Table of Contents
C Gansu Modern Forage – Current Status
D Strategy & Business Model
E Stakeholder Analysis & Partnerships
F Organisation Structure & Governance
B Market and Industry Background
G Finance & Investments
H Implementation Timeline & Conclusion
1
A Introduction
Executive Summary
5
9
20
2
65
30
54
78
85
Executive Summary (1/2)
Executive Summary
3
Capitlising on growing demand for high quality feed to support China’s increasing meat and dairy consumption, Gansu Modern Forage Development Co., Ltd. (GMF) aims to be China’s top commercial producer of alfalfa and alfalfa products. GMF’s business model is aligned with government policy and supports rural development by improving farmers’ livelihoods and reviving unused or underutilized arid land in Gansu Province.
GMF’s current operational hub is in Dingxi Prefecture, one of China’s least developed areas situated less than 100km from Gansu’s provincial capital Lanzhou. The provincial and local government strongly supports alfalfa cultivation through favorable policies such as landscaping, transfer of land use rights and other incentives.
GMF must overcome a number of challenges to achieve its goal including insufficient supply and inconsistent quality of alfalfa, weak and fragmented supply chains and a lack of mechanization suited to mountainous terrain to support more efficient harvesting. GMF must also secure the talent and funding, engage in the partnerships and institute the governance mechanisms required to support the rapid growth of the business.
GMF has an opportunity to grow 50% p.a through 2019, see a tenfold increase sales volume and achieve sales and net profit of RMB1.3B and RMB144M respectively.
External capital is required to fund expansion and can be secured in the form of investment from socially-oriented investors interested in rural development and financing from local banks.
The estimated total investment needed is RMB 30M over the next 5 years before breakeven.
Executive Summary (2/2)
Executive Summary
4
Key recommendations to GMF are:
– Focus on the production of alfalfa pellets to take advantage of rising demand from the animal husbandry sector, using as raw material medium quality alfalfa which can be cultivated on large tracts of rain fed mountainous land in Gansu
– Differentiate through an inclusive business model by establishing cooperatives of alfalfa collectors and farmers and offering these key stakeholders shareholding in the parent company to strengthen the value chain and secure consistent supply
– Enter into a strategic partnership with an agricultural machinery provider to develop and distribute appropriate technology such as alfalfa harvesters customised for use on mountainous terrain and pulley systems for more efficient transport of alfalfa
– Acquire and retain a strong management team and offer shareholding to instil a sense of ownership and shared success
– Work alongside the government and farming communities to promote the utilisation of unused mountainous land for alfalfa cultivation by demonstrating through its business model the potential benefits of the alfalfa market for rural development.
Note: Financial models and assumptions available upon request
Table of Contents
C Gansu Modern Forage – Current Status
D Strategy & Business Model
E Stakeholder Analysis & Partnerships
F Organisation Structure & Governance
Executive Summary
B Market and Industry Background
G Finance & Investments
H Implementation Timeline & Conclusion
5
A Introduction
GIFT Global Leaders Programme
The Global Institute For Tomorrow (GIFT) is an independent pan-Asian think tank focused on advancing a deeper understanding of global issues including the shift of economic and political influence from the West to Asia, the dynamic relationship between business and society, and the reshaping of the rules of global capitalism.
The Global Leaders Programme is the flagship executive education programme offered by GIFT for leading global organisations.
6
Introduction
Global team works on real-world field project
24 participants from 8 countries and 14 organisations traveled to Gansu to develop strategic recommendations to support GMF expansion.
The group engaged in site visits, field research and stakeholder meetings and focus groups with GMF Chairman and employees, government officials, farmers, collectors and cooperatives and strategic partners including financial institutions and machinery providers.
7
Introduction
Project objectives and scope
Development of five-year expansion strategy for GMF
Analysis of current status
Business Plan
Implementation
Forage market and industry based on own research and interviews with stakeholders
GMF current status and operational model Opportunities and challenges
Business model for different growth scenarios Recommended actions for
– Operations and supply chain – Stakeholder management – Organizational structure and governance – Finance and investment
Time line and implementation
8
Introduction
Table of Contents
C Gansu Modern Forage - Current Status
D Strategy & Business Model
E Stakeholder Analysis & Partnerships
F Organisation Structure & Governance
Executive Summary
G Finance & Investments
H Implementation Timeline & Conclusion
9
A Introduction
B Market and Industry Background
This section will cover 3 areas
10
Rural development
Section
Alfalfa industry as an opportunity
Alfalfa market outlook
Description/Objectives
Importance of agriculture in bringing prosperity to underdeveloped areas of China such as Gansu
Opportunities and challenges of the growing market for alfalfa in rural Gansu
Growth in demand for alfalfa in China
Market and Industry Background
Rural development policies make investment attractive
11
Central Government: President Xi Jingping: “Building a harmonious society is crucial for realizing
China Dream,” Xi further emphasized in 18th National Congress “Three-Rural Issues”(agriculture,
rural development and farmers)to be addressed by reforming rural economies, developing
modern technology and better “social management” in rural areas.
Agriculture
-- Annual grain production capacity to be no less than 540 million tons
-- Farmland reserves to be no less than 1.818 billion mu; *one mu = 666.7 square metres
Livelihoods
-- Pension schemes to cover all rural residents
-- Construction and Renovation of 36 million apartments for low-income families
Social management
-- Improved public service for rural residents
-- Better social management system for greater social harmony
Reform
-- In-depth reform in monopoly industries for easier market entry and more competition
-- Improved government efficiency and credibility.
Market and Industry Background – Rural Development
National and provincial government policies support agricultural sector growth
12
National Policies:
– Improve productivity of food crops
– Enhance agri-tech and equipment access
– Optimize agribusiness and agri-economic structure
– Develop rural public services and infrastructure
– Innovate rural developmental schemes
– Intensify environmental protection
Gansu Provincial Policies:
– Subsidy for grassland ecology conservation
– Support dairy-alfalfa sector growth
– Loess Plateau rehabilitation scheme
– Enhance agricultural sector, improve farmers’ income through restructuring, technological support, and procedural innovation
– Become a leader in the forage industry
Market and Industry Background – Rural Development
Gansu well suited for alfalfa cultivation with significant amounts of arid but potentially arable land
13
Large but Low Quality Farmland Available
Arable land: 80M Mu
80% of farmland is medium to low quality
Elevation 1000m+
Low annual rainfall - Avg 300mm
Large Rural Population
26 million Population
61% Rural population - Low annual Income RMB 5,000
39% Urban population - Annual income RMB 20,000
Underdeveloped
GDP: RMB 627bn (Rank 27th)
GDP per capita: Rank 30th of 31 provinces in China
Gansu can benefit from a new growth sector
Market and Industry Background – Alfalfa Industry
Emerging middle class driving growth in demand for forage crops
14
10
20
30
40
50
60
70
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Milk Cattle Rabbit Sheep Goat Chicken
Source: United Nations, FAOSTAT own calculations
Chinese production of animal products (million tons)
Market and Industry Background – Alfalfa Industry
Perennial flowering legume cultivated globally. Highly palatable and primarily used as feed for high producing dairy cows because of its high protein content and highly digestible fiber compared to grass
Can be harvested three to four times a year (twice a year in most parts of Gansu due to environmental conditions and cultivation techniques)
Requires minimal crop management and does not need to be replanted for approx ten years – quality peaks seven to eight years after planting
High vitamin and mineral content make alfalfa the best forage for maximizing productivity in dairy cattle. Alfalfa has been scientifically proven to positively impact milk production yields, protein content and overall cattle health
Alfalfa quality is primarily defined by crude protein content and fiber content. Its yield and quality are significantly impacted by the stage of maturity at cut and number of previous cuts.
The Relative Feed Value (RFV), Crude Protein Content (CP) and Total Digestible Nutrients (TDN) are highest in pre- to mid-bloom with lower Acid Detergent Fibre (ADF) and Neutral Detergent Fibre (NDF) fibre content.
Alfalfa – The Queen of forages
15
Source: University of Kentucky Dept. of Agronomy
Market and Industry Background – Alfalfa Industry
Alfalfa uniquely positioned as an economic growth pillar for Gansu with strong government support
16
Alfalfa
Strong central government support
Strong provincial support to make forage a pillar of economic growth
Chinese domestic milk production back on growth track after melamine scandal
Economic growth and emerging middle class resulting in higher meat and dairy consumption
Regulatory Environment
Huge Market Potential
Market and Industry Background – Alfalfa Industry
The early stage
1999-2003
Informal market began in 2001
Companies with Competitive advantages in production, quality, geography or logistics flourished
Market Situation: Supply surplus and low quality crop
Small area of land dedicated to cultivation (500K mu)
Alfalfa has gone through 3 major development stages in China and is now on a positive path with great potential
17
The challenging stage
2003-2006
Great Horizon Stage
2006 - now
Regulatory change in government subsidy impacted attractiveness of growing alfalfa compared to other crops (i.e. corn and potato)
Poor quality: Chinese alfalfa was often “mouldy” and alfalfa products often “impure” due to mixing other ingredients
Increased demand due to standardization/consolidation of large scale animal husbandry driven by growth in dairy consumption
Increase in alfalfa prices attracted more farmers
Domestic companies realised need to provide good quality and sustainable supply to compete with imported alfalfa
Enhanced government support linked to poverty alleviation, reversing desertification and and rural development
Market and Industry Background – Alfalfa Industry
Market and Industry Background – Market Outlook
18
China’s 34 million ton Alfalfa market potential: Dairy, Sheep and Goat production biggest consumers
Sources: http://en.cnki.com.cn/Article_en/CJFDTOTAL-GWXK201011004.htm http://www.chinadailyasia.com/business/2014-02/07/content_15116592.html United Nations FAOSTAT Estimations from calculations using available data
3% 4%
8%
15%
19% 23%
28%
Rabbits Chicken Pigs Beef Milk cows Goats Sheep
Market split If Alfalfa is industry’s forage of choice
Sectors
Estimated alfalfa input needed for animal feed
(in million tons) Sheep 9.3
Goats 7.6
Milk cows 6.5
Beef 5.2
Pigs 2.8
Chicken 1.4
Rabbits 1.0
Total 33.8
Alfalfa industry: Positive growth outlook
19
Alfalfa market in China (million tons)
5
10
15
20
25
30
35
40
45
50
2013-2019: Forecast
Market and Industry Background – Market Outlook
Table of Contents
D Strategy & Business Model
E Stakeholder Analysis & Partnerships
F Organisation Structure & Governance
Executive Summary
B Market and Industry Background
G Finance & Investments
H Implementation Timeline & Conclusion
20
A Introduction
C Gansu Modern Forage – Current Status
This section will cover 3 areas
Gansu Modern Forage – current position
Section
Current business analysis
Business model
Description/Objectives
Gansu Modern Forage’s (GMF) unique position in the Chinese alfalfa market
Strong financial position of the company
Established business value chain
Gansu Modern Forage’s current business model and competitors
21
Gansu Modern Forage – Current Status
Gansu Modern Forage: Well positioned to take advantage of the growing market for alfalfa
22
Early rapid
growth
Description
Founded in 2009, grew rapidly in first three years from
4,300 tons to 65,000 tons
Chairman’s
experience
Founder and Chairman, Zhang Yuping is a 25 year
veteran of the domestic dairy industry and initial
shareholder at leading dairy company Mengniu
Mr. Zhang is a member of the “Corporation Decision
Commission” at Mengniu and one of their major
distributors in northwest China
Scientific Approach
Utilizes modern scientific forage research and crop
management techniques to standardize and
maximize production and quality of domestically
grown alfalfa
Gansu Modern Forage – Current Status
GMF at an inflection point after successful start-up
23
GMF: at an inflection point
GMF has successfully ramped up sales
Stable profits with good outlook
Established value chain
The company is now at an inflection point where it would significantly grow and benefit from further investments and improvements to its business, financing model and mgmt structure
Gansu Modern Forage – Current Status
Current Alfalfa products include domestic and imported hay and high-grade alfalfa pellets
24
Gansu Modern Forage – Current Status
Well established, concentrated customer base leaves room for expansion with existing and new customers
25
40%
Other
13%
15%
23%
40%
New customers: focus areas
Moving into high-grade pellet feed is key:
Rabbit feed
Specialized poultry feed
Specialized lamb feed
Additional dairy firms can help to diversify risk of having sales portfolio tied up into few big customers
Opportunity to explore niche products i.e. alfalfa tea and supplements
Gansu Modern Forage – Current Status
Currently a small percentage of total supply
Harvesting services
FINANCIERS Banks, Credit unions, micro-finance institutions
MACHINERY PROVIDERS
GMF FARMS “Company-
leased land”
COLLECTORS & COOPERATIVES
Considered “land under cultivation”
Own / acquire / consolidate land
Employees
CUSTOMERS Dairy farms, Meat producers, Feed companies, etc
GMF Flow of Cash
Flow of Goods & Services
DOMESTIC ALFALFA SUPPLY
Landowners
SMALLHOLDER FARMERS
US-BASED ALFALFA
IMPORTERS (higher quality
+ price)
Existing Business model
Gansu Modern Forage – Current Status
Producing Area N.A. Production ~50,000 metric ton per annum Locations Beijing Key products Alfalfa hay products (bales, pellets)
Producing Area 42,000 mu (6,919 acre) Production N.A. Locations Beijing, Gansu Key products
Alfalfa hay products (bales, cubes) and other animal feed products
Producing Area N.A. Planned production capacity
<200,000 metric ton per annum (historical forecast, current capacity expected to be significantly lower)
Locations Sichuan, Gansu Key products
Alfalfa hay products (bales, pellets) and grass products
Planned producing Area
60,000 mu (9,884 acre)
Production capacity N.A. Locations Inner Mongolia Key products Alfalfa hay products (bales, cubes)
27
Competitive Analysis: main competitors Gansu Modern Forage – Current Status
Gansu Modern Forage is uniquely positioned for growth in the alfalfa market
Progressive Management
Business Performance
Geographical Location
Experienced Chairman with 25 years industry experience
Committed to growing the company in a socially responsible way
Strong financial standing with stable business performance
Existing capacity to ramp up production of pellets to meet demand
Company assets located in heart of alfalfa cultivation areas with good
infrastructure links (e.g. railways and roads)
Strategically located in areas with ample supply of cheap and unused land
ideal for growing alfalfa suitable for pellet production
Aligned with government policy to alleviate poverty in rural Gansu
through development of the agricultural sector
28
Regulatory
Gansu Modern Forage – Current Status
Key opportunities for Gansu Modern Forage’s future
29
Product mix
Area
Supply Chain
Opportunities
Significantly scale up and increase
proportion of alfalfa pellet
production in order to capture
rising demand in Chinese market
Increase amount of land covered
in supply chain and expand
supplier network thus increase
supply of raw materials
Partnerships
Differentiate through innovations to
current business model to enable
growth
Secure financing and/or capital for
five year expansion plan
Proposed Solution
Acquire cheap underutilised
mountainous land
Form new cooperatives
Appropriate technology i.e.
harvester and pulley system
Offer key cooperatives
shareholding in GMF
Seek external investors
and/or partnerships with
local banks
Utilise lower quality alfalfa
which can be grown on
mountainous terrain
Gansu Modern Forage – Current Status
Table of Contents
C Gansu Modern Forage – Current Status
E Stakeholder Analysis & Partnerships
F Organisation Structure & Governance
Executive Summary
B Market and Industry Background
G Finance & Investments
H Implementation Timeline & Conclusion
30
A Introduction
D Strategy & Business Model
This section will cover three areas
Business model
Section
Market strategy
Supply chain
Description/Objectives
Key elements of the proposed business model for GMF
Suggested GMF market strategy and business growth scenarios
Recommendations on expansion of GMF’s alfalfa supply chain
31
Strategy & Business Model
Proposed business model must significantly grow GMF’s alfalfa business
Going forward, GMF should therefore focus increasingly on the production of alfalfa pellets and significantly scale-up its operations through enhanced access to raw materials
Pellets to contribute 75% of alfalfa business, capturing demand growth in Chinese meat production industry
Through pellet production GMF can differentiate and diversify its business model from pure collector-distributor competitors models, and realize higher margins
GMF can utilize lower quality alfalfa to produce Alfalfa pellets. The supply of lower quality alfalfa can be scaled up significantly by expanding alfalfa cultivation into currently underutilised land in Gansu province
Strategy & Business Model – Business Model
32
Strategic partnerships must play a key role in proposed business model
GMF must therefore engage in strategic partnerships to increase access to alfalfa supply.
Collectors: to form cooperatives and offer “sweat equity” to support increased alfalfa cultivation and supply. Coops can organise farmers and provide value-added services
Machinery providers: to co-develop customized harvesters and potentially a pulley system for efficient transport
Banks: to finance GMF and key suppliers working capital to support scaling up
Government: to continue to develop local alfalfa industry via:
– Landscaping of arable land
– Subsidies for new machinery deployment
– Financial support for collectors
33
Strategy & Business Model – Business Model
Future business model
GMF
GMF leased farmland Cooperatives
Domestic suppliers
Farmers & collectors
Dairy farms, Meat producers, Feed companies
Customers
Government
Banks
Machinery COs.
Strategic Partners
Flow of Alfalfa
Flow of cash
34
Changes to existing model Focus on alfalfa pellets production Establish collectors cooperative Strategic partnerships with government,
machinery providers and banks
Sweat equity
Customised harvesters
Strategy & Business Model – Business Model
Business model
Section
Market strategy
Supply chain
Description/Objectives
Key elements of the proposed business model for GMF
Suggested GMF market positioning and business growth scenarios
Recommendations on expansion of GMF’s alfalfa supply chain
35
Strategy & Business Model
Three main scenarios evaluated: significant growth within reach if recommendations implemented
36
Proposed
Base case
Vision (Best case)
Reach one million ton production /year by 2019
Realising GMF mgmt team long term vision by successful implementation all key recommendations
Achieve 0.6 million ton production/ year by 2019
Implementing majority of key recommendations within proposed timeline
Continued organic growth without significant changes to current business model
Negligible growth in production
S cenario
0
200
400
600
800
1,000
1,200
00
0’s
to
ns
vision proposed base
Strategy & Business Model – Market Strategy
Three five-year business scenarios for GMF expansion based on key parameters
Base case Proposed Case
120,000
62,000
134,084,000
4%
2,000,000
1,000,000
2,298,684,000
70%
Government landscaping support
Current levels of
landscaping maintained
Attractiveness to and loyalty of collectors
Current level
Vision (Best Case)
1,200,000
602,000
1,379,084,000
50%
Profit sharing scheme with collectors in place
Medium-scale outreach
Minimal, current level 70% mechanization
(highest feasible case)
Technical support & education for farmers
No outreach program
Up to 50% mechanization
Medium-scale outreach program in collaboration with government extension office
Land base (mu) Sales vol (mt) Revenue RMB Growth rate
Strategy & Business Model – Market Strategy
37
Mechanization
Profit sharing scheme
with collectors in place
Maximum outreach
At least 50% of Gansu’s counties under active landscaping program
100% of Gansu’s
counties under active
landscaping program
Massive, large scale
outreach program in
collaboration with
government extension
office
GMF strategy to focus on alfalfa pellets to capture value
Product
Price
Customer
Shift Focus to Alfalfa pellet production
– Lower protein content requirement
– Suitable for rain fed crops grown in lower protein content crops of Gansu soil
Forecasted prices by 2019
– Alfalfa pellet 2.300RMB/ton
– Alfalfa hay 2.500RMB/ton
Lower margin but high volume makes up for profit
They should focus on two main types of customer
– Feed manufacturers
– Directly to farms
▪ Cattle, Rabbit, Sheep, Goat, and Dairy
1
2
3
7% 1%
5%
1%
86%
Domestic alfafa hay
Imported alfafa hay
Domestic oat hay
Corn Silage
alfafa pellets Competitor 4
Expect more competition in alfalfa hays due to
– High margin
– Easy access to imports
Competitive advantage for GMF when Gansu supply base is formalised
38
Proposed product mix
Strategy & Business Model – Market Strategy
Business model
Section
Market strategy
Supply chain
Description/Objectives
Key elements of the proposed business model for GMF
Suggested GMF market positioning and business growth scenarios
Recommendations on expansion of GMF’s alfalfa supply chain
39
Strategy & Business Model
If land base in supply chain is to be increased ten-fold the current model is not viable to manage increase in amount of company-leased land or number of farmers and collectors
Farmers and collectors not adequately organised, equipped, financed or trained to increase quantity and quality of supply
Current levels and modes of mechanisation insufficient for projected volume and required quality of alfalfa
Current supply chain model
40
Key challenges
Current model and constraints
Supportive policies i.e. landscaping
(Government)
Farming families Current > 6k
Future > 20k-60k
Alfalfa collectors Current > 50
Future > 300-1k GMF
Lack of labor to work land due largely to urbanisation and
stigma attached to farming as “primitive”
Large and segmented base of producers with limited access to mechanisation, knowledge of best practice and market
information
Lack of working capital at harvest time makes purchasing large quantities difficult. Low
levels of loyalty to buyers among most collectors
Majority of current harvesters not well-
suited to mountainous terrain
Flow of alfalfa
Model of purchasing machinery for use on company
land and then leasing to collectors is constrained
Strategy & Business Model – Supply Chain
Challenges and Recommendations
Capability & availability of appropriate technology for harvesting
Description Recommendation
Availability of harvesting machinery
affecting productivity and quality of
harvest due to short window of time to
ensure optimum protein content and avoid
spoilage of crop
Current harvesting equipment not suitable
for the terrain in Gansu
GMF to lead initiative for introduction of
appropriate equipment - JV with
manufacturer, establish distribution
network and leasing mechanism
Explore potential for pulley system to
transport large quantities of alfalfa
around mountains more efficiently
Low level of loyalty from cooperatives,
collectors and farmers
Capacity and capability of cooperatives and
collectors to manage farmers to achieve
targeted increase in land area utilized for
alfalfa cultivation
Implementation of a scalable a
supply chain model leveraging
cooperatives to drive increase in
quantity/quality of alfalfa supply and
loyalty to GMF
– Shareholding scheme
– Structured communication model
– Access to mechanisation, market
information and financial
resources
Informal relationships with key suppliers
Challenges
41
Strategy & Business Model – Supply Chain
Proposed supply chain model
42
Key Elements of Model
GMF to act as a development partner to support government in new landscaping
Technology: Partnership with machinery manufacturers to produce and distribute mountainous harvester and baling machine and explore viability of pulley system
Forming / strengthening cooperatives is critical
Set up standard Information sharing, quality promotion, and deal process via cooperatives with collectors and farmers.
Proposed Model Supportive
policies i.e. landscaping
(Government)
Farming families Current
> 6k Future > 20k-60k
Alfalfa collectors
Current > 50 Future > 300-1k
Collector & farmer
cooperatives GMF
Machinery suppliers
Flow of alfalfa
“GMF Machinery” leases harvesters to
key co-ops
Strategy & Business Model – Supply Chain
Supply chain challenges: three key focus areas
Suggested increase in GMF leased farmland and leverage cooperative model to expand land base in supply chain
Appropriate technology
Cooperative model
Land expansion
Deployment of cooperative model to incentivise collectors and farmers and provide value-added services to key suppliers
Development of appropriate technology to improve quality and efficiency in supply chain whist keeping capital costs down
Focus area Description/Objectives
43
Strategy & Business Model – Supply Chain
Land expansion is supported by favorable government policies
Landscaping
Description Importance for GMF
Landscaping mountainous land and
enhancing previously landscaped land to
increase area available for farming
– Example: 50k to 80k mu/year in Dingxi
covering newly landscaped land as
well as enhanced land
Additional arable land necessary for
alfalfa cultivation
Land where alfalfa suitable for pellets can
be grown is a strategic advantage for GMF
Promotion of social and environmental
benefits enhances company profile
Ability of GMF and farmers to secure
newly available as well as discarded land
use rights (30yr lease from government)
Government incentives to promote alfalfa
cultivation as alternative or complement
to other crops such as corn and potato
Corn and potato cultivated on approx 25
to 100% of actively farmed lands
As above, increased alfalfa supply
essential to drive GMF business
growth and to promote rural
economic development
Acquisition
Utilization
Transfer of land use rights are central to
GMF’s goal of increasing both company-
leased farmland and the amount of land
being used to cultivate alfalfa
Issues
44
Strategy & Business Model – Supply Chain: Land expansion
Government support can drastically increase land used for alfalfa cultivation in next 15 years
Landscaping
Recommendation
GMF to coordinate with local government on approach and prioritization of landscaped
area aligned with requirements
– Identification of areas more accessible logistically, within existing collector’s coverage,
soil/climate considerations
– GMF to seek favorable landscaping specifications including integration of pulley
system as part of land improvements
Acquisition
Utilization
Gain government support on proclamation of policies allowing for supplementary land
acquisition for Alfalfa farming
– GMF to increase land ownership
By 220% YoY from 5 thousand to 250 thousand mu in five years to achieve sales
volume of one million tons
By 1649% YoY to two million mu in 13 – 15 years (10% of total land in supply
chain)
– Influence farming community to acquire at least 1.3M mu in the next five years
Issues
GMF to encourage government for more incentive to support Alfalfa cultivation in newly
landscaped and discarded land
– Subsidies for seeds and other inputs
– Improved infrastructure
45
Strategy & Business Model – Supply Chain: Land expansion
Cooperative model addresses multiple supply chain challenges
Cooperative (shareholders of GMF)
Collector
Farmer Farmer Farmer
Collector Collector
GMF
Farmer Farmer Farmer
Township Level
Village Level
Individual Level
46
Current
Supply Chain
GMF
Shortage & low quality of Alfalfa
Limited resources to cover fragmented
suppliers
Difficulty in accessing finance
Lack of access and finance for machinery
Insufficient incentive to sell to GMF
Collectors/Farmers
Cooperative
Model
Consolidation ensures stable supply and pooled resources improves quality
Simplify supplier management
Offer co-ops shareholding in GMF
Cash advances and credit guarantees from GMF
Mechanization and storage
Purchase price incentive
Farmers Cooperatives exist as independent commercial entities, they not only function as collectors to provide alfalfa to GMF, but also channel GMF’s incentives to individual collectors and farmers such as harvesting services, financial services, market information, and technical support
How Cooperatives Work
Strategy & Business Model – Supply Chain: Cooperative model
GMF must strengthen supply chain relationships
Mobile based info network
Annual
event and ranking
Hardship fund
Provide covers and basic storage
SMS service to relay information on pricing, weather, industry news, etc to cooperatives, collectors and farmers directly and frequently
“Alfalfa Awards” brings together suppliers for festival where ranking of cooperatives based on quality & quantity is announced and new industry developments are shared
One per cent of profit from GMF earmarked for cooperative hardship fund to be used for disaster relief, offset poor harvests, etc
To protect harvest from rain and reduce spoilage
• Build trust and loyalty
• Increased productivity and quality
• Tighter communication
• Create social cohesion and community of alfalfa growers
47
Options Purpose
Strategy & Business Model – Supply Chain: Cooperative model
Appropriate technology is crucial to achieve scale
Challenges Specialized mechanization advantage
Low efficiency of hand harvesting, 5mu/person/day
Low quality of hand harvested alfalfa
Large amounts of land and shortage of labour
Current machines not suitable for mountainous land
High efficiency of mechanisation, target to achieve 100mu/day
Alfalfa quality will be improved due to timely and precise harvesting
Mechanization is not labor intensive
Specialized machine can access and work effectively on mountainous terrain
48
Strategy & Business Model – Supply Chain: Appropriate technology
Head mounted side- mounted Rear mounted Hand held
2m wide 4m wide 2m wide -----
250hp 500hp 250hp 1hp
Low harvesting capacity (small cutter)
High harvesting capacity
Low harvesting capacity
Extremely low harvesting capacity
70-80K RMB 200K RMB 70-80K RMB 1K RMB
--- Pressing function --- ---
49
Harvesters in use are either too big, have inadequate harvesting capacity or lack key features such as hay pressing in order too shorten drying time
Existing harvesters unsuitable for mountainous terrain
Strategy & Business Model – Supply Chain: Appropriate technology
GMF can develop and distribute a customised harvester
Suitable size for mountain land
Powerful engine
Pressing / Baling function is necessary
Head mounted, max 2m wide with cutter
500HP Power, with high harvesting capacity
Shorten the drying time of the hay and prevent spoilage
Machinery requirements for GMF
Recommendations
GMF to form a joint-venture with leading Japanese or German machine manufacturer in Gansu to produce specialized machine for alfalfa harvesting.
Government support in order to allow for production in China as competitive costs will be critical.
Possibility of selling nationwide with government support and potentially public sector contracts will be very attractive to potential JV partner
50
Strategy & Business Model – Supply Chain: Appropriate technology
51
Challenges of conventional transportation:
Collection and transpiration of alfalfa in steep step fields requires significant:
– Manpower
– Fuel
– Time
Solution:
Implementation of pulley systems will lead to:
– Less labour-intensive harvesting and transport of alfalfa
– More efficient transportation of harvested alfalfa improving quality and reducing spoilage
Implementation:
– Pulley system may be established by cooperatives, collectors, government or through joint efforts
– Government support for this initiative will be vital and they should be engaged as early as possible
Why pulley system is recommended
Pulley Systems GMF can also promote simple pulley systems such as those used in Japan to improve efficiency of alfalfa collection and transport in mountainous areas
Strategy & Business Model – Supply Chain: Appropriate technology
Key milestones for mechanisation & supply chain
52
Set up
(~1 year)
Phase1
(1~3 years)
Phase2
(3 years~)
Set up JV with leading machinery company
R&D Harvester units >20
Manufacturing equipment Set up Leasing Co. Harvester units >125
Network expansion Equipment supply increase Harvester units >200
Mechanisation
Supply chain Networking with cooperative
Farming families >6,000 Collectors > 100 Cooperatives >40
Farming families >20,000 Collectors > 300 Cooperatives >140
Farmer families >60,000 Collectors > 1,000 Cooperatives >400
The action plan for mechanization & supply chain restructuring will enhance the overall alfalfa sourcing capacity thereby allow for rapid and sustainable business development.
Strategy & Business Model – Supply Chain: Key milestones
Landscaping, supplier loyalty, appropriate technology and financing critical for expansion
Landscaping to make new arable land available and enhance previously landscaped land is vital to increase amount of alfalfa cultivation
Introduction of scalable supply chain model which leverages cooperatives with shareholding in GMF and provides valuable services to key suppliers will build trust and loyalty and increase quality
JV with leading machinery company to develop and distribute harvesters suitable for mountainous terrain through a leasing model is crucial for expansion
Formalising relationship with key suppliers makes access to financing in the supply chain easier
53
Strategy & Business Model – Supply Chain: Conclusion
Table of Contents
C Gansu Modern Forage Current Status
D Strategy & Business Model
F Organisation Structure & Governance
Executive Summary
B Market and Industry Background
G Finance & Investments
H Implementation Timeline & Conclusion
54
A Introduction
E Stakeholder Analysis & Partnerships
Stakeholder analysis & partnerships covers two areas
Stakeholder Analysis & Partnerships
Section
Partnerships
Communication plan
Description/ Objectives
Suggestion for partnerships that can support GMF in achieving its strategic objectives
Summary of key points for GMF Management for communication with key stakeholders
55
GMF’s interests need to be aligned with its stakeholders, leading to partnership opportunities
GMF
Collectors
Stakeholders’ Objectives Suggested Partnerships
Increase supply of Alfalfa for business growth
Improve alfalfa quality
2.Technology: Help collectors to gain access to appropriate technology by partnering with machinery providers
Government
Machine Providers
Banks
Stak
eh
old
ers
3. Financial support: Partner with banks and government to provide collectors finance for business expansion
1. Supply Side: Increase Alfalfa production by establishing collectors cooperative and partnering with government
Promote Alfalfa production
Enhance rural livelihoods
Foster economic growth
Improve income
Grow business
Develop new appropriate technology
Gain access to new market with significant
growth potential
Capture growth in agriculture sector
Grow loan book within risk appetite
56
Stakeholder Analysis & Partnerships
Supply side: GMF must partner with local government and collectors to expand alfalfa cultivation
Increase alfalfa raw material input accessible to GMF
– Increase area of arable land accessible for alfalfa farming
– Organize labor to cultivate land
Objective of partnership
Establish preferred partnership between GMF and government bodies on alfalfa development
Become thought leader to define and drive government’s long-term agenda
GMF to share preferred approach/ priorities for landscaping with government
– Which areas should be landscaped first (e.g., more accessible logistically, within existing collector’s coverage, soil/ climate considerations)
– Approach and specification of landscaped land aligned with GMF’s requirements
Action areas
Local government bodies
Collectors
Partners
Land-scaping
Land cultivation
Partner with collectors and government to cultivate currently unutilised/ newly accessible land
Establish collectors cooperative
– Facilitate scaling of business model
– Create organizational structure to deploy machinery
– Facilitate access to financing
57
Stakeholder Analysis & Partnerships – Government & collectors
GMF must partner with technology partner to develop customized harvesting machinery
Develop customized alfalfa harvesting equipment
– Support expansion of production base
– Reduce dependency on manual labour
– Enhance efficiency and quality
Equipment to automate cutting, pressing and baling of alfalfa in terraced land
Objective or partnership
Identify suitable project partner for R&D (new development or modification of existing design) and manufacturing
Partners could include manufacturers or research institutes
Action areas
Manufacturers/ research institutes
Government
Partners
Identifi-cation of partner(s)
Develop equipment
Roll-out/ scaling of model
Phased roll-out of harvesting equipment across GMF footprint
Time frame
3-6 months
Agree on detailed technical specifications and timeline
Negotiate long-term partnership contract building on scale of market opportunity
Obtain government subsidies for R&D / procurement
Launch prototype tests
6-12 months
>12 months
58
Stakeholder Analysis & Partnerships – Appropriate technology
Potential appropriate technology partners
Established in 1926 as a manufacturer specializing in agriculture machinery
Third largest agriculture machinery providers in Japan
Advantage of R&D on the practical application of specific technology
Description
Established in 1890 as a manufacturer of casting
No.1 agriculture machinery providers in Japan
Exploring a strategic partnerships in China for further business expansion
Key potential provider for GMF
Established in 1897 as a manufacturer of agriculture machinery
One of the largest of agriculture machinery providers in Germany
Providing a wide range of farming equipments including harvesting
A Sino-Italy JV in Shanghai between FIAT & SAIC since 2002
Specialized in small sized tractors machines
Capable of developing harvesting machine
Recommendation: GMF to invite bids from all four companies as part of a tender for the necessary equipment, with backing from government.
Stakeholder Analysis & Partnerships
59
GMF must partner with banks to provide financial support to collectors cooperative
60
Increase raw material supply to GMF via
– Supporting collector cooperative to scale up their operations
– Facilitate start of new collector businesses to expand coverage
Provide value-add to collectors to tie them closer to GMF
Objective of partnership
Agree with banks on scalable financial support model for collector cooperative
– Working capital solutions to finance harvest
– Leasing/ financing of harvesting equipment
– Product bundles for new business launch
Negotiate advantageous conditions for GMF business partners
– Preferential rates (‘cooperative rate’)
– Flexible approach towards collateral (e.g., harvest)
– Potentially supported by GMF guarantees
Action areas
Collectors
Banks
Government
Partners
Agree on model with banks
Government assistance
Detail collector needs
Quantify financial support collectors would require to significantly scale up their operations
Detail out key constraints faced by collectors today (e.g., bank’s collateral / guarantee requirements)
Negotiate government support to cooperative’s financing (e.g., partial loss coverage, insurance)
Stakeholder Analysis & Partnerships
Government communication plan
Landscaping
– Shared plan
– Agree on development priorities
– Establish preferred partnership
Subsidies
– Support development and procurement of technology
– Financing of collectors
GMF supports the government agenda for rural development in Gansu province
Improving livelihood of rural population
– Raise farmers and collectors’ income
– Creating new work opportunities
▪ Farming / Collecting
▪ Production / Management
Enhancing productivity of local economy
– Drive technological innovation
– Utilizing landscaped areas
– Free up manual labour resources for higher productive economic activities
Fostering economic growth
– Attracting investment into region
– Support growth in down-stream industries (e.g., meat production, dairy)
Benefits to stakeholder Areas of support to GMF
Talking points for GMF chairman
61
Stakeholder Analysis & Partnerships
Collectors communication plan
Commitment to preferred partnership with GMF
Organize farmers to increase land coverage
Support/ coordinate roll-out technology / education of farmers
Support alfalfa quality control
Collaboration with GMF in cooperative model allows collectors to expand business and increase incomes
– Support through machinery deployment and technology (e.g., SMS)
– Easier access to financing
– Information platform (mobile SMS based)
Benefits to stakeholder Areas of support to GMF
Talking points for GMF chairman
62
Cooperative
Collector
Farmer Farmer Farmer
Collector Collector
GMF
Farmer Farmer Farmer
Stakeholder Analysis & Partnerships
Technology provider communication plan
R&D cooperation on customized harvesting and pressing equipment in line with GMF’s requirements
Support in testing and deployment of prototypes
Dedicated resources to implement with 18 month time frame
Ability to scale up production to meet GMF’s expansion plans
Commitment to long term partnership
Benefits to stakeholder Areas of support to GMF
Significant new market opportunity providing stable source of long term revenue growth
– Significant amount of land with potential for alfalfa cultivation in Gansu
– Opportunity to establish / expand footprint in Chinese machinery market
– Development of new technology that could be distributed in other markets
Government commitment to support through subsidies, e.g., supporting R&D or procurement
Talking points for GMF chairman
63
Stakeholder Analysis & Partnerships
Banks communication plan
Agree on scalable financial support model for collector cooperative
– Working capital solutions to finance harvest
– Leasing/ financing of harvesting equipment
– Product bundles for new business launch
Negotiate advantageous conditions for GMF business partners
– Preferential rates (‘cooperative rate’)
– Flexible approach towards collateral (e.g., harvest)
– Potentially supported by GMF guarantees
Provide long term business growth opportunity of significant scale
Better management of credit risk exposure to collectors through cooperative model
Allow to contribute to government’s agenda to develop rural community
Benefits to Banks Areas of support to GMF
Talking points for GMF chairman
64
Stakeholder Analysis & Partnerships
Table of Contents
C Gansu Modern Forage - Current Status
D Strategy & Business Model
E Stakeholder Analysis & Partnerships
Executive Summary
B Market and Industry Background
G Finance & Investments
H Implementation Timeline & Conclusion
65
A Introduction
F Organisation Structure & Governance
Organisation structure & Governance section overview
Organisation Structure & Governance
Current status and challenges
Section
Proposed organisation
Objectives
Understanding the challenges, constraints and opportunities
New structure with additional functions to address current challenges and capture growth opportunities
66
Shareholding Participation criteria and structure
Board of Directors Effective governance and risk management
Talent Development
Building effective management team Retain core employees Develop competencies
Current organization is constrained in overcoming the challenges of rapid expansion
67
Lack of experienced middle management
Business development capabilities stretched
Ad hoc approach to acquiring land and dealing with new farmers and collectors
Lack of agriculture and technical experts to improve quality of Alfalfa
No mechanical engineering and technology competency
Building the capabilities in house to capture opportunities presented by growing demand
Establishing and maintaining good relationships with key suppliers and government stakeholders
Proper mechanization to ensure improved quality and increased volume of alfalfa production
Creating the right organizational structure and governance to manage sustainable growth
Status Challenges
Note: Too reliant on Chairman
Organisation Structure & Governance
Setup new functions and strategic positions to support expansion
Development of key competencies with structured Human Resources Management
Introduce a shareholding structure to attract investors and intensify partnerships with key stakeholders
Set up of a board with executive and non executive directors
Create an organisation with a strong management team that is less reliant on the Chairman and founder for key decision-making and business development
68
Proposed key measures
Participants discuss GMF with Chairman Zhang
Organisation Structure & Governance
New roles required to support expansion
Strong management team
Strong relationship & collaboration with key stakeholders:
– Collectors
– Bank / Investors
– Machinery providers
– Government
Land acquisition & management
Strong capabilities in sales & marketing, production & supply chain management
Expansion of GMF requires Additional responsibilities for key roles
Managing Director: – Strategic planning & business management
– Relationship with key stakeholders
Business Development Director: – Land acquisition – Co-operative management
Production & Logistics Director – Alfalfa products supply chain – Mechanisation – Pellet production
Marketing and Sales Director – New customer and market development
Finance & Admin Director – Developing financial reporting systems that are reliable
and auditable – Managing investor relations – Independent function to ensure investor interests are
secure
69
Organisation Structure & Governance
Proposed Organizational Structure
70
Existing function
New function
Board of Directors
Managing Director
Production & Logistics Director
Mechanisation
Plant 1 Manager
Plant 2 Manager
Plant .. Manager
Finance & Admin Director
Marketing & Sales Director
Business Development Director
Cooperatives Manager
Government Relationship Legal
Company Farm Management
R&D Management
Dairy Farm
Feed Producer
Primary Meat Producer
Accounting Office
HR Dept
Organisation Structure & Governance
Three Reasons to Introduce Shareholding
71
Business expansion requires funding for:
– Land acquisition
– Machinery, production, logistics assets
– Hiring
1. Attracting new investors
Provide incentives for key suppliers (collectors/cooperatives) to supply alfalfa to GMF. This can be achieved by providing shareholding
2. Increasing and stabilizing alfalfa supply
Provide incentives for the management team members by offering equity
3. Acquiring and retaining talent
In broadening the shareholder base, the following key areas need to be considered:
Organisation Structure & Governance
Shareholding Participation Criteria
72
Socially oriented investors willing to accept long-term return
Shared vision to develop the agricultural sector and improve rural economies
Investors
“Sweat equity” for cooperatives under certain conditions such as volume commitments over time in order to secure shareholding
Basis for community engagement and social responsibility
Key Suppliers (Collectors/Cooperatives)
Attract management team member who are aligned with company’s vision
Dividend plan that provides incentive for management team member to make long-term commitment
If he/she leaves GMF they needs to sell back shares to company
Management Team Members
In broadening the shareholder base, the following criteria can be applied
Organisation Structure & Governance
Shareholding Structure
73
Current majority shareholder (up to 60%) Investors
(up to 30%)
Cooperatives (up to 20%)
Management Team Members (up to 10%)
Suggested shareholder distribution for growth, strong governance and incentives
As founder, Chairman may wish to retain majority stake
Sufficient investment needed to support expansion
Providing shares to each of the key cooperatives secures supply of alfalfa
Providing sufficient shares to management team members instils sense of ownership and shared success
Rationale
Organisation Structure & Governance
Note: Could be more depending on investment level and negotiations with major shareholder
Inclusion of non-executive members who can provide strategic insights on board of directors will benefit GMF
74
Chairman Zhang
Managing Director
Executive Members
Investors
Expert in the area of rural government policies
Agricultural machinery providers
Feed industry expert
Non-Executive Members
Organisation Structure & Governance
Board of Directors - Roles and Responsibilities
75
Business expansion requires strong corporate governance and external expertise and relationships
Monitor company’s performance and growth
Balance the interests between Investors and company’s long-term vision
Legal compliance, land acquisition in particular
Preventing malfeasance and poor governance practices
Governance
External expertise and relationships
Land Acquisition
Local Government Policies
Machinery technology and industry
Agricultural technology and industry
Feed industry
Organisation Structure & Governance
Talent Development
Hiring Management Talent
76
Hiring and retaining technical experts
Identify executives and initiate a search across various Chinese agricultural industry platforms and bodies
Offer attractive package with shareholding incentive
Focus on personal development and career perspectives
Some key personnel can be based in Lanzhou headquarters if needed to make it more attractive
Hire young engineers and business administration professionals by using the internet and targeting the top agricultural schools in China.
Hiring and retaining employees in Dingxi will pose various challenges. A comprehensive talent development strategy is necessary. For all of these, the search should include leading universities across China since the talent pool is large.
Hiring and retaining experts for new functions
Challenges Measures
Lack of candidates in-house and time for development
Dingxi is not a preferred base
Technical experts get higher salaries in other industries
Dingxi is not a preferred base
Experts such as lawyer or HR professional have better opportunities in other industries
Dingxi is not a preferred base
Organisation Structure & Governance
Key Competencies
Clear communication on strategic directions to all levels and among all functions
Building strong relationship with all stakeholders
Create open culture to enable new suggestions and improvement
Identify new markets and key clients
Sales and Marketing
77
Ability to connect the dots and deal with the complexity from land acquisition to alignment with all stakeholders interests
Identify and solve key issues along the value chain
Identify new markets and key clients
Business management skills
Technical know how on alfalfa
Improvement of production processes for pellets
Stay updated about new machinery
Know how on seeds and formulations
Agricultural engineering
Equip employees with continuous development to meet the needs of a rapidly growing business
Organisation Structure & Governance
Table of Contents
C Gansu Modern Forage – Current Status
D Strategy & Business Model
E Stakeholder Analysis & Partnerships
F Organization Structure & Governance
Executive Summary
B Market and Industry Background
H Implementation Timeline & Conclusion
78
A Introduction
G Finance & Investments
Finance and investment requirements cover four areas
Financial highlight and projection
Section
Cash flow projection
Capital structure and investment requirements
Description/ Objectives
Risks & mitigations
Risks assessment and mitigations
Debt and equity structure analysis, funding needs and solution
Cash flow position in line with expansion plan
Revenue and Profit projection
Finance & Investments
79
Revenue and profit projection under three scenarios
2,134
1,267
Base 2013
+8%
+72%
113
2,247
23 60
1,327
51
19 32
82
Proposed
60
+88%
Vision
Hay
Pellets
5 9 144 241
2019 growth scenarios
Net profit1
1 Incl. estimated revenue and cost growth for non-alfalfa products
Revenue from alfalfa products
RMB’m
… 2013-2019 annual growth rate
Scenario used in following pages
Finance & Investments
80
Cash flow Projection – Investment will be required to avoid high gearing.
Finance & Investments
RMB (million)
2014 2015 2016 2017 2018 2019 2014-19
Net profit 6.4 14.7 27.1 48.5 88.0 144.0 329
Adjustment for Depreciation 1.0 3.1 4.4 6.7 9.1 13.6 38
Cashflow from changes in AR (3.1) (5.9) (11.5) (18.6) (29.4) (36.6) (105)
Cashflow from changes in AP 0.9 1.5 2.9 4.7 7.3 9.0 26
Cashflow from changes in inventory (8.2) (5.9) (11.5) (18.4) (28.6) (35.0) (108)
Capital expenditure - Harvest machine (2.6) (2.6) (2.6) (2.6) (10)
Capital expenditure - Pellet machine (22.0) (22.0) (22.0) (22.0) (33.0) (121)
Capital expenditure - Land (6.8) (3.8) (5.6) (8.4) (12.7) (37)
Advances to collectors/co-ops (19.0) (28.6) (47.2) (77.0) (123.4) (180.2) (475)
Net Cashflow (22.1) (49.9) (64.1) (84.3) (109.9) (133.4) (464)
Beginning cash balance 1.8 (20.3) (70.1) (134.2) (218.5) (328.4)
Ending cash balance (20.3) (70.1) (134.2) (218.5) (328.4) (461.9)
Total Liabilities (from Balance shset) 15.6 16.5 18.0 20.9 25.6 32.9
Cash deficit as bank loan 22.1 49.9 64.1 84.3 109.9 133.4
Equity 29.1 35.5 50.2 77.3 125.8 213.8
Debt/equity ratio 1.292 1.868 1.635 1.361 1.078 0.778
Total investment needed over the next 5 years before breakeven is RMB 30M.
81
Key assumptions for scenarios
Finance & Investments
82
2014 2019 2014 2019 2014 2019
Price (RMB/ton)
Alfalfa Pellets 2,150 2,300 2,150 2,300 2,150 2,300
Alfalfa Hay 2,350 2,500 2,350 2,500 2,350 2,500
Volume (Thousand ton)
Alfalfa Pellets 16 26 30 551 29 928
Alfalfa Hay 9 9 10 24 11 45
COG (RMB/ton)
Alfalfa Pellets 1984 2000 1984 2000 1984 2000
Alfalfa Hay 2067 2199.5 2067 2199.5 2067 2199.5
(RMB million)
Staff expense 0.49 0.54 1.39 9.08 1.35 13.16
Pellet machines 0.99 4.95 11.88 2.97 18.81
Harvest machines 0.02 0.18 0.94 0.02 3.55
Land leasing 0.01 0.05 0.74 2.87
Cost
Revenue
Base Proposed Vision
Expense
Risk analysis and mitigations (1/2)
Finance & Investments
83
Risks Functional area
Likelihood Impact Mitigations
Market competition with local and overseas players
Marketing High High Leadership position in Northern China Well established clientele base, Scaling, landscaping and mechanisation
Capital constraint to support growth
Finance High High Introduction of new investment partners Government’s stimulus policy Establish relationship with banks
RMB appreciation against USD impacts its market share
Finance Medium Medium RMB appreciation reduces import raw
material cost Import tariff
Default risks on collectors
Finance Medium Medium
Collateral arrangement equipment leasing, eg. asset collateralization, personal guarantee etc.
Internal credit monitoring system set up for collectors
Progress payment to collectors
Risk analysis and mitigations (2/2)
Finance & Investments
84
Risks Functional area
Likelihood Impact Mitigations
Market price volatility Marketing High High Product mix improvement Diversification of sourcing channel
Customer concentration Marketing High High Diversify customer base via new in-house
sales and marketing capabilities
Limited labor force constrains alfalfa plantation
Organization Medium High Consolidate land Mechanisation
Technical knowledge insufficiency
Supply chain Medium Medium Introduction of joint venture partner
Climate impact on production Supply chain Medium High Insurance scheme Hardship fund
Table of Contents
C Gansu Modern Forage – Current Status
D Strategy & Business Model
E Stakeholder Analysis & Partnerships
F Organisation Structure & Governance
Executive Summary
B Market and Industry Background
G Finance & Investments
85
A Introduction
H Implementation Timeline & Conclusion
Indicative implementation plan
2014 2015 2016 2017 2018 2019
Bank partnership
- Initiate discussions
- Agree and formalize framework
- Develop equipment
- Launch financing model
- Set up Management Team and Board of directors
- Add new key roles to support business expansion
Organization & HR
Collector cooperative
Activity
- Initiative discussions
- Launch Cooperative
Government partnership
Mechanization
- Identification of partner(s)
- Phased roll-out
Implementation Timeline & Conclusion
86
Conclusions Implementation Timeline & Conclusion
87
The forage industry and alfalfa in particular presents a massive opportunity not only for commercial success but also to support rural development and bring prosperity to some of China’s most underdeveloped areas.
Industry and consumer trends and government policy have created an environment suited for investments in alfalfa cultivation
GMF is well positioned to take advantage of this opportunity and drastically scale up its business in the coming five years
Expansion of the business will require fundamental changes to the business model and key partnerships along the value chain. By entering into a JV with a machinery provider and offering cooperatives shareholding in the business GMF can secure the quality and quantity of alfalfa required to take advantage of rising domestic demand and achieve long-term profitability
Capital will be required to fill the gap in funding and therefore external investors and financial institutions should be cultivated
Business and operation risks should be mitigated and anticipated with proper governance and risk management standard procedures.