DEVELOPMENT OF A DEMAND FORECASTING MODEL

FOR SPECIALTY PLANT NUTRITION SOLUTIONS

APPLICABLE TO INDIA

DISSERTATION SYNOPSIS

submitted by

RAHUL MIRCHANDANI

in partial fulfillment of the requirements for the

DOCTORAL PROGRAMME IN MANAGEMENT (Ph.D.)

under the guidance of

DR S R GANESH
Senior Professor

NARSEE MONJEE INSTITUTE OF MANAGEMENT STUDIES

Deemed University, Mumbai.
 SYNOPSIS CONTENTS

Page #
1. Introduction 2
1.1 What Are Specialty Fertilizers? 2
1.2 Dissertation Scope 3
1.3 Need for the Study 3
2. Research Objectives 3
3. Variables 4
4. Research Methodology 5
4.1 Choosing an appropriate forecasting technique 5
4.2 Data Collection Methods 6
5. Sample & Respondents 8
6. Validity & Reliability 9
6.1 Validity 9
6.2 Inter-item Reliability 10
6.3 Parallel Form Reliability 10
7. Research Framework 11
Table of Objectives, Research Problems, Hypotheses, Approach, 11
Information Needs, Methodology & Tools
8. Research Results 14
8.1 Developing the Overall Demand Forecast Model 14
8.2 The Demand Forecasting Equation 16
8.3 Test of the Model 18
9. Implications 19
10. Limitations of the Study 20
11. Contributions of the Study 21
12. Suggestions for Future Research 21
Bibliography 23

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 Title of the Study: “Development of a Demand Forecasting Model for Specialty
Plant Nutrition Solutions applicable to India”

1. Introduction

Agriculture is one of the most complex and diverse elements of the economic fabric of India. The
use of modern farming practices on a wider scale and integrated nutrient management practices
are essential if India’s farmers wish to produce crops in line with the observed global standards of
quantity and quality. If a farmer does not provide balanced ‘food’ to his crops, he cannot expect
optimum levels of farm productivity.

1.1 What Are Specialty Fertilizers?

There are a total of sixteen elements recognized as essential plant nutrients, each having specific
functions. Neither can a plant complete a healthy life cycle in the absence of even one of the
essential nutrients, nor can they be replaced.

Note: Silicon (Si), the seventh micronutrient, has been excluded as there is no specific deficiency
recorded of this nutrient in India.

The application of nutrients like Nitrogen (through Urea), Phosphorus (through Di-Ammonium
Phosphate) and Potassium (through Sulphate of Potash) is commonplace. These are nutrients
required in large quantities and they are well recognized as major fertilizers. In fact, there are
several instances observed of their rampant overuse, which is a serious cause for concern. Excess
nutrients applied tend to reduce the efficiency of uptake of the other nutrients present in the soil,
compounding the problems of deficiencies.

However Nitrogen, Phosphorus & Potassium are not the only nutrients required by plants.
Calcium, Magnesium and Sulphur are considered as secondary nutrients. Several other nutrients
called micronutrients; though required in smaller quantities, are equally important for good
growth and development of plants. The essential micronutrients are Boron (B), Chlorine (Cl),
Copper (Cu), Iron (Fe), Manganese (Mn), Molybdenum (Mo) and Zinc (Zn). Plants take up all

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these nutrients simultaneously and their requirements vary with type of plants, growth stages,
yield potential, etc. All available sources of micro-nutrients will be classified as Specialty
Plant Nutrition Solutions for the purpose of this study.

1.2 Dissertation Scope

This Dissertation will undertake a systematic study to:

a. Identify the factors that influence demand for specialty plant nutrition solutions (or
specialty fertilizers) in the Indian context.
b. It would then attempt to use this knowledge to construct a predictive model for
forecasting demand for these specialty fertilizers.

1.3 Need for the study

The need to be more productive has manifested itself in farmers adopting new methods of
agriculture and the latest agricultural technology required to improve the economics of farming.
Integrated Nutrient Management forms an integral part of this framework. As a result, demand
situations for inputs required by the farm sector are no longer certain. Certainty, longer product
life cycles and low competitive intensity are things of the past. The overall environment has
become dynamic. (Singh, 2005) The environment is changing rapidly with the dynamism arising
not simply from the interaction of the individual structural components of the industry, but also
from the industry “field” itself. (Emery and Trist, 1965)

New farming methods, increased awareness, understanding and acceptance for modern farming
methods, including the application of specialty fertilizers, within the farming community have set
the ‘industry’s “ground” itself in motion’ (Emery and Trist, 1965) creating an environment that
can be aptly classified as a “turbulent field”. Demand has become uncertain, product life cycles
have shortened, and competition has intensified. In such a situation, understanding demand,
planning demand and linking supply with demand is crucial. (Singh, 2005)

The paucity of demand forecasting models in the agricultural inputs sector is a major gap in
the literature available to the Agribusiness Industry. There are models available that forecast
output of individual categories of farm products as well as models that predict the impact of
factors like rainfall, government policy, etc. on demand and supply of agricultural commodities.
However, forecasting models for inputs are rare. Extensive search revealed only one model for
forecasting global demand of commodity (major) fertilizers, developed by the Food and
Agriculture Organization (FAO). There was no similar forecasting model available in the public
domain prepared specifically for India. Considering the growing acceptance of new techniques
and technologies of farming and the consequent impact on the demand for specialty fertilizers in
India, development of a demand forecasting model for this Industry will be extremely useful.

The study will also present a step by step methodology that managers can use to forecast demand
in similar dynamic industry environments. The model will be especially useful to industries
marketing specialty products or new product concepts where past demand data is unavailable, and
the web of demand triggers is known but constantly changing.

The study will identify and assess the individual impact of each factor affecting demand
separately. Strategies may be formulated to ‘influence the influencers’ based on this information.
Demand estimates would also assist in devising operational frameworks, planning inventories,
increasing manufacturing and supply chain efficiency, etc. The study will therefore, add to the
body of knowledge in the field of forecasting and aid planning within emerging markets.

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 2. Research Objectives

This Study has the following primary Research objectives:

ƒ To identify the factors that influence demand for specialty fertilizers in the Indian context
ƒ To suggest a profile of the typical potential user (farmer) for specialty fertilizers
ƒ To assess the extent of the relationship between the causal factors and demand for specialty
fertilizers
ƒ To use above to generate a predictive model to forecast demand for specialty fertilizers
applicable to India.

3. Variables

The following diagram illustrates the conceptual framework underlying the overall demand for
specialty fertilizers. Variables have been classified into three heads:

Independent Extraneous Dependent

Variables Variables Variable

Type of Crop grown

Government
Nature of farming Policy Demand
practices for
Awareness Weather & Specialty
of specialty Affordability of the Climate Plant
nutrients specialty nutrients Nutrition
Water Solutions
Recommendations and availability
Field Trials Word of Mouth
of specialty Labour costs
nutrients & shortages
Agri Output prices

Infrastructure
Trade channel influence bottlenecks

Financial capacity of Farmer

farmer attitudes

(Conceptual Framework prepared with extensive inputs from: Aggarwal et al (2002), Alagh
(2003), Bandyopadhyay & Perveen (2002), Bhalla (2001), Dhar & Kallummal (2004), Finck A.
(2002), Foster & Rosenzweig (2003), Ghonsikar & Shinde (1997). Iyer (2003) Kamath (2002)
Mahadevan (2003), Ray (2004), Sen (2001) and Subramanyam & Sudha (2002))

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4. Research Methodology

4.1 Choosing an appropriate forecasting technique

A detailed review of forecasting techniques was undertaken in order to identify those that would
be the most appropriate to this study. This was an essential step in arriving at the research
methodology. A table summarizing the various techniques reviewed and the reasons why they
were considered appropriate or inappropriate as part of the methodology for this study is
presented below.

Table 1: Evaluation and Rationale for Choice of Forecasting Techniques

Forecasting Decision regarding usage for a Rationale for decision
Technique (near term) demand forecasting
model for specialty fertilizers
Econometric Do not use Primarily useful for long range forecasts;
Methods unimpressive results in short range
forecasting; past demand data
unavailable for extrapolation
Naïve Methods Do not use No assessment made about causality of
specific factors
Causal Methods Method to be used Decomposition of ‘causal forces’ and
assessment of impact of each causal
√ factor on the demand for specialty
nutrients will be especially useful in
improving forecasting accuracy.
Intentions Method to be used Intentions based forecasts more accurate
Surveys than extrapolation of past sales;
especially useful when past demand data
√ not available; collecting ‘probability of
purchase’ estimates from farmers is not
complicated.
Delphi Do not use Administering Delphi questionnaires
Technique anonymously and without the researcher
being physically present in a rural setting
would be a constraint.
Unaided Do not use Experts were no better than chance while
Judgement developing forecasts in complex
situations.
Game Theory Do not use No research has directly tested the
forecasting accuracy of game theory
Role Playing Do not use Useful only in understanding how people
respond to exogenous pressures
(government policy, weather, etc.)
Focus Groups & Method to be used Unstructured discussions rarely lead to
In depth
interviews
(only for understanding
the decision context and
√ accurate forecasts. However, they are of
value in understanding market dynamics
trends)
Neural Nets Do not use High data requirements; results generated
using computer intensive methods are
often difficult to interpret & understand

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Forecasting Decision regarding usage for a Rationale for decision
Technique (near term) demand forecasting
model for specialty fertilizers
Data Mining Do not use Little evidence of utility in forecasting

Segmentation Method to be used Increases depth and improves accuracy

of the overall forecast. The intentions
√ survey will gather data based on crop
wise segments. Thereafter, demand
estimates will be made for every
specialty nutrient separately and then
summed to generate the overall forecast.
Rule Based Do not use Absence of empirically validated, fully
Forecasting disclosed prior rules that can be applied
to the forecasts.

4.2 Data Collection Methods

A personally administered questionnaire was chosen as the data collection tool for phase one of
the study. The respondents were assembled at multiple locations in meeting rooms where the
questionnaire was available in multiple Indian languages. Respondents were free to choose the
questionnaire in the language of their choice. The order of questions, overall format and scales
were identical in all the questionnaire forms, irrespective of language.

The questionnaires were distributed to all present. Every question was read out in English, Hindi
and the local language. In case of the local language, help from a local speaker familiar with all
the local language, English and Hindi was taken at each meeting location.

Uma Sekharan (2003) states “wherever possible, questionnaires are best administered
personally to groups of people because of these advantages:
(i) Establishes rapport with the respondents before administering the questionnaire
(ii) Respondents were able to clarify any doubts that they had on any questions on the
spot.
(iii) It provided the opportunity to introduce the research topic and motivate respondents
to offer frank answers.
(iv) Administration was possible to a large group of respondents at the same time.
(v) All completed responses were collected before the end of the hour long meeting. This
ensured a 100% response rate.
(vi) The method is less expensive and less time consuming as conducting personal
interviews”
To take advantage of these benefits, this method of questionnaire administration was chosen.

Open ended questions were avoided completely in the survey questionnaire. This was to ensure
uniformity across all respondents. Moreover, since respondents were reading and responding in
multiple languages, open ended responses would complicate data analysis which would require
translation of answers into English prior to coding. The interpretation of the translators would add
bias to the responses and it was thought best to avoid this.

Closed ended questions used in the survey form centered around ten broad focus areas:
(i) Ownership and size of farm land

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 (ii) Top three crops grown in the area
(iii) Identifying any change in cropping patterns over the last two years
(iv) Assessing level of usage of specialty plant nutrition across different crop types
(v) Impact of individual factors affecting demand for specialty plant nutrition solutions
(vi) Usage of specialty plant nutrition solutions in the previous season
(vii) Probability of using specialty plant nutrition solutions in the next season, assuming
certain changes occur in the farming practices or due to external factors (measuring
the ‘intention to try’)
(viii) Identifying who decides on agricultural input purchases
(ix) Identifying which single influencer has the highest impact on the buying decision for
specialty plant nutrition solutions
(x) Classification questions that asked for information regarding location (state, district,
village), contact numbers and size of the family unit.

The survey also requested the respondents to provide contact details of three persons in their area
who could be contacted for In depth Interviews on the subject. This list was used as the sample
frame for Phase Two of this study.

Considering the demographic profile of the respondents (farmers and agricultural input retailers
from Rural India) and the diversity in languages, cultures and educational backgrounds, it was
essential that all measurement scales be kept extremely simple.

Questions in the survey only required “Yes/No” answers, Ranking top 3 crops as “1-2-3” and
indicating responses using tick marks on a 4 point interval scale. The interval scales used were
deliberately kept ‘unbalanced’, allowing no neutral choice point. This ensured that every
respondent had to necessarily state if a particular factor had an impact on specialty plant nutrition
demand or not. This was essential as the factor either had an impact on demand or did not have an
impact on demand. There was no reason for a “may or may not have an impact” choice point.
Also, considering that the respondents were not very familiar with answering detailed
questionnaires or long rating or ranking scales, the number of intervals was limited to four.
Increasing the number of choice points on the measurement scale would only confuse the
respondents. The final two questions also asked for only tick marks to indicate the influencers in
the purchase decision for agricultural inputs.

Phase Two involved In depth Interviews and Focus Groups which provided ample opportunity to
gain deep insights into the buying process, using open ended questions and probing.

There was no structured questionnaire handed out to the respondents during this phase of the
study. Respondents were met at their homes or on their farms to ensure that they are at ease
during the process. It also ensured that they were able to speak at length on the subject. Each
interview lasted close to an hour and was video taped (with permission) for ease of qualitative
analysis. All respondents were familiar with Hindi and this helped the process of questioning and
probing immensely.

A check list of questions and focus areas to be covered during the In-depth Interviews was drawn
up. This check-list was common across all respondents interviewed during this phase of the study.
However the interview was not structured with rapid fire questions. Each respondent was asked to
talk at length on the decision making process for agricultural inputs and this discussion was
gradually focused onto specialty plant nutrition solutions. Respondents spoke at length about their
farming practices as well. This provided deep insights into the minds of the farmers and the

7
factors that influence their buying behaviour. Each interview was videotaped and summarized
into a concept map.

5. Sample & Respondents

One of the primary objectives of this study was to identify the factors influencing demand for
specialty plant nutrition solutions. Hence, the end consumers – i.e. farmers, need to be contacted
to ascertain why they choose to purchase such inputs for use on their fields.

The only method to directly ascertain farmers' intentions regarding fertilizer usage is through a
sample survey. N.S. Parthasarathy (1994), stated in a publication for the United Nations Food and
Agriculture Organisation, that “in the fertilizer business, it is possible to assess farmers' intentions
through retailers.” Many retailers are located in villages and are in daily touch with farmers.
“Many are themselves practicing farmers and have a good feel for agricultural prospects for the
ensuing season or year.” (Parthasarathy, 1994) Being close to the scene of action, they have a
good assessment of produce price trends, available purchasing power, likely crop shifts, etc. It
should be possible to ascertain from each retailer directly or through a large sample, the likely
demand for specialty fertilizers.

It was decided to use agricultural input retailers as the respondents for this study. The retailer
database of a specialty fertilizer marketing company having perhaps the widest distribution reach
across India was selected as a sample frame. This was considered appropriate as it provided
contact details of 44,000 retailers from 17 States of the country, providing an extremely wide
geographical spread to the sample.

From this sample frame, a cluster (area) sample of retailers was drawn. The Cluster (Area)
sampling ensured the state wise geographical spread of the respondents. The number of
respondents included in the sample from each state attempted to follow the same distribution as
that of fertilizers consumed in that respective state and the area under cultivation within that
State. The basic assumption here is that areas consuming more quantities of major fertilizers and
having more area under cultivation have more agriculture and should therefore show higher
consumption of specialty plant nutrition solutions.

Once the number of respondents was decided, the selection of respondents (retailers) invited to
attend the meeting was done at random. They were invited to a central location at a specified date
and time. Once respondents gathered, the survey questionnaire was administered to all present.

All retailers present at these meetings were handed out questionnaires in their choice of language.
English questionnaires prepared were translated by professional copy writers into Telugu,
Marathi, Hindi, Tamil, Bengali, Kannada, Oriya and Gujarati. The order of questions and format
was kept identical.

A total of 877 respondents answered the questionnaire. 81.9% of these respondents were farmers
themselves, in addition to being agri input retailers (this is in line with the rationale put forth by
Parthasarathy, 1994). The remaining 17% of respondents were not farmers, but purely
agricultural input retailers. Due to their occupation, all 877 respondents were in regular touch
with farmers in their respective areas.

These 877 respondents represent 17 States and 201 districts of the country. Since the sample
was essentially a non-probability sample, it was essential to check the sample for representation.
This is essential to ensure the possibility of generalizing the results of the study.

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To check on how representative this sample was in relation to the state-wise distribution of the
total farming population, the sample distribution was correlated with secondary data on two
separate criteria, namely, state-wise area under cultivation and state-wise fertilizer consumption.

At a 99% Level of Confidence (α = 0.01), there was a statistically significant correlation observed
between the total area under cultivation in the respective states and the number of respondents
from that state included in the sample. This points to the fact that more the area under
cultivation in a particular state, the more the number of respondents from that state were
included in the sample.

Further, at a 99% Level of Confidence (α = 0.01), there was a statistically significant correlation
observed between the total fertilizer consumption in the respective states and the number of
respondents from that state included in the sample. This points to the fact that more the fertilizer
consumption in a particular state, the more the number of respondents from that state were
included in the sample.

After completion of Phase One of the sample survey as detailed above, a follow up qualitative
study was conducted using in depth interviews and focus groups of farmers in the state of
Maharashtra. This state had farmers with very wide crop diversity and would thus permit
gathering of insights from growers of diverse crop types.

Within the persons named by the survey respondents within Maharashtra state, selection of
farmers to be interviewed was done on a ‘convenience’ basis. However, it was ensured that the
farmers contacted during this phase grew multiple crops of a diverse nature on their fields.

6. Validity & Reliability

6.1 Validity

In the case of the questionnaire used in this study, content validity, i.e., ensuring the inclusion of
adequate and representative set of items to measure demand triggers for specialty plant nutrition
solutions, was ascertained. The face validity of the questionnaire was ascertained by
administering the questionnaire on a test group of ten ‘subjects’ (a group of agri input retailers,
who were also farmers) within the Pune district of Maharashtra state. They all agreed that the
items included did identify demand triggers and, on the face of it, appear to be appropriate
measures of the concept. This criteria was assessed though it is viewed as a ‘basic and very
minimum index of content validity’. (Sekharan, Uma 2003, pp 206)

The Inter-Correlation Matrix gives an indication of how closely related the variables under
investigation are. This matrix was drawn up for all variables, irrespective of whether or not the
hypotheses are directly related to these analyses. (Sekharan Uma, 2003, pp 307) Not a single
correlation coefficient in the entire matrix is above 0.455. This allows us to conclude that all
variables are distinct and we can reasonably be sure of the validity of the measures.

Further, if two variables that are theoretically stated to be related do not seem to be significantly
correlated to each other in our sample, the validity and reliability of the measurement of the
concepts under investigation would be suspect. A detailed check on the Inter-correlation
matrix does not reveal any such discrepancies. This allows us to be reasonably certain of the
overall validity of the measures used in the study.

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6.2 Inter-item Reliability

In the questionnaire, two sets of measures were gathered, both on a four point interval scale, to
assess consistency across eight factors affecting demand for specialty plant nutrition solutions. To
verify the reliability of the questionnaire responses, a test of consistency of the respondent’s
answers to these items (independent measures of the same construct) was conducted.

The most popular test of inter-item consistency reliability is the Cronbach’s coefficient alpha.
(Sekharan Uma, 2003). This is generally used for multi-point scaled items and is therefore
appropriate. The reliability coefficient, Cronbach’s Alpha reported is 0.6747. Generally, Alpha
coefficients between 0.6 and 0.7 are considered ‘acceptable’ (Sekharan Uma, 2003, pp. 311) and
hence we can conclude that there is ‘acceptable’ consistency in the responses of the
respondents to questions measuring the same construct. We may therefore, take the responses as
fit for detailed analysis and generalizations.

6.3 Parallel Form Reliability

Responses were gathered in the survey to assess the probability of use of a specialty plant
nutrition solution during the next season assuming a particular change occurs in the area. The
responses were collected on a 4 point interval scale with options being “Will Not Purchase”,
“May not purchase”, “May purchase” and “Will definitely purchase”. Since respondents
generally do not tend to think in terms of probabilities, this scale served as an appropriate data
collection tool. For analysis, these responses were converted into probabilities as follows:

Response on 4 point scale Probability of purchase assigned

Will not purchase 0% or 0.00
May not purchase 33% or 0.33
May purchase 66% or 0.67
Will definitely purchase 100% or 1.00

Here, we now had two parallel sets of measures tapping the same construct. To check for the
reliability, analysis using Cronbach’s Alpha coefficient was conducted. The reliability coefficient,
Cronbach’s Alpha reported is 0.82. Generally, Alpha coefficients above 0.8 are considered
‘good’ (Sekharan Uma, 2003, pp. 311) and hence we can conclude that there is ‘good’
consistency in the responses on the 4 point interval scale and on the probability scale. We
may therefore, take these responses as fit for detailed analysis and generalizations.

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7. RESEARCH FRAMEWORK
Table 2: Research Objectives, Research Problems, Hypotheses, Approach, Information Needs, Methodology & Tools
Research Objective Research Problem Hypothesis Approach Information Needs Methodology/Tools
To estimate the What is the level of N.A. Gather usage Total area under Structured Instrument
current usage levels usage of specialty levels within cultivation for each (Questionnaire survey)
of specialty nutrients fertilizers by farmers of a particular crop type
by farmers of each crop type? area (as a Sample Size : 877
different crop types percentage of Respondent estimates
farmers of the proportion of
growing farmers having high
different crop usage, medium usage,
types using low usage and no
specialty usage of specialty
nutrients) nutrients.
using a 4-
point scale
(No usage –
low usage –
medium
usage – high
usage)

To identify the What are the factors H10 : There is no
factors that influence that influence purchase significant interrelationship
demand for specialty of specialty fertilizers? between the variables
plant nutrition influencing the demand for
solutions specialty fertilizers
H11 : There is a significant
interrelationship between
the variables influencing
the demand for specialty
fertilizers
Factor Farmer (end user) Structured Instrument
Analysis ratings on a 4-point (Questionnaire survey)
scale indicating the
level of impact (No Sample Size: 877
impact – Low impact
– Medium impact –
High impact) that
each of the
influencing variables
has on the demand for
specialty fertilizers.

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 Research Objective Research Problem Hypothesis Approach Information Needs Methodology/Tools
What are the levels of N.A. Survey of End user probability Structured Instrument
influence that each of Buyer ratings (using a 4- (Questionnaire survey)
the variables has on the Intentions point scale) assessing
demand for specialty the probability of Sample Size : 877
fertilizers? purchase of specialty
nutrients, given the
existence of each
factor included in the
list.

To suggest a basic What are the H20 : There is no Discriminant Classification data Structured Instrument
profile of the typical characteristics of a significant discriminating Analysis (limited to farm (Questionnaire survey)
potential user consumer who is most power in the variables acreage, type of crops
(farmer) for specialty likely to purchase a H21 : There may be a grown and change in Sample Size : 877
fertilizers specialty fertilizer? significant discriminating cropping patterns)
power in the variables
Grouping Variable :
current usage
information

To ascertain the key Who decides on the N.A. Frequency Listing of all Structured Instrument
decision makers agricultural inputs distributions influencers (Questionnaire survey)
determining the that are being
purchase of specialty purchased for your Indication of most Sample Size : 877
nutrients crucial influencer in
farm?
the decision making
process
Who or what
influences the farm
inputs purchase
decision the most?

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 Research Objective Research Problem Hypothesis Approach Information Needs Methodology/Tools
To gain in depth What are the dynamics N.A. Expert Responses in line Number of in-depth
insights into the that are involved in the opinion with in-depth interviews : 12
decision making decision to purchase (for interview checklist
process regarding specialty nutrients? validation of (Respondents growing
specialty nutrients quantitative different types of crops
survey and and having differing
deeper area under cultivation
qualitative selected for in-depth
insights) interviews & focus
groups)

To use above to Based on the study of Construct Total area under Prepare predictive
generate a near term various influencing Demand cultivation, current equation
predictive model to variables, prepare a Forecasting usage levels, stated Prepare pessimistic,
forecast demand for forecasting equation to equation intentions optimistic and average
specialty plant estimate demand for (probability of estimates of specialty
nutrition. specialty nutrients purchase), agronomic fertilizers demand for
(dependent variable), requirements (from each nutrient
given existence and government separately, in quantity
impact of each causal notifications) and market value
variable. terms.

To estimate the What is the overall Estimate of total Compare demand

accuracy of the accuracy of the demand for specialty estimates and evaluate
demand estimate estimate of demand for nutrients derived model accuracy.
specialty fertilizers? from other sources

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8. Research Results

The key research results gathered from the quantitative and qualitative phases of this study
are summarized below:

1. The core factors that influence demand for specialty nutrients are market prices of
agricultural output (past and current season), usage of hybrid seeds, nature of farming
practices, recommendations (by other farmers, private companies, etc.) and others (weather,
external funding, size of area under cultivation, age of farmer, financial strength of farmer,
etc.)

2. Based on the ‘intention to buy’ data, a farmer is most likely to purchase specialty fertilizers
if he switches over to using hybrid seeds. The next six influencers (in descending order of
importance) are neighbouring farmer’s reports, recommendations by company staff, retailer
recommendation, sales promotion schemes, change over to horticultural crops and
installation of micro irrigation systems.

3. Insights from farmers revealed that advertising and recommendations by government

officials) have no significant influence on demand. Women also have very little influence
over the buying decision for agricultural inputs, including specialty nutrients, though
majority of them are working on the fields.

4. Half of the farmers make purchase decisions regarding specialty nutrients themselves.
Elder male family members and agricultural input retailers are the two next most important
decision makers.

5. A basic model to identify potential users who are likely to use specialty fertilizers has been
drawn up using crop type, area of farm land and change in cropping patterns as the basis.
The model has accurately identified users 78% of the times. The model has used only three
variables. Adding more variables could improve the predictive ability of the model further.

6. Given awareness about the concept and having conducted or witnessed a successful trial
using specialty nutrients (two necessary conditions to be fulfilled before any demand
arises), the mean probability of purchase, taking all factors collectively, is estimated at
73.13%.

7. The actual purchase behaviour indicates that mean purchase intentions were understated by
11.8%. This difference must be incorporated into the forecasting model.

8.1 Developing the Overall Demand Forecast Model

The demand forecasting model being proposed shall take into account the following:

(i) Total Market potential for the product group, i.e. specialty nutrients.
(ii) Level of awareness of the concept among the consumers
(iii) Extent of ‘demonstrated performance’ of the product using trials amongst the aware
consumers (or target market)
(iv) Existence, impact and importance of each of the influencing factors that play a role
on the purchase decision for the product
(v) Affordability of the product, having a bearing on actual buying behaviour
(vi) Availability of the product, having a bearing on actual buying behaviour

14
 (vii) Willingness to pay for the product, having a bearing the actual buying behaviour
(viii) Error in estimate resulting due to overstated or understated intentions
(ix) General (agronomic) requirement of the specialty nutrients (per unit of land area) as
established by the Government.
(x) Market Price of the specialty nutrient sources, in order to convert the estimate of
quantity demanded into a monetary estimate of market size.

Awareness about specialty nutrients is a pre-requisite that must be satisfied before any farmer
becomes a potential user for specialty nutrients. Awareness about the concept is a key
determining factor for demand. Unless utility of the concept is known and understood, there is no
chance that a farmer will purchase a specialty nutrient. The forecasting model will thus
incorporate awareness (A) as a dichotomous variable, where A = 0 if farmer is unaware about the
concept of specialty nutrients, and A = 1 if farmer is aware about the concept of specialty
nutrients.

When assessing demand forecast for such products within any group of farmers or for any
geographical territory, level of awareness must be ascertained. A representative sample of farmers
could be asked whether they are aware about this concept or not. Their ‘yes – no’ responses once
analyzed will provide a good estimate of awareness levels in the area. It must be borne in mind
that awareness levels in every area or group of farmers will vary.

Once a farmer is made aware, he will always conduct a trial on his own field within a small area
before using the specialty nutrients over the entire area under cultivation. Successful conduct of
this trial is also a critical determining factor before demand from a particular farmer becomes a
reality. If the trial on his field is unsuccessful, the specialty nutrients will never be purchased.
Demand will materialize only if the trial is successful, i.e., the field results are favourable. Word
of mouth spreads after successful trials are conducted within the immediate geographical area.

The forecasting model will need to consider whether such field trials have been successful, using
a dichotomous variable ‘T’, where , where T = 0 if farm trials on specialty nutrients have been
un-successful, and T = 1 if farm trials on specialty nutrients have been successful. Once again,
enquiries within the farming community in the area will give insights into this variable. It must be
borne in mind that demand in any area for specialty nutrients will be zero if trials have either not
been conducted or witnessed by farmers or if the trials are unsuccessful.

Twelve other influencing variables have also been studied and their impact on purchase
probabilities for specialty fertilizers has been ascertained during the farmer intentions survey.

Based on this, the “probability that an individual farmer will demand specialty nutrients
k

during a particular season” may computed as: DPr = A(0,1) x T(0,1) x Σ (X P )

i i
i=1
n

where, A = 0 if farmer is unaware about the concept of specialty nutrients, and A = 1 if farmer is
aware about the concept of specialty nutrients
T = 0 if farm trials on specialty nutrients have been un-successful or not yet conducted, and T = 1
if farm trials on specialty nutrients have been successful
Pi = mean probability of purchase for factor ‘i’ (assessed using intentions survey responses)

15
Xi = dichotomous variable indicating the existence of influencing factor ‘i’ (Xi = 0 if factor is not
valid for the farmer, Xi = 1 if factor is valid for the farmer)
‘i’ ranges from 1 to k; k = number of influencing variables (k = 12 in this study)
n = number of valid influencing factors, i.e., number of factors where Xi = 1

The above DPr estimate is valid where all factors are (or assumed to be) of equal importance, or if
the priority of importance is not known to the forecaster.

To get a more accurate forecast, it is useful to assign weights to each of the influencing factors.
An assessment of the importance of each factor can be ascertained using factor analysis.
Alternatively, a qualitative assessment of importance by speaking with groups of potential users
is possible. Weightages (Wi) may be assigned to each influencing variable (Xi).

The above expression can factor in these weightages (as assigned by the forecaster) as follows:

k
DPr = A(0,1) x T(0,1) x Σi = 1W X P
i i i

k
ΣW
i=1
i

Σ Wi is the sum of weightages assigned. Note that Wi must necessarily be 0 wherever Xi = 0

Since DPr is a probability estimate, 0 < DPr < 1, with DPr moving closer to 1 as probability of
purchasing specialty nutrients increases.

To ascertain the probability that a group of farmers will demand specialty nutrients during a
particular season, the above equation will continue to be appropriate, except that all variables will
need to be ascertained for the entire group of farmers being targeted. Alternatively, if the group is
small in size, individual probabilities may be ascertained and then averaged.

Further, as discussed in section 5.5, the above probability of demand for specialty nutrients would
need to be adjusted (PAct – PInt) [if available] would need to be built into the final probability
estimate, if available.

Thus, the Adjusted DPr = DPr + (PAct – PInt ) [0 < Adjusted DPr < 1]

Usually, in case of initial estimates or first time studies, the difference between ‘actual purchase’
and ‘stated intent to buy’ would not be available. Over time, when forecasts are repeatedly
developed for a certain area or group of farmers, such an ‘adjustment factor’ would become
known to the forecasters (when they assess the accuracy of the forecasts) and can be applied.

8.2 The Demand Forecasting Equation

After arriving at the ‘overall probability of purchase’ estimate (preferably adjusted for the
difference between actual purchase behaviour and stated intentions), the overall demand forecast
for specialty nutrients may be arrived at using the function below:

QDj = (Area X AW%) X TR% X Adjusted DPr X Agj

16
Where, QDj = Demand (in quantity terms) of the j’th specialty nutrient
Area = Total Area under cultivation in the area for which the forecast is being prepared
AW% = Percentage of farmers in the area who are aware about the concept of specialty nutrients
TR% = Percentage of aware farmers in the area who have conducted or witnessed a successful
trial using specialty nutrients
Adjusted DPr = Overall probability of purchase of specialty nutrients during a particular season
(as estimated using a survey of farmers intentions), adjusted for (PAct – PInt), i.e. the difference
between actual observed purchase behaviour (PAct) and stated intentions (PInt) [ascertained by
comparing the mean intentions gathered during the intentions survey and comparing with the
actual buying behaviour recorded during the season, taking a sample of respondents surveyed]
Agj = General agronomic requirement of the j’th specialty nutrient (in terms of quantity per unit
of land area per year – for e.g., kilos/hectare/year)

Note that within the Adjusted DPr = DPr + (PAct – PInt), the PAct factor deals with issues of
availability and affordability.
(i) If the specialty nutrient is priced such that the farmer who intends to purchase finds it
unaffordable, the PAct estimate will decline.
(ii) If the specialty nutrient is unavailable to the farmer who intends to purchase it (either
due to stock-outs, inventory shortages or lack of reach of the distribution network),
the PAct estimate will decline.
(iii) If the respondent farmers, overstate their intentions to purchase during the survey
(perhaps due to social desirability bias or auspices bias, etc), the PAct estimate will
even out the overstated intentions estimates. This holds true even in case the
respondents understate their intentions for any reason during the survey.

Considering the advantages of using the Adjusted DPr, only in case the adjustment factor is not
available, DPr should be used in its place within the forecasting equation.

The expanded demand forecasting equation for all specialty nutrients would be as under:
m
M= Σ ( QD
j=1
j x Yj )

where, M = total demand for specialty nutrients in the area under study in money terms
QDj = quantity demanded of the j’th specialty nutrient (in quantity terms; for eg. metric tons or
kilos, etc.)
m = the total number of specialty nutrients whose demand forecast is being prepared
Yj = average current market price of the j’th specialty nutrient (in money terms; for eg. Rupees
per metric ton or Rupees per kilo, etc.)

k
QDj = (Area x AW%) x TR% x A(0,1) x T(0,1) x ΣW X P
i=1
i i i + (PAct – PInt) X Agj
k
ΣW
i=1
i

Thus, QDj = f (Area, AW, TR, DPr, Agj) [all terms within the function as described above]

17
The following table indicates the concepts being addressed by the various variables included in
the forecasting equation.

Table: Variables and Concepts

Variable in Concepts being addressed by the Remarks
Equation variable
AREA Total Market potential for the product This is the total addressable potential :
group, i.e. specialty nutrients. total area under cultivation
AW% Level of awareness of the concept among Can be ascertained using a survey of
the consumers respondents in the area
TR% Extent of ‘demonstrated performance’ of Can be ascertained using a survey of
the product using trials amongst the aware respondents in the area
consumers
Xi, A, T Existence of each of the influencing A=1 if awareness exists, A=0 otherwise;
factors that play a role on the purchase T=1 if successful trial conducted or
decision witnessed, T=0 otherwise, Xi = 1 if
particular influencer is relevant or
present, Xi = 0 otherwise
Pi Impact of each of the influencing factors Impact on buying decision of each factor
that play a role on the purchase decision Xi is measured in terms of ‘probability of
purchase’ in case the factor exists or
manifests itself
Wi Importance of each of the influencing Weightage may be assigned by the
factors that play a role on the purchase forecaster subjectively/ qualitatively
decision
PAct Affordability If the farmers find that the product is not
affordable, demand will not materialize
and PAct will fall
PAct Availability If there is a supply bottleneck or if the
specialty nutrient is unavailable at the
point of sale for whatever reasons,
demand will not materialize; PAct will fall
PAct Willingness to pay If the farmers are unwilling to pay for the
specialty nutrient for whatever reasons,
demand will not materialize and PAct will
fall
PAct – PInt Error in estimate resulting due to PAct – PInt will account for any overstated
overstated or understated intentions or understated intentions expressed by the
respondents
Agj General (agronomic) requirement of the The requirement of each nutrient has been
specialty nutrients (per unit of land area) notified by the Government from time to
time. Gazetted notifications can be used
as the basis here.
Yj Market Price of the specialty nutrient Average market price (MRPs) are
sources available from the company price lists

8.3 Test of the Model

One way to assess accuracy of a forecasting model has been to examine the agreement among
judgmental forecasts. For example, Ashton (1985), found that the agreement among the
individual judgmental forecasts was a useful proxy for accuracy.

18
In order to test the accuracy of the results of this forecast, a comparison was made with the
Industry’s judgmental forecast as follows:

The Indian Micro-fertilizers Manufacturers’ Association (IMMA) estimates that the

micronutrients consumption in India stands at 0.87% of the major fertilizer consumption. (Note
that the world average is 4%) Since there is no published quantitative estimate of market size or
consumption of micro-fertilizers, an estimate of the micronutrient demand calculated at 0.87% of
major fertilizer consumption works out to:
Micronutrient Consumption = 0.87% x (All India Major Fertilizer Consumption)
= 0.87% x (184 lakh tonnes)*
= 1.60 lakh tonnes

*Source : CMIE Indian Harvest Database

The ‘average demand’ estimate based on the model works out to 1,78,919 MT, i.e. 1.78 lakh
tonnes

The difference between the two estimates (above) works out to approx 11.25%

It must be noted that the IMMA estimate of percentage of micro-fertilizer consumption vis-à-vis
major fertilizers was made in the year 1995. Ever since, there has been no similar estimate
prepared by the Association. Literature search has not revealed a similar estimate by any other
Institution. It is very reasonable to assume that awareness levels and hence usage of specialty
fertilizers has grown higher than this 0.87% level.

The quantity estimate of micronutrients as per our forecasting model works out to 0.967% of
major fertilizer consumption. This increase of micronutrient usage (as a percentage of major
fertilizer consumption) of approx. 0.097% over a period of 11 years will largely explain the
difference in demand estimates.

The accuracy of the model may hence be considered ‘adequate’.

9. Implications

This model can be applied to industries beyond specialty fertilizers. It can be used for any
specialty product where building awareness about the concept and its utility is critical.

For example, in the pharmaceuticals industry, when a new drug is introduced, the model may be
applied to estimate demand for the new drug in the short term. The ‘Area’ may be substituted
with ‘Population’ (read as ‘target population’, in case the drug is relevant to only a particular age
group or gender or geographic area, etc.) and Agronomic requirement (Agj) may be substituted
with ‘prescribed dosage’.

In case the drug is a curative drug, a dichotomous variable ‘S’ would need to be included (see
QDc below) where S=1 if the disease or symptoms exist, S=0 otherwise.
In case of a preventive drug, this specific term need not be included (see QDp below). The factors
(Xi) would include recommendation by doctor, press reports on efficacy of the drug, international
approvals, etc. A survey of buyer intentions can be conducted to ascertain the probability of usage
(Pi) of the new drug, subject to each of the listed factors. A weightage (Wi) may also be assigned
to each factor.

19
 AW% and TR% continue to remain ‘estimates of awareness about the drug’ and ‘percentage of
aware/target consumers who have successfully tried/witnessed trials of the drug’, respectively.

Thus, for preventive drugs sold over the counter (with no specific prescription from a medical
practitioner required), the demand estimate would be:

k
QDp = (Popln x AW%) x TR% x A(0,1) x T(0,1) x ΣW X P
i=1
i i i + (PAct – PInt) x Dose
k
ΣW
i=1
i

For curative drugs which are sold over the counter (with no specific prescription from a medical
practitioner required) the demand estimate would include the extra variable S (as described
above):

k
QDc = (Pop x AW%) x TR% x S(0,1) x A(0,1) x T(0,1) x ΣWX P
i=1
i i i + (PAct – PInt) x Dose
k
ΣW
i=1
i

Similarly, the model could be applied across other industries as well. The general requirements
for applicability of this forecasting model are that:
i. The product or service is not a commodity or an impulse purchase item.
ii. It must have a specific, identifiable usage and benefit which can be demonstrated by
means of a trial or demonstration.
iii. The product should be considered ‘important’ by the consumers, either due to the extent
of monetary outlay required to purchase the product or due to its utility.
iv. The markets should typically be in the introductory and growth stages. As markets
become mature, concepts tend to get ‘commoditized’, usage of the product becomes part
of the consumers’ habits, routinized buying behaviour sets in and differences in the
relative importance of factors blur. As an assessment of the impact of the influencing
factors on the purchase decision is required, the model cannot be applied when markets
reach maturity. This is because, when markets reach this stage, consumers purchase the
product by force of habit and do not pause to think of ‘influencing factors.

10. Limitations of the Study

This study has surveyed buyer intentions for specialty fertilizers across India. The ‘probability of
purchase’ estimates and importance (weightage) of individual factors have been evaluated on an
All India basis. There may be certain changes in these estimates and weightages within individual
states. Considering this limitation, the model has been applied and demand estimates prepared
only on an All India basis. In case, state specific demand estimates are required, assessment of
state specific purchase intentions would become necessary using a representative sample from
each state. The structure of the forecasting equation would however remain unchanged.

20
The assessment of difference between actual purchase behaviour and stated intentions is critical
to the accuracy of the model. This ‘adjustment factor’ addresses issues of affordability,
availability, ability and willingness to buy as well as under and overstated intentions. In case this
factor is not available to users of the model, the accuracy of the demand estimate would be lower.

The qualitative phase of this research identified a few factors that were not specifically included
in the survey questionnaire. ‘Probability of purchase’ estimates exclude the impact of these
variables. The factor analysis results indicate that close to two thirds of the influencing variables
have been explained by the survey (see section 5.2.3). The impact of the remaining variables has
not been specifically identified by this study. These could perhaps be identified in a follow up
study and included as additional variables within the forecasting equation.

It must be however borne in mind that while adding and assessing the impact of more variables
would increase accuracy of the model, it would add to respondent fatigue and model complexity.

11. Contributions of the Study

The specialty nutrients industry has been in existence in India since the 1970s. However, it is still
rather small in terms of absolute market size. The application of such a model will be extremely
useful to companies operating within this industry. Considering the fact that this industry and
companies within it are growing fast, planning operations using a good estimate of near term
demand scenarios will lead to establishing long term operational efficiencies. A similar study or
demand estimation model is currently not available to this industry.

From a strategic perspective, understanding the impact and importance of the individual variables
that affect demand will be extremely useful. The results of the study would be useful to other
agribusiness companies selling specialized products, like new molecules of crop protection
products, new generation seeds, etc. Companies can identify the core factors and develop
strategies to try and ‘influence the influencers’. For those variables that are not within the
organization’s control but of high importance, tracking the influencers would become possible.

The demand forecasting model proposed by the study can also find application across a wide
spectrum of nascent and growth markets. It illustrates a step by step methodology that marketers
can use to plan for markets where published data regarding past demand is unavailable. It is an
attempt to move beyond extrapolation and other econometric models for forecasting demand.

12. Suggestions for Future Research

This model is useful to estimate demand in the short term only. It is dependent on a survey of
buyer intentions which gets more subjective as the time horizon increases. A respondent cannot
be expected to give an indication of the probability of purchase of a product beyond the near term
(say six months to one year). Future research could seek to extend this model to try and develop
demand estimates for the medium and long term.

The model has been developed and tested in this study on the specialty nutrients industry in India.
Research opportunities exist in applying the model on the specialty nutrients industry overseas,
and also comparing its applicability across different geographies. Considering the fact that the

21
specialty nutrients industry is at varying levels of maturity in different countries, cross country
comparisons would be interesting.

Factors that affect the demand for specialty nutrients and their levels of importance may differ
across countries. They will also change over time. Some factors may lose their importance. New
factors may emerge. Continuous research on the identifying the nature, evaluating the impact and
estimating the importance of these factors that affect demand would need to be conducted to keep
the forecasts accurate.

Moreover, the model can also be applied to any other industry where the product or service being
offered is new and concept marketing is involved. Application of the model across industries with
a portfolio of specialty offerings will be useful.

Another area of continuing importance would be to continuously track the intentions survey data
and actual purchase patterns. Over time, it may become possible to estimate (within confidence
limits) this level of difference between stated intentions and actual buying behaviour.
Recognizing that the profile of buyers is different across different industries, it is only fair to
suggest that these estimates would be largely industry or sector specific. However, attempts to
arrive at such an estimate and also identify the factors that cause this difference would be very
useful.

22
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