Organic Agriculture in the United Arab Emirates

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Introduction

This paper will provide a detailed business plan for establishing an agribusiness company. The company will focus on production of organic foodstuffs in the United Arab Emirates. The business plan will shed light on the business idea, the value proposition, and the technology that will be required to operate the business.

A detailed marketing plan that highlights the target customers and the marketing mix will also be discussed. In addition, the business plan will highlight the governance and management structure, as well as, the company’s financial projections.

The Business Idea

The business idea is to establish an agribusiness company that focuses on organic agriculture. Organic agriculture refers to “a production system that sustains the health of soils, ecosystems, and people.” It focuses on the use of farming techniques that promote sustainability by minimizing negative environmental effects.

The company will focus on producing organic vegetables and fruits in Abu Dhabi, UAE. The vegetables that will be produced include tomatoes, onions, cucumbers, and capsicum. The fruits will include mangoes, oranges, and strawberries.

The choice of Abu Dhabi is based on the fact that it has the largest population in the UAE. Thus, it is likely to have a high demand for organic foodstuffs. In addition, leasing land for farming in Abu Dhabi is cheaper than in other emirates.

Value Proposition

Production of organic fruits and vegetables is important due to the following reasons. First, organic fruits and vegetables will improve the health status of the residents of Abu Dhabi and the entire UAE. Lifestyle related diseases such as obesity and cancer are major health problems in the UAE.

In 2013, the rate of obesity in Abu Dhabi was 33%, whereas 13% of the deaths were caused by cancer. The high prevalence of obesity and cancer is partly attributed to consumption of processed and inorganic foodstuffs. Thus, the residents of the UAE are likely to consume organic fruits and vegetables because they have high nutritional value and insignificant pesticide residue. Moreover, organic vegetables such as tomatoes have high antioxidant capacities, which help in preventing cancer, coronary diseases, and rapid aging.

Second, “organic fruits and vegetables taste better than their inorganic counterparts.” Third, producing organic fruits and vegetables in Abu Dhabi will reduce the UAE’s reliance on imported foodstuffs. Imported fruits and vegetables often have negative health effects since the government has little control over their production. Furthermore, they are often exposed to contamination during transportation. Fourth, establishing an organic farm in Abu Dhabi will reduce the price of fruits and vegetables.

The prices will reduce due to the short distance to the target market, which will minimize operating costs. Finally, production of organic fruits and vegetables will promote sustainable agriculture in the UAE. The company will avoid using synthetic fertilizers and pesticides that often reduce soil quality.

Technical Model

Technology

The farm will use greenhouse and drip irrigation technologies to produce various organic fruits and vegetables. A greenhouse is a “structure in which plants are grown under controlled micro-environment.” The structure is made of transparent plastic materials, which facilitate controlled penetration of sunlight and reduce evaporation of water. Drip irrigation is a technique of supplying water evenly to all plants in a garden. The use of greenhouse and drip irrigation technologies will help in conserving water, which is very scarce in Abu Dhabi. They will also lead to high returns on investments by facilitating production throughout the year.

Farming Practices

The vegetables will be produced using organic fertilizers such as compost to prevent accumulation of synthetic chemicals in them. The farm will use pesticides that are manufactured using organic materials to control pests and other disease-causing pathogens. This will help in reducing pesticide residues in the fruits and vegetables. Weeds will be controlled using environmentally-generated plant-killing compounds.

In addition, the company will focus on producing different crops on the same piece of land to prevent soil degradation. These techniques will preserve soil quality and minimize accumulation of toxic chemicals in the vegetables.

Feasibility Study

There is adequate farmland in the rural areas of Abu Dhabi since most of the citizens live in the city. In addition, there are adequate roads that connect the farmlands to the markets in urban areas. Scientific research indicates that the land in Abu Dhabi is very fertile mainly because it has hardly been used for farming. Soil test results show that the soil has the right minerals and nutrients for growing various fruits and vegetables. Water with the right pH can be obtained from the reservoirs of the Municipality of Abu Dhabi City. However, it is more expensive than water from boreholes due to the pumping and recycling costs.

Budget

The costs associated with acquiring the technology and equipment that will be used in the farm are summarized in table 1. The costs are for the first year of operations.

Table 1

Item		Quantity	Cost per unit (AED)	Total (AED)
Land		5 acres	50,000 per year	250,000
Greenhouses	200m x 40m	2	10,758	21,516
	250m x 50m	3	13,500	40,500
	150m x 60m	2	8,250	16,500
Pesticides		25 liters	230	5,750
Seeds and seedlings	Tomatoes	30 kg	150	4,500
	Onions	20 kg	124	2,480
	Cucumbers	25 kg	85	2,125
	Capsicum	25 kg	86	2,150
	Oranges	15 kg	156	2,340
	Strawberries	10 kg	256	2,560
	Mangoes	15 kg	180	2,700
Fertilizer		4,000 kg	5	20,000
Farm equipment				16,000
Consultancy fee				12,000
Labor				50,000
Irrigation				65,000
Distribution				30,650
Marketing				25,000
Total				571,771

Business Model

The company will adopt a vertical integration business model. The core business activity of the company will be production of various organic fruits and vegetables. The company will be in charge of all farming activities to maintain high product quality standards.

However, it will collaborate with established retailers (supermarkets) to distribute the organic fruits and vegetables. This will involve negotiating for floor space within the supermarkets to sell the products. The company will retain and use its brand name rather than those of the retailers. The retailers will invest in the business by providing shelf and refrigeration facilities. In addition, they will employ the staff who will be in charge of sales within the stores.

The company, on the other hand, will be responsible for warehousing and transporting the organic fruits and vegetables from the farm to the stores. The retailers will be entitled to 10% of the gross annual sales as their compensation.

The benefit of this business model is that it will enable the company to focus on its core competence, which is production of organic fruits and vegetables. This will enable it to channel its scarce resources towards satisfaction of market needs through process and product innovation. Furthermore, partnering with established retailers will enable the company to get instant access to a huge customer base at a low cost.

Target Customers

The company will use geographic and psychographic segmentation to identify its customers. Geographic segmentation involves identifying customers by dividing the market into various geographical areas. The company will focus on serving the UAE market.

Specifically, it will focus on serving the urban populations that live in cities such as Dubai and Abu Dhabi. This segmentation strategy is informed by the fact that most of the retailers who will be distributing the products are based in urban rather than rural areas.

In the urban market, the company will target the working class due to two reasons.

First, the working class is associated with a sedentary lifestyle, which increases the risk of acquiring lifestyle-oriented diseases such as obesity. As a result, they are likely to purchase organic fruits and vegetables to prevent lifestyle-oriented diseases. Second, the working class has a high disposable income that will facilitate expenditure on organic fruits and vegetables.

Psychographic segmentation involves identifying the target market by taking into account customers’ lifestyles, education, and socio-economic status. In this case, the company will target customers who are aware of the health benefits of eating organic fruits and vegetables.

The company will also target customers who are interested in leading a healthy lifestyle. These include people who are already suffering from chronic diseases such as cancer and those who would like to avoid lifestyle-oriented diseases. Customers who are interested in adopting healthy lifestyles are likely to purchase locally produced vegetables and fruits because they are fresher than imported ones.

In addition, the company will target the affluent who are interested in consuming high quality organic fruits and vegetables to improve their health and to maintain their high social status in the society.

Marketing Plan

Market Description

The market for fruits and vegetables in the UAE consists of several products. The market is dominated by inorganic fruits and vegetables. These include imported fruits and vegetables that are produced using synthetic fertilizers and pesticides.

There are also genetically modified fruits and vegetables in the market. The inorganic and the genetically modified fruits and vegetables are cheaper than their organic counterparts. Most consumers are not able to differentiate between organic and genetically modified fruits and vegetables. However, the popularity of organic fruits and vegetables is increasing in urban areas due to health campaigns that promote eating of healthy foodstuffs.

Product Review

The fruits and vegetables that will be sold by the company have two main features. First, their pesticide residue levels will be less than 0.05%. Second, chemicals will not be used to preserve the fruits and vegetables. They will be made available in the stores within 6 hours after harvesting to maintain the highest level of freshness.

SWOT Analysis of the Products

The main strength of organic fruits and vegetables is that they have a superior quality in terms of taste and nutritional value. Moreover, production of organic fruits and vegetables is a form of corporate social responsibility that promotes conservation of the environment and improvement of public health. The main weakness of organic fruits and vegetables is that they are very expensive due to the high cost of producing them. Moreover, they have a shorter shelf life than inorganic and genetically modified fruits and vegetables.

The main opportunity that is available to organic fruits and vegetables is that their market is growing rapidly in the UAE due to their health benefits. Moreover, increased regulation of production of genetically modified fruits and vegetables will increase the demand for organic foodstuffs.

The threats facing the products include limited shelf space and high competition. The dominant retailers have their own groceries that stock inorganic foodstuffs rather organic fruits and vegetables. Moreover, the low-income earners opt for inorganic foodstuffs, which have low prices.

Objectives and Issues

In the first year, the first objective will be to gain a market share of 6%. The second objective will be to achieve AED 800,000 in sales. In the second year, the first objective will be to increase market share by 8%. The second objective will be to increase brand awareness by 10%. The last objective will be to increase sales by 16%.

At the launch of the company and its products, the main issue will be to create brand awareness in order to attract customers. The company will utilize its promotional activities to create brand awareness. Another major issue will be to negotiate distribution agreements with retailers who have nationwide branch networks.

Marketing Strategy: Marketing Mix

The fruits and vegetables will be positioned based on the ‘healthy living’ value proposition. This will facilitate differentiation based on nutritional value and health benefits. Marketing initiatives will focus on highlighting the health benefits of organic fruits and vegetables to reinforce the premium positioning strategy.

The product strategy will focus on using organic inputs to produce the fruits and vegetables. This will ensure that the products have high quality and nutritional value. Additionally, the products will be sold as fresh produce to preserve their natural taste and appeal.

In the first year of market entry, the company will adopt the penetration pricing strategy to gain market share. This will involve selling the products at a low price in order to attract customers. The resulting increase in sales will increase the market share and profits in the long-term.

Distribution will be done by retailers who have nationwide branch networks. The company intends to collaborate with at least two major supermarkets that are interested in operating their groceries in collaboration with an organic foods producer.

Marketing communications initiatives will focus on using print and electronic media to advertise the products. Facebook, Twitter, and Google+ will be used to create buzz among customers about the brand. The main objective of the advertising campaigns will be to create brand awareness. Public relations will be used to create brand credibility by influencing the public to develop a positive attitude towards organic fruits and vegetables.

Breakeven Analysis

The objective of the business is to breakeven in the fourth quarter of the first year. Assuming a fixed cost of AED 459,205 in the first year, an average variable cost of AED 0.05/ kg, average retail revenue of AED15/ kg, and equal production volume for each product category, breakeven can be calculated as:

This means that the company must sell at least 30,716.05 kilograms of its products in order to breakeven.

Governance and Management Structure

The company will operate as a private corporation that will be registered in Abu Dhabi. It will have a hierarchical organizational structure with a few management levels. The board will consist of three directors who will be in charge of developing the company’s strategy and supervising the management.

The day-to-day activities of the company will be run by the CEO. The CEO will report to the board of directors. The executive management will consist of the CEO, operations manager, marketing manager, farm manager, and finance manager. The managers will report to the CEO. The management will be responsible for implementing the company’s strategies and supervising the employees.

Competition and Survival Strategy

Main Competitors

There are numerous small-scale producers of organic vegetables and fruits in the UAE. The small-scale producers normally sell directly to customers in their local communities. Al Dahra and Greenheart UAE are the main producers of organic fruits and vegetables in the industry.

Al Dahra has over two decades of experience in the industry and a nationwide distribution network. This makes it the main player in the industry. Apart from local producers, the top 4 largest retailers in the UAE import and distribute a wide range of organic fruits and vegetables.

The retailers include Carrefour, Lulu, Choithram &Sons, and Spinneys-Dubai. These firms have huge financial resources to expand their capacities. Moreover, they control the distribution channel. Overall, the most significant competitive threat comes from the retailers and Al Dahra.

Managing Growth and Innovation

The company will focus on organic expansion and joint ventures to increase its capacity. After establishing a strong brand image in the market, the company will focus on improving its brand visibility.

This will involve opening its retail outlets in Abu Dhabi in the third year of market entry to reduce dependence on retailers’ distribution channels. In the next five years, the company will establish three outlets in Abu Dhabi and two in Dubai.

It will also sign distribution agreements with at least two more retailers. Moreover, it will extend its product line by introducing more fruits and vegetables.

The company will embark on research and development in partnership with local universities to achieve product and process innovation.

The research will focus on developing effective and efficient organic farming techniques to improve the quality of the products and to reduce production costs. In the next ten years, the company will focus on value addition by producing fresh fruit juice to increase its revenue.

Financial Model

Projected Profit and Loss Account for the First Three Years

		1^st year (AED)	2^nd year (AED)	3^rd year (AED)
	Total revenue	800,000	928,000	1,076,480
Less	Cost of sales	159,605	185,142	214,765
	Gross profit	640,395	742,858	861,715
	Expenses
	Accounting and legal fees	8,500	8,500	9,000
	Consultancy fees	12,000	12,500	13,000
	Marketing	25,000	32,000	40,000
	Electricity	8,500	9,000	10,000
	Insurance	13,600	13,600	14,000
	Salaries and wages	50,000	52,500	55,000
	Administrative expenses	35,000	36,000	38,000
	Farm expenses	60,605	72,000	90,000
	Distribution	10,650	13,200	15,000
	Establishment	328,516	250,000	250,000
	Miscellaneous	5,000	3,000	2,000
	Depreciation	1,000	2,000	3,000
Less	Total expenses	558,371	504,300	533,000
	Profit before tax	82,024	238,558	322,715

The company expects to make a profit of AED 82,024 in the first year. In the second and the third year, the company expects a profit of AED 238,558 and AED 322,715 respectively.

Balance Sheet

	Beginning as at Sep. 01 2014 (AED)	Projected as at Sep. 01 2015 (AED)	Projected as at Sep. 01 2016 (AED)
Assets
Current assets
Cash in bank	700,000	93,000	89,900
Accounts receivable	0	300,000	400,000
Inventory	0	150,000	176,500
Prepaid expenses	10,000	45,000	100,000
Other assets	0	26,000	75,000
Total current assets	710,000	614,000	841,400
Fixed assets
Plant and equipment	94,000	150,000	258,000
Furniture and fixture	10,000	35,000	85,600
Land and buildings	250,000	250,000	615,000
Other assets	0	21,000	25,000
Total fixed assets	354,000	456,000	983,600
Other assets
Intangibles	0	5,000	120,000
Goodwill	0	5,000	150,000
Total other assets	0	10,000	170,000
Total assets	1,064,000	1,330,000	1,995,000
Liabilities and equity
Current liabilities
Accounts payable	0	175,000	237,000
Interest payable	0	20,000	18,000
Taxes payable	0	2,500	2,550
Short-term debts	0	56,000	150,000
Other liabilities	0	0	45,000
Total current liabilities	0	253,000	452,550
Long-term liability
Bank loans (payable)	250,000	200,000	150,000
Other long-term debts	0	0	120,000
Total long-term liability	250,000	200,000	270,000
Owners’ equity
Invested capital	814,000	816,500	1,072,450
Retained earnings	0	60,000	200,000
Total owners’ equity	814,000	876,500	1,272,450
Total liabilities and owners’ equity	1,064,000	1,330,000	1,995,000

The company will be worth AED 1,064,000 at its inception in 2014. Its value is expected to increase to AED 1,995,000 in the third year.

Projected Cash Flow Statement

	Sep. 01 2014	Aug. 31 2015	Aug. 31 2016
Cash in hand at the beginning of the year	700,000	700,000	225,653
Cash receipts
Cash from sales	0	83,024	240,558
Accounts receivable	0	0	300,000
Total cash receipts	0	83,024	240,558
Total cash available	700,000	783,024	766,211
Cash paid out
Accounting and legal fees	0	8,500	8,500
Consultancy fees	0	12,000	12,500
Marketing	0	25,000	32,000
Electricity	0	8,500	9,000
Insurance	0	13,600	13,600
Salaries and wages	0	50,000	52,500
Administrative expenses	0	35,000	36,000
Farm expenses	0	60,605	72,000
Distribution	0	10,650	13,200
Establishment	0	328,516	250,000
Miscellaneous	0	5,000	3,000
Total cash paid out	0	557,371	502,300
Cash in hand (end year)	700,000	225,653	263,911

The cash flow statement summarizes the expected cash flow for two years. It highlights the cash that will be received and how it will be utilized.

Deployment Plan and Timeline

The company will launch its operations in September 2014. In the first three months, the company will focus on establishing the farm by acquiring and installing the required equipment, as well as, preparing the land for farming.

In the next 8 months, it will focus on growing the fruits and vegetables. Additionally, the marketing team will embark on negotiating distribution contracts with select retailers. After signing the distribution contracts, the retailers will be expected to establish the shelves and refrigerators that will be used to sell the products.

The marketing team will train the retailers’ employees who will be in charge of sales. The training will focus on product features and the marketing programs that will be adopted. Distribution and marketing communications campaign will begin in the 13^th month. The key milestones to be achieved and the timeline are summarized in Gantt chart 1.

Gantt chart 1

Gantt chart 1

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