A maize ing! experience

Greetings.

Let me begin with sincere anticipation of some benefit to budding entrepreneurs especially in Agri value chain.

In the recent past, I was hired or rather I allowed to be hired for job by a 5 + year old Agri-tech Startup whose Founder-CEO has strong technical background and cross country work experience.

During telephonic interview, I am told my role would be of sourcing and procurement of Agri inputs, specially fertilizers for an FPO being mentored by the Co. During 1-2-1 meeting over cup of coffee, the role suggested is to replicate existing business in other state citing the role suits my potential and offer letter is mailed accordingly. Meanwhile, I had shared brief plan of action for sourcing and procurement.

On the day of joining and taking me through highly appreciative journey of the company, I am suggested to start “commodity trading” especially maize or corn, citing my entrepreneurial abilities. Am advised, generating revenue or “Cash flow” is what matters to any company and no matter how, or from where it comes! This was catch 22 situation for me. Just hesitant to say NO to this role fearing rejection of JOB. At the same time if I accept the role, then guilt and fear of leaving thoughts in Ceo's mind that like there is no clarity in me , I slipped into thoughts for few seconds.CEO quick to read, said short term plan was for long term goal. Meanwhile, I had submitted plan for replicating existing businesses, right from rental building for office to market approach, resource planning and budget.

Commodity trading-My job was to ensure min one truck load of CORN is sold daily to flow cash into company by way of Bill discounting. Modus operandi advised : 1st-Some NBFC (Non-banking financial Co) issues PO to Co with billing details (NBFC itself) and dispatch details ( End User). 2nd-Payment by NBFC will be made to Co within 48 hrs form time of rcpt of GRN (goods receipt note) 3rd-procedure (?) is not to get into nitty-gritty’s of operations at all, instead identify “Potential” existing trader and offer him Bill discounting ,who is expected to do A-Z operations for Co, as we are giving Purchase orders and payments within 48 hrs. 4th-Area of operations- a remote taluq with "office with accommodation"

That’s it! With above Frame, my task is to ensure Cash flow!! On war footing, I have had to understand:

1.    Nuances of commodity trading , specifically about corn or Maize- biology to agronomy , harvesting seasons, sources available in and around, avg. Acreage of farmer, Variety , Avg. yield, quality parameters and methods to check, Pricing, market trends etc.  

2.      Existing chain of “seed to sales”, importance of traders, statutory requirements for trading,

3.      Payment nuances – between trader and farmer, farmer- input supplier, trader- end buyer.

4.      End buyers -Location, Transport and logistics , importance of weighbridge or its operators rather, loading and unloading expenses, packing sizes and reasons for same.

5.      Role of APMC’s ( Agricultural Produce Market Committee)

6.      Importance of Market linkages – forward and backward

7.      Nuances of Finance /credit / lending to farmers and other stake holders in Agri chain

8.      Role of weather conditions specifically rains…

My temples of learning were Farmers, the APMC officials, entire APMC yard, Traders, Truck terminals, Truck owners, Porters or Loaders ,weigh bridge operators, Agri input suppliers, Tea stalls, hotels NBFC staff, local print media, couple of buyers and few Agri commodity APPs and key learnings are:

1.      Specific to last season, when the prices were high in neighboring states, the corn quality is dismally low due to un-seasonal and heavy rains, leaving no time to dry the corn in sunlight, resulting in high moisture content and fungal attack.

2.      Meanwhile handful traders /farmers who had good quality corn ,found it was not profitable to sell in neighboring states due to high transportation costs and waiting charges (at factories)

3.      If quality is poor and buyer is able to get good corn elsewhere, there is certain rejection resulting in chain of losses to trader (not to farmer) majorly deduction in agreed price , transportation costs and risks of storage of rejected or returned corn.

4.      Price offered and quantity ordered by End buyer (through NBFC) is locked for 2-3 days. Late deliveries and non deliveries may attract penalty clause in some cases.

5.      End buyers like roller flour mills, starch manufacturers, Livestock feed manufactures, Food processing industries etc. need corn round the year

6.      Major quality parameters : Moisture content ,wastage and damage expressed in % age. example : 14;2;2 means, 14% moisture , 2% wastage and 2 % damage. While there are hand held moisture meters affordable and accessible , to measure the other two parameters one needs skill and experience in absence of affordable and portable instruments.

7.      End buyers- Very few standard co’s provide formal letter /lab report for any rejections / deductions. Few buyers make deductions over telephonic discussions and “adjustments”

8.      Local farmers do not have access to Silos or storage of grain and can’t afford to wait till prices are better, as there is pressure to clear hand loans on priority. 

9.      Local farmers- can’t afford to transport their produce to APMC’s where seed de-stoning, grading and packing unit worth crores is lying idle for almost 3 years now. Even if Produce is cleaned and graded there are no takers for better price or unable to find takers

10.  Traders –are obliged to buy any quality from farmers to retain farmer loyalty. Also need to retain End buyer’s trust and rapport. They often take risk of produce being rejected or deduction in payments knowingly to keep both ends tied.

11.  Trader- offer diff Base prices to farmers as per quality and deduct price for 2 kgs out of every quintal as suite charges, irrespective of quality and payment terms.

12.  Payments by Traders to farmers-10 – 60 days or sometimes in advance, based on capacity or potential of farmer to harvest better crop next time, rapport or relationship.

13.  Traders - against land as collateral, extend financing or lending to farmers for non Agri purposes like children education, marriages, vehicle purchase and medical exigencies. Often this is so healthy for decades and is interdependent.There are flip sides too. I am yet to see any fin-tech / analytics / metrics or credit rating systems etc. to even come closer to match above social capital or relation, forget alone disrupting or disturbing !

14.  Operational nitty-gritty’s: Traders experienced in accessing the quality of grain in their own ways and techniques, hardly require any instruments. Am afraid to say... sometimes sophisticated instrument is put to shame. The Gunny /Jute bags, the way it’s packed, loaded, hamalis or porters, their union and charges ,Storing of bags in warehouses, how they differentiate or identify quality bags and how traders mitigate risks of aggregating diff qualities of Grain to fill one complete truck to service bulk orders.

15.  Compliance /Statutory: Any organization /Individual to get into commodity trading must have Trader’s License called as KT license in Karnataka and is issued by Directorate of Agri marketing. 1.5% cess is to be paid to concerned APMC within 24 hrs from time of billing with copies of purchase bills (issued to farmers) and Sales invoices along with E-bill /APMC permit ( downloaded from APMC website against each transaction or billing). And Some sates have abolished this APMC cess.

16.  Insurance – Conspicuously missing

Now back to company’s Cash flow …

1.      Co. didn't have APMC/KT license. Time required for same is 10-15 days

2.      Meanwhile, as Co needed Cash flow daily and also impress NBFC that Co is competent to service their orders, I was compelled to parallelly service the orders by NBFC but in other Trader’s name, till license is obtained. I.e. collect PO from NBFC in name of other trader who will execute the order and get payment from NBFC. And Co gets some % age from Trader. It was not rocket science to understand that trader is exposed to NBFC and end user. As expected, some Trader couldn’t service with quality produce in time the very first order vis-à-vis, Co /I failing to service the order from NBFC.

3.      By the time license is obtained, there was market Glut and numbers were just not matching. With no grip on quality source , dependency on NBFC alone for orders, even if co gets direct orders , unwilling to wait for week to days for payment , No Initial capital for direct purchase from Farmers, unwilling to take onus of rejections if any form buyer’s side – were a fine recipe for disaster !!

4.      Meanwhile, I did express backed with formal report, that commodity trading with corn is not profitable specially this particular season /couple of months (due to rains) and may differ to next season. In either case,suggested need  working capital at least to extent of value of one truck load of corn and a month's more time to find better ways and means for profitable trading. CEO insisted to continue with trading even if it’s No loss –No profit basis citing Co needs “turnover” /balance sheet to instill more confidence in investor and repeating to somehow show cash flow for next month and rightfully so.

5.      Couldn’t progress further as farmers are unwilling to sell produce to company on credit and Traders unwilling to service PO’s in Co’s name instead suggesting Co to buy/ make simple purchases from them and make payments to after 2-3 days and traders are least concerned about whom Co sells and at whatever price!

With heartfelt thanks to the founder-CEO for that Amaizeing experience and Moral for me: Never ever hesitate to Say NO, let me sign off saying... Even with Lottery ticket, one needs to invest both, Time and Money!

Jai Hind