors in profitability of financial and risk management venture and supporting risk policies and procedures with management and control clear segregation of duties and processes delegation of authorities framework embedded in the Finance Function of the Operating Company 2. Provision of a robust financial model outlining profitability and cash flow projections 88
  83. 83. Risk Assessment & MitigationNo. Risk Functional Likelihood Impact Potential Risk Mitigation Area7. Commodity Price volatility Finance MEDIUM HIGH 1. Monitoring undertaken by resulting in uncertainty in Operating Company on revenue streams commodity markets and pricing trends 2. Utilise Delayed Marketing mechanism to manage price volatility8. Inability to secure funding to Finance MEDIUM HIGH 1. Secure strong investors with commence implementation of like-mindedness on both the business model economic benefits and long term social view9. Production downtime due to Supply Chain LOW HIGH 1. Implement robust preventive poor maintainence and power maintenance plans outage resulting in supply not 2. Implement backup generators to being able to meet demand supplement primary source of and a loss of revenue electricity 89
  84. 84. Risk Assessment & MitigationNo. Risk Functional Likelihood Impact Potential Risk Mitigation Area10. Poor Quality Commodity Supply Chain LOW MEDIUM 1. Stringent Quality Criteria impacting business venture established by Operating economic and social interests Company 2. Quality Control checks undertaken by Operating Company11. Failure in supply chain to Supply Chain LOW HIGH 1. Establishment of Key distribute commodities to Performance Indicators consumer groups on a timely (KPIs) for measuring and basis monitoring supplier performance 2. Multi supplier strategy to ensure contingency suppliers in the event of supplier failure 3. Stringent Supplier Assessment as part of selection criteria12. Supply outweighs Demand Supply Chain MEDIUM HIGH 1. Channel excess supply to resulting in excess auction houses and other commodity and wastage trading houses 2. Stringent Demand and Production Planning undertaken by Operating Company 3. Maintain contingency funds to 90 sustain farmers livelihood
  85. 85. Thank youIf you are interested in more details about the business plan please contact the Global Institute For TomorrowSuite 1111, CityPlaza One, 1111 King’s Road, Taikoo Shing, Hong KongTel: (852) 3571 8103 www.global-inst.com
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