Agro-processing in Africa: how to make it work… May 2012, World Bank, Washington Michiel Arnoldus M a k i n g s e n s e o f d e v e l o p m e n t Agro-processing: issues and opportunities M a k i n g s e n s e o f d e v e l o p m e n t The timeline of economic development Processing Industrial Clusters ? Local & Fresh Produce Regional Markets Exports & Niche markets Production 2000 1 2005 2010 2015 The holy grail of development… Fresh produce export to EU and US But fresh produce export has a downside… Vulnerability to rising transport cost What to do with 2nd,3d & 4th grade? 1 Political instability & perishable produce…not ideal Fresh produce = low added value Advantages of processing Spreading risk More value added in country Longer Season More turnover to cover overheads 1 Using waste & by products The 2 most common myths There are mountains of unused raw material 1 The market is huge Market is leading, not supply… Traditional development model There are tons of pineapple..lets use it Lets build a juice plant for export Help, we can’t sell! Some market research? Alternative model (medium term) Market research pineapple products Pineapple surplus Strategy Supply, processing marketing Ideal scenario if there is time… Competitivity analyses 1 Choose products Sector strategy Implementat ion A competitive processing industry makes efficient use of all grades Fresh export Local & regional Fresh market High value processed product Medium value processed product 1 And waste inside the factory Main product Waste Waste product Cassava starch Waste fiber Cattle feed Timber Sawdust Particle board Vanilla Pods after extraction Vanilla specks for ice-cream & yoghurt Dried mango & IQF Pulp on pip & over ripe pieces & offcuts & peels Dried mango rolls & juice Compost Pine apple juice Skins, cores, crowns Fiber, cattle feed, compost Meat Bones, meat on head & bones, intestines, hides Glue, sausage & processed meat products, leather Soy bean oil Press cake Poultry feed Waste products are often not profitable but help cover fixed costs.. 1 Which technology & scale do you invest in? Easy to manage Pro-poor Many beneficiaries Economies of scale Professionalism Not scalable market access Promoting talent to semi-industrial Economies of scale Managable by local entrepreneur Market access Product quality Not possible for every product Beware of opportunists Finding right technology Professionalisation Finding talent Finance Cottage industry Semi - industrial Fully industrial 1 Large invesment = Easier to finance Large impact possible high volume & scale = difficult to manage in short time Politicians get involved Complex technology in Africa: maintenance, repair, handling Selection of beneficiaries: considerations Cooperatives & women’s groups • Nice story but serious business or social activity? • Slow decision making & very limited professional capacity Large corporation with hired mgt • Involvement and sence of urgency of mgt ? • Very professional, but profitable? Small & Medium size entrepreneur • Dynamic and involved, but often risk averse • Willing to change and professionalise? Selection criteria for technology in Africa Trustworthy supplier Robustness Easy to operate 1 Operating cost Scale Effect of Power cuts Energy source Local presence supplier Complexity Mainte nance & repair Price Technology suppliers: a dilemma Good quality but expensive Very cheap, but quality? Service? Warranty? Quality, compact, Africa proof, reasonable price, but smaller assortment. Service? Simple, sturdy, cheap, but bulky. Service? Warranty? Efficiency? ? Introduction & testing of new equipment The best test is a working machine in a real company Public money is useful to reduce risk for early adopter, if results are public Never 100% for free: Make sure everyone feels the pain of failure Public organisations are ill equiped for small purchases Matching grants for selected entrepreneurs 1 Case Study: Mango processing in Mali and Burkina Faso M a k i n g s e n s e o f d e v e l o p m e n t Mali and Burkina Faso Context 1 large industrial juice & pulp plant Donor darlings 1 100,000s of small orchards Limited industrial base Cottage industry of drying & juice Large volumes of non exportable mango Organic & fair trade doctrine 150 drying facilities Francophone Land locked complex expensive transport Situation in 2009 Dried mango export crashed from 600 ton to 150 ton Total lack of innovation in drying technology No pulp export from large high tech plant DAFANI High local demand for juice; DAFANI popular but not profitable, small guys limited by packaging issue Question: what is the problem with export? Which Product, for which Market with which Technology ? 1 Plan of attack 1 2 3 4 5 6 1 Analyse EU, US, ME & local markets Analyse local production Find right equipment for local context, customer requirements & price level Define strategic options: Product + Market + Technology Define pilots Implement pilots Dried mango M a k i n g s e n s e o f d e v e l o p m e n t What consumers, retailers & importers tell us about dried mango • Burkina product is chewy, sticks to teeth, brown, limited flavour, inconsistent quality • South Africa is market leader and best quality • EU market is growing slowly • 2008 importers overestimated demand • No market in Middle East • Local demand limited by quality & price 1 Causes of quality issues in dried mango • • • • Outdated small ovens & no innovation in 15 years No pre-treatment, poor storage & transport conditions General hygene issues in production Stuck in organic-fair trade You can’t find a single principle of mango drying in these oven’s. (South African expert) They are baking the product, not drying (SA market leader) We don’t have a proper oven to work with. And each one is different ! (Entrepreneur) 1 Finding the right drying technology… •If South Africa is market leader, let’s copy them! • • • • • 1 2 small local manufacturers make specific mango ovens Simple & robust technology Obvious choice: Dryers for Africa container dryers One oven replaces 12 local ovens Better quality @ lower cost Pre-treatment, storage & transport… Finding the optimal combination for cost & quality • Pre-treatment: Asorbic & citric acid for organic, Metibysulfate for conventional • Cold Storage & refrigerated transport • Packaging under Nitrogen & co2 1 Pulp & Other products M a k i n g s e n s e o f d e v e l o p m e n t What pulp importers, juice & dairy companies tell us • India dominates with Alphonso (1200$/ ton) and Totapuri (600$ ton) • Many competitors in low segment (Peru, Brazil, Mexico) • Some intermediate varieties (800-1000$/ ton) • BF-Mali varieties unknown • Growing market but low end is saturated • Middle East buys lowest quality from India  uninteresting • US buys from South America • Opportunity: Individually Quick Frozen cubes in EU! 1 Issues in local juice & pulp production • Small producers are limited by packaging : too small for Tetra Pak & plastic, new glass too expensive • DAFANI • Uses high tech equipment for juice on local market  not profitable • Insufficient control of supply & processing • No real market knowledge & no partners to market new varieties 1 Strategic options • Conventional & organic dried mango for EU and US market with South African tunnel dryers • Pulp for EU market and juice for regional market with DAFANI • IQF for European market • Mango bars for local market 1 Pilots 1. Adaptation kit for current Atesta ovens 2. SA tunnel dryers, preferably in JV with SA company with local entrepreneurs who pay 50% of investment cost 3. Pre-treatment, storage & transport 4. Feasibility study mango bars local market 5. Support DAFANI with market research to asses demand and value of local varieties 6. Feasibility study IQF for EU market 1 Implementation M a k i n g s e n s e o f d e v e l o p m e n t Procurement of tunnel dryers… How difficult can it be? 1. Language barrier 2. Cultural barrier 3. World Bank procedures & local interpretation 4. Transport & payment 5. Adaptation to local context needed (electricity usage)  But 6 dryers are arriving now in Mali and BF! 1 Making a joint venture between competitors Hi, I’m your competitor, can I see your factory & cost price? Dawid van den Berg, LVA: 450 ton/ year in 3 factories in South Africa 1 Youssouf Coulibaly, Kene Yiriden, 30 ton/ year in Mali Visiting each other’s factories 1 Building mutual trust 1 How competitors are complementary 1 South Africa Mali & Burkina Faso More demand then production capacity Lack of demand & mkt capacity Lack of mango Mountains of mango Right Technology & know how Outdated technology & lack of knowledge Season: December – April Season: April - August 10kg fresh = 1kg dry 17kg fresh = 1kg dry 1500kg dry mango per employee per season 450kg per employee per season More equipment but lower depreciation per kg Mango & labour are 1/3d -1/2 the price of SA The outcome: a production agreement • LVA: training, HACCP support, lab testing and equipment procurement support, marketing • 3 Mali and 3 BF entrepreneurs: will produce and sell product wholesale to LVA • Fresh mango exporter Fruiteq: quality control, cold storage and logistics to EU customers from LVA 1 Local oven 2.0: a lesson in innovation South Africa Time invested: 6 months 15 years Budget: €5000 € millions 1 artisan, drying equipment manufacturer, 1 local expert CEAS, exporters, universities, manufacturers, EU engineers Result: premium quality, 2x capacity, ½ gas, HACCP, safe Result: 0 A lesson in innovation 1 1 Mali & Burkina Faso Feasibility study Mango bar for local market Hypothesis: A product with cheaper ingredients is more affordable for local people Consumer focus groups: • Quality is bigger issue than price • South African mango rolls from waste pulp are perceived as premium product! Next steps: • Pilot local production • Calculate cost, wholesale & retail price • Consumer tasting panel 1 IQF feasibility study 1. 1. 2. 3. 4. 1 Market research to confirm demand, competitors, buying criteria & CIF price Establish feasibility of frozen transport chain Find suitable equipment & calculate cost price Test if local varieties can be cut Present samples to importers to test acceptibility local varieties Questions? M a k i n g s e n s e o f d e v e l o p m e n t