Abaca, Copra and Charcoal Buy and Sell

1.1 Description of the Product

The business will focus on buying and selling three products: abaca, copra and charcoal.
Only products that are processed will be bought by the entrepreneurs. Processed would mean that
abaca had been dried and turned into fibers, copra had been dried whether sundried or
“hurnohan” and coconut charcoal need to be carbonized. Further, these commodities must be at
their least moisture content or level.

A premium commodity will be given additional incentive otherwise deductions will be

made. Abaca is classified premium when the fiber is white and strong while copra (coco meat)
has no burn and molds, and most of the meats are thick. Charcoal, on the other hand, should not
be very brittle and at least still form the coconut shell. Figure 1 presents product models.

Figure 1. Product Models

Source: www.google.com

The greatest risk of these commodities is the moisture content. Water content of these
products discolor and weakens abaca fiber, venue for aflatoxin related molds (ARM) for copra,
and makes more charcoal more brittle.

1.2 Comparison of the Product with its Competitors

There is a very little possibility in competing on who or where to sell these commodities
since international market finds these commodities necessary. However, finding sources of these
commodities is really a competition. In simpler terms, the competition is not on the selling side
but in the buying.
 Nevertheless, the firm will look into the quality of the commodities from buying so as to
sell to suppliers with good quality. Premium or additional payment will be given for good
.products (as mentioned in 1,1). Existing competitors buy all commodities regardless of the
quality of the product. Price is based on the judgement of the proprietor. Thus, deductions are
imposed.

1.3 Location

The location of the business is in Menzi, City of Mati. This is a strategic location
considering that it is the gateway to the Proper City of Mati specifically from the east coast of
Davao Oriental where abundant of these commodities are found. Further, the southern road in
Figure 2 leads the biggest agricultural land in the City while five (5) kilometers away from the
northern road, coconut trees are plenty and in fact the main crop of the people. Hence, the
location is very much strategic.

Figure 2. Location of the Firm

Source: www.google.com.ph/map
1.4 Market Area

In relation to the location of the strategic location of the firm, it caters the City of Mati
and the east coast locality particularly Tarragona, Manay and Caraga. In terms of abaca, these
localities the origin of abaca suckers that are planted in Karagan Valley, Compostella Valley.
Although it cannot be denied that abaca buyers scattered in Manay, price will be the determining
factor of farmers to sell their fiber.
In term of copra and charcoal, the City of Mati alone have more than sufficient supply as
it recovers from the effects of Bagyong Pablo. In addition, competitors for copra and charcoal in
the east coast swarm in Baganga. This paves way to Mati to capture Tarragona and as far as
Manay.
Nonetheless, the market area are Mati, Tarragona, Manay and Caraga.

Figure 3. Map of Davao Oriental

www.google.com

1.5 Main Customers

The main suppliers of the commodities will the farmers and micro- cooperatives who
engaged on the same business. On the other hand, the consolidated commodities will be
delivered to manufacturing corporations in the nearest urban localities wherever prices are more
advantageous.

Farmers refer to individuals who generate income from farming regardless whether he
owned the land or just a mere tenant of the land. Tenants are sometimes given authority by the
owners to transact with buyers but most often owners transact with buyers prior to the delivery of
the commodities to negotiate with the price.

Cooperatives are marginalized group of people binding themselves to operate business

transactions but have no intention to form corporation. The descriptive “micro-” refers to
minimal assets of the cooperative, that is, three million and below (assets ≤ Php3,000,000).

Understanding the culture and behavior of the market is very crucial in business. This
way needs, wants and preference get slimmer eliminating other factors that motivates them in
selling their products to the buyers. Thus, the strategic location chosen, the favorable price and
customer service that the firm will give are essential motivators to capture these main customers.

1.6 Total Demand

Table 1 exhibits the Province’s coconut production. It may be concluded that Davao
Oriental is one of the significant provinces that contributed to the nation’s copra output but
Philippines in its entirety of coconut industry in the world remains to be insignificant.
Abaca fiber on the other hand seemed to have no demand in the international market.
Japanese currency and other currencies used abaca fiber in their monetary bills. Hence, as long
as Japan and other countries print money, abaca fiber is needed.
Thus, demand for the three commodities is high.

Table 1. Davao Oriental Coconut Production

2016 2015 2014
Crop
Area Production Area Production Area Production
(ha) (mt) mt/ha (ha) (mt) mt/ha (ha) (mt) mt/ha
Coconut 144,056 653,888 4.54 144,084 703,641 4.88 143,584 724,773 5.05
Source: www. psa.com

1.7 Market Share

The number of competitors (product buyers) and the Province average production will be
the bases of the market share. The market share of the firm per product has the following
assumptions:

1. City of Mati and the Municipalities of Tarragona, Manay and Caraga were the bases
for the number of competitors.
2. Average Production for copra is based on Table 1.
3. 30% of the average production of copra is the basis for charcoal production.
 4. Market Share in terms of quantity (mt) is computed: average production divided by
number of competitor.
5. Market Share in terms of percentage (5) is computed: market share (mt) divided by
average production.

Table 2. Market Share

No of Average Production Market Share
Competitor (mt) mt %
Abaca 15 3,000.00 200.00 6.67%
Copra 30 277,640.27 9,254.68 3.33%
Charcoal 8 83,292.08 10,411.51 12.50%

Table 2 illustrates and implied that, indeed, the firm still have the share in the market
such that abaca still has 6.67%, copra has 3.33% and charcoal has 12.50%.

1.8 Selling Price

Prices of these products depends on the international commodities trading thus the
proprietor needs to be update on the international trading and booked commodities to firms
participating directly to international trade. As market indicators increased, proprietors need to
settle contract to their buyers otherwise proprietors need to deal with spot price.

On the other hand, the price to be settled for farmers and small cooperatives will be at
least Php5.00 per commodity from the contract price. Regardless of the behavior of the market
which directly affects the price of these commodities and the contract with the corporate buyers,
Php5.00 mark-up will be used.

1.9 Sales Forecast

Table 3 presents the sales forecast of the three commodities based on the following
assumptions:
1. The average unit prices are:
a. Abaca – Php45.00
b. Copra – Php30.00
c. Charcoal – Php20.00
2. Weekly number of kilos purchased for:
a. Abaca – 50 kilos
b. Copra – 2,500 kilos, i.e. 500 kilos from 5 customers (100 kilos each)
c. Charcoal – 1,500 kilos, i.e. 150 kilos from 10 customers (15 kilos each)
3. Monthly kilos purchased is calculated: weekly kilos purchased times 4 weeks.
 4. Yearly kilos purchased is calculated: weekly kilos purchased times 52 weeks.
5. Sales is just expected number of kilos purchase times average unit price.
6. Cost of Sales in Table 3 is just the cost of purchasing the commodities and not yet the
inclusion of various expenses.
7. No cash advances were considered.

Table 3. Sales Forecast

Average Expected Number of Kilos
Unit Purchase Sales
Products Unit Price Weekly Monthly Yearly Weekly Monthly Yearly
Abaca kl 45.00 50 200 2,600 2,250.00 9,000.00 117,000.00
Copra kl 30.00 2,500 10,000 130,000 75,000.00 300,000.00 3,900,000.00
Charcoal kl 20.00 1,500 6,000 312,000 30,000.00 120,000.00 6,240,000.00
Total Sales 107,250.00 429,000.00 10,257,000.00
Abaca kl 40.00 50 200 2,600 2,000.00 8,000.00 104,000.00
Copra kl 25.00 2,500 10,000 130,000 62,500.00 250,000.00 3,250,000.00
Charcoal kl 15.00 1,500 6,000 312,000 22,500.00 90,000.00 4,680,000.00
Cost of Sales 87,000.00 348,000.00 8,034,000.00
Gross Profit 20,250.00 81,000.00 2,223,000.00

It is to note that the above calculations are based on conservative estimates. It also needs
to be emphasized that since the nature of the firm proposed is buy and sell, the initial equity of
the proprietors need to be rolled.

1.10 Promotional Measures

The very competition of these commodities exists in the price. Hence, this will be the
starting point for promotional measures through word of the mouth. Until in today’s generation,
word of the mouth is the most effective promotional measure. Further, farmers and small
cooperatives are mostly not yet inclined with technology and depend mostly on personal
interaction. As farmers sell their commodities to the firm, advertisements on incentives will be
showcased.

Another measure is through agents. Agents will be the direct manpower of the firm since
they will go to the field and canvass for deliveries. As soon as farmers confirm for deliveries,
agent will inform the proprietors. The firm hauls the commodities.
1.11 Marketing Strategy

Marketing Strategy for this merchandise business will involve:

Price Strategy. Since the big bulk of the battle of these products is in the price, then,
favorable price will be given to the customers. At least Php5.00 profit will be generated from the
commodities.

Quality and Educational Strategy. To secure quality of the products, the firm will
initially give high yielding abaca suckers and coconut seedlings to its valued customers. But
before giving these to them, training on proper crop management including harvesting and post
harvesting methodologies will be conducted. For the first year of yield, the production of these
farmers will be sold to the firm. This insures the quality of the products through educating them.

Additional Incentive Strategy. One way in instilling quality to the customers is

incentive strategy. As they make sure on quality, additional incentives will be given. Further, for
farmers to ferry their copra to the firm’s location, fare will be paid instead of farmers paying for
the fare.

1.12 Marketing Budget

The total marketing budget is Php32,600.00 only. The budget comprises abaca suckers,
coconut seedlings, transportation payments and agents’ commission. Table 4 presents the detail
marketing budget.

Table 4. Marketing Budget

Unit Total
Item Unit Qty Price Amount
Abaca suckers pc 1,000 5.00 5,000.00
Coconut Seedling pc 1,000 15.00 15,000.00
Transportation 10,000.00
Agent Commission kl 2,600 1.00 2,600.00
Total 32,600.00