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Organic Fertilizer from Water Hyacinth
Zed Fertilizers is a business venture that will produce bio-fertilizer from water hyacinth and other waste materials like farmyard manure and oilcake1. Water hyacinth (Kochuri Pana) is a sub-tropical weed that infests the water bodies of Bangladesh and is known to double its biomass within 2 weeks.
Initially the fertilizer plant will be located in Habiganj, a part of the hawor region that, according to some experts, is at present the most badly affected region of fertilizer shortage in the country. The company aims to alleviate the crisis to some extent by supplying compost to local agricultural producers. In addition, it will also improve soil quality and texture which has been degraded by the extensive use of chemical fertilizers over the past few decades.
Currently, Bangladesh faces an acute fertilizer crisis. The aggregate demand of fertilizer in the country stands at approximately 28 lac metric tons each year. Only 15 lac metric tons of fertilizers are produced and another 10 lac is imported, leaving a shortage of a massive shortage of 3 lac metric tons. Thus, there is a tremendous opportunity, from an entrepreneur’s point of view, to manufacture and sell fertilizer to the local market. Local production will also displace the need for expensive imports. Moreover the increasing awareness among farmers and environmentalists means that the demand for organic or bio fertilizers will keep experiencing a positive growth in the coming years.
It is worth mentioning that the organic fertilizer industry in Bangladesh is fragmented consisting of very small-scale NGO initiatives and a limited number of biogas plants which produce a nutrient-diluted slurry fertilizer as a by-product. As a result, Zed Fertilizers will have the distinct advantage of being market pioneers in its endeavors.
Goals and Objectives
The firm’s broad objective is to minimize the fertilizer shortage in operational areas while promoting Integrated Plant Nutrient Management (IPNM) 3 and enriching soil fertility. It will also heighten awareness on organic farming so as to reduce dependency on chemical fertilizers and ensure better yield from the country’s agricultural lands in the long run.
The goals of Zed Fertilizers are as follows:
1. Serve the fertilizer need of farmers in hawor region within 5 years
2. Reach payback period in 1.2 years
3. Expand operations to Brahamanbaria and Kishorgnaj after 5 years of operation
4. Eventually customize product in accordance with the nutrient requirements of different geographical locations4
The short term objective of the company is to meet the shortage of fertilizers in the hawor region, and through the production process, improve local water bodies and the waste management of surrounding farms. The company’s competitively low priced product will also be able to reduce the farmers’ cost of fertilizer purchase.
The company has chosen Habiganj as the location for its factory mainly for two reasons. First of all, according to expert opinion, the hawor region of the country is currently facing the most severe fertilizer crisis. These regions including Habiganj, cover 11 upazilas completely and parts of 23 other upazilas. Also, a distinctive characteristic of the hawor region is the extensive wet marsh lands, which makes it the ideal breeding ground for water hyacinth. This means by choosing Habiganj, the company is not only assured of a fairly constant supply of raw materials, but it will also face a market with plenty of demand and growth potentials.
Chemical fertilizer producing companies are dominating the market. However, with increasing awareness on the degradation of soil fertility due to imprudent fertilizer usage, organic or bio fertilizers are gaining popularity. Recent research shows that an upazila requires around 3500 tons of fertilizer during any particular season, of which only 450 ton is supplied at present5. In such a taut situation, an increment in the supply of fertilizers will be welcomed unconditionally.
Zed Fertilizer Co. defines the local farmers of Habiganj as its target market. Our compost contains a standardized quantity of all necessary macro nutrients, NPK6, to suit crops of all seasons. The company encourages IPNM. Treating farmland with both organic and inorganic fertilizer will lead to a balance between yield and soil quality. In fact, 78.1 percent of the farmers in our survey showed enthusiasm in using organic fertilizer7. Also, interviewing the local dealers in Habiganj revealed that dealers were unable to meet 72% of the demand.
In Bangladesh, bio-fertilizer is both a new and an old concept in the sense that local farmers have always used small amounts of waste on their vegetable patches. However, a balanced usage of organic fertilizers with chemical fertilizers is an emerging new concept. Other organizations have mainly focused on inorganic fertilizer production. This means at entry, Zed Fertilizers will not face major competition. The nearest competitor of the company is Grameen Shakti which sells their by-product slurry as a bio fertilizer. However their operations are only limited to a few gas stations built in the Northern districts. Other NGOs target small village-scale projects. All these projects represent an insignificant portion of the total fertilizer produced in the country.
Zed Fertilizers is unique in the sense that currently, it’s the only company that will produce bio-fertilizer by proportionately balancing its nutrients. It will also be the sole company that produces organic fertilizers as the major revenue generating product. What also sets the company apart is its competitive pricing. At present, a mixed formulation of chemical fertilizers (Urea, TSP) sells at Tk. 32 per kg while organic compost costs Tk. 16. In comparison, Zed Fertilizers’ compost will not only be more balanced and nutrient-rich than the others, it will also be sold at Tk. 10 per kg to the dealers from the initial year. A farmer can purchase our product at a price 68% lower than a bag of chemical fertilizer.
companies. While competition will help eliminate the severe fertilizer shortage in Bangladesh, it will also crowd the access to raw materials and other resources. Zed Fertilizers will have the advantage of its pioneer image. Also the company will have to be careful in maintaining its good relationship with its customers and local villagers, product adaptation and its extensive raw material supply chain.
After 5 years of production, Zed Fertilizers plans to set up new plants in the neighboring region of Kishorganj and Brahmanbaria, aiming to alleviate the local demand of farmers in those regions. The company would then construct a centralized laboratory where chemical constituency of each batch of fertilizer will be tested. In addition, the company also intends to customize its product, using its lab facilities, in respect to the requirements of different geographical regions8. Furthermore, to reach our customer base personally, we will develop our own distributional channel. The dealers will be positioned at target oriented areas, with the highest concentration of farmers.
Barriers to Entry:
In general the barriers of entry to the bio fertilizers market are medium. They are as follows:
· Lack of smooth supply of raw materials
· Traditional usage of cow dung
· Existing dependency on chemical fertilizers
· Creating new dealership for the distribution of the product
Competitive Edge (Unique Value Proposition)
(1) Balanced Macro-nutrients: Unlike fertilizers found in the current market, Zed Fertilizers Co. aims to provide its consumers with compost balanced in the important macro-nutrients NPK. Usually fertilizers are disproportionately balanced, for instance, with very high levels of nitrogen as opposed to containing virtually no phosphorous. In conjunction, the average farmer also applies nutrients to the soil disproportionately. In fact, of all the fertilizer used by farmers, approximately 80 percent of it is nitrogen concentrated, with other nutrients in minute portions. In reality, a balanced ratio of NPK is required for optimum yield and soil fertility.
(2) Soil Enrichner: The driving force behind the recent emphasis on organic farming is the rapidly declining soil fertility. A recent study by BRRI (Bangladesh Rice Research Institute) indicates that yield of Iri rice per hectare has diminished by 28 percent over the last 10 years indicating the degradation effect of chemical fertilizers. Before the advent of intensive agriculture, farmers would spread farm waste on fields and leave the land fallow for a few months. Now with increasing demand for food, fields are cropped and harvested all year round. Chemical fertilizers are heavily used to for plant nutrients, but these fertilizers leave a residue in the soil which in turn destroys soil texture. Our survey revealed that 55 percent farmers are aware of the harmful effect of chemical fertilizers9. The minimum requirement of organic
material in soil is 2.5 percent, but in most parts of Bangladesh, it is below 10. In contrast, Zed Fertilizers’ compost acts both as plant food and as a soil enrichner.
The company’s marketing plan is divided into 2 different phases:
Phase 1 (First Six Months): To introduce the product and spread awareness among customers, the company will collaborate with the local Imam Proshikhon Kendro (translated: Imam Training Centers). These centers train Imams (religious clerics) on 6 different social issues, including agriculture and health. Imams are on the zenith of the rural social hierarchy. Thus, educating Imams on the benefits of organic fertilizer and IPNM will spread awareness among farmers. Another major component of Phase 1 is Jatra. Jatra Pala is one of the oldest and popular forms of entertainment for villagers. The company will arrange Jatra shows periodically, promoting organic farming through customized plots.
Phase 2 (Six months onwards): After Phase 1, the company will enhance its promotional campaign. It will target seasonal fairs where puppet shows and other recreational activities will be organized, each designed to promote IPNM. This would act as an effective tool for educating people about the importance of using organic fertilizer. Also, the company will extend its reach to the media, contacting ‘Hredoye Mati o Manush’, a popular agriculture based program. A meeting with Mr. Sheikh Shiraz has been held, who has expressed his genuine interest concerning our product. An appearance on the show will boost publicity for our product.
At its initial stage, field workers will be sent to local farmers to discuss current agricultural practices. These field workers will distribute free samples of our product. Such an endeavor will instigate curiosity among other farmers. Also those selected farmers will act as brand ambassadors. This will be vital in creating a buzz about the product. At the end of each year, the company will carry out a post production survey to derive a clear picture of customer satisfaction. Such direct interaction with farmers will prompt in them a “feeling of importance”.
Zed Fertilizers Co. will take advantage of the established dealership channel. Currently there are 4800 dealers countrywide each having 4 sub-dealers working under them. A single sub-dealer in turn is responsible for a total of 900 farmers11. However, eventually the organization will start building its own dealership network.
Three different types of raw materials are chosen, each containing a supplement of one or two types of required nutrients. The entire operation is divided into the following steps12:
(1) Collection of raw materials: The three major components of the fertilizer: water hyacinth, farmyard manure, and oilcake, are collected in the ratio 2:2:1. Water hyacinth will be harvested from nearby water bodies in collaboration with catfish farmers. Studies show that the breeding of catfish is facilitated in presence of water hyacinth. Also, Zed Fertilizers will collect hyacinth
from local ponds in the region. The next raw material, farmyard waste, will be bought from local farmers at a pre-agreed rate of Tk. 2 per every 20 kg. Last but not least, oilcake will also be purchased from local producers. Oilcake is the remaining portions left after seed and nuts are crushed for their oil. These leftovers contain a high concentration of nitrogen. Four different oilcakes will be used: linseed, ground nut, mustard and sesame. Each has a different harvest period thus ensuring constant supply around the year. After collection, raw materials are stored separately in storage bins before they are taken into the primary production facility.
(2) Sorting and Shredding: The next step involves manual sorting of raw material in order to remove any extraneous material before processing begins. The sorted raw materials are then put to industrial shredders which will crush, tear and curl the materials to increase surface area. Shredding significantly reduces production time and thus increases the production capacity of the facility.
(3) Composting: Composting is the most crucial step of the entire process. It is done in the trough house, in specially made composting pits, each having a capacity up to 5000 kg. Approximately 5.5 tons of raw materials can be process at a single time. Shredded raw materials are placed layer by layer in each pit, and watered to keep ensure dampness. The accumulated biomass is then covered with loosely sifted soil and opaque plastic sheets to speed up processing. Incubated biomass is mixed thoroughly after 10 days to reduce temperature. After 15-20 days, manure is ready for drying and packing.
(4) Drying: The compost produced has a high water content, so is quite bulky. Drying reduces the moisture content to about 5-7percent which makes the product suitable for storage and transportation. Moisture reduction also gives the fertilizer a reasonable shelf life. After drying the product is stored temporarily in storage bins.
(5) Packaging and Storage: The packaging will involve both labor and automated machines. Fertilizer is packed in 50 kg PP/PE woven bags. Finished and packed products are then stored in factory storehouses until they are distributed to the dealers. Usually a stock of at least 400kg of packed fertilizer is stored to meet sudden demand surges.
The operations of Zed Fertilizers will be quite labor intensive. Starting from collecting the raw materials, the whole process, including sorting, mixing, packaging etc, about 2000 unskilled labour hours goes into the production of one batch alone. The workforce for these positions will require no academic skills or experience and will provide valuable employment in the poor villages surrounding the plant. Also, the company will also require some temporary field workers for initial promotional drives.
The management recruitment will be done by owners (partners) of Zed Fertilizers. The organization will be headed by a general manager who will be in charge of the two departments: operational and administrative. Each department in turn will be headed by a department
manager. Operations manager will be in charge of the entire production process, the factory workers and the transportation of raw materials and finished goods. The administrations manager will look after the accounts, purchase and the marketing department of the company14.
The start-up investment and capitalization for Zed Fertilizers is summarized below:
|Total Start-up Expenses||1,140,700|
|Office Equipment and Accessories||173,420|
|Total Start-up Assets||4,148,420|
|Total Start-up Investment||5,289,120|
Lab testing of nutrients in the product will be outsourced to BRRI’s sub-station in Habiganj.
Funding: Zed Fertilizers plans to utilize finance the initial investment with 57 percent debt capital and 43 percent equity capital. A 5-year long loan of Tk. 3,000,000 at an interest of 15% (compounded daily) will be taken from a bank. The loan will be repaid in monthly installments. Remaining portion is invested by the three partners of the company equally.
Beginning operations: Harvesting of the major raw materials will commence at least two months before the company starts its operations. The machinery needed for the production process will be acquired through local agents six months prior to production.
|13. See Appendix VIII: Flowcharts, page 25|
Human Resource Recruitment: Recruitment of permanent employees will be undertaken six months before the company commences its operations. Zed Fertilizers will recruit a person with a MBA degree and a minimum of 10 years experience as its GM. Department managers will be required to have a Bachelor’s degree with a minimum of 5 years experience (a background in soil science is preferable for the Operations head). Management personnel will be trained for a better understanding of the company’s operations. Unskilled workers will all be hired from
surrounding areas. Many of the unskilled labour will be temps, and will be paid on an hourly basis.
Technical Support (lab, expert advice): Before starting its operations, Zed Fertilizers will outsource technical support. The proper nutrient requirements for the product and the balancing ratio of raw materials will be determined. Lab assistance will be outsourced as per requirement.
Evaluation of weakness
(1) Zed Fertilizers is deprived of the advantages of having its own dealership network. Being a new entrant it has to use existing dealers for cost effectiveness and legal hassles.
(2) Since the company is located in one of the least developed part of the country, it may face problems with constant supply of electricity.
(3) Poultry manure is a rich source of nutrients. However, due to the recent Bird Flu outbreak, the company will not be able to exploit this valuable resource.
The overall risk for the concept of this business is summarized below:
Industry: Zed Fertilizers will be a pioneer. However the industry poses great potential and will eventually be concentrated. RISK: Medium
Competitive Edge: The company will have advantages in a fragmented industry. RISK: Low
Demand assumption: Our country faces a heightened shortage of fertilizers. A strong demand for fertilizers will continue to exist resulting in a huge market potential. RISK: Low
Technological: Zed Fertilizers is requires low-tech machinery. Due to lower dependence on technology, any advancement will not adversely affect the company’s growth. However, this implies that potential competitors will face no difficulty either. RISK: Low to medium
Bangladesh has a good number of chemical fertilizer companies. However, there is no firm manufacturing organic fertilizer as its core product. With the advent of Zed Fertilizers, this industry will start to thrive. To retain a good share of market, we plan to customize our product according to the nutrient requirement of different districts. To keep up with demand the company will use other water weeds and organic waste as raw material.
|NPV (Net Present Value)||1,887,126.34|
|IRR (Internal Rate of Return)||37%|
|Pay-back Period||1.2 years|
Before deciding to invest in a project, indicators like Net Present Value (NPV), Internal Rate of Return (IRR) and payback are important to consider. The indicators are summarized below14:
The positive NPV indicates that the project may be invested in. The high IRR of 37 percent reveals that the company is in a strong position. Finally, the short pay-back period of 1.2 years shows that the initial investment can quickly be covered by operations.
The market survey has revealed enthusiasm for our product. Immense shortage of fertilizers will ensure that the product is sold. The company will begin operations by producing 350 tons of compost per year. The production will increase to 420, 455, 480 and finally to 500 tons (maximum capacity) by the fifth year. Increased production is attributed to increased awareness and strengthened ties with raw materials suppliers. The price per kg fertilizer will be 10tk from the first year. On the 4th year of production, selling price will be increased to 12tk per kg.
The Income Statement below summarizes the profits and losses made during the five year period. Though the first year experiences a Tk. 915,159 loss, the next year show a profit of Tk. 548,661. This increases to Tk. 1,414,158 by the fifth year15.
|Income Statement||Year 1||Year 2||Year 3||Year 4||Year 5|
|Cost of Goods Sold||173,179||202,514||220,362||235,358||248,286|
|Total Operating Expense||3,220,000||2,419,690||2478710||2546350||26,611,170|
|Income from Operations||-218079||1187896||1428628||2443572||2,582,624|
|Net Income Before Taxes||-915,159||490,816||731,548||1,746,492||1,885,544|
|Less: Income Taxes (15 percent)||0||122704||182887||436623||471386|
While projection of revenue and trends of profit and loss are important, it is also vital to identify the cash flows of the operations. This can pinpoint time periods when cash is short and small-scale loans will have to be made. In this case, cash flows gradually increase over the five years16.
|Year 1||Year 2||Year 3||Year 4||
|Cash Flows From Operating activities||90,461||1,321,172||1,378,231||1,956,509||2,260,358|
|Cash Flows From Investing activities||(4,927,120)||0||0||0||0|
|Cash Flows From Financing activities||4,689,120||(600,000)||(600,000)||(600,000)||(600,000)|
|Net Cash Increase||(147,539)||721,172||778,231||1,356,509||1,660,358|
The balance sheet outlines all the assets, liabilities and equity. It gives a good estimation of the firm’s current trends. Zed Fertilizers’ assets and thus subsequently owner equity and liabilities have increased substantially over the years17.
|Balance Sheet||Year 1||Year 2||Year 3||Year 4||Year 5|
|Total Liabilities and Equity||4,463,011||4,835,723||5,082,872||6,063,373||7,196,011|
The important Financial Ratios are outlined below:
|Financial Ratios||Year 1||Year 2||Year 3||Year 4||Year 5|
|Profit Margin On Sales||-0.289||0.097||0.13||0.25||0.26|
|Return on Assets (ROA)||-0.21||0.076||0.11||0.216||0.197|
|Return on Equity (ROE)||-0.67||0.14||0.19||0.36||0.38|
|Debt To Equity||2.25||0.82||0.79||0.68||0.94|
|17. & 18. See Appendix VI: Financial Plan, page 18|