Capacity Building Toolkit Module 7

BUSINESS MODEL:

VERMICOMPOSTING
Published by
Deutsche Gasellschaft für Internationale Zusammenarbeit (GIZ) GmbH

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Mohamed El-Khawad
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Environment, Climate Change and Biodiversity
Email: Mohamed.el-khawad@gizde

Mr. Rajeav Ahal

Director, Natural Resource Management
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Technical Partners
Intellect Consortium

Content Review
Dr. R.S Reddy (BIRD), Deepak Chamola

Editor
Deepak Chamola, Raj Das

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Aspire Design

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On behalf of the

German Federal Ministry for Economic Cooperation and

Development (BMZ)

New Delhi, India

July, 2019
 ABOUT THE

MODULE
National Bank for Agriculture and Rural Development (NABARD), Bankers Institute of
Rural Development (BIRD) and Deutsche Gasellschaft für Internationale
Zusammenarbeit (GIZ) GmbH have come up with a 'Farmer Producer Organisation (FPO)
Capacity Building Toolkit'. The toolkit contains the following modules:

1 FPO orientation material

2. FPO capacity assessment tool

3. Training of Trainers (TOT) manual for Board of Directors (Boo)

4. FPO Massive Open Online Course (MOOC)

5. Guidebook for FPO business planning

6. Guidebook for FPO legal compliances

7. Business models for FPOs

8. Schemes and policy initiatives for supporting FPO

9. Guidebook on future market for FPOs

10. Guidebook on input business planning

11. Guidebook on FPO financing for bankers

MODULE 7 'Business models for FPO' presents a compilation of business models of various
commodities based on experience of Umbrella Programme for Natural Resource
Management (UPNRM) programme to help FPOs and other stakeholders in development
of business plan, as a reference material.

The module covers challenges with respect to the commodity, project idea, impacts,
sustainability and financial details including cost-economics. This business model is on
Vermicomposting.
 CONTENTS

I. BACKGROUND 1
1.1 Relevance of vermicomposting in India 1
1.2 Advantage of vermicomposting 2
1.3 Commercial production of vermicompast 2

2. CONSTRAINTS/ CHALLENGES IN THE SECTOR 3

2.1 Low awareness 3
2.2 Lack of SOP in composting sector 3
2.3 Training, capacity building and extensions facilities 3
2.4 Scalability of vermicomposting 3
2.5 Market connectivity 4
2.6 Financial constraints 4
2.7 Availability of suitable varieties of earthworm 4
2.8 Quality testing facilities 4

3. PROJECT IDEA 5
31 Intervention strategies 6
3.2 Potential for upscaling 7
3.3 UPNRM case example 7
3.4 Business model with flow chart representation 7

4. IMPACTS AN SUSTAINABILITY 9
4.1 Impacts- Social, Economic and Environmental 9
4.2 Mainstreaming options 10
4.3 Climate resilience or adaptability of the model 10
4.4 Sustainability 10

5. FINANCIAL DETAILS 11
5 1 Scope of financing and subsidy 11
5.2 Cost Economics 12
5.2.1 Cost benefit for farmers 12
5.2.2 Cost benefit for FPO's 15
ABBREVIATION
A.P. Andhra Pradesh
CBOs Community Based Organisations
FIGs Farmers Interest Groups
FPCs Farmer Producer Companies
FPOs Farmer Producer Organisation
GIZ Deutsche Gasellschaft fur Internationale Zusammenarbeit
501 Government of India
M.P. Madhya Pradesh
MIDH Mission for Integrated Development of Horticulture
NABARD National Bank for Agriculture and Rural Development
NE States North Eastern States
NF Nilagiri Foundation
NFSM National Food Security Mission
Nails Non-Governmental. Organisations
NMSA. National Mission for Sustainable Agriculture
NPOP National Program for Organic Production
PGS Participatory Guarantee Scheme
PKVY Pramparagat Krishi Vikas Yojana
POPs Package of Practices
RKVY Rastriya Krishi Vikas Yojana
SFIGs Self-Help Groups
SOPs Standard Operating Procedures
TPA Tonnes per annum
_________________________01
BACKGROUND
Vermicomposting has been gaining a strong foothold in the country due to simple production techniques, ecological,
economic and human health benefits associated with it. A significant number of vermicomposting units have been set
up by entrepreneurs, under government support/ with the technical guidance of Non-Governmental Organisations
(NGOs), particularly in the southern and central parts of the country. Entrepreneurs in the states of Karnataka, Tamil
Nadu, Kerala, Maharashtra, Gujarat, Rajasthan and Madhya Pradesh (M.P.) have popularised the usage of
vermicomposting by setting up the large size units.

Vermicomposting has direct environmental and economic benefits as it contributes to the sustainable
agriculture production and income of farmers significantly. There are a number of NG0s, Community Based
Organisations (CB0s), Self-Help Groups (SHGs), Trusts etc. which are making concerted efforts to promote
vermicomposting technology due to its established economic and environmental advantages. The study team
had made a visit to Guntur district of Andhra Pradesh where Self Help Groups (SHGs)/farmers were successfully
running a number of vermicompost units, with the support of NABARD and GIZ's support.

1.1 Relevance of vermicomposting in India

The Green Revolution, that started in the mid-1960s, to tackle the issue of food shortage in India by enhancing
agriculture production, led to the introduction of High Yielding Varieties (HYV) of seeds. These HYV required
intensive use of chemical fertilisers and pesticides.
Although the Green Revolution led to the significant enhancement of the food production in the country, over
the years, it led to increasing the dependency of farmers on the use of chemical fertilisers, insecticides and
pesticides. Moreover, the use of organic fertilisers and manures declined significantly.
Over the years, excessive usage of modern agriculture inputs he. synthetic fertilisers, insecticides and pesticides
have resulted in severe land and environmental degradation in India. This has led to a point where the farmers
have begun to experience diminishing returns from agriculture while their input costs are increasing
significantly.
It is in the above backdrop that a need for converting the farms from inorganic to organic is being felt in the
country owing to economic and environmental factors while vermicomposting is critical for the promotion of
organics.

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1.2 Advantage of vermicomposting
Production of compost through rearing/ using earth worms is called the vermicomposting technology.
Under this technology, earthworms eat biomass and excrete it in a digested form which is known as
vermicomposting or vermicompost. It is one of the simplest and cast effective methods for the
production of compost for both the small and large scale farmers.

Vermicomposting, rightly called 'gold from garbage" is the major input in organic agriculture
production. Owing to simple technology, many farmers are engaged in vermicomposting production as
it invigorates soil health, soil productivity and reduces the cost of cultivation.

There is a gradual increase in demand for vermicompost due to the high level of nutrient contents.

Table 1 Nutrient contents in vermicompost

Nutrients Content in vermicompost
Organic carbon 9.15-17.18 per cent
Total nitrogen 1.5 to 2.10 per cent
Total phosphorus 1.0 to 1.50 per cent
Total potassium 0.60 per cent
Ca and Mg 22.00-70110
Available S 128-549 ppm
Copper 1110 ppm
Iron 1800 ppm
Zinc 517 ppm

1.3 Commercial production of vermicompost

Although vermicomposting is gaining popularity in the country but in most cases it is being taken
up by individual farmers to fulfill their own requirements. Commercial production of vermicompost
is yet to come up on a large sink- in the country.

2
__________________02
CONSTRAINTS/
CHALLENGES IN
THE SECTOR
Vermicomposting, as a commercial venture, is yet to gain momentum due to certain constraints that are being
discussed as follows:

2.1 Low awareness

There are several regions in India where awareness, regarding composting technology has not been generated
adequately. Farmers still use cow dung in their fields, without following the norms to spread the compost in the field
in proportionate quantity.

2.2 Lack of Standard Operating Procedures (SOPs) in composting sector

SOPs need to be developed for educating the farmers on technical aspects of making compost, nurturing tiny
earthworms and managing the vermicomposting enterprises. Lack of SOPs in the sector has been resulting in low- level
of technical know-how among the farmers FPOs.

2.3 Training, capacity building and extension facilities

At the farmer entrepreneur level, there is a need of capacity building in vermicomposting- technology. Intensive training
and capacity building are required to be imparted to the entrepreneurs.

2.4 Scalability of vermicomposting

Due to limited resources at the disposal of farmers, scaling up vermicomposting enterprises has become a challenging
task Arranging land, raw materials, earthworms and the availability of labour are the major constraints in this sector.
In most places across the country, vermicompost is being manufactured by farmers for consumption in their own farms
rather than for commercial sale. At the same time, the adoption of vermicomposting as an enterprise is still not been
considered as a viable business option.

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2.5 Market connectivity

One of the major challenges for promotion of vermicompost enterprises is to ensure sustainable
markets. Organic cultivation is gaining popularity in the country but still there is a limited
demand for vermicompost. At the same time, the distribution and retail network of existing
vermicompost units is weak and hence popularisation of such enterprises has not taken place.

2.6 Financial constraints

Growth of organic farming in India depends on the adequate availability of vermicompost, bio-
fertilisers and other organic ingredients for which the farmers require bank loan and
incentive/subsidy. Accessing finance from the formal financial institutions is still a challenge for
vermicompost entrepreneurs in many places.

2.7 Availability of suitable species of earthworm

Many times, even the trained farmers find it difficult to start or to upscale the vermicomposting
enterprises due to lack of availability of suitable species of earthworms. Earthworms are the main
constituent of vermicomposting enterprises but currently, there is a lack of supply chain that
could help farmers/ entrepreneurs in easily procuring the worms.

2.8 Quality testing facilities.

The quality of compost depends on the quality of raw materials from which it is made and there
are variations in the nutrient level of vermicompost produced batch wise. Due to lack of complete
technical know-how sometimes farmers mix dry cow dung and other items to increase the
quantity of compost. The growing consciousness amongst the farmers about the quality of
vermicompost is expected to generate greater demand and hence, lead to the success of these
enterprises. Thus, there is a need to establish quality control and certification systems for
vermicomposting. However, laboratory facilities for chemical analysis of compost are lacking in
the rural areas and also there is no single window system to locate the vermicomposting activities
in India.

It is envisaged that the proposed business model would help in overcoming most of these
challenges through technical inputs, capacity building of farmers and development of Package of
Practices (POPS), establishing quality control mechanisms, supply chain management and
developing sustainable market linkages

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__________________03
PROJECT
IDEA
Vermicomposting is an emerging sector which can potentially create employment opportunities in rural India
and also help in the promotion of organic farming. Although there are several types of compost viz.
vermicompost, farmyards manure, NADEP compost (first invented by a farmer named Narayan Deotao
Pandharipande) and bacterial compost. However, vermicomposting is the easiest method of making compost.

Vermicomposting is currently being used by a large number of farmers in the country. It is the most preferred
type of compost due to its light weight, easy to spread in nature and a higher level of NPK necessary for enriching
the soil health. In fact, a comparison between vermicompost and other popular composts reveals that
vermicompost has the highest NPK levels.

Table 2: NPK content in basic manures - a comparison

Elements Vermicompost Farm yard Manure Bacterial Compost

N (per cent) 2.1 -2.6 1.1- 1.5 1.2- 1.5

P (per cent) 1.5- 1.7 0.7- 0.6 0.7 -0.9

K (per cent) 1.4 -1.6 0.6- 0.7 0.6 -0.7

The project idea is to support and facilitate Farmer Interest Groups (FIGs) at the village level (to produce
vermicompost) and to organise them into FPOs, simultaneously, so that the constraints, issues and challenges
(listed in the earlier section) could be addressed.

The objective is to create viable production enterprises at the village level by providing technical, finan cial and
logistical support to FIGs and develop them as production centres. The aim is to integrate these FIGs to the
mainstream market through FPOs at the duster level. It is envisaged that FPOs would take a lead role in
developing forward linkages for the FIGs. Thus, this project idea envisages supporting the farmer groups (FIGs)
and FPO in the following manner:

a. Support (grants subsidies and credits) to farmers groups (Farmer Interest Groups/Peer Groups of
smallholders) for establishing vermicomposting

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 b. Support (grants/subsidies and credits) to FPOs (Cooperatives/ Producer Companies etc. of
smallholders) to create the supply chain management and to integrate FIGs, engaged in
vermicomposting, to the mainstream market through FPOs.
c. Enable FPOs to access and leverage financial support to procure and trade the vermicompost as a
product.

3.1 Intervention strategies

Supply chain development in the vermicomposting sector would require involvement of significant
numbers of the farmers, hence at least 80 vermicompost units would have to be brought under the
FPOs to create the strong supply chain of vermicompost and then to upscale it. The farmers at the
village level would be organised as FIGs; the ideal size of the FIGs would be 10-30 members. Each FIG
could collectively set up a vermicompost unit or could select one entrepreneur who is willing to set
up the unit. In the latter case, the FIG members would supply cow dung and other raw materials to
the unit which would result in income for the FIG members.

The FIGs would be integrated into FPOs at duster level which will manage the supply chain-meaning
that the FPO would handle the collection/aggregation, transportation, sales and marketing.
As a part of supply chain management the following specific interventions/strategies are being
proposed!
For farmers Interest groups (FIGs)
Facilitation support may be provided through a local competent NGO or an existing FPOs for the
following interventions:

• Formation of FIGs, mobilisation, sensitisation and awareness development in regard to

vermicomposting
• (grant/subsidy).
• Selection of entrepreneurs/FIGs for running vermicompost units.
• Training and extension services for vermicompost entrepreneurs on POPs for manufacturing
vermicompost (grant/subsidy).
• Facilitate vermicompost entrepreneurs/FIGs to obtain financial benefits under different
schemes such as PICKY and RICVY and also under other similar schemes.
• Facilitate vermicompost entrepreneurs to receive quality raw materials.
• Buy-back arrangement with FPO for vermicompost entrepreneurs/FIGs.

The cluster development approach suggested under this model would seek to develop both forward
and backward linkages and would also seek to minimise the overhead, monitoring and other
administrative costs.
For FPOs

Mobilisation of farmers/formation of FIGs„ training and capacity building and extension work (in case
of the absence of competent NGO or and existing FPOs).

• Developing POPs and designing SOPs.

• Developing supply chain management, quality control, monitoring and supervision system.
• Developing procurement related infrastructure-viz. packaging materials, weighing
yards/scale, quality control
• norms, storage (village/ FIGs level) and transportation facilities.
• Branding, promotion, packaging, distribution, sales and marketing.

The funds can either be given directly to the FPOs or through an NGO, whichever the case may be and also
depending on the overall responsibility of implementation of this business plan .

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3.2 Potential for up scaling
With a growing focus on organic/ zero budget natural farming, the demand for vermicompost is also
expected to increase significantly in the years to come and hence the establishment of commercial
enterprises for production and sale of vermicompost could have significant potential.
It is a fact that vermicompost ameliorates soil fertility and crop production. Vermicomposting units
may be promoted in areas with a higher concentration of cash crop cultivation, fruits and other high
value organic crops. Ideally, vermicomposting units could he established near commercial dairy units
or in areas where there is a large concentration of cattle population or near to a mandi where
adequate quantity of agri-wastes are available in order to ensure supply of raw-material to these units
at a reasonable rate.

In India, vermicomposting technology has gained acceptance among farmers and entrepreneurs in
states like, Kerala, Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra, Gujarat and Madhya
Pradesh. The number of commercial units manufacturing vermicompost is quite limited even in these
states which could. be developed under the present business model.

Vermicomposting also has a significant potential for upscaling in states like Bihar, -Uttar Pradesh,
Haryana, Rajasthan and Punjab where animal husbandry is quite popular.
3.3 UPNRM case example
The project idea is based on a model developed by an NGO called Nilagiri Foundation (NF) in Guntur district of
the State of Andhra Pradesh (AP). NF has developed vermicomposting model under a project titled "Promotion
of Integrated Vermicomposting Residue Free Agriculture in Guntur District" supported by NABARD and GIZ. This
model supports the farmers in 22 villages of the Mangalgiri Mandal of Guntur district of AP. It has facilitated the
promotion of over 50 vermicompost units in 50 villages across 7 development blocks with the engagement of
over 250 farmers in production of organic chilli, turmeric, vegetables and other cash crops. The key highlights of
the model are as follows:

• Integrated vermicomposting units and bio-dynamic usage (Panchagavya and herbal extraction)
demonstrated
• across the project area to support the organic farming.
• Currently 50 enterprises have been established with a capacity of 4500 Tonnes Per Annum (TPA)
vermicompost
• The aggregated revenue of these enterprises is said to be INR 2.02 crores per annum.
• Critical facilities such as bin-manure processing, testing lab, farm yard facilities, weighing bridge and
vermicompost pits have been set up to support agribusiness-organic cultivation.
• As an estimation, approximately 13,500 MT of agriculture, horticulture and vegetable waste is being
processed into vermicompost in the project area which has been impacting the economic development
and sanitation at the local level.
• The process of vermicomposting bio-manure and production of residue free organic crops through
Farmer Producer Companies (FPC) has been institutionalised with proper development backward and
forward linkages.

3.4 Business model with flow chart representation

The proposed business model envisages that a facilitating agency (preferably an NGO) can provide support in
mobilisation of farmers into FIGs and later collectivise them in the form of an FPO.
The FPO could obtain a loan (along with grand subsidy if applicable) from NABARD/NABARD's subsidiary or
commercial banks for establishing necessary infrastructure for aggregation, storage, packaging and marketing of
vermicompost. For the purpose of meeting the operational costs of processing center as well as for meeting
working capital requirements for purchase of farmer produce, the FPO could also take a working capital loan.

7
The NGO or the FPO can also channelize loans for the farmers who take up commercial vermicomposting
(through banks) for setting up the production facilities. Convergence with government departments
would also be facilitated in order to get the benefits of existing grants and subsidies for the farmers.
The FPO is also required to build capacities of farmers in organic cultivation and also assist them in third.
Party organic certification and Participatory Guarantee Scheme (PGS). FPO and FIGs are also expected to
provide raw- material to the vermicompost units. The farmers entrepreneurs would require loan for
capital costs and for purchase of raw material
Subsequently, the FPO would purchase the produce from the farmers and market the same thereby
ensuring
sustainable demand to the farmers while also generating better returns for the farmers. It is
envisaged that the FPO would not only be able to meet its operating costs but also be able to
generate surplus revenues.

The following flow chart represents the role of various institutions within the business model and
also depicts the flow of inputs and outputs.

Figure 1: Diagrammatic representation of the proposed business model

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__________________04
IMPACTS AND
SUSTAINABILITY
4.1 Impacts-Social, Economic and Environmental

Social impacts

a. Improved village hygiene and sanitation condition due to collection and processing of waste and cow dung.
Vermicomposting needs to be introduced in every village and municipality for recycling of the waste.

b. Vermicomposting technology is comparatively cheaper, eco-friendly and enhances soil health which will have a positive
impact on human health, flora and fauna.

c. Vermicomposting is beneficial for sustainable agriculture production and animal husbandry.

d. Increased participation of women in other micro-enterprises such as poultry, fisheries and piggeries due to availability
of surplus earthworm as protein rich feed.

e. Vermicomposting/vermiculture production unit is a highly viable cottage industry in rural India.

Economic impacts

a. Vermicomposting is directly associated with National Programme for Organic Production (NPOP) which aims to promote
organic cultivation in the country. The program will enhance the living standard of small and marginal farming
communities due to higher price realisation by organically produced crops.

b. Processing of significant quantity of biodegradable waste will have several economic benefits for the farmers, industries
and for the national economy a whole.

c. Vermicomposting will generate employment at the local level by engaging youth in production, extension and
distribution services in vermicomposting sector.

d. Through promotion of vermicomposting even women, poor households and landless families will be benefited by
getting engaged in production of vermicomposting either directly or indirectly as suppliers of raw materials for the
units.

e. Vermicompost, bio-dynamic and biological inputs, prepared locally, will reduce the cost of production as farmers do not
have to buy the inputs from external source in the case of conventional farming system.

Environmental impacts

a. Vermicompost is essential input for organic farming which will reduce or prevent the deterioration of soil health and in
the long run it will ensure sustainable crop production.

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b. Vermicomposting could aid in building climate resilience in agriculture sector.

4.2 Mainstreaming options

The model, discussed above, is aptly suitable for replication across rural India and also in certain municipalities where organic

waste disposal poses a challenge. The interested stakeholders may be taken for an exposure to the project of NF in
Guntur district of AP. part of expansion or replication of the model.

Wide publicity for raising awareness and education among the stakeholders is required and perhaps specific tools may be
developed used for such purpose.

Also, detailed end market assessment of emerging vermicompost sector is the need of the hour which will be helpful to
understand the challenges and opportunities in the sector.

4.3 Climate resilience or adaptability of the model

Climate change and climate variability are a major concern for farmers across the country. Change in duration and intensity
of rainfall, prolonged dry spells, increase in temperatures, increase in insect and pest attacks are some of the most visible
impacts in climate change that have a profound impact upon agriculture productivity.

Organic cultivation is expected to enhance resilience in farming systems by soil nutrients, higher soil moisture, reducing soil
salinity and also building the resilience of crops against insect and pest attacks.

However, for popularisation of organic cultivation it is essential that organic compost is available in sufficient quantities. The
promotion of vermicomposting is therefore expected to boost organic cultivation. In fact, vermicompost has been found to
be effective in enriching the soils, requires less irrigation as compared to inorganic cultivation. It also helps to reduce insect
and pest attacks.

4.4 Sustainability
A study of the vermicomposting model promoted by NF indicates that the model would easily attain sustainability within a
period of 2-3 years. For the sustainability of the model a strong supply chain, efficient production related infrastructure and
institutionalisation, in the form of FPOs, is envisaged. Key contributory factors, in terms of sustainability, of this model would
be as follows:

• Facilitating agency to provide initial facilitation, startup and handholding support including designing SOPs and
reference materials.

• Managerial and technical capacity building exercises to be conducted for FIGS and FPOs covering all aspects of
enterprises development viz. governance, business planning and financial management.

• Enabling farmers to act across the supply chain management.

• FIGS to be linked with banks in order to provide the bank loans to the farmers.

• Convergence with ongoing central and state sponsored government scheme(s).

• FPOs to be capacitated in developing market linkages-distribution network, conducting the negotiation on advantage
terms and also to analyse the market on routine basis.

• As part of sustainability, FPOs to be capacitated to develop strong financial, inventory, dispatch, sales and recovery
system.
• FPOs / Facilitating Agency to explore the possibility of insurance to the vermicompost units.

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__________________05
FINANCIAL DETAILS
5.1 Scope of financing and subsidy
FPO will require capital assistance (for equipment) to the tune of INR 27.30 lakh and working capital
assistance to the tune of INR 125 to 150 lakh. The working capital requirement would be met through
loans primarily, from NABARD and other banks while capital costs would be met partially through loans
and partially through grant assistance. The different existing schemes would be looked at in term of
leveraging subsidy/grant assistance.

FIG can either start vermicomposting production units collectively or they can select the entrepreneur(s)
to set up the production unit(s) as the case may be. However, in both the cases the financial assistance
would be required in the form of loan for setting up the infrastructure and also to purchase the raw
materials (cow dung and organic waste) from the farmers associated with the FIGS or from the FPO. In
case, the raw material is procured by the FPO, the FPO can provide raw-material to the
farmers/entrepreneurs and adjust its cost against the vermicompost supplied by the
farmers/entrepreneurs thereby reducing the loan requirements of the farmers/entrepreneurs.

Government has provisioned financial to farmers through State Governments for adopting organic
farming, under various central sector schemes like National Mission for Sustainable Agriculture (NMSA),
Mission for Integrated Development of Horticulture (MIDH), National Food Security Mission (NFSM) and
Rashtriya Krishi Vikas Yojana (ROY). Under these schemes farmers can avail subsidy/grant assistance to
set up vermicompost units. Some of the provisions, under these schemes, are as follows:

MIDH: MIDH provides financial assistance to the farmers up to 50 per cent of the cost of vermicompost units.
However, the is subject to a maximum of INR 50,000 per beneficiary for a unit of the size of 30' X 8' X 2.5'. For
smaller units assistance is provided on pro-rata basis. For HDPE (high-density polyethylene) vermi beds of 96
cft, assistance is available up to 50 per cent subject to maximum of INR 8000 per bed.
PKVY: PKVN is being implemented since 2015-16 in the country. Under this scheme, assistance is given
to the farmers to the tune of INR 5000 per unit for procurement of earth worms, construction of pits,
meeting out labor charges and procurement of other raw materials.

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Small Farmers Agribusiness Consortium (SFAC) Scheme: SFAC supports the FPOs by extending the loan guarantee
and equity capital support schemes: The following two schemes of SFAC would be helpful for the FPOs to leverage
the loan from banks:

a. Loan/ equity guarantee cover scheme Loans to Producer Organisations (POs)/FPOs/ FPCs under credit
guarantee cover. Under this scheme FPOs can get term loan and/ or working capital loan. However, to
be eligible to get the loan, the FPO must be 1 to 2 years old having audited balance sheet for at least one
year and a minimum share capital of INR 3 lakh. The rate of interest is charged as per the NABARD
refinancing rate. The loan is given up to 6 times of the net worth of FPOs or INR 1 Cr whichever is less.
b. Equity Grant Fund Support to FPCs The Equity Grant Fund enables eligible FPCs to receive a grant
equivalent in amount to the equity contribution of their shareholder in the FPC, thus enhancing the
overall capital base of the FPC. The Scheme shall address nascent and emerging FPCs, which have paid
up not exceeding INR 30 lakh as on the date of application.

NABKISAN's support to newly formed FPOs: There is provision for the loans to emerging/nascent POs which are not
in a position to provide collaterals. However, funding to such FPOs up to INR 50 lakh in the form of loan which
depends purely on the merits and prospects of their business plan.

NMSA: NSMA aims at improving soil health management, country wide. Thus the scheme provides 50 per cent
financial assistance of the total cost, for setting up vermicomposting units subject to a limit of INR 5000 per hectare
and INR 10,000 per beneficiary.

NABARD support {(Capital Investment Subsidy Scheme-Commercial Production of Organic Inputs under National
project for Organic Farming (NPOF)}: Financial up to 33 per cent of the total financial outlay, subject to a maximum
ceiling of INR 63 lakh per individual/private agency as back-ended subsidy can be availed from NABARD. Also 25 per
cent financial assistance of total financial outlay, subject to a ceiling of INR 40 lakh to individuals/private agencies
as back-ended subsidy through NABARD is given for setting up bio-fertiliser units. It is to be noted that financial
assistance is proportionate to the size of the units and production capacity i.e. TPA.

It is being proposed that financial may be sought partially as grant assistance from PKVY, RKVN, MIDH, PGS and from
NABARD and partially from banks as loan. One of the key roles of FPOs would be to assist the FIGS to seek the
convergence under the various schemes meant for promoting vermicomposting.

5.2 Cost Economics

5.2.1 Cost-benefit for farmers

The following tables provide details of the expected cost of production and the expected revenue for individual
farmers engaged in vermicompost production.
Table 3: Cost-benefit for individual farmers engaged in vermicompost production
S. No Particulars Units Quantity Cost Year 1 Year 2 Year 3 Year 4 Year 5
/ Nos. (Rs.)

A Capital Costs
A.1 Construction of work-shed
1 Hardware items, L/S 1 6000 0 0 0 0
construction as well
as labour cost

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 Sub-total (A.1) 60000
A.2 Machinery and equipment
2 Tools, equipment, L/S 30000 0 0 0 0
bore well and
weighing scale
Sub-total (A.2) 30000
Total Capital cost (A.1+A.2) 90000 0 0 0 0
B Recurring Costs
3 Lease of land for Per 20000 21000 22050 23153 24310
setting up unit annu
m
4 Electricity and other Per 5000 5250 5513 5788 6078
miscellaneous annu
expenses m
5 Seed earthworm 5000 5250 5513 5788 6078
6 Cost of Tonnes 180 700 126000 132300 138915 145861 153154
procurement of
Slurry/ dung/waste
7 Labour Cost Per 90 400 36000 37800 39690 41675 43758
tonne
8 Packing materials Nos. 180 50 9000 9450 9923 10410 10940
9 Other handling Per 90 110 9900 10395 19915 11460 12034
charges tonne
C Other charges
10 Insurance 1/S 2500 2500 2500 2500 2500
11 Interest on loan Per 12 per 14400 12108 9541 6666 3446
annum cent
Total recurring casts 227800 221445 232517 244143 256350
Total cost - Capital 317800 221445 232517 244143 256350
and recurring
D Income from vermicomposting
12 Sale of Tonnes 90 3500 315000 330750 347288 364652 382884
vermicompost
Total revenue 315000 330750 347288 364652 382884
13 Net returns (C-D) 87200 109305 114770 120509 126534

Assumptions

• Part of the capital costs may be sourced from the ongoing schemes of Government — MIDH, PKVY and similar schemes.
NABARD assistance may also be utilised. The above calculations factor in 6 production batches with a production capacity of
15 tonnes in each batch.
• The raw materials i.e. cow dung and bio-waste, would be procured from the FPO as well as from the FIGs and other farmers
at a cost of about INR 700 per tonnes.
• Based on the model of NF, the vermicompost entrepreneur is obtaining the land on lease and the cost of lease is
• included in the above calculations. However, in case the farmer has own land then the cost of land
lease would be reduced.
• The vermicompost entrepreneur would obtain loan for meeting capital costs and for one-fourth of cost of procurement of
raw material. This loan would be facilitated by the FPO/NGO. Moreover, the FPO may provide raw material on credit and
adjust its cost against the vermicompost supplied by the entrepreneur.
• Each year price inflation of 5 per cent in production costs has been factored in.
• It is essential for the farmers/entrepreneurs to obtain adequate quantities of suitable species of earthworm. For selection of
earthworm expert advice may be sought.

13
Economic analysis

It is evident from the table below that under the proposed business model the farmers are able to get a return of around
INR 1 lakh (excluding capital costs) to INR 1.25 lath each year. The benefit cost ratio for an individual farmer is calculated
to be 1.33.

Table 4: Economic analysis of vermicomposting

Particulars Amount in
INR Lakh
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Capital cost 919000 0 0 0 0

Recurring cost 227B00 221445 232517 244143 256350

Total cost 3171300 221445 232517 244143 250350 1272250

Total benefits 315100 330750 347288 364652 3828134 1740574

Net benefits -21300 109305 114770 120509 126534 468314

Net present worth of cost S15 per 863951

cent
Net present worth of benefits 015 1151487
per cent
Benefit Cost Ratio 1.33

LOANS

It is envisaged that the vermicompost unit operators would require loan to meet their capital costs for setting up their
units as well as working capital to meet part of the cost of production of raw-materials. Although it is expected that part of
their capital casts would be met from grants/subsidies of the government while part of raw-materials could be provided by
the FPO on credit. The repayment of loan is projected from the 2' year onwards.

Table 5: Loan repayment schedule for farmers

Loan INR in Lakh
Y1 Y2 Y3 Y4 Y5 Y6
Capital cost and working capital 120000 0 0 0 0 0
Repayment 0 33500 33500 33500 33500 32191
Interest on capital Loan (Diminishing) 12 % per cent 14400 12108 9541 6966 3446 0
per annum

Total loan outstanding 134400 113008 89049 62215 32161 0

14
5.2.2 Cost-benefit for FPOs
Details of cost-benefit of FPO engaged in marketing of vermicompost is provided in the table below.

Table 6: Cost-benefits for FPO engaged in marketing of vermicompost (80 units)

S. No Particulars Unit Quantity Cost INR in Lakh
(Rs.)
Year 1 Year 2 Year 3 Year 4 Year 5
A. 1 Capital Cost
1.1 Storage (transit Sq. ft 1500 700 10.5 0 0 0 0
storage) cum office
1.2 Office equipments Lumpsurn 1 150000 1.5 0 0 0
(weighing machines,
chairs, table, shelf,
desktop computer,
printer etc.)
1.3 Packing machine Nos 1 30000 0.3
1.4 Purchase of vehicle Nos 1 1500000 15 11 0 0 0
for transportation
Total capital cost 27.3 0 0 0 0
A.2 Recurring cost
2.1 Capacity building of Nos 50 2500 1.25 1.31 1.38 10 0
farmers on
vermicomposting
techniques for 3
years
2.2 Procurement of Tonnes 7200 3510 252 264.6 277.83 291.72 306.31
vermicompost from
farmers (80 farmers)
2.3 Packaging and Tonnes 7200 1000 72 75 79.38 8135 87.52
marketing costs
(including
transportation,
loading, unloading,
weighing and storage)
2.4 Staff, travel and Month 12 1000110 12 12.6 13.23 13.89 14.59
administration costs
2.5 Sales promotion Lurnpsurn 103000 1 1.05 1.1 1.16 1.22
2.6 Interest on loan for Half 7.5 7.5 9 9 9
working capital (12 yearly
per cent)
2.7 Interest on loan for Per 3.28 2.47 1.57 0.55 0
capital cost per cent) annum
Total recurring cast 349.03 365.13 383.49 399.67 410.63
Total cost - capital and 376.33 365.13 383.49 359.67 4113.63
recurring
A3 Income/ Benefits
3.1 Sale of vermicompost Tonnes 64811 5900 382.32 401.44 421.51 442.58 464.71
Total revenue 382.32 401.44 421.51 442.58 464.71

ASSUMPTIONS

 The above analysis assumes that the FPO is aggregating and marketing vermicompost with SO farmers/ entrepreneurs
who have set up vermicompost manufacturing units.
 The available subsidy from various sources has not been factored in this model which has been prepared on the basis
of maximum cost in order to assess economic viability
 The storage infrastructure will be made of low-cost materials.
 Loan will be obtained for INR 1.25 crores during the first year as working capital for procurement of produce from the
farmers while from the third year a loan of INR 1.50 crores would be required. The working capital is calculated as 50

15
 per cent of the total cost of procurement of produce. The working capital loan would be taken for about 6 months
each harvesting season.
 A loan of INR 0.27 crores would be obtained for meeting the capital costs.
 An increment of 5 per cent each year in all costs and revenues for price escalation has been factored in. The staff of FPO
will coordinate the entire business operation.
 The FPO could also provide raw-material to the farmers (on loan basis) and adjust the cost of raw-material against
the vermicompost procured from the farmers.
 The above calculations assume a loss of 10 per cent in transportation and packing of vermicompost.
Economic Analysis

Loans

It is evident from the table below that under the proposed business model, the FPO is expected to start generating
surplus from the first year onwards (excluding capital costs) and by the 5d. year the FPO would be able to generate a net
revenue of more than INR 40 /Lakh. The benefit cost ratio is calculated to be 1.08.

Table 7: Economic analysis of operations of FPO

Particulars Amount in INR Lakh
year 1 year 2 year 3 year 4 year 5 Total
Capital cost 27 0 0 0 0 0
Recurring cost 349 365 363 400 419
Total cost 376 365 383 400 419 1943
Total benefits 382 401 422 443 455 2113
Net benefits 6 36 38 43 46 169
Net present worth of cost @ 15 per cent 1292
Net present worth of benefits @ 15 per cent 1398
Benefit Cost Ratio 1

LOANS

It is envisaged that for this business model the FPO would require a loan of INR 27.301101 for capital expenditure and a
working capital loan of INR 125 to INR 150 lakh for meeting the working capital requirements for procurement of
vermicompost. Working capital would be required for 6 months each year.

Table 8: Working capital loan for FPO

Working Capital loan INR in Lakh
Year 1 Year 2 Year 3 Year 4 Year 5
Yearly Working Capital Requirement 125 125 150 150 150
Repayment 125 125 150 150 150
Interest on net working capital Loan (Diminishing) @ 12 per cent per 7.5 7.5 9 9 9
annum

16
The repayment of loan for capital expenditure would be initiated from second year onwards and in is
expected to be repaid over a period of 5 years.

Table 9: Capital expenditure loan for FPO

Capital expenditure loan INR in Lakh
Year 1 Year 2 Year 3 Year 4 Year 5 Year 5
Capital expenditure 27.3 13 0.11 11 0
Repayment 0 10 10 10 5.16
Interest on capital loan (Diminishing) 328 2.47 1.57 0.55 0
@12 per cent per annum

Total loan outstanding 30.58 23_05 14.61 5.18 0

Disclaimer
The views expressed in this model project are advisory in nature. NABARD
assumes no financial liability for anyone using this project report for any purpose.
The actual costs and returns will have to be taken on a case by case basis
considering the specific requirements of projects

17
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