Detailed Project Report on RABCs in Bihar

Contents
1. Background and Context of RABC ........................................................................ 4
1.1 Agri input products and services ...................................................................... 5
1.2 Agri output market........................................................................................... 5
1.3 Need for a one-stop shop ................................................................................. 5
1.4 The concept of RABC...................................................................................... 6
1.5 Other sources of Revenue ................................................................................ 9
2. Objectives, Research Methodology - Recommended districts & locations ........... 14
2.1 Objectives...................................................................................................... 14
2.2 Research Methodology .................................................................................. 14
3. Report Structure and Assumptions ....................................................................... 17
3.1 Report structure ............................................................................................. 17
3.2 Important Assumptions included in the RABC strategy ................................. 17
4. State Profile- Bihar .............................................................................................. 19
4.1 A brief Inter sectoral profile of Bihar ............................................................. 19
4.2 Agriculture Production and Primary Processing in Bihar................................ 21
4.3 Agriculture Input and Services market in Bihar.............................................. 26
4.4 Agricultural Products marketing in Bihar ....................................................... 27
4.5 Agricultural Warehousing and Cold storages ................................................. 32
5. RABC at Mahua, Vaishali District ....................................................................... 34
5.3 Location Analysis of Mahua .......................................................................... 40
5.4 Business Plan for the RABC in Mahua .......................................................... 43
6. RABC at Dalsinghsarai, Samastipur District ........................................................ 47
6.1 District Profile ............................................................................................... 47
6.2 Agriculture Sector.......................................................................................... 48
6.3 Location Analysis of Dalsinghsarai ................................................................ 51
6.4 Business Plan for the RABC in Dalsinghsarai ................................................ 54
7. RABC at Motipur & Bahadurpur, Muzaffarpur District ....................................... 58
7.1 District Profile ............................................................................................... 58
7.2 Agriculture Sector.......................................................................................... 59
7.3 Location Analysis - Motipur .......................................................................... 63
7.4 Business Plan for the RABC in Motipur......................................................... 66

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7.5 Location Analysis - Bahadurpur..................................................................... 69

7.6 Business Plan for the RABC in Bahadurpur ................................................... 73
8. RABC at Bihat, Begusarai District....................................................................... 77
8.1 District Profile ............................................................................................... 77
8.2 Agriculture Sector.......................................................................................... 78
8.3 Location Analysis - Bihat .............................................................................. 81
8.4 Business Plan for the RABC in Bihat ............................................................. 84
9. RABC at Bihar Sharif, Nalanda District............................................................... 88
9.1 District Profile ............................................................................................... 88
9.2 Agriculture Sector.......................................................................................... 89
9.3 Location Analysis – Bihar Sharif ................................................................... 93
9.4 Business Plan for the RABC in Bihar Sharif .................................................. 96
10. RABC at Fatuha, Patna District ........................................................................101
10.1 Distrcit Profile ............................................................................................101
10.2 Agriculture Sector.......................................................................................102
10.3 Location Analysis - Fatuha .........................................................................107
10.4 Business Plan for the RABC Strategy in Fatuha ..........................................113
11. RABC at Maranga, Purnia District....................................................................117
11.1 District profile ............................................................................................117
11.2 Agriculture Sector.......................................................................................118
11.3 Location Analysis - Purnia ..........................................................................120
11.4 Business Plan for the RABC in Maranga, Purnia.........................................124
12. RABC at Bettiah & Ramnagar, West Champaran District .................................128
12.1 District profile ............................................................................................128
12.2 Agriculture Sector.......................................................................................129
12.3 Location Analysis - Bettiah .........................................................................132
12.4 Business Plan for the RABC in Bettiah .......................................................135
12.5 Business Plan for the RABC in Ramnagar ..................................................138
13. Business Plan and Financial Analysis ...............................................................143
13.1 Project Cost and Means of Finance .............................................................143
13.2 Analysis of Business Plan ...........................................................................146
13.3 Sensitivity Analysis ....................................................................................150
14. Annexure ..........................................................................................................152

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14.1 Investor Profiles..........................................................................................152

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Detailed Project Report on RABCs in Bihar

1. Background and Context of RABC

With 2.85 % of India’s geographical area and 8.07 % of population, Bihar is the third
most populous state in the country (2001 census). 90% of Bihar’s population is
dependent on agriculture.

Bihar is the third largest producer of vegetables; fifth largest producer of fruits and
eighth largest producer of grains in India.

On one front, state of Bihar is being talked of as the next big hope for the agriculture
sector, on the other this sector remains the most crucial factor for the state economy.
Degree of dependence on agriculture in terms of employment as well as income is
high.

Inspite of high volume of production and a good range of crops, the earnings from
farming are poor. The value-addition in agricultural products is negligible.
Owing to low literacy, small land holdings and poor infrastructure, the production
practices and input usage is either less or more than recommended practices. Needless
to say, if the recommended practices are followed the potential for sustainable
increase in production and productivity is huge.
A Rajendra Agriculture University study estimates post-harvest losses in horticultural
crops at Rs.2000 crore per annum. The reasons for the post harvest losses are
manifold. They include poor production practices, poor post harvest management
practices, lack of grading at farm level, poor packaging, poor transportation, multiple
handling, and poor marketing system.
Realizing the potential role horticulture can play in the development of the state
economy, Government of Bihar has accorded high priority to Horticulture and food
processing sector. The Vision 2015 for Food Processing Sector in Bihar aims at
realizing the potential of state agriculture sector by laying down a clear road map for
accelerated development of food processing sector.
The Vision Document 2015 recognizes that creating the necessary infrastructure for
post-harvest handling and food processing will increase the farm gate prices, rural
income and create additional employment. It has therefore suggested setting up of 100
Rural Agri Business Centres as one of the significant interventions to accelerate
growth of food processing sector in Bihar.

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1.1 Agri input products and services

Apart from land, the inputs needed for production include water, seeds, fertilizers,
pesticides, weedicides, tilling equipment, irrigation equipment, harvesting equipment,
power (animal, electricity, fuel) finance and knowledge. This agricultural input
market in Bihar at primary level can be characterised with

♣ Different agencies providing different agri inputs

♣ Sale of fertilizers especially phosphatic fertilizers at price higher than MRP
♣ Rampant sale of spurious seeds and pesticides.
♣ Non availability of formal credit on time.
♣ High rates of interest for informal credit
♣ Non availability of power – Electricity.
♣ High capital cost of equipment like tractors, combined harvesters etc.
♣ Poor availability of information/ knowledge on production practices
♣ Poor availability of weather related information
♣ Unscientific and at times excessive use of agri inputs including water,
fertilizers and pesticides leading to sustainability and environmental problems.
1.2 Agri output market
Similarly, on the marketing front, different products have different marketing
channels. However, the agricultural product marketing system at primary level and
marketing practices adopted by the farmers can be characterised with
♣ Predominance of sales to village traders
♣ Inter-locking of credit and commodity markets
♣ Lack of storage facilities
♣ Loose carrying of produce/ poor packaging of products.
♣ Sale of ungraded produce
♣ Use of un-standardized weights and measures by buyers/traders
♣ Multiplicity of subjectively determined market charges like arhat,
Commission, dharmada and charity payable by the farmers
♣ Loss of value (both quality and quantity loss) because of multiple handling

1.3 Need for a one-stop shop

A quick review of the above characteristics of production and marketing system
shows that the farmer dealings with multiple people/ agencies renders the quality of

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products and service they buy being far from desired. There exists a business
opportunity for some one who can provide all the products and services to the farmers
under one roof to be able to capture the scattered market. Rural Agri Business Centre
(RABC) is one such effort.

1.4 The concept of RABC

Rural Agri Business Centres (RABC) will be the one stop destination for all the
production and marketing needs of the farmer. RABC will strive to provide
convenience to its customers by providing products and services needed for
successful farm production and marketing. It is expected that each RABC will
strengthen the agro economy in its catchment zone by providing the following
services to the farmers and the industry -

♣ Sale of agri inputs and services

♣ Procurement and Primary processing
♣ Storage
♣ Marketing
The model of a RABC can be schematically represented as below:

Agri inputs & Services

1. Seeds

2. Fertilizers

Storage Procurement & Primary

Processing
1. Dry ware house RABC
1. Procurement 2. Pre-
2. Cold storage
cooling

Marketing

1. Market intelligence

2. Market Linkages

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The table below summarizes the scope of services, source of revenue, major facilities
envisaged, key jobs in operation model, and key challenges in implementation for
each of the constituent of the RABC model.

Procurement &
Agri input &
Parameter Primary Storage Marketing
services
processing

Procurement of
Sale of seeds,
various agricultural
planting material, Dry ware house Marketing of
and horticultural
fertilisers, pesticides, for cereals and products procured
Scope of products,
weedicides, pulses. Cold to both local as
products Precooling of high
agriculture storage for potato. well as export
and value products,
equipment, irrigation Cold storage of market. Reverse
services grading, sorting,
equipment, spare high value fruits marketing of
offered cleaning and
parts, hiring of for reverse products produced
packaging for
equipment, extension marketing else where.
wholesale and retail
services
sales.

Rentals from cold

store and ware
Retail margin from Trading margin,
house.
sales of inputs, Margin from
Source of Commission
Rentals from hiring storage arbitrage, Trading margin
Revenue charges from
out of equipment, fee Job work for
bankers for ware
for advisory services organised retailers
house receipt
financing

Precooling facility,
Shop floor for sale of Reefer truck, open Dry warehouse,
agri inputs, servicing trucks, cleaning, Cold store - Cold store, Open
Facilities*
of equipment, grading line, Single/ multi trucks
parking of equipment weighing facilities, chamber
crate washing line

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Establish backward
Become registered linkages with Standard operating
Establish forward
dealers of various farmers, traders, procedures for
linkages with
Operation agri input commission agents maintenance of
traders/ processors/
Model - manufacturers, hire in the local market ware houses and
exporters in
key jobs qualified for procurement, cold storage to be
destination
professionals for price fixation, established and
markets.
advisory services Establish logistics followed
linkages

Aggregation of
produce, Breaking
Credit - Commodity
Resistance from linkage, resistance Price information
Power - electricity
existing agri input from existing in forward markets,
issues, use of cold
Key retailers, Credit traders, Price credit sales, Transit
store in non-
challenges sales, Dealer ship discovery, Price losses, price
potato storage
with all the communication, discovery in
months
companies Payment forward markets
mechanism to
farmers, Crate
movement

*Facilities indicated above are only indicative and may change from location to
location depending on the product mix for the location.

It is envisaged that by providing the above services RABC will help farmers and
industry in the following ways –

♣ Availability of quality agri inputs and service to the farmers

♣ Improvement in quality and quantity of production of crops in the catchment
area by providing better inputs and knowledge to the farmers.
♣ Better and fair price realization of produce to the farmers.
♣ Reduction in wastage of the crop due to handling and quality deterioration
losses.
♣ Improvement in quality and shelf life due to scientific handling and processing
♣ Efficient and transparent market linkages
♣ Consolidated procurement centers for retail and processing industry.
♣ Creation of continuous employment in catchment of the RABC

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Apart from the above facilities suggested an RABC can take up few more initiatives
to meet the requirements of farmers. These initiatives are also a potential source of
revenue for the RABC.

1.5 Other sources of Revenue

Fuel Station:

Fuel (HSD) is one of the key sources of power not only for tractor based activities but
also for irrigation in Bihar. In the districts where canal irrigation is not present bore
wells are the source of irrigation. As availability of power from the grid is a constraint
farmers use diesel operated pumps for irrigation. The consumption of HSD for
irrigating one acre of land using 5 HP motor is close to 8-10 litres.

Credit Franchisee:

The rate of interest paid by the farmers for loans used for production purposes from
informal sources is as high as 36 to 48% per annum. The documentation and time
involved in taking loan from formal sources shuns them from approaching formal
sources. Similarly, bankers have problems in fulfilling their priority sector lending
targets because of the poor response from farmers. With the relationship RABC will
enjoy with farmers it can act as an intermediary between bankers and farmers. It can
help the bankers do the required documentation and charge a fee. Similarly ware
house receipt financing can be done. This is apart from the opportunities that exist in
sale of other financial products such as insurance, personal finance, vehicle finance
etc.

Nursery:

In locations where vegetable crops are focus a green house nursery with trays can be
taken up. Traditional raised bed nurseries damage the root system by as high as 60 %.
Tray nursery seedlings have better root system and establish themselves better. Tray
nursery can be a single most important intervention that can increase the yields by 15-
20 %. Vegetable farmers are generally small farmers and cannot establish a shade
house themselves. RABC can operate in one of the two models suggested as below.

One, establish the infrastructure; farmers bring their seed and get a nursery cultivated
in the green house for a fee.

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Two, RABC takes up nursery production and sell the seedlings. However, in this
model the risks to RABC are higher. Similarly sale of plating material for fruit crops
can be explored.

There is a subsidy of 50 % of project cost (Max Rs. 1.5 lakhs) under national
horticulture mission which can be availed for setting up of a nursery.

A model existing in the country: Case of Hariyali Kisaan Bazaar

HARIYALI KISAN BAZAAR1

Hariyali Kisaan Bazaar" is a pioneering micro level effort, in the farming sector in
India to improve the profitability" & "productivity" of Indian farming community.
DCM Shriram Consolidated Ltd. (DSCL) has over 35 years of experience in the agri-
input markets in India.
Hariyali Kisaan Bazaar

The "Hariyali Kisaan Bazaar" chain empowers the farmer by setting up centres, which
provide all encompassing solutions to the farmers under one roof. Each "Hariyali
Kisaan Bazaar" centre operates in a catchment of about 20 kms. A typical centre
caters to agricultural land of about 50000-70000 acres and impacts the life of approx.
15000 farmers. Each centre is engaged in:
• Bridging the last mile: Provides handholding to improve the quality of
agriculture in the area. Provides 24X7 support through a team of qualified
agronomists based at the centre.
• Quality Agri-Inputs: Provides a complete range of good quality, multi-brand
agri inputs like fertilizers, seeds, pesticides, farm implements & tools,
veterinary products, animal feed, irrigation items and other key inputs like
diesel, petrol at fair prices.
• Financial Services: Provides access to modern retail banking & farm credit
through simplified and transparent processes as also other financial services
like insurance etc.

1
(http://www.dscl.com/BusinessAgreeHarKisBzr.aspx?PID=27 accessed on 25.07.2008)

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• Farm Output Services: Farm produce buyback opportunities, access to new

markets & output related services.
• Other Products and Services: Fuels, FMCG, Consumer Goods and
Durables, Apparels etc.
In the near future, Hariyali Kisaan Bazaars plan to move beyond agri to meet the other
needs of farmers as customers.

Farmer Response
So far, over 160 "Hariyali" outlets (as on 31st march 08) have been set up in different
states across India which they plan to scale up to 300 by March 09.
The ground-level agri-support is already yielding results in the farmer's fields.

Future Plans
Hariyali Kisaan Bazaar has plans to rapidly scale up the operations and create a
national footprint covering all the major agricultural markets of the country. This
would mean catering to cultivable land of over 30 million acres and touching the lives
of over 10 million farmers.

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Notes on Photographs:

1. This store is located on Rajiv Gandhi Rahadari 20 Km north of Karimnagar, Near

Sultanabad

2. Full view of the store, with entry gate.

3. Board showing range of services offered

4. Name board “Hariyali Kisan Bazaar”

5. Pesticides on sale well displayed as in Super markets.

6. The pests that the displayed pesticide will work on, identification of pests and
dosages on the display board behind the product.

7. Tractor tyres and farm implements in display for sale

8. Fuel service station under construction

9. Demonstration plot for some new cultivar

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2. Objectives, Research Methodology -

Recommended districts & locations
FOOD VISION 2015 envisages establishment of 100 RABC in the state. In the first
phase it is suggested to establish 10 RABC.

2.1 Objectives
Identification of 10 potential locations for setting up of RABC involved study with
the following objectives

♣ Estimation of agri input market size and dynamics

♣ Estimation of agri output markets, size and dynamics
♣ Mapping of cold storages and warehousing – Capacities and Operations
♣ Sizing of RABC and suggesting the product mix, potential volume and
facilities that need to be established keeping in view the potential products and
volumes.
♣ Suggesting financial model for each location

2.2 Research Methodology

A modular three-phase approach was adopted.

Phase I
The first phase involved identification of potential districts for setting up of RABCs
based on secondary data analysis. Quantitative and qualitative data analysis was
carried out to identify potential districts. The following data was used for
identification of potential districts.

# Quantitative Parameter

1 Annual Production of cereals

2 Annual production of pulses

3 Annual Production of Vegetables

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4 Annual Production of fruits

5 Gross Irrigated area

6 Agri input market Size

# Qualitative Parameters

1 Proximity to consumption centres

2 Investor confidence

3 Extent of damage by flood

4 Basic infrastructure

5 Law and order situation

With our understanding of Bihar and stake holder consultation, interest shown by
various stake holders the following districts were identified.

♣ Muzaffarpur
♣ Patna
♣ Vaishali
♣ Rohtas
♣ Nalanda
♣ Samastipur
♣ West Champaran
♣ Purnia
♣ Begusarai

Phase II

To identify potential location(s) for setting up of RABC in the district discussions and
consultation was carried out with various stake holders of different industries in the
district. The respondents included agri input dealers, agri input company officials, agri
output traders, commission agents, agricultural extension department, horticulture
department, cold storage owners, farmers etc.

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The respondents were asked to suggest and rank various locations in the district based
on availability of products, range of products, connectivity, existing trade channels,
and size of agri input markets

Based on the discussion and consultations the following locations were selected for
further study

District Locations suggested

Muzaffarpur Bahadurpur, Motipur

Patna Fatuha – Bakhtiyarpur

Vaishali Hazipur, Mahua

Samastipur Dalsinghsarai

Nalanda Biharsharief

West Champaran Ramnagar

Purnia Maranga

Begusarai Begusarai

Phase III

Phase III involved field level study. It involved interactions with various stake
holders. The parameters as outlined in the objectives were studied in detail. During
the field level interaction qualitative information was collected to support the viability
analysis done based on quantitative data.

Structured questionnaires were administered to various stake holders including

farmers, traders, commission agents, logistics providers to understand the role played
by each of them in the chain.

The questionnaires captured the potential products, existing production and post
production practices, concerns of producers, value chain analysis, production and
seasonality issues, scope for intervention etc. Questionnaires have been appended in
Annexure.

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3. Report Structure and Assumptions

3.1 Report structure
Findings of the study have been presented at three levels – State, selected district and
selected locations.

Data is documented and analysed as per the dimensions of the RABC model for the
above three levels. Therefore, firstly, agricultural production in the state/
district/location is discussed which provides cues for procurement and processing in
RABCs. Secondly, availability and consumption of inputs are discussed, along with
access to formal credit, providing an overview of the inputs market. Thirdly, agri
products markets, marketable surpluses and various marketing channels are detailed
to arrive at modus operandi of marketing. Finally, present warehousing and storage
capacities are detailed for various geographical levels, providing insights for required
infrastructure for storage etc.

In addition to the above data, the location level analysis includes information and data
on current practices in the respective locations and their implications on the proposed
RABC. This is followed by the recommended RABC strategy for the location which
includes

♣ Procurement and Marketing Plan – Crop mix, Seasonality, estimated volumes

and expected margins.
♣ Agri input sales and services
♣ Facilities suggested for primary processing, storage and other services
♣ Financial model
3.2 Important Assumptions included in the RABC strategy
Apart from the various assumptions in the business model for capital costs and
variable costs, (summarized in Chapter 13) there are certain assumptions which
underline the recommendations for proposed RABCs, which are as follows:

♣ Estimated market captured by RABC for procurement and primary processing

is 10 percent of the marketable surplus. Based on our field work involving
stake holder interaction, understanding the business of some of the bigger
players in the given location, our knowledge on experience in similar business

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in different locations of the country; it seems that capturing 10 percent of the

market share will be a fair target that can be achieved by an RABC.
♣ Expected margin for the various products has been suggested based on
interactions with various traders, commission agents, our understanding of the
margins being targeted / realized by other organized players such as Choupal
Fresh - Wholesale, Safal - Bangalore, Metro - Cash & Carry, Hariyali Kisan
Bazaar etc.
♣ Estimated market captured by RABC for inputs is 10 percent of the
marketable surplus, which is again based on our field work involving
interaction with various agri input dealers, farmers, agri input company sales
and marketing staff, and our knowledge on experience of various other similar
models (Hariyali bazaar, Mahindra Shubh laabh, Choupal sagar) With a
skewed input consumption pattern, extension services for imparting
knowledge should be high on the RABC agenda. However, at this stage, we
are not estimating its scope and market, which should be done once the RABC
has stabilised and the profile of customers are better known.

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4. State Profile- Bihar

4.1 A brief Inter sectoral profile of Bihar
AS we study Bihar, we are reminded of the classic story of two shoe salesmen who
were sent to a primitive island to determine business potential. The first sales man
wired back – “coming home immediately, no one wears shoes here.” The second sales
man responded- “send a boat load of shoes immediately. The possibilities of selling
shoes here are unlimited”

Bihar with the present state of its infrastructure, manufacturing base, agricultural
products value addition, capital formation, agricultural productivity, agricultural input
usage and power supply, among many other indicators, ranks among the lowest in the
country and hence not a preferred destination for investors. But, prospective investors
need to view Bihar from the lens of the second salesmen. Given the natural resources
she is endowed with, Bihar has unlimited opportunities.

Some facts and features of Bihar are summarized below:

♣ The topography of Bihar can be described as a fertile alluvial plain occupying

the Gangetic Valley. The plain extends from the foothills of the Himalayas in
the north to a few miles south of the river Ganges as it flows through the state
from the west to the east. Rich farmland and lush orchards extend throughout
the state.
♣ Bihar is richly endowed with water resources, both ground and surface water.
Besides high rainfall, it has considerable water supply from the rivers, which
flow through the state.
♣ Bihar is the seventh largest economy in India in terms of food production. The
economy is primarily agrarian with agriculture contributing to more than 38
per cent to the Gross State Domestic Product (GSDP).
♣ Bihar is the eighth largest producer of food grains in the country. The major
agricultural products of Bihar are cereals, pulses, oilseeds and cash crops. The
major cereals are rice, wheat and maize and major pulses are gram, red gram,
green gram and red lentils.

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♣ The major cash crops are potato, sugarcane, jute, tobacco and spices. Bihar is
the third largest producer of vegetables in India and the fifth largest producer
of fruits (8.3 million MT) and (3.03 million) MT respectively.
♣ Average size of land holding is 0.75 ha, which is half of the all India average
of 1.57 ha. Over 80 per cent farms are very small (average size 0.30 ha). Small
and marginal farms together constitute 91 per cent of the total land holdings of
the state. There is high land fragmentation. Irrigation intensity of 152 per cent
and cropping intensity of 139 per cent is slightly higher than the all India
average of 133 per cent.
♣ As per a study done by International Plant Nutrition Institute, NPK use ratio
was 14.7:1.7:1 in 2004-05. The state is highly skewed towards usage of N.
This sub-optimal and imbalanced nutrient usage is causing nutrient mining
leading to depletion of inherent soil fertility.
♣ Bihar’s industrial sector is the smallest in India. The number of industrial units
is only 1.13 per cent of India’s total. Bihar’s industrial sector contributes only
about 9–10 per cent to the GSDP as against 23–24 per cent on all India basis
and employs less than 10 per cent of the workforce. The contribution of
manufacturing sector is even lower with manufacturing contributing only 3 per
cent of GSDP as against 15 per cent on all India basis. Small and medium
scale enterprises predominate in Bihar’s industrial sector.
♣ Bihar is the only major state in the country which has repealed Agricultural
Produce Market Committee Act (APMC Act), providing free market for the
producers to sell their produce and providing an opportunity for organised
buyers to buy directly from farmers.
♣ A study by Rajendra Agriculture University for Bihar estimates that the post-
harvest losses range from 10 to 50% for different products. For example, in
Banana the losses are from 15–25 %, in papaya 30–50 %, in cauliflower 41–
47%. It is estimated that just the arrest of the losses in fruit and vegetables in
the state through processing and post-harvest management will result in an
increase in income of Rs 2,000 crore to the economy.

The state of Bihar is being talked about as a sleeping giant of Indian agriculture. The
National Commission on Farmers has concluded that Bihar and Eastern India present

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uncommon opportunities for becoming another “fertile crescent” even as the present
fertile crescent (Punjab, Haryana and Western Uttar Pradesh) have reached a state of
economic and ecological distress. Water, the lifeline of agriculture, is abundant in
Bihar and the real issue is not availability but management.

4.2 Agriculture Production and Primary Processing in Bihar

Agriculture is Bihar's strength. The State's fertile soil and abundant water resources
offer tremendous opportunities for a vibrant agriculture.

Bihar ranks eighth in grain production in the country. The major agricultural products
of Bihar include cereals, pulses and cash crops. Bihar ranks highly in production of
various fruits and vegetables in the country. The state has a virtual monopoly in
production of Makhana and Litchi in the country. Table below summarizes the
production of various agricultural products in the state in 2006-07

# Category Production in Lakh

1 Cereals 128.15
2 Pulses 6.28
3 Oil Seeds 1.74
4 Vegetables 76.54
5 Fruits 31.92
6 Potato 65.90
Source: Department of Agriculture, GoB

4.2.1 Cereals, Pulses and Oil seeds

Production: The major agricultural products of Bihar are cereals, pulses, oilseeds and
cash crops. The major cereals include rice, wheat and maize. Major pulses grown are
Bengal gram, Red gram, Green gram and Red Lentils. Table below summarises the
production grains and oil seeds in the state in year 2006-07.

# Crop Production in Lakh

1 Rice 52.46
2 Wheat 56.78
3 Maize 18.91
4 Cow pea 1.11
5 Black gram 0.36
6 Bengal Gram 1.22
7 Red Lentils 2.22
8 Other Pulses 2.38
9 Oil seeds 1.74
Source: Department of Agriculture, GoB

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The productivity of cereals in Bihar is lower than the national average while it is
higher in case of pulses and maize and more or less at par with national average in
case of oilseeds.

Potential for Intervention: In food grains like rice, wheat, maize and pulses there
exists a large potential for scientific milling and processing.

♣ In case of rice and wheat, outdated technologies like hullers or shellers are
used for milling resulting in lower recovery and consequent lower value.
♣ Similar is the case with Pulse mills/ Dal mills. Most of the units are in Patna
district. They are all small mills with capacity of less than 5 mt per day. Our
field study shows that there are only two sorter machine based units for Dal
milling in Baarh, Patna Dist.
♣ There is no large-scale processing unit for maize and wheat in the state. There
are a couple of processing units working as registered units and there is no fair
estimate of the number of small unregistered units processing maize (poultry
feed) and wheat (flour). Such units operate at small scale as household
processing units. However, no details are available on the number of these
small units and quantity of maize and wheat processed within the state.

4.2.2 Vegetables

Production: Wide range of vegetables is cultivated in Bihar. As per the statistics

available with National Horticulture Board, Bihar is the largest producer of okra,
second largest producer of cabbage, third largest producer of Potato, Brinjal and
Cauliflower. Further, it has significant production of other vegetables like Onion,
Tomato, Pointed gourd and cucumber.

Owing to the large marketable surplus, Bihar is a prominent sourcing destination for
neighbouring states of West Bengal, Jharkhand and Eastern Uttar Pradesh. The total
vegetable production in the state is estimated to be around 13 million MT.

Production of major vegetables in the state is summarized in the table below:

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Production in Lakh
# Crop Mt

1 Cauliflower 9.38

2 Cabbage 5.78

3 Tomato 7.27

4 Onion 10.17

5 Okra 7.13

6 Brinjal 10.31

7 Gourds 16.02

8 Potato 65.90

Source: Dept. of Agriculture, GoB

As can be observed from the table above, the range of vegetables cultivated is good
and the volume high. The scope for value addition in products like cauliflower,
tomato and potato is high.

The major vegetable producing districts are mapped below:

Major Production Cluster - Vegetables

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4.2.3 Fruits

Production: As with vegetables, the range of fruits cultivated in Bihar is high. Bihar
is the largest producer of litchi, third largest producer of pineapple and fourth largest
producer of mango in India. The state has a virtual monopoly in production of Litchi
in the country. The total fruit production in the state is estimated to be around 3
million MT. The production of major fruits in 2006-07 is summarised in the table
below

Production in Lakh
# Crop Mt

1 Mango 12.20

2 Banana 9.59

3 Litchi 2.00

4 Guava 1.98

5 Pineapple 1.07

6 Citrus 1.12

Total 31.90

Source: Dept. of Agriculture, Govt. of Bihar

There is a huge opportunity for export of fresh as well as processed products in Litchi,
Banana and Guava in Bihar. However, the suitability of Mango for pulping is limited
as most of the varieties are suitable for table purposes only.

The major fruit producing districts mostly overlap with the vegetable producing ones.
The major fruit producing districts are mapped below.

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Major fruit Production Clusters on the Map

Potential for Intervention: There are very few licensed fruit and vegetable
processing units in the state. Most of these units are engaged in the manufacture of
fruit juices, fruit pulps (excluding frozen), squashes, pickles, tomato ketchup/sauce,
etc. There are a few more units along similar lines in the unorganised sector also
which are involved in minimal processing. However, the industry estimates that only
about 2–3 per cent of the total produce is processed.

Farm level pre-processing facilities are absent. Cold storage facilities for fruits and
vegetables are absent except for potatoes.

The fruit and vegetable processing segment is marked by a complete absence of cold
chain along the value chain resulting in quality deterioration and degradation of raw
materials.

Similarly, even after processing, the products are kept under minimal refrigeration or
no refrigeration. A large number of these units are working on work-order basis for
larger chains and as such find that the operating margins being thin leave no scope of
either technology upgradation or expansion.

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4.2.4 Spices

Garlic and Turmeric are the major spices produced in the state. Garlic accounts for
42% of the total spice production followed by turmeric, which accounts for 41%.
Table below summarized the production of major spices in year 2005-06.

# Crop Production(MT)

1 Turmeric 23592

2 Ginger 7319

3 Garlic 24102

Total spices 55013

Source: Dept. of Agriculture, GoB

4.3 Agriculture Input and Services market in Bihar

THOUGH agriculture is Bihar’s strength, Bihar ranks low in various indices
indicating agricultural input consumption, including access to formal credit. A snap
shot of agri input industry in Bihar is summarised below:

♣ As per a study done by International Plant Nutrition institute NPK use ratio
was 14.7:1.7:1 in 2004-05 against a general recommendation of 4:2:1. The
state is highly skewed towards usage of N.
♣ 15.09 lakh mt of Urea valued at approx Rs. 750 crores was consumed in Bihar
in 2006-07, which is 7.4% of the national consumption.
♣ 2.56 lakh mt of DAP valued at approx Rs. 248 crores was consumed in Bihar
in 2006-07, which is 5 % of the national consumption.
♣ 1.23 lakh mt of MOP valued at approx Rs. 56 crores was consumed in Bihar in
2006-07, which is 4.5 % of the national consumption.
♣ Availability determines consumption in fertiliser. During peak sowing season
availability of phosphatic fertilisers is a constraint leading to black marketing
and adulteration.
♣ The average consumption of pesticide in the state is 0.3 to 0.4 kg per ha.
♣ As per a study done by Bihar Pesticide Dealers association, the size of
pesticide market in Bihar in 2006-7 was Rs. 106 crores.

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♣ The number of pesticide molecule available in India is 194 as against 755 in

the US, 600 in Europe, 495 in Pakistan and 432 in Vietnam. Where as in
Bihar, the number molecules available in Bihar is 75-80 only.
♣ As per industry estimates there are about 12000 retailers involved in sale of
agri inputs however, only 10 % of them have a license from state government,
making the quality of agri inputs available to farmers questionable.
♣ As per industry the market size of seeds in Bihar is estimated at 300 crores
♣ Bihar is one of the largest Hybrid maize seed market in the country. Estimated
market size for Maize seed in Bihar is 10000 mt valued at Rs. 100 crores
♣ Access to formal credit is restricted. For an estimated 104 lakh farm holdings
there are only 20 lakh kisan credit cards.
♣ Bihar accounted for 4 % of market share of 2.65 lakh tractors sold in the
country in 2006-07. Still the mechanisation is low, Bihar has17 tractors per
1000 ha against 68 tractors for 1000 ha in Punjab.
♣ Diesel based irrigation system is rampant except in canals based irrigated
districts. Bore well based irrigation pumps consume 8-10 litres of diesel per
acre of land.
♣ Agricultural extension is only from the state government and is far from
desired. Very little or no extension services available to the farmers, as the
extension officials have a large area to cover and loads of desk work to do.
Potential for Intervention: The above facts and dynamics of Agri input market of
Bihar makes an interesting opportunity. Apart from the sale of agri inputs, there is a
potential for agri services including private extension.

4.4 Agricultural Products marketing in Bihar

Marketing channels and corresponding value chain-There are more than 7,000
rural markets and haats in addition to erstwhile 95 APMC mandis and 32 principal
markets yards. Out of these 7,000 only about 855 rural haats have their own buildings
and premises for providing rudimentary grading and sorting facilities.

There are different channels used by farmers to market their produce. As is the case
with agricultural products across the country, the marketing channels in Bihar are also
long and multi layered.

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Based on the product, size of the farmer, volume of production, distance to Mandi,
risk taking ability of the farmer different marketing channels are used by different
farmers to market their produce. However, the prominent marketing channels can be
summarised as follows:
1. Farmer to local haat to trader/ retailer to consumer as by small farmers in most
vegetable crops.
2. Farmer to village level aggregator (VLA) to Commission agent to Trader/
wholesaler to processor/ retailer to consumer in grain crops like maize
3. Farmer to Contractor to Commission agent to Wholesaler to Retailer to Consumer
as in Mango and Litchi (Orchard crops)
4. Farmer to Commission agent to Wholesaler/ retailer to Consumer as done by large
farmers in any crop.
The various marketing Channels can be summarised in the picture below.

Farmer

VLA

Commission

Wholesaler/ Semi

Retailer

Broadly three kinds of markets can be observed in Bihar other than direct selling of
produce by the farmers at farm gate. The comparative characteristics of each market
and the associated dynamics are summarised in the table below:

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Parameter Haat Seasonal Market Wholesale markets

Generally in a Located near major

cluster of 3-4 production pockets.
villages - Could be Generally operated in Mostly located in cities and
Location
production or open area on road sides district head quarter
consumption with good connectivity to
pockets other towns

Vegetable market
in Motipur, Water melon market near
Muzzafarpur Dist. Ismailpur, Hajipur block Mussalahpur Whole sale
Example
Biweekly market - Vaishali dist in the market in Patna
Wednesday and months of April to June
Saturday.

Seasonal - During peak

Periodicity Mostly weekly Throughout the year
arrival seasons

Village level
Local traders & traders Local traders, retailers, traders
Customers traders, retailers&
from outside markets from other markets
end consumers

Farmers bring the Farmers/ local traders Farmers bring the produce or
produce to the who consolidate the send the produce to the
mandi and sell it product from small commission agents (CA) in
themselves. NO farmers bring the the mandi. CA charge
intermediaries produce to the sale point. commission depending on the
involved. Farmers Mostly there are no product. It could be a fixed
weigh the product commission agents, amount based on volume or a
themselves. Some sometimes commission % of price realised. Generally
Modus agents present. Farmers
times kaantawalas it ranges from 1 to 10 %.
Operandi sell the produce to the
present, who charge Commission is collected from
a fee. In privately traders seller or buyer or both.
owned locations Different markets and
sellers are charged different products have
Rs 5- 20 per day. different commission charges.
Kaantawaals charge Other incidentals like
Rs 1 per packet of weighing, loading, unloading
40- 70 kg. charges to buyer and seller.

Price Negotiation/ Open auction/

Negotiation Negotiation
discovery Closed auction (Hatta)

Per capita volume Per capita volume of

Volume of Per capita volume of product
of product brought product brought by the
products brought by the farmer is
by farmer for sales farmer is high. Generally

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traded is low. Generally in the range of 3-5 mt. medium to high.

less than a quintal.

All transactions Transactions happen on cash

Mostly transactions
happen in cash. as well as credit. In case of
happen in cash. Buyer
Buyer pays cash to grains generally 15 days is the
pays cash to the seller at
the seller at the credit period. However,
the spot. However, some
spot. farmers can take immediate
credit sales (2-5%) can
Cash credit cash with a cash discount of 2
be observed.
Sales %. The buyers also take credit
from the commission agents.
The cash credit sales vary
from product to product. In
case of vegetables credit sales
are in the range of 30-40 %.

The quality of the produce is determined manually and visually. Typically, the
buyer dips his hand inside the basket/gunny bag in which the farmer brings his
produce and takes out a handful of product. Based on the quality of the produce
Quality
in his hand, the quality of the entire basket is determined. Visual checks are also
determination
used for determining the moisture levels in the produce and the farmers are often
at the receiving end due to such practices. Quality assessment is based on
experience, no scientific methods used, putting farmer’s interest at jeopardy.

Though the APMC act has

No regulation. been repealed, the existing
However, in privately traders do not allow new
NO regulation for
Entry – Exit owned land entry of entrepreneurs to set up
sellers. No entry
barriers sellers regulated by the commission agency in the
barriers for buyers.
owner. No entry barrier market. It is regulated
for buyers. informally. No entry
barriers for buyers

Depending on the location

some infrastructure exists.
Infrastructure present
Generally operated in NO infrastructure
includes concrete trading
open area either exists. Weighment done
platforms, internal roads,
Infrastructure privately owned or by estimation or by
weighing facilities,
community owned. No truck loads at weigh
temporary storage of
infrastructure exists. bridges.
variable capacity, power
connection, public toilets,
canteens etc

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Wastage along the value chain:

One of the most critical aspects in the value chain, wastage happens at all levels in the
value chain. However, the factors responsible for wastage vary at different levels and
are shown by the chart below:

Crop Damage
Improper Harvesting Techniques
Farmer/ VLA Level
Poor Packaging
Poor Transportation

Moisture Loss
Poor Handling

Wholesaler/ Poor Transportation

Wastage
Semi wholesaler Level Multiple handling

Storage
Grading sorting by retailers

Poor handling
Poor Transportation
Retailer Level
Handling by customers
Moisture Loss

The table below summarizes the wastage in the various crops in a dip stick study done
by IL&FS CDI during the field survey.

Crop Cumulative Wastage (%)

Potato 18-20

Cauliflower 18-24

Cabbage 18-24

Tomato 25-30

Banana 25-30

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It can observed from the above findings that wastages are low in case of bulk and
robust crops like Potato and cabbage, while it is significantly high in delicate crops
like Tomato and Banana (Ripened). Also, there is a significant difference in the cost
of wastage at Pre-Wholesale and wholesale level which is primarily on account of
time spent in the value chain.

Potential for intervention: As can be observed from the above dynamics, the
existing trade is unorganized. Insufficient infrastructure is leading to loss in quality
and quantity. The farmers are at the receiving end and many times the village level
aggregators and traders have similar experience with large buyers in destination
markets. There exists a clear opportunity for an organized intervention that not only
provides infrastructure but also an alternative market to the farmers.

4.5 Agricultural Warehousing and Cold storages

Existing methods and Potential for intervention:

TRADITIONAL storage methods are in vogue for grains. Most of the grain producing
farmers store grains for self consumption as well for sale at a later date in traditional
ways only. Use of scientific storage by farmer for grains is absent.

Traditional grain storage is a unit having an

aboveground retaining wall structure, and a
polythene liner. The wall structure is preferably
formed from bamboo strips and typically has a
circular shape. The roof is made of wild grass and
bamboo strips. The area enclosed by the retaining
wall structure is covered with a floor liner on top of
which the grain is deposited. There is a small
opening for removing of grains on need basis. The
structure is also used for storage of husk for cattle.

Bihar has a total food grains storage capacity of 13.4 lakh tonne which caters to only
12 per cent of the total produce in the state. Besides, there are only about 120–130
rural godowns as against 7,000 rural markets. There is an urgent need to construct
rural godowns for the benefit of small and marginal farmers.

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Bihar has 215 cold stores of which only 5.6 per cent are in the cooperative sector, rest
belonging to the private sector. Most of the cold storage space (76.75 per cent) is
being used to store potatoes.

The capacity of cold storage is estimated at 7.7 lakh mt which is sufficient for just 12
% of the potato produced in the state. The existing capacity in the State is extremely
inadequate to cope up with the production and hence there is urgent need to create
warehousing infrastructure at vantage point.

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5. RABC at Mahua, Vaishali District

5.1 District Profile

Vaishali is centrally located in Bihar and spread over an area of 2036 Sq. Km. The
district is bordered by River Ganga on the south which separates Vaishali from Patna
District. River Gandak in the west separates it from Saran district while on the east
and north it is bounded by Samastipur and Muzaffarpur districts respectively.

The district constitutes of 16 development blocks and the head quarter is located at
Hajipur. The population of the district is about 23.42 Lakh (2001 census) with a
population density of 1222 persons per sq km. The ratio of rural population is very
high with only 7.3% of the population staying in urban areas. The literacy rate is
48.55% which is lower than the national average.

Paddy, wheat, vegetables, banana, watermelon, litchi and potato are the major crops
cultivated in the district.

The district has fertile alluvial soil. The sole source of irrigation is private tube wells.
In 1998-99 about 0.75 lakh ha is irrigated from tubewells.

Mahua is the location suggested for setting up RABC in Vaishali.

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5.2 Agriculture Sector

5.2.1 Area and production:

With a total area of 1.8 lakh ha under grain crops, Vaishali produces close to 3 lakh
MT of various grains. The fruit and vegetable production is close to 7.5 lakh MT. The
following table summarizes the area and production of different crop categories in
2005-06.

Category Area (ha) Production (MT)

Cereals 159660 280904
Pulses 21049 12441
Total grains 180709 293345
Vegetables 29373 475936
Fruits 13230 277960
Potato* 13230 277960
Total fruits and vegetables 55833 1031856
Source: Dept of Agriculture, GoB

5.2.2 Comparison of Crop Mix - Vaishali Vs Bihar:

A comparison of the % of area occupied by a principle category of crops in the district

to that of the state shows that the district has a crop mix skewed towards horticultural
crops.

Potato 4
5

Fruits 4
7

Vegetables 6
12

Pulses 11
9

Cereals 76
66

0 10 20 30 40 50 60 70 80

Vaishali Bihar

Fig: Percentage of Area Under different crops in the district Vs % state

Smaller land holding patterns bring down the marketable surplus in grains. With
proximity to Patna, good connectivity and suitability of land and climate for

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production of horticultural crops greater area is under cultivation of commercial and

cash crops. Smaller land holding pattern has resulted in intensive cultivation using
high input usage and high cropping intensity. The reported cropping intensity of the
district is 222 % although our field survey shows that the cropping intensity is higher
than 250 %.

5.2.3 Block wise crop wise Acreages of Major Crops:

The block wise area under major crops in Rabi 2007 is summarized in the table
below.

# Block Wheat Maize

1 Hajipur 3505 1936
2 Lalgunj 3444 1739
3 Bhagwanpur 2212 1598
4 Vaishali 3313 1685
5 Velsar 2122 1461
6 Vidupur 1689 1571
7 Raghopur 4094 2108
8 Mahua 3807 1736
9 Rajapakar 2452 1291
10 Patepur 7392 2236
11 Guraul 3490 1815
12 Cheharkala 1580 1493
13 Jandaha 5146 2032
14 Mahnaar 1756 1537
15 Sahdoi 1122 1546
16 Desari 875 1216
Total 48000 27000
Source: Dept of Agriculture, Vaishali Dist; Department of Horticulture, Vaishali Dist

5.2.4 Agricultural Produce of Vaishali

5.2.4.1 Cereal and Pulses

The marketable surplus for grains in the district is very less, lying in the range of 30-
40 % of the production and it comes to about 0.8 to 1 lakh MT in total. There are no
sizable or large mandis; however, Sarai, Gola, Bhagwanpur and Phulwara bazaar are
few smaller mandis dealing with grains.

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5.2.4.2 Fruits and Vegetables

The major horticultural crops of the district are banana, mango, litchi, cauliflower,
water melon, potato and okra. The major mandis and the products handled have been
summarized in the table below.

Mandi Major produce

Katarmala Banana, Litchi and Vegetables
Jandaha Mango, Chilli, Vegetables
Mahua Mango and Vegetables
Lalgunj Vegetables
Hazipur Banana, Cauliflower, Litchi, Mango, Water melon
Source: IL&FS -CDI field study

The details of market dynamics have been discussed in detail later.

5.2.5 Agricultural Inputs of Vaishali

The agri input market of Vaishali district is summarized in the table below:

Agri input Particulars Remarks

Number of 15-18 active, 72 Primary Agricultural Co-operative

wholesalers 35 Societies and 25 MACS active in the district.

Urea 59899 Shortage of fertilizer in peak season rampant. Better

Fertilisers availability can increase consumption. Sale of
DAP 15540
(MT) fertilizer at higher than MRP seen in villages.
NPK 6862

MOP 4815

SSP 139

Paddy -HYV 4000 Hybrid paddy seed consumption is on an increasing

Seeds
trend. Government distributed hybrid paddy seeds
(MT) Paddy hybrid 50 last year. Hybrid Seed market estimated to grow to
Wheat 3000 150 MT next year.

Maize 750

Rs. 2.00
Vegetables crores

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Pesticides 8-10 crores

Characterized by sale of generic molecules like
(Rs.) Monocrotophos, Endosulfan, Profenopos, Cyper
methrin, Mancozeb, Metalxyl etc. Weedicides
include 2-4D, Glyphosate and Butachlor. Scope for
introduction of new and better molecules.

All most all major tractor manufactures have a dealer

8 Nos.
Tractor in the district. Tractor penetration is 3-5 tractors per
Dealers panchayat area.

Source: Department of Agriculture and IL&FS -CDI field survey

5.2.6 Agricultural Warehousing and Cold storages - Vaishali

In case of cereals, farmers have very low marketable surplus hence the storage of
grains in organized warehouses is extremely low. In fact, there are no warehouses for
storage of grains in the district. The Bihar state warehousing corporation has a
warehouse of 4000 MT at Hazipur which is used for storage of fertilizers only.

The district has 18 cold storages with an installed capacity of 1 lakh metric tonnes.
Almost all the cold storages are involved in the storage of potato only. Only one cold
storage (namely Licchvi Cold Storage Pvt. Ltd having 8 chambers) stores other
products such as apples, oranges, grapes and litchi.

The charges for cold storage are Rs 140 to 150 per quintal per season. The storage
season is from March to October. Apart from the rentals, loading and unloading
charges are collected from the farmers which are in the range of Rs 2 to 2.75 per
quintal for each loading or unloading operation. Many cold store owners lend money
to farmers in the tune of upto 60 % of the product value at an interest rate of 24% per
annum.

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Focus Product – Banana

1. Stretches of banana Cultivation in Hazipur

2. Banana ready for harvesting

3. Movement from farm to the transport vehicle

4. Transport in bullock carts

5. Transport in thela and Bicycle

6. Banana stocked on road side

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5.3 Location Analysis of Mahua

Mahua is located about 40 km north east of Hajipur and it is the block head quarter of
Mahua Block. The present road connecting Mahua to Hajipur is in bad condition;
however work is in progress for relaying a BT road connecting to Patna. Mahua is
also well connected to Samastipur.

5.3.1 Agri Output Market in Mahua

The various crops that are produced and traded in the catchment of Mahua are
tobacco, wheat, brinjal, cauliflower, okra, cabbage, potato, onion, mango and litchi.
Parsunia is the major mandi involved in trade of vegetables.

Parsunia

Parsunia is 3km from Mahua on Mahua – Patna road. It is a private mandi spread in
an area of less than one acre. There is no infrastructure
except for the flooring made of bricks and 6 small units
for stocking of products. Only vegetables are handled in
this mandi. Onion, potato and mango are sold either from
the farm gate or from farmer’s house.

Farmers from Jandaha, Mahua, Patepura, Cheharkala,

Rajapakar and Guraul blocks bring produce to this
mandi.

There are no commission agents in the mandi. Farmers sell the produce themselves.
Mostly traders from Patna buy the products directly from the farmers. Farmers pay Rs
20 per day as rent in the mandi. There is a temple attached to the mandi and the
proceeds from rentals are used for maintenance of the temple. Price discovery is
through negotiation.

Farmers transport the produce themselves in thela, small three wheelers or by bicycle.
Many farmers own their thela. Transportation costs are Rs.10-20 per packet of 50-70
kg. Unloading costs are Rs.2 per packet and are borne by the farmer.

Weighing is done by kaantawalas. Weighing charges are Rs. 5 per quintal, which are
borne by the buyers. Loading charges are Rs. 2 per packet and are borne by the buyer.

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Traders transport the material in vehicles of various capacities. The cost of

transportation to Patna in a 3 MT Tata pickup is about Rs. 600.

The various products traded in the mandi, season and estimated volume per day in the
season is summarized in the table below.

Product Estimated volume handled per day (MT)

Brinjal 10
Cauliflower 20
Okra 10
Cabbage 20
Gourds 20
Source: IL&FS -CDI field study

The various products that are traded outside mandi (directly at farm), estimated
volume and season are summarized in the table below:

Product Estimated volume (MT)

Potato 30000
Onion 20000
Mango 5000
Source: IL&FS -CDI field study

5.3.2 Agri Input Market of Mahua:

The table below summarizes the size of agri input market of Mahua.

Number of dealers of inputs 20

Estimated Urea market 1000 MT Rs. 50 lakh
Estimated DAP and complex market 450 MT Rs. 45 lakh
Estimated MOP market 150 MT Rs. 7.5 lakh
Estimated Seed market Rs. 100 lakhs
Estimated Pesticide market Rs. 200 lakhs
Number of Dealers for tractors 0
Cash credit sales More than 90 % of transactions on cash

The estimated market size of agri inputs excluding tractors and irrigation equipment
and the associated services is close to Rs. 400 lakhs.

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5.3.3 Existing dynamics of Production, Agri input markets, Agri output markets
and Storage – Implications on Mahua RABC

# Parameter Implication for RABC

A Production and harvesting – Affecting Procurement

1 Small Land holding Smaller lot size. Challenges in consolidation and standardization

Production of cash crops like Higher cost of , higher risk taking capability of the producers, higher
2
vegetables, tobacco scope for value addition, larger and spread agri input market size

These affect the quality and also increase the cost of packaging to
Packaging in bamboo baskets, farmers. Introducing crates and encouraging the farmers to use the
3
Gunny bags crates will be very beneficial. In fact, this can be the single most
important intervention to maintain quality and reduce wastages.

B Agri Input market

Non-availability of complex Leads to black marketing - Ideal opportunity for an organized player
1
fertilizer on time to induce foot falls.

Use of generic molecules in

2 Scope for intervention and use of new pesticides high
Pesticides

Easy to enter the market as credit sales cannot be entertained by

3 Cash Sales - 90 % organized players. And the RABC can target larger market by
providing credit sales.

C Marketing

Location of RABC within the catchment of the production or setting

Transportation by thela,
1 of village level consolidators or centres may be needed. May need to
bullock cart etc
provide transportation some times.

Price discovery is by negotiation. Price setting will be very difficult as

Price discovery - many
2 the possibility of finding model price will be difficult, at least in the
unknowns
initial period.

Extremely difficult for organized player, planning to deal in hundreds

Sales of products like
3 of tonnes, using numbers. Difficulty in arriving buying price. Need to
cauliflower in numbers
educate the farmers.

This is a good as well as bad. Good because, the farmers are used to
selling the produce to the buyers directly and hence there will be ready
No commission agents
4 takers for RABC. Bad – the marketing costs are lower for the farmer
and the disintermediation margin does not exist.

Need to make cash payments. Payments by cheques may not be

Cash payments to farmers
5 acceptable. Need to develop a mechanism to make payments to
most of the time
farmers in cash.

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Cash purchase by traders most

6 Receipts will be in cash. Need to consider this in the business plan.
of the time

Loading and Unloading Borne by the buyer as well as sellers. Need to incorporate in the
7
charges pricing appropriately.

D Storage

Grain production is mostly for self consumption in the immediate

1 No storage facility for grains
catchment. Grain storage not recommended.

5.4 Business Plan for the RABC in Mahua

Based on the above analysis on various aspects of RABC model, the following
strategy is suggested

5.4.1 Procurement and Marketing Plan – Products and Expected Margin

The focus products in Mahua are vegetables and fruits. The catchment area for this
RABC consists of the blocks of Mahua, Patepur, Jandaha, Guraul, Lalgunj and
Bhagwanpur. Based on the production details of grains, vegetables and fruits in the
above mentioned blocks and estimated market surplus and linkages from field study,
it is estimated that the RABC will be able to handle the following products and
quantities.

Table below summarizes the focus products, estimated volume per annum and
expected gross margins per MT of product.

Product Estimated Qty (MT) Expected margin Rs. per MT

Vegetables 8000 500
Mango 3500 2000
Litchi 300 5000
Banana 300 500

Seasonality: The products selected are well spread throughout the year as can be
observed from table below.

Product Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Onion
Litchi
Banana

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Mango
Potato
Cauliflower
Brinjal
Okra

Peak Arrivals
Off peak arrivals

5.4.2 Agri Input sales:

The estimated agri input sale and estimated margin from sale of agri inputs are
summarized in the table below:

Product Estimated Sales Estimated margin

Urea 200 MT Rs.100 per MT
DAP/ Complex 100 MT Rs. 200 per MT
MOP 50 MT Rs. 100 per MT
Seeds Rs. 05 lakhs 30 %
Pesticides Rs. 20 Lakhs 20 %

5.4.3 Facilities Suggested for Primary processing, Storage and Other Services

Apart from the shop floor for selling of agri inputs, the following facilities are
suggested at Mahua for handling of agri output. Justification for setting up the facility
and the individual capacity is summarized in the table below.

# Facility Capacity Justification

Multi product 3 MT per Since a range of products will be handled,

1
grading line hour multi product handling line will be ideal.

Pack house cold

2 250 MT For transit storage and storage of produce.
room

For transit storage of cauliflower, okra, brinjal

Primary processing
3 500 sq m - All the products are high volume low density
hall
products, hence more handling space needed.

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Since it is proposed that all products except

4 Crate washing line 1
onion and potato will be handled in crates.

Shop floor for sale For display and sale of agri inputs and
5 150 sq m
of agri inputs administration

Godown for
6 100 sq m For storage of fertilizer
fertilizer

Fumigation Line-2
7 1 For enhancing the shelf life of Litchi
MT/ Hr

De-saping/
8 1 For Mango
Fungicide tank

Since it is proposed that all products will be

9 Weighing line 1
purchased by weight.

5.4.4 Project Cost:

Description Amount (Lakh Rs)

Land (2 Acres @ Rs. 10 Lakh/Acre) 20.00
Land Development (2 Acres @ Rs. 10 Lakh/Acre) 20.00
Buildings (Approx 1100 sq. m) 61.25
Plant & Machinery* 67.00
Miscellaneous Fixed Assets* 21.44
Preliminary and Pre-Operative Expenses* 5.21
Contingencies (5% of the above costs) 8.48
Margin Money for Working Capital* 4.02
Total Project Cost 207.40
* Assumptions and details given in Chapter 13.

5.4.5 Means of finance:

Particulars Amount (Lakh Rs)

Equity 30% 62.22
Grant from GoB 35% 52.59
Debt Remaining 92.59
Total 207.40

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5.4.6 Profit and Loss statement#

Year 1 2 3 4 5 6 7
Capacity Utilization 50% 60% 75% 90% 90% 90% 90%
(Lakhs Rs)
Revenue 409.79 491.75 614.68 737.62 737.62 737.62 737.62
Expenses
Raw Material (Agri Inputs) 343.24 411.88 514.85 617.82 617.82 617.82 617.82
Water 0.39 0.47 0.59 0.70 0.70 0.70 0.70
Power & Fuel 4.32 5.18 6.48 7.78 7.78 7.78 7.78
Employee Cost 13.58 14.26 14.97 15.72 16.51 17.33 17.33
Insurance 0.75 0.75 0.75 0.75 0.75 0.75 0.75
Admin & Selling Overheads 4.10 4.92 6.15 7.38 7.38 7.38 7.38
Total Expenses 366.37 437.46 543.78 650.15 650.93 651.76 651.76
EBITDA 43.42 54.29 70.90 87.47 86.69 85.86 85.86
Interest on term loan 12.96 12.96 12.48 11.18 9.88 8.59 7.29
Interest on working capital borrowings 1.81 2.17 2.72 3.26 3.26 3.26 3.26
Depreciation 11.61 11.61 11.61 11.61 11.61 11.61 11.61
PBT 17.04 27.55 44.10 61.43 61.94 62.41 63.70
Tax 4.21 8.53 14.79 21.23 21.87 22.43 23.21
Net Profit (PAT) 12.83 19.02 29.31 40.20 40.07 39.98 40.50
# Assumptions are given in Chapter 13.

5.4.7 Financial Performance Indicators

Year 1 2 3 4 5 6 7
EBITDA Margin 10.59% 11.04% 11.53% 11.86% 11.75% 11.64% 11.64%
PAT margin 3.13% 3.87% 4.77% 5.45% 5.43% 5.42% 5.49%
Debt-Equity Ratio 0.73 0.63 0.47 0.34 0.25 0.19 0.14
Debt to EBITDA ratio 2.41 1.97 1.43 1.10 1.00 0.90 0.79
Interest Coverage Ratio 2.65 3.02 3.69 4.59 4.93 5.35 5.94
DSCR 2.65 3.02 2.29 2.80 2.89 3.01 3.16
Average DSCR 2.76
Project IRR 15.97%

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6. RABC at Dalsinghsarai, Samastipur District

6.1 District Profile
Samastipur is located centrally in Bihar and it covers an area of 2904 sq. km. The
district is bordered by River Bagmati on the north separating it from Darbhanga
district. River Ganges forms the southern border of the district while on the east it is
bounded by the districts of Begusarai and parts of Khagaria and on the west by
Vaishali and some parts of Muzaffarpur. Apart from Ganges and Bagmati, other rivers
that flow through the district are Budhi Gandak and Kamala Balaan.

The district has 20 blocks and the head quarter is located at Samastipur town. The
population of the district is 33.94 lakhs (2001 Census) with a population density of
1196/sq. km. The ratio of rural population is very high with only 3.64% of the
population staying in urban areas. The literacy rate is 45.13% which is lower than the
national average.

Samastipur has rich fertile alluvial soil and agriculture is the major economic activity
of the district. The major crops which are grown in the district are paddy, wheat,
mango, banana and potato. In 1997-98, the gross irrigated area in Samastipur was
1.07 lakh ha although the main source of irrigation is tube wells.

Dalsinghsarai has been identified as the potential location for setting up RABC in
Samastipur.

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6.2 Agriculture Sector

6.2.1 Area and production

In 2005-06, Samastipur produced about 5.19 lakh MT of grains from a total area of
about 2 lakh hectares under grain cultivation. The fruit and vegetable production
(including potato) was over 6.5 lakhs MT. A brief summary of various crops in
Samastipur is given below.

Category Area (ha) Production (MT)

Cereals 197381 508896
Pulses 2024 10589
Total grains 199405 519485
Vegetables 29373 475936
Fruits 17486 234250
Potato 13270 274424
Total fruits and vegetables 60129 984610
Source: Department of Agriculture, GoB

6.2.2 Comparison of Crop Mix - Samastipur Vs Bihar

The comparison of area of crop mix for Samastipur and Bihar shows a skewed pattern
towards fruit and vegetable production. While cereals in Samastipur occupy almost
same percentage of area as compared to Bihar but pulses occupy much less area.
Fruits, vegetables and potato cover more area than that of Bihar as a whole thus
showing more stress on horticultural crops in comparison to the state.

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6.2.3 Block wise crop wise Acreages of Major Crops:

The block wise area in Ha under major crops is summarized in the table below.

Blocks Paddy Wheat Turmeric Mango Litchi Banana

Samastipur 6325 3253 290 725 50 76
Pusa 3115 2499 172 1530 60 98
Kalyanpur 7945 2951 125 845 75 87
Warisnagar 3095 2933 60 450 30 65
Khanpur 3195 2497 42 360 25 27
Morwa 3595 2567 115 570 40 90
Tajpur 3668 2553 30 425 35 25
Patori 4315 1062 50 360 105 60
Mohanpur 845 1498 60 200 45 15
Sarairanjan 4995 2967 90 600 70 80
Dalsinghsarai 3895 2491 195 327 25 107
Vidyapatinagar 3295 1928 105 463 35 85
Ujiyarpur 5295 2991 165 540 40 86
Mohiuddinnagar 3395 3200 40 270 40 85
Rosara 3595 3206 105 795 65 65
Shivajinagar 3915 2498 65 400 30 70
Hasanpur 5268 2925 50 360 55 50
Bithan 4395 1499 55 150 25 25
Bibhutipur 5668 3912 85 900 85 109
Singhia 4668 2100 8 565 33 67
Total 84482 51530 1907 10835 968 1372

6.2.4 Agricultural Produce of Samastipur

6.2.4.1 Cereal and Pulses

The marketable surplus in the district is very less which is in the range of 40-50% (i.e.
about 0.8 to 1 Lakh MT) of the production. There are no large mandis although there
are some dealings in grain in Samastipur, Dalsinghsarai and Tajpur mandis.

6.2.4.2 Fruits and Vegetables

The major horticultural crops of the district are mango, banana, litchi, cauliflower,
potato and cabbage. The major mandis and the products handled have been
summarized in the table below.

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Mandi Major produce

Dalsinghsarai Potato, Vegetables, Mango
Samastipur Cereals, Potato, Mango
Tajpur Turmeric, Vegetables
Rosra Mango, Litchi, Vegetables
Singhia Potato, Vegetables, Mango
Source: IL&FS -CDI field study

The details of market dynamics for the selected locations have been discussed in
detail later.

6.2.5 Agriculture Inputs of Samastipur

The agri input market of Samastipur district is summarized in the table below.

Agri input Particulars Remarks

Number of Wholesaler-retailer-farmer is the supply chain as
20 in other parts of the state. Each panchayat of 4-5
wholesalers
villages has 3-4 retailers
Urea 55734 Shortage of fertilizer in peak season rampant.
DAP 9223 Better availability can increase consumption. Sale
Fertilizers of fertilizer at higher than MRP seen in villages.
(MT) NPK 5832 Highly skewed use of Urea. DOC consumption
MOP 5410 also present for Tobacco.
SSP 510
Paddy -HYV 5000 Hybrid paddy seed consumption on an increasing
Paddy hybrid 200 trend. One of the largest maize seed markets in the
state.
Seeds (MT) Wheat 1800
Maize 4000
Vegetables 30
Endosulphan 5 KL
Characterized by sale of generic molecules like
Chloropyriphos 4-5
Monocrotophos, Endosulfan, Profenopos, Cyper
KL
methrin, Mancozeb, Metalxyl etc. Weedicides
Trizophos 4 KL
include 2-4D, Glyphosate and Butachlor. Scope
Pesticides ( Cypermethrin 3-4 for introduction of new and better molecules.
KL) KL Estimated market size is Rs. 6-8 crores.
Quinalphos 3 KL
Profenophos 2-3
KL
Mancozeb 100
(MT)

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MZ + 20
Metalaxyl MT
Tractor All most all major tractor manufactures have a
8-10
Dealers dealer in the district. Tractor penetration is 3-5
tractors per panchayat.

6.2.6 Agri Warehousing and Cold storages - Samastipur

There are 13 operational cold storages in the district and 4 are under construction. The
total installed capacity is about 378503 cu. M or 1.25 lakh MT. Potato is the only
product stored in most of the cold storages. Only few cold storages which are near
Samastipur sometimes stock fruits such as apple, oranges etc. The usual storage
season for potato is from March to October/November. For the rest of the year, cold
storages remain empty.

Cold storage charges range between Rs. 140 and Rs. 150 per quintal of produce per
season. Loading and unloading charges are similar to other parts of the state. Cold
storeowners provide credit facilities to the farmers/traders against the produce stored.

6.3 Location Analysis of Dalsinghsarai

Dalsinghsarai is located 30 km south-west of Samastipur on NH- 28. It is the second
most important commercial centre in the district after Samastipur. It is well connected
by road and rail to other parts of the state. The various crops that are produced and
traded include cauliflower, brinjal, okra, potato, yam, maize, turmeric and tobacco.

6.3.1 Agri Output Market in Dalsinghsarai:

Dalsinghsarai has a mandi in the town dealing with fruits

and vegetables only. It is a private mandi spread in about
5 acres of land. The internal roads are lined with bricks,
but the condition of road turns very bad in rainy season.
There are no concrete platforms for trading. There are
about 100-125 commission agents in the mandi. The
individual commission agents have built their own shops.
The commission agents pay a rent of Rs. 600 per month
to the land lord. The produce arrivals are from
surrounding blocks of Samastipur and Begusarai districts.

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The major blocks/villages in the catchment area are Jamunataal, Mukhtiyarpur,

Tajpur, Salkhoni, Basarai. Farmers bring the produce using their own mode of
transportation depending on the distance and volume of product. The usual destination
markets are Luckisarai, Begusarai, Siliguri, Navada and some parts of UP. For maize
there are 4-5 traders who also deal in wheat and other crops.

The major products traded in the mandi, season and estimated volume per day in the
season are summarized in the table below.

Product Estimated volume handled per day( MT)

Brinjal 20
Cauliflower 30
Okra 10
Cabbage 20
Gourds 30
Mango 20
Source: IL&FS -CDI field study

The various products that are traded outside mandi (directly at farm) in the catchment
area, their estimated volume and season are summarized in the table below:

Product Estimated volume (MT)

Potato 20000
Mango 3000
Turmeric 2000
Maize 40000

6.3.2 Agri Input Market of Dalsinghsarai:

The table below summarizes the size of agri input market of Dalsinghsarai.

Number of dealers of inputs 15

Estimated Urea market 4000 MT 200
Estimated DAP and complex market 1500 MT 150
Estimated MOP market 800 MT 40
Estimated Seed market Rs. 200 lakhs
Estimated Pesticide market Rs. 300 lakhs
Number of Dealers for tractors 0
Cash credit sales More than 90 % of transactions on cash
Organised Warehousing for Fertilisers 0

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The estimated market size of agri inputs excluding tractors and irrigation equipment
and the associated service is close to Rs. 900 lakhs.

6.3.3 Existing dynamics of Production, Agri input markets, Agri output markets
and Storage – Implications on Dalsinghsarai RABC.

# Parameter Implication for RABC

A Production and harvesting – Affecting Procurement

Higher cost of production, higher risk taking capability of the

1 Production of cash crops producers, higher scope for value addition, larger and well spread agri
input market.

These affect the quality and also increase the cost of packaging to
Packaging in bamboo baskets, farmers. Introducing crates and encouraging the farmers to use the
2
Gunny bags crates will be very beneficial. In fact, this can be the single most
important intervention to maintain quality and reduce wastages.

B Agri input Markets

Leads to black marketing - Ideal opportunity for an organized player

Non - availability of complex
1 to induce foot falls. Excessive use of Urea. Scope for extension
fertilizer on time
services

Use of generic molecules in

2 High scope for intervention and use of new pesticides
Pesticides

Easy to enter the market as credit sales cannot be entertained by

3 Cash purchases > 90 % organized players. And the RABC can target larger market by
providing credit sales.

# Parameter Implication for RABC

C Agri output Marketing

Transportation by thela, Location of RABC within the catchment of the production or setting
1 bullock cart in case of of village level consolidators or centres may be needed. May need to
vegetables etc provide transportation for some time (at least a couple of seasons).

The village level traders complete the sale transaction, makes forward
sale with a trader based at Dalsighsarai. This trader in turn closes the
sale at a destination market. The trader sends the vehicle directly to
Purchase of maize from farm the farmers place for loading. The produce is handled only once and it
2
gate/ farmers home reaches the final customer. Extremely efficient logistics– No handling
charges, no sunk cost of transportation for farmer as in mandi sales.
However, price discovery is the key. Understanding of destination
markets’ price movement extremely important for RABC.

Price discovery - many

3 Price discovery is by negotiation. Buying Price fixation will be very
unknowns difficult as the possibility of finding model price is difficult. Need to

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work with traders for a couple of seasons.

The commission charges are fixed on volume and not on price.

Extremely competitive, disintermediation margin is Only Rs. 50 per
Commission charges in
quintal. Commission agent has no incentive to increase the price and
4 vegetables @ of Rs. 50 per
hence the chances of getting good price for the farmer are limited.
quintal.
Need to find other differentiators like service to get produce from
farmers.

Need to make cash payments. Payments by cheques may not be

Cash payments to farmers
5 acceptable. Need to develop a mechanism to make payments to
most of the time
farmers in cash.

Cash purchase by traders most

6 Receipts will be in cash. Need to consider this in the business plan.
of the time

Loading and Unloading Borne by the buyer as well as seller. Need to incorporate in the pricing
7
charges appropriately.

D Storage

Due to large volumes of maize and other gains and pulses the grain
1 No storage facility for grains
storage is recommended at Dalsinghsarai.

6.4 Business Plan for the RABC in Dalsinghsarai

The focus products in Dalsinghsarai are grains, vegetables and mango. The catchment
area for this RABC consists of the blocks of Morwa, Patori, Tajpur, Rosara, Vidyapati
nagar, Sarai ranjan, Dal Singhsarai and Ujiyarpur. Based on the production details of
grains, vegetables and fruits in the above mentioned blocks and estimated market
surplus and linkages from field study, it is estimated that the RABC will be able to
handle the following products and quantities.

Table below summarizes the focus products, estimated volume per annum and
expected gross margins per MT of product.

6.4.1 Procurement Plan – Products and Expected Margin

Product Estimated volume (MT) Expected margin Rs. per MT

Grains 10000 1000
Vegetables 2500 750
Mango 200 2000
Seasonality: The products selected are well spread throughout the year as can be
observed from table below.

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Product Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Brinjal
Cauliflower
Okra
Cabbage
Potato
Mango
Grains

Peak Arrivals
Off peak arrivals

6.4.2 Agri Input Sales

Table below summarizes the estimates sales and expected margins from sale of agri
inputs.

Product Estimated Sales Estimated margin

Urea 400 MT Rs. 100 per MT
DAP/ Complex 150 MT Rs. 200 per MT
MOP 80 MT Rs. 100 per MT
Seeds Rs. 20 lakhs 30 %
Pesticides Rs. 30 lakhs 20 %

6.4.3 Facilities Suggested for Primary Processing, Storage and Other Services:

Apart from the shop floor for selling of agri inputs, the following facilities are
suggested at Dalsinghsarai for handling of agri output. Justification for setting the
facility and the individual capacity is summarized in the table below.

# Facility Capacity Justification

Multi product 2 MT per Since a range of products will be handled, multi

1
grading line hour product handling line will be ideal.

Multi chamber
2 100 MT Transit storage and storage of unsold produce.
Cold storage

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Primary For transit storage of Cauliflower, Okra, Brinjal -

3 processing 200 sq MT All the products are high volume low density
hall products, hence more handling space needed.

Crate Washing Since it is proposed that all products except maize

4 1
line and grains will be handled in crates.

Shop floor for

For Display and sale of agri inputs and
5 sale of agri 150 sq m
Administration
inputs

Godown for
6 100 sq m For storage of fertilizer
fertilizer

Storage for
7 5000 MT For storage of grains, transit storage
grains

Since it is proposed that all products will be

8 Weighing line 1
purchased by weight.

6.4.4 Project Cost

Description Amount (Lakhs Rs)

Land (2 Acres @ Rs. 5 Lakhs/Acre) 10.00
Land Development (2 Acres @ Rs. 5 Lakhs/Acre) 10.00
Buildings (Approx 3500 sq. m @ Rs.6500/sq. m) 216.25
Plant & Machinary* 38.00
Miscellaneous Fixed Assets* 14.34
Preliminary and Pre-Operative Expenses * 6.23
Contingencies (5% of the above costs) 13.93
Margin Money for Working Capital* 12.29
Total Project Cost 321.04
* Assumptions and details are given in Chapter 13.

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6.4.5 Source of Finance

Particulars Amount
Equity 30% 96.31
Grant from GoB 35% 102.36
Debt Remaining 122.36
Total 321.04

6.4.6 Profit and Loss statement#

Year 1 2 3 4 5 6 7
Capacity Utilization 40% 50% 75% 90% 90% 90% 90%
(Lakhs Rs)
Revenue 539.74 674.68 1012.01 1214.42 1214.42 1214.42 1214.42
Expenses
Raw Material (Agri Inputs) 454.73 568.41 852.62 1023.14 1023.14 1023.14 1023.14
Water 0.26 0.33 0.50 0.59 0.59 0.59 0.59
Power & Fuel 3.46 4.32 6.48 7.78 7.78 7.78 7.78
Employee Cost 11.85 12.44 13.07 13.72 14.41 15.13 15.13
Insurance 1.34 1.34 1.34 1.34 1.34 1.34 1.34
Admin & Selling Overheads 5.40 6.75 10.12 12.14 12.14 12.14 12.14
Total Expenses 477.04 593.59 884.12 1058.72 1059.40 1060.12 1060.12
EBITDA 62.70 81.08 127.89 155.70 155.01 154.29 154.29
Interest on term loan 17.13 17.13 16.49 14.78 13.06 11.35 9.64
Int. W. Cap Borrowing 5.53 6.91 10.37 12.44 12.44 12.44 12.44
Depreciation 12.87 12.87 12.87 12.87 12.87 12.87 12.87
PBT 27.16 44.16 88.16 115.61 116.63 117.63 119.34
Tax 8.30 14.59 29.99 39.70 40.39 41.02 41.86
Net Profit (PAT) 18.87 29.58 58.18 75.91 76.25 76.61 77.48
# Assumptions given in Chapter 13

6.4.7 Financial Performance Indicators

Year 1 2 3 4 5 6 7
EBITDA Margin 11.62% 12.02% 12.64% 12.82% 12.76% 12.71% 12.71%
PAT margin 3.50% 4.38% 5.75% 6.25% 6.28% 6.31% 6.38%
Debt-Equity Ratio 0.56 0.50 0.36 0.26 0.19 0.14 0.10
Debt to EBITDA ratio 2.54 2.08 1.40 1.16 1.09 1.01 0.93
Interest Coverage Ratio 2.40 2.77 3.65 4.26 4.49 4.76 5.09
DSCR 2.40 2.77 2.50 2.94 3.04 3.14 3.28
Average DSCR 2.83
Project IRR 15.35%

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7. RABC at Motipur & Bahadurpur,

Muzaffarpur District
7.1 District Profile
Muzaffarpur is located in North-west alluvial plain zone and it covers an area of 3122
sq. km. This district is bounded in the north by Sitamarhi and East Champaran, in the
south by Vaishali and Chapra, in the east by Darbhanga and Samastipur and in the
west by Saran and Gopalganj. The important rivers of the district are Baghmati, Burhi
Gandak, its tributary the Lakhandai and the Baya.

The district has 16 blocks and the head quarter is located at Muzaffarpur town. The
population of the district is 41.80 lakhs (2001 Census) with a population density of
1340/sq. km. The ratio of rural population is very high with only 6.5 % of the
population staying in urban areas.

Muzaffarpur has a natural river system which has formed distinct tracts. These tracts
are richest, most fertile and productive tracts of the district consisting of large blocks
of upland, midland and chaurs (waterlogged lowland).

The major crops which are grown in the district are mango, litchi, banana, potato,
vegetables, paddy, maize and wheat. The total effective irrigated area in this district is
1.21 lakh ha and private tube wells accounts for more than 90 % of irrigated area. The

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canal irrigation accounts for 4% only and is fed from the canal system of Gandak
command in the west and south west part of the district.

Motipur and Bahadurpur (Gaighat Block) have been identified as potential locations
for RABCs in Muzaffarpur.

7.2 Agriculture Sector

7.2.1 Area and production

With a total area of just under 3 lakh hectares, Muzaffarpur produced 4.7 lakh mt of
grains in 2005-06. The fruit and vegetable production (including potato) was over 10
lakh mt in 2005-06. A brief summary of various categories crops in Muzaffarpur is
given below.

Category Area (ha) Production (mt)

Cereals 267718 453912
Pulses 30035 19383
Total grains 297753 473295
Vegetables 27865 444894
Fruits 25253 346009
Potato 11.79 228250
Total fruits and vegetables 53130 1019153
Source: Dept. of Agriculture, GoB

7.2.2 Comparison of Crop Mix - Muzaffarpur Vs Bihar

The percentage area under fruits is almost double the percentage of state’s coverage
under fruits. Vegetable coverage is slightly higher than that of the state. Coverage of

Potato 4
3

Fruits 4
7

Vegetables 6
8

11
Pulses 8

76
Cereals 74

0 10 20 30 40 50 60 70 80

MZFR Bihar

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pulses and grains is lower than that of the state.

7.2.3 Land Holding pattern in the district:

76 % of the farmers in Muzaffarpur are small and marginal. This pattern of smaller
land holding has implications on marketable surplus, production practices and crop
mix.

Land Holding Number of Farmers % of farmers

Very large 913 1
Large 4266 4
Medium 18126 19
Small & Marginal 73317 76
Total 96622
Source: Department of Agriculture, Muzaffarpur

Smaller land holding patterns bring down the marketable surplus in staple grains.
Owing to the suitability of land and climate for cultivation of fruits crops, large areas
have been brought under fruit crops cultivation even by small farmers. This makes
Muzaffarpur the largest producer of horticultural crops in the state. During the field
study intensive cultivation was observed in non- flood affected regions of the district.

7.2.4 Block wise crop wise acreages of major crops:

The block wise area in Ha under major crops is summarized in the table below.

Block Paddy Maize Wheat Mango Litchi Banana

Mushahari 7600 2000 7000 860 1002 369
Muraul 6000 2000 5000 620 413 387
Sakara 7700 2500 3500 807 367 293
Bandara 6000 2450 5000 NA NA NA
Gaighat 7200 2500 7500 776 491 288
Bochahan 7700 2900 7000 367 420 385
Aurai 8000 2300 7000 770 264 312
Katara 6000 2400 7000 635 283 348
Minapur 7000 2300 7000 518 895 379
Sahebgunj 7500 2300 3000 344 319 393
Motipur 8000 2700 7000 468 317 486
Kanti 8000 2500 7000 1246 1053 206
Paroo 9000 2800 7000 530 456 329
Saraiya 8105 2500 6000 603 648 387
Madwan 5000 2124 3000 NA NA NA

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Kudhani 10500 3500 6000 697 500 288

Total 119305 39774 95000 9241 7428 4850
Source: Department of Agriculture & Dept of Horticulture, GoB

7.2.5 Agricultural Produce of Muzaffarpur

7.2.5.1 Cereal and Pulses

Our assessment is that the marketable surplus in the district is very less and is in the
range of 35-40% (i.e. about 1 to 1.2 lakh mt) of the production. Bulk of the
marketable surplus is of maize and wheat. There are no sizable or large mandis and
Muzaffarpur, Turki, Motipur, are few mandis dealing with grains.

7.2.5.2 Fruits and Vegetables

Muzaffarpur is the litchi capital of the country. The major horticultural crops grown in
the district are litchi, banana, mango, cauliflower, tomato, potato, okra and gourds.

The major mandis and the products handled have been summarized in the table below.

Mandi Major Products Handled

Minapur Banana, Litchi and Vegetables
Dholi Litchi, Mango and Vegetables
Mashodi Litchi, Mango and Vegetables
Sarain Mango, Vegetables especially Pointed Gourd & Okra
Turki ( Gaighat) Litchi, Cauliflower, Vegetables
Motipur Vegetables, Mango
Source: IL&FS -CDI field study

Market dynamics for the selected locations have been discussed in detail later.

7.2.6 Agriculture Inputs of Muzaffarpur

The agri input market of the district is summarized in the table below:

Agri input Particulars Remarks

Number of Characterized by large wholesalers unlike other

wholesalers 15 districts.

Urea 45000 Shortage of fertilizer in peak season rampant. Major

Fertilizers
(MT) DAP 20000 trading centre. Government figures of sale likely to
be higher, since inter district movement to Northern

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NPK 10000 Bihar is very high. Sales of fertilizer at a price higher

than MRP seen at village level retailers.
MOP 7500

SSP 500

Paddy –HYV 6000

Seeds Paddy hybrid 200

(MT) Hybrid paddy seed consumption on an increasing
Wheat 4000 trend. One of the largest maize seed markets in the
state
Maize 1000

Rs. 2
Vegetables crores .

Characterized by sale of generic molecules like other

Pesticides Rs. 8-10 Crores parts of the state.

Tractor All most all major tractor manufactures are present.

Dealers 7 Tractor penetration is 3-5 tractors per panchayat

Source: IL&FS -CDI field study

7.2.7 Agri Warehousing and Cold storages – Muzaffarpur

In case of cereals, farmers have very low marketable surplus hence the storage of
grains in organized warehouses is extremely low. In fact, there are no warehouses for
storage of grains.

The district has 10 cold storages with an installed capacity of 0.4 lakh metric tonnes.
Most of the cold storages are involved in the storage of potato only. There are few
small cold stores that stock Litchi for a short time.

The charges for cold storage are Rs 140 to 150 per quintal per season. The storage
season is from March to October. Apart from the rentals, loading and unloading
charges are collected from the farmers which are in the range of Rs 2 to 2.50 per
quintal for each loading or unloading operation. Many cold store owners lend money
to farmers which may amount up to 60 % of the product value at an interest rate of
24% per annum.

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In the middle of the storage period, the positions of the sacks are interchanged to
facilitate better storage and the operation is locally called “Palti”. The labour cost for
“Palti” is about 70 paisa per sack and is borne by the cold storage owner.

7.3 Location Analysis - Motipur

Motipur is located about 30 km northwest of
Muzaffarpur on NH-48 and it is well connected by a four
lane road to Muzaffarpur. It is the second most important
commercial centre in the district after Muzaffarpur town.
It is well connected by road and rail to other parts of the
state. The various crops that are produced and traded in
Motipur include litchi, mango, cauliflower, okra, potato,
tomato, cabbage and gourds.

7.3.1 Agri Output Market in Motipur:

Motipur has a mandi in the middle of the town

dealing with fruits and vegetables only. It is
community owned mandi and the mandi is
spread in about 1 acre of land. Under the
PURA scheme 16 concrete platforms have
been constructed in the mandi last year. The
mandi has an attached retail market for the
local consumers. It is a biweekly market operating on Wednesdays and Saturdays.
However, small volumes are traded on the other days also. There are no commission
agents in the mandi for vegetables. There are 8-10 commission agents dealing with
fruits. The arrivals of produce are from surrounding blocks of Kanti, Madhukar
Chhapra, Mehsi and Motipur.

Farmers bring the produce using their own mode of transportation depending on the
distance and volume of product. Many farmers own their thela, by which they
transport the produce to the mandi.

This is one of the largest mandi for trading of litchi and mango in Muzaffarpur.

The major products traded in the mandi, season and estimated volume per day in the
season is summarized in the table below.

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Product Peak arrivals Season Estimated volume handled per day( mt)
Tomato Aug – Dec 30
Cauliflower Nov- Feb 20
Okra May – June, Oct – Nov 10
Cabbage Nov-Jan 20
Gourds All through year 40
Litchi Apr- May 30
Mango June- July 30
Source: IL&FS -CDI field study

The various products that are traded outside mandi (directly at farm) in the catchment
area, their estimated volume and season are summarized in the table below:

Product Peak Season Estimated volume (mt)

Potato Mar – Oct 20000
Mango June – July 3000
Litchi Apr – May 10000
Cauliflower Nov – Feb 500
Source: IL&FS -CDI Field survey

7.3.2 Agriculture Input Market of Motipur

The table below summarizes the size of agri input market of Motipur.

Number of dealers of inputs 16

Estimated Urea market 4500 mt 220

Estimated DAP and complex market 2000 mt 200

Estimated MOP market 1000 mt 50

Estimated Seed market Rs. 150 lakhs

Estimated Pesticide market Rs. 200 lakhs

Number of Dealers for tractors 0

Cash credit sales More than 90 % of transactions on cash

Organized warehousing for Fertilizers 0

Source: IL&FS -CDI Field survey

The estimated market size of agri inputs excluding tractors and irrigation equipment
and the associated service is close to Rs. 720 lakhs.

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7.3.3 Existing dynamics of Production, Agri input markets, Agri output markets
and Storage – Implications on Motipur RABC

# Parameter Implication for RABC

A Production and Harvesting – Affecting procurement

1 Small land holding Smaller lot size. Challenges in consolidation and standardization.

Higher cost of production, higher risk taking capability of the

2 Production of cash crops producers, higher scope for value addition, larger and well spread agri
input market.

Will need some extension work to motivate the farmers to keep the
Harvesting and post harvest
produce till harvesting stage, harvest the produce and market it on
3 handling by labour contracted
their own. To start with some contractors may have to be hired by
by the trader as in litchi
RABC as well.

These affect the quality and also increase the cost of packaging to
Packaging in bamboo baskets, farmers. Introducing crates and encouraging the farmers to use the
4
Gunny bags, Wooden boxes. crates will be very beneficial. In fact, this can be the single most
important intervention to maintain quality and reduce wastages.

B Agri input Market

Non - availability of complex Leads to black marketing - Ideal opportunity for an organized player
1
fertilizer on time to induce foot falls.

Easy to enter the market as credit sales cannot be entertained by

2 Cash purchases - 80 % organized players. And the RABC can target larger market by
providing credit sales.

C Marketing

70-80 % of the trade happens through these traders, who are in turn
attached to wholesaler/ CA in Delhi, Lucknow, and Mumbai. This is
primarily a risk mitigation strategy to reduce risks associated with
litchi marketing as the harvesting window (and hence trading window)
1 Pre-harvest sale of litchi
for litchi is just one month. Assured buy back to the farmers at a pre-
agreed price and extension work to help them in upkeep of farm
during flowering to harvesting needed to give confidence to the
farmers.

Location of RABC within the catchment of the production or setting

Transportation by thela,
2 of village level consolidators or centres may be needed. May need to
bullock cart etc
provide transportation for some time (at least a couple of seasons).

Price discovery is by negotiation. Buying Price fixation will be very

Price discovery - many
3 difficult as the possibility of finding model price is difficult. Need to
unknowns
work with traders for a couple of seasons.

4 No commission agents in This is a good as well as bad. Good because, the farmers are used to

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vegetables selling the produce to the buyers directly and hence there will be ready
takers for RABC. Bad – the marketing costs are lower for the farmer
and the disintermediation margin does not exist.

Need to make cash payments. Payments by cheques may not be

Cash payments to farmers
5 acceptable. Need to develop a mechanism to make payments to
most of the time
farmers in cash.

Cash purchase by traders most

6 Receipts will be in cash. Need to consider this in the business plan.
of the time

D Storage

Huge scope for intervention in flood affected areas. However, the per
1 No storage facility for grains capita volumes are low hence grain storage not recommended at
Motipur.

7.4 Business Plan for the RABC in Motipur

Based on the above analysis on various aspects of RABC model, the following
strategy is suggested.

7.4.1 Procurement and Marketing Plan – Products and Expected Margins

The focus products in Motipur are mango and litchi. The catchment area for this
RABC consists of the blocks of Motipur, Kanti and Minapur. Based on the production
details of the fruits in the above mentioned blocks and estimated market surplus and
linkages from field study, it is estimated that the RABC will be able to handle the
following products and quantities. Table below summarizes the focus products,
estimated volume per annum and expected gross margins per MT of product.

Product Estimated volume per annum Expected margin Rs. per mt

Litchi 2000 7500
Mango 3000 2000

Seasonality: The seasonality of the products can be observed from table below.

Product Ja Feb Ma Ap Ma Ju Jul Au Sep Oct No De

Mango
Litchi

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Peak Arrivals
Off peak arrivals

7.4.2 Agri Input Sales

Table below summarizes the estimates sales and expected margins from sale of agri
inputs.

Product Estimated Sales Estimated margin

Urea 450 mt Rs.100 per mt
DAP/ Complex 200 mt Rs. 200 per mt
MOP 100 mt RS. 100 per mt
Seeds Rs. 15 lakhs 30 %
Pesticides Rs. 20 Lakhs 20 %

7.4.3 Facilities Suggested for Primary Processing, Storage and Other Services

The RABC will have facilities for sale of agri inputs and handling of agri output. The
following facilities are suggested at Motipur. Justification for setting the facility and
the individual capacity is summarized in the table below.

# Facility Capacity Justification

Litchi is perishable. It will respond to precooling very

1 Pre- cooling 10 mt well. Since it is a high value crop, the associated costs
can be absorbed by the product.

Fumigation 2 mt per Increases the shelf line of litchi up to 3–4 months under
2
Line for litchi hour refrigerated conditions

Multi product 2 mt per Since both litchi and mango will be handled, multi
3
grading line hour product handling line will be ideal.

Pack House-
4 1000 mt For storage of mango and litchi.
Cold Room

Primary
200 sq
5 processing For transit storage of mango and litchi.
mt
hall

Crate Since it is proposed that all products will be handled in

6 1
Washing line crates.

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Shop floor for

150 sq
7 sale of agri For display and sale of agri inputs and Administration.
mts
inputs

Godown for 100 sq

8 For storage of fertilizer.
fertilizer mts

Since it is proposed that all products will be purchased

9 Weighing line 1
by weight.

7.4.4 Project Cost

Description Amount
Land (2 Acres @ Rs. 8 Lakhs/Acre) 16.00
Land Development (2 Acres @ Rs. 5 Lakhs/Acre) 10.00
Buildings (Approx 2000 sq. m @ Rs.6500 per sq. m) 128.25
Plant & Machinery* 226.00
Miscellaneous Fixed Assets* 55.53
Preliminary and Pre-Operative Expenses* 11.26
Contingencies (5% of the above costs) 20.99
Margin Money for Working Capital* 3.45
Total Project Cost 471.48
* Assumptions and details are given in Chapter 13

7.4.5 Means of Finance

Particulars Amount
Equity 30% 141.44
Grant from GoB 35% 149.02
Debt Remaining 181.02
Total 471.48

7.4.6 Profit and Loss statement#

Year 1 2 3 4 5 6 7
Capacity Utilization 40% 50% 75% 90% 90% 90% 90%
(Lakhs Rs)
Revenue 333.0 416.3 624.4 749.3 749.3 749.3 749.3
Expenses 4 0 5 4 4 4 4
Raw Material (Agri Inputs) 245.6 307.0 460.5 552.6 552.6 552.6 552.6
Water 2
0.14 3
0.18 4
0.27 5
0.32 5
0.32 5
0.32 5
0.32

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Power & Fuel 4.52 5.64 8.47 10.16 10.16 10.16 10.16
Employee Cost 8.01 8.41 8.83 9.27 9.74 10.23 10.23
Insurance 2.05 2.05 2.05 2.05 2.05 2.05 2.05
Admin & Selling Overheads 3.33 4.16 6.24 7.49 7.49 7.49 7.49
Total Expenses 263.6 327.4 486.4 581.9 582.4 582.9 582.9
EBITDA 7
69.37 7
88.83 0
138.0 5
167.3 1
166.9 0
166.4 0
166.4
Interest on term loan 25.34 25.34 5
24.39 9
21.86 3
19.32 4
16.79 4
14.26
Interest on working capital 1.55 1.94 2.91 3.49 3.49 3.49 3.49
borrowings
Depreciation 34.72 34.72 34.72 34.72 34.72 34.72 34.72
PBT 7.75 26.82 76.02 107.3 109.3 111.4 113.9
Tax 0.00 3.97 25.14 2
37.50 9
39.67 4
41.61 7
43.54
Net Profit (PAT) 7.75 22.85 50.88 69.82 69.72 69.83 70.43
#
Assumptions are given in Chapter 13.

7.4.7 Financial performance Indicators

Year 1 2 3 4 5 6 7
EBITDA Margin 20.83% 21.34% 22.11% 22.34% 22.28% 22.21% 22.21%
PAT margin 2.33% 5.49% 8.15% 9.32% 9.30% 9.32% 9.40%
Debt-Equity Ratio 0.61 0.56 0.44 0.33 0.25 0.19 0.14
Debt to EBITDA ratio 2.76 2.18 1.32 1.00 0.90 0.79 0.68
Interest Coverage Ratio 2.58 3.11 4.14 5.12 5.58 6.15 6.92
DSCR 2.58 3.11 2.49 2.99 3.11 3.25 3.43
Average DSCR 2.92
Project IRR 13.38%

7.5 Location Analysis - Bahadurpur

Bahadurpur, in Gaighat block is located 30 km south east of Muzaffarpur on the east
west corridor. It is well connected by a four lane road to Muzaffarpur. The various
crops that are produced and traded in the district include litchi, mango, cauliflower,
okra, potato, tomato, cabbage, gourds and maize. A private entrepreneur (Amrapali
foods Pvt. Ltd) has established a pack house for litchi and mango last year in an area
of 1 acre with primary processing facilities. It is proposed that the above mentioned
pack house may be converted to a RABC.

7.5.1 Agri Output Market in Bahadurpur

The nearest mandi is in Gaighat, but the volume of vegetables traded is limited.
Farmers in the catchment take their produce to Bazaar Samithi Muzaffarpur or trade
from farm gate. The immediate catchment of Bochan, Bandra, Museri, Mudhol, and

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Katra and adjoining areas of Darbhanga districts has high production of various crops
as summarized below.

Product Peak arrivals Estimated production (mt)

Mango June- July 15000
Litchi 15 Apr -15 May 10000
Cauliflower Nov – Feb 5000
Okra Sept- Nov 4000
Gourds All through the year 6000
Maize Oct – Jan 20000
Source: IL&FS -CDI field study

The present facilities include – Forced air

precooling, grading lines of various capacities,
two chamber cold storage of 1000 mt, floor area
of 10000 sq. ft for temporary storage, electronic
weighing facilities, backup generator of 72 KVA
and pickup trucks.

The unit is operational since March, 2008. In the first season they
have handled 200 mt of litchi and exports worth Rs. 5 crores are
likely to happen. An estimated 500 mt of mango is also likely to be
handled this season at the facility.

They have provided extension services to the farmers in the last

season for better management of litchi orchards. The farmers who were associated
with them benefited by not only increase in yield but also by improvement of quality
and thereby increasing the net realization.

Transportation from farm gate was provided to the

farmers. Farmers who delivered the produce at factory gate
were given a better price.

They have tied up with processing units in Hajipur for sale

of second and third quality materials which are not suitable
for fresh sale.

They are in the process of acquiring 1.5 acres of land adjacent to the existing facilities
to provide other facilities to the farmers.

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7.5.2 Agriculture Input Market - Bahadurpur

The table below summarizes the size of agri input market of Bahadurpur.

Estimated Urea market 3000 mt 150

Estimated DAP and complex market 1500 mt 150

Estimated MOP market 800 mt 40

Estimated Seed market Rs. 100 lakhs

Estimated Pesticide market Rs. 150 lakhs

Number of Dealers for tractors 0

Cash credit sales More than 90 % of transactions on cash

Source: IL&FS -CDI Field survey

The estimated market size of agri inputs excluding tractors and irrigation equipment
and the associated service is close to Rs. 590 lakhs.

7.5.3 Existing dynamics of Production, Agri input markets, Agri output markets
and Storage – Implications on Bahadurpur RABC

# Parameter Implication for RABC

A Production and Harvesting – Affecting procurement

Small land holding Smaller lot size. Challenges in consolidation and standardization.
1

Some regions in
Poor sale of agri inputs in the affected region. Scope for extension services in
the catchment area
2 the second crop.
are flood affected

Self harvesting in
Ideal scenario.
3 vegetables

Harvesting and Will need some extension work to motivate the farmers to harvest the produce
post harvest and market it on their own. To start with some contractors may have to be
handling by labour hired by RABC as well.
4
contracted by the
trader

Packaging in These affect the quality and also increase the cost of packaging to farmers.
bamboo baskets, Introducing crates and encouraging the farmers to use the crates will be very
5 wooden boxes, beneficial. In fact, this can be the single most important intervention to
Gunny bags maintain quality and reduce wastages.

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B Agri input Sales

Non - availability
Leads to black marketing - Ideal opportunity for an organized player to induce
of complex
1 foot falls.
fertilizer on time

Use of generic
molecules in Scope for intervention and use of new pesticides high
2
pesticides

Cash purchases - Easy to enter the market as credit sales cannot be entertained by organized
3 80 % players. And the RABC can target larger market by providing credit sales.

C Marketing

No fruit and Potential opportunity as the farmers take the produce to different mandis for
vegetable mandi in sale.
1
the immediate
catchment

Pre-harvest sale of 70-80 % of the trade happens by these traders, who are in turn attached to
litchi wholesaler/CA in Delhi, Lucknow, and Mumbai. This is primarily a risk
mitigation strategy to reduce risks associated with litchi marketing as the
harvesting window (and hence trading window) for litchi is just one month.
2
Assured buy back to the farmers at a pre-agreed price and extension work to
help them in upkeep of farm during flowering to harvesting needed to give
confidence to the farmers.

Price discovery is by negotiation. Different farmers get different prices and

Price discovery -
hence price fixation and communication will be difficult. May need to work
3 many unknowns
with traders for a couple of seasons.

Cash payments to
Need to make cash payments. Payments by cheques may not be acceptable.
farmers most of
4 Need to develop a mechanism to make payments to farmers in cash.
the time

Cash purchase by
traders most of the Receipts will be in cash. Need to consider this in the business plan.
5
time

Loading and Borne by the buyer as well as seller. Need to incorporate in the pricing
6 Unloading charges appropriately.

D Storage

No storage facility Huge scope for intervention in flood affected areas. However, the per capita
1 for grains volumes are low hence grain storage not recommended at Bahadurpur.

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7.6 Business Plan for the RABC in Bahadurpur

Based on the above analysis on various aspects of RABC model, the following
strategy is suggested:

7.6.1 Procurement Plan – Products and Expected Margins

The focus products in Bahadurpur are mango and litchi. The catchment area for this
RABC consists of the blocks of Gaighat, Bochahan, Kudhani, and Paroo. Based on
the production details of the fruits in the above mentioned blocks and estimated
market surplus and linkages from field study, it is estimated that the RABC will be
able to handle the following products and quantities. Table below summarizes the
focus products, estimated volume per annum and expected gross margins per mt of
product.

Product Estimated volume mt Expected margin Rs per mt

Mango 2500 8000
Litchi 1500 15000

Seasonality: The seasonality of the products can be observed from table below.

Product Ja Feb Ma Ap Ma Ju Jul Au Sep Oct No De

Mango
Litchi

Peak Arrivals
Off peak arrivals

7.6.2 Agri Input Sales

Table below summarizes the estimated sales and expected margins from sale of agri
inputs.

Product Estimated Sales Estimated margin

Urea 300 mt Rs.100 per mt
DAP/ Complex 150 mt Rs. 200 per mt
MOP 80 mt Rs. 100 per mt
Seeds Rs. 10 lakhs 30 %
Pesticides Rs. 15 Lakhs 20 %

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7.6.3 Facilities Suggested for Primary Processing, Storage and Other Services

Apart from the shop floor for selling of agri inputs, the following facilities are
suggested at Dalsinghsarai for handling of agri output. Justification for setting the
facility and the individual capacity is summarized in the table below.

# Facility Capacity Justification

1 Pre- cooling 10 mt Already present.

Fumigation line 2 tons per

2 for litchi hour As Litchi is a major product.

Multi product 2 mt per As mango and litchi both will be handled, multi
3 grading line hour product handling line will be ideal.

500 mt For the storage of mango and litchi

Pack House- Cold
Room

For transit storage of mango and litchi

Primary
processing hall 200 sq mts

1
Crate Washing Since it is proposed that all products except
line grains and potato will be handled in crates.

Shop floor for sale 150 sq For Display and sale of agri inputs and
7
of agri inputs mts Administration

Godown for
8 100 sq mts For storage of fertilizer
fertilizer

Since it is proposed that all products will be

9 Weighing line 1 purchased by weight.

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7.6.4 Project Cost

Description Amount
Land (2 Acres @ Rs. 10 Lakhs/Acre) 20.00
Land Development (2 Acres @ Rs. 5 Lakhs/Acre) 10.00
Buildings (Approx 1200 sq. m @ Rs. 6500/sq. m) 76.65
Plant & Machinery* 131.00
Miscellaneous Fixed Assets* 31.23
Preliminary and Pre-Operative Expenses* 7.31
Contingencies (5% of the above costs) 12.44
Margin Money for Working Capital* 2.62
Total Project Cost 291.26
* Assumptions and details are given in Chapter 13.

7.6.5 Means of Finance

Particulars Amount
Equity 30% 87.38
Grant from GoB 35% 81.94
Debt Remaining 121.94
Total 291.26

7.6.6 Profit and Loss statement#

Year 1 2 3 4 5 6 7
Capacity Utilization 40% 50% 75% 90% 90% 90% 90%
(Lakhs Rs)
Revenue 258.6 323.2 484.8 581.8 581.8 581.8 581.8
Expenses 0 5 8 5 5 5 5
Raw Material (Agri Inputs) 191.1 238.9 358.4 430.1 430.1 430.1 430.1
Water 7
0.12 6
0.15 4
0.23 3
0.27 3
0.27 3
0.27 3
0.27
Power & Fuel 3.98 4.97 7.46 8.95 8.95 8.95 8.95
Employee Cost 6.62 6.96 7.30 7.67 8.05 8.45 8.45
Insurance 1.19 1.19 1.19 1.19 1.19 1.19 1.19
Admin & Selling Overheads 2.59 3.23 4.85 5.82 5.82 5.82 5.82
Total Expenses 205.6 255.4 379.4 454.0 454.4 454.8 454.8
EBITDA 7
52.93 6
67.79 7
105.4 3
127.8 1
127.4 2
127.0 2
127.0
Interest on term loan 17.07 17.07 0
16.43 2
14.72 4
13.02 3
11.31 3
9.60
Interest on working capital 1.18 1.47 2.21 2.65 2.65 2.65 2.65
borrowings
Depreciation 20.09 20.09 20.09 20.09 20.09 20.09 20.09
PBT 14.59 29.15 66.67 90.35 91.68 92.98 94.69
Tax 2.04 8.35 22.26 31.30 32.60 33.76 34.95
Net Profit (PAT) 12.55 20.80 44.41 59.05 59.08 59.22 59.73
#
Assumptions are given in Chapter 13.

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7.6.7 Financial Performance Indicators

Year 1 2 3 4 5 6 7
EBITDA Margin 20.47% 20.97% 21.74% 21.97% 21.90% 21.83% 21.83%
PAT margin 4.85% 6.44% 9.16% 10.15% 10.15% 10.18% 10.27%
Debt-Equity Ratio 0.67 0.60 0.44 0.32 0.23 0.17 0.13
Debt to EBITDA ratio 2.45 1.94 1.18 0.90 0.81 0.72 0.62
Interest Coverage Ratio 2.79 3.20 4.46 5.55 6.05 6.68 7.51
DSCR 2.79 3.20 2.70 3.26 3.40 3.57 3.77
Average DSCR 3.16
Project IRR 17.47%

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8. RABC at Bihat, Begusarai District

8.1 District Profile
Begusarai is located centrally in North Bihar with an area of 1918 sq km. It is
bounded on the north by Samastipur, on the south by River Ganga and the Lakhisarai
district, on the east by Khagaria and Munger and on the west by the Samastipur and
Patna districts.

The district constitutes of 18 development blocks and the head quarter is located in
Begusarai town. The population of the district is about 21.46 Lakh (2001 census) with
a population density of 1335 per sq km. The ratio of rural population is very high with
only 4.78 % of population staying in urban areas.

Paddy, wheat, vegetables, banana, watermelon, litchi and potato are the major crops
cultivated in the district.

The district has fertile alluvial soils. The sole source of irrigation is private tube wells
and as on 1998-99, 0.84 lakh ha is irrigated from tubewells.

Bihat is the location suggested for setting up RABC in Begusarai.

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8.2 Agriculture Sector

8.2.1 Area and production

With a total area of 1.56 lakh hectares under cereals, Begusarai produces about 3.14
lakh MT of grains. The fruit and vegetable production (including potato) was over 5
lakhs MT. A brief summary of various categories of crops is given below (the figures
are an average of 2002-06 data).

Category* Area (ha) Production(MT)

Cereals 150700 308869

Pulses 6242 5522

Total grains 156943 314391

Vegetables 18442 294363

Fruits 7502 85925

Potato 6120 122522

Total fruits and vegetables 32064 502810

Source: Dept. of Agriculture, GoB; * Average of 2002-06

8.2.2 Comparison of Crop Mix - Begusarai Vs Bihar

The area under vegetables is almost double the percentage of state’s coverage.
Coverage of cereals is higher than that of state. Potato and pulses cover lesser
percentage of area than that of state.

Potato 4
3

Fruits 4
4

6
Vegetables 10

11
Pulses 3

76
Cereals 80

0 10 20 30 40 50 60 70 80 90

Begusarai Bihar

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8.2.3 Block wise crop wise acreages of major crops:

The block wise area in Ha under major crops is summarized in the table below.

#. Block Mango Litchi Cauliflower Tomato Okra Potato

1 Begusarai 425 65 240 250 300 600
2 marihani 400 45 100 100 100 605
3 Balia 350 70 100 100 150 320
4 Barauni 305 32 80 100 200 425
5 Teghada 220 28 75 100 150 520
6 Bachwada 305 32 100 100 150 410
7 Bhagwanpur 415 30 150 100 150 400
8 Cheriyabariyapur 375 25 80 150 150 380
9 Khodhavandapur 280 22 80 80 150 300
10 Bhakhari 280 26 80 100 150 530
11 Sahebpurkamaal 280 25 60 70 150 310
12 Dandari 205 23 75 100 150 415
13 Navkhothi 200 20 75 100 150 310
14 Gadhpura 217 18 100 100 150 360
15 Choudohi 170 15 75 100 150 400
16 Virpur 175 20 100 150 150 350
17 Mansurachak 155 27 80 100 150 325
Total 4757 523 1650 1900 2700 6960
Source: Dept. of Agriculture, GoB

8.2.4 Agricultural Produce – Begusarai

8.2.4.1 Cereal and Pulses

The marketable surplus in the district is higher than that of the state and it is in the
range of 55-60% (i.e. about 1.6 to 1.8 lakh MT) of the production. The bulk of the
marketable surplus is of maize and wheat. There are no sizable or large mandis as
most of the grains get sold from farmer’s house.

8.2.4.2 Fruits and Vegetables

The major horticultural crops include mango and various kinds of vegetables.

The major mandis and the products handled have been summarized in the table below.

Mandi Major Products Handled

Begusarai Vegetables, Mango, Maize
Bihat Vegetables
Barauni Tomato, Gourds

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Rajwada Vegetables
Manjhaul Vegetables, Mango, Grains
Baliya Vegetables, Mango, Grains
Source: IL&FS -CDI field study

Market dynamics for the selected location has been discussed in detail later.

8.2.5 Agriculture Inputs - Begusarai

The agri input market of the district is summarized in the table below:

Agri input Particulars Remarks

Number of Characterized by large wholesalers unlike other

16
wholesalers districts.

Urea 50000
With increase in area under maize, more fertilizer
DAP 30000
consumption is likely. Availability is a constraint.
Fertilizers
NPK 10000
(MT)
MOP 10000

SSP 1000

Paddy –HYV 3000

Hybrid paddy seed consumption on an increasing
Paddy hybrid 100
trend. One of the largest maize seed markets in the
Seeds Wheat 5000 state and the market is likely to grow next year.
(MT)
Maize 1000

Rs. 2
Vegetables
crores

Characterized by sale of generic molecules like other

Pesticides Rs. 4 crores
parts of the state.

Tractor All most all major tractor manufactures are present.

7
Dealers Tractor penetration is 3-5 tractors per panchayat

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8.2.6 Agri Warehousing and Cold storages – Begusarai

In case of cereals, farmers have marketable surplus however, the storage of grains in
organized warehouses is extremely low. It is estimated that 2 lakh sq. ft of private
warehousing for grains and fertilizers are present in Begusarai town. The existing
rents are in the range of Rs 2.5 to Rs 3.0 per sq. ft. With the price of maize touching
Rs 900 per quintal this year, it is expected that more grains will be stored in the next
few years.

The district has 7 cold storages with an installed capacity of 0.65 lakh mt and 5 cold
storages are under construction. Most of the cold storages are involved in the storage
of potato only.

The rental charges, season of storage, and handling charges are similar to other
districts where potato is stored.

8.3 Location Analysis - Bihat

Begusarai is located on NH-31. It is well connected by rail as well as road to other
parts of the state and the country. Three rake points- Barauni, Begusarai, Bakrisalona
are in the radius of 20 km from Begusarai.

8.3.1 Agri Output Market in Bihat

The various crops that are produced and traded are wheat, maize, mentha, potato,
mango, turmeric and vegetables. Barauni and Bihat are the major mandis involved in
trade of vegetables.

Bihat:

Bihat is located on NH-31, 10 km from Begusarai. There are 8-10 commission agents
who have set up small shops on either side of the road near Bihat Bus stand. Gourds
and cauliflower are the major crops. The estimated daily arrival of all vegetables is 10
MT. Local traders and traders from surrounding regions buy the produce from the
commission agents.

Barauni:

Barauni is located 15 km from Begusarai. There are 15-20 commission agents in the
mandi dealing with vegetables. Tomato and gourds are the major vegetables traded in

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the mandi. The estimated daily arrival of all vegetables is 30 MT per day. During
peak arrivals, tomato is sent to other cities such as Jamshedpur, Kolkata, and Patna.

The various products that are traded outside mandi (directly at farm), estimated
volume and season are summarized in the table below:

Product Estimated volume (MT)

Potato 30000
Maize 30000
Wheat 20000
Mentha 400 KL

8.3.2 Agri Input Market of Bihat

The table below summarizes the size of agri input market of Bihat.

Number of dealers of inputs 40

Estimated Urea market 4500 MT 225
Estimated DAP and complex market 2000 MT 200
Estimated MOP market 800 MT 40
Estimated Seed market Rs. 300 lakhs
Estimated Pesticide market Rs. 100 lakhs
Number of Dealers for tractors 8
Cash credit sales 70- 80 % of transactions on cash

The estimated market size of agri inputs excluding tractors and irrigation equipment
and the associated service is close to Rs. 865 lakhs.

8.3.3 Existing dynamics of Production, Agri input markets, Agri output markets
and Storage – Implications on Bihat RABC

# Parameter Implication for RABC

A Production and harvesting – Affecting procurement

High scope for value addition in both maize and wheat. Large export
Production of maize and and domestic market. Actual productivity in maize is 8 MT per ha
1
wheat. against reported 4.5 MT per ha (Rabi 2006-07). Hence the marketable
surplus is very high.

Low production of fruits and Because of the low production, fruits and vegetables have not been
2
vegetables recommended. Only mango trading has been recommended.

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Estimated acreage of 1000 ha and the area is growing year aafter year.
3 Diversification to mentha High value product. High scope for value addition and need for an
organized consolidator felt in the market. Ideal opportunity for RABC.

Onset of monsoon results in two way loss – firstly, loss in quality of

Second cutting - affected leaf and secondly, non–availability of fuel for steam production.
4
because of monsoon RABC can establish state of the art processing unit using electricity.
Buying of leaf based on scientific analysis and extraction done.

The estimated number of steam distillation units in the district for

5 Processing of mentha mentha is 500-600. Because of the high upfront capital cost of
processing unit (Rs.50 to 60 thousand) only large farmers are
venturing into mentha cultivation. It is estimated that with the present
processing technology 20-30 % of the essential is lost. Scope for
RABC to set up a mentha extraction unit

B Agri Input and Services

Non - availability of complex Leads to black marketing - Ideal opportunity for an organized player
1
fertilizer on time to induce foot falls.

Use of generic molecules in

2 Scope for intervention and use of new pesticides high.
Pesticides

Easy to enter the market as credit sales cannot be entertained by

3 Cash purchases - 90 % organized players. And the RABC can target larger market by
providing credit sales.

C Agri output Marketing

The village level traders complete the sale transaction, makes forward
sale with a trader based at Begusarai or Khagariya. This trader in turn
closes the sale at a destination market. The trader sends the vehicle
Transportation from farm gate directly to the farmers place for loading. The produce is handled only
1
in maize and wheat once and it reaches the final customer. Extremely efficient logistics–
No handling charges, no sunk cost of transportation for farmer as in
mandi sales. However, price discovery is the key. Understanding of
destination markets price movement extremely important for RABC.

Price discovery is by negotiation. Price setting will be very difficult as

Price discovery - many
2 the possibility of finding model price will be difficult, at least for
unknowns
some time.

# Parameter Implication for RABC

The major markets are Barabanki, Banaras and Kolkata. Once the
mentha is collected in plastic cans, the farmers seal the cans with wax
and store them in dark and shady place at home. Farmers find the
Mentha – collective sales by
3 price in the destination markets from different traders over phone and
farmers - aggregate the produce from 3-5 farmers and take the product in train.
Cases of prices being lower after the product is transported to these
markets seen often. Opportunity for RABC to purchase from these
farmers and market it to user industries directly. If processing unit is

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established, contract farming of mentha can be taken up.

This is a good as well as bad. Good because, the farmers are used to
No commission agents – All selling the produce to the buyers directly and hence there will be ready
4
traders in the chain takers for RABC. Bad – the marketing costs are lower for the farmer
and the disintermediation margin does not exist.

Need to make cash payments. Payments by cheques may not be

Cash payments to farmers
5 acceptable. Need to develop a mechanism to make payments to
most of the time
farmers in cash.

Cash purchase by traders most

6 Receipts will be in cash. Need to consider this in the business plan.
of the time

Loading and Unloading Borne by the buyer as well as seller. Need to incorporate in the pricing
7
charges appropriately.

D Ware housing and Cold Storage

This year with the prices of maize reaching Rs. 900 per quintal in July
from Rs. 600 per quintal in April, many traders are likely to store
No organized storage facility
1 grains from next season. However, no organized storage service
for grains
provider available. Ideal opportunity for RABC to establish storage
both for renting out and arbitrage opportunity.

8.4 Business Plan for the RABC in Bihat

The focus products in Bihat are grains, vegetables, menthe and mango. The catchent
area for this RABC consists of the blocks of Begusarai, Barauni, Balia, Marihani,
Teghada and Sahebpur Kamal.

8.4.1 Procurement and Marketing Plan – Products and Expected Margins

Based on the production details of the grains, vegetables, mentha and fruits in the
above mentioned blocks and estimated market surplus and linkages from field study,
it is estimated that the RABC will be able to handle the following products and
quantities. Table below summarizes the focus products, estimated volume per annum
and expected gross margins per mt of product.

Product Estimated Qty (MT) Expected margin Rs per MT

Mango 1500 500
Vegetables 7500 250
Grains 11000 250
Mentha 40 KL 10000/KL

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Seasonality: The products selected are well spread throughout the year as can be
observed from table below.

Product Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Maize
Wheat
Mango
Vegetables
Mentha

Peak Arrivals
Off peak arrivals

8.4.2 Agri Input Sales

The estimated agri input sale and estimated margin from sale of agri inputs is
summarized in the table below:

Product Estimated Sales Estimated margin

Urea 450 MT Rs. 100 per MT
DAP/ Complex 200 MT Rs. 200 per MT
MOP 80 MT Rs. 100 per MT
Seeds Rs.30 lakhs 30 %
Pesticides Rs. 10 Lakhs 20 %

8.4.3 Facilities Suggested for Primary Processing, Storage and Other Services

Apart from the shop floor for selling of agri inputs, the following facilities are
suggested at Bihat for handling of agri output. Justification for setting up the facility
and the individual capacity is summarized in the table below.

# Facility Capacity Justification

1 Cold storage 100 MT For transit storage and storage of unsold

2 Primary processing hall 400 sq m For grading, sorting, packaging operation
of vegetables
3 Weigh bridge 20 MT High volume of maize and wheat planned
for the location.
4 Shop floor for sale of 150 sq m For display and sale of agri inputs and
agri inputs administration

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5 Godown for fertilizer 100 sq m For storage of fertilizer

6 Storage for grains 10000 For storage of grains, transit storage
7 Weighing line 1 Since it is proposed that all products will
be purchased by weight.

8.4.4 Project Costs

Description Amount (Lakhs Rs)

Land (3 Acres @ Rs. 6 Lakhs/Acre) 18.00
Land Development (3 Acres @ Rs. 5 Lakhs/Acre) 15.00
Buildings (Approx 6300 sq. m @ Rs.6500/sq. m) 406.25
Plant & Machinery* 29.00
Miscellaneous Fixed Assets* 14.91
Preliminary and Pre-Operative Expenses* 9.99
Contingencies (5% of the above costs) 23.26
Margin Money for Working Capital* 16.67
Total Project Cost 533.08
* Assumptions and details are given in Chapter 13.

8.4.5 Means of Finance

Particulars Amount
Equity 30% 159.92
Grant from GoB 35% 168.58
Debt Remaining 204.58
Total 533.08

8.4.6 Profit and Loss Statement#

Year 1 2 3 4 5 6 7
Capacity Utilization 40% 50% 75% 90% 90% 90% 90%
(Lakhs Rs)
Revenue 749.52 936.90 1405.35 1686.42 1686.42 1686.42 1686.42
Expenses
Raw Material (Agri Inputs) 630.87 788.59 1182.88 1419.45 1419.45 1419.45 1419.45
Water 0.26 0.33 0.50 0.59 0.59 0.59 0.59
Power & Fuel 6.64 8.30 12.46 14.95 14.95 14.95 14.95
Employee Cost 13.77 14.46 15.18 15.94 16.74 17.58 17.58
Insurance 2.25 2.25 2.25 2.25 2.25 2.25 2.25
Admin & Selling Overheads 7.50 9.37 14.05 16.86 16.86 16.86 16.86
Total Expenses 661.29 823.30 1227.32 1470.05 1470.85 1471.69 1471.69
EBITDA 88.23 113.60 178.03 216.37 215.57 214.73 214.73

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Interest on term loan 28.64 28.64 27.57 24.70 21.84 18.97 16.11
Int. W Cap Borrowing 7.50 9.38 14.06 16.88 16.88 16.88 16.88
Depreciation 18.32 18.32 18.32 18.32 18.32 18.32 18.32
PBT 33.77 57.27 118.09 156.47 158.54 160.57 163.43
Tax 10.70 19.20 40.33 53.78 54.84 55.85 57.11
Net Profit (PAT) 23.07 38.07 77.76 102.70 103.70 104.72 106.32
#
Assumptions are given in Chapter 13.

8.4.7 Financial Performance Indicators

Year 1 2 3 4 5 6 7
EBITDA Margin 11.77 12.13 12.67 12.83 12.78 12.73 12.73
PAT margin %
3.08% %
4.06% %
5.53% %
6.09% %
6.15% %
6.21% %
6.30%
Debt-Equity Ratio 0.58 0.53 0.39 0.29 0.21 0.16 0.12
Debt to EBITDA 2.89 2.35 1.56 1.28 1.19 1.10 1.00
ratio
Interest Coverage
Ratio 2.15 2.48 3.31 3.91 4.15 4.43 4.78
DSCR 2.15 2.48 2.22 2.62 2.72 2.82 2.95
Average DSCR 2.52
Project IRR 12.80
%

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9. RABC at Bihar Sharif, Nalanda District

9.1 District Profile
Nalanda district is located in south of the Patna, the state capital of Bihar and it is
spread over an area of 2367 sq. Km. Nalanda district is bounded by Patna district in
the North, Jehanabad on the west, Gaya and Nawada on the south and Sheikhpura and
Lakhisarai on the east. The rivers Phalgu, and Mohane flows through the district of
Nalanda.

Nalanda district has a population of 23.68 lakhs with a population density is about
1006 per sq. km. There are 20 blocks in Nalanda and Bihar Sharif is the district head
quarter. The literacy rate of the district is 53.64%.

Agriculture is the main source of occupation. Paddy, potato, onion and other
vegetables are the major crops cultivated in the district.

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9.2 Agriculture Sector

9.2.1 Area and production

With a total area of 2.3 lakh ha under grain crops, Nalanda produces close to 4.4 lakh
mt of various grains. The fruit and vegetable production (including potato) is close to
11.2 lakh mt. Nalanda is the largest producer of potato in the state. The following
table summarizes the area, production of different crop categories in 2005-06.

Category Area (ha) Production (mt)

Cereals 223500 640586
Pulses 15550 13790
Total grains 239050 654376
Vegetables 25833 445521
Fruits 6094 54429
Potato 27600 686136
Source: Department of Agriculture, GoB

9.2.2 Comparison of Crop Mix – Nalanda Vs Bihar

The comparison of area of crop mix for Nalanda and Bihar shows a clear skewness
towards vegetables and potato. While cereals in Nalanda have almost same percentage
of area as compared to Bihar but pulses occupy much less area. Fruits also cover
much less percentage area than that of Bihar. On the other hand, vegetables and potato
occupy much higher percentages of land in comparison to the state as a whole. The
comparison shows a distinct stress on vegetables and potato in the district.

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9.2.3 Block wise crop wise acreages of major crops:

The block wise cultivation area in Ha of different major crops in Kharif 2007-08 is
summarized in the table below.

Blocks Paddy Maize Pulses Oilseeds

Bihar Sharif 8204 1056 458 90.5

Asthawan 6768 600 295 52

Bind 1825 200 260 30

Harnaut 9978 600 432 19

Sarmera 7535 202 147 3

Nursarai 6580 580 212 38

Rahui 6860 765 254 36

Rajgir 4240 950 415 188

Silao 5742 660 275 55

Ben 4465 200 210 -

Giriyak 3500 400 557 172

Katrisarai 2182 100 120 22

Hilsa 7795 450 255 29

Karaiparsurai 2725 100 165 -

Chandi 8271 150 317 32

Tharthari 3295 100 57 -

Nagarnausa 3195 198 75 -

Ekangarsarai 7735 195 277 34

Parwalpur 3970 130 140 10

Islampur 12160 914 409 63.5

Total 117025 8550 5330 874

Source: Department of Agriculture, GoB

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9.2.4 Agricultural Produce of Nalanda

9.2.4.1 Cereals and Pulses

Our assessment is that the marketable surplus for grains in the district is very less in
the range of 20-30% (i.e. about 1.2 to 1.8 lakh mt) of the production. Ramchadrapur
in Bihar Sharif is a large mandi dealing with grains.

9.2.4.2 Fruits and Vegetables

Nalanda is a major producer of vegetables and potato. The major vegetables are
brinjal, onion, gourd, okra, cauliflower and cabbage. The area and production of fruits
in the district is limited. Ramchandrapur in Biharsharief is the major mandi dealing
with vegetables and potato.

9.2.5 Agri Warehousing and Cold Storages in Nalanda

Presently there are 15 operational cold storages in Nalanda district and 3 under
construction. The total installed capacity of cold storages in Nalanda district is about
0.5 lakh MT. Most of the cold storages store only potato except few storages near the
town of Bihar Sharif which store fruits such as apple and orange. The storage period
and rentals are similar to that of other districts.

Nalanda district is major potato growing area and the number of cold storages is not
sufficient for the proper storage of potato in the district. During the potato season
sometimes the farmers carry out distress selling in want of more cold storage space. In
Nalanda, only 10-20% of the stored potato is used as seeds and the rest are sold in the
market in the off season. Cold storage owners give loans to the farmers at an interest
rate of 18-24% per annum in lieu of the amount of potato kept in the storage. Cold
storage owners also facilitate bank loans for the farmers by becoming guarantors of
the loan based on the value of the potato stored by the borrower farmers. In Nalanda,
the cold storage receipts are also traded in the market.

9.2.6 Agriculture Inputs - Nalanda

The agri input market of Nalanda district is summarized in the table below.

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Agri input Particulars Remarks

Wholesaler-retailer-farmer is the supply chain

Number of
17 as in other parts of the state. Each panchayat of
wholesalers
4-5 villages has 3-4 retailers

Urea 60000 Shortage of fertilizer in peak season rampant.

Better availability can increase consumption.
DAP 4500
Sale of fertilizer at higher than MRP seen in
Fertilizers villages. Highly skewed use of Urea.
NPK 4000
(mt)
MOP 4000

SSP 3500

Paddy –HYV 6500 Hybrid paddy seed consumption on an

increasing trend. One of the largest vegetable
Paddy hybrid 300 seed markets in the state.
Seeds (mt) Wheat 5000

Maize 400

Vegetables 60

Fenvorolate 10 KL
Characterized by sale of generic molecules.
Furadon 80 MT Estimated market size is Rs. 8-10 crores.

Acephate 5 MT
Pesticides
Cypermethrin 10 KL
( KL)
Hexaconazole 5 KL

Profenophos 8 KL

Mancozeb 50 MT

All most all major tractor manufactures have a

Tractor
10 dealer in the district. Tractor penetration is 3-5
Dealers
tractors per panchayat.

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9.3 Location Analysis – Bihar Sharif

Bihar Sharif is the district head quarter of Nalanda District. It is well connected to
other parts of the states and cities in Jharkhand, UP and West Bengal by road and
railways.

The major crops that are produced and traded in Bihar Sharif are potato, brinjal,
onion, cauliflower, bottle gourd, okra and paddy. Ramchandrapur Mandi (Bazar
Samithi, Bihar Sharif) is the largest and most important mandi for trading agricultural
produce in Bihar Sharif.

9.3.1 Agri Output Market

Ramchandrapur Mandi (Bazar Samithi Bihar Sharif)

Before the APMC Act was repealed in Bihar, Ramchandrapur Mandi was the
erstwhile APMC mandi of Bihar Sharif. The
mandi is spread in 40 acres with well laid
concrete platforms and roads.

The major products traded in the mandi are

potato, brinjal, onion, cauliflower, bottle
gourd, okra and paddy. Apart from these small volumes of fruits especially
mango and banana are traded. There are about 15-16 commission agents dealing
in cereals, 250 commission agents dealing in vegetables and 100 commission
agents dealing with onion and potato. The mandi is a well established market and
traders from different locations buy agricultural products from the commission
agents.

The various products traded in the mandi, season and estimated volume per day
in the season is summarized in the table below.

Product Peak arrivals Season Estimated volume handled per day (mt)
Potato Jan-March 600
Onion April/May - Nov 70
Brinjal April-July/Aug 125
Bottle Gourd Mar-Aug 50
Cauliflower Nov-Feb 50
Okra July- Sep, Apr- June 20
Source: IL&FS -CDI field study

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The commission charges vary from crop to crop. The details of market dynamics and
the implication for RABC have been discussed in detail later.

9.3.2 Agri Input Market of Bihar Sharif

The following table summarizes the profile of agri input market of Bihar Sharif

Number of dealers of inputs 25-30

Estimated Urea market 8000 mt 400 lakhs

Estimated DAP and NPK market 2000 mt 200 lakhs

Estimated MOP market 500 mt 50 lakhs

Estimated Seed market Rs. 300 lakhs

Estimated Pesticide market Rs. 300-400 lakhs

Number of Dealers for tractors 6-8

Cash credit sales Around 80 % of transactions on cash

The estimated market size of agri inputs excluding tractors and irrigation equipment
and the associated service is close to Rs. 865 lakhs.

9.3.3 Existing dynamics of Production, Agri input markets, Agri output markets
and Storage – Implications on Bihar Sharif RABC

# Parameter Implication for RABC

A Production and harvesting – Affecting Procurement

Production of vegetables and Developed market, farmers are aware of market trends, easy to offer

1 potato extension services

Well known and developed market already exists. Easy to form

Huge potato producing belt
2 forward linkages.

These affect the quality and also increase the cost of packaging to
Packaging in gunny bags,
3 farmers. Introducing crates or other suitable packing material and
paper, cardboard cartons
encouraging the farmers to use the crates will be very beneficial.

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B Agri Input market

1 Non - availability of complex Leads to black marketing - Ideal opportunity for an organized player
fertilizer on time to increase induce foot falls.

2 Use of generic molecules in

Scope for intervention and use of new pesticides high
Pesticides

Easy to enter the market as credit sales cannot be entertained by

3 Cash purchases - 80 % organized players. And the RABC can target larger market by
providing credit sales.

4
Potato seeds kept in cold Scope of providing cold storage facilities as the number of present
storages cold storages not sufficient.

C Marketing

Transportation by small Easy for RABC to capitalize on the existing backward linkages. Not
1
trucks, vans, pick up cars, etc much effort is needed to get products from the farms

Price discovery - many Price discovery is by negotiation. Price setting will be very difficult as
2
unknowns the possibility of finding model price will be difficult, at least for a
couple of seasons.

Sales of products like bottle Extremely difficult for organized player planning to deal in hundreds
3 gourd and cauliflower in of tonnes using numbers. Difficulty in arriving buying price. Need to
numbers educate the farmers.

Commission charges of 3 %
4 on vegetables from farmer and
5% from Buyer
Different pricing mechanism for different products. Difficulty in
Commission charges of 2 %
5 finding the farmer realization.
on Potato

Commission charges of 1-2%

6
on grains from buyer

Need to make cash payments. Payments by cheques may not be

Cash payments to farmers
7 acceptable. Need to develop a mechanism to make payments to
most of the time
farmers in cash.

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Cash purchase by traders most

8
of the time Receipts will be in cash. Need to consider this in the business plan.

Loading and Unloading Borne by the buyer as well as seller. Need to incorporate in the pricing
9
charges appropriately.

Borne by the commission agents. Need to incorporate in the pricing

10 Weighing charges
appropriately.

11
Packaging charges are Borne by the buyer. Need to incorporate in the pricing appropriately.
different for different products
such as brinjal, onion, bottle
gourd, etc.

D Storage

1 The district has a huge production of grains, in the tune of 6.4 lakhs
No storage facility for grains
MT. Hence there is an opportunity to set up a grain warehouse.

2
The district has a production of over 6 lakh mt of potato, but the cold
Cold storage capacity of
storage capacity is low leading to distress selling. Potential cash cow
50000 mt
in the business model.

9.4 Business Plan for the RABC in Bihar Sharif

Based on the above analysis on various aspects of RABC model, the following
strategy is suggested:

9.4.1 Procurement Plan – Products and Expected Margins

The focus products in Bihar Sharif are potato, grains, vegetables and mango. The
catchment area for this RABC consists of the blocks of Bihar Sharif, Asthawan,
Noorsarai, Rajgir, Silao, Giriyak, Chandi and Parwalpur. Based on the production
details of the grains, vegetables and mango in the above mentioned blocks and
estimated market surplus and linkages from field study, it is estimated that the RABC
will be able to handle the following products and quantities. Table below summarizes

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the focus products, estimated volume per annum and expected gross margins per mt
of product.

Product Estimated Qty (mt) Expected margin Rs per mt

Potato 10000 750
Grains 10000 750
Vegetables 9000 750
Mango 400 2000

Seasonality: The products selected are well spread throughout the year as can be
observed from table below.

Product Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Potato
Onion
Brinjal
Cauliflower
Bottle Gourd
Okra
Mango
Grains

Peak Arrivals
Off peak arrivals

9.4.2 Agri Input sales

The estimated agri input sale and estimated margin from sale of agri inputs is
summarized in the table below:

Product Estimated Sales Estimated margin

Urea 2000 mt Rs. 100 per mt
DAP/ Complex 200 mt Rs. 200 per mt
MOP 50 mt Rs. 100 per mt
Seeds Rs. 30 lakhs 30 %
Pesticides Rs. 30 Lakhs 20 %

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9.4.3 Facilities Suggested for Primary processing, Storage and Other Services

The RABC will have facilities for sale of agri inputs and handling and trading of agri
outputs. For handling of agri output the following facilities are suggested.
Justification for setting the facility and the individual capacity is summarized in the
table below.

# Facility Capacity Justification

Multi product 2 mt per Since a range of products will be handled, multi product
1
grading line hour handling line will be ideal.

2 3000 mt. For storage of potato. The present storage patterns,

Potato cold
power availability, existing rentals this is the minimum
storage
capacity that needs to be installed.

Grain
3 2000 mt. For paddy storage mainly.
warehouse

4 For transit storage of onion, brinjal, bottle gourd,

Primary 800 sq.
cauliflower, okra - All the products are high volume low
processing hall mt
density products, hence more handling space needed.

Shop floor for

150 sq
5 sale of agri For display and sale of agri inputs and Administration
mts
inputs

Godown for 200 sq

6 For storage of fertilizer
fertilizer mts

7 Crate Washing As all proposed horticultural products except Onion and

1
line Potato will be handled in crates.

8 Since it is proposed that all products will be purchased

Weighing line 1
by weight.

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9.4.4 Project cost

Description Amount
Land (3 Acres @ Rs. 6 Lakhs/Acre) 18.00
Land Development (3 Acres @ Rs. 5 Lakhs/Acre) 15.00
Buildings (Approx 4000 sq. m @ Rs. 6500/sq. m) 256.25
Plant & Machinery* 91.00
Miscellaneous Fixed Assets* 17.72
Preliminary and Pre-Operative Expenses* 9.19
Contingencies (5% of the above costs) 19.00
Margin Money for Working Capital* 18.78
Total Project Cost 444.94
* Assumptions and details are given in Chapter 13

9.4.5 Means of Finance

Particulars Amount
Equity 30% 133.48
Grant from GoB 35% 137.73
Debt Remaining 173.73
Total 444.94

9.4.6 Profit and loss statement#

Year 1 2 3 4 5 6 7
Capacity Utilization 40% 50% 75% 90% 90% 90% 90%
(Lakhs Rs)
Revenue 763.8 954.7 1432.1 1718.5 1718.5 1718.5 1718.5
Expenses 1 6 4 7 7 7 7
Raw Material (Agri Inputs) 643.5 804.4 1206.6 1447.9 1447.9 1447.9 1447.9
Water 2
0.55 0
0.69 0
1.04 2
1.24 2
1.24 2
1.24 2
1.24
Power & Fuel 5.84 7.30 10.94 13.13 13.13 13.13 13.13
Employee Cost 22.84 23.99 25.19 26.44 27.77 29.16 29.16
Insurance 1.82 1.82 1.82 1.82 1.82 1.82 1.82
Admin & Selling Overheads 7.64 9.55 14.32 17.19 17.19 17.19 17.19
Total Expenses 682.2 847.7 1259.9 1507.7 1509.0 1510.4 1510.4
EBITDA 2
81.59 4
107.0 1
172.23 5
210.82 7
209.50 6
208.11 6
208.11
Interest on term loan 24.32 2
24.32 23.41 20.98 18.55 16.11 13.68
Interest on working capital 8.45 10.56 15.85 19.01 19.01 19.01 19.01
borrowings
Depreciation 20.27 20.27 20.27 20.27 20.27 20.27 20.27
PBT 28.56 51.87 112.71 150.56 151.67 152.72 155.15
Tax 7.75 16.66 38.19 51.79 52.80 53.71 55.01
Net Profit (PAT) 20.81 35.21 74.52 98.77 98.87 99.01 100.14
#
Assumptions are given in Chapter 13.

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9.4.7 Financial Performance indicators

Year 1 2 3 4 5 6 7
EBITDA Margin 10.68% 11.21% 12.03% 12.27% 12.19% 12.11% 12.11%
PAT margin 2.72% 3.69% 5.20% 5.75% 5.75% 5.76% 5.83%
Debt-Equity Ratio 0.59 0.53 0.39 0.28 0.20 0.15 0.11
Debt to EBITDA ratio 2.82 2.28 1.52 1.26 1.19 1.11 1.03
Interest Coverage Ratio 2.25 2.59 3.41 3.98 4.17 4.40 4.68
DSCR 2.25 2.59 2.37 2.77 2.85 2.94 3.06
Average DSCR 2.66
Project IRR 13.88%

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10. RABC at Fatuha, Patna District

10.1 Distrcit Profile
Patna district is situated on the highly fertile southern bank of river Ganga. On other
three sides, it is bounded by Jahanabad and Nalanda districts in the south, in the east
by Lakhisarai district and in the west by Bhojpur district. The total geographical area
of the district is 317236 ha. Two main rivers surround Patna, Ganga in the north and
Sone in the west which meets Ganga at its northwestern boundary. A third river,
Punpun traverses to a significant stretch from southwest to northeast.

The district has 23 development blocks. Patna is the capital of Bihar and it is also the
largest consumer market in the state. It is well connected by rail, road and air with
almost all the district headquarters and the major cities of the country. The population
of the district is about 47.18 Lakh (2001 census) with a population density of 1471 per
sq km. While the ratio of urban population is very high at 41.57% as compared to
other districts of Bihar, literacy rate is also quite high at 63.82 %.

The net area sown in the district is 65.16 % of the total geographical area and
cropping intensity is reported to be 200%. The total irrigated area in the district is
about 60545 ha out of which canal irrigation accounts for the highest proportion
(being as high as 60%) although some areas do not receive irrigation water at proper

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cropping time particularly at the tail ends. Sometimes the Sone canal system does not
provide irrigation during entire year.

Due to diversified agro-ecological conditions, Patna district has variety of cultivated

crops. Tal2 area is mainly for pulses, whereas Diara3 and Jalla4 areas are known for
their vegetable cultivation. In the western part of the district on irrigated land, grains
are produced. Paddy, maize, wheat, pulses, oilseeds, vegetables and potato are the
major crops cultivated in the district.

Fatuha is the location suggested for setting up of RABC in Patna district.

10.2 Agriculture Sector

10.2.1 Area and production

With a total area of 2.66 lakh ha under grain crops, Patna produced close to 6 lakh
MT of various cereals and pulses in 2005-06. The fruit and vegetable production is
close to 8.7 lakh MT including potatoes. The following table summarizes the area,
production of different crop categories in 2005-06.

Category Area (ha) Production (MT)

Cereals 197845 529724
Pulses 67508 66846
Total Grains 265353 596570
Vegetables 22701 353692
Fruits 7587 71084
Potato* 18060 445000
Total Fruits and Vegetables 48348 869776
Source: Dept of Agriculture, GoB

10.2.2 Comparison of Crop Mix - Patna Vs Bihar

A comparison of the % of area occupied by a principle category of crops in the district

to that of the state shows that the district has a crop mix skewed towards pulses. The
above clearly depicts that Patna district has a diversified crops. The area under pulse
cultivation is very high as compared to the state average which makes the Tal area the

2
Tal: At the eastern end of the district, a basin shaped low-lying area separated from the river Ganga
by its natural levee is known as Tal.
3
Jalla land are similar to Tal lands but a bit shallower getting partial and short duration inundation in
parts by the river Punpun and its tributaries
4
Diara: There are natural levees or abandoned channels of river Ganga

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pulse bowl of Bihar. Further, vegetables and potato cultivation is also more than the
state average.

There is large surplus in grains, both cereals and pulses in the district. More than 25%
of pulses production in the state comes from Patna district. Pulses cultivation is
mainly in the Tal area where the land holding size is relatively larger and there is
always a marketable surplus for the products whereas production of horticultural
crops is in Diara and Jalla land. Here the smaller land holding pattern has resulted in
intensive cultivation using high input usage and high cropping intensity. The reported
cropping intensity of the district is about 200 %. For horticultural crops, the largest
available market in Patna is well connected by rail and road.

10.2.3 Block wise crop wise acreages of major crops

The block wise area under major vegetable crops in Rabi 2007-08 is summarized in
the table below.

# Block Potato Onion Tomato Cauliflower Others vegetables

1 Patna Sadar 2600 2500 20 50 50
2 Phulwarisharif 1500 500 50 15 50
3 Sampatchak 250 1000 5 10 10
4 Fatuha 1500 2000 20 50 20
5 Khusrupur 500 300 200 50 50
6 Daniyanvan 50 50 5 4 5
7 Danapur 600 500 20 50 200
8 Bihta 300 50 25 50 200

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9 Maner 1000 50 2 5 5
10 Naubatpur 1000 50 2 1 5
11 Masaurahi 50 10 3 2 2
12 Dhanarua 500 25 2 1 5
13 Punpun 100 50 2 1 2
14 Bikram 800 1500 5 50 50
15 Dulhinbazar 600 1500 10 50 50
16 Paliganj 300 1100 20 50 50
17 Bakhartiyarpur 1000 1000 100 50 500
18 Athmalgola 100 25 2 - 2
19 Belchi 500 400 50 30 200
20 Pandarak 1000 150 800 20 800
21 Barh 500 800 50 15 700
22 Mokama 300 300 10 5 200
23 Ghoswari 50 50 1 - 10
Total 15100 13910 1404 559 3166
Source: Department of Agriculture, GoB

10.2.4 Agricultural Produce - Patna

10.2.4.1 Cereal

Paddy, wheat and maize are the major crops of the district. Paddy production is
highest at 3.2 lakh tonnes followed by wheat at 2 lakh tons. Paddy is cultivated
mainly in the irrigated Sone command area in the western part of district and the main
blocks of paddy cultivation are Bikram, Paliganj, Naubatpur, Bihta and Masaudhi.
With such a large quantity of cereal production, there is sizable marketable surplus for
cereals. The major markets for grain trading are Bihta, Paliganj and Masaudhi. The
field estimate of the marketable surplus in the district is in the range of 60-70 %.

10.2.4.2 Pulses

There are two main regions for pulse production in the district- the famous Tal area
where the main crops are pulses and the irrigated western part of the district where
pulses are cultivated with other cereal crops. In Tal area, main blocks are Mokameh,
Pandarak, Ghoswari and Bakhtiyarpur while the other region consists of Vikram,
Dulhinbazar, Paliganj, Masaudhi, Naubatpur, Dhanarua, Punpun blocks. The
marketable surplus for pulses is in the range of 80-90 %. There are two main trading
centers for Pulses- Barh and Barbigha where a number of dal milling units are also
located.

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10.2.4.3 Fruits and Vegetables

The major horticultural crops of the district are cauliflower, potato, tomato and
vegetables of cucurbits family. The major mandis and the products handled have
been summarized in the table below.

Major Mandi in the district Major produce

Bihta Rice, wheat
Barh Pulses (Lentil, Lathyrus and Gram)
Barbigha Pulses and grain
Khusrupur Vegetables
Fatuha Vegetables, Potato, Grains
Source: IL&FS -CDI field study

The details of market dynamics have been discussed in detail later.

10.2.5 Agricultural Inputs - Patna

The agri input market of Patna district is summarized in the table below.

Agri input Particulars Remarks

Number of 32 15-18 active wholesaler, 185 retailers,
wholesalers
Urea 72000 Shortage of fertilizer in peak season rampant.
DAP 15000 Better availability can increase consumption.
Fertilizers (MT) NPK 8000 Sale of fertilizer at higher than MRP seen in
MOP 9000 villages.
SSP 6000
Paddy -HYV 7000
Paddy hybrid 250 Hybrid paddy seed consumption on an
Seeds (MT) Wheat 8000 increasing trend. Large market for Vegetable
Maize 600 seeds
Vegetables Rs. 4
crores
Characterized by sale of generic molecules like
Monocrotophos, Endosulfan, Profenopos,
Pesticides Rs. 6-8 crores
Cyper methrin, Mancozeb, Metalxyl etc.
Weedicides include 2-4D, Glyphosate and
Butachlor. Scope for introduction of new and

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All most all major tractor manufactures have a

Tractor Dealers 10 dealer in the district. Tractor penetration is 8-9
tractors per panchayat

10.2.6 Agricultural Warehousing and Cold storages - Patna

10.2.6.1 Warehouses

There are about 8 warehouses of different agencies such as Central Warehousing

Corporation, State Warehousing Corporation and FCI with a combined capacity of
166238 MT. They are situated in different places- two in Fathua, one each in
Musallapur Patna, Patna City, Danapur, Digha, Phulwari Sharif and Mokama. These
warehouses are used for storage of both input products and output products. During
procurement of grains, FCI takes on CWC/ SWC godowns on rent where the procured
grain is stocked.

Since FCI doesn’t have its godowns, and CWC/ SWC has storage facilities, 70% of its
business comes from FCI in procurement season. In off season, CWC/SWC rents out
its facilities to private players for storing fertilizers, seeds, pesticides etc and farmers
bodies for storing their produce. It also gives 30% discount to farmers for storing the
produce with them. A warehouse receipt is given to the farmer specifying the amount
of produce which can be used as collateral by the farmer to avail credit facilities from
banks.

In volume terms, the charges for warehouses vary from Rs. 24 to Rs. 44 per tonne per
month for fertilizers and grains. Area wise, gross area rate is Rs. 57 per sq. meter per
month while net area rate is Rs. 79 per sq. meter.

Given the potential of area in terms of production of cereals and pulses, the available
storage facilities meet the demand. There is a shortage of warehousing facilities in the
districts.

10.2.6.2 Cold Storages

The district has 25 cold storages with an installed capacity of 0.95 lakh MT. About
50% the capacity is for potato while rest is having multipurpose facilities. Most of the
multi-chambers cold stores are located nearby Patna, the consumption market and are

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used for storing finished products of different consumer goods companies. Currently,
there are no storage facilities for vegetables. The major products stored in these
facilities are dairy products, chocolates, ice-cream, butter, chocolates etc. The charges
of storing are Rs. 10 per sq. ft per month for sub-zero temperature and Rs. 12-15 per
sq. ft per month for deep freezing.

Potato cold stores are located in Digha, Phulwari Sahrif and Fatuha. The charges for
potato cold storage are Rs 140 to 150 per quintal per season. The storage season is
from March to October. Apart from the rentals, loading and unloading charges are
collected from the farmers which are in the range of Rs 2 to 2.75 per quintal for each
loading or unloading operation. Many cold store owners lend money to farmers up to
60 % of the product value at an interest rate of 24% per annum.

10.3 Location Analysis - Fatuha

Fatuha is strategically located at a distance of 24 Km from Patna towards east on NH
31 and is on the main rail head. It is well connected by road and rail to other parts of
the state and other cities in UP, Jharkhand and Delhi.

10.3.1 Agri Output Market in Fatuha

The various crops that are produced and traded in the area include wheat, pulses and
vegetables. Fatuha, Baikatpur, Khusrupur are the main markets for vegetables and
Bazar Samiti in Station road is the main market for grains. Apart from the above,
because of the proximity to Patna, the various mandis in Patna are also fed by Fatuha.

Fatuha Market

This mandi is on the main road of Fatuha. The mandi is spread inside towards the two
sides of road. The vegetables also come from Diara i.e. from the other side of Ganga
by boat. This is an old mandi having 12-15 traditional commission agents trading in
vegetables.

The volume of vegetables handled is low in this mandi. The main reason could be
attributed to the fact that it provides a locational advantage to the farmers. Farmers
have access to the larger consumer market, Patna, and they send their produce directly
to different mandis in Patna by trucks or rail. Generally, traders from other markets do

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not visit this mandi. The following table summarizes the different produce traded in
the mandi and their estimated volumes in the peak season.

Product Estimated volume handled per day( MT)

Cauliflower 10
Potato 20
Gourds 10
Brinjal 10
Source: IL&FS -CDI field study

Bazar Samithi, Fatuha:

It is the erstwhile APMC mandi of Fatuha, before the APMC Act in Bihar was
repealed. The mandi is spread in an area of about 15 acres with reasonably well laid
roads and platforms for trading of various products.

At present the products handled in the mandi are wheat, pulses, onion and potato.
There are close to 20 commission agents dealing with Potato and Onion.

Khusarupur Market

This mandi is adjacent to the railway station of Khusrupur and very near to the NH
31. It is situated in the private plots of number of people who act as commission
agents. There are total 13 mandis owners and about 21 commission agents. All
seasonal vegetables are traded here.

The commission agents buy the produce from the farmers on cash. However, they
extend credit to the farmers for production.

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The commission charges are 3% each from farmers and buyers. The product is
weighed for buying after sorting. Weighing charges are Rs. 3 per 100 kg. Both
retailers and wholesale buyers come to this market. Retailers mostly buy the produce
in the morning and then go to consumer markets such as Patna, Danapur and Fatuha
by train and come back by same day evening. The following table summarizes the
different produce traded in the mandi and their estimated volumes in the peak season.

Product Estimated volume handled per day (MT)

Gourd 10
Cauliflower 6
Cabbage 5
Brinjal 10
Source: IL&FS-CDI, Field Study

Baikatpur

It is a small roadside mandi where farmers from surrounding area come to sell their
produce. It is on private land and there are about 4-5 commission agents present in the
market. Vegetables are purchased by traders and loaded on trucks for sending in Patna
market. Farmers are charged in kind (½ -1 kg) per 40 kg while buyers are charged at a
rate of 2%. The various products handled in the mandi and estimated volume handled
during peak months is summarized in the table below.

Product Estimated volume handled per day (MT)

Tomato 5
Cauliflower 2
Gourd 10
Source: IL&FS -CDI field study

Bakhtiyapur

Bakhtiyarpur mandi is similar to the Khusrupur mandi

and is located adjacent to the railway station. The major
products are gourds, cauliflower, cabbage, brinjal and tomato. Farmers from
catchment bring their produce to the market. There are 10-12 commission gents in the
mandi. The various products handled in the mandi and their estimated volume
handled during peak months is summarized in the table below.

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Product Estimated volume handled per day (MT)

Tomato 10
Cauliflower 8
Gourd 12
Source: IL&FS -CDI field survey

Musallahpur
Located in Patna, Mussalahpur market is the biggest of all the mandis in the state both
with respect to its area and throughput. The market is spread over an area of 35 acres.
Around 200 commission agents operate in this market having strong trade linkages
both within and outside the state. The market, apart from arrivals from its catchment
which is spread in a radius of 100 km, also witnesses huge quantity of fruits and
vegetables from other parts of the country, which are not locally produced.

The produce coming locally include pointed gourd, okra, brinjal, tomato, bitter gourd,
ridge gourd, chilli, cucumber, radish, carrot, cabbage and cauliflower among
vegetables and mango, litchi and banana among fruits. Being among top handler of
fruits such as mango, litchi and banana, the mandi has established linkages with
various other mandis like Azadpur in Delhi, Ranchi and Jamshedpur in Jharkhand and
even with southern state capitals like Hyderabad and Bangalore. The estimated daily
arrivals in this mandi is around 150-200 MT with the peak arrival sometimes crossing
400 MT during the season of mango and litchi.

The mandi has well laid shops and counters with clearly marked roads. However,
most roads are filled with the dump and packaging waste and hence are in a non-
motorable condition. The production of Fatuha-Bakhtiyarpur region is mostly
marketed in Musallahpur in Patna. However, once the RABC is present, it is expected
that RABC will be able to buy some produce from this catchment. The estimated
production in the catchment of Fatuha–Bakhtiyarpur is summarised in the table
below.
# Product Estimated production (MT)
1 Potato 58232
2 Onion 31513
5 Other Vegetables 85201

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11.3.2 Agri Input Market of Fatuha

The table below summarizes the size of agri input market of Fatuha.

Number of dealers of inputs 20

Estimated Urea market 3000 MT Rs. 150 lakhs
Estimated DAP market 600 MT Rs. 60 lakhs
Estimated MOP market 200 MT Rs. 10 lakhs
Estimated Seed market Rs. 200 lakhs
Estimated Pesticide market Rs. 400 lakhs
Number of Dealers for tractors 0
Cash credit sales More than 90 % of transactions on cash
Organised Warehousing for Fertilisers CWC/SWC 12826 MT

The estimated market size of agri inputs excluding tractors and irrigation equipment
and the associated service is close to Rs. 820 lakhs.

10.3.3 Existing dynamics of Production, Agri input markets, Agri output

markets and Storage – Implications on Fatuha RABC

# Parameter Implication for RABC

A Production and harvesting – Affecting Procurement

1 Small Land holding Smaller lot size. Challenges in consolidation and standardization.

Farmers are used to bench marking to Patna market for prices. In fact
2 Proximity to Patna
large volumes of product are sent to Patna directly.

Many times vegetable growing areas are also inundated by flood

3 Flood affected
water. Volatility in prices can be high at such times.

4 Self harvesting for vegetables Ideal scenario.

Since the volume bought by local traders is small, they grade the
produce in the mandi and buy only the graded produce. Farmers are
5 Sorting and grading by traders
used to sorting grading operation by trade. Good in short term, but
RABC need to train the farmers to grade the produce at farm.

These affect the quality and also increase the cost of packaging to
Packaging in bamboo baskets, farmers. Introducing crates and encouraging the farmers to use the
6
gunny bags crates will be very beneficial. In fact, this can be the single most
important intervention to maintain quality and reduce wastages.

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# Parameter Implication for RABC

B Agri input sales

Non - availability of complex Leads to black marketing - Ideal opportunity for an organized player
1
fertilizer on time to induce foot falls.

Use of generic molecules in

2 High scope for intervention and use of new pesticides
Pesticides

Easy to enter the market as credit sales cannot be entertained by

3 Cash purchases - 80 % organized players. And the RABC can target larger market by
providing credit sales.

C Agri output marketing

Location of RABC within the catchment of the production or setting

Transportation by thela,
1 of village level consolidators or centres may be needed. May need to
bullock cart, boats etc
provide transportation for some time (at least a couple of seasons).

Price discovery is by negotiation. Different farmers send produce to

Price discovery – Multiple different mandis and hence bench mark price is different. This has
2
bench marks problems in arriving at model price. With Patna in close proximity,
prices in Patna mandis may also need to be tracked.

Sales of products like bottle Extremely difficult for organized player planning to deal in hundreds
3 gourds and cauliflower in of tonnes using numbers. Difficulty in arriving buying price. Need to
numbers educate the farmers.

Commission charges of Rs 20 Commission agent has no incentive to increase the price and hence the
4 for 100 pieces in cauliflower chances of getting good price for the farmer are limited. Scope for
and bottle gourd RABC to buy.

Commission charges of 6 % in
5 Khusrupur - 3 % both from Different pricing mechanism for different products. Difficulty in
farmer and buyer finding the farmer realisation. Buying price fixation is a challenge.

Commission charges of 3 %
6
on potato

Commission charges 2 % in
7
from seller in baikatpur

Need to make cash payments. Payments by cheques may not be

Cash payments to farmers
8 acceptable. Need to develop a mechanism to make payments to
most of the time
farmers in cash.

Cash purchase by traders most

9 Receipts will be in cash. Need to consider this in the business plan.
of the time

Loading and Unloading Borne by the buyer as well as seller. Need to incorporate in the pricing
10
charges appropriately.

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D Storage

Cold storage capacity of The district has a production of over 4.4 lakh MT of potato, but the
1
94645 MT cold storage capacity is low leading to distress selling.

10.4 Business Plan for the RABC Strategy in Fatuha

10.4.1 Procurement Plan – Products and Expected Margins

The focus products in Fathua are mainly vegetables (including potato and onion). The
catchment area for this RABC consists of the blocks of Fathua, Bakhtiyarpur, Patna
Sadar, Punpun, Khusrupur and Daniyanvan. Based on the production details of the
vegetables in the above mentioned blocks and estimated market surplus and linkages
from field study, it is estimated that the RABC will be able to handle the following
products and quantities. Table below summarizes the focus products, estimated
volume per annum and expected gross margins per mt of product.

Product Estimated Qty (MT) Expected margin Rs per MT

Potato 5000 1000
Onion 3000 2500
Vegetables 8000 750

Seasonality: The products selected are well spread throughout the year as can be
observed from table below.

Product Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Potato
Onion
Tomato
Cauliflower
Gourds
Cabbage
Brinjal

Peak Arrivals
Off peak arrivals

10.4.2 Agri Input Sales

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The estimated agri input sale and estimated margin from sale of agri inputs is
summarized in the table below.

Product Estimated Sales Estimated margin

Urea 300 MT Rs. 100 per MT
DAP/ Complex 60 MT Rs. 200 per MT
MOP 20 MT Rs. 100 per MT
Seeds Rs. 20 lakhs 30 %
Pesticides Rs. 30 Lakhs 20 %

10.4.3 Facilities Suggested for Primary Processing, Storage and Other Services

The RABC will have facilities for sale of agri inputs and handling and trading of agri
outputs. For handling of agri output the following facilities are suggested.
Justification for setting the facility and the individual capacity is summarized in the
table below.

# Facility Capacity Justification

Multi
product 5 MT per Since a range of products will be handled, multi
1 grading line hour product handling line will be ideal.

Potato Cold For storage of potato and onion. For onion storage a
2 storage 4000 MT dehumidifier will be installed.

Primary For transit storage of, cauliflower, cabbage, gourd,

processing okra - All the products are high volume low density
3 hall 700 sq m products, hence more handling space needed.

Shop floor
4 for sale of 150 sq m For display and sale of agri inputs and administration
agri inputs

Godown for
5 100 sq m For storage of fertilizer
fertilizer

Weighing Since it is proposed that all products will be purchased

6 line 1 by weight.

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10.4.4 Project Costs

Description Amount
Land (3 Acres @ Rs. 7 Lakhs/Acre) 21.00
Land Development (3 Acres @ Rs. 5 Lakhs/Acre) 15.00
Buildings (Approx 3800 sq. m @ Rs.6500/sq. m) 244.25
Plant & Machinery* 123.00
Miscellaneous Fixed Assets* 18.53
Preliminary and Pre-Operative Expenses * 9.83
Contingencies(5% of the above costs) 20.04
Margin Money for Working Capital* 3.39
Total Project Cost 455.04
* Assumptions and details in Chapter 13.

10.4.5 Means of Finance

Particulars Amount (Lakhs Rs)

Equity 30% 136.51
Grant from GoB 35% 138.26
Debt Remaining 180.26
Total 455.04

10.4.6 Profit and Loss Statement#

Year 1 2 3 4 5 6 7
Capacity Utilization 40% 50% 75% 90% 90% 90% 90%
(Lakhs Rs)
Revenue 354.5 443.2 664.8 797.7 797.7 797.7 797.7
Expenses 6 0 0 6 6 6 6
Raw Material (Agri 260.1 325.2 487.8 585.4 585.4 585.4 585.4
Inputs)
Water 8
0.46 3
0.57 5
0.86 1
1.03 1
1.03 1
1.03 1
1.03
Power & Fuel 5.84 7.30 10.94 13.13 13.13 13.13 13.13
Employee Cost 17.42 18.29 19.21 20.17 21.17 22.23 22.23
Insurance 1.93 1.93 1.93 1.93 1.93 1.93 1.93
Admin & Selling 3.55 4.43 6.65 7.98 7.98 7.98 7.98
Overheads
Total Expenses 289.3 357.7 527.4 629.6 630.6 631.7 631.7
EBITDA 7
65.19 5
85.45 3
137.3 5
168.1 5
167.1 1
166.0 1
166.0
Interest on term loan 25.24 25.24 7
24.29 1
21.77 1
19.24 5
16.72 5
14.20

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Interest-W. cap 1.53 1.91 2.86 3.43 3.43 3.43 3.43

borrowings
Depreciation 23.38 23.38 23.38 23.38 23.38 23.38 23.38
PBT 15.04 34.93 86.84 119.5 121.0 122.5 125.0
Tax 2.56 10.57 29.29 3
41.33 5
42.64 1
43.82 4
45.27
Net Profit (PAT) 12.48 24.36 57.55 78.21 78.41 78.69 79.77
#
Assumptions are given in Chapter 13.

10.4.7 Financial Performance indicators

Year 1 2 3 4 5 6 7
EBITDA Margin 18.39% 19.28% 20.66% 21.07% 20.95% 20.81% 20.81%
PAT margin 3.52% 5.50% 8.66% 9.80% 9.83% 9.86% 10.00%
Debt-Equity Ratio 0.63 0.58 0.44 0.32 0.24 0.18 0.13
Debt to EBITDA ratio 2.92 2.26 1.32 0.99 0.89 0.79 0.68
Interest Coverage Ratio 2.34 2.76 3.98 5.03 5.49 6.06 6.85
DSCR 2.34 2.76 2.39 2.93 3.06 3.20 3.39
Average DSCR 2.80
Project IRR 14.23%

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11. RABC at Maranga, Purnia District

11.1 District profile
Purnia District is about 3202.31 sq. km in area, bordering Araria district in north,
Katihar and Bhagalpur district in South, West Dinajpur district of West Bengal and
Kishanganj district of Bihar in east and Madhepura and Saharsa District in the west.

The district is connected through National Highway No. - 3 and the nearest railway
station is Katihar which is well linked to other parts of the state and country. It is
expected that by March, 2009, Purnia railway station will be operational, connecting
it to Kolkata, Siliguri, Patna and Delhi.

The total population of the district as per 1991 census is 18.78 lakhs. The literacy rate
of the district is 28.52 % which is way below the national average. The district
consists of 4 sub divisions and 14 Blocks.

The river Kosi and Mahananda and their tributaries, which include Parman, Kankai,
Soura and Faryani, cross different parts of the district. The soil of the district can be
called alluvial or Sandy loam. As the river Kosi, popularly known as "River of
sorrow", flows in the plains of the district freely and changes its course frequently, the
soil in the district has rich tracts of recent alluvial deposits.

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The principal crops that are grown in the district are paddy, jute, wheat, maize,
moong, masoor, mustard, linseed and potato. Jute is the most important and major
cash crop of the district. The soil and climate of the district is suitable for fruit plants
like banana, mango, guava, lemon, makhana and jack Fruit.

11.2 Agriculture Sector

11.2.1 Area and production

With a total area of 6.8 lakh ha under grain crops, Purnia produces close to 7.5lakh mt
of various grains. The fruit and vegetable production is close to 5.7 lakh mt. The
following table summarizes the area and production of different crop categories in
2005-06.

Category Area (ha) Production (mt)

Cereals 595700 723700
Pulses 68800 12800
Oil seed 13550 11180
Total grains 678050 747680
Vegetables 13550 237481
Fruits 9290 131586
Potato 70600 201300
Total fruits and vegetables 95410 570367
Source: Dept of Agriculture, GoB

11.2.2 Block wise crop wise acreages of major crops

The block wise sowing area of major crops in Ha in 2005-06 is summarized in the
table below.

# Block Cereals Pulses Oilseeds Vegetables Fruits

1 Purnea East 38010 4995 1180 1542 1200
2 Kasba 38007 5170 665 1401 1000
3 K Nagar 35973 5308 665 1833 610
4 Banmankhi 58126 5864 1280 1109 600
5 Rupauli 61711 6486 1575 1088 263
6 Dhamdaha 60711 6300 1130 1001 635
7 Bhawanipur 56911 5812 1225 900 612
8 B Kothi 59211 5950 1325 883 680
9 Amour 32305 3905 1025 721 600

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10 Bayasi 30403 4700 538 675 700

11 Baisa 31105 3645 1025 1100 690
12 Srinagar 30906 4002 765 301 800
13 Daghrua 26516 3655 487 296 500
14 Jalalgarh 35805 3008 665 700 400
Total 595700 68800 13550 13550 9290
Source: Dept of Agriculture, Purnia Dist; Department of Horticulture, Purnia Dist

11.2.3 Agricultural Produce - Purnia

11.2.3.1 Cereal and Pulses

The marketable surplus for grains in the district is very less and is in the range of 30-
40% (i.e. about 2.2 to 2.9 lakh mt) of the production. There is one large mandi named
Gulab bagh mandi which is the biggest in Bihar.

11.2.3.2 Fruits and Vegetables

The major horticultural crops of the district are mango, banana, pineapple and potato.
The major mandi and the products handled have been summarized in the table below.

Mandi Major produce

Purnia (Gulab Bagh) at Bazaar Samiti All cereals, fruits and Vegetables
Source: IL&FS -CDI field study

The details of market dynamics have been discussed in detail later.

11.2.4 Agricultural Inputs - Purnia

The agri input market of Purnia district is summarized in the table below.

Agri input Particulars Remarks

Number of Characterized by large wholesalers unlike other

wholesalers 15 district

Urea 50000
Fertilizers*
DAP 16000 Shortage of fertilizer in peak season rampant. Better
(MT)
availability can increase consumption. Sale of
NPK 7000 fertilizer at higher than MRP seen in villages.

MOP 6000

SSP 4000

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Paddy -HYV 3000

Paddy hybrid 30

Wheat 1000

Seeds Maize 4600 Tremendous demand of good hybrid seeds of corn

(MT) throughout the year.
Rs.
Vegetables 1crores

Characterized by sale of sugarcane & potato based

Pesticides Rs. 2 crores pesticide.

All most all major tractor manufactures have a dealer

Tractor in the district. Tractor penetration is 1tractor per
Dealers 8 Nos. panchayat

Source: IL&FS -CDI field survey and *Department of Agriculture

11.2.5 Agricultural Warehousing and Cold storages - Purnia

In case of cereals, farmers have very low marketable surplus. The storage of grains in
organized warehouses is poor. The SWC has 10000 mt of dry warehouse mainly used
to store fertilizer.

The district has 7 cold storages with an installed capacity of 14000 MT. All the cold
storages are involved in the storage of potato only. The charges for cold storage are
Rs 140 to 150 per quintal per season. The storage season is from March to October.
Apart from the rentals, loading and unloading charges are collected from the farmers
which are in the range of Rs 2 to 2.75 per quintal for each loading or unloading
operation. Many cold store owners lend money to farmers up to 20 % of the product
value at an interest rate of 24% per annum.

11.3 Location Analysis - Purnia

Purnia town is the head quarter of Purnia District and is located on National Highway
31.

11.3.1 Agri Output Market in Purnia

The various crops that are produced and traded include mango, potato, litchi, banana,
pineapple and maize. Gulab Bagh Mandi is the only mandi in Purnia district where
the agricultural products are traded.

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There are close to 80 commission agents dealing mainly with maize. Traders from
different parts of the country buy from these commission agents. However, bulk
trading happens through rail rake at Katihar railway station.

The various products that are traded in Gulab bagh mandi, season and estimated
volume per day in the peak season is summarized in the table below.

Product Peak arrivals Season Estimated volume handled per day (mt)
Wheat April-May 20
Mango May-July 50
Litchi May-June 10
Banana Aug-Feb 90
Maize April-June 450-1000
Source: IL&FS -CDI field study

The commission charges vary from crop to crop. The details of market dynamics and
the implication for RABC have been discussed in detail in the next section.

The various products that are traded outside mandi (directly at farm), estimated
volume and season are summarized in the table below:

Product Peak Season Estimated volume (mt)

Potato Mar – Oct 60000
Mango June- July 25000
Pineapple Jan-Mar 70000
Maize April-June 100000
Source: IL&FS -CDI field study

Gulab bagh Mandi, Purnia:

Gulab Bagh mandi has a storage capacity of

12000-15000 MT. It is spread in an area of 4.88
acres and is located just along NH 31 and is about
12 km from district headquarter of Purnia. The
mandi is widely known for maize arrivals and is
an important sourcing destination for buyers of the
neighbouring state. Maize from this mandi is mainly bought by starch and poultry
units located outside the state. Apart from Maize, the other major crops coming to this
market are wheat and banana.

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It is observed that Banana is traded in raw stage form and ripening of it takes place at
destination markets. There is no ripening facility and cold storage in the market yard.
As per the feedback from the traders, it is estimated that total annual throughput of
maize in this mandi is around 90,000 MT.

This mandi has also got dry warehousing facility with a total capacity of around
10000 MT. A few of these godowns are owned by APMC while rests are owned by
traders operating in the mandi. The system of sale in this mandi is through open
auction as well as bidding system.

11.3.2 RABC site selection

Maranga is the location suggested for setting up of RABC in Purnia. Maranga, in

Purnia East Block, holds an advantageous position of being 6km away from Purnia
town. It is on the Patna-Purnia highway. BIADA has acquired 3 acres of land for
industrial development. There is a plan to establish a mushroom unit in one acre and
the remaining two acres can be used for RABC.

11.3.3 Agri Input Market of Maranga

The table below summarizes the size of agri input market of Maranga.

Number of dealers of inputs 1

Estimated Urea market 1000 mt Rs. 50 lakhs

Estimated DAP market 1000 mt Rs. 100 lakhs

Estimated MOP market 500 mt Rs. 25 lakhs

Estimated Seed market Rs. 50 lakhs

Estimated Pesticide market Rs. 30 lakhs

Number of Dealers for tractors 1

Cash credit sales More than 90 % of transactions on cash

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11.3.4 Existing dynamics of Production, Agri input markets, Agri output

markets and Storage – Implications on Maranga RABC

# Parameter Implication for RABC

A Production and harvesting – Affecting Procurement

1 Small Land holding Smaller lot size. Challenges in consolidation and standardization.

Higher cost of production, higher risk taking capability of the

2 Production of cash crops producers, higher scope for value addition, larger and well spread agri
input market.

Harvesting and post harvest Will need some extension work to motivate the farmers to harvest the
3 handling by labour contracted produce and market it on their own. To start with some contractors
by the trader may have to be hired by RABC as well.

B Agri input markets

Non - availability of complex Leads to black marketing - Ideal opportunity for an organized player
1
fertilizer on time to induce foot falls.

Use of generic molecules in

2 Scope for intervention and use of new pesticides high
Pesticides

Easy to enter the market as credit sales cannot be entertained by

3 Cash Sales - 80 % organized players. And the RABC can target wider market by
providing credit sales.

C Agri output Marketing

This is primarily because the entire produce does not come for
harvesting at once. Hence, a trader buys the produce from many
Sale of mango, banana and farms, harvests it as per his requirement and price. There is credit -
1
litchi before harvesting product lock arrangement which may be difficult to break straight
away. Purchase from traders and working with farmers simultaneously
may be needed.

Location of RABC within the catchments of the production or setting

Transportation by thela,
2 of village level consolidators or centres may be needed. May need to
bullock cart etc
provide transportation for some time (at least a couple of seasons).

Price discovery is by negotiation. Buying Price fixation will be very

Price discovery - many
3 difficult as the possibility of finding model price is difficult. Need to
unknowns
work with traders for a couple of seasons.

Ideal scenarios in potato & maize as the entrepreneur sells seed,

No commission agents in
4 tractor and implements locally to farmers directly and can take up
procuring maize
contract farming model.

Commission charges of 5 %
Different pricing mechanism for different products. Difficulty in
5 on mango - 2 % from farmer
finding the farmer realization. Buying price fixation is a challenge.
and 3 % from Buyer

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Commission charges of 3 %
6
on Potato

Need to make cash payments. Payments by cheques may not be

Cash payments to farmers
7 acceptable. Need to develop a mechanism to make payments to traders
most of the time
in cash.

Cash purchase by traders most

8 Receipts will be in cash. Need to consider this in the business plan.
of the time

Loading and Unloading Borne by the buyer as well as seller. Need to incorporate in the pricing
9
charges appropriately.

D Storage

1 Poor storage facility for grains Opportunity for storage of grains.

11.4 Business Plan for the RABC in Maranga, Purnia

Based on the above analysis on various aspects of RABC model, the following
strategy is suggested:

11.4.1 Procurement and Marketing Plan – Products and Expected Margin

The focus products in Purnia are grains, vegetables and fruits. The catchment area for
this RABC consists of the blocks of Purnia East, Kasba, K Nagar, and Jalalgarh.
Based on the production details of the grains, vegetables and fruits in the above
mentioned blocks and estimated market surplus and linkages from field study, it is
estimated that the RABC will be able to handle the following products and quantities.
Table below summarizes the focus products, estimated volume per annum and
expected gross margins per mt of product.

Product Estimated Qty (mt) Expected margin Rs. per mt

Mango 1100 2000
Litchi 350 5000
Banana 1800 750
Grains 13000 750
Vegetables 6000 750
Pineapple 350 1000
Source: IL&FS -CDI survey

Seasonality: The products selected are well spread throughout the year as can be
observed from table below.

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Product Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Mango
Pineapple
Litchi
Banana
Maize

Arrivals
Off season/no arrival

11.4.2 Agri Input Sales

The estimated agri input sale and estimated margin from sale of agri inputs is
summarized in the table below.

Product Estimated Estimated margin

Urea 1000 mt Rs.100 per mt
DAP/ Complex 1000 mt Rs. 200 per mt
MOP 500 mt Rs. 100 per mt
Seeds Rs. 20 30 %
Pesticides Rs. 30 20 %
Agri-implements Tractor with Approx Rs.400 per hr depending on
hiring implements implement

11.4.3 Facilities Suggested for Primary Processing, Storage and Other Services

The RABC will have facilities for sale of agri inputs and handling of agri output.

Apart from the shop floor for selling of agri inputs, the following facilities are
suggested at Maranga for handling of agri output. Justification for setting the facility
and the individual capacity is summarized in the table below.

# Facility Capacity Justification

Multi product Pineapple & mango will be handled, multi product

1 2 mt per hour
grading line handling line will be ideal.

Pack house-
2 100 mt For fruits ripening & pre-cooling of litchi
Cold room

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Dry
3 5000 mt For maize
warehouse

Shop floor for

4 sale of agri 150 sq mts For display and sale of agri inputs and administration
inputs

Godown for
5 100 sq mts For storage of fertilizer, pesticide & seeds
fertilizer

Since it is proposed that all products will be purchased

6 Weighing line 1
by weight.

11.4.4 Project Cost

Description Amount
Land (3 Acres @ Rs. 2.5 Lakhs/Acre) 7.50
Land Development (3 Acres @ Rs. 5 Lakhs/Acre) 15.00
Buildings (Approx 3300 sq. m @ Rs.6500/sq. m) 224.25
Plant & Machinery* 46.00
Miscellaneous Fixed Assets* 13.21
Preliminary and Pre-Operative Expenses* 6.54
Contingencies (5% of the above costs) 14.92
Margin Money for Working Capital* 15.23
Total Project Cost 342.65
* Assumptions and details in Chapter 13.

11.4.5 Means of Finance

Particulars Amount
Equity 30% 102.80
Grant from GoB 35% 112.43
Debt Remaining 127.43
Total 342.65

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11.4.6 Profit and Loss Statement#

Year 1 2 3 4 5 6 7
Capacity Utilization 40% 50% 75% 90% 90% 90% 90%
(Lakhs Rs)
Revenue 700.9 876.1 1314.2 1577.1 1577.1 1577.1 1577.1
Expenses 6 9 9 5 5 5 5
Raw Material (Agri Inputs) 601.1 751.4 1127.1 1352.5 1352.5 1352.5 1352.5
Water 2
0.29 0
0.36 0
0.54 2
0.65 2
0.65 2
0.65 2
0.65
Power & Fuel 4.76 5.95 8.93 10.71 10.71 10.71 10.71
Employee Cost 14.92 15.67 16.45 17.28 18.14 19.05 19.05
Insurance 1.42 1.42 1.42 1.42 1.42 1.42 1.42
Admin & Selling Overheads 7.01 8.76 13.14 15.77 15.77 15.77 15.77
Total Expenses 629.5 783.5 1167.5 1398.3 1399.2 1400.1 1400.1
EBITDA 2
71.43 6
92.63 8
146.71 5
178.80 1
177.94 2
177.03 2
177.03
Interest on term loan 17.84 17.84 17.17 15.39 13.60 11.82 10.03
Interest on working capital 6.85 8.57 12.85 15.42 15.42 15.42 15.42
borrowings
Depreciation 13.87 13.87 13.87 13.87 13.87 13.87 13.87
PBT 32.87 52.35 102.81 134.12 135.04 135.91 137.70
Tax 10.11 17.30 34.95 46.02 46.71 47.33 48.22
Net Profit (PAT) 22.76 35.05 67.86 88.10 88.33 88.58 89.47
#
Assumptions are given in Chapter 13.

11.4.7 Financial performance Indicators

Year 1 2 3 4 5 6 7
EBITDA Margin 10.19% 10.57% 11.16% 11.34% 11.28% 11.22% 11.22%
PAT margin 3.25% 4.00% 5.16% 5.59% 5.60% 5.62% 5.67%
Debt-Equity Ratio 0.54 0.47 0.34 0.24 0.17 0.13 0.09
Debt to EBITDA ratio 2.42 1.99 1.37 1.15 1.08 1.01 0.94
Interest Coverage Ratio 2.48 2.85 3.72 4.31 4.52 4.76 5.06
DSCR 2.48 2.85 2.61 3.05 3.14 3.24 3.37
Average DSCR 2.93
Project IRR 16.11%

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12. RABC at Bettiah & Ramnagar, West

Champaran District
12.1 District profile
West Champaran is located in north-west Bihar and spread over an area of 5228 Sq.
Km. The district is bordered by Gorakhpur, UP on the west, Nepal on the north,
Gopalganj district on the south & East Champaran district on the east. The district
constitutes of 18 development blocks and the head quarter is located in Bettiah. The
population of the district is about 30.43 Lakh (2001 census) with a population density
of 582 per sq km. The ratio of rural population is very high with only 11 % of

population staying in urban areas. The literacy rate is quite low at 39.63 %.

Paddy, wheat, sugarcane, maize and potato are the major crops cultivated in the district.
Fertile silt-clay soils are present in the district. Tirhut, Tribeni & Done canals are the most
prominent canals operating in this district. They irrigate 1.32 lakh ha of land. They get their
water supply from the Gandak River at Balmikinagar, the northern most part of the district
which borders Nepal.

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Bettiah and Ramnagar are two locations selected for setting up of RABCs.

12.2 Agriculture Sector

12.2.1 Area and production

With a total area of 3.4 lakh ha under grain crops, West Champaran produces close to
6.4 lakh mt of various grains. The fruit and vegetable production is close to 8.2 lakh
mt. Area under sugarcane is 0.54 lakh ha with a total production of 23.66 lakh MT.
The following table summarizes the area, production of different crop categories in
2005-06.

Category Area (ha) Production (mt)

Cereals 303319 612000
Pulses 24800 19879
Oil seed 13860 10865
Total grains 341979 642744
Vegetables 20513 320919
Fruits 13230 277960
Potato 11930 229650
Total fruits and vegetables 45673 828529
Source: Dept of Agriculture, GoB

With proximity to Nepal, good connectivity and suitability of land and climate for
production of cereal crops and potato, greater area is under cultivation of cereals and
potato. Smaller land holding pattern has resulted in intensive cultivation using high
inputs and high cropping intensity. The reported cropping intensity of the district is
250 % in irrigated areas and 150% in dry-land conditions. The overall cropping
intensity is just below 200%.

12.2.2 Block wise crop wise Acreages of Major Crops:

The block wise sowing area in Ha under major crops in 2004-05 is summarized in the
table below.

# Block Ceraels Pulses Oilseeds Vegetables Fruits Potato

1 Bettiah 3340 538 231 1619 1025 2828
2 Maujhaulia 22690 1618 798 800 555 15090
3 Nautan 20075 1650 891 1234 612 9941
4 Bairia 18050 1508 791 1400 732 12313
5 Chanpatia 21950 1518 894 1011 978 13199
6 Jogapatti 19070 1488 795 1322 907 11546

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7 Lauria 21830 1568 891 998 798 10734

8 Narkatiaganj 27610 1892 866 1077 335 17610
9 Gaunaha 19670 1592 860 1110 600 16428
10 Ramnagar 25310 1528 895 968 822 17865
11 Mainatand 19420 1590 851 909 761 5173
12 Sikta 19620 1550 947 911 580 10325
13 Bagha-1 27270 1860 1057 755 310 18417
14 Bagha-2 22270 1838 1046 987 380 30108
15 Thakraha 4405 618 474 1367 900 15020
16 Bhitha 3755 608 529 1212 935 3273
17 Madhubani 3835 1068 471 1333 1050 15861
18 Piprasi 3149 768 573 1500 950 3919
Total 303319 24800 13860 20513 13230 229650
Source: Dept of Agriculture, West Champaran Dist; Department of Horticulture, West Champaran
Dist

12.2.3 Agricultural Produce - West Champaran

12.2.3.1 Cereal and Pulses

The marketable surplus for grains in the district is very less and it is in the range of
30-40 % (i.e. about 0.8 to 1 lakh mt) of the production. There are no sizable or large
mandis; however, Bettiah, Lauriya, Narkatiyaganj & Ramnagar are few smaller
mandis dealing with grains.

12.2.3.2 Fruits and Vegetables

The major horticultural crops of the district are mango, potato and cucurbits. The
major mandis and the products handled have been summarized in the table below.

Mandi Major produce

Bettiah (Meena Bazaar) at Bazaar Samiti Mango, potato and Vegetables
Lauriya Chilli, Vegetables
Ramnagar Potato
Narkatiyaganj Vegetables, maize & potato
Source: IL&FS -CDI field study

The details of market dynamics have been discussed in detail later.

12.2.4 Agricultural Inputs - West Champaran

The agri input market of West Champaran district is summarized in the table below.

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Agri input Particulars Remarks

Number of 8 PACS presently dealing with sale of fertilizer and

wholesalers 51 other inputs

Urea 80000

DAP 18000

NPK 4700 Shortage of fertilizer in peak season rampant. Better

availability can increase consumption. Sale of
MOP 8000 fertilizer at higher than MRP seen in villages.
Fertilizers*
(mt) SSP 10000

Paddy -HYV 2000

Basmati rice is on heavy demand. Farmers keep good
Paddy hybrid 20 quality seed with them & replace it once in four
Seeds (mt) years.
Wheat 9000

Maize 1900

Rs. 0.75
Vegetables crores

Characterized by sale of sugarcane & potato based

Pesticides Rs. 15 crores pesticide.

All most all major tractor manufactures have a dealer

Tractor in the district. Tractor penetration is 8 tractors per
Dealers 15 Nos. panchayat

Source: IL&FS -CDI field survey and *Department of Agriculture, GoB

12.2.5 Agricultural Warehousing and Cold storages - West Champaran

In case of cereals, farmers have very low marketable surplus hence the storage of
grains in organized warehouses is extremely low. The Bihar state warehousing
corporation has a warehouse of 6182 mt at Bettiah which is mostly (about 80%) being
used this year mainly by fertilizers & essential goods like sugar, paddy and wheat.

The district has 6 cold storages with an installed capacity of 10000 metric tonnes.
One cold store was closed in 2006 due to heavy rotting inside the cold store. All the
cold storages are involved in the storage of potato only. The charges for cold storage
are Rs 140 to 150 per quintal per season. The storage season is from March to

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October. Apart from the rentals loading and unloading charges are collected from the
farmers which are in the range of Rs 2 to 2.75 per quintal for each loading or
unloading operation. Many cold store owners lend money to farmers’ up to 20 % of
the product value at an interest rate of 24% per annum.

12.3 Location Analysis - Bettiah

Bettiah is the district head quarter of West Champaran and is located on National
Highway 28B which cris-crosses this district. It is well connected by rail to other parts
of the state and other cities in Uttar Pradesh, West Bengal and Delhi.

12.3.1 Agri Output Markets in Bettiah

The various crops that are produced and traded include mango, potato, coriander,
chillies, tomato and cucurbit vegetables like bitter gourd, gourds, pointed gourd,
pumpkins, bottle gourd and plain gourd. Bazar Samithi Bettiah (Meena Bazaar) is one
of the main mandis/points in West Champaran districts where agricultural products
are traded.

There are close to 20 commission agents dealing with potato. Traders from different
locations in the state buy from these commission agents.

The various products traded in the mandi, season and estimated volume per day in the
season is summarized in the table below.

Product Peak arrivals Estimated volume handled per day(

Potato Mar-April 70
Mango June-Aug 25
Cucurbits Whole year 10
Other Nov-April 10
Source: IL&FS -CDI field study

The commission charges vary from crop to crop. The details of market dynamics and
the implication for RABC have been discussed in detail in the next section.

Meena Bazaar, Bettiah:

This mandi is in the heart of the town at the APMC land. There is no particular place
allocated for mandi as the APMC land itself has been encroached by many non-agri
shops. The commission agents have set up their offices at different places.

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There are 4-5 commission agents dealing with mango and vegetables. The volume of
banana, potato and other cucurbits handled is low in this mandi. The various products
handled in the mandi, season and estimated volume handled during peak months is
summarized in the table below.

Product Peak arrivals Season Estimated volume handled per day (mt)
Mango June-July 50
Vegetables August - April 30
Source: IL&FS -CDI field study

12.3.2 Existing dynamics of Production, Agri input markets, Agri output

markets and Storage – Implications on Bettiah and Ramnagar RABCs

# Parameter Implication for RABC

A Production and harvesting – Affecting Procurement

1 Small land holding Smaller lot size. Challenges in consolidation and standardization.

Higher cost of production, higher risk taking capability of the

2 Production of cash crops producers, higher scope for value addition, larger and well spread agri
input market.

These affect the quality and also increase the cost of packaging to
Packaging in bamboo baskets, farmers. Introducing crates and encouraging the farmers to use the
5
& gunny bags crates will be very beneficial. This can be the single most important
intervention to maintain quality and reduce wastages.

B Agri input markets

Non – availability of complex Leads to black marketing - Ideal opportunity for an organized player
1
fertiliser on time to induce foot falls.

Use of generic molecules in

2 Scope for intervention and use of new pesticides high
Pesticides

Easy to enter the market as credit sales cannot be entertained by

4 Cash sales - 80 % organized players. And the RABC can target larger market by
providing credit sales.

C Agri output Marketing

This is primarily because the entire produce does not come for
harvesting at once. Hence, a trader buys the produce from many
Sale of mango before farms, harvests it as per his requirement and price. There is credit -
1
harvesting product lock arrangement which may be difficult to break straight
away. Purchase from traders and working with farmers simultaneously
may be needed.

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Location of RABC within the catchment of the production or setting

Transportation by thela,
2 of village level consolidators or centres may be needed. May need to
bullock cart etc
provide transportation for some time (at least a couple of seasons).

Price discovery is by negotiation. Buying Price fixation will be very

Price discovery - many
3 difficult as the possibility of finding model price is difficult. Need to
unknowns
work with traders for a couple of seasons.

No commission agents in milk Ideal scenarios in milk as the farmers sell either locally or to Sudha
4
collection dairy at Bettiah.

Commission charges of 5 %
5 on mango - 2 % from farmer
and 3 % from buyer Different pricing mechanism for different products. Difficulty in
finding the farmer realization. Buying price fixation is a challenge.
Commission charges of 3 %
6
on potato

Need to make cash payments. Need to make cash payments. Payments

Cash payments to farmers
7 by cheques may not be acceptable. Need to develop a mechanism to
most of the time
make payments to traders in cash.

Cash purchase by traders most

8 Receipts will be in cash. Need to consider this in the business plan.
of the time

Loading and Unloading Borne by the buyer as well as seller. Need to incorporate in the pricing
9
charges appropriately.

D Storage

1 No storage facility for grains Opportunity for setting up a warehouse for storage of grains.

Cold storage capacity of 3000 The district has a production of 2.3 lakh MT of potato, but the cold
2
MT storage capacity is low leading to distress selling.

12.3.3 Agri Input Market of Bettiah

The table below summarizes the size of agri input market of Bettiah.

Number of dealers of inputs 20

Estimated Urea market 7000 mt Rs. 350 lakhs

Estimated DAP market 3000 mt Rs. 300 lakhs

Estimated MOP market 1500 mt Rs. 60 lakhs

Estimated Seed market Rs. 200 lakhs

Estimated Pesticide market Rs. 500 lakhs

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Number of Dealers for tractors Nil

Cash credit sales More than 90 % of transactions on cash

12.4 Business Plan for the RABC in Bettiah

Based on the above analysis on various aspects of RABC model, the following
strategy is suggested

12.4.1 Procurement and Marketing Plan – Products and Expected Margin

The focus products for this RABC are grains, fruits and vegetables. Based on the
production details of grains, vegetables and fruits in the surrounding blocks and
estimated market surplus and linkages from field study, it is estimated that the RABC
will be able to handle the following products, quantities and the expected gross
margins per MT of product.

Product Estimated Qty Expected margin Rs. per mt

Grains 15000 750
Mango 4000 2000
Vegetables (Cucurbits) 8500 750
Source: IL&FS-CDI survey

Seasonality: The products selected are well spread throughout the year as can be
observed from table below.

Product Ja Fe Ma Ap Ma Ju Ju Au Se Oc No De
Grains
Potato
Mango
Vegetables
*Except for the dry season, West Champaran produces different types of cucurbits for
nine months.

Arrivals
Off season/no arrival

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12.4.2 Agri Input Sales

The estimated agri input sale and estimated margin from sale of agri inputs is
summarized in the table below.

Product Estimated Sales Estimated margin

Urea 450 mt Rs.100 per mt

DAP/ Complex 200 mt Rs. 200 per mt

MOP 80 mt Rs. 100 per mt

Seeds Rs. 30 lakhs 30 %

Pesticides Rs. 10 Lakhs 20 %

Agri-
implements Tractor with Approx Rs.400 per hr depending on
hiring implements implement

12.4.3 Facilities Suggested for Primary Processing, Storage and Other Services

The RABC will have facilities for sale of agri inputs and handling of agri output.

Apart from the shop floor for selling of agri inputs, the following facilities are
suggested at Bettiah for handling of agri output. Justification for setting the facility
and the individual capacity is summarized in the table below.

# Facility Capacity Justification

Multi product 2 mt per Potato & Mango will be handled, multi

1
grading line hour product handling line will be ideal.

Multi chamber Cold

2 100 mt Transit storage for fruits and vegetables
storage

Shop floor for sale 150 sq For Display and sale of agri inputs and
3
of agri inputs mts Administration

Godown for 100 sq

4 For storage of fertilizer, pesticide & seeds
fertilizer mts

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5 Warehouse 8000 MT For Storage of Grains

Since it is proposed that all products will be

6 Weighing line 1
purchased by weight.

12.4.4 Project Cost

Description Amount (Lakhs Rs)

Land (4 Acre @ Rs 4 Lakhs/ Acre) 16.00
Land Development (4 Acre @ Rs 5 Lakhs/ Acre) 20.00
Buildings (About 5100 Sq m @ Rs 6500/ Sq m) 332.25
Plant & Machinery* 29.00
Miscellaneous Fixed Assets* 15.14
Preliminary and Pre-Operative Expenses* 8.70
Contingencies (5% of sum of above costs) 19.82
Margin Money for Working Capital* 19.17
Total Project Cost 460.09
* The assumptions and details are given in Chapter 13.

12.4.5 Means of Finance

Particulars Amount
Equity 30% 138.03
Grant from GoB 35% 145.03
Debt Remaining 177.03
Total 460.09

12.4.6 Profit and Loss Statement#

Year 1 2 3 4 5 6 7
Capacity Utilization 40% 50% 75% 90% 90% 90% 90%
(Lakhs Rs)
Revenue 907.3 1134.1 1701.2 2041.5 2041.5 2041.5 2041.5
Expenses 5 8 7 3 3 3 3
Raw Material (Agri Inputs) 774.8 968.59 1452.8 1743.4 1743.4 1743.4 1743.4
Water 7
0.38 0.48 8
0.72 5
0.86 5
0.86 5
0.86 5
0.86
Power & Fuel 4.76 5.95 8.93 10.71 10.71 10.71 10.71
Employee Cost 18.19 19.10 20.05 21.05 22.11 23.21 23.21
Insurance 1.88 1.88 1.88 1.88 1.88 1.88 1.88
Admin & Selling Overheads 9.07 11.34 17.01 20.42 20.42 20.42 20.42
Total Expenses 809.1 1007.3 1501.4 1798.3 1799.4 1800.5 1800.5
EBITDA 6
98.19 4
126.84 7
199.80 8
243.14 4
242.09 4
240.99 4
240.99

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Interest on term loan 24.78 24.78 23.85 21.38 18.90 16.42 13.94
Interest on working capital 8.63 10.78 16.17 19.41 19.41 19.41 19.41
borrowings
Depreciation 15.87 15.87 15.87 15.87 15.87 15.87 15.87
PBT 48.91 75.40 143.90 186.49 187.91 189.28 191.76
Tax 15.84 25.33 49.04 63.90 64.72 65.48 66.59
Net Profit (PAT) 33.07 50.07 94.86 122.59 123.19 123.80 125.17
#
Assumptions are given in Chapter 13.

12.4.7 Financial performance Indicators

Year 1 2 3 4 5 6 7
EBITDA Margin 10.82 11.18 11.74 11.91 11.86 11.80 11.80
PAT margin 3.64% 4.41% 5.58% 6.00% 6.03% 6.06% 6.13%
Debt-Equity Ratio 0.56 0.48 0.35 0.24 0.18 0.13 0.09
Debt to EBITDA 2.39 1.96 1.34 1.11 1.05 0.98 0.90
Interest Coverage 2.46 2.85 3.77 4.39 4.63 4.90 5.23
DSCR 2.46 2.85 2.61 3.06 3.17 3.28 3.42
Average DSCR 2.94
Project IRR 16.87

12.5 Business Plan for the RABC in Ramnagar

12.5.1 Land availability

Ramnagar holds an advantageous position of being close to the Nepal international

border and the major vegetable growing village Rampuwa (Chapwa) is about 40km
away. This block has been studied in detail as an interested entrepreneur has more
than 6 acres of land on the main road near Harinagar-Nepal border (which is about
1km from Ramnagar/Harinagar). Ramnagar/Harinagar is well connected through rail
to Gorakhpur-Kolkata.

12.5.2 Agri Input Market of Ramnagar

The table below summarizes the size of agri input market of Ramnagar.

Number of dealers of inputs 20

Estimated Urea market 7000 mt Rs. 350 lakhs

Estimated DAP market 3000 mt Rs. 300 lakhs

Estimated MOP market 1500 mt Rs. 60 lakhs

Estimated Seed market Rs. 200 lakhs

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Estimated Pesticide market Rs. 500 lakhs

Number of Dealers for tractors nil

Cash credit sales More than 90 % of transactions on cash

12.5.3 Procurement and Marketing Plan – Products and Expected Margin

The main focus products in Ramnagar are grains, vegetables and mango. The
catchment area for this RABC consists of the blocks of Ramnagar, Sikta, Mainatand,
Lauria, Gaunaha, Bagaha and Narkatiaganj. Based on the production details of grains,
vegetables and fruits in the in the above mentioned blocks and estimated market
surplus and linkages from field study, it is estimated that the RABC will be able to
handle the following products, quantities and the expected gross margins per MT of
product.

Product Estimated Qty Expected margin Rs. per mt

Grains 17000 750
Mango 2500 2000
Vegetables (Cucurbits) 5500 750
Source: IL&FS-CDI survey

Seasonality: The products selected are well spread throughout the year as can be
observed from table below.

Product Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Grains
Mango
Vegetables*
*Except for the dry season, West Champaran produces different types of cucurbits for nine months.

Arrivals
Off season/no arrival

12.5.4 Agri Input Sales

The estimated agri input sale and estimated margin from sale of agri inputs is
summarized in the table below:

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Product Estimated Sales Estimated margin

Urea 1000 mt Rs.100 per mt

DAP/ Complex 500 mt Rs. 200 per mt

MOP 250 mt Rs. 100 per mt

Seeds Rs. 20 lakhs 30 %

Pesticides Rs. 70 Lakhs 20 %

Agri-
implements Tractor with Approx Rs.400 per hr depending on
hiring implements implement

12.5.5 Facilities Suggested for Primary Processing, Storage and Other Services

The RABC will have facilities for sale of agri inputs and handling of agri output.

Apart from the shop floor for selling of agri inputs, the following facilities are
suggested at Ramnagar for handling of agri output. Justification for setting the facility
and the individual capacity is summarized in the table below.

# Facility Capacity Justification

Multi product 2 mt per Potato & mango will be handled, multi product handling
1
grading line hour line will be ideal.

Pack house-
2 100 mt Transit storage for fruits and vegetables
Cold room

Shop floor for

150 sq
3 sale of agri For display and sale of agri inputs and administration
mts
inputs

Godown for 100 sq

4 For storage of fertilizer, pesticide & seeds
fertilizer mts

Since it is proposed that all products will be purchased

5 Weighing line 1
by weight.

Crate washing Most of the proposed fruits and vegetables will be

6 1
line handled in crates

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12.5.6 Project Cost

Description Amount
Land (4 Acres @ Rs. 4 Lakhs/Acre) 16.00
Land Development (4 Acres @ Rs. 5 Lakhs/Acre) 20.00
Buildings (Approx 6200 sq. m @ Rs. 6500/sq. m) 402.25
Plant & Machinery* 29.00
Miscellaneous Fixed Assets* 23.31
Preliminary and Pre-Operative Expenses* 10.17
Contingencies (5% of the above costs) 23.73
Margin Money for Working Capital* 20.63
Total Project Cost 545.09
* Assumptions and details given in Chapter 13.

12.5.7 Means of Finance

Particulars Amount
Equity 30% 163.53
Grant from GoB 35% 174.78
Debt Remaining 206.78
Total 545.09

12.5.8 Profit and Loss Statement#

Year 1 2 3 4 5 6 7
Capacity Utilization 40% 50% 75% 90% 90% 90% 90%
(Lakhs Rs)
Revenue 886.8 1108.5 1662.8 1995.4 1995.4 1995.4 1995.4
Expenses 8 9 9 7 7 7 7
Raw Material (Agri Inputs) 762.1 952.65 1428.9 1714.7 1714.7 1714.7 1714.7
Water 2
0.26 0.33 8
0.50 7
0.59 7
0.59 7
0.59 7
0.59
Power & Fuel 4.76 5.95 8.93 10.71 10.71 10.71 10.71
Employee Cost 15.31 16.07 16.88 17.72 18.61 19.54 19.54
Insurance 2.27 2.27 2.27 2.27 2.27 2.27 2.27
Admin & Selling Overheads 8.87 11.09 16.63 19.95 19.95 19.95 19.95
Total Expenses 793.6 988.36 1474.1 1766.0 1766.9 1767.8 1767.8
EBITDA 0
93.28 120.23 8
188.71 3
229.44 1
228.56 4
227.63 4
227.63
Interest on term loan 28.95 28.95 27.86 24.97 22.07 19.18 16.28
Interest on working capital 9.28 11.60 17.41 20.89 20.89 20.89 20.89
borrowings
Depreciation 19.11 19.11 19.11 19.11 19.11 19.11 19.11
PBT 35.93 60.56 124.33 164.47 166.48 168.45 171.34
Tax 11.29 20.24 42.43 56.53 57.61 58.63 59.94
Net Profit (PAT) 24.64 40.32 81.90 107.95 108.87 109.81 111.41
#
Assumptions are given in Chapter 13.

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12.5.9 Financial performance Indicators

Year 1 2 3 4 5 6 7
EBITDA Margin 10.52% 10.85% 11.35% 11.50% 11.45% 11.41% 11.41%
PAT margin 2.78% 3.64% 4.93% 5.41% 5.46% 5.50% 5.58%
Debt-Equity Ratio 0.57 0.51 0.38 0.28 0.21 0.15 0.11
Debt to EBITDA ratio 2.88 2.36 1.60 1.33 1.24 1.16 1.07
Interest Coverage Ratio 2.14 2.47 3.23 3.77 3.98 4.22 4.51
DSCR 2.14 2.47 2.22 2.60 2.69 2.78 2.90
Average DSCR 2.51
Project IRR 12.52%

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13. Business Plan and Financial Analysis

13.1 Project Cost and Means of Finance

13.1.1 Project Cost

The cost estimates are validated by IL&FS CDI on the basis of quotations
received from suppliers as well as secondary data from industry sources.

(i) Land

The standard cost mentioned on web site of BIADA for industrial area
for the major cities has been taken as the land cost per acre. In case for
a given location the cost of land is not available on the web site the
cost of nearest location or district is taken as benchmark for calculation
of project cost.

(ii) Land Development

Cost of land development includes boundary wall, road, water drainage

etc. The cost of development is taken as Rs 5 Lakhs/ Acre.

(iii) Buildings

The cost of buildings in the projects includes Dry warehouse, Pack

house- processing hall, Cold Storage, Shop floor area and agri inputs
warehouse (as applicable in different locations). The cost of
construction for various facilities is taken as follow:

• Warehouses, shop floor area etc.: Rs 6500/ Sq m

• Cold Stores: Rs 5000/ MT of storage capacity for Potato Store

• Pack House Cold room: Rs 10000/ MT of storage capacity

(iv) Equipments

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The break-up of the estimated cost of major machinery is provided

below.

Table 1: Machinery Cost Rs in Lakhs

Plant & Machinery Unit Rate/ Unit (Lakhs Rs)
Pack House-Cold Room MT 0.12
Ripening Equipments (MT/ day) MT/Day 7.00
Sorting Grading Line-2 MT/ Hr 12.00
Weighing Line 2.00
Fumigation Line-2 MT/ Hr 10.00
Fungicide treatment tank 5.00
Pre-cooling-10 MT, Blowers only 2.00
Crates washing line 3.00

The requirement of machinery depends on the business model or

commodities traded at a particular location.

(v) Miscellaneous Fixed Assets / Utilities

The breakup of the estimated cost of the miscellaneous fixed assets and
utilities are provided below:

Table 2: Miscellaneous Fixed Assets / Utilities

Particulars Rate/ Unit (Rs.)
Racks for Cold Store 500
Crates 170
DG-Set-70 KVA 300000
Transformer 100000
Water Supply-6 KLD Rate/KL (Rs)
Overhead tank 7000
Underground reservoir 2300
Pipe Lines-100 m 1850
Tube well with 2 HP Motor 40000
Misc Fixed Assets 200000

(vi) Preliminary & Pre-operative Expenses

The provision towards preliminary & pre-operative expenses includes

expenditure towards preliminary expenses like salaries &
administrative expenses, travel expenses, market development
expenses, interest during construction period etc. It is also assumed
that the project will be completed over a period of one year. The

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interest during construction period is capitalized in the project cost.

Pre-operative expenses other than interest during construction period
are assumed to be 1% of cost of fixed assets other than land and civil
work.

(vii) Working Capital Requirement

There will be two major revenue streams for the project:

1. The rental charged from users for storing their products in the
warehouses and cold stores.

2. The trading of fruits, vegetables and grains.

As according to the common practice of trade in agri commodities

there is a significant time lag between selling the produce and
collection of money from buyers. Therefore, a significant investment
in working capital will be required for the purchase of commodities
comprising of different fruits, vegetables, grains and agri inputs. The
RABC’s working capital requirements are calculated by taking into
consideration the holding period for various commodities and products
and the corresponding investment required in each holding period. The
holding period varies from 60 days in case of agri inputs (fertilizers,
pesticides & seeds) and grains (wheat, maize, rice and paddy) to 7 days
in case of highly perishable crops like (tomato, brinjal, banana etc.).
For the rental facility, raw materials have not been considered for
calculation of working capital requirement.

(viii) Contingencies

The amount is calculated at 5% of cost of site development, plant &

machinery and other fixed assets.

13.1.2 Means of Finance

The cost of the project is proposed to be financed through a mix of equity,

debt and grant from Government of Bihar.

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The grant is envisaged under the proposed Scheme for Integrated

Development of Food Processing Industries of Government of Bihar. The
grant and promoter’s equity are assumed to be 35% and 30% respectively of
the project cost and the remaining funds will be sourced through bank loan.

13.2 Analysis of Business Plan

13.2.1 Business Plan

RABC is visualised as a one stop shop and service providing center to farmers,
agri commodity traders and retailers. The business model of RABC is
explained below.

(i) RABC will procure fruits, vegetables and grains from farmers. These
produce will be stored in technologically suitable and hygienic
conditions for sale in the consumption market directly, through
retailers or through pre contracted potential buyers after proper sorting,
grading and packaging.

(ii) RABC will also sell agri inputs (Fertilizers, Pesticides and Seeds).

(iii) RABC will provide facilities like (depending on the requirements):

i. Cold Storage (50% capacity for trading purpose and 50%
for rental)5
ii. Modified atmospheric cold storage for perishable crops
(Transit store)6
iii. Ripening facility for Banana and Mango
iv. Dry Warehouse (50% capacity for trading purpose and
50% for rental) for agri commodities like grains, pulses
and agri inputs.
v. Sorting, grading and preservation facilities.

5
Rental Purpose- The space will be rented out to users to store agricultural commodities.
Trading Purpose- The space will be utilized by RABC itself to store purchased commodities for selling
on a later date to gain time arbitrage.
6
Transit Store- The produce will be stored for small period of time before dispatching to the
consumption market

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13.2.2 Key Operating Assumptions

The key operating assumptions underlying RABC’s business plan are

described below.

1. Cost Assumptions:
i. 240 working days per annum are assumed for operations.
ii. Buying Cost of major Crops and Inputs: The raw material cost
is estimated below.
Table : Cost of Major Crops
Crops Average Price/ Kg (Rs)
Potato 2.5
Onion 4.0
Litchi 15.0
Mango 9.0
Grains 8.0
Other vegetables* 4.0
Total
*Others include Brinjal, Okra, Watermelon, Carrots etc.

The buying costs have been estimated in consultation with

different players in the supply chain, which include farmers,
traders, commission agents etc. While estimating the costs,
seasonality of the commodity prices for the last two years has
been considered

iii. Power & Fuel Cost

The total connected load of the facilities would range from 50
to 150 KVA depending on the installed facilities in the RABC.
The power tariff has been assumed at the prevailing rate of Rs
4.25 per unit. Average daily requirement of power would range
from 320 KWH to 1200 KWH based on the facilities installed.

Taking into account the current power supply scenario in the

state it has been assumed that the facilities would run on DG set
for about 8 hrs/ day. Fuel cost for DG set is assumed as average
diesel consumption of 10 liters/ hr. The cost of diesel is
assumed at Rs 35/ litre.

iv. Water Cost

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Daily requirement of water is estimated to be 60 litres / person /

day & 1000 litres/ day for operating use. The charges are
assumed at Rs 20 / KL/ Month.

v. Employee Cost

The employee cost has been assessed by taking into account the
requirement of managerial and support staff for RABC’s
proposed level of operations. The estimated employee costs are
tabulated below.

Table 3: Estimate of Employee Cost

Workforce Assumptions Salary p.a. (Rs)
Managerial
Manager 120000
Marketing Manager 72000
Accountant 50000
Plant operator 60000
Security 36000

Temp workforce* Rs/ Day

Labour 80
*The number of workforce will depend on the scale of operations.
Note: Escalation in wages assumed at 5% p.a.

vi. Cost of Insurance

The cost of insurance has been assumed as 0.5% of cost of
plant & machinery and miscellaneous fixed assets.

vii. Admin & Selling Overheads

Admin & Selling overhead Cost has been assumed @ 1.0% of
revenues

2. Financial Assumptions:

(i) Taxes
Income Tax rate is assumed as flat 33.99% (Prevailing
Corporate Tax Rate)

(ii) Depreciation Rates

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Depreciation has been calculated on straight-line method, as

per the Companies Act, 1956, for book purposes, whereas for
tax purpose, written down value method is employed. The rate
of depreciation for plant & machinery and miscellaneous fixed
assets is taken as 10% for book purposes and 15% for tax
purposes

(iii) Interest
Interest rate has been assumed as 13.00% p.a. for Term Loan
and 13.50% p.a. for working capital loan.

3. Revenue Assumptions

(i) Proposed Margin assumptions

Depending on the location, the selling margins for various

products are assumed as:

Crop/ Product Unit Margin/ Unit (Rs)

Potato MT 500-1000
Vegetables MT 750-1000
Banana MT 500-750
Mango MT 2000
Litchi MT 5000-7500
Grains MT 500-1000
Agri Inputs
Urea Bag 5
DAP Bag 10
MoP Bag 5
Pesticides Litre 100
Seeds MT 30000
Rentals
Warehouse* MT/ Month 100
Cold Store# MT/ Month 250

*The rentals are estimated based on discussions with market players

(warehouse owners, traders and farmers). At present CWC7 and SWC8 are
charging Rs 75/ MT/ Month. But they are providing services for a limited
period of day (9:00 a.m. to 5:00 p.m.). As RABC will provide warehousing
services 24 hours, so a premium will be charged. Also many private
warehouses in and around Patna are charging even about 140-150 Rs/ MT/
Month.
#
The estimated rentals are equivalent to prevalent market rates.

7
Central Warehousing Corporation
8
State Warehousing Corporation

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(ii) Capacity Utilization

The estimated capacity utilizations are shown in the table

below.
Table 10: Estimated Capacity Utilization
Year Capacity utilization
Year I 40%
Year II 50%
Year III 75%
Year IV and Onwards 90%

13.3 Sensitivity Analysis

The prices and volume of agri commodities are highly volatile in nature and hence
any business related to agriculture is many times quite unpredictable. Keeping in view
the prices and volume volatilities, the sensitivity analysis of major financial indicators
for all the proposed locations has been done. As examples, the sensitivity analysis of
financial performance indicators of RABCs at Fatuha and Motipur (w.r.t. procurement
costs and selling prices of commodities) are given below.

13.3.1 Sensitivity Analysis of the RABC at Fatuha:

Description DSCR Project IRR Int Cover
Most Likely Scenario (See Chapter 11) 2.80 14.23% 4.15
Pessimistic Scenario
Decrease in selling price 5% 2.30 10.03% 3.41
Increase in raw material cost 5% 2.38 10.68% 3.53
Both of above 5% 1.88 6.20% 2.79
Decrease in selling price 10% 1.80 5.49% 2.67
Increase in raw material cost 10% 1.95 6.90% 2.90
Both of above 10% 0.78 -3.63% 1.16
Optimistic Scenario
Increase in selling price 5% 3.30 18.16% 4.89
Decrease in raw material cost 5% 3.22 17.58% 4.78
Both of above 5% 3.72 21.33% 5.52
Increase in selling price 10% 3.79 21.89% 5.63
Decrease in raw material cost 10% 3.64 20.77% 5.41
Both of above 10% 4.64 27.83% 6.88

The above table shows that the project looks bankable even in the moderately adverse
condition (Decrease in selling price by 5% and increase in raw material cost by 5%).
But in a highly adverse condition (Decrease in Selling Price by 10% and increase in
raw material cost by 10%), the project will face problems in repayment of debt

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liabilities. But this case is highly unlikely due to the economic traits of agri trade (Sale
price and purchase price of the same commodity very rarely move in opposite
directions simultaneously).

13.3.2 Sensitivity Analysis of RABC at Motipur:

Description DSCR Project IRR Int Cover

Most Likely Scenario (See Chapter 8) 2.92 13.38% 4.33
Pessimistic Scenario
Decrease in selling price 5% 2.44 9.04% 3.62
Increase in raw material cost 5% 2.52 9.82% 3.74
Both of above 5% 2.04 5.13% 3.03
Decrease in selling price 10% 1.96 4.28% 2.91
Increase in raw material cost 10% 2.13 5.98% 3.15
Both of Above 10% 0.93 -5.71% 1.38
Optimistic Scenario
Increase in selling price 5% 3.40 17.36% 5.04
Decrease in raw material cost 5% 3.32 16.69% 4.92
Both of Above 5% 3.80 20.46% 5.63
Increase in selling price 10% 3.88 21.08% 5.75
Decrease in raw material cost 10% 3.71 19.82% 5.51
Both of Above 10% 4.67 26.82% 6.93

Analysis of the above table shows that in the highly adverse scenario (Decrease in
Selling Price and increase in Raw Material cost by 10%), the project will face
problems in repayment of debt (Interest and Principle) obligations, but it will be easily
able to meet all the interest payments due. The Project IRR in this case will be
negative, making it an unviable investment from the investor’s point of view. A
proper buy back agreement with farmers and take off agreement with buyers will
equip investor in nullifying the fluctuations in prices and in avoiding the highly
adverse scenario. Proper value addition and quality up gradation by efficient handling
of produce will lead to premium prices (Optimistic Scenario), making it a highly
attractive investment proposal for the investor.

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14. Annexure
14.1 Investor Profiles
14.1 Muzaffarpur

1) Amrapali Group of Companies.

Amrapali Group consists of two companies- Amrapali Agro Foods Pvt. Ltd. and
Amrapali Foods Pvt. Ltd. Amrapali Group is primarily engaged in the processing of
fruits and vegetables and owns a processing plant at Hazipur Industrial Area & and
an integrated pack house at Bahadurpur, Muzzaffarpur. The group has an annual
turnover of around Rs. 4 Crores. Mr. K.P.S Kesari, is the MD of M/s Amrapalli Foods
Ltd.

2) Radha Krishna Ibex Pvt. Ltd.

Radha Krishna Nivas, Sikandarpur,
Muzaffarpur- 842001

The company has rich experience in F&V processing and has a processing unit at
Muzzaffarpur. It is primarily into Litchi processing and export having a turnover of
Rs. 25 Crores. The products are sold under the brand name “Kedia Fresh”. The
registered office of the company is located at Muzaffarpur with the corporate office at
New Delhi. The company has plans to scale up its operations by entering into new
segments.

14.2 Samastipur

1) Amrapali Foods Pvt. Ltd

(Details given earlier)

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14.3 Begusarai

1) Pharmafine Chemical Industries Pvt. Ltd,

Village Bihat, Barauni Industrial Area, Begusarai
Ph: 0624-3264196

The promoter of Pharmafine Chemicals Industries Pvt. Ltd. is Mr. Yogendra Prasad
Singh. He is an experienced entrepreneur having 40 years of experience in the
chemical industry. He started Pharmafine in 1980 at Barauni and Maratha Chemicals
Limited in 1990 in Aurangabad, Maharashtra. Maratha Chemicals, which employs
about 100 people, is a basic drug manufacturing company with an annual turnover of
about Rs. 80 crores in 2007-08 and having a gross profit of Rs. 8 Crores. Pharmafine
is planning an investment to the tune of Rs. 5 crores in the proposed RABC.

14.4 West Champaran

1) Bharatiya Beej Bhandar, Admin Office Lal Bazar, Betiah, West Champaran
Registered Office: Bharatiya Agro Products Pvt. Ltd, A/4, 4th Floor, Omkar
Apartment, Sheikhpura, Patna- 800014

Bharatiya Beej Bhandar is the one of the largest input dealers in Champaran area
dealing in seeds and pesticides for the last thirty five years. Its operations are spread
in two districts of West and East Champaran and also to some parts of Nepal. In
2006-07, the turnover was about Rs. 9 crores with net profit of about Rs. 36 Lakhs.
Mr. Bholanath Sikaria is the founder and director of Bharatiya Beej Bhandar. He has
close to 35 years of experience in the industry.

2) P & M Infrastructure Pvt. Ltd

P & M Infrastructures Pvt. Ltd. is a private company having objective of setting up

chain of malls, multiplex & hotels (popularly also called Family Entertainment
Centers) across Bihar & Jharkhand. The total book value of capital of P & M
Infrastructures Pvt. Ltd. is about Rs.44 Crores. Maurya Sugar Pvt. Ltd is a sister
company of P & M Infrastructure Pvt. Ltd. Maurya Sugar is setting up a 3500 TCD
sugar plant with a 120 KLPD distillery and a 16 MW power co-generation at
Guruwalia, Bettiah, West Champaran, Bihar at a projected capital cost of Rs. 250
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crores. Mr. Prakash Jha, Mr. Manmohan Shetty, Mr.Prabhat Jha and Mr. Chander
Gidwani are the promoters of the company and their total net worth is about Rs.
431.57 Crores.

14.5 Purnia

1) Owners and dealers of Kiran Cold Storage and Swaraj Tractors & Implement
(National Sales Corporation) respectively at Nayak Campus, near Jail Chowk, NH31
Purnia, Kiran

The above mentioned entrepreneurs are Mr.Pankaj Kumar Nayak and his father, Mr.
Kamta Prasad Nayak. The Cold Storage has a capacity of 6000 MT. The total
turnover of these entrepreneurs is about Rs. 9 crores.

14.6 East Champaran

1) Mr. U. K. Jaiswal
2) Uma Puri
3) Chandra Sekhar Giri
4) Rohit Chandra
5) Santosh Kumar Jaiswal

The above mentioned group of investors is planning to form a company for investing
in setting up of a RABC in Narkatiya Bazar, West Champaran. The investors are
experienced entrepreneurs and their combined net worth is around Rs. 2 Crores. Mr.
Jaiswal has more than 10 years of experience in FMCG marketing and export. Before
that he was the Managing Director of Texking Textile Pvt. Ltd.

14.7 Other potential investors:

1) Riddhi siddhi Gluco Biols Ltd (RSGBL)

Registered Office: 701, Sakar - I (Opposite Ghandhigram Railway Station) Ashram

Road, Ahmedabad, Gujarat – India

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Riddhi siddhi Gluco Biols Ltd (RSGBL) is India’s leading corn processors with a
market share of about 30 percent in starch manufacturing. RSGBL is the starch and
glucose manufacturing arm of the Riddhi Siddhi Group and is the largest wet milling
plant of the Indian Sub Continent having the highest crushing capacity of about 2
Lakh MT with four processing units located at prime locations in the states of
Uttaranchal, Karnataka, Pondicherry and Gujarat. Riddhi Siddhi has grown from Rs.
332.65 Crores of turnover in 2006-07 to about Rs. 550 crore in 2007-08,
strengthening margins, earnings and value creation for all the stakeholders.

2) Sukhjit Starch and Chemicals Limited (SSCL)

Registered Office: Sarai Road, Phagwara, Punjab - India

SSCL is India’s leading corn processors with a market share of about 20 percent in
starch manufacturing. It has the largest corn crushing capacity in the Indian Sub
Continent having a capacity of more than 1.5 Lakh MT with four processing units
located in the states of Punjab, Andhra Pradesh, West Bengal and Himachal Pradesh.
SSCL stands as the largest manufacturing plant producing the starch of various types,
liquid glucose, dextrose monohydrate, maltodextrin, dextrose syrup, High Maltose
Corn Syrup and the byproducts like Corn Gluten meal and Enriched fiber which are
used in various applications. SSCL is currently catering to different industries in
Food, Textile, paper, Pharmaceuticals, Confectionaries and many more and has
around twenty per cent of market share in starch manufacturing industry. The total
book value of capital of SSCL is about Rs. 150 Crores.

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