Access to finance for Zambian farmers

Access to finance for Zambian farmers

Access to Finance for Zambian Farmers

Client- GIZ

(German Development Corporation)

Zambia
Access to Finance
Cotton, Groundnuts, soybeans, dairy

The Challenge: Access to Finance for Farmers

Like elsewhere in Africa, Zambian farmers are in need of finance in order to modernize agriculture. Funds to access improved seed, fertilizer, pesticides and herbicides, irrigation equipment and mechanization services. However, most banks and micro-finance are not yet geared up to finance farmers, while others have taken heavy losses in the past.

Add to this a difficult macro-economic situation with high inflation, enormous currency fluctuations of the Kwacha and interest rates of 30% and more and finance really becomes a challenge.Sense was asked to look at 4 value chains and develop financial products with financial institutions that can be piloted: cotton, groundnuts, soybeans and dairy.

Project activities

Together with a team of local consultants and GiZ staff Sense visited farmers, processors, traders, input dealers, exporters, retailers and consumers to spot the opportunities and issues in each value chain.

This required the team to look at the market for a large number of products, including cotton lint, animal feed and edible oils (based on soy-bean, cotton seed, peanuts and sunflower), chicken and beef and dairy farming (as users of animal feed), snack peanuts, peanut butter and finally dairy.

For each value chains l business models were identified that seem profitable but require investment and working capital. These models were than analysed in greater detail to confirm weather indeed they are profitable, what the need is for working capital and investment capital, and if the models can support the required loans.

The models were validated in a workshop with farmers, processors, micro finance organisations and commercial banks.

Finally, follow-up meetings were held with financial institutions to discuss the way forward, in particular support that can be offered to banks to start pilots.

One of our local consultant interviewing an input dealer with a crop spraying service, interested in setting up a mechanisation service.

Business models analyzed

 

  • Emerging Dairy farmer with simple irrigation equipment to grow improved grasses year round for grazing and baling for sale to other farmers
  • Emerging dairy farmer with mechanization to produce field crops and silage for dairy production, to service other surrounding farmers and to do baling of communal grasslands in winter.
  • Input dealer who also becomes a mechanization service provider by acquiring a tractor with implements for other farmers
  • Small scale professional soybean and sunflower crushing plant for animal feed and edible oils production
  • Professional exporter of snack peanuts to the EU, South Africa and other surrounding countries, with an outgrower program
  • Manual Peanut sheller for farmers

"Any outgrower or mechanisation program that does not have a thorough beneficiary selection and tries to add thousands of people per year has failed. They all needed to be redesigned."

Key insights

A key insight was that dairy farming can be very profitable if dairy farmers produce their own feed. However, if not properly managed dairy farming is loss making. Most financial institutions are interested in financing dairy farmers because the market is assured, they have a regular income with cash coming in every week throughout the year, and animals are seen as good collateral. They can easily be sold and the social stigma associated with animals being taken is a strong driver for farmers to pay off loans.

Another key insight was that the peanut sector offers excellent opportunities for growth, but requires professional exporters and processors to thrive. Peanut export however can be very profitable if aflatoxin is managed properly with farmers. Experiences with peanut butter manufacturers and the existing exporter have shown this is possible.

There was also a great interest in mechanization and irrigation from various farmers. Demand from farmers for land preparation, spraying and transport services is high. However, successful introduction of mechanization is not easy, and requires very carefull selection of tractor operators, together with proper training and hands-on business coaching.

Meanwhile, in the recent droughts irrigation is coming forward as essential for risk management as farmers shift from a low-input-low reward to high input-high reward business model. A farmer can do everything right, but without water he will have a lot more too loose than before.

The cotton value chain proved to be problematic. Cotton farmers nor processors (the gins) make a profit. It seems as if the main reason farmers grow cotton is to access inputs on credit that are than converted to maize and other crops. Even with proper farming methods and inputs cotton is not profitable, which is probably why no commercial farmer in Zambia produces the crop.

Finally, it was clear from the interviews that any program that aims to add thousands of people every year and does not have a very strict selection of participants has failed.  Opportunism is so rife that stringent selection procedures are needed, plus tight management and control. This is impossible to achieve with a high number of participants.

The future

Giz is currently developing financial products and pilots with the financial institutions. While the commercial banks got cold feet, MicroCredit organisations have developed a range of credit products which are currently rolled out.

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Mango Supply Chain Strategy- Senegal

Mango Supply Chain Strategy- Senegal

Mango Supply Chain Strategy- Senegal
Client- International Finance Corporation (WorldBank Group)
Mango production
Mango pulp and juice
Supply chain development

Agro processing

The Challenge: How to source more mango for a juice & pulping plant in Senegal

Agrofruits is a new mango pulping factory, owned by Kiren, a Senegalese company bottling a range of drinks under CocaCola license as well as own brands. The mango pulp is sold to the mother company for MinuteMaid and Pressea juice, an own brand. The remainder of the pulp is exported to the EU and African market.

Agrofruit’s main challenge is to find enough mango for the plant at affordable prices that allow it to compete with pulp from other countries. Senegal is home to some of the largest and best managed commercial as well as smallholder plantations in Africa, but most fruit is exported, while the remainder fetches high prices on the domestic fresh market. Farm gate prices for non-export fruit are three to five times as high as in Mali, Burkina Faso or Ivory Coast. Agrofruits can therefore not compete with local market traders on price.

Nearby Mali and Casamance (Senegal south of the Gambia) produce a lot of mango and have substantially lower prices, but getting the mango cost effectively to Dakar is also a challenge.

Sense was asked to develop a supply chain strategy, and figure out where Agrofruits can find the quality and quantity of mango it needs at a competitive price, and what is needed to secure this supply.

Modern high density orchard in Senegal that has just been pruned after the harvest. These orchards are some of the best in Africa, and will remain the backbone of supply from the Centre-Niayes region in Senegal

Step 1: visiting orchards and value chain analyses

 Sense visited a large number of exporters, small and large farmers, harvester-traders, cross border traders and transporters in Senegal and Mali to understand farming practices, production volumes, varieties, seasons, the organization of the value chain and transport cost. Working sessions were also held with Agofruit’s management.

Based on this fieldwork we managed to identify across the various farming systems in the countries:

  • The key areas for improvement in farming practices
  • The buyers competing with Agrofruits, and their advantages and disadvantages vis-à-vis Agrofruits from a seller’s perspective
  • Varieties and production seasons
  • Estimated production volumes for the various grades (export, local fresh market, processing)
  • Farm gate prices
  • Expected quantities that Agrofruits can expect to source
Typical small orchard in Senegal; note good maintenance but low planting density & lack of mulching

“Investing in small farmers in Niayes will not increase supply, because they are far better off selling to fresh market traders. For small farmer impact we need to go to Casamance and Mali”

Step 2: Calculating the target sourcing price and target volumes

Based on our knowledge of the international mango juice and pulp market as well as the cost structure of mango processing we developed a simple economic model for the Agrofruits Factory in the Business Sense Analyser.

We used this model to calculate what the maximum price is that Agrofruit can pay per kg on average for Mango at factory gate for conventional and organic mango. We also calculated the total volumes the factory needs to process per season to break even and get to a decent profit.

We than translated this into daily, weekly, monthly and annual production targets over the next five years, broken down per destination (Senegal Centre-Niayes region, Senegal-Casamance and Mali).

Example of proper pruning technique for Mango

Step 3: Defining activities to increase supply and calculating the cost per kg of additional mango.

The final analytical step involved defining a detailed list of activities that can help increase supply, and their cost-effectiveness. Per activity we estimated the number of tons of additional supply that can be expected, as well as the cost per activity. We then used this to calculate the cost per ton of additional supply and choose the most promising activities.

 For Mali and Casamance this involved calculating various alternative scenarios:

  • Using intermediaries such as cross-border traders versus direct sourcing
  • Using a central warehouse versus loading 40 ton trucks in orchards
  • Using own trucks versus renting trucks
  • Packing trucks in bulk versus using 500kg bulk crates or 20kg harvest crates
  • Using one central warehouse versus decentralized warehouses.

Step 4: Access to Finance

Several banks and MFIs were visited to assess the potential of suppliers to Agrofruits to obtain investment capital for expansion into Mali and Casamance, and loan conditions.

Key Insights 

The report remains confidential, but nevertheless there are some key insights we can share.  Small producers in Senegal have only a limited quantity of mango they can easily sell to one local fresh market trader for a far better price than Agrofruits can offer. Hence investing in supporting small farmers or exporters are not likely to lead to higher volumes.

Large plantations on the other hand have so much non-export mango that they need 5 to 10 traders each day to get rid of it. Many traders however don’t come regularly and are not able to pay cash all the time. These companies rather sell in bulk to Agrofruits than dealing with 20 traders, and focus their efforts on exports where they earn most of their money.

The large commercial plantations are thus likely to remain the backbone of supply, but they cannot supply nearly enough to let the factory run at full capacity of 80tons per day. This will require Agrofruits to source large quantities from smallholder farmers in Casamance. This in turn will require the company to invest in a packhouse and transport facilities in the region, and possibly organizing cooperatives and training far

Another key insight was that if Agrofruits can organize supply from Mali, it can lengthen the production season with at least 2 months. Like in Casamance, the main challenge is how to get mangos cost effective from the orchard to the factory, and this will require investments in logistics.

The Future

Sense has been hired by IFC and Agrofruits for  a 3 year project to develop the mango supply chain in Casamance and Senegal. This will include strengthening and support of Agrofruits suppliers willing to invest in the region, farmer training and support for cooperatives.

Filling aseptic drums with mango pulp

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Developing the Mango Processing Industry in West Africa

Developing the Mango Processing Industry in West Africa

Developing the mango processing industry in West Africa
Client- World Bank, Government of Mali & Burkina Faso
Mango
Mali, Burkina Faso
Agriprocessing, Market Research

The Challenge: How to develop the mango processing industry in West Africa 

Mali and Burkina Faso are full of delicious mango’s, which cannot be exported fresh. Processing is thus a logical step to create employment in some of the world’s poorest countries. Over the past decade hundreds of small mango drying factories were set-up that produce this snack for the European market. Small-scale juice processing for the local market was also stimulated, and in Burkina Faso a modern factory has been installed for the production of mango pulp for the European juice industry.

However, after a decade of strong growth that reached its peak in 2007, the dried mango export plummeted two years in a row to only one third of the 2007 record. Despite successful juice sales in the region the pulp factory did not manage to export a single container of pulp. With thousands of farmers, factory workers, traders and exporters depending on the industry, the question was asked: what is the future of the industry?

Phase 1: The initial study (2009-2010)

In 2009 The World Bank commissioned a study and a detailed market study was done, together with a study of the current production process and production methods utilised elsewhere. The goal was to come with a number of strategic options for the industry and proposals for pilots.

The study showed that the market for dried mango was still promising, but that Mali and Burkina Faso were loosing market share because of poor quality. This in turn was caused by obsolete drying technology and poor pre-treatment, storage and transport conditions. Furthermore marketing capacity was poor and by limiting to organic production, the industry limited itself to a small and decreasing niche. Even the most loyal organic consumers are generally not willing to by a poor quality product just because it is organic.

Tradtitional mango dryers deliver poor quality and drying efficiency

Recommendations for dried mango

We recommended producers to conquer the conventional market for dried mango in the EU by drastically improving product quality. This was to be done through a series of interventions. 

The first pilot that was proposed was to support the most professional mango drying businesses with the introduction of South African drying technology. South Africa was the market leader in dried mango due to their high product quality, and had very different dryers.  

A second pilot was that was proposed was to test the effect on quality and shelf life of various combinations of humidity of the product with pre-treatment with preservatives, cold storage and refrigerated transport. The goal was to find the most cost-effective combination that would improve quality and shelf life.

A third pilot was for the development of mango snack bars for the local market made from a mix of second grade dried mango and or cheaper ingredients, in order to find an outlet for second grade mango and have a product that is more competitive in the local snack market.

We proposed to introduce these innovations together with a South African Mango drying company, because they could deliver more knowledge, experience and market access. Via importers we understood South Africans had a shortage of mango and were looking for opportunities abroad to expand production.

Modern tunnel dryers with stacking racks on trolleys in South Africa

Recommendations for juice (pulp) and IQF (frozen mango cubes)

The market study revealed that the market for mango pulp (an ingredient for the juice and food industry comparable to orange juice concentrate) was dominated by India and its varieties. The difference in price between the cheapest and most expensive variety was 600$ per ton. The factory in Burkina Faso had done no proper market research and did not know how their mango varieties compared with the Indian varieties. Importers also did not know as they had never heard of the varieties.

The team proposed to support the pulp factory with market research and set-up cooperation with importers to find out which market segment they would fit in.

Finally we proposed a feasibility study for the production of Individually Quick Frozen (IQF) mango cubes for the European food market, because the need for new suppliers was much higher then for mango pulp, and sales prices are much higher than for pulp.

Filling aseptic drums with mango pulp
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New container mounted tunnel dryer installed in new factory in Burkina Faso

Phase 2: implementation of the pilots (2011-2014)

Between 2011 and 2014 Sense was involved in the implementation of its own recommendations. The activities helped to grow the export of dried mango from Mali and Burkina Faso from 150tons in 2009 to 2500 tons in 2017. Burkina Faso has now become one of the market leaders in dried mango.

The activities in this project included:

  • Introduction of South African mango drying technology
  • Improve production quality through introduction of new techniques
  • Reduce quality loss in transport and storage through testing and introducing new methods of pre-treatment and transport
  • Support HACCP certification of the factories
  • To help the 6 companies to develop business plans and introduce them to investors, in order to access structural finance for the expansion of production capacity over the next five years
  • To provide market research training to a delegation of the world bank, exporters and dried mango producers
  • Conduct a feasibility study for the establishment of a frozen mango cubes factory, and if necessary help a local entrepreneur to develop a business plan and access finance
  • Support the diversification of the fruit drying industry into other dried fruits to lengthen the season, and thus provide full time employment and reduce the fixed cost per unit of product

Introducing South African drying technology

A list with selection criteria was drawn up to help the programs select the most appropriate entrepreneurs who would be co-investing and working the new South African drying equipment. Finally the best 6 companies were selected, quotes for equipment obtained and 6 mango dryers were ordered, delivered and installed.

This required adaptations to the South African designs, including a gas heating system instead of coal, development of a system to feed the high-tech burner with a series of 6 small gas bottles instead of a bulk tank, the addition of voltage stabilisers and generators, and a series of warning lights and alarms.

Despite many set-backs with installation and operating the new dryers, it quickly became clear that the new dryers were a major step forward. Performance monitoring over 2 seasons showed a 40% reduction in energy cost per kg, an increase in the percentage of 1st grade product from 80% to 94%, and a dramatic improvement of even the first and second grade quality. Supermarkets in the UK and Germany were now willing to sell the product again.

Example of proper pruning technique for Mango

Partnership between South African and West African companies

Via importers in the EU we got into contact with the largest dried mango producers in South Africa and started to assess their interest in cooperation. The largest, MPAK was intrigued by the opportunity because they lacked fresh mango to increase the production capacity and supply their clients.

We compared the cost of production between the countries, and the low cost of labour & mango showed the potential, if it could be combined with South African efficiency and quality. Another advantage was complementarity of the production seasons, and finally risk management. A bad mango year in South Africa can be compensated with a good year in West Africa. were enough to convince them to visit Mali and Burkina Faso.

After months of negotiations and several visits of the West African and South African companies to each other a partnership was brokered. MPAK would provide training for the usage of the new dryers, training in good manufacturing practices and support with HACCP certification. MPAK would also buy all the produce manufactured in the new ovens for sale to its own clients. A sales price was negotiated based on open book calculations, to ensure each side made a healthy profit. 

This partnership had the potential to revolutionise the mango processing industry. The goal of MPAK was to produce 500 tons in West Africa after five years, which would triple the size of the industry. 

To tackle the issue of the rapid loss of quality after production a series of samples were manufactured, using 2 methods of preservation (blanching and ascorbic & citric acid), storage under room temperature and cold storage, regular packaging and nitrogen filled packaging and regular versus refrigerated transport. A Swiss, English and German client did a blind evaluation of the samples once they arrived at their premises. The results showed a strong impact for nitrogen packaging and a cold chain, while pre-treatment was abandoned.

Qualitative market research was done in Mali and Burkina Faso to understand the snack market and test the interest in various mango products. During 4 consumer focus groups of urban middle class people in Burkina Faso, a large number of mango bars and other mango snacks from Brazil, Europe, South Africa and Thailand were tested.

The conclusion of the consumer research was that mango rolls developed by MPAK in South Africa offer the best opportunity. Local consumers enjoy mango flavour, but want to know what they are eating and do not like to processed bars with too many ingredients. Like Europeans they are also looking for an attractive high quality product of consistent quality. Finally, they are prepared to pay for a good product. Because the rolls are made from by-products of dried mango production, their cost price is lower, allowing for a competitive product in the local snacks market.

Finally, the feasibility study for individually quick frozen mango cubes (IQF) clearly showed the profitability of such a factory. With the help of engineers a rough factory plan was drawn up to estimate the investment cost. Samples of frozen mango cubes were manufactured with mango from Burkina Faso to test the suitability for machine cutting, calculate production losses and test the acceptability of the colour, flavour and texture in the EU market. A business model was built and profitability calculated for 8 different scenarios that differed in investment cost, sales price, production efficiency, and length of the season. The conclusion was that if by-products are used for dried mango roll production the activity has a net profit margin of 20%-30%. If the season can be lengthened by adding other frozen products, profitability will increase further.

Because the aim of the project was to develop the mango-processing sector as a whole and public funding was used, there was a need to share the findings with the other stakeholders in the industry. The information could not remain only within the six pilot companies. During workshops in Mali and Burkina Faso findings were presented and discussed, and planning for activities for the coming season was made.

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Phase 3: Scaling Up(2013)

A third contract was awarded by the World Bank to support the industry with the implementation of the activities defined during the 2012 dissemination workshops. The aim is to take advantage of the opportunity to triple the size of the drying industry with MPAK from South Africa. The project has the following goals:

  1. To ensure production of 80-100 tons of dried mango and mango rolls for sale to MPAK, to ensure their long term commitment
  2. To finalise the adaptations of the South African tunnel drying technology for operation in Mali and Burkina Faso
  3. To provide HACCP and staff management training for the 6 pilot companies, and to develop HACCP certification planning
  4. To help the 6 companies to develop business plans and introduce them to investors, in order to access structural finance for the expansion of production capacity over the next five years
  5. To provide market research training to a delegation of the world bank, exporters and dried mango producers
  6. To assist a local entrepreneur to access finance for the construction of a frozen mango cubes factory
  7. To support a local fresh fruit exporter to develop a business plan for a frozen mango cubes factory and access funding

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Selecting value chains for a new economic development program in Mali

Selecting value chains for a new economic development program in Mali

Selecting Value Chains for a New Economic Development program in Mali

Client: Embassy of the Netherlands in Mali/ ministry of foreign affairs of the Netherlands

Mali
Value Chain Anlysis
Onion & Shallots, Livestock & Feed

The Challenge

The embassy of the Netherlands in Mali has a long track record of funding and managing development programs in Mali. For a new long term economic development program with a budget of 20 million eur the embassy needed support to select the right economic sectors. Based on their own research they had shortlisted onions, dairy, meat (beef and mutton) and fish (including aquaculture) as potential candidates. They had also identified 4 regions in Mali as potential focus regions for interventions.

The key question of the embassy was: on which value chains should we focus and in which areas. Furthermore, within those which actors should we support to produce which products for which markets (consumers). They were clear they wanted a program based on clear market opportunities, and were interested in working with dynamic entrepreneurs and companies. Finally, the embassy wanted an idea in which specific areas cooperation with Dutch companies would be possible and beneficial to both the local stakeholders and Dutch companies.

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Phase 1: Value Chain Analyses

A consortium of SENSE, KIT (Royal Tropical Institute) and IMARES was asked to analyse these value chains, and come with a clear advice. After an initial decision, the dairy value chain was left out because it was seen as the least promising in terms of impact.

Methodology

Over a six week period SENSE in cooperation with KIT performed a value chain analyses of the Onion and Meat (beef and mutton) value chains.

Sense always starts a value chain research at the most important link in the chain: the consumer. A qualatative consumer research to understand when how and how often the products are consumed and purchased, asses how competitive the chains currently are, consumer preferences, opportunities to increase consumption and issues with the current product offering; for example price, taste, appearance, availability etc.

After the consumer research, the chain was followed down all the way from retailer to wholesaler, collector/local trader, producer and input supplier. At each level a representative sample was interviewed using semi-structured questionnaires.

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Results of the onion & shallot value chain analyses

The result of the analyses for onion was clear. The first business opportunities were two market opportunities: the low availability of onions in the wet season, and the growing demand in coastal countries such as Ivory Coast, Guinée, Ghana and Nigeria.

Consumer research showed that Shallots and onions are used in every dish to provide flavour, provided they are affordable. However, in the wet season priced triple and consumers react by substituting shallots and onions with other vegetables, and consumption decreases with 70%. The high prices and low availability were caused by the fact that onions were mainly farmed in the dry season, and losses of up to 50% during storage. Accesive use of fertiliser, poor transport and storage conditions were to blame. Sense proposed two strategies to take advantage of the opportunity:

  • Work with all actors in the chain to improve product quality, storage and transport conditions so storage becomes more profitable and losses are decreased. Producing onions to store them becomes a viable business and allows for an increase in production
  • Work with suppliers of seed and farmers to find (hybrid) varieties that can be farmed during the wet season. However, because onion and shallot farming is often taking place in the ‘off season’ of notably rice production, an analyses where wet-season onion production fits in the production system would be needed

The second market opportunity was the large demand for onions and shallots in coastal countries, most notably Guinée Conakry, Ivory Coast, Ghana and Nigeria. Most export was done by cross border traders from these countries buying at wholesalers in Mali, not by exporters from Mali. SENSE proposed to select a number of wholesalers and together perform market research, define strategy and support these wholesalers to export.

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Results of mutton and beef value chain analyses

The meat value chain proved much more complex. Demand for meat and fish is clearly increasing in the whole of West Africa with the growth of the middle class and population growth. However, the traditional pastoralist production systems in the Sahel seem to have reached their limits. These are complex systems designed not only for meat production but also for milk, skins, social status and financing. Despite decades of interventions little has changed. Increasingly demand is met by intensive farmers who buy animals from pastoralists, and fatten them in stables using animal feed. After 3 months the animals have doubled in weight and sell for more then double the original price.

The conclusion of KIT and SENSE was that there is enough demand to increase production, and the fast growing intensive farming industry is the most likely intervention point. However, stimulating fattening without knowing the animal feed value chain did not seem wise. Already there were clear signs that animal feed was becoming scarce and prices were increasing. Therefor it was proposed to the embassy to do a follow up study and asses the animal feed sector.

Results fish value chain analyses

Fish is very popular on the national and regional market, but due to overfishing and the construction of dams, production of capture fisheries had clearly reached the limit of the production capacity. Most is to be gained by solving the huge losses in processing (smoking and drying), by introducing better processing methods. These need to be aimed at the largest producers, nomadic fishermen in stead sedentary fishermen, which are the regular beneficiaries of development programs but only responsible for a small part of production.

Fish farming was developing rapidly close to urban markets, and seemed an easier area of intervention. However, IMARES felt a study was needed to asses the availability of ingredients for fish feed.

If indeed there was a scarcity, the consortium felt the question needs to be asked: if you have limited ingredients for fish or animal feed, where can you get the most protein for human consumption?

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Phase 2: Additional Research

After the initial research, The Netherlands Embassy gathered a number of additional research questions, and asked SENSE and IMARES to conduct a more detailed analyses of past projects in the onion, meat and fish value chains, an animal and fish feed study, and an institutional analyses of the semi and public organisations active in the value chains.

Institutional analyses

The analyses of past projects and institutions was done based on interviews with these organisations, beneficiaries of their programs and other chain actors. This led to a number of interesting conclusions, such as:

  • Interventions are focused mostly at production/ producer level
  • Private companies higher up in the chain (processors, wholesalers, retailers) are mostly not involved in the programs
  • The interventions of the organisations are very fragmented across many chains, areas, and no organisation works with all actors in the chain.
  • There is a lack of facilitation of cooperation between actors in the chain
  • There is a strong preference for building physical infrastructure (buildings, roads, markets)
  • Knowledge on how public infrastructure should be managed is often lacking; it is generally unclear who will use, manage and pay for usage and maintenance of buildings and other infrastructure once build
  • Donors and NGOs have the tendency to become actors in the chain, rather then supporting economic actors to develop and fill gaps in the value chain. For example in stead of buying and selling animal feed, donors should be supporting private companies to supply these inputs
  • There were no structural interventions on animal feed

Animal feed study

For the animal feed study started with the composition of a list of approximately 30 products widely used in the tropics as ingredients for animal feed(poultry, ruminants such as cattle and sheep and fish). The goals was to find out which ingredients were currently used and in ample or short supply, which ones are available but currently not used and thus could offer an alternative, and for which products production could be stimulated to solve shortages.

The first step in the field work was visits to 20 animal feed manufacturers, from artisanal to semi-industrial and large industrial mills. A list of producers was obtained via the customer database of the only manufacturer of bags for agricultural products in the country. During the interviews the production process was studied, sales and sourcing issues were discussed and the formulations discussed.

The second step was a visit to a selection of intensive cattle and sheep farmers and fish farms to assess the feeds they were using, their perception of the quality of these feeds as well as other issues. We also assessed their profitability and the percentage of the cost price currently spend on feed.

A number of companies that have considerable amounts of by-products commonly used in animal feeds were also visited, most notably sugar mills, beer brewers, grain mills and oil mills.

With the help of animal feed experts and literature a model was built in excel that could calculate the cost and nutritional value of all the animal feed ingredients on our list.

Results of the animal feed study
We found that a large range of agricultural by-products was already used in the feed produced, and that the nutritional value was generally adequate to generate rapid growth of the ruminants and fish. Despite the recent price increases of animal feed farmers still made a healthy profit.

However, should the intensive farming industry  be stimulated by a development program, this would lead to shortages in animal feed, strong price increases and reduced profitability.

Protein is crucial in animal feed for weight gain, but cotton seed-cake is the only high-protein ingredient used. However because cotton prices are low, production is very volatile and not structurally increasing. Neigboring countries have the same issue. As a result, animal feed producers are already forced to reduce the cotton cake in feeds in times of scarcity.

Most producers replace cotton cake with different brans which already constitute the bulk of the feed. But because rice and grain production is stagnant the supply of most popular ingredients (maize, and weat, sorghum, millet, maize and rice bran) are also increasingly in short supply.

The study also showed that there were no undertutilised agricultural byproducts that could replace maize, brans and cotton seed cake. Anything with a decent nutritional value that could be collected economically was already used.

The conclusion was that stimulation of the production of key-ingredients for animal feed is the only option to improve the availability of animal feed. The emphasis needs to be on high protein and energy crops.
Ten crops were analysed and evaluated according to four criteria:

  • Impact on animal feed production,
  • Agronomic suitability for Mali and effect on other crops,
  • Economic feasibility for farmers and processors
  • Strategic fit with the target areas of the embassy.

Soybean was the most promising option. Soy bean is normally processed in two products: oil for human consumption, and the presscake for animal feed. Both are high quality products competitive in price. Soy bean has the following advantages:

  • it is one of the best high-protein feed ingredients for ruminants, chicken and can also be used for fish feed. Thus it solves the largest issue in the animal feed industry: the lack of alternatives for cotton cake
  • The remains of the plant after harvesting of the beans is a high quality fodder for ruminants.
  • Experiences in Mali and Ghana indicate that it can grow well in Mali
  • Because soy-beans bring nitrogen into the soil it will increase maize and cotton production if grown in rotation
  • Soy-bean farming is profitable for farmers, provided the beans are crushed to extract oil that is marketed for human consumption.
  • There is a shortage of oil in Mali. Economic calculations show that soy-bean oil can compete with imported Palm Oil. It could thus reduce the large imports of oil.

The key is to introduce the crop in cooperation with the current cotton oil producers. They have developed marketing channels for marketing of oil and cake, but due to low cotton production are operating far from full capacity. They also have experience in sourcing from small farmers, and have relationships with cotton farmers who may also be interested in soy-bean.

The only ‘downside’ of soy-bean for the embassy is that it is rain fed and therefore not a crop to be farmed in irrigation areas, and can only be farmed in two fo the four priority areas.

Cassava farming and processing was also identified as an option. The roots are a high energy substitute for maize grain fro ruminants. The stems and leafs are a source of protein. But cassava scored lower then soy-bean because it needs fertilizer to prevent soil depletion.

Intensification of grains and rice production was another strategic option. Experiences of IFDC showed that maize yields can be improved from 2 to 8 ton per hectare, us using organic and chemical fertilizer, good farming practises and hybrid seed. This would increase the production of grain for human consumption and animal feed, and maize bran. Similar options are available for rice and other grains.

The main conclusion of the study was thus that in order to intervene in the meat value chain, the embassy would first have to invest in the animal feed value chain.

Fish Feed & Aqua Farming

The analyses done by SENSE and IMARES showed that fish farming was economically feasible using least-cost formulations based on the available resources. However, at national level there is a shortage of protein as wel. The industry is now dependent on imported fish meal. Only part of this can be replaced by plant protein such as soy bean cake. Waste from abatoirs which is now discarded in the rivers is one potential source of animal protein that could solve part of the problem.

The key question for the embassy is whether they want to develop an industry based on imported fish meal. On the other hand, fish farming is much more efficient in turning raw protein into protein for human consumption then intensive cattle or chicken farming.

Final Advice to the Netherlands Embassy

Based on the results of the institutional analyses SENSE adviced the Embassy to focus on two value chains in one production area, or one value chain in two areas. Fragmentation is to be avoided. Once the project would be running well, a commodity or area could be added.

A Pain-gain matrix can be a handy tool to choose between alternatives, in this case value chains. Each chain was rated according to the effort needed to make the interventions a success, and the potential impact on economic development & food security.

SENSE adviced the embassy to start with the oignon-shallot value chain and fish farming, either around Mopti or Segou. In case Mopti is chosen, fish processing can be added. The inner delta around Mopti is the most important area for capture fisheries. If Ségou is chosen, the meat chain can be added, because South of Ségou soy-bean can still be farmed.

 

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Case: Value Chain Analyses training in Mozambique

Case: Value Chain Analyses training in Mozambique

Client: School of Business and Entrepreneurship, Eduardo Mondlane University

The School for Business and Entrepreneurship (ESNEC) is new faculty of the largest and oldest University in Mozambique. Eduardo Mondlane University. Their mission is to provide a university education with practical experience that educates students according to the needs of the labour market. This seems logical, but is not easy in a country where for example most agronomists have never actually seen a piece of irrigation equipment during their entire studies.

 

Designing a pragmatic (action) research program

As part of a larger four year training program SENSE designed a pragmatic research program. The program has 5 goals: 1. Train professors in action research methods and interactive ways of facilitation and teaching 2. Train students in how to do practical research 3. Provide local case studies to illustrate the theory 4. Provide students and teachers with an overview of the current issues in the field 5. Help local businesses and institutions The first component is a value chain analyses to be conducted by third years students annually. During the training students learn how to do a value chain analyses by doing an actual analyses under guidance of professors. The result of the analyses is a list of practical issues in a value chain. During the second semester students from several disciplines can work on the issues identified in the value chain analyses during an internship or practical. For example is the short tomato season is one of the key problems identified during the chain analyses, commercial agriculture students can then to practical tests with local farmers with new varieties, or farming under shade cloth. Each year a writing workshop is held to document the research results. The teachers with the help of educational experts then translate these into cases for the different subjects.

The start of the program: the first workshops

In August 2012 the Action research program started with a training of trainers on value chain Analyses. Together with the learning for development hub SENSE designed a practical course. In this course Value Chain Analyses theory is blended with fieldwork and practical skills training. By working on a real case, the teachers learned how to apply the theory in practice. During the two-week course the 12 participants performed a basic analyses of the rice value chain in Southern Mozambique. Composing a questionnaire, interview techniques, selecting respondents and interactive teaching and facilitation methods were amongst the skills taught. In September 2012 the first round of action research with students was kicked off. The teachers had selected 30 highly motivated students from the many applicants. The program started with a 1-week workshop where the basic of value chain analyses were taught, and interview skills taught and practiced in the field. In addition the students received a first session on writing skills. The students were divided in four working groups for the program along the four value chains chosen by the teachers: tomatoes, onion, beef and chicken. This time the bulk of the training and facilitation was done by the teachers that had followed the training of trainers in August. SENSE and Learning 4 Development Hub provided the support and coaching to the teachers. Between September and March the students continued their fieldwork, under guidance of teachers. SENSE and Learning4development in turn guided the teachers. In December a mid-term meeting was held with each group to asses progress, discuss questions and solve practical issues and make a plan for the remainder of the period. In March 2013 a writing workshop was organised. During this so-called write shop the teams, including the teachers, wrote the results of the fieldwork in the form of a case study. A standard template was used to provide the participants guidance and ensure the structure of all of the five cases would be comparable.

Peanut Industry in Africa

Peanut Industry in Africa

Client: Bill and Melinda Gates Foundation and Deutsche Geselleschaft für Internationale Zusammenarheid (GiZ)

The problem: Peanuts in Africa, a sector in decline

Small scale farmers across Africa have farmed peanuts as a staple and cash crop for decades. Because of their good flavor African peanuts made up a significant part of world peanut trade until the 1970’s. However, because of growing concerns over aflatoxin (which is believed to cause cancer), African peanuts have lost access to the lucrative snack peanut export markets.

Peanut oil is another important use for peanuts, and during processing much of the aflatoxin can be removed. It is a highly priced oil, particularly in China. However, with the exception of Senegal there is no real production of peanut oil in Africa is taking place, not for local and not for international market.

On the local market peanuts are a staple used for sauces and snacks. However, most Africans have never heard of aflatoxin and unwittingly consume severely contaminated peanuts. There is no premium paid for aflatoxin free peanuts in the local market and thus no incentive for farmers to reduce aflatoxin levels.

As a result, peanuts are currently a marginal crop in most of Africa, farmed on small areas of land by small-scale farmers, mostly women. They use and reuse seed from outdated varieties that become less productive each time, and few other inputs are used. The yields of the crop are in most cases very low: less than 1 ton per hectare or half of potential.

The lack of markets due to low quality and low yields mean that the small revenues gained by the farmers don’t allow for any investment in improved farming practices. Without an attractive financial incentive, it is impossible to expect farmers to invest in improved seed, irrigation and fertilizer or change the way peanuts are dried, shelled and stored.

Finding a solution through economic analyses

The Bill and Melinda Gates Foundation and GiZ contracted Sense to look into what economically sustainable opportunities exist to revitalize the peanut industry in Africa.

The key question was:  Which market with which product and which processing technology can offer opportunities for income growth for farmers and processors?

Sense conducted interviews with industry experts, procurement managers, factory managers, exporters and marketers in various countries. We also analysed trade statistics and existing reports. In order to choose strategic opportunities for development we used 3 criteria:

  1. We mapped the various markets for peanuts (snack, peanut butter, oil) and identified interesting market opportunities.
  2. We identified typical business models supplying into these attractive markets, and analysed the processing technology used, the direct cost, investment costs overheads and revenue to see which business models are profitable and thus economically sustainable.
  3. Finally, we looked into the causes of aflatoxin and prevention methods at each stage of production and processing.

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The analyses clearly showed that a medium sized business with modern processing equipment focusing on the international snack market is the key to reviving the industry. This market is lucrative enough to pay for investments in aflatoxin management.

Rejected peanuts can be exported to China for oil production, or processed locally in refined peanut oil for the local market by existing vegetable oil producers. Oil production is only profitable if the overcapacity can be used of a factory already producing sunflower, soy-bean or cotton seed oil.

Exporting crude oil to China is not profitable, nor is it profitable to sell crude oil in the local market, because the met margins on refined oil are much higher then on crude oil.

In detail: the peanut value chain

In detail: the peanut value chain

Peanuts in Africa are generally harvested, dried and shelled on farm. They’re then sold either to traders, processors or directly onto the village market.

Traders or processors clean and sort the peanuts for further processing according to external appearance, size and shape.

Snack grade peanuts

The best peanuts could be exported for the EU or US snack markets. Snack grade peanuts need the least processing and offer the best returns. To reduce aflatoxin contamination they need to arrive cleaned and well dried at the factory, where they are shelled and sorted on size by machines, before being blanched. Optical sorters are essential to remove contaminated peanuts. During the blanching (removal of the thin skin on the kernel) a lot of aflatoxin can be removed.

Unfortunately, too few African peanuts meet the aflatoxin standards for the international snacks market. This is partly because they are shelled by hand by farmers, and not properly sorted and blanched. This is why there is currently little export. Europe is the largest market for snack grade peanuts but African peanuts often exceed the aflatoxin limits of importing countries. The risk of costly rejections in port makes these markets inaccessible. Especially in light of competition from highly organized producing countries such as the US and Argentina. Eastern Europe and China are potential markets having less rigorous aflatoxin controls.

The domestic and regional market is large and growing but doesn’t offer a price premium for aflatoxin free, because people have never heard of aflatoxin.

Peanut butter and paste

Peanut butter and peanut paste manufacturers can use split and broken peanuts but require consistent size within one batch and low aflatoxin levels. Peanut butter is usually manufactured in the importing countries according to local requirements. So there is little opportunity for a peanut butter export industry in Africa.

Because the peanuts are roasted in the skin, which is often partly added to the peanut butter, there is a very limited opportunity to reduce aflatoxin in the process. And because peanuts are shipped in the skin, contamination will increase during transport. This makes supplying the peanut butter market unviable for African producers.

However, peanut paste is a popular sauce ingredient in many African countries and accounts for a large part of African domestic peanut consumption. Unfortunately, the unattractive kernels are normally used for this, and those tend to be the aflatoxin contaminated ones.

Peanut oil

Peanut oil offers an important opportunity for cost recovery, but the profit margins on peanut oil are insufficient to make it viable to use good quality peanuts for oil. Normally rejects from the snack export (splits, broken, aflatoxin contaminated, malformed, small) are used for peanut oil.

The oil making process can eliminate most aflatoxin. A large part remains in the press cake, while much of what is left in the oil can be filtered. During the refining process more aflatoxin can be removed. However, the press cake that is normally used for animal feed will remain contaminated and can cause liver disease in cows, as well as contaminate milk.

Peanut oil is not widely used in Africa because it is relatively expensive compared to palm oil, cotton-seed oil and sunflower oil. The primary market for peanut oil is in China and South East Asia where it forms an integral part of traditional cuisine. These countries are major peanut producers themselves but their domestic market consumes as much as they produce. China, the world’s largest peanut producer is becoming a net importer, exporting their best peanuts to the European snack market and importing process grade peanuts for oil manufacturing or sale on the Chinese snack market. This offers potential export opportunities for African peanut oil or peanuts for oil production.

Currently, export of oil grade peanuts to China is more lucrative than export of crude peanut oil. We strongly suspect that this is because Chinese oil producers resort the peanuts on arrival, and sell the good looking peanuts on the local snack market. This despite the fact that they are aflatoxin contaminated, and China has strict laws in place. Production of unrefined peanut oil for export is currently only profitable if the factory sells the best peanuts on the snack market.

The process for oil extraction from peanuts doesn’t differ greatly from other oil seeds like palm, cottonseed or sunflower oil. This means that existing cooking oil factories could easily process peanuts for oil without much additional investment. Many of these factories currently operate below capacity and could expand their revenue stream to include peanut oil. However, the domestic African peanut oil market is likely to be a niche, because prices are double to three times the price of other vegetable oils. There is also no tradition of cooking with peanut oil in Africa as there is in Asia.

As China becomes a net importer of peanuts and peanut oil it is possible that African peanut oil can be exported in increasing volumes to China and South East Asia where peanut oil is considered nutritionally and gastronomically superior to other oils.

Conclusion

Peanut oil offers a potential cost recovery for high aflatoxin peanuts in Africa, but the margins on peanut oil production are not sufficiently high for it to become the backbone of the peanut industry. Aflatoxin remains the ghost that haunts the African peanut industry. Improvements in farming, handling and storing practices will have to be made if an export industry is to thrive.

Meanwhile, the study has shown that an integrated approach to processing, involving snack peanuts, peanut paste, and peanut butter as primary income streams, and peanut oil and the press-cake as cost recoveries, a sustainable and profitable industry is possible. If market opportunities in Eastern Europe, South East Asia and China can be developed there may yet be a prosperous future for the peanut industry in Africa.

Business plan development training in Ghana

Business plan development training in Ghana

Business Plan development training- Ghana

Client: Tropenbos International

Ghana
Business Plan, Training
Forestry, Coal

It is estimated that over 80% of wood sourcing in Ghana happens illegally. The cause of most illegal chainsaw milling is economic: families without opportunities for formal employment resort to illegal chainsaw milling as a source of income. As this happens unregulated, the chainsaw milling takes place without regard for sustainability, causing large-scale deforestation in Ghana.

Tropenbos International aims to stimulate the business development of sustainably sourced wood products. The benefit of such businesses is twofold: on the one hand, it provides employment opportunities for illegal chainsaw millers, thereby reducing deforestation. On the other hand, it offers a certified sustainable source of wood to companies who otherwise (unwittingly) would have bought illegally sourced wood.

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In specific, Tropenbos supports the following three businesses models:

  • Agro-forestry plantation on degraded forest land
  • Charcoal production from sustainably managed woodlots
  • Artisanal milling from legally sourced wood

Although these businesses do sporadically exist in Ghana, they lack the skills in business planning to grow in a market dominated by illegally sourced wood products. In fact, this environment provides very little opportunity for an economically sustainable business. Illegal chainsaw millers avoid many costs related to sustainability, such as fees to the Ghana Forestry Commission and transport from legal plantations to production site. Moreover, their business model avoids taxes, interest cost, and overhead cost. Altogether, the illegal chainsaw millers determine a very low market price for wood products, which makes it difficult for a professional and sustainable business to be competitive.

As a solution, Sense was contracted to provide training to develop the necessary business planning skills. The three businesses each signed up two participants to the programme, complemented by two representatives of Tropenbos connected to each business. The training method was to learn by doing: Sense introduced the participants to templates for a business plan and model and guided them through the process of making their own. Moreover, the training was geared to be training for trainers at the same time, to allow the Tropenbos representatives to run the same workshop independently. Having completed the training, the participants would have compiled an expert business plan, allowing them to acquire finance, and the necessary competency to execute it.

The training took place in three parts. Firstly, Sense provided a 5-day workshop on location in which it introduced different elements of a business plan and assisted the participants in writing them. The programme consisted of:

  • Introduction to the importance of a business plan
  • Developing a questionnaire & conducting market research in the local market
  • Obtaining information from suppliers, banks, and buyers of finished goods
  • Setting up a marketing plan
  • Developing a financial plan and introduction to the various elements (cash flow, P&L, balance sheet)
  • Writing skills training: short and concise sentences, introduction and executive summary

As anticipated, not all the information required for the business plans could be obtained during the 5-day workshop. The second part of the training, therefore, consisted of the participants finding the remaining information and finishing the business plan, while Sense was available for guidance and advice. The guidance applied Sense’s key competencies: Working together with the participants to gather the right inputs, Sense used its trademark business model to provide detailed forecasts of each business’ production schedule, cash flow, profit and loss statement, and balance sheet. Using the outcomes of the models, Sense gave recommendations to each business to ensure their plan was economically viable. The outcome of the training was a draft business plan for each of the participant groups.

Sense ran the third and final part of the training on site again. Together with the participants, the business plans were evaluated and concluded. Having developed a professional business plan, each participant group was now fully prepared to venture out, acquire the necessary finance, and run a sustainable and profitable business.

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Investment facilitation in Burkina Faso

Investment facilitation in Burkina Faso

Client: USAID & SSG Advisors

About one-third of infants in Burkina Faso suffer from malnutrition. The main causes are poverty and a lack of affordable high quality baby foods, such as baby cereal fortified with vitamins and minerals. On the one hand, quality imported products are unaffordable to most parents and only available in cities. On the other hand, locally manufactured products may be affordable but do not have the nutritional value nor the hygiene standards that are desirable for infants

SODEPAL is a food processing company that has been in business for over 20 years and is located in Ouagadougou, Burkina Faso. By producing high quality baby cereal (high in calories, protein, and vitamins) locally, SODEPAL hopes to contribute to combatting malnutrition. It already sells its products at affordable prices throughout the country, and supplies to Word Food Program feeding schemes in the region.

However, in order to grow and take advantage of the fast growing market, SODEPAL requires a substantial expansion. It needs to move to a modern factory in an industrial zone with an automated processing line including a modern packaging line. In addition the business needs to invest in marketing and developing a national distribution network.

Mme Zoundi, general manager of SODEPAL, put together a preliminary business plan for the expansion. She turned to the West African Trade and Investment Hub, financed by USAID, for support in updating and completing the business plan and producing financial models adequate for investor due diligence. In light of the nutritional benefits of local baby cereal production and the economic benefits of job creation, the need to make a success out of the expansion of SODEPAL was high. Therefore, USAID called on Sense’s proven business development and finance facilitation skills as well as its experience in West Africa to assist Mme Zoundi in the expansion.

Sense took responsibility for the three key ingredients to the business plan. For this, it cooperated with Mme Zoundi, local consultants, and engineers specialised in cereal production.

  1. Market research. Sense conducted market research in 12 cities to determine the size, potential, product perceptions and buying patterns of the various market segments. Based hereon, a comprehensive strategy for the marketing and distribution of the increased production was developed.
  2. Factory design and production plan. Using our own technical know-how and that of the equipment suppliers, Sense provided the design for a state of the art factory with a capacity of 3,300 MT/year, tailored to the industrial environment of Ouagadougou. The design came hand in hand with a raw material procurement plan with an emphasis on sourcing from local farmers.
  3. Financial modelling. Sense realises that hard numbers have the final word when it comes to business, and produced a financial model including cash flow, profit and loss, and balance sheet forecasts for 10 years. The model was made duly detailed and geared to convince investors of SODEPAL’s economic viability: it took into account various scenarios to display the risk resilience of the business.

Local consultants interview a pharmacist in Ouagadougou

Local consultants interview a pharmacist in Ouagadougou

This mix led to an impressive business plan which is now being used to secure the finance necessary to make SODEPAL’s expansion happen. The first step is to partner up with an equity investor. With equity on board, the next step is to obtain a bank loan to finance the remainder of the investment. Sense actively reaches out to these institutions and works together with Mme Zoundi throughout the process.