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Business Planning For

FPO

FPO PROMOTION AND DEVELOPMENT PROCESS
Cluster
Identificati
on
Assesment
& Audit

Diagnostic
Study

Business
operations

Feasibility
Analysis

Systems
developme
nt

Base
Assesment

Resource
mobilizatio
n

Business
Planning

Organizing
and
Formalisin
g

Mobilizatio
n of
farmers

CLUSTER IDENTIFICATION
• A cluster of 8,00-1,000 farmers should be formulated,
within one or two blocks.
• identifying 10 to 20 villages of a particular district which
can grouped into five or six clusters.

DIAGNOSTIC STUDY
• A Diagnostic Study is to be conducted in the selected
cluster area.
• The Diagnostic Study is conducted to assess the
preliminary situation of the farmers and level of
agriculture in the area.
• The study will also help in identifying the potential
interventions required.

OUTLINE FOR DIAGNOSTIC
STUDY
1. Study Abstract: Objective and deliverables, methodology
2. District Profile: Geographic profile, socio-political background, major agricultural
crops, agricultural productivity, farmers and land details, secondary data on
production, major market yards, processing facilities
3. Cluster Profile: Rationale for cluster selection, agro-climatic conditions, cropping
pattern, geographic profile, status of natural resources, villages’ profile abstract
4. Value-Chain Details: Stakeholders involved, economics at different levels of
stakeholders, service providers’ profile, terms at which services are obtained
5. Gaps Identified: Inputs side, financial services, marketing services, insurance
services, access to government programmes, watershed programmes
6. Probable Farmer Services:
7. Conclusion:
8. Annexure: Questionnaires, checklist, details about government programs

environmental. political. . economic and resource feasibility. • The Feasibility Analysis will establish a case for promotion of FPCs in the prevailing specific regional environmental context of the FPOs.FEASIBILITY ANALYSIS • A normal feasibility study should cover aspects such as financial. socio-cultural. technical. legal.

BASELINE ASSESSMENT • Baseline Assessment will help in generating data related to the current prevailing situation of farming and small. to plan development and business plans and to establish the base figures based on future outcome indicators that can be measured to understand the change contribution. marginal and tenant farmers. . • The assessment shall be conducted using stratified random sampling through structured household-level interviews and open-ended focus group discussions with a variety of stakeholders. • Baseline assessment will cover a variety of factors to identify the potential interventions.

quality aspects. Risk Aspects – Historical risks. seasonality of production. input and output ratios. yields and current productivity • 3. Best Practices • 8. margins and costs at various levels. terms and conditions. seasonality of markets. Prospects and Opportunities . price sensitivity. input suppliers and vendors. technological levels. Marketing Aspects – Channels of marketing. members and details of occupation • 2. Production – Quality and quantity of inputs.DETAILED CHECKLIST OF FACTORS FOR BASELINE STUDY • 1. alternate market structure • 7. computation of losses due to risk. Constraints and Challenges • 9. access to government programmes • 5. Financial Aspects – Sources. Economics of Agriculture – Costing. coping mechanisms • 6. availability and tied sales • 4. General Information – Demographics. interest and existing outstandings. household size.

• The key is to develop business plans in detail with at least 10% of FPO farmer members to provide clear vision. more important will be the collective visualization of the future of the FPO.BUSINESS PLANNING • Business Planning should be carried out with the help of selected farmers’ representatives. • Business planning is a process through which the strategic and operational orientation of an emerging FPO is shaped. . While baseline assessment figures will be important inputs to understand the level from which products and services for farmers’ members should be developed. a business plan with proper projections on various aspects needs to be developed. • Using a variety of tools and systematic collective reflections.

Business Planning Process Business Ideas Generation Financial Plan Short-List of Business Ideas Opportunities/Thr eats Analysis Market Plan Business Opportunities Identification & Selection .

HOW TO GENERATE BUSINESS IDEAS? • Brainstorming in small groups. • Opportunity and Threat – Analysis & Business Opportunity Identification • Risk-mapping and management . is the technique that is generally used in generating ideas for new businesses.

The criteria for evaluation may even be subjective. • In the next phase. . the emphasis is on generating a large number of ideas. without commenting on the quality of the ideas. but are only recorded in detail.Step-1 Brainstorming in small groups • This process is done in two phases: • In the first phase. The group coordinator must ensure that ideas are not evaluated. ideas are evaluated and a short-list is prepared.

• Eg: collective sale of agricultural produce to the bigger market or collective purchase of agricultural inputs like seeds.Examples of BUSINESS IDEAS…… • Development of problem-solving products/services: The first step is to hit upon an idea that can be a solution to a problem experienced by farmers. and selling it to the producers is a creative idea since it reduces the role of middlemen and ensures quality products and services to the farmers. pesticides. fertilizers. . etc.

.Contd • Exploitation of new technology or material to meet a widely felt need: Millions of Indian farmers use hand made implements for agriculture like bullock driven wooden plough. thrashing by hands. thresher.. etc. etc. Since they can not afford to own them. on rental basis to the small farmers can change the way. An idea of introducing the services of mechanized implements like tractor. Farming is done and it can be done in a cost-effective way • Creating a demand for Agriculture extension services: With the poor quality of State’s agriculture extension services the idea could be introduction of Agri-clinic where professional extension services can be provided to the farmers on a reasonable price.. bullock cart.

etc. write down the Opportunities & Threats in terms of: • • • • • • Size of the market. the demand for the product/service long term or purely temporary? The extent to which the market is dissatisfied with the existing service/solution. This is also called Opportunities & Threats Analysis (O/T Analysis) and is used to evaluate whether a business idea is worth pursuing any further. . and quality sensitivity of the market. Changes in government’s policies such as subsidy. Barriers of profitability to entry/exit. high.e. Price of competition.. • For every idea short-listed.Step-2:Opportunity and Threat – Analysis & Business Opportunity Identification • Once a shortlist of ideas is generated. medium or low. availability of low cost funds. Its stability i. it must be critically evaluated with respect to the external business environment for identifying the business opportunity and threats.

Contd • Based on the Opportunities & Threats analysis. . However. there could be possibility that the identified business opportunity fails to remain as a potential business opportunity following further analysis.……. as mentioned below. one can identify an appropriate Business Opportunity which could be considered for developing a business plan.

Exercise-1 .

• Hence. . If the risks or threats seem unmanageable then one may discard the business idea all together. it is important to develop risk profile and strategy to mitigate them.Step-3-Risk-mapping and management • Identification of risks and possible safeguards is an integral part of the O/T analysis. the point to be noted that even after starting the business the risks continue to remain in the business environment. internally and externally both. • However. The goal is not to eliminate risk altogether (an impossible proposition) but to identify them and assess whether they can be managed or minimised through operational resilience.

Exercise-2 .

market analysis follows. Policy Guidelines. specific studies conducted by others etc. .MARKETING PLAN • Once the business opportunity has been selected. The data for the analysis may be obtained from secondary sources such as procurement of the APMC.

Market Research • A market research should be carried out for this purpose to critically examine the business potential. Target market and customers. Competitors – Direct and indirect. Changes in the market. Description of customers. The market analysis should cover details about: • • • • • • The overall market. Market segments. their attractiveness. profitability. .

It would focus on the following: • The uniqueness of the products/services with respect to competitor’s. • PC’s standing in the market. an analysis of the Strengths and Weaknesses (S/W Analysis) of the products to be handled and PC as an organization should be carried out. . • Payment terms. • Quality • Pricing. of manpower in the PC and their experience.Assessment of market opportunities and threats/risks • Following the market analysis.

Exercise-3 .

PC’s sales objectives like whether the PC wants rapid penetration or is content with slow penetration of the market etc. Place & Promotion – called the Marketing Mix) to develop an appropriate marketing strategy. the suitable marketing strategy should be chosen. Price. but needs to strategically plan a right mix of the 4 Ps (Product. . • The PC may choose one or more combinations of strategy. • The choice depends on a variety of factors including the image that the PC wants to project about the product and the organization.Choosing a marketing strategy • After choosing the market segment that the PC management wishes to target and having carried out the SWOT analysis.

• Positioning is done in three steps: • Identifying advantages of the product over the competitors. and finally.Positioning strategy • Once a market has been segmented and a particular segment chosen. • Selecting the right advantage(s) . This means the PC has to tell the customers about what it is offering and how it is different and better than the competitors. the PC has to position the product in that market segment. . • Signalling the adopted position to the market.

. low cost solution. • User Category: The services are ideal for small farmers who have small holdings and can not invest much on the farming. • Specific Usage Occasions: On-farm services. • Against another services: The agri-clinic services are more reliable than the Government extension services. • To understand the basis of positioning. depending on the specific needs of the customer. on-farm services. expert suggestions.Basis of positioning • It is clear that the same product can then be positioned differently. • Benefits. continuous follow up. supply of agro-chemicals which are genuine and at reasonable price. The customer can call the experts to his/her field to discuss the problem and solution. problem/solutions or needs: Services provided within 24 hours after registration. let us look at positioning in terms of a PC’s products in this case Agri-clinic services which it intends to provide to the farmers of a given area: • Specific Product Features: Problem diagnosis and solution.

Strategies based on price and promotion • Price and level of promotional spending are very important tools in achieving market penetration objectives. if the objective is to quickly gain a large market share. leading to large volume of sales. the strategy could be a combination of low price and high decibel promotion. The market strategies often have to decide on the level of quality and price that it can offer to a chosen market segment as compared to competitors. . For instance.

Environment. Place. Price. Targeted sales in the coming year and projections for the next two years. the Marketing Mix (4 P’s of Marketing) could be formulated and the marketing plan written. . It should cover the following: • • • • • • • • Target markets. Promotion.…. Product/service.Contd • Based on the strategies chosen. Competition.

Exercise-4 .

Grading/processing. Total expected volume of raw produce to be procured (month wise). duration and costs. Credit limit with the producers and to the buyers. Monthly Storage cash-in and cash-out projection. Purchase price. For example. Transportation costs (producers to company and company store to buyers). in some states buyers for agriculture produce outside the APMC has to pay certain levy to the APMC for making purchase from the farmers directly). Insurance. if any. Packaging costs. Time of the activity (no. selling price. . of days from procurement to sale). Marketing costs. Any other costs which is specific to the area (statutory requirement. if any.Financial plan • While calculating the requirement of capital for the above mentioned items the following points are to be kept in view: • • • • • • • • • • • • • Number of producers/acreage/number of products and its month wise availability.

every few months for FPOs that run all year) • Income statements cover a specific period of time and reflect the performance of the business during that specific period .What is an income statement? • Summary of income and expenses • Determines the profit or loss of a business over a period of time • Should be prepared at the end of every season (or.

How can you use an income statement? • To assess if the business has enough revenue to meet its expenses • To establish if it has additional income that can be used to purchase assets or reward shareholders • To assess the organizations credit worthiness • To establish if it is operating at a profit or a loss and its financial condition • To facilitate comparison with competitors and industry wise players .

Profitability Ratios • Net Income Margin: Measures percentage of sales that an organization retains as profit after deducting all expenses • Gross Margin: Measures profit without considering operating expenses. It indicates the efficiency of operations and gross mark up on products over and above the COGS .

i..What is a balance sheet?   • Summary of assets (what a business owns) and liabilities (what a business owes) at that point in time • Details the net worth of a business. the difference between assets and liabilities • Represents the financial position of a business at a given date • Gives details about a company’s asset-structure and capital structure .e.

Owner’s equity + Liabilities = Assets .

Inventories) / Current Liabilities Cash Ratio Marketable Securities + Cash / Current Liabilities Receivables Turnover Net Credit Sales / Average Accounts Receivable Day Sales Outstanding / Receivable Days 365 / Receivable Turnover (x) Inventory Turnover Ratio COGS / Average Inventory (x) Average Inventory Days 365 / Inventory Turnover (x) Payable Turnover Ratio COGS / Average Accounts Payable (x) Days Payable Outstanding 365 / Payable Turnover Ratio (x) Cash Conversion Cycle (days) Day Sales Outstanding + Average Inventory Days Days Payable Outstanding .Liquidity and Efficiency Ratios Ratio Formula Current Ratio Current Assets / Current Liabilities Quick Ratio (Current Assets .

What is cash flow? • The movement of cash in and out of a business • Cash that helps to meet the day to day expenses of a business • Helps categorize and understand what functions of the business are helping generate / use cash and then take corrective action • For relatively early-stage FPOs. operating and financing cash flows will be most pertinent as cash outflows due to large investments will come at a much later stage .

Cash flow can be categorised into 1) Operating Cash Flow 2) Financing Cash Flow 3) Investing Cash Flow .

Cash Flow Ratios • Operating Cash Flow/ Sales • Free Cash Flow/ Operating Cash Flow .

.

Informed assumptions driven by historicalfinancials and market research Scrub your Sales projections BEGIN: with inputting your historical financials into a spreadsheet Sanity check assumptions and goals – Can this be achieved? Forecast Working Capital and Capital Expenditure .

What is the purpose of having a business plan? .

wherein business activities of higher priority of member farmers have been planned first.Business Plan implementation should be done in a phased manner.BUSINESS PLAN  Having a Business Plan in place Business Plan will be a tool for the FPO for setting the direction of the company over the next few years and will support the company to set up the action plans and processes  Have an implementation plan in place . .

your long-term earnings growth rate is above the market average • Stability – you have established buyers. your bargaining power is high.What are the most important aspects of a successful business? • Growth .high management and member retention and commitment . and/or you have stable input sources • Quality – you deliver quality products and services that allow you a competitive/niche advantage • Strong leadership .

Different Heads involved in Business Finance Human Resource Marketing Business Management Operations Strategy .

Production Plan – Key commodities. Product and Service Model – Products and services. capacities. machinery and plant erection. Institutional Structure – Membership. viability of procurement points. safeguards   . vision. Procurement Plan – Procurement points. Executive Summary 2. terms of engagement. quality norms. group production incentives 8. remuneration and other important details 7. terms and conditions 6. key measurable indicators 5. government services. External Context – Civil society. production plan. time. market competition 4. seasonality. Storage and Processing – Processing facilities.OUTLINE FOR DIAGNOSTIC STUDY GUIDELINES FOR BUSINESS PLANNING 1. storage and transportation 9. pricing mechanisms. Strategic Orientation – Mission. governance. performance measurement. objectives and goals. Introduction 3. staffing for procurement. operational staff.

Risks and Risk Management Plan 16. member own funds 11. Operational Plan and Activity Chart List 14. Benefits of FPO – Member level benefits computation and projections 13. marketing strategy 12. fixed investment and working capital requirements. Marketing Plan – Channels. terms of borrowings. Financial Resources Plan – Finances required. consumer feedback. Linkages and Convergence Plan .…Contd 10. brands. sources. key products. Product Costing 15.

MOBILISATION OF FARMERS • Once a strong business plan has been established with the help of a select group of farmers through the business planning process. • Mobilization of farmers should be done with a variety of communication aids like – pamphlets. posters. • Promoter farmer-members are those who are eager to form a FPO on voluntary basis. proper vision development of promoter farmer-members. . having understood the importance and potential benefits of forming FPOs. it is time to mobilize farmers into Farmer Interest Groups(FIGs) and eventually as farmer-members of FPOs. documentary movies. regular village-level meetings.

Basic functioning and dynamics of a PO A producers’ organization is like a boat… .

as the backbone of the organization. . financial resources and collaboration with other stakeholders.• The boat symbolizes the social capital of the organization. • The sails are put up and positioned to go in the direction defined by the members and the leaders. • The mast of the sails symbolizes the constitution. The boat allows them to arrive together at destination instead of swimming alone • Elected leaders steer the boat. members have put some money together to undertake collective action (going by boat instead of swimming alone). • Three types of resources determine the power of the wind and the speed of the boat: human resources. • Members are the passengers in the boat.

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Ask yourself ‘Boat’ questions !! • Are the farmers’ organizations in your areas really the boat that brings farmers to their destination ? • Who put up the sail and steer the boat ? • Is there a favourable wind for sailing the boat in your area? • Did you encounter cases where parts of the boat are lacking? What happened? .

around 50-70 FIGs can come together to form a FPO. Typically. FPOs can be registered under the Producer Company provision under the Companies Act A • However. it must be clarified that the purpose of mobilizing farmers is not merely to achieve the target of registering a formal entity.   .ORGANISING AND FORMALISING • FIGs in an aggregated cluster together form FPOs.

self ruled within the provisions of Act Reserves Created if there are any profits Mandatory to create every year Borrowing Power Restricted More freedom and alternatives Relationship with other Transaction Based Producers and corporate entity .Members government and registrar of not having transactions with the cooperatives hold veto power company can not vote Government control Highly patronized to the extent of Minimal.one vote.group.limited to statutory interference requirements Extent of Autonomy Limited in “real world scenario” Fully autonoms.discretionary Entire Union of India Membership Farmer Individuals and Any farmers cooperatives individual.but One member.Table-1 KEY DIFFERNCES BETWEEN PRODUCER COMPANIES AND COOPERATIVES PARAMETERS COOPERATIVE PRODUCER COMPANY Registration Cooperative Societies Act Indian Companies Act Objectives Single object Multi-object Area of operation Restricted.one vote.association.prod ucer of the goods or services Share Non-tradable Not tradable but transferable limited to members on par value Profit Sharing Limited dividends on shares Commensurate with volume of business Voting Rights One member.

technical and physical resources should be developed during this particular step.RESOURCE MOBILISATION • Before initiating the operations of a FPO all required resources should be mobilised with the help of FPO representatives and board of directors. human (staff). . • Financial. Based on the business plan FPO should liaise with various financing agencies and mobilise resources for hiring/purchasing and developing various resources.

human resources. internal audit. stock and inventory.MANAGEMENT SYSTEMS DEVELOPMENT • Guidelines for management systems should be able to address all requirements related to financial services. . procurement and quality management. internal conflict resolution and other important functional areas should be developed. • Standard operating procedures for the same should be established. • Systems related to management of finance. input and output management services. marketing.

BUSINESS OPERATIONS • Business operations is the commencement of procurement. production. The entire valuechain related to various agriculture and allied products and commodities needs to be managed. • Both the governing and operational structures of the FPO should be trained in order to ensure smooth functioning of business operations. . marketing and financial service activities of a FPO. processing.

• FPOs should use Institutional Maturity Index to understand areas of improvement. governing board of directors and service providers. .ASSESSMENT AND AUDIT • A constant assessment of performance of various stakeholders like farmer members. Internal process and accounting audits will help maintain both transparency and accountability.

Thank You .