“Growing More With Less”

Providing Poor Farmers with Efficient Agricultural

Technology

A CashCroppers Investment Plan -Executive Summary-

March 2005

Cash Croppers is a multi-disciplinary team that is passionate about launching a business to improve the lives of poor rural farmers. We have identified hydroponics as a technology that can enable these farmers to grow more crops while using substantially less water, fertilizer and land. We have utilized our broad skill set to develop a simplified hydroponics product and a business plan that will enable us to distribute this product. Execution of our current plan would put 27,000 hydroponics kits into the field, creating over 3 million dollars in annual profit for

the farmers. This plan requires staged loans of less than 1 million dollars to launch this self-sustaining business to serve rural farmers. A World-Wide Problem As the world population grows and the poor strive to improve their quality of life, we are faced with global consequences: • Global resource and land shortage: In order to

elevate everyone to the standard of living experienced in the first world, we would need 4.5 earths. There is clearly a land resource shortage that will affect the entire world community, especially as the billions in poor countries strive to improve their own standard of living.∗

• Water scarcity: With the current usage of water, it is estimated that 1.8 billion people will not have enough water for growing crops by 2025.∗

∗ World Bank calculations

Executive Summary

To help farmers in developing countries

improve their social and

Mission

The Customer CashCroppers has a mission of aiding all poor rural farmers in developing countries. These poor farmers face land and water scarcity problems in their daily lives. Because of this, they have difficulties meeting their basic needs during periods of the year. Although we aspire to enable farmers making as little as $1/day, CashCroppers is initially targeting the upper end of poor farmers making $2.50 per day. We are aiming our first product at both rural and urban areas that have access to electricity. By targeting the higher end of the poor population, CashCroppers will be able to support the business while developing cheaper solutions that appropriately target the poorer customers in need. The Product

The current design utilizes Nutrient Film Technique (NFT), which was developed by Allen Cooper at the Glasshouse Crops Research Institute in Littlehampton, England. The 4-inch diameter PVC pipes hold small pots with plants suspended in a rock medium. The roots of these plants protrude from the bottom of the pots and hang down into

a flowing water and nutrient film. The water/nutrient film travels down through the series of pipes into a reservoir. In the reservoir, nutrients are added to the water to form the solution which nourishes the plants. A small pump moves the solution from the reservoir to the top pipe in a continuous cycle which runs for time

Cash Croppers Kit 1 – CC1

intervals based on the climatic conditions. The flowing water in the pipes releases oxygen while the roots growing along the bottom of the channel absorb nutrients from the water. The close tolerance between the pots and the 4-inch pipes maintains 100% humidity within the channel which protects against dehydration while keeping evaporation to an absolute minimum. This was the major factor in selecting this design. Our goal was to reduce the amount of water required to continuously grow plants during the dry season by as much as possible. This system produces an oxygen rich environment with all the water and nutrients the plants need. Advantages • Reduces the required growing area to 1/3 • Reduces the required water to 1/20 • Increases yield per plant to about 3-10 original

value (depends on plant) Status of Design Process The current design of the CC1 is well suited for people making $2.50 and above. In a smaller form it also has great potential for urban areas where there is access to electricity but very limited space. We are investigating the most appropriate design for this application.

Based on feedback from Paul Polack of IDE and the Stanford teaching team, we are considering ways to

implement a ground-based design that utilizes NFT and dramatically reduces the cost of the system. One option we are considering is a ground based system that utilizes two reservoirs on different grades to produce the flow through much thinner walled pipes. The water is moved from the lower reservoir to the upper using a hand pump. We are still in the process of determining the number of times various sized reservoirs would

need to be refilled to adequately nourish the plants. The strength of this design is that it is still a closed system which minimizes evaporation and thus the amount of water required. It also brings the cost down in several areas by reducing the thickness of the pipe walls since they are no longer required to support plants suspended off the ground and by removing the electric pump. However, this will require a much greater level of attention and manual labor from the customer.

A ground based system in the

Additional development is attempting to distill hydroponics down to bare bones basic technology. This will require adequate field research to determine the limits of the reduced technology before problems, such as root-rot, plague the system. Although this may take considerable time, it has great potential as a solution for the very poor customers. We are considering various ways to introduce this reduced hydroponic technology including just providing the necessary materials and proper education the farmers. This tack will rely on indigenous knowledge to then push the design. This type of tactic has been used to introduce hydroponics in other areas such as Sri Lanka with some success. The Delivery System The CC1-Kit is comprised of a variety of commercial available components. The components will be sourced from regional vendors and delivered to a regional assembly warehouse. The complete CC1-kit is assembled and packaged at this warehouse. The packaging system will include several sturdy handles to enable the customer to easily transport the packaged unit by hand. Completed products will be shipped from the assembly warehouse directly to local distributors. In turn these local distributors will supply products to Master Farmers and sales agents. The Master Farmers and sales agents will service a small area, likely a single village, so when the customer purchases the unit from either a Master Farmer or sales agent, the customer will have a short distance to transport the product, which can be done easily by hand. Master Farmers will train customers on the installation and maintenance of their hydroponics system; furthermore, Master Farmers will be available to make in-field repairs. Local distributors will keep on hand

a variety of replacement parts, so as to facilitate rapid repair of units in the field.

THE BUSINESS We have shown our customers’ needs and our product that will meet their needs, so we will now discuss the business that will be the vehicle for getting the product to the customers. Corporate structure Our business will be structured as a Not for Profit entity. Our goal is not to make money for us or our investors, but rather to improve the lives of our customers by convincing them to buy technology that will increase their crop production and income. Organization structure We intend to run a very lean Product Design and Marketing organization. As such, we will outsource manufacturing, sales and distribution to 3rd parties. This will enable us to keep expenses low, agility high, coordination and communication ‘overhead’ low. We will have three principle employees:

- a CEO/CFO - a VP of Operations and Engineering, and - a VP of Marketing and Sales

In order to be successful with such a lean team, we will have to heavily leverage external organizations and people. The CEO/CFO will work with the government, investors and NGOs, the VP of Operations and Engineering will work with manufacturers and assembly agents, and the VP of Marketing and Sales will work

with Master Farmers, Distributors and Sales Agents. Product margins to provide incentive for these groups to join us have been built into our model.

Marketing plan Even fantastic technology would be ‘worthless’ if we couldn’t find a viable way to introduce it into the market. We believe strongly that our technology is superior, but we know that we cannot simply try to tell our customers this and expect them to believe us. Successful marketing will be one of our biggest challenges. We believe that most potential customers will have to see the results of the new system with their own eyes before they will be willing to buy a kit. For this reason we plan to implement a system with Master Farmers (which we more or less co-opted from the Institute for Simplified Hydroponics in Sri Lanka). Basically, we will train selected entrepreneurial farmers in strategic locations in our region to use our kit. We will provide them with a discounted kit and

with the opportunity to be an authorized reseller of kits. The Master Farmers will agree to demonstrate the new system to neighbors and other visitors. The Master Farmers will also have an obligation to train other Master Farmers. Not only will this be in the job description of the Master Farmers, but the old Master Farmers will also get a cut of the sales profit generated by Master Farmers that they train. In order to get potential customers to visit the Master Farmer, we will employ traditional marketing methods such as theatrical demonstrations and marketing in comic book and leaflet formats, describing the product and telling farmers the locations of Master Farmers who can demonstrate the results and sell the kits. Other Sales and Distribution Channels In addition to Master Farmers, we also intend to engage sales reps and distributors. This organization will be able to move high volumes of product as awareness of the benefits of the hydroponics kit spreads. Financial Viability We believe we have identified feasible ways we could market, sell and distribute our kit to our target customers, but we still have to answer a few key questions. Namely: • How much will the kit cost to produce? • Will the end customer be able to afford the product

after the trade earns its margins? • Would the end customer earn a return that would

justify the investment risk? • Will our organization be able to survive and thrive

during startup and growth?

The appendices provide much more detail about each of these questions, but we will deal with each at a high-level here. How much will the kit cost to produce? Our initial estimates are that we can have manufacturers produce the kit (in its current form) for roughly USD $50. However, we need to check each of the line-itemized components in our kit with data from manufacturers in India. Our initial efforts to get these data (emails to over a dozen PVC manufacturers) have not been successful. Having allies in India (such as IDE) contact the manufacturers will likely be much more fruitful.

Unit cost (our manufacturing cost)

Will the end customer be able to afford the product after the trade earns its margins? If we can have the kit produced for USD $50, we believe that we will need to sell it at roughly USD $70 to give

$0

$10

$20

$30

$40

$50

$60

$70

50 500 5000 10000

Number of Kits

Cos

t of K

it PVC ComponentsPump and TimerFertilizerPlant ContainersWood FrameOther

$58.50

$38.95

$30.20

$48.70

other links in the value chain attractive margins. This calculation includes 5% for the sales agent, 10% for the distributor and 15% for a retailer. We believe that these estimates are conservative, but we need to check with folks with experience in India. USD $70 accounts for almost a month’s worth of income of one of our target customers (who earn $2.50 per day). As such, our product is expensive, but affordable for those who see the need. We believe that entry customers will in fact buy the product, but we know that in order to serve the larger part of the market we will have to drive our costs down significantly, ideally to 50% of the current amount, or USD $35 per kit.

Would the end customer earn a return that would justify the investment risk? USD $70 is a lot of money – customers will have to earn a significant return in order to justify this outlay. Our model has a number of assumptions that we must test, but assuming that the plants can be spaced at 12 inch intervals, that each plant yields 3 kg of tomatoes per year, that he can sell each kilogram of tomatoes

for USD $0.35 and that fertilizer costs $30 per year, the farmer can expect to net over $100 of profit each year. This means that the initial investment will pay off in less than a year, and that the farmer will add significantly to his total income each year (>10% per kit employed).

Farmer’s profit after purchase Will our organization be able to survive and thrive during startup and growth? Of course, our organization must remain solvent if we hope to successfully design and market the product (while overseeing manufacturing, assembly, sales and distribution). We have designed a plan that we believe will give us the ability to operate for 2 years and distribute over 25,000 kits into the field. Our plan is to raise “Angel Debt” – debt from socially conscious, wealthy investors who are willing to put their capital at risk for a strong social mission. Our plan is to raise $650,000 in tiered, milestone-driven sections, and then to pay it off when our profits allow

-$70-$35

$0$35$70

$105$140

0 6 12 18 24Month Since Purchase

Net

Pro

fit

Purchase price

Break even~ 9 months

$130 Net profit

it. This structure implies that the business would cease to exist after 2 years. During this time, over $1,000,000 of profit would be generated by the kits in use by farmers. Furthermore, the 25,000+ kits in the field will be generating over $2,500,000 in annual profits for the farmers for each additional year (over their expected life of 5 years). Also, during this time we expect (and hope) that copy-cat companies will see the opportunity that we have uncovered and start producing and selling kits, hopefully at a lower cost than us. Ideally 5 years down the road, there will be at least a handful of hydroponics kit producers, competing on quality, price and service, and awareness of hydroponics will be growing rapidly. A note on long-term-thinking: The model was built to show the company disbanding after 2 years to keep things simple and to show the short-term, more-forecastable results. It is a given that the model will change significantly leading up to and during the company launch. As such, it is not inconceivable that this company would be growing rapidly and introducing valuable innovations to the extent that the investors and management would decide to keep the operation going (and the investments at work) for longer than two years.

Debt and Social profit of the company Will the net effect of this endeavor be worth the risks that any start up faces? This startup faces just as many risks as other startups, and perhaps more. However, as described above, the expected returns are high enough (over $2,000,000 in annual income generated off of (repaid) interest-free loans of $650,000) to offset much of the risk. Furthermore, the investments are tiered in such a way as to minimize the losses that would be incurred if a critical assumption in the business model were to be disproven. Complete financial model Exhibit 4 is a line-itemized, month-by-month Cash/Inventory/Investment/Personnel Flow Model for the

24 months of the company. We would welcome the opportunity to discuss our assumptions with you and continue to refine them over time to enhance our business plan. Key Risks Crop yield – Success of our model is predicated on strong growth of crops in our kit. Research indicates that the yield we project is reasonable and even conservative, but we must test this in the field. Inability to achieve strong yields could invalidate our value proposition. One area of concern is the time it takes for new seedlings to ramp up production. We believe that it happens quickly, but if it happens too slowly the payoff could be weakened. Supply chain – We must be able to produce our kit at a cost that will result in an affordable price to the end consumer. Again, we believe that our assumptions are conservative, but we would need to validate them before we would proceed with any significant outlay of capital. Higher than expected costs could invalidate our model. Marketing efficacy – It doesn’t matter how good our technology is if we can’t communicate it in a way that will result in farmers purchasing it. We believe that our plan makes sense, but we must socialize it with people who have experience in our target market to know if the end customers might be receptive. This is one of the trickiest risks, because it cannot be fully tested until most of the bets have been made. Next steps Seek to eliminate key risks by:

- building prototypes here and testing crop yields

- presenting kit and projections to hydroponics experts to get ‘gut-check’ results

- building kits and shipping to India for in-field testing

- acquiring production cost data from sources in India

- refining design of kit to drive costs down significantly

- socializing marketing push plans with folks in India who have marketing experience

- Obtain funding for enterprise launch Conclusion We believe that we have a product, team and business plan that will enable us to significantly improve the lives of thousands of poor farmers in India by equipping them to earn millions of dollars in profits from increased crop yields. We believe that we will need to raise a total of $650,000 of Angel Debt, but most of this would be after milestones are reached. We are going to work to mitigate some of the obvious, key risks and, if successful, we are going to try to raise the first $250,000 we need. Please consider investing in us and our plan. If you ultimately decide not to invest, please share your criticism and rationale with us so that we may improve the strength of our plan and the likelihood that we will be able to raise funding and launch this enterprise.

Appendix Exhibit 1: Crop Yield Numbers Exhibit 2: Key Questions Exhibit 3: Kit Costs Exhibit 4: Financial Analysis Exhibit 5: Assumptions Exhibit 6: Margins Exhibit 7: Profitability

Exhibit 1. Crop yield numbers: Crop Soil Soilless

Soya 600 lb 1550 lb

Beans 5 tons 21 tons

Peas 1 ton 9 tons

Wheat 600 lb 4100 lb

Rice 1000 lb 5000 lb

Oats 1000 lb 2500 lb

Beets 4 tons 12 tons

Cabbage 13000 lb 18000 lb

Lettuce 9000 lb 21000 lb

Cucumbers 7000 lb 28000 lb

Potatoes 8 tons 70 tons

Tomatoes 5-10 tons 60-300 tons

Table 1: Crop yields for soil culture vs soilless culture modified after Resh 2004,

Resh, H.M. (2004) “ Hydroponic Food Production”, New Concept Press, Mahwah New Jersey, 2004.

Exhibit 2.

Exhibit 3.

Exhibit 4.

Exhibit 5.

Exhibit 6.

Exhibit 7.