PROGRESS THROUGH PROFITS
A Seva Mandir Project Brief
Project Description
The creation of a cooperative dal (lentil) processing business to be owned by local
farmers. This market-based intervention stands to improve incomes 50+% for over
1,000 tribal families.
The Situation
Seva Mandir (SM) works in the rural areas of Udaipur District, Rajasthan (India). These
areas are largely inhabited by aboriginal people, also known in India as "Scheduled
Tribes" or "tribals" for short. Tribals are one of the least developed groups in India, on
par with the much more widely publicized "untouchables". The area of focus for this
project is Kotra. Kotra is the least developed part of our service area. Almost all
beneficiaries of this project live in extreme poverty (<$1 / day).
Kotra is known for its high quality and voluminous production of dals (lentils), notably
tur, moong, and urad. Farmers currently sell their produce in raw form. That produce
is passed through a network of intermediaries that includes several layers of traders,
processing mills, and wholesalers/retailers. Farmers are systematically exploited in this
process due to asymmetries in information and inefficiencies in this chain. Ultimately,
the farmer receives less than 1/3 of the retail price for processed dals.
Tur Dal Value Chain – Kotra Tehsil
60
50
50
Price (Rs / KG)
10
40
12
28
30
6
20
17
5
Raw selling
price
Trader share
10
0
February 20, 2007
Mill share
Processed
selling price
Wholesaler Retailer share Retail selling
share
price
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It is widely agreed that "poor market linkages", "weak infrastructure", and "many layers
of intermediaries" hinder the growth of India's countryside, wherein over 2/3 of the
population lives. Abject poverty is unfortunately the norm, not the exception, for the
majority of Rural Indians.
The Opportunity
The creation of a small-scale dal mill and surrounding procurement & marketing
capabilities would allow farmers to engage in value addition and thereby receive more
equitable returns for their hard work. More than 1,000 beneficiaries could participate in
the venture and stand to see a 15-50% improvement in incomes.
Further, significant additional returns could be created once launched through direct
marketing of branded produce. Farming practices in Kotra are largely organic. If
marketed appropriately, an "organic" or "natural" product can command a significant
price premium. This would, however, require certification of farming practices and
more robust marketing capabilities. As such, we have excluded this opportunity from
our financials and impact estimate though we are including it in our business planning.
Methodology
A proper governance structure involving community ownership is being created to
oversee the creation and operation of the mill. A team of roughly 5-10 individuals will
be required to operate the business. Once operational, the venture would purchase raw
produce directly from the farmers at a rate Rs. 2-3 per kg more than what they are
receiving in the market on that given day. After processing, the entity would sell the
processed dal to wholesalers or directly to large retailers.
Under this approach, the farmers would continue to cultivate their dals exactly as they
do today. They would however enjoy economic benefits in two forms:
1. Better selling price at time of sale. By disintermediating the chain, we will be able to
pass a piece of the profit directly to the farmers at the time of sale. In this way,
farmers would see immediate benefit and we are assured to always be the choice
buyer of raw produce.
2. Periodic sharing in the mill's profit. In regular 3, 6, or 12-month intervals, the mill's
profit would be distributed back to the owners – member farmers.
Once established, this venture will create a platform for other interventions with even
greater potential for benefit. For example, we hope to work with the farmers to
improve farming practices and yields. We also see very meaningful impact, though
intangible, in building confidence among these downtrodden and backward
communities. The exposure, confidence, and momentum generated from such
community-originated progress is priceless.
February 20, 2007
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Financial Projections
We have undertaken full financial planning under two scenarios. The first is our Base
projections as we scale up the venture. The second is our Steady State projections once
the business is fully operational.
The Base projections involve the minimum scope of activity required to bring up the
operation at breakeven profitability, which is 25% capacity utilization or production of
7,500 kg tur per month. Even at this minimal level of operation, we can improve
incomes 15% through higher point of sale purchase prices. The Steady State projections
show the profitability of the venture once fully operational. At this level, the venture
could support over 1,000 member farmers and improve their incomes 30% through a
combination of higher point of sale prices and periodic profit sharing.
Note that both scenarios only capture our base expectations for the venture. Once
operational, there are a multitude of expansion opportunities such as directly marketing
the product as natural/organic produce or increasing production capacity. These
expansion opportunities would allow us to scale up the amount of farmers involved
and the impact per farmer.
Operational details
The mill that we are contemplating would be a small-scale processing facility of
approximate processing capacity of 150-200 kg per hour of operation. The main piece of
machinery required is the dal mill. A separate grader cum polisher is required because
features such as quality, look, shine, and cleanliness of the processed dal impact
wholesale selling prices. A sheller and splitter are also required. These four line
machines together form the processing operation capable of processing tur, moong, and
urad.
We will need to run several motors totaling 5 H.P. to operate the machinery. We expect
to secure an electricity connection but will also need a diesel generator, as power is not
available on a continuous basis in the proposed area.
The community will provide the land required for the mill. Machine setup itself will
require 200-250 sq. ft. Additionally, warehousing space of 1,000-1,200 sq. ft will be
required to store the raw material purchased at harvest and the finished product before
it is sold. Finally, an open-air, leveled space of ~2,000 sq. ft. is required for drying.
Dal processing is a largely non-labor intensive activity as the machinery used is semiautomated. We anticipate requiring 4-6 individuals from the community to operate the
mill as well as 2-3 skilled managerial individuals to manage procurement, marketing,
February 20, 2007
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and general business affairs. The salaries for these individuals have been included in
our projections.
Status at this juncture
Seva Mandir began exploring this project almost one year ago by sanctioning a market
feasibility study. We have committed full-time, internal resources to the project since
September. Community mobilization and cooperation is critical to the success of this
venture. As such, we have actively worked with the villagers over the past 6 months to
build quantum. A membership drive has begun in each village and the members have
elected 2 representatives from each village to oversee this project. We have also begun
the process to create a new entity for this venture that will build in the mechanisms for
benefit sharing among members and responsible governance.
Funding was not available to setup the processing infrastructure before the Dec-Mar tur
season. We hence decided with the community to begin with trading operations. We
launched procurement activity in two villages. In this effort, the community has bound
together around procuring tur locally and then selling upstream once large enough
quantities are amassed. So far, this venture is running profitably and providing direct
benefit to farmers through higher point of sale prices. The funds for this activity were
secured as a loan through each village's community development fund (called Gram
Vikas Kosh). These are funds administered by Seva Mandir for community works.
This procurement operation has increased comfort among the community and created
real momentum towards beginning processing. We are afraid that much of this
momentum will be lost if we cannot launch processing activity before the rains come in
July. Hence we are hoping to establish the mill and begin some basic level of
processing in May/June. We would spend those months and the months following the
rains to assure the operation stands on strong footing before stepping up capacity
utilization going into Dec-Mar tur harvest.
Funds required – WE NEED YOUR HELP!
The critical gap at this point is infrastructure. Launching processing activity entails
procuring the machineries and building out the mill site. As such, we are hoping to
raise $6,000 to be used as outlined below:





$4,000 to procure the 4 pieces of machinery required for dal processing
$750 to secure power supply
$500 to pay local wage laborers for site construction
$500 for machinery transportation and installation
$250 of construction costs
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Once operational, the business will have working capital needs. The amount required
depends quite heavily on how we configure the operation. For example, procuring
large quantities during harvest may be most profit-advantageous but will require the
most working capital. We expect to secure the working capital required to begin
operations through the community development funds (GVKs). The vehicle would be a
3-month, interest-bearing loan facility similar to that which we have arranged for the
procurement operation currently underway.
It is important to note that this venture is predicated on a sound business model. It will
require an incubation period in which Seva Mandir has committed to supporting it, but
we fully expect that it will quickly reach profitability and hence self-sustainability. We
do not expect this venture to require ongoing grant funding once it is operational.
Conclusion
We have already done significant work on this project to establish the feasibility of this
venture and to initiate operations. Through such work, we have created the required
backward and forward linkages. We have also mobilized the community around the
potential inherent in this venture. The market-based nature of this project ensures its
long-term viability and sustainability. It will not require constant injections of grant
funding but will instead fund itself through profits. This represents a landmark
opportunity to prove that decentralized, small-scale agro processing is a viable avenue
for rural livelihood creation and upliftment of the poor.
On one level, this project entails significantly strengthening livelihoods in one of our
most backward regions. On another level, it involves mobilizing 1,000+ farmers to
unite around a small-scale venture that provides promise. Please join us in supporting
this noble effort.
Potential Benefits
This project represents a large-scale opportunity for improved
livelihoods in Kotra Tehsil, the least developed area of Udaipur
District. A project of this scale would benefit 1,000 – 2,000 families and
could improve their earnings 15-50%.
February 20, 2007
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