Business plan to expand and capture the opportunity for increased demand for forage through alfalfa production in northwestern China, specifically Gansu province. This was produced during GIFT's 36th Global Leaders Programme, July 2014
2. Table of Contents
C Gansu Modern Forage – Current Status
D Strategy & Business Model
E Stakeholder Analysis & Partnerships
F Organisation Structure & Governance
B Market and Industry Background
G Finance & Investments
H Implementation Timeline & Conclusion
1
A Introduction
Executive Summary
5
9
20
2
65
30
54
78
85
4. Executive Summary (1/2)
Executive Summary
3
Capitlising on growing demand for high quality feed to support China’s increasing meat and
dairy consumption, Gansu Modern Forage Development Co., Ltd. (GMF) aims to be China’s
top commercial producer of alfalfa and alfalfa products. GMF’s business model is aligned with
government policy and supports rural development by improving farmers’ livelihoods and
reviving unused or underutilized arid land in Gansu Province.
GMF’s current operational hub is in Dingxi Prefecture, one of China’s least developed areas
situated less than 100km from Gansu’s provincial capital Lanzhou. The provincial and local
government strongly supports alfalfa cultivation through favorable policies such as
landscaping, transfer of land use rights and other incentives.
GMF must overcome a number of challenges to achieve its goal including insufficient supply
and inconsistent quality of alfalfa, weak and fragmented supply chains and a lack of
mechanization suited to mountainous terrain to support more efficient harvesting. GMF must
also secure the talent and funding, engage in the partnerships and institute the governance
mechanisms required to support the rapid growth of the business.
GMF has an opportunity to grow 50% p.a through 2019, see a tenfold increase sales volume
and achieve sales and net profit of RMB1.3B and RMB144M respectively.
External capital is required to fund expansion and can be secured in the form of investment
from socially-oriented investors interested in rural development and financing from local
banks.
The estimated total investment needed is RMB 30M over the next 5 years before breakeven.
5. Executive Summary (2/2)
Executive Summary
4
Key recommendations to GMF are:
– Focus on the production of alfalfa pellets to take advantage of rising demand from
the animal husbandry sector, using as raw material medium quality alfalfa which can
be cultivated on large tracts of rain fed mountainous land in Gansu
– Differentiate through an inclusive business model by establishing cooperatives of
alfalfa collectors and farmers and offering these key stakeholders shareholding in the
parent company to strengthen the value chain and secure consistent supply
– Enter into a strategic partnership with an agricultural machinery provider to develop
and distribute appropriate technology such as alfalfa harvesters customised for use
on mountainous terrain and pulley systems for more efficient transport of alfalfa
– Acquire and retain a strong management team and offer shareholding to instil a
sense of ownership and shared success
– Work alongside the government and farming communities to promote the utilisation
of unused mountainous land for alfalfa cultivation by demonstrating through its
business model the potential benefits of the alfalfa market for rural development.
Note: Financial models and assumptions available upon request
6. Table of Contents
C Gansu Modern Forage – Current Status
D Strategy & Business Model
E Stakeholder Analysis & Partnerships
F Organisation Structure & Governance
Executive Summary
B Market and Industry Background
G Finance & Investments
H Implementation Timeline & Conclusion
5
A Introduction
7. GIFT Global Leaders Programme
The Global Institute For Tomorrow (GIFT) is an independent pan-Asian think tank
focused on advancing a deeper understanding of global issues including the shift of
economic and political influence from the West to Asia, the dynamic relationship
between business and society, and the reshaping of the rules of global capitalism.
The Global Leaders Programme is the flagship executive education programme offered
by GIFT for leading global organisations.
6
Introduction
8. Global team works on real-world field project
24 participants from 8 countries and 14 organisations traveled to Gansu to develop
strategic recommendations to support GMF expansion.
The group engaged in site visits, field research and stakeholder meetings and focus
groups with GMF Chairman and employees, government officials, farmers,
collectors and cooperatives and strategic partners including financial institutions
and machinery providers.
7
Introduction
9. Project objectives and scope
Development of five-year expansion strategy for GMF
Analysis of current
status
Business Plan
Implementation
Forage market and industry based on own research
and interviews with stakeholders
GMF current status and operational model
Opportunities and challenges
Business model for different growth scenarios
Recommended actions for
– Operations and supply chain
– Stakeholder management
– Organizational structure and governance
– Finance and investment
Time line and implementation
8
Introduction
10. Table of Contents
C Gansu Modern Forage - Current Status
D Strategy & Business Model
E Stakeholder Analysis & Partnerships
F Organisation Structure & Governance
Executive Summary
G Finance & Investments
H Implementation Timeline & Conclusion
9
A Introduction
B Market and Industry Background
11. This section will cover 3 areas
10
Rural
development
Section
Alfalfa industry
as an opportunity
Alfalfa market
outlook
Description/Objectives
Importance of agriculture in bringing
prosperity to underdeveloped areas of China
such as Gansu
Opportunities and challenges of the growing
market for alfalfa in rural Gansu
Growth in demand for alfalfa in China
Market and Industry Background
12. Rural development policies make investment attractive
11
Central Government: President Xi Jingping: “Building a harmonious society is crucial for realizing
China Dream,” Xi further emphasized in 18th National Congress “Three-Rural Issues”(agriculture,
rural development and farmers)to be addressed by reforming rural economies, developing
modern technology and better “social management” in rural areas.
Agriculture
-- Annual grain production capacity to be no less than 540 million tons
-- Farmland reserves to be no less than 1.818 billion mu; *one mu = 666.7 square metres
Livelihoods
-- Pension schemes to cover all rural residents
-- Construction and Renovation of 36 million apartments for low-income families
Social management
-- Improved public service for rural residents
-- Better social management system for greater social harmony
Reform
-- In-depth reform in monopoly industries for easier market entry and more competition
-- Improved government efficiency and credibility.
Market and Industry Background – Rural Development
13. National and provincial government policies support
agricultural sector growth
12
National Policies:
– Improve productivity of food crops
– Enhance agri-tech and equipment access
– Optimize agribusiness and agri-economic
structure
– Develop rural public services and
infrastructure
– Innovate rural developmental schemes
– Intensify environmental protection
Gansu Provincial Policies:
– Subsidy for grassland ecology conservation
– Support dairy-alfalfa sector growth
– Loess Plateau rehabilitation scheme
– Enhance agricultural sector, improve
farmers’ income through restructuring,
technological support, and procedural
innovation
– Become a leader in the forage industry
Market and Industry Background – Rural Development
14. Gansu well suited for alfalfa cultivation with significant
amounts of arid but potentially arable land
13
Large but Low Quality
Farmland Available
Arable land: 80M Mu
80% of farmland is medium
to low quality
Elevation 1000m+
Low annual rainfall
- Avg 300mm
Large Rural Population
26 million Population
61% Rural population
- Low annual Income RMB 5,000
39% Urban population
- Annual income RMB 20,000
Underdeveloped
GDP: RMB 627bn (Rank 27th)
GDP per capita: Rank 30th of 31
provinces in China
Gansu can benefit from a new growth sector
Market and Industry Background – Alfalfa Industry
15. Emerging middle class driving growth in demand for
forage crops
14
10
20
30
40
50
60
70
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Milk Cattle Rabbit Sheep Goat Chicken
Source: United Nations, FAOSTAT own calculations
Chinese production of animal products (million tons)
Market and Industry Background – Alfalfa Industry
16. Perennial flowering legume cultivated globally. Highly palatable and
primarily used as feed for high producing dairy cows because of its high
protein content and highly digestible fiber compared to grass
Can be harvested three to four times a year (twice a year in most parts of
Gansu due to environmental conditions and cultivation techniques)
Requires minimal crop management and does not need to be replanted
for approx ten years – quality peaks seven to eight years after planting
High vitamin and mineral content make alfalfa the best forage for
maximizing productivity in dairy cattle. Alfalfa has been scientifically
proven to positively impact milk production yields, protein content and
overall cattle health
Alfalfa quality is primarily defined by crude protein content and fiber
content. Its yield and quality are significantly impacted by the stage of
maturity at cut and number of previous cuts.
The Relative Feed Value (RFV), Crude Protein Content (CP) and Total
Digestible Nutrients (TDN) are highest in pre- to mid-bloom with lower
Acid Detergent Fibre (ADF) and Neutral Detergent Fibre (NDF) fibre
content.
Alfalfa – The Queen of forages
15
Source: University of Kentucky Dept. of Agronomy
Market and Industry Background – Alfalfa Industry
17. Alfalfa uniquely positioned as an economic growth
pillar for Gansu with strong government support
16
Alfalfa
Strong central government
support
Strong provincial support to
make forage a pillar of economic
growth
Chinese domestic milk
production back on growth track
after melamine scandal
Economic growth and emerging
middle class resulting in higher
meat and dairy consumption
Regulatory
Environment
Huge Market Potential
Market and Industry Background – Alfalfa Industry
18. The early stage
1999-2003
Informal market began in 2001
Companies with Competitive
advantages in production,
quality, geography or logistics
flourished
Market Situation: Supply
surplus and low quality crop
Small area of land dedicated to
cultivation (500K mu)
Alfalfa has gone through 3 major development stages in
China and is now on a positive path with great potential
17
The challenging stage
2003-2006
Great Horizon Stage
2006 - now
Regulatory change in
government subsidy impacted
attractiveness of growing
alfalfa compared to other crops
(i.e. corn and potato)
Poor quality: Chinese alfalfa
was often “mouldy” and alfalfa
products often “impure” due
to mixing other ingredients
Increased demand due to
standardization/consolidation
of large scale animal husbandry
driven by growth in dairy
consumption
Increase in alfalfa prices
attracted more farmers
Domestic companies realised
need to provide good quality
and sustainable supply to
compete with imported alfalfa
Enhanced government support
linked to poverty alleviation,
reversing desertification and
and rural development
Market and Industry Background – Alfalfa Industry
19. Market and Industry Background – Market Outlook
18
China’s 34 million ton Alfalfa market potential:
Dairy, Sheep and Goat production biggest consumers
Sources:
http://en.cnki.com.cn/Article_en/CJFDTOTAL-GWXK201011004.htm
http://www.chinadailyasia.com/business/2014-
02/07/content_15116592.html
United Nations FAOSTAT
Estimations from calculations using available data
3% 4%
8%
15%
19%23%
28%
Rabbits Chicken
Pigs Beef
Milk cows Goats
Sheep
Market split If Alfalfa is industry’s forage of choice
Sectors
Estimated alfalfa input
needed for animal feed
(in million tons)
Sheep 9.3
Goats 7.6
Milk cows 6.5
Beef 5.2
Pigs 2.8
Chicken 1.4
Rabbits 1.0
Total 33.8
20. Alfalfa industry: Positive growth outlook
19
Alfalfa market in China (million tons)
5
10
15
20
25
30
35
40
45
50
2013-2019: Forecast
Market and Industry Background – Market Outlook
21. Table of Contents
D Strategy & Business Model
E Stakeholder Analysis & Partnerships
F Organisation Structure & Governance
Executive Summary
B Market and Industry Background
G Finance & Investments
H Implementation Timeline & Conclusion
20
A Introduction
C Gansu Modern Forage – Current Status
22. This section will cover 3 areas
Gansu Modern
Forage – current
position
Section
Current business
analysis
Business model
Description/Objectives
Gansu Modern Forage’s (GMF) unique
position in the Chinese alfalfa market
Strong financial position of the company
Established business value chain
Gansu Modern Forage’s current business
model and competitors
21
Gansu Modern Forage – Current Status
23. Gansu Modern Forage: Well positioned to take
advantage of the growing market for alfalfa
22
Early rapid
growth
Description
Founded in 2009, grew rapidly in first three years from
4,300 tons to 65,000 tons
Chairman’s
experience
Founder and Chairman, Zhang Yuping is a 25 year
veteran of the domestic dairy industry and initial
shareholder at leading dairy company Mengniu
Mr. Zhang is a member of the “Corporation Decision
Commission” at Mengniu and one of their major
distributors in northwest China
Scientific
Approach
Utilizes modern scientific forage research and crop
management techniques to standardize and
maximize production and quality of domestically
grown alfalfa
Gansu Modern Forage – Current Status
24. GMF at an inflection point after successful start-up
23
GMF: at an inflection point
GMF has successfully ramped up sales
Stable profits with good outlook
Established value chain
The company is now at an inflection point where it would
significantly grow and benefit from further investments
and improvements to its business, financing model and
mgmt structure
Gansu Modern Forage – Current Status
25. Current Alfalfa products include domestic and imported
hay and high-grade alfalfa pellets
24
Gansu Modern Forage – Current Status
26. Well established, concentrated customer base leaves
room for expansion with existing and new customers
25
40%
Other
13%
15%
23%
40%
New customers: focus areas
Moving into high-grade pellet feed is key:
Rabbit feed
Specialized poultry feed
Specialized lamb feed
Additional dairy firms can help to diversify risk of having sales
portfolio tied up into few big customers
Opportunity to explore niche products i.e. alfalfa tea and
supplements
Gansu Modern Forage – Current Status
27. Currently a small percentage of total supply
Harvesting services
FINANCIERS
Banks, Credit unions,
micro-finance institutions
MACHINERY
PROVIDERS
GMF FARMS
“Company-
leased land”
COLLECTORS &
COOPERATIVES
Considered
“land under
cultivation”
Own / acquire / consolidate land
Employees
CUSTOMERS
Dairy farms, Meat
producers, Feed
companies, etc
GMF
Flow of Cash
Flow of Goods & Services
DOMESTIC ALFALFA SUPPLY
Landowners
SMALLHOLDER FARMERS
US-BASED
ALFALFA
IMPORTERS
(higher quality
+ price)
Existing Business model
Gansu Modern Forage – Current Status
28. Producing Area N.A.
Production ~50,000 metric ton per annum
Locations Beijing
Key products Alfalfa hay products (bales, pellets)
Producing Area 42,000 mu (6,919 acre)
Production N.A.
Locations Beijing, Gansu
Key products Alfalfa hay products (bales, cubes) and other animal
feed products
Producing Area N.A.
Planned production
capacity
<200,000 metric ton per annum (historical forecast,
current capacity expected to be significantly lower)
Locations Sichuan, Gansu
Key products Alfalfa hay products (bales, pellets) and grass
products
Planned producing
Area
60,000 mu (9,884 acre)
Production capacity N.A.
Locations Inner Mongolia
Key products Alfalfa hay products (bales, cubes)
27
Competitive Analysis: main competitors
Gansu Modern Forage – Current Status
29. Gansu Modern Forage is uniquely positioned for
growth in the alfalfa market
Progressive
Management
Business
Performance
Geographical
Location
Experienced Chairman with 25 years industry experience
Committed to growing the company in a socially responsible way
Strong financial standing with stable business performance
Existing capacity to ramp up production of pellets to meet demand
Company assets located in heart of alfalfa cultivation areas with good
infrastructure links (e.g. railways and roads)
Strategically located in areas with ample supply of cheap and unused land
ideal for growing alfalfa suitable for pellet production
Aligned with government policy to alleviate poverty in rural Gansu
through development of the agricultural sector
28
Regulatory
Gansu Modern Forage – Current Status
30. Key opportunities for Gansu Modern Forage’s future
29
Product mix
Area
Supply Chain
Opportunities
Significantly scale up and increase
proportion of alfalfa pellet
production in order to capture
rising demand in Chinese market
Increase amount of land covered
in supply chain and expand
supplier network thus increase
supply of raw materials
Partnerships
Differentiate through innovations to
current business model to enable
growth
Secure financing and/or capital for
five year expansion plan
Proposed Solution
Acquire cheap underutilised
mountainous land
Form new cooperatives
Appropriate technology i.e.
harvester and pulley system
Offer key cooperatives
shareholding in GMF
Seek external investors
and/or partnerships with
local banks
Utilise lower quality alfalfa
which can be grown on
mountainous terrain
Gansu Modern Forage – Current Status
31. Table of Contents
C Gansu Modern Forage – Current Status
E Stakeholder Analysis & Partnerships
F Organisation Structure & Governance
Executive Summary
B Market and Industry Background
G Finance & Investments
H Implementation Timeline & Conclusion
30
A Introduction
D Strategy & Business Model
32. This section will cover three areas
Business model
Section
Market strategy
Supply chain
Description/Objectives
Key elements of the proposed business model
for GMF
Suggested GMF market strategy and business
growth scenarios
Recommendations on expansion of GMF’s
alfalfa supply chain
31
Strategy & Business Model
33. Proposed business model must significantly grow
GMF’s alfalfa business
Going forward, GMF should therefore focus
increasingly on the production of alfalfa pellets
and significantly scale-up its operations through
enhanced access to raw materials
Pellets to contribute 75% of alfalfa business,
capturing demand growth in Chinese meat
production industry
Through pellet production GMF can
differentiate and diversify its business model
from pure collector-distributor competitors
models, and realize higher margins
GMF can utilize lower quality alfalfa to
produce Alfalfa pellets. The supply of lower
quality alfalfa can be scaled up significantly
by expanding alfalfa cultivation into currently
underutilised land in Gansu province
Strategy & Business Model – Business Model
32
34. Strategic partnerships must play a key role in proposed
business model
GMF must therefore engage in strategic
partnerships to increase access to alfalfa supply.
Collectors: to form cooperatives and offer
“sweat equity” to support increased alfalfa
cultivation and supply. Coops can organise
farmers and provide value-added services
Machinery providers: to co-develop
customized harvesters and potentially a
pulley system for efficient transport
Banks: to finance GMF and key suppliers
working capital to support scaling up
Government: to continue to develop local
alfalfa industry via:
– Landscaping of arable land
– Subsidies for new machinery deployment
– Financial support for collectors
33
Strategy & Business Model – Business Model
35. Future business model
GMF
GMF leased farmland Cooperatives
Domestic suppliers
Farmers & collectors
Dairy farms, Meat
producers, Feed
companies
Customers
Government
Banks
Machinery COs.
Strategic Partners
Flow of Alfalfa
Flow of cash
34
Changes to existing model
Focus on alfalfa pellets production
Establish collectors cooperative
Strategic partnerships with government,
machinery providers and banks
Sweat
equity
Customised
harvesters
Strategy & Business Model – Business Model
36. Business model
Section
Market strategy
Supply chain
Description/Objectives
Key elements of the proposed business model
for GMF
Suggested GMF market positioning and
business growth scenarios
Recommendations on expansion of GMF’s
alfalfa supply chain
35
Strategy & Business Model
37. Three main scenarios evaluated: significant growth
within reach if recommendations implemented
36
Proposed
Base case
Vision
(Best case)
Reach one million ton production
/year by 2019
Realising GMF mgmt team long term
vision by successful implementation
all key recommendations
Achieve 0.6 million ton production/
year by 2019
Implementing majority of key
recommendations within proposed
timeline
Continued organic growth without
significant changes to current
business model
Negligible growth in production
S cenario
0
200
400
600
800
1,000
1,200
000’stons
vision proposed base
Strategy & Business Model – Market Strategy
38. Three five-year business scenarios for GMF expansion
based on key parameters
Base case Proposed Case
120,000
62,000
134,084,000
4%
2,000,000
1,000,000
2,298,684,000
70%
Government
landscaping
support
Current levels of
landscaping maintained
Attractiveness
to and loyalty
of collectors
Current level
Vision
(Best Case)
1,200,000
602,000
1,379,084,000
50%
Profit sharing scheme
with collectors in place
Medium-scale outreach
Minimal, current level 70% mechanization
(highest feasible case)
Technical
support &
education for
farmers
No outreach program
Up to 50%
mechanization
Medium-scale outreach
program in collaboration
with government
extension office
Land base (mu)
Sales vol (mt)
Revenue RMB
Growth rate
Strategy & Business Model – Market Strategy
37
Mechanization
Profit sharing scheme
with collectors in place
Maximum outreach
At least 50% of Gansu’s
counties under active
landscaping program
100% of Gansu’s
counties under active
landscaping program
Massive, large scale
outreach program in
collaboration with
government extension
office
39. GMF strategy to focus on alfalfa pellets to capture value
Product
Price
Customer
Shift Focus to Alfalfa pellet production
– Lower protein content requirement
– Suitable for rain fed crops grown in lower protein
content crops of Gansu soil
Forecasted prices by 2019
– Alfalfa pellet 2.300RMB/ton
– Alfalfa hay 2.500RMB/ton
Lower margin but high volume makes up for profit
They should focus on two main types of customer
– Feed manufacturers
– Directly to farms
▪ Cattle, Rabbit, Sheep, Goat, and Dairy
1
2
3
7%
1%
5%
1%
86%
Domestic alfafa hay
Imported alfafa hay
Domestic oat hay
Corn Silage
alfafa pellets
Competitor4
Expect more competition in alfalfa hays due to
– High margin
– Easy access to imports
Competitive advantage for GMF when Gansu supply base is formalised
38
Proposed product mix
Strategy & Business Model – Market Strategy
40. Business model
Section
Market strategy
Supply chain
Description/Objectives
Key elements of the proposed business model
for GMF
Suggested GMF market positioning and
business growth scenarios
Recommendations on expansion of GMF’s
alfalfa supply chain
39
Strategy & Business Model
41. If land base in supply chain is to be increased ten-fold the current model is not viable to
manage increase in amount of company-leased land or number of farmers and collectors
Farmers and collectors not adequately organised, equipped, financed or trained to
increase quantity and quality of supply
Current levels and modes of mechanisation insufficient for projected volume and
required quality of alfalfa
Current supply chain model
40
Key
challenges
Current
model and
constraints
Supportive
policies i.e.
landscaping
(Government)
Farming families
Current > 6k
Future > 20k-60k
Alfalfa collectors
Current > 50
Future > 300-1k
GMF
Lack of labor to work
land due largely to
urbanisation and
stigma attached to
farming as “primitive”
Large and segmented base of
producers with limited access
to mechanisation, knowledge
of best practice and market
information
Lack of working capital at
harvest time makes purchasing
large quantities difficult. Low
levels of loyalty to buyers among
most collectors
Majority of current
harvesters not well-
suited to mountainous
terrain
Flow of alfalfa
Model of purchasing
machinery for use on company
land and then leasing to
collectors is constrained
Strategy & Business Model – Supply Chain
42. Challenges and Recommendations
Capability &
availability of
appropriate
technology
for harvesting
Description Recommendation
Availability of harvesting machinery
affecting productivity and quality of
harvest due to short window of time to
ensure optimum protein content and avoid
spoilage of crop
Current harvesting equipment not suitable
for the terrain in Gansu
GMF to lead initiative for introduction of
appropriate equipment - JV with
manufacturer, establish distribution
network and leasing mechanism
Explore potential for pulley system to
transport large quantities of alfalfa
around mountains more efficiently
Low level of loyalty from cooperatives,
collectors and farmers
Capacity and capability of cooperatives and
collectors to manage farmers to achieve
targeted increase in land area utilized for
alfalfa cultivation
Implementation of a scalable a
supply chain model leveraging
cooperatives to drive increase in
quantity/quality of alfalfa supply and
loyalty to GMF
– Shareholding scheme
– Structured communication model
– Access to mechanisation, market
information and financial
resources
Informal
relationships
with key
suppliers
Challenges
41
Strategy & Business Model – Supply Chain
43. Proposed supply chain model
42
Key
Elements
of Model
GMF to act as a development partner to support government in new landscaping
Technology: Partnership with machinery manufacturers to produce and distribute
mountainous harvester and baling machine and explore viability of pulley system
Forming / strengthening cooperatives is critical
Set up standard Information sharing, quality promotion, and deal process via
cooperatives with collectors and farmers.
Proposed
Model Supportive
policies i.e.
landscaping
(Government)
Farming
families Current
> 6k Future >
20k-60k
Alfalfa
collectors
Current > 50
Future > 300-1k
Collector &
farmer
cooperatives
GMF
Machinery
suppliers
Flow of alfalfa
“GMF Machinery”
leases harvesters to
key co-ops
Strategy & Business Model – Supply Chain
44. Supply chain challenges: three key focus areas
Suggested increase in GMF leased farmland
and leverage cooperative model to expand
land base in supply chain
Appropriate
technology
Cooperative
model
Land expansion
Deployment of cooperative model to
incentivise collectors and farmers and provide
value-added services to key suppliers
Development of appropriate technology to
improve quality and efficiency in supply chain
whist keeping capital costs down
Focus area Description/Objectives
43
Strategy & Business Model – Supply Chain
45. Land expansion is supported by favorable government
policies
Landscaping
Description Importance for GMF
Landscaping mountainous land and
enhancing previously landscaped land to
increase area available for farming
– Example: 50k to 80k mu/year in Dingxi
covering newly landscaped land as
well as enhanced land
Additional arable land necessary for
alfalfa cultivation
Land where alfalfa suitable for pellets can
be grown is a strategic advantage for GMF
Promotion of social and environmental
benefits enhances company profile
Ability of GMF and farmers to secure
newly available as well as discarded land
use rights (30yr lease from government)
Government incentives to promote alfalfa
cultivation as alternative or complement
to other crops such as corn and potato
Corn and potato cultivated on approx 25
to 100% of actively farmed lands
As above, increased alfalfa supply
essential to drive GMF business
growth and to promote rural
economic development
Acquisition
Utilization
Transfer of land use rights are central to
GMF’s goal of increasing both company-
leased farmland and the amount of land
being used to cultivate alfalfa
Issues
44
Strategy & Business Model – Supply Chain: Land expansion
46. Government support can drastically increase land used for
alfalfa cultivation in next 15 years
Landscaping
Recommendation
GMF to coordinate with local government on approach and prioritization of landscaped
area aligned with requirements
– Identification of areas more accessible logistically, within existing collector’s coverage,
soil/climate considerations
– GMF to seek favorable landscaping specifications including integration of pulley
system as part of land improvements
Acquisition
Utilization
Gain government support on proclamation of policies allowing for supplementary land
acquisition for Alfalfa farming
– GMF to increase land ownership
By 220% YoY from 5 thousand to 250 thousand mu in five years to achieve sales
volume of one million tons
By 1649% YoY to two million mu in 13 – 15 years (10% of total land in supply
chain)
– Influence farming community to acquire at least 1.3M mu in the next five years
Issues
GMF to encourage government for more incentive to support Alfalfa cultivation in newly
landscaped and discarded land
– Subsidies for seeds and other inputs
– Improved infrastructure
45
Strategy & Business Model – Supply Chain: Land expansion
47. Cooperative model addresses multiple supply chain
challenges
Cooperative
(shareholders of GMF)
Collector
FarmerFarmer Farmer
Collector Collector
GMF
Farmer Farmer Farmer
Township
Level
Village
Level
Individual
Level
46
Current
Supply
Chain
GMF
Shortage & low quality of Alfalfa
Limited resources to cover fragmented
suppliers
Difficulty in accessing finance
Lack of access and finance for machinery
Insufficient incentive to sell to GMF
Collectors/Farmers
Cooperative
Model
Consolidation ensures stable supply and
pooled resources improves quality
Simplify supplier management
Offer co-ops shareholding in GMF
Cash advances and credit
guarantees from GMF
Mechanization and storage
Purchase price incentive
Farmers Cooperatives exist as independent
commercial entities, they not only function as
collectors to provide alfalfa to GMF, but also
channel GMF’s incentives to individual
collectors and farmers such as harvesting
services, financial services, market information,
and technical support
How Cooperatives Work
Strategy & Business Model – Supply Chain: Cooperative model
48. GMF must strengthen supply chain relationships
Mobile
based info
network
Annual
event and
ranking
Hardship
fund
Provide
covers and
basic
storage
SMS service to relay information on pricing,
weather, industry news, etc to cooperatives,
collectors and farmers directly and frequently
“Alfalfa Awards” brings together suppliers for
festival where ranking of cooperatives based on
quality & quantity is announced and new
industry developments are shared
One per cent of profit from GMF earmarked for
cooperative hardship fund to be used for
disaster relief, offset poor harvests, etc
To protect harvest from rain and reduce spoilage
• Build trust and
loyalty
• Increased
productivity and
quality
• Tighter
communication
• Create social
cohesion and
community of
alfalfa growers
47
Options Purpose
Strategy & Business Model – Supply Chain: Cooperative model
49. Appropriate technology is crucial to achieve scale
Challenges Specialized mechanization advantage
Low efficiency of
hand harvesting,
5mu/person/day
Low quality of hand
harvested alfalfa
Large amounts of
land and shortage of
labour
Current machines not
suitable for
mountainous land
High efficiency of mechanisation, target to achieve
100mu/day
Alfalfa quality will be improved due to timely and precise
harvesting
Mechanization is not labor intensive
Specialized machine can access and work effectively on
mountainous terrain
48
Strategy & Business Model – Supply Chain: Appropriate technology
50. Head mounted side- mounted Rear mounted Hand held
2m wide 4m wide 2m wide -----
250hp 500hp 250hp 1hp
Low harvesting
capacity (small
cutter)
High harvesting
capacity
Low harvesting
capacity
Extremely low
harvesting capacity
70-80K RMB 200K RMB 70-80K RMB 1K RMB
--- Pressing function --- ---
49
Harvesters in use are either too big, have inadequate harvesting capacity or lack key
features such as hay pressing in order too shorten drying time
Existing harvesters unsuitable for mountainous terrain
Strategy & Business Model – Supply Chain: Appropriate technology
51. GMF can develop and distribute a customised
harvester
Suitable size for
mountain land
Powerful engine
Pressing / Baling
function is
necessary
Head mounted, max 2m wide with cutter
500HP Power, with high harvesting capacity
Shorten the drying time of the hay and prevent
spoilage
Machinery requirements for GMF
Recommendations
GMF to form a joint-venture with leading Japanese or German machine
manufacturer in Gansu to produce specialized machine for alfalfa harvesting.
Government support in order to allow for production in China as competitive
costs will be critical.
Possibility of selling nationwide with government support and potentially public
sector contracts will be very attractive to potential JV partner
50
Strategy & Business Model – Supply Chain: Appropriate technology
52. 51
Challenges of conventional transportation:
Collection and transpiration of alfalfa in steep step fields requires
significant:
– Manpower
– Fuel
– Time
Solution:
Implementation of pulley systems will lead to:
– Less labour-intensive harvesting and transport of alfalfa
– More efficient transportation of harvested alfalfa improving
quality and reducing spoilage
Implementation:
– Pulley system may be established by cooperatives, collectors,
government or through joint efforts
– Government support for this initiative will be vital and they
should be engaged as early as possible
Why pulley system is recommended
Pulley Systems
GMF can also promote simple pulley systems such as those used in Japan to improve efficiency of
alfalfa collection and transport in mountainous areas
Strategy & Business Model – Supply Chain: Appropriate technology
53. Key milestones for mechanisation & supply chain
52
Set up
(~1 year)
Phase1
(1~3 years)
Phase2
(3 years~)
Set up JV with leading
machinery company
R&D
Harvester units >20
Manufacturing equipment
Set up Leasing Co.
Harvester units >125
Network expansion
Equipment supply increase
Harvester units >200
Mechanisation
Supply chain Networking with
cooperative
Farming families >6,000
Collectors > 100
Cooperatives >40
Farming families >20,000
Collectors > 300
Cooperatives >140
Farmer families >60,000
Collectors > 1,000
Cooperatives >400
The action plan for mechanization & supply chain restructuring will enhance the overall
alfalfa sourcing capacity thereby allow for rapid and sustainable business development.
Strategy & Business Model – Supply Chain: Key milestones
54. Landscaping, supplier loyalty, appropriate technology
and financing critical for expansion
Landscaping to make new arable land available and
enhance previously landscaped land is vital to
increase amount of alfalfa cultivation
Introduction of scalable supply chain model which
leverages cooperatives with shareholding in GMF
and provides valuable services to key suppliers will
build trust and loyalty and increase quality
JV with leading machinery company to develop and
distribute harvesters suitable for mountainous
terrain through a leasing model is crucial for
expansion
Formalising relationship with key suppliers makes
access to financing in the supply chain easier
53
Strategy & Business Model – Supply Chain: Conclusion
55. Table of Contents
C Gansu Modern Forage Current Status
D Strategy & Business Model
F Organisation Structure & Governance
Executive Summary
B Market and Industry Background
G Finance & Investments
H Implementation Timeline & Conclusion
54
A Introduction
E Stakeholder Analysis & Partnerships
56. Stakeholder analysis & partnerships covers two areas
Stakeholder Analysis & Partnerships
Section
Partnerships
Communication
plan
Description/ Objectives
Suggestion for partnerships that can support
GMF in achieving its strategic objectives
Summary of key points for GMF Management
for communication with key stakeholders
55
57. GMF’s interests need to be aligned with its
stakeholders, leading to partnership opportunities
GMF
Collectors
Stakeholders’ Objectives Suggested Partnerships
Increase supply of Alfalfa for business growth
Improve alfalfa quality
2.Technology: Help collectors to
gain access to appropriate
technology by partnering with
machinery providers
Government
Machine
Providers
Banks
Stakeholders
3. Financial support: Partner with
banks and government to provide
collectors finance for business
expansion
1. Supply Side: Increase Alfalfa
production by establishing
collectors cooperative and
partnering with government
Promote Alfalfa production
Enhance rural livelihoods
Foster economic growth
Improve income
Grow business
Develop new appropriate technology
Gain access to new market with significant
growth potential
Capture growth in agriculture sector
Grow loan book within risk appetite
56
Stakeholder Analysis & Partnerships
58. Supply side: GMF must partner with local government
and collectors to expand alfalfa cultivation
Increase alfalfa raw
material input accessible
to GMF
– Increase area of
arable land accessible
for alfalfa farming
– Organize labor to
cultivate land
Objective of partnership
Establish preferred partnership between GMF and
government bodies on alfalfa development
Become thought leader to define and drive
government’s long-term agenda
GMF to share preferred approach/ priorities for
landscaping with government
– Which areas should be landscaped first (e.g., more
accessible logistically, within existing collector’s
coverage, soil/ climate considerations)
– Approach and specification of landscaped land
aligned with GMF’s requirements
Action areas
Local government
bodies
Collectors
Partners
Land-
scaping
Land
cultivation
Partner with collectors and government to cultivate
currently unutilised/ newly accessible land
Establish collectors cooperative
– Facilitate scaling of business model
– Create organizational structure to deploy
machinery
– Facilitate access to financing
57
Stakeholder Analysis & Partnerships – Government & collectors
59. GMF must partner with technology partner to develop
customized harvesting machinery
Develop customized
alfalfa harvesting
equipment
– Support expansion of
production base
– Reduce dependency
on manual labour
– Enhance efficiency
and quality
Equipment to automate
cutting, pressing and
baling of alfalfa in
terraced land
Objective or partnership
Identify suitable project partner for
R&D (new development or
modification of existing design) and
manufacturing
Partners could include manufacturers
or research institutes
Action areas
Manufacturers/
research institutes
Government
Partners
Identifi-
cation of
partner(s)
Develop
equipment
Roll-out/
scaling of
model
Phased roll-out of harvesting
equipment across GMF footprint
Time frame
3-6 months
Agree on detailed technical
specifications and timeline
Negotiate long-term partnership
contract building on scale of market
opportunity
Obtain government subsidies for
R&D / procurement
Launch prototype tests
6-12
months
>12
months
58
Stakeholder Analysis & Partnerships – Appropriate technology
60. Potential appropriate technology partners
Established in 1926 as a manufacturer specializing in agriculture machinery
Third largest agriculture machinery providers in Japan
Advantage of R&D on the practical application of specific technology
Description
Established in 1890 as a manufacturer of casting
No.1 agriculture machinery providers in Japan
Exploring a strategic partnerships in China for further business expansion
Key potential provider for GMF
Established in 1897 as a manufacturer of agriculture machinery
One of the largest of agriculture machinery providers in Germany
Providing a wide range of farming equipments including harvesting
A Sino-Italy JV in Shanghai between FIAT & SAIC since 2002
Specialized in small sized tractors machines
Capable of developing harvesting machine
Recommendation: GMF to invite bids from all four companies as part of a tender for
the necessary equipment, with backing from government.
Stakeholder Analysis & Partnerships
59
61. GMF must partner with banks to provide financial
support to collectors cooperative
60
Increase raw material
supply to GMF via
– Supporting collector
cooperative to scale
up their operations
– Facilitate start of new
collector businesses
to expand coverage
Provide value-add to
collectors to tie them
closer to GMF
Objective of partnership
Agree with banks on scalable financial support
model for collector cooperative
– Working capital solutions to finance harvest
– Leasing/ financing of harvesting equipment
– Product bundles for new business launch
Negotiate advantageous conditions for GMF
business partners
– Preferential rates (‘cooperative rate’)
– Flexible approach towards collateral (e.g., harvest)
– Potentially supported by GMF guarantees
Action areas
Collectors
Banks
Government
Partners
Agree on
model with
banks
Government
assistance
Detail
collector
needs
Quantify financial support collectors would require
to significantly scale up their operations
Detail out key constraints faced by collectors today
(e.g., bank’s collateral / guarantee requirements)
Negotiate government support to cooperative’s
financing (e.g., partial loss coverage, insurance)
Stakeholder Analysis & Partnerships
62. Government communication plan
Landscaping
– Shared plan
– Agree on development priorities
– Establish preferred partnership
Subsidies
– Support development and procurement of
technology
– Financing of collectors
GMF supports the government agenda for
rural development in Gansu province
Improving livelihood of rural population
– Raise farmers and collectors’ income
– Creating new work opportunities
▪ Farming / Collecting
▪ Production / Management
Enhancing productivity of local economy
– Drive technological innovation
– Utilizing landscaped areas
– Free up manual labour resources for
higher productive economic activities
Fostering economic growth
– Attracting investment into region
– Support growth in down-stream
industries (e.g., meat production, dairy)
Benefits to stakeholder Areas of support to GMF
Talking points for GMF chairman
61
Stakeholder Analysis & Partnerships
63. Collectors communication plan
Commitment to preferred partnership
with GMF
Organize farmers to increase land
coverage
Support/ coordinate roll-out
technology / education of farmers
Support alfalfa quality control
Collaboration with GMF in cooperative
model allows collectors to expand
business and increase incomes
– Support through machinery
deployment and technology (e.g.,
SMS)
– Easier access to financing
– Information platform (mobile SMS
based)
Benefits to stakeholder Areas of support to GMF
Talking points for GMF chairman
62
Cooperative
Collector
FarmerFarmer Farmer
Collector Collector
GMF
Farmer Farmer Farmer
Stakeholder Analysis & Partnerships
64. Technology provider communication plan
R&D cooperation on customized
harvesting and pressing equipment in
line with GMF’s requirements
Support in testing and deployment of
prototypes
Dedicated resources to implement with
18 month time frame
Ability to scale up production to meet
GMF’s expansion plans
Commitment to long term partnership
Benefits to stakeholder Areas of support to GMF
Significant new market opportunity
providing stable source of long term
revenue growth
– Significant amount of land with
potential for alfalfa cultivation in
Gansu
– Opportunity to establish / expand
footprint in Chinese machinery
market
– Development of new technology
that could be distributed in other
markets
Government commitment to support
through subsidies, e.g., supporting
R&D or procurement
Talking points for GMF chairman
63
Stakeholder Analysis & Partnerships
65. Banks communication plan
Agree on scalable financial support
model for collector cooperative
– Working capital solutions to finance
harvest
– Leasing/ financing of harvesting
equipment
– Product bundles for new business
launch
Negotiate advantageous conditions for
GMF business partners
– Preferential rates (‘cooperative rate’)
– Flexible approach towards collateral
(e.g., harvest)
– Potentially supported by GMF
guarantees
Provide long term business growth
opportunity of significant scale
Better management of credit risk
exposure to collectors through
cooperative model
Allow to contribute to government’s
agenda to develop rural community
Benefits to Banks Areas of support to GMF
Talking points for GMF chairman
64
Stakeholder Analysis & Partnerships
66. Table of Contents
C Gansu Modern Forage - Current Status
D Strategy & Business Model
E Stakeholder Analysis & Partnerships
Executive Summary
B Market and Industry Background
G Finance & Investments
H Implementation Timeline & Conclusion
65
A Introduction
F Organisation Structure & Governance
67. Organisation structure & Governance section overview
Organisation Structure & Governance
Current status and
challenges
Section
Proposed
organisation
Objectives
Understanding the challenges, constraints and
opportunities
New structure with additional functions to address
current challenges and capture growth
opportunities
66
Shareholding Participation criteria and structure
Board of Directors Effective governance and risk management
Talent
Development
Building effective management team
Retain core employees
Develop competencies
68. Current organization is constrained in overcoming the
challenges of rapid expansion
67
Lack of experienced middle
management
Business development
capabilities stretched
Ad hoc approach to acquiring
land and dealing with new
farmers and collectors
Lack of agriculture and
technical experts to improve
quality of Alfalfa
No mechanical engineering and
technology competency
Building the capabilities in house
to capture opportunities
presented by growing demand
Establishing and maintaining
good relationships with key
suppliers and government
stakeholders
Proper mechanization to ensure
improved quality and increased
volume of alfalfa production
Creating the right organizational
structure and governance to
manage sustainable growth
Status Challenges
Note: Too reliant on Chairman
Organisation Structure & Governance
69. Setup new functions and strategic
positions to support expansion
Development of key competencies with
structured Human Resources
Management
Introduce a shareholding structure to
attract investors and intensify
partnerships with key stakeholders
Set up of a board with executive and non
executive directors
Create an organisation with a strong
management team that is less reliant on
the Chairman and founder for key
decision-making and business
development
68
Proposed key measures
Participants discuss GMF with Chairman Zhang
Organisation Structure & Governance
70. New roles required to support expansion
Strong management team
Strong relationship &
collaboration with key
stakeholders:
– Collectors
– Bank / Investors
– Machinery providers
– Government
Land acquisition &
management
Strong capabilities in sales &
marketing, production & supply
chain management
Expansion of GMF requires Additional responsibilities for key roles
Managing Director:
– Strategic planning & business management
– Relationship with key stakeholders
Business Development Director:
– Land acquisition
– Co-operative management
Production & Logistics Director
– Alfalfa products supply chain
– Mechanisation
– Pellet production
Marketing and Sales Director
– New customer and market development
Finance & Admin Director
– Developing financial reporting systems that are reliable
and auditable
– Managing investor relations
– Independent function to ensure investor interests are
secure
69
Organisation Structure & Governance
71. Proposed Organizational Structure
70
Existing function
New function
Board of Directors
Managing Director
Production &
Logistics Director
Mechanisation
Plant 1 Manager
Plant 2 Manager
Plant .. Manager
Finance & Admin
Director
Marketing & Sales
Director
Business Development
Director
Cooperatives
Manager
Government
Relationship Legal
Company Farm
Management
R&D Management
Dairy Farm
Feed Producer
Primary Meat
Producer
Accounting
Office
HR Dept
Organisation Structure & Governance
72. Three Reasons to Introduce Shareholding
71
Business expansion requires funding for:
– Land acquisition
– Machinery, production, logistics assets
– Hiring
1. Attracting new investors
Provide incentives for key suppliers (collectors/cooperatives) to supply alfalfa to
GMF. This can be achieved by providing shareholding
2. Increasing and stabilizing alfalfa supply
Provide incentives for the management team members by offering equity
3. Acquiring and retaining talent
In broadening the shareholder base, the following key areas need to be considered:
Organisation Structure & Governance
73. Shareholding Participation Criteria
72
Socially oriented investors willing to accept long-term return
Shared vision to develop the agricultural sector and improve rural economies
Investors
“Sweat equity” for cooperatives under certain conditions such as volume
commitments over time in order to secure shareholding
Basis for community engagement and social responsibility
Key Suppliers (Collectors/Cooperatives)
Attract management team member who are aligned with company’s vision
Dividend plan that provides incentive for management team member to make
long-term commitment
If he/she leaves GMF they needs to sell back shares to company
Management Team Members
In broadening the shareholder base, the following criteria can be applied
Organisation Structure & Governance
74. Shareholding Structure
73
Current majority
shareholder
(up to 60%)Investors
(up to 30%)
Cooperatives
(up to 20%)
Management
Team Members
(up to 10%)
Suggested shareholder distribution for growth, strong governance and incentives
As founder, Chairman may wish to retain
majority stake
Sufficient investment needed to support
expansion
Providing shares to each of the key
cooperatives secures supply of alfalfa
Providing sufficient shares to
management team members instils
sense of ownership and shared success
Rationale
Organisation Structure & Governance
Note: Could be more depending
on investment level and
negotiations with major
shareholder
75. Inclusion of non-executive members who can provide
strategic insights on board of directors will benefit GMF
74
Chairman Zhang
Managing Director
Executive Members
Investors
Expert in the area of rural government
policies
Agricultural machinery providers
Feed industry expert
Non-Executive Members
Organisation Structure & Governance
76. Board of Directors - Roles and Responsibilities
75
Business expansion requires strong corporate governance and external expertise
and relationships
Monitor company’s performance and growth
Balance the interests between Investors and company’s long-term vision
Legal compliance, land acquisition in particular
Preventing malfeasance and poor governance practices
Governance
External expertise and relationships
Land Acquisition
Local Government Policies
Machinery technology and industry
Agricultural technology and industry
Feed industry
Organisation Structure & Governance
77. Talent Development
Hiring
Management
Talent
76
Hiring and
retaining
technical experts
Identify executives and initiate a search
across various Chinese agricultural
industry platforms and bodies
Offer attractive package with shareholding
incentive
Focus on personal development and
career perspectives
Some key personnel can be based in
Lanzhou headquarters if needed to make
it more attractive
Hire young engineers and business
administration professionals by using the
internet and targeting the top agricultural
schools in China.
Hiring and retaining employees in Dingxi will pose various challenges. A comprehensive talent
development strategy is necessary. For all of these, the search should include leading universities
across China since the talent pool is large.
Hiring and
retaining experts
for new functions
Challenges Measures
Lack of candidates in-house
and time for development
Dingxi is not a preferred base
Technical experts get higher
salaries in other industries
Dingxi is not a preferred base
Experts such as lawyer or HR
professional have better
opportunities in other industries
Dingxi is not a preferred base
Organisation Structure & Governance
78. Key Competencies
Clear communication on strategic directions to all levels and among all functions
Building strong relationship with all stakeholders
Create open culture to enable new suggestions and improvement
Identify new markets and key clients
Sales and Marketing
77
Ability to connect the dots and deal with the complexity from land acquisition to
alignment with all stakeholders interests
Identify and solve key issues along the value chain
Identify new markets and key clients
Business management skills
Technical know how on alfalfa
Improvement of production processes for pellets
Stay updated about new machinery
Know how on seeds and formulations
Agricultural engineering
Equip employees with continuous development to meet the needs of a rapidly growing
business
Organisation Structure & Governance
79. Table of Contents
C Gansu Modern Forage – Current Status
D Strategy & Business Model
E Stakeholder Analysis & Partnerships
F Organization Structure & Governance
Executive Summary
B Market and Industry Background
H Implementation Timeline & Conclusion
78
A Introduction
G Finance & Investments
80. Finance and investment requirements cover four areas
Financial highlight
and projection
Section
Cash flow
projection
Capital structure
and investment
requirements
Description/ Objectives
Risks &
mitigations
Risks assessment and mitigations
Debt and equity structure analysis, funding
needs and solution
Cash flow position in line with expansion plan
Revenue and Profit projection
Finance & Investments
79
81. Revenue and profit projection under three scenarios
2,134
1,267
Base2013
+8%
+72%
113
2,247
23 60
1,327
51
19 32
82
Proposed
60
+88%
Vision
Hay
Pellets
5 9 144 241
2019 growth scenarios
Net profit1
1 Incl. estimated revenue and cost growth for non-alfalfa products
Revenue from alfalfa products
RMB’m
…
2013-2019 annual
growth rate
Scenario used in
following pages
Finance & Investments
80
82. Cash flow Projection – Investment will be required to
avoid high gearing.
Finance & Investments
RMB (million)
2014 2015 2016 2017 2018 2019 2014-19
Net profit 6.4 14.7 27.1 48.5 88.0 144.0 329
Adjustment for Depreciation 1.0 3.1 4.4 6.7 9.1 13.6 38
Cashflow from changes in AR (3.1) (5.9) (11.5) (18.6) (29.4) (36.6) (105)
Cashflow from changes in AP 0.9 1.5 2.9 4.7 7.3 9.0 26
Cashflow from changes in inventory (8.2) (5.9) (11.5) (18.4) (28.6) (35.0) (108)
Capital expenditure - Harvest machine (2.6) (2.6) (2.6) (2.6) (10)
Capital expenditure - Pellet machine (22.0) (22.0) (22.0) (22.0) (33.0) (121)
Capital expenditure - Land (6.8) (3.8) (5.6) (8.4) (12.7) (37)
Advances to collectors/co-ops (19.0) (28.6) (47.2) (77.0) (123.4) (180.2) (475)
Net Cashflow (22.1) (49.9) (64.1) (84.3) (109.9) (133.4) (464)
Beginning cash balance 1.8 (20.3) (70.1) (134.2) (218.5) (328.4)
Ending cash balance (20.3) (70.1) (134.2) (218.5) (328.4) (461.9)
Total Liabilities (from Balance shset) 15.6 16.5 18.0 20.9 25.6 32.9
Cash deficit as bank loan 22.1 49.9 64.1 84.3 109.9 133.4
Equity 29.1 35.5 50.2 77.3 125.8 213.8
Debt/equity ratio 1.292 1.868 1.635 1.361 1.078 0.778
Total investment needed over the next 5 years before breakeven is RMB 30M.
81
84. Risk analysis and mitigations (1/2)
Finance & Investments
83
Risks
Functional
area
Likelihood Impact Mitigations
Market competition
with local and overseas
players
Marketing High High
Leadership position in Northern China
Well established clientele base,
Scaling, landscaping and mechanisation
Capital constraint to
support growth
Finance High High
Introduction of new investment partners
Government’s stimulus policy
Establish relationship with banks
RMB appreciation
against USD impacts its
market share
Finance Medium Medium
RMB appreciation reduces import raw
material cost
Import tariff
Default risks on
collectors
Finance Medium Medium
Collateral arrangement equipment leasing, eg.
asset collateralization, personal guarantee etc.
Internal credit monitoring system set up for
collectors
Progress payment to collectors
85. Risk analysis and mitigations (2/2)
Finance & Investments
84
Risks
Functional
area
Likelihood Impact Mitigations
Market price volatility Marketing High High
Product mix improvement
Diversification of sourcing channel
Customer concentration Marketing High High
Diversify customer base via new in-house
sales and marketing capabilities
Limited labor force
constrains alfalfa plantation
Organization Medium High
Consolidate land
Mechanisation
Technical knowledge
insufficiency
Supply chain Medium Medium Introduction of joint venture partner
Climate impact on productionSupply chain Medium High
Insurance scheme
Hardship fund
86. Table of Contents
C Gansu Modern Forage – Current Status
D Strategy & Business Model
E Stakeholder Analysis & Partnerships
F Organisation Structure & Governance
Executive Summary
B Market and Industry Background
G Finance & Investments
85
A Introduction
H Implementation Timeline & Conclusion
87. Indicative implementation plan
2014 2015 2016 2017 2018 2019
Bank partnership
- Initiate discussions
- Agree and formalize framework
- Develop equipment
- Launch financing model
- Set up Management Team
and Board of directors
- Add new key roles to support
business expansion
Organization & HR
Collector cooperative
Activity
- Initiative discussions
- Launch Cooperative
Government partnership
Mechanization
- Identification of partner(s)
- Phased roll-out
Implementation Timeline & Conclusion
86
88. Conclusions
Implementation Timeline & Conclusion
87
The forage industry and alfalfa in particular presents a massive opportunity not
only for commercial success but also to support rural development and bring
prosperity to some of China’s most underdeveloped areas.
Industry and consumer trends and government policy have created an
environment suited for investments in alfalfa cultivation
GMF is well positioned to take advantage of this opportunity and drastically
scale up its business in the coming five years
Expansion of the business will require fundamental changes to the business
model and key partnerships along the value chain. By entering into a JV with a
machinery provider and offering cooperatives shareholding in the business
GMF can secure the quality and quantity of alfalfa required to take advantage
of rising domestic demand and achieve long-term profitability
Capital will be required to fill the gap in funding and therefore external
investors and financial institutions should be cultivated
Business and operation risks should be mitigated and anticipated with proper
governance and risk management standard procedures.