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Making sense of development May 2012, World Bank, Washington Michiel Arnoldus Agro-processing in Africa: how to make it work…

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Presentation on theme: "Making sense of development May 2012, World Bank, Washington Michiel Arnoldus Agro-processing in Africa: how to make it work…"— Presentation transcript:

1 Making sense of development May 2012, World Bank, Washington Michiel Arnoldus Agro-processing in Africa: how to make it work…

2 Making sense of development Agro-processing: issues and opportunities

3 The timeline of economic development 1

4 The holy grail of development… Fresh produce export to EU and US

5 But fresh produce export has a downside… 1 Vulnerability to rising transport cost Political instability & perishable produce…not ideal What to do with 2nd,3d & 4th grade? Fresh produce = low added value

6 Advantages of processing 1 Spreading risk Longer Season Using waste & by products More turnover to cover overheads More value added in country

7 The 2 most common myths 1 The market is huge There are mountains of unused raw material

8 Market is leading, not supply… 1 There are tons of pineapple..lets use it Help, we can’t sell! Some market research? Lets build a juice plant for export Traditional development model Pineapple surplus Market research pineapple products Strategy Supply, processing marketing Alternative model (medium term) Competitivity analyses Choose products Sector strategy Implementat ion Ideal scenario if there is time…

9 A competitive processing industry makes efficient use of all grades 1 Fresh export Local & regional Fresh market High value processed product Medium value processed product

10 And waste inside the factory Main productWasteWaste product Cassava starchWaste fiberCattle feed TimberSawdustParticle board VanillaPods after extractionVanilla specks for ice-cream & yoghurt Dried mango & IQFPulp on pip & over ripe pieces & offcuts & peels Dried mango rolls & juice Compost Pine apple juiceSkins, cores, crownsFiber, cattle feed, compost MeatBones, meat on head & bones, intestines, hides Glue, sausage & processed meat products, leather Soy bean oilPress cakePoultry feed 1 Waste products are often not profitable but help cover fixed costs..

11 Which technology & scale do you invest in? 1 Economies of scale Professionalism Not scalable market access Easy to manage Pro-poor Many beneficiaries Economies of scale Managable by local entrepreneur Market access Product quality Easier to finance Large impact possible in short time Promoting talent to semi-industrial Finding right technology Professionalisation Finding talent Finance Large invesment = high volume & scale = difficult to manage Politicians get involved Not possible for every product Beware of opportunists Complex technology in Africa: maintenance, repair, handling Cottage industry Semi - industrial Fully industrial

12 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?

13 Selection criteria for technology in Africa 1 Robust- ness Mainte nance & repair Trust- worthy supplier Effect of Power cuts Energy source Easy to operate Price Scale Operating cost Local presence supplier Complexity

14 Technology suppliers: a dilemma Good quality but expensive Simple, sturdy, cheap, but bulky. Service? Warranty? Efficiency? Very cheap, but quality? Service? Warranty? Quality, compact, Africa proof, reasonable price, but smaller assortment. Service? ?

15 Introduction & testing of new equipment 1 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

16 Making sense of development Case Study: Mango processing in Mali and Burkina Faso

17 Mali and Burkina Faso Context 1 Large volumes of non exportable mango Land locked complex expensive transport 1 large industrial juice & pulp plant Franco- phone Limited industrial base Cottage industry of drying & juice 100,000s of small orchards 150 drying facilities Donor darlings Organic & fair trade doctrine

18 Situation in 2009 1 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 Question: what is the problem with export? High local demand for juice; DAFANI popular but not profitable, small guys limited by packaging issue Which Product, for which Market with which Technology ?

19 Plan of attack 1 1 1 Analyse EU, US, ME & local markets 3 3 Find right equipment for local context, customer requirements & price level 2 2 Analyse local production 4 4 Define strategic options: Product + Market + Technology 5 5 Define pilots 6 6 Implement pilots

20 Making sense of development Dried mango

21 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

22 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 1 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)

23 Finding the right drying technology… 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 If South Africa is market leader, let’s copy them! 1

24 Pre-treatment, storage & transport… Pre-treatment: Asorbic & citric acid for organic, Metibysulfate for conventional Cold Storage & refrigerated transport Packaging under Nitrogen & co2 Finding the optimal combination for cost & quality 1

25 Making sense of development Pulp & Other products

26 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

27 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

28 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

29 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

30 Making sense of development Implementation

31 Procurement of tunnel dryers… 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! How difficult can it be? 1

32 Making a joint venture between competitors Dawid van den Berg, LVA: 450 ton/ year in 3 factories in South Africa Hi, I’m your competitor, can I see your factory & cost price? 1 Youssouf Coulibaly, Kene Yiriden, 30 ton/ year in Mali

33 Visiting each other’s factories 1

34 Building mutual trust 1

35 How competitors are complementary 1 More demand then production capacity South Africa Lack of mango Right Technology & know how Season: December – April 10kg fresh = 1kg dry 1500kg dry mango per employee per season More equipment but lower depreciation per kg Mali & Burkina Faso Lack of demand & mkt capacity Mountains of mango Outdated technology & lack of knowledge Season: April - August 17kg fresh = 1kg dry 450kg per employee per season Mango & labour are 1/3d -1/2 the price of SA

36 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

37 Local oven 2.0: a lesson in innovation A lesson in innovation 1 Time invested: 6 months 1 South Africa Mali & Burkina Faso 15 years Budget: €5000 € millions Result: premium quality, 2x capacity, ½ gas, HACCP, safe CEAS, exporters, universities, manufacturers, EU engineers Result: 0 1 artisan, drying equipment manufacturer, 1 local expert

38 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

39 IQF feasibility study 1.Market research to confirm demand, competitors, buying criteria & CIF price 1.Establish feasibility of frozen transport chain 2.Find suitable equipment & calculate cost price 3.Test if local varieties can be cut 4.Present samples to importers to test acceptibility local varieties 1

40 Making sense of development Questions?

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