Impact-First Peer-to-Peer’s

Paddy Drying Service Pilot and Scale Up

Business Plan January 2017

Introduction

Impact-First Peer-to-Peer Inc (i1P2P) was founded in July of 2016 on the idea that massive impact in reducing poverty can be achieved by connecting impact investors with small, fundable solutions on a large scale.

We have developed a business model for a small, locally owned company that will earn an estimated $4,000 annual profit by providing smallholder farmers with the bulk paddy drying services that they need, at a price they can afford. These businesses will increase their average customer’s annual incomes by up to 25% by improving the quality of their paddy and reducing their post-harvest loss.

Every $1 used to finance one of these businesses will increase the annual incomes of smallholder farmers by $23.25 over five years.

Contents

Executive Summary ................................................................................................................................. 4

The Business: Background ....................................................................................................................... 5

The Business: Segments .......................................................................................................................... 6

Market Demand Prospects ...................................................................................................................... 7

Industry competition ............................................................................................................................... 8

Strategy: Customer purchasing criteria .................................................................................................... 9

Strategy: Key success factors ................................................................................................................. 10

Strategy: Timing and Location ............................................................................................................... 11

Strategy: Hiring, Training and Demonstrating ........................................................................................ 12

Strategy: Fabrication and Delivery ......................................................................................................... 13

Resources .............................................................................................................................................. 14

Financials and Forecasts: Revenue Generation ...................................................................................... 15

Financials and Forecasts: Operating Expenses ....................................................................................... 16

Financials and Forecasts: Financing ....................................................................................................... 17

Impact ................................................................................................................................................... 18

Conclusion ............................................................................................................................................. 19

Executive Summary

1. Impact-First Peer-to-Peer is going to take the bulk paddy drying service that is currently only available to the few farmers who sell to large millers and make it locally available to as many smallholder farmers as possible across Bago and Sagaing by launching locally-owned and operated 5-ton paddy drying businesses.

2. The Business: Impact-First Peer-to-Peer will launch small paddy drying companies to save smallholder farmers time and money, while also reducing their risks of post-harvest crop loss and improving the quality of their paddy.

3. Market Demand: The demand for this service is driven by the mechanization of the harvesting that has occurred over the past four years. 8,000 village level paddy drying services are currently needed to meet the bulk drying needs of 320,000 farmers.

4. Industry Competition: There are currently only 400 flat-bed grain dryers in use in Myanmar. Large rice millers operate over 97% of the dryers. While flatbed dryers were first introduced to Myanmar in 2006, 50% of the dryers are less than a year old.

5. Strategy: Impact-First Peer-to-Peer will demonstrate the drying businesses in thirty villages to attract potential business owners by proving the local demand and profitability. Once approved, i1P2P will connect these business owners with financing, equipment, training and mentorship to launch their local paddy drying businesses.

6. Resources: Brian Powell, the CEO, has over fifteen years of experience implementing projects in Africa and Asia. Dr. Myo Aung Kyaw, the CTO, fabricated and installed over 75% of the flatbed dryers currently in use in Myanmar over the past ten years and has extensive connections at all levels of the Myanmar rice industry.

7. Financials: Impact-First Peer-to-Peer’s rice dryer program will be profitable by 2020 with revenues of over $5M USD. The company will raise $275 from the sale of equity to scaling up operations and $225 in the form of a 5-year loan to finance the first thirty paddy drying companies.

8. Impact: Providing local access to paddy drying services will directly impact the annual earnings of smallholder rice farmers by reducing their average post-harvest loss by $500 and increasing the average selling price of their paddy by $300. This additional $800 in earnings represents a 25% increase in their family’s annual income. The projected 5-year impact on investment for each of these small businesses is $23.25 per $1.

The Business: Background

Impact-First Peer-to-Peer is going to take the bulk paddy drying service that is currently only available to the few farmers who sell to large millers and make it locally available to as many smallholder farmers as possible across Bago and Sagaing by launching locally-owned and operated 5-ton paddy drying businesses.

Paddy drying needs to begin immediately after harvest and transportation is a challenge for smallholder farmers, so they need access to paddy drying services in their local communities. The business model that we have developed is based on the 5-ton flatbed dryer that

Dr. Myo Aung Kyaw has been testing and refining in Myanmar for over ten years. Currently over 300 of his dryers are in use by medium and large millers who support the dissemination of this technology to the village level to improve the overall quality of the rice that Myanmar produces.

These small, locally owned and operated paddy drying businesses will serve an

average of 40 farmers each and generate a projected $4,000 annual profit while increasing the annual earnings of their customers by up to 25%.

Goals and Objectives: Our mission is to increase the incomes of smallholder farmers by

providing access to the services that they need to grow their farming businesses.

Strategy: By developing profitable business models for small service companies and connecting them with financing, quality equipment, training, mentoring and long term support, we will bring about long-term, large-scale impact.

Resources and Key Dates: The most vulnerable harvests are between June and August, at the height of the monsoon season. We will begin scaling up operations on the ground in April to conduct the first set of demonstrations in June.

Financials: Impact-First Peer-to-Peer’s revenue will be generated by demonstrating the business model in new locations each monsoon season, and through the manufacturing and selling of the dryers.

The Business: Segments

Impact-First Peer-to-Peer will serve both the new business owners and their customers, the smallholder farmers.

Business Owners:

These will typically be local paddy traders or small mill owners who see the negative impact that improper drying is having on the profit of the farmers they work with.

Trading in damaged paddy is also causing them financial loss. They know proper drying is the solution, but they lack the capital to purchase

a grain dryer and the experience to set up the business on their own. They see this opportunity as a win/win for them and their customers.

Smallholder farmers:

The paddy drying business’s average customers will be farmers who grow two crops of paddy each year on an average of 5.6 acres of land.

They are currently living on about $2 per day per family member. They transitioned from traditional hand harvesting of paddy to hiring a

combine to harvest because it was cheaper than hiring the labor. They struggle to properly dry the paddy harvests due to the increased space

and labor required to dry the entire harvest at once instead of over the course of 7 to 10 days as they did with the traditional harvesting method.

Market Demand Prospects

The demand for this services is driven by the mechanization of the harvesting that has occurred over the past four years. 8,000 village level paddy drying services are currently needed to meet the bulk drying needs of 320,000 farmers.

Combine harvesters were introduced to the local market in 2012.

After just four years, 70% of the farmers in the area are hiring combines to harvest their rice as it is cheaper than hiring day laborers.

These farmers now receive their entire harvest in a single day instead of over the course of a week and a half, which means it all must be dried at the same time instead of in 8 to 10 smaller batches.

The farmers must schedule the combines in advance and cannot adjust their harvest schedules to fit the weather.

If it rains for two days after the harvest, which is very common, the farmers will likely lose 30% of their harvest. A third day of rain will lead to losses of over 50% and by the 4th day the farmers will likely lose their entire harvest as the grains will begin to sprout.

Demand is projected to increase as labor prices continue to rise making mechanical drying cheaper than the labor-intensive traditional open-air method, even during the dry season.

Industry competition

The vast majority of smallholder farmers are currently still using traditional open-air drying methods because they do not have a viable alternative. Over 300 millers in Myanmar have begun offering drying services and more millers are expected to add this service soon.

There are a total of 400 flatbed grain dryers currently in use in Myanmar.

97% are owned and operated by rice millers, with the remaining 3% owned by a few large farmers and development organizations including:

Winrock International The International Rescue Committee Radanar Ayar

One of the largest millers in the Sagaing Region owns two vertical shaft grain dryers,

which are much larger and more sophisticated, but can only be operated profitably in large volume operations. Three other millers are reported to have tried but failed to operate vertical shaft dryers profitably.

Solar tunnel dryers have also been tested on a limited scale with some of the smaller farmers in the area, but are not commercially viable for farmers with more than two acres due to their limited capacity and high labor requirements.

Two crops of paddy are grown each year on over 2 million acres of land in Myanmar. It will take over 8,000 of these paddy-drying service companies to adequately meet the market’s demand.

Unlike the mills, these drying services need to be in the villages so farmers have immediate and easy access to them to dry their paddy the day after harvesting.

Our goal is to inspire, supply, finance and mentor as many new entrants as possible.

Strategy: Customer purchasing criteria

The primary purchasing criteria for the new business owners is their confidence in the model’s ability to deliver as advertised.

Confidence in the business model: Local paddy traders and small millers, while

successful business people, are risk adverse and suspicious of new ideas. They run their businesses based on experience and observation of others. They do not have experience implementing unfamiliar business models.

Financing: These potential business owners lack the $7,500 needed to launch a paddy

drying business so will require financing. Support: These potential business owners are not experienced with rice drying

equipment so will require an in-depth introduction to the technology, hands on training and on-going support.

Strategy: Key success factors

Impact-First Peer-to-Peer will bring new business owners on-board through the process of demonstrating the business, training potential business owners on how the business works, negotiating on their behalf with lenders/investors and by providing the long-term support they need to run their paddy drying businesses with confidence.

Confidence in the business model:

Seeing is believing. We will build the potential business owners’ confidence by demonstrating the business in villages throughout the region. Then we will provide training on grain drying and running the business so they are comfortable with the business before they commit to it.

Financing: We will negotiate with institutional lenders and impact investors on the business owner’s behalf to secure the best financing available.

The business owner will not be required to make any payments before seeing a profit as the payments will be scheduled for the end of the harvest seasons. To receive the equipment, the owner will be required to show ownership of the land, local government approval, pour the 25’ x 45’ concrete slab and house and feed the trainers when they are on site.

Support: We will provide monitoring and mentorship throughout the four-year financing period. We will monitor cash flows daily during the harvest season via a simple smartphone based reporting system that will automatically generate profit reports and record customer contact information to help grow the businesses.

Strategy: Timing and Location

Each paddy harvest season lasts about 40 days. The harvests that occur during the rainy season are the most prone to rain related loss. We will conduct our demonstrations during these harvests to have the most impact in new locations and connect with potential customers and business owners.

1. Western Bago The summer harvest season is in June and

July when the rains are at their peak.

2. Sagaing (Shwebo area) The summer harvest season is in July and

August which is also at the height of the rainy season.

3. Eastern Bago The monsoon harvest season is in October and November when

the rains are ending, but there is still significant risk to smallholder farmers’ harvests.

4. Yangon Our head office and production shop will be in Yangon. Staff based here will support of the Bago area.

5. Mandalay

Our branch office and warehouse will be in Mandalay. Our current staff are based here and will support the

Sagaing/Shwebo area.

May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar AprE & W Bago

SummerE & W Bago

SummerE Bago

MonsoonE & W Bago Monsoon

E & W Bago Monsoon

Sagaing Monsoon

Delta Flooded

Delta Summer

Sagaing Summer

Sagaing Summer

Delta Monsoon

Delta Monsoon

Delta Monsoon

Delta Summer

Delta Summer

Dry SeasonMonsoon SeasonMonths

Harvest Seasons

Strategy: Hiring, Training and Demonstrating

We will base staff in both Mandalay and Yangon so they can easily support the young businesses throughout the year.

Initial training of new field staff will take 6 weeks. Week 1: The Rice Value Chain and The

Science of Drying Week 2: Setting up a Paddy Drying Business Week 3: Attracting New Customers Week 4: Running the Business Week 5: Demonstrating the Business Week 6: Selling the Business to New Owners

This will be followed by two weeks of product promotion experience in their two-person

teams in the village where they will be conducting their first demonstration. Get to know the village and surrounding farms. Meet with farmers and explain the benefits of the drying service. Identify potential business owners and schedule demonstrations for them.

The staff will then conduct their first 6-week demonstration during the harvest season.

They will dry three loads of paddy per day for local farmers. They will show potential business owners the daily revenues and costs and

explain the operation of the business in detail. The goal is to sell two new companies during each 6-week demonstration. The two-person demonstration teams will take turns in the field to prevent

burnout.

This promotion and demonstration cycle will be repeated in three locations each year. The remaining 28 weeks each year will be spend setting up and mentoring the six

to eight new businesses they will be responsible for each year. They will also provide follow up and support for previously established

businesses as needed.

Each year, the two-person teams will split and each take on a new staff member to mentor and train to support our 5-year growth targets.

Strategy: Fabrication and Delivery

Dr. Myo has been fabricating flat-bed dryers of various sizes in Myanmar since 2006 when he traveled to Vietnam to learn about the technology. He currently has the capacity to deliver 100 units per year.

The grain bin is constructed of sheet metal for durability and consistency. The bamboo slats for the flooring are locally fabricated to reduce cost.

It is installed on a 25’ by 45’ concrete slab and housed under a sheet metal roof.

The heat for the drying process is generated by burning the waste rice chafe from the thrashing process. The furnace is designed to prevent fly ash from entering the drying bed, thus maintaining odder free operation.

The fan is driven by a diesel/petrol motor, which are the only moving parts that need regular maintenance. The motor is also the only part of the entire operation that is not fabricated in Myanmar, but is of the commonly used type, so spare parts are still readily available.

Resources

Our founding team has the knowledge, experience and local contacts to implement this plan in Myanmar and rapidly scale it to meet the huge unmet demand in the market for bulk paddy drying.

Management:

Brian Powell, CEO – has over fifteen years of experience implementing projects in remote locations in Africa and Asia. He has spent the last year and a half researching the agricultural value chains in Myanmar and has conducted numerous focus group discussions with farmers up and down the country.

Dr. Myo Aung Kyaw, CTO – has fabricated and installed 75% of the flatbed dryers

currently in use in Myanmar. He has extensive connections at all levels of the Myanmar rice industry and over ten years of experience educating millers and farmers about the benefits of properly drying their paddy.

Marketing:

The Rice Millers Associations of Sagaing Region has been very supportive of Impact-First Peer-to-Peer’s efforts to promote this business model in the region. The Association has organized focus groups and publicly voiced its support for this plan.

Dr. Myo’s extensive contacts throughout the rice industry will be leveraged to secure the initial demonstration locations and promote the scale-up of the business.

Operations:

The current production capacity of 100 units per year will be sufficient to meet the targets for 2017 and the first half of 2018.

Proximity Designs has expressed an interest in partnering on the project and has additional production capacity at its disposal.

Growth beyond 2018 will be supported by significantly scaling up in-house manufacturing capacity.

Financials and Forecasts: Revenue Generation

Impact-First Peer-to-Peer’s rice dryer program will be profitable in 2020 with revenues of over $5M USD.

The demonstration teams will generate revenues through the operations of the temporary business locations. 10 demo teams will dry 100 loads of paddy in each of three locations over the course of the demonstration season. They will charge the standard rate of $54.75 per load.

The second revenue stream will be from the manufacturing and installation of the equipment for the businesses.

2017 10 Demo Teams $164,250 30 Business Launches $225,000 Gross Revenue $389,250 2018 10 Demo Teams $ 164,250 150 Business Launches $1,125,000 Gross Revenue $1,289,250 2019 20 Demo Teams $ 328,500 300 Business Launches $2,225,000 Gross Revenue $2,578,500 2020 40 Demo Teams $ 675,000 600 Business Launches $4,500,000 Gross Revenue $5,157,000 2021 80 Demo Teams $1,314,000 1,200 Business Launches $9,000,000 Gross Revenue $10,134,000

Financials and Forecasts: Operating Expenses

Operating expenses are projected to increase annually in line with the increases in business launches. The two main expense drivers are number of field staff and number of driers and shelters fabricated.

2017 2018 2019 2020 2021Senior Management -$ 72,000$ 72,000$ 140,000$ 210,000$ Field Staff 194,400$ 237,600$ 475,200$ 950,400$ 1,900,800$ Office Staff 22,500$ 30,000$ 45,000$ 80,000$ 120,000$ Shop Staff 22,950$ 45,000$ 81,000$ 153,000$ 297,000$ Community Outreach 15,000$ 25,500$ 51,000$ 102,000$ 204,000$ Communications 3,000$ 5,000$ 8,000$ 12,000$ 17,000$ Demo Equipment 65,000$ 10,000$ 65,000$ 130,000$ 260,000$ Shop/Office Expenses 131,265$ 65,220$ 164,000$ 214,000$ 244,000$ Business Launches 153,900$ 769,500$ 1,539,000$ 3,078,000$ 6,156,000$

Annual Totals 610,032$ 1,261,838$ 2,502,219$ 4,861,420$ 9,410,821$

Financials and Forecasts: Financing

$500,000 is needed to launch the program. $275,000 in the form of equity for scaling up operations and $225,000 in the form of a 5-year loan to finance the first thirty paddy drying companies.

Annual Financing Requirements to Meet Growth Targets:

2017 $500,000 Scale up operations and launch 30 businesses

2018 $1,125,000 Launch 150 businesses

2019 $2,250,000 Launch 300 businesses

2020 $4,500,000 Launch 600 businesses

2021 $9,000,000 Launch 1,200 businesses

Impact

Having local access to a paddy drying service will directly impact the annual earnings of smallholder rice farmers by reducing their average post-harvest loss by $500 and increasing the average selling price of their paddy by $300. This additional $800 in earnings represents a 25% increase in their family’s annual income. The projected 5-year impact on investment for these businesses is $23.25 per $1.

First: Now that the farmers receive their entire harvest at once, they are extremely vulnerable to loss in the event of rainy days following the harvest. The level of risk varies with the seasons and regions.

In Bago, farmers can expect an average of up to a 77% post-harvest loss for the June harvest because the odds of rain are 70% any given day. On the other hand, in Sagaing during the January harvest there is almost no chance of rain-related loss.

On average, farmers using this service will have a net savings of $500 per year. The paddy drying companies will reduce annual post-harvest loss by an average of $2.95 for every dollar invested in their launch which is $14.75 per $1 over the 5-year life of the equipment.

Second: Over exposure to direct sunlight during traditional drying causes the outside of the paddy to dry faster than the inside. The outside shrinks but the inside doesn’t, causing the paddy to crack. This leads to a high percentage of broken grains during milling which greatly reduces the retail value of the rice. Mechanically dried paddy doesn’t have this problem, so millers will generally pay 10-15% more for mechanically dried paddy. This represents an additional average earning of $300 per farmer per year. This is an additional annual impact of $1.70 per $1 invested or $8.50 per $1 over the 5-year life of the equipment.

The impact of investing $1 in a paddy drying business is $4.65 in increased smallholder farmer earnings per year or $23.25 per $1 invested over 5 years. For the farmers, the additional $800 in earnings represents a 25% increase in their family’s annual income.

Bago Sagaing June/July Oct/Nov July/Aug Dec/Jan

Historical Average Rainy Days per Month 21 6 11 1

Odds of Rain each day 70% 20% 37% 3%

Conclusion

By demonstrating the profitability of owning a paddy drying service, we will inspire small businesses owners across the rice growing regions of Myanmar to launch their own businesses. By connecting these aspiring business owners to affordable financing, we will enable their launch. By providing training, high quality equipment and on-going support, we will ensure that these businesses provide the level of service smallholder rice farmers need to increase their annual incomes by up to 25% through improved quality and reduction of waste.

Every $1 used to finance one of these businesses will increase the annual incomes of smallholder farmers by $23.25 over five years.