Business Model - Laser Levellers


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Business Model - Laser Levellers

  1. 1. LASER LEVELLERS BUSINESS MODEL By Aanand Kumar Business Model Specialist Cereal Systems Initiative for South Asia www.csisaportal.com_________________________________________________________________________Laser Levellers are a solution to several emergent problems faced in cultivation such as soilerosion, water wastage, crop loss, pest problem and nutrient lossBusiness model for Laser LevellerLaser Leveller has been taken up as a small business by service providers on a wide scale inPunjab and Haryana. More than 4000 laser levellers are in operation in Punjab. They are alsowidely used in Haryana and western UP. 1
  2. 2. Laser Levellers are currently making an entry in EUP where there are several challenges thatthey face.Challenges in E-UP include:  Small and fragmented size of land holdings  Under developed credit flow and institutional finance  Inadequate participation of the private sector in commercialisation of the agri sector  Recurrent floodsPilots are being done to promote Laser Levellers through Service Providers in EUP.Cost of a tractor: Rs.6 lakhCost of a laser leveller Rs.3.5 lakh Season March - May approx 90 days (~1000 hours) $1 = 45 INR In USD In Rs. Investment Tractor 50 HP $13,333 Rs. 600,000 Laser Leveller $7,778 Rs. 350,000 Total $21,111 Rs. 950,000 Revenue/ hour $10 Rs. 450 Costs/ hour (assuming 15 hours per day of operation) Salaries (for 3 drivers) $0.44 Rs. 20 Food (for 3 drivers) $0.22 Rs. 10 O&M $0.33 Rs. 15 Diesel $4.44 Rs. 200 Total $5.44 Rs. 245 Profits/ Hour $4.56 Rs. 205 2
  3. 3. Return on investment calculated as below is attractive even if performance is medium. Estimates in Rs. Scenario 1 Scenario 2 Scenario 3 Minimum Optimal Maximum Days in season 50 60 70 Average hours/ day 6 10 15 Hours in season 300 600 1050 Acres (~3 acres/ hour) 100 200 350 Revenue/ hour 450 450 450 Costs/ hour 245 245 245 Profits/ hour 205 205 205 Profits/ season 61500 123000 215250 Investment made Tractor (50 hp) 650000 600000 600000 Laser Leveller 350000 350000 350000 Total investment made 1000000 950000 950000 ROI 6% 13% 23%Assumptions made:  The season for laser leveller is for 90-100 days (March 1 till May 31)  Laser leveller will find work for approximately 1000 hours – approximately 15 hours everyday  Approximately 15 hours of work can be done in a day at the maximum  Three drivers will be available round the clock  Money will be paid on time by all the farmers  Approximate times taken for laser levelling in hours per acre: o 6 and above hours/ acre for undulating land with difference in elevation > 60 cm. o 5-6 hours/ acre for rough scrub land which has never been farmed o 2-3 hours for land which has been farmed and tilled but never been laser levelled o 1 -1.5 hour/ acre for land laser levelled anytime during the past 2-3 years  Repeated usage in same farm: o Under ideal conditions of zero till - never again. Might be done once in 10 years o In minimum to normal till, laser levelling is required after every 2-3 years  Maintenance: o Laser Leveler machines are low maintenance. o A Laser Leveler unit can run for approximately 8 years if maintained properly.  Reach of a laser leveller o Taking the maximum possible scenario, a Laser Leveller can work for 12 hours daily for a period of 90 days, this works out to be 1080 hours o If it takes 3 hours to cover one acre, the maximum possible is about 360 acres o If the laser leveller is repeated in the same farm after every 4 years, we are looking at an impact of 1080 acres per laser leveller 3
  4. 4. o Assuming that 50% of households agree to get their lands levelled, a laser leveller can have a maximum impact zone of 2160 acres in its entire lifespan o An average sized village has land approximately of 250-500 acres, a laser leveller can ideally work maximum in 4-5 or maximum 10 villages in its entire life. o As per the census, Uttar Pradesh has 70 districts and 100,000 villages, while Bihar has 37 districts and 39,000 villages. The approximate number of Laser Levellers can thus be calculated.Constraint analysis of the lone Service Provider in E-UP - Clients are spread over 100 km range. When he has to travel to clients in the season, travel time has a high opportunity cost. This leads to loss of income in season; - Recovery of money is difficult. Of the Rs. 2,00,000 plus earned last year working on 128 acres, nearly 25% was received after nearly a week and more than a request. Rs.15,000 is still held by the farmers and inspite of several requests and a few conflicts, the farmers do not want to give. One reason is that as the Service Provider is closely identified with the hub from where some items are distributed free in pilots, and the farmers wrongly expect that commercial Laser Leveler services to be free too for them. This attitude is expected to change as the Service Provider becomes more and more independent; - The Service Provider initially had the support of the hub staff and transport in meeting new clients and explaining them the need of the Laser Leveler. Once he was put off salary and asked to go it alone, his area of influence has got largely limited to his few clients in a few villages and their word of recommendation. He has been trying to leverage them to get more clients. He also finds it a bit intimidating to independently hold meetings in new villages to publicise his work although he clearly understands that publicity will help him in accessing more farmers; - The Service Provider flatly mentions his interest in servicing the requirements of a few very large farmers where he can work on large areas and be paid in bulk. He reasons (correctly, according to him) that he can go to work on their fields day and night, stay there, get food, water and shelter and has fewer hassles in getting money from them as his transaction costs are low. However one of these very large farmer has not paid him money inspite of several reminders and the Service Provider has been following it up with him for a few months now; - Through the limited but commendable work done, the Service Provider has already got a demand of 171 acres for this year. 95% of the demand is from very large farmers who are primarily into cash crops. Farmers are willing to call him and not Hariyali as they find him more accommodating and sincere in his work; - The Service Provider finds the demand aggregation, money collection and handling a weak area in his business model and is not comfortable with the present process, where he has to run after each client to get money and offer explanations. He is willing to even share a small margin if there is any person/ agency willing to support him in doing this. 4