Just Change

Business Plan To Operationalise Participative Capital

Changing The Role Of CapitalFor Sustained Growth In Rural India

Produced by the participants of the Global Young Leaders Programme, November 2011

Table Of ContentsExecutive Summary 3

Introduction 5

Background 6

Business Model 14

Business Development 27

Supply Chain Management 37

Community Benefits 44

Financial Analysis 50

Recommendations & Conclusion 65

Appendix 69

Executive Summary 1 of 2 • Just Change is a community led initiative that

grew out of the struggle of the Adivasis of Gudalur, Tamil Nadu to improve and sustain their livelihoods in the face of adverse market forces

• An examination was conducted in the way the currently economy is structured

• Just Change India has developed a concept to address this issue – an international cooperative of producers, consumers and investors, enabled through a Participative Capital business model

• The business model outlines the establishment of a new “Operational Company”, that links producers, consumers and investors to provide mutual economic and social benefits

3

Executive Summary 2 of 2 • To operationalise Participative Capital an

estimated capital investment of INR 100 million (10 crore) is required in which a return will be expected by the fourth year

• By sharing returns between investors and community groups, rural community livelihoods will be improved – returns are to be managed through a robust governance structure within a sustainable business model

• Community groups will re-invest the returns into community programs such as education, skills training and healthcare services as well as channel a portion into stability funds

• The recommendation outlines a pilot project with Tea and Paddy in Tamil Nadu , with the intention for expansion into neighbouring states and other commodity products

4

Just Change

Background and Objectives

I. Just Change IndiaII. Adivasis JourneyIII. Global Tea MarketIV. Global Paddy MarketV. The ChallengeVI. Investment Plan Objectives

3

Just Change India

• Just Change is a concept that grew out of the struggle of the Adivasi farmers of Gudalur, Tamil Nadu to secure their livelihoods and live in dignity

• Around 2003, “Market forces” saw prices of tea leaves plummet to a level that is threatening the farmers’ livelihoods, yet consumers worldwide continued to pay high prices

• “Just Change” pioneered an alternative way of doing business which links poor producers, consumers and investors to work together for mutual benefit

“a grassroots response to the global economy that has left the vast majority of people powerless with little or no control over factors that influence their lives...”

- Stan Thekaekara, Founder of Just Change

To foster a more just, equitable and sustainable economy for farmers

7

3

Global Tea Market - Overview• Tea is the highest consumed drink in

the world - production dominated by China, India, Kenya and Sri Lanka

• Export Market is dominated by Sri Lanka, China and India with the major players in the Import Market being Pakistan, Japan and China

• No global institution exists in the tea industry, only individual nations have national Tea Boards or Tea Associations

• Tea production is labour intensive where the livelihoods of millions in the rural areas are largely dependent on tea picking and processing

GLOBAL TEA PRODUCTION

Source: Tea Board of India, www.teaboard.gov.in

9

33

Tea Market – Sustainability Issues

• Global prices have been declining since 2000 due to the price collusion by the oligopolistic tea manufacturing industry

• A combination of price volatility and the domination of the tea supply chain by a few international companies is adversely affecting the sustainability of the tea sector

• Working conditions and livelihoods of plantation workers and small scale farmers in tea producing countries are under growing pressure - most earn less than Rs.100 a day.

10

3

Global Paddy Market – Overview• Rice cultivation is the principal activity and source of income for

millions of households around the world• At the beginning of the 1990s, annual production of rice was around

350 million tons and by the end of the century it had reached 410 million tons

• Globally, India has the largest rice area and is second in rice production, after China

• Among the exporting countries, Thailand, Vietnam, India and Pakistan are the major countries exporting rice in sizeable quantity

11

The Challenge

“The YLP participants work closely with Just Change to address the challenge of operationalising, on a larger scale, the concept of Participative Capital which is envisioned to generate a more equitable economic and social benefit for the network of producers and consumers as well as provide a return of investment to the investors.”

*Sources: International Fund for Agricultural Development www.ruralpoverty.org & China vs. India: A Tale of Two Plans, The Economist Network

Two thirds of India’s population are rural farming communities with 30% living below the poverty line. While the economy has been growing at 8% , agricultural output has risen at only 3.3% per year*

POVERTY

Commodity retail prices largely benefit the intermediary branding and packaging companies, wholesalers and retailers

MARKETINEQUITY

Access to basic commodities like tea, rice and spices have become disproportionately expensive for consumers and less profitable for producers

COMMODITYACCESS

RESTRICTIONS

12

Investment Plan Objectives • To create an investment framework for the operationalising of

Participative Capital• To allow investors with aligned interests to become active

participants of social change while realising a financial return• To ensure fair prices for producers so they have more control• To deliver good quality products at fair prices to consumers• To enhance and improve the overall societal development• To create an investor framework that can be applied across

different commodity products and states in India

Creating a more just, equitable and sustainable economy

13

Just Change

Business Model

i. Purposeii. Participative Capitaliii. Benefits of Co-Destinyiv. The Key Playersv. Business Modelvi. Organisational Structurevii. Governance Overviewviii. Governance Approach

Purpose• To outline the enterprise operating on the principles of sustainability to also be run as a profitable business • The bases of the enterprise is on the principle of Participative Capital, to include the participation of producers, consumers and investors• The governance structure of the enterprise is to ensure equitable returns are delivered to all stakeholders

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16

•Relationship reinforced among participants via co-existence and co-operation towards a common destination and mutual economic and social benefits

Co-destiny

•The transactional value derived from the commodity, consumption and capital from the network of producer groups, consumer groups and investors results in surplus which in turn is redistributed equitably into the business or contributes to improving the standard of living of the people in rural India

Value and Surplus

•A structured Operating company linking consumer groups and producer groups, focusing on supply chain efficiency and surplus distribution

Central Governance

Participative Capital Participative Capital is a concept that generates a more equitable economic and social benefit for the network of producers and consumers as well as provide a

return of investment to the investors.

Sustainable business income and growth

Equitable distribution of economic benefits

Extend social benefits to the greater community

Participative Capital - Visual Model

17

Benefits Co-Destiny

Capital Investors

Producer Groups

Community & India

ConsumerGroups

Co-destiny• Receive goods at a fair

price• Improved quality of

products via improved supply chain model and governed process and federation aggregator

• Better price stability via Federation’s risk fund

• Enjoy economic & social benefits from surplus

• Improve standard of living in rural India

• Strenghting community relationships

• Fair price for their products

• More consistent demand via a more structured supply chain and loyalty incentives

• Enjoy economic and social benefits from surplus

• Financial return on investment

• Contribute to betterment of society e.g. minimise poverty and improve standard of living, healthcare and education

• Small investment – Big impact

18

The Key PlayersProducer Groups

Farmers represented through Local Societies at Village/Taluka

levels

Consumer Groups• Cooperatives• Mid-size wholesalers• Local consumers in villages

Operating Company(JCI Producer Company)

• Deploy ‘Capital’ provided by investors• Process commodities provided by the

Producing Groups• Distribute commodities to Consumer Groups• Distribute financial returns to all stakeholders

InvestorsProvide capital with the intent to generate financial return

19

Organisation Structure

ExternalAuditors

Board of Directors

JCIPC ( Just Change India Producer Company )

JCT PG Shareholders GM Investor

Oversight /Approval

Finance & Admin Operations

Supply Chain

Purchases

IT

General Manager (GM)

Community Relations

Marketing & Bus Dev Operation

Executive Director

Just Change Trust (JCT) Advisory/Think tank

21

Just Change India Producer CompanyJCIPC - an Independent Operating Company• JCIPC is to facilitate return on investment and build capacity to expand

product(s) and services• JCT will continue to operate as a think tank, independent of JCIPC but will also

take an advisory role on Board of Directors• Board of Directors consists of representatives from all the major stakeholders

to oversee and approve the major decisions made within JCIPC, ensuring the direction and purpose of the entity remains community driven

• The day to day operation of the entity is split into several business units including: Finance & Administration, Operations and Community Relations

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23

Business Units 1 of 2Role of Finance & Administration• Investment management• Governance of capital and

surplus• Provide funding management

to Operations• Distribute funding to producer

members• Identify and manage financial

privileges for members (i.e., rebates)

• Human resource administration and management

• Internal audit

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Role of Operations• Business Development & Marketing

• Marketing & communications• Promotional materials• Public relations• Brand awareness• Pricing

• Supply Chain• Manage the market place• Manage logistics• Manage warehouse

• Purchasing• Inventory management• Supplier management

• IT• Manage technology vendor• Provide day to day technology

support

Business Units 2 of 2

24

Role of Community Relations• Communication with

community• Community development

initiative• Community fund

Management

Business model and organisation structure will ensure:• Compliance with all applicable laws and regulations• Transparency and segregation of duties in the overall

administration of the Operating company (see business model)

• Accountability of key stakeholders• Effective management of the capital and financial surplus

distribution amongst investors, consumers and producers• Profitable management of a multiple commodity products

enterprise (Rice, tea) • Execution of strategy

Governance and management organisation structure is scalable for multiple product(s).

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Key Aspects of Governance

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Governance Approach

• Exclusive participation via shareholding in Operating company, assurance of fair price and quality goods and incentives to promote continuous supply and demand of commodity

• Selection criteria of participants in supply chain for worthiness

• Central governance on surplus management via Board of Directors of Operating company benefitting consumer groups, producer groups and investors

• Operating company to focus on business development; match demand and supply as well as ensure fair price, price stability and quality goods

• Central governance on surplus management via Board of Directors of Operating company

• Dedicated community relations personnel to focus on community development initiatives

• A structured Operating company linking consumer groups and producer groups, focusing on marketing and supply chain efficiency

• Selection criteria of vendors/suppliers for worthiness

Sustainable business income and growth

Equitable distribution of economic benefits

Extend social benefits to the greater community

Improved and efficient marketing and supply chain

Just Change

Business Development

i. Purposeii. Market Strategy Overviewiii. Marketing Planiv. Branding Strategy

Purpose• Participative capital is a new concept being introduced

amongst producers, consumers and investors and therefore a strong marketing plan is required for successful business development

• As a ‘start-up’ the main goal is to increase awareness and gain the confidence of producer and consumer groups

• A secondary goal is to develop a strong brand which will build trust and loyalty to JCPC

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Marketing Strategy Overview

Top priority is “Attracting Consumers & Producer Groups”

Marketing Strategy

BrandingAttracting

Consumer & ProducerGroups

STEP 1 STEP 2

29

Marketing Plan – Year 1 and 2Main focus:To attract Consumer and Producer Groups

Method • Year 1 and 2 – focus on maintaining and extending consumer demands and ensure production levels increase accordingly as well• JCIPC will be using their in-house resources to achieve their first two years’ marketing goals• The approach in the first two years do not require substantial investment• After the first 2 years, once the base of producer/consumer have been founded with investment flowing in, more substantial marketing activities are planned in accordance with an increased budget for marketing expense• Plans to attract producer and new consumer groups are outlined in the next two slides

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No substantial marketing expenses expected in years 1 and 2

Attracting Producer GroupsFor existing producer groups/circle:Suggested methods:• Supply contract: premium at signing of

contract: e.g: INR20/kg green leaves• Guaranteed fixed buying price: e.g:

INR45/kg green leaves• Share of surplus/volume unit • First right to invest• Group representative have aggregated

vote in decision making process • Access to education and health care as

members• All groups benefiting from

participative capital

For new producer groups/circle:Suggested methods:• Multi level marketing: producers

earn eventual share of surplus increases

• At signing supply contract: entitled to the benefit package offered to existing members

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Attracting New Consumer GroupsSuggested methods

• Initially use word of mouth, going through trusted organisations and then using the success stories to attract others, highlighting all the benefits of participating

• Benchmarking against market price and offering discounts

• Partnership with cooperatives in Tamil Nadu, Kerala, and other states: % per total volume to the cooperatives ; mutual technical support;

• Referral scheme• Membership discount for loyal

consumers

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Marketing Plan – Years 3-5

Year 3 Year 4 Year 5

Producers Educate and visit new villages on concept to get buy in and develop relationships

Roll out rewards scheme for new producers (commission)

Media campaign

Policy advocacy

Trade show

Best producer of the year award

Tea Consumers

Newspaper adsFlyersWebsite

TV adTea tastingProduct Promotion

Trade showStudy tour

Paddy Consumers

Newspaper adsFlyersRice tastingRoadshow

TV adsWebsiteRoadshow

Trade showStudy tour

*Eakgon Cellphone is a cellphone service for illiterate farmers to provide them with information on cultivation

Starting in year 4 the budgeted marketing expenses will increase allowing for additional efforts in scaling up JCIPC’s operations.

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Market Expansion PlanTea to besold [MT]

No. ofSociety

Households

Year 1 100 5 20,000Year 2 125 6 25,000Year 3 188 8 47,000Year 4 281 10 132,070Year 5 422 15 557,335Year 6 633 25 3,527,933

Period Rice to besold [MT]

No. ofSociety

Households

Year 1 2000 8 20,000Year 2 4000 12 40,000Year 3 8000 18 160,000Year 4 14000 25 1,120,000Year 5 21000 35 11,760,000Year 6 30000 40 176,400,000

Period

In order to achieve the above mentioned figures, we will do the following steps:

Step 1: Promote brand and bring societies on board

Step 2: Branding

*Projections are conservative and expected to be exceeded based on selling goods in open market

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Branding Strategy – Just Change Tea & Rice

Promotion

• The brand will be associated with certain communities i.e. Raitasanga

• Create sense of ownership / relationship with the brand

• Offer free samples to potential consumers

• Multilevel marketing• Use referrals and

word of mouth to increase awareness

• Business tie-up with entrepreneur groups in the society

• Price penetration within the different groups of society

• Premium pricing for different quality of tea / rice

• Leverage on existing retail chain outlets in YR1 to mid YR2

• Set up new exclusive retail outlets

• Location based brand will serve as potential tourist destination site

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Product Place

PricePromotion

Just Change

Branding

“Supporting the communiTEA”

“Just Change your rice”

Enabling a sense of ownership within the community

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Just Change

Just Change

Supply Chain Management

I. Traditional Supply Chain Model & IssuesII. Solution to the Traditional ModelIII. Benefits of 3 Tier Supply ChainIV. Why a Marketplace is NeededV. Marketplace FrameworkVI. Warehousing

Farmers

Mandis(Market)

Aggregator

ProcessingPackaging

State Procurement

System

IntermediaryDistribution Hubs

Consumer

RegisteredDealer

Traditional Supply Chain Model & IssuesIssues• Exploitation by dealers and

aggregators• No common marketplace to:

• Buy and sell product • Identify producers and

consumers beyond local boundaries

• Share information• No warehouse for temporary storage• Lack of logistics network

Lack of marketplace between Producers and Consumers limits fair trade and equitable growth

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VillageFarmers

Producer Group

Operating Company

ConsumerGroups

Open Market

Consumer

Warehouse

Solution to the Traditional Model

Tier 3 : Consumer Groups• Sales & distribution to end consumer

Tier 2 : Operating Company• Marketplace to link up producers and

consumers• Warehousing/stock management

Tier 1 : Producer Group• Process goods, packaging• Sell goods to Operating Company

3 Tiers Supply Chain Model

3 Tier model links up producers and consumers directly

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Benefits of 3 Tier Supply Chain ModelProducers enjoy:

• Increased margins due to direct sale to consumer groups

• Easy access to information• Ability to retain personal relationships

Consumers enjoy:• Ability to search and price compare• Lower prices due to direct purchase• Decreased costs through the use of online auction• Easy access to information to facilitate daily operations

These benefits are obtained by using the marketplace platform within the Operating Company.

Marketplace is the essence of 3 Tier Supply Chain Model

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Why a Marketplace is NeededA marketplace enables Producers and Consumers to:• Communicate effectively

– Linking rural communities to consumer groups– Visibility of supply and demand beyond local networks

• Trade, Buy and Sell– Price creation and determination– Match up willing buyer and seller

Marketplace brings producer and consumer groups together

41

Marketplace Framework

• Concept• Create a marketplace platform online and through a mobile phone network for

Sellers and Buyers to go beyond the current limits of a traditional market• Role

• Enable Producers and Consumers to buy and sell products beyond current boundaries, by leveraging on the information and logistics network provided and recommended by the Operating Company

• Establish the connection between Producers and Consumers, allowing them to interact and communicate

Successful marketplace implementation needs warehousing

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Warehousing • Concept

• Serves as storage of products when there is no immediate match in the Marketplace between producers and consumers

• Operating company manages logistics to Consumer for warehouse products

Ｗ arehousing enables sales at the right time and price

• Role• Provides Producers with stable income with stable sales of products • Provides Consumers with reliable supply of products • Operating company’s purchase of product during oversupply eliminates

price volatility for Producers

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Just Change

Community Benefits

I. Community Services OverviewII. Impact Opportunities III. Financial BenefitsIV. Women EmpowermentV. Community Benefit Indicators

Community Services OverviewPrimary issues faced by the community:• Availability and usage of public health services and facilities is still

minimal at best - critical care services are often 100KM or more away.

• Significant school dropout rates among children• Market fluctuations often lead to significant income loss for rural

farmers who lack access to emergency funds, which results in the loss of land – this has also led to a disturbing increasing trend of alcoholism and suicide rates

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Impact Opportunities A Board of Directors of the Operating Company is to allocate certain funds to address the community needs. This pilot program is to focus on:

• Education and Skills Training• Healthcare services• Improved communication

• As returns increase as the operations scales up, additional services may be introduced to address needs of other target communities, including:

• Women’s empowerment• Financial assistance through community funds for

contingencies• Community services will roll out all activities & services via

existing community structures

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Financial BenefitsCurrent scenario, as is:• Currently the producers are

organised only to a limited extent while the power of collective financial capability is not realised so far

• The community borrow money from local money lenders at a very high interest rate when in need - interest rates are often 3% /month

New initiatives:Community loan fund• To address financial constraints caused by

unforeseen events• It is paid out as a low interest loan i.e.

interest sufficient to cover administration, supervision & loan loss cost with no element of profit taking

• Initial funding from Investors portion• Kept sustainable by a) repayment by

borrowers b) surpluses generated by business

Implementation Needs:• Group lending by way of cross guarantee• Cap on borrowing size per borrower, loans are short term in nature 1-2 years• Cap of number of loans to be lent in each financial year.• Governance at project level to ensure compliance of operational/administrative

procedures & policies.• Set up a team to operate the fund

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Women EmpowermentCurrent scenario, as is:• Women’s power is not fully

utilised for the community’s benefit

• Each woman is an individual worker, therefore no leveraging on the power of women as a group

New initiatives:• Build a stronger, happier and value

driven community through the groups, focusing on: – Managing household financials and

savings– Collective bargaining of goods for

the community• Visit other communities and villages to

learn and share best practices• Reskill in areas to support execution of

the model (i.e., SNEHA group)• Increase awareness of government

schemes and ways to take better advantage of them

Implementation Needs:• X* salaried women to visit

communities• Driver(s)• Car(s)• Administrative support

*Number is scalable, depending on membership

Community Benefit IndicatorsCommunity Intangible benefits Tangible indicators

Producers Steady income Net increase in average income

Primary Education Number of children enrolled in primary schoolLiteracy rate: percentage of people

Healthcare Number of injury deaths

Number of deaths in children age 1-59 months

Skills training Percentage of revenue growth in community

Communications Number of people who has access to the broadband internet including common facilities

Consumers Lower retail price Discount rate: the percentage of deduction of price compared to the market price

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*Additional details on community opportunities in appendix

Just Change

Financial AnalysisI. Key TargetsII. Shareholding PrinciplesIII. Capital Raising IV. Surplus DistributionV. Key AssumptionsVI. Financial Overview VII. Sensitivity AnalysisVIII. Future Growth Driver

Key Targets • Sustainable

• Multiple revenue streams creates surplus stability• There will be two rounds of capital raising to maintain stable

cashflow for working capital and business expansion• Scalable

• Profitability of business is highly dependent on scale and volume• Model is dependent on Just Change’s ability to attract producers and

consumers • Lowering marginal costs and capital expenditures create attractive

margins for business expansion• Large potential for growth

• Flexibility of business model promotes expansion into more commodities (such as spices, vegetable oil, cotton, cocoa etc.)

• Case study of tea and paddy is highly promising

The economics of participative capital delivers financial gains

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Shareholding Principles

Investor – 90%

Producer – 10%

Capital Repayment

Investor – 90%↓

Producer – 10%↑

Stable Shareholding

Investor – 35%

Producer – 65%

Initial Shareholdin

g

Participative Shareholding

Model90 (Capital to be repaid) 10

218Surplus 20

90%

10%90-18 = 72 28

4272-14 = 58

14 6Surplus 20

72%

28%

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The Shareholding structure is not only determined by capital contribution but also by participative contribution to the business

The shareholding of producers increases as the initial capital investment is repaid

Investors will provide the capital for the business, and producers will be providing their labour and

sweat capital

Example of Participative Shareholding

Capital Raising - Shareholding

PRODUCER

SHAREHOLDING COMPANY

Capital 10%

Capital 90%

INVESTOR

Capital 100%

Sweat Capital

Shareholding Interest on day 1

10% 90%

Producers become shareholders by investing labour capital

The operating company will make an upfront commitment of 10% of capital raised to invest in a community fund on day 1

The shareholding structure is linked directly to the amount of invested capital left to be repaid

The long term stable shareholding relationship will primarily benefit the producers

COMMUNITY FUND

FUND TO BUSINESS

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Capital Raising - Overview

Bridging the gap

Investor Capital Breakdown

90%

10%

Business CapitalCommitment to Community

Total Participative Capital InvestmentINR 100M

Upfront commitment to communities

• Capital raising will occur in two rounds, both raising INR 50M

• Second round will take place in year three of operations

• Producer communities will have an opportunity to invest in the second round of capital raising

Business Capital Breakdown

50%

20%

30%

Working Capital MarketingStability Fund

54

Capital Requirements - Overview

50%

20%

30%

Working Capital Marketing Stability Fund

The capital raised will be primarily used for working capital

To mitigate financial risks arising from supply and demand mismatches and production shortfalls due to natural forces, a stability fund will be established

Marketing and brand building will be essential in establishing our business operations and is a key consideration during the capital raising process

The business will require a large provision of capital for working capital needs especially in the beginning stages of operations

INR 90M

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Overview – Surplus Distribution

The distribution of surplus will filter through 3 levels

First 3 Years

Stable Distribution

Beginning Distribution

Stable Distribution

Multi-level surplus distribution

structure

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Overview – Surplus Distribution • The operating company will retain 100% of the surplus in the first three years

to build the business

• Thereafter, the operating company will retain a constant 25% of surplus to maintain operations

• Of the remaining 75%, surplus will be distributed to both the producers and investors with the division skewed towards the investors until the original capital invested has been repaid

• The producers’ share of the surplus will be returned in the form of cash and community investments via the community fund

Investors benefit more at the start of the venture. Upon capital repayment, majority of surplus goes to producer

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Key Assumptions

Assumptions provided from sources within the producer communities

Rice Tea

Y1 Y3Commodity Annual Growth Rate

Tea 25% 50%

Y1 Y3 Y5

Commodity Paddy Composition

Cost INR/kg Sell INR/kg

Unbroken Rice 68% 18.5 22 24 26.25 Broken Rice 7% 9 11 Husk 20% 4 5 Rice Bran 3% 27 37

Y1 Y2 Y3 Y4 Y5Commodity Annual Growth Rate

All Rice Products 100% 100% 75% 50% 43%

• Rice production anticipated for high growth in the first three years that will then taper off

• Conversely, tea’s growth rate is expected to accelerate after the second year of production

• No expected growth in broken rice, husk and rice bran in 5 years as their contribution in terms of value is small

Y1 Y2 Y3 Y1 Y2 Y3Commodity Cost INR/kg Sell INR/kg

Tea (Mass) 70 75 80 100 112 125

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Financials – Income Statement

Margins increase with scaling efficiency

Financial Overview (INR M) Y1 Y2 Y3 Y4 Y5 Y6

Total Sales 45.7 85.4 177.2 304.3 488.6 702.0

Total Cost of Goods Sold 43.6 79.6 157.9 269.9 404.6 578.8

Net Profit -1.4 -0.5 9.3 17.5 49.8 72.9

Gross Margins 19.9% 20.4% 20.1% 19.8% 25.1% 25.1%

Net Profit Margin (%) -3.1% -0.6% 5.2% 5.8% 10.2% 10.4%

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Financials – Gross Income

Higher margins obtained with economies of scale

Warehousing (INR M) Y1 Y2 Y3 Y4 Y5 Y6Total Paddy (MT) 2000 4000 8000 14000 21000 30000COGS 29.6 59.3 126.7 221.8 332.6 475.2Sales 35.7 71.4 153.6 268.8 435.3 621.9Total Tea (MT) 100.0 125.0 187.5 281.3 421.9 632.8COGS (INR M) 7.0 9.4 15.0 22.5 33.8 50.6Sales (INR M) 10.0 14.0 23.4 35.2 52.7 79.1Cash Surplus (INR M) 9.0 16.7 35.3 59.7 121.7 175.2Gross Margins 19.8% 19.6% 19.9% 19.6% 24.9% 25.0%

Participation Fee (INR M) Y1 Y2 Y3 Y4 Y5 Y6Paddy Volumes handled (MT) 1360 2720 5440 9520 14280 20400Paddy Value 29.92 59.84 119.68 209.44 314.16 448.8Tea Volumes handled (MT) 50 250 500 700 1200 1800Tea Value 5 25 50 70 120 180Participation Fees 0.35 0.85 1.70 2.79 4.34 6.29Participation & Vendor Fees 0.35 0.89 1.85 3.09 4.84 7.29

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Financials – Operating Margins Operating Cost (INR M) Y1 Y2 Y3 Y4 Y5 Y6 Headcount 5 6 7 8 8 9 Salary and Wages 1.7 2.3 2.9 3.6 3.9 4.1 Office exp. Including rental(SGA) 1.2 1.2 1.8 1.8 2.2 2.2 Marketing(SGA) 0.9 1.8 1.4 2.3 2.5 3.6 Promotion(SGA) 0.9 1.8 1.4 2.3 2.5 3.6 Warehouse costs 0.3 0.6 1.2 2.1 3.2 4.5 Transport Costs 4.2 7.0 10.9 18.6 29.9 42.9 Training Camp costs(SGA) 0.9 1.8 1.4 1.6 2.5 3.6 Interest (10% rate) 0.0 0.0 0.0 1.2 3.0 6.0 Total Operating Cost 10.1 16.4 20.9 33.6 49.5 70.5 Operating Margin -4.3% 0.0% 7.7% 8.8% 15.3% 15.8%

Supply chain costs make up the majority of OPEX

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Financials – Returns to Investors Investor Interests Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

Investor Shareholding (%) 90.0% 90.0% 90.0% 88.7% 85.5% 69.5% 35.0% 35.0% 35.0% 35.0%

Surplus to Investors (INR M) - - - 6.3 11.6 32.0 38.0 21.1 23.2 25.5

Investor IRR (%) - - - -86.3% -48.8% -15.6% -0.6% 4.3% 8.1% 11.0%

Participative capital investing is a fairly new investment concept

The expected return is relatively lower in comparison with conventional investments

This model offers an investor the opportunity to enhance the community’s well being in India

Investors can fulfill an engaging relationship with a community for better living.

The investment gives the community a sense of purpose

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Sensitivity Analysis Net Profit (INR M) Y1 Y2 Y3 Y4 Y5 Y6

Best Case (+20% Production) 5.0 11.4 34.1 60.1 118.2 171.2 Base Case -1.4 -0.5 9.3 17.5 49.8 72.9

Worst Case (-20% Production) -7.8 -12.5 -15.5 -25.1 -18.6 -25.4

Investor IRR Y4 Y5 Y6 Y7 Y8 Y9 Y10

Best Case -79.5% -39.0% -7.8% 3.8% 9.2% 13.1% 16.1%

Base Case -86.3% -48.8% -15.6% -0.6% 4.3% 8.1% 11.0%

Worst Case -93.5% -59.0% -26.4% -9.1% -1.6% 1.8% 4.7%

Water and weather conditions have a strong impact on crop production and financial performance

63

Because weather conditions will change year to year, the worst case scenario where production is consistently below estimates is highly unlikely

Future Financial Growth Driver

Scale up requires additional margins to be obtained through the optimisation of the supply chain

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Recommendations & Conclusion

I. Implementation MilestonesII. Risk Assessment MatrixIII. Recommendations & Conclusion

Implementation Milestones

Create Operating Company

Source & Implement

Supply Chain

Year 2Year 1 Year 3

Secure Capital

Year 4 Year 5

Investor Surplus

Distribution

Community Investments

Attract and enlist Producer and Consumer Groups

66

Sign up producer, consumer groups

Community benefits defined

Create brand

Community benefits defined

5 year implementation plan

*Additional details on Implementation Plan in Appendix

Risk Assessment MatrixLack of alignment of goals of members of Operating Company and Board of Directors

Lack of transparency in the administration of the Operating Company and Board of Directors

Thin spread of surplus due to overwhelming community requests

Ineffectiveness of and lack of outreach of community programmes

Limited market penetration

Lack of confidence of investors in profitability of business venture

Commodity price volatility

Inability to secure funding to commence implementation of business model

Production downtime due to poor maintenance and power outages

1

2

3

4

5

6

7

8

9

Poor quality commodity10

Supply chain failure impacting commodity distribution11

12 Commodity supply outweighs demand

5

8

2

3

7

Likelihood

Imp

act

9

Low Medium High

Lo

wM

ed

ium

Hig

h

1

4 610

11

12

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Recommendations & Conclusion• In keeping with the vision of Just Change, a methodology in

‘operationalising ‘ a Participative Capital business model has been created

• Recommendations include the establishment of a new ‘Operational Company’ that not only links the producers and consumers but also investors

• The recommendation outlines a pilot project with Tea and Paddy in Tamil Nadu and Kerala regions respectively, with the intention for progressive expansion

• With a capital investment of INR 100M, estimated initial investments will enable scaling resulting in operating profits from year 3 onwards

• The venture is expected to improve the livelihoods of rural communities, producers and consumers alike, whilst providing a sustainable business model for the success of stakeholders

68

Just Change

Appendix

I. AssumptionsII. Financial DetailsIII. GovernanceIV. Community OpportunitiesV. Detailed Implementation PlanVI. Risks and Mitigation

Assumptions• Governance and structure created with a focus on the tea and

rice business• Marketplace system can be set up to be used via mobile phone

network and online – platform software to be developed• All producer and consumer groups have access to mobile

phones (SMS)• Logistics infrastructure exists for the delivery of goods• Surplus distribution and implement plan assumes profit

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Income Statement Brokerage Y1 Y2 Y3 Y4 Y5 Y6Volumes handled (MT)* 3660 7283 14331 24806 37359 53518Brokerage & Vendor Fees** 0.05 0.29 0.65 1 1.7 2.8 Warehousing Y1 Y2 Y3 Y4 Y5 Y6Total Tea (MT) 250 313 391 586 879 1318 COGS (INR M) 18.8 23.4 29.3 43.9 65.9 98.9Sales (INR M) 31.3 39.1 48.8 73.2 109.9 164.8

Gross Margin 12.5 15.6 19.5 29.3 43.9 65.9

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With economies of scale, better margins can be generated

*Volume reflects the total volumes handled for brokerage as well as warehousing for tea and paddy** Brokerage & Vendor Fees are one of the income streams along with Warehousing, income from brokerage reflects only the brokerage volumes

Financial Overview

(INR M) Y1 Y2 Y3 Y4 Y5 Y6

lNCOME 67 110 192 323 485 701COGS 60 101 177 299 445 639PBIT 2.2 1.1 1.5 3.7 7.4 13.6

Y1Y2

Y3Y4

Y5Y6

0

100

200

300

400

500

600

700

800

Sales

COGS

PAT

72

Operating Costs(INR M) Y1 Y2 Y3 Y4 Y5 Y6

Salary and Wages 1.16 1.36 1.51 1.61 1.61 1.71

Offic exp. Inclu rental 1.2 1.2 1.8 1.8 2.16 2.16

Marketing 0.06 0.08 0.10 0.15 0.22 0.33

Promotion 0.06 0.08 0.10 0.15 0.22 0.33

Warehouse costs 1 1 0.8 0.8 1 1

Transport Costs 3.8 4.7 5.9 8.8 13.2 19.8

Training Camp costs 0.25 0.31 0.39 0.59 0.88 1.32

Total Operating Costs 7.49 8.72 10.51 13.83 19.27 26.62

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Transport costs is the majority of operating costs – accounts for more than 50%

Capital Required

Investor Capital Breakdown

90%

10%

Business Capital

Commitment to Community

Business Capital Breakdown

50%

20%

10%

20%

Warehousing Working Capital

Marketing Stability Fund

Total required participative capital investment• 2M USD (100M

INR, 10 crores)

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Investment :2M USD100 M INR

Business Capital1.8M USD90M INR

Member Role Hiring profile

General Manager [1] -Decision maker in General Management Group (GMG)

-A dynamic individual who is experienced in agriculture business (Min. 5 years experience)

Finance Manager[1] -Manage daily operation related to finance such as surplus management or capital management

-A dynamic individual who is experienced in agricultures business as well as with the financial industry (Min. 3 years experience)

Supply Chain Manager [1]

-Manage daily operation related to supply chain

-A dynamic individual who is experienced in agricultures business as well as with Supply Chain management and inventory control (Min. 3 years experience)

Purchasing Manager [1 ] -Manage daily operation related to procurement

-A dynamic individual who is experienced in agricultures business as well as with previous procurement experience (Min. 3 years experience)

Marketing & Bus Dev Manager [1+1member]

-Manage daily operation related to marketing & Business Development

-A dynamic individual who is experienced in agricultures business as well as experienced with marketing and business development in the rural sector (Min. 3 years experience)

IT Manager [1] - Manage daily operation related to Business Development such as distribution strategy

-A dynamic individual who is experienced in agricultures business as well as IT experience in the rural sector (Min. 3 years experience)

Community Relation Manager [1+1member]

-Manage daily operation related to community relations

-A dynamic individual who is experienced in agricultures business (Min. 3 years experience)

Detail of JCIPC General Mgmt Group

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Community Opportunities: EducationCurrent State• High rate for school dropouts• Dominant child labor

New Initiatives • Increased access to education

facilities by actively engaging government in partnership with NGOs

• Extend financial assistance to impoverished households

• Obtain computers for schools through donations from corporations

Education for the Future

79

• Rural farming communities have limited skill sets that prevent them to pursue secondary sources of income

• Growers among the communities are not exposed to effective crop cultivation/production methods and have less than optimal output

Current State New Initiatives • Impart training to generate

secondary source of income• Partner with agricultural

agencies to provide trainings on latest cultivation/production methods

• Extend training in basic business for enterprising members so that they can successfully start and run small businesses

Community Opportunities: Skills Training

Training for Alternate Livelihoods

80

• Rural communities often under utilise the public health services mainly due to lack of awareness

• Insufficient specialists available: Critical cases referred to places of distances of 100KM or more

Current State New Initiatives• Increase awareness on the

need for healthcare with the help of local community organisations and public health officials

• Encourage expectant mothers to go for continued follow up checks

• Bring public health officials to villages for basic medical checks ups and immunisation for children and women

Community Opportunities: Healthcare Services

Healthcare is key for good well being

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Current State New Initiatives • Lack of awareness of

government schemes• Very limited interaction

between producers and consumers resulting in lost opportunities

• Build community groups to influence government policies/decisions to protect community interests.

• Increase awareness on government schemes and programs related to development of rural communities

• Build communication channels (phone & internet access) to facilitate interaction & information sharing between producers, consumers, investors, government etc.

Community Opportunity: Access to Information

Keeping Communities and Stakeholders Connected

82

Community Opportunities: Additional Initiatives• Take initiatives that will

empower the community through creation of Stree-shakti groups

Improving Standards for Community Stability

• Develop a community loan fund to address emergency financial needs by extending a low interest loan

83

Implementation Plan – Year 1Identify Project Manager/Lead for Participative Capital Initiative JCT

Attract investors JCT

Secure 1M Capital JCT

Hire Operating Company resources (Finance, Operations, Business Development)

JCT

Establish fund to manage 1M capital Finance

Define and implement producer group membership requirements, needs & structures (i.e., tracking)

Bus Dev

Define and implement consumer group membership requirements, needs & structures

Bus Dev

Create outreach materials to attract producer/consumer groups Bus DevIdentify and attract producer and consumer groups (i.e., Tea/Rice tasting road shows, community visits)

Bus Dev

84

Implementation Plan – Year 1Hire additional Operating Company resources (Community relations, additional Operations)

JCT

Sign up producer and consumer groups Bus Dev

Source supply chain resources (warehouse, logistics, Market Place software)

Operations

Secure financing for supply chain resources Finance

Implement supply chain solutions Operations

Create Board of Directors & elect Chairperson JCT

Define methods to communicate with producers/consumers Bus Dev

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Implementation Plan – Years 2-5Year 3

Research Community Service needs of producer communities

Design Community benefit indicators

Define and create branding and packagingYear 4

Prioritise community services based on needs

Design operation plan and budget for community services

Distribute surplus to investors

Year 5

Launch community services to producer communities

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Risk Assessment & Mitigation

87

No. Risk Functional Area

Likelihood Impact Risk Mitigation

1. Lack of Alignment of Goals of members of the Operating Company and Board of Directors

Governance LOW HIGH 1. Define clear roles and responsibilities of each role in the Governance Structure

2. Rotation through election of key roles in Operating Company and Board of Directors

3. Just Change to play an intermediary role in any disputes or alignment issues

2. Lack of transparency of the administration of the Operating Company and Board of Directors

Governance LOW MEDIUM 1. Establishment of a strong corporate governance model, transparency in systems, processes, decision making with clear roles and responsibilities and segregation of duties embedded in the organisation

3. Overwhelming requests for community and social benefit programmes resulting in thin spread of surplus and minimising social impact of initiatives

Community MEDIUM MEDIUM 1. Community and social benefit programmes to be agreed upon and prioritised (eg. top 5) by the established Governance structures

Risk Assessment & Mitigation

88

No. Risk Functional Area

Likelihood Impact Potential Risk Mitigation

4. Community programmes are not effective and reach only a certain portion of the community resulting in minimal social impact, potential escalation of social issues, disparity, jealousy and conflict

Community MEDIUM MEDIUM 1. Establishment of Key Performance Indicators (KPIs) for measuring benefits of community programmes

2. Implementation of robust communication channels to the various stakeholders of the business model

5. Limited market penetration resulting in low revenue growth

Business Development

LOW HIGH 1. Implementation of effective marketing strategy striking a balance of economic and social benefits

6. Lack of confidence of investors in profitability of venture and supporting risk management and control processes

Finance MEDIUM MEDIUM 1. Establishment of a strong financial and risk management policies and procedures with clear segregation of duties and delegation of authorities framework embedded in the Finance Function of the Operating Company

2. Provision of a robust financial model outlining profitability and cash flow projections

Risk Assessment & Mitigation

89

No. Risk Functional Area

Likelihood Impact Potential Risk Mitigation

7. Commodity Price volatility resulting in uncertainty in revenue streams

Finance MEDIUM HIGH 1. Monitoring undertaken by Operating Company on commodity markets and pricing trends

2. Utilise Delayed Marketing mechanism to manage price volatility

8. Inability to secure funding to commence implementation of business model

Finance MEDIUM HIGH 1. Secure strong investors with like-mindedness on both the economic benefits and long term social view

9. Production downtime due to poor maintainence and power outage resulting in supply not being able to meet demand and a loss of revenue

Supply Chain LOW HIGH 1. Implement robust preventive maintenance plans

2. Implement backup generators to supplement primary source of electricity

Risk Assessment & Mitigation

90

No. Risk Functional Area

Likelihood Impact Potential Risk Mitigation

10. Poor Quality Commodity impacting business venture economic and social interests

Supply Chain LOW MEDIUM 1. Stringent Quality Criteria established by Operating Company

2. Quality Control checks undertaken by Operating Company

11. Failure in supply chain to distribute commodities to consumer groups on a timely basis

Supply Chain LOW HIGH 1. Establishment of Key Performance Indicators (KPIs) for measuring and monitoring supplier performance

2. Multi supplier strategy to ensure contingency suppliers in the event of supplier failure

3. Stringent Supplier Assessment as part of selection criteria

12. Supply outweighs Demand resulting in excess commodity and wastage

Supply Chain MEDIUM HIGH 1. Channel excess supply to auction houses and other trading houses

2. Stringent Demand and Production Planning undertaken by Operating Company

3. Maintain contingency funds to sustain farmers livelihood

Thank you

If you are interested in more details about the business plan please contact the Global Institute For Tomorrow

Suite 1111, CityPlaza One, 1111 King’s Road, Taikoo Shing, Hong KongTel: (852) 3571 8103 www.global-inst.com