LadangKeajaiban: Hybrid Rice Production - Admission/Application Essay Example

?Executive summary Indonesia, being one of the top producers of rice in the world, is aiming to become self-sufficient as the demand for quality riceseeds has risen significantly over the years. Moreover, demand for hybrid rice seeds is also growing much faster than that of the composite rice seeds because of the benefits associated with hybrid rice production for farmers. This report was about the proposal of forming a network for LadangKeajaiban for distributing hybrid rice seeds that will not only serve the interests of local farmers but also will increase the business of the company. The network also aims to establish an outlet to sell their harvest back crops conveniently. One of the main benefits identified in this report about hybrid seeds is that it boasts the ability to increase the rate of productivity by 15-20% and promises huge economic returns for farmers. Similarly, they have been found sterile. It has been found in the report that the increasing demand for hybrid seeds in Indonesia shows the market potential for this particular type of seed. Through research, it was found in the report that LadangKeajaiban’s intended marketing strategies include entering into the market by focusing mainly on smallholder famers because everything that grows into big success starts on a small scale. Similarly, the company plans on hiring a smallholder farmer in each village in order to train him in the production and farming of hybrid rice so that he can provide training to all other farmers living in his area. Hybrid rice production in China and Vietnam was also researched in the paper where it was found that both countries are major producers of rice and are seeing the use of hybrid seeds as an opportunity to increase the production of hybrid rice. As far as the competition for LadangKeajaiban is concerned, it was found in the report that the company is likely to face competition in three primary areas, which include the competition for fertilizer distribution, the competition for food distribution, and the competition for seed distribution. Customer focus and target market issues for LadangKeajaiban were also discussed in the paper where it was found that the seed distribution network will operate as a business-to-business and will serve low-income rice farmers across the southern island of Java. The farmers of this area and Jakarta will not only have access to hybrid pest-resistant rice crop seeds but also they will be able to get education on proper and efficient farming techniques. Along with the research on benefits of hybrid rice seeds and business techniques for LadangKeajaiban, some problems were also identified in the report many of which are likely to have a huge impact on both the company and the industry as a whole. Some of the main problems identified in the report include difficulty in becoming profitable because of higher cost of GMO and hybrid crops, return of value in form of raw material which is risky, crop damage because of expected natural disasters, and difficulty for new businesses to flourish in Indonesia. What is LadangKeajaiban LadangKeajaiban means “Miracle Farm” in Bahasa Indonesia, the native language of Indonesians. It is a seed distribution network that aims to alleviate the troubles of sourcing for seeds in a messy, unorganized market, and provide farmers of all income levels with the highest quality, highest yielding crop seeds at prices below conventional crop seeds. In addition, we aim to provide these farmers with consulting services, access to latest farming techniques, as well as provide them an outlet to sell their crops conveniently. Farmers who register with LadangKeajaiban will buy hybrid crop seeds at a discount. These seeds have a 15-20% higher yield than conventional seeds. The farmers are then required to return a proportion of the crops grown with these seeds, which is derived at the start of the agreement, back to LadangKeajaiban as a “repayment” for the heavy discount. All remaining crop is then left for the farmer to peruse. Farmers can even sell the remaining crop back to Ladang at a competitive rate. Through this distribution network, we aim to target a farmers in a heterogeneous farming industry, through all income brackets, and provide them the latest and best crop seeds at prices lower than conventional crop prices. Farmers will also save on pesticides, and have time reduced in maintenance through the larger ease of use in growing these better, high quality crops. By providing a platform for farmers to easily buy hybrid crop seeds, in a country where the demand for them is growing tremendously, and a platform for them sell crops back after harvest season, we believe that LadangKeajaiban has what it takes to succeed in the farming industry in Indonesia. Current Market Analysis + Market Entry Strategy Current Market Analysis Home to vast and abundant fertile soils, Indonesia is a major global player in a wide variety of tropical agricultural products. The percentage of land in Indonesia that is used for agriculture has risen over the years from pre-1980’s 21% of the total land area to 30% post-1990s which remains the same to this day. Agriculture currently employees 41% of the Indonesian labor force according to the World Bank data. However Agriculture’s share of GDP (gross domestic product) has declined the past five decades despite providing income for majority of Indonesian households. According to World Bank projections, agricultural growth is expected to grow steadily, slower pace when compared to the industry and service sectors. The top agricultural products in Indonesia are: - Palm Oil - Rubber - Cocoa - Coffee - Tea - Cassava - Rice - Tropical Spices The Indonesian government has been taking actions to ensure farming self-sufficiency within Indonesia. This is particularly important to rice, which is a staple food product in Indonesia for majority of the population as the highest per capita rice consumption country in the world. Additionally food product such as soy beans, corn and sugar has also become self-sufficiency program targets. Self-sufficiency programs by the government have been in place since 2007 and are expected to take place 2014-2015. The Indonesian agriculture segment is highly fragmented, comprised primarily by large state and private plantations as well as smallholder owners. Most large plantations focus on export commodities that yield high returns such as palm oil and rubber. Small hold farmers have focused on rice and soybean, products that are pertinent to Indonesian self-sufficiency. Market Entry Strategy Indonesia is the largest consumer of rice in the world, consuming about 140 kilograms of rice per person per year (Indonesia-Investments). They are currently the third largest producer of rice with 90% of smallholder farmers farming the staple food crop, Indonesia is also a major importer of rice. As Indonesia is aiming to become self-sufficient, demand for quality rice seeds has risen over the years. Even more so demand for hybrid rice growing faster than composite rice seed. Composite rice seeds are seed produced by government agencies which are a mixture of a variety of rice seeds. However the increasing demand for hybrid seeds shows the market potential for this product. Hybrid Rice is a first generation offspring of a rice crossed between two genetically diverse parents (IRR). Hybrid rice boasts the ability to increase productivity through a 15-20% yield advantage with promising economic returns. One thing particular to hybrid seeds is that they are sterile; therefore need to be replanted each season. LadangKeajaiban’s marketing strategies include entering into the market focusing primarily on smallholder famers. We plan on hiring a smallholder farmer in each village and providing the necessary training to ensure full understanding of our product as well as innovative farming strategies. These company representatives will be encouraged to establish networks within their communities to educate their peers on the benefits hybrid rice seeds will provide for their crops. RICE AND HYBRID RICE PRODUCTION IN CHINA As noted in the graph above, we are seeing the increase in Hybrid Rice production in China. China is used to evaluate and compare against Indonesia as China is the number 1 producer and a major producer of rice on the world. HYBRID RICE PRODUCTION IN VIETNAM The figures above are numbers seen in Vietnam. As the number 5th largest producer of rice in the world, Vietnam’s figures are used for further comparison and projects of the market potential for hybrid rice. Competition The competition that will be faced for LadangKeajaiban can be separated into three primary areas: The competition for food distribution, the competition for fertilizer distribution, and the competiion for seed distribution. Strategy+ project implementation The competitive market for LadangKejiaban exist in three primary areas: food distributors, seed distributors and fertilizers distributors. Food distribution from farms to market is primarily held by organizations of 100 persons or more. These organizations often buy large amounts of crops from a variety of different farmers. This allows the food distributors to have a significant level of power over the farmers, as the farmers need an outlet to sell, and are often controlled by distributors that operate in smaller regions. This gives the distributors the advantage in this area. The food distributors, after purchasing from the farmers, then sell to a variety of outlets. These can be broken into two principle groups. The first of these is the larger stores that sell the crops. These larger stores are usually somewhat westernized, and would appear similar to a grocery store. The other group is independent street vendors. These street vendors represent most of the Indonesian food market, for approximately 80%. Seed distributors in Indonesia exist in a large, highly variable market. In this market, there exist large importers of seeds, to local sales from farmers to farmers. This market is heavily regionalized, with many different competitors within the market. This market leads to the decision to discount seed prices, as many of the farmers simply buy the lowest cost crops. The fertilizer distribution market in Indonesia is focused primarily on imports. Indonesia’s largest import partner for fertilizer is Malaysia. Currently only 20%-30% of the fertilizer used in Indonesia is produced in Indonesia. The Indonesian fertilizer market comprises of mostly the either regionalized manufactured fertilizers, or the imported fertilizers. These fertilizers are sold by large wholesalers, and they then are distributed through smaller channels to the rest of the market. Customers LadangKeajaibanwill operate as a business-to-business, serving low-income rice farmers across the southern island of Java, the primary island of Indonesia where Jakarta and Surabaya are located. These farmers will have access to hybrid pest-resistant rice crop seeds, the education on proper efficient farming techniques on growing them and an outlet to sell their harvest back crops conveniently. Seeds sold to these farmers will be distributed based on expected yield. For example, a farmer who requests to grow 10 hectares of rice crops will be given enough seeds to grow that amount of crop. Following that, a percentage of the crops would have to be given back to Ladang. Low-income rice farmers are plentiful the heterogeneous farming industry of Indonesia. Of the 60% of people in the workforce working in farms, plenty work below the US$2 (PPP) poverty line. Identifying why LadangKeajaiban heavily discounts its seeds to farmers can be explained solely by the wealth of these rice farmers. Though the Indonesian government aims to raise the utilization of hybrid seeds by 30% over the next 3 years, the largest barrier preventing the use of these new seeds is the cost, which is approximately 20-30% more expensive than conventional seeds. By discounting seeds by 90%, hybrid seeds immediately become the cheapest seeds to purchase. Also,these farmers who purchase these seeds would not need to buy pesticides, saving them additional cost, polluting their crops less, and upholding a healthy ecosystem in their farm. Financial Analysis The general financial model exists in the two following groups: Revenue and cost. The revenue model is primarily based in selling the seeds and fertilizer at an approximate 90% discount to farmers based off of our simulations. The crops are first sold to the farmers at this discounted rate, in exchange for 40% of their future yield. This future yield is based off of projections from the yield that is given from the amount of rice that we sold to the farmers. We then eliminate the mark up that was occurring from the food market distributors, which is an approximate 15%-25% cost elimination for the farmers, which allows them to essentially keep the profit that was originally being had by the food distributors, while Ladang will keep the profit share from the increase in yields by the crops. This is the general economic breakdown of the how the operation is able to remain profitable for both the farmer and Ladang, so as to ensure both parties cooperation in the business. This process had originally discounted the price of the rice from farmers compared to the approximated IMF market value that we assumed to be the market rate, since the cost to take the goods to the market, and the profit increase was taken by the food distributors. By introducing more efficient crops, this creates a network of two possible profit opportunities, of which only one is currently being taken advantage of. The assets will include the rental and processes charging of operations headquarters and shipping distribution headquarters. Beyond this five inexpensive trucks will be purchased, along with their maintenance included in this estimation (from searching classifieds in Indonesia). The work force will consist of several highly paid people for Indonesia, including two operations managers, a government relations representative, an agricultural training expert who will come to each area, along with a local field representative to be in each village/general geographical area. Beyond this the local labor for the field operations and the shipping will exist, and will also be seasonal. The numbers are felective of possibly having to hire more workers, or having to have longer working hours due to the seasonality of the work. Short Term + Long Term Objectives With the onset of GMO seeds becoming legal in Indonesia, we aim for LadangKeajaiban to cater to a large network of farmers who cannot afford high quality, pest resistant, high yield seeds. However, it would be a waste to begin the business once GMO seeds become legal. Hence, by providing hybrid rice seeds, we aim to create a close network of farmers, providing season-long support. One strategy we have was by focusing on getting loyalty through the many villages in Indonesia. With a comprehensive network of farmers, this would give the company a competitive advantage over many other competitors who want to enter the market (because the seed market in Indonesia is incredibly messy, and disorganized), as well as provide us more bargaining power when negotiating contracts with seed suppliers. Though we do not see ourselves as a seed producer, we see ourselves as a distribution network for seed producers like Monsato, and potentially a large client as well. In the longer run, we aim for LadangKeajaiban to expand its product base to various strains of agricultural goods. Initially, we plan to provide rice seeds, due to the high proportion of rice growers in Indonesia, as well as the concentration of rice farms in the island of Java. But eventually, by expanding to other types of seeds, we’ll be able to touch on a larger network of farmers. Potential problems & pitfalls Being in the Indonesian agriculture industry, we could expect many problems to happen. Many of which are very impactful to both the company, and the industry as a whole: Firstly, is that with the generally higher cost of GMO and hybrid crops, it is much more difficult to break even and become profitable. Adding on to that, the value we get returned from the farmers is not monetary, but in raw material. Therefore, the price of crop is ultimately what determines our income, which itself is risky. The price of rice is ever fluctuating. Another problem that might occur is if there has been extensive crop damage from natural disasters such as Tsunamis. In order to alleviate this, it is important to keep a reserve of rice (because rice does not expire) as an investment in case such occasions happen. Where and how it should be stored remains to be known, but ultimately, it is important to keep reserves to maintain a buffer during times where the price of crops increase due to shortages. From a business perspective, corruption is a big problem we expect in Indonesia. Being the 166th friendliest country to start a business (between Swaziland and Niger), Indonesia does not have a reputation of making it easy for new businesses to flourish immediately without engaging in corrupt actions. Hence, it should be important to have some reserves at hand, as a “just in case” it might happen. Keeping good relations with government officials is also critical to ensure the stability of the company. A last risk we might see is if GMO crops do not become legal. However, we believe that, with the government’s aims to grow utilization of hybrid crops, LadangKeajaiban can rely on its already existing network of farmers to continually provide affordable high quality seeds. Conclusion Indonesia is one the major rice producers in the world along with China and Vietnam. In the country, the demand for hybrid rice seeds is rising because of some considerable benefits associated with hybrid rice production for farmers. Hybrid seeds and GMO boasts the ability to increase the rate of productivity by a great extent and promise huge economic returns for farmers. The increasing demand for hybrid seeds in Indonesia shows the market potential for this particular type of seed in the country. Distributing hybrid rice seeds will benefit local farmers, as well as will increase the business of LadangKeajaiban. However, the company needs to develop effective marketing strategies to make farmers aware of the business and products. Similarly, the company needs to start the business on a small scale before going to compete with larger firms in this industry. Moreover, the company also needs to develop an effective business strategy that can serve the interests of the company in today’s world of competition. LadangKeajaban also needs to consider the business risks associated with hybrid seeds production and distribution in order to earn success in this industry and reap maximum benefits from this business. Some of the main potential risks for the company include difficulty in becoming profitable due to higher cost of hybrid and GMO crops, crop damage risk due to excess of natural disasters, and difficulty for new businesses to flourish in Indonesia. The company needs to consider these risks and do proper planning in order to survive in the industry for long and earn huge profits. Read More