Hubei, China - Integrated Farmers Association - Five Year Development Plan, 2011


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Hubei, China - Integrated Farmers Association - Five Year Development Plan, 2011

  1. 1. Global Young Leaders Programme February 2011 Five-year Five year development plan forIntegrated Farmers’ Association of Heshuiping Region, Jianshi County Hubei Province China County, Province, 1
  2. 2. TABLE OF CONTENTSContents Page Number1. Executive Summary 32. Background 103. Objectives 214. Scope & Approach 235. Business Model 286. Financial Services 367. Governance 468. Production & Marketing 609. Community Services 7210.10 Implementation Plan 7611. Risk Assessment and Mitigation 8012. Recommendations 8213. Appendices13 A di 85 2
  4. 4. Executive Summary – Background• The Integrated Farmers’ Association of Heshuiping Region (IFAH) was founded in 2008, covering six villages, namely Nongke, Fengxiangshu, , g g , y g , g g , Yangliu, heping, Chunfang and Cacapo, in Sanli Township, Jianshi County.• IFAH aims to protect the interests of farmers, enhance the knowledge and skills of farmers, advance agriculture modernization, increase farming revenues and improve the livelihood of farmers, develop rural economy and social business, advance rural community development and bring forth a new rural governance structure.• IFAH’s mission is aligned both to the Chinese Government’s efforts, and the Sanli Township’s 5 year development plan to enhance living standards and income of the community• YLP participants were tasked to create a business model that includes rural governance to aid sustainable development in Sanli township. g p p
  5. 5. Executive Summary – Business Plan• A 5-year plan is proposed, with recommendations made on the governance and financial model for IFAH, changes to crop aggregation and community outreach programmes t h• A starting capital of RMB 1,000,000 is needed in the first year for the credit department, and in five years, the cumulative capital will be RMB $169,000,000 $169 000 000• Breakeven is expected in the second year• Gross Profit of RMB 4,300,000 is expected in the third year eventually extrapolating to RMB 7 100 000 in the fifth year 7,100,000• Average household income from farming is expected to increase by 25% within 2 years of implementation• Overall migration f O ll i ti from rural t urban areas i expected t d li l to b is t d to decline, b based on d asset building and enhanced farming income Demonstrating business viability for future extension g y of the proposed IFA model
  6. 6. Executive Summary – OperationalRecommendations• Finance – Introduce the Finance & Investment, and Credit Functions as IFAH’s IFAH s sole vehicle for provision of financial services – Utilize money remitted by migrant workers to enhance IFAH’s capital base• Production and Supply Chain – Review supply chain for pig farming, so as to aggregate and increase revenue for farmers and IFAH – Review crop/land allocation and expand fragrant rice production Multi pronged approach to enhance income to farmers
  7. 7. Executive Summary – OperationalRecommendations• Governance – Review IFAH team composition; enhance management bandwidth bandwidth, governance, risk management and transparency – Review member leadership structure, from geography based leadership to functional/crop based groups – Enhance internal checks to ensure benefits to farmers• Community Services y – Set up mechanism to train farmers on more effective farming, with a view to enhancing the overall average household income – Enhance healthcare awareness and cultural & educational activities – Provide framework for creating positive environmental impact, e.g. waste collection Enhance IFA governance and community services g y
  8. 8. Executive Summary• The 5 year plan aims to: – Enhance the average household income from farming in the Heshuiping region (year 1 and 2) and eventually to the Sanli township (years 3 onwards) by 25% within 2 years of implementation – Empower smallholder farmers by building confidence to join the professional groups and support IFA – Demonstrate that the model can be replicated across townships and eventually at the county level y y – Make rural vocation/farming attractive thus reducing the migration of workers to urban areas – I Improve environmental awareness, and h i t l d have a positive i iti impact on th t the local environment
  9. 9. BACKGROUND 9
  10. 10. China – A society built upon agriculture• For over 8000 years, Chinas smallholder farming 1978 – Decollectivization agricultural b i lt l base h played a k role i supporting th has l d key l in ti the (free market reforms) growth of what is now the largest population of the world 1953 – Commune• Since 1978 and its open market reforms, China has reforms System become the world’s largest producer and consumer of agricultural products; Currently, it produces 30% of the world’s corn, 25% of the world’s cotton, 37% of the world’s fruit and vegetables and half of the world’s pork• Structural changes to the economy - despite the healthy 7500 BC – expansion of the agricultural sector, the even faster growth Domestication of rice/ rise of of the industrial and service sector during the reform era has farming begun to transform the rural economy from agriculture to communities and accumulation of industry and from rural to urban wealth Source: 10
  11. 11. Globalization and the growing rural-urbandivide China’s rapid economic development and industrialization h i d t i li ti has created a growing gap t d i between rural and urban areas – China’s urban population has increased from China s 18.96 per cent in 197 to 46.60 per cent in 2009 – Per capita disposable income for urban residents was RMB 17,175 compared to RMB 5,153 for , p , rural residents – Decrease of rural labor force – 80% to 50 % in less than thirty years• The reported urban: rural income ratio is currently 3.35:1 but in reality, the disparity could potentially be as high as 6:1 Source: Consulting Center for Farmers’ Associations (CCFA) 11
  12. 12. Globalisation and the growing rural-urban divide• To find additional income, there has been an exodus of 200-300 million rural migrants i t d i t into developed coastal provinces and i d t i l cities as migrant l d t l i d industrial iti i t workers – The migrants are mostly male and represent over a quarter of the rural farming p p population; an average of 1 p household ; g per• Rural-urban migration together with the expansion of industry has resulted in the a) Breakdown of traditional village social structures (elderly and children being left behind), b) Continual decline of economic sustenance (local farming activities plummet because of lack of labor, knowledge, leadership), and c) Deterioration of the environment (urban sprawl and industry development impacts)• Families, crops, and land are abandoned for the seemingly more viable option of urban life 12
  13. 13. A new way forward for rural China• Currently, smallholder farms have little capacity to benefit from the opportunities presented by the growth in the agricultural sector because each farmer is allocated only 1.826 mu of farmland (less than 0.1 ha per capita)• However, if rural communities can successfully scale the collective efforts of these farmers, the economic potential is over 100M mu of land (1/18 of China’s arable land) and can provide a solution to the widening gap between urban and rural areas 13
  14. 14. A new way forward for rural China• Current efforts in China: – Policy support is close to 1 trillion per y y pp p year of funding coming from central government to improve infrastructure, living condition, production capacity, social services – Microfinance schemes to address bottom of the pyramid funding for smallholder farmers – Structural change both in the form of pilot grassroots farming programs and research- led technological innovation Yet there is still a need for a modernization model that addresses rural sustainability in d l th t dd l t i bilit i a holistic manner, and serves the smallholder farmers. 14
  15. 15. Integrated Farmer’s Association ofHeshuiping (IFAH)The Integrated Farmer’s Association of Heshuiping (IFAH)was formed in ApriI 2008 as a strategic partnership between: 1. Chi 1 Chinese A d Academy of S i l S i f Social Sciences P liPolicy Research Center, Consulting Center for Farmer’s Association (CCFA) led by Professor Yang Tuan 2. China Youth Development Foundation 3. B i ht Chi G 3 Bright China Group 4. China Social Entrepreneur FoundationWith the support of the Integrated Rural Development andGovernance Pil t PG Pilot Programme Offi Office, IFAH aims t b th fi t i to be the firstmodel of rural governance that: i. integrates the experience of farmers’ associations in East Asia with the local best practices of asset- based d b d development l t ii. acts as an intermediary between government bodies and the farming community that serves the wellbeing of smallholder farmer economies in rural China Chi 15
  16. 16. The IFA Model from East Asia and its Potential for ChinaThe Heshuiping model is based upon over 5 years of CCFA researchon existing IFA’s in Taiwan, Japan and Korea. Current East AsianIFA’s hIFA’ have several core f l functions i l di ti including: a) Distribution b) production • Needs provision – Farmers centered c) Supply • Social enterprise function – Asset building, separation of authority and function, internal wealth allocation function • Collective operation – High efficiency • Agriculture extension and education Financial Core servicesThe success and adaptation of the IFA pilot program in Functions F tiChina can push forward social structural change in Chinato ensure • The sustainable development of society Social • Protect the ecology and environment a. Education services • Protect people’s health b. Cultural • Curb corruption and ensure the effectiveness of policies activities • To promote civil society and realize democracy Source: 16
  17. 17. IFAH Membership Overview• Currently, IFAH covers six villages inthe Heshuiping region of Sanli Township Township, Heshuiping regionwhich is part of the 37 townships whichmake up Jianshi County.• It has 5000 members from 1320households which make upapproximately 60% of the regionalresident population Community y IFAH Members Percentage g No. of villages 6 - - No. of member groups - 64 - No. of households 2050 1320 64.3% No. of people 8180 5000 61.1% 17
  18. 18. SWOT AnalysisStrengths Weaknesses• Strong support from Govt: Sanli mayor g pp y • Limited management bandwidth keen on agriculture development • Limited financial resources• Existing association and buy-in of farmers • Farmers not aware of potential• Support from Consulting Centre for benefits b fit Farmers Association (CCFA)OpportunitiesO ii Threats Th• Aggregation of products and services, • Scattered progress beyond the initial e.g. pig farming produce, to improve 6 villages covered livelihoods li lih d • Lack of demonstrable achievement• Introduction of additional services like of IFAH in the immediate future healthcare, insurance • Inability to attract and retain talent y• Expanding beyond 6 villages • Funding difficulty
  19. 19. Problem StatementKey issues identified:•PPrevalent poverty i the f l in h farming community i H h i i region, i i in Heshuiping i current estimates of average household farming income (excluding remittances) at around RMB 3,000 annually• Lack of economic progress, accentuated by lack of access to p g , y capital, resources and technology• Limited effective governance framework, management expertise, and weak institutions• Limited economic opportunities locally leading to an exodus of workers to urban areas and resultant social issues• Poor environmental awareness, and adverse impact on local environment, environment leading to long term issues Need for effective rural governance to help enhance farming income h f i i 19
  20. 20. OBJECTIVES 20
  21. 21. Objectives• To alleviate poverty among the rural farmers in the Heshuiping area• To create a framework and mechanism for effective rural governance and sustainable growth• To create a sustainable rural credit model for smallholder farmers• To increase local household income from farming by utilizing better practices and by aggregating local produce• To stem the emigration of workers to urban areas, and to enhance opportunities for asset based growth locally• To empower smallholder farmers• Create a framework that can be replicated in other townships and counties• To enhance overall societal and environmental development Creating a sustainable rural economy… 21
  22. 22. SCOPE &APPROACH 22
  23. 23. ScopeScope of the business plan includes the following three essentialelements: 1 Township, • One farmers’ association for one township • Focus on Sanli Township in Jianshi County 1 IFA •CCovers estimated 37 villages ti t d ill • Four key areas: • 1) Governance 2) Production & Marketing 5-Year D 5Y Development l t • 3) Finance 4) Community Services & Benefits Plan for IFAH • Adapted from the East Asian models of Farmer’s Associations (FA) from across Taiwan, Japan and Korea • Two main stakeholders:Implementation Plan for • The government of Jianshi County and the Integrated Rural Development and Governance pilot programme IFAH and Stakeholders office • Consulting Center for Farmers’ Associations (CCFA) Farmers 23
  24. 24. Key Considerations for Business Plan Realisation• The Business Plan is a key tool for IFAH to address immediate risks and opportunities and implement the core building blocks to achieve its objectives• The Business Plan is NOT immediately intended to attract external y investors as IFAH do not have the requisite governance structures and resources to move to immediate implementation• The 5 year plan is focused on incubating the notion of self reliance 5-year through existing available financial services by piloting business operations expansion to the 37 Villages within the Sanli Township• Upon successful realisation of th benefits of th pilot, th model can U f l li ti f the b fit f the il t the d l potentially be tailored to be scaled to Jianshi County as part of the next stage of business expansion 24
  25. 25. Approach and Methodology• GIFT scoping & preliminary due diligence for Global 7-9 Dec 2010 Young Leadership Program (YLP)• Global YLP participants reviewed the background and the 19-21 Feb 2011 current approach of IFAH• Interviews, Interviews meetings and field visits with key stakeholders: 19-23 Feb 19 23 F b 2011 – Government Officials (county and township) – Village Heads – Member Group Leaders – Farmers – IFAH Management – CCFA Members – Bank Representatives• Briefings and brainstorming 22 23 22-23 Feb 2011• Calibration and clarification with key stakeholders 22-23 Feb 2011• Project planning and mapping 23 Feb 2011• Business plan development 23-24 Feb 2011
  26. 26. Approach and Methodology Workshops on W k h Briefings on B i fi Field visits global issues background Inspiring speakers YLP & IFAH  Farmers & IFAH Organizing & Final clarification with Debriefing & Mapping relevant parties Discussion YLP team  Various parties YLP team  Continuingg inputs from Business Agreeing on Content stakeholders plan YLP team  YLP team  YLP team 
  27. 27. BUSINESSMODELIntegrated Social EnterprisePerformance IndicatorsBenefits 27
  28. 28. A model of integrated and profitablesocial enterprise 1) Self-sufficient revenue Supported by Overarching Governance model: Sustainable Livelihood & – New credit financing Social Impact business capitalizing on Agricultural remittance and deposits Supply Chain from migrant workers – Collection and distribution Finance Services of key agricultural output – Fragrant rice growing IFA investment 2) Supporting governance model to ensure management transparency and farmers p y interests are protected 3) Delivery of community service for improvement of rural livelihood
  29. 29. Fully Integrated Business Model AcrossRevenue and Cost Drivers …enables positive return in the long term enables
  30. 30. IFAH’s Main Business Revenue Projections• Revenue from projects over 5 years: $20,000,000 $18,000,000 $16,000,000 $16 000 000 $14,000,000 $12,000,000 Revenue(other) $10,000,000 $10 000 000 Revenue(production) Revenue(credit dept) $8,000,000 Revenue(membership fee) $6,000,000 $4,000,000 $ $2,000,000 $0 1 2 3 4 5 6 30
  31. 31. IFAH’S NET INCOME GROWTH FOR 5YEARS 5 000 000 5,000,000 Net Income• Annual Net Income 4,000,000Growth in year 4-5: 26% 3,000,000 3 000 000• Breakeven Point: 2 year 2,000,000 1,000,000• Achie ing more than Achieving 0RMB 4 million in year 5 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 (1,000,000) Growth potential is very high 31
  32. 32. 5-Year P&L Projections of IFAH Consolidated Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Revenue(membership fee) 31,540 37,540 100,107 162,673 231,497 Revenue(credit dept) 110,000 110 000 513,805 513 805 2,068,157 2 068 157 5,316,377 5 316 377 10,631,862 10 631 862 Revenue(production) 250,000 1,475,000 5,020,000 5,900,000 6,520,000 Revenue(other) 39,600 105,600 171,600 237,600 Total revenues 391,540 2,065,945 7,293,864 11,550,650 17,620,958 Costs (credit dept) 100,000 622,842 2,235,780 5,167,480 9,711,154 Capex (production) 600,000 750,000 750,000 750,000 750,000 Total costs 700,000 1,372,842 2,985,780 5,917,480 10,461,154 Gross Margin (308,460) 693,104 4,308,084 5,633,170 7,159,804 -79% 34% 59% 49% 41% Expenses expense(credit dept) 91,600 117,960 272,473 352,491 460,910 expense(community) 2,000 76,000 119,000 241,000 329,000 expense(production) 54,000 258,000 516,000 774,000 1,032,000 expense(HR) 50,000 146,000 146,000 146,000 Total expenses 147,600 501,960 1,053,473 1,513,491 1,967,910 Operating Profit (456,060) (456 060) 191,144 191 144 3,254,610 3 254 610 4,119,679 4 119 679 5,191,894 5 191 894 Other gains or losses 0 0 0 0 0 Income Before Taxes (456,060) 191,144 3,254,610 4,119,679 5,191,894 Dividend (20% of IBT) 0 38,229 650,922 823,936 1,038,379 Net Income (456,060) 152,915 2,603,688 3,295,744 4,153,515 32
  33. 33. BenefitsFinancial:• Increase average household income by 25%• Increase revenue and productivity through better utilization of resources and aggregation of products & IFAH Financial Services Community: • Enhanced and more effective rural governance • Train farmers to enhance knowledge on agriculture products and techniques • Improve public health awareness • Greater engagement and social interaction 33
  34. 34. BenefitsSocial:• Increase opportunities for enhance living pp g standards, using local resources effectively• Reduce migration of workers to urban areas Environment: • Enhance sanitation • Improve river water quality • Enhance soil quality by promoting use of organic fertilizer 34
  36. 36. FINANCIAL SERVICES - OVERVIEW• Focus on 5 Key Financial Services to enable a sustainable and profitable Business Model• Existing Mutual Assistance Schemes in Villages (eg. Ca Ca Bo and Yang Liu) will eventually be absorbed into the IFA Financial Services Model• Undertake Central Claims Processing for Tobacco Farmers• Supported by sound supporting processes for Financial Accounting Accounting, Financial Controls and overall IFA Governance Model• Enables effective collection, analysis and management of key demographic information to support the Public Aff i i f ti t t th P bli Affairs FunctionCreating Value-Add and Streamlining Current Financial Services g g 36
  37. 37. FINANCIAL SERVICES – CAPITAL MUTUAL ASSISTANCE SCHEME• Short Term (1-2 years) Financing Scheme to fund Start Up Capital Start-Up• Pooling together smaller amounts from farmers (approximately RMB500 to RMB2000) with matching funds (up to RMB500) from the government• Funds used for Micro-Finance without collateral at an annual interest rate of 7 to 10%• Loan Term up to 12 months Critical Step To Achieve Economic Self Reliance 37
  38. 38. FINANCIAL SERVICES – MICRO-FINANCE• Micro-Finance Loan amount RMB Credit Function 5,000 to RMB 50,000 (without Credit Manager collateral) Submit Applications For Approval After Credit Checks Completed Approved• Loans > RMB 50,000 will be secured Applications through the Rural Credit Union under a Credit Processing Credit Credit Control Disbursements strategic partnership with IFA (with collateral)• Adjustable Interest Rates based on Submit Application Credit & Income Profile of Farmers Provide and Forms for Processing Collect Application Forms FUNDS• Term Loan of approximately 1 year to 5 and Provide Education & Awareness years structured through short term Offer and Funds Disbursement Signing of Offer repayment Letter & Agreement (Cash/Remittance)* Group Heads• Providing convenience through empowerment of the IFA Group Heads Credit Monitoring and Control Provide and Collect Farmers Application Forms and Provide Education & Awareness * Cash/Remittance to be used for Short Term. Once IFA obtains licence to receive deposits the amount will be remitted directly to the farmers IFA Savings Account 38
  39. 39. FINANCIAL SERVICES – SAVINGS SCHEME• Key integrator of Product Co-Operatives into IFA Business Model through means of investment and shareholdings• Facilitates establishment of strategic relationships with Commercial Banks/Credit Unions• Receive Deposits from farmers and migrant workers paying out an annual interest rate of approximately 2.6%• Providing convenience through aggregation of savings accounts maintained with multiple financial institution• Pooled Deposits to contribute to micro-financing and investment opportunities• Providing farmers visibility and transparency of summary financial status and other activities th ti iti through t h l h technology enablement ( F bl t (e-Farmer Kiosk) Ki k)• Longer Term (> 5 years) scale to promote IFA as Integrated Service Centre i.e. provide services to farmers such as direct debit facilities for bill payments IFA as an Integrated Financial Service Provider 39
  40. 40. FINANCIAL SERVICES – SAVINGS SCHEME The Savings Scheme is a Key Service Enabler for IFA as it represents the heart of IFA’sbusiness operations in effectively linking farmers, migrant workers, financial partners and co- farmers workers operatives in order to achieve supply chain and capital efficiencies and gains 40
  41. 41. FINANCIAL SERVICES – CENTRAL CLAIMS PROCESSING Finance & Investments• Tobacco industry operates as a single Function Finance Manager monopoly in China through the Chinese National Tobacco Process Claims Corporation (中国国家烟草公司) and Submit For Approval Approved Claims Withdraw Reimbursement Financial Accounting IFA Banking g• Central Claims Processing Ser ices Services Account Amounts for Farmers provided only to Tobacco Farmers• Provides scale efficiencies in-line with Deposits monies due to farmers consolidation of mutual assistance lid ti f t l i t into IFA Banking Account Submit Claims on behalf of farmers Reimbursement (Cash/Remittance)* schemes into the IFA structure Group Heads• Farmers receive monies faster than if directly interacting with the Tobacco Hand over claims Collection Centres Tobacco Collection Centre to Group Heads Deliver tobacco crops Farmers and obtain receipts * Cash/Remittance to be used for Short Term. Once IFA obtains licence to receive deposits the amount will be remitted directly to the farmers IFA Savings Account 41
  42. 42. FINANCIAL SERVICES – FINANCIAL EDUCATION & AWARENESS• Key Service Component which underpins the Financial Services Model and is a key input in the Risk Management Process• Integral part of Community Outreach Programme by: b – Providing Financial & Debt Management Awareness – Assisting Farmers to safeguard and take control of ownership over their financial security – Promote and Provide P t d P id Education on the Benefits of IFA’s Financial Services 42
  43. 43. FINANCIAL SERVICES – SUPPORTINGPROCESSFinancial Accounting• Day to Day Day-to-Day Financial Operations• Organize Incoming Investments (Grants etc) and IFA Investment• Manage Disbursement of Funds to Farmers, Projects, Community Services or other initiatives based on the direction and approval of the IFA Executive Board• Budgeting & Forecasting Activities• Periodic Financial Reporting 43
  44. 44. FINANCIAL SERVICES – SUPPORTING PROCESSESRisk Management & Financial Controls• Organization Structure provides for clear • Undertaking Stringent Credit Checks segregation of duties to mitigate risks of (Financial Needs, Family Members, Size Needs Members fraudulent activities of Land, Monthly Income etc.)• Establishment of a Delegation of • Short Term Repayment of Loans and Authorities Framework Credit Profiling• Supervisory Board and External Auditors p y • Monitoring Controls over Loan g provide “check and balance” repayments 44
  45. 45. GOVERNANCE 45
  46. 46. Framework Sustainable Rural Farmer Livelihood & Social Impact Board & Transparency Social Risk Organizational & Decision Flow Responsibility Management Structure 46
  47. 47. IFA Governance & Communications Structure General Assembly Key:  Key: Headcount H d t [] – 1‐2 yr timeline – 81 Governance & [] – 5 yrs timeline Supervisory  Executive  Decision Making Board Board 3 3 9 9 Audit A dit External  Executive  Auditors Director Implementation Village 1 Village 2 … Village 6 Village X 6 37 Activity Product  Activity Product  Activity Product  Activity Product  Group 1 Group 1 Group 2 Group 2 Group 3 Group33 Group 4 Group 4 Group 1 G Group 2 G 2 Group 3 G Group 4 G. Activity Based Groups … Same structure  per  village
  48. 48. IFA Group Communication Model p IFA Activity y Village Groups Based - Not all are IFA members Groups - Not all belong to an - All are IFA Activity Based Group members - Led b a village h d L d by ill head - Bonded together by common goals - Led by a group head 48
  49. 49. Activity-Based Group (ABG) y p( ) Who: EB IFA Self-governance g g grassroots entity formed by farmers y y who share the same agriculture product/activity and volunteer to lead in the ABG What: ABG Facilitating two-way communication between IFA and farmers, between EB and farmers How: -Financial and community services are delivered to FARMERS farmers through ABG and EB’s decisions are acted upon through ABG.Key: -Farmers opinions and concerns are pushed up to IFA Farmers’ or EB by ABG. Decision flow Opinion /product flow Service flow Why: smaller group size + shared interests = stronger bond among farmers
  50. 50. Roles and Responsibility in IFA p yGeneral Assembly Supervisory Board - Elected by village representatives - 1 farmer and 2 independent directors - Elect board of directors - Ensure decisions are executed and capital - Review and approve annual budget allocated as planned - Vote on direction and major p j j projects of IFAExecutive BoardE ti B d Executive Director E ti Di t - 9 farmers elected by the General - Evaluated by Government, CCFA Assembly (GA) and one nominated EB member on an - Not more than half can hold village level annual b i l basis administrative role - Government secondee/ Non-IFA member - Call general assembly - Leads all IFA projects and initiatives - Reviews the annual budget - Review and develop annual plan
  51. 51. IFA Election Process 51
  52. 52. IFAH Management Team Structure g StaffKey: Headcount d [] – 1‐2 yr timeline EXECUTIVE  [] – 5 yrs timeline DIRECTOR Human  Community  Public  Finance &  Production / Resources & Resources & Credit Outreach &  Outreach & Investment Supply Chain S l Ch i Affairs Admin 1 2 1 6 2 7 Environment  4 1 4 7 1 2 Critical to the success of implementation for the 5-year plan, effective utilization of human resources needs to be made. esou ces eeds ade 52
  53. 53. Decision Flow Executive KEY AREA/RESPONSIBILITY CENTER GA EB Director • Project launch - Approve Review • Annual Budget Approve Review Implement • Capital/Asset allocation - Approve Review • Partnership agreement (with Approve Review Implement Cooperatives etc) • Dividend payout Approve Review Implement • Social/community investment - Approve Review • Lending rate - Approve Review • IFA Borrowing - Approve Review• Designed to ensure clear and transparent decision making• Ensure Farmers’ welfare is considered in all decisions (General Assembly as the main voice of farmers)• Provides measures to mitigate risk and fraud Increased executive board empowerment
  54. 54. Authority Flow y KEY AREA / RESPONSIBILITY CENTER GA EB ED Investment/procurement * > 50,000 (amounts above) √ 21,000 - 50,000 (amounts in range) √ < 20,000 (amounts below) √ Loan Amount > 40,000 √ > 20,000 √ > 10,000 (* NB R 10 000 NB: Range t th start of superior’s) to the t t f i ’ ) √ Audit report √ IFA staff recruitment and layoff √ ED recruitment and layoff √• NB: (*) Amounts will increase on an upward adjustable scale and approved by the general assembly with the growth and expansion of IFA• Highlights key decision makers’ level of authority in specific key areas usually prone to fraud & lack of transparency IFA to take equity stake in the coorperatives
  55. 55. Process Scenario Decision Making & ApprovalFor a typicalprocurement orinvestment decision to bemade, a scenario-basedapproach is presented toexemplify decision andauthority flow.Aim:-To ensure implementationof best managementpractice-Keep approval conditions K l ditiset and properlydocumented-Remain mindful of timerequired for processing andrelease of fundsNB: (*) Amounts subject toincrease as organizationggrows. FOR REFLECTION: THE ORGANIC FERTILIZER PLANT CASE
  56. 56. IFA Integration/Partnership withProfessional Cooperatives• Common assumptions – Smallholder farmers can see and benefit from the integration/partnership of IFA and cooperatives – Both IFA & the cooperatives see value in integration/partnership – Main driver for partnership/integration is financial• What Wh t IFA brings to the table bi t th t bl – Access to investment and lending funds – Strong government relationships and support – Robust governance and management structure – Provide economies of scale in production capability (by enabling consolidation of small holder assets) and access to potentially larger markets• How IFA can benefit from the Cooperatives – Transfer of technology and know how – Access to current established distribution channels – Access to established brand/marketing – Provide Pro ide economic benefits for small holder & revenue stream for IFA re en e
  57. 57. IFA Integration with Professional Cooperative as a Shareholder Potential GeneralBeginning Gate Stage Executive Director investment/partnership Assembly sse b y recognizes potential opportunity presented to to decide No partnership opportunity Executive Board & General whether to Assembly participate Yes IFA mobilizes smallholder IFA appoints a representative IFA injects capital farmers & enables to the cooperative investment into cooperative communication between board/management team, & becomes a shareholder in parties approved by Executive Board the cooperative Farmer benefits by F b fit b selling produce back to cooperative Cooperative shares Results technology/know-how to appropriate smallholder farmers IFA benefits in profit sharing
  58. 58. Rural Investment by Government: recommended improvement Government Project Funding Proposed funding route for new Current funding route for community related projects: Central Government social security p j y projects: contract based outsourcing of government Distribution of project funding projects to IFA through township government and Provincial Government village committee Key areas: -Environmental management, including Key areas: y waste collection, land regeneration t ll ti l d ti - Health care - supplies shop Prefecture Government - Social security - Elderly care - Pension - Rural community integrated service center - Infrastructure development - Health education County Government - Education - Women organisation - Cultural activities IFA Township GovernmentKey benefits:-Improved efficiency-Community ownership Village Committee-Self-governance : payment by farmers to cover part of the cost p Farmers-Reduced corruption 58
  60. 60. Production and Marketing Strategy• Heshuiping is a unique place due to the diverse products it can p p produce Pigs Rice Vegetables Rapeseed• In consideration of building community Kiwi Fruit Green Tea Chestnuts Konjac confidence and building up IFAH’s management experience, the five year Mandarin Potato Tobacco plan will initially focus on providing support Oranges and strengthening the capabilities of farmers going (or already) into breeding pigs and farming rice Develop successful• As IFAH’s operational capacities are p p examples of farmers strengthened and it gains know-how, the organization can refine the model in order and breeders in high to focus on other products margin products 60
  61. 61. Key Focus Improve farmer’s livelihood and IFAH’s profitability through: p p y g • Investment in Fragrant Rice production and production volumeSupply Chain increaseImprovement • Set up of pig farming supply chain collection and sales networkBranding Develop IFA brand as quality agricultural produce • Develop Township level branding for Sanli agri produceDevelopment • Branding transition and inclusion of key commercial produce underand single umbrellaMarketing Effective supply chain and brand awareness to provide new revenue stream for IFAH and farmers
  62. 62. Fragrant Rice: The Potential• Current fragrant rice production is constrained by lack of p ocess g and a e ous g ac ty processing a d warehousing facility• Limited funding and investment impeding further expansion of Professional Fragrant Rice Cooperative• Untapped potential of smallholder farmers (3570mu uncultivated land and 1500mu regenerated riverbank area)*• Positive market condition and return (RMB480/mu for normal fragrant rice, and up to 5-8 times for organic fragrant rice)Fragrant Rice – A key starting point for IFAH demonstration * Suitability of rice growing subject to detailed land utilisation study
  63. 63. Fragrant Rice: Enablement of Supply Chain• Capital investment of RMB 900K for processing and storage investment – Funding: Profession Rice Coop RMB300K + IFAH RMB600K g p• Smallholder farmers to venture into fragrant rice growing• Seeding, agriculture technical services assistance, and sales and distribution thro gh Professional Cooperati e distrib tion through Cooperative• Expected return: – Breakeven by Year 4 – Profit of RMB 912,000 over 5 years 63
  64. 64. Pig Farming: The Supply ChainIFAH owns a pig breeding farm. Formation of asupply chain would help the smallholder farmers to Pig Breeding Farmstrengthen their capacity in pig farming: • To provide quality piglets for farmers to raise Pig Farmers • To provide the logistic services to collect the Collection and pigs from the farmers and sell to the market Distribution • Can afford to buy the pigs from the farmer at a higher price because it is able to get better Market pricing from consolidating the volume • This will help to increase the revenue of p smallholder farmers Improved revenue of IFAH and smallholder farmers through the scale of economy th h th l f 64
  65. 65. Pig Farming: The Untapped Market• IFA to provide the new breed of pigs: – Improve the pig’s quality to increase the lean meat and reduce fat pig s – To provide branding and awareness to the consumers on the benefits of the new pig• Brand the New Breed Pig as Lean from Year 2: – Able to price the pig 10% above market rate• Brand the Pig as Traditionally-grown from Year 5: – Able to price the pig 30% above market rate – Requires quality checks to ensure that the pigs are grown traditionally• Expected return: – Profit from Year 2 – Profit of RMB 4m over 5 years 65
  66. 66. Branding Strategy for IFAS Products• Rebranding IFA to Township level inline with expansion plan• Change the name from IFAH Option 1 (Heshuiping) to IFAS (Sanli Township)• Year 1 and 2: transition period – Relying on the existing well known brand, like 三里香 rice, to promote IFAS. IFAS just appear as an endorsement – Building a new brand for the Pig farming Option 2 business – Introducing IFAS and their products to Government, market and famers through different channels – Building name awareness gradually Remark: Logo just for reference only. 66
  67. 67. Branding Strategy for IFAS Products• Year 3 – 4: Brand build-up period – Building strong awareness for IFAS – Logo will be used on all products, Supply stores and other area – Build IFAS website to promote IFA and all productions – Beginning to establish an affinity and IFA Logo loyalty to IFAS brand and the products under its umbrella amongst those customers• Year 5 and onwards – Brand maintenance IFA + Rice Logo 67
  68. 68. Sales & Marketing: Target Markets• IFAH Stores (supply stores and grocery stores)• Local (supermarkets hotel / restaurant deeply process factory and (supermarkets, restaurant, factory, direct delivery to consumers)• National markets (supermarket / organic food chain outlets in Wuhan/Shanghai and other cities via strategic partners such as partners, Carrefour & Wal-Mart) 68
  69. 69. Prioritization of Projects and Allocationof Resources: Long Term Success• Focus on immediate value and b i F i di t l d business necessities. iti• Keep the implementation simple, focused on value, and structured with a plan• Review the existing initiatives• Governance structure must be in place to review the project viability and business case prior to each investment.IFAH needs to show results now and any project that could be takingaway resources and focus from the organization in delivering value,should either be put on hold or terminated 69
  70. 70. The Production of Organic Fertiliser as a RevenueSource for IFAH: Further Review Required q• IFAH is in the process of setting up a pilot organic fertiliser production facility that converts local organic agriculture waste into organic fertiliser through a fermentation process• Full-lead Bio Tech in Taiwan is the project partner providing the technology, however they do not have prior experience in China and have not obtained organic fertiliser certification in China• The technology and design of the production facility needs to be reviewed in accordance with the organic fertiliser certification standard in China to meet all the quality, health and safety requirements. At present, the setup and management of the pilot production facility have not addressed all the requirements. Upon initial assessment, the plant does not appear to be appropriate for the villages. g 70
  71. 71. The Production of Organic Fertiliser as a RevenueSource for IFAH: Market Development in the Future p• The organic fertiliser produced by the current technology needs to be sold as a high-end organic fertiliser at RMB 1500-2000 per tonne to high end 1500 2000 justify its cost of production with high-energy demand• The target market for high-end for organic fertilisers are organic fruits and vegetables producers• However, the development of a high-end market in Heshuiping region is still in its infancy. Sales channel needs to be developed to market the fertiliser to other places in the county where the fruits and vegetable industry are more mature, but this is not practical or a priority at this stage• IFAH can p ay a role in de e op g t e local fruits a d vegetables ca play o e developing the oca u ts and egetab es industry through organising production and marketing groups and providing the needed technical assistance and practical know-how in organic farming and supporting farmers to obtain government subsidies for using organic fertiliser. 71
  72. 72. The Production of Organic Fertiliser as aRevenue Source for IFAH: Next Steps• The project needs professional consultation, and IFAH needs to consider alternatives including seeking other technology providers in alternatives, China, and consider other more affordable technologies such as biogas reactor and composting. Field testing needs to be done with professional design and implementation, funded by the technology provider, with third party certification• Key questions to be answered: - Wh t type of organic waste can be used as raw material? What t f i t b d t i l? - Are dead animals permitted? - What is the energy needs? - What are the emissions? - Is the fertilizer in solid, liquid or semi-liquid state? 72
  73. 73. COMMUNITYSERVICESTrainingInfrastructureHealthcareCultural Services 73
  74. 74. Community Services:Aim• Increase yield of production & average household income• Fill crucial knowledge gap on product pricing technology pricing, technology, machinery, financial management and business opportunities• Attract migrant workers back to and retain youth in the villages• Improve healthcare awareness and health status• Initiate cultural activities to help engage villagers and improve livelihood• Enhance environmental awareness and overall living conditions in the villages• Support innovation in agriculture production and natural farming Create better living conditions through economic and environmental enhancement 74
  75. 75. Community Services:Actions• Training on agricultural know-how in each village at least twice a year• Training for young generation: highlight the value and opportunity of livelihood in farming, and learning Chinese and English terms at the same time• Cultural extension: identify 4-5 volunteers from each village as well as Action-based groups to coordinate activities• Free healthcare sessions and home visits for members• Waste management initiative: to collect garbage and clean the river 75
  76. 76. Community Services:Resources Needed• 1 coordinator for agriculture extension and administration – Budgeted for in overall IFAH structure• Budget for agricultural training by specialists/consultants: – Allocation of 20% of IFAH revenue for community services, membership fees and potentially training grants from banks• Logistics for rubbish collection (e.g. vehicle maintenance & delivery) – Suggest government to provide funding as part of public service delivery• Nominal amount as incentive for cultural activity volunteers – ~RMB 2500 per year• Budget for healthcare, waste collection and miscellaneous training (e.g. (e g healthy aging farm health tips cooking a healthier meal etc ): aging, tips, meal, etc.): – Government funding support to be discussed Details available in appendix 76
  78. 78. Implementation Plan Setup of credit p mutual assistance Commence deposit taking & mature to final financing model scheme Strengthen Governance and General Organization Assembly Pig Farming Supply Chain Fragrant Rice Production Expansion Preparation for Launch of Community Community Services continued and Community Services continued and enhanced Services launch enhanced Gradually extend to the whole Sanli TownshipYear 1Y 2 3 4 5 6
  79. 79. Five-Year Implementation Timeline Year 1: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter (Month 1-3) (Month 4-6) (Month 7-9) (Months 10- 12)• Establish Finance Awareness & Education Program • Rollout Finance Awareness & Education• Prepare for agricultural training sessions in the 6 villages Program• Liaise with primary schools to set out training for young generation • Communicate and promote training plans to• Setup of waste collection stations members• Source for seed capital • Establish financial, credit and • Launch training sessions • Recruit control policies and procedures on agricultural extension additional IFAH• Setup governance and functional staffs organization structure • Fill immediate vacancies for • Submit application for Finance, HR & Credit license to accept farmers’ • Finalize• Executive Board to review new departments d t t deposits production and governance, board & management marketing structure • Train new IFAH staff • Launch PR project for investment membership cultivation & decision• Establish mutual assistance scheme • Set up facility for Fragrant Rice new IFAH model for farmers with matching funds from government • Plan for communications on • Set up activity-based the new IFAH model groups• Apply for training grant • Source independent supervisor • Seek approval of new• Collect data on demographics and crop production structure & IFAH business • Initiate implementation of model by GA waste management• Appoint cultural extension volunteers 79
  80. 80. Five-Year Implementation Timeline Year 2 Year 3 Year 4 Year 5 Obtain license for and implement savings Extend fragrant rice Conduct training & Review results scheme production create promotion materials for other Conduct annual audit Establish and implement savings Start cross-bred pig townships of IFA business scheme policies & procedures and farming & distribution operations Conduct annual Extend IFA to other Conduct annual audit of audit of IFA villages in the Sanli Ramp down Capital Mutual Assistance IFA business business township Scheme Introduce waste Extend IFA for Seek new sources of Launch of agricultural and healthcare g management p g g program for another 10 villages g funding g training sessions in 6 villages other villages Evaluate other Implement e-farmer Launch of cultural extension initiatives Review the progress of IFA crops for IFA kiosk in agricultural coverage supplies store• Purchase of waste collection trucks Extend IFA for another 10 villages Seek new sources Launch of waste collection services of funds Expand agricultural and Conduct annual audit of IFAH business healthcare training sessions to more villages Recruit additional IFAH management (to support expansion) Elect IFAH executive & supervisory board Integrate professional cooperatives 80 Seek new sources of funds
  82. 82. HIGH Risk Risk Assessment Matrix MEDIUM Risk LOW Risk 1 Lack of Alignment of Goals of 7 10 11 1 6 8 3 Executive Board Members 2 High Non Transparent Non-Transparent IFA Administration 3 IFA Inability to Attract & Retain Talent 4 Poor Quality of Training act 5 9 2 4 Inability to Attract Farmers to um 5Impa Mediu Community Programmes Poor Financial Controls and Risk Management Practices 7 Capital Reduction Due to High Rate of Loan Defaults 8 Inability to Secure Funding Low 9 Poor Quality Agricultural Raw Materials 10 Pig Livestock Depletion Low Medium High 11 Fragrant Rice Crop Failure Likelihood The Risk Assessment will enable IFA in prioritising activities as part of theimplementation of the 5 Year Plan in order to effectively and efficiently mitigate risks, in a timely manner, which could threaten the viability and sustainability of the social business venture 82
  84. 84. Key Recommendations FINANCE PRODUCTION AND MARKETING 1) Review supply chain for pig farming, and develop1) Introduce the Finance & Investment and Credit Investment, business i pig collection and di t ib ti t i b i in i ll ti d distribution to increase Functions as IFAH’s sole vehicle for provision of revenue for farmers and IFAH financial services 2) Review crop/land allocation and expand fragrant rice2) Establish Savings Scheme and utilize money production remitted by migrant workers to enhance IFAH’s capital base 3) Seek professional consultation for Organic fertilizer project, project and alternatives including seeking other alternatives,3) Provide outreach programmes to promote IFAH’s technology providers needs to be considered financial services and assist farmers to safeguard their financial security 4) Review the business model of agriculture supplies store to ensure long-term business sustainability COMMUNITY SERVICES GOVERNANCE 1) Review IFAH team composition; enhance1) Set up mechanism to train farmers on more management bandwidth, governance, risk effective farming, with a view to enhancing the management and transparency overall average household income 2) Review member leadership structure, from structure2) Enhance healthcare awareness and cultural & geography based leadership to functional/crop based educational activities. groups3) Provide framework for creating positive 3) Enhance internal checks to ensure benefits to environmental impact, e.g; waste collection, farmers organic fertiliser. 84
  85. 85. Key Success Factor – GovernmentSupport• Government may consider working with IFA as its strategic outsourcing p g partner to execute g government-funded policies/projects p p j because IFA is owned by farmers and acts on behalf of farmers.• Government outsourcing is on the rise. IFA may consider establishing a company (eg. JV) to undertake some government projects.• The Central Government just issued the policy of supporting agriculture professional cooperatives last year IFA may consider year. how to leverage government support in this area.• Responsibilities of township and county pilot program office must be clearly d fi d T l l defined. Township office works closely with IFA t address hi ffi k l l ith to dd IFA’s concerns. Meanwhile county office focuses on seeking more government funding and projects for IFA and refrains from direct involvement in township IFA operation unless requested.
  86. 86. APPENDIXA. IFAH Stakeholder ChartB.B Key AssumptionsC. GovernanceD. FinanceE. Production & MarketingF. Community ServicesG. Risk assessment and Mitigation g 86
  87. 87. Appendix AA diIFAH STAKEHOLDER CHART 87
  88. 88. Key:Stakeholder Map Current New N Advisory & Governance Finance 1) Board/General Assembly B d/G lA bl 1) Credit Cooperatives2) Pilot Programme Office (County) 2) Local Banks/Credit Union 3) Consulting Centre for Farmers’ Association 3) Private Investors ) 4) Local Banks/ Credit Union 5) Bureau of Agriculture 6) Ministry of Education IFAH Partners 1) Smallholder Farmers 2) Rice Cooperatives 6) Other Cooperatives3) Member Group Head/Village Head 7) Other IFA 4) Mutual Assistance Cooperatives 8) Media 5) Employees 88
  89. 89. Appendix BA diKEY ASSUMPTIONS 89
  90. 90. Key Assumptions• The scale to achieved within the 5 Year Timeframe is Sanli Township (37 Villages)• The 5 Year Plan will become an integral component of the Sanli Township 5 Year Plan• 1 IFA for 1 Township Model will be adopted• Group Heads will be empowered with some administrative and advocacy/awareness activities• Resource support will be provided by the various partnering Financial Organisations in the form of secondments and awareness & education• Farmers will be willing to pay for specialist training for re skilling re-skilling and skills enhancement• Healthcare and Insurance Programmes will be funded solely through IFA Profits 90
  91. 91. Key Assumptions… Cont’d Assumptions over 5 year timeframe Measurements Land Measurement 0.093 Hectares is equivalent to 1mu q Average Inflation Rate 4.25% Average Salary Increment 6% Average Personal Taxation Rate 5-10% Average % of Asset Costs allocated for Maintenance Costs 5-15% Capital Mutual Assistance Loan Interest Rate 7-10% Deposit Interest Rate 0.5% 0 5% Loan Default Rate Per Year 1.5% of disbursements Average Increase in Household Income 17% Approximate Fee for Skills Enhancement Classes Per Year RMB100 Cost Per Household Per Year for Waste Collection RMB 60 IFA Profit Allocation for Healthcare & Insurance Programme 4% (2% each) Average Agricultural Taxation Rate 0% 91
  92. 92. Appendix CA diGOVERNANCE 92
  93. 93. General Assembly* y• Elected by village representatives• 2/3 of the members should be farmers• Term: 4 years• Members are not allowed to be hired/recruited by IFA• Responsibilities – having the ultimate authority – making and changing IFAH chapter – electing & dismissing executive board members – reviewing business report and financial report – defining and changing membership fees and capital allocated for social services – reviewing & approving the annual budget• Held once every year ad hoc meetings can be initiated by 1/3 of year, representatives or by Executive Board*Unpaid positions Unpaid 93
  94. 94. Executive Board* • Number: 9 farmers • Term: 4 years and two terms is the max max. • Requirement: • -All agri-products and villages must be represented. • Responsibilities: – calling general assembly and acting upon GA’s decision – electing and dismissing Chair – approving & reviewing performance of Executive Director – reporting to the General Assembly on IFA – hiring external auditors to do annual IFA auditing – reviewing the annual budget – setting the strategic direction for IFAH (social & economic growth) – making i ki investment decisions, t td i i – making loan decision on loan amount above 40k RMB • EB members must meet at least every quarter.*Unpaid positions Unpaid 94
  95. 95. Supervisory Board* • Number: 1 farmer & 2 independent directors • Term: 4 years and two terms is the max. • Requirement: • - at least one independent director is a businessman with no conflict of interest. The other one can be a NGO representative ( g CCFA ) p (eg. ). • Responsibilities: – making sure all decisions are executed and capital allocated as planned. – SB must hire external accountant to do auditing hiring external auditing, auditors to do annual IFA auditing – act as check and balance for all EB activities and decisions • SB members must meet at twice a year.*Unpaid positions Unpaid 95
  96. 96. Group Head* • Profile: farmer with crop-specific technologies and in-group trust and p p g g p respect • Responsibilities: – training group members in agricultural extension – representing the i t ti th interests of group members t f b – advocating finance and credit awareness (with a key focus on the saving scheme) – undertaking basic finance and credit administration tasks – coordinating social services delivery on behalf of IFA – passing on key decisions of GA/EB to group members*Unpaid positions Unpaid 96
  97. 97. Executive Director• Requirements: – full time paid p p position – either recruited openly or a government secondee (paid for by the government) – non-IFA member• Term: 4 years & maximum of t T i f two terms t• Responsibilities: – acting upon EB decisions – leading IFA work – developing annual plan – recruiting, laying off and training IFA staff – performance evaluation of IFA staff p – held accountable to EB• Performance Management: – Evaluated by Government, CCFA & one nominated Executive Board memberb 97
  98. 98. Compensation Guidelines• Current average monthly per capita income in the area is RMB1500• Migrant workers have mentioned that they will consider staying if they can earn at least RMB1500 monthly in their village/home town• Recommended salary guidelines as follows Basic Monthly B i M thl Variable B V i bl Bonus~ Entry (eg 1500RMB 0.5-1 months* accountant) Mid level (eg 2000-2500RMB 1-1.5 months^ manager) Senior (eg 3000RMB – 1-2 months# Executive 4000RMB Director) ~dependent upon IFA’s financial performance *Based on individual performance p ^Based on department performance #Based on overall performance 98
  99. 99. Funding Sources of the County GovernmentArea Funding ProjectDevelopment and investment 40 million RMB • Community infrastructureof rural China • Community serviceWater utilities 20 million RMB • Potable water • Water irrigationSoil revitalization 5 million RMB • Riverbank regenerationLivestock 3 million RMB • Pigs, sheep, cattleInfrastructure 12 million RMB • RoadFood security 1 million RMBSpecial industry 2 million RMB • Vegetable 5 million RMB • Fruit 99
  100. 100. Appendix DA diFINANCIAL SERVICES 100
  101. 101. Finance Services• Excel reference 1: credit department model credit department financial model_zl_222.xlsx model zl 222 xlsx• Excel sheet 2: combined financial model combined financial model.xlsx 101