$6,000 $8,000 Field Experts (3)    Provide technical training and extension services Monitor crop quality and yields Support CDO in community outreach $4,000 each Dryer/Storage Operators (7)   Operate and maintain drying and storage facilities Ensure quality standards are met $3,000 each Truck Drivers (2)  Transport paddy and rice $2,400 each Salaries benchmarked against local market rates to attract and retain talent 25

1. Click to edit Master title style
Post harvest solutions for
Click to
Cambodia’s riceedit Master title style
farmers
Impact investment business plan – November 2013

2. Table of Contents
Introduction and Background
6
Objectives and Business Model
12
Organisational Structure and Governance
19
Operations
Marketing & Sales and Strategic
Partnerships
27
Finance and Investment
45
Community Benefits
55
Risks and Mitigation Measures
57
Implementation Plan
60
Conclusion and Recommendations
63
Appendix
65
38
2

3. About us
The Global Institute For Tomorrow – GIFT – is an independent think tank providing
content-rich and intellectually challenging executive education from an Asian worldview.
GIFT engages current and future leaders through an exceptional approach to executive
education and experiential learning and offers a wide range of unique action-learning
programmes to equip participants to lead effectively and succeed in a rapidly changing
and globalised world. This is achieved in a way that is both pragmatic and ethical, whilst
being fully aware of the role of business in society.
3

4. Executive Summary (1/2)

The Cambodian economy is heavily dependent on agriculture and rice farming in particular. The
government aims to increase its rice exports to one million tons by 2015 as compared to 0.2 million
tons in 2012.

Cambodian jasmine rice is internationally recognized and has been awarded World’s Best Rice at the
Rice Traders World Rice Conference for two consecutive years, 2012-2013.

A fragmented value chain results in significant informal export of unprocessed paddy to Vietnam and
Thailand and loss of value for the economy, keeping local rice farmers in poverty and selling under
duress.

As part of a leadership program for BASF and developed by the Global Institute For Tomorrow
(GIFT), 25 executives from 17 countries have proposed a new company, ProspeRice, to improve the
livelihoods of rice farmers by strengthening the post-harvest value chain through professional drying
and storage services, and by providing quality agricultural inputs and training.

ProspeRice will have operating companies (OpCos) in rice growing areas and be co-owned by
member farmers. These will be subsidiaries of the holding company.

Members may receive annual dividend payments, which are discretionary and according to company
performance, thereby incentivizing the farmers and ensuring consistent supply of paddy through
enhanced income and a sense of ownership.
4

5. Executive Summary (2/2)

Each OpCo will be equipped with a 100-ton/day dryer and 24 hermetic storage cocoons for long-term
storage. Revenues will be generated by selling dry export-quality fragrant jasmine and long-grain paddy to
millers, and supplemented by providing professional drying and storage services.

ProspeRice will be operating within 6-12 months of securing initial investment. Key activities during this
period include setting up the holding company, establishing the first OpCo, registration of member farmers,
installing the dryers and purchasing the storage cocoons, building sales networks and establishing
community development teams.

US$600,000 investment is required to establish the holding company and first OpCo in year one. Each
additional OpCo (five are proposed over ten years) requires approx. US$540,000 start-up capital which
are proposed to be staged with one coming online in year 3 and another three to come online in year 5.

Expected sales in year 1 will be 7,800 tons (US$3.5 million), rising to 15,700 tons (US$7.3 million) by Year
3, with a consistent net profit margin of 18%. The procurement of wet paddy and provision of seed/fertilizer
constitute the main variable costs.

A 50% bank financing scenario using rice stocks as short-term collateral would see ProspeRice offering an
IRR of 21% over 10 years. In this scenario the payback period to investors is 8 years.
ProspeRice provides a compelling impact investment opportunity to
benefit rice farming communities and the Cambodian economy
5

6. Introduction and Background
6

7. Cambodia at a glance
Strategically
located
in
SE
Asia,
Cambodia borders Thailand, Laos and
Vietnam.
 Land area: 181,035 km2
 Population: 15.4 million (78% rural,
approx 2.5 million farming households)
 GDP per capita ~ US$1,000
 Ranked 15th in the world for GDP growth
in the period 2000 – 2010
 Agriculture is the country’s leading sector
(30% of GDP), followed by construction,
tourism, garments and textiles.
7

8. Cambodian rice sector


Rice farming accounts for nearly 1/3 of
Cambodia’s total agricultural production and
utilizes 80% of cultivated land
The government is targeting 1 million tons of
milled rice exports by 2015
Total paddy production**
9.3 million tons
Local rice consumption
2.1 million tons
Export*
205,717 tons
Seeds and animal feeds
Production and Consumption of Rice in Southeast Asia – Source: USDA,
Spatial Production Allocation Model 3.1
1.2 million tons
Significant potential for surplus
paddy to be processed into milled
rice for export
* Source: Cambodian Rice Exporters Association, 2012 figures
** The average recovery rate for mills is between 60-65% for 100% of
paddy.
8

9. Players
Function
Rice value chain
Supply /
Production
Input supply
Seed and
fertilizer
supplier
Production
Farmer
Market
distribution and
consumption
Post-harvest Processing
Collection
Village
collector
Dehusking
(milling)
Polishing
(milling)
Wholesale &
retailing
Processors
Processor
Wholesaler
Millers
Millers
Consumption
Consumer
Retailer
Millers
Farmer
Large miller
Traders
Activities
Miller
Seed
collection
Growing
Paddy
collection
Seed supply
Crop
Wholesale
Polishing
Retail
Paddy selling
Dehusking
Rice trading
Threshing
Consumer
Grading
Drying
Fertilizer
supply
Milling
Storage
Harvesting
Drying
Grading
Selling
Quality losses resulting in 10 – 30%* loss in value due to
insufficient drying and storage facilities for small holder farmers
Consumption
9

10. Rice sector opportunities and challenges
Opportunities




Leverage government support as it aims
to transform Cambodia into one of the
world’s major rice exporters.
Improve farmers livelihoods by adding
value through drying and storage allowing
them to benefit from seasonal price
fluctuations.
Introduce appropriate post-harvest
solutions and benefits into rural areas,
thus stimulating the local economy.
As most millers have idle capacity (3040%) during “low season”, meeting their
demand for consistent paddy supply
throughout the year.
Challenges




Inadequate irrigation limits most farmers
to one harvest per year.
Lack of quality seeds adversely impacts
yields.
Insufficient drying and storage facilities
compels farmers to sell at a low price and
prevents them from selling during the dry
season when the price is higher.
Financial position of farmers leaves no
choice but to sell wet paddy to collectors
and millers within 48 hours, much of which
ends up in Thailand and Vietnam.
10

11. Proposed location for pilot initiative
Battambang province






Highly fertile and the leading rice producing province.
A leakage point for Cambodian rice due to predatory
tactics of Thai millers and traders.
Electricity supply is competitive and province is home
to Cambodia’s largest commercial rice millers.
Large quantities of wet paddy sold to Thai purchasers
via informal channels. Majority of remaining paddy
dried under poor conditions i.e. on roadside, resulting
in losses in quantity and quality.
Most of the ~ 1,800 mills running at 25% capacity due
to inconsistent supply, especially in low season.
Further due diligence is required to identify a site, with
electricity and road networks as key concerns.
Conditions in Battambang optimal for new post-harvest solutions
11

12. Objectives and Business Model
12

13. Objectives

Design a viable business model centered around
technically sound and appropriate drying and
storage solutions for Cambodian export-quality
rice.

Propose a new commercial structure that
improves livelihoods of farming communities and
positively impacts the Cambodian economy whilst
being financially viable and attractive to impact
investors.

Suggest a company structure, governance
framework and operational model that promotes
transparency and accountability to attract
investors and also enables farmers to capture
additional value for their produce.
13

14. Rationale for business model (1/2)




Given the Cambodian government’s commitment to increase milled rice
exports five-fold between 2012 and 2015, and millers demand for a consistent
supply of export-quality paddy, especially during the low season, there is
clearly an opportunity for investments in the post-harvest segment of the rice
value-chain.
A new commercial structure involving the creation of a holding company is
needed. It will establish operating companies (OpCos) to purchase wet paddy
from member farmers, engage in technically sound and appropriate drying and
storage activities, and sell export-quality dried paddy to mills at a premium
during low season.
Non-member farmers and paddy collectors may utilise the OpCos drying and
storage services for a fee which will generate additional revenue.
In addition, and to support its core activities, each OpCo will also provide
quality agricultural inputs and training for members to improve the quality and
quantity of their harvest.
14

15. Rationale for business model (2/2)





To promote loyalty and ensure a consistent supply of wet paddy, 60% of the
shares in each OpCo will be offered to member farmers in the form of “sweat
equity”.
Farmer members will share in the success of the OpCos through an annual
cash dividend, according to performance of the company and decision from the
board.
A governance framework at the holding company level will ensure that the
interests of all stakeholders are protected in a fair and transparent manner.
Key players in the business model include investors, holding and operating
company employees, member and non-member farmers, millers and
shareholders.
A growing number of investors called “Impact Investors” are interested in such
opportunities and a viable commercial plan provides a solid framework for
investors to engage with stakeholders, including the government.
A new financially viable company to fill the gap in post-harvest solutions
15

16. Introducing ProspeRice Ltd.
Creating prosperity for Cambodian rice farmers and the rural economy
16

17. A financially viable social business
Investors
 Holding company will be
responsible for financial
mgmt and establishing
OpCos




Collection of paddy
Drying
Storage
Technical support
Operating
Companies
Millers
Investment
Payment
Goods
Dividend
Option for
drying/ storage
Farmers
Business model empowers farmers by realigning the market landscape
17

18. Scaling the business model in stages
Long Term: (5 – 10 years)
 Three additional OpCos to come online
 Possibility to set up own milling facility
 Diversify into storage / sale of different
crops
Mid Term: (2 – 3 years)
 Develop wholesale rice brand
 Set up milling contract
 Expand additional OpCo to neighboring districts /
provinces
Short Term: (1 year)
 Set up first OpCo in Battambang
 Alliance with bank for collateralized loan
 Develop relationship / network with farmers
A phased approach to create long-term value for Cambodia’s rice sector
18

19. Organisational Structure and Governance
19

20. Key stakeholders and interests
The mandate of ProspeRice is to improve the quality of post harvest processing in the rice sector and
to ensure stakeholder interests are protected, whilst driving social development and minimising
environmental impacts.








Desire to make positive impact
on Cambodian rice sector
Seeking to drive improvements
in farmer livelihoods with
strategic investments
Reasonable investment returns
Transparency & accountability
of management team




Investors
Farmers


More predictable and consistent
supply of paddy year-round
Paddy dried and stored to
export-standards
Better utilisation of high-cost
milling facilities
Increased revenues & profits
Millers
Communities


Higher price for their produce
Affordable
access
to
drying/storage facilities
Learn crop management best
practice for improved yields
A stake in the company: 60%
as “sweat equity”
Included into the modernisation
of the rice sector
Improved agricultural livelihoods
leading to less rural-to-urban
migration (social cohesion).
Additional income allows for
improvement in nutrition, health,
education and productivity.
Greater
independence
and
more options for community
development
20

21. Proposed shareholding structure
ProspeRice Ltd.
10%

10%
80%
Investors
Executives
Millers and Other key stakeholers
Operating Company
40%
60%
ProspeRice


ProspeRice will seek alignment of
interests, ensure operational excellence
and transparent decision-making by
inviting key stakeholders to become
shareholders.
“Sweat equity” to be given to
ProspeRice
executives
(holding
company) and member farmers in
OpCo.
“Sweat equity” for member farmers, is
relative to land ownership and total ricegrowing acreage covered by OpCo
 i.e. assuming all farmers in area are
members, if total area expected to
be covered by one OpCo = 1000
hectares then 10 hectares = 0.6%
share in that OpCo
Farmers
21

22. ProspeRice Ltd. (Holding Company)
Proposed Ownership Structure
% Shares % voting rights
Investors
80
80
Managing Director
10
10
Relevant Rice Miller Association
10
10
(subject to anchor investors’ approval)
Board of
Directors
Members
Seat
Investors
2
Managing Director
1
Managing Director
Miller Association Rep.
1
Finance & Admin
Manager
Independent Director
1
Total
Relationship between
investors to be governed
by Shareholders
Agreement. Additional due
diligence to be done on
how many investors and
board seats to be allocated
5
Lean organisation structure that provides equity to key stakeholders
22

23. ProspeRice management team
Role
Key Responsibilities

Managing
Director




Finance &
Admin
Manager
(F&A)


Est. salary
(p.a, US$)
Acts as the public face of ProspeRice and engages in investor
and key stakeholder relations, OpCo development and
appointment of the OpCo manager(s)
Defines the strategic direction for the company.
Gives special attention to the company’s social mandate vis a
vis positive impact on the livelihoods of farming communities
via the activities of the OpCos
OpCo managers report directly to the MD
$24,000
Responsible for the budgeting, financial reporting and
forecasting
Serves as the manager for the general administration, Human
Resources, Procurement, Payroll and Legal functions of
ProspeRice.
Oversees the F&A activities at the OpCos
$12,000
Lean and efficient management team in start-up phase
23

24. Operating Company
Proposed Ownership Structure
% Shares % voting rights
ProspeRice
40
100
Farming communities*
60
(minimum criteria for membership = rice grower)
*Farmers’ voting rights could be a point of negotiation during the establishment of the company and if
deemed necessary should be offered as a block vote rather than on an individual member basis.
Operating Company
Manager (1)
Community
Development
Officer (1)
Field
Experts (3)
Dryer and Storage
operators (7)
Truck Drivers
(2)
Org structure easily replicable for additional OpCos
24

25. OpCo management team and salaries
Role
Key Responsibilities
Manager




Community
Development
Officer (CDO)



Est. salary
(p.a, US$)
Day-to-day running of OpCo and regular reporting to MD
Plans and optimises utilisation of drying/storage capacity,
supervise operational staff and quality control
Supervises and supports the field experts in customer
Community outreach i.e. technical training and farm
management.
Manage transport and logistics.
$12,000
Engages with local stakeholders, especially farming
communities to promote “sweat equity” program and
monitors impacts of membership on farming families
Develops and maintains relationships with farmers and
millers to generate supply for drying/storage and help to
secure contracts for sale of dry paddy
$12,000
OpCos will be managed by Cambodians with agriculture experience
25

26. OpCo operational team and salaries
Role
Headcount
Est. salary
(p.a, US$)
Field extension
3
$1,200/employee = $3,600
Dryer & Storage
Operation
5
$1,200/employee = $6,000
Dryer & Storage
Operation
2 (contract)
$100/month x 6 months x 2 employees =
$1,200
Truck Drivers
2 (contract)
$200/month x 12 months x 2 employees =
$4,800
Total Operating Company Staff :10 full-time, 4 contract @ $35,600 p.a
26

27. Operations
27

28. Overview of ProspeRice operations
Key areas of operations
Service
education*
Drying
Storage
9,000 tons / year wet paddy
Quality Control
Delivery to mill
7,800 tons / year dried paddy
28

29. Operational objectives
Services
Status Quo
Objectives of OpCo
Quality/yield issues due to limited
technical education & access to inputs
Improve yield of export-quality paddy by
providing quality input and technical support.
Different types/qualities of paddy
mixed together during collection
Quality control and agreements with members
to ensure no mix of fragrant with non-fragrant
Drying
Sun drying results in losses and
reduction in quality, many farmers
forced to sell wet paddy at lower price.
Dry 100 tons/day of wet paddy to 14% moisture
content within 48 hours at export standard.
Storage
Due to limited storage capacity most
millers cannot utilise over 30%
capacity
Store dried paddy for 3-9 months, safe from
moisture and insects to command higher
prices.
Quality Control
Majority of post-harvest solutions not
properly monitored and do not meet
export standards.
Stringent Quality control and potential for intl
certification i.e. ISO, HACCP, etc.
Millers cannot secure paddy at optimal
times, dependant on collectors and
truck availability. Farmers cannot get
delivery service in time.
Deliver dried paddy to millers within 24 hours of
removing from storage without loss of quality or
quantity.
Farming
Support
Paddy
collection
Mill Delivery
PropseRice will change the status quo on multiple fronts
29

30. Farming support (1/2)
Farming support provided
by OpCo will include:
I.
II.
Commercial activity
Land
Planting
Education of Health &
Safety issues related
to use of fertilizer,
herbicides, etc.
III. Strategic partners to
provide
technical
support to farmers:
 Land
preparation
and water mgmt
 Workshops to share
and learn bestpractice
Technical support
Seeds
Provision of seeds and
fertilizers to farmers
Nutrition
30

31. Farming support (2/2)
Intended benefits
Crop management
Transplanting: pregerminated seedlings are
transferred from a
seedbed to the wet field.
Nutrition management
Site-specific nutrient
management provides
principles for optimally
supplying rice.
Crop protection
Site-specific management
provided to determine if pest
management is necessary
and if so to what degree.
Operational Actions
Drying process contributes
to higher seed germination
rates
Source 200 tons of fertilizer
from partner each year to
secure timely supply.
Facilitate quarterly technical
advice from partners (CIRD,
IRRI, etc) to farmers.
31

32. Paddy Dryer operations and options
Why does paddy need to be
dried?
•
•
•
•
•
Rice is harvested at high
moisture content >20%
Quality deterioration starts
immediately after harvest
Paddy must be dried before
storage/milling to around 1314%
Over drying leads to
economic losses for
farmers upon sale (lower
weight) and reduced milling
yields due to cracking
Incomplete drying leads to
losses in quantity and
quality due to fungal growth
and insect infestation
■
Sun-drying
■
Traditional method for reducing the
moisture content of paddy by
spreading the paddy in the sun
■
Low cost but quality and quantity
adversely affected and dependant on
increasingly unpredictable weather
■
Flat-bed drying
■
A drying a machine that removes the
water from wet paddy by forcing
heated air through the grain bulk
■
Reasonable cost, can be constructed
from local materials but low capacity
■
Recirculation batch-drying
■
A mechanical device that removes
moisture from wet grains by forcing
either ambient air or heated air
through the grain bulk
■
High cost, high capacity industrial
system
32

33. Dryer options – recommendation


Based on the dryer options analysis,
ProspeRice will use the recirculating
batch drying system for the following
reasons:
 Produces export-quality dried paddy
 Large capacity (100T/day) for paddy
drying and increased speed in
humidity reduction
 Has high energy efficiency, thus
reducing operating costs
 Recyclable waste heat, contributes
to lowering operating costs
All the above benefits justify the higher
capital costs.
*See Appendix III for more information
Recirculation drying system is cost and energy efficient
33

34. Storage options
■ Farm level storage
■ Storage in outside granaries or in woven baskets
■ High loss from insects, rodents, birds and moisture uptake
are common in this system
■ Low cost but highly ineffective
■ Hermetic system
■ Controls paddy moisture content and insect activity for grain
stored in tropical regions
■ Provides insect control without pesticides
■ Reasonable cost given lifespan, ease of installation and
impact on quality
■ Silos
■ Big capacity and can be easily sealed for fumigation and less
grain is spilt or wasted
■ Not common in Asia due to moisture migration inside the silo
resulting in hot-spots and mold
■ High capital cost and considerable construction process
34

35. Storage options – recommendation

ProspeRice will use a hermetic
system such as the GrainPro SelfVerifying MegaCocoon™ storage
system.
 Designed for hermetic low-cost
storage of large quantities of
bagged
grain;
self-verifying
oxygen and humidity displays
eliminate the need for pesticides.
 Used directly on the ground.
Flexible PVC material is highly
UV-resistant, with a useful life of
over 10 years.
*See Appendix IV for more information
Hermetic storage is cost effective, mobile and easy to install
35

36. Quality control
Farmer
Dryer
Monitoring by two
OpCo technicians
1
1.
2.
3.
4.
2
Transportation*
Storage
3
Miller
4
Wet paddy: freshness, moisture, contamination, mud, damage, etc.
Drying: check the drying speed of paddy 25% ⇒ 14%
Quality Checks
and monitoring
Dried paddy: moisture 14%
Moisture
done to export
Just before selling: moisture 14%
meter
standards
Strict quality control ensures export-quality dried paddy to millers
*Dried paddy from storage to miller will be transported in jute bags. Any fluctuations in moisture content is expected to be insignificant.
36

37. Mill delivery operations
8,000
6,000
4,000
Sold
Stored
2,000
0
Oct.
Nov.
Dec.
Jan.
Feb.
Mar.
Apr.
May.
Jun.
July.
Aug.
Sep.
Dried Paddy (tons)
Stock Volumes of Dried Paddy
Opcos will manage
the storage and sale
of wet/dry paddy and
leverage price
fluctuations
throughout the year to
generate revenues
and profits by
delivering product to
millers during the low
season.
 Oct. – Dec.: Dry and store, 2,600 tons dried rice/ month, max.7,700 tons
 Jan. – Mar.: Keep in storage
 Apr. – Aug.: Sale to millers, 1,800 tons dried rice/ month when the price
increases
 Two 10-ton trucks will be operated (two to three deliveries / truck / day)
37

38. Marketing & Sales and Strategic Partnerships
38

39. ProspeRice pricing and sales strategy
ProspeRice will buy wet paddy from farmers during the peak season when prices
are lower and sell dry paddy during the off-peak season to the millers at higher price
J
F
M
A
Provide
incentives
M
Year 1
J
J
A
S
Planting
season
O
N
D
Harvest
Buy period
Price seasonality
J
F
M
Provide
incentives
A
M
Year 2
J
J
Planting
season
Sell period
A
S
O
N
Harvest
Buy period
Selling price
Dry paddy
Wet paddy
D
Buying price
ProspeRice maximises value for farmers by protecting them from
seasonal price fluctuations
39

40. Leveraging marketing & sales partnerships
 Key partnership with strategic stakeholders will allow adequate transfer of goods
and services, and leverage on existing know-how and networks and bring
additional expertise from partners to local farmers
 There are several advantages by working with strategic partners, such as:
 Establishing a network to access quality seeds and fertilizers
 Accessing state-of-the-art technology for drying and storage facilities
 Facilitating knowledge transfer and develop training and communication
concepts between expert organizations and faming communities
 Bringing in expertise and know-how from other countries and regions to
Cambodia’s rice industry
ProspeRice addresses critical needs of farmers and millers through
strategic partnerships
40

41. Potential strategic partners
Strategic
partners
Specialties
Value to the
company
Benefit for the partner
Drying and storage
equipment
Provide advise and
expertise on drying
and storing solutions
Provision of airtight storage
products in Cambodia
Develop new rice varieties
and rice crop
management techniques
Research, training and
knowledge transfer
Real-time, first-hand
feedback from user (farmers)
Ensure quality and safety
of our products, processes
and systems
Increase value and
reach of our product
through certification
Build a strong foothold in a
fast-growing emerging
market
Develop improved rice
varieties and technologies
for rice cultivation
Bring in high quality
seeds
Assist the Royal Government
of Cambodia to achieve its
rural development objectives
Collaborate on
sustainable projects
between government,
business and institutions
Offers a worldwide
network and
experience in social
engagement projects
Access to an agricultural
industry network in
Cambodia
Many additional partners will be identified during implementation
41

42. Communication with farmers
“Lead farmer” program:

Field expert engages with lead farmer

Incentives: service education

“Seeing is believing” model
Farmer
Community
Farmer
Farmer
Drying and storing services allow sale
of paddy at favorable market prices.

Additional income potential through
share dividends

Ownership stake, long-term value

Service education and farm inputs
(quality seed, fertilizer)
Farmer
Lead Farmers –
Village chiefs
Key benefits to be communicated:

Farmer
Field Expert
Present
Share
holding
program
Technical
Knowledge
Training
Provide
Quality
Seeds
Operating
Company
Provide
Fertilizer
Incentivize farming communities through continuous engagement
42

43. Communication with millers
Approach: OpCos will position
themselves as a high quality supplier
and long term partner and friend to
millers through:



Ensuring export-quality dried paddy during
off-peak seasons in order to increase the
utilisation of milling facilities
Improve quality and yield of supply
through farming services and education
Developing its own suppliers (farmers)
through different incentives
New
Company
website
Direct Sales
Engagement
Channels
Brochures
Agricultural
Forums, i.e
IRRI
ProspeRice is THE reliable partner and friend of the millers
43

44. Communication with investors
Potential investors could include impact investment funds, angel investors, local
Cambodian investors, MNCs and Commercial Banks.
Approach: emphasis on social investing to deliver sustainable financial
returns based on community and farmer engagement.
Key benefits to be communicated:





Fast growing sector key to country’s economy;
Positive social impact on the Cambodian society whilst
generating financial returns;
Community has majority ownership in OpCos but
ProspeRice retains voting rights;
Aligned with government initiatives to develop the
Cambodia rice industry;
Cambodia’s liberalised economy provides favorable
business operating environment.
Key messages: social impact, rural development, robust business plan
and long-term partnership
44

45. Finance and Investment
45

46. ProspeRice Impact Investment opportunity





The launch of ProspeRice presents an excellent opportunity for investors who wish
to create significant impact in Cambodia’s promising rice sector.
A total investment of US$2.5 million is required over the first 5 years, with an initial
capital investment of US$600,000 to start the business.
A second capital investment of US$500,000 is proposed in Year 2 for the
installation of the second OpCo, followed by an additional US$1.5 million in Year 5
for three more OpCos, contingent on company performance and growth.
Financial projections are based on securing bank financing for working capital to
collaterise the supply of paddy from member farmers. Dividend payments will
affect returns and be thus agreed by the board.
ProspeRice is also an opportunity to shape the nascent landscape for impact
investing by providing a blended return to both investors and to farmers in
Cambodian society.
ProspeRice is a unique investment to benefit Cambodia
46

47. Key financial assumptions







Current market value of export-quality paddy is used in the projections
Revenue from additional storage / drying services is deemed negligible
Bank interest and micro financing rates remain at current 10% and 24%
respectively
Consumer Price Index remains at the current 4%
Depreciation 10% for machinery and 5% for building
No major changes in government policies
Discount rate of 10% for net present value (NPV) calculation
47

48. OpCo Cap-ex breakdown
$100,000
$60,000
78% of the initial capital
required for the first OpCo will
be for the acquisition of storing
and drying equipment
$10,000
Drying equipment
Storing equipment
66%
Office buildings
$340,000
12%
2%
Trucks
20%
Relatively low cap-ex required for each OpCo - US$510,000
Labor (holding and operating company) in first year – US$72,000
48

49. ProspeRice revenue projection
3 new OpCos
set up
25
Million $
20
1 new OpCo
set up
15
10
5
A majority of the
revenue will be
generated by the
sale of quality dry
paddy to millers.
This revenue will
increase with every
new OpCo set-up
Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10
Revenue generated by selling dry paddy to millers
Projected increase in revenue is driven by new OpCo(s).
49

50. ProspeRice cost breakdown
3 new OpCos
set up
18
16
Million $
14
120
100
1 new OpCo
set up
80
12
10
60
Million $
20
8
40
6
4
The procurement of
paddy and provision
of seeds and
fertilizers make up
more than 90% of
total operating costs
20
2
-
Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10
Others
Seed/fertilizer
Wet Paddy
Accumulated cost
Consistent net operating profit margin of 18%
50

51. Overview of Financing Options




Two options for financing the company’s working capital have been considered
as highlighted in the following section. These include 100% investor funding
and 50/50 investor and bank funding.
Both scenarios assume an initial investment of $600,000 to cover capex to
establish the holding company and one operating company
The recommended and most likely scenario is a shared financing model
wherein both investor funds and bank financing are utilised. A 50/50 scenario
presented below yields an attractive return and provides secure cash flow for
the business.
Bank financing is essential to create the conditions for the
transformation of Cambodia’s rice sector to benefit farmers and for
government export targets thereby to be met.
Bank financing is essential and will help to transform the rice sector
51

52. Financing (1/2): 100% investor funding
25
Million $
20
1 new OpCo
set up
15
3 new OpCos
set up
10
5
0
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
Yr 6
Yr 7
Yr 8
Yr 9
Yr 10
-5
-10
Profit after Tax and Interest
Cash Flow After Tax
Profit after Tax and Interest Acc
Cash Flow After Tax Acc
Intensive working capital requirements result in only 2% IRR over ten
years
Financial projections not inclusive of dividends
52

53. Financing (2/2): 50%:50%, investor:bank
20
Million $
15
1 new OpCo
set up
10
3 new OpCos
set up
5
0
Yr 1
-5
Yr 2
Yr 3
Yr 4
Yr 5
Yr 6
Yr 7
Yr 8
Yr 9
Profit after Tax
Cash Flow After Tax
Profit after Tax Acc
Yr 10
Cash Flow After Tax Acc
Leveraging bank loan results in IRR of 21% over ten years
Financial projections not inclusive of dividends
53

54. Recommendation: Bank involvement is
essential to commercial viability
Working capital should be secured via bank loans
 Currently, Cambodia does not have adequate bank facilities to use floating
assets as collateral so securing 100% bank loan is unlikely
 However, a significant amount of paddy and fixed assets presents a good
opportunity to secure collateralised short-term loans from banks at a
competitive rate
 Representatives of banking industry have shown a willingness to lend
against export-quality paddy stocks over a short period (<1 year)
 Loans are necessary to reduce the financing burden of working capital
 Banks could be offered a stake in ProspeRice, the holding company
Banks are offered the opportunity to invest in social progress
54

55. Community Benefits
55

56. Community benefits





Improvements to the rice supply chain, particularly in post-harvest production where
most of the losses occur, carry benefits for various players and stakeholders, from
farmers, to the community and to the country as a whole.
Through service education, farmers will access workshops and trainings on improved
crop management and to better agricultural inputs, equipping farmers to upgrade the
Option to dry &
production of rice and to create greater security with less dependence on the weather for
store
drying.
In turn, farmers will enjoy increased income due to improved quality and yield, and
potentially dividends from ProspeRice. Overall improvements of the rice value chain
through ProspeRice will be more inclusive of farmers as the sector modernises and
becomes more export-led.
Millers will also increase their total annual income by utilizing off-peak periods for better
capacity utilisation, by accessing high quality dry paddy which increase total revenues
and reduces breakage and losses during milling.
The environmental impact of PropeRice will be minimised. Drying and storage facilities
will be energy efficient and use the best technology available. Indirect impacts from
service education include a more precise application of inputs (reducing run-offs);
improved crop rotation for improved nitrogen fixation and to better resource
management.
56

57. Risks and Mitigation Measures
57

58. Financial and operational risks
Risk
Mitigation measure
Farmers not willing to sell, e.g. due to
price competition for wet paddy from
Thai and Vietnamese traders
■ Develop loyalty through “input education”
outreach / training program
■ Farmers are shareholders in OpCos
Fluctuating availability of husks for dryer
fuel
■ Dryers can use various kinds of fuel (such as
electricity)
Low supply / overall economic or harvest
environment is bad
■ Maintain low fixed costs
■ Avoid take-or-pay contracts with miller
Low demand
■ Long term storage available
Oversupply / change of “Everything but
Arms” preferential import treatment from
EU
■ Maintain the highest export-quality standards
and explore international certification
Unusually high demand
■ Preferential treatment for loyal millers
■ Dynamic pricing
58

59. Social & environmental risks
Risk
Mitigation measure
ProspeRice unable to fulfill pricing or
supply commitments to farmers
■ Start small and establish credibility step by step
Fraud / crime / safety / security / social
instability or conflict
■ Good corporate governance / checks and balances
■ Create good relationship with local community
Availability of skilled labor
■ Effective training program
■ Strategic partnerships with supplier companies (crop
protection, fertilizer, seed companies)
Conflict of interest between farmers,
dryers, collectors, and millers
■ Transparent and open culture; shared objectives of
ProspeRice
Crop loss due to flood or drought
■ Maintain low fixed costs
■ Avoid take-or-pay contracts with miller
■ Hygienic storage for long-term food stability
Soil erosion / soil loss / lowered soil
quality because of intensification of
agriculture (two seasons)
■ Input education / training outreach program; use best
available technologies
Emissions (husk burning)
■ Choose lower emission technology
59

60. Implementation Plan
60

61. Implementation Plan (1/2)
Q1
Short Term
(0 - 2yrs)
Q2
Q3 Q4
Yr 2
Mid Term
(3 - 5 yrs)
Long
Term
(> 5 yrs)
Identification of investors / shareholders
and establish ProspeRice Ltd.
Establish governance framework for BoD,
2
shareholders agreement, etc
Establish first OpCo and confirm site for
3
drying and storage facility
1
4
Construction and equipping of drying and
storage facility
5
Recruitment and training of staff to work in
drying and storage facility
6
Alliance with bank for collateralized loan
using stored paddy
7
Identify millers who will purchase dried
and stored paddy and set up contracts
61

62. Implementation Plan (2/2)
Short Term
(0 - 2yrs)
Q1
8
Q3
Q4
Yr 2
Long
Term
(> 5 yrs)
Provide input and technical know how to
the farmer
9
Q2
Mid Term
(3 - 5 yrs)
Replicate OpCo model with additional
branches
11 Diversify into direct sales / export
12
Review following strategic options, e.g.
build own mill, diversify crop
62

63. Conclusion and Recommendations
63

64. Conclusion and recommendation
•
It is a crucial and opportune time to invest in Cambodia: the rice value
chain, currently fragmented and prone to losses, is ripe for integration that would
allow greater value to be retained in Cambodia.

ProspeRice will have a significant, positive impact for Cambodian farmers by
improving household income and empowerment, while also providing benefits to
rice local collectors and millers.
ProspeRice’s commercial viability hinges on leveraging short term bank loans
using stored paddy as collateral
Investors in ProspeRice will help realise economic benefit throughout the
Cambodian rice value chain, created by a financially self-sufficient business.


ProspeRice has the potential to directly and permanently improve the
livelihoods of thousands of farming families
64

65. Appendix I: Dryer specification & operation cost







Price per unit : $60,000
Capacity (Paddy) : 3,000 tons/
month
Dec.-Jan. for fragrant rice and
Feb.-Apr. for other varieties.
Energy consumption : husk and
electricity 60 KW
Moisture decrease : 4-15%/ day
Percentage of paddy breakage :
less than 0.5%
Size of machine : 4m high.






Operational Paddy dryer Unit :
Capacity rate : 100 tons / day /
machine.
Working days : 30 days per
month, 6 months/year
Total Dry paddy/years : 9,00018,000 tons
Labor cost/ months : 4 head count
($400/month)
Other cost : $275
Based on stakeholder meetings and discussions in Cambodia
65

66. Appendix II: GrainPro MegaCocoon™
 Storage Capacity : 320 tons
 Dimension: 14m x 10m x 3m
 Total No. required: 24
 Land space required: 10,000 m2
66

67. Appendix III: operational resources
Service
Asset Investment
Operational Cost
Manpower
Farming
Support
N/A
Fertilizers (200 tons at
$17/ton), seeds (140
tons at $37/ton)
1 fulltime
Drying
100 tons / day
recirculating batch dryer
7,600 m2 land
Electricity, husk /
charcoal ($1.6 / ton of
paddy)
3 fulltime
Storage
320 tons x 24 each
hermetic bags
Warehouse shelter
4,800 m2 storage area
Jute Bags (50kg x
153,000 each)
2 fulltime
2 contract
Delivery
10 ton truck x 2 each
Fuel (40km x 2 each x
2 fulltime
2 times) (volatile prices of diesel)
Hermetic bags, a dryer, and trucks are the key investments, 8 permanent
and 2 contract workers are required for operations
67