Social Business Model for Agricultural Services Mobile Platform, Philippines, Jan 2013

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Participants on GIFT's 30th Global Young Leaders Programme (YLP), in partnership with IRRI - International Rice Research Institute, proposed a new business model to provide an information services platform for rice farmers in the Philippines and elsewhere.

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Social Business Model for Agricultural Services Mobile Platform, Philippines, Jan 2013

  1. 1. Business Plan for an Information Service Platform for Rice Farmers – a Proposal for IRRI Developed on the 30 th Global Young Leaders Programme January 2013 Click to edit Master title style Click to edit Master title style
  2. 2. Table of Contents Executive Summary 3 Introduction 7 Background 10 Business Model and Operations 21 Business Development and Strategic Partnerships 39 Sales and Marketing 43 Organisational Structure and Governance 53 Financial Projection 58 Risk Analysis and Mitigation 67 Recommendations and Action Plan 70 Appendices 79 2
  3. 3. Executive Summary 3
  4. 4. Executive Summary (1)• Global demand for rice will increase, particularly in Asia, alongside population placing increasing pressure on systems of rice production. The Philippines for example depends on rice imports to meet current domestic demands, in spite of having a long tradition of rice farming.• The International Rice Research Institute (IRRI) plays an important role in performing leading edge scientific research into many aspects of rice production – headquartered in the Philippines but with a presence in rice producing countries around the world.• Key challenges faced by smallholding rice farmers in the Philippines and elsewhere include landlessness, a vicious borrowing cycle difficult to escape from, insufficient access to credit and therefore a lack of processing tools and resources and very importantly a lack of critical information for both pre- and post-harvest activities in the rice production value chain.• GIFT and the YLP team of participants was invited to explore ways that IRRI could consider commercialising its mobile platform: “Nutrient Manager for Rice” (NMR) in order to promote improved rice production in the Philippines, and to potentially apply findings and principles of the business model to other countries where IRRI operates. 4
  5. 5. Executive Summary (2)• Based on site visits to rice producing communities in Infanta and Victoria, meetings with potential partners and stakeholders and extensive work with technical and management staff at IRRI, the team of participants recommends the establishment of a New Company to manage the development and delivery of the information platform for rice farmers – first as a pilot business in the Philippines, and then potentially applying the concept in other rice producing countries.• The proposed New Company will: • Manage the technology platform to provide rice farmers with valuable information from pre-production to post-harvest, including Nutrient Manager and extending beyond into other info services • Connect farmers with service providers, financing and support the development of an inclusive value chain • Bring together public, private and civil sector players through a new commercial entity and ownership structure that is financially viable and drives social benefit • Promote the re-positioning of rice farming among rural communities and especially the younger generations in order revitalise rural communities and support the drive toward self-sufficiency in rice production for the Philippines, thereby helping build a future pillar of the community 5
  6. 6. Executive Summary (3)Key features of the new company include:• New company to be established with a majority ownership for farmers. Details of equity stake for IRRI to be negotiated• Impact investment opportunities for select partners or investors and shareholding options for farmers’ associations and employees, as well as ‘sweat equity’ for management• A business model based on growing a significant subscriber base of farmers and others in the rural / agricultural community and then capturing revenue in the form of commissions from key service providers and commercial partners as well as market intelligence for sale and targeted marketing opportunities for companies seeking to market to rural customers• A new concept for outreach and interface between the company and rice farmers in the form of a field-based sales force of “Sales & Service Agents (SSA)”, who are active members of the community and who will work to link the new company with farmers first by promoting subscriptions to the network and then to support the use of the ICT platform service as needed by farmer subscribersThe proposed company will require an initial injection of USD 6 million with a break-even atyear 5 and an IRR of 54% by year 10. It is estimated that the company can reach and secureapproximately 750,000 rice farmers as subscribers in the Philippines by year 10, thus promotingan increase in overall yield, improved livelihoods for farmers and enhanced rural environments. 6
  7. 7. Introduction 7
  8. 8. Project Partners Entity Description • A non-profit independent research and training organisationInternational Rice • Dedicated to developing new rice varieties and rice crop Research management techniques that help rice farmers improve the Institute (IRRI) yield and quality of their rice in an environmentally sustainable way • Works with public and private sector partners for agricultural research and extension to deliver training and knowledge transfer • An independent pan-Asian think and do tank dedicated to linking business, government and civil society to fosterGlobal Institute For constructive dialogue and address global challenges Tomorrow (GIFT) • Organises the Global Young Leaders Programme (YLP), an executive leadership programme based on real world, real time experiential learning for participants and on tangible and actionable outputs with positive social impact for partners 8
  9. 9. Global Young Leaders Programme (YLP)Participants from businesses and civil society worked with IRRI to propose abusiness model for the commercialisation of an integrated ICT platform toimprove rice crop management in the Philippines, as well as strategicrecommendations on managing partnerships in the future. YLP Participantscame from companies and organisations below: 9
  10. 10. Background• Global Food and the Role of Rice• Overview of the Philippines• IRRI and Rice Crop Management• Rural Mobile and Banking Markets• Identifying Gaps and Opportunities 10
  11. 11. Global Food and The Role of Rice• A small increase in global food prices drives millions into extreme poverty• Rice is a staple food for more than 3 billion people (almost half the population)• More than 90% of rice is produced and consumed in Asia• Green revolution in the 1960s introduced high yield variety seeds and agro- chemicals. Productivity doubled by late 1970s• Continued pressure on food production driven by environmental degradation, climate change, population growth and urbanisation• Adoption of effective crop management practices to maintain soil fertility and ecological balance is central to food security• Strengthening and developing inclusive value chain is crucial to improving farmers’ livelihoods 11
  12. 12. Overview of the PhilippinesCountry information *Population: 104 millionCapital: ManilaLand area: 298 km2Religion: 83% Catholic, 10% otherChristianity, 5% IslamHistory and GeographyLocated in Southeast Asia7,107 islands, with three main locations:Luzon, Visayas and MindanaoA Spanish colony for 300 years and underUS influence for 50 yearsA country of over 7,000 islands, reliant on agriculture and remittances and boasting one of the highest economic growth rates in Southeast Asia * The CIA World Factbook, 2012 12
  13. 13. Overview of the PhilippinesEconomicGDP(2011): 224.7 billion USD (*2) GDP growth rate(%) in PhilippinesGDP growth (1-3Qof2012): 7.1% (*3)GDP/Capita: 2369.5 USD (*2) 8Disposable income per household (2011): 68406.5 USD (*4) 4 2Unemployment Rate: 7.0% (*5) 0Poverty Rate (2009): 26.5% (*6) 2004 2005 2006 2007 2008 2009 2010Social DevelopmentAlthough the economy has been recoveringsteadily since 2004, the Philippines still hasthe highest income inequality in Southeast The Philippines is emerging andAsia. promising, but still challenged byA third of the population lives below the povertypoverty level of USD1.25/Day (*7) *2 World Bank 2012 *6 World Bank *3 National Statistical Coordination Board, 2012 *7 CNN, What is driving the Philippines *4 Euromonitor International Ltd, 2012 surprisingly strong growth, 2012 13 *5 Global Finance
  14. 14. Agriculture and Rice in the Philippines• Accounts for 13.2% of GDP and employs 33% of labor force (12.27 million people) (*9)• Crop production is 19.6 billion USD, with palay production at 6.2 billion USD• Palay accounts for one third of the total harvest area or 4.5 M ha (*9)• Rice production is not sufficient for national consumption needs• A farm commonly produces rice, corn and coconut with a few livestock and poultry• A majority of farmers have on average 2 hectares of land 2013 as the Year of Rice for the Philippines to reach rice self-sufficiency *8 Philippine Daily Inquirer, ADB urges Philippines to address income inequality, 16 April 2012 *9 Bureau of Agricultural Statistics, Overview of Philippine Agriculture 14
  15. 15. Analysis of Rice Value Chain Input Supply Input Suppliers Supply/ 10% Seed, agrochemical Production Production dealers/ salesforce Handling 18% Producers Threshing Farmers 8% Post-harvest Drying Processing Storage Palay Traders 22% Service units Milling 42% Processors Small and large mills Wholesale Estimated Marketing/ Post-Harvest Large Distributors Distribution/ Retail Value Loss: Retailers Consumption 90% Consumption Consumers Significant loss in value of rice crop occurs in post-harvest due to lack of infrastructure and credit 15
  16. 16. Rice Farmers in Need of Support• Despite land reforms, a majority of farmers are landless and are trapped in a cycle of borrowing for the purchase of agricultural inputs• Farmers require a range of information and services, from pre-production to post-harvest, and from weather to market updates• After labour, fertiliser is the second largest cost for farmers• Currently the average rice yield is 3.7t/ha, lower than the world average• Low yield partly due to the incorrect use of fertiliser (*10) Rice farmers require additional information on farming techniques to improve livelihoods in rural areas *10 FAO, USDA 16
  17. 17. IRRI and Rice Crop Management• IRRI has developed a series of ICT tools to address rice farming, including the Site- Specific Nutrient Manager for Rice How to access and use Nutrient Manager Web Smartphone GSM mobile phone (NMR), the Rice Doctor, and the Rice Knowledge Bank• Farmer calls NMR, a web and mobile based tool, to dedicated number Interactive Voice provide rice farmers with tailored Response implementation box recommendations on nutrient management Smartphone output• 20,000 nutrient management guidelines Web output Smartphone provided to farmers in 2012 Available in Philippines and Indonesia and mobile: Text output• NMR developed and tested in the Philippines and replicable in other rice producing countries 0 11 12 13 21 30 32 3 45 - 5 61 - 65 71 - 9 9 51 9 92 17
  18. 18. Key Findings: Nutrient Manager for RiceBenefits• Reduces fertiliser cost thus saving farmers money• Potential to increase paddy yield when info is used by farmers• Tailor-made advice for farmers• Potential for print out service• Net environmental and social benefitsChallenges• NMR is beneficial but not comprehensive.• Farmers also need assistance on weather, prices, post-harvest support to help maximise their crop• Low penetration into farming community• Many farmers unfamiliar with ICT interface• Lack of availability of hardware and capital
  19. 19. Rural Mobile and Banking Markets• Mobile operators achieved 67% household penetration in the Philippines• Most prolific text messaging markers in the world – accounts for 10% of global SMS messages• 1 million Filipino overseas workers transfer USD 50 million per month to relatives in Philippines through mobile banking• Mobile Wallet – 8.6 million Smart Money and 1.3 million Globe G-Cash registered users• 780 rural banks covering 85% of municipalities and cities• BPI Globe BanKO is the Philippines’s first mobile phone-based, microfinance-focused savings bank, reaching over 400,000 micro-entrepreneurs in the past two years Mobile presents good opportunities to reach rural farmers http://www.malaya.com.ph/index.php/business/business-news/8408-billions-sent- thru-phones http://www.gsma.com/publicpolicy/wp- 19 content/uploads/2012/03/universalaccessfullreport.pdf
  20. 20. Identifying Gaps and OpportunitiesUNMET NEEDS OF FARMERS EXISTING INFRASTRUCTURE• Reliable technical information to • Access to IRRI’s knowledge support sustainable farming practices repository and extension tools• Access to suppliers, service providers • Community organisations and and buyers in the rice value chain extension workers• Access to post-harvest facilities • Nationwide mobile network• Access to credit, insurance and other infrastructure financial services • Large mobile banking user base RECOMMENDED OPPORTUNITY:Establish a commercially viable information service platform that leverages andexpands on existing services. Beneficiaries will include: farmers, suppliers, buyers,extension workers and the larger agricultural community. Integrated information service platform can support the development of an inclusive rice value chain 20
  21. 21. Business Model andOperations• Introducing the New Company• Business Model• Operations• Summary of Revenue Streams 21
  22. 22. Introducing the New CompanyVisionTo support and connect farmers through an integrated platform to a suite ofeducational tools and product and services supplied by the company and key partnersMission• To bridge the gap between the needs of the farmers and those of the service providers throughout the value chain• To support sustainable rice farming, particularly through the optimisation of farming inputs (fertilisers, pesticides, herbicides, etc)• To develop and empower young farmers to become next generation agriculture knowledge workers• To support farmers in improving their livelihoods• To achieve self-sufficiency in rice production FarmSaya positively impacts farmers, rural communities and rice consumers, by helping farmers enhance their farming practices and livelihoods. 22
  23. 23. Business Model Core Partners Farming Communities Knowledge Providers Co-ops Mobile Network Mobile & Farmers Operators Web Apps NGOs Field School Service Providers Products & Services Farmers Local MFIs Rural Banks Micro-insurance IVR Stores SMS Sales & Service Printout Agents (SSA) Extension WorkersAgri-inputs Agro Information Suppliers Market Intelligence buyers Providers An Integrated Information Service Platform to support an inclusive value chain 23
  24. 24. Business ModelFarmSaya’s Network of Service Providers Accreditation ensures Core Partners credibility and builds trust Knowledge Providers Mobile Network Operators Product & FarmSaya Accredited Service Providers Services Local Dealers Sales & Service Agents (SSA) work Rural Banks Micro-insurance with service providers and local dealers to develop a network of accredited local dealers to provide Agri-inputs Agro Information products and services to the Suppliers buyers Providers farming community. 24
  25. 25. Business ModelFarmSaya’s Network of SubscribersThe success of the platform depends onthe subscriber base. Higher volume of Farming Communitiessubscribers and higher usage persubscriber creates value for serviceproviders. This is required for Farm Saya Co-opsto be financially viable by monetising thisvalue with other sectors. Farmers NGOs Field School Sales and service agents work with key actors in community to Farmers (a) Enrol farmers (b) Quickly scale the platform Local Stores MFIs (c) Ensure regular use of the platform (d) Lower dependence on volunteers Extension Workers or the overly worked extension workers 25
  26. 26. Business ModelCore Services for Farming Community Micro-finance and Micro-insurance Group Purchase ofNutrient Manager and Agriculture Inputs Crop Management Knowledge and Tools An information service platform to support an inclusive value chain Coordination of Farm Equipment Leasing Organising Learning Groups Coordination of Contract Coordination of Farming with Millers / Buyers Post-harvest Services 26
  27. 27. OperationsCrop Management: Knowledge and Tools Primary Information and Technical Support Complementary Services provided by IRRI & PhilRice Information Services Nutrient Weather Manager for Forecast Rice Market Information Rice Crop Rice Doctor Manager Open Source Sustainable Farming Knowledgebase Voice service, Local Specific Knowledge Bank SMS Alerts, Information Printouts Endorsement by Department of Agriculture will aid nationwide rollout and adoption Knowledge delivery through mobile and web platforms 27
  28. 28. Operations Micro-finance and Micro-insurance Accredited Service Providers Payment for products and services Agri-inputs: through micro-finance bundled with micro-insurance Seeds Fertilisers Farm Rural Banks equipmentMicro-finance Institutions (MFIs) leasing Micro-insurance Company Mobile Banking Farmers payback Post-harvest micro-loans after services: Treshing sales of produce Drying Storage Access to credit helps farmers gain access to agri-inputs, Milling farm equipments and post-harvest services Linking farmers with Rural Banks and MFIs to provide access to credit 28
  29. 29. OperationsGroup Purchase of Agriculture Inputs Group Nutrient Manager purchase of provides customised agriculture inputs at recommendations discounted price Accredited Agriculture Input Dealers Payment Micro-financing for farmers Farmers provided through mobile banking Bundling group purchase with Nutrient Manager and micro-financeGroup purchase reduces cost for farmers and increases sales through the platform 29
  30. 30. OperationsCoordination of Farm Equipment Leasing Coordinates leasing of farm equipment for farmers and cooperatives Leasing Company Payment Micro-financing for farmers provided through mobile banking Access to farm equipments such as combine harvester can help reduce post-harvest lost Making farm equipments affordable with micro-finance support 30
  31. 31. OperationsCoordination of Post-harvest Services Coordinates access to Post-harvest Service Providers post-harvest services for Harvesting using farmers and cooperatives combine harvesters reduces physical lost and paddy can be dried in time Drying paddy to 14% moisture content in time improves rice quality Micro-financing for farmers provided through mobile banking Storage for 6-9 months to fetchFuture opportunity may exist for FarmSaya to nurture higher prices inlocal entrepreneurs to run post-harvest service hubs the marketand broker members’ crops to processors. Providing access to post-harvest service providers to ensure farmers capture and maximise crop value 31
  32. 32. Operations Coordination of Contract Farming Links farmers and cooperatives to Millers / Agro Buyers Facilitates access to post-harvest facilities and transportation Contract Farming with Millers / Agro Buyers Payment for farmers provided through mobile bankingContract farming can help reduce post-harvest lost and capture more value for both farmers and buyers Linking farmers to markets – ensuring accurate pricing 32
  33. 33. OperationsOrganising Learning Groups Organises learning groups for farmers and cooperatives Learning Group SSA Content Providers Extension Workers Agri-inputs AgroFarmers support and learn from each other Suppliers buyersand other mentors through learning groups FarmSaya SSAs may facilitate learning groups among members of farming communities. Content providers may also pay to sponsor. 33
  34. 34. Operations Sales and Service Agent (SSA) are a Human Interface +SSAs develop network of accredited local service providers and interact directly withfarmers and rural communities to deliver the information on available services• Relationship based on trust and familiarity as farmers prefer to interact with people rather machines – important for community building and growing the brand and subscriber network• Most of farmers do not have strong technology background and some are intimidated by it• SSAs act as the bridge and intermediary as well as service hub between the platform and farmers – certain subscribers will require more attention while others may prefer to use their own device or another device in the community. SSAs will need to be flexible to their needs SSAs add a human touch to the platform when interacting with farming communities 34
  35. 35. OperationsValue Added Service: Monetisation of Market Intelligence Capturing market intelligence Co-ops from rural communities Farmers NGOs Field School Recipients Farmers Mobile Local MFIs Network Stores Operators Extension Rural Banks Micro-insurance Workers Agri-inputs Agro Suppliers buyers Capturing and monetising market intelligence provides targeted marketing opportunities for service providers and partners through FarmSaya 35
  36. 36. OperationsPotential revenue: Market IntelligenceWith the data generated from the use of the integrated platform by various parties, mostnotably the large numbers of farmers and rural communities, useful knowledge and insightscan be extracted, organised and sold to existing partners or other businesses looking to reachrural consumers. (e.g. customer pattern, behavior, market opportunities, land usage, etc)Sector Example Possible Benefits To use data to predict who will respond to the new marketing campaignsMarketing/Retail Unilever, Nestle such as direct mail, online marketing campaign, etc To allow banks to promote new and appropriate financial products toFinance/Banking Rabobank, Citibank, etc targeted customers To improve their products which suits customer better to increase sales andManufacturing Kubota, etc customer satifisationGovernments Philiphine,etc To include the data in national statistics Data to be used ethically and as a key revenue stream to grow the business 36
  37. 37. OperationsVarious Users Demand Unique Data Enterprise SME / Local Business Mobile Agri-inputs Network Rural Banks Suppliers Operators Agri-inputs Local buyers, Micro- dealers Rice Mills Agro Buyers insurance Nutrient Manager, Market Intelligence Customers and Local to reach rural consumers Market Information Community Farmers Farmers Cooperatives, Extension Workers, NGOs, MFIs, Local Government Personalised Farming Farming Training Materials, and Post-harvest Information, Database of Local Farmers, Database Database of Accredited of Accredited Local Dealers and Local Dealers and Buyers Buyers, Learning groups information Learning groups information FarmSaya meets information needs of Enterprises, SMEs, Community and Farmers 37
  38. 38. Summary of Revenue streams Priority Revenue stream details • Service fee and commission for hosting and sale of Primary farming-related products/services through the platform • Service fee and commission for hosting and sale of non- farming-related products/services through the platform Secondary • Monetisation of market intelligence • Future premium subscription model • General sponsorships and display advertising Possible future • Sponsorship of Learning Groups available to relevant revenue companies (agri-inputs, etc) Basic subscription service provided free of charge for farmers 38
  39. 39. Business Developmentand Strategic Partnerships• Strategic partnerships for FarmSaya• Types of partners and service providers 39
  40. 40. Strategic Partnerships for FarmSayaPhase I Phase II Client base moves from farmerBuild a network of Reach out to service to rural communities elsewherecore partners providers for global adoption• Build platform • Increase the value Farmer and develop key proposition to features encourage higher Rural Communities enrolments• Meet farmers’ most immediate • Encourage the use Global Adoption needs of FarmSaya as a vehicle to access farmers and sell products and services to a large subscriber base Approach to strategic partnerships expands from local to global 40
  41. 41. Types of Partners and Service Providers Core Partners Service Providers Financial services: rural banks, MFIs, insurance Knowledge Providers: Agri-inputs suppliers, Agriculture products buyers IRRI, PhilRice Agriculture information providers Consumer products suppliers catering to the bottom of the Mobile Network Operators pyramid and rural communities (not only farmers) … • Strategy for Phase II: Push for a differentiation of subscribers. • Service providers include companies that cater to the Bottom of the Pyramid, Fast Moving Consumer Goods (FMCG) companies, Equipment manufacturers or Financial Services Companies • Diversified partners provide enhanced value to the subscribers and ensures that the model moves from a farmer base to a more extensive rural communityAn integrated platform with bundled services from various service providers can off-set operation and distribution costs required to reach out to customers in rural areas 41
  42. 42. Criteria for Partner SelectionAccreditation of partners is critical to ensure FarmSaya achieves desired goals • Existing customer base • Technology platformCriteria for • Access to investment and financial capitalpartnership • Strong government relationships and support • Socially-minded companies will be given preference • Prospect for potential partnerships to bundle products and services at reduced prices • Reduce marketing cost per customer • Large pool of service providers to entice farmers to becoming subscribers Value • Opportunity to use a replicable platformproposition • Target large customer base across regions • Aggregated market information • Opens up new markets • Nation building and social development 42
  43. 43. Sales and Marketing• Objectives• Strategy• Role of the Sale and Service Agents• Reaching communities: Engaging Young Farmers• Nationwide Campaign for Rice• Farmer Subscriber Targets 43
  44. 44. Objectives: Sales and Marketing• To enrol farmers onto the platform, and establish a subscriber network in rural areas• To broaden the subscription base to include other customers beyond the farming communities• To create brand awareness and loyalty to FarmSaya by providing services needed by farmers and their household• To turn farming into a desirable and profitable profession• To attract young farmers and youth from rural areas 44
  45. 45. Strategy: Sales and MarketingVarious channels will be used to attract and enrol a critical mass of farmers andraise awareness about the benefits of joining FarmSaya to gain access to farmingknowledge, products and services. Farmer Subscriptions Agri Religious Shareholders Organisations Communities Indirect Channels(Sales & Service Direct Channel Education Public Sector Media Agents) Institutions NGOs and Social Retail Chains youth groups Networks Enrolling farmers through Sales and Service Agents as well as indirect channels
  46. 46. Resources Required to Build Network Initial outreach driven by SSAs, public sector, NGOs and shareholders, later to be supplemented by other channels Est. Initial Resource Required Note: The bubble sizes represent Est. # of (Index on the scale of 10) farmers reached/attracted (index on the Direct Channel scale of 10) 10 Media 8 Private/Corporate partners 6 Retail Chains Shareholder 4 Agri Orgs Public Sector/ Gov Orgs Social Networks 2 Religious Communities Education Institute NGO 0 -2 0 Years 1 2 3 4 5 Direct sales outreach is supplemented by a variety of marketing channels 46
  47. 47. Enrolment Strategy• Combination of ICT tools and Convenience regular human interface to stores Pawn shops acquire farmer enrolment Accredited• Using social media to attract dealers young farmers Money• Partners contribute with changers discounted and bundled Promotion Sales & services/products to attract mass Platform Service enrolment Agents Community• Outreach and awareness raising centres through printed materials and Religious campaigns via existing networks communities and multiple touch points in the Info community kiosks Corporate partners 47
  48. 48. Farmer Subscriber Targets Sales and Service Agents (SSAs) serve as a key channel to enrol farmers. They build relationships with local communities and become trusted representatives of FarmSaya at the grassroots level.Number of subscribers Subscription Target by Year 746,496 800,000 700,000 622,080 Assumptions 518,400 • YR 1 employs 42 SSAs, 600,000 each enrolling 2 farmers 500,000 417,000 per day on average 400,000 345,000 • SSAs: responsible for 285,000 70% of enrolments. 300,000 225,000 • Remaining 30% from 200,000 135,000 indirect channels 100,000 15,000 60,000 (branding, campaign, farming community…) 0 YR1 YR2 YR3 YR4 YR5 YR6 YR7 YR8 YR9 YR10 Subscription Target to reach 750,000 users by Year 10 48
  49. 49. Role of SSA in Selling Subscriptions +SSAs are clearly differentiated from public sector extension workers:• Promote FarmSaya ICT platform and support delivering info services• Work in best interest of farmers to improve crop management• Highly motivated through private company incentives and potential employee shareholding options• Well equipped with hardware and well supported with world-class knowledge resources from IRRI etc. Sales & Service Agents present a new model for serving the needs of farmers 49
  50. 50. Reaching Communities: Engaging Young FarmersFuture sustainability of rice production depends on engaging and attracting thenext generation of farmersHow to achieve this?Use of ICT devices (web and mobile)• To attract young people to get interested in IT and bridge the digital – agriculture divide• To build an online network for young farmers to share tips and experiences (e.g. Facebook / Twitter)• To support partner advertisement via local media specifically targeting young generationDeliver key messages through schools• Introduce and generate interest around agriculture and farming by promoting the benefits of rural lifestyles as a positive alternatives to urban poverty• Generate enthusiasm by linking farming with national and cultural pride• Nurture agriculture-major students as Student Ambassadors• Fund student groups to conduct village education and registration service 50
  51. 51. Staged Approach to Attract Young Farmers Promote FarmSaya in schools, branding as cool, desirable and good lifestyle Attract a new generation of young farmers to be active on FarmSaya, earn more and be proud of their career Create awareness of FarmSaya, link to existing social media, technology & culture
  52. 52. Nationwide Campaign for Rice• Build on the momentum from the Philippines’s 2013 Year of Rice• Raise awareness on the importance of rice as a staple food for rural communities and urban dwellers• Mobilise the Filipino population around a nationwide campaign in support of farming communities IRRI campaign in support of the National Year of Rice It takes a nation to grow rice!
  53. 53. Organisational Structure and Governance• Shareholding concept• Organisational structure• Organisational Highlights• Governance on Intellectual Property 53
  54. 54. FarmSaya Shareholding Concept• Core partnerships are invited for shareholding: – IRRI Potential Shareholders – Farmers associations Private – Private sector sector – Civil sector Civil – Government sector• Equity opportunities will be offered to Farmers IRRI farmers and FarmSaya employees• Exact shareholding breakdown to be determined by IRRI and partners during Government future negotiations Proposal for IRRI to invest and lead in new shareholding partnership 54
  55. 55. Organisational Structure Board of Directors Technical Board CEO • IRRI • Phil Rice • DA Commercial Services Operations Information Technology Responsible for: Responsible for: Responsible for: • Business & Product • Human Resources • Software development Development • Finance • Information management • Customer data analysis • Legal structure • Content development • Sales & Marketing • IP & Patents • PR & Comms • Corporate affairs • SSA Training 55
  56. 56. Organisational Highlights• Set-up of the company and development of the integrated ICT platform to be ensured by IRRI staff during the start-up phase• Recommended secondments from IRRI and/or other partners in key functional roles to reduce overhead costs – also promotes development of commercial awareness and skills among IRRI staff, useful in future corporate partnerships• Leverages on IRRI’s expertise and knowledge to develop the integrated platform, to include Nutrient Manager and other infomation services• Equity opportunities to farmers associations and employees (incl. SSAs)• Management team will be given “sweat equity” to ensure the long term interests of stakeholders and the proper incentives for growth• Functional units headed by a CEO, solely responsible for P&L to ensure commercial targets are met 56
  57. 57. Intellectual Property: Governance Issues• IRRI should decide which knowledge should/should not be made available on the FarmSaya platform• All IRRI research and data, including the Nutrient Manager, will continue to be hosted and protected by IRRI• All other information and data generated by the platform, including customer information, will be hosted by FarmSaya and may be used for market analyses FarmSaya provides IRRI a pilot opportunity to manage its Intellectual Property 57
  58. 58. Financial Projection• Overview• Financial Projection• Revenue Breakdown• Cost Breakdown• Scenario Analysis• Sensitivity Analysis• Assumptions 58
  59. 59. Financial Projections - Overview• FarmSaya requires a start-up investment of USD 6M, according to the base case calculations, with No Additional Cash Call• According to calculations based on assumptions, the company will break-even during the 5th year and recover the total capital investment in 6 years• IRR over 6 years: 17%• IRR over 10 years: 54% FarmSaya projected to be a self-sustainable business starting in year 5 59
  60. 60. Financial Projection (Base Case) 5,000,000 1,000,000 4,000,000 800,000 3,000,000 600,000 2,000,000 400,000 1,000,000 200,000(1,000 PHP) 0 0 (Persons) 1 2 3 4 5 6 7 8 9 10 (1,000,000) (200,000) Revenue Net Profit Cost Acumulated Cash Flow No. of Perticipants (RHS) Average Profit Margin of 8.7% over the first 10 years. IRR over 6 years of 17% and over 10 years of 54% 60
  61. 61. Revenue Breakdown (Base case)2,000,000 800 (Persons)1,800,000 (1,000 PHP) 7001,600,000 6001,400,0001,200,000 5001,000,000 400 800,000 300 600,000 200 400,000 200,000 100 0 0 1 2 3 4 5 6 7 8 9 10 Service fee & commission from farming related sales of goods and services Service fee & commission from non-farming related sales of goods and services Fee from Premium Users Data Sales No. of Participants (RHS)Service fees & commissions from goods and services provided through the platform are primary revenues for FarmSaya 61
  62. 62. Cost Breakdown (Base case) 400,000 (1,00 PHP) 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 1 2 3 4 5 6 7 8 9 10 Labor Marketing IT Occupancy Admin. Labour costs, especially for SSA’s, is primary costs for the business 62
  63. 63. Scenario Analysis Customised Data Required Scenario Usage Growth Break Even (Revenue at Year 2) Capital Aggressive growth USD750k Year 3 USD 4.2MOptimistic (+40%) Base Moderate growth USD500k Year 5 USD 6MPessimistic Weak growth (-60%) USD250k Year 6 USD 9.5M Base case shows break even in Year 5 with capital requirement of USD 6M 63
  64. 64. Sensitivity Analysis2,000,000 (1,000 PHP)1,500,0001,000,000 500,000 0 -500,000 1 2 3 4 5 6 7 Accumulated Profit Accumulated Profit(Best) Accumulated Profit(Worst) 64
  65. 65. Key Assumptions• 70% of farmers’ total revenue is spent on farming costs.• 55% of total farming cost is labour cost and the remaining 45% is for agricultural inputs• 30% of total farmers approached will subscribe to the platform• Once established as subscribers, 30% of farmers’ non-labour cost will occur through the platform – thus providing commission-fee revenue• FarmSaya will cease the expansion of its sales force after year 5• Each SSA enrols average 2 farmers per day, overall the SSA’s are responsible for 70% of the total enrolment• Remaining 30% of the enrolment comes from indirect channels• General staff salary increases at 5% annually on top of inflation• Compensation of SSA includes base salary of PHP 15,000/month, plus suggested commission of PHP 100 per subscriber• General staff turnover rate is 10% annually 65
  66. 66. Assumptions – Revenue and CostsKey Revenue Streams• Commission from sales of products and services through FarmSaya Platform• Monetisation of market intelligence• Future “Premium Subscription” opportunities once network is establishedKey Costs• Labor cost associated with Sales and Service Agent (SSA) is primary cost• Marketing cost to reach additional subscribers• IT development• Additional operating costs 66
  67. 67. Risk Analysisand Mitigation 67
  68. 68. Risk Assessment High risk Medium risk Low risk 10 Demand not sufficient to match the supply 11 High provided through the platform Service providers bypass platform to avoid 3 52 paying commissions once establishing communication with customers 8 Expenses for managing SSA sales force too high IMPACT3 4 Medium to maintain strong cash flow Competitive platforms similar to the Nutrient 24 Manager for Rice enter the marketplace Failure to build up sufficiently large subscriber5 network and failure to attract business partners 76 Higher than expected turn-over rate for SSAs Low 6 Weaker incentive for SSAs once subscriber base7 growth slows down Natural disasters that affects business operations Low Medium High8 including projected subscriber growth targets LIKELIHOOD 68
  69. 69. Risk MitigationNo Risk Functiona Likelihood Impact Risk Mitigation l Area1 Business H H Service diversification and Demand not sufficient to match the Model continuous design to attract more supply provided through the platform customers2 Service providers bypass the platform Market M M Conduct non-compete contracts after establishing customer relationship with service providers3 Expenses for SSA’s too high to maintain Finance M H Need to create a secure system to strong cash flow outsource4 Competitors making a platform similar Market M M Leverage IRRI’s knowledge to to the Nutrient Manager for Rice differentiate5 Market M H Deploy more channels and Fail to build up large subscriber group partnerships to push sales6 Higher than expected turn-over rate for HR L L Good employee training scheme SSAs solid incentive plan; shareholding7 Weaker incentive for SSAs once Finance L L Good employee training scheme subscriber base growth slows down and solid incentive plan8 Natural disasters that affects business Nature H H Build strong local-based operation communities and service hubs 69
  70. 70. Recommendationsand Action Plan• Recommendations• Timeline 70
  71. 71. Recommendations for FarmSaya (1)• An equity based model to be created for an integrated information platform called FarmSaya to enable IRRI to deliver existing and future research outputs and farming best practices to farming communities• Develop comprehensive ICT platform with a suite of information features in addition to Nutrient Manager to include: – Local and regional weather information and impact on farming – Relevant information across the value chain, from pre-production to post- harvest resources – Consider expansion to include information for other crops in addition to rice, to capture greater number of rural subscribers – Other information solutions can come online to meet the needs of various organisations which come online at a later date 71
  72. 72. Recommendations for FarmSaya (2)• IRRI owns the knowledge database. FarmSaya manages the platform, distribution and operational processes to reach end users and business partners• IRRI should take a stake in the venture while leveraging partners assets – this includes playing a leading role on the Board of Directors and contributing to the management team, potentially through secondments or rotations. Details of equity stake for IRRI to be negotiated• Seek impact investors keen to support the development of Philippines agriculture and or rice production in other countries where IRRI has a presence• Ensure strong government support, while being pragmatic about exact nature of collaboration and potential role in the new venture. Government can take a small stake to provide legitimacy to brand end mission• Farmers and employees of FarmSaya to be made shareholders which will promote loyalty and retention. Formulae to be developed 72
  73. 73. Recommendations for FarmSaya (3)• Incentive scheme for SSA rural sales force which may include combination of salary, subscription commissions and share options• Ensure that FarmSaya creates a movement bigger than the rice farmer alone – Subscriber outreach should be campaign driven with nation-building approach – Focus on ways of making farming desirable and attractive to young people from rural communities• Seek ways for the business model to be expanded beyond the Philippines and provide ICT platform delivery and structure to be customised according to other countries’ needs and local context 73
  74. 74. Recommendations for IRRI (1)• Pursue commercialisation as a complement to traditional fundraising for research - IRRI recommended to seek private sector partners interested in implementation of commercial projects using IRRI scientific knowledge and network• Use Science & Research to influence public policy outcomes and engage key private sector partners for measureable local benefits – ensuring that benefits from IRRI research are realised in the Philippines• Consider the creation of a Public Policy department and a Business Unit and establish priorities aligned with IRRI mission and values – to be applied in Philippines as well as other countries where IRRI has a presence 74
  75. 75. Recommendations for IRRI (2)• Apply research and science to solving post-harvest challenges and develop creative solutions in order to return more value to farmers and to create greater economic incentives for the farming sector• Strike a balance between high-end scientific research and the need to take existing scientific knowledge in the “field”• Be more customer focused in practical ways and address existing problems with existing know-how 75
  76. 76. Implementation Timeline Month 6-12 Month 12-18 Month 18-24 • Incorporate Board of • Report back toInitial negotiations Directors Chairman/Board of and ‘go-ahead’ • Nominate Chairman of Directors on Progressfrom shareholders Board and management • Initiate next steps secondments from IRRI • Incorporate legal entity • Start Phase I operating • Preparation for Phase 2 • Raise funds & secure in the end of month 24 start-up investment Establishment of • Memorandum business entity association • Resister corporation • Set up business infrastructure • Recruit key • Prepare talent hiring • Launch staff hiring management staff • Establish SSA trainingHuman Resources • Secure rental office and procedures set up facilities Pilot Scale up 76
  77. 77. Implementation Timeline Month 6-12 Month 12-18 Month 18-24 • Negotiation with • Start contract sign-off potential businesses partners and clients Business (initiate communications • Launch brand Development with core partners) awareness campaigns • (communication with secondary partners) • Launch re-developed • Validate data • Step 2: Ongoing R&D Product integrated platform • Step 1: Quality Control • Evaluate development development with additional of new products to rice services farmers • SSAs reach out to • Field visits all A category • Field visits all B&C farming communities Farmers’ community category Farmers’Sales & Marketing for extensive • Run nation-wide community enrolment campaign campaign around rice (ongoing) 77
  78. 78. Implementation Timeline Month 6-12 Month 12-18 Month 18-24 • Set up finance • Accounting and • Set up audit and infrastructure financial reporting control systems Finance • Accounting and • Financing financial reporting • Financial monitoring • Secure financing • Build/ buy/ lease • Run platform efficiently IT Operations platform • Identify major/ key • Build advocacy plan • Implement advocacyCorporate Affairs stakeholders and key plan opinion leaders • Look at adjacencies • Build new business models along with business Innovation development • Set up framework and • Apply for IP/ patent • Develop IP/ patents database relevant to platform commercialisation IP protection plan for usage of IP/ patents 78
  79. 79. Appendices 79
  80. 80. Proposed Partner – Additional Info • BanKO is the first mobile phone based in the Philippines • Set up under the aegis of the Bank of Philippine Islands (the largest Bank in the Philippines), Globe Telecom (Largest Mobile Company in the Philippines) and Ayala Corporation • The bank reaches its customers through partners and mobile technology • The Bank carefully evaluates its partnership model and offers partnerships to institutions that possesses liquidity, open for long hours and is available across the country. • Phil Rice has better influence power within Philippines and IRRI can provide strong technology support to Phil Rice • Phil Rice already has “Knowledge bank” which is adopted for Philippines – Local languages (4 local+ 1Engligh) – PalayCheck system through whole rice production process – Can be connected via facebook which farmers like • Phil Rice can provide free “text center” 0920-911-1398 • Phil Rice has various media channels “ magazine, website and broadcast” • Phil Rice can provide training programme to local farmers and extension works 80
  81. 81. SSA projected numbers & costs Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10Enrolment 30,000 75,000 150,000 240,000 300,000 360,000 432,000 518,400 622,080 746,49670% by SSA 21,000 52,500 105,000 168,000 210,000 (Organic growth CAGR 20%)SSA effective 500 500 500 500 500Number of SSA 42 105 210 336 420 420 420 420 420 420 Salary 180,000 Travel expense 40,000 Estimated cost breakdown of SSA per year: Mobile device 12,000 Total per year (PHP) 232,000 81
  82. 82. Potential Marketing Channels (1)Category Channel/ Execution How it works?Direct SSAs/ Info Kiosk (Year1) Via incentivised SSAs (visits, walk-in) and info kiosks of our own, buildChannel our own points of contact across the targeted regionPrivate BanKO (Year1) Micro financing provider with its distribution channels readily availableSector (e.g. NMR posters/flyers distributed via BanKO’s branch offices)Research PhiRice (Year1) Disseminate NMR info via PhilRice FFS trainers or seedling distributionInstitute channel (e.g. circulate NMR flyers along with seedling instructions)Private Jolibee (Year4) Utilise Jolibee’s restaurants as points of contact, disseminate NMR’sSector posters and flyers at Jolibee restaurantsFarmers Seed-Grower/ Farmer Co-op Provide seed grower co-ops and farmers’ co-ops with NMR flyers andOrganisation (Year 3) farming guidance; with help of co-ops, select “Pilot Farmer” and build up the success storiesEducation Ag College Students (Year 3) Designate agcri-major students as Student Ambassadors; Fund StudentInstitute Volunteer Groups for NMR Campaign/Education Initiatives; Hire Student Ambassadors to conduct village-wide education and registration service (with devices) on weekendsFarmers Org Post-Harvest Service Provider Provide Post-Harvest best practices training/info sharing, and attracts/ Private Sec. (rice mill/storage) (Year 3) farmers who use targeted post-harvest services 82
  83. 83. Potential Marketing Channels (2)Category Channel How it works?Public Sector/ Gov ATI/Extension Workers (Year1) Train the “Farmer scientists” nominated by theOrg extension workersReligious Village Churches (Year1) Distribute flyers and conduct periodical educationCommunity sessions for community farmersPrivate Sector New Agri Inputs Investing Partner Usage of their distribution channels Network (Pioneer, Syngenta, Year 3)Private Sector Beverage Company (e.g. San Miguel) Access rural communities via established sales (Year1) channels and national sales forces; bring marketing expertise and $ (e.g. fund the social events of farmers, in which NMR’s info will be disseminated)Private Sector Telecom (e.g. Globe, Smart, Sun) Mass info sharing/advertising (via text msg); hosting (Year1) the toll-free help hot line for farmersMedia Radio/ local TV channel (Year 2) Advertisement, brand image buildingNGO Mercy Corps / Gawad Kalinga (Year1) Information referralRetail Chain Seven Eleven/Supermarket (Year4) Putting up posters and distribute flyers in storesSocial Network Facebook / Twitter (Year 2) Building young farmers’ online community 83
  84. 84. Estimated Impact of Nutrient Manager and FarmSayaAssumptions Low rice yields andSubscription base: inferior quality of rice PROBLEM10 % of 3 million farmers= 300,000 farmers30% adherence to 100,000 farmersrecommendations follow recommendations SOLUTIONIncrease yield of palay by10 sacks/farmer * 2 season 1 ton palay annual= 20 sacks yield increasex 50 kg / sacks = 1000 kgx 15 PHP/kg = 15000 PHP 15,000 PHP annual(Source: Farmer Interview) income increase IMPACT Small and Medium Miller: 100,000 farmers x 1 ton x 60% = Conversion rate of palay to 60,000 tons of milled rice milled rice is 60% increase in production 84
  85. 85. Thank you! 85

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