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May 2012, World Bank, Washington Michiel Arnoldus

Agro-processing in Africa: how to make it work…. May 2012, World Bank, Washington Michiel Arnoldus. Agro-processing: issues and opportunities. The timeline of economic development. 2000. 2005. 2010. 2015 ?. The holy grail of development…. Fresh produce export to EU and US.

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May 2012, World Bank, Washington Michiel Arnoldus

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  1. Agro-processing in Africa: howto make it work… May 2012, World Bank, Washington Michiel Arnoldus

  2. Agro-processing: issues and opportunities

  3. The timeline of economic development 2000 2005 2010 2015 ? 1

  4. The holy grail of development… Freshproduce export to EU and US

  5. But freshproduce export has a downside… Politicalinstability & perishableproduce…notideal Vulnerabilitytorising transport cost Freshproduce = low addedvalue Whatto do with 2nd,3d & 4th grade? 1

  6. Advantages of processing Spreadingrisk More valueadded in country LongerSeason More turnover to cover overheads Using waste & byproducts 1

  7. The 2 most common myths There are mountains of unusedrawmaterial The market is huge Supply Processing Market 1

  8. Market is leading, not supply… Traditional developmentmodel Market research pineappleproducts Strategy Chooseproducts Sector strategy Pineapple surplus There aretons of pineapple..letsuseit Competitivity analyses Lets build a juice plant for export Help, we can’t sell! Some market research? Alternative model (medium term) Supply, processing marketing Ideal scenario if there is time… Implementation 1

  9. A competitive processing industrymakesefficientuse of allgrades Fresh export Local & regional Fresh market Highvalueprocessed product Medium value processed product 1

  10. And waste inside the factory Waste products are oftennotprofitable but help cover fixedcosts.. 1

  11. Which technology & scale do you invest in? Easy to manage Pro-poor Manybeneficiaries Economies of scale Professionalism Notscalable market access • Promoting talent to semi-industrial Cottage industry Economies of scale Managable by local entrepreneur Market access Product quality • Finding right technology • Professionalisation • Finding talent • Finance Notpossibleforevery product Beware of opportunists • Semi - industrial • Complex technology in Africa: maintenance, repair, handling • Large invesment = high volume & scale = difficultto manage • Politicians get involved Easier to finance Large impact possible in short time • Fullyindustrial 1

  12. Selection of beneficiaries: considerations

  13. Selection criteria fortechnology in Africa Trust-worthysupplier Localpresencesupplier Robust-ness Scale Operating cost Easy tooperate Effect of Power cuts Complexity Maintenance & repair Price Energy source 1

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

  15. Introduction& testingof new equipment The best test is a working machine in a real company Public money is usefultoreduce risk forearly adopter, ifresults are public Never 100% forfree: Make sureeveryonefeels the pain of failure Public organisations are illequipedfor small purchases Matching grantsforselected entrepreneurs 1

  16. Case Study: Mango processing in Mali and Burkina Faso

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

  18. Situation in 2009 Dried mango export crashedfrom 600 ton to 150 ton Total lack of innovation in dryingtechnology No pulp export from large high tech plant DAFANI High localdemandforjuice; DAFANI popular but notprofitable, small guyslimitedbypackaging issue Question: what is the problemwith export? WhichProduct, forwhichMarketwithwhichTechnology? 1

  19. Plan of attack 1 • Analyse EU, US, ME & localmarkets 2 • Analyse localproduction 3 • Find right equipment forlocal context, customer requirements & price level 4 • Definestrategic options: • Product + Market + Technology 5 • Define pilots • Implement pilots 6 1

  20. Dried mango

  21. Whatconsumers, retailers & importerstellusaboutdried mango • Burkina product is chewy, sticks toteeth, brown, limited flavour, inconsistent quality • South Africa is market leader and best quality • EU market is growingslowly • 2008 importersoverestimateddemand • No market in Middle East • Localdemandlimitedbyquality & 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 • Stuckin organic-fair trade They are baking the product, notdrying (SA market leader) You can’t find a single principle of mango drying in these oven’s. (South African expert) We don’t have a proper oven toworkwith. Andeachone is different ! (Entrepreneur) 1

  23. Finding the right dryingtechnology… • If South Africa is market leader, let’s copy them! • 2 small localmanufacturers make specific mango ovens • Simple & robusttechnology • Obvious choice: DryersforAfrica container dryers • One oven replaces 12 local ovens • Betterquality @ lowercost 1

  24. Pre-treatment, storage & transport… Finding the optimalcombinationforcost & quality • Pre-treatment: Asorbic & citric acid fororganic, Metibysulfateforconventional • Cold Storage & refrigerated transport • PackagingunderNitrogen & co2 1

  25. Pulp & Other products

  26. What pulp importers, juice & dairycompanies tellus • India dominateswithAlphonso (1200$/ ton) and Totapuri (600$ ton) • Manycompetitors in low segment (Peru, Brazil, Mexico) • Someintermediatevarieties(800-1000$/ ton) • BF-Mali varietiesunknown • Growing market but low end is saturated • Middle East buyslowestqualityfrom India  uninteresting • US buysfrom South America • Opportunity: Individually Quick Frozencubes in EU! 1

  27. Issues in localjuice & pulp production • Small producers are limitedbypackaging: too small for Tetra Pak & plastic, new glasstooexpensive • DAFANI • Useshigh tech equipment forjuice on localmarket  notprofitable • Insufficient control of supply & processing • No real market knowledge & no partners to market new varieties 1

  28. Strategicoptions • Conventional & organicdried mango for EU and US market with South African tunnel dryers • Pulp for EU market and juiceforregionalmarket with DAFANI • IQF for European market • Mango bars forlocal market 1

  29. Pilots • Adaptation kit forcurrentAtesta ovens • SA tunnel dryers, preferably in JV with SA company withlocal entrepreneurs whopay 50% of investment cost • Pre-treatment, storage & transport • Feasibilitystudy mango bars local market • Support DAFANI with market research toassesdemand and value of localvarieties • Feasibilitystudy IQF for EU market 1

  30. Implementation

  31. Procurement of tunnel dryers… How difficultcanitbe? • Language barrier • Culturalbarrier • World Bank procedures & localinterpretation • Transport & payment • Adaptation tolocal context needed (electricityusage)  But 6 dryers are arrivingnow in Mali and BF! 1

  32. Making a joint venture betweencompetitors Hi, I’myourcompetitor, can I seeyourfactory & costprice? Dawid van den Berg, LVA: 450 ton/ year in 3 factories in South Africa Youssouf Coulibaly, Kene Yiriden, 30 ton/ year in Mali 1

  33. Visitingeachother’sfactories 1

  34. Building mutual trust 1

  35. How competitors are complementary South Africa Mali & Burkina Faso More demandthenproductioncapacity Lack of demand & mktcapacity Lack of mango Mountains of mango Right Technology & knowhow Outdatedtechnology & 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 lowerdepreciation per kg Mango & labour are 1/3d -1/2 the price of SA 1

  36. The outcome: a production agreement • LVA: training, HACCP support, lab testing and equipment procurement support, marketing • 3 Mali and 3 BF entrepreneurs: willproduce and sell product wholesaleto LVA • Fresh mango exporterFruiteq: quality control, cold storage and logisticsto EU customersfrom LVA 1

  37. Local oven2.0: a lesson in innovation South Africa Mali & Burkina Faso Time invested: 6 months 15 years A lesson in innovation 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 1 1

  38. Feasibilitystudy Mango bar forlocal market Hypothesis: A product withcheaperingredients is more affordableforlocalpeople Consumer focus groups: • Quality is bigger issue thanprice • South African mango rollsfrom waste pulp are perceived as premium product! Next steps: • Pilot localproduction • Calculatecost, wholesale & retailprice • Consumer tasting panel 1

  39. IQF feasibilitystudy • Market research toconfirmdemand, competitors, buying criteria & CIF price • Establishfeasibility of frozen transport chain • Findsuitable equipment & calculatecostprice • Test iflocalvarietiescanbe cut • Present samples toimportersto test acceptibilitylocalvarieties 1

  40. Questions?

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