A Nightmare or A Benefit in Shifting

Group
Shahzaib Mahar
Muhammad Amin
Aftab Ali
Sajid Ali Aslam

Supervisor
Dr. Rukhsana Gul
A Nightmare or A Benefit in Shifting

On December 18, 2014 Umair Nazir, Chief Executive Officer (CEO) of Zarae Otaque, was with
Abdul Samad, Chief Financial officer (CFO), Mian Nazir Ahmed, Chief Operating Officer (COO)
and Muhammad Akram Laghari, Chief Field Officer (CFO). They were discussing the issue of
shifting and its impact on operations as well as new plans for the business in coming seasons lease
was cancelled without prior notice from lessor. Lessor’s decision put all management of Zarae
Otaque in hot water also their customers. This meeting was important because the decision made
would have a great impact on the company’s future Zarae Otaque had been in the business of
seeds, pesticides, fertilizers and consultancy to farmers since 2012. After the launching of the
company, within a short span of time company attracted the target customers a huge number of
landlords registered himself as customer for Zarae Otaque’s products and consultancy by
providing high quality of products and satisfying services target customer delighted from their
services.

For Zarae Otaque management had limited options, whole management was worried about shifting
impact on the business performance and yield of lands were lower than previous one it will be
profitable or not? And management have to select from available options.

Agricultural sector in Pakistan

Pakistan has a rich and vast natural resource base covering ecological and climatic zones. Total
geographical area of Pakistan is 79.6 million hectors, about 27% of the area currently under
cultivation.

This sector contributed 19.8% in GDP and it remains by far largest employee absorbing 42.3% of
the country total labor force.

After Punjab, Sindh province is relatively more productive in agricultural sector, the total
cultivated area of Sindh is 5.88 million hectors and the total cropped area of Pakistan is 3.10
million hectors. Sindh produce 35% of rice of Pakistan 28% of sugarcane, 12% of wheat, 20% of
cotton, 88% of chilies, 73% of banana, 34% of mangoes.

There are two main crop seasons there, Kharif (starts from June and harvested in October) and
Rabi (starts from October and harvested in March)
Main crops in Pakistan are Cotton, wheat, rice, maize, sugarcane, fruits and other vegetables.
(Exhbit 1)

Pakistan ranks eight worldwide in farm output, Pakistan is one of world the largest producer and
supplier of food and crops, on the basis of production. Pakistan standing Cotton (4th), Mangoes
(4th), Sugarcane (5th), Wheat (7th) and Rice (11th)

There is fierce competition in this industry in spite of that industry still is fragmented, no player
has more than 15% to 20% market share, composition of market varies in Pakistan province to
province in Pakistan. Punjab province in agricultural sector farmers have more knowledge and
educated and aware about the new technology and new methods of forming and cultivation in
compare to other provinces of Pakistan. Punjab’s Yield per acre is higher than others because of
knowledge about agriculture. In contrast, Sindh farmers cultivating the land with traditional
methods and majority of people who are involved in agriculture, they have less knowledge about
agriculture and end of day receive low yield.

Competitors which are already in the market, some of which were presence for so many years
which were offering loans with higher interest rates, their strength is their strong heritage because
they are operating from more than 50 years, actually the competitors of Zarae Otaque are the
middlemen who are operating informally throughout the Sindh. They do not care about the needs
and wants of farmers, but they are actually concerned with their profits and targets.

Farmers have limited options to purchase seeds and pesticides for their crops specially in Sukkur
and Khairpur regions where Zarae Otaque start their operations.

Zarae Otaque History

Father of Umair, Mian Nazir Ahmed he was concerned with agriculture since 1990 and work with
many leading multinational and local seeds, fertilizers and pesticides companies at different
position in different part of country. During his job he found that almost all companies using
middle-men and commission agents to reach farmers. Middle-men and agents were earning
abnormal profits through charging higher interest rates and higher prices of products and giving
limited other services, in 1998 he left the company and started their own business and opened a
shop with name Zarae products with that aim to help underprivileged farmers and he provide them
credits without any interest and providing consultancy to farmers and landlords.

Later, he purchased a farm house and in short span of time farm house productivity was doubled
than an average famers productivity. But due to some personal reasons he closed his shop in 2010.

Umair was grew up by seeing his father’s activities and by solving the problems of farmers and
talking theirs crops issues all the time at his Otaque. So, Umair grew up in that environment and
he interested in that sector and talk with his fathers on agriculture issues. In august 2009, he gained
admission at Sukkur IBA University (SIBAU) on need based scholarship, there he meets another
guy Abdul Samad Sahito who also from same background both became good friend.

In February 2012, Sukkur IBA University announced business plan competition. Both participated
in that event and they came with the idea of Zarae Otaque. The purpose was to improve the living
standard of farmers by increasing the yield of their crops and providing interest rate free credit
services. Idea was rejected at initial phase of competition by management. And commented that
idea is unrealistic and not possible to implement practically.

Later, both participated in NUST university business plan competition and idea got selected and
group was awarded 300,000 cash awarded by president of Pakistan and Chief of Army Staff Mr.
Raheel Sharif, same year Mr. Malik also awarded by young entrepreneurial of year by IBA Sukkur,
afterword also he won the Preston entrepreneurial challenge award (Exhbit 2).

In April 2012 Malik Umair and Mr. Samad launched their company with name of Zarae Otaque at
Peerano Patan, Taluka Nara, Dist. Khairpur, director Sukkur IBA was the chief guest of this
launching ceremony. Zarae Otaque got positive responses from landlords and formers who were
invited from around the Sindh.

Company got 30 farm house registration and more than 100 farmers or landlords registered for the
service or product of Zarae Otaque in first season. Zarae Otaque cross the sale of 12 million and
by providing quality service and products. Averagely their customers’ productivity increases
between 10 to 15 mound per acre and within first six month Zarae Otaque earn profit of
approximately 5.2 million in first season (Exhbit 3).
Operations of Zarae Otaque

Company was also playing the role of intermediary between farmers and Pesticides & Fertilizers
companies. and also producing seeds, providing consultancy and retail services.

Production

Zarae Otaque also introduced more than 50 varieties of cotton and wheat seeds. Their production
capacity is almost seed of 6000 acres and Zarae Otaque also owns 300 acres of cultivable land.

Distributor and Retail Agency

Zarae Otaque has three retail shops within taluka Nara, Choondiko, Tarai, Peerano Patan through
these retail stores z.o sales seeds, pesticides, fertilizers to all farmers who are registered or not.
Zarae Otaque works as supplier of many multinational and national pesticides companies like,
Buyr, Kenzo, FEP, Jahander, warable, Sygenta, DJC, Tareget, Jugno and supplies the fertilizers of
FFC, Fatima, Engro. Zarae Otaque was earning 20% on pesticides and 23% on seeds and 300
rupees for on each fertilizer beg.

Consultancy services

Zarae Otaque consultancy purpose to create awareness of modern methodologies for cultivation
of crop and how to gain maximum yield from the crops. Zarae Otaque provide consultancy from
1st phase of crop to till completion of whole process. Zarae Otaque also arrange seminars about
crop heath and disease.

Credit services

Zarae Otaque offers credit services for only those farmers who were unable to pay cash on that
time. Zarae Otaque give credits and collect amount at end of the season without any interest
charges.

Crises

Company leased 300 acres cultivable land from prince Mir Mehdi Raza Talpur, leased was
cancelled without prior notice. Where company do all the operations in model farm and also there
was on one retail shop. And this was main source to attract and satisfy their customers.
Management tried to negotiate the lease, but they failed. Now current situation is that they have to
take the decision and management came up with three available options and they have to select
form them.

Available Options
 Continue without model farm (Traditionally intermediary)
 Change business model
 New model form and close operation
Management have to look option in different perspective and consequences. And questions will
arise from the decision. What would be marketing strategy? How to retain existed customers and
how to attract new customers? What would be distribution strategy?
What if they change the location then how thy serve new farmers and and how they build their
brand and what would be the impact of this decision. So, management have to think twice before
going to final the decision. Because company’s main asset is their farmers. They have to think and
create marketing strategies to satisfy existing and also gain new farmers.
Exhibit 1: Area and Production of Important Crops
Exhibit 2: Zarae Otaque team at NUST

Zarae Otaque team at NUST with COAS Gen: Raheel Sharif & President Pakistan Mr. Mamnoon
Hussain.
Exhibit 3: Zarae Otaque Income Statement December 30, 2012

Account Amount
Revenue:
Seed 2,900,000
Fertilizer 10,851,000
Pesticides 13,600,000
Total Revenue 27,351,000
Cost of Goods Sold:
Seed 1,634,950
Fertilizer 10,200,700
Pesticides 9,250,000
Total Cost of Goods Sold (21,085,650)
Gross Profit 6,265,350
Expenses:
Salaries Expense 288,000
Fuel Expense 90,000
Marketing Expense 500,000
Shops Expense 90,000
Miscellaneous Expense 60,000
Total Expense (1,028,000)
Net Income 5,237,350
Exhibit 4: Article Published in The Express Tribune by Sarfaraz Memon

Under the Zarae Otaque project, farmers are provided raw materials like seeds and pesticides
below market cost. Tired of seeing generations of farmers toil under the burden of debt, all for
miserly yields on their harvest, students of the Institute of Business Administration (IBA) Sukkur
decided to take matters in their own hands.

Farmers in Sindh are not able to increase their yield per acre because, unlike their brethren in
Punjab, they are not using modern farming methods, according to Umair Malik, a student of IBA
Sukkur’s entrepreneurship program and the head of the Zarae Otaque project. He is joined by
fellow students Abdul Samad Sahito and Sachanand Solanki and his father, Nazir Ahmed Malik.
Under the Zarae Otaque project, farmers are provided raw materials like seeds and pesticides
below market cost. Thus, the project has dealt a blow to middlemen and traders, who not only
gouge farmers, but also exact high interest rates if they are not able to pay the full price in one go.
Farmers Karam Bhambhro, Zahid Bux Bhambhro and Mir Hasan, who have agricultural lands in
the Choondko area, say that they saw their output go up. “We also receive seeds and other materials
at subsidized rates, which means that we are not exploited [by middlemen] anymore,” says Zahid
Bux. The IBA scheme, which was started four months ago, has now managed to garner the support
of seven private commercial enterprises, who have collectively put in Rs50 million so far. These
companies provide the agricultural raw materials and their field officers regularly train farmers on
how to increase their harvest. Umair says that 114 farmhouses, spread across 6,000 acres of land
from Tajal to Rohri, have registered with Zarae Otaque so far. Six hundred customers buy material
from them. “Farmers registered with Zarae Otaque are getting [up to] 80 maunds of cotton per
acre, while others get [up to] 25 maunds per acre.” The motto for the project, says Umair, is “In
nature we trust”. IBA Sukkur recently organized an exhibition in Nara tehsil, Khairpur, where high
yield cotton plants from all over the district were put on display. Khairpur’s Prince Mehdi Raza
has also leased 200 acres of land in the Pirano Patan area in Choondko to the project. The IBA
Sukkur students have opened their own farm, which they have dubbed the Insan Dost Model Farm.