Rural Returns - Market Solutions for Rural Poverty

Rural Returns - Market Solutions for Rural Poverty

Sri Lanka
Organization type: 
nonprofit/ngo/citizen sector
Budget: 
$100,000 - $250,000
Project Summary
Elevator Pitch

Concise Summary: Help us pitch this solution! Provide an explanation within 3-4 short sentences.

We help rural communities achieve higher incomes & invest in community-led development by helping smallholder farmers identify & develop unique, market-oriented products & connect them through non-exploitative value chains to stable markets paying fair prices.

Our first products are Heirloom Sri Lankan rices unique for their tastes, colors, aromas, nutrition - & histories

About You
Organization:
Rural Returns (Guarantee) Limited
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Section 1: About You
First Name

Chari

Last Name

Ratwatte

Country

, WE

Section 2: About Your Organization
Is your initiative connected to an established organization?

Yes

Organization Name

Rural Returns (Guarantee) Limited

Organization Phone

+94 77 7352240

Organization Address

C/O Sri Lanka Business Development Center, "Sayuru Sevana," North Wing, Level 2, 46/12 Navam Mawatha, Colombo 2

Organization Country

, WE

How long has this organization been operating?

Less than a year

Your idea
Country your work focuses on
Innovation
What makes your innovation unique?

75% of the world’s poorest people live in rural areas. Sri Lanka's rural population stands at 80%, and the rice industry encompasses almost all of them. Rural Returns' first product is Heirloom Sri Lankan rice, which addresses a rapidly growing consumer interest in the U.S. and other developed-country markets. We are working with farming communities and local partners to coordinate the supply of heirloom rice to target such markets. We are bringing the Market in - creating and proving a market and inviting competition into the space we create.

Flipping Disadvantage into Comparative Advantage:
We are helping farmers in areas unsuited for commodity crops, turn to more profitable varieties to increase incomes and avoid a glut in commodity production. Sri Lanka was at local food security for the past decade BEFORE the end of the conflict that kept almost 20% of paddy lands offline. With a return to full cultivation, the country needs to avoid a glut of commodity rice; while those farmers who would cause the glut and STILL lose money because of under-production on ill-suited lands, need an alternative that will let them keep their lands, stick to the crops they know, but finally break through to profitability.

A Golden Chance to Entrench Peace and Prosperity:
The lands not cultivated during the 30-year conflict are inherently organic. They represent a once-in-a-lifetime opportunity to enable those communities returning to their lands to immediately switch to a cash crop that can massively increase incomes from the very first peace-time harvest

Do you have a patent for this idea?

Impact
Tell us about the social impact of your innovation. Please include both numbers and stories as evidence of this impact

We have calculated a 9x Social Return on Investment (SROI) without accounting for social returns that we cannot yet quantify pending further research.

When priced at $3.20 per pound of rice, $1.09 of that price will have a direct social return.

Among the benefits harder to quantify over a short term, Rural Returns will in its first and second year benefit 135 farmers and their families, directly moving an estimated 520 people permanently above the poverty line. Extending this dividend to all of Sri Lanka’s farming communities could help prevent the causes of as many as 1800 suicide attempts a year - a chronic problem in agricultural areas where the seasonal nature and inherent riskiness of agriculture takes a heavy toll on families.

In quantifiable dollar figures, Rural Returns will afford farmers’ families additional revenues of over $3 million over five years, guaranteed to yield significant secondary benefits in health, education and community welfare.

Farmers will in addition receive proper remuneration for their own labor, worth more than another $22,000. Milling and other ancillary activities supported by a rejuvenated industry will inject another $340,000 while direct additional farm labor will be worth $24,000. The government will save between $133,000 and $171,000 in subsidies thanks to our farmers switching to organic farming.

Rural Returns' Sri Lankan Heirloom rices are naturally Gluten-free and lower in carbohydrates and higher in proteins, fiber and iron. In the U.S., Rural Returns products, in their modest volumes, price-pegged to mid-range market prices, will save U.S. Celiac Disease sufferers more than $44,000 over buying premium gluten-free foods, and will save U.S. diabetics over $1 million over buying premium foods with a low Glycemic Index.

Other major presently un-quantified benefits include potentially massive savings in water usage and corresponding methane emissions when cultivation is performed under the sustainable SRI method.

Finally, Rural Returns would have also helped the sustainable preservation of an ancient, environmentally sound way of life, and prevented the complete disappearance of valuable, exotic varieties of rice.

Problem: Describe the primary problem(s) that your innovation is addressing

Rural communities are trapped by bad policies and weak markets.

Despite a 30-year conflict that took 20% of paddy lands offline, just 5 of Sri Lanka's 25 districts fulfilled the country's food security needs in the last decade. Yet rice is grown in almost every district, due to a complex mix of tradition, distortionary incentives, and outdated policies.

With a return to peace and all signs of a bumper crop in the “Yala” 2010 season, the commodity rice industry appears set for a disastrous glut.

Holdover regulations from a time preoccupied with food security forbid farmers to utilize their lands for other crops, or non-agricultural uses. Even when the entire exercise is unprofitable, farmers must "use or lose" their lands for active paddy cultivation.

Farming was once a noble calling. Those who own paddy lands try to hold on to their heritage, under-utilizing their lands, eating most of their inefficient production, and dumping the remainder on the market, further distorting prices.

Successive governments have competed for rural votes - 80% of the population – with short-sighted welfare and subsidies. At peak oil prices, fertilizer subsidies - up to 95% of real value - cost 1% of GDP, compared to 1.2% of GDP generated by paddy. Paddy farming has become a part-time activity where farmers over-apply subsidized fertilizer and pesticides to substitute for their neglect. Banks currying political favor offer loans tailored to rural farmers - only for politicians to legislate away such debts, leading to a culture of financial irresponsibility.

Actions: Describe the steps that you are taking to make your innovation a success. Include a description of the business model. What might prevent that success?

Rural Returns' Managing Director returned to Sri Lanka upon graduating from Stanford Business School, to create a learning organization immersed in the society and economy where it is starting its work. This involved meeting and learning from people from the grassroots up to the highest positions in public, academic and private-sector organizations in areas related to Rural Returns' work.

Having developed an understanding of the context, and sensitivity to stakeholders' motivations and concerns, Rural Returns both refined its top-level defining model, and developed an operational model for its foray into the Sri Lankan Heirloom Rice industry.

Rural Returns' top-level model consists of 1) Identifying rural communities’ sustainable comparative advantages in creating differentiated products with global market potential; 2) Reorganizing value chains to return a greater share of total profits to producers; 3) Developing an umbrella brand to help market exotic products from rural communities around the world; and, 4) Enabling communities to determine – and fund – their own development agendas.

After researching the Sri Lankan rice industry, Rural Returns developed its value chain model through an iterative process of learning and improving. The model conceptually consists of three layers representing the flow of milled rice from farmer communities, to packagers contracted for their high-quality processing abilities, and finally to Rural Returns which assumes financial responsibility for executing sales.

In actual execution Rural Returns' influence extends significantly up to the preceding layers. This influence includes the actual impetus and incentives for farmer groups to self-organize and understand their responsibilities and privileges in a market-driven environment. It also means that Rural Returns is highly involved in capacity-building, including training, financial assistance and support in approaching other organizations.

We just completed a full run-through of our value chain, where a partner community milled and packaged our first batch of rice shipped to the U.S. By using this step to shake out unforeseen issues we are now better placed to commence commercial shipments from farmgate to fork with the coming harvest.

Our biggest challenge is the highly geared balance between supply and demand. This requires planning and close coordination between both ends. Having made out first formal sale, we are more confident that we are able to create a market solution to rural poverty.

Results: Describe the expected results of these actions over the next three years. Please address each year separately, if possible

Year One (2010): By Sept '10 (end of 2010 "Yala" season), ship rice from 135 farming families as first full commercial shipment (up to 116 tons) to U.S. Already completed initial shipment (750Kg). Finalize funding proposal to enable partner community to construct medium-scale commercial mill solely for heirloom rice. Commence planting for 2010/2011 "Maha" season with 135 existing farming families and new communities added to pipeline during 2010.

Year Two (2011): Harvest 2010/2011 "Maha" season's crop. Add more communities through virtuous circle of demonstrated success and financial benefit. Increase production as well as varieties and product portfolio (e.g. minimally processed products like red rice flour). Complete construction of partner community's medium-scale mill, commence operations.

year Three (2012): Rural Returns surpasses break-even point on internal operations, pays off debts and discontinues grant-seeking activities, sustaining overheads and expansion from internal surpluses. Expand into new markets, continue increasing partner communities and adding to pipeline. Begin adding non-rice products from existing partner communities and new partners.

How many people will your project serve annually?

101‐1000

What is the average monthly household income in your target community, in US Dollars?

Less than $50

Does your innovation seek to have an impact on public policy?

Yes

If your innovation seeks to impact public policy, how?

We seek to break rural communities' dependency on, and voting patterns in support of, welfare and subsidies. By empowering the rural voter - 80% of the total base - to think beyond his or her own short-term interests, we plan to change the balance of power in the political calculus, and bring in a new era of incentives for voters and politicians to rise above short-term thinking and break out of existing power dynamics.

By decoupling politics from fertilizer and pesticide subsidies, we will remove distortions and bad incentives that promote pollution, over-use of chemicals, and add to budgetary strains.

By bringing clarity to the issue of national food sufficiency and comparative advantage, we will emancipate farmers to preserve their heritage while finally becoming profitable again; and we will free policymakers and implementors from narrow-minded, once-size-fits-all regulations to imaginative and locally appropriate solutions.

Sustainability
What stage is your Social Enterprise in?

Operating for less than a year

Does your organization have a board of directors or an advisory board?

Yes

Does your organization have a non monetary partnerships with NGOs?

Yes

Does your organization have a non monetary partnerships with businesses?

Yes

Does your organization have a non monetary partnerships with government?

Yes

Please tell us more about how partnerships could be critical to the success of your Social Enterprise

We are a young organization, and one that is seeking an impact that is far greater than our most ambitious funding targets could achieve alone.

Our Board of Directors and Advisory Panel (see www.ruralreturns.org/about/board and www.ruralreturns.org/about/advisors) has been carefully selected to provide the business and policy acumen and oversight we need to succeed in our operations.

We work with local and international NGOs including scientific and policy research, academia, and grassroots implementors. This provides a multiplier effect to our effectiveness and reach. We could not access our partner communities, particularly in initial stages, without the access and credibility that such partners provide. Such partners also provide the expertise and experience in various areas needed for our partner communities' success.

We are fortunate to be supported by several private-sector organizations that have a strong interest in our success. They provide us access to their private research and resources, provide organizational support which greatly increases out impact, and provide us with the contacts to further our work.

Working with state organs is an absolute necessity to achieve lasting change in the long term, and to make any significant change in the short term. We consult regularly and in depth with government officials at many levels, and plan to use their expertise as well as provide them organizational support to multiply their own effectiveness in the areas in which we work, as well as nationally whenever possible.As a non-profit created with the public benefit in mind, we are commissioning and planning to commission research through state Research & Development organizations, which will enter the public domain and help create a new sector in the economy. We have also pledged to support research symposia to the same effect.

We would like to learn more about how your initiative is financially supported. Please explain your business plan/revenue model

Rural Returns is intended to be a fully self-supporting social business. By our projections, we need a pessimistic figure of US$500,000, or a more likely figure of US$300,000 to cover our total cash burn in the first 2 years of operation. From that point onwards Rural Returns will generate sufficient surpluses to cover overheads and fund further expansion.

In our first year we are being supported by the Stanford Center for Social Innovation (CSI), which made us one of the two very first organizations to receive its new Social Innovation Fellowship. This Fellowship is disbursed on a quarterly basis, upon review of quarterly goals set up and maintained in consultation with the CSI.

The Story
What was the defining moment that led you to this innovation?

In January '09 an idea that had been floating in my head crystallized into Rural Returns. Back home in Sri Lanka my great aunt, a foodie and lover of Sri Lankan heritage, had fed me some heirloom rice known as "Kalu Kumara," literally "Black Prince."

Later, while at Stanford, I would walk past coffee shops (I don't like coffee!) or walk through the aisles at supermarkets and notice the constant addition of highly differentiated, exotic products, particularly grains.

I left my job at an IT firm to go to Stanford with several possible career paths in mind. Poverty alleviation was one, which particularly resonated with me thanks to my father's involvement from as long as I could remember. I feel privileged to have been a part of his busman's holidays as our whole family visited the many projects in the remotest parts of our country.

In January '09, the Stanford Center for Social Innovation (CSI) announced its new Social Innovation Fellowship program. I was taking an elective called Social Entrepreneurship and the Social Entrepreneur, led by Rick Aubry who had also been the faculty advisor on our New Orleans Service Learning Trip the Spring before.

Rick's class allows us to nominate a social venture to assist by means of a class project, or even work on our own startup idea. It must have been on January 5th that I decided to really look hard at an idea I had written down in a journal I keep called "Crazy Ideas."

I say January 5th because I remember perfectly that, at a CSI information session on the 14th, I started my question to the panel, who had been working on their ideas for years (including Brian Lehnen of Village Enterprise Fund - 25 years - and Jessica Jackley of Kiva - several years), by noting how long they'd been at it and saying, "I've been working on my idea for nine days..." to delighted laughter by my classmates. The day before, I had "pitched" Rural Returns in Rick's class, inviting a few classmates to join my adventure; and so it began

Tell us about the person—the social innovator—behind this idea.

I don't know whether social innovators are born or made. All I know is that I come from a family that has been involved in philanthropy, volunteerism and national service for generations, but also that my experiences as a Scout and as a child, accompanying my father on his many busman's holidays, must have played as big a part in how I am wired.

I try never to do something halfway; it's better not to do something at all than not to give it everything you have. I am crazy about water polo, which has been a cruel mistress over the years, but the only sport (apart from swimming, which gets boring fast) that I've been any good at and which pushes me to my physical limits.

Scouting, apart from my family - and particularly my father - has been the biggest influence in my life. My Scout Leader, who continues to lead my high school's Scout Group, is a wonderful role model and gifted teacher. Scouting complemented and reinforced the lessons of service, leadership, respect, courage and volunteerism I see in my many family members who are or have been changemakers in their own ways.

Though I have been involved in many voluntary activities over the years, the time I got at Stanford Business School to reflect on my core values and motivations helped me realize that I was getting no younger; and that to be really happy, I should grasp social entrepreneurship with both hands as the way to "be the change" I wished to see in the world - a Ghandian phrase used by an aunt as her email signature.

Why start out on my own? No one would hire me! It was the worst of the economic slump; as an international student U.S. NGOs and firms were not even looking at me; as a career-switcher, the standard screening tactic of asking for five years' field experience left me nowhere in the running. I had wanted to get back to my home country, Sri Lanka, which I love fiercely and hated leaving, as soon as I could; and the call to service and action rang loudest from my home country.

How did you first hear about Changemakers?

College or university

If through another source, please provide the information