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Sarvodaya Samiti Case Discussion

RURAL MARKETING By Md Riyaz & Rahul Nair

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Samiti in a SNAP SHOT

Sarvodaya Samiti, Koraput, is a state-level, nongovernmental, non-political organization. in 1970-71 under the Societies Registration Act XXI of 1860, it is committed to of the society. Started in 1959 as Narayanapatna Kshetra Samiti, it was renamed as Sarvodaya Samiti after its area of operation got extended to the other parts of the state. activities consist of production of khadi, promotion of bee-keeping, and marketing of agroproducts like honey, turmeric powder, and arrowroot. Samiti has been increasing its focus on

Registered

Its

The

objectives of the Sarvodaya Samiti

To

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generate employment and income for the tribals and farmers in Orissa while ensuring the profitability of the Samiti. sustainable development of tribal and other under-privileged communities through social and economic programme interventions child and women welfare, education for scheduled tribe girls, consumer welfare, and watershed programmes help the farmers as well as the consumers develop the bee keeping industry in Orissa so that production increases with a number of farmers taking up bee-keeping get a good response from the market

Ensure

to to

to

IMPORTANCE OF HONEY IN SAMITIS PRODUCT PORTFOLIO

Local

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economy of Koraput district, but being a it is an attractive

labour-intensive activity, business

Brings

additional income for the farmers with

relatively little effort and only requires local training.

Plenty

of

forest

honey

is

available

which

provides potential livelihood option to local people

IMPORTANCE OF HONEY IN SAMITIS PRODUCT PORTFOLIO

Honey

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as a product earns greater margin of eight per cent compared to three per cent in khadi. seems, at least in the short- run, that the promotion of honey business has partly compensated for the falling revenues from khadi (Table 1). the contribution of honey to the total sales of Samiti has gradually moved up. In the year 19992000, Samiti received 27 per cent of its revenues from honey and has a potential to go up further in future considering the good response from the consumers.

It

Also,

the

SUCCESS OF HONEY BUSINESS: KEY DRIVERS

Agmark shifting

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certification in 1990-92 followed by

of processing centre from Koraput to Bhubaneswar in 1995-97. ref (Table 1) improved its access and connectivity to markets in the state and to other parts of India. availability of honey and that too at a lower price facilitated the expansion of Samitis business in the past. increase in revenue from honey between the years 1991-92 and 1999-2000 promotion of bee-keeping with the help of the Khadi and Village Industries Commission (KVIC)

Providing

The

nine-fold

were

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STRATEGIC CONCERNS
The analysis in the preceding section highlights the strategic concerns which need to be addressed by the Samiti in evaluating the alternatives available with regard to the formation of the proposed

Consortium and choosing a possible course of action. The concerns are:

procurement

in terms of quantum, cost,

source, and agencies involved

Alternative Options with Samiti

Option I Be a part of the consortium. The honey would be procured by ORMAS, processed by the Samiti, and marketed by ORMAS. ORMAS would pay the Samiti Rs 26/litre as processing fee. The miscellaneous expenditure incurred by the Samiti for processing would be Rs 20/litre. Thus, the Samitis margin would be Rs 6/litre for processing and the procurement cost would be Rs 60/litre. The total cost of production would therefore be Rs 86/litre. ORMAS was planning to sell this bottled honey at 5 per cent (Rs 4.3/litre) margin, i.e., at the rate of 90.3/kg to a food company. The Samiti had two sub-options:

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Option 1a: Focus only on processing and withdraw from marketing completely. Option 1b: Join the consortium while doing independent marketing of its own procured honey.

Option II: Not be a part of the consortium. KVIC would not finance the proposed new processing plant. The Samiti would have to set up its own processing plant and Agmark testing unit with an investment of Rs 0.45 million to Rs 0.65 million. The Samiti would be responsible for independent procurement, processing, and marketing of honey as is currently being done.

Option III: Exit the KVIC network and establish the Samiti as an independent

The primary objective

The

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primary objective of the Samiti requires it becomes a volumes player so that more more farmers take up bee-keeping activity. would ensure better returns to the farmers would also bring down transportation costs.

that and This and

The

size of the current market as given in Table 3 of the case is 67.9 tonne in which the Samiti has a market share of 10 tonne, i.e., 14.7 per cent vis-a-vis Dabur which is the leader with a market share in volumes of 57.4 per cent

PROPOSED EXPANSION OF HONEY BUSINESS: PROBLEMS AND PROSPECTS

Processing

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Expansion of Processing is a must for samiti not only to fulfill the market demand but also for its financial viability processing of technology advancements in

Requirement By

Up-scaling samiti would also get BIS mark.

Government One

Taxation

of the major marketing problems faced by samiti is of 12% sales tax even after KVIC

PROPOSED EXPANSION OF HONEY BUSINESS: PROBLEMS AND PROSPECTS

Marketing Assume It

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if Samiti takes option III and exits KVIC

will have to develop own distribution & Marketing Infrastructure per Table 3 it has to sell (60-90 TPA) to retain market share @14% - This may not be feasible

As

Procurement Dabur There

& Himani has significant market share for <200gm

is demand for Samiti honey but the production and processing cost is ramping up at 47% annually since 199192 (Table 1) Production level to 30 TPA at current growth rate,

Increasing

PROPOSED EXPANSION OF HONEY BUSINESS: PROBLEMS AND PROSPECTS

Procurement In

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procuring additional 15 TPA of rock bee honey the

transportation and procurement cost it will incur additional cost

Already Samiti

samiti is working on thin margin

plans for 24 TPA from mellifera species will

need resources
Ramping

up procurement of 30-60 TPA does not seem

feasible

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Working Analysis
The cost structure of the Samiti (as per the Case) is as follows:
Retail

selling price-Rs 130/kg (Table 4) margin at the rate of 15%=19.5 price=Rs 96.6 tax at the rate of 12%=13.9 up=8%=Rs 7 cost=Rs 89.6/kg

Retailer Sales

Manufacturers Mark

Manufacturing

The manufacturing cost structure is as follows:

Procurement

cost =Rs 60/kg =66.9%

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Solution
Thus,

option 1b or option V seems to be the

only feasible alternative though option I allows the Samiti to insure itself by ensuring brand presence in the market.
The

core competence of the Samiti seems to be in

processing which is confirmed by the good quality of the product for which there is a substantial demand.
The

Samiti can also increase its margins by

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What Benefits in option I & V

The

loss of margin, i.e., (Rs 7-Rs 6) * 10 tonne, i.e.,

Rs 10,000 per annum

Can

be overcome by the additional earning, i.e., Rs

6 * 14 tonne assuming 14 tonne processing, i.e., Rs 84,000 per annum from OMFED, Which can be spent on development activities.

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Thank You
Current Scenario: The Samiti has also started a Quality Control Laboratory in Bhubaneswar for the testing of honey, so that at the time of procurement and selling we can check the quality of honey. Sl.No Item Employment Production Sales FT (In Rs) Rs.) The Quality Control PTlaboratory (In was 01. Honey 4 102 8,69,928.00 9,72,068.00 sponsored by the KVIC under the UNDP Beekeeping development programme.