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Business Plan for an Information Service Platform for Rice Farmers – a Proposal for IRRI

Developed on the 30 th Global Young Leaders Programme

January 2013

2

Executive Summary 3

Introduction 7

Background 10

Business Model and Operations 21

Business Development and Strategic Partnerships 39

Sales and Marketing 43

Organisational Structure and Governance 53

Financial Projection 58

Risk Analysis and Mitigation 67

Recommendations and Action Plan 70

Appendices 79

Table of Contents

3

Executive Summary

Executive Summary (1)

• Global demand for rice will increase, particularly in Asia, alongside population placing increasing pressure on systems of rice production. The Philippines for example depends on rice imports to meet current domestic demands, in spite of having a long tradition of rice farming.

• The International Rice Research Institute (IRRI) plays an important role in performing leading edge scientific research into many aspects of rice production – headquartered in the Philippines but with a presence in rice producing countries around the world.

• Key challenges faced by smallholding rice farmers in the Philippines and elsewhere include landlessness, a vicious borrowing cycle difficult to escape from, insufficient access to credit and therefore a lack of processing tools and resources and very importantly a lack of critical information for both pre- and post-harvest activities in the rice production value chain.

• GIFT and the YLP team of participants was invited to explore ways that IRRI could consider commercialising its mobile platform: “Nutrient Manager for Rice” (NMR) in order to promote improved rice production in the Philippines, and to potentially apply findings and principles of the business model to other countries where IRRI operates.

4

Executive Summary (2) • Based on site visits to rice producing communities in Infanta and Victoria, meetings with

potential partners and stakeholders and extensive work with technical and management staff at IRRI, the team of participants recommends the establishment of a New Company to manage the development and delivery of the information platform for rice farmers – first as a pilot business in the Philippines, and then potentially applying the concept in other rice producing countries.

• The proposed New Company will:

• Manage the technology platform to provide rice farmers with valuable information from pre-production to post-harvest, including Nutrient Manager and extending beyond into other info services

• Connect farmers with service providers, financing and support the development of an inclusive value chain

• Bring together public, private and civil sector players through a new commercial entity and ownership structure that is financially viable and drives social benefit

• Promote the re-positioning of rice farming among rural communities and especially the younger generations in order revitalise rural communities and support the drive toward self-sufficiency in rice production for the Philippines, thereby helping build a future pillar of the community

5

Executive Summary (3) Key features of the new company include:

• New company to be established with a majority ownership for farmers. Details of equity stake for IRRI to be negotiated

• Impact investment opportunities for select partners or investors and shareholding options for farmers’ associations and employees, as well as ‘sweat equity’ for management

• A business model based on growing a significant subscriber base of farmers and others in the rural / agricultural community and then capturing revenue in the form of commissions from key service providers and commercial partners as well as market intelligence for sale and targeted marketing opportunities for companies seeking to market to rural customers

• A new concept for outreach and interface between the company and rice farmers in the form of a field-based sales force of “Sales & Service Agents (SSA)”, who are active members of the community and who will work to link the new company with farmers first by promoting subscriptions to the network and then to support the use of the ICT platform service as needed by farmer subscribers

The proposed company will require an initial injection of USD 6 million with a break-even at year 5 and an IRR of 54% by year 10. It is estimated that the company can reach and secure approximately 750,000 rice farmers as subscribers in the Philippines by year 10, thus promoting an increase in overall yield, improved livelihoods for farmers and enhanced rural environments.

6

7

Introduction

Project Partners

Entity Description

International Rice

Research Institute (IRRI)

• A non-profit independent research and training organisation

• Dedicated to developing new rice varieties and rice crop management techniques that help rice farmers improve the yield and quality of their rice in an environmentally sustainable way

• Works with public and private sector partners for agricultural research and extension to deliver training and knowledge transfer

Global Institute For Tomorrow (GIFT)

• An independent pan-Asian think and do tank dedicated to linking business, government and civil society to foster constructive dialogue and address global challenges

• Organises the Global Young Leaders Programme (YLP), an executive leadership programme based on real world, real time experiential learning for participants and on tangible and actionable outputs with positive social impact for partners

8

Participants from businesses and civil society worked with IRRI to propose a business model for the commercialisation of an integrated ICT platform to improve rice crop management in the Philippines, as well as strategic recommendations on managing partnerships in the future. YLP Participants came from companies and organisations below:

9

Global Young Leaders Programme (YLP)

10

Background • Global Food and the Role of Rice • Overview of the Philippines • IRRI and Rice Crop Management • Rural Mobile and Banking Markets • Identifying Gaps and Opportunities

Global Food and The Role of Rice

• A small increase in global food prices drives millions into extreme poverty

• Rice is a staple food for more than 3 billion people (almost half the population)

• More than 90% of rice is produced and consumed in Asia

• Green revolution in the 1960s introduced high yield variety seeds and agro-chemicals. Productivity doubled by late 1970s

• Continued pressure on food production driven by environmental degradation, climate change, population growth and urbanisation

11

• Adoption of effective crop management practices to maintain soil fertility and ecological balance is central to food security

• Strengthening and developing inclusive value chain is crucial to improving farmers’ livelihoods

Overview of the Philippines

Country information * Population: 104 million Capital: Manila Land area: 298 km2 Religion: 83% Catholic, 10% other Christianity, 5% Islam History and Geography Located in Southeast Asia 7,107 islands, with three main locations: Luzon, Visayas and Mindanao A Spanish colony for 300 years and under US influence for 50 years

A country of over 7,000 islands, reliant on agriculture and remittances and boasting one of the highest economic growth rates in Southeast Asia

* The CIA World Factbook, 2012

12

Economic GDP(2011): 224.7 billion USD (*2) GDP growth (1-3Qof2012): 7.1% (*3) GDP/Capita: 2369.5 USD (*2) Disposable income per household (2011): 8406.5 USD (*4) Unemployment Rate: 7.0% (*5) Poverty Rate (2009): 26.5% (*6)

Overview of the Philippines

Social Development Although the economy has been recovering steadily since 2004, the Philippines still has the highest income inequality in Southeast Asia.

A third of the population lives below the poverty level of USD1.25/Day (*7)

0

2

4

6

8

2004 2005 2006 2007 2008 2009 2010

GDP growth rate(%) in Philippines

The Philippines is emerging and promising, but still challenged by

poverty

*6 World Bank *7 CNN, What is driving the Philippines surprisingly strong growth, 2012 13

*2 World Bank 2012 *3 National Statistical Coordination Board, 2012 *4 Euromonitor International Ltd, 2012 *5 Global Finance

• Accounts for 13.2% of GDP and

employs 33% of labor force (12.27 million people) (*9)

• Crop production is 19.6 billion USD, with palay production at 6.2 billion USD

• Palay accounts for one third of the total harvest area or 4.5 M ha (*9)

• Rice production is not sufficient for national consumption needs

• A farm commonly produces rice, corn and coconut with a few livestock and poultry

• A majority of farmers have on average 2 hectares of land

Agriculture and Rice in the Philippines

*8 Philippine Daily Inquirer, ADB urges Philippines to address income inequality, 16 April 2012 *9 Bureau of Agricultural Statistics, Overview of Philippine Agriculture

14

2013 as the Year of Rice for the Philippines to reach rice self-sufficiency

Analysis of Rice Value Chain

Supply/ Production

Post-harvest Processing

Marketing/ Distribution/ Consumption

Input Supply

Production

Handling

Threshing

Drying

Storage

Milling

Wholesale

Retail

Consumption

Input Suppliers Seed, agrochemical dealers/ salesforce

Producers Farmers

Palay Traders Service units

Processors Small and large mills

Large Distributors

Retailers

Consumers

10%

18%

8%

22%

42%

15

Estimated Post-Harvest Value Loss:

90%

Significant loss in value of rice crop occurs in post-harvest due to lack of infrastructure and credit

Rice Farmers in Need of Support

• Despite land reforms, a majority of farmers are landless and are trapped in a cycle of borrowing for the purchase of agricultural inputs

• Farmers require a range of information and services, from pre-production to post-harvest, and from weather to market updates

• After labour, fertiliser is the second largest cost for farmers

• Currently the average rice yield is 3.7t/ha, lower than the world average

• Low yield partly due to the incorrect use of fertiliser (*10)

Rice farmers require additional information on farming techniques to improve livelihoods in rural areas

16 *10 FAO, USDA

IRRI and Rice Crop Management • IRRI has developed a series of ICT tools to

address rice farming, including the Site-Specific Nutrient Manager for Rice (NMR), the Rice Doctor, and the Rice Knowledge Bank

• NMR, a web and mobile based tool, to provide rice farmers with tailored recommendations on nutrient management

• 20,000 nutrient management guidelines provided to farmers in 2012

• NMR developed and tested in the Philippines and replicable in other rice producing countries

17

How to access and use Nutrient Manager

Web GSM mobile phone Smartphone

Interactive Voice

Response

implementation box

Farmer calls

dedicated number

Smartphone

output

Web output Smartphone

and mobile:

Text output Available in Philippines and

Indonesia

0

9

11 12 13 21 30 3

9

32 45 -

51

5

9

61 - 65 71 -

92

Key Findings: Nutrient Manager for Rice

Benefits

• Reduces fertiliser cost thus saving farmers money

• Potential to increase paddy yield when info is used by farmers

• Tailor-made advice for farmers

• Potential for print out service

• Net environmental and social benefits

Challenges

• NMR is beneficial but not comprehensive.

• Farmers also need assistance on weather, prices, post-harvest support to help maximise their crop

• Low penetration into farming community

• Many farmers unfamiliar with ICT interface

• Lack of availability of hardware and capital

Rural Mobile and Banking Markets

• Mobile operators achieved 67% household penetration in the Philippines

• Most prolific text messaging markers in the world – accounts for 10% of global SMS messages

• 1 million Filipino overseas workers transfer USD 50 million per month to relatives in Philippines through mobile banking

• Mobile Wallet – 8.6 million Smart Money and 1.3 million Globe G-Cash registered users

• 780 rural banks covering 85% of municipalities and cities

• BPI Globe BanKO is the Philippines’s first mobile phone-based, microfinance-focused savings bank, reaching over 400,000 micro-entrepreneurs in the past two years

19

Mobile presents good opportunities to reach rural farmers

http://www.malaya.com.ph/index.php/business/business-news/8408-billions-sent-thru-phones http://www.gsma.com/publicpolicy/wp-content/uploads/2012/03/universalaccessfullreport.pdf

Identifying Gaps and Opportunities

UNMET NEEDS OF FARMERS • Reliable technical information to

support sustainable farming practices • Access to suppliers, service providers

and buyers in the rice value chain • Access to post-harvest facilities • Access to credit, insurance and other

financial services

EXISTING INFRASTRUCTURE • Access to IRRI’s knowledge

repository and extension tools • Community organisations and

extension workers • Nationwide mobile network

infrastructure • Large mobile banking user base

RECOMMENDED OPPORTUNITY: Establish a commercially viable information service platform that leverages and expands on existing services. Beneficiaries will include: farmers, suppliers, buyers, extension workers and the larger agricultural community.

20

Integrated information service platform

can support the development of an inclusive rice value chain

21

Business Model and Operations • Introducing the New Company • Business Model • Operations • Summary of Revenue Streams

Introducing the New Company

Vision To support and connect farmers through an integrated platform to a suite of educational tools and product and services supplied by the company and key partners Mission • To bridge the gap between the needs of the farmers and those of the service

providers throughout the value chain • To support sustainable rice farming, particularly through the optimisation of

farming inputs (fertilisers, pesticides, herbicides, etc) • To develop and empower young farmers to become next generation agriculture

knowledge workers • To support farmers in improving their livelihoods • To achieve self-sufficiency in rice production

22

FarmSaya positively impacts farmers, rural communities and rice consumers, by helping farmers enhance their farming practices and livelihoods.

Farmers

Co-ops

Farmers Field

School

MFIs

Extension

Workers

Local Stores

NGOs

Business Model

23

Mobile Network Operators

Rural Banks Micro-insurance

Agri-inputs Suppliers

Agro buyers

Information Providers

Sales & Service Agents (SSA)

Mobile & Web Apps

IVR SMS

Printout

Market Intelligence

An Integrated Information Service Platform to support an inclusive value chain

Products & Services

Knowledge Providers

Core Partners

Service Providers

Farming Communities

Business Model

FarmSaya’s Network of Service Providers

24

Mobile Network Operators

Rural Banks Micro-insurance

Agri-inputs Suppliers

Agro buyers

Information Providers

Knowledge Providers

FarmSaya Accredited Local Dealers

Sales & Service Agents (SSA) work with service providers and local dealers to develop a network of accredited local dealers to provide products and services to the farming community.

Product & Services

Accreditation ensures credibility and builds trust

Core Partners

Service Providers

Business Model

FarmSaya’s Network of Subscribers

25

The success of the platform depends on the subscriber base. Higher volume of subscribers and higher usage per subscriber creates value for service providers. This is required for Farm Saya to be financially viable by monetising this value with other sectors.

Farmers

Co-ops

Farmers Field

School

MFIs

Extension

Workers

Local Stores

NGOs

Sales and service agents work with key actors in community to (a) Enrol farmers (b) Quickly scale the platform (c) Ensure regular use of the platform (d) Lower dependence on volunteers

or the overly worked extension workers

Farming Communities

Business Model

Core Services for Farming Community

26

Nutrient Manager and Crop Management

Knowledge and Tools

Organising Learning Groups

Micro-finance and Micro-insurance Group Purchase of

Agriculture Inputs

Coordination of Contract Farming with Millers / Buyers

Coordination of Farm Equipment Leasing

An information service platform to support an inclusive value chain

Coordination of Post-harvest Services

Nutrient Manager for

Rice

Rice Crop Manager

Voice service, SMS Alerts, Printouts

Knowledge Bank

Rice Doctor

Operations

Crop Management: Knowledge and Tools

Complementary Information Services

Weather Forecast

Market Information

Open Source Sustainable Farming

Knowledgebase

Local Specific Information

27

Knowledge delivery through mobile and web platforms

Primary Information and Technical Support Services provided by IRRI & PhilRice

Endorsement by Department of Agriculture will aid nationwide rollout and adoption

Operations

Micro-finance and Micro-insurance

28

Access to credit helps farmers gain access to agri-inputs, farm equipments and post-harvest services

Rural Banks Micro-finance Institutions (MFIs)

Micro-insurance Company Mobile Banking

Payment for products and services through micro-finance bundled with micro-insurance

Agri-inputs: Seeds

Fertilisers

Farm equipment

leasing

Post-harvest services: Treshing Drying Storage Milling

Farmers payback micro-loans after sales of produce

Accredited Service Providers

Linking farmers with Rural Banks and MFIs to provide access to credit

Operations

Group Purchase of Agriculture Inputs

29

Group purchase of agriculture inputs at discounted price

Accredited Agriculture Input Dealers

Farmers

Micro-financing for farmers provided through mobile banking

Nutrient Manager provides customised recommendations

Payment

Bundling group purchase with Nutrient Manager and micro-finance

Group purchase reduces cost for farmers and increases sales through the platform

Operations

Coordination of Farm Equipment Leasing

30

Coordinates leasing of farm equipment for farmers and cooperatives

Micro-financing for farmers provided through mobile banking

Leasing Company

Payment

Access to farm equipments such as combine harvester can help reduce post-harvest lost

Making farm equipments affordable with micro-finance support

Operations

Coordination of Post-harvest Services

31

Coordinates access to post-harvest services for farmers and cooperatives

Micro-financing for farmers provided through mobile banking

Drying paddy to 14% moisture content in time improves rice quality

Future opportunity may exist for FarmSaya to nurture local entrepreneurs to run post-harvest service hubs and broker members’ crops to processors.

Harvesting using combine harvesters reduces physical lost and paddy can be dried in time

Post-harvest Service Providers

Storage for 6-9 months to fetch higher prices in the market

Providing access to post-harvest service providers to ensure farmers capture and maximise crop value

Operations

Coordination of Contract Farming

32

Linking farmers to markets – ensuring accurate pricing

Links farmers and cooperatives to Millers / Agro Buyers

Facilitates access to post-harvest facilities and transportation

Payment for farmers provided through mobile banking

Contract Farming with Millers / Agro Buyers

Contract farming can help reduce post-harvest lost and capture more value for both farmers and buyers

Operations

Organising Learning Groups

33

FarmSaya SSAs may facilitate learning groups among members of farming communities. Content providers may also pay to sponsor.

Organises learning groups for farmers and cooperatives

Learning Group

Agri-inputs Suppliers

Agro buyers

Content Providers SSA Extension Workers

Farmers support and learn from each other and other mentors through learning groups

SSAs develop network of accredited local service providers and interact directly with farmers and rural communities to deliver the information on available services

• Relationship based on trust and familiarity as farmers prefer to interact with people rather machines – important for community building and growing the brand and subscriber network

• Most of farmers do not have strong technology background and some are intimidated by it

• SSAs act as the bridge and intermediary as well as service hub between the platform and farmers – certain subscribers will require more attention while others may prefer to use their own device or another device in the community. SSAs will need to be flexible to their needs

+

34

Operations

Sales and Service Agent (SSA) are a Human Interface

SSAs add a human touch to the platform when interacting with farming communities

Farmers

Co-ops

Farmers Field

School

MFIs

Extension

Workers

Local Stores

NGOs

Operations

Value Added Service: Monetisation of Market Intelligence

35

Capturing and monetising market intelligence provides targeted marketing opportunities for service providers and partners through FarmSaya

Capturing market intelligence from rural communities

Mobile Network Operators

Rural Banks Micro-insurance

Agri-inputs Suppliers

Agro buyers

Recipients

Operations Potential revenue: Market Intelligence

With the data generated from the use of the integrated platform by various parties, most notably the large numbers of farmers and rural communities, useful knowledge and insights can be extracted, organised and sold to existing partners or other businesses looking to reach rural consumers. (e.g. customer pattern, behavior, market opportunities, land usage, etc)

36

Sector Example Possible Benefits

Marketing/Retail Unilever, Nestle To use data to predict who will respond to the new marketing campaigns such as direct mail, online marketing campaign, etc

Finance/Banking Rabobank, Citibank, etc To allow banks to promote new and appropriate financial products to targeted customers

Manufacturing Kubota, etc To improve their products which suits customer better to increase sales and customer satifisation

Governments Philiphine,etc To include the data in national statistics

Data to be used ethically and as a key revenue stream to grow the business

Operations

Various Users Demand Unique Data

37

Enterprise

SME / Local Business

Community

Farmers

Mobile Network Operators

Rural Banks

Micro- insurance

Agri-inputs Suppliers

Agro Buyers

Agri-inputs dealers

FarmSaya meets information needs of Enterprises, SMEs, Community and Farmers

Local buyers, Rice Mills

Farmers Cooperatives, Extension Workers, NGOs, MFIs, Local Government

Nutrient Manager, Customers and Local Market Information

Farming Training Materials, Database of Local Farmers, Database

of Accredited Local Dealers and Buyers, Learning groups information

Personalised Farming and Post-harvest Information,

Database of Accredited Local Dealers and Buyers

Learning groups information

Market Intelligence to reach rural consumers

Summary of Revenue streams

Priority Revenue stream details

Primary • Service fee and commission for hosting and sale of

farming-related products/services through the platform

Secondary

• Service fee and commission for hosting and sale of non- farming-related products/services through the platform

• Monetisation of market intelligence • Future premium subscription model

Possible future revenue

• General sponsorships and display advertising • Sponsorship of Learning Groups available to relevant

companies (agri-inputs, etc)

38

Basic subscription service provided free of charge for farmers

39

Business Development and Strategic Partnerships • Strategic partnerships for FarmSaya • Types of partners and service providers

40

Strategic Partnerships for FarmSaya

Farmer

Rural Communities

Global Adoption

Phase I

Build a network of core partners

• Build platform and develop key features

• Meet farmers’ most immediate needs

• Increase the value proposition to encourage higher enrolments

• Encourage the use of FarmSaya as a vehicle to access farmers and sell products and services to a large subscriber base

Client base moves from farmer to rural communities elsewhere for global adoption

Phase II

Reach out to service providers

Approach to strategic partnerships expands from local to global

41

Types of Partners and Service Providers

Core Partners Service Providers

Knowledge Providers:

IRRI, PhilRice

Mobile Network Operators

Financial services: rural banks, MFIs, insurance

Agri-inputs suppliers, Agriculture products buyers

Agriculture information providers

Consumer products suppliers catering to the bottom of the pyramid and rural communities (not only farmers)

…

An integrated platform with bundled services from various service providers can off-set operation and distribution costs required to reach out to customers in rural areas

• Strategy for Phase II: Push for a differentiation of subscribers. • Service providers include companies that cater to the Bottom of the Pyramid, Fast Moving

Consumer Goods (FMCG) companies, Equipment manufacturers or Financial Services Companies

• Diversified partners provide enhanced value to the subscribers and ensures that the model moves from a farmer base to a more extensive rural community

Criteria for Partner Selection

Criteria for partnership

• Existing customer base

• Technology platform

• Access to investment and financial capital

• Strong government relationships and support

• Socially-minded companies will be given preference

Value proposition

• Prospect for potential partnerships to bundle products and services at reduced prices

• Reduce marketing cost per customer

• Large pool of service providers to entice farmers to becoming subscribers

• Opportunity to use a replicable platform

• Target large customer base across regions

• Aggregated market information

• Opens up new markets

• Nation building and social development

Accreditation of partners is critical to ensure FarmSaya achieves desired goals

42

Sales and Marketing • Objectives • Strategy • Role of the Sale and Service Agents • Reaching communities: Engaging Young

Farmers • Nationwide Campaign for Rice • Farmer Subscriber Targets

43

Objectives: Sales and Marketing

44

• To enrol farmers onto the platform, and establish a subscriber network in rural areas

• To broaden the subscription base to include other customers beyond the farming communities

• To create brand awareness and loyalty to FarmSaya by providing services needed by farmers and their household

• To turn farming into a desirable and profitable profession

• To attract young farmers and youth from rural areas

Strategy: Sales and Marketing

Shareholders

Farmer Subscriptions

Public Sector

NGOs and youth groups

Education Institutions

Media

Social Networks

Retail Chains

Agri Organisations

Religious Communities

Dir

ect

Ch

an

nel

(S

ale

s &

Ser

vice

A

gen

ts)

Ind

irec

t C

ha

nn

els

Various channels will be used to attract and enrol a critical mass of farmers and raise awareness about the benefits of joining FarmSaya to gain access to farming knowledge, products and services.

Enrolling farmers through Sales and Service Agents as well as indirect channels

Resources Required to Build Network

Direct Channel

Shareholder

Education Institute

Agri Orgs

Public Sector/ Gov Orgs

Religious Communities

Private/Corporate partners

Media

NGO

Retail Chains

Social Networks

-2

0

2

4

6

8

10

0 1 2 3 4 5

Est. Initial Resource Required (Index on the scale of 10)

Years

Note: The bubble sizes represent Est. # of farmers reached/attracted (index on the scale of 10)

46

Initial outreach driven by SSAs, public sector, NGOs and shareholders, later to be supplemented by other channels

Direct sales outreach is supplemented by a variety of marketing channels

Enrolment Strategy

• Combination of ICT tools and regular human interface to acquire farmer enrolment

• Using social media to attract young farmers

• Partners contribute with discounted and bundled services/products to attract mass enrolment

• Outreach and awareness raising through printed materials and campaigns via existing networks and multiple touch points in the community

47

Accredited dealers

Money changers

Convenience stores

Info kiosks

Pawn shops

Community centres

Religious communities

Corporate partners

PromotionPlatform Sales &

Service Agents

Farmer Subscriber Targets

15,000 60,000

135,000 225,000

285,000

345,000

417,000

518,400

622,080

746,496

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

YR1 YR2 YR3 YR4 YR5 YR6 YR7 YR8 YR9 YR10

Subscription Target by Year

48

Number of subscribers

Assumptions • YR 1 employs 42 SSAs,

each enrolling 2 farmers per day on average

• SSAs: responsible for 70% of enrolments.

• Remaining 30% from indirect channels (branding, campaign, farming community…)

Sales and Service Agents (SSAs) serve as a key channel to enrol farmers. They build relationships with local communities and become trusted representatives of FarmSaya at the grassroots level.

Subscription Target to reach 750,000 users by Year 10

49

Role of SSA in Selling Subscriptions

SSAs are clearly differentiated from public sector extension workers:

• Promote FarmSaya ICT platform and support delivering info services

• Work in best interest of farmers to improve crop management

• Highly motivated through private company incentives and potential employee shareholding options

• Well equipped with hardware and well supported with world-class knowledge resources from IRRI etc.

+

Sales & Service Agents present a new model for serving the needs of farmers

Reaching Communities: Engaging Young Farmers

50

How to achieve this?

Use of ICT devices (web and mobile) • To attract young people to get interested in IT and

bridge the digital – agriculture divide • To build an online network for young farmers to share

tips and experiences (e.g. Facebook / Twitter) • To support partner advertisement via local media

specifically targeting young generation

Deliver key messages through schools • Introduce and generate interest around agriculture and farming by promoting

the benefits of rural lifestyles as a positive alternatives to urban poverty • Generate enthusiasm by linking farming with national and cultural pride • Nurture agriculture-major students as Student Ambassadors • Fund student groups to conduct village education and registration service

Future sustainability of rice production depends on engaging and attracting the next generation of farmers

Staged Approach to Attract Young Farmers

Create awareness of FarmSaya, link to existing social media, technology & culture

Promote FarmSaya in schools, branding as cool, desirable and good lifestyle

Attract a new generation of young farmers to be active on FarmSaya, earn more and be proud of their career

• Build on the momentum from the Philippines’s 2013 Year of Rice

• Raise awareness on the importance of rice as a staple food for rural communities and urban dwellers

• Mobilise the Filipino population around a nationwide campaign in support of farming communities

Nationwide Campaign for Rice

It takes a nation to grow rice! IRRI campaign in support of the National Year of Rice

53

Organisational Structure and Governance • Shareholding concept • Organisational structure • Organisational Highlights • Governance on Intellectual Property

FarmSaya Shareholding Concept

• Core partnerships are invited for shareholding:

– IRRI

– Farmers associations

– Private sector

– Civil sector

– Government

• Equity opportunities will be offered to farmers and FarmSaya employees

• Exact shareholding breakdown to be determined by IRRI and partners during future negotiations

Potential Shareholders

IRRI

Government

Private sector

Civil sector

Farmers

54

Proposal for IRRI to invest and lead in new shareholding partnership

55

Organisational Structure

Information Technology

Responsible for: • Software development • Information management • Content development

Operations

Responsible for: • Human Resources • Finance • Legal structure • IP & Patents • Corporate affairs • SSA Training

CEO

Commercial Services

Responsible for: • Business & Product

Development • Customer data analysis • Sales & Marketing • PR & Comms

Technical Board • IRRI • Phil Rice • DA

Board of Directors

56

• Set-up of the company and development of the integrated ICT platform to be ensured by IRRI staff during the start-up phase

• Recommended secondments from IRRI and/or other partners in key functional roles to reduce overhead costs – also promotes development of commercial awareness and skills among IRRI staff, useful in future corporate partnerships

• Leverages on IRRI’s expertise and knowledge to develop the integrated platform, to include Nutrient Manager and other infomation services

• Equity opportunities to farmers associations and employees (incl. SSAs)

• Management team will be given “sweat equity” to ensure the long term interests of stakeholders and the proper incentives for growth

• Functional units headed by a CEO, solely responsible for P&L to ensure commercial targets are met

Organisational Highlights

57

Intellectual Property: Governance Issues

• IRRI should decide which knowledge should/should not be made available on the FarmSaya platform

• All IRRI research and data, including the Nutrient Manager, will continue to be hosted and protected by IRRI

• All other information and data generated by the platform, including customer information, will be hosted by FarmSaya and may be used for market analyses

FarmSaya provides IRRI a pilot opportunity to manage its Intellectual Property

58

Financial Projection • Overview • Financial Projection • Revenue Breakdown • Cost Breakdown • Scenario Analysis • Sensitivity Analysis • Assumptions

59

Financial Projections - Overview

• FarmSaya requires a start-up investment of USD 6M, according to the base case calculations, with No Additional Cash Call

• According to calculations based on assumptions, the company will break-even during the 5th year and recover the total capital investment in 6 years

• IRR over 6 years: 17%

• IRR over 10 years: 54%

FarmSaya projected to be a self-sustainable business starting in year 5

Financial Projection (Base Case)

60

(200,000)

0

200,000

400,000

600,000

800,000

1,000,000

(1,000,000)

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

1 2 3 4 5 6 7 8 9 10 (Persons) (1,000 PHP)

Revenue Net Profit Cost Acumulated Cash Flow No. of Perticipants (RHS)

Average Profit Margin of 8.7% over the first 10 years. IRR over 6 years of 17% and over 10 years of 54%

Revenue Breakdown (Base case)

61

0

100

200

300

400

500

600

700

800

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

1 2 3 4 5 6 7 8 9 10

(Persons) (1,000 PHP)

Service fee & commission from farming related sales of goods and services

Service fee & commission from non-farming related sales of goods and services

Fee from Premium Users

Data Sales

No. of Participants (RHS)

Service fees & commissions from goods and services provided through the platform are primary revenues for FarmSaya

Cost Breakdown (Base case)

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0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1 2 3 4 5 6 7 8 9 10

(1,00 PHP)

Labor Marketing IT Occupancy Admin.

Labour costs, especially for SSA’s, is primary costs for the business

Scenario Analysis

Scenario Usage Growth Customised Data

(Revenue at Year 2) Break Even

Required Capital

Optimistic

Aggressive growth (+40%)

USD750k Year 3 USD 4.2M

Base Moderate growth USD500k Year 5 USD 6M

Pessimistic Weak growth (-60%) USD250k Year 6 USD 9.5M

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Base case shows break even in Year 5 with capital requirement of USD 6M

Sensitivity Analysis

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

1 2 3 4 5 6 7

(1,000 PHP)

Accumulated Profit Accumulated Profit(Best) Accumulated Profit(Worst)

64

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Key Assumptions

• 70% of farmers’ total revenue is spent on farming costs. • 55% of total farming cost is labour cost and the remaining 45% is for agricultural

inputs • 30% of total farmers approached will subscribe to the platform • Once established as subscribers, 30% of farmers’ non-labour cost will occur

through the platform – thus providing commission-fee revenue • FarmSaya will cease the expansion of its sales force after year 5 • Each SSA enrols average 2 farmers per day, overall the SSA’s are responsible for

70% of the total enrolment • Remaining 30% of the enrolment comes from indirect channels • General staff salary increases at 5% annually on top of inflation • Compensation of SSA includes base salary of PHP 15,000/month, plus

suggested commission of PHP 100 per subscriber • General staff turnover rate is 10% annually

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Assumptions – Revenue and Costs

Key Revenue Streams

• Commission from sales of products and services through FarmSaya Platform

• Monetisation of market intelligence

• Future “Premium Subscription” opportunities once network is established

Key Costs

• Labor cost associated with Sales and Service Agent (SSA) is primary cost

• Marketing cost to reach additional subscribers

• IT development

• Additional operating costs

Risk Analysis and Mitigation

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Risk Assessment

IMP

AC

T

Low

Me

diu

m

H

igh

LIKELIHOOD

Low Medium High

High risk Medium risk Low risk

10 1

2

3 5

7

8

6

4

1 Demand not sufficient to match the supply provided through the platform

2 Service providers bypass platform to avoid paying commissions once establishing communication with customers

3 Expenses for managing SSA sales force too high to maintain strong cash flow

4 Competitive platforms similar to the Nutrient Manager for Rice enter the marketplace

5 Failure to build up sufficiently large subscriber network and failure to attract business partners

6 Higher than expected turn-over rate for SSAs

7 Weaker incentive for SSAs once subscriber base growth slows down

8 Natural disasters that affects business operations including projected subscriber growth targets

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Risk Mitigation

69

No Risk Functional Area

Likelihood Impact Risk Mitigation

1 Demand not sufficient to match the supply provided through the platform

Business Model

H H Service diversification and continuous design to attract more customers

2 Service providers bypass the platform after establishing customer relationship

Market M M Conduct non-compete contracts with service providers

3 Expenses for SSA’s too high to maintain strong cash flow

Finance M H Need to create a secure system to outsource

4 Competitors making a platform similar to the Nutrient Manager for Rice

Market M M Leverage IRRI’s knowledge to differentiate

5 Fail to build up large subscriber group

Market M H Deploy more channels and partnerships to push sales

6 Higher than expected turn-over rate for SSAs

HR L L Good employee training scheme solid incentive plan; shareholding

7 Weaker incentive for SSAs once subscriber base growth slows down

Finance L L Good employee training scheme and solid incentive plan

8 Natural disasters that affects business operation

Nature H H Build strong local-based communities and service hubs

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Recommendations and Action Plan • Recommendations • Timeline

Recommendations for FarmSaya (1)

• An equity based model to be created for an integrated information platform called FarmSaya to enable IRRI to deliver existing and future research outputs and farming best practices to farming communities

• Develop comprehensive ICT platform with a suite of information features in addition to Nutrient Manager to include:

– Local and regional weather information and impact on farming

– Relevant information across the value chain, from pre-production to post-harvest resources

– Consider expansion to include information for other crops in addition to rice, to capture greater number of rural subscribers

– Other information solutions can come online to meet the needs of various organisations which come online at a later date

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Recommendations for FarmSaya (2) • IRRI owns the knowledge database. FarmSaya manages the platform,

distribution and operational processes to reach end users and business partners

• IRRI should take a stake in the venture while leveraging partners assets – this includes playing a leading role on the Board of Directors and contributing to the management team, potentially through secondments or rotations. Details of equity stake for IRRI to be negotiated

• Seek impact investors keen to support the development of Philippines agriculture and or rice production in other countries where IRRI has a presence

• Ensure strong government support, while being pragmatic about exact nature of collaboration and potential role in the new venture. Government can take a small stake to provide legitimacy to brand end mission

• Farmers and employees of FarmSaya to be made shareholders which will promote loyalty and retention. Formulae to be developed

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• Incentive scheme for SSA rural sales force which may include combination of salary, subscription commissions and share options

• Ensure that FarmSaya creates a movement bigger than the rice farmer alone

– Subscriber outreach should be campaign driven with nation-building approach

– Focus on ways of making farming desirable and attractive to young people from rural communities

• Seek ways for the business model to be expanded beyond the Philippines and provide ICT platform delivery and structure to be customised according to other countries’ needs and local context

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Recommendations for FarmSaya (3)

Recommendations for IRRI (1) • Pursue commercialisation as a complement to

traditional fundraising for research - IRRI recommended to seek private sector partners interested in implementation of commercial projects using IRRI scientific knowledge and network

• Use Science & Research to influence public policy outcomes and engage key private sector partners for measureable local benefits – ensuring that benefits from IRRI research are realised in the Philippines

• Consider the creation of a Public Policy department and a Business Unit and establish priorities aligned with IRRI mission and values – to be applied in Philippines as well as other countries where IRRI has a presence

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Recommendations for IRRI (2)

• Apply research and science to solving post-harvest challenges and develop creative solutions in order to return more value to farmers and to create greater economic incentives for the farming sector

• Strike a balance between high-end scientific research and the need to take existing scientific knowledge in the “field”

• Be more customer focused in practical ways and address existing problems with existing know-how

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Implementation Timeline Month 6-12 Month 12-18 Month 18-24

Initial negotiations and ‘go-ahead’

from shareholders

• Incorporate Board of Directors

• Nominate Chairman of Board and management secondments from IRRI

• Report back to Chairman/Board of Directors on Progress

• Initiate next steps

Establishment of business entity

• Incorporate legal entity • Raise funds & secure

start-up investment • Memorandum

association • Resister corporation • Set up business

infrastructure

• Start Phase I operating • Preparation for Phase 2 in the end of month 24

Human Resources

• Recruit key management staff

• Secure rental office and set up facilities

• Prepare talent hiring • Establish SSA training

procedures

• Launch staff hiring

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Pilot Scale up

Implementation Timeline Month 6-12 Month 12-18 Month 18-24

Business Development

(initiate communications with core partners)

• Negotiation with potential businesses partners and clients

• Launch brand awareness campaigns

• (communication with secondary partners)

• Start contract sign-off

Product development

• Launch re-developed integrated platform with additional services

• Validate data • Step 1: Quality Control

• Step 2: Ongoing R&D • Evaluate development

of new products to rice farmers

Sales & Marketing

• SSAs reach out to farming communities for extensive enrolment campaign (ongoing)

• Field visits all A category Farmers’ community

• Run nation-wide campaign around rice

• Field visits all B&C category Farmers’ community

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Implementation Timeline

Month 6-12 Month 12-18 Month 18-24

Finance

• Set up finance infrastructure

• Accounting and financial reporting

• Secure financing

• Accounting and financial reporting

• Financing • Financial monitoring

• Set up audit and control systems

IT Operations • Build/ buy/ lease

platform • Run platform efficiently

Corporate Affairs • Identify major/ key

stakeholders and key opinion leaders

• Build advocacy plan • Implement advocacy plan

Innovation • Look at adjacencies • Build new business models along with business

development

IP protection

• Set up framework and IP/ patents database

• Apply for IP/ patent relevant to platform

• Develop commercialisation plan for usage of IP/ patents

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Appendices

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• BanKO is the first mobile phone based in the Philippines • Set up under the aegis of the Bank of Philippine Islands (the largest

Bank in the Philippines), Globe Telecom (Largest Mobile Company in the Philippines) and Ayala Corporation

• The bank reaches its customers through partners and mobile technology

• The Bank carefully evaluates its partnership model and offers partnerships to institutions that possesses liquidity, open for long hours and is available across the country.

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Proposed Partner – Additional Info

• Phil Rice has better influence power within Philippines and IRRI can provide strong technology support to Phil Rice

• Phil Rice already has “Knowledge bank” which is adopted for Philippines – Local languages (4 local+ 1Engligh) – PalayCheck system through whole rice production process – Can be connected via facebook which farmers like

• Phil Rice can provide free “text center” 0920-911-1398 • Phil Rice has various media channels “ magazine, website and

broadcast” • Phil Rice can provide training programme to local farmers and

extension works

SSA projected numbers & costs

Estimated cost breakdown of SSA per year:

Salary 180,000

Travel expense 40,000

Mobile device 12,000

Total per year (PHP) 232,000

Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

Enrolment 30,000 75,000 150,000 240,000 300,000 360,000 432,000 518,400 622,080 746,496

70% by SSA 21,000 52,500 105,000 168,000 210,000 (Organic growth CAGR 20%)

SSA effective 500 500 500 500 500

Number of SSA 42 105 210 336 420 420 420 420 420 420

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Potential Marketing Channels (1) Category Channel/ Execution How it works? Direct

Channel

SSAs/ Info Kiosk (Year1) Via incentivised SSAs (visits, walk-in) and info kiosks of our own, build

our own points of contact across the targeted region

Private

Sector

BanKO (Year1) Micro financing provider with its distribution channels readily available

(e.g. NMR posters/flyers distributed via BanKO’s branch offices)

Research

Institute

PhiRice (Year1) Disseminate NMR info via PhilRice FFS trainers or seedling distribution

channel (e.g. circulate NMR flyers along with seedling instructions)

Private

Sector

Jolibee (Year4) Utilise Jolibee’s restaurants as points of contact, disseminate NMR’s

posters and flyers at Jolibee restaurants

Farmers

Organisation

Seed-Grower/ Farmer Co-op

(Year 3)

Provide seed grower co-ops and farmers’ co-ops with NMR flyers and

farming guidance; with help of co-ops, select “Pilot Farmer” and build

up the success stories

Education

Institute

Ag College Students (Year 3) Designate agcri-major students as Student Ambassadors; Fund Student

Volunteer Groups for NMR Campaign/Education Initiatives; Hire

Student Ambassadors to conduct village-wide education and

registration service (with devices) on weekends

Farmers Org

/ Private Sec.

Post-Harvest Service Provider

(rice mill/storage) (Year 3)

Provide Post-Harvest best practices training/info sharing, and attracts

farmers who use targeted post-harvest services

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Category Channel How it works?

Public Sector/ Gov

Org

ATI/Extension Workers (Year1) Train the “Farmer scientists” nominated by the

extension workers

Religious

Community

Village Churches (Year1) Distribute flyers and conduct periodical education

sessions for community farmers

Private Sector New Agri Inputs Investing Partner

Network (Pioneer, Syngenta, Year 3)

Usage of their distribution channels

Private Sector Beverage Company (e.g. San Miguel)

(Year1)

Access rural communities via established sales

channels and national sales forces; bring marketing

expertise and $ (e.g. fund the social events of farmers,

in which NMR’s info will be disseminated)

Private Sector Telecom (e.g. Globe, Smart, Sun)

(Year1)

Mass info sharing/advertising (via text msg); hosting

the toll-free help hot line for farmers

Media Radio/ local TV channel (Year 2) Advertisement, brand image building

NGO Mercy Corps / Gawad Kalinga (Year1) Information referral

Retail Chain Seven Eleven/Supermarket (Year4) Putting up posters and distribute flyers in stores

Social Network Facebook / Twitter (Year 2) Building young farmers’ online community

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Potential Marketing Channels (2)

Estimated Impact of Nutrient Manager and FarmSaya

Increase yield of palay by 10 sacks/farmer * 2 season = 20 sacks x 50 kg / sacks = 1000 kg x 15 PHP/kg = 15000 PHP (Source: Farmer Interview)

1 ton palay annual

yield increase

15,000 PHP annual income increase

Small and Medium Miller: Conversion rate of palay to

milled rice is 60%

100,000 farmers x 1 ton x 60% = 60,000 tons of milled rice

increase in production

Subscription base: 10 % of 3 million farmers = 300,000 farmers 30% adherence to recommendations

100,000 farmers follow recommendations

Low rice yields and inferior quality of rice

Assumptions

PROBLEM

SOLUTION

IMPACT

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Thank you!

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