Sarvodaya Samiti Case Analysis

1) Evaluate all the options presented in the case. There was a proposal to form a consortium between the Samiti, KVIC, and ORMAS, working under DRDA, Koraput. ORMAS would find ways to increase productivity of honey in the district with necessary support from KVIC and the Samiti and DRDA would provide financial support to the producers (beekeepers) through SGSY to encourage bee-keeping activity. ORMAS and the Samiti would procure the honey through some financially supported SHGs of producers to meet the target of 30 tonne per annum. KVIC would fund setting up of a processing plant of 30-tonne/annum capacities to be later upgraded to 90 tonne/annum. The processed honey would be marketed by ORMAS. According to Mohanty, the objectives of the Samiti are: to help the farmers as well as the consumers to develop the bee keeping industry in Orissa so that production increases with a number of farmers taking up bee-keeping to get a good response from the market. The primary objective of the Samiti requires that it becomes a volumes player so that more and more farmers take up bee-keeping activity. This would ensure better returns to the farmers and would also bring down transportation costs. The following strategic options are available to Mohanty: Option 1 Be a part of the consortium: The honey would be procured by ORMAS, processed by the Samiti, and marketed by ORMAS. ORMAS would pay the Samiti Rs 26/litre as processing fee. The miscellaneous expenditure incurred by the Samiti for processing would be Rs 20/litre. Thus, the Samitis margin would be Rs 6/litre for processing and the procurement cost would be Rs 60/litre. The total cost of production would therefore be Rs 86/litre. ORMAS was planning to sell this bottled honey at 5 per cent (Rs 4.3/litre) margin, i.e., at the rate of 90.3/kg to a food company. Under this option, the Samiti can also market its own honey through its own or KVIC marketing network. The Samiti had two sub-options: Option I a: Focus only on processing and withdraw from marketing completely Option 1b: Join the consortium while doing independent marketing of its own procured honey.

Option 2: Not be a part of the consortium: KVIC would not finance the proposed new processing plant. The Samiti would have to set up its own processing plant and Agmark testing unit with an investment of Rs 0.45 million to Rs 0.65 million. The Samiti would be responsible for independent procurement, processing, and marketing of honey as is currently being done. Option 3: Severing Linkage with KVIC: Mohanty could decide to exit the KVIC network and establish the Samiti as an independent marketing entity. The advantage would be pricing independence and an option to sell to food companies. Severing linkages with the KVIC is likely to paralyse the marketing operations of the Samiti including that of khadi products which contribute to 64 per cent of its turnover. Option 4: OMFED Proposal: The Samiti could enter into long-term contract with Orissa State Cooperative Milk Producers Federation (OMFED) to process at the rate of Rs 26/kg and marketing of honey under the OMFED brand name. While this would ensure a market for bee-keepers, Samitis capability to cater to the demand continually as it required a fully devoted processing plant, is questionable. Not much prospect for Samiti as a marketing entity. Option 5: Tie up with ORMAS and OMFED: ORMAS and OMFED could provide a platform for market linkage. It delinks the Samiti from marketing activities and its well established brand carefully nurtured over the years. If Samiti is limited to processing of honey, it may be difficult to initiate marketing activities if ORMA and OMFED withdrew from the market. Samiti may not have enough in-house capacity to honour all agreements. 2. Identify one option that best suits Samiti and justify its applicability. Given the objective of the Samiti to develop the bee industry in Orissa, it requires the support of KVIC for marketing volumes of 30-90 tonne per annum. The Samiti seems to have plans to procure additional15 tonne per annum of rock bee honey though the transportation costs and procurement rates have not been mentioned. As the Samiti is

already incurring additional costs of transportation due to scale inefficiencies, it is arguable if the cost of procurement would be reasonable as the Samiti is marketing its current produce at a very thin margin. Another issue is whether the Samiti would be able to command the current price as the quality of apiary honey is supposed to be higher than the planned rock bee honey. Also, the Samiti plans to enhance procurement by encouraging the adoption of Mellifera species so that the processing plant could be run at 24 tonne per annum though the time required and the resources for the adoption of the same have not been explicitly mentioned. Ramping up procurement of good quality honey to the level of 30-90 tonne in the short run does not seem feasible on its own. It, therefore, seems that it would require the assistance of ORMAS in procurement of the targeted quantity of honey at a cost of Rs 60/kg through self-help groups. Option 1 seems to be the only feasible alternative as it is not clear how the Samiti can ramp up production in the short run under option 4, i.e., the OMFED option. Option 1 also ensures continual support of KVIC and ORMAS, both financial and operational. Among the given options, the concerns related to the lack of direct market presence can be overcome by ensuring that the product is cobranded if marketed by OMFED or by ensuring that option 1b is accepted taking up the processing activity for OMRAS while also processing and marketing its honey procured independently. This would allow it to scale up both in procurement and market while increasing cost efficiencies. The loss of margin, i.e., (Rs 7-Rs 6) * 10 tonne, i.e.,Rs 10,000 per annum can be overcome by the additional earning, i.e., Rs 6 * 14 tonne assuming 24 tonne processing, i.e., Rs 84,000 per annum which can be spent on development activities. If the Samiti takes Option 3 and exits KVIC, it will have to develop its own distribution infrastructure at the national level to market volumes of 60-90 tonne per annum as developing the market as given in Table 3 by six to nine times (assuming same market share, i.e., 14%) does not seem feasible in the short run. The resources, both financial and managerial, along with the necessary processing capacity to support a regional or national distribution effort does not seem feasible given the size and constraints of the Samiti. Therefore, option 1b seems to be the only feasible alternative as it allows the Samiti to insure itself by ensuring brand presence in the market. The core competence of the Samiti seems to be in processing which is confirmed by the good quality of the product for which there is a substantial demand. The Samiti can also increase its margins by increasing efficiency in transportation and processing which is scale sensitive and/or negotiating price increases with the concerned parties.