CH:1 INTRODUCTION OF FERTILISER INDUSTRY:

The fertilizer industry in India consists of three major players; The Government owned Public

Sector undertakings, Cooperative Societies like IFFCO, KRIBHCO and units from Private

sector. There are about 33 major producers producing N and NP/NPK fertilizers in the country at

present. The fertilizer industry of India had made constructive use of the fertilizer subsidy

provided by the Government of India to ensure that the country achieved reasonable self-

sufficiency in food grain production. The fertilizer industry has organized itself through

Fertilizer Association of India (FAI) to coordinate with the Government of India to achieve the

macro-economic objectives related to agricultural sector and to provide other services.

The Indian Fertilizer Industry is one of the allied sectors of the agricultural sphere. India has

emerged as the third largest producer of nitrogenous fertilizers. The adoption of back to back

Five Year plans has paved the way for self sufficiency in the production of food grains. In fact

production has gone up to an extent that there is scope for the export of food grains. This surplus

has been facilitated by the use of chemical fertilizers.

The Indian government has devised policies conducive to the manufacture and consumption of

fertilizers. Numerous committees have been formed by the Indian government to formulate and

determine fertilizer policies. The dramatic development of the fertilizer industry and the rise in

its production capacity has largely been attributed to the favorable policies. This has resulted in

large scale investments in all three sectors viz. public, private and co-operative.

CH:2. INTRODUCTION OF IFFCO

IFFCO: Indian Farmers' Success Story:-

During mid- sixties the Co-operative sector in India was responsible for distribution of 70 per

cent of fertilizers consumed in the country. This Sector had adequate infrastructure to distribute

fertilizers but had no production facilities of its own and hence dependent on public/private

Sectors for supplies. To overcome this lacuna and to bridge the demand supply gap in the

country, a new cooperative society was conceived to specifically cater to the requirements of

farmers. It was a unique venture in which the farmers of the country through their own Co-

operative Societies created this new institution to safeguard their interests. The number of co-

operative societies associated with IFFCO has risen from 57 in 1967 to 38, 155 at present.

Indian Farmers Fertilizers Co-operative Limited (IFFCO) was registered on November 3, 1967

as a Multi-unit Co-operative Society. On the enactment of the Multistate Cooperative Societies

act 1984 & 2002, the Society is deemed to be registered as a Multistate Cooperative Society. The

Society is primarily engaged in production and distribution of fertilizers. The byelaws of the

Society provide a broad frame work for the activities of IFFCO as a Cooperative Society.

IFFCO commissioned an ammonia - urea complex at Kalol and the NPK/DAP plant at Kandla

both in the state of Gujarat in 1975. Ammonia - urea complex was set up at Phulpur in the state

of Uttar Pradesh in 1981. The ammonia - urea unit at Aonla was commissioned in 1988. In 1993,

IFFCO had drawn up a major expansion programme of all the four plants under overall aegis of

IFFCO VISION 2000 . The expansion projects at Aonla, Kalol, Phulpur and Kandla have been

completed on schedule. Thus all the projects conceived as part of Vision 2000 have been realized

without time or cost overruns. All the production units of IFFCO have established a reputation

for excellence and quality. A new growth path has been chalked out to realise newer dreams and

greater heights through Vision 2010 which is presently under implementation. As part of the new

vision, IFFCO has acquired fertilizer unit at Paradeep in Orissa in September 2005. As a result of

these expansion projects and acquisition, IFFCO's annual capacity has been increased to 3.69

million tones of Urea and NPK/DAP equivalent to 1.71 million tones of P2O5.

IFFCO has made strategic investments in several joint ventures. Godavari Fertilizers and

Chemicals Ltd (GFCL) & Indian Potash Ltd (IPL) in India, Industries Chimiques du Senegal

(ICS) in Senegal and Oman India Fertilizer Company (OMIFCO) in Oman are important

fertilizer joint ventures. Indo Egyptian Fertilizer Co (IEFC) in Egypt is under implementation.

As part of strategic diversification, IFFCO has entered into several key sectors. IFFCO-Tokio

General Insurance Ltd (ITGI) is a foray into general insurance sector. Through ITGI, IFFCO has

formulated new services of benefit to farmers. 'Sankat Haran Bima Yojana' provides free

insurance cover to farmers along with each bag of IFFCO fertiliser purchased. To take the

benefits of emerging concepts like agricultural commodity trading, IFFCO has taken equity in

National Commodity and Derivative Exchange (NCDEX) and National Collateral Management

Services Ltd (NCMSL). IFFCO Chattisgarh Power Ltd (ICPL) which is under implementation is

yet another foray to move into core area of power. IFFCO is also behind several other companies

with the sole intention of benefiting farmers.

The distribution of IFFCO's fertiliser is undertaken through over 38155 co-operative

societies. The entire activities of Distribution, Sales and Promotion are co-ordinate by Marketing

Central Office (MKCO) at New Delhi assisted by the Marketing offices in the field. In addition,

essential agro-inputs for crop production are made available to the farmers through a chain of

158 Farmers Service Centre (FSC). IFFCO has promoted several institutions and organizations

to work for the welfare of farmers, strengthening cooperative movement, improve Indian

agriculture. Indian Farm Forestry Development Cooperative Ltd (IFFDC), Cooperative Rural

Development Trust (CORDET), IFFCO Foundation, Kisan Sewa Trust belongs to this category.

An ambitious project 'ICT Initiatives for Farmers and Cooperatives' is launched to promote e-

culture in rural India. IFFCO obsessively nurtures its relations with farmers and undertakes a

large number of agricultural extension activities for their benefit every year.

At IFFCO, the thirst for ever improving the services to farmers and member co-operatives is

insatiable, commitment to quality is insurmountable and harnessing of mother earths' bounty to

drive hunger away from India in an ecologically sustainable manner is the prime mission. All

that IFFCO cherishes in exchange is an everlasting smile on the face of Indian Farmer who form

the moving spirit behind this mission.

IFFCO, to day, is a leading player in India's fertiliser industry and is making substantial

contribution to the efforts of Indian Government to increase food grain production in the country.

CH:3 distribution channelDefinition:A path through which goods and services flow in one direction (from vendor to the consumer), and the paymentsgenerated by them that flow in the opposite direction (from consumer to the vendor).A distribution channel can be as short as being direct from the vendor to the consumer or may include several interconnected intermediaries such as wholesalers,distributors, agents, retailers. Each intermediary receivesthe item at one pricing point and moves it to the next higher pricing point until it reaches the final buyer. Also called channel of distribution.

Advantages of a Distribution Channel

When a customer is considering buying a product he tries to access its value by looking at various factors which surround it. Factors like its delivery, availability etc which are directly influenced by channel members. Similarly, a marketer too while choosing his distribution members must access what value is this member adding to the product. He must compare the benefits received to the amount paid for using the services of this intermediary. These benefits can be the following:

Cost Saving

The members of distribution channel are specialized in what they do and perform at much lower costs than companies trying to run the entire distribution channel all by itself.

Time Saving

Along with costs, time of delivery is also reduced due to efficiency and experience of the channel members. For example if a grocery store were to receive direct delivery of goods from every manufacturer the result would have been a chaos. Everyday hundreds of trucks would line up outside the store to deliver products. The store may not have enough space for storing all their products and this would add to the chaos. If a grocery wholesaler is included in the distribution chain then the problem is almost solved. This wholesaler will have a warehouse where he can store bulk shipments. The grocery store now receives deliveries from the wholesaler in amounts required and at a suitable time and often in a single truck. In this way cost as well as time is saved.

Customer Convenience

Including members in the distribution chain provides customer with a lot of convenience in their shopping. If every manufacturer owned its own grocery store then customers would have to visit multiple grocery stores to complete their shopping list. This would be extremely time-consuming as well as taxing for the customer. Thus channel distribution provides accumulating and assorting services, which means they purchase from many suppliers the various goods that a customer may demand. Secondly, channel distribution is time saving as the customers can find all that they need in one retail store and the retailer

Customers can buy in small quantities

Retailers buy in bulk quantities from the manufacturer or wholesaler. This is more cost effective than buying in small quantities. However they resell in smaller quantities to their customers. This phenomenon of breaking bulk quantities and selling them in smaller quantities is known as bulk breaking. The customers therefore have the benefit of buying in smaller quantities and they also get a share of the profit the retailer makes when he buys in bulk from the supplier.

Resellers help in boosting sales

Resellers often use persuasive techniques to persuade customers into buying a product thereby increasing sales for that product. They often make use of various promotional offers and special product displays to entice customers into buying certain products.

Customers receive financial support

Resellers offer financial programs to their customers which makes payment easier for the customer. Customers can buy on credit, buy using a payment plan etc.

Resellers provide valuable information

Manufacturers who include resellers for selling their products rely on them to provide information which will help in improving the product or in increasing its sale. High-level channel members often provide sales data. On all other occasions the manufacturer can always rely on the reseller to provide him with customer feedback.

Disadvantages of including intermediaries in the distribution channel

Revenue loss

The manufacturer sells his product to the intermediaries at costs lower than the price at which these middlemen sell to the final customers. Therefore the manufacturer

goes for a loss in revenue. The intermediaries would never offer their services to the manufacturer unless they made a profit out of selling his products. They are either made a direct payment by the manufacturer, for instance shipping costs or as in the case of retailers by selling the product at costs higher than the price at which the product was bought from the manufacturer (also known as markup). The manufacturer could have sold at this final price and made a greater profit if he had been managing the distribution all by himself.

Loss of Communication Control

Along with loss over the revenue the manufacturer also loses control over what message is being conveyed to the final customers. The reseller may engage in personal selling in order to increase the product sale and communicate about the product to his customers. He might exaggerate about the benefits of the product this may lead to miscommunication problems with end users. The marketer may provide training to the salespersons of retail outlets but on the whole he has no control on the final message conveyed.

Loss of Product Importance

The importance given to a manufacturer’s product by the members of the distribution channel is not under the manufacturer’s control. In various cases like transportation delays the product loses its importance in the channel and the sales suffer. Similarly a competitor’s product may enjoy greater importance as the channel members might be getting a higher promotional incentive.

CH:4 IFFCO SUPPLY CHAIN

2.1 IFFCO:

IFFCO (Indian Farmer Fertilizer Cooperative) is an organization which is selling goods only to

the cooperative societies.

IFFCO is an organization established by the farmers for the farmers only. That is the reason why

IFFCO sells the fertilizer to the only member farmers.

Unit will dispatch the fertilizer directly to GUJCOMASOL. Then GUJCOMASOL will send the

fertilizer to different DPSUs according to their requirements. Then DPSUs will send it to TPSUs,

TPSUs to GSSM, and GSSM to farmers.

2.2 Three Tier Structure:

IFFCO is having 3 tier structures for the payment of fertilizer. This is shown as follows:

Here,

TPSU stands for Taluka purchase and sales union,

DPSU stands for District purchase and sales union,

These are the main parties which are involved in the distribution channel. GUJCOMASOL is the

main agency which deals with the payment system.

The first is to decide how much to produce. And that is based on demand. Every society will

decide what their demand would be. Every society will inform its demand to TPSUs. Then

TPSUs will cumulate the amount of fertilizer is required. And inform to DPSUs. And DPSUs

will inform to GUJCOMASOL.

Keeping this in simple terms or general terms, societies are considered as a child i.e. those are

farmers. Generally Urea or NPK or DAP is given to farmers only on cash basis. TPSUs are

considered as a father. They will make payment for farmers before their purchase. DPSUs are

considered as a grand father. They will make payment for TPSUs. And finally GUJCOMASOL

will receive the amount.

Here there is no debt-equity ratio because there are four parties who are ready to take guarantee

for the farmers. And so there is no outstanding amount. And this is because first GUJCOMASOL

will make payment then DPSU and then TPSU and then farmers. And all this transaction is

running so smoothly only because on every tonne Rs. 10 is created as overhead margin by every

party. And this kind of distribution channel is very difficult to implement. And Gujarat is

considered as as a pioneer or a model stat in this structure because every state had tried to adopt

this structure but they are not successful in implementing this strategy.

2.3 Fright Policy:

The next thing is the most important is handling and transportation. And IFFCO is doing this

activity on contract basis.

There are total 16 contractors who handle the whole Gujarat network. And there are six main

offices for this. This handles all the transportation for their nearer city. Those six offices are at

Rajkot, Junagadh, Mehsana, Ahmedabad, Godhra and Surat.

For eg. Like surat office will manage the transportation of fertilizer to Surat, Bharuch and

Ankleshwar ; Junagadh office will manage the transportation of fertilizer to Junagadh,

Bhavnagar and Amreli.

2.4 Information Flow Chart:

EXPLANATION:

IFFCO is a public limited company. That is the reason that all the financing activity is done

through Head Office only. For the complete information it is necessary that information should

be passed in proper sequence.

District Officer (Field Officer) sends data of one particular district to the Ares Officer. Then

Area Officer will transfer the information to the Stat Manager. Stat Manager will transfer the

data to the General Officer. General Officer is one who takes care of the data of one or two stats.

Then General Officer sends information to the Zonal Officer. There are five Zonal officers of

IFFCO i.e. for East Zone, Waste Zone, South Zone, North Zone and Central Zone. All the Zonal

Officers will sends data to the Delhi Head Office. By this manner the information used to flow.

So that the Delhi Head Office can take decision without any kind of lack of information.

2.5 Transportation Cost:-

All the cost of transportation is bear by IFFCO and not by farmers or any other party.

Transportation cost by road is generally bear by the organization itself. But railway fright is

generally provided by government.

For this every district needs decide the amount of tone of fertilizer will be required. After getting

the estimated amount of fertilizer is required, government will decide which firm will sell its

fertilizer to whom and government will also decide the quantity of fertilizer it will distribute. It is

obvious that the firm’s capacity of production is more than it sells to the districts. So the

government will again decide the quantity of fertilizer a firm needs to sell to the other state. And

if the excess demand arises within the state then also the firm can not sell it because the firm’s

full capacity is utilizing by selling it to the other state. And if the firm is having surplus

production then also firm will not sell it within that district because government will not provide

subsidy on it. So it will be loss for the firm to sell it.

The capacity of production of fertilizer of IFFCO is 70 to 80 lakh tones. And the total

distribution and selling of fertilizer of IFFCO is 118 lakh tones. So here the question arises is

from where the variance amount of fertilizer is sold and distributed. And this fertilizer comes by

import only. For the import of DAP, IFFCO has tie up with Russia and Mosaic. And for the

import of Urea, IFFCO need conformation from central government. There are some canalizing

agencies like, MMTC and State Trading Corporation (STC) and Indian Potash Ltd. (IPL) for the

import facility. And government had also given Green Signal License with due permission from

central government for import facility. The other major fertilizers like DAP and MOP are freely

importable on private trade account.

2.6 Subsidy:-

Fertilizer is the controlled product by the central government. The main aim of providing subsidy

is to distribute fertilizer to the farmers at a fixed price by government. The current price of Urea

bag is Rs.291.25 and the cost of production is around Rs.400. So the farmers will get the urea

bag for Rs.291.25 and the difference of the price and the production cost is subsidy provided by

the government.

GOI is giving fixed subsidy on Phosphatic and Potassic fertilizers and manufacturers have the

freedom to fix prices of these fertilizers. Subsidy on urea was given under Retention Price

Scheme (RPS). RPS was nothing but a fair price paid to the manufacturing covering cost of

production, distribution and reasonable rate of return (12% post tax return on net worth) on

investment.RPS varied from plant to plant depending on the feedstock, vintage, investment,

financing etc.GOI was giving equated freight and subsidy on urea on normative basis.

The sale price of fertilizers is fixed by Government of India. The cost of production/import is

higher than the sale price. Over the years, production cost has increased manifold due to increase

in prices of input and utilities and duties and taxes Consumer price remains same during 1981 to

July 91 The difference between the production / import cost and selling price is paid as subsidy

to suppliers.

Movement of fertiliser from Plant/Port to consuming areas is also subsidized. With widening gap

between production cost and selling price, subsidy amount increased substantially. The fertiliser

subsidy increased to Rs. 96,000 crore during 2008-09.

The difference between RPS and statutorily selling price is paid as subsidy to

manufactures.

Over the years, production cost has increased manifold due to increase in prices of input and

utilities and duties and taxes Consumer price remains same during 1981 to July 91.With

widening gap between production cost and consumer price, subsidy amount increased

substantially.

Under the act of Retention Price Act-1956, every firm which is producing fertilizer needs to

estimate its cost of production plus profit margin of 12% and subsidy is provided on this

estimated price. And if the original cost of production is less then the estimated one then the firm

is able to generate more profit.

The distribution channel of IFFCO is very vast as because 40,000 cooperative societies are

members of IFFCO. And minimum 20% dividend is provided to them.

Each party will take the 20% dividend on the remaining profit for their investment.

GUJCOMASOL will take 20% dividend on the total profit for their investment, after that DPSU

will earn 20%divind on the remaining profit then TPSU then Societies and then farmers.

So the farmers are also earning minimum 20% dividend on their investment and IFFCO is

favorite among the farmers because if they invest their money somewhere else then also they

wont be able to earn this much return on their investment.

2.7 Penalty Clause:-

There are many penalty clauses applicable on the contractors. During the distribution of fertilizer

the contractor need to take care of the fertilizer. If there will be any damage to the bags then the

contractor needs to pay 1.5 times of the amount of fertilizer. There is also another clause for the

suppliers of empty bag. Suppliers need to supply bags within 7 days after the order is placed.

Otherwise they need to pay penalty for the stoppage of production.

2.8 MARKETING:

Marketing means making people aware about its product.

Many firms used to do marketing by newspaper advertisement or television advertisement. But

this is not so in the case of IFFCO. IFFCO was established in 1967. And IFFCO used to sell a

product to the farmers who live in small villages. And also during 1960-70, the culture of the

village was not that much developed that television or newspaper advertisement can be effective.

So IFFCO is doing marketing of fertilizer by pilot testing. IFFCO also arrange the plant visit for

the farmers and all the expenses is bear by IFFCO only. So that farmers can very well understand

the quality of the product and will also feel that the product is trust worthy product.

IFFCO and Airtel has Join Hands to Usher in the Second Green Revolution Joint venture

company IFFCO Kisan Sanchar Ltd.(IKSL) to provide big boost to Indian agriculture and rural

economy.

Airtel’s telecom products and services to become lifeline for rural India

Unique VAS platform to offer free daily voice updates on mandi prices, farming

techniques, weather forecasts, fertilizer availability

Dedicated helpline for farmers to answer their queries

IKSL will offer products and services, specifically designed for farmers, through IFFCO

societies in villages across the country. The offer will be affordable mobile handsets bundled

with Airtel mobile connection. The farmer will also get access to a unique VAS platform that

will broadcast 5 free voice messages on mandi prices, farming techniques, weather forecasts,

diary farming, animal husbandry, rural health initiatives and fertiliser availability etc. on a daily

basis. In addition, the farmer will be able to call a dedicated helpline, manned by experts from

various fields, to get answers to their specific queries.”

IKSL will roll out its services in Uttar Pradesh, Punjab, Haryana, Rajasthan, Madhya Pradesh,

Chhattisgarh, Bihar, Jharkhand, Orissa, West Bengal, Tamil Nadu and Himachal Pradesh in the

first phase. The second phase will see the partnership being extended to Gujarat, Maharastra,

Goa, Karnataka, Andhra Pradesh and Kerala.

Bharti Airtel will offer competitive calling rates @ 50 paise/minute for calls between IFFCO

members. This is expected to promote community building within the society and rural

community at large. Bharti Airtel will also set up towers at sites provided by IFFCO societies to

provide quality

IFFCO is also providing an insurance policy of Rs.4000 on each bag and premium is generally

paid by IFFCO only. The maximum limit is of insuring 25 bags i.e. of Rs.100,000. Whoever will

use this insured bag that is not a big concern but the main objective is to insure each and every

bag. And no policy paper is given for it. The society bill is considered as the policy. And this

activity is done under SANKAT HARAN VIMA YOJNA.

The premium is paid through IFFCO TOKYO GENERAL INSURANCE (ITGI)

CH:5 ANALYSIS OF IFFCO’S SUPPLY CHAIN