The Triple Delight “Cargills-Sri Lanka” Model Fresh Produce Value Chain

Haridas Fernando - DM.PGDM.MBA

Deputy General Manager(Agri Business) Cargills Ceylon Plc., Sri Lanka

Cargills Group CCPLC (Revenue of USD 440 Mn

in 2013/14)

Cargills Quality

Foods

Cargills Foods

Company

Dairy Meats Fruit processing Biscuits Distribution Restaurants

Private Label

Cargills Bank (Associate)

Our Philosophy

O u r M i s s i o n Serve the rural community, our customers and

„FOOD WITH LOVE‟

BASED ON OUR THREE MAIN PRINCIPLES OF

Enhancing youth skills Reducing the cost of living Bridging regional disparities

Conventional supply chain and Cargills Fresh Produce Value Chain

Conventional supply chain

CONSUMER

PROCESSOR

EXPORTER

RETAILER

GROWER

BROKER

REGIONAL

COLLECTOR

TRANSPORTOR WHOLESALER

Labourer

BANKER

Matching needs…

Stable market

Free From Middlemen

More opportunity to

grow

Stable Supply

Free From Middlemen

More opportunity

to grow

Farmer Buyer

The Mismatch

Highest possible price

expects a Buyer for full

production

When the harvest is ready

Irrespective of quality

Up-front

payment

Farm-gate

selling

In-put

finance

Lowest possible price

Buys only required quantity

at required quality

supplied just in time

Standard credit

period

factory-gate

buying

Risk

aversion

BUYER

FARMER

Cargills Private- Public Partnership Model

Producer group

Direct market for quality produce backed by technical/extension

assistance and funds for further development

Service organization

Fund processing facility at village-level and in puts specified by the retailer

Retailer/Processor

manage the facility, purchase fresh and value added produce contribute to farmer

welfare/development

Cargills Collection Centres

Exploiting ecological diversity

Sustainable value for farmer and consumer

Extract from “Production Resources in

Lagging Regions”,

World Bank Report :

Case Study- Sri Lanka

Sustainable value for farmer and consumer

Extract from “Production Resources in

Lagging Regions”,

World Bank Report :

Case Study- Sri Lanka

25

45.5

Cargills Supply chain

post harvest waste is

only 4% compared to the

national average of 40%

Cargills Value chain-a New Paradigm Primary activities – Market related

Conventional Supply Chain Modern trade Value Chain

Inbound logistics Farmers supply what ever produce to the immediate

intermediary who will in return pass down to the link

in the chain

Produce is purchased on a pre-planned schedule based on

the sales forecast predicting daily customer needs.

Operations Farmers are highly product oriented

Clueless on market forecasting

Conventional packing/transportation

Farmers are market oriented,

Improved packaging

Transportation in cool trucks

Services Purchase of produce on credit,

Price not known until they are auctioned

No valid receipt for goods

Purchases on up-front cash

Pre agreed price,

Receipt is issued to the farmer indicating the weight, price

and etc.

Cargills Value chain-a New Paradigm Primary activities – Market related

Conventional Supply Chain Modern trade Value Chain

Outbound logistics Produce auctioned at the highest offer.

Price merely decide by the supply/demand

Goods replenished on system generated orders in

early morning hours.

Sales and Marketing Goods purchased by the jobbers distribute to their

retail vendors.

Retailers clean and do primary processing and

display in their roadside outlets to attract the

customers

Fresh produce received at the outlets are displayed

according to planograms of the outlets in serve-over

counters.

Customers are allowed to touch and feel the quality of

the produce and are free to choose their goods

Cargills Value chain-a New Paradigm Support Activities

Conventional Supply Chain Modern trade Value Chain

Procurement The wholesaler gathers the maximum volume of produce

at whatever the quality

The central processing unit arrange purchases from the

respective collection center at correct quality, correct quantity

at the correct price.

Technology Hardly any technology applied as the whole transaction

process is focus on the least cost and high volume

Farmers are trained and guided by the Company.

Human Resource

Management

Independent actors who work for themselves.

Every function is based on commission or piece rate.

Employees are highly trained in post harvest technology,

Information Technology, customer service etc

Infrastructure Rigid transfer process with a priority on speed but highly

inefficient in quality and transparency.

The set up is well structured based on the company

philosophy, transactions are highly transparent and fair to all

stakeholders.

Collection Centre- Allawedi, Jaffna

Over 200 farmers directly benefiting

Technical inputs Partnered by USAID

Collection Centre- Thanamalwila

Collection center was set up by World Vision USDA project

Over 400 farmers supply their produce direct to Cargills

Rs 3,000,000.00 was accumulated in the Farmer welfare fund in 2013.

75 students from farmer families were awarded scholarships in 2013.

Collection Centre- Norochcholai

Partnership with World Vision

Collection center for high quality vegetable and fruits

Over 300 farmers directly benefitted

Over five tons of produce is purchased daily

New Processing Plant in Kilinochchi

Cargills Kist Fruit & Vegetable Processing Factory in Ariviyal Nagar, Kilinochchi – Direct Permanent employment given for

approximately 60 persons mainly women (majority of them are widows). Soft opening held on 23rd Oct 2013. Total employment to

be created- 150.

Benefits to Farmer

Farmer friendly extension service

Better price

Free from middlemen

Cropping calendar

Benefits to consumers

Affordable price

Wider range and availability

Safe and fresh produce

Benefits to the Company

▪ Higher margin due to reduced wastage

▪ High Customer satisfaction

▪ Enhances Corporate image

▪ Fulfillment of social responsibility

Success

▪ Reduction of transport loss from 40% to 3%

▪ Elimination of middlemen

▪ Improvement in quality and sales volumes

▪ Higher price to the farmer while offering low price to consumer

▪ Paradigm shift to Public-Private Partnership

▪ Image boost to Company and the Service Organization Partner.

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Changing Lives….Touching Hearts

Training and technical advise

New technology for sustainable

agriculture

Education

scholarships through

farmer community

funds

Better quality of life for

regional Sri Lanka

Next Move………From CSR to TBL

▪ Save our Soil program.

▪ Partnered by Department of Agriculture an island wide campaign to educate farmers on prudent use of agro chemicals and fertiliser to minimise the soil water contamination from agro chemicals application

▪ Soil test based fertilizer recommendations to individual farmers

▪ Joint training /follow up programs

▪ GAP

▪ Initiated awareness programs on Good Agricultural Practices

▪ Record keeping on all cultivation activities

▪ Traceability of origin through labelling produce by farmer names

▪ Development of „Safe Produce‟ with GAP certification

Cargills Approach at glance

Input finance Donor funds/Bank loans

Fame gate buying Regional collection centers in collaboration with Govt/NGO projects

Payments Transparent pricing/up front payments

Fair pricing Purchase 50-70% production at 15-20% higher than market.

Minimum guaranteed price 20% above COP

Higher returns to farmers Technical guidance for market oriented cultivation calendar.

CSR Financial support to farmer children, scholarships ,farmer insurance,

and etc.

TBL Guidance on good agricultural practices to ensure prudent use of

fertilizer and agro chemicals by farmers.

Thank you