Milk procurement , rural retail & agribusiness[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

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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

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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.


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 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” .


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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.


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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.


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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 %


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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


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(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


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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


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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


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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


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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


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March 21, 2009


Milk procurement , rural retail & agribusiness[1]

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