SARVODAYA SAMITI CASE DISCUSSION

RURAL MARKETING By Md Riyaz & Rahul Nair

SAMITI IN A SNAP SHOT

Sarvodaya Samiti, Koraput, is a state-level, non-governmental, nonpolitical organization. Registered in 1970-71 under the Societies Registration Act XXI of 1860, it is committed to of the society. Started in 1959 as Narayanapatna Kshetra Samiti, it was renamed as Sarvodaya Samiti after its area of operation got extended to the other parts of the state. Its activities consist of production of khadi, promotion of beekeeping, and marketing of agro-products like honey, turmeric powder, and arrowroot. The Samiti has been increasing its focus on procurement, processing, and marketing of honey due to the bee-keeping potential of the area and higher realizable margins on honey production. For its honey business, the Samiti received financial support from KVIC and UNDP and technical support from ITDA and KVIC. It used the distribution network of KVIC. Mr Mohanty has to take strategic decisions about the scope of activities and the type and nature of partnerships with other government developmental organizations which will enable the Samiti to realize its objectives

OBJECTIVES OF THE

SARVODAYA SAMITI

To generate employment and income for the tribals and farmers in Orissa while ensuring the profitability of the Samiti. Ensure sustainable development of tribal and other underprivileged communities through social and economic programme interventions child and women welfare, education for scheduled tribe girls, consumer welfare, and watershed programmes 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 Samiti feels that promoting marketing of rural produce through a profitable enterprise can bring a change in the living standards of the poor.

IMPORTANCE OF HONEY IN SAMITIS PRODUCT PORTFOLIO

Local economy of Koraput district, but being a labourintensive activity, it is an attractive business

Brings additional income for the farmers with relatively little effort and only requires local training.

Plenty of forest honey is available which provides potential livelihood option to local people

Samitis move to allocate greater attention and resources

for expanding honey business from its existing level is a step in the right direction

IMPORTANCE OF HONEY IN SAMITIS PRODUCT PORTFOLIO

Honey as a product earns greater margin of eight per cent compared to three per cent in khadi. It seems, at least in the short- run, that the promotion of honey business has partly compensated for the falling revenues from khadi (Table 1). Also, the contribution of honey to the total sales of Samiti has gradually moved up. In the year 1999-2000, the Samiti received 27 per cent of its revenues from honey and has a potential to go up further in future considering the good response from the consumers. The brand preference for Sarvodaya Samiti honey in its target markets in Orissa is high compared to national brands like Dabur and Himani. Further, the case study reflects that the substantial part of consumer demand for Samiti honey remains unmet due to insufficient supply. The response which the Samiti received in honey sales through participation in melas, fairs, and exhibitions suggests that there is a lot of potential in rural areas provided the Samiti expands its marketing network in rural areas. Undoubtedly, honey offers a promise for further growth and profitability of the Samiti provided efforts are made to gain higher market share and penetrate into the existing and new markets for its brand of honey.

SUCCESS OF HONEY BUSINESS: KEY DRIVERS

Agmark certification in 1990-92 followed by shifting of processing centre from Koraput to Bhubaneswar in 199597. ref (Table 1) Providing improved its access and connectivity to markets in the state and to other parts of India. The availability of honey and that too at a lower price facilitated the expansion of Samitis business in the past. nine-fold increase in revenue from honey between the years 1991-92 and 1999-2000 were promotion of bee-keeping with the help of the Khadi and Village Industries Commission (KVIC) the Integrated Tribal Development Agency (ITDA), availability of processing facilities, and financial support provided by the KVIC and the UNDP. Mainly preference for Sarvodaya honey is clearly driven by the consistence of its quality and superior value proposition to the customers

STRATEGIC CONCERNS
The analysis in the preceding section highlights the strategic concerns which need to be addressed by the Samiti in evaluating the alternatives available with regard to the formation

of the proposed Consortium and choosing a possible course of action. The concerns are:

procurement in terms of quantum, cost, source, and agencies involved improving margins through cost management and continued lobbying for lower taxation to make the Samiti a profitable entity

maintaining its status as an independent marketing entity and owner of a popular honey brand

marketing tie-up considering marketing of other Samiti products like Khadi range expanding processing capacities with consideration for outsourcing and upgrading the quality standards to BIS which are comparable to international standards

organizational tie-up considering synergy, mutual benefits, and sustainability.

ALTERNATIVE OPTIONS WITH SAMITI

Option I 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. The Samiti had two sub-options:

Option 1a: Focus only on processing and withdraw from marketing completely. Option 1b: Join the consortium while doing inde-pendent marketing of its own procured honey.

Option II: 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 III: 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.

Option IV: 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. This would ensure a market for bee-keepers.

Option V: Tie up with ORMAS and OMFED, i.e., accept both the offers/options I and IV a

THE PRIMARY OBJECTIVE

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 size of the current market as given in Table 3 of the case is 67.9 tonne in which the Samiti has a market share of 10 tonne, i.e., 14.7 per cent vis-a-vis Dabur which is the leader with a market share in volumes of 57.4 per cent

PROPOSED EXPANSION OF HONEY BUSINESS: PROBLEMS AND PROSPECTS

Processing
Expansion of Processing is a must for samiti not only to fulfill the market demand but also for its financial viability Requirement of technology advancements in processing By Up-scaling samiti would also get BIS mark.

Government Taxation

One of the major marketing problems faced by samiti is of 12% sales tax even after KVIC certification, i.e if samiti comes out of KVIC then Tax Exemption may be a further hurdle

PROPOSED EXPANSION OF HONEY BUSINESS: PROBLEMS AND PROSPECTS

Marketing
Assume if Samiti takes option III and exits KVIC It will have to develop own distribution & Marketing Infrastructure As per Table 3 it has to sell (60-90 TPA) to retain market share @14% This may not be feasible

Procurement
Dabur & Himani has significant market share for <200gm There is demand for Samiti honey but the production and processing cost is ramping up at 47% annually since 1991-92 (Table 1) Increasing Production level to 30 TPA at current growth rate, It may take years to set up a processing facility if operating at low volumes Thus Samiti to develop bee industry in orrisa requires KVIC support for marketing volumes of 30 -90 TPA

PROPOSED EXPANSION OF HONEY BUSINESS: PROBLEMS AND PROSPECTS

Procurement

In procuring additional 15 TPA of rock bee honey the transportation and procurement cost it will incur additional cost

Already samiti is working on thin margin Samiti plans for 24 TPA from mellifera species will need resources

Ramping up procurement of 30-60 TPA does not seem feasible Hence it would require assistance from ORMAS to procure the target quantity at a cost of Rs 60/kg

WORKING ANALYSIS
The cost structure of the Samiti (as per the Case) is as follows: Retail selling price-Rs 130/kg (Table 4) Retailer margin at the rate of 15%=19.5 Sales tax at the rate of 12%=13.9 Manufacturers price=Rs 96.6 Mark up=8%=Rs 7 Manufacturing cost=Rs 89.6/kg The manufacturing cost structure is as follows: Procurement cost =Rs 60/kg =66.9% Transportation cost=Rs 12/kg=13.3%(calculated) Other costs=Rs 17.6/kg=19.6% (derived) Total cost=Rs89.6/kg=100%

SOLUTION

Thus, option 1b or option V seems to be the only feasible alternative though option I 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.

WHAT BENEFITS IN OPTION I & V

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 14 tonne processing, i.e., Rs 84,000

per annum from OMFED, Which can be spent on development activities.

THANK YOU
Current Scenario:
The Samiti has also started a Quality Control Laboratory in Bhubaneswar for the testing of honey, so that at the time of procurement and selling we can check the quality of honey. The Quality Control laboratory was sponsored by the KVIC under the UNDP Beekeeping development programme. Sl.No Item Employment FT PT 4 102 Production (In Rs) Sales (In Rs.)

01.

Honey

8,69,928.00

9,72,068.00