Myth in commodity selling, sustainable high growth strategy for Indian Fertilizer/Cement Producers – the 4th Driver.

In commodity product selling, sales team has common myth about the customer definition. It has been commonly observed by me, while discussing with sales team that customers mean dealers, sub-dealers or wholesaler. In few discussions, recently, we had with sales team on distribution strategy, I hear empty number of times value proposition for dealer but not a single time value proposition for farmer! My experience with cement industry was same. Sales teams are more concern about dealer! Yes, we should think about them, but as business partner not as customer. We should certainly protect their interest (profit) or we should collaborate with them while developing our business strategy or value chain strategy, but they should not, certainly, be the purpose of our business; rather dealer should align with our strategy as a key node (as a producer of fertiliser/cement) of the entire down-stream value chain.

In this connection I was carefully going through the vision & mission statement of the different Indian fertilizer organisations to understand the purpose of business -

1.     Coromandel International in its vision statement declares, “To enhance prosperity of farmers through quality farm solutions with sustainable value for all stakeholders.”

2.     IFFCO (Highest Selling Fertiliser Company in India) said, ‘To augment the incremental incomes of farmers by helping them to increase their crop productivity through the balanced use of energy efficient fertilizers; maintain the environmental health; and to make cooperative societies economically and democratically strong for professionalized services to the farming community to ensure an empowered rural India.”

3.     Chambal Fertiliser narrated as, “to be the leader in the fertilizers industry by providing high quality fertilizers, create value for all our stakeholders and play a catalytic role in delivering food security for India”.

It is very much evident that each & every fertilizer organization has their objective to improve the life of farmer but, does it translate into action. May be, I am not sure! At least I am not aware of. To me all these statements are good sounding words on the wall until it is translated into action in the ground.

Now question is why does commodity sales team (in fertilizer/Cement) have such high amount of dealer syndrome? The possible answer lies here 

a.     In business organization sales team members are getting transfer from one district to another and or one zone to other zone or one state to other sates or lastly one company to other company within a couple of years. So, who are the constant representative to the real customer? The answer is dealer, sub-dealer or whole seller. These are the people who have the real touch with the farmers. The emotional bond between dealer and farmers is being developed for generations. In this short duration; to have quicker success or achieve target or market share, sales team try to impress these dealers, give more emphasis to dealers' value proposition!

b.     Being a seasonal business, it requires push for at least 5 months. Push require credit support and credit collection from farmers requires greater reach & band width for any organization. Do the organization interested to deploy such high number of sales force or credit collection boys? No! Whereas a local dealer could easily do despite all bottleneck faced by farmer community like debt trap or consequent suicide.

c.      Last 3 years it is being observed that private complex fertilizer/Cement producers have worked on different “P” - pricing, product packing & product quality, product differentiation to gain market share, but, sooner or later competitors came with counter mechanism and or easily being imitated others which leads to a fierce battle in the market place among the competitors. Thus, the gain come up with high cost and offering became commoditized, hence losing the competitive advantage, increasing the dependability on dealer, eroding the profit margin, questioning the sustainability.

So, what would fertilizer/cement organizations do as a business strategy & come out from dealer syndrome to have a sustainable high growth?

Mr Thomas W Malnight, Mr. Ive Buche & Mr. Charles Dhanaraj in their study (Harvard Business Review) says that sustainable high growth organizations don’t limit their strategy into market share, instead they think about the whole ecosystem and the connected interests of different stake holders and thus create enough opportunities and grows sustainably with considerable profit margin.

APICS body of knowledge on Supply Chain also educate us the same theory and it states that no organisation could be successful or have sustainable growth until its each & every supply chain stake holders’ interest are being met in a collaborative approach!

I would like to find out the answer to all these questions. Here in this article I will discuss

1.     Current problem of farmers/rural community,

2.     How do two high growth organizations, involved into agri-business in India, develop their business, SCM strategy &

3.     What is the learning for fertilizer/cement industry for sustainable high growth? 

Current problem of farmers

Prof. Dnyandev Talule (Shivaji University, Kolhapur) in his article “Farmer Suicide in Maharastra” on Economic and Political Weekly nicely depicts current farmers issues. He narrates that there is a large gap between the expected and the actual returns in cultivation. Reasons for such a gap ranges from natural calamities to human-made factors like corruption in market mechanisms to politico-economic negligence -

a.      Natural Calamities (Uncontrollable Factors) - Monsoon failure, water shortage, drought, flood

b.     Human Factors (Controllable Factors) - Absence of social security, not much knowledge in seed selection, robust crop procurement mechanisms, corruption, ineffective price mechanism and increasing debt burdens (debt & price mechanism are the major contributors for the farmer suicide).

c.      Agriculture Infrastructure (Controllable Factors) – Lack of irrigation & shortage of proper storage for crop produce. 

Can we, fertilizer industry, take few of these causes, especially the debt and price issue, as a part of our business purpose other than crop yield? If so, we can save few lives & motivate stakeholders. 

According to the Edelman trust barometer, “everyone wants to work for an organization that can be trusted to contribute to a higher cause. And when customers, suppliers, and other stakeholders see that a company has a strong higher purpose, they are more likely to trust it and more motivated to interact with it”. Let us take some example -

Example from Indian Industry to develop business strategy - Building trust

Mahindra Finance. 

Mahindra Finance decided to target its different offering like tractor insurance, lives and health, to rural areas, where the creditworthiness of customers are in question & mostly poor, illiterate, and unbanked, with no identity documents, no collateral, and cash flows that were often impacted by monsoons. To handle such customers’ unmet needs company, do the followings

1.     Develop completely new ways to design loan handling arrangement, repayment terms, customer approval, branch locations, and disbursement and collection in cash.

2.     Not only that, but it had recruited sales and operation team member who could speak local dialects,

3.     Assess local situations and operate under a decentralized model of decision making.

Mahindra Finance extended its purpose-driven efforts to housing finance to rural housing loan. For rural people, getting loans, for housing is extremely difficult. Banks offered loans at lower interest rate 10% (currently 6-7%) but demands documentation which most rural residents cannot provide. On the other hand, local moneylenders offered instant financing but charged interest rates as high as of about 40%. This is where Mahindra Finance recognize an opportunity & decided to play at the intermediate level, offering customized home loans at rates of about 14%, an option that appealed to its growing base of customers. And when some of those customers developed successful small agribusinesses, they began looking for working-capital loans, equipment loans, project finance, and so on—more unmet needs, more opportunities that Mahindra Finance could address.

Amul

AMUL well known successful cooperative define its purpose of the business - to liberate farmers from economic oppression and lead them to prosperity. Their entire business strategy had been developed bringing the above purpose center of their strategy -

1.     As per AMUL MD, they do not have bottom line target, only top line.

2.     Concentrate more on productivity increase of farmers by paying maximum to them & encourage them to produce more to earn more

Whenever AMUL increase profit it simply increases the purchase price. It is being seen that over the last nine to ten years farmers income has grown by 9 to 10 percent per annum, which has not happened with any other business related to agriculture.

Learning

Fertiliser organizations can also think & adopt similar approach while building its strategy- an “outside-in” approach to resolve farmers problem - debt burden & high interest rate, to liberate farmer from local money lenders. To help them to come out from economic oppression & stand up on their own feet – an economic liberation. Can develop joint strategy in collaboration with Govt Organisation (like NABARD), Banking or NBFC (like Mahindra Finance) or Micro finance organisation to finance to purchase Fertiliser or Seeds with lower interest rate.

Fertiliser/Cement organization can even think like a venture capitalist who can promote a corpus of fund to select partner by choice from startup organizations, even dealer too, who are willing to change the law of the game in agriculture and in turn help organization to build trust within farmer and create brand loyalty and create a demand pool. Those start up organization can do

1.     Forward integration of crop produce, can effectively provide the right price back to farmers (like Amul Strategy),

2.     Build the cold storage or proper warehouse system to help farmers to stop wastage crop produce and protect farmers from the fall of price while having bumper production. Can take advantage of current govt farm bills.     

Thus, fertilizer/cement company should define their purpose & design their business strategy, well, in ground which will contribute to the organization and as well as to society as a whole. It should bring purpose to the center of its strategy. Purpose driven strategy played two important strategic roles: It helped companies redefine the playing field, and it allowed them to reshape the value proposition & stay relevant in rapidly changing world which are very difficult to imitate immediately, takes years to build similar value chain by any competitor.

It may change sales team mindset from volume to value selling—This shift meant going beyond dealer to work directly with the farmers/rural community – the real customer of us!

Debdutta Chowdhury

BSc (Economics) CSCP, SCORP