Global Young Leaders Programme February 2011

Five year development plan forFive year development plan forFive-year development plan for Integrated Farmers’ Association of Heshuiping Region,

Jianshi County Hubei Province China

Five-year development plan for Integrated Farmers’ Association of Heshuiping Region,

Jianshi County Hubei Province ChinaJianshi County, Hubei Province, ChinaJianshi County, Hubei Province, China

1

TABLE OF CONTENTSTABLE OF CONTENTSContents Page Number

1. Executive Summary 3

2. Background 10

3. Objectives 21

4. Scope & Approach 23

5. Business Model 28

6. Financial Services 36

7. Governance 467. Governance 46

8. Production & Marketing 60

9. Community Services 72

10 Implementation Plan 7610. Implementation Plan 76

11. Risk Assessment and Mitigation 80

12. Recommendations 82

13 A di

2

13. Appendices 85

EXECUTIVEEXECUTIVE SUMMARY

3

Executive Summary – Background

• The Integrated Farmers’ Association of Heshuiping Region (IFAH) was founded in 2008, covering six villages, namely Nongke, Fengxiangshu, , g g , y g , g g ,Yangliu, heping, Chunfang and Cacapo, in Sanli Township, Jianshi County.

• IFAH aims to protect the interests of farmers, enhance the knowledgeIFAH aims to protect the interests of farmers, enhance the knowledge and skills of farmers, advance agriculture modernization, increase farming revenues and improve the livelihood of farmers, develop rural economy and social business, advance rural community development and bring forth a new rural governance structure.

• IFAH’s mission is aligned both to the Chinese Government’s efforts, and the Sanli Township’s 5 year development plan to enhance living standards and income of the community

• YLP participants were tasked to create a business model that includes rural governance to aid sustainable development in Sanli township.g p p

Executive Summary – Business Plan

• A 5-year plan is proposed, with recommendations made on the governance and financial model for IFAH, changes to crop aggregation and community

t houtreach programmes

• A starting capital of RMB 1,000,000 is needed in the first year for the credit department, and in five years, the cumulative capital will be RMB $169 000 000$169,000,000

• Breakeven is expected in the second year

• Gross Profit of RMB 4,300,000 is expected in the third year eventually extrapolating to RMB 7 100 000 in the fifth yearextrapolating to RMB 7,100,000 in the fifth year

• Average household income from farming is expected to increase by 25% within 2 years of implementation

O ll i ti f l t b i t d t d li b d• Overall migration from rural to urban areas is expected to decline, based on asset building and enhanced farming income

Demonstrating business viability for future extension g yof the proposed IFA model

Executive Summary – Operational RecommendationsRecommendations• Finance

– Introduce the Finance & Investment, and Credit Functions as IFAH’sIntroduce the Finance & Investment, and Credit Functions as IFAH s sole vehicle for provision of financial services

– Utilize money remitted by migrant workers to enhance IFAH’s capital base

• Production and Supply Chain– Review supply chain for pig farming, so as to aggregate and increase

revenue for farmers and IFAHrevenue for farmers and IFAH– Review crop/land allocation and expand fragrant rice production

Multi pronged approach to enhance income to farmers

Executive Summary – Operational RecommendationsRecommendations• Governance

– Review IFAH team composition; enhance management bandwidthReview IFAH team composition; enhance management bandwidth, governance, risk management and transparency

– Review member leadership structure, from geography based leadership to functional/crop based groups

– Enhance internal checks to ensure benefits to farmers

• Community Servicesy– Set up mechanism to train farmers on more effective farming, with a view

to enhancing the overall average household income– Enhance healthcare awareness and cultural & educational activities– Provide framework for creating positive environmental impact, e.g. wasteProvide framework for creating positive environmental impact, e.g. waste

collection

Enhance IFA governance and community servicesg y

Executive Summary

• The 5 year plan aims to:– Enhance the average household income from farming in the HeshuipingEnhance the average household income from farming in the Heshuiping

region (year 1 and 2) and eventually to the Sanli township (years 3 onwards) by 25% within 2 years of implementation

– Empower smallholder farmers by building confidence to join theEmpower smallholder farmers by building confidence to join the professional groups and support IFA

– Demonstrate that the model can be replicated across townships and eventually at the county levely y

– Make rural vocation/farming attractive thus reducing the migration of workers to urban areas

I i t l d h iti i t th– Improve environmental awareness, and have a positive impact on the local environment

BACKGROUND

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China – A society built upon agriculture

• For over 8000 years, China's smallholder farming i lt l b h l d k l i ti th

1978 –Decollectivizationagricultural base has played a key role in supporting the

growth of what is now the largest population of the world

• Since 1978 and its open market reforms China has

Decollectivization (free market reforms)

1953 –Commune System• Since 1978 and its open market reforms, China has

become the world’s largest producer and consumer of agricultural products; Currently, it produces 30% of the world’s corn, 25% of the world’s cotton, 37% of the world’s

System

fruit and vegetables and half of the world’s pork

• Structural changes to the economy - despite the healthy 7500 BCexpansion of the agricultural sector, the even faster growth

of the industrial and service sector during the reform era has begun to transform the rural economy from agriculture to industry and from rural to urban

7500 BC –Domestication of rice/ rise of farming communities and accumulation of wealthindustry and from rural to urban

10

Source: http://www.iiasa.ac.at/Research/SRD/pdf/IR-03-007.pdf Source: http://www.iiasa.ac.at/Research/SRD/pdf/IR-03-007.pdf

Globalization and the growing rural-urban dividedivide

China’s rapid economic development and i d t i li ti h t d iindustrialization has created a growing gap between rural and urban areas

China’s urban population has increased from– China s urban population has increased from 18.96 per cent in 197 to 46.60 per cent in 2009

– Per capita disposable income for urban residents was RMB 17,175 compared to RMB 5,153 for , p ,rural residents

– Decrease of rural labor force – 80% to 50 % in less than thirty years

• The reported urban: rural income ratio is currently 3.35:1 but in reality, the disparity could potentially be as high as 6:1

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Source: Consulting Center for Farmers’ Associations (CCFA) Source: Consulting Center for Farmers’ Associations (CCFA)

Globalisation and the growing rural-urban dividedivide

• To find additional income, there has been an exodus of 200-300 million rural i t i t d l d t l i d i d t i l iti i tmigrants into developed coastal provinces and industrial cities as migrant

workers – The migrants are mostly male and represent over a quarter of the rural farming

population; an average of 1 per householdp p ; g p• Rural-urban migration together with the expansion of industry has resulted in

thea) Breakdown of traditional village social structures (elderly and

children being left behind),b) Continual decline of economic sustenance (local farming activities

plummet because of lack of labor, knowledge, leadership), andc) Deterioration of the environment (urban sprawl and industry

development impacts)• Families, crops, and land are abandoned for the seemingly more viable

option of urban lifeoption of urban life

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A new way forward for rural China

• Currently, smallholder farms have little capacity to benefit from the opportunities presented by the growth in the agricultural sector becauseopportunities presented by the growth in the agricultural sector because each farmer is allocated only 1.826 mu of farmland (less than 0.1 ha per capita)

• However, if rural communities can successfully scale the collective efforts of these farmers, the economic potential is over 100M mu of land (1/18 of China’s arable land) and can provide a solution to the widening gap between urban and rural areasbetween urban and rural areas

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A new way forward for rural China

• Current efforts in China:– Policy support is close to 1 trillion per year y pp p y

of funding coming from central government to improve infrastructure, living condition, production capacity, social servicesMicrofinance schemes to address bottom of– Microfinance schemes to address bottom of the pyramid funding for smallholder farmers

– Structural change both in the form of pilot grassroots farming programs and research-led technological innovation

Yet there is still a need for a modernization d l th t dd l t i bilit imodel that addresses rural sustainability in

a holistic manner, and serves the smallholder farmers.

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Integrated Farmer’s Association of Heshuiping (IFAH)The Integrated Farmer’s Association of Heshuiping (IFAH)was formed in ApriI 2008 as a strategic partnership between:

1 Chi A d f S i l S i P li

Heshuiping (IFAH)

1. Chinese Academy of Social Sciences PolicyResearch Center, Consulting Center for Farmer’sAssociation (CCFA) led by Professor Yang Tuan

2. China Youth Development Foundation3 B i ht Chi G3. Bright China Group4. China Social Entrepreneur Foundation

With the support of the Integrated Rural Development andG Pil t P Offi IFAH i t b th fi tGovernance Pilot Programme Office, IFAH aims to be the firstmodel of rural governance that:

i. integrates the experience of farmers’ associations inEast Asia with the local best practices of asset-b d d l tbased development

ii. acts as an intermediary between governmentbodies and the farming community that serves thewellbeing of smallholder farmer economies in ruralChi

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China

The IFA Model from East Asia and its Potential for ChinaThe IFA Model from East Asia and its Potential for China

The Heshuiping model is based upon over 5 years of CCFA research on existing IFA’s in Taiwan, Japan and Korea. Current East Asian IFA’ h l f ti i l di a) Distribution

b) productionc) Supply

IFA’s have several core functions including:• Needs provision – Farmers centered• Social enterprise function – Asset building, separation

of authority and function internal wealth allocation

Financialservices

of authority and function, internal wealth allocation• Collective operation – High efficiency• Agriculture extension and education

Core F ti

Core F tiThe success and adaptation of the IFA pilot program in

China can push forward social structural change in Chinato ensure

• The sustainable development of society

FunctionsFunctions

a. Educationb. Cultural

activities

Social services

The sustainable development of society• Protect the ecology and environment• Protect people’s health• Curb corruption and ensure the effectiveness of policies• To promote civil society and realize democracy

16

Source: http://www.iiasa.ac.at/Research/SRD/pdf/IR-03-007.pdf Source: http://www.iiasa.ac.at/Research/SRD/pdf/IR-03-007.pdf

• To promote civil society and realize democracy

IFAH Membership Overview

• Currently, IFAH covers six villages in the Heshuiping region of Sanli Townshipthe Heshuiping region of Sanli Township, which is part of the 37 townships which make up Jianshi County.

Heshuiping regionHeshuiping region

• It has 5000 members from 1320 households which make up approximately 60% of the regional resident populationresident population

Community IFAH Members Percentagey g

No. of villages 6 - -

No. of member groups - 64 -

No. of households 2050 1320 64.3%

No. of people 8180 5000 61.1%

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SWOT AnalysisStrengths

• Strong support from Govt: Sanli mayor

Weaknesses

• Limited management bandwidthg pp ykeen on agriculture development

• Existing association and buy-in of farmers

Support from Consulting Centre for

Limited management bandwidth

• Limited financial resources

• Farmers not aware of potential b fit• Support from Consulting Centre for

Farmers Association (CCFA)benefits

O i i ThOpportunities

• Aggregation of products and services, e.g. pig farming produce, to improve li lih d

Threats

• Scattered progress beyond the initial 6 villages covered

livelihoods

• Introduction of additional services like healthcare, insurance

• Lack of demonstrable achievement of IFAH in the immediate future

• Inability to attract and retain talent• Expanding beyond 6 villages

y

• Funding difficulty

Problem Statement

Key issues identified:

P l i h f i i i H h i i i• Prevalent poverty in the farming community in Heshuiping region, current estimates of average household farming income (excluding remittances) at around RMB 3,000 annually

• Lack of economic progress, accentuated by lack of access to p g , ycapital, resources and technology

• Limited effective governance framework, management expertise, and weak institutions

• Limited economic opportunities locally leading to an exodus of workers to urban areas and resultant social issues

• Poor environmental awareness, and adverse impact on local environment leading to long term issuesenvironment, leading to long term issues

Need for effective rural governance to help h f i i

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enhance farming income

OBJECTIVESOBJECTIVES

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Objectives

• To alleviate poverty among the rural farmers in the Heshuiping area • To create a framework and mechanism for effective rural governance and• To create a framework and mechanism for effective rural governance and

sustainable growth • To create a sustainable rural credit model for smallholder farmers• To increase local household income from farming by utilizing better• To increase local household income from farming by utilizing better

practices and by aggregating local produce• To stem the emigration of workers to urban areas, and to enhance

opportunities for asset based growth locally• To empower smallholder farmers • Create a framework that can be replicated in other townships and counties• To enhance overall societal and environmental developmentTo enhance overall societal and environmental development

Creating a sustainable rural economy…

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SCOPE &SCOPE & APPROACH

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Scope

Scope of the business plan includes the following three essential elements:

• One farmers’ association for one township• Focus on Sanli Township in Jianshi County

C ti t d 37 ill

1 Township,1 IFA

elements:

• Covers estimated 37 villages1 IFA

• Four key areas:• 1) Governance 2) Production & Marketing5 Y D l t • 1) Governance 2) Production & Marketing• 3) Finance 4) Community Services & Benefits

• Adapted from the East Asian models of Farmer’s Associations (FA) from across Taiwan, Japan and Korea

5-Year Development Plan for IFAH

• Two main stakeholders:• The government of Jianshi County and the Integrated

Rural Development and Governance pilot programme office

• Consulting Center for Farmers’ Associations (CCFA)

Implementation Plan for IFAH and Stakeholders

• Consulting Center for Farmers Associations (CCFA)

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Key Considerations for Business Plan RealisationRealisation

• The Business Plan is a key tool for IFAH to address immediate risks and opportunities and implement the core building blocks to achieve its objectives

• The Business Plan is NOT immediately intended to attract external yinvestors as IFAH do not have the requisite governance structures and resources to move to immediate implementation

• The 5 year plan is focused on incubating the notion of self reliance• The 5-year plan is focused on incubating the notion of self reliance through existing available financial services by piloting business operations expansion to the 37 Villages within the Sanli Township

U f l li ti f th b fit f th il t th d l• Upon successful realisation of the benefits of the pilot, the model can potentially be tailored to be scaled to Jianshi County as part of the next stage of business expansion

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Approach and Methodology

• GIFT scoping & preliminary due diligence for Global Young Leadership Program (YLP)

7-9 Dec 2010

• Global YLP participants reviewed the background and the current approach of IFAH

• Interviews meetings and field visits with key stakeholders:

19-21 Feb 2011

19 23 F b 2011• Interviews, meetings and field visits with key stakeholders:– Government Officials (county and township)– Village Heads– Member Group Leaders– Farmers

19-23 Feb 2011

Farmers– IFAH Management– CCFA Members– Bank Representatives

• Briefings and brainstorming 22-23 Feb 2011• Briefings and brainstorming• Calibration and clarification with key stakeholders• Project planning and mapping

22-23 Feb 2011

22 23 Feb 2011

23 Feb 2011

• Business plan development 23-24 Feb 2011

Approach and Methodology

W k h B i fiWorkshops on global issues

Briefings on background Field visits

Inspiring speakers YLP & IFAH  Farmers & IFAH

Debriefing & Discussion

Final clarification with relevant parties

Organizing & Mapping

Continuing Business

YLP team  Various parties YLP team 

Agreeing on Content

ginputs from

stakeholders Business

plan YLP team  YLP team  YLP team 

BUSINESS MODELMODELIntegrated Social EnterprisePerformance IndicatorsBenefits

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A model of integrated and profitable social enterprisesocial enterprise

1) Self-sufficient revenue model:

Supported by Overarching Governance

– New credit financing business capitalizing on remittance and deposits from migrant workers

Sustainable Livelihood & Social Impact

Agricultural Supply Chain from migrant workers

– Collection and distribution of key agricultural output

– Fragrant rice growing investmentIFA

Supply Chain

FinanceServices

investment2) Supporting governance

model to ensure management transparency and farmers

IFA

p yinterests are protected

3) Delivery of community service for improvement of rural livelihoodrural livelihood

Fully Integrated Business Model Across Revenue and Cost DriversRevenue and Cost Drivers

enables positive return in the long term…enables positive return in the long term

IFAH’s Main Business Revenue ProjectionsProjections

• Revenue from projects over 5 years:

$16 000 000

$18,000,000

$20,000,000

$10 000 000

$12,000,000

$14,000,000

$16,000,000

Revenue(other)

$

$6,000,000

$8,000,000

$10,000,000 Revenue(production)

Revenue(credit dept)

Revenue(membership fee)

$0

$2,000,000

$4,000,000

1 2 3 4 5 6

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IFAH’S NET INCOME GROWTH FOR 5 YEARSYEARS

5 000 000 Net Income• Annual Net Income Growth in year 4-5: 26%

3 000 000

4,000,000

5,000,000 Net Income

• Breakeven Point: 2 year

Achie ing more than 1,000,000

2,000,000

3,000,000

• Achieving more than RMB 4 million in year 5

(1,000,000)

0

Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

Growth potential is very highGrowth potential is very high

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5-Year P&L Projections of IFAH

Consolidated Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

Revenue(membership fee) 31,540 37,540 100,107 162,673 231,497 Revenue(credit dept) 110 000 513 805 2 068 157 5 316 377 10 631 862Revenue(credit dept) 110,000 513,805 2,068,157 5,316,377 10,631,862 Revenue(production) 250,000 1,475,000 5,020,000 5,900,000 6,520,000 Revenue(other) 39,600 105,600 171,600 237,600

Total revenues 391,540 2,065,945 7,293,864 11,550,650 17,620,958 Costs (credit dept) 100,000 622,842 2,235,780 5,167,480 9,711,154 Capex (production) 600,000 750,000 750,000 750,000 750,000

Total costs 700,000 1,372,842 2,985,780 5,917,480 10,461,154 Gross Margin (308,460) 693,104 4,308,084 5,633,170 7,159,804

-79% 34% 59% 49% 41%Expenses

expense(credit dept) 91,600 117,960 272,473 352,491 460,910 expense(community) 2,000 76,000 119,000 241,000 329,000 expense(production) 54,000 258,000 516,000 774,000 1,032,000 expense(HR) 50,000 146,000 146,000 146,000

Total expenses 147,600 501,960 1,053,473 1,513,491 1,967,910

Operating Profit (456 060) 191 144 3 254 610 4 119 679 5 191 894Operating Profit (456,060) 191,144 3,254,610 4,119,679 5,191,894 Other gains or losses 0 0 0 0 0

Income Before Taxes (456,060) 191,144 3,254,610 4,119,679 5,191,894

Dividend (20% of IBT) 0 38,229 650,922 823,936 1,038,379

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Dividend (20% of IBT) 0 38,229 650,922 823,936 1,038,379 Net Income (456,060) 152,915 2,603,688 3,295,744 4,153,515

BenefitsBenefitsFinancial:• Increase average household income by 25%Increase average household income by 25% • Increase revenue and productivity through better

utilization of resources and aggregation of products & IFAH Financial Services

Community:• Enhanced and more effective rural

governance• Train farmers to enhance knowledge onTrain farmers to enhance knowledge on

agriculture products and techniques• Improve public health awareness• Greater engagement and social interaction

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BenefitsBenefits

Social:• Increase opportunities for enhance living pp g

standards, using local resources effectively• Reduce migration of workers to urban areas

Environment: • Enhance sanitation

Improve river water quality• Improve river water quality• Enhance soil quality by

promoting use of organic fertilizer

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FINANCIAL SERVICESSERVICES

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FINANCIAL SERVICES - OVERVIEW

• Focus on 5 Key Financial Services to enable a sustainable and profitableenable a sustainable and profitable Business Model

• Existing Mutual Assistance Schemes in Villages (eg. Ca Ca Bo and Yang Liu) will eventually be absorbed into the IFA Financial Services ModelFinancial Services Model

• Undertake Central Claims Processing for Tobacco Farmers

• Supported by sound supporting processes for Financial Accountingprocesses for Financial Accounting, Financial Controls and overall IFA Governance Model

• Enables effective collection, analysis and management of key demographic i f ti t t th P bli Aff iinformation to support the Public Affairs Function

Creating Value-Add and Streamlining Current Financial Services

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g g

FINANCIAL SERVICES – CAPITAL MUTUAL ASSISTANCE SCHEMEASSISTANCE SCHEME

• Short Term (1-2 years) Financing Scheme to fund Start Up CapitalScheme to fund Start-Up Capital

• Pooling together smaller amounts from farmers (approximately RMB500 to RMB2000) with matching funds (up to RMB500) from the government

• Funds used for Micro-Finance without collateral at an annual interest rate of 7 to 10%

• Loan Term up to 12 months• Loan Term up to 12 months

Critical Step To Achieve Economic Self Reliance

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FINANCIAL SERVICES – MICRO-FINANCE

• Micro-Finance Loan amount RMB 5,000 to RMB 50,000 (without

Credit FunctionCredit Manager

collateral)

• Loans > RMB 50,000 will be secured through the Rural Credit Union under a strategic partnership with IFA (with

Credit Processing CreditDisbursements

Credit Control

Submit ApplicationsFor Approval

After Credit ChecksCompleted Approved

Applications

strategic partnership with IFA (with collateral)

• Adjustable Interest Rates based on Credit & Income Profile of Farmers Submit Application

Forms for ProcessingProvide andCollect

• Term Loan of approximately 1 year to 5 years structured through short term repayment

• Providing convenience through Group Heads

Offer andSigning of Offer

Letter & Agreement

FundsDisbursement

(Cash/Remittance)*

CollectApplication Forms

and Provide Education& Awareness

FUNDS

• Providing convenience through empowerment of the IFA Group Heads

FarmersProvide and

CollectApplication Forms

and Provide Education& Awareness

Credit Monitoringand Control

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& Awareness

* Cash/Remittance to be used for Short Term. Once IFA obtains licence to receivedeposits the amount will be remitted directly to the farmers IFA Savings Account

FINANCIAL SERVICES – SAVINGS SCHEME

• Key integrator of Product Co-Operatives into IFA Business Model through means of investment and shareholdingsof investment and shareholdings

• Facilitates establishment of strategic relationships with Commercial Banks/Credit Unions

• Receive Deposits from farmers and migrant workers paying out an annual interest• Receive Deposits from farmers and migrant workers paying out an annual interest rate of approximately 2.6%

• Providing convenience through aggregation of savings accounts maintained with multiple financial institutionmultiple financial institution

• Pooled Deposits to contribute to micro-financing and investment opportunities

• Providing farmers visibility and transparency of summary financial status and other ti iti th h t h l bl t ( F Ki k)activities through technology enablement (e-Farmer Kiosk)

• Longer Term (> 5 years) scale to promote IFA as Integrated Service Centre i.e. provide services to farmers such as direct debit facilities for bill payments

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IFA as an Integrated Financial Service Provider

FINANCIAL SERVICES – SAVINGS SCHEME

The Savings Scheme is a Key Service Enabler for IFA as it represents the heart of IFA’s business operations in effectively linking farmers migrant workers financial partners and co-

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business operations in effectively linking farmers, migrant workers, financial partners and co-operatives in order to achieve supply chain and capital efficiencies and gains

FINANCIAL SERVICES – CENTRAL CLAIMS PROCESSINGPROCESSING

• Tobacco industry operates as a single monopoly in China through the

Finance & InvestmentsFunction

Finance Managermonopoly in China through the Chinese National Tobacco Corporation (中国国家烟草公司)

Central Claims Processing Ser icesFinancial Accounting

IFA Banking

Process Claimsand Submit

For Approval

ApprovedClaims

WithdrawReimbursement

Amounts• Central Claims Processing Services provided only to Tobacco Farmers

• Provides scale efficiencies in-line with lid ti f t l i t

gAccount

Deposits moniesdue to farmers

Amountsfor Farmers

consolidation of mutual assistance schemes into the IFA structure

• Farmers receive monies faster than if

into IFABanking Account Submit

Claims on behalf of farmers

Group Heads

Reimbursement(Cash/Remittance)*

directly interacting with the Tobacco Collection Centres

FarmersDeliver tobacco cropsand obtain receipts

Tobacco Collection Centre

Hand over claimsto Group Heads

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* Cash/Remittance to be used for Short Term. Once IFA obtains licence to receivedeposits the amount will be remitted directly to the farmers IFA Savings Account

FINANCIAL SERVICES – FINANCIAL EDUCATION & AWARENESSEDUCATION & AWARENESS

• Key Service Component which underpins the Financial Servicesunderpins the Financial Services Model and is a key input in the Risk Management Process

• Integral part of Community Outreach Programme bProgramme by:

– Providing Financial & Debt Management Awareness

– Assisting Farmers toAssisting Farmers to safeguard and take control of ownership over their financial securityP t d P id– Promote and Provide Education on the Benefits of IFA’s Financial Services

42

FINANCIAL SERVICES – SUPPORTING PROCESSPROCESS

Financial Accounting • Day-to-Day Financial OperationsDay to Day Financial Operations• Organize Incoming Investments

(Grants etc) and IFA Investment• Manage Disbursement of Funds to• Manage Disbursement of Funds to

Farmers, Projects, Community Services or other initiatives based on the direction and approval ofon the direction and approval of the IFA Executive Board

• Budgeting & Forecasting Activities• Periodic Financial Reporting• Periodic Financial Reporting

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FINANCIAL SERVICES – SUPPORTING PROCESSESPROCESSES

Risk Management & Financial Controls

• Organization Structure provides for clear segregation of duties to mitigate risks of

• Undertaking Stringent Credit Checks (Financial Needs Family Members Sizesegregation of duties to mitigate risks of

fraudulent activities• Establishment of a Delegation of

Authorities Framework• Supervisory Board and External Auditors

(Financial Needs, Family Members, Size of Land, Monthly Income etc.)

• Short Term Repayment of Loans and Credit Profiling

• Monitoring Controls over Loan p yprovide “check and balance”

44

grepayments

GOVERNANCE

45

FrameworkFramework

Sustainable Rural Farmer Livelihood

& Social Impact

Sustainable Rural Farmer Livelihood

& Social Impact& Social Impact& Social Impact

Board & Board & Organizational Organizational

StructureStructure

Board & Board & Organizational Organizational

StructureStructure

Risk Risk ManagementManagement

Risk Risk ManagementManagement

Social Social ResponsibilityResponsibility

Social Social ResponsibilityResponsibility

TransparencyTransparency& Decision Flow& Decision FlowTransparencyTransparency

& Decision Flow& Decision FlowStructureStructureStructureStructure

46

IFA Governance & Communications Structure

General AssemblyKey: H d t

Structure

Executive Board

9

Key: [] –– 11‐‐2 yr timeline2 yr timeline

[] –– 5 yrs timeline5 yrs timeline

Headcount

Supervisory Board

3 93A ditA dit

Governance & Decision MakingGovernance & Decision Making

81

Executive Director

External Auditors

AuditAudit

ImplementationImplementation

Village 1 Village 2 Village 6 Village X…376

Product Group 1

Product Group 2

Product Group 3

37

Product Group 4

ActivityGActivityG

ActivityG 2ActivityG 2

ActivityG 3ActivityG 3

ActivityGActivityG

.Group 1 Group 2 Group 3

…Same structure  per 

village

Group 4Group 1Group 1 Group 2Group 2 Group 3Group 3 Group 4Group 4

Activity Based Groups

IFA Group Communication Modelp

IFAIFAVillage GroupsActivity

-- Not all are IFA membersNot all are IFA members-- Not all belong to an Not all belong to an Activity Based GroupActivity Based Group

L d b ill h dL d b ill h d

yBased

Groups -- All are IFA All are IFA

membersmembers -- Led by a village headLed by a village head-- Bonded together Bonded together by common goalsby common goals

-- Led by a group Led by a group headhead

48

Activity-Based Group (ABG)y p ( )Who:Self-governance grassroots entity formed by farmers EB IFA g g y ywho share the same agriculture product/activity and volunteer to lead in the ABG

What:Facilitating two-way communication between IFA and farmers, between EB and farmers

How:

ABG

-Financial and community services are delivered to farmers through ABG and EB’s decisions are acted upon through ABG.

Farmers’ opinions and concerns are pushed up to IFA

FARMERS-Farmers opinions and concerns are pushed up to IFA or EB by ABG.

Why:

Decision flowOpinion /product flowService flow

Key:

smaller group size + shared interests = stronger bond among farmers

Roles and Responsibility in IFAp y

General Assembly Supervisory Board

- Elected by village representatives- Elect board of directors- Review and approve annual budget - Vote on direction and major projects of IFA

- 1 farmer and 2 independent directors- Ensure decisions are executed and capital allocated as planned

j p j

E ti B d E ti Di tExecutive Board

- 9 farmers elected by the General Assembly (GA)

Executive Director

- Evaluated by Government, CCFAand one nominated EB member on an

l b i- Not more than half can hold village leveladministrative role

- Call general assembly- Reviews the annual budget

annual basis- Government secondee/ Non-IFA member - Leads all IFA projects and initiatives - Review and develop annual plan

IFA Election Process

51

IFAH Management Team Structureg

StaffdKey:

EXECUTIVE DIRECTOR

[] –– 11‐‐2 yr timeline2 yr timeline

[] –– 5 yrs timeline5 yrs timeline

HeadcountKey:

Human Resources & Finance & 

Community Outreach & Production / 

S l Ch iPublic 

CreditResources & Admin Investment

Outreach & Environment  Supply Chain Affairs

Credit21 61 72 4

12174

Critical to the success of implementation for the 5-year plan, effective utilization of human

resources needs to be made.

52

esou ces eeds to be ade

Decision Flow

KEY AREA/RESPONSIBILITY CENTER GA EB Executive Director

• Project launch - Approve Review

• Annual Budget Approve Review Implement

• Capital/Asset allocation Approve Review• Capital/Asset allocation - Approve Review

• Partnership agreement (with Cooperatives etc) Approve Review Implement

• Dividend payout Approve Review ImplementDividend payout Approve Review Implement• Social/community investment - Approve Review• Lending rate - Approve Review

• IFA Borrowing Approve Review• IFA Borrowing - Approve Review

• Designed to ensure clear and transparent decision making• Ensure Farmers’ welfare is considered in all decisions (General Assembly as the main voice of farmers)• Provides measures to mitigate risk and fraud

Increased executive board empowerment

Authority Flow

KEY AREA / RESPONSIBILITY CENTER GA EB EDInvestment/procurement *

y

Investment/procurement > 50,000 (amounts above)

21,000 - 50,000 (amounts in range)

< 20,000 (amounts below)

√√

√Loan Amount

> 40,000> 20,000> 10 000 (* NB R t th t t f i ’ )

√√

> 10,000 (* NB: Range to the start of superior’s) √Audit report √IFA staff recruitment and layoff √ED recruitment and layoff √

• NB: (*) Amounts will increase on an upward adjustable scale and approved by the general assembly with the growth and expansion of IFA

• Highlights key decision makers’ level of authority in specific key areas usually prone to fraud & lack of transparency IFA to take equity stake in

the coorperatives

Process ScenarioDecision Making & ApprovalDecision Making & Approval

For a typical procurement or investment decision to beinvestment decision to be made, a scenario-based approach is presented to exemplify decision and authority flow.

Aim:-To ensure implementation of best management practice

K l diti-Keep approval conditions set and properly documented

-Remain mindful of time required for processing and release of funds

NB: (*) Amounts subject to increase as organization grows.g

FOR REFLECTION: THE ORGANIC FERTILIZER PLANT CASE

IFA Integration/Partnership with Professional CooperativesProfessional Cooperatives• Common assumptions

– Smallholder farmers can see and benefit from the integration/partnership of IFA and cooperativesand cooperatives

– Both IFA & the cooperatives see value in integration/partnership– Main driver for partnership/integration is financial

Wh t IFA b i t th t bl• What IFA brings to the table– Access to investment and lending funds– Strong government relationships and support– Robust governance and management structureRobust governance and management structure– Provide economies of scale in production capability (by enabling consolidation of

small holder assets) and access to potentially larger markets

• How IFA can benefit from the CooperativesHow IFA can benefit from the Cooperatives– Transfer of technology and know how– Access to current established distribution channels– Access to established brand/marketing

Pro ide economic benefits for small holder & re en e stream for IFA– Provide economic benefits for small holder & revenue stream for IFA

IFA Integration with Professional Cooperative as a ShareholderCooperative as a Shareholder

Executive DirectorPotential

investment/partnershipGeneral

Assembly geng Executive Director recognizes potential

partnership opportunity

investment/partnership opportunity presented to

Executive Board & General Assembly

sse b yto decide

whether to participate

No

Gat

e St

a

Beg

inni

Yes

IFA injects capital investment into cooperative

IFA appoints a representative to the cooperative

IFA mobilizes smallholder investment into cooperative & becomes a shareholder in

the cooperative

to the cooperative board/management team,

approved by Executive Board

farmers & enables communication between

parties

F b fit bFarmer benefits by selling produce

back to cooperative

IFA benefits in profit

Res

ultsCooperative shares

technology/know-how to appropriate smallholder

farmers IFA benefits in profit sharing

farmers

Rural Investment by Government: recommended improvementrecommended improvement

Central Government

Government Project FundingCurrent funding route for social security projects:

Proposed funding route for new community related projects: Central Government

Provincial Government

y p jDistribution of project funding

through township government and village committee

Key areas:

contract based outsourcing of government projects to IFA

Key areas:-Environmental management, including

t ll ti l d tiPrefecture Government

County Government

y- Health care- Social security- Pension- Infrastructure development- Education

waste collection, land regeneration- supplies shop- Elderly care- Rural community integrated service center- Health education- Women organisation

Township GovernmentIFA

Women organisation- Cultural activities

Key benefits:Village Committee

Farmers

Key benefits:-Improved efficiency-Community ownership-Self-governance :

payment by farmers to cover part of the cost

58

Farmersp-Reduced corruption

PRODUCTIONPRODUCTION AND MARKETING

59

Production and Marketing Strategy

• Heshuiping is a unique place due to the diverse products it can produce Pigs Rice Vegetables Rapeseedp p

• In consideration of building community confidence and building up IFAH’s

Kiwi Fruit Green Tea Chestnuts Konjac

management experience, the five year plan will initially focus on providing support and strengthening the capabilities of farmers going (or already) into breeding

Potato Tobacco Mandarin Oranges

farmers going (or already) into breeding pigs and farming rice

• As IFAH’s operational capacities are Develop successful examples of farmersp p

strengthened and it gains know-how, the organization can refine the model in order to focus on other products

examples of farmers and breeders in high margin products

60

Key Focus

Improve farmer’s livelihood and IFAH’s profitability through:p p y g• Investment in Fragrant Rice production and production volume increase

• Set up of pig farming supply chain collection and sales network

Supply Chain Improvement

Develop IFA brand as quality agricultural produce• Develop Township level branding for Sanli agri produce

Branding Development • Branding transition and inclusion of key commercial produce under

single umbrella

Development and Marketing

Effective supply chain and brand awareness to provide new revenue stream for IFAH and farmers

Fragrant Rice: The Potential

• Current fragrant rice production is constrained by lack of processing and warehousing facilityp ocess g a d a e ous g ac ty

• Limited funding and investment impeding further expansion of Professional Fragrant Rice Cooperative

• Untapped potential of smallholder farmers (3570mu uncultivated land and 1500mu regenerated riverbank area)*

• Positive market condition and return (RMB480/mu for normal fragrant rice, and up to 5-8 times for organic fragrant rice)

Fragrant Rice – A key starting point for IFAH demonstration

* Suitability of rice growing subject to detailed land utilisation study

Fragrant Rice: Enablement of Supply Chain

• Capital investment of RMB 900K for processing and storage investment– Funding: Profession Rice Coop RMB300K + IFAH RMB600Kg p

• Smallholder farmers to venture into fragrant rice growing• Seeding, agriculture technical services assistance, and sales

and distrib tion thro gh Professional Cooperati eand distribution through Professional Cooperative• Expected return:

– Breakeven by Year 4– Profit of RMB 912,000 over 5 years

63

Pig Farming: The Supply Chain

IFAH owns a pig breeding farm. Formation of a supply chain would help the smallholder farmers to Pig Breeding Farmsupply chain would help the smallholder farmers to strengthen their capacity in pig farming:

• To provide quality piglets for farmers to raise

Pig Breeding Farm

Pig Farmers

• To provide the logistic services to collect the pigs from the farmers and sell to the market

• Can afford to buy the pigs from the farmer at

Collection and Distribution

a higher price because it is able to get better pricing from consolidating the volume

• This will help to increase the revenue of

Market

psmallholder farmers

Improved revenue of IFAH and smallholder farmers th h th l f

64

through the scale of economy

Pig Farming: The Untapped Market

• IFA to provide the new breed of pigs:– Improve the pig’s quality to increase the lean meat and reduce fat– Improve the pig s quality to increase the lean meat and reduce fat– To provide branding and awareness to the consumers on the

benefits of the new pigBrand the New Breed Pig as Lean from Year 2:• Brand the New Breed Pig as Lean from Year 2:– Able to price the pig 10% above market rate

• Brand the Pig as Traditionally-grown from Year 5:– Able to price the pig 30% above market rate– Requires quality checks to ensure that

the pigs are grown traditionally• Expected return:

– Profit from Year 2– Profit of RMB 4m over 5 yearsProfit of RMB 4m over 5 years

65

Branding Strategy for IFAS Products

• Rebranding IFA to Township level inline with expansion planinline with expansion plan

• Change the name from IFAH (Heshuiping) to IFAS (Sanli Township)

Option 1

Township)• Year 1 and 2: transition period

– Relying on the existing well known brand, like 三里香 rice, to promote IFAS. IFAS just appear as an endorsement

– Building a new brand for the Pig farming business

– Introducing IFAS and their products to

Option 2

Introducing IFAS and their products to Government, market and famers through different channels

– Building name awareness gradually

66

Remark: Logo just for reference only.Remark: Logo just for reference only.

Branding Strategy for IFAS Products

• Year 3 – 4: Brand build-up period– Building strong awareness for IFAS– Building strong awareness for IFAS – Logo will be used on all products,

Supply stores and other areaBuild IFAS website to promote IFA– Build IFAS website to promote IFA and all productions

– Beginning to establish an affinity and loyalty to IFAS brand and the

IFA Logo

loyalty to IFAS brand and the products under its umbrella amongst those customers

Year 5 and onwards• Year 5 and onwards– Brand maintenance

67

IFA + Rice Logo

Sales & Marketing: Target Markets

• IFAH Stores (supply stores and grocery stores)Local (supermarkets hotel / restaurant deeply process factory and• Local (supermarkets, hotel / restaurant, deeply process factory, and direct delivery to consumers)

• National markets (supermarket / organic food chain outlets in Wuhan/Shanghai and other cities via strategic partners such asWuhan/Shanghai and other cities via strategic partners, such as Carrefour & Wal-Mart)

68

Prioritization of Projects and Allocation of Resources: Long Term Successof Resources: Long Term Success

F i di t l d b i iti• Focus on immediate value and business necessities. • Keep the implementation simple, focused on value, and structured

with a plan• Review the existing initiatives• Governance structure must be in place to review the project viability

and business case prior to each investment.

IFAH needs to show results now and any project that could be taking away resources and focus from the organization in delivering value, should either be put on hold or terminated

69

The Production of Organic Fertiliser as a Revenue Source for IFAH: Further Review Requiredq

• IFAH is in the process of setting up a pilot organic fertiliser production facility that converts local organic agriculture waste into organicfacility that converts local organic agriculture waste into organic fertiliser through a fermentation process

• Full-lead Bio Tech in Taiwan is the project partner providing the technology, however they do not have prior experience in China and have not obtained organic fertiliser certification in China

• The technology and design of the production facility needs to be• The technology and design of the production facility needs to be reviewed in accordance with the organic fertiliser certification standard in China to meet all the quality, health and safety requirements. At present, the setup and management of the pilotrequirements. At present, the setup and management of the pilot production facility have not addressed all the requirements. Upon initial assessment, the plant does not appear to be appropriate for the villages.

70

g

The Production of Organic Fertiliser as a Revenue Source for IFAH: Market Development in the Futurep

• The organic fertiliser produced by the current technology needs to be sold as a high-end organic fertiliser at RMB 1500-2000 per tonne tosold as a high end organic fertiliser at RMB 1500 2000 per tonne to justify its cost of production with high-energy demand

• The target market for high-end for organic fertilisers are organic fruits and vegetables producersand vegetables producers

• However, the development of a high-end market in Heshuiping region is still in its infancy. Sales channel needs to be developed to market the fertiliser to other places in the county where the fruits andthe fertiliser to other places in the county where the fruits and vegetable industry are more mature, but this is not practical or a priority at this stage

• IFAH can play a role in developing the local fruits and vegetables ca p ay a o e de e op g t e oca u ts a d egetab esindustry through organising production and marketing groups and providing the needed technical assistance and practical know-how in organic farming and supporting farmers to obtain government

71

subsidies for using organic fertiliser.

The Production of Organic Fertiliser as a Revenue Source for IFAH: Next StepsRevenue Source for IFAH: Next Steps

• The project needs professional consultation, and IFAH needs to consider alternatives including seeking other technology providers inconsider alternatives, including seeking other technology providers in China, and consider other more affordable technologies such as biogas reactor and composting. Field testing needs to be done with professional design and implementation, funded by the technologyprofessional design and implementation, funded by the technology provider, with third party certification

• Key questions to be answered:Wh t t f i t b d t i l?- What type of organic waste can be used as raw material?

- Are dead animals permitted?- What is the energy needs?- What are the emissions?- Is the fertilizer in solid, liquid or semi-liquid state?

72

COMMUNITY SERVICESSERVICESTrainingInfrastructureHealthcareCultural Services

73

Community Services:AimAim• Increase yield of production & average household income• Fill crucial knowledge gap on product pricing technology• Fill crucial knowledge gap on product pricing, technology,

machinery, financial management and business opportunities• Attract migrant workers back to and retain youth in the villages

Improve healthcare awareness and health status• Improve healthcare awareness and health status• Initiate cultural activities to help engage villagers and improve

livelihood • Enhance environmental awareness and overall living conditions in

the villages• Support innovation in agriculture production and natural farming

Create better living conditions through economic and environmental enhancement

74

Community Services:ActionsActions • Training on agricultural know-how in each village at least twice a year• Training for young generation: highlight the value and opportunity of• Training for young generation: highlight the value and opportunity of

livelihood in farming, and learning Chinese and English terms at the same time

• Cultural extension: identify 4-5 volunteers from each village as well as• Cultural extension: identify 4-5 volunteers from each village as well as Action-based groups to coordinate activities

• Free healthcare sessions and home visits for membersWaste management initiative: to collect garbage and clean the river• Waste management initiative: to collect garbage and clean the river

75

Community Services:Resources NeededResources Needed • 1 coordinator for agriculture extension and administration

– Budgeted for in overall IFAH structureBudgeted for in overall IFAH structure• Budget for agricultural training by specialists/consultants:

– Allocation of 20% of IFAH revenue for community services, membership fees and potentially training grants from banksfees and potentially training grants from banks

• Logistics for rubbish collection (e.g. vehicle maintenance & delivery)– Suggest government to provide funding as part of public service delivery

• Nominal amount as incentive for cultural activity volunteers• Nominal amount as incentive for cultural activity volunteers– ~RMB 2500 per year

• Budget for healthcare, waste collection and miscellaneous training (e g healthy aging farm health tips cooking a healthier meal etc ):(e.g. healthy aging, farm health tips, cooking a healthier meal, etc.):– Government funding support to be discussed

76

Details available in appendix

IMPLEMENTATION

77

Implementation Plan

Setup of credit Commence deposit taking & mature to final financing model

pmutual assistance scheme

Strengthen Governance and General Governance and Organization Assembly

Pig Farming Supply ChainFragrant Rice Production Expansion

Preparation for Community Services launch

Launch of Community Services continued and enhanced

Community Services continued and enhanced

Y 1 2 3 4 5 6

Gradually extend to the whole Sanli Township

Year 1 2 3 4 5 6

Five-Year Implementation Timeline

Year 1: 1st Quarter(Month 1-3)

2nd Quarter(Month 4-6)

3rd Quarter (Month 7-9)

4th Quarter(Months 10-

12)• Establish Finance Awareness & Education Program• Prepare for agricultural training sessions in the 6 villages• Liaise with primary schools to set out training for young generation• Setup of waste collection stations

• Rollout Finance Awareness & Education Program

• Communicate and promote training plans to members

• Source for seed capital

• Setup governance and functional organization structure

Executive Board to review new

• Establish financial, credit and control policies and procedures

• Fill immediate vacancies for Finance, HR & Credit d t t

• Launch training sessions on agricultural extension

• Submit application for license to accept farmers’

• Recruit additional IFAH staffs

• Finalize • Executive Board to review new

governance, board & management structure

• Establish mutual assistance scheme for farmers with matching funds from

departments

• Train new IFAH staff

• Set up facility for Fragrant Rice

deposits

• Launch PR project for membership cultivation & new IFAH model

production and marketing investment decision

government

• Apply for training grant

• Collect data on demographics and crop production

• Plan for communications on the new IFAH model

• Source independent supervisor

• Set up activity-based groups

• Seek approval of new structure & IFAH businesscrop production

• Appoint cultural extension volunteers

• Initiate implementation of waste management

structure & IFAH business model by GA

79

Five-Year Implementation Timeline

Year 2 Year 3 Year 4 Year 5

Obtain license for and implement savings scheme

Establish and implement savings scheme policies & procedures and operations

Extend fragrant rice production

Start cross-bred pig farming & distribution

Conduct training & create promotion materials for other townships

Conduct annual

Review results

Conduct annual audit of IFA business

Extend IFA to otheroperations

Ramp down Capital Mutual Assistance Scheme

Launch of agricultural and healthcare

Conduct annual audit of IFA business

Introduce waste management program for

Conduct annual audit of IFA business

Extend IFA for another 10 villages

Extend IFA to other villages in the Sanli township

Seek new sources of fundingg

training sessions in 6 villages

Launch of cultural extension initiatives

• Purchase of waste collection trucks

g p gother villages

Review the progress of IFA

Extend IFA for another 10

g

Evaluate other crops for IFA coverage

g

Implement e-farmer kiosk in agricultural supplies store

Launch of waste collection services

Conduct annual audit of IFAH business

Recruit additional IFAH management (to

villages

Expand agricultural and healthcare training sessions to more villages

Seek new sources of funds

Recruit additional IFAH management (to support expansion)

Integrate professional cooperatives

Elect IFAH executive & supervisory board

Seek new sources of funds80

RISKRISK ASSESSMENT & MITIGATION

81

Risk Assessment MatrixHIGH Risk

MEDIUM Risk

LOW Risk

Lack of Alignment of Goals of Executive Board Members

Non-Transparent IFA Administration

1

28 37

gh

1 610 11

LOW Risk

Non Transparent IFA Administration

IFA Inability to Attract & Retain Talent

Poor Quality of Training

Inability to Attract Farmers to Community Programmes

3

4

55 2act

9

umH

i

4Community ProgrammesPoor Financial Controls and Risk Management Practices

Capital Reduction Due to High Rate of Loan Defaults

7

Impa

Med

iu

Inability to Secure FundingPoor Quality Agricultural Raw Materials

8

9

Pig Livestock Depletion10Low Medium High

Low

Fragrant Rice Crop Failure11Likelihood

Low Medium High

The Risk Assessment will enable IFA in prioritising activities as part of the implementation of the 5 Year Plan in order to effectively and efficiently mitigate risks,

82

in a timely manner, which could threaten the viability and sustainability of the social business venture

KEY RECOMMENDATIONSRECOMMENDATIONS

83

Key RecommendationsKey Recommendations

1) Introduce the Finance & Investment and Credit1) Review supply chain for pig farming, and develop

b i i i ll ti d di t ib ti t i

FINANCE PRODUCTION AND MARKETING

1) Introduce the Finance & Investment, and Credit Functions as IFAH’s sole vehicle for provision of financial services

2) Establish Savings Scheme and utilize money remitted by migrant workers to enhance IFAH’s capital base

business in pig collection and distribution to increaserevenue for farmers and IFAH

2) Review crop/land allocation and expand fragrant riceproduction

3) Seek professional consultation for Organic fertilizerproject and alternatives including seeking other

3) Provide outreach programmes to promote IFAH’sfinancial services and assist farmers to safeguardtheir financial security

project, and alternatives, including seeking othertechnology providers needs to be considered

4) Review the business model of agriculture suppliesstore to ensure long-term business sustainability

COMMUNITY SERVICES GOVERNANCE

1) Set up mechanism to train farmers on moreeffective farming, with a view to enhancing theoverall average household income

1) Review IFAH team composition; enhance management bandwidth, governance, risk management and transparency

2) Review member leadership structure from

COMMUNITY SERVICES GOVERNANCE

2) Enhance healthcare awareness and cultural &educational activities.

3) Provide framework for creating positiveenvironmental impact, e.g; waste collection,organic fertiliser.

2) Review member leadership structure, from geography based leadership to functional/crop based groups

3) Enhance internal checks to ensure benefits to farmers

84

Key Success Factor – Government SupportSupport• Government may consider working with IFA as its strategic

outsourcing partner to execute government-funded policies/projects g p g p p jbecause IFA is owned by farmers and acts on behalf of farmers.

• Government outsourcing is on the rise. IFA may consider establishing a company (eg. JV) to undertake some governmentestablishing a company (eg. JV) to undertake some government projects.

• The Central Government just issued the policy of supporting agriculture professional cooperatives last year IFA may consideragriculture professional cooperatives last year. IFA may consider how to leverage government support in this area.

• Responsibilities of township and county pilot program office must be l l d fi d T hi ffi k l l ith IFA t ddclearly defined. Township office works closely with IFA to address

IFA’s concerns. Meanwhile county office focuses on seeking more government funding and projects for IFA and refrains from direct involvement in township IFA operation unless requested.involvement in township IFA operation unless requested.

APPENDIXAPPENDIXA. IFAH Stakeholder ChartB Key AssumptionsB. Key AssumptionsC. GovernanceD. FinanceE. Production & MarketingF. Community ServicesG. Risk assessment and Mitigationg

86

A di AIFAH STAKEHOLDER CHARTAppendix AIFAH STAKEHOLDER CHART

87

Stakeholder MapStakeholder Map CurrentNCurrentN

Key: Key:

New New

1) B d/G l A bl

Advisory & Governance Finance1) Board/General Assembly

2) Pilot Programme Office (County)3) Consulting Centre for Farmers’

Association

1) Credit Cooperatives2) Local Banks/Credit Union

3) Private Investors4) Local Banks/ Credit Union

5) Bureau of Agriculture6) Ministry of Education

)

IFAHPartners

1) Smallholder Farmers2) Rice Cooperatives

1) Smallholder Farmers2) Rice Cooperatives 6) Other Cooperatives6) Other Cooperatives2) Rice Cooperatives

3) Member Group Head/Village Head4) Mutual Assistance Cooperatives

5) Employees

2) Rice Cooperatives3) Member Group Head/Village Head4) Mutual Assistance Cooperatives

5) Employees

6) Other Cooperatives7) Other IFA

8) Media

6) Other Cooperatives7) Other IFA

8) Media

88

A di BKEY ASSUMPTIONSAppendix BKEY ASSUMPTIONS

89

Key Assumptions

• The scale to achieved within the 5 Year Timeframe is Sanli Township (37 Villages)Township (37 Villages)

• The 5 Year Plan will become an integral component of the Sanli Township 5 Year Plan

• 1 IFA for 1 Township Model will be adopted• 1 IFA for 1 Township Model will be adopted• Group Heads will be empowered with some administrative and

advocacy/awareness activitiesResource support will be provided by the various partnering• Resource support will be provided by the various partnering Financial Organisations in the form of secondments and awareness & educationFarmers will be willing to pay for specialist training for re skilling• Farmers will be willing to pay for specialist training for re-skilling and skills enhancement

• Healthcare and Insurance Programmes will be funded solely through IFA Profits

90

through IFA Profits

Key Assumptions… Cont’d

Assumptions over 5 year timeframe MeasurementsLand Measurement 0.093 Hectares is equivalent to 1muq

Average Inflation Rate 4.25%

Average Salary Increment 6%

Average Personal Taxation Rate 5-10%

Average % of Asset Costs allocated for Maintenance Costs 5-15%

Capital Mutual Assistance Loan Interest Rate 7-10%

Deposit Interest Rate 0 5%Deposit Interest Rate 0.5%

Loan Default Rate Per Year 1.5% of disbursements

Average Increase in Household Income 17%

Approximate Fee for Skills Enhancement Classes Per Year RMB100Approximate Fee for Skills Enhancement Classes Per Year RMB100

Cost Per Household Per Year for Waste Collection RMB 60

IFA Profit Allocation for Healthcare & Insurance Programme 4% (2% each)

Average Agricultural Taxation Rate 0%

91

Average Agricultural Taxation Rate 0%

91

A di CGOVERNANCEAppendix CGOVERNANCE

92

General Assembly*y

• Elected by village representatives• 2/3 of the members should be farmers• 2/3 of the members should be farmers• Term: 4 years• Members are not allowed to be hired/recruited by IFA • Responsibilities

– having the ultimate authority– making and changing IFAH chapter– electing & dismissing executive board members – reviewing business report and financial reportreviewing business report and financial report– defining and changing membership fees and capital allocated for

social services– reviewing & approving the annual budget

Held once every year ad hoc meetings can be initiated by 1/3 of• Held once every year, ad hoc meetings can be initiated by 1/3 of representatives or by Executive Board

*Unpaid positions

93

Unpaid positions

Executive Board*

• Number: 9 farmers• Term: 4 years and two terms is the max• Term: 4 years and two terms is the max.• Requirement: • -All agri-products and villages must be represented. • Responsibilities:

– calling general assembly and acting upon GA’s decision– electing and dismissing Chair– approving & reviewing performance of Executive Director – reporting to the General Assembly on IFAreporting to the General Assembly on IFA– hiring external auditors to do annual IFA auditing– reviewing the annual budget– setting the strategic direction for IFAH (social & economic growth)

ki i t t d i i– making investment decisions, – making loan decision on loan amount above 40k RMB

• EB members must meet at least every quarter.*Unpaid positions

94

Unpaid positions

Supervisory Board*

• Number: 1 farmer & 2 independent directors• Term: 4 years and two terms is the max.• Requirement: • - at least one independent director is a businessman with no conflict of

interest. The other one can be a NGO representative (eg. CCFA ). p ( g )• Responsibilities:

– making sure all decisions are executed and capital allocated as planned.

– SB must hire external accountant to do auditing hiring externalSB must hire external accountant to do auditing, hiring external auditors to do annual IFA auditing

– act as check and balance for all EB activities and decisions • SB members must meet at twice a year.

*Unpaid positions

95

Unpaid positions

Group Head*

• Profile: farmer with crop-specific technologies and in-group trust and p p g g prespect

• Responsibilities: – training group members in agricultural extension

ti th i t t f b– representing the interests of group members– advocating finance and credit awareness (with a key focus on the

saving scheme)– undertaking basic finance and credit administration tasksundertaking basic finance and credit administration tasks– coordinating social services delivery on behalf of IFA – passing on key decisions of GA/EB to group members

*Unpaid positions

96

Unpaid positions

Executive Director

• Requirements: – full time paid positionp p– either recruited openly or a government secondee (paid for by the

government)– non-IFA memberT 4 & i f t t• Term: 4 years & maximum of two terms

• Responsibilities:– acting upon EB decisions– leading IFA work– leading IFA work– developing annual plan– recruiting, laying off and training IFA staff– performance evaluation of IFA staffp– held accountable to EB

• Performance Management:– Evaluated by Government, CCFA & one nominated Executive Board

bmember

97

Compensation Guidelines

• Current average monthly per capita income in the area is RMB1500• Migrant workers have mentioned that they will consider staying if they canMigrant workers have mentioned that they will consider staying if they can

earn at least RMB1500 monthly in their village/home town• Recommended salary guidelines as follows

B i M thl V i bl BBasic Monthly Variable Bonus~Entry (eg accountant)

1500RMB 0.5-1 months*

Mid level (eg manager)

2000-2500RMB 1-1.5 months^

Senior (eg Executive

3000RMB –4000RMB

1-2 months#Executive Director)

4000RMB

~dependent upon IFA’s financial performance*Based on individual performance

98

p^Based on department performance#Based on overall performance

Funding Sources of the County Government

Area Funding Project Development and investment 40 million RMB • Community infrastructureDevelopment and investment of rural China

40 million RMB • Community infrastructure• Community service

Water utilities 20 million RMB • Potable waterWater irrigation• Water irrigation

Soil revitalization 5 million RMB • Riverbank regenerationLivestock 3 million RMB • Pigs, sheep, cattleInfrastructure 12 million RMB • RoadFood security 1 million RMBSpecial industry 2 million RMB • VegetableSpecial industry 2 million RMB

5 million RMBVegetable

• Fruit

99

A di DFINANCIAL SERVICESAppendix DFINANCIAL SERVICES

100

Finance Services

• Excel reference 1: credit department model credit department financial model zl 222 xlsxdepartment financial model_zl_222.xlsx

• Excel sheet 2: combined financial model combined financial model.xlsx

101

Finance and Credit Department -Savings Scheme Awareness PlanSavings Scheme Awareness Plan• Objective: to raise awareness amongst farmers and migrant

workers of the benefits of making deposits into IFAH• Team: Village Heads and migrant workers will be the ones to

mobilize the Awareness Plan– Village Heads have the connections within the villages i.e. they are on-the-ground– Migrant workers have the money and will understand how other migrant workers

think to encourage them to make deposits

• Incentive: Team is motivated through a commission based ti l t tt i h d it iblcompensation plan to attain as much deposit as possible

• Training: IFAH will train the team to promote the Savings Scheme Awareness Plan

• Timeline: IFAH will cover 6 villages for the first 2 years and add 10 villages each year

* Larger resources are needed during Chinese New Year when all migrant workers return to their home.

102

A di ECOMMUNITY SERVICESAppendix ECOMMUNITY SERVICES

103

1) Training -- Agricultural Extension

• Contents for knowledge enhancement:– Better selection & use of fertilisers, pesticides, machinery/equipments, p y q p

soil, water– Improving quality of land, and current crops/animals by technology– More productive land use and environmental management– Raising other crop/animals, off-season planting

• Infrastructure required to start, maintain, harvest &

ll t k tsell to market• Cost concern

– Product pricing, understanding of market & avenues to reach marketmarket, & avenues to reach market

– Work safety (e.g. posture)– Business & job opportunities

104

1) Training -- Agricultural Extension

• How to achieve knowledge enhancement: (a) Conduct “Train the trainer” programs for each village:(a) Conduct Train-the-trainer programs for each village: – Agricultural specialists or local successful farmers

train village heads & some farmers train all farmers– Quality effective & affordable (low-cost) programQuality, effective & affordable (low cost) program– Approx. frequency of training (depends on type of produce):

• Busy farming season: 1 class every 2 months x 6 villages = 36 classes/yeary g y

• Off-season: 1 class every month x 6 villages = 72 classes/year

(b) Sharing of latest best practices & technology among villages:(b) Sharing of latest best practices & technology among villages: – Regular sharing by all 37 village heads – Sharing sessions to be led by IFA– Non-hostile & non-over-competitive environment is key for sharingNon hostile & non over competitive environment is key for sharing

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1) Training -- Agricultural Extension

• Resources: – 1 coordinator for agricultural extension and administration1 coordinator for agricultural extension and administration– 3 contract trainers as specialists from CCFA & Bureau of Agriculture– Training materials from CCFA & Bureau of Agriculture, with input from

local village heads & cooperativesg p– Training grant from Bureau of Agriculture & Agricultural Bank– Note: the China Social Entrepreneur Foundation is no longer providing

any resource to IFAH

• Timeline: – Year 1: preparation, Year 2: start training at 6 villages,

Year 3-5: expand to cover all 37 villages

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2) Training – Young Generation

• Goal: – Expose school children to farming as a profession in a fun way starting

from youth• About:

– Farming as an important profession in society and for the country– Take ownership and respect your land – Science & new technology in farming – Learn simple Chinese & English names of farming products

• How: – Mini-farming time as part of the regular curriculum in Labor Technology

Training course or Chemistry course– Year 1 - 2: Liaison with primary schools for the villages & curriculum

preparationYear 3 - 5: Implementation in schools that serve the villages

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2) Training – Young Generation

• Reference:– Taiwan IFA model to carry outTaiwan IFA model to carry out

similar programs in schools

• Resources:• Resources: – 1-2 advisors with honorarium

from CCFA & Ministry of Education

– Training materials from IFA & CCFA

– Free for children to attend, as part of regular school class

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3) Infrastructure:

a) Surveillance and healthcare servicesProblems: Current personal and public healthProblems: Current personal and public health

awareness is very limitedHow:

Surveillance– Surveillance• Continue current efforts of annual

health checks • Survey of the health and

socioeconomic status of all villagers (via e-farmer kiosk in IFAH Agricultural Supplies Stores)Agricultural Supplies Stores)Help in data collection & record for future planning with Sanli Township

H l h T i i– Healthcare Training (see next slide)

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3) Infrastructure: Healthcare training

Actions: • IFA takes the initiative to organize free sessions

IFA on: Health promotion & disease preventionWaste managementFarm health tipsChild i h lth ti

Health awareness workshops & home visits

Child-rearing health tipsHealthy aging

• Mobilize participation via announcements of upcoming sessions at IFA General Assembly, agricultural training sessions and supplies stores

Member farmers & their families

agricultural training sessions and supplies stores

Timeline:• Year 1: Preparation & promotion• Aim by Year 2: 6 villages

To help members & their families develop a healthier lif t l d th f h lthi ill

• Aim by Year 5: 37 villages

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lifestyle, and therefore healthier villages

3) Infrastructure

b) Collection of non-organic waste (plastic, cans, glass)– How:How:

• Provision of waste bins for non-organic waste• Designated day, each week, at each household• Trucks to bring waste to new garbage station in each villageTrucks to bring waste to new garbage station in each village• Utilize the 6 small trucks & 2 big trucks already in IFA planning• New village regulations (e.g. no rubbish throwing to river)• Year 1: preparation & station setup; Year 2: start collection• Year 1: preparation & station setup; Year 2: start collection

– Resources:• Training housewives & restaurant chiefs to take initiative• Activity-based groups & member group leaders to encourage &• Activity-based groups & member group leaders to encourage &

monitor behavior• Cost for trucks & drivers/collectors, garbage bins & building

waste stations• Apply to township as public service program & for funding

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4) Cultural Activities

• Goals: – Preserve culture of each village Heshuiping region & Sanli townshipPreserve culture of each village, Heshuiping region & Sanli township– Provide a platform in each village for all members to gather &

communicate– Mobilize and encourage participation in village activitiesg p p g

• How: – Organizer: Identify 4-5 women in each village to take the lead inOrganizer: Identify 4 5 women in each village to take the lead in

organizing and promoting cultural activities– Access: Identify 1-3 locations in each village that are convenient to all

village members to go to and participate in the activities– Contents: Regular and fun activities for children, adults and the elderly– Resources: Utilize existing cultural assets (e.g. dresses) in the village

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A di FRISK ASSESSMENT ANDAppendix FRISK ASSESSMENT AND MITIGATION

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Risk Assessment & Mitigation

No. Risk Functional Area

Likelihood Impact Risk Mitigation

1. Lack of alignment of goals of IFA, the Government and Independent Directors

Governance MEDIUM HIGH 1. Define clear roles and responsibilities of each role in the IFA Governance Structure

2. Rotation through election of key roles in Executive Board and Supervisory BoardSupervisory Board

3. CCFA to play an intermediary role in any disputes or alignment issues

2. Lack of transparency of the d i i t ti f IFA

Governance MEDIUM MEDIUM 1. Establishment of a strong t d ladministration of IFA corporate governance model,

transparency in systems, processes, decision making with clear roles and responsibilities and segregation of duties embedded in the organisationembedded in the organisation

3. Inability to attract and retain talent within the IFA Management Structure and maintain a healthy attrition rate

Governance HIGH HIGH 1. Implementation of competitive staff remuneration packages & welfare schemes and training

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rate

Risk Assessment & Mitigation

No. Risk Functional Area

Likelihood Impact Potential Risk Mitigation

4. Poor quality of training Community MEDIUM MEDIUM 1. Recruitment of skilled trainers through secondments from agricultural institutions, institutions of higher learning

2. Collaborate with Government to establish measurement toolsestablish measurement tools and techniques

5. Inability to attract smallholder farmers to attend training, h lth i d

Community LOW MEDIUM 1. IFA to promote awareness of benefits through Group Heads

2 I l t ti f i dihealthcare, insurance and agricultural extension programmes

2. Implementation of periodic awareness and training sessions

6. Lack of confidence of investors in profitability of

Finance & Credit

MEDIUM HIGH 1. Establishment of robust financial and risk management policies

venture and supporting risk management and control processes

and procedures with clear segregation of duties and delegation of authorities framework embedded in the Finance & Investments and Credit Functions

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Credit Functions

Risk Assessment & Mitigation

No. Risk Functional Area

Likelihood Impact Potential Risk Mitigation

7. High rate of loan defaults resulting in progressive reduction of capital

Finance & Credit

LOW HIGH 1. Implementation of credit rating system, robust credit collection & monitoring processes and a short term re-payment model

8. Inability to secure funding to commence implementation of IFA’s business objectives

Finance & Credit

MEDIUM HIGH 1. Secure strong investors with rural financing experience and long term social view

2. Aggressively educate farmers on benefits of contributing to the

Cshort term Capital Mutual Assistance Scheme

9. Lack of supply of quality raw materials (e.g.. seeds, agriculture supplies etc.)

Production & Marketing

LOW MEDIUM 1. IFA to source from alternative suppliers and implement quality control over raw materials selection process

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Risk Assessment & MitigationNo. Risk Functional

AreaLikelihood Impact Potential Risk Mitigation

10. Disease and poor sanitation conditions leading to pig

Production & Marketing

LOW HIGH 1. Implement stringent sanitation and hygieneconditions leading to pig

livestock depletionMarketing sanitation and hygiene

practices in the pig farms including quality control checks on operational practices

2. Promote awareness to farmers on the need of high levels of sanitation and hygiene

11. Crop failure impacting profitability of fragrant rice

Production & Marketing

LOW HIGH 1. Explore opportunities for insuring against crop failure

business operations as pilot programs are currently being implemented in China where such insurance is characterized by material cost-based coverage

d t b idi dand government-subsidized premiums

2. Implement robust process for awareness, education and climate/terrain evaluation prior to land utilization for

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prior to land utilization for fragrant rice production

Acknowledgements

This Business Plan has been put together by 21 members of the Global Institute For Tomorrow (GIFT) Young Leaders Program - Hubei 2011.

The GIFT YLP team would like to thank the government representatives g pfrom Jianshi County and Sanli Township, the farmers from Heshuiping region, IFAH, as well as Professor Yang Tuan and her research team at CCFA for their dedication and support.

We hope that in drawing collectively upon our expertise and passion as a team, we have been able to contribute to the successful ,implementation of this important and valuable project.

TOMORROW MATTERS.

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TOMORROW MATTERS.

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