Enhancing Livelihoods of Tribal

Farmers through Producer Company

Approach:
Dungria Agro
Producer Company Limited

Salient features

 Increasing Income for farmers 18% per year relative to alternative

 Annual turnover average growth rate of 146% for five years
 Breaks even and is self sufficient by 2015
 1500 farmers are members by 2017
Table of Contents
1. Executive Summary .................................................................................................................. 3
2. Introduction ............................................................................................................................... 3
2.1 ACCESS Development Services .......................................................................................... 3
2.2 National Agriculture Innovation Project ............................................................................... 4
2.3 Problem Statement ................................................................................................................ 4
3. Organizational Information ..................................................................................................... 5
3.1 Profile of Dungarpur ............................................................................................................. 5
3.2 The structure of the Producer Company ............................................................................... 5
3.2 Farmer Membership Growth................................................................................................. 7
4. Revenue Generation.................................................................................................................. 8
4.1 Bt. Cotton Seed Production................................................................................................... 8
5. Profitability Timeline................................................................................................................ 9
5.1 Profit-Loss Account .............................................................................................................. 9
5.2 Net Cash-Flow Summary.................................................................................................... 10
6. Conclusion ............................................................................................................................... 10
Appendix A .................................................................................................................................. 12
Appendix B .................................................................................................................................. 13
Appendix C .................................................................................................................................. 14
Appendix D .................................................................................................................................. 15

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1. Executive Summary
A producer company utilizes economies of scale by collecting many rural farmers
together in order to offer input supplies at a lower cost by purchasing in bulk and selling
output at a higher price by overcoming the upfront costs leading to a wider, more
profitable market. This five year business plan for Dungria Agro Producer Company
Limited (DAPCL) shows exactly how the producer company will break even and become
profitable in the next five years with the assistance of ACCESS Development Services.
DAPCL is currently connecting farmers in Dungarpur to local partner agencies that sell
wheat seed and fiber. By acting as a middle man, DAPCL is able to provide technical
training and assistance to these farmers by making a margin on what it sells to its partner
companies. DAPCL will continue this operation but on a larger scale, with the expected
growth of 25%-33% over the next five years. DAPCL plans to break even by 2015 and earn
over 20 Lakh in net profit every year thereafter.

2. Introduction
First, this report begins by summarizing the organizations surrounding DAPCL, like
ACCESS Development Services, and their role in the organization of the company. Then, the
role of the farmers as the CEO, board members, and share holders in DAPCL will be
described. Nevertheless, the key to profitability is growth, and as such this report will not
only outline the targeted growth that DAPCL anticipates over the next five years, but also
the mechanisms they will use in order to achieve this growth. Then, this report will explain
the expected revenue generation from cotton seed production and explain DAPCL’s
partnership with Patidar Agro. This section will discuss the difficulties DAPCL will face,
and the current resources in the field that they can utilize. Ultimately, profitability will be
driven by growth and efficiency. By balancing the increase in scale with managerial
difficulties of size will be quintessential to break even in the next three to five years.

2.1 ACCESS Development Services

ACCESS Development Services is a non-profit organization that has acted supported
DAPCL since its beginning by absorbing the initial operational costs of the producer
company so that the company has made a net gain. Both CARE and DFID have supported
the establishment of ACCESS Development Services, a Section 25 ‘not-for-profit’ Company
established in March 2006 with a mandate to provide specialized technical support
services in the livelihoods and microfinance sectors. The livelihoods experiences so far
include building community-owned producer collectives and enhancing their ability to
access resources, services, inputs and entitlements to effectively negotiate with markets.
The focus of the strategy has been to establish strong community structures, building
capacities of local partners/institutions, providing technical support to government
programmes and developing systems and processes. It serves 130 microfinance
institutions with 3.9 million clients, all federated into the ACCESS microfinance Alliance.
In Rajasthan, ACCESS works on five livelihood projects at Jaipur, Sawaimadhopur, Tonk,
Dungarpur, Dungarpur and Udaipur districts. It integrates small and marginal producers
the value chain of both farm and non-farm sectors. The common objective in each of the

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projects is collective procurement of raw material, combined production, aggregation of
their skills and produce, undertaking product processing, value addition and marketing
activities through a legal entity, i.e., a Producer Company.

2.2 National Agriculture Innovation Project

The National Agricultural Innovation Project (NAIP) set out to help farmers attain
livelihood and nutritional security as well as improve quality of life and sustainability of
ariculture. NAIP identified four districts in Rajasthan as disadvantaged based on income,
tribal population, their resources, and the state of agriculture. These four districts are
Udaipur, Dungarpur, Dungarpur, and Sirohi. NAIP hopes to improve the livelihoods of
these farmers by collecting them into producer companies in order to better incorporate
them in the agricultural value chain of the surrounding community. Further, NAIP hopes
to close the information gap by using these producer companies to train the farmers on the
best farming practices and new agricultural technology. This will increase profitability and
further perpetuate the self-sustainability of the producer company.

2.3 Problem Statement

ACCESS realizes the challenges for ensuring the sustainability of the Producer Company
are:
I. Economies of scale as per the Business Plan of the company
Considering the potential costs and benefits, the company needs at least 1000
committed members to break even or earn positive revenues.
II. Organizing the business plan for the company
ACCESS has developed a business plan that indicates the progression of the
company to being a self-sustainable entity, in term of memberships and income-
expenditure status. In the initial phases the surpluses will be either negative or very
low. The company will have limited resources in the initial years to meet its capital
and operational requirements.

Proposed Solutions
Problem 1: Only increasing the number of farmer participants in the company will achieve
project sustainability.
Solution: Present the package of practices to more farmers, who ACCESS will
organize into business groups and clusters, and build their capacity to run the
company. Capacity building programs are critical for strengthening the producer
company.
Problem 2: Despite the good will of participating farmers, the company lacks start-up
capital. The company requires external financial support before it breaks even.
Solution: ACCESS proposes to mobilize funds to finance capital investment and
operational cost of the company for first three years. In addition, ACCESS will
mobilize funds from other sources to fund the activities of the producer company.

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3. Organizational Information
3.1 Profile of Dungarpur
The Dungarpur district is in southern Rajasthan bounded on the north by the
Udaipur district. Semi-arid climatic conditions and a rugged terrain characterize this area
of 3770 square kilometres. Road access to the interiors is very poor. They become partially
or completely dysfunctional during the monsoon.
According to the 2001 Indian census, Dungarpur had a population of 1,107037,
50.3% male and 49.7% female. 61% of Dungarpur is literate, higher than the national
average, 59.5%. The population is significantly dependent on natural resources for their
livelihood, such as agriculture, animal husbandry and forests. However, water scarcity
determines agricultural productivity. Low rainfall, periodic droughts, diminished land
quality, and small and fragmented landholdings plague the land. According to a study done
by ACCESS Development Services, the average education obtained is 10th grade. 22.6% of
the population use migration as a primary source of income and 9.1% of the population use
migration as a secondary source of income. 44.9% of the population use agriculture as a
primary source of income. And 31% of the population is a household worker.

3.2 The structure of the Producer Company

The structure of the producer company has 12 primary producers as the Board of
Directors. 10 are village representatives with voting rights whereas remaining 2 are expert
directors with limited voting rights. The expert directors have considerable experience in
agriculture, and other related aspects like processing, organization management, and rural
development. These expert directors are mainly for providing guidance to the company.
Also, their services initially will be extremely helpful in setting up a profitable and
sustainable producer company. The expert directors will build the capacity of the 10
directors from the community and the chief executive of the company. The 10 village
representatives and 2 expert directors elect a Chairman, who is currently one of the 10
village representatives. The village representatives make up the governing body of DAPCL,
who with the CEO are the board of directors.
The CEO works directly with the functional arms of the producer company: the one
production managers, the accounts and administrative officer, and the village institutional
expert. The one production manager works directly with the commission based staff
involved in the day-to-day workings of the producer company. The number of production
managers will increase as the total capacity of the producer company increases. The
account and administrative officer is accountable for reporting to the CEO and governing
body about the progress and profitability of the producer company. Each member of the
executive body is responsible for ensuring the farmers in the village continue to organize
and participate in the producer company. These organizations of farmers are farmer
business groups, which will be discussed in the next section.

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Figure 1: Organizational Structure of the Producer Company
Governing
Body Village Representatives Chairman Expert Directors
(10) (2)
Board of
Executive Directors
Body CEO

Production Manager Accounts and

(1) Administrative Officer

Commission
Based Staff Service Providers
(6)

In order to ensure the scalability of DAPCL, a structure must be in place to organize

the farmers together. This is done in three levels. First, the individual farmers form farmer
business groups, groups that have monthly meetings at a set time where they can discuss
their needs as well as what they are able to produce. As of 2011, 328 farmers in 12 villages
are organized into 28 farmer business groups. Then, these farmer business groups are
organized into one cluster, divided based on the location of their respective village. As
more farmers and more villages join, the farmer business groups will be separated into
more clusters so that management can be made easier.
Figure 2: Organizational Structure of the Farmers
Producer Company DAPCL

Cluster 1 Cluster

Farmer Business 28 FBGs

Groups (12 Villages)

Individual
Farmers 328 Farmers

There are costs of organizing the farmers in this way. At each level of the producer
company there are costs for the management. The costs of each individual are summarized
in Appendix D. But the overall expected operational costs are summarized below in Figure
3. Given the costs known in 2010-2011, the operational cost has been extrapolated
outward by adjusting for inflation (assumed to be 10% per year) and increases in the
number of employees as farmer membership grows (summarized in the following section).

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Figure 3: Operational Costs

DAPCL will be profitable when the gross margin of each of its revenue generating
schemes is greater than the operational costs described above. The gross margin increases
as DAPCL operates on a wider scale, affecting more farmers. The key to profitability for
this producer company is scale; the more farmers DAPCL can provide goods below market
price, the closer the producer company is to breaking even. The predictions for this growth
are outlined in the next section.

3.2 Farmer Membership Growth

As outlined in the previous section, DAPCL currently has 325 members organized
into 28 farmer business groups in 11 different villages. Based on growth in 2010-2011 and
the capacity of DAPCL at the end of 2011, growth targets are described below in Figure 4.
Figure 4: Overall Farmer Membership and FBG Growth
Capacity Building 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
# of Shareholders 325 500 750 1000 1250 1500
# Increase over Previous Year 0 175 250 250 250 250
% Growth over Previous Year -- 53.8% 50.0% 33.3% 25.0% 20.0%
# of FBGs 28 50 60 75 100 125
# Increase over Previous Year 0 22 10 15 25 25

Member growth is based on the formation of farmer business groups. DAPCL

follows a three step strategy to build capacity and increase the total number of farmer
business groups in the producer company. First, DAPCL performs village outreach visits.
On the first visit the DAPCL recruits new members using existing connections with farmers
in the area. To these potential members he explains the benefits of being a member in the
producer company, as well as assesses the demand that the Producer Company must meet.
Second, when a new group is formed it must register with DAPCL and outline the bylaws
and rules for the group. This includes a set meeting time, a penalty for missing a meeting,
and a plan for creating a savings account. These group savings meetings continue for 2
months. If the group has been meeting the goals they have set, they open a group bank
account and visit the producer company. Lastly, after six months of continuous functioning
they are considered an established farmer business group and begin inter-loaning
activities. These loans are based on the savings they have created and this enables them to
purchase the goods they need for the upcoming season. DAPCL will focus on village
outreach in January to May. These are the times when cotton seed production is in low
demand. The process for FMG creation is outlined below in Figure 5.

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Figure 5: Farmer Business Group Creation Strategy
•Demand Assessment
Village Outreach •Benefits Explained
Visits

Successful Group Group Formation

Maintenance & PC Membership

•Group Bank Account •Group Naming

•Inter-loaning Activity •Leadership Selection

•JKAPCL Registration
•Group Savings
Agreement

The next two sections outline the revenue generating schemes that DAPCL has
began and the growth that they expect to undergo. The scale of each of these schemes, the
total quantity purchased and sold, uses the amount that occurred in 2010-2011 and
assumes that the scale will grow in proportion with the number of farmer members.
Consequently, changes in the growth rate each year affect every profit generating scheme.

4. Revenue Generation
The producer company envisaged is primarily owned by poor tribal of the area. So
there is no scope for them to raise capital from their own sources to start the company. Due
to this, no commercial financial institution is ready to invest on the company’s activities
and fund its capital investment.

4.1 Bt. Cotton Seed Production

DAPCL acts as a middle man between Seed Production Companies and the members
of the local villages. DAPCL has partnered with Patidar Agro (PA) to help local farmers
grow cotton seed and fiber. DAPCL acts as a middle man between PA and the farmers. PA
supplies the farmers with seed, fertilizer, and treatment for the soil. The farmers grow the
cotton, resulting in fiber mixed in with seed. Growing this is very labor intensive. The
farmers then sell the fiber and seed to DAPCL, who in turn sell it back to PA, taking a 15
rupee margin on the seed and a 3 rupee margin on the fiber. Each farmer grows on average
60 kg. of seed and 30 kg. of fiber for sale. All costs of weight-loss and damage are incurred
by PA, and are thus not included in the business plan.
Patidar Agro can only support cotton seed production with up to 200 farmers, as a
result DAPCL is looking for new partners with whom they can have a similar arrangement.
With PA, all of the start up costs of a new farmer, including fertilizer, training, etc., is borne
by PA. DAPCL is merely a middle man giving the cotton seed output from the farmer to PA.
In order to break even, DAPCL must sell the cotton seed of more farmers than PA can use.
This expansion could be done on their own, selling the cotton seed by themselves or by
working through a partner like PA. If DAPCL decided to sell its own seed, DAPCL would get
an increased margin on the cotton seed (the margin PA would have otherwise received),
but also at a greater cost (the costs originally borne by PA). These costs include the start
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up costs otherwise paid for by PA, the operational costs to maintain selling the cotton seed
as well, and the expertise to properly treat the seed. As a result, this business plan assumes
that DAPCL finds more partners identical to PA as it expands. However, in order to meet
this rising demand, one challenge DAPCL will face is finding these new partners or
generating enough capital to overcome the start-up costs of selling its own seed.

5. Profitability Timeline
Based on the projections for Bt. Cotton Seed Production, DAPCL will break even in
2014-15. To show what is needed in order to become profitable, this business plan uses
the Profit-Loss Account and the Net Cash Flow summary.

5.1 Profit-Loss Account

Figure 17 graphs the gross margin of the producer company and the operation costs
described in section 3. The difference between these two metrics is the profitability of the
producer company. Figure 18 shows the profit loss account.
Figure 17: Profitability of DAPCL
3,000,000

2,500,000 2,391,607

2,000,000
1,811,824

1,500,000
1,317,690
1,258,794
1,144,358
1,040,326
1,000,000 859,773 898,425945,751
781,612

544,500
500,000
198,000

-
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Gross Margin Operational Cost

Figure 18: Total Profit Loss Account of DAPCL

Profit and Loss Account (All figures in INR)
Profit and Loss Account (All figures in INR) 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
Turnover 5,268,000 14,487,000 23,903,550 35,058,540 48,205,493 63,631,250
Cost of goods sold 5,070,000 13,942,500 23,005,125 33,740,850 46,393,669 61,239,643
Gross Margin 198,000 544,500 898,425 1,317,690 1,811,824 2,391,607
Operational Cost 781,612 859,773 945,751 1,040,326 1,144,358 1,258,794
Net Profit/Loss before tax (583,612) (315,273) (47,326) 277,364 667,466 1,132,813

If DAPCL is able to increase capacity more quickly than this plan expects, they could
easily overcome the small net loss in 2013-14 and become profitable a year earlier.

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However, this revenue generation depends on the ability to find more partners like
Patirdar Agro. If DAPCL decides to sell its own seed and incur the upfront costs, the
producer company could break even a year earlier without needing additional capacity.

5.2 Net Cash-Flow Summary

In order to reach this profitability, DAPCL must have capital on hand to make the
initial investment before selling the goods to the farmers or the market. The year 2011-12,
DAPCL will have negative cash flow which must be paid for in order to achieve positive
cash flow in 2012-13. This business plan assumes that 70% of sales are achieved in the
year that the goods are purchased and the remaining 30% of sales are achieved the next
year. Further, 7% of total purchases are made on credit and 5% of total sales are sold to
debtors. Figure 19 summarizes the cash inflow and outflow.
Figure 19: Net Cash Flow
Cash Flow Statement (All figures in INR)
Particulars 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Cash Outflow

Purchase of raw material and inputs 5,070,000 13,942,500 23,005,125 33,740,850 46,393,669 61,239,643
Operational Expenses 771,112 850,848 938,164 1,033,877 1,138,877 1,254,135
Infrastructure 70,000 70,000 70,000 70,000 70,000 70,000

Sundry creditors (354,900) (975,975) (1,610,359) (2,361,860) (3,247,557) (4,286,775)

Total 5,556,212 13,887,373 22,402,931 32,482,868 44,354,989 58,277,003

Cash Inflow
Sales 3,687,600 11,721,300 21,078,585 31,712,043 44,261,407 59,003,523
Share Capital Mobilized from Farmers 110,000 110,000 185,000 285,000 385,000 485,000
Advance collection of 25% - Input Supply 1,267,500 3,485,625 5,751,281 8,435,213 11,598,417 15,309,911
Deficit funding - Funding agency 583,612 315,273 47,326 - - -
Long term loan (managing negative cash balance)
Sundry income

Sundry debtors (263,400) (724,350) (1,195,178) (1,752,927) (2,410,275) (3,181,563)

Total 5,385,312 14,907,848 25,867,014 38,679,329 53,834,549 71,616,871

Net Cash Balance (170,900) 1,020,475 3,464,084 6,196,461 9,479,560 13,339,868

6. Conclusion
This business plan outlines how DAPCL will become self sufficient by 2015.
DAPCL’s partnership with Patidar Agro will generate 2 Lakh of business each year. But in
order to break even DAPCL must either create new partnerships with cotton seed
providers similar to Patidar Agro, or DAPCL must be able to sell cotton seed themselves. By
doing this they will be able to support around 1,000 farmers and, thus, break even. In
order to achieve these goals, DAPCL must overcome the 1.7 Lakh Net Cash imbalance that
will occur in the 2011-12 season.
DAPCL intends to make a social impact on the lives of these rural farmers, not just
an economic impact. Although it is true that the producer company is primarily interested

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in increasing the income of the participating farmers, DAPCL believes that the entire village
can benefit from this increase in income. Hopefully, with more money, the farmers will be
able to pay for their children’s education. DAPCL has seen in the past two years that as
farmers participate, their standard of living increases. By spending more locally, these
farmers will stimulate the local village economy as well, increasing employment for the
entire village. The stimulated local economy will decrease exploitation lending and benefit
the entire community. Both the economic and social impact on the lives of the farmers is
the mission of DAPCL.

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Appendix A

12
Appendix B

13
Appendix C

14
Appendix D

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