8-Hour Paddy Drying Service

Business Plan January 2017

Introduction

This 8-Hour Paddy Drying Service will dry the freshly harvested paddy [un-milled rice] from up to 500 acres of farmland per season, preparing it for long term storage or immediate sale and milling. This service will benefit up to fifty smallholder farmers living in Tint Tal. 8-Hour Paddy Drying Service’s customers will:

Save money Save time Reduce their risks Enjoy hassle free drying Improve the quality of their paddy

Contents

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

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

The Business: Seasons ............................................................................................................................. 6

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

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

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

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

Strategy: Action Plan ............................................................................................................................. 11

Resources .............................................................................................................................................. 12

Financials and Forecasts: Revenue Generation ...................................................................................... 13

Financials and Forecasts: Operating Expenses ....................................................................................... 14

Financials and Forecasts: Financing and Profit Margin ........................................................................... 15

Risk, Opportunity and Sensitivity ........................................................................................................... 16

Conclusion ............................................................................................................................................. 17

Executive Summary

1. 8-Hour Paddy Drying Service will save up to 50 rice farmers time and money while reducing their risks, simplifying their handling process and improving the quality of the rice they produce each season.

2. The Business: 8-Hour Paddy Drying Service will meet the bulk grain drying needs of local farmers that has resulted from their transition from traditional hand harvesting to modern combine harvesting.

3. Market Demand: The recent and widespread transition to mechanical harvesting has led to significantly increased levels of post-harvest damage and loss because farmers lack the means and equipment to adequately dry their harvests in bulk.

4. Industry Competition: 8-Hour Paddy Dry Service’s target customers are currently still using traditional open-air drying methods because they do not have a viable alternative. Two millers in the area have begun offering drying services and more millers are expected to add this service soon.

5. Strategy: By positioning itself in the village near the farms, 8-Hour Paddy Drying Service will be the most convenient and cost-effective solution for the local community’s grain drying needs.

6. Resources: The local community leaders have approved 8-Hour Paddy Drying Service’s plan and have expressed a desire to see it succeed as they recognize the importance of mechanical drying especially during the rainy season. The equipment, structure and training that 8-Hour Paddy Drying Service needs to get started will be purchased on a four-year rent-to-own service plan.

7. Financials: 8-Hour Paddy Drying Service will generate revenues of $9,600 per year. The company will maintain an operating margin of 77% and a profit margin of 43%.

8. Risk: The risks of copycats, substitutions and lower demand during the dry season are outshone by opportunities such as the proven concept, profitability and potential to replicate the business at another site nearby.

The Business: Background

8-Hour Paddy Drying Service meets the bulk grain drying needs of local farmers that was created by the transition from traditional hand harvesting to modern combine harvesting.

8-Hour Paddy Drying Service’s 5-ton flatbed batch dryer is efficient, reliable and clean. It lowers the moisture content of the fresh paddy from 20% to 14% in 6 hours of

drying so the paddy can be properly stored and/or milled. The fan and motor are the only moving parts and it was manufactured in

Myanmar so spare parts and maintenance are readily available. The dryer burns the waste rice chafe from the local mills as fuel for heating. The

built-in fly ash separator ensures smoke and odor free results.

Goals and Objectives: The company’s main goal is to provide farmers with a cost effective and convenient way to dry their harvest, thereby ensuring it isn’t damaged or lost due to excessive moisture.

Strategy: The company will offer its service at the same rate as the millers in the large towns to attract the local farmers who will save time and money by reducing their need to transport their harvest so far for drying.

Resources and Key Dates: The company will pour the concrete slab for the equipment in April and install the dryer and shelter the first week of May so it is tested and ready to begin processing paddy when the harvest season begins in June. The company will hire six local laborers during the harvest season to load and unload the paddy.

Financials: The training, equipment and shelter needed to start the business will cost $7,500, which the company will pay off over the course of four years. The payments will be $2,500 after the monsoon harvest and $750 after the dry season harvest, which also covers ongoing support and consultations.

The Business: Seasons

8-Hour Paddy Drying Service’s revenues are derived from providing drying services during the two annual rice harvest seasons.

The primary harvest occurs during June and July which is during the monsoon season. 8-Hour Paddy Drying Service will operate at maximum capacity during this period to dry 120 loads of paddy during the 40-day harvest season.

The second harvest occurs between October and December as the rains are ending. Farmers who can delay their harvests toward the end of this window will be less likely to use our service as they will be able to safely dry their harvest in the sun without as high of risk of loss. We anticipate that the continuing rise in labor prices will encourage more and more farmers to use our services during this harvest over time, despite the reduced threat of rain damage during the dry season.

Market Demand Prospects

The recent and widespread transition to mechanical harvesting has led to significantly increased levels of post-harvest damage and loss because farmers lack the resources and equipment to adequately dry their harvests in bulk.

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

8-Hour Paddy Dry Service’s target customers are currently still using traditional open-air drying methods because they do not have a viable alternative. Two millers in the area 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

international organizations and a few large farmers.

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.

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.

There are over 2 million acres of paddy farms that grow two crops per year in Myanmar. It would take over 5,000 paddy-drying service companies like ours to adequately meet the market’s demand.

Strategy: Customer purchasing criteria

The main purchasing criteria for 8-Hour Paddy Drying Service’s customers are the cost, availability, convenience and reliability of the drying options.

Cost:

Rice farmers only earn money twice a year when they harvest their crops, so they must earn enough to pay off their debts and carry them through to the next harvest. They don’t receive any money until their paddy is sold, so they are very tight on cash during the harvest and under a lot of pressure to maximize their profits.

Availability:

Given the fact that the freshly harvested paddy must begin the drying process within 24 hours to prevent damage and loss, farmers have to go with whatever drying option is most readily available when their paddy is harvested.

Convenience:

Most farmers do not have enough family members available to handle their entire harvest at once, so they need to hire someone to help get it dried and ready for sale.

Reliability:

Given the short time between harvest and the onset of loss, and the fact that they only get two harvest per year, farmers cannot afford to fail in the drying process.

Strategy: Key success factors

8-Hour Paddy Drying Service will serve its customers’ needs better than the traditional drying method in all four areas.

Cost:

Farmers will use the company’s service because it is comparable in cost to hiring the labor required to spread and turn their harvest in the sun to dry it the traditional way.

The traditional drying method requires the paddy to be spread in the sun each day and turned throughout the day. Then it must be gathered up at the end of the day to protect it overnight from dew. It takes three days of clear weather to dry the paddy. It takes five people to spread, turn and gather up five tons of paddy each day. At the current labor rate of $3.60 per person per day, it costs $54 to dry five tons of paddy the traditional way. We will charge $53.57 to dry five tons of rice with our equipment.

Availability:

The primary reason that farmers will use the company’s service when it is raining or even overcast is because there simply isn’t any other alternative other than paying to transport their wet paddy to the nearest mill with a dryer, which would cost more in transport and charge the same rate per load that we are charging. The only other choice they have is to hope the weather clears before they lose their harvest to moisture damage.

Convenience:

Hiring the five laborers needed to dry paddy the traditional way requires a trip to visit the village labor broker who then assigns the laborers, who tend to be strangers from other villages. The laborers then need to be managed and supervised to ensure that they are doing the job properly each day.

8-Hour Paddy Drying Service does the job without the hassle. If a farmer drops his harvest off in the evening, the company can have it ready for him to sell the following morning.

Reliability:

8-Hour Paddy Drying Service can dry day and night, regardless of the weather.

Strategy: Action Plan

By positioning itself in the village near the farms, 8-Hour Paddy Drying Service will be the most convenient and cost-effective solution for the local community’s grain drying needs.

In order to be ready for the harvest season that begins in June, we will:

1. Secure the local community and local government’s approval for our business plan in writing by the end of March.

2. Attend a five-day training session in Yangon in April that will cover: a. Equipment Operation and Maintenance b. Safety c. Marketing and Customer Service d. Scheduling and Material Handling e. Business Operations and Cash Handling

3. Level the area and pour the concrete slab for the structure by the third week of April.

4. Work with the supplier to install the dryer and shelter by mid-May.

5. Invite the local farmers to visit the new facility and introduce them to the service that

we will be offering as soon as the construction is completed.

6. Hire and train the six staff that will be working with us during the harvest season by the end of May.

7. Host a public demonstration of the equipment with the first load of rice that is harvested in June from my own family’s farm.

Resources

The local community leaders have approved 8-Hour Paddy Drying Service’s plan and have expressed a desire to see it succeed as they recognize the importance of mechanical drying especially during the rainy season. The equipment, structure and training that 8-Hour Paddy Drying Service needs to get started will be purchased on a four-year rent-to-own plan.

Management – The owner will manage the daily operations of the business with support from

the equipment supplier during the first harvest.

Marketing – Primary marketing will be by word of mouth in the local community. Potential customers will be referred to the Face Book page that the supplier has

set up with videos showing how the drying service works in other areas. Potential customers will also be invited for a tour of the new facility at the end of

May. A public demonstration will be held at the beginning of the harvest season to

show potential customers the benefits of the system first hand.

Operations –

Scheduling will be done in advance in coordination with the harvesting schedule of the combine harvesters working in the village.

The grain will be handled on site by the six seasonal workers. The owner will monitor the temperature and drying times and ensure overall

quality and safety is maintained. Farmers will be required to pay at the time of drying or within two days if they

need to sell a portion of their rice to cover the cost.

Financials and Forecasts: Revenue Generation

8-Hour Paddy Drying Service will generate revenues of $9,600 per year by drying 120 loads of paddy in the rainy season and 60 loads of paddy in the dry season.

$0.21 per basket (local unit of measure) x 250 baskets per 5-ton load $53.57 per load (75,000 kyat in the local currency) 120 loads per rainy season (3 per day for 40 days) + 60 loads per dry season (2 per day for 30 days) 180 loads per year $9,642.60 total revenue per year $6,425 during the rainy season $3,215 during the dry season

USD per basket

drying fee

USD per load drying

fee

Loads Per Day

Days Per Season

Total Loads per Season

Gross Revenue per Season

$0.21 $53.57 2 30 60 $3,214.29$0.21 $53.57 2 40 80 $4,285.71$0.21 $53.57 3 30 90 $4,821.43$0.21 $53.57 3 40 120 $6,428.57

Financials and Forecasts: Operating Expenses

After deducting operating expenses, 8-Hour Paddy Drying Service will net $7,390 per year.

$1,290 Rainy season expenses +$860 Dry season expenses + $50 Oil and maintenance + $50 Transport cost for rice chafe $2,250 Annual expenses

$9,640 Annual Revenue -$2,250 Expenses $7,390 Net revenue per year $5,085 during the rainy season $2,305 during the dry season

Total Loads per Season

Gallons of Fuel per

Load

Total Gallons of Fuel Per

Season

Fuel Cost per

Season

Labor per Day (6 Workers) $3.60/day

Total Labor per Season

Expense per Day

Total Expense per Season

60 1.5 90 $212.40 $21.60 $648.00 $28.68 $860.4080 1.5 120 $283.20 $21.60 $864.00 $28.68 $1,147.2090 1.5 135 $318.60 $21.60 $648.00 $32.22 $966.60120 1.5 180 $424.80 $21.60 $864.00 $32.22 $1,288.80

Financials and Forecasts: Financing and Profit Margin

After making its annual equipment rental payment, 8-Hour Paddy Drying Service will realize a profit of $4,140 per year.

The $7,500 required to launch this business is being supplied in the form of a 4-year Cash-Flow-Positive Rent-To-Own program through Farm Tech.

$7,390 Net revenue per year -$3,250 Rental Payments $4,140 Profit per year (for three month’s work) $2,585 during the rainy season $1,555 during the dry season

YearWet

Season Payment

Dry Season

Payment Balance

1 $2,500 $750 $6,1252 $2,500 $750 $4,4063 $2,500 $750 $2,2584 $2,500 $322 $0

Risk, Opportunity and Sensitivity

The risks of copycats and substitutions are outshone by opportunities such as the proven concept, profitability and potential to replicate the business at another site nearby.

Copycats – Other businesses in the village may copy the design of 8-Hour Paddy Drying Service’s equipment and fabricate it locally or purchase similar equipment from another supplier.

The biggest threat from copycats is that they produce a low-quality copy which leads to poor results that give mechanical drying a bad name in the market.

Undercutting 8-Hour Paddy Drying Service’s price is also a possibility, but not highly likely given that there is more than enough potential demand in the area to support multiple grain drying businesses.

Substitutes Vertical Shaft Grain Dryers are the next step up in modern technology, but are

much costlier to purchase and operate and are only cost efficient when dealing with much higher volumes of paddy than the local farms produce.

Solar Tunnel Grain Dryers are cheaper to purchase and operate on a small scale, but are not suitable for farms over two acres due to their small batch size and high labor requirements.

Traditional Open Air Drying is still the most common substitute, but is becoming less and less competitive as the labor prices continue to rise.

Conclusion

8-Hour Paddy Drying Service will realize a profit of $4,140 per year while saving up to fifty rice farmers time and money, reducing their risks, simplifying their harvest handling process and improving the quality of the rice they produce each season.

Given the acute need in the community for this type of drying service, 8-Hour Paddy Drying Service will easily attract the forty customers it needs to operate profitably and pay off its equipment rental within four years. By the time the initial equipment is paid off, we project that the business will be ready to expand its operations with a second set of equipment.