CH:1 INTRODUCTION OF FERTILISER INDUSTRY:

The fertilizer industry in India consists of three major players; The Government owned Public Sector undertakings, Cooperative Societies like IFFCO, KRIBHCO and units from Private sector. There are about 33 major producers producing N and NP/NPK fertilizers in the country at present. The fertilizer industry of India had made constructive use of the fertilizer subsidy provided by the Government of India to ensure that the country achieved reasonable selfsufficiency in food grain production. The fertilizer industry has organized itself through Fertilizer Association of India (FAI) to coordinate with the Government of India to achieve the macro-economic objectives related to agricultural sector and to provide other services.

The Indian Fertilizer Industry is one of the allied sectors of the agricultural sphere. India has emerged as the third largest producer of nitrogenous fertilizers. The adoption of back to back Five Year plans has paved the way for self sufficiency in the production of food grains. In fact production has gone up to an extent that there is scope for the export of food grains. This surplus has been facilitated by the use of chemical fertilizers. The Indian government has devised policies conducive to the manufacture and consumption of fertilizers. Numerous committees have been formed by the Indian government to formulate and determine fertilizer policies. The dramatic development of the fertilizer industry and the rise in its production capacity has largely been attributed to the favorable policies. This has resulted in large scale investments in all three sectors viz. public, private and co-operative.

CH:2. INTRODUCTION OF IFFCO IFFCO: Indian Farmers' Success Story:During mid- sixties the Co-operative sector in India was responsible for distribution of 70 per cent of fertilizers consumed in the country. This Sector had adequate infrastructure to distribute fertilizers but had no production facilities of its own and hence dependent on public/private Sectors for supplies. To overcome this lacuna and to bridge the demand supply gap in the country, a new cooperative society was conceived to specifically cater to the requirements of farmers. It was a unique venture in which the farmers of the country through their own Cooperative Societies created this new institution to safeguard their interests. The number of cooperative societies associated with IFFCO has risen from 57 in 1967 to 38, 155 at present.

Indian Farmers Fertilizers Co-operative Limited (IFFCO) was registered on November 3, 1967 as a Multi-unit Co-operative Society. On the enactment of the Multistate Cooperative Societies act 1984 & 2002, the Society is deemed to be registered as a Multistate Cooperative Society. The Society is primarily engaged in production and distribution of fertilizers. The byelaws of the Society provide a broad frame work for the activities of IFFCO as a Cooperative Society.

IFFCO commissioned an ammonia - urea complex at Kalol and the NPK/DAP plant at Kandla both in the state of Gujarat in 1975. Ammonia - urea complex was set up at Phulpur in the state of Uttar Pradesh in 1981. The ammonia - urea unit at Aonla was commissioned in 1988. In 1993, IFFCO had drawn up a major expansion programme of all the four plants under overall aegis of IFFCO VISION 2000 . The expansion projects at Aonla, Kalol, Phulpur and Kandla have been completed on schedule. Thus all the projects conceived as part of Vision 2000 have been realized without time or cost overruns. All the production units of IFFCO have established a reputation for excellence and quality. A new growth path has been chalked out to realise newer dreams and greater heights through Vision 2010 which is presently under implementation. As part of the new vision, IFFCO has acquired fertilizer unit at Paradeep in Orissa in September 2005. As a result of these expansion projects and acquisition, IFFCO's annual capacity has been increased to 3.69

million tones of Urea and NPK/DAP equivalent to 1.71 million tones of P2O5.

IFFCO has made strategic investments in several joint ventures. Godavari Fertilizers and Chemicals Ltd (GFCL) & Indian Potash Ltd (IPL) in India, Industries Chimiques du Senegal (ICS) in Senegal and Oman India Fertilizer Company (OMIFCO) in Oman are important fertilizer joint ventures. Indo Egyptian Fertilizer Co (IEFC) in Egypt is under implementation. As part of strategic diversification, IFFCO has entered into several key sectors. IFFCO-Tokio General Insurance Ltd (ITGI) is a foray into general insurance sector. Through ITGI, IFFCO has formulated new services of benefit to farmers. 'Sankat Haran Bima Yojana' provides free insurance cover to farmers along with each bag of IFFCO fertiliser purchased. To take the benefits of emerging concepts like agricultural commodity trading, IFFCO has taken equity in National Commodity and Derivative Exchange (NCDEX) and National Collateral Management Services Ltd (NCMSL). IFFCO Chattisgarh Power Ltd (ICPL) which is under implementation is yet another foray to move into core area of power. IFFCO is also behind several other companies with the sole intention of benefiting farmers.

The distribution of IFFCO's fertiliser is undertaken through over 38155 co-operative societies. The entire activities of Distribution, Sales and Promotion are co-ordinate by Marketing Central Office (MKCO) at New Delhi assisted by the Marketing offices in the field. In addition, essential agro-inputs for crop production are made available to the farmers through a chain of 158 Farmers Service Centre (FSC). IFFCO has promoted several institutions and organizations to work for the welfare of farmers, strengthening cooperative movement, improve Indian agriculture. Indian Farm Forestry Development Cooperative Ltd (IFFDC), Cooperative Rural Development Trust (CORDET), IFFCO Foundation, Kisan Sewa Trust belongs to this category. An ambitious project 'ICT Initiatives for Farmers and Cooperatives' is launched to promote eculture in rural India. IFFCO obsessively nurtures its relations with farmers and undertakes a large number of agricultural extension activities for their benefit every year. At IFFCO, the thirst for ever improving the services to farmers and member co-operatives is insatiable, commitment to quality is insurmountable and harnessing of mother earths' bounty to drive hunger away from India in an ecologically sustainable manner is the prime mission. All

that IFFCO cherishes in exchange is an everlasting smile on the face of Indian Farmer who form the moving spirit behind this mission.

IFFCO, to day, is a leading player in India's fertiliser industry and is making substantial contribution to the efforts of Indian Government to increase food grain production in the country.

CH:3 distribution channel Definition: A path through which goods and services flow in one direction (from vendor to the consumer), and the paymentsgenerated by them that flow in the opposite direction (from consumer to the vendor). A distribution channel can be as short as being direct from the vendor to the consumer or may include several interconnected intermediaries such as wholesalers,distributors, agents, retailers. Each intermediary receivesthe item at one pricing point and moves it to the next higher pricing point until it reaches the final buyer. Also called channel of distribution. Advantages of a Distribution Channel When a customer is considering buying a product he tries to access its value by looking at various factors which surround it. Factors like its delivery, availability etc which are directly influenced by channel members. Similarly, a marketer too while choosing his distribution members must access what value is this member adding to the product. He must compare the benefits received to the amount paid for using the services of this intermediary. These benefits can be the following:

Cost Saving The members of distribution channel are specialized in what they do and perform at much lower costs than companies trying to run the entire distribution channel all by itself.

Time Saving Along with costs, time of delivery is also reduced due to efficiency and experience of the channel members. For example if a grocery store were to receive direct delivery of goods from every manufacturer the result would have been a chaos. Everyday hundreds of trucks would line up outside the store to deliver products. The store may not have enough space for storing all their products and this would add to the chaos. If a grocery wholesaler is included in the distribution chain then the problem is almost solved. This wholesaler will have a warehouse where he can store bulk shipments. The grocery store now receives deliveries from the wholesaler in amounts required and at a suitable time and often in a single truck. In this way cost as well as time is saved.

Customer Convenience

Including members in the distribution chain provides customer with a lot of convenience in their shopping. If every manufacturer owned its own grocery store then customers would have to visit multiple grocery stores to complete their shopping list. This would be extremely time-consuming as well as taxing for the customer. Thus channel distribution provides accumulating and assorting services, which means they purchase from many suppliers the various goods that a customer may demand. Secondly, channel distribution is time saving as the customers can find all that they need in one retail store and the retailer

Customers can buy in small quantities Retailers buy in bulk quantities from the manufacturer or wholesaler. This is more cost effective than buying in small quantities. However they resell in smaller quantities to their customers. This phenomenon of breaking bulk quantities and selling them in smaller quantities is known as bulk breaking. The customers therefore have the benefit of buying in smaller quantities and they also get a share of the profit the retailer makes when he buys in bulk from the supplier.

Resellers help in boosting sales Resellers often use persuasive techniques to persuade customers into buying a product thereby increasing sales for that product. They often make use of various promotional offers and special product displays to entice customers into buying certain products.

Customers receive financial support Resellers offer financial programs to their customers which makes payment easier for the customer. Customers can buy on credit, buy using a payment plan etc.

Resellers provide valuable information

Manufacturers who include resellers for selling their products rely on them to provide information which will help in improving the product or in increasing its sale. High-level channel members often provide sales data. On all other occasions the manufacturer can always rely on the reseller to provide him with customer feedback. Disadvantages of including intermediaries in the distribution channel

Revenue loss The manufacturer sells his product to the intermediaries at costs lower than the price at which these middlemen sell to the final customers. Therefore the manufacturer

goes for a loss in revenue. The intermediaries would never offer their services to the manufacturer unless they made a profit out of selling his products. They are either made a direct payment by the manufacturer, for instance shipping costs or as in the case of retailers by selling the product at costs higher than the price at which the product was bought from the manufacturer (also known as markup). The manufacturer could have sold at this final price and made a greater profit if he had been managing the distribution all by himself.

Loss of Communication Control Along with loss over the revenue the manufacturer also loses control over what message is being conveyed to the final customers. The reseller may engage in personal selling in order to increase the product sale and communicate about the product to his customers. He might exaggerate about the benefits of the product this may lead to miscommunication problems with end users. The marketer may provide training to the salespersons of retail outlets but on the whole he has no control on the final message conveyed.

Loss of Product Importance The importance given to a manufacturers product by the members of the distribution channel is not under the manufacturers control. In various cases like transportation delays the product loses its importance in the channel and the sales suffer. Similarly a competitors product may enjoy greater importance as the channel members might be getting a higher promotional incentive.

CH:4 IFFCO SUPPLY CHAIN

2.1 IFFCO: IFFCO (Indian Farmer Fertilizer Cooperative) is an organization which is selling goods only to the cooperative societies. IFFCO is an organization established by the farmers for the farmers only. That is the reason why IFFCO sells the fertilizer to the only member farmers.

Unit will dispatch the fertilizer directly to GUJCOMASOL. Then GUJCOMASOL will send the fertilizer to different DPSUs according to their requirements. Then DPSUs will send it to TPSUs, TPSUs to GSSM, and GSSM to farmers.

2.2 Three Tier Structure:

IFFCO is having 3 tier structures for the payment of fertilizer. This is shown as follows:

Here, TPSU stands for Taluka purchase and sales union, DPSU stands for District purchase and sales union,

These are the main parties which are involved in the distribution channel. GUJCOMASOL is the main agency which deals with the payment system.

The first is to decide how much to produce. And that is based on demand. Every society will decide what their demand would be. Every society will inform its demand to TPSUs. Then

TPSUs will cumulate the amount of fertilizer is required. And inform to DPSUs. And DPSUs will inform to GUJCOMASOL.

Keeping this in simple terms or general terms, societies are considered as a child i.e. those are farmers. Generally Urea or NPK or DAP is given to farmers only on cash basis. TPSUs are considered as a father. They will make payment for farmers before their purchase. DPSUs are considered as a grand father. They will make payment for TPSUs. And finally GUJCOMASOL will receive the amount.

Here there is no debt-equity ratio because there are four parties who are ready to take guarantee for the farmers. And so there is no outstanding amount. And this is because first GUJCOMASOL will make payment then DPSU and then TPSU and then farmers. And all this transaction is running so smoothly only because on every tonne Rs. 10 is created as overhead margin by every party. And this kind of distribution channel is very difficult to implement. And Gujarat is considered as as a pioneer or a model stat in this structure because every state had tried to adopt this structure but they are not successful in implementing this strategy.

2.3 Fright Policy:

The next thing is the most important is handling and transportation. And IFFCO is doing this activity on contract basis.

There are total 16 contractors who handle the whole Gujarat network. And there are six main offices for this. This handles all the transportation for their nearer city. Those six offices are at Rajkot, Junagadh, Mehsana, Ahmedabad, Godhra and Surat.

For eg. Like surat office will manage the transportation of fertilizer to Surat, Bharuch and Ankleshwar ; Junagadh office will manage the transportation of fertilizer to Junagadh, Bhavnagar and Amreli.

2.4 Information Flow Chart:

EXPLANATION: IFFCO is a public limited company. That is the reason that all the financing activity is done through Head Office only. For the complete information it is necessary that information should be passed in proper sequence.

District Officer (Field Officer) sends data of one particular district to the Ares Officer. Then Area Officer will transfer the information to the Stat Manager. Stat Manager will transfer the

data to the General Officer. General Officer is one who takes care of the data of one or two stats. Then General Officer sends information to the Zonal Officer. There are five Zonal officers of IFFCO i.e. for East Zone, Waste Zone, South Zone, North Zone and Central Zone. All the Zonal Officers will sends data to the Delhi Head Office. By this manner the information used to flow. So that the Delhi Head Office can take decision without any kind of lack of information. 2.5 Transportation Cost:-

All the cost of transportation is bear by IFFCO and not by farmers or any other party. Transportation cost by road is generally bear by the organization itself. But railway fright is generally provided by government.

For this every district needs decide the amount of tone of fertilizer will be required. After getting the estimated amount of fertilizer is required, government will decide which firm will sell its fertilizer to whom and government will also decide the quantity of fertilizer it will distribute. It is obvious that the firms capacity of production is more than it sells to the districts. So the government will again decide the quantity of fertilizer a firm needs to sell to the other state. And if the excess demand arises within the state then also the firm can not sell it because the firms full capacity is utilizing by selling it to the other state. And if the firm is having surplus production then also firm will not sell it within that district because government will not provide subsidy on it. So it will be loss for the firm to sell it.

The capacity of production of fertilizer of IFFCO is 70 to 80 lakh tones. And the total distribution and selling of fertilizer of IFFCO is 118 lakh tones. So here the question arises is from where the variance amount of fertilizer is sold and distributed. And this fertilizer comes by import only. For the import of DAP, IFFCO has tie up with Russia and Mosaic. And for the import of Urea, IFFCO need conformation from central government. There are some canalizing agencies like, MMTC and State Trading Corporation (STC) and Indian Potash Ltd. (IPL) for the import facility. And government had also given Green Signal License with due permission from central government for import facility. The other major fertilizers like DAP and MOP are freely importable on private trade account.

2.6 Subsidy:-

Fertilizer is the controlled product by the central government. The main aim of providing subsidy is to distribute fertilizer to the farmers at a fixed price by government. The current price of Urea bag is Rs.291.25 and the cost of production is around Rs.400. So the farmers will get the urea bag for Rs.291.25 and the difference of the price and the production cost is subsidy provided by the government.

GOI is giving fixed subsidy on Phosphatic and Potassic fertilizers and manufacturers have the freedom to fix prices of these fertilizers. Subsidy on urea was given under Retention Price Scheme (RPS). RPS was nothing but a fair price paid to the manufacturing covering cost of production, distribution and reasonable rate of return (12% post tax return on net worth) on investment.RPS varied from plant to plant depending on the feedstock, vintage, investment, financing etc.GOI was giving equated freight and subsidy on urea on normative basis.

The sale price of fertilizers is fixed by Government of India. The cost of production/import is higher than the sale price. Over the years, production cost has increased manifold due to increase in prices of input and utilities and duties and taxes Consumer price remains same during 1981 to July 91 The difference between the production / import cost and selling price is paid as subsidy to suppliers.

Movement of fertiliser from Plant/Port to consuming areas is also subsidized. With widening gap between production cost and selling price, subsidy amount increased substantially. The fertiliser subsidy increased to Rs. 96,000 crore during 2008-09.

The difference between RPS and statutorily selling price is paid as subsidy to manufactures. Over the years, production cost has increased manifold due to increase in prices of input and utilities and duties and taxes Consumer price remains same during 1981 to July 91.With

widening gap between substantially.

production cost and consumer price, subsidy amount increased

Under the act of Retention Price Act-1956, every firm which is producing fertilizer needs to estimate its cost of production plus profit margin of 12% and subsidy is provided on this estimated price. And if the original cost of production is less then the estimated one then the firm is able to generate more profit.

The distribution channel of IFFCO is very vast as because 40,000 cooperative societies are members of IFFCO. And minimum 20% dividend is provided to them.

Each party will take the 20% dividend on the remaining profit for their investment. GUJCOMASOL will take 20% dividend on the total profit for their investment, after that DPSU will earn 20%divind on the remaining profit then TPSU then Societies and then farmers. So the farmers are also earning minimum 20% dividend on their investment and IFFCO is favorite among the farmers because if they invest their money somewhere else then also they wont be able to earn this much return on their investment.

2.7 Penalty Clause:-

There are many penalty clauses applicable on the contractors. During the distribution of fertilizer the contractor need to take care of the fertilizer. If there will be any damage to the bags then the contractor needs to pay 1.5 times of the amount of fertilizer. There is also another clause for the suppliers of empty bag. Suppliers need to supply bags within 7 days after the order is placed. Otherwise they need to pay penalty for the stoppage of production.

2.8 MARKETING:

Marketing means making people aware about its product.

Many firms used to do marketing by newspaper advertisement or television advertisement. But this is not so in the case of IFFCO. IFFCO was established in 1967. And IFFCO used to sell a product to the farmers who live in small villages. And also during 1960-70, the culture of the village was not that much developed that television or newspaper advertisement can be effective. So IFFCO is doing marketing of fertilizer by pilot testing. IFFCO also arrange the plant visit for the farmers and all the expenses is bear by IFFCO only. So that farmers can very well understand the quality of the product and will also feel that the product is trust worthy product.

IFFCO and Airtel has Join Hands to Usher in the Second Green Revolution Joint venture company IFFCO Kisan Sanchar Ltd.(IKSL) to provide big boost to Indian agriculture and rural economy.

Airtels telecom products and services to become lifeline for rural India

Unique VAS platform to offer free daily voice updates on mandi prices, farming techniques, weather forecasts, fertilizer availability

Dedicated helpline for farmers to answer their queries

IKSL will offer products and services, specifically designed for farmers, through IFFCO societies in villages across the country. The offer will be affordable mobile handsets bundled with Airtel mobile connection. The farmer will also get access to a unique VAS platform that will broadcast 5 free voice messages on mandi prices, farming techniques, weather forecasts, diary farming, animal husbandry, rural health initiatives and fertiliser availability etc. on a daily basis. In addition, the farmer will be able to call a dedicated helpline, manned by experts from various fields, to get answers to their specific queries.

IKSL will roll out its services in Uttar Pradesh, Punjab, Haryana, Rajasthan, Madhya Pradesh, Chhattisgarh, Bihar, Jharkhand, Orissa, West Bengal, Tamil Nadu and Himachal Pradesh in the first phase. The second phase will see the partnership being extended to Gujarat, Maharastra, Goa, Karnataka, Andhra Pradesh and Kerala.

Bharti Airtel will offer competitive calling rates @ 50 paise/minute for calls between IFFCO members. This is expected to promote community building within the society and rural community at large. Bharti Airtel will also set up towers at sites provided by IFFCO societies to provide quality

IFFCO is also providing an insurance policy of Rs.4000 on each bag and premium is generally paid by IFFCO only. The maximum limit is of insuring 25 bags i.e. of Rs.100,000. Whoever will use this insured bag that is not a big concern but the main objective is to insure each and every bag. And no policy paper is given for it. The society bill is considered as the policy. And this activity is done under SANKAT HARAN VIMA YOJNA.

The premium is paid through IFFCO TOKYO GENERAL INSURANCE (ITGI)

CH:5 ANALYSIS OF IFFCOS SUPPLY CHAIN