AGRO-INPUTS PROJECTAgro-Input Retailers’ Profile Survey Report

As a clear understanding of the Agro-Inputs industry is critical to access to quality products, a short term consultancy was undertaken to review selected retailers within the industry to inform AIP during its project development of an Agro-Inputs Retailers’ Network (AIRN).

Objective

• The overall objective was to evaluate agricultural inputs retailers’ business models to determine constraints and opportunities that could be addressed through services provided by an association.

• In light of these findings, the services to be provided through AIRN were also to be assessed.

Methodology

Field interviews were conducted over a 9-day period with 19 Agro-Inputs Retailers and 1 Wholesaler in Barisal, Khulna, Jessore, Jhenaidah, and Chuadanga. Attendance and participation in 2 Stockholder meetings was also included. The purpose of these field visits and meetings was threefold: – To acquire an overview of the retailer industry through

observations and informal talks; – To collect additional information through semi-structured

interviews; – To verify and obtain concurrent validation of information and

reports previously collected/developed.

Constraints &

Challenges

• Although nearly all retailers reported high interest rates as being a significant constraint to business development and growth, several indicated they did not borrow money due to religious reasons. Retailers reported interest rates on loans ranging from 16% to 22%.

• In addition, the following were the most frequently identified constraints & challenges:

– Failure by farmers to pay when provided “credit” and their (farmer’s) related limited financial status/resources;

– Poor quality of inputs such as adulterated product being sold (germination failure, poor quality of produce from seed);

– Inadequately organized industry;– Numerically insufficient, and inadequately trained staff;– Lack of product knowledge in the smallholder market; farmers buy based upon

price vs. quality;– Poor rural infrastructure (e.g., transportation).

Gender Although female Agro-Inputs Retailer owned businesses were reported, based on the industry’s observed near male exclusivity, such owner/operators are likely to be few in number.

District

Number*, Gender & Employment Status -- Agro-Inputs Retailers

Male FT PT Female FT PT Family Total

Barisal 8 8 0 0 0 0 0 8

Khulna 3 3 0 0 0 0 0 3

Jessore 7 6 1 0 0 0 0 7

Jhenaidah

4 4 0 0 0 0 0 4

8 4 4 0 0 0 0 8

Chuadanga 11 1 0 0 0 0 0 11

Totals 41 36 5 0 0 0 0 41

Education

• Overall, retailer owner education ranged from Class/Grade 10 certificates to a Master’s Degree.

• Staff experience ranged from, in 1 instance as few as 7 months, to 45 years.

• Staff education ranged from Class/Grade 5 to Class/Grade 12 certificates.

Business Environment

SEEDS23%

FERTILIZERS 23%MICRONUTRIENTS

25%

PESTICIDES30%

PERCENTAGE OF BUSINESS OF SURVEYED RETAILERS BY PRODUCT TYPE

The number of farmer/clients per retailer ranged from 100 to 500 per business with a calculated average of 350. The number of retailers who are also wholesalers/dealers is high. Overall, 15 of the 19 retailers who were surveyed conducted wholesale business ranging from 2% to 80% of total sales volume.

Annual Sales Volume and Value

0 200,000 400,000 600,000 800,000 1,000,000 1,200,0000

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000Retailer Annual Volume and Value

Annual Volume (kg)

Annu

al V

alue

(BD

T)

Reported annual volume for the 19 Agro-Inputs Retailers ranged from 3048 kg to 1, 025,000 kg. Annual value was reported in a range from 48,000 to 30,000,000 BDT. The higher volume and value related to retailers who also had a high percentage (80% and 70% respectively) of wholesale business.

Inventory Management

Retailers reported being able to secure needed inventory within hours to 2 - 4 days. The most significant exception being for certain imported pesticides which could take weeks or months. Current inventory supplies ranged from 1 to 5 days for prepackaged product. The most stocked were fertilizers and pesticides, reported by nearly 70% of the retailers. Hybrid seeds followed with 47% of retailers reporting either hybrid vegetable and/or cereal seeds in stock. Five retailers reported stocks of seeds as well as fertilizer and pesticides.

Retailer Licensing

All retailers reported having 1 or more licenses with 7 reporting MoA licenses, 3 with DAE-issued fertilizer licenses, 15 (including the one wholesaler/dealer) with DAE-issued pesticide licenses, 5 with BADC-issued seed licenses, and 6 with BCIC-fertilizer licenses. In a few instances, reports of a separate license being held in the name of a female relative of the business’s actual operator were received.

18%

8%

39%

13%

18%

3%

LicensesMoA Seed DAE Fertilizers DAE Pesticides BADC Seed BADC FertilizerBCIC FertilizerOther

Gross Margins

Excluding Syngenta (reported separately) retailer gross margins for seeds extended from 1.39% for hybrid cereal seed to 16.67% reported for open pollinated vegetable seed, while hybrid and open pollinated rice seed tended to concentrate in the mid-range. Gross margins for fertilizers ranged from 1.75% for Diammonium Phosphate (DAP) to 7.14% for Muriate of Potash (MOP), with nitrogen, phosphorus and potash (potassium) (NPK) fertilizers were uniformly reported at 9.09%. Gross margins for micro- nutrients extended from 12.5% to 21.21%. Gross margins for pesticides were reported as ranging from 5.88% to 22.22%.

0 5 10 15 20 250.00%

5.00%

10.00%

15.00%

20.00%

25.00%Gross Margins by Product*

Seeds Fertilizers Micro-Nutrients Pesticides

Retailers

gros

s mar

gin

Business Models

In the simplest terms, a Business Model is how a company makes money. It explains the sources of a company’s revenues, how these sources pay and how often. It outlines the business logic required to earn a profit (if one is available to be earned) and once adopted, defines the way the enterprise “goes to market.”

Select features embedded in

product/service

Determine benefit to the customer from

using the product/service

Identify market segments to be

targeted

Confirm available revenue streams

Design mechanisms to capture value

The “Hub & Spoke Business Model

The “Hub-and-Spoke” system is a model arranged the way its name denotes; it is a process that flows along a set of given paths called “spokes” which connect to central locations called “hubs” as it passes through or returns to its destination. A “Hub-and-Spoke” distribution has advantages that fall under these general areas:

efficiency/effectiveness, economies of scale, cost reduction.

The Syngenta Business Model

The figure above provides a conceptual overview of the Syngenta network. In the illustration the green “Sender(s)” represents the source countries, the yellow “Hub(s)” represents Syngenta Singapore and Syngenta Bangladesh Ltd. (including its distributors and wholesalers), and the blue “Recipient(s)” represents individual retailers.It is an example of the globalization of agricultural input formulation and distribution. Although inputs may be sourced from a number of countries, Syngenta Singapore is the regional procurement hub for all bulk purchasing of raw materials as well as the packaging materials for some products.

Syngenta - BangladeshSyngenta retailers offer the full product range of pesticides and seeds. Syngenta currently offers 17 types of seeds and 25 types of agro-chemicals. Four of the six Syngenta Retailers surveyed also conducted wholesale business through a separate license. In the figure to the right , the central “hub” represents Syngenta Bangladesh Ltd. and its distributors, the “flowers” at the end of the major spokes represent the Syngenta franchise retailers/wholesalers, and the “petals” represent the rural mobile/ancillary retailers which are supplied by the Syngenta Retailers through their separate wholesaler licenses.

Independent retailers who also conduct wholesale business have a similar model.

Reportedly, Syngenta has achieved about a 60% share of the agro-inputs retail market in Bangladesh. The question is how, and what distinguishes Syngenta retail operations from other retailers?

The Syngenta Business Model is explained in this and the following 2 slides:1) Central Control by Syngenta (retailers are “franchises”):

a) Syngenta provides a fixed pricelist for all their products nationwide. All shops have the pricelist visible on the wall,

b) The prices are also printed on the labels of most products. In this way farmers are ensured product pricing transparency,

c) A retailer is not allowed to change the price or give discounts for bulk purchases. A commission compensation system based on volume sold is utilized; at the retail level it ranges from 10-15%. The commission for wholesale sales is 3 percent.

Syngenta Credit Services2) As part of its marketing, and customer retention and expansion strategy, Syngenta staff visit farmers, retailers, and distributors, which permits a) monitoring of business practices, and b) efficient planning and supply coordination. 3) Retailers provide embedded services to farmers, to some extent in the retail shop where they offer agronomic advice and information regarding Syngenta products, as well as through several visits per year. 4) This face-to-face communication builds trust and is a basis for providing inputs on credit.

Credit from Syngenta Regional Warehouse

Distributors upon deposit of from 100,000 to 300,000 BDT may receive credit line of up to 5 million

Retailers may receive up to 500,000 BDT from Distributor. Average retailer has 1.5 to 2 million BDT extended in credit to farmers

Individual farmer may receive credit of 2,000 to 3,000 BDT from Retailer. Repayment is made following harvest.

The “Independent” Agro-Inputs Retailer While a few independent retailers represent single input suppliers and/or companies, they are nevertheless similar in the use of a “Hub-and-Spoke” model and in the globalization of their sources of inputs. The 13 independent Agro-Inputs Retailers observed in the survey are characterized by a somewhat higher percentage of wholesale vs. retail sales ranging from 10% to 80%. India and Thailand were reported most frequently as source countries for seeds as were India and China for pesticides. Independent retailers reported a greater number of training organizations with 7 of the 13 reporting having received training from public agencies as well as private sector organizations.Independent Retailers were similar in their providing of agronomic advice, and willingness to conduct demonstrations, but were generally slightly less “generous” in allowing purchases on credit.

Conclusions• Conventional efforts to improve farmers’ access to knowledge through public

extension services and NGOs lack scale (in that they reach only a very limited number of farmers) and sustainability.

• In rural areas, Agro-Input Retailers are key persons who supply both inputs, advisory agronomic services, and credit for purchases.

• Input retailers who have better contact with information sources, access to need-based agricultural training, knowledge about general agriculture, plant protection, and so forth in general have higher retailing sales volume/value.

• The number of retailers who also wholesale suggests an undetermined, but possibly significant portion of inputs is by mobile/ancillary sources who may not be licensed, have little training and knowledge regarding the proper use of inputs.

• Other than Syngenta, little if any, monitoring appears to be conducted by supplying organizations or governmental agencies. However, even with Syngenta, monitoring, etc. appears to effectively end at the franchised retailer who is also conducting wholesale business.

Conclusions • There may be too many retailers and too little enforcement for the industry to be able to

assure the quality and quantity of inputs necessary to transition to nutritionally dense crops and provide the level of food security envisioned by FTF. Consideration is needed on strategies for addressing inefficiencies including industry self-regulation and similar approaches that work even when formal mechanisms are weak.

• Finance is often one of the largest constraints to agribusiness seeking to grow. The survey did not probe into this issue. Given the reported constraint of high interest rates on retailer development and growth, the matter is worthy of further investigation.

• Gross margins for fertilizers are uniformly 9.09%. The BCIC sets the price of fertilizers and reportedly controls 80% of the quantity to be distributed. Distributors make a set margin. Fertilizer sales are subsidized, sometimes up to 50% of the total cost. The private sector does not actively compete with the BCIC in selling the four main fertilizers and instead provides other products (e.g., micro-nutrients). This raises several potential issues: the long-term sustainability of subsidies and their effect on the marketplace, whether crop-specific formulations appropriate for nutritionally dense fruits and vegetables can be blended by BCIC and if not, whether the private sector will find the market for these blends sufficient to justify the investment in the time and funds necessary to navigate the Bangladesh fertilizer licensing, etc. requirements.

Conclusions • Transportation and other infrastructure challenges tend to reduce competition among

input suppliers and among middlemen. Better transportation is associated with diffusion of technology, better use of inputs, and better prices.

• Women play an important role in agricultural growth in developing countries, but face persistent obstacles and societal and economic constraints that limit their expanded inclusion in agriculture and agribusiness. Once women are able to overcome their disproportionately high resource constraints, they may be at least as likely to adopt agricultural technologies that are appropriate for them.

• Gender roles and dynamics are likely to be locally specific so approaches that benefit women in one setting may have no effect in other settings.

• Agro-Inputs Retailers have an important, arguably pivotal, role in the effort to reduce poverty and improve food security in Bangladesh’s southern delta. This offers both challenges and opportunities for the AIP and AIRN.

• The proposed AIRN can become the leader in the endeavor for food security in Bangladesh through development of outreach; positive industry branding; and through self-regulation, training, and advocacy.

Recommendations Form the association (network):• Involve input retailers at the planning stage, not just in the

implementation stage,• Identify core leaders to serve as an organizing “committee;” an effort

spear-headed by such key players will gain immediate notice and credibility.

• Consider adoption of a membership fee based on retailer volume at a uniform amount per kilogram or liter equivalent and at a level necessary to financially support the association, its basic activities and services. Support through this membership “dues” structure only those services, periodically determined by the board as beneficial to all members (e.g. basic operational expenses, crop specific production agro-inputs information and advocacy). Transition all other services as soon as realistic to a charge for service basis.

Recommendations

AIRN Members Services Knowledge Building:

Technical capacity development on handling, storage, field application, and disposal of agriculture chemicals;

Business development training for maximizing profits while conducting ethical business.

Market players with the capacity and incentives to improve retailer performance need to be encouraged to become more directly involved to improve advice provided to farmers. Large input suppliers have a clear commercial interest: if retailers provide reliable advice to farmers, not only will farmers improve productivity, but their satisfaction with retailers will increase, creating customer loyalty and increasing sales of inputs. The MOUs between AIP and Syngenta, Bayer, etc. to introduce a retailer training course focus on enhancing retailers’ ability to provide practical advice to farmers and are a good first step. Consider the use of technology to provide advice to illiterate farmers. MOUs with the appropriate GoB ministries and agencies should also be considered.

Recommendations Support to Maximize profit: Support the providing of embedded services to farmer/customers: customers will buy

from retailers who give correct advice while selling quality products; Provide printed agronomic and agro-inputs information for distribution to

farmer/customers.

• Market players with the capacity and incentives to improve retailer performance need to be encouraged to become more directly involved to improve advice provided to farmers. Large input suppliers have a clear commercial interest: if retailers provide reliable advice to farmers, not only will farmers improve productivity, but their satisfaction with retailers will increase, creating customer loyalty and increasing sales of inputs.

• Consider the use of technology to provide advice to illiterate farmers.• Public and industry concern with low quality and/or adulterated products, and lack of training

necessary to properly advise farmers on inputs appropriate for their needs, supports the development of an industry-supported program of training, accepted standards of business ethics, and self-regulation/enforcement.

• Care should be exercised by AIRN when considering financial or other support for field demonstrations and/or other activities to avoid any perception of input supplier favoritism or bias.

Recommendations

Exposure: Improve member retailers’ reputations and visibility to both farmers and

input companies/wholesalers as suppliers of quality products and services by earning the ASTHA logo (AIRN certification of a shop that sells trusted, quality products):

• Increase retailers’ outreach, sales and marketing opportunities through field demonstrations of quality products;

• Introduce and market AIRN and ASTHA at agricultural fairs; • Promote AIRN and ASTHA through media exposure.

• Public and industry concern with low quality and/or adulterated products, and lack of training necessary to properly advise farmers on inputs appropriate for their needs, supports the development of an industry-supported program of training, accepted standards of business ethics, and self-regulation/enforcement.

• As a condition of membership, AIRN members should subscribe to, as well as apply in their businesses, an industry code of ethical standards in order to display the ASTHA logo. This also envisions a level of industry self-regulation and related monitoring and enforcement mechanisms.

• There is an absence of an authoritative agro-inputs retailer industry voice. The identification of an individual or individuals to act as the industry’s voice is a necessary component of its development process.

Recommendations

Linkages: Strengthen business connections with input supply companies and their wholesalers for access to

demand-driven new products and services, No specific recommendations were included.

Establish linkages with financial institutions to enable improved borrowing conditions; • Survey respondents repeatedly mentioned high interest rates as a constraint to the input retailer business. AIP appears to

have a limited mandate assisting the retail input industry in this regard. A survey specific to the access to finance requirements of Agro-Inputs Retailers should be undertaken. It should identify supply-related issues as well as the nature of and demand for borrowing by retailers. The survey should also identify the capacity and capability of lending institutions to properly evaluate and service such input retail businesses as well as that of retailers to prudently assess and repay debt.

• Examine working with input suppliers to establish a fund that is administered by the fund’s contributors, or hire an experienced company or a financial institution to administer the fund. This can act as either a fund to buy down interest rates and/or a fund from which to make loans to appropriately vetted AIRN retailer-members.

Assessment of input companies’ supply chains to judge which products are of reasonable quality. Conduct assessment to determine efficacy and adequacy of suppliers’ internal quality control procedures and systems.

• Given the GoB provider, wholesale and retail licensing regulations as well as its requirements for the introduction of new products, the Memoranda of Understanding with Syngenta, Bayer, and Lal Teer should be supplemented with similar agreements with the appropriate GoB ministries -- those which provide inputs and those charged with enforcement of the quality standards for such inputs. This will offer several level of benefits, including the development of relationships which will assist in AIRN advocacy and representation efforts. Consider their inclusion, where they act as an input supplier in the supply chain assessment process.

Recommendations Policy/Advocacy:

Raising a common voice in policy and quality standards through advocacy dialogues targeting government stakeholders in order to improve the business environment.

• Review existing statutory, regulatory and enforcement policies and procedures for efficacy and adequacy. In concert with affected industry representatives, recommend new and or modifications to such policies and procedures.

• Poor infrastructure was repeatedly viewed as a constraint. Infrastructure attracts customers and to a great extent it creates favorable environment to retailing business. GoB investment in infrastructure should be among the advocacy issues pursued by AIRN.

• The identification of an individual or individuals to act as the industry’s voice is a necessary component of its development process. It is recommended that a program be developed to train AIRN board members (and staff executives) in dealing with the media and publicly representing and advocating on behalf of the organization.

Recommendations

Female Entrepreneurship: Support women member retailers by providing matching grants to make necessary

improvements of agro-inputs businesses (both existing and start-up businesses); Provide specialized knowledge building of women retailers on nutrient-dense crops and

their inputs.• In the event one or more have not been undertaken, it is recommended a survey of women

retailers and the characteristics, challenges, constraints, etc. of their businesses, be conducted. This survey should be conducted by women enumerators.

• Similarly, to advise and inform AIRN as to its member services and training programs for retailers of both genders, a rapid, rural appraisal/survey of women involved in agricultural production should be conducted to determine the inputs and retailer services most useful to and desired by them.

• AIP/AIRN should contact other USAID donor and non-donor groups assisting in the development of women-owned businesses and/or groups as part of its efforts to expand female inclusion as Agro-Inputs Retailers.

• If not already in place, a Grants Manual and related forms to provide for a formal process for reviewing and approving grants should be developed. A committee should be appointed by the COP to undertake this process. The committee should not include, at least as a voting member, either the individual serving as the Grants Manager or any other staff member who may be perceived as having a conflict of interest.