Milk procurement , rural retail & agribusiness[1]


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Milk procurement , rural retail & agribusiness[1]

  1. 1. Business Head Rural Retail & Agribusiness Milk Procurement , G.S.Singh 2009 Solus Logistics Pvt. Ltd F-213/A2nd floor , Lado Sarai,New Delhi +91 11 42609111 +91 1142609114 Ganesh Singh/ RR& AB
  2. 2. Page 2 of 14 Milk Procurement Rural Retail & Agribusiness CONTENTS Content Page No. Background 3-4 Kissan Unnati Kendra 5 ( A new Generation Rural Business Hubs ) Why Rural Retail & Agribusiness 5 Dairy Business – An update 6 Why Dairy Business 7 Market Size 8 Why Vegetable Procurement 8 Retailing Of FMCG, Non FMCG, Grocery, 8 Oil& Ghee, Spices, Sugar , Non-Food products, etc… 9 Agri-inputs, Livestock inputs 9 Private Labeling Market size . 9 Model- Kissan Unnati Kendra 10 What Required 11 Return On Investment ( ROI ) 12 How can We Associate 13 March 21, 2009 Solus/Rural Retail & Agribusiness
  3. 3. Page 3 of 14 Milk Procurement . Rural Retailing & Agribusiness BACKGROUND Kissan Unnati Kendra ( A New Generation Village Level Center with Milk Procurement , Rural Retail & Agribusiness) Is A small effort for Livestock , Agriculture and Rural Development to develop villages as Productive Units which are networked with global market and self-reliant through optimum utilization of local resources. If we want to have sustainable growth rate of economy at seven percent and above to achieve the goal of Developed India by 2020, it is necessary to bring qualitative change in our Livestock & Agriculture and ultimately with our core competence Of Building Strong Relationship with Farmers. Through this initiative, we endeavor participation of all in bringing rural prosperity in India through …… ”Kissan Unnati Kendras” pesticid The role of KUK is to ensure delivery of appropriate technologies, quality inputs for Livestock & agriculture and services to the farmers by linking them with banks, technology ( Internet ) and development institutions, Milk Industry & Agri-industry, training and extension agencies and Government departments. These Kendras are expected to perform as vibrant nodal growth bodies, facilitating farmers through Backward and Forward linkages, delivery of programs, Milk Procurement , Vegetable Procurement , Commodity Procurement on One Hand while Selling Agri-inputs, Livestock Inputs , FMCG ,Non FMCG, Grocery on other hand and serving as Two Way Plate-form for villages. In brief it is a Kendra for social and economic development of villages . These centers would not only facilitate the agriculture & Livestock development but also develop entrepreneurship at grass root level through imparting training and promoting allied business activities in villages. Information and Communication Technology (ICT) has gained momentum in recent years and is playing crucial role in social transformation through empowering the society by access to information and awareness. Kissan Unnati Kendras will be IT-enabled kendras and this facility serves two purpose at a time; one, it provides link to the information resources and makes information accessible, and two, it helps in digitization of livestock business , Procurement , local farming, resources and demographic information. Based on that proper resource planning for the farmers is done. We are sure that these Kendras with an integrated approach of development will bring qualitative changes in Dariy & Agriculture, paying the way for vibrant rural society and for the Milk Industry suffering from Non- Sustenance of Village Level Centers , Good Quality Milk , and Shrinking Milk Profits. ……………………………………..There is a major revolution that has begun in our country. It is taking place in large tracts of rural India, especially in the north, west and the south. Except for those who are in the business and the odd perspicacious observer, it is not yet understood by most. And it is set to explode over the next five years. March 21, 2009 It is the Rural-Retail play. Let me take you through the story — starting with what is happening in significant tracts of rural India, and then moving on to what some of the key players are planning in this exciting space. For the last three years, my colleagues have been closely focusing on the changing face of, and the opportunities in, different parts of rural India. Here are some nuggets of information. Solus/Rural Retail & Agribusiness
  4. 4. Page 4 of 14  The Indian rural retail opportunity is currently estimated to be in excess of Rs. 1400 billion(1) (approximately US$34 billion). The figure is likely to touch Rs. 1800 billion (approximately US$ 43 billion) in 2010 and go up to Rs. 2400 billion (approximately US$ 58 billion) by 2015, according to CII – Yes Bank Study on the Rural Retail Sector released during the “Conference on Rural Retail: The Next Phase in Retailing” organized by Confederation of Indian Industry (CII-Northern Region) .  “India’s rural markets are growing at double the rate of urban markets” The total number of rural households is expected to rise from 135 million in 2001-02 to 153 million in 2009-10 giving a tremendous push to the rural retail opportunity.” The rural revolution is driven by rising purchasing power, changing consumption patterns, increased access to information and communication technology, improving infrastructure and increased government initiatives to boost the rural economy.  Technopak estimates that the size of the Indian retail market is at present around USD 300 billion with the rural-urban split in the ratio 55 – 45. The rural market consumes about 53% of FMCG, and 59% of durables in India.”  To start with, rural India accounts for over 50 per cent of India’s GDP. Since agriculture is less than 20 per cent of GDP, it follows that three-fifths of rural India’s income derives from industries and services. There are 739 tehsils that are doing very well: the ownership of assets and amenities of rural households in 239 of them are over two standard deviations better than the mean; and for the remaining 500 tehsils, it is between one and two standard deviations greater than the average. These are the zones of growth and prosperity in rural India and, in most parts, belong to Punjab, Himachal, Haryana, Uttaranchal, Western UP, most of Gujarat, parts of Maharashtra, parts of Rajasthan, Goa, all of Kerala, and parts of Tamil Nadu, Karnataka and Andhra Pradesh.  Traditional FMCG players like Hindustan Lever, Dabur and Godrej have considerably strengthened and deepened their distribution channels to leverage higher consumer demand. ITC has been using e- Choupals to reduce middlemen, increase rural procurement, create price transparency, cut trading margins and transact directly with farmers. Mahindra Finance has been quietly pushing loans throughout up-country India with great success. Sunil Mittal’s Bharti has organised farmers in Punjab to grow high value products that are then graded, sorted, cold stored and shipped for exports.  Heritage Foods India Limited ( Heritage Dairy) has converted its 7000 Village Level Procurement Centers in “ Rural Retail & Agribusiness Centers” whereby selling Agri-inputs,Livestock inputs, FMCG,Non-FMCG,Grocery , Oil & Ghee etc… and are Procuring Vegetables from the same.  Amul has also initiated the “Rural Retail Operations “ with introducing 150 FMCG ,and Grocery Products through their exclusive Village Level Center Network. The most audacious play of all That has in mind is the process of converting the Milk Procurement March 21, 2009 Centers as the New Generation “ Kissan Unnati Kendras” . Solus/Rural Retail & Agribusiness
  5. 5. Page 5 of 14 KISSAN UNNATI KENDRA Is a new format of Rural Buisness Hubs ( RBHs) . What does we have in mind ? Essentially, attempting a huge scale two-way play. First, to have each Village Level Center as KUKs and Procurement Centre for the Fresh ( Milk & Vegetables ) Second, to use these KUKs as retail outlets whereby selling Agri-inputs, Livestock input , Consumer goods( FMCG,Non FMCG, Grocery , Non- Foods etc..) , and various types of financial/insurance products and services, IT access points as service provider etc…….. Rural Retailing through Village Level Center not only provides opportunity for selling the Branded Products but provides excellent opportunity for Developing Own Private Labels for FMCG , Non – FMCG and other Agri- input/livestock input products for getting more profits & long term market leverages as most of the Survey reveals the fact that Rural India Market is still driven by the Placement and Availability of the Products . Why Rural Retail & Agribusiness with Dairy Industry ??? Milk Pie (2005-2006) Milk Pie .....2011 2005-2006, Organized Sector , 18% 2011, Organized Sector , 36% 2011, Self 2005-2006, Self consumption , consumption , 46% 46% 2011, 2005-2006, Unorganized Unorganized Sector , 18% Sector , 36%  The overall scenario of Dairy Business Pie reflects a shifting pattern of Unorganized Sector ( Collection Of Milk From Vendors – Class – A & B Contractors ) From 36% to 18 % - A declination of net 18% whereas  The Organized Sector Milk Procurement ( collection of milk from Village Level Societies ) with a rise from 18 % to 36% … A Nett rise of 18% by Year 2011. The above shifting is an indication of losing the Procurement capacity of the Dairy Individuals whose March 21, 2009 Milk procurement is Dependent on Class A & B contractors and simultaneously shows a significance of Rise in the Procurement Of Mik with those who are Expanding with Village Level Centers. Solus/Rural Retail & Agribusiness
  6. 6. Page 6 of 14 Dairy Business – An Update Gone are the days when Milk Business was just Built upon a Gap of Supply V/s Availability & Most of the Old time Leaders in the Industry geared up their Business in the ERA when Supply & availability was always a key factor for Milk Business . In the Present Era It is not the Availability and Supply alone which makes the Business Sound and expandable but apart “Qulality Of Milk “ is the Strongest Key Factor dominating others .Milk Quality is like a Fragile Bond which attracts after a long duration & services whereas is Broken by a’ Cup Taste ‘of Morning Tea. “ The use of a Brand is Like a contract Between Consumer & Company For that every day is a renewal. The Tough part : just once, the brand fails to meet the customer’s expectations or, more exactly, if it fails to delight the customer, then the contract loses its value” If sales continue to rise, means….. that contract has been honoured, again and again. We Know Business Better ????  The First Part of the Contract Between a Milk Customer and Company is Quality.  The Second Part of the Contract is the Value for Money.  The third element of the contract is Availability.  The fourth part of the contract is Service.  In present scenario of Dairy Business Quality Milk is the utmost priority and for the sake of the same setting up Village Level Centers is must.  & For Getting Maximum Revenue with Village Level Centers “ Rural Retail & Agribusiness” is must. WHY ???? Setting up village level centers is a time consuming process which involves heavy cost in setting up the systems and Eventually felt as sensitive for long term Sustenance .  The Milk Procurement Societies are mostly governed by the Society Incharge / Center Incharge or sometimes in case of Bulk Milk coolers it is operated by the company itself . The basis for meeting the operating expense at the center is the Milk commission Per Litre paid to center/society incharges . On an average basis One milk society at village level procures 100 – 200 ltrs of Milk Per day and that contributes almost Rs 50 to Rs 100 for the society incharge as the compensation towards the same which is examined as insufficient for his survival and thus he looks / slips for alternate options.  The company’s Gross Contribution with one village Level center i.e 100-200 kgs Milk is also not more than Rs 50 - 100/- ( shrinking everyday ) after meeting all the expense of Procurement , Management , Processing & marketing March 21, 2009 etc….  it has been estimated that with an average sale of Rs 2500*/- with each VLC the incharge gets extra profits of Rs 200 – 300 /- Per day whereas Company also gets the similer extra amount from the Same Village Center with the same infrastructure and resources This profit is almost equal to when we make the milk collection 4 times from the same Village Level Center ??????  Rural Retail & Agribusiness Activities provides SPACE for both working on long term basis. Solus/Rural Retail & Agribusiness
  7. 7. Page 7 of 14 Why Dairy Industry ????  Core business is Milk Procurement .  Established Network of Village Level Centers, Bulk Cooling Units / Chilling Centers  Established Two time Reach ( Logistics)  Built in Rural Team  Best Relationship with Farmers  Shrinking Profits How this Network Facilitates the “ Rural Retail and Agribusiness Centers”  Milk Cooling Units /Chilling Centers are the established HUBS .  These hubs can act as a Cooling Unit for other fresh Produce i.e Vegetable also.  This Hub can act as a Centralized Warehouse for all the FMCG , Non-FMCG, Grocery ,Agri-inputs, Livestock-input products etc…….  Village Level Centers (VLCs ) will work as the basic facilitators for Procurement of Vegetables as well for selling the Products* with set pattern of commission .  These village Level centers will act as Spikes .  The Fresh Vegetables & Commodity etc… will be procured from the villages and will be send to Chilling Center(Hub) whereby the Reverse Logistics will supply the Products on pre-set route to the village Level centers. Market Size : ( A) Vegetables Food Tobacco and Beverages contributes to the bulk of the Expenditure Made by a Common Man from his earnings to the Tune of 51 % of his total expenditures. With respect to the total Food Expenditure this can be further split as under: a) Cereals - 31 % March 21, 2009 b) Milk - 16 % 59 % 28% c) Vegetables - 12 % Solus/Rural Retail & Agribusiness
  8. 8. Page 8 of 14 Why Vegetable Procurement??? Vegetable business has got serious attention in recent years after inception of Organized Retail Industry in India . The 30- 40% sale of most of modern traders( Retailers) is with Vegetables only . This can be exploited as a very lucrative market for selling the vegetables as a) Most of the Retailers do not have expertise of Rural Backend Operations and are still are procuring their vegetable needs from the Local Mandi which forces them to cost 20-25% more in landed cost when accounts for the total expenditures of Vegetable Purchasing Team, Warehousing Expenditures, Commission Paid to Vendors, Multi-channel Mandi commissions etc… b) The quality of Vegetables they are getting from mandi is not upto mark as the Vegetable Quality is determined with the Handling i.e Less handling more quality. c) In the current Recession Period when most of the Retail Companies are bent upon Cost Cutting operations the most hit listed one is the To Cut down the Warehousing Cost . d) In absence of Permission from FDI regulations to procure directly from the farmers it is a serious play for the coming Foreign Giant Companies to compete for the Local Hawkers for their Vegetable Needs through their “ Cash & Carry” / Whole Sale Formats. e) The Need of Hour is to Serve as a Strong Backend Supply Company with end to end Cold chain Facilities and providing them the Fresh and March 21, 2009 affordable One Stop sourcing . f) Apart from the modern trade the Export of Fresh Vegetables has booked significant growth in past few years Solus/Rural Retail & Agribusiness
  9. 9. Page 9 of 14 (B) Retailing Of FMCG, Non FMCG, Grocery, Oil& Ghee, Spices, Sugar , Non-Food products, Agri-inputs, Livestock inputs in Branded and with private Labeling Market size . Rural Urban Monthly Per Capita Expenditure ( MPCE) Rs. 565 1060 Food 305 441 Cereals 103 106 Milk &M.Products,Vegs,Edi.Oil 107 165 Non-Food 260 619 Fuels & Light 54 96 Clothing & Footwear 45 74 (As per the sixtieth National Sample Survey on “Household Consumer Expenditure in India” carried out by the National Sample Survey Organisation (NSSO) in the Ministry of Statistics and Programme Implementation, Government of India, (Report No. 505). ) Market Size :Market Size in Rural India for Food , Grocery, and other Products is almost equal to the consumption of individual urban. The Market size can be estimated with the number of Household we are reaching i.e with One Chilling Center whereby 100 -150 villages and approximate 5000 Farmers are directly / indirectly attached and one farmer purchase average Rs 50 /- per day or Rs 1500 /- per month products the One chilling canter can sell Rs + 1 crore Products. / month .The Average GP for Food + other products can be estimated with 10 % contributing 10 lacs / month .(The same chilling center if Procures 20,000 Ltrs milk per day contributes app. 600000 litrs of milk with Aprx. GP of Rs 6 lack only) March 21, 2009 Solus/Rural Retail & Agribusiness
  10. 10. Page 10 of 14 Model Kissan Unnati Kendra Grocery ,FMCG,Food, Non-Food, Spices, Milk Sugar etc… KISSAN Procurement Livestock Needs- Cattle Feed, UNNATI Vegetable March 21, 2009 KENDRA Procurement Agriculture Needs- Fertilizers,Pesticides,See Commodity , Procurement Solus/Rural Retail & Agribusiness
  11. 11. Page 11 of 14 What Required ???? To Convert the Milk Procurement Centers into New Generation Rural Retail & Agribusiness Centers ????  Village level centers  Chilling centers / bulk cooling points  Investment upto Rs 5 crores for converting 10 Chilling Centers and 1500 VLCs in Rural Retail centers  Expertise to do the Business  Willingness to do the business. March 21, 2009 Solus/Rural Retail & Agribusiness
  12. 12. Page 12 of 14 Rural Retail & Agribusiness Expected ROI Sheet Rural Retail Business Potential Workouts Number of Chilling Centers 10 Number of Village Level Centers@ 150 center/cc 1500 Sale of One Village Level Center per day ( Rs) 3000 Sale of One Village Level Center per Month ( Rs) 90000 Sale of One village Level Center Per Year (Rs) 1080000 Sale of total VLCs per year 162, 0000000 GP ( 15%) 24,3000000 NP ( 3% ) 4,8600000 Agribusiness Purchase of Vegetables Per day per Chilling Center ( MT) 5 Per Month Per CC Vegetable Procurement ( MT) 150 Per Year Per CC Veg. Procurement (MT) 1800 Total Veg. Proc. From 10 CC (MT) 18000 Average Value of the Vegetables @ Rs 5/- per kgs 90000000 Gross Margin on the Vegetable Purchased @ 15 % 13500000 Nett Margin over the Vegs. @ 5 % 4500000 March 21, 2009 Nett Profit before Taxes ( A+B) 53100000 Solus/Rural Retail & Agribusiness
  13. 13. Page 13 of 14 Who We are and How Can we ASSOCIATE ??  We are a company presently doing business in Delhi with Cash & Carry ( Whole Sale ) with Name SAHI KEEMAT. And have initiated the business in Delhi with 10 Stores and more than 200 Franchisee on fast rolling.  We are a team of Experts with + 15 years Experience in Retailing Venture with privilege of setting up Known companies from Scratch and have scaled up upto a business volume of + 100 crores several times .  We have experts for Rural Ventures having vast experience of working with Dairy Industry, Especially with Milk Procurement , Vegetable procurement , Setting Up Rural Retails , Developing Own Label Products for Agri-inputs, Livestock inputs,FMCG and Non Foods, etc…  We have a dedicated team of IT professionals for setting the Edge technology with at par excellence.  We have access to all the Modern Trade( Retail ) Markets and Export.  We can be your best partner with EXCELLENCE of Trade in Setting Up Venture with saving Time and money having ability to take off with minimum gestation period  We can Share with you Expertise , and also can associate with you .  We can facilitate our own Cash & Carry ( Whole Sale ) Stores for the liquidation of Fresh ( Vegetables & Milk ) . March 21, 2009 Solus/Rural Retail & Agribusiness
  14. 14. Page 14 of 14 March 21, 2009 Solus/Rural Retail & Agribusiness