Localizing Food Production in South Africa · Without quality maize, it is not possible to produce quality maize meal and to compete with existing brands. Each mill will require 400

OVERVIEWESTABLISHMENT OF 24 MICRO MAIZE MILLS

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Localizing

Food

Production in South Africa

HOMEGROWN

Micro Maize Milling

A FABCOS initiative


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FABCOS Founding and Establishment

1988

FABCOS is one of 4 National Business Chamber in South Africa

FABCOS is the realization of a vision shared by those committed to the

development of small, medium and micro enterprises and the advancement of the informal economy

The year in which FABCOS was founded At the height of the struggle for liberation in SAFABCOS has a 27 year history

4


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FABCOS Vision

To bridge the divide between the formal and informal economies of South Africa and ensure that township and

rural businesses become part of the mainstream of the South

African economy

Founding Vision


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FABCOS Mission

Economic Empowerment, Self-reliance and Self-respect Pursuit of education, training, development and a sound management and administration

Structured and Formal

Low education and skill levels

High education and skill levels

Unstructured and Informal

South Africa is a highly dualistic economy characterised by high productivity (modern) on one hand and low productivity (informal) on the other with little interaction between them and a division along racial lines


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Structure of the FABCOS Organization

Chamber

• Unincorporated

• Constitution

• Elections

• President

• NEC

• Membership

• Provincial Structures

Programmes

• Section 21

• Access to Finance

• Business Support

• Access to Markets

• Business Opportunities

• Policy Advocacy

• Training & Dev

Investments

• FABCOS Trust

• HomeGrown

• BPC Capital & Commodities Trading

• Cape Malting House

• Veritech Communications

• Microtelco encubator

• Suppserve

• Business Doctors


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• Sectors represented by Associations in FABCOS

– Agriculture

– Hair and Beauty Salons

– Retail (Food and Bev)

– Construction

– Professions

– Arts

– Travel

– Informal Trading

– Clothing and Textiles

FABCOS Sector Associations


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FABCOS National Reach


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THE MICRO MAIZE

MILLING INITIATIVE


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IntroductionIn 2008 FABCOS commissioned TIPS (Trade and Industry Policy Strategies) to undertake research into the causes forthe rising costs of food and fuel and what the appropriate response should be from small businesses. The study

remarkably found that:

The study also revealed that lower income groups spend a higher proportion of their disposable income for foodon grain products (36.5%), meat products (15.1%) and vegetables (12%) than those with higher incomes. Higher

income groups spend more of their disposable income on a variety of foodstuffs, with meat as the highest

proportional expenditure at 24.1% followed by grains (16.2%) and prepared food (10%). For the period between

November 2005 and 2006, food price increases in rural and urban areas were similar. However, since early 2007,

rural prices have tended to grow faster than urban prices. One of the recommendations made by the study wasthat alternative value chains must be created that are shorter, more cost effective and much more inclusive.

The study led to FABCOS developing an industrial policy that prioritizes small business and aims to establish an

alternative value chain. The policy is premised on the ideal that communities need to be at the forefront of

tackling the food crisis. FABCOS has since approached HomeGrown, GWK and Buhler to jointly embark on a

journey of packaging food manufacturing facilities/plants in such a manner that they are localized, simplifiedand miniaturized. The goal was to deliver a compact “maize mill in a box” that produces maize meal using

farmers in the vicinity and supplies communities in the immediate catchment area at relatively lower prices.

All foodstuffs that are consumed in SA are transported in one form or another. Because of the distances

from consumers, the value chain is much longer and the accompanying costs much higher. This

contributes directly to the rising cost of food

Small businesses, particularly black farmers, are completely excluded from the value chain

The industry is highly concentrated and therefore controlled by a handful of farmers, silo owners and

manufacturers


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HOMEGROWN - Business Scope

Primary Agriculture

121 Farmers, 16,589 ha arable, 1,007 ha irrigable

Soil Testing and Analysis

Supply of Inputs and Access to

Finance

Incubation Support

Processing

24 Micro Maize Mills, Malting plant, 400

bakeries

Product Development

Milling, Baking, Malting and

Canning

Contract Manufacturing

Wholesale

4 Warehouses, 12 Distributors, 93 Owner-

drivers, 26 Products

Brand Development

Warehousing Distribution

Retail

12,000 Independent Retailers

Point of Sale, WiFiand online

ordering SolutionMerchandizing

M-PESA and other additional income streams


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Objectives and Purpose

- The “catch up” game needs an appropriate policy framework

- Traditional big business easily out-competes small business across many sectors.

- Policy implementation targets low-lying fruit in the formal and developed side of our economy

- Massive potential in our economy is excluded from meaningful participation.

- FABCOS emphasizes the central role of Small and Medium Scale Enterprises (SMEs).

FABCOS’ Industrial Policy Programme is pillared by 5 key strategies:

#1: Build Small Business Industrialists

#2: Boost Exports

#4: Environmental Efficiency is important for Sustainability

#5: Localize as much as Possible

#6: Participate in Global value chains

The PURPOSE of the Micro Milling Project is:

To develop an alternative value chain for the production of staple food, especially maize meal;

To localize the production of maize meal and thereby cut down on the production, transportation and

retail costs association therewith;

To empower local SMEs and retailers to become meaningful players in the food industry;

To promote the emergence of black industrialists; and

To contribute to the localization of job creation


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Strategic Operational Partners

The Foundation for African Business and Consumer Services (FABCOS) is 1 of only 2 nationalmember-based small business chambers that focus on township and rural businesses in SA. Theorganization was established in 1988 and offers benefits to members via 5 programmes: 1) Accessto Finance; 2) Access to Markets and Business Opportunities; 3) Training and Development; 4)Business Support Services and 5) Policy Advocacy. FABCOS members are organized into 10 sectorassociations of which the National Traders Association of SA, the African Farmers Association of SAand the Informal Traders Association are relevant examples. FABCOS, through its network ofmembers, is able to get any product into the market with relative ease. FABCOS owned PremierFoods and Milling until 2007. This gave FABCOS a hands on feel for the industry and what thechallenges and strategic levers for success are.

HomeGrown is a FABCOS company and brings together experts and technocrats in theprocessing and marketing sectors of the agricultural industry. HG leads the implementation ofFABCOS’ strategic interventions in agriculture. The company supplies agricultural inputs, logisticsservices, and productivity improvement solutions. The HG brand is used to wholesale product intothe market. HomeGrown is currently working with FABCOS on a farmer incubation programme inNC. HomeGrown currently operates and manages a fortified foods mill in Pietermaritzburg.

Bühler originates from Germany and has a country office & workshop in Jhb, SA. In SA, Buhleremploys 250 people in sales, technology, customer service, mechanical and automationengineering, manufacturing and logistics. What distinguishes Buhler from others is its globalcompetence, its leadership in engineering, technology and after sales services. Bühler is theworld’s leading provider of technology to the grain processing industry.


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Marketing and Brand Development Partners


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Public Sector Partners

• Department of Small Business Development• National Department of Agriculture• Local Municipalities• Provincial Departments of Agriculture• UN Food and Agriculture Organization• Department of Social Development


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Micro Maize Milling TechnologyMaize milling equipment is pre-assembled into 2 x 40 foot containers. This makes transporting the equipment

easier and enhances the security of the mill. All the equipment is ISO Certified. Upon arrival at the site location,

the containers are placed one on top of the other to form 2 levels. On installation the containerized mill is

connected to an electricity mains outlet or a generator. Additional equipment for receiving and packaging is

fitted outside the container

Container 1

Container 2


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Micro Maize Milling TechnologyThe Micro Maize Mill requires a solid concrete foundation and is covered by a steel shed to protect it against the

weather. The steel shed is a permanent structure. The mill is fully mobile. The containers are 18m long, 7m wide and 7m

high and produces 2 tons per hour (translating to 20 tons over a 10 hour working day and 400 tons over a 20 day

working month).

The mill takes one month to produce and 3 days to install and commission. Each mill produces super maize meal (55% ofthe raw materials) and special maize meal (40%). The rest (5%) is offal that is used for animal feed. Equipment supplied isof a mechanical and Electrical nature. Mechanical Equipment comprises equipment for aspiration, conveying,

elevation, intake, cleaning, de-germination, milling and manual packing. Electrical Equipment comprises a plant controlsystem, cables, cable racking and accessories for connection to field elements

Concrete Foundation

Steel Shed

Containers

AdditionalEquipment


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Critical Success Factors

CONSISTENT SUPPLY OF QUALITY RAW MATERIALWithout quality maize, it is not possible to produce quality maize meal and to compete with existing brands.

Each mill will require 400 tons per month. Maize is the second largest crop in SA after sugar cane. 83% is

produced by FS (40%), MP (22%) and NW (21%). It can therefore be expected that the majority of maize will be

sourced from these provinces in the beginning. The industry is R31 billion in size. There are 9,000 commercial

farmers farming on 3 million ha of land at a yield of 4 to 5t/ha. These farmers produce 98% of total production

and employ 150 000 farm workers. The maize that is produced is 60% white and 40% yellow. 4 million tons are

used for human consumption. The maize is transported 25% by rail and 75% by road. Initially, HomeGrown will

source raw material (on behalf of the mills) directly from the commercial farmers as close as possible to each

mill and within the proximity of the silo storage capacity. Over the short to medium term, FABCOS and GWK

will increasingly produce competent black small scale farmers through the FABCOS’ incubation programme.

The farmers will be organized as a cooperative of maize growers. They will be supplied with all the required

inputs (seed, fertilizer, chemicals) including finance and mentoring. The farmers will be selected based on their

proximity to the micro mills.

STORAGE AND LOGISTICSGrain silo storage capacity in SA is approximately 17.5m tons. Three co-ops own 70% of all domestic storage facilities.Most of the storage capacity is located in the provinces in the northern parts of the country.

Silo Owner Group Share

Senwes 31.2%

Afgri 21.0%

(NWK) 18.1%

Each micro mill will have the capacity to store 100 tons of raw material. This issufficient for a week’s production. The maize will be extracted from existing siloowners on a weekly basis. HomeGrown will collect from the silos and deliver tothe mills. Over time each mill will be expected to built enough storagecapacity to avoid third party silos and accompanying costs.


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PRODUCTIVITY AND COST EFFICIENCIES

Large and very large millers mill over 4 Metric Tons (MT) per hour, whilst Medium-scale millers mill 1 to 4 MT perhour and Small-scale mills are involved in village level processing of 100kg to 1 MT per hour. To be successfulsmall scale millers must overcome the following constraints in addition to high transport costs, the availability ofmaize and access to storage facilities:

– Brand name establishment

– Lack of adequate infrastructure

– Access to credit and seasonality of maize grain

– Cost inefficiencies: 30% percent to 59% percent higher cost than best practice

Maize MillersMarket Share %

Premier Foods 27%

Tiger Milling Co 20%

Pioneer (SASKO) 18%

Pride 10%

TOTAL 75%

The design of the micro maize mill is not an attempt to resemble the large mills but rather one aimed at producing analternative in an industry that is significantly over-concentrated and dominated by large players. Three products areproduced by the milling industry: super maize-meal for human consumption, Special maize meal and maize for animalfeed. Vertical Integration is high in the industry. Since 1996 informal millers increased to 296.

The maize milling industry employs approximately 5 300 workers . The average milling capacity utilisation is 3.7 milliontonnes or 79.5% of the available capacity. The potential capacity is in the order of 5 million tonnes. 22 companiesgenerate 85% of all maize milled within the country. The top 4 players are Pioneer, Premier Foods, Pride Milling andTiger Brands.

To improve productivity and efficiency levels in the mill, Buhler will trainHomeGrown personnel which personnel in turn will provide ongoingtechnical support and training to the mills. The technical support will come inthe form of ongoing productivity evaluations and at least 2 visits per monthaimed at straightening productivity and performance constraints


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WHOLESALE AND RETAILMaize is the most important staple food crop in SADC. Consumer maize meal choices are driven by factors such as

affordability, habit, taste, hygiene and convenience. Super Maize Meal and Special Maize Meal are the most popularchoices. The most important purchase location of commercial maize meal are supermarkets, followed by large co-operative mills and small local shops. The 6 major players in the formal retail industry are Pick’n Pay, Shoprite, Spar,Massmart, Fruit & Veg. City and Woolworths. To improve prices, HomeGrown collects from the mill and goes directly toretailers in townships and the mainstream market. Retailers that are targeted are those in the immediate vicinity of themill. There are no storage and warehousing facilities in between. All the retailers are recruited to become members ofFABCOS. For every mill location a market study is conducted to map all retailers and to solicit support and orders

upfront. Once installed, retailers are invited to a launch event where the products are unveiled and explained.

5 mainstream SUPER MAIZE MEAL brands in the market are trying to capture the hearts of the main market in SouthAfrica. HomeGrown has developed a marketing strategy to uniquely position itself.

IWISA ACE PRIDE SUPER SUN WHITE STAR

Premier Foods Tiger Milling Pride Milling Premier Foods Pioneer Foods


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Financial Model

The establishment of a single mill requires an

injection of R13.35 million

60% (R6.2 million) of the total CAPEX covers the

cost of the containerized mill.

Infrastructure and facilities (Land Improvements,

Finished Product Storage, Silos for Raw

Materials, Warehouse Shed and Generator)

take up a further 24%.

The rest (16%) is split between Delivery Costs,

Office Equipment and Working Capital.

REQUIRED START-UP FUNDS Amount TotalsFixed Assets

Site Preparation R 100 000

Milling Equipment R 6 200 000

Tools and Spare Parts Container R 80 000

Intake, Cleaning and Silo R 4 300 000

Office Equipment and Furniture R 120 000

Pallets R 300 000

Truck R 500 000

Forklift R 150 000

Total Fixed Assets 11 750 000

Operating Capital

Mill Delivery Costs R 200 000

CIPC and Legal Fees R 15 000

Packaging Material Inventory R 80 000

Site Branding and Uniforms R 50 000

Utility Deposits R 5 000

Training and Launch Event R 150 000

Utilities R 100 000

Working Capital R 1 000 000

Total Operating Capital 1 600 000

TOTAL REQUIRED FUNDS R 13 350 000


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The HOMEGROWN Brand

Approach to Branding and Retail

Trade Presenter

OUR CONTACT DETAILS

9 Cambridge Office Park

5 Bauhinia Street

Highveld Techno Park

Centurion

Tel: 012 880 0272

[email protected]

[email protected]

www.fabcos.org

www.homegrownagri.co.za

VFSA1723 Homegrown Maize Meal Packaging_v3.pdf

VFSA1723 Homegrown Maize Meal Packaging_v3.pdf

mailto:[email protected]

mailto:[email protected]

http://www.fabcos.org/

http://www.homegrownagri.co.za/

Documents

Localizing Food Production in South Africa · Without quality maize, it is not possible to produce quality maize meal and to compete with existing brands. Each mill will require 400