SRIJIT VERMA PRN-20020441281

SUBMITTED BY-
SRIJIT VERMA(B-78)
SUBMITTED TO:
(Prof.)Mr Prakash Sukhatme

Sales and Distribution Management

“SIFFCO AGRO CHEMICALS LIMITED”
TABLES OF CONTENTS:

1. INTRODUCTION

2. BACKGROUND OF THE CASE STUDY

3. CHALLENGES FACED BY SIFFCO AGRO CHEMICAL LTD

4. COMPETITION FOR SIFFCO AGRO CHEMICALS LTD IN INDIA

5. WHAT IS CHANNEL DESIGN?

6. WHO ENGAGES IN CHANNEL DESIGN?

7. DESIGN AN IDEAL DISTRIBUTION CHANNEL FOR SIFFCO

AGRO CHEMICALS LTD

8. IDENTIFICATION OF THE SERVICE OUTPUT DEMAND OF THE

FARMERS

9. SERVICE OUTPUT DEMAND OF FARMERS RELATED TO

CHANNEL FLOWS

10. CONCLUSION
CASE STUDY
SIFFCO AGRO CHEMICALS LTD.
Siffco Agro Chemicals Ltd. (SPL), the US-based pesticide major, is planning to enter
the Indian market, which they feel has a lot of potential for expansion. The pesticide
used by the Indian farmers is still way below the international standards and the scope
for growth is considered to be tremendous. Pesticides consumption in India is
estimated to be less than 800 gm per acre against 16 kg per acre in the US.
While the production plant for the company is-to be set up near Mumbai, the company
is pondering over the establishment of a distribution system to cater to the needs of
far-flung areas. Most of the existing players have a well-oiled machinery for distributing
their products and this is considered to be one of their major strengths.
Agriculture is the primary activity of the country and the majority of the labour force
(more than 65%) is engaged in agriculture and allied activities. While staple foods like
paddy and wheat are the major crops of India, there is an increasing trend towards
growing cash crops. Most of the existing pesticide companies offer a wide range of
products that could be used for a variety of crops. The major challenge for the pesticide
companies is to penetrate the villages of India where the infrastructure – whether in
terms of communication, or transport- is very poor or underdeveloped. The distribution
network is set up after considerable difficulty.
The number of villages in India is estimated to be in the range of 7,00,000. Most of the
farming activity is of course limited to the villages. Most of the farmers are very price
conscious. And would prefer products of medium quality. As far as their requirements
about the distribution system are concerned, a preliminary study indicates that they
are happy with a medium level but reliable service.
Two aspects are paramount. The farmers would like to buy products in as small
quantity as possible. Pesticides are considered to be a grudge purchase and hence
the farmers would buy pesticides only to the minimum level possible. Of course, the
farmers would not mind spending large amounts of money if they are threatened with
the prospect of massive crop loss through pest infection. In such instances, the
purchase of pesticides can be pretty high. The farmers expect to get the pesticides in
stock.
This is mainly with regard to the far-flung areas where the farmers visit their nearest
‘mandi’ (market) maybe once a week or so to make all the essential purchases. So, if
the item is not available at the shop during his visit, he will have to come again next
week to make the purchase. Also, if the pesticide is available in a shop where other
farm-related products are also available, it will be convenient for the farmers. One of
the major attractions for the farmers is the availability of reliable information about the
pesticides and its use. This is highly valued by the farmers.
Information through mass media is considered inadequate and the agricultural
extension officers are not always approachable. Thus, if the farmers could be given
advice regarding the use of pesticides, the farmers would have a tendency to stick to
that seller. The farmers are not very receptive to the idea of spending a bit more time
traveling to a distant town if the pesticides are available at a cheaper rate the total
value of pesticide purchase normally would not be substantial enough to save any
substantial amount of money from it.
Most of the existing players have a reasonably good presence in the market. The
distribution channels that they have established over the years are functioning
smoothly and efficiently. The largest player in the market, Rallis’s India has a presence
in almost all rural tehsils in the country. Rallis’s vast distribution system consists of
nine regional offices, 34 area offices, 26 depots and more than 3,000 distributors and
30,000 dealers nationwide and is backed by a strong marketing set-up and an
extensive sales force that keeps close contacts with dealers as well as farmers.
This means that there is an outlet in every 10-15 large villages. The company had a
combined capacity of approximately 25000 tonnes per annum of technical grade
pesticide and 10,000 tons of formulations per annum.
SIFFCO has acquired a small pesticide plant in Thane district of Maharashtra with a
production capacity of 7500 tonnes per annum
Most of the outlets do not limit their business to selling pesticides. However, safety
requirements demand a separate storing area for pesticides. To manage these many
outlets, the competitors rely on either area sales offices which are directly under the
control of the company, or distributors who buy the product from the regional depots
and supply it to the rural outlets. It is very difficult to estimate the cost of distribution.
The distributors are given a fixed margin which varies from one manufacturer to the
other.
The range is between 5-15%. Similarly, the retailer margins vary from 10-15%. Almost
always the distributors and the retailers are not given any credit. The custom of giving
credit to the farmers is however quite prevalent

Questions
1. Design an ideal distribution channel for SIFFCO AGRO CHEMICALS LTD.
2. Identify the needs of the farmers while buying pesticides and link them to
channel flows.

Solution:1

Introduction
The sheer scale of Indian agriculture has enticed multinational companies from all over the
world to come to India to explore its potential. Despite its immense potential, India's current
use of agrochemical goods is among the lowest in the world. Uneducated farmers with limited
plots of land, irregular rainfall, primitive farming practices, unfair land leases and rents, and
other factors have all led to India's agrochemicals industry's slow growth.
Despite this bleak outlook, there are many affluent and successful farmers whose farming
activities are on par with the best in the world. Agrochemicals are only used on a 1/3rd of
India's cultivated land, which reflects the prosperous farms. Regardless of the lack of
agrochemical sector coverage, India is now the 14th largest industry, estimated at Rs.2700
crores in 1999.
Agrochemicals play a vital role in increasing agricultural productivity by protecting crops from
mosquitoes, rodents, plant diseases, and weeds both before and after harvest. Since about
70% of the compounds are off patent, the market is generic in nature. Wide delivery networks,
good market awareness, and superior product quality serve as entry obstacles for off-patent
products.
The manufacturing process is basically a conversion work, with raw materials, fuel, and labor
responsible for the bulk of the costs. Because of the farmers' weak economic condition, the
industry needs a lot of working capital because the players owe them long credit terms.
Pesticides are subject to a 16 percent excise tax, while other agricultural inputs such as seeds
and fertilizers are duty-free. Professional grade pesticides and implements are subject to a
gross customs duty of 35 percent, making pesticide production dependent on imported
intermediaries prohibitively costly.
The global agrochemical industry was estimated at $32.4 billion dollars in 1999, and it is
projected to rise at a rate of 5% each year. Herbicides, which account for approximately 48
percent of pesticide use globally, have a distorted global use.
With 145 pesticides registered in the world, India is Asia's second largest producer of basic
agrochemicals. Even though India has a large capacity in volume terms it accounts for less
than 2.5% of the world markets in value terms. India's intake is also low, at 600gm per hectare,
compared to 10000gm in developing countries. Insecticides account for nearly 76 percent of
pesticide use in India, while herbicides account for just 10%.
The agro-chemicals sector in the country is estimated to touch $7.5 billion by 2018-19 with 60
per cent of the contribution coming from exports, says a Tata Strategic Management Group
report. The Indian crop protection industry is estimated to be $4.25 billion in FY14 and is
expected to grow at a CAGR of 12 per cent to reach $7.5 billion by FY19. In terms of production
capabilities, Indian players are highly integrated and have already made inroads in the export
markets. Multinationals have expressed concerns over launching new products in India
because of insufficient patent protection.
Demand for pesticides is forecast to rise to 90000 MT tonnes in FY2000, up from 86600 MT
in FY1999. The usage in this field is biased in favour of a few cash crops, which is a special
aspect. The regional distribution of use is also confined to a few states, such as Andhra
Pradesh, where use habits are close to those of developed countries.
The agrochemical industry is highly dependent on monsoon and consumption is skewed in
favour of Kharif crops with maximum use of pesticides in July to September period. In India
the industry is almost similar to commodity industry, therefore the players have little pricing
power. The outlook for the industry remains dependent on normal monsoons and increase in
farm income. The ease of undertaking research and development activities and cheap
availability of skilled labour force has encouraged Indian subsidiaries of global giants to make
India a sourcing base. Besides consolidation among the global players is expected to realign
the market share among the domestic players similarly and will result in greater research and
development products to be introduced in the country.
BACKGROUND OF THE CASE STUDY
SIFFCO AGRO CHEMICAL LTD is a pesticide producer based in the United States. It aims to
penetrate the Indian market, which has immense potential for growth in the agrochemical
business. The organization plans to develop a manufacturing facility near Mumbai. And the
business is questioning whether it wants a marketing channel structure to achieve its revenue
targets.

• SIFFCO AGRO CHEMICALS LTD. Want to establish itself in India taking advantage
of large rural population and employment in agriculture sector in India, which is huge.
• There is huge scope of pesticide in India as this sector is unoccupied and the
competition is also not that huge.
• The main problem is the distribution which is poor in rural India.

3.CHALLENGES FACED BY SIFFCO AGRO CHEMICAL LTD

There are several challenges faced by the company with respect to its new venture into the
Indian markets.
Rural regions have a lack of infrastructure:

• Communication issues are there at different stages.

• Transport facility is one of the major problem prevailing there.
• Not rich farmers.
• lack of knowledge

Competitors have a well-developed distribution network [Rallis’s India]

It is new to the Indian market so acceptance is necessary .

4.COMPETITION FOR SIFFCO AGRO CHEMICALS LTD IN INDIA

▪ With over 800 formulators, the Indian agrochemicals industry is extremely
concentrated. With a huge number of integrated sector players and a substantial share
of bogus pesticides, rivalry is fierce. Big players have been buying out small producers
in the industry, resulting in mergers and acquisitions.
▪ Rallis India Ltd and the other top ten firms hold nearly 80% of the business. Large
players' market share is largely measured by their product portfolio and the launch of
new molecules. To mitigate costs and represent a broader customer base, businesses
often form strategic partnerships with rivals.
Two Level Channel
When there are two levels of different kinds of intermediaries between the producer and the
consumer. In other words, under this channel, the manufacturer sells the product to the
retailer and who finally sells to the consumer. This is also called as distribution through
wholesalers and retailers.

▪ This channel is also known as the traditional channel. This is also the most common
method of distribution under which the producer sells to the wholesaler who, in turn,
sells to the retailer, who finally sells to the consumer. In this system, the wholesaler is
granted a certain portion

5.WHAT IS CHANNEL DESIGN?

▪ Channel designs are those “decisions involving the development of new marketing
channels where none had existed before, or the modification of existing channels”.
▪ Channel design is presented as a decision faced by the marketer, and it includes either
setting up channels from scratch or modifying existing channels. This is sometimes
referred to as reengineering the channel and in practice is more common than setting
up channels from scratch.
▪ The term design implies that the marketer is consciously and actively allocating the
distribution tasks to develop an efficient channel, and the term selection means the
actual selection of channel members.
▪ Finally, channel design has a strategic connotation, as it will be used as a strategic tool
for gaining a differential advantage.

6.WHO ENGAGES IN CHANNEL DESIGN?

Channel configuration choices are taken by suppliers and distributors, wholesalers, and
dealers. Producers and producers take a “downward” look at the channel. From both sides,
retailers "look up" the channel, while wholesaler intermediaries "face" channel architecture.
The Channel Architecture Judgment as a Paradigm.
The channel design decision can be broken down into seven phases or steps.
These are:
1. Recognizing the need for a channel design decision
2. Setting and coordinating distribution objectives
3. Specifying the distribution tasks
4. Developing possible alternative channel structures
5. Evaluating the variable affecting channel structure
6. Choosing the “best” channel structure
7. Selecting the channel members
7.DESIGN AN IDEAL DISTRIBUTION CHANNEL FOR SIFFCO AGRO CHEMICALS LTD
▪ First all service outputs have to be listed out.
▪ The levels at which each of the service output have to be offered, have to be developed
▪ Compilation of each of the service outputs levels research needs to be done and
conceiving of the activities that have to be performed is needed.
▪ The cost incurred for the venture has to be analysed and calculated.
▪ An ideal structure has to be designed.
▪ A comparison of the ideal structure with existing structure is necessary.
▪ An assessment of the ideal channel design is vital
Further the channel establishment plan has to be developed.
Since the commodity is produced in a single area, the sales channel below has been built with
the aim of meeting the greatest number of farmers possible. As a result, the C&F agent
distributes to a number of wholesalers and dealers, who then market to the final buyer through
the mandi, co-operative society, and village mukhiya.

Solution:2

8.IDENTIFICATION OF THE SERVICE OUTPUT DEMAND OF THE FARMERS

➢ The number of villages in India is estimated to be in the range of 7,00,000.
• There is large part of rural India which has not been captured and there is huge
potential for growth of SIFFCO AGRO CHEMICALS LTD.
• The Pesticides consumption in India is estimated to be less than 800 gm per acre
against 16 kg per acre in the US.
• The main problem in India is the customer (farmers) are not that rich and want to
spend less on anything such as pesticide.
• Obviously, they will buy more if the pest are destroying their crops and pesticides are
readily available at cheap rate near their place.
➢ Most of the farmers are very price conscious
▪ Price is very important thing for the farmers. Since the farmers in India are not rich
and are price conscious.
▪ They do not want to spend more on pesticide whom they consider as grudge
purchase and want the pesticide in less quantity and at cheaper rate. So, making a
system that cost less is important.

➢ The farmers would like to buy products in as small quantity as possible

▪ The farmers want to buy the pesticide in small quantities so that they can spend less
on material such as pesticide whom they do not consider as that important.
▪ They will buy more only if the crop are being destroy by the pests.

➢ Farmer do not want to waste the time to visit far areas to buy pesticides
▪ Farmer do not want to waste the time to visit far areas to buy pesticides they are
happy to buy in bulk if it is readily available in markets or mandis near to their
place.
▪ They will buy in bulk if it is cheap and readily available.
▪ Farmers want pesticides at a lower cost.
▪ There is a market for medium-quality but long-lasting goods.
▪ Farmers rely on vendors to provide timely and dependable service.
▪ During market study, it was discovered that there is a strong demand for pesticides
in limited amounts near the closest location.
▪ The farmer is searching for information about how to protect their crop from insect
infection.
▪ A demand for pesticides should be available with farm related products was also
noticed.

➢ Taking advantage of lack of information among rural farmers

• Information through mass media is considered inadequate and the agricultural
extension officers are not always approachable.
• Thus, if the farmers could be given advice regarding the use of pesticides, the farmers
would have a tendency to stick to that seller
• Retailer have a lot of knowledge about the buying behaviour of his area or market.
• He is the one who is more exposed to the farmers they can be the one who can give
good information about pesticides and correct usage of pesticide, this can be given at
free of cost which in turn will attract more customers and leverage the sales of
pesticides.
 ➢ Extensive sales force that keeps close contacts with dealers as well as farmers
• Adding distributors to the channels will enable them to sell pesticides to many retailers
this will make an extensive workforce which will keep close contact with farmers
making the system reliable.
-Points regarding channel flow and output demand-
• It would be beneficial if there would be no involvement between retailers and
distributors. The decreased number of intermediaries would only reduce the price but
will also help increase the short-term credit by the company owned outlets.
• Retailers can bring in the freedom to deal with the other products. They must have
greater storage areas. There must be close contact with sales force and the margin
must be between 5-15%
• Distributors much also have a margin around 5-15% and also close contact with sale
force.
• The retailer must also have information about the pesticides. Retailers must be retailer
cum experts so they can easily educate the farmers regarding the pesticides and its
usage.
• They can also tie up with the Argo expert who can educate the farmers.

9.SERVICE OUTPUT DEMAND OF FARMERS RELATED TO CHANNEL FLOWS

▪ Pesticide ownership moves from the producer to different dealers [wholesalers and
retailers] and eventually to the end customer, the producers.
▪ Physical ownership of other agricultural goods in addition to the company's commodity
would entice consumers so they will be willing to buy all of the products they need at
once.
▪ Promotion of the product via both wholesaler and sales agents by providing them
incentives.
▪ Financial leverage to be given to the wholesalers and retailers i.e. a higher profit
margin.
▪ Payments to be allowed on credit to channel distributers but within a time span of 15
days.
▪ Assortment of company’s products to be displayed at the distributers outlet for the
customer to both examine and buy.

10.CONCLUSION
SIFFCO Agro Chemical Ltd has the choice of using both an E-Chaupal and a Retailer cum
Expert setup. A collaboration with an Agro specialist will help the company's sales channel
thrive.