PROGRESS THROUGH PROFITS

A Seva Mandir Project Brief

Project Description
The creation of a cooperative dal (lentil) processing business to be owned by
local farmers. This market-based intervention stands to improve incomes
50+% for over 1,000 tribal families.
The Situation
Seva Mandir (SM) works in the rural areas of Udaipur District, Rajasthan
(India). These areas are largely inhabited by aboriginal people, also known in
India as "Scheduled Tribes" or "tribals" for short. Tribals are one of the least
developed groups in India, on par with the much more widely publicized
"untouchables". The area of focus for this project is Kotra. Kotra is the least
developed part of our service area. Almost all beneficiaries of this project
live in extreme poverty (<$1 / day).
Kotra is known for its high quality and voluminous production of dals (lentils),
notably tur, moong, and urad. Farmers currently sell their produce in raw
form. That produce is passed through a network of intermediaries that
includes several layers of traders, processing mills, and wholesalers/retailers.
Farmers are systematically exploited in this process due to asymmetries in
information and inefficiencies in this chain. Ultimately, the farmer receives
less than 1/3 of the retail price for processed dals.

Tur Dal Value Chain Kotra Tehsil

60
50

50

Price (Rs / KG)

10
40
12
28

30
6
20

17

10

0
Raw selling Trader share
price

February 20, 2007

Mill share

Processed
selling price

Wholesaler Retailer share Retail selling

share
price

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It is widely agreed that "poor market linkages", "weak infrastructure", and

"many layers of intermediaries" hinder the growth of India's countryside,
wherein over 2/3 of the population lives. Abject poverty is unfortunately the
norm, not the exception, for the majority of Rural Indians.
The Opportunity
The creation of a small-scale dal mill and surrounding procurement &
marketing capabilities would allow farmers to engage in value addition and
thereby receive more equitable returns for their hard work. More than 1,000
beneficiaries could participate in the venture and stand to see a 15-50%
improvement in incomes.
Further, significant additional returns could be created once launched
through direct marketing of branded produce. Farming practices in Kotra are
largely organic. If marketed appropriately, an "organic" or "natural" product
can command a significant price premium.
This would, however, require
certification of farming practices and more robust marketing capabilities. As
such, we have excluded this opportunity from our financials and impact
estimate though we are including it in our business planning.
Methodology
A proper governance structure involving community ownership is being
created to oversee the creation and operation of the mill. A team of roughly
5-10 individuals will be required to operate the business. Once operational,
the venture would purchase raw produce directly from the farmers at a rate
Rs. 2-3 per kg more than what they are receiving in the market on that given
day. After processing, the entity would sell the processed dal to wholesalers
or directly to large retailers.
Under this approach, the farmers would continue to cultivate their dals
exactly as they do today. They would however enjoy economic benefits in
two forms:
1. Better selling price at time of sale. By disintermediating the chain, we
will be able to pass a piece of the profit directly to the farmers at the
time of sale. In this way, farmers would see immediate benefit and we
are assured to always be the choice buyer of raw produce.
2. Periodic sharing in the mill's profit. In regular 3, 6, or 12-month
intervals, the mill's profit would be distributed back to the owners
member farmers.
Once established, this venture will create a platform for other interventions
with even greater potential for benefit. For example, we hope to work with
the farmers to improve farming practices and yields.
We also see very
meaningful impact, though intangible, in building confidence among these
February 20, 2007

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downtrodden and backward communities. The exposure, confidence, and

momentum generated from such community-originated progress is priceless.
Financial Projections
We have undertaken full financial planning under two scenarios. The first is
our Base projections as we scale up the venture. The second is our Steady
State projections once the business is fully operational.
The Base projections involve the minimum scope of activity required to bring
up the operation at breakeven profitability, which is 25% capacity utilization
or production of 7,500 kg tur per month. Even at this minimal level of
operation, we can improve incomes 15% through higher point of
sale purchase prices. The Steady State projections show the profitability
of the venture once fully operational. At this level, the venture could support
over 1,000 member farmers and improve their incomes 30% through a
combination of higher point of sale prices and periodic profit sharing.
Note that both scenarios only capture our base expectations for the venture.
Once operational, there are a multitude of expansion opportunities such as
directly marketing the product as natural/organic produce or increasing
production capacity. These expansion opportunities would allow us to scale
up the amount of farmers involved and the impact per farmer.
Operational details
The mill that we are contemplating would be a small-scale processing facility
of approximate processing capacity of 150-200 kg per hour of operation. The
main piece of machinery required is the dal mill. A separate grader cum
polisher is required because features such as quality, look, shine, and
cleanliness of the processed dal impact wholesale selling prices. A sheller
and splitter are also required. These four line machines together form the
processing operation capable of processing tur, moong, and urad.
We will need to run several motors totaling 5 H.P. to operate the machinery.
We expect to secure an electricity connection but will also need a diesel
generator, as power is not available on a continuous basis in the proposed
area.
The community will provide the land required for the mill. Machine setup
itself will require 200-250 sq. ft. Additionally, warehousing space of 1,0001,200 sq. ft will be required to store the raw material purchased at harvest
and the finished product before it is sold. Finally, an open-air, leveled space
of ~2,000 sq. ft. is required for drying.

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Dal processing is a largely non-labor intensive activity as the machinery used

is semi-automated.
We anticipate requiring 4-6 individuals from the
community to operate the mill as well as 2-3 skilled managerial individuals to
manage procurement, marketing, and general business affairs. The salaries
for these individuals have been included in our projections.
Status at this juncture
Seva Mandir began exploring this project almost one year ago by sanctioning
a market feasibility study. We have committed full-time, internal resources
to the project since September. Community mobilization and cooperation is
critical to the success of this venture. As such, we have actively worked with
the villagers over the past 6 months to build quantum. A membership drive
has begun in each village and the members have elected 2 representatives
from each village to oversee this project. We have also begun the process to
create a new entity for this venture that will build in the mechanisms for
benefit sharing among members and responsible governance.
Funding was not available to setup the processing infrastructure before the
Dec-Mar tur season. We hence decided with the community to begin with
trading operations. We launched procurement activity in two villages. In this
effort, the community has bound together around procuring tur locally and
then selling upstream once large enough quantities are amassed. So far, this
venture is running profitably and providing direct benefit to farmers through
higher point of sale prices. The funds for this activity were secured as a loan
through each village's community development fund (called Gram Vikas
Kosh). These are funds administered by Seva Mandir for community works.
This procurement operation has increased comfort among the community
and created real momentum towards beginning processing. We are afraid
that much of this momentum will be lost if we cannot launch processing
activity before the rains come in July. Hence we are hoping to establish the
mill and begin some basic level of processing in May/June. We would spend
those months and the months following the rains to assure the operation
stands on strong footing before stepping up capacity utilization going into
Dec-Mar tur harvest.
Funds required WE NEED YOUR HELP!
The critical gap at this point is infrastructure. Launching processing activity
entails procuring the machineries and building out the mill site. As such, we
are hoping to raise $6,000 to be used as outlined below:

$4,000 to procure the 4 pieces of machinery required for dal

processing
$750 to secure power supply

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$500 to pay local wage laborers for site construction

$500 for machinery transportation and installation
$250 of construction costs

Once operational, the business will have working capital needs. The amount
required depends quite heavily on how we configure the operation. For
example, procuring large quantities during harvest may be most profitadvantageous but will require the most working capital. We expect to secure
the working capital required to begin operations through the community
development funds (GVKs). The vehicle would be a 3-month, interestbearing loan facility similar to that which we have arranged for the
procurement operation currently underway.
It is important to note that this venture is predicated on a sound business
model. It will require an incubation period in which Seva Mandir has
committed to supporting it, but we fully expect that it will quickly reach
profitability and hence self-sustainability. We do not expect this venture
to require ongoing grant funding once it is operational.
Conclusion
We have already done significant work on this project to establish the
feasibility of this venture and to initiate operations. Through such work, we
have created the required backward and forward linkages. We have also
mobilized the community around the potential inherent in this venture. The
market-based nature of this project ensures its long-term viability and
sustainability. It will not require constant injections of grant funding but will
instead fund itself through profits. This represents a landmark opportunity to
prove that decentralized, small-scale agro processing is a viable avenue for
rural livelihood creation and upliftment of the poor.
On one level, this project entails significantly strengthening livelihoods in one
of our most backward regions. On another level, it involves mobilizing
1,000+ farmers to unite around a small-scale venture that provides promise.
Please join us in supporting this noble effort.
Potential Benefits
This project represents a large-scale opportunity for
improved livelihoods in Kotra Tehsil, the least developed area
of Udaipur District. A project of this scale would benefit 1,000
2,000 families and could improve their earnings 1550%.

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