High-Level Agri-Park Master Business Plan: Lejweleputswa District Municipality
Revision 0 28 April 2016
Prepared by: CSIR Enterprise Creation for Development Address: PO Box 395, Pretoria, 0001
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EXECUTIVE SUMMARY This document outlines a high-level business case for the Lejweleputswa District Municipality (LDM) Agri-Park (AP) and is based on a feasibility study conducted by CSIR Enterprise Creation for Development (ECD) on behalf of the Department of Rural Development and Land Reform (DRDLR). The LDM is one of four districts within the Free State Province, and has five local municipalities, namely Masilonyana, Matjhabeng, Nala, Tokologo and Tswelopele. A DRDLR initiated AP will typically comprise of the following three basic units:
A central Agri-Hub (AH)
Farmer Production Support Unit(s) (FPSU)
A Rural-urban Market Centre (RUMC) The Lejweleputswa AP, more specifically, will comprise of an AH situated in Wesselsbron (Nala Municipality) and three FPSUs. One FPSU will primarily support broiler farmers and will be situated in Odendaalsrus (Matjhabeng Municipality). The other two, both intended to support beef cattle farmers will be situated in Ventersburg (Matjhabeng Municipality) and Dealsville (Tokologo Municipality). A RUMC will not be established as part of this AP. The LDM AP is diagrammatically presented below.
The LDM AP will initially focus on three prioritised value chains, namely poultry, grain (maize, wheat and sunflower) and beef cattle. At a later stage, the pig and wool sheep value chains could be considered for inclusion. It is envisaged that the central AH will comprise of the following business opportunities: poultry abattoir, broiler hatchery; and livestock feedmill. One of the factors considered in locating the FPSUs is the environment
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and food safety as they both deal with livestock. The poultry FPSU had to be situated where there are broiler farming developments, including possible new projects by DRDLR. The cattle FPSUs are meant to reach cattle farmers who are almost evenly distributed throughout the LDM. The services offered by the AH will include technical and business management training to build capacity for businesses to operate optimally. Technical services will also include maintenance service to the processing facilities, poultry farms, and cattle FPSUs infrastructure (cattle farmers will have to maintain their own facilities) Prior to the development of this business case, a high-level feasibility study was conducted. The results from the market, technical and financial assessment indicated that the Lejweleputswa AP could be viable based on the following assumptions:
The AP consists of an AH and three FPSUs
The AH will house, integrate, and synchronise the business operations of three processing businesses which will operate autonomously
The AP can secure 10% of revenue from these businesses as its revenue
The production volumes are phased in at 50% of total production capacity for the first three years, 80% for year four to six and 100% from year seven onwards
Grant funding of R118 188 978 million is secured prior to AP establishment A total investment of R1118 188 978 grant funding will be needed over a two year period as follows: R108 819 459 (establishment costs) for year zero and R9 369 519 in year one of operation. If the required grant funding could be secured, the business will have a positive cash flow from the start. Therefore it is critical that the involved stakeholders make a long term commitment to fund the establishment and operations of the business. The results from preliminary financial modelling show that if a discount rate of 7% is used:
The net present value (NPV) is R19 814 261
The internal rate of return (IRR) is 9.24%
The payback period is 11.14 years
Because the NPV is positive and the IRR is greater than the discount rate, the business could be financially feasible
It is important to note that this business case was developed based on a high-level feasibility analysis and is not meant to be used for the implementation of the Lejweleputswa AP. As a reminder, ECD proposed that the work to develop an AP be structured according to the following phases:
Phase 1: Feasibility study
Phase 2: Development of the business case
Phase 3: Detailed business planning
Phase 4: Agri-park establishment
Phase 5: Operation and aftercare Phases 1 and 2 have now been completed, and work on Phase 3 (Detailed business planning) would need to be undertaken prior to establishment. The activities that will be undertaken during Phase 3 will include the incorporation of the detailed business opportunity assessments, detailed site or property development assessments, and
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detailed unpacking of the ownership and institutional arrangements for the district municipality.
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TABLE OF CONTENTS
EXECUTIVE SUMMARY ..................................................................................................... 2
GLOSSARY OF TERMS ..................................................................................................... 7
LIST OF TABLES ................................................................................................................ 8
LIST OF FIGURES ............................................................................................................ 10
1 INTRODUCTION ....................................................................................................... 11
1.1 Intent/Rationale............................................................................................. 12
1.2 Opportunity/Business description ................................................................. 13
1.3 Feasibility results .......................................................................................... 13
2 BUSINESS AND SERVICES .................................................................................... 15
2.1 Policy and strategy alignment ....................................................................... 15
2.2 Provincial and local economic context .......................................................... 15
2.3 Location / Site ............................................................................................... 17
2.4 Business concept .......................................................................................... 17
2.5 Institutional arrangements ............................................................................ 18
2.6 Services ........................................................................................................ 19
3 MARKET RESEARCH, ANALYSIS AND PLAN ...................................................... 20
3.1 Customers .................................................................................................... 20
3.2 Market demand and sales forecast ............................................................... 20
3.3 Market prices ................................................................................................ 21
3.4 Competition and competitive edge................................................................ 21
3.5 Marketing and distribution ............................................................................. 22
4 MANUFACTURING AND OPERATIONS PLAN ...................................................... 22
4.1 Service inputs ............................................................................................... 22
4.2 Facility .......................................................................................................... 23
4.3 Equipment .................................................................................................... 25
4.4 Regulatory and legal issues .......................................................................... 26
4.5 Systems, processes and procedures ............................................................ 26
4.6 Supply chain management ........................................................................... 28
5 HUMAN RESOURCES AND GOVERNANCE .......................................................... 29
5.1 Key management personnel ......................................................................... 29
5.2 Industry role players ..................................................................................... 29
5.3 Human resource requirements ..................................................................... 30
5.4 Governance .................................................................................................. 30
6 RISK MANAGEMENT ............................................................................................... 32
7 FINANCIAL PLAN AND ECONOMICS OF THE BUSINESS ................................... 33
7.1 Costs ............................................................................................................ 33
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7.2 Predicted financial statements ...................................................................... 36
7.3 Financial analysis ......................................................................................... 39
7.4 Economic benefits of the business ............................................................... 39
APPENDIX A - MARKET ANALYSIS ............................................................................. 40
A.1. INTRODUCTION .......................................................................................... 41
A.2. HIGH-LEVEL OPPORTUNITIES .................................................................. 41
A.3. MARKET ANALYSIS .................................................................................... 43
A.4. SELECTED OPPORTUNITIES..................................................................... 61
APPENDIX B - TECHNICAL ANALYSIS ........................................................................ 67
B.1. INTRODUCTION .......................................................................................... 68
B.2. OPPORTUNITIES AND SERVICES ............................................................. 68
B.3. AGRI-PARK CONCEPT ............................................................................... 86
B.4. LOCATION ................................................................................................... 89
B.5. EQUIPMENT ................................................................................................ 89
B.6. SPACE REQUIREMENTS ............................................................................ 90
B.7. SUPPLY CHAIN LOGISTICS ....................................................................... 94
B.8. REGULATORY COMPLIANCE .................................................................... 94
B.9. ORGANISATIONAL DESIGN ....................................................................... 97
B.10. RISK MANAGEMENT ................................................................................. 100
APPENDIX C - FINANCIAL ANALYSIS ....................................................................... 102
C.1. INTRODUCTION ........................................................................................ 103
C.2. COSTS ....................................................................................................... 103
C.3. SALES ........................................................................................................ 106
C.4. PREDICTED TEN YEAR FINANCIAL STATEMENTS ............................... 107
C.5. FINANCIAL ANALYSIS .............................................................................. 111
C.6. ECONOMIC BENEFITS OF THE PROPOSED AGRI-PARK ..................... 112
APPENDIX D - FINANCIAL ASSUMPTIONS ............................................................... 114
APPENDIX E - REFERENCES ..................................................................................... 126
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GLOSSARY OF TERMS
AH - Agri-hub
AP - Agri-park
APAP - Agricultural Policy Action Plan
ARC - Agricultural Research Council
CSIR - Council for Scientific and Industrial Research
DAFF - Department of Agriculture, Forestry and Fisheries
DAMC District Agriculture Management Committee
DBSA - Development Bank of Southern Africa
DRDLR - Department of Rural Development and Land Reform
ECD - Enterprise Creation for Development
FPSU - Farmer Production Support Unit
FSA - Vrystaat Landbou (Free State Agriculture)
FSDARD - Free State Department of Agriculture and Rural Development
FSGDS - Free State Growth and Development Strategy
FSSDF - Free State Spatial Development Framework
GDP - Gross domestic product
GGP - Gross geographic product
(MTSF) Medium term Strategic Framework
GrainSA - Grain South Africa
IDC - Industrial Development Cooperation
IDP - Integrated Development Plan
IGDP - Integrated Growth and Development Plan
IPAP - Industrial Policy Action Plan
IRR - Internal Rate of Return
LDM - Lejweleputswa District Municipality
LED - Local Economic Development
LRAD - Land Redistribution for Agricultural Development
NAPOTT - National Agri-parks Operating Task Team
NDP - National Development Plan
NGP - New Growth Path
NPV - Net Present Value
OHS Occupational health and safety
PDI - Previously disadvantaged individual
PLAS - Proactive Land Acquisition Strategy
(DCGTA) Department of Cooperative Governance and Traditional Affairs
RADP - Recapitalisation and Development Programme
REID - Rural Enterprise and Industrial Development
RID - Rural Infrastructure and Development
RUMC - Rural-Urban Market Centre
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LIST OF TABLES Table 1: Sales projections for the AP businesses .............................................................. 20
Table 2: Projected AP revenue .......................................................................................... 21 Table 3: Market prices for the AP products ........................................................................ 21 Table 4: Parent cattle stock ............................................................................................... 22 Table 5: Transport equipment ............................................................................................ 22 Table 6: Production space ................................................................................................. 25
Table 7: AH space administration requirements ................................................................ 25 Table 8: Utilities cost .......................................................................................................... 25 Table 9: AP equipment ...................................................................................................... 26 Table 10: Opportunity throughput ...................................................................................... 27 Table 11: Quality management systems ............................................................................ 28
Table 12: List of industry role players ................................................................................ 29
Table 13: AP human resources requirements .................................................................... 30
Table 14: AP risks .............................................................................................................. 32 Table 16: Projected income statement............................................................................... 36 Table 17: Projected balance sheet .................................................................................... 37 Table 18: Projected cash flow statement ........................................................................... 38
Table 19: Estimated jobs from business ............................................................................ 39 Table 20: Typical intermediate and final products .............................................................. 42
Table 21: Estimated SA beef, mutton and pork consumption (2015) ................................. 48 Table 22: Poultry abattoirs in LDM ..................................................................................... 50 Table 23: Total cattle head count, slaughtering, production and consumption .................. 52
Table 24: Beef export by province in percentage (%) ........................................................ 55 Table 25: Red meat abattoirs in LDM ................................................................................ 56
Table 26: Estimation of grain demand for the feed-mill ...................................................... 59 Table 27: Parent herd size and composition ...................................................................... 61
Table 28: Poultry role players ............................................................................................ 63 Table 29: Poultry risks ....................................................................................................... 63 Table 30: Livestock feed role players ................................................................................ 64 Table 31: Livestock feed risks ............................................................................................ 65
Table 32: Beef cattle trading role players ........................................................................... 66 Table 33: Beef cattle trading risks ...................................................................................... 66 Table 34: Utilities ............................................................................................................... 71 Table 35: Abattoir building cost .......................................................................................... 71 Table 36: Abattoir processing plant equipment .................................................................. 72
Table 37: Abattoir auxiliary equipment ............................................................................... 72 Table 38: Broiler farms utility cost ...................................................................................... 74 Table 39: Broiler house equipment .................................................................................... 75 Table 40: Hatchery building cost ........................................................................................ 76 Table 41: Hatchery equipment ........................................................................................... 76
Table 42: Hatching-egg farms utility cost ........................................................................... 77 Table 43: Hatching-egg chicken house equipment ............................................................ 78
Table 44: Feed-mill utility cost ........................................................................................... 79 Table 45: Feed-mill building cost estimates ....................................................................... 80 Table 46: Feed-mill equipment .......................................................................................... 80 Table 47: Calf crop estimation ........................................................................................... 82 Table 48: Cattle breeding ................................................................................................... 82 Table 49: Parent herd size, composition and costs ........................................................... 82
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Table 50: Total distance for transporting cattle .................................................................. 84
Table 51: Transportation for the AH and FPSU based businesses .................................... 85 Table 52: List of AP vehicles .............................................................................................. 85
Table 53: AP plant and equipment cost ............................................................................. 89 Table 54: AP space requirement ....................................................................................... 90 Table 55: AH space requirements ..................................................................................... 90 Table 56: FPSUs total area ................................................................................................ 93 Table 57: General legislation ............................................................................................. 94
Table 58: Food safety legislation ....................................................................................... 95 Table 59: AP human resources requirements .................................................................... 98 Table 60: Agri-Park risks .................................................................................................. 101 Table 61: Investment costs .............................................................................................. 104 Table 62: Sales forecast for AP ....................................................................................... 107
Table 63: Projected income statement............................................................................. 108 Table 64: Projected balance sheet .................................................................................. 109
Table 65: Projected cash flow statement ......................................................................... 110 Table 66: Sensitivity – Revenue collected ....................................................................... 112 Table 67: Sensitivity analysis – labour costs .................................................................... 112 Table 68: Jobs created at opportunity level ..................................................................... 113
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LIST OF FIGURES Figure 1: Lejweleputswa AP business concept .................................................................. 18
Figure 2: AP structure ........................................................................................................ 19 Figure 3: Agri-park process flow ........................................................................................ 24 Figure 4: Governance ........................................................................................................ 30 Figure 5: Total fixed costs split .......................................................................................... 34 Figure 6: Indirect costs....................................................................................................... 35
Figure 7: Poultry meat contribution by province – 2015 ..................................................... 45 Figure 8: South African poultry meat import / export trends ............................................... 47 Figure 9: Major South African producers ........................................................................... 50 Figure 10: SA cattle slaughtering per province .................................................................. 53 Figure 11: SA beef industry import and export ................................................................... 55
Figure 12: South African yellow maize import trend ........................................................... 57
Figure 13: Trends of yellow maize processed for livestock feed ........................................ 58
Figure 14: Poultry supply chain .......................................................................................... 62 Figure 15 : Livestock feed supply chain ............................................................................. 64 Figure 16: Beef cattle trading supply chain ........................................................................ 65 Figure 17: Poultry meat production process ...................................................................... 70
Figure 18: Chicken abattoir floor diagram .......................................................................... 71 Figure 19: Broiler production process ................................................................................ 73
Figure 20: Broiler house floor plan ..................................................................................... 74 Figure 21: Day-old chick production process ..................................................................... 75 Figure 22: Hatchery floor diagram ..................................................................................... 76
Figure 23: Hatching egg production process ..................................................................... 77 Figure 24: Hatching-egg chicken house floor plan ............................................................. 78
Figure 25: Feed processing ............................................................................................... 79 Figure 26: Feed-mill floor diagram ..................................................................................... 80
Figure 27: Process flow for the breeding and sales program ............................................. 83 Figure 28: Transport routes to AP sites ............................................................................. 84 Figure 29: AP concept ....................................................................................................... 87 Figure 30: AH administration building ................................................................................ 91
Figure 31: AH site map ...................................................................................................... 92 Figure 32: FPSU 1 – Poultry .............................................................................................. 93 Figure 33: FPSU 2 and 3 – Cattle ...................................................................................... 94 Figure 34: AP structure ...................................................................................................... 97 Figure 35: Agri-Park Organogram .................................................................................... 100
Figure 36: Total fixed costs breakdown ........................................................................... 105 Figure 37: Indirect costs breakdown ................................................................................ 106
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1 INTRODUCTION The Economic and Information and Communication Technology Infrastructure Chief Directorate of the Department of Rural Development and Land Reform (DRDLR) was tasked with the establishment of Agri-Parks in each of South Africa’s 44 district municipalities. The CSIR’s Enterprise Creation for Development (ECD) unit was thus commissioned to develop a master AP business plan for the Lejweleputswa District Municipality (LDM). The municipality is one of the four district municipalities in the Free State Province (FS) and situated in the north-western part of the province. LDM comprises of five local municipalities, namely Tswelopele, Masilonyana, Matjhabeng, Tokologo and Nala. The ultimate goal of the establishment of an AP in the South African context is to support and develop the emerging black farmers to be competitive and able to supply the market sustainably, with quality products. The concept of its development involves the use of farmer incubation, collective farming, agri-cluster and eco-village development, as well as the coordination of agricultural activities in identified geographic areas. This also includes the traditional model of an agricultural business park or hub, where multiple tenants and owners operate under a common management structure, and where a range of productive agri-horticultural enterprises may exist. The AP will comprise of three basic units:
Farmer production support units (FPSUs) – a rural smallholder farmer outreach and capacity building unit that links farmers with markets. Its functions include primary produce collection; as well as provision of storage capacity; processing capabilities for the local market; and extension services (including mechanisation).
An agri-hub (AH) – a production; equipment hire; processing; packaging; logistics; innovation; and training unit.
A rural urban market centre (RUMC) – possibly one per province – for:
Linking rural, urban, and international markets through contracts.
Acting as a holding-facility, releasing produce to urban markets, based on seasonal trends.
Providing market intelligence and information feedback to the agri-hub and FPSU, using the latest Information and communication technologies.
The RUMC does not form part of Lejweleputswa AP as it is not district based. It is planned to be established next to large market centres and can be shared by a number of APs. ECD proposed that the entire AP programme be structured according to the following phases:
Phase 1: Feasibility study This phase involved engagement with various stakeholders, especially the DRDLR, to develop the business concept for the district municipality. It incorporated an industry and technical overview, as well as a situational analysis. It concludes by highlighting the various issues that need to be addressed in the district to ensure that the proposed AP has the greatest possible chance of success. Understanding the intent and gaining better insights into the local and regional context assisted in identifying at least three preliminary opportunities that could lay the foundation for further development in the district municipality.
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Phase 2: Development of the business case This phase involved the development of the master AP business plan or high-level business case for the district municipality.
Phases 1 and 2 were completed and the next three phases are still to be carried out to complete the process.
Phase 3: Detailed business planning The activities that will be undertaken during this phase will include; the incorporation of the detailed business opportunity assessments, detailed site or property development assessments, and detailed unpacking of the ownership and institutional arrangements for the district municipality.
Phase 4: AP establishment Once a bankable business plan has been drafted, funding from both public and private sector sources can be sought, and establishment of the proposed AP will commence.
Phase 5: Operation and aftercare After the AP has been established, technical assistance and support needs to be provided to the newly established entity to ensure that it remains focused on both the social and developmental objectives for which it has been established. This support and assistance will also ensure that operations remain compliant with the expectations of the primary investors, especially the South African government.
A structured approach was followed to develop the AP master business plan. The feasibility study was conducted and it entailed firstly conducting LDM situation analysis, primarily focusing on the socio-economic, primary agriculture and agro-processing situation. The outcome of the situation analysis was the identification of three key agricultural commodities. From these commodities, five business opportunities were identified for further assessment. A market assessment of each opportunity was then conducted to determine a potential market gap. A high level technical feasibility was also conducted on each of the opportunities in order to identify a market gap. High level financial calculations, focusing on key elements like revenue, cost of sales and major operational expenses (manpower and transport) were also conducted. The results of the feasibility study were then used as a basis for the concept design of the AP which included determining the opportunities that must be based at the AH; the services that the AH and FPSU must offer; and configuring both the physical and operational structures of the AH and FPSU. Finally a financial model was developed and analysed to determine if the AP could be financially viable as a business in the long-term. This document therefore presents the AP master business plan which is the outcome of the first two phases. 1.1 Intent/Rationale The eradication of rural poverty is one of the most critical challenges facing the country. Despite a great deal of work done by government and other sectors since 1994; rural poverty still persists today. The impact of poverty alleviation interventions has been
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considerably lower than expected. It seems that the range or quality of development and anti-poverty programmes cannot be attributed as the cause. The key issues inhibiting the eradication of poverty appear to be failure to coordinate developmental activities and providing an integrated package of services that match local priorities. The implementation of the AP seeks to overcome these challenges, and present a new model that brings together the relevant resources and stakeholders in an integrated and socially inclusive manner. The model therefore seeks to strengthen existing partnerships and create new ones within all three spheres of government; the private sector; and civil society. Partnerships with the Department of Agriculture, Forestry and Fisheries (DAFF) and the Department of Cooperative Governance and Traditional Affairs (DCGTA) will therefore also be critical. The AP should therefore also seek to:
Be based on economic advantage
Have all elements of the VC for dominant products
Ultimately lay the foundation for rural industrialisation. 1.2 Opportunity/Business description The primary goal of the Lejweleputswa AP will be capacity building of emerging famers in LDM so that they can become competitive and sustainably supply good quality products to the market. That will involve providing technical and business management skills; facilitation of access to finance by farmers; and mechanisation by renting facilities to primary farmer and agro-processors. The Lejweleputswa AP will be a privately owned business (that is a Proprietary Limited (Pty Ltd)) but with strong government support, particularly the DRDLR and DARD. The business is also expected to have strong linkages and partnerships with other government departments and agencies and established agribusinesses. These will include the DAFF and Land Bank. The main revenue source for AP will be a contribution of a maximum of 10% of revenue of each business that is supported and/or rent manufacturing facilities from the AP. It is also expected to generate revenue from providing transport services to the envisaged businesses. 1.3 Feasibility results This section presents a summary of the results of the high level feasibility study. Three opportunities namely a broiler abattoir; feed-mill for livestock feed and cattle breeding and market linkage initiative were identified as opportunities after a high-level market analysis was carried out (Refer to APPENDIX A - attached to this document):
Poultry abattoir – the prospects of a successful newly established (or existing one supported by the AP) abattoir processing 5 000 broiler per day (1 200 000 per annum) were high:
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Market trends, including current market size, historical and projected growth trends and possible market share are generally favourable to a new entrant who has access to properly structured support from an intervention like the AP
The current net import situation, assuming that regulations (tariffs) remain favourable, also show that there is a gap that well-supported and competitive broiler producers and meat processors need to fill
The competition that the abattoir is likely to face seems normal and healthy
The potential market gap (size) and the target market share (0.12% on the national, 2.4% of the FS and 6.4% of the LDM market sizes) were estimated.
Livestock feedmill - it was determined that the feedmill is a potential opportunity, but only on condition that it was supplying the AP businesses and had long-term supplier agreement with emerging grain farmers
The current market conditions, especially the shortage of yellow maize (main ingredient in broiler feed), is an entry barrier, particularly to broiler feed producers
As a result of the above situation, feed has also become too expensive for emerging broiler farmers. Therefore the “AP livestock feedmill”, which will possibly be owned by the abattoir owners, will address this challenge
Cattle breeding and market linkage initiative – the initiative is meant to be a long-term solution to the lack of capacity regarding the emerging farmers
Three primary farming business opportunities were identified in addition to the above three business opportunities. The poultry industry practice is to either integrate businesses vertically in the poultry value chain (from hatching-egg farms to abattoirs) or have contract suppliers along the value chain. In line with this practice, it was proposed that the following, who will be contract suppliers, be established:
Broiler farmers (first tier), supplying broilers to the abattoir
Hatchery (second tier), supplying day-old chicks to the broiler farmers
Hatching-egg farmers (third tier), supplying fertilised eggs to the hatchery It was not necessary to conduct individual market assessments for each of the abovementioned opportunities as they will be wholly dependent on the poultry abattoir for which market gap was identified. The results of the technical assessment indicated that it would be feasible to establish the production facility and operate each of the opportunities identified (Refer to APPENDIX B - attached to this document for more details). A summary of key results of the technical feasibility study is a follows:
The total costs estimate for the abattoir, broiler farms, hatchery, egg farm and feedmill is R32 961 452 for the processing plants
The opportunities are estimated to create approximately 240 jobs in total
It is estimated that a parent herd size of 5 936 cattle (5 708 cows and 228 bulls) at a cost of R45 890 411, will be required in order to achieve a 25 000 herd size in five years
Transport service which will cost R8 065 449 for a fleet of vehicles will be provided by the AP to all the businesses except the feedmill
The AP will also provide maintenance service for the buildings and processing plant to all the AP businesses except individual cattle farms.
Based on the above business opportunities it was estimated that a total of 20 116 m2 will be needed for the whole AP infrastructure (all buildings and production space).
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2 BUSINESS AND SERVICES The details covered from this section onwards are mainly about the AP, with little focus on the individual AP businesses. 2.1 Policy and strategy alignment Alignment of major economic initiatives to the relevant policies and strategies is very important. This enables maximisation of resource allocation and avoids unnecessary duplication of interventions. The following key policies and strategies at national, provincial and local levels were assessed in line with the establishment of the Lejweleputswa AP. The AP is aligned to the following key policies and strategies at national level:
National Development Plan (NDP) – Vision 2030
New Growth Path (NGP) - 2014-2019
Agricultural Policy Action Plan (APAP) - 2015-2019
Industrial Policy Action Plan (IPAP)
Medium term Strategic Framework (MTSF) - 2014-2015
Integrated Growth and Development Plan (IGDP) - 2011-2031 The AP initiative is also aligned to the following provincial and local strategies and policies:
The Free State Department of Rural Development and Land Reform (FS-DRDLR) Strategic Plan
The Free State Department of Agriculture and Rural Development (FS-DARD) Strategic Plan
Provincial Growth and Development Strategy (PGDS)
LDM Industrial Development Plan (IDP) , 2015
Local municipalities IDPs In terms of programmes and projects, the AP will link with the economic vision of the district as well as existing projects, including:
Free State poultry cluster by Rural Enterprise and Industrial Development (REID)
Lejweleputswa poultry hub – Virginia Broiler by REID
Poultry projects by the FS-DRDLR
Planned broiler production by Lejweleputswa DARD – broiler houses constructed
Game-farming, prickly pear project, aquaponics and hydroponics, pomegranates and/or olive projects planned by Tokologo Local Municipality
Grain and cattle projects funded by Recapitalisation and Development Programme (RADP) throughout the district
2.2 Provincial and local economic context 2.2.1 Provincial context
The FS, situated at the centre of the country, was by mid-2015 estimated to have a population of 2 817 900 which was 5.1% of national population. It is 335 352 square kilometres (km2) or 12.9 million hectares (ha) in size with almost 11.6 million ha in the
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province suitable for agricultural purposes and natural veld. It has consistently made the second lowest GDP contribution to the country’s economy, with the neighbouring Northern Cape Province being the lowest. Some of the key findings regarding the FS were as follows:
In line with the national trends the FS agriculture, fisheries and forestry (AFF) sector is the third lowest contributor to the provincial gross geographic product (GGP), at 4%
Despite the low contribution to the FS GGP, the provincial AFF is the third largest contributor to the South African AFF sector, only after the Western Cape and KwaZulu-Natal
The FS is a major producer of crops like sorghum, sunflower, maize and potatoes in the country and is seen as the “bread basket” of the nation
Due to mainly continuous technological improvement and improved farming, employment in the provincial AFF sector has been declining over years.
Based on the above the following conclusions were made regarding the provincial situation:
The decline of AFF sector could only be halted if there is strong cooperation among key stakeholders, particularly DRDLR; DARD; and experienced farmers and agri-businesses that are mentoring emerging famers.
If the provincial AFF continues to make such a significant contribution nationally, the AP would only have to formalise and coordinate the already well developed agricultural infrastructure and skills in the province, for the benefit of emerging farmers.
2.2.2 Local economic context
LDM is situated in the north-western part of the Free State province and comprises of five local municipalities, namely Masilonyana, Matjhabeng, Nala, Tokologo and Tswelopele. Its total population was estimated to be 627 626 in 2011, with Matjhabeng being the highest populated at 64.8% of the district population. Even though mining has been decreasing since the mid-nineties, the LDM economy is still heavily reliant on it. Some of the key socio-economic trends are as follows:
At 36.5%, the unemployment in LDM in 2011 was the highest in the province out of the five district municipalities
LDM has historically been the largest producer of maize in the whole Free State province, and most likely the largest maize producing region in the country
Compared to other districts, LDM has historically had more challenges in the AFF sector, particularly regarding emerging farmers.
LDM has approximately 5 micro, 18 small, and 6 medium sized enterprises owned by emerging famers, with the following capabilities:
They collectively own approximately 2 192 cattle and 2 712 sheep
There is capacity to produce a minimum of 772 000 broiler chickens per year
They have access to land and can produce either 33 032 tons of maize or 56 307 tons of sunflower.
The silos existing in LDM can absorb the projected maximum production of grain (maize and sunflower) by the emerging famers.
Dihoai Poultry, a wholly black-owned agro-processing business based outside Welkom, is currently operational and owns a feed-mill (10 000 ton capacity) and an abattoir (2 000 chicken per day)
The road infrastructure in LDM is reliable. The railway is still utilised for the transporting of grain to the silos, which are mostly situated along the railway lines
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The following conclusions were made regarding the LDM situation:
The socio economic situation in LDM, including the population decline and relatively low household income growth, implies that LDM is in dire need of economic initiatives such as AP
The fact that there seems to be an undersupply of cattle to abattoirs implies that emerging farmers might have difficulties to meet demand of another newly established abattoir
Dihoai Poultry has the potential to form the basis of the poultry (broilers) industry in LDM, supporting both grain and broiler producers
Only certain components of the cattle and grain value chains would need to be assessed for commercial viability
2.3 Location / Site The AH and FPSUs will be located in three different local municipalities, namely Nala, Matjhabeng and Tokologo 2.3.1 Agri-Hub
The AH will be located in Wesselsbron in Nala Local Municipality (NLM). 2.3.2 Farmer production support units
The exact locations of the FSPUs have not yet been determined, but it is proposed that the poultry FPSU be situated in Odendaalsrus in Matjhabeng Local Municipality (MLM) because that is where broiler and several poultry farming projects are concentrated. Cattle farmers are spread throughout the district and therefore the two cattle FPSUs are proposed to be located such that they can service the majority of farmers. It is therefore proposed that one cattle FPSU be situated at Dealsville in Tokologo Local Municipality (TLM) and the other in Ventersburg in MLM. 2.4 Business concept The Lejweleputswa AP concept design is as depicted in Figure 1.
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Figure 1: Lejweleputswa AP business concept
The businesses located at the AH are delicate and/or require relatively high maintenance, close monitoring and support in marketing in the case of the abattoir and cattle farming (other business will not need marketing strategies as they mainly supply the abattoir). They will therefore be able to easily access the necessary support as the personnel is situated at the AH. The fowls (broiler and breeder) are also sensitive and therefore need to be isolated from “noisy” operations, including the expected high traffic by the public in general at the AH. The breeder and broiler houses also do not need high maintenance as there are fewer moving parts compared to for instance the abattoir. The maintenance team from AH can therefore attend to their maintenance as and when is required. Except for the use of auction pens, maintenance of cattle farms will be the responsibility of farmers. Livestock is to be situated at the FPSU and not at the AH to comply with statutory and regulatory requirements, particularly food safety A significant number of grain farmers have agreements with established commercial famers and/or agribusinesses like Agri-SA. However, they will also be supported by the AP. 2.5 Institutional arrangements The AP will comprise of an AH as well as three FPSUs. The RUMCs will not be established in every district municipality (DM), but rather in large commercial centres linking a number of DMs. Therefore, no provision has been made for the establishment of a RUMC. Figure 2 illustrates the structure of the AP.
LEJWELEPUTSWA AGRI-PARK
Grain farmers
Lejweleputswa Agri-Hub (AH): Wesselsbron
Retail / Wholesale
Broiler hatchery
Poultry abattoir
Livestock feedmill
Services Transport
Maintenance
Training – technical and business management
FPSU 3: Odendaalsrus
Hatching-egg farm
Broiler farm
Retail / wholesale
Retail / wholesale
FPSU 1: Dealsville
FPSU 2: Ventersburg
Cattle farmers
Cattle farmers
Retail / wholesale
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Figure 2: AP structure
The AP will be registered as a private (Pty Ltd.) company. Initially, all the shares of the company will be held in a trust by one of the organisations that are part of the District Agri-Park Management Committee (DAMC). As the AP’s operations develop and grow, shares will be sold or transferred to private sector entities, community structures and emerging farmers up to the following maximums:
30% held by private sector entities (including commercial farmers and agro-processing companies)
70% held by emerging farmers, communal farmers and community structures. 2.6 Services The AP will provide a number of services, some at a fee to the businesses and others for no fee as it is assumed that cost for the service will be covered by the contribution that individual businesses are expected to make to the AP. The “free” services will be plant and equipment maintenance and facilitation of access to technical and business management training. The service for which businesses will have to pay a fee is transportation of mainly input material between the FPSU and AH; chicken to the market, and live cattle to auctions, feedlots and abattoirs.
Agri-Hub
Wesselsbron
FPSU 1
Odendaalsrus
FPSU 2
Dealsville
FPSU 3
Ventersburg
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3 MARKET RESEARCH, ANALYSIS AND PLAN Typically a business must develop a comprehensive marketing strategy shortly before or during the operations. It is at that stage that specifics regarding issues like customers, sales forecast and distribution channels are covered in detail. This section therefore discusses high level market issues and projections. 3.1 Customers The poultry abattoir customers are expected to be mainly wholesalers and retailers of different types and sizes including hospitality industry particularly guest houses and bread and breakfast (B&B) establishments in FS; mines; government institutions like prisons and hospitals. 3.2 Market demand and sales forecast Market assessment proved that there is a demand for chicken provided they develop a comprehensive marketing strategy. The upstream businesses that are dependent on it for success do not have to develop such strategy if they produce good quality products. It is therefore estimated that all the businesses except cattle farmers, will phase in their operating capacity starting at 50% in the first three years; and then increase to 80% capacity from the fourth to sixth year; and finally increase to maximum capacity from seventh year onwards. Sales projections for each product are as presented in Table 1.
Table 1: Sales projections for the AP businesses
Poultry abattoir – R 000
Broiler farm –
000
Broiler hatchery – 000
Egg farm –
000
Livestock Feedmill –
R 000
Cattle – R 000 Total – R
000 Weaners Cows / steers
Year 1 23 400 10 980 4 059 2 888 12 480 11 432 0 65 239
Year 2 23 400 17 568 6 336 3 960 19 968 11 432 0 82 664
Year 3 23 400 21 960 7 920 4 950 24 960 11 432 0 94 622
Year 4 37 440 17 568 6 494 4 620 19 968 22 864 0 108 954
Year 5 37 440 17 568 6 494 4 620 19 968 22 864 0 108 954
Year 6 37 440 17 568 6 494 4 620 19 968 0 38 400 124 490
Year 7 46 800 21 960 8 118 5 775 24 960 0 38 400 146 013
Year 8 46 800 21 960 8 118 5 775 24 960 0 38 400 146 013
Year 9 46 800 21 960 8 118 5 775 24 960 0 38 400 146 013
Year 10 46 800 21 960 8 118 5 775 24 960 0 38 400 146 013
The AP will have two income streams, namely: 10% of revenue of each of the AP businesses and the transport service it will provide to them, at a marginal cost. Different vehicles will be used for different goods and therefore different rates shall apply. The total revenue generated by the AP, including income from transport will be as presented in Table 2.
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Table 2: Projected AP revenue
Contribution (10%) by
AP businesses Income from
transport service Total AP revenue
Abattoir R 4 680 000 R 460 000 R 5 140 000
Broiler farm R 2 196 000 R 96 300 R 2 292 300
Hatchery R 811 800 R 96 300 R 908 100
Egg farm R 577 500 R 76 800 R 654 300
Feedmill R 2 496 000 - R 2 496 000
Weaners R 2 280 000 - R 2 280 000
Cows and steers R 3 840 000 R 144 096 R 3 984 096
Total R 16 881 300 R 873 496 R 17 754 796
3.3 Market prices The market prices for different products are as presented in Table 3.
Table 3: Market prices for the AP products
Poultry abattoir –
R/kg
Broiler farms – R/broiler
Broiler Hatchery – R/chick
Hatching-egg farms –
R/egg
Livestock feed-mill –
R/Ton
Cattle breeding –
R/male weaner
R/cow or steer
21.64 18.30 6.15 3.00 4 992 4 000 8 000
3.4 Competition and competitive edge Cattle farmers will not have any real competition provided they produce good quality cattle. Almost all abattoirs locally and nationally operate at maximum capacity and South Africa is still a net importer of beef. All the poultry abattoir suppliers, starting with the feedmill will almost be protected from external competition as they will be aiming to ultimately supply the AP abattoir. It is also expected that grain producers will be contract suppliers to the AP feed-mill. However, established agribusinesses, including silo owners will be competition when grain prices increase above what they would have agreed with the AP feedmill. It will therefore be important that the AP feedmill enter into supplier contract with grain farmers to ensure uninterrupted supply. The abattoir will face competition locally and nationally. Consumers are already familiar with well-branded products from established producers like Astral, Country Bird, and Rainbow. The Lejweleputswa AP abattoir will have to compete with these brands. It will also have to compete with similar equally smaller size abattoirs in LDM including Amalesco and Goudkwarts. Competition will also come from cheaper imports, particularly those from the United States of America (USA). Other competition will come from substitute products (animal protein) like fish, pork, and even beef.
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The competitive advantage of the Lejweleputswa AP abattoir is that it will have access to the necessary support, including:
Integration of business operations along the value chain which is very important in the poultry value chain
Technical and business management support, including marketing of their products
Access to the production facilities, something that most competitors do not have 3.5 Marketing and distribution The marketing and distribution of chicken will have to be based on a comprehensive marketing strategy that will be based on an intensive study of the market. It is however expected that chicken will be distributed to the potential customers that were mentioned in Section 3.1.
4 MANUFACTURING AND OPERATIONS PLAN This section is mainly about the daily operations of the AH and FPSU, with reference to the individual businesses mentioned only where relevant and meant to contextualise the issues being discussed. 4.1 Service inputs The services that will be provided from the AH will be as follows:
Cattle breeding and market linkage service, which will include provision of transport
Facilitation of technical and business management support services to primarily livestock and grain (maize and sunflower) farmers, as well as other farmers
Manufacturing plant and equipment hiring service. The inputs for the cattle breeding programme will be cattle as listed in Table 4.
Table 4: Parent cattle stock
Cows Bulls Total
Ratio 25 1 26
Quantity needed in Year 0 to reach 25 000 in 5th year
5 708 228 5 936
Cost per unit R 7 000 R 26 000 N/A
Total cost R 39 954 338 R 5 936 073 R 45 890 411
The inputs for the transport service will be as listed in Table 5.
Table 5: Transport equipment
Vehicle type Qty Unit cost Total Cost Cost (R/Km)
Ten (10) Ton truck 3 R 1 098 991 R 3 296 974 R 8.00
Three (3) Ton refrigerated truck 3 R 450 000 R 1 350 000 R 4.80
One (1) Ton Bakkie 5 R 235 000 R 1 175 000 R 3.20
Forklift 5 R 448 695 R 2 243 475 indirect cost)
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Total R 8 065 449
The AH will perform maintenance on all the facilities and it is estimated that the total cost will be R1 279 152 for the spares and consumables. This will be an overhead cost for the AH and therefore the businesses will not pay for the service as it will be covered by the contribution that each one makes to the AP. The training and development service will also be an overhead costs to the AH and will therefore be provided for free to the individual businesses 4.2 Facility This section covers the facilities for both the AH and FPSU 4.2.1 Process flow and facility layout
The AP process flow is depicted in Figure 3.
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Figure 3: Agri-park process flow
Livestock Feed-mill-AH
Primarily for supplying the “AP livestock” (cattle and poultry farms)
Hatching-egg farm-FPSU
Solely supplies AP but not necessarily owned by emerging farmers
Main ingredients (maize, soya, sunflower), others to be sourced elsewhere
Emerging grain farmer-FPSU
Emerging Broiler farmers-FPSU
Clustered / synchronised to ensure efficiency in the value chain
Poultry abattoir-AH
Capacity – 1.2 mil broilers per annum (expand to 2.5 mil broilers in future)
Increase collective herd size to ±25 000 of “pure breed” to sustain a feedlot
Emerging cattle farmers-FPSU
Meat processing
Possibly to process chicken and beef in one factory
Feedlot
Highly dependent on the success of the emerging cattle farmers
Beef abattoir
Majority of cattle sourced from the AP feedlot, the rest to sourced elsewhere
Wholesaler / retailers (AH & FPSU)
Meat (fresh and processed)
Livestock feed (bulk and small packages / bagged)
Fresh produce (vegetables)
Spent and unfertilised eggs (those that will not hatch) from hatching-eggs farm
Agricultural inputs (medication, seeds, fertilizers / compost etc.)
Agricultural implements
Hatchery-AH
Solely supplies AP but not necessarily owned by emerging farmers
Tannery
Majority of hides sourced from the AP abattoir, the rest to sourced elsewhere
Leather processing & goods
Majority of cattle sourced from the AP feedlot, the rest to sourced elsewhere
Greenhouse
Primarily for vegetable production
Compost
Cattle feed ingredient
Waste / By-products – AH
Key / legend:
To be implemented immediately when the AP is established
To be implemented at the AP in future (thy could also be existing businesses for now)
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4.2.2 Space occupied by facility
The total space required at the AH and FPSUs excluding walkways and gardens for the administration building, factory buildings, warehouse, wholesale/retail space and the auction plans will be 20 116 m2. Production facilities space requirement is as presented in Table 6.
Table 6: Production space
Opportunity Space (m2)
Poultry abattoir 300
Broiler farms 7 500
Hatchery 508
Hatching-egg farm 5 400
Feed-mill (excluding feed-mill admin space) 520
Cattle breeding and marketing 2 500
Total 16 728
The administration building at the AP will be as presented in Table 7.
Table 7: AH space administration requirements
Operations Space (m2)
AH administration 500
Abattoir administration 250
Hatchery administration 250
Feed-mill administration 80
Wholesale / retail 700
Workshop / warehouse 600
Total 2 380
Additional space of 1 008m2 will be required for the FPSU administration buildings. 4.2.3 Utilities
It is estimated that the annual consumption of utilities will be as shown in Table 8.
Table 8: Utilities cost
Utility Annual cost
Water R 12 000
Electricity R 60 000
Fuel R 72 000
Total R 144 000
4.3 Equipment The AP equipment will be as listed in Table 9.
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Table 9: AP equipment
Equipment Quantity Unit cost Total costs
AH office equipment 1 R 421 894 R 421 894
Truck (10 ton) 3 R 1 098 991 R 3 296 974
Truck (3 ton) - Refrigerated 3 R 450 000 R 1 350 000
Auction pens 2 R 165 000 R 330 000
Abattoir plant and equipment 1 R 4 267 701 R 4 267 701
Broiler houses 1 R13 406 531 R 13 406 531
Hatchery plant and equipment 1 R 5 409 830 R 5 409 830
Hatching-egg farm houses 1 R 6 082 833 R 6 082 833
Feed-mill 1 R 3 794 557 R 3 794 557
Bakkie (1 ton) 5 R 235 000 R 1 175 000
Forklift 5 R 448 695 R 2 243 475
Total R 41 778 795
4.4 Regulatory and legal issues The regulatory and legal issues that the AP will have to comply with include the following:
Meat Safety Act (Act No. 40 of 2000)
SANS 10049
Occupational Health and Safety Act (Act No. 85 of 1993)
Regulations Governing General Hygiene Requirements for Food Premises and the Transportation of Food (Regulation 723 of 2002)
Environmental regulations These regulations are explained in detail in APPENDIX B - included in this document. 4.5 Systems, processes and procedures As a legal entity, to achieve stability, consistency and continued success there should be financial discipline and good governance. Policies and procedures need to be developed to ensure compliance with legislation, good governance and effective operations. The lists of policies and procedures that need to be drafted and implemented have to cover the following areas:
Governance
Procurement
Financial management
Human resources management
General operations
Safety, health, environmental protection and quality.
4.5.1 Equipment and machines – current status
It is expected that the agri-park will link with existing interventions and programmes in the region, but will not make use of any existing equipment and machinery.
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4.5.2 Manuals and operating instructions
Equipment operating instructions and manuals is expected to form part of the purchase of such equipment. An amount of R200 000 has been budgeted for training including development of manuals and standard operating procedures. 4.5.3 Material handling systems
The AP will provide transport service to all the AP businesses including three 10 ton trucks, three 3 ton trucks, three 1 ton bakkie and five forklifts as detailed in Table 5. 4.5.4 Process yield and throughput
The information on the yield of each business is shown in Table 10
Table 10: Opportunity throughput
Opportunity Nominal capacity
Poultry abattoir 1 200 000
Broiler farms 1 200 000
Hatchery 1 320 000
Hatching-egg farm 1 650 000
Feed-mill (excluding feed-mill admin space) 5 000
Cattle breeding and marketing – weaners sales 5 916
Cattle breeding and marketing – cows and steers sales 4 800
4.5.5 Consumables
Cleaning materials for the facility are expected to amount to R7 000 per annum. This includes general cleaning of the facilities, but not specialised cleaning of opportunity-specific equipment. 4.5.6 Maintenance requirements
Maintenance for all equipment and facilities is expected to amount to approximately 5% of the total equipment cost, which is approximately R1 312 284 per annum. Maintenance staff will oversee any other maintenance that may be required and may outsource such maintenance to equipment manufacturers once the equipment is out of warranty. 4.5.7 Quality management
The AP will invest in specific quality certifications and approvals including the ones listed in Table 11.
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Table 11: Quality management systems
Management system
Purpose Regulation compliance
ISO 9001:2008
Management system designed to help organisations to meet the needs of customers and other stakeholders while meeting statutory and regulatory requirements related to products
Food Premises and the Transportation of Food (FPTT)
HACCP or ISO 22 000
Management system dealing with the analysis of potential food safety hazards in an operation.
Food Premises and the Transportation of Food (FPTT)
ISO 14001 An Environmental Management System (EMS) dealing with the environmental aspects of an organisation.
National Environmental Management Act
ISO 18001 A Health and safety Management System (OHS)
OHS Act
4.6 Supply chain management The AH will offer transport services to all the businesses, transporting inputs and finished products to and among the businesses in the value chain, as well as to external customers in the case of the poultry abattoir and cattle sales.
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5 HUMAN RESOURCES AND GOVERNANCE The AP is expected to create 22 jobs at the AH and FPSUs and a total of 240 jobs through the individual businesses, excluding cattle farmers. 5.1 Key management personnel The AP will be led by the General Manager who will have two senior managers, namely, the Technical / Operations Manager responsible for all the technical issues, including maintenance and technical support to the businesses; and the Shared Services Manager, primarily responsible for the human resources and finance functions of the AP. 5.2 Industry role players The industry role players are as listed in Table 12
Table 12: List of industry role players
Name Role
Agricultural Research Council (ARC) Support of smallholder farmers, with training and production inputs
Agri South Africa (AgriSA) Market intelligence
Agricultural Sector Education and Training Authority
Provision of guidance and support regarding education, training and development
DAFF Grant funding; technical support; and guidelines and support regarding business establishment
DAMC Represents the interest of the LDM emerging famers, including representing them at different forums at all three spheres of government and interactions with the private sectors if necessary
Department of Labour Rules and regulations regarding labour practices and activities
Department of Rural Development and Land Reform (DRDLR)
Funding and custodian of APs creation and development
Farmer cooperatives Market intelligence; and development and technical support and mentoring
Free State Department of Agriculture and Rural Development (FSDARD)
Non-financial support; and provision of some rules and regulations
Free State Department of Labour Rules and regulations regarding labour requirements
Grain SA Provision of commodity strategic support and services to SA grain producers, to support sustainability
National Emergent Red Meat Producers' Organisation
Livestock Credit Scheme, for the purchase of any type of livestock; animal feed; medication; farm machinery; and infrastructural improvements
Vrystaat Landbou / Free State Agriculture
Market intelligence; and development and technical support and mentoring
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5.3 Human resource requirements The human resource requirements, based on the operational activities of the AP, will be as detailed in Table 13.
Table 13: AP human resources requirements
Position Qty Annual
salary per person (R)
Total annual
salary (R)
General Manager 1 650 000 650 000
Personal Assistant / AP Secretary 1 240 000 240 000
Shared Services Manager (HR, finance and marketing) 1 500 000 500 000
Technical / Operations Manager 1 500 000 500 000
HR Coordinator 1 380 000 380 000
Management Accountant 1 380 000 380 000
Agricultural technician / advisor 4 380 000 1 520 000
Maintenance technician 1 300 000 300 000
Artisans 3 240 000 720 000
Drivers 5 92 000 460 000
General workers 3 48 000 144 000
Total 22 - 5 794 000
The total costs for year one of the AP is estimated at R5.8 million 5.4 Governance Figure 4 shows the governance structure of the AP.
Figure 4: Governance
Shareholders: 30% commercial
70% emerging
Board of directors
Agri-Park (Pty) Ltd.
DAMC (advisory capacity): DRDLR
Individual farmers
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DAMC could advise the board of directors of the company on technical, financial and market related issues. DAMC will comprise of representatives from the following institutions: DRDLR, individual famers and emerging famers cooperatives. The roles and contributions of these members and key organisations will be required for the success and sustainability of the AP. The selection and appointment of directors for the company board will be done in collaboration between the shareholders and DAMC. The board should be representative of the agricultural or agro-processing industry, as well as of the broader South African population. Board members should be appointed to ensure that at least the following skills are available:
Financial
Business
Technical (agriculture and agro-processing).
The general manager of the AH will be responsible for the day-to-day management of the AP, and he/she will report to the board of directors. All staff members of the AH and FPSUs will report to the general manager of the AH.
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6 RISK MANAGEMENT Risks that could affect the establishment and/or operations of the AP were identified. To prevent or counter the effects of all possible risks, the AP will develop and implement a comprehensive risk management and mitigation plan, which will entail the following:
Conducting a detailed assessment of the identified risks
Rating the risks in terms of likelihood and impact
Ensuring that preventative measures (including policies and standard operating procedures) are in place
Developing plans for risk monitoring and control
Documenting and communicating the plan.
Some of the potential risks to the AP are as listed in Table 14.
Table 14: AP risks
Potential risk Risk rating Mitigation
1. Low occupation rate High Affordable rental fees
2. Food poisoning and contamination
High Implement quality standards (like HACCP or ISO 22 000)
3. Inferior equipment High Reputable suppliers to be used
4. Labour unrest Medium Comply with all applicable labour legislation
5. Crime and robbery Medium Employ security personnel to safeguard the premises
6. Lack of buy-in from key stakeholders
Medium Adequate stakeholder engagement prior to the establishment of AP
7. Unaffordable rent or fees (for tenants)
High AP to link opportunities with the market to maximise opportunity profits
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7 FINANCIAL PLAN AND ECONOMICS OF THE BUSINESS The summary of financial results found in this section is based on a financial analysis contained in APPENDIX C - attached to this document and is based on financial modelling with Comfar software developed by UNIDO. The detailed assumptions and input data used in the financial modelling can be found in APPENDIX D - attached to this document. The key assumptions that underpin the model are as follows:
The financial model is based on 100% grant funding – therefore a discount rate of 7% is used.
The AH and Farmer Production Support Units FPSUs will be located on state-owned land.
Supplier accounts are payable in 30 days, and customer payments will only be received after 60 days.
The AP will rent out space and machinery to the following enterprises as a revenue stream:
Poultry abattoir
Broiler farm
Broiler hatchery
Hatching-egg farm
Livestock feed-mill
Cattle breeding and sales service.
The potential revenues of the respective enterprises were estimated based on the production of the following products quantities (determined based on a high-level market analysis):
Slaughtered chickens – 1 200 000 units
Broiler chickens – 1 200 000 units
Day-old chicks – 1 320 000 units
Fertilised eggs – 1 650 000 units
Livestock feed – 5 000 tons
Cattle – 4 800 heads.
The AP will receive 10% of the revenue generated by the respective businesses, as rent for the equipment and space, as well as other services rendered by the AP through the AH or FPSUs.
A zero dividends policy is assumed on all financial statements, meaning that all revenue earned will be retained in the AP business.
Grant funding will be invested in the AP to cover all setup or establishment costs, as well as working capital for the first year of operation. It also needs to be emphasised that the amounts used are preliminary estimates based on high level analysis with accuracy estimated at ±20%. 7.1 Costs For any operation there are three types of cost that need to be taken into account, namely investment costs, direct operation costs and indirect operation costs. Investment costs are usually once-off costs incurred during the production facility setup or establishment phase
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for capital expenditure, pre-production expenses and working capital. Both direct and indirect operation costs are incurred only once production starts. 7.1.1 Investment costs
Investment costs are incurred during the set-up or establishment of the AH and FPSUs for items such as capital expenditure; pre-production expenses; and working capital. The total of investment for the establishment of the LDM AP is estimated at R118.2 million and is detailed in Table 15
Table 15: Investment costs
Type of investment Investment costs (R)
Civil works, structures and buildings R 29 901 005
Plant machinery and equipment R 10 284 733
Auxiliary and service plant equipment R 3 657 500
Incorporated fixed assets R 8 497 342
Pre-production expenditure R 46 586 201
Contingencies R 9 892 678
Working capital (Year 1) R 9 369 519
Total investment costs R118 188 978
The breakdown of the fixed investment costs is shown in Figure 5.
Figure 5: Total fixed costs split
Pre-production expenditure, which covers all the expenditure required to get the business operational by its first year, is the main cost item at 40%. An example is the cattle that need to be purchased before the first year which accounts for a significant amount of R45 953 361. 7.1.2 Direct and indirect operation costs
The total indirect costs for the first year of production is estimated at R12 279 256. These costs will escalate annually by 7%.
25%
9%
3%
7% 40%
8% 8%
Civil works, structures andbuildings
Plant machinery andequipment
Auxiliary and service plantequipment
Incorporated fixed assets(project overheads)
Pre-production expenditure
Contingencies
Working capital
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The contribution by the respective cost items is depicted in Figure 6.
Figure 6: Indirect costs
The largest component of the indirect costs is labour at 51%, followed by depreciation and raw materials respectively at 23% and 14%.
14%
1%
0%
51%
0%
0%
10%
23%
1%
Raw materials
Utilities
Repair and maintenance
Labour
Labour overhead costs
Factory overhead costs
Administrative overheadcosts
Depreciation
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7.2 Predicted financial statements
Based on the cost and sales assumptions the projected 10 year income statements, balance sheet and cash flow forecasts were prepared, as shown in prepared, as shown in Table 16,
Table 17 and Table 18 respectively. Table 16 shows the ten year projected income statement of the AP.
Table 16: Projected income statement
Description Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Yea 8 Year 9 Year 10
Sales revenue 11 507 564 12 313 093 13 175 010 17 622 069 83 958 497 22 555 275 28 601 506 30 603 612 32 745 864 35 038 075
Less variable costs 1 789 781 1 915 066 2 049 120 3 508 096 3 753 663 4 016 419 5 371 957 5 747 994 6 150 354 6 580 879
Material 1 789 781 1 915 066 2 049 120 3 508 096 3 753 663 4 016 419 5 371 957 5 747 994 6 150 354 6 580 879
Less fixed costs 11 189 475 12 340 633 12 987 807 13 709 131 14 455 901 16 023 228 16 911 592 17 826 417 18 792 258 19 880 542
Material 409 874 575 770 616 074 659 199 705 343 754 717 807 548 864 076 924 561 989 280
Personnel 6 633 551 7 211 485 7 716 289 8 256 429 8 834 379 9 452 786 10 114 481 10 822 495 11 580 069 12 390 674
Marketing 41 216 44 102 47 189 50 492 54 026 57 808 61 855 66 185 70 817 75 775
Depreciation 3 022 671 3 022 671 3 017 588 3 040 997 3 040 997 3 809 281 3 842 669 3 842 669 3 829 648 3 870 549
Other fixed costs 1 082 163 1 486 605 1 590 667 1 702 014 1 821 155 1 948 636 2 085 040 2 230 993 2 387 162 2 554 264
GROSS PROFIT (1 471 692) (1 942 605) (1 861 918) 404 841 65 748 933 2 515 627 6 317 957 7 029 201 7 803 253 8 576 655
TAXABLE PROFIT (1 471 692) (1 942 605) (1 861 918) 404 841 65 748 933 2 515 627 6 317 957 7 029 201 7 803 253 8 576 655
NET PROFIT (1 471 692) (1 942 605) (1 861 918) 404 841 65 748 933 2 515 627 6 317 957 7 029 201 7 803 253 8 576 655
in % of sales revenue (13) (16) (14) 2 78 11 22 23 24 24
The projected income statement shows that the AP will be making a loss for the first three years, when enterprises are still building capacity, and operating at 50% of the maximum factory throughput. Although the AP does not necessarily yield large profits, the profit margins are healthy for a business with developmental objectives like the AP.
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Table 17 shows the ten year projected balance sheet of the AP.
Table 17: Projected balance sheet
The net worth of the equity increased from R118 million year 0 (set-up year) to R266 million in year 10. This indicates that the proposed AP has potential to grow the value of investment made into it. Table 18 shows the projected cash flow statement of the AP.
Description Set-up Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
TOTAL ASSETS 118 188 978 118 216 651 118 220 181 118 222 366 119 560 686 188 398 915 190 107 856 197 937 304 206 580 799 216 111 355 226 536 224
Total current assets 0 2 184 313 3 915 967 5 410 733 9 790 050 70 780 353 77 858 590 89 530 707 102 016 870 114 842 048 129 137 466
Inventory on materials & supplies - 5 410 5 789 6 194 10 282 11 002 11 772 15 581 16 671 17 838 19 087
Work in progress - 23 837 27 115 29 013 34 699 37 127 39 726 45 492 48 676 52 083 55 729
Finished product - 27 543 31 080 33 256 39 238 41 985 44 924 51 053 54 627 58 450 62 542
Accounts receivable - 27 657 31 203 33 387 39 378 42 135 45 084 51 225 54 810 58 647 62 752
Cash-in-hand - 22 132 25 291 27 062 28 956 30 983 33 152 35 472 37 955 40 612 43 455
Cash surplus, finance available 0 2 077 733 3 795 488 5 281 821 9 637 497 70 617 121 77 683 932 89 331 885 101 804 131 114 614 417 128 893 900
Total fixed assets, net of depreciation 118 188 978 115 166 307 112 143 636 109 482 558 106 441 561 115 621 807 112 249 266 108 406 597 104 563 929 101 269 307 97 398 758
Fixed investments - 68 341 743 68 341 743 68 341 743 68 698 253 68 698 253 80 919 496 81 356 237 81 356 237 81 356 237 81 891 262
Construction in progress 68 341 743 - - 356 510 - 12 221 243 436 740 - - 535 026 -
Total pre-production expenditures 49 847 235 49 847 235 49 847 235 49 847 235 49 847 235 49 847 235 49 847 235 49 847 235 49 847 235 49 847 235 49 847 235
Less accumulated depreciation - 3 022 671 6 045 342 9 062 930 12 103 927 15 144 924 18 954 205 22 796 874 26 639 543 30 469 191 34 339 740
Accumulated losses brought forward - - 866 031 2 160 578 3 329 074 1 996 755 - - - - -
Loss in current year - 866 031 1 294 547 1 168 496 - - - - - - -
TOTAL LIABILITIES 118 188 978 118 216 651 118 220 181 118 222 366 119 560 686 188 398 915 190 107 856 197 937 304 206 580 799 216 111 355 226 536 224
Total current liabilities - 27 672 31 203 33 387 39 389 42 135 45 084 51 233 54 810 58 647 62 752
Accounts payable - 27 672 31 203 33 387 39 389 42 135 45 084 51 233 54 810 58 647 62 752
Total equity capital 118 188 978 118 188 978 118 188 978 118 188 978 118 188 978 118 188 978 118 188 978 118 188 978 118 188 978 118 188 978 118 188 978
Reserves - - - - - - 68 171 046 71 873 793 79 697 093 88 337 010 97 863 729
Retained profit - - - - 1 332 319 70 167 802 3 702 747 7 823 299 8 639 917 9 526 719 10 420 764
Net worth 118 188 978 117 322 948 116 028 400 114 859 904 116 192 223 186 360 025 190 062 772 197 886 071 206 525 988 216 052 708 226 473 471
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Table 18: Projected cash flow statement
The projected cash flow indicates that the proposed AP would have sufficient funds to pay for its current liabilities. If the required funding could be secured at least one year prior to establishment, the business will have a positive cash flow from the beginning. Therefore it is critical that the involved stakeholders make a long term commitment to fund the establishment and operations of the business. .
Description Set-up Year Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10
TOTAL CASH INFLOW 118 188 978 12 140 897 12 964 682 13 870 616 18 555 548 88 380 111 23 745 344 30 112 997 32 217 905 34 473 168 36 886 289
Inflow funds 118 188 978 27 672 3 531 2 184 6 002 2 746 2 949 6 149 3 577 3 837 4 105
Total equity capital 118 188 978 - - - - - - - - - -
Total short-term finance - 27 672 3 531 2 184 6 002 2 746 2 949 6 149 3 577 3 837 4 105
Inflow operation - 12 113 225 12 961 151 13 868 432 18 549 546 88 377 365 23 742 394 30 106 849 32 214 328 34 469 331 36 882 184
Sales revenue - 12 113 225 12 961 151 13 868 432 18 549 546 88 377 365 23 742 394 30 106 849 32 214 328 34 469 331 36 882 184
TOTAL CASH OUTFLOW 118 188 978 10 063 165 11 246 927 12 384 283 14 199 871 27 400 488 16 678 533 18 465 044 19 745 660 21 662 882 22 606 806
Increase in fixed assets 118 188 978 - - 356 510 - 12 221 243 436 740 - - 535 026 -
Fixed investments 68 341 743 - - 356 510 - 12 221 243 436 740 - - 535 026 -
Pre-production expenditures 49 847 235 - - - - - - - - - -
Increase in current assets - 106 580 13 899 8 434 23 641 10 679 11 426 24 164 13 918 14 892 15 934
Operating costs - 9 915 369 11 188 926 11 972 151 14 125 738 15 114 540 16 172 558 18 379 026 19 665 558 21 042 147 22 515 097
Marketing costs - 41 216 44 102 47 189 50 492 54 026 57 808 61 855 66 185 70 817 75 775
SURPLUS (DEFICIT) - 2 077 733 1 717 755 1 486 333 4 355 676 60 979 624 7 066 811 11 647 953 12 472 246 12 810 286 14 279 484
CUMULATIVE CASH BALANCE - 2 077 733 3 795 488 5 281 821 9 637 497 70 617 121 77 683 932 89 331 885 101 804 131 114 614 417 128 893 900
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7.3 Financial analysis 7.3.1 Financial ratios
If a discount rate of 7% is used:
The net present value (NPV) is R16 320 078
The internal rate of return (IRR) is 8.8%,
The payback period is 11.67 years
Because the NPV is positive and the IRR is greater than the discount rate, the business could be financially feasible.
7.4 Economic benefits of the business The establishment of the APs by the government aims primarily to transform rural economies through agriculture and serve as a catalyst around which rural industrialisation takes place. Job creation remains high on the government agenda. It is therefore important to analyse the potential of this programme to create jobs and livelihoods in district municipality. 7.4.1 Jobs
Based on the number of people needed to manage and operate the AP, 22 direct jobs will be created. The job opportunities would include the following:
Qualified staff: 19
Low skill jobs: 3. Also, the following jobs will be created from businesses which will utilise the services of the AP.
Table 19: Estimated jobs from business
Business Jobs
Poultry abattoir 35
Broiler farms 150
Hatchery 20
Egg farm 35
Feedmill 15
Cattle farms 100
Wholesaler / Retailers 10
TOTAL 365
These jobs could be filled from the LDM population.
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APPENDIX A - MARKET ANALYSIS
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A.1. INTRODUCTION A situational analysis was conducted in the Lejweleputswa District Municipality (LDM), in support of the preparation of a business case for an agri-park (AP) in the district. The commodities that were selected for the purpose of assessing the viability of value addition are grain (maize, wheat and sunflower), cattle (beef) and poultry (broilers). These commodities were selected through a process involving a high-level analysis of prioritised commodities in the district, using the “value chain typology checklist” tool. The results thereof were discussed with stakeholders in a workshop. From the assessment of the value chains of the different commodities, potential opportunities were identified for the envisaged AP. The selection process for opportunities from the value chains, which would undergo market analysis, considered the following:
The strategic objective of the AP program to promote the skills of, and support small-holder farmers through the provision of capacity building, mentorship, farm infrastructure, extension services, production inputs and mechanisation inputs.
The guiding principles for the establishment of the AP, namely to maximise access to markets for all farmers, with a bias to emerging farmers and rural communities; and maximise the use of existing agro-processing, bulk and logistics infrastructure, including availability of water, energy and roads.
The desired outcome of developing a ‘new’ class or pool of skilled black farmers that have the necessary technical expertise and ability to supply the market sustainably and at the desired quality.
The opportunities were identified in the form of primary produce and final or intermediate products. As part of the process to identify opportunities, a high level understanding of the market situation of the specific products was considered. This market analysis does not constitute a comprehensive market feasibility study and only involves factors that assisted in qualifying and validating the identified product opportunities from a market point of view. The key factors considered included the following:
Market size
Market trends
Trade balance
Competition. The concept design of the AP is guided by the services that will be provided to potential tenants or external customers. These services were mainly determined based on the outcomes of the market analysis. Beneficiaries of this initiative also identified some services and where markets could not be quantified, reasonable inputs were considered.
A.2. HIGH-LEVEL OPPORTUNITIES The typical final or intermediate products and services from the selected value chains are listed in Table 20. All these products or services come after the primary farming activities in the value chains.
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Table 20: Typical intermediate and final products
Grain Beef Cattle Poultry (broilers)
Inputs Grain storage (silos) – grain is sourced from primary producers (farmers), and then stored in bulk before it is sold for processing
Livestock finishing (feedlots) – cattle are sourced from farmers and then finished or fattened before they are sold for processing
Broiler growing – chicks are sourced from hatcheries and then grown (and finished if necessary) into broilers, before selling for processing
Primary processing
Dry milling for human consumption – maize meal; rice and samp; and wheat flour and bran
Dry milling (feed-mill) – grain or stubble for livestock feed; and stubble for secondary or further processing into other products
Wet milling – extracting oil, protein and starch; and milling of the whole green plant into livestock feed (silage)
Abattoir – slaughtering cattle to produce “large” cuts of meat and offal ready for consumption or further processing into various products; and hides for further processing
Butchery – processing of mostly high quality (top grade) large meat cuts into smaller cuts; or into semi-processed products like sausages and mince
Tannery – processing of hides into leather
Abattoir – slaughtering of broilers to produce fresh whole chickens and pieces (bone-in or deboned); individually quick frozen pieces; feet and offal ready for consumption; deboned pieces for further processing into other products; and feathers for further processing into feather meal, plastic, paper, pillow stuffing and diapers
Secondary processing
Edibles processing – starch and protein extracts into gravies or sauces and protein or fat substitutes; oil into cooking oil and margarine; and stubble and hexane into livestock feed
Non-edibles processing – starch and protein extracts into cosmetics, adhesives, paper, textiles and plastics; stubble into furniture material (cover); and oil into biofuel
Processing of meat (mostly lower quality or grade) into products like polonies and canned beef
Processing of leather into clothing; and automotive and furniture covers
Processing of deboned chicken into products like polonies and sausages
Services Trading of grain from primary producers
Wholesale of some of the products
Cattle sales (auctions or directly selling to feedlots or abattoirs) or buying weaners for primary farming purposes
Wholesale of some of the products
Wholesale of some of the finished or intermediate products
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The primary objective for the establishment of the AP is to promote and develop emerging farmers into established commercial farmers who supply their produce for mainly agro-processing. Secondarily, the objective is to ensure that these farmers benefit as co-owners or investors of the AP, and play an important role as the main suppliers of primary produce. Therefore, the key considerations in selecting preliminary business opportunities from the list in Table 20 were as follows:
Emerging farmers must be able to sustainably supply the produce (commodity) required by the primary agro-processing business, with little or no additional supply of produce from established farmers.
Similarly, the secondary or further processors (like producers of polonies) must be able to sustainably source their major ingredients from primary processors (for example abattoirs).
The preliminary assessment during the situational analysis should have indicated a potential market gap for a new agro-processing enterprise. Otherwise, the primary producers must supply their produce to existing agro-processors.
Products that require sophisticated processing technology, in-depth research and development or market testing before full commercialisation were excluded.
The preliminary market assessment showed a potential gap in the beef value chain. There is currently an insufficient supply of cattle from emerging farmers to sustain an agro-processing business over the medium to long term. It therefore became important to consider a cattle breeding programme, to increase cattle herd as a first step. Further processing of beef was therefore not investigated at this stage, as it has to be proven first that primary processing can be sustained. A potential market gap for chicken was identified, but considering the planned interventions by the LDM Department of Agriculture and Rural Development and the Free State DRDLR to capacitate the farmers, only chicken primary agro-processing was considered. There was no potential market gap for grain processing, but grain producers also do not have the capacity to sustainably supply a commercial agro-processing entity. As a result only a feed-mill for supplying the broiler and cattle farmers was considered Therefore, only the following potential agro-processing business opportunities in LDM were selected for market analysis:
Poultry (broiler) abattoir
Beef abattoir
Feed-mill for livestock feed
Bovine (cattle) tannery
Cattle breeding and market linkages.
A.3. MARKET ANALYSIS A high level market analysis was conducted for each of the five opportunities, namely poultry meat production; beef production; livestock feed production (mainly poultry and cattle); a tannery; and a cattle trading service (linking farmers to auctions, abattoirs and feedlots).
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A.3.1. Poultry (broiler) abattoir Broiler meat (chicken) comprises the largest proportion of all poultry meat produced in South Africa. The amount produced in the formal market is approximately 93.6%. The rest is from mature chicken slaughter, small scale and backyard broiler producers, and only a small portion is from other poultry like geese and turkey (DAFF, 2014). Therefore, in this document poultry meat mostly refers to broiler meat. Additional capacity can be created in LDM, through either establishing a new abattoir or increasing the capacity of an existing one. The aim of this will be to support emerging broiler producers, and as a result also support emerging grain producers. A.3.1.1. Industry overview
According to the Government Communications and Information System (2015), the South African poultry industry is the largest component of the agricultural sector measured by turnover, having contributed 16% of the total agriculture value in 2013, with its total revenue having grown from R29.8 billion in 2012 to R30.6 billion in 2013. The industry has challenges, the largest being an increase in feed costs in recent years, which led to decrease in the net profits of enterprises. According to Bolton (2015), even though the industry had recorded a revenue increase in 2013, there was a net loss of R24.7 million in the same year, down from net profit of R56.6 million in 2012. The year-on-year (December 2015) cost increases in the two main feed ingredients, namely yellow maize and sunflower were 57.7% and 18.9% respectively, and the total feed cost for the full development of a broiler increased by 21.06%. There is the likelihood of still higher feed prices, following the severe drought in parts of South Africa (DAFF, 2016). The high costs of important inputs (like feed) may have a detrimental effect on the envisaged abattoir, which would most likely be a small enterprise with disadvantages like the lack of economies of scale. It is therefore critical that the value chain, particularly among emerging farmers, be well-integrated so that costs can be minimised as far as possible. According to the South African Poultry Association (SAPA, 2012), the Developing Poultry Farmers Organisation (DPFO), a division of SAPA, was formed in 2003 with the aim of catering for the specific needs of emerging farmers. SAPA admits that there was no visible achievement until a DPFO Coordinator was appointed in 2010, but there has been a slight improvement since then. However, more interventions are required, as emerging farmers still contributed less than 2% of the total formal broiler production in 2012. The industry remains an important contributor to employment, with an estimated total of 48 084 people from hatcheries to distribution in 2013 (DAFF, 2014) A.3.1.2. Market trends
Poultry is the meat type with the highest production volumes globally, and it was projected that production would grow from 95.7 million ton in 2011 to 124.6 million ton by 2017 (PR Newswire, 2014). According to the United States Department of Agriculture (2016) the United States of America (USA), one of the world’s largest meat producers, had a higher
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poultry meat production for the first quarter of the 2016 calendar year than was expected. Beef and pork production was lower than expected, further indicating a growth in poultry meat consumption. It is expected that developing countries such as China and Brazil will take the lead in production growth. This is due to factors such as their relatively lower production costs. In line with international trends, poultry meat in South Africa constituted the highest volume of all meat types (animal protein source) produced in 2014 (DAFF, 2016). An estimated 960.4 million broilers (equivalent of 1 728 720 ton) were slaughtered in 2014. The mid-year 2015 South African population estimate was 54 956 900 people nationally (StatsSA, 2015). Therefore the per capita production equated to about 31.5 kg per capita. The consumption per capita of 38.1 kg (DAFF, 2016) implies that there was a shortfall of about 6.6 kg per capita in 2014, translating to a total 365 138 ton of broiler meat, which is mainly covered by the net imports. It indicates a market gap that could be explored by new entrants if they are able to compete with imports. Figure 7 depicts the broiler meat production contribution per province.
Figure 7: Poultry meat contribution by province – 2015
Adapted from: (DAFF, 2016)
The largest broiler producing provinces, each averaging approximately 19.4% of the national production in 2015, are the North West, the Western Cape, Mpumalanga and KwaZulu-Natal. These provinces produced a combined 77.7% of the national production in 2014. The Free State is among the bottom three producers with a contribution of 5.1%. In line with provincial trends, LDM is also a relatively small producer of poultry meat. Its poultry meat production and market share estimation can be summarised as follows:
LDM’s poultry abattoirs currently have the capacity to slaughter 2 904 000 broilers per annum, calculated based on the following:
There are nine operational poultry abattoirs (determined during the situational analysis) with a combined production capacity of 14 100 broilers per day
It is assumed that there are 240 working days per annum.
LDM is estimated to currently have market share of 5.9% of the Free State’s production, calculated based on the following:
North West 23.5%
Western Cape 22.3%
Mpumalanga 18.0%
Kwa-Zulu Natal 13.9%
Gauteng 7.4%
Eastern Cape 5.9%
Free State 5.1%
Limpopo 3.8%
Northern Cape 0.1%
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The provincial production is approximately 48 980 400 broilers (960 400 000 national production for 2014 x 5.1% as shown in Figure 7)
Total LDM broiler production of 2 904 000 as determined above
Similarly, LDM is estimated to currently have 0.3% share of the total South African broiler production.
Based on an average carcass weight per broiler of approximately 1.8 kg (1.5 kg for a dressed carcass plus 0.3 kg for the giblets, head and neck), LDM produced only 6 091 200 kg broiler meat (1.8 kg per carcass x 2 904 000 carcasses). Therefore, based on the 2011 LDM population of 627 626 (LDM, 2015), broiler production was just 8.4 kg per capita (2 904 000 ÷ 627 626). This is less that the national consumption of 38.1 kg per capita by about 29.7 kg per capita. These market trends can be summarised as follows:
The current situation of the eight abattoirs in LDM implies that:
On average each abattoir has approximately 0.039% market share of the national market size and 0.74% of the provincial market size. It is small market share, particularly considering supply shortage locally
The largest abattoir in LDM, namely Amalesco Family Chickens, with a capacity of 10 000 broilers per day, has a national market share of approximately 0.3% and a provincial market share of 4.9%.
With the local production of less than a quarter of the average per capita demand, LDM has to source additional broiler meat from outside the district.
These trends support a case for establishing a new poultry abattoir or supporting existing ones in the district. However, in the case of strengthening existing abattoirs, evidence will have to be provided that they are sourcing broilers from the intended primary beneficiaries (emerging broiler producers from LDM), before receiving support from the AP. The AP will therefore have to ensure that emerging broilers producer are capacitated (for example with infrastructure and business management skills), and abattoirs should also be supported and developed so that they can become competitive, both locally and nationally. The 29.7 kg per capita shortfall in LDM, which translates to 18 640 492 kg of poultry meat, is currently supplied by sources outside LDM, including imports. The largest abattoir currently in LDM has the capacity to process 10 000 broilers per day, and using this as a guide, the new abattoir should be aiming to have half of this capacity, that is 5 000 broilers per day. Using different potential markets and their respective sizes, it would mean that the new abattoir will target a market share of:
6.4% (5 000 x 240 ÷ 18 640 492) of the LDM market size
2.4% (5 000 x 240 ÷ 48 980 400) of the Free State market size
0.12% (5 000 x 240 ÷ 960 400 000) of the national market size
0.32% of (5 000 x 240 ÷ 370 000 000) of the imports market size (refer section A.3.1.2 – annual average of net imports from 2011 to 2013)
0.51% (5 000 x 240 ÷ 237 000 000) of the market supplied by “other” small producers (refer section A.3.1.4)
The target market share of 5 000 boilers per day (a market share between 0.12% and 0.58% of the national market) is relatively low, particularly for a commodity that has growing demand like poultry meat. It should therefore be achievable. Even the 6.4% of the
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LDM and 2.4% of the Free State market sizes are still very low, considering that the current LDM producers cannot meet the local demand by far. In addition, the 370 000 ton average annual imports constitutes a significant 21.4% (370 000 ÷ 1 728 270) of the national production. A.3.1.3. Trade balance
South Africa has for many years been consuming more poultry meat than what it produces. Consumption has been exceeding production by an average of 19% from 2004 to 2013 (DAFF, 2014). This gap between consumption and production has been widening, and may continue to do so for years to come. The United States Department of Agriculture (2015) estimated that South Africa produced and consumed poultry meat of 595 000 ton and 710 000 ton, respectively, in 1995. It projected production to be approximately 1 745 000 ton and consumption to be 2 230 000 ton by 2025 (consumption will then exceed production by 27.8%). Figure 8 shows South Africa’s poultry import and export trends from 2004 to 2013.
Figure 8: South African poultry meat import / export trends
Adapted from: (DAFF, 2014) South Africa is a net importer of poultry meat, and imports are continuing to grow. The annual average of net imports from 2011 to 2013 was 370 000 ton, which is more than four times the total production of Free State, and more than 30 times that of the maximum total capacity of LDM poultry abattoirs. The imports / exports gap continues to widen. Despite some exports in recent years, the quantities have almost stagnated since the sharp increase of exports from 3 000 ton in 2008 to 19 000 ton in 2009. These trends have both positive and negative implications on the local poultry meat market, particularly the envisaged start-up abattoir. The implications are as follows:
On the positive side, the significant imports that on average constitute 17.5% of local poultry meat consumption (DAFF, 2016) show that there is a supply shortage by local producers and therefore a gap that a capable new entrant can exploit.
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Exports 4 2 2 2 3 19 17 10 7 15
Imports 182 241 294 276 220 231 265 349 403 391
0
50
100
150
200
250
300
350
400
450
'00
0 t
on
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On the downside, the fact that the seemingly cheaper imports have always followed the South African consumption trends (for example increasing whenever the local consumption increased) could mean that:
The reason they have not yet flooded local market is because of the protection that South African government offers to local producers through tariffs (refer section A.3.1.4)
If it becomes difficult to impose such protective measures (as with the recent American chicken imports), imports could easily increase, making it almost impossible for new entrants to operate profitably.
In conclusion, poultry meat imports are a real threat to the local industry. High productivity and competitiveness by local producers seem to be the best way to counter such a threat. It is expected that the AP would play an important role in ensuring that. A.3.1.4. Competition
The competition for the envisaged poultry abattoir in LDM could be grouped into three categories, namely substitute products (other meat types), imported poultry meat and existing South African poultry meat producers. Poultry meat consumption grew significantly from 2000 to 2014, followed by pork, while the consumption of beef and mutton or lamb stagnated and even declined marginally during the same period. According to the USDA (2015) the following trends can be noted:
Poultry meat consumption grew from 21.5 kg per capita per annum in 2000 to 38.5 kg in 2014, with an average annual consumption of 32.7 kg per capita
Beef consumption declined marginally from 16.5 kg per capita in 2000 to 15.5 kg in 2014 and the average annual consumption was 15.9 kg per capita
Mutton also declined marginally from 3.8 kg per capita in 2000 to 3.5 kg per capita, with an average annual consumption of 3.5 kg per capita
Pork consumption grew from 3.0 kg per capita in 2000 to 4.5 kg per capita in 2014, with an average of annual consumption of 3.9 kg per capita.
Assuming that the national poultry meat consumption for 2015 was still 38.1 kg per capita and based on the 54 596 900 mid-year South African population estimation for 2015 (StatsSA, 2015), and the total consumptions in 2015 (DAFF, 2016), the total annual consumption per capita of each meat type is estimated to have been as shown in Table 21.
Table 21: Estimated SA beef, mutton and pork consumption (2015)
Meat type Total consumption,
ton – A Total RSA population –
B Consumption (kg) per
capita – (C = A ÷ B)
Beef 1 004 460 54 596 900 18.4
Mutton / lamb 191 000 54 596 900 3.5
Pork 256 860 54 596 900 4.7
Total Consumption per capita 26.6
The importance of poultry meat as a growing source of animal protein is emphasised by the substitute products’ consumption that is declining. Poultry’s annual consumption per capita exceeded that of other meat types (beef, mutton and pork combined) by 11.5 kg and constituted approximately 58.9% of the total meat consumed in the country in 2015. This presents an opportunity for additional poultry meat production in LDM.
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There have been a number of regulatory changes, particularly with regard to import tariffs, and this greatly influenced the quantity of imports and the roles played by key global suppliers. According to the USDA (2015), the poultry import trends to South Africa over the years have been as follows:
The USA was the largest exporter, supplying approximately 25 000 ton (almost 50% of the total imports) until the anti-dumping duties were imposed in 2000, resulting in their imports dropping to almost zero.
Brazil took over as the largest exporter from 2001 until 2013, supplying over 50% of imports.
Brazil is slowly being displaced as the largest supplier of imports, after South Africa scrapped all tariffs on the European Union (EU) imports in 2010, resulting in:
The EU supplying the highest amount ever of approximately 137 000 ton in 2014 (their imports were almost zero until 2010)
Brazil’s imports dropped to 165 000 ton in 2014, the lowest ever since 2010.
Anti-dumping tariffs on the USA imports have been scrapped with effect from March 2016. It was projected by Gatestreet (2015) that 65 000 ton of poultry meat from the USA has already been supplied to South Africa in March 2016.
There has been a level of protection for local producers against imports over years, but this is changing going forward. The scrapping of EU and USA tariffs poses a significant threat, particularly to emerging and small producers with limited capacities. There is already evidence of the implications of this threat and Gatestreet (2015) estimates that approximately 110 emerging broiler producers nationally stopped farming during 2014, mainly due to cheaper imports. The weak local currency, which has been at its lowest recently, has made imports relatively expensive, providing some protection to local producers. According to ABSA (2016) the South African Rand traded at R15.756 to the United States Dollar (USD) at close of business on 17 March 2016. The currency protection also applies to established businesses like Rainbow and Astral, who also have economies of scale among other competitive advantages. Such producers therefore use a combination of favourable exchange rates and economies of scale to counter the impact of cheaper imports. However, emerging poultry farmers and agro-processors might not be so protected from import impacts, which could result in low profit margins. The imports situation does create entry barriers and though unfavourable, it should not make it impossible for new entrants to operate, particularly with the support of an initiative like the AP. Figure 9 provides a summary of South African poultry production per producer.
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Figure 9: Major South African producers
Adapted from: (DAFF, 2014)
The country’s poultry meat production is dominated by Rainbow and Astral, together supplying 46% of the total production in 2013. Other medium sized producers supplied 29%, with the remaining 25% supplied by smallholder farmers. Based on the 947 million broilers slaughtered in 2013, “Other” producers therefore produced approximately 237 million broilers. The envisaged abattoir would be targeting a market share of 0.12% of national market size. The LDM abattoirs, which will be direct competition for the envisaged new abattoir and which are all in the “Others” segment, are presented in Table 22 (the Holfontein and Grootvlei abattoirs that have a combined capacity of 60 broilers per day were excluded from the list due to their very low capacity).
Table 22: Poultry abattoirs in LDM
Municipality Town Business Name Capacity (chickens)
Nala Bothaville Van Rensburg 300
Wesselsbron Ekwalita 200
Wesselsbron Goudkwarts 800
Odendaalsrus JZ Poultry 200
Matjhabeng Welkom Amalesco Family Chickens 10 000
Hennenman Barries 200
Hennenman Funky Chicks 200
Welkom Dihoai Poultry 2 000
Tswelopele Theunissen Kiep Kiep 200
Total Capacity 14 100 (Mphuthi, 2016)
Even though there seems to be a market gap that can be filled by a new abattoir, the competition situation with regard to imports and local (national and LDM) producers would make it difficult for new entrants with limited capacity (technical skills, business management skills and access to capital) to penetrate the market. However, with the support of the AP it is expected that this challenge could be overcome. Competition with regard to other meat types is favourable to a new abattoir
Rainbow 24%
Astral 22%
Country Bird 7%
Tydstroom 6%
Daybreak 5%
Rocklands 5%
Fouries 6%
Others 25%
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A.3.1.5. Conclusion
The prospects of a successful newly established (or existing one supported by the AP) abattoir seem high for the following reasons:
Market trends, including current market size, historical and projected growth trends and possible market share are generally favourable to a new entrant who has access to properly structured support from an intervention like the AP
The current net import situation, assuming that regulations (tariffs) remain favourable, also show that there is a gap that well-supported and competitive broiler producers and meat processors need to fill
The competition that the envisaged abattoir is likely to face seems normal and healthy
An additional 5 000 broilers per day capacity is reasonable based on the potential target markets and their respective sizes.
The poultry abattoir business opportunity should therefore be explored further. In case of implementation, full support should also be extended to the broiler producers, and where possible to their emerging input suppliers, particularly grain-based feed suppliers. A.3.2. Cattle (beef) abattoir Beef is the second most consumed meat type after poultry, constituting about 69.2% of the total red meat and about 28.4% of the total meat consumed in South Africa. Additional capacity could be created in the LDM, either by establishing a new abattoir or increasing the capacity of an existing one. The aim of this increased capacity is to support emerging beef cattle producers, which would in turn support emerging grain producers. A.3.2.1. Industry overview
According to Beef2live (2016) the USA is the world’s leading producer of beef, producing 18.53% of the total global production in 2015, followed by Brazil at 16.13% and the EU at 12.9%. The South African beef industry is a mature one, contributing 1.5% to global production in 2015. Two major groups of beef cattle farmers co-exist in South Africa (DAFF, 2014). The first group comprises established commercial farmers whose production is generally based on cross-breeding. The second group consists of emerging black farmers who own or lease land and generally produce indigenous cross-bred animals. The production of weaners that are supplied to feedlots for finishing before slaughtering is the most common form of commercial cattle farming in South Africa. As such, feedlots that supply all their cattle to abattoirs for slaughtering account for approximately 75% of all beef produced in the country (DAFF, 2016). According to the National Agricultural Marketing Council (2001), the deregulation of the red meat industry in 1993 led to an increase in the number of abattoirs as the demand for red meat grew. The gap between meat consumption and local production has continued to widen over years, partly due to growth in the black middle-class (Labuschagne A., 2010).
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South Africa currently has approximately 500 red meat abattoirs, slaughtering 2.3 million cattle per annum. Abattoirs are regulated by classification as follows (BC, 2016):
Class A – abattoirs are allowed to slaughter, cut and wrap if necessary
Class B – abattoirs are allowed to slaughter only. In addition to regulations based classification, according to DAFF (2007), red meat abattoirs are also categorised according to their throughput, as follows:
Rural abattoirs have throughput that may not exceed two units per day
Low throughput abattoirs that process up to 20 units per day
High throughput abattoirs, generally processing hundreds of units per day. Approximately 40% of slaughtering is conducted by high throughput abattoirs, which are mostly Class A (DAFF, 2014). A.3.2.2. Market trends
According to Beef2live (2016), the world beef production was estimated at 58 485 000 ton in 2013, with the USA, Brazil and the EU contributing a total of almost 50%. The largest importer of beef at the time was the USA, followed by Russia and Japan. Table 23 depicts the beef South African production trends from standing live cattle, to slaughtering and the production of beef, and consumption thereof, for 2013/14 and 2014/15.
Table 23: Total cattle head count, slaughtering, production and consumption
Year Cattle herd
count Slaughtering (cattle head)
Production (kg)
Consumption (kg)
Variance between production and
consumption (kg)
2013/14 13 915 000 2 648 405 755 543 492 980 720 000 -225 176 508
2014/15 13 694 000 2 823 550 805 509 288 1 004 460 000 -198 950 712
Average 13 804 500 2 735 978 780 526 390 992 590 000 -212 063 610 (DAFF, 2016)
These trends do not include rural abattoirs and slaughtering for non-commercial purposes (such as social functions and individual households). This could explain the variance between consumption and production that far exceeds the net imports, which according to DAFF (2016) were 23 010 tons and 32 648 tons for 2013/14 and 2014/15 respectively. However, South African beef producers do not meet the local beef demand. Furthermore, the demand for beef is projected to increase by almost 28% over the next decade, resulting in almost 200 000 tons of additional beef consumption by 2024 (BFAP, 2015). Some abattoirs confirmed during the situational analysis that the availability of good quality cattle is one of the challenges that they face. Therefore, depending on other market issues like the availability of cattle and the beef trade balance, this situation gives an opportunity for a new entrant (beef producer) in the industry. Figure 10 depicts the beef production contribution per province.
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Figure 10: SA cattle slaughtering per province
(DAFF, 2014)
The Free State is the second largest beef producer in the country after Mpumalanga, contributing 20% of SA’s beef production in 2013. The annual beef production in the province in 2015 was estimated to be 57.1 kg per capita, based on the following assumptions and estimates:
The Free State 2015 mid-year population estimate of 2 817 900 (StatsSA, 2015).
Beef production of 160 942 350 kg per annum, based on:
20% contribution of the national beef (Figure 10)
2 823 550 cattle slaughtered nationally in 2015 (Table 23)
285 kg average animal total mass (265 kg carcass plus 20 kg edible offal) of slaughtered cattle
National trends of cattle slaughtered versus beef production from 2010 to 2013 (DAFF, 2014).
The Free State production per capita exceeds even the national average consumption of 18.4 kg per capita, which indicates that the province is self-sufficient regarding beef supply as their production exceeds consumption. Such a situation could pose a serious challenge to a newly established abattoir. The enterprise will not only have to be managing its internal operations (which is challenging enough for a start-up), but will also have to establish markets outside the province, as there is already an oversupply of beef locally. The annual beef production in the district was estimated to be 175.2 kg per capita in 2015, based on the following assumptions and estimates:
LDM’s population of 627 626 (LDM, 2015)
Beef production of 109 987 200 kg per annum, based on the following:
Nine beef abattoirs in LDM (Table 25) with 1 608 cattle per day total capacity
It is assumed that there are 240 working days per annum
285 kg carcass weight
Western Cape 6% Northern Cape
8%
Free State 20%
Eastern Cape 6%
KwaZulu-Natal 11%
Mpumalanga 22%
Limpopo 5%
Gauteng 14%
North West 8%
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The district production of beef per capita exceeds the national average consumption by 156.8 kg, which is very high. LDM is the highest beef producing district in the Free State, producing 68.3% of the total production in the province. The district is probably the highest producing region nationally as well, producing approximately 13.1% (102 268 800 ÷ 780 526 390) of the total production in the country. It is estimated that emerging farmers in LDM would only be able to produce approximately 112.5 ton of beef per annum, based on the following:
They currently own minimum 2 192 beef cattle (Makena, 2016)
Based on the national trends for cattle slaughtering (DAFF, 2014):
The average number of cattle slaughtered per annum is approximately 18% of the live, standing cattle at any time
A beef carcass weighs 285 kg on average. An abattoir focusing on only emerging farmers will slaughter a maximum of two cattle per day (112 500 kg ÷ 240 days ÷ 285 kg). It would be categorised as rural abattoir and not a commercial one that will contribute to real economic growth and job creation locally as expected. An appropriate commercial abattoir would have been one processing at least 20 cattle per day, producing 1 368 ton of beef (240 working days x 20 units/day x 285 kg) A.3.2.3. Trade balance
According to DAFF (2016) SA beef imports decreased by 65.6% from 4 255 ton in 2014 to 1 465 ton in 2015. The five-year annual average from 2010 to 2015 was 5 440 ton. The major trends regarding beef imports are:
The major beef exporter to South Africa is Australia, contributing on average 60% of South African beef imports (DAFF, 2014)
There is a 40% beef import tariff charge for what DAFF calls most favoured nations, which include countries like Australia, Argentina, New Zealand and Brazil.
SADC regions enjoy a zero percent (0%) tariff on beef, to encourage close border trading as part of stimulating economic development in the region.
Botswana is the major SADC beef exporter to SA, with an 11% (DAFF, 2014) contribution to South African imports in 2013.
South Africa was one of the world’s top 15 beef exporters in 2015, exporting 60 000 tons of beef, which was a 36.4% increase from the 44 000 tons in 2014. India was at the top, exporting 2 million ton, followed by Australia (1.8 million ton), Brazil (1.6 million ton) and the USA (1 million ton) (Beef2live, 2016). Figure 11 shows South Africa’s beef import and export trends from 2004 to 2013.
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Figure 11: SA beef industry import and export
Adapted from: (DAFF, 2014)
South Africa is a net importer of beef. Although the net imports have gradually reduced since 2004, South Africa still consumes more beef than what is produced locally. It was only in 2013 that the country exported more beef than it imported. DAFF (2014) speculates that the unbanning of South African bovine animals and their products might be the cause for the increase in exports. It is also possible that the depreciation of the local currency in the past few years could have led to local producers exporting more beef than before. The ABSA Agri-trends (2016) has indicated possible beef trade between South Africa and some Asian nations, with South Africa exporting close to R10 billion worth of beef products annually. Such a deal would increase local beef production, which could also mean a good opportunity for an envisaged beef abattoir in LDM. Table 24 shows the contribution by province to the South African beef export market.
Table 24: Beef export by province in percentage (%)
Province 2006 2007 2008 2009 2010 2011 2012 2013
Western cape 19.6 12.2 21.3 22.1 12.2 15.0 13.4 17.9
Eastern Cape - 0.1 - - - 0.1 - 1.3
Northern Cape 3.4 8.0 2.3 17.7 3.4 3.4 1.6 0.3
Free State 0.1 - - - 0.2 - 0.1 0.3
KwaZulu-Natal 8.0 10.0 2.3 2.0 8.9 13.1 5.9 4.4
North West - - - 4.4 5.4 3.4 4.2 0.1
Gauteng 66.5 67.1 61.8 40.5 40.2 24.2 39.0 49.0
Mpumalanga 2.4 2.6 12.2 13.3 29.2 40.4 35.8 26.7
Limpopo - - - - 0.5 0.4 - - Adapted from: (DAFF, 2014)
Even though the Free State is one of the largest beef producers (refer Figure 10), it is the third lowest exporting province in the country, which could be due to its location. The province is situated at the centre of the country and is relatively far from the country’s exit points like international airports, harbours and borders posts. This implies that the province mainly supply beef to other provinces in the country, including those that ultimately export beef and its products out of the country. The trade balance situation generally favours new entrants like the envisaged abattoir, as there is evidence of demand for beef that is currently not met by the available abattoirs in the country.
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Exports 7 2 3 3 4 5 4 4 4 8
Imports 16 20 19 17 7 10 6 11 7 4
0
5
10
15
20
25
Millio
n k
ilo
gra
ms
Exports
Imports
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A.3.2.4. Competition
The competition in LDM for the envisaged new abattoir is presented in Table 25.
Table 25: Red meat abattoirs in LDM
Municipality Town Business Name Capacity
cattle
Nala Bothaville GP & J 20
Wesselsbron Meadow meats 120
Matjhabeng Welkom Sparta 1 300
Ventersburg Ventersburg abattoir 20
Meat 4 U 50
Masilonyana Brandfort Brandfort abattoir 8
Theunissen Theunissen abattoir 20
Tokologo Boshof Boshof abattoir 50
Tshwelopele Bloemspruit Ronnies abattoir 20
Total Capacity 1 608 (Mphuthi, 2016)
The produce of the LDM red meat abattoirs exceeds the demand of the whole Free State province. The situation shows that any new abattoir from LDM will face serious competition from the district and the province, but it will also have to be very competitive as it will most likely have to supply also to neighbouring provinces. This further supports delaying the establishment of a beef abattoir in LDM. A.3.2.5. Conclusion
Considering the LDM and Free State beef production, as well as the emerging farmers’ current situation, it does not seem feasible to establish a new commercial beef abattoir in LDM. This initiative should therefore be delayed until a later stage, when emerging famers have sufficient numbers of cattle than can sustainably supply a commercial abattoir. This situation also implies that downstream agro-processing activities in the beef cattle value chain like tanning and meat processing will be affected as they are dependent on the abattoir being commercially viable. It seems that the most appropriate short-term intervention would be to ensure a well-coordinated service, through which emerging cattle farmers are linked with auctions, feedlots and abattoirs in the Free State, so that they can sell their cattle at competitive prices. There are already emerging beef cattle farmers, who aspire to, at some stage, compete with established commercial farmers. The medium to long term interventions by the AP, which should be done in conjunction with the suggested short-term intervention, should include the following:
Ensuring that more grazing land is available, so that emerging farmers can increase their cattle from the current 2 192 to over 25 000 that can sustain an abattoir or a feedlot if it proves to also be commercially viable
Capacitate the farmers with good cattle breeding practices, business skills (financial and non-financial) and marketing skills.
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A.3.3. Livestock feed A.3.3.1. Industry overview
The International Feed Industry Federation (2014), estimated that the livestock feed industry generated USD 400 billion in 2014. The total global production was projected to be close to 1 billion ton in 2015 and is expected to grow by 60% by 2050, mainly due to a growth in meat demand. The dominant producers are China (19%), the USA (17%), the EU (16%) and Brazil (7%), with the rest of the world producing the remaining 41%. Internationally, poultry is by far the largest consumer of feed, consuming 45% of the total feed produced, followed by pigs (26%), ruminants (20%), aqua (4%) and other animal species at 5% (IFIF, 2014). According to the Bureau for Food and Agricultural Policy (Davids, 2015), the intensive use of feed grains generally puts the profitability of broiler production and processing under severe pressure, as was observed from 2012 to 2014. This is mainly due to high and volatile prices of feed grain, particularly maize. Other factors like the drought in 2015 were also expected to severely affect the maize price (Davids, 2015) and supply – there is already some evidence of that happening. The South African yellow maize imports grew from zero in April 2015 to over seven million tons by the end of March 2016 as can be seen in Figure 12.
Figure 12: South African yellow maize import trend
(SAGIS, 2016)
This trend shows the erratic nature of the industry. It could also imply that in the case of commodity scarcity, as is the case currently, larger and well-established organisations with stronger bargaining power will benefit, with smaller producers being disadvantaged. In addition, the amount of yellow maize processed for livestock feed declined from 12.95 million at the end of April 2015 to 7.39 million tons by the end of February 2016 a depicted in Figure 13.
0
1 000 000
2 000 000
3 000 000
4 000 000
5 000 000
6 000 000
7 000 000
8 000 000
Ton
s
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Figure 13: Trends of yellow maize processed for livestock feed
(SAGIS, 2016)
This situation further underlines the possibility that the smaller producers of both livestock feed and broilers would feel the impact most. Broiler production has been growing, which subsequently results in a growth in the demand for feed. Larger feed-mills and larger poultry abattoirs can negotiate better prices for maize and poultry feed respectively, because of bulk buying. SAPA determined that small broiler producers had by the end of the third quarter of 2015 been paying R336 more per ton of broiler feed, primarily because they could not buy in bulk. The same challenges would apply to smaller feed-mills that cannot buy maize in bulk like the larger ones. The current industry situation is not favourable to a new entrant into the animal feed industry, if such entrant has to compete in an open market. In addition, the livestock feed opportunity cannot be assessed in isolation from the other AP opportunities, because there must be maximum benefits for all enterprises. Also, the AP’s resources must be optimally utilised, which can be achieved with the proper integration of all opportunities. A feed-mill established in LDM, as part of the AP initiative, will therefore have to primarily aim to support emerging farmers, through sourcing and processing grain from emerging grain producers. It will also aim to be the main supplier of feed to emerging producers of livestock, in particular poultry and cattle. It will therefore be not competing with any other feed-mill, and therefore a further market assessment of feed trends will not be necessary. However, it was important to assess if the grain supplied by local emerging farmers would be able to sustain the envisaged feed-mill operations. A.3.3.2. Grain supply by emerging farmers in LDM
The main ingredients for livestock feed are typically maize or bran (wheat and rye), as well as oil seeds (sunflower, soya been, peanuts and linseed). The possible demand for maize and sunflower, the two crops that the LDM emerging famers currently produce, was investigated. The maximum daily feed requirements are 120 g per broiler and 15 kg per cow. The estimated annual broiler production is 1 200 000, and the maximum of 3 000 cattle is based on the available grazing land as determined during situational analysis.
0
2 000
4 000
6 000
8 000
10 000
12 000
14 000
Ton
s
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Table 26 shows the calculated grain demand for the feed-mill. The assumptions and recommendations, including the ration size and grain composition, are based on the EU Reference Laboratories’ information (2010).
Table 26: Estimation of grain demand for the feed-mill
Livestock type
Daily ration
size (A)
% grain matter, maximum (B)
Feed days (C)
Annual production
(D)
Total grain required (kg) (A x B x C x D)
Sunflower Maize Sunflower Maize
Poultry 120 g 10% 70% 42 1 200 000 604 800 4 233 600
Cattle 15 kg 30% 30% 120 3 000 1 620 000 1 620 000
Total 2 224 800 5 853 600
The situational analysis revealed that there is available capacity of 33 000 ton maize or 56 307 ton sunflowers. Therefore, with proper support from the AP grain farmers would be able to adequately supply maize and sunflower to the feed-mill. Other minor and micro ingredients for the feed could be sourced from commercial farmers. A.3.3.3. Conclusion
The feed-mill business opportunity should be explored further. In the case of implementation, full support should also be extended to emerging crop producers. A.3.4. Tannery A.3.4.1. Industry overview and market trends
A tannery is a processing facility that converts raw hides and skin into finished leather. SA has an estimated annual hide production of between 2.2 million and 2.4 million per annum. Approximately 80% (1.9 million) of these hides are consumed by the automotive industry and the remainder goes to the footwear and leather goods industry. The automotive sector requires approximately three million hides annually and therefore the 37% (1.1 million) deficit is met through imports. The significant amount of imports implies that there could be a market gap for a tannery business, provided that it can source hides. However, the majority of tanneries in South Africa have standing agreements or contracts with abattoirs and cattle farmers. The tanneries typically purchase hides from abattoirs in advance, even before the cattle are slaughtered (Heunis, 2014). This means that almost all hides produced by approved abattoirs are already committed and are generally not available to new entrants. Therefore, for any tannery to have sufficient raw materials (hides), it should be integrated with an abattoir. The key issues to consider in deciding the way forward with respect to the tannery opportunity are as follows:
Based on the industry practices and market trends, a tannery must be linked to an abattoir as a prerequisite for being commercially viable
One of the key objectives of establishing the AP is that any agro-processors (currently existing businesses or to be newly established) must be sourcing key inputs from or have a link with emerging farmers
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Mainly due to the insufficient supply of cattle in LDM, a beef abattoir cannot be established at this stage.
Therefore, the tannery should also not be established at this stage, as it will not have input materials to process. A.3.4.2. Conclusion
There is no basis for the establishment of a tannery, as it must be linked to sufficient supply of cattle via a commercially viable abattoir, which will not be the case at this stage. Therefore the tannery, like the beef abattoir, should not be explored any further. However, should a beef abattoir be established in the future, the viability of a tannery could also be assessed then. A.3.5. Cattle breeding and market linkages An intervention is required for the emerging beef cattle farmers in LDM, specifically regarding the marketing and selling of their livestock within the district, neighbouring districts or neighbouring provinces where possible. There is evidence of capacity building for emerging farmers in LDM by the Land Redistribution for Agricultural Development recapitalisation program, particularly with regard to appropriate farming practices. However, there still seems to be a livestock marketing gap for emerging black farmers, due to the following challenges:
Difficulties in earning the trust established markets like auctions, feedlots and abattoirs.
A lack of facilities and infrastructure, particularly for auctions (such as sales pens; and loading and offloading ramps). According to the South African Federation of Livestock Auctioneers and Meat Brokers (SAFLA-MB) (2014), the high cost of constructing auction pens is the reason why auctions are not held in certain areas. There are currently no auctions held in LDM (Maphira, 2016) and as a result farmers have to travel long distances to Kroonstad in the Fezile Dabi district.
Not owning suitable vehicles for the transport of livestock, resulting in having to hire vehicles at a considerable cost.
Owning too few animals to sell to be able to cover transport costs. Sometimes farmers even have to sell livestock at lower prices, to avoid incurring additional costs of transporting animals back to the farm.
Limited marketing information, making it difficult to be fully knowledgeable regarding the markets.
A.3.5.1. Market trends, trade balance and competition
Emerging farmers in LDM are currently not in a position to sustainably supply beef cattle that will contribute to addressing the beef demand gap in South Africa. A minimum herd size of 25 000 cattle will be required to sustainably supply a small commercial abattoir (slaughtering 20 cattle per day), which could in turn possibly lead to further value adding activities. Therefore the two main objectives of the cattle breeding and market linkage service offered by the AP to the emerging cattle farmers will be to:
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Capacitate farmers to employ proper breeding practices and grow their collective herd size to a minimum of 25 000 within five years
Capacitate farmers to be able to meet the market’s requirements – particularly regarding quality – and to sell cattle profitably, while still growing their herd sizes.
Therefore, the AP should offer at least the following support services to emerging cattle farmers in LDM:
Technical support regarding breeding and market intelligence services, including:
Farming practices and appropriate production technologies
Sourcing and optimum utilisation of inputs (such as feed and medication)
Conforming to statutory and regulatory requirements
Understanding customer requirements and how to comply with these
Market trends (including consumption, demand and selling prices).
Logistical support:
Mainly cattle transportation to auctions, feedlots and abattoirs
Provision and management of auction pens at the FPSUs. Assuming that the current cattle stock of the emerging famers will be disregarded, and based on a number of calculations (details provided in APPENDIX B), it was determined that to be able to produce 25 000 cattle after five years, farmers will need parent stock as shown in Table 27.
Table 27: Parent herd size and composition
Cows Bulls Total
Ratio 25 1 26
Quantity 5 708 228 5 936
A.3.5.2. Conclusion
The cattle breeding and market linkages business opportunity should be explored further. In the case of implementation, full support should also be extended to emerging cattle producers.
A.4. SELECTED OPPORTUNITIES After having considered the current local situation with respect to the potential products and services, the following preliminary opportunities were identified as being suitable for the proposed AP:
Poultry (broiler) abattoir
Livestock feed-mill
Cattle sales and market linkages.
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A.4.1. Poultry (broiler) abattoir A.4.1.1. Supply chain map
The supply chain for poultry meat is depicted in Figure 14.
Figure 14: Poultry supply chain
The broiler supply chain starts with egg fertilisation and chick production, followed by the supply of chickens to farmers. After 42 to 45 days, matured chickens are then supplied to abattoirs for slaughtering and value-addition. Value addition entails the production of products such as polonies, chicken spread, chicken paste and chicken stock.
- Feed suppliers
- Veterinary suppliers
Broiler producers
Exports
- Meat
Abattoirs
Input
suppliers Farmers
Markets / Consumers/
Processors
Food industry
- Butcheries - chicken cuts, semi-processed (mince, polonies)
- Meat processors - Other food processors
Wholesalers and retailers
Households / end users
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A.4.1.2. Industry role players
The key industry role players in the poultry meat industry regarding the LDM AP are listed in Table 28.
Table 28: Poultry role players
Name Role
Agricultural Research Council (ARC) Support of smallholder farmers, with training and production inputs
Department of Rural Development and Land Reform
Funding and custodian of AP’s creation and development
District Agriculture Management Committee
Represents the interest of the LDM emerging famers, including at different forums
Free State Department of Agriculture and Rural Development
Non-financial support; and provision of some rules and regulations
Poultry Disease Management Agency Monitoring and management of diseases to ensure good health of poultry and also to ensure food security
SAPA Small, medium and micro enterprise support programmes (financial and non-financial)
Vrystaat Landbou / Free State Agriculture
Market intelligence; and development and technical support and mentoring
A.4.1.3. Distribution channels
Meat will be mainly distributed through wholesalers and retailers, both locally and nationally A.4.1.4. Risks
The possible risks that could hinder the smooth running of the enterprise if not adequately addressed are listed in Table 29.
Table 29: Poultry risks
Risk type Detailed risks
Weather Drought and other natural disasters, affecting the supply of
broilers
Biological and environmental Mortality rate of broilers due to disease outbreaks
Infrastructure Disruptions to utility supply (water or load-shedding)
Destruction of buildings/property due to natural disasters or erratic climatic conditions (such as hail storms or earthquakes)
Logistics Breakdown of delivery trucks
Accidents on the road
Market
Decline of meat prices
Change in consumer behaviour re chicken consumption
Increase in imported chickens
Human resources and skills
Labour strikes
Increased labour costs
Inability to source suitably qualified personnel
Injuries at work
Production Machine breakdowns
Deviation from quality standards
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To prevent or counter the effects of all these possible risks, the enterprise has to develop and implement a comprehensive risk management and mitigation plan, which will entail the following:
Conducting a detailed assessment of the identified risks
Rating the risks in terms of likelihood and impact
Ensuring that preventative measures (including policies and standard operating procedures) are in place
Developing plans for risk monitoring and control
Documenting and communicating the plan. A.4.2. Livestock feed A.4.2.1. Supply chain map
Figure 15 shows the supply chain for livestock feed production.
Figure 15 : Livestock feed supply chain
Emerging farmers in LDM will supply the feed-mill with the crops required for producing the feed. The feed-mill will process and supply the feed directly to farmers, feedlots and retailers in the district. A.4.2.2. Industry role players
The industry role players are as listed in Table 30.
Table 30: Livestock feed role players
Stakeholder Role
Grain South Africa Provide commodity strategic support and services to South African grain producers
National Chamber of Milling
Represent, promote and advance the interest of wheat, maize and other grain milling industries in general
South African Grain Information System
Gather, process, analyse and distribute agronomic information to all industry role players
A.4.2.3. Distribution channel
Livestock feed will be supplied directly to cattle farmers and broiler producers. A.4.2.4. Risks
The possible risks that could hinder the smooth running of the enterprise if not adequately addressed are listed in Table 31.
Crop
supply Processing Distribution
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Table 31: Livestock feed risks
Risk type Detailed risks
Environmental and weather Unavailability of grain due to droughts
Grain diseases
Infrastructure Disruptions to utility supply (water or load-shedding)
Destruction of buildings/property due to natural disasters or erratic climatic conditions (such as hail storms or earthquakes)
Logistics Breakdown of delivery trucks
Accidents on the road
Market Increase of grain prices, resulting in famers abandoning the
feed-mill
Human resources and skills
Labour strikes
Increased labour costs
Inability to source suitably qualified personnel
Injuries at work
Production Machine breakdowns
Deviation from quality standards
To prevent or counter the effects of all these possible risks, the enterprise has to develop and implement a comprehensive risk management and mitigation plan, which will entail the following:
Conducting a detailed assessment of the identified risks
Rating the risks in terms of likelihood and impact
Ensuring that preventative measures (including policies and standard operating procedures) are in place
Developing plans for risk monitoring and control
Documenting and communicating the plan. A.4.3. Cattle marketing and sales A.4.3.1. Supply chain map
The supply chain for cattle marketing and sales is as depicted in Figure 16.
Figure 16: Beef cattle trading supply chain
- Feed suppliers
- Veterinary suppliers
- Calf (weaners) suppliers
Cattle farmers –primary producers
Auctions
Exports
Feedlots
Input
suppliers Farmers Market
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A.4.3.2. Industry role players
The role players specific to cattle trading are listed in Table 32.
Table 32: Beef cattle trading role players
Name Role
National Emergent Red Meat Producers’ Organisation
Promote and support black emerging red meat producers
Red Meat Research and Development South Africa
Research – livestock production, health and welfare, value addition and quality
SAFLA-MB Oversees auctioning of livestock, ensuring all parties interest are protected
South African Meat Industry Company
Oversees issues like market intelligence, R& D and exports/ imports
South African Red Meat Abattoir Association
Oversees interests of red meat abattoirs
A.4.3.3. Distribution channel
Cattle will be sold through auctions or directly to feedlots and abattoirs A.4.3.4. Risks
The possible risks that could hinder the smooth running of the enterprise if not adequately addressed are listed in Table 33.
Table 33: Beef cattle trading risks
Risk type Detailed risks
Weather Drought and other natural disasters
Biological and environmental Mortality rate of cattle due to disease outbreaks
Infrastructure Disruptions to utility supply (water or load-shedding)
Destruction of buildings/property due to natural disasters or erratic climatic conditions (such as hail storms or earthquakes)
Logistics Breakdown of delivery trucks
Accidents on the road
Market
Decline of meat prices
Changes in consumer behaviour re beef consumption
Increase in imported cattle
Human resources and skills
Labour strikes
Increased labour costs
Inability to source suitably qualified personnel
Injuries at work
To prevent or counter the effects of all these possible risks, the enterprise has to develop and implement a comprehensive risk management and mitigation plan, which will entail the following:
Conducting a detailed assessment of the identified risks
Rating the risks in terms of likelihood and impact
Ensuring that preventative measures (including policies and standard operating procedures) are in place
Developing plans for risk monitoring and control Documenting and communicating the plan.
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APPENDIX B - TECHNICAL ANALYSIS
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B.1. INTRODUCTION The technical assessment of the agri-park (AP) in the Lejweleputswa District Municipality (LDM), including the design of the infrastructure and daily operations, was primarily based on the business opportunities identified during market assessment, and the subsequent spin-off opportunities. The AP technical assessment therefore focussed on the following key areas:
Specifications of the business opportunities and the related support services
Concept design of the AP, which will comprise the agri-hub (AH) and the farmer production support units (FPSUs)
Equipment and machinery
Statutory and regulatory requirements
Institutional arrangements.
B.2. OPPORTUNITIES AND SERVICES The results of the local situation assessment, including the inputs made by key stakeholders during the two workshops held on 18 February 2016 and on 19 March 2016 respectively in Lejweleputswa, and the subsequent high level market assessment were used to identify business opportunities and services on which the concept design of the AP is based. The three main business opportunities identified were as follows:
Poultry (broiler) abattoir
Livestock feed-mill
Cattle breeding and market linkage. It is expected that emerging farmers shall be the co-investors in the poultry abattoir and livestock feed-mill, should these prove to be both technically and financially feasible. The cattle breeding and marketing initiative, which is more an enabler and part of the support and development program for the emerging farmers, is a service that is expected to be offered by the AP, for a nominal fee. Vertical integration of businesses in the value chain or entering into contract supplier agreements with independent businesses is a common practice in the poultry industry to optimise business operations. In line with this practice, the three identified business opportunities, particular the abattoir, will also need to link and synchronise their business operations with the upstream suppliers, to be able to operate efficiently. In addition to the above, some of the guiding principles of the AP establishment are that it must act as catalyst for rural industrialisation and should maximise access to markets by the emerging farmers and rural communities. In support of these principles, but also to broaden the AP products and services range, other business that were not informed by the recent market assessment could also be established within the AP. Therefore, the additional businesses opportunities that will be established within the AP along with the above-mentioned three will be as follows:
Production businesses, which are the abattoir’s suppliers, namely a hatching-egg farm, a hatchery and broiler farms – as these are dependent on the abattoir’s viability, a market assessment has not been done yet.
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Services, primarily utilised by the AP-linked businesses (including the poultry abattoir suppliers), and preferably owned or managed by the AP:
Logistics services, mainly for the transportation of hatching eggs, chicks, broilers, meat, livestock feed, live fowls (broilers and spent hens) and cattle
Technical and business management services like training and development in farming practices and conducting market intelligence (MI) studies
Plant, equipment and machinery rental to primarily the tenant businesses at the AH and at the FPSUs.
Wholesale and retail services, preferably owned or managed by the AP, to sell the following:
“Small-quantity” inputs (like medicine, seeds, pesticides and compost) mainly to all the subsistence and emerging farmers, who generally cannot afford to buy in bulk
Fresh produce supplied by farmers within the LDM, and other products from any of the AP businesses (based at either the AH or FPSUs).
There could be additions to the AP in the medium to long term. This would be in the form of either expansions to some of the existing businesses or the establishment of new businesses. Such developments will be dependent on the initial enterprises as listed above becoming commercially viable and sustainable, as well as capable of handling complex processes (both in terms of business and technology). The emerging farmers (crop and livestock) in general, who are expected to be receiving support from the AP, must by then also show evidence of developing into established commercial farmers, with limited support from the AP. The possible additions could be as follows:
Grain wet milling for cattle feed
A cattle feedlot
A beef abattoir
Further processing of meat (poultry and beef)
A tannery. These businesses opportunities will be mostly based on beef cattle. The emerging cattle farmers will therefore need to demonstrate that that they are using farming best practices, including proper breeding methods. They must also by that time, have grown their collective herd size to a minimum of 25 000 cattle per annum, the minimum amount of live cattle required to sustain a commercial abattoir processing 20 cattle a day. The feasibility studies for each opportunity will then need to be conducted, once all the requirements are met. B.2.1. Poultry (broiler) abattoir B.2.1.1. Opportunity/service description
The planned poultry abattoir will have the capacity to process 5 000 broiler chickens per day, and will be wholly or partly owned by emerging farmers in LDM. It will be either a newly established enterprise or an existing one that is supported by the AP and will:
Source broilers from contract suppliers who will be emerging broiler producers, who in turn must be sourcing their inputs, mainly chicks and feed, from the hatchery and feed-mill respectively established by the AP
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Primarily supply the local market, including independent retailers, the hospitality industry (guest houses and bed-and-breakfast establishments) and local communities with chicken
Supply the same customers as above outside LDM once the enterprise is fully established and able to compete nationally and even internationally.
The poultry abattoir will be the anchor business of the AH, as all other initial business initiatives, except for the cattle breeding and sales, are directly dependent on its viability. In the case of a new abattoir being established, it will rent manufacturing facilities (plant, machinery and equipment) from the AP. If an existing abattoir implements this opportunity, it is expected the AP will be involved during the necessary upgrades to its facilities to ensure the capability of processing 5 000 additional broilers per day. Currently, there is only one abattoir in LDM that has the capacity to process more than 5 000 broilers per day, namely Amalesco Family Chickens. A due diligence will have to be conducted on the existing business, to confirm whether such expansion would be viable from a technical and financial perspective. B.2.1.2. Production process
Figure 17 depicts the process flow of poultry meat production, from the receiving of live broilers from broiler farms until the meat is ready to be dispatched and distributed to the market.
Figure 17: Poultry meat production process
B.2.1.3. Production inputs
The two direct production inputs for poultry processing are the broilers, and water (hot water for scalding the carcass for feather removal, and cold water for washing the meat). Other production inputs include packaging materials (like plastic bags, boxes, adhesive
Broiler receiving
Conveying Stunning Slaughtering Bleeding
Cleaning Depilation Scalding Evisceration Offal
separation
Body washing
Offal washing
Cutting, weighing & packaging
Weighing &
packaging
Store / freeze Despatch
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labels and pallets) and consumables (such as detergents and production code ink). At an estimated throughput of 1 200 000 broilers per annum it is estimated that the required utilities and their costs will be as presented in Table 34.
Table 34: Utilities
Utility Estimated annual consumption
Unit Unit cost Estimated annual cost
Electricity 600 000 kWh R 1.02 R 612 000
Water 26 450 kl R 20.00 R 529 000
Total R 1 141 000
The initial broiler stock might be provided by the AP, and it will cost R 21 960 000 (1 200 000 x 18.30) based on the following:
The quantity of broilers that will be bought will be 1 200 000
The average price of a broiler by the third quarter of 2015 was R18.30 (SAPA, 2015). B.2.1.4. Production facility and equipment
The factory will have a floor area of 300 square metres (m2). Figure 18 depicts the processing area of 108 m2 and 48 m2 for packaging respectively. The remaining 144 m2 is for cold storage and live birds receiving area.
Figure 18: Chicken abattoir floor diagram
Adapted: (KDC Trading, 2016)
. The total building cost is presented in Table 35.
Table 35: Abattoir building cost
Building requirements Cost
EPS structure kit
R 1 857 630 Foundation
Concrete floor
Delivery R 57 000
Installation (consumables and labour) R 294 405
Total R 2 209 035 (KDC Trading, 2016)
The processing plant, made up of the equipment listed in Table 36, will cost R1 134 300. There is no itemised cost, as the equipment will be delivered as a turnkey solution.
6m
CEvisceration
area
BDirty room
process area
7m4m7m8m
DPre-cooling areaE and F
Cutting up and packaging area
ALi
ve
bir
ds
rece
ivin
g a
rea
Viscera packing
area
Viscera Processing
area
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Table 36: Abattoir processing plant equipment
Equipment Quantity
Slaughtering line with hanging conveyor (62 m) 1
Main drive and tensioner 1
Stunner – water bath 1
Blood receiving trough 1
Scalder – steam blowing 1
Plucker – A-frame 4
Automatic head puller 1
Control panel 1 1
Eviscerating trough 1
Viscera receiving trough 1
Carcass washer 1
Automatic feet cutter 1
Automatic feet unloader 1
Shackle washer (carcass cleaner) 1
Screw chiller 1
Dripping drum 1
Carcass receiving trough 1
Control panel 2 1
Gizzard peeling machine 1
Gizzard de-fatting machine 1
Conveying line for cutting-up 1
Main drive and tensioner 1
Control panel 3 1 (KDC Trading, 2016)
The auxiliary equipment as presented in Table 37 will cost R924 366.
Table 37: Abattoir auxiliary equipment
Equipment Quantity Total cost
Portion cutter – table model 2 R 22 196
Boot washer – galvanised 3 R 7 524
Hand wash basin 5 R 31 863
Apron hooks – galvanised 5 R 1 055
Knife steriliser – stainless steel 3 R 8 550
Crate wash stand – galvanised 2 R 2 519
Meat tray – medium 50 R 6 384
Waste bins 6 R 4 309
DOA bin 1 R 1 362
Slathering knives 4 R 771
Eviscerating spoons 4 R 1 596
Neck slitting knives 4 R 1 026
Bulk scale – portable 1 R 9 114
Check scale 1 R 2 109
Labelling scale 2 R 24 966
Over wrapper (380 mm) 3 R 4 063
Bag sealer (400 mm) 2 R 2 253
Live bird crate with hinged door 100 R 27 930
Agri/meat crate 100 R 5 130
Chiller room 2 R 193 800
Freezer room 2 R 216 600
Giblet cleaning table 1 R 13 680
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Equipment Quantity Total cost
Mala cleaning table 1 R 14 542
Stainless steel table (TABSS) 8 R 36 024
Boiler for auto chicken scalder 1 R 285 000
Total R 924 366 (KDC Trading, 2016)
The total cost of the construction, the processing plant and auxiliary equipment is R4 267 701. B.2.2. Broiler farms B.2.2.1. Opportunity description
It is proposed that the AP set up 25 emerging broiler farmers, mostly situated around Odendaalsrus, as this is the town that were identified as having some broiler production activities. These farmers will become contract suppliers to the poultry abattoir.
It is estimated that the broiler farmers will need to have a total of 1 320 000 broiler chickens per annum, in order to be able to produce the required 1 200 000 (1 320 000 x (100% – 9.1%)), based on the mortality rate of 9.1%, which is based on the following:
The broiler mortality rate among experienced small scale broiler farmers was 5.6% during the third quarter of 2015 (SAPA, 2015)
Considering that the broiler farmers will be mostly inexperienced, the mortality rate of 5% to 10% was assumed (knowledge of feeding requirements, as well as poultry diseases and control thereof, are among some of the challenges that unskilled farmers are faced with, leading to a higher than normal mortality rate
The 1 320 000 was a round figure that could be equally divisible among the 25 farmers, but would most importantly result in a mortality rate closer to the upper limit 10%.
Each farmer will therefore have a broiler house with capacity of 6 600 broilers at any given time (1 320 000 broilers per annum ÷ 25 farmers ÷ 8 cycles per annum), producing 143 broilers (6 600 ÷ 42 day cycle x 90.9% survival rate) per day ready for slaughtering, and a total of 48 048 broilers per year (143 x 42 x 8) based on the 8 cycles of 42 days (six weeks) each per annum, after considering mortality. B.2.2.2. Production process
The production process entails sourcing the day old chicks, feeding them and ensuring that they stay healthy, minimising the mortality rate during the six weeks (42 days), which is when they are ready to be slaughtered. Figure 19 depicts the process from receiving day-old chicks to delivering broilers to the abattoir.
Figure 19: Broiler production process
Day-old chick
receiving
Starting phase (3 weeks)
Growing phase (3 weeks)
Finishing phase (3 weeks) – optional, for small market
Loading and delivery to abattoir
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B.2.2.3. Production inputs
Broiler houses generally require electricity for lighting purposes only, when necessary. Each broiler drinks approximately 0.108 litres of water per day (Cobb Vantress inc., 2008). At an estimated throughput of 1 320 000 broilers per annum it is estimated that the annual utilities and the related costs, will be as shown in Table 38.
Table 38: Broiler farms utility cost
Utility Estimated annual consumption
Unit Unit cost Estimated annual cost
Electricity 140 000.00 kWh R 1.02 R 142 800
Water 142.56 kl R 20.00 R 2 851
Total R 145 651
The initial day-old chick stock, which might have to be provided by the AP, will cost R8 118 000 (1 320 000 x 6.15) based on the following:
The quantity of chicks that will be bought will be 1 320 000
The highest chick cost was R 6.15 (SAPA, 2015) by the third quarter of 2015. The total feed cost for the first cycle (first 42 days of broiler production) only, also possibly to be provided by the AP, will be R14 823 600 (1 320 000 x 11.23), based on the following:
The quantity of day-old chicks that will be bought will be 1 320 000
The feed cost per broiler for the cycle was R 11.23 on average during the first three quarters of 2015 (SAPA, 2015).
B.2.2.4. Production facility and equipment
Each broiler house with a capacity of 6 600 broilers will have a floor area of 300 m2 as shown in Figure 20.
30m
10m
Broiler pan feeders and nipple watering systemData
Feed silo
Figure 20: Broiler house floor plan Adapted from: (KDC Trading, 2016)
Therefore a total of 7 500 m2 will be required for the 25 farmers. The construction of each broiler house will cost R374 490. Therefore, the total construction cost of 25 broiler houses will be approximately R9 362 250. Table 39 shows the equipment costs for one broiler house.
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Table 39: Broiler house equipment
Equipment Quantity Total cost
Environmental control computer 1 R 9 995.00
Digital thermometer with min/max 3 R 435.00
Exhaust fan – 1 000 mm 4 R 16 200.00
Cooling panel 3 R 8 850.00
Circulation pump 1 R 3 250.00
Heater LPG 1 R 3 785.00
High pressure gas regulator 2 R 1 019.76
Gas cylinder 2 R 3 000.00
Electrical system broiler house 1 R 15 625.00
Pan feeding system 1 R 28 861.50
Nipple drinking system 1 R 24 375.00
Silo 1 R 46 375.00
Total R 161 771.26 (KDC Trading, 2016)
Therefore the total equipment cost for the 25 houses will be R4 044 281.50. The total cost of the broiler houses construction and the equipment will therefore be R13 406 531. B.2.3. Hatchery B.2.3.1. Opportunity/service description
The proposed hatchery will have the capacity to process (hatch) 1 650 000 eggs per annum, which will translate to the 1 320 000 day-old chicks required by the broiler farmers. This is because the hatchery efficiency is around 80% (KDC Trading, 2016). It will be situated at the hub and possibly owned by the abattoir owners The main equipment in a hatchery is the incubator and the cold room. The incubator comprises of setters in which eggs are placed for the first 18 days; and hatchers in which eggs are placed for the last three days of incubation, leading up to hatching (chicks typically hatch on the twenty first day). B.2.3.2. Production process
Figure 21 depicts the process flow of day-old chick production, from receiving fertilised eggs from the hatching-egg farm until the chicks are delivered to the broiler farms.
Figure 21: Day-old chick production process
B.2.3.3. Production inputs
The direct production inputs are fertilised eggs and it is estimated the only major utility, that is electricity, will cost R56 100 per annum (55 000 kWh X R1.02/kWh). Water
Fertilised eggs
receiving
Place eggs in a setter (18 days)
Place eggs in a hatcher
(3 days)
Picking and packaging
day-old chicks
Transport chicks to the broiler farms
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consumption is negligible as day old chicks are transported almost immediately after hatching, and any cost related to their nourishment is not borne by the AP. The initial hatching-egg stock might be provided by the AP, and it will cost R4 950 000 (1 650 000 x R3.00) based on the following:
The quantity of fertilised hatching-eggs that will be bought will be 1 650 000
The average cost of a fertilised hatching-egg was R3.00 (SAPA, 2015) by the third quarter of 2015.
B.2.3.4. Production facility and equipment
The hatchery will have a floor area of about 508 m2 as shown in Figure 22.
30m5m
3m
14
.5m
60 incubators
Pac
kin
g ar
ea
Chilled egg storage
Figure 22: Hatchery floor diagram Adapted from: (KDC Trading, 2016)
The hatchery will be divided into 435 m2 for the incubator area and 73 m2 for the packaging and storage area. The total cost of the building is presented in Table 40.
Table 40: Hatchery building cost
Building requirements Total Cost
EPS structure kit R 3 145 587 Foundation
Concrete floor
Delivery R 139 423
Installation (consumables and labour) R 720 120
Total R 4 005 130
(Suretech, 2016)
Table 41 shows a list of the hatchery equipment and cost.
Table 41: Hatchery equipment
Equipment Quantity Total cost
Setter 40 R 1 319 700
Hatcher 20
Cold room 1 R 85 000
Total R 1 404 700
Therefore the total cost of the hatchery including construction and equipment will be R5 409 830.
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B.2.4. Hatching-egg farm B.2.4.1. Opportunity/service description
The proposed hatching-egg farm, which will be supplying the hatchery with fertilised eggs, comprises of two main sections. There is the rearing section in which the parent stock, which are the chickens that eventually produce the hatching-eggs (eggs to be hatched in the hatchery) are themselves produced. The ration of hens (females) and roosters (males) in this section is approximately 2:1. The mature fowls are then moved to the egg-laying section, and the ratio changes to 1 male for every 10 females Based on the production of approximately one hatching-egg every second day or “a half egg per day” (NWK, 2016), at least 13 200 hens (and 1 320 roosters) will be required to produce the 6 600 eggs per day required by the hatchery. Therefore a total of 14 520 chickens (13 200 + 1 320) will be required in the egg-laying section at any given time. A ratio of 2:1 of egg-laying stock to the rearing section must be maintained all the time. Therefore rearing section will require approximately 7 260 (14 520 ÷ 2). Therefore a total of 21 780 (14 520 + 7 260) chickens will be required at the hatching-egg farm at any given time. B.2.4.2. Production process
Figure 23 depicts the process flow from receiving chicks (about two-day old) from the hatchery until the hatching-egg is ready to be supplier to the hatchery.
Figure 23: Hatching egg production process
B.2.4.3. Production inputs
The production inputs in the rearing stage are chicks from the hatchery, and inputs into the egg-laying phase are the chickens from the rearing section. The annual utility costs in Table 42 are estimated for the four houses.
Table 42: Hatching-egg farms utility cost
Utility Estimated annual consumption
Unit Unit cost Estimated annual cost
Electricity 35 000 kWh R 1.02 R 35 700
Water 142.56 kl R 20.00 R 2 851
Total R 38 551
The initial egg layers stock might have to be provided by the AP, and it will cost R265 708 (18.30 x 14 520) based on the following:
Receiving chicks from the hatchery
Rearing - growing phase (± 21 weeks)
Egg-laying phase (up to one year)
Egg delivered to hatchery
Spent hens to be culled (processing or wholesale / retailed as live fowl)
Hatchery for hatching-eggs
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The quantity of egg layers will be 14 520 (the farm will produce its rearing stock)
The average price of a fowl was R18.30 (SAPA, 2015) in 2015. Assuming that the AP will provide feed for the first 42 days as would be the case with broiler farmers, it would cost approximately R163 060 (14 520 x 11.23)
The quantity of egg layers will be 14 520
The feed cost per egg layer is estimated to be R11.23 (SAPA, 2015). B.2.4.4. Production facility and equipment
Four chicken houses will be needed, namely two houses for egg-laying stock and two for housing the parent stock. The floor plan for one house is shown in Figure 24.
15
m
Chicks pan feeders and nipple watering systemData
Feed silo
42m90m
Figure 24: Hatching-egg chicken house floor plan
Adapted from: (KDC Trading, 2016)
The construction of a single house will cost R1 358 937. Table 43 shows the equipment costs per house.
Table 43: Hatching-egg chicken house equipment
Equipment Quantity Total cost
Environmental control computer 1 R 9 995.00
Digital thermometer with min/max 3 R 435.00
Exhaust fan – 1 000 mm 4 R 16 200.00
Cooling panel 3 R 8 850.00
Circulation pump 1 R 3 250.00
Heater LPG 1 R 3 785.00
High pressure gas regulator 2 R 1 019.76
Gas cylinder 2 R 3 000.00
Electrical system broiler house 1 R 15 625.00
Pan feeding system 1 R 28 861.50
Nipple drinking system 1 R 24 375.00
Silo 1 R 46 375.00
Total R 161 771.26 (KDC Trading, 2016)
Therefore the total cost for the farm will be R6 082 833, including the following:
Four houses at R5 435 748
Equipment for the four houses at R647 085.
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B.2.5. Livestock feed-mill B.2.5.1. Opportunity/service description
The proposed feed-mill will be established solely for supplying livestock feed, initially mainly for poultry (hatching farm and broiler farms), but also cattle at a later stage if the feedlot is established. It will be situated at the AP and will source grain primarily from emerging grain farmers. The other minor ingredients will be sourced from established businesses. The feed-mill will process 5 000 tons of feed per annum, which will comprise mainly of yellow maize. B.2.5.2. Production process
The process flow of the feed milling process from raw material receiving to the despatch of feed is depicted in Figure 25.
Figure 25: Feed processing
B.2.5.3. Production inputs
The production inputs will be mainly yellow maize and minor ingredients like salt and limestone. The utilities consumption and the related costs will be as shown in Table 44.
Table 44: Feed-mill utility cost
Utility Estimated annual consumption
Unit Unit cost Estimated annual cost
Electricity 250 000 kWh R 1.02 R 255 000
Water 20 kl R 20.00 R 400
Total R 255 400
The AP might have to assist with the procurement of yellow maize that, according to DAFF (2016), averaged approximately R2 100 per ton from 2011 until 2015, without sharp
Raw material
Storage Grinding
Pelleting
Mixing Storage Packaging
Dispatch
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decreases or increases. The feed-mill, processing approximately 2 500 tons (about half of the total feed) will need to spend R5 250 00 (R 2 500 tons x R 2 100 per ton). B.2.5.4. Production facility and equipment
The factory will have a floor area of 600 m2 as shown in Figure 26.
40m
15
m
Sto
rag
e a
nd
d
isp
atc
h a
rea
Harmer mill
Data
Data
Batch mixer Pellet mill
Pellet cooler
Tip-scale Bagger
Bag stacker
Silos for grain storage
OfficeKitchen
Figure 26: Feed-mill floor diagram
The factory will be divided into 495 m2 for the processing area and 105 m2 for the packaging and storage area.
The building cost estimates are shown in Table 45.
Table 45: Feed-mill building cost estimates
Building requirements Cost
Pre-fabricated structure kit
R 748 980 Foundation
Concrete floor
Delivery R 192 308
Installation (consumables and labour) R 993 269
Total R 1 934 557
The turnkey delivery of the feed-mill plant, comprising of equipment as listed in Table 46, will cost R1.8 million.
Table 46: Feed-mill equipment
Equipment Quantity
Grain storage (silos) 2
Roaster 1
Hippo hammer mill 1
Batch mixer 1
Pellet mill 1
Pellet cooler 1
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Equipment Quantity
Tip scale bagger 1
Forklift (Barloworld) 1
Bag stacker 1
Therefore, the total cost of the feed-mill, including construction and equipment will be R3 794 557. B.2.6. Cattle breeding and market linkages service B.2.6.1. Opportunity/service description
Emerging farmers are currently not in a position to sustainably supply beef cattle that will contribute to addressing the beef demand gap in South Africa. A minimum 25 000-cattle herd will be required to sustainably supply a small commercial abattoir (slaughtering 20 cattle per day), which could in turn possibly supply further value adding activities. Therefore the two main objectives of the cattle breeding and market linkage service, offered by the AP to the emerging cattle farmers will be to:
Capacitate farmers to employ proper breeding practices and grow their collective herd size to a minimum of 25 000 within five years
Capacitate farmers so to be able to meet the market’s requirements – particularly regarding quality – and to sell cattle profitably, while still growing their herd sizes.
Therefore, the AP should offer at least the following support services to emerging cattle farmers in LDM:
Technical support regarding breeding and market intelligence services, including:
Farming practices and appropriate production technologies
Sourcing and optimum utilisation of inputs (such as feed and medication)
Conforming to statutory and regulatory requirements
Understanding customer requirements and how to comply with these
Market trends (including consumption, demand and selling prices).
Logistical support:
Mainly cattle transportation to auctions, feedlots and abattoirs
Provision and management of auction pens at the FPSUs.
Based on several scientific studies, particularly the Department of Primary Industries of the New South Wales (Parnel, 2007) and the University of Nebraska-Lincoln (UNL-Beef, 2015), the assumptions listed below, including those presented in Table 47 for determining calf crop, were made for the breeding programme.
Cattle mortality after weaning is negligible (0%)
The bull to cow ratio is 1:25
Heifers (that is female cattle that have not calved) will calf for the first time when they are two years old
Heifers with high probabilities of being barren will be replaced by 10% of the male weaners
A cow’s birth frequency is every year
The lifespan of a cow is 10 years
The average “active” lifespan of a bull is 6 to 7 years
The male to female ratio of calves born is 1:1
A cow will alternate female vs male births annually
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Calving will start at the beginning of the year, implying that cattle have to be purchased a year prior to the actual production year (for financial modelling purposes)
The parent cattle (cows and bulls) will be not be considered as part of the target 25 000 by the end of fifth year (the AP could sell them or reallocate them to a similar project).
The key variable in Table 47, namely calf crop, measures the efficiency of the breeding programme, as it compares the total number of number calves that are successfully weaned to the total number of cows that were exposed to the bull and conceived.
Table 47: Calf crop estimation
Variable Description %
(A) Pregnancy % Percentage of cows that were exposed to the bull and fell pregnant, (cows that fell pregnant ÷ cows exposed to the bull)
90%
(B) Calving % Percentage of total calves born (= full pregnancies) alive or stillborn to pregnancies (calves that survived birth ÷ cows that fell pregnant)
90%
(C) Weaning % Percentage of calves that survived birth and calving stage, to weaning (cows born alive, less calves that died ÷ calves that reached weaning
90%
(D) Calf crop Percentage of calves weaned compared to the cows that fell pregnant (calves weaned ÷ cows that fell pregnant), also = A x B x C =0.9 x 0.9
73%
Adapted: (UNL-Beef, 2015)
Based on the above assumptions a simplistic but realistic breeding scenario is as depicted in Table 48.
Table 48: Cattle breeding
Pre-production Production
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Purchase of parent cow (F)
Fa Ma Fb Mb Fc
Faa Maa Fbb
Faaa
Where: F = first, parent cow Fa = first female calf of F (first generation) Fb = second female calf of F (first generation) Fc = third female calf of F (first generation) Faa = first female calf of Fa (second generation) Fbb = first female calf of Fb (second generation) Faaa = first female calf of Faa (third generation) Ma = first male calf of F Mb = second male calf of F Based on the above scenario, if the calf crop was 100%, this particular cow (F) would have bred an additional six females at the end of the fifth year as highlighted. Therefore, at a calf crop of 73% there will be approximately 4.73 (6 x 0.73) females, excluding the parent cow. Therefore the total parent stock required in the first year will be a as presented in Table 49.
Table 49: Parent herd size, composition and costs
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Cows Bulls Total
Ratio 25 1 26
Quantity needed in Year 0 to reach 25 000 in 5th year
5 708 228 5 936
Cost per unit R 7 000 R 26 000 N/A
Total cost R 39 954 338 R 5 936 073 R 45 890 411
Based on the 1:1 ratio there will be approximately 2 854 male weaners produced annually (5 708 ÷ 2). Assuming that calving will happen throughout the year, 238 weaners (2 854 weaners ÷ 12) per month will be sold. It is expected that 10% of these will be exchanged or sold to replace heifers that have a high possibility of being barren, and therefore only 2 568 (2 854 x 0.9) will be sold for cash. B.2.6.2. Production process and inputs
The farmers will bear all the input costs, including feed and utilities. The processing, as depicted in Figure 27, will entail the sourcing of parent stock; breeding to increase the stock (mainly females) to 25 000; and selling male weaners.
Figure 27: Process flow for the breeding and sales program
B.2.6.3. Production facility and equipment
The production facility and equipment will be auction pens to the value of R165 000. B.2.7. Transport service B.2.7.1. Opportunity/service description
Cattle farmers typically sell male weaners, which needs to be transported to auctions or feedlots. This service will be provided by the AP, as part of the cattle breeding and market linkages initiative. Two cattle FSPUs are proposed to support cattle farmers. One must serve the south western region and will be located in Dealsville. The other one has to serve the north eastern region and will be located in Ventersburg. The total distance covered by the delivery trucks will be 37 968 kilometres per annum as shown in Table 50
Parent stock (bull and cows in
1:25 ratio) receiving
Breeding program (heifers reproducing when 24 months old and cows
reproducing every year) No selling of females except replacing heifer
Male weaners sold for cash or exchanged for
female (heifer replacements)
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Table 50: Total distance for transporting cattle
FPSU Total
distance per trip (km)
Trips per
month
Number of
trucks
Months per
annum Total (km)
1: Dealsville 569 4 1 12 27 312
2: Ventresburg 222 4 1 12 10 656
Total 37 968
The cattle transportation routes on which the total trip distance is based are as highlighted in Figure 28, namely the red one for FPSU 1 and the green one for FPSU 2.
Figure 28: Transport routes to AP sites
The AP will also need to transport eggs, day-old chicks, broilers and chicken between the AH (poultry abattoir and hatchery) and FPSU 1 (hatching-egg and broilers farms). It is assumed that grain farmers will transport grain to the AH – therefore no transport service, except for the internal moving of goods using forklifts, will be provided to the feedmill, another AH based business. The total annual distances covered for transporting each of these products will be as presented Table 51.
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Table 51: Transportation for the AH and FPSU based businesses
Products Routes Total
distance (km)
Trips per
month
Number of
trucks
Months per
annum
Total (km)
Cattle Boshof 44 8 1 12 4 224
Bothaville 68 8 1 12 6 528
Hertzogville 106 8 1 12 10 176
Verkeerdevlei 155 14 2 12 52 080
Ventersburg 94 20 2 12 45 120
Sub-total 118 128
Chicken Local (LDM) 150 40 2 12 144 000
Gauteng 360 8 1 12 34 560
Bloemfontein 160 16 1 12 30 720
Sub-total 209 280
Broilers & day-old chicks
Odendaalsrus to Wesselsbron 40 40 1 12 19 200
Wesselsbron to Odendaalsrus 40 40 1 12 19 200
Sub-total 38 400
Eggs Wesselsbron to Odendaalsrus 40 40 2 12 38 400
Sub-total 38 400
TOTAL 404 208
B.2.7.2. Equipment
The equipment required for the transport business will be the vehicles listed in Table 52.
Table 52: List of AP vehicles
Vehicle type Quantity Unit cost Total cost
Ten (10) Ton truck 3 R 1 098 991 R 3 296 974
Three (3) Ton refrigerated truck 3 R 450 000 R 1 350 000
One (1) Ton Bakkie 5 R 235 000 R 1 175 000
Forklift 5 R 448 695 R 2 243 475
Total R 8 065 449
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B.3. AGRI-PARK CONCEPT The concept design was guided by the strategic objectives of the AP which are to:
Kick-start rural economic transformation in LDM
Promote the skills of and support smallholder farmers through the provision of capacity building, mentorship, farm infrastructure, extension services, production inputs and mechanisation inputs
Enable joint ownership of the AP equity between state and commercial interests or partners
Bring underutilised land (especially in communal areas and land reform farms) into full production over the next three years
Expand irrigated agriculture. In line with these objectives the design was meant to eventually achieve the desirable outcomes of the AP, which are to:
Develop a ‘new’ class or pool of skilled black farmers that have the necessary technical expertise and ability to supply the market sustainably, at the desired quality
Encourage black farmers to form joint ventures to supply the AP
Encourage private or commercial farmers to co-invest in the AP
Develop partnerships with other government stakeholders that will enable the establishment of critical economic infrastructure like roads, energy, water, ICT and transportation or logistics corridors that support the AP value chains (VCs).
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Figure 29: AP concept
Livestock Feed-mill (AH)
Primarily for supplying the “AP livestock” (cattle and poultry farms)
Hatching-egg farm (FP)
Solely supplies AP but not necessarily owned by emerging farmers
Main ingredients (maize, soya, sunflower), others to be sourced elsewhere
Emerging grain farmer (FP)
Emerging Broiler farmers (FP)
Clustered / synchronised to ensure efficiency in the value chain
Poultry abattoir – (AH)
Capacity – 1.2 mil broilers per annum (expand to 2.5 mil broilers in future)
Increase collective herd size to ±25 000 of “pure breed” to sustain a feedlot
Emerging cattle farmers (FP)
Meat processing
Possibly to process chicken and beef in one factory
Feedlot
Highly dependent on the success of the emerging cattle farmers
Beef abattoir
Majority of cattle sourced from the AP feedlot, the rest to sourced elsewhere
Wholesaler / retailers (AH & FP)
Meat (fresh and processed)
Livestock feed (bulk and small packages / bagged)
Fresh produce (vegetables)
Spent and unfertilised eggs (those that will not hatch) from hatching-eggs farm
Agricultural inputs (medication, seeds, fertilizers / compost etc.)
Agricultural implements
Hatchery (AH)
Solely supplies AP but not necessarily owned by emerging farmers
Tannery
Majority of hides sourced from the AP abattoir, the rest to sourced elsewhere
Leather processing & goods
Majority of cattle sourced from the AP feedlot, the rest to sourced elsewhere
Greenhouse
Primarily for vegetable production
Compost
Cattle feed ingredient
Waste / By-products – AH
Key / legend:
To be implemented immediately when the AP is established
To be implemented at the AP in future (thy could also be existing businesses for now)
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Based on the current agricultural situation in LDM particularly regarding emerging famers; the market assessment of the business opportunities; and the results of the technical assessment as presented in in section A.2, the AP concept is as depicted in Figure 29. The opportunities highlighted in green are expected to be established immediately when the AP is established. Those in orange are dependent on the success of the cattle breeding and market linkages initiative and will be implemented only after the fifth year. The anchor businesses will be the poultry abattoir (section A.2.1), the livestock feed-mill (section A.2.5) and the cattle breeding and market linkage support (Section A.2.6). The AP design was guided by the following key considerations:
The primary beneficiaries should be the emerging farmers who have already demonstrated keen interest in the sector, including cattle, grain and poultry
There must be strong and logical linkages among all the business opportunities, to optimise capacity building and resources utilisation
Additional future business opportunities and their potential linkages with those that will be established immediately at the AP should also be identified.
In line with the industry practice of integrating the poultry value chain or having contract suppliers, broiler abattoir suppliers (broiler farms, hatcheries and hatching-egg farms) also need to be established – these will all be dependent on the abattoir for success. The livestock feed-mill and hatching-egg farms may not lucrative businesses on their own (to be determined after a financial assessment), and will therefore most likely need to be owned by the same owners as the abattoir. B.3.1. Agri-hub Based on the high level analysis of the opportunities and services identified, the AH will comprise of the following facilities and services: B.3.1.1. Facilities
The facilities at the AH will be the following:
AH administration and support services building
Poultry abattoir
Hatchery
Livestock feed-mill
Wholesale or retail facility, including a fresh produce market B.3.1.2. Services
The services that will be provided from the AH will be as follows:
Cattle breeding and market linkage service
Facilitation of technical and business management support services to primarily livestock and grain (maize and sunflower) farmers, as well as other farmers
Manufacturing plant and equipment hiring service.
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B.3.2. Farmer production support units There will be a total of three FPSUs, as informed by business opportunities and the AP services to be provided. One FPSU will be for serving the primary poultry farmers (hatching-egg farm and broiler farms), and the other two, which will be identical, will be providing support to the cattle farmers. B.3.2.1. Facilities
All FPSUs will have a wholesale or retail facility, including a fresh produce market. The additional facilities for the poultry FPSU will be the actual poultry farms (hatching-egg and broilers), and the related administration site. The two cattle FPSUs will have offices for the agricultural advisors, as well as cattle auction pens. B.3.2.2. Services
The poultry FPSU will provide technical and business management support to poultry farmers, including the hatching-egg and broiler farmers. The agricultural advisors will be based at the FPSU. The two FPSUs for the cattle breeding and market linkage programme will also provide technical and business management support to the cattle farmers.
B.4. LOCATION B.4.1. Agri-hub The AH will be located in Wesselsbron. B.4.2. Farmer production support units The exact locations of the FSPUs have not yet been determined, but it is proposed that the poultry FPSU be situated in Odendaalsrus because that is where broiler farmers are concentrated. Cattle farmers are spread throughout the district and therefore the two cattle FPSUs are proposed to be located in Dealsville and Ventersburg.
B.5. EQUIPMENT The manufacturing plant, machinery and equipment that will be owned by the AP and rented to the tenant businesses or utilised as part of service offered by the AP will be as presented in Table 53.
Table 53: AP plant and equipment cost
Equipment Quantity Unit cost Total costs
AH office equipment 1 R 447 640 R 447 640
Truck (10 ton) 3 R 1 098 991 R 3 296 974
Truck (3 ton) - Refrigerated 3 R 450 000 R 1 350 000
Auction pens 2 R 165 000 R 330 000
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Equipment Quantity Unit cost Total costs
Abattoir plant and equipment 1 R 4 267 701 R 4 267 701
Broiler houses 1 R13 406 531 R 13 406 531
Hatchery plant and equipment 1 R 5 409 830 R 5 409 830
Hatching-egg farm houses 1 R 6 082 833 R 6 082 833
Feed-mill 1 R 3 794 557 R 3 794 557
Bakkie (1 ton) 5 R 235 000 R 1 175 000
Forklift 5 R 448 695 R 2 243 475
Total R 41 804 541
B.6. SPACE REQUIREMENTS A total of 16 728 m2 for the production space was presented in the individual sub-sections of section B.2, as summarised in Table 54.
Table 54: AP space requirement
Opportunity Space (m2)
Poultry abattoir 300
Broiler farms 7 500
Hatchery 508
Hatching-egg farm 5 400
Feed-mill (excluding feed-mill admin space) 520
Cattle breeding and marketing 2 500
Total 16 728
The total space requirements for the AH and FPSUs, including the wholesale or retail and administration buildings, will be 2 788 m2. More details are provided in the sections below. Therefore the AP will need a total effective space of 19 516 m2 (2 788 + 16 728) excluding parking and garden. B.6.1. Agri-park layout B.6.1.1. Agri-hub
The total space required at the AH for all the administration activities will 1 750 m2 as shown in Table 55.
Table 55: AH space requirements
Operations Space (m2)
AH administration 500
Abattoir administration 250
Hatchery administration 250
Feed-mill administration 80
Wholesale / retail 700
Total 1 780
The layout of the AH administration building (500 m2) is depicted in Figure 30.
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25m
20m
Kitchen24 m2
Restroom9 m2
Restroom9 m2
Main boardroom
50 m2
Internal boardroom
20 m2
Maintenance team 39 m2
Mee
ting
ar
ea
10.2
5 m
2
Technical team 30 m2
Logistics/Transport service manager
23 m2
Agriculture support manager
30 m2
Personal Assistant
20 m2
General manager30 m2
Shared services manager
25 m2
Technical/Operations
manager25 m2
Waiting area
Foyer
Main entrance
D
D
Back entrance
Figure 30: AH administration building
The AH site, including the AH building and the businesses, is shown in Figure 31.
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Abattoir adm
in office 250 m
2
zChicken Abattoir
300 m2 Hatc
hery
ad
min
offi
ce25
0 m2 Hatchery
508 m2
Agri-Park Admin offices 500 m2
Security
Agri-Hub entrance
Delivery
Staff parking
Visitors parking
Feed mill520 m2
Fresh produce market200 m2
Selling stalls500 m2
Market packing
Space provision for further development
Space provision for further development
Feedmill admin office
80 m2
Figure 31: AH site map
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B.6.1.2. Farmer production support units
The total floor area for the administration buildings and wholesale/ retail areas of the FPSUs will be 1 008 m2 as shown in Table 56.
Table 56: FPSUs total area
Operations Space (m2)
FPSU 1 – Poultry (1 site) 136
FPSU 2 and 3 – Cattle (2 identical sites) 272
Wholesale / retail facilities 600
Total area 1 008
Assuming that poultry farmers will be clustered, the poultry FPSU is as depicted in Figure 32.
FPSU entrance
Delivery
11m
20m
Ablution50 m2
Kitchen50 m2
Agriculture admin offices
40 m2
Agriculture supplies store (
Wholesale/Retail)200 m2
25m
14m
Hatching-egg farm cluster
Broiler farm cluster
Figure 32: FPSU 1 – Poultry
Each of the two cattle FPSUs, which will be identical, will be as depicted in Figure 33.
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Security
FPSU entrance
Delivery
Auction pen
25m
25m11
m
20m
Ablution50 m2
Kitchen50 m2
Agriculture admin offices
40 m2
25m
14m
50m
50m
Strip
Dim
ensio
ns31
809m
m x
1025
2mm
Stal
l wid
th25
00m
mSt
all l
engt
h50
00m
mSt
all a
ngle
70de
g
No. S
talls
21
Traders parking
Agriculture supplies store (
Wholesale/Retail)200 m2
Figure 33: FPSU 2 and 3 – Cattle
B.7. SUPPLY CHAIN LOGISTICS The AP is designed such that all the business are linked, with some the operations synchronised (like the poultry abattoir and its upstream supply). In that respect the AP will as part of technical and business management support be an integrator, ensuring that logistics are addressed, among other issues. The AH will therefore offer transport services to all the businesses, transporting inputs and finished products to and among the businesses in the value chain, as well as to external customers in the case of the poultry abattoir and cattle sales.
B.8. REGULATORY COMPLIANCE B.8.1. General legislation Some of the applicable legislation is listed in Table 57.
Table 57: General legislation
Regulation Requirement
Occupational health and safety The hub shall provide an environment that is safe and healthy
Environmental (Housekeeping) Maintain unimpeded work space for every employee.
Noise Prohibit any person from entering a noise zone without wearing hearing protectors.
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Regulation Requirement
Fire Precautions Emergency escape door from any passage shall be hung to open outwards
SARS Value Added Tax Employee Tax
Department of Labour Unemployment Insurance
B.8.2. Food safety The food industry in South Africa is regulated by various acts, regulations and guidelines. The consumer has the right to safe and wholesome products. Several laws protect this right. The departments responsible for the execution of food safety and related matters are the Department of Health (DoH), the Department of Agriculture, Forestry and Fisheries (DAFF), and the Department of Trade and Industry (the dti). Food manufacturing operations are required to comply with regulations and this affects the AH enterprises. The requirements of an acceptable facility include adequate lighting and ventilation; work surfaces in a good state of repair; cleanable floors, walls and ceilings; and a safe water supply. According to CSIR Bioscience (2015), products offered for sale must conform to legal standards as published regularly. The following laws apply:
Labelling of fruit and vegetables
Foodstuffs, Drugs and Disinfectants Act (Act 54 of 1972)
Additives allowed, if any
Fill and drained weight of cans
Agricultural Products Standards Act 1990 (Act 119 of 1990)
Trade Metrology Act. Other applicable legislation is listed in Table 58.
Table 58: Food safety legislation
Regulation Requirement
Meat safety Act Provide meat safety and safety of animal products and essential national standards in respect of abattoirs
Government notice 30/07/1999 Governing general hygiene requirements for food premises and transport of food
Government notice 26/07/1992 Regulation regarding the classification and marketing of meat
B.8.3. Environmental requirements It is estimated that all environmental compliance work related to the AP will cost a total of R3 million. B.8.3.1. Environmental Impact Assessment
In terms of the Environmental Impact Assessment (EIA) regulations, Government Notice (GN) R545 of 2 August 2010, as read with the National Environmental Management Act (Act No. 107 OF 1998) as amended, all environmental regulatory requirements need to be
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addressed before an enterprise can be established. An environmental impact assessment (EIA) study, that may include ecological, heritage and other specialist studies, needs to be performed by an independent environmental expert, to determine the potential environmental impacts. B.8.3.2. Waste management license
A Waste Management License (WML) with a Basic Assessment may be required if one or more of the following listed activities in Category A of Schedule 19(1) of the National Environmental Management: Waste Act (Act Nr 59 of 2008) is triggered:
The disposal of general waste to land covering an area of more than 50 m² but less than 200 m², and with a total capacity not exceeding 25 000 tons.
The disposal of domestic waste generated on premises in areas not serviced by the municipal service where the waste disposed does not exceed 500 kg per month.
Please note that should the site and its activities be serviced by the local municipality in terms of waste management, including the management of on-site sanitation, a WML will not be required. Written confirmation from the Municipal Manager, however, is to be obtained to this effect. B.8.3.3. Water Use License
In terms of Section 21 of the National Water Act, 1998 (Act Nr 36 of 1998) (NWA), the following water uses will require authorisation, if applicable:
21(a) – taking water from a water resource;
21(b) – storing water; and
21(g) – disposing of waste or water containing waste in a manner which may detrimentally impact on a water resource.
B.8.3.4. Potential specialist studies
The purpose of the National Environmental Management: Biodiversity Act, 2004 (Act No. 10 of 2004), is to provide for the management and conservation of South Africa’s biodiversity within, the framework of the NEMA and the protection of species and ecosystems that warrant national protection. This Act is applicable to the application for environmental authorisation, in the sense that it requires the project applicant to consider the protection and management of local biodiversity. Accordingly, an ecological specialist assessment will have to be undertaken. This assessment will be done during the warmer months of the year, as part of the EIA. This study entails the investigation into faunal and floral species that may occur on the site earmarked for construction of the abattoir. The National Heritage Resources Act (NHRA), 1999 (Act No. 25 of 1999), legislates the necessity for cultural and heritage impact assessments in areas earmarked for development. According to Section 27(18) of the Act, no person may destroy or damage, deface, excavate, alter, remove from its original position, subdivide or change the planning status of any heritage site without a permit issued by the heritage resources authority responsible for the protection of such a site. In accordance with Section 38 of the NHRA, an independent heritage consultant has to be appointed to conduct a Heritage Impact Assessment to determine if any sites, features or objects of cultural heritage significance occur within the boundaries of the areas earmarked for development of the project site. This is relevant to areas exceeding 0.5 hectares (ha) and where linear developments
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(including roads) exceed 300 metres in length. The Act makes provision for the potential destruction to existing sites, pending an archaeologist’s recommendations, through permitting procedures. Permits are administered by the South African Heritage Resources Agency (SAHRA). This study may be required as part of the EIA process. A geo-hydrological specialist study of the site will be required for purposes of the Water Use License application in terms of Section 21 of the National Water Act, 1998 (Act Nr 36 of 1998), if applicable. B.8.4. Land tenure The AP will have to conclude agreements in collaboration with stakeholders, to establish a mutually beneficial relationship with land owners.
B.9. ORGANISATIONAL DESIGN B.9.1. Institutional arrangements B.9.1.1. Agri-park
The AP will comprise of an agri-hub, located in Wesselsbron, as well as 3 farmer production support units (FPSUs) in Dealsville, Ventresburg and Odendaalsrus Rural urban market centres (RUMCs) will not be established in every district municipality (DM), but rather in large commercial centres linking a number of DMs. Therefore, no provision has been made for the establishment of a RUMC as part of this AP. Figure 34 illustrates the structure of the AP.
Figure 34: AP structure
The AP will be registered as a private (Pty Ltd.) company. Initially, all the shares of the company will be held in trust by one of the organisations that is part of the District Agri-Park Management Committee (DAMC). As the AP’s operations develops and grows,
Agri-Hub
FPSU 1 FPSU 2 FPSU 3
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shares will be sold or transferred to private sector entities, community structures and emerging farmers up to the following maximums:
30% held by private sector entities (including commercial farmers and agro-processing companies)
70% held by emerging farmers, communal farmers and community structures. B.9.1.2. Business opportunities
The potential opportunities identified for the AP would be implemented in the form of either expansions to existing businesses, or the establishment of new businesses. In both cases, the same 30%-70% shareholding in the expansion or new operations will apply. In the case where a new enterprise is established, the most suitable legal entity (such as cooperative or private company) will be determined. The new enterprise will then rent manufacturing facilities (plant, machinery and equipment) from the AP. If an existing enterprise implements the opportunity, it is expected the AP will be involved during the necessary upgrades to its facilities to ensure the expanded processing capability. A due diligence will have to be conducted on the existing business, to confirm whether such expansion would be viable from a technical and financial perspective. B.9.2. Human resource requirements The human resource requirements, based on the operational activities of the AP, will be as detailed in Table 59.
Table 59: AP human resources requirements
Position Responsibilities Requirements Qty
Annual salary
per person
(R)
Total annual
salary (R)
General Manager
General management and marketing of the AP
Liaison with external parties
Minimum BSc (Hons) Agric / B. Eng. and post-grad management qualification
Minimum 10 years, five at middle to senior management level
1 650 000 650 000
Personal Assistant / AP Secretary
Assist GM with daily management activities
Provide secretarial support to the other managers
Minimum N6 / National Diploma in Administration
Minimum 8 years relevant experience
1 240 000 240 000
Shared Services Manager (HR, finance and
Manage finances and HR functions of the AP
Assist GM with marketing
Minimum B.Com (Hons) Accounting / Finance plus post-grad management qualification
1 500 000 500 000
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Position Responsibilities Requirements Qty
Annual salary
per person
(R)
Total annual
salary (R)
marketing) Minimum 8 years agriculture experience, three at middle management
Technical / Operations Manager
Manage capacity building of the emerging farmers
Management of the AP (AH and FPSU) facilities
Minimum BSc (Hons) Agric / B. Eng. plus post-grad management qualification
Minimum 8 years agriculture experience, three at middle to senior management level
1 500 000 500 000
HR Coordinator
Manage daily HR activities of the AP
Coordinate training activities
Minimum B Degree in HR
Minimum 5 years HR experience, three at junior management / supervisory level
1 380 000 380 000
Management Accountant
Management accounting functions
Financial advisor to the AP businesses
Manage transport service
Minimum B Degree in Accounting
Minimum 6 year experience, two at supervisory level
Mentoring and coaching experience
1 380 000 380 000
Agricultural technician / advisor
Perform agricultural research and extension services
Minimum NHD in Animal production
Minimum 10 years animal production experience, 3 at supervisory level
4 380 000 1 520 000
Maintenance technician
Manage daily maintenance (building and production) of the AH and FPSU, including management of the artisans
Minimum N6 Dip / preferably N.Dip (Mechanical / Electrical)
10 years maintenance experience, five at supervisory level
1 300 000 300 000
Artisans Perform maintenance duties at the AH and FPSU
Minimum N4 and Trade test
Minimum 8 years maintenance experience
3 240 000 720 000
Drivers Drive the trucks and forklift
Matric Plus Code 10 driver’s licence
5 92 000 460 000
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Position Responsibilities Requirements Qty
Annual salary
per person
(R)
Total annual
salary (R)
Minimum 10 years relevant experience
General workers
Assist with general maintenance of the facilities
Perform cleaning duties
Matric
Minimum 2 years work experience
3 48 000 144 000
Total 22 5 794 000
B.9.3. Organogram The organogram, matching the human resources requirements, is depicted in Figure 35
Figure 35: Agri-Park Organogram
B.10. RISK MANAGEMENT
General Manager
Shared Services Manager
Technical / Ops Manager
Facilities / Maintenance Technician
Agricultural Advisor /
Technician x 4
Management Accountant /
Transport Manager
Artisans x 3
General Workers x 3
HR Coordinator / Administrator
Drivers x 5
Personal Assistant
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Every intervention is faced by risks which can cause it to fail, if such risks are not properly managed. To prevent or counter the effects of all possible risks, the AP will develop and implement a comprehensive risk management and mitigation plan, which will entail the following:
Conducting a detailed assessment of the identified risks
Rating the risks in terms of likelihood and impact
Ensuring that preventative measures (including policies and standard operating procedures) are in place
Developing plans for risk monitoring and control
Documenting and communicating the plan. Some of the potential risks to the AP are as listed in Table 60.
Table 60: Agri-Park risks
Potential risk Likelihood Impact Overall
risk rating
Mitigation
8. Low occupation rate
Medium High High Affordable rental fees
9. Food poisoning and contamination
High High High Implement quality standards (like HACCP or ISO 22 000)
10. Inferior equipment High High High Reputable suppliers to be used
11. Labour unrest Low High Medium Comply with all applicable labour legislation
12. Crime and robbery Low Medium Medium Employ security personnel to safeguard the premises
13. Lack of buy-in from key stakeholders
Low Medium Medium Adequate stakeholder engagement prior to the establishment of AP
14. Unaffordable rent or fees (for tenants)
High High High AP to link opportunities with the market to maximise opportunity profits
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APPENDIX C - FINANCIAL ANALYSIS
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C.1. INTRODUCTION The results from the market and technical assessments were used to model the finances of the proposed Lejweleputswa District Municipality (LDM) Agri-Park (AP). The financial model projects the financial statements and also gives an indication of financial viability of the proposed business. The key assumptions that underpin the model are as follows:
The financial model is based on 100% grant funding – a discount rate of 7% is used.
The Agri-Hub (AH) and Farmer Production Support Units (FPSUs) will be located on state-owned land.
Supplier accounts are payable in 30 days, and customer payments will only be received after 60 days.
The AP will rent out space and machinery to the following enterprises as a revenue stream:
Poultry abattoir
Broiler farm
Broiler hatchery
Hatching-egg farm
Livestock feed-mill
Cattle breeding and sales service.
The potential revenues of the respective enterprises were estimated based on the production of the following products’ quantities (determined based on a high-level market analysis):
Slaughtered chickens – 1 200 000 units
Broiler chickens – 1 200 000 units
Day-old chicks – 1 320 000 units
Fertilised eggs – 1 650 000 units
Livestock feed – 5 000 tons
Cattle – 4 800 heads.
The AP will receive 10% of the revenue generated by the respective businesses, as rent for the equipment and space, as well as services rendered by the AP through the AH or FPSUs.
A zero dividends policy is assumed, meaning that all revenue earned will be retained in the AP business.
Grant funding will be invested into the AP to cover all setup or establishment costs, as well as working capital for the first year of operation.
C.2. COSTS For the purpose of modelling the finances of the AP, there are three types of costs that were taken into consideration. These are investment costs and direct and indirect operating costs.
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C.2.1. Investment costs Investment costs are once-off costs incurred during the set-up or establishment of the AH and FPSUs for items such as:
Capital expenditure
Pre-production expenses
Working capital. The total of investment for the establishment of the AP is estimated at R118.2 million. The investment costs for the establishment of the LDM Agri-Park are listed in Table 61.
Table 61: Investment costs
Type of investment Items for purchase Investment
costs (R)
Civil works, structures and buildings
AH administration building
29 901 005
FPSU1-Poutry Administration building
FPSU2-Cattle Administration building
Abattoir administration building
Hatchery administration building
Hatching-egg farm administration building
Poultry abattoir
Broiler farmhouses
Hatchery
Hatching -egg farmhouse
Livestock feedmill
AH Wholesale / retail building
AH Fresh produce stalls
AH Warehouse/Workshop
Plant machinery and equipment
Auction pens
10 284 733
Abattoir plant and equipment
Broiler houses
Hatchery plant and equipment
Hatching-egg farm houses
Feedmill
Auxiliary and service plant equipment
Telephone connections
3 657 500 Utilities(Electricity & water)
IMS(ISO 9001/22000/ISO 14001/OHSAS 18 000)
EIA
Incorporated fixed assets
Pastel software
8 497 342
Microsoft Office software
Office furniture (per office)
Computer
Telephone handsets - portable
CO2 fire extinguisher per unit
First aid kit - mountable box
10 ton Truck
Forklift
Bakkie
3 .5 ton truck - Refrigerated
Till machine( warehouse and retail)
Pre-production Develop technical/training manuals 46 586 201
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Type of investment Items for purchase Investment
costs (R)
expenditure Technical & business training
Marketing & roadshows
Recruitment
Business registration
Quality systems
Cattle purchase
Contingencies 9 892 678
Working capital (Year 1) 9 369 519
Total fixed investment costs 118 188 978
The breakdown of the fixed investment costs is shown in Figure 36.
Figure 36: Total fixed costs breakdown
Pre-production expenditure, which covers all the expenditure required to get the business operational by its first year, is the main cost item at 40%. An example is that the cattle that need to be purchased before the first year, accounts for a significant amount of R45 953 361. C.2.2. Direct and indirect costs These are costs incurred once operations start and these costs are incurred during the provision of services by the AP to its customers (tenant businesses). The total costs for the first year of operation is estimated at R12 979 256. These costs will escalate annually by 7%. The contribution by the respective cost items is depicted in Figure 37.
25%
9%
3%
7% 40%
8% 8%
Civil works, structures andbuildings
Plant machinery and equipment
Auxiliary and service plantequipment
Incorporated fixed assets(project overheads)
Pre-production expenditure
Contingencies
Working capital
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Figure 37: Indirect costs breakdown
The largest component of the costs is labour at 51%, followed by depreciation and raw materials respectively at 23% and 14%.
C.3. SALES It is envisaged that the AP will generate income by collecting a maximum of 10% from the revenue generated by the respective businesses that rent space or equipment from the AH or FPSUs. Table 62 shows the AP’s sales revenue projections, based on the various revenue streams. All revenue in the table is calculated at current prices – however, in the financial model prices and revenue will escalate at 7% per annum.
14%
1%
0%
51%
0%
0%
10%
23%
1%
Raw materials
Utilities
Repair and maintenance
Labour
Labour overhead costs
Factory overhead costs
Administrative overheadcosts
Depreciation
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Table 62: Sales forecast for AP
Revenue streams
Unit of measure
Maximum capacity
Average market prices
Maximum enterprise revenue
Maximum AP revenue (10% of enterprises)
AP revenue (Y1-Y3, 50% of maximum)
AP revenue (Y4-Y6, 80% of maximum)
AP revenue (Y7-Y10, 100% of maximum)
Poultry meat Kg 1 200 000 R 39.00 R 46 800 000 R 4 680 000.0 R 23 400 000.0 R 37 440 000.0 R 46 800 000
Broiler chickens Each 1 200 000 R 18.30 R 21 960 000 R 2 196 000.0 R 10 980 000.0 R 17 568 000.0 R 21 960 000
Day-old chicks Each 1 320 000 R 6.15 R 8 118 000 R 811 800.0 R 4 059 000.0 R 6 494 400.0 R 8 118 000
Fertilised eggs Each 1 650 000 R 3.50 R 5 775 000 R 577 500.0 R 2 887 500.0 R 4 620 000.0 R 5 775 000
Livestock feed Ton 4 992 R 4 992.00 R 24 960 000 R 2 496 000.0 R 12 480 000.0 R 19 968 000.0 R 24 960 000
Weaners Each 5 708 R 4 000.00 R 22 800 000 R 2 280 000.0 R 11 400 000.0 R 18 240 000.0 R 22 800 000
Cows / steers Each 4 800 R 8 000.00 R 38 400 000 R 3 840 000.0 R 19 200 000.0 R 30 720 000.0 R 38 400 000
Total R 168 813 000 R 16 881 300 R 84 406 500.0 R 135 050 400.0 R 16 881 300
C.4. PREDICTED TEN YEAR FINANCIAL STATEMENTS Based on the cost and sales assumptions, a projected ten year income statement, balance sheet and cash flow statement were prepared. C.4.1. Income statement The primary purpose of the income statement is to report the enterprise’s earnings to interested and affected parties such as investors, shareholders, employees and creditors, over a specific period of time. It matches the corresponding expenses to the revenue. The income statement, also referred to as the statement of earnings or statement of operations, describes the enterprise’s profitability over the entire period of time covered. Table 63 shows the ten year projected income statement of the AP.
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Table 63: Projected income statement
Description Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Yea 8 Year 9 Year 10
Sales revenue 11 507 564 12 313 093 13 175 010 17 622 069 83 958 497 22 555 275 28 601 506 30 603 612 32 745 864 35 038 075
Less variable costs 1 789 781 1 915 066 2 049 120 3 508 096 3 753 663 4 016 419 5 371 957 5 747 994 6 150 354 6 580 879
Material 1 789 781 1 915 066 2 049 120 3 508 096 3 753 663 4 016 419 5 371 957 5 747 994 6 150 354 6 580 879
Less fixed costs 11 189 475 12 340 633 12 987 807 13 709 131 14 455 901 16 023 228 16 911 592 17 826 417 18 792 258 19 880 542
Material 409 874 575 770 616 074 659 199 705 343 754 717 807 548 864 076 924 561 989 280
Personnel 6 633 551 7 211 485 7 716 289 8 256 429 8 834 379 9 452 786 10 114 481 10 822 495 11 580 069 12 390 674
Marketing 41 216 44 102 47 189 50 492 54 026 57 808 61 855 66 185 70 817 75 775
Depreciation 3 022 671 3 022 671 3 017 588 3 040 997 3 040 997 3 809 281 3 842 669 3 842 669 3 829 648 3 870 549
Other fixed costs 1 082 163 1 486 605 1 590 667 1 702 014 1 821 155 1 948 636 2 085 040 2 230 993 2 387 162 2 554 264
GROSS PROFIT (1 471 692) (1 942 605) (1 861 918) 404 841 65 748 933 2 515 627 6 317 957 7 029 201 7 803 253 8 576 655
TAXABLE PROFIT (1 471 692) (1 942 605) (1 861 918) 404 841 65 748 933 2 515 627 6 317 957 7 029 201 7 803 253 8 576 655
NET PROFIT (1 471 692) (1 942 605) (1 861 918) 404 841 65 748 933 2 515 627 6 317 957 7 029 201 7 803 253 8 576 655
in % of sales revenue (13) (16) (14) 2 78 11 22 23 24 24
The projected income statement shows that the AP will be making a loss for the first three years, when enterprises are still building capacity, and operating at 50% of the maximum factory throughput. Although the AP does not necessarily yield large profits, the profit margins are healthy for a business with developmental objectives like the AP.
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C.4.2. Balance sheet The balance sheet, also known as a “statement of financial position”, reveals the enterprise’s assets, liabilities and owner’s equity (net worth). The purpose of the balance sheet is to provide an idea of the enterprise’s financial position, along with displaying what it owns and owes. Table 64 shows the ten year projected balance sheet of the AP.
Table 64: Projected balance sheet
Apart from the initial investment of R118 188 978 there will be no need to source further financing for the AP throughout the ten years’ life of the project. The net worth of the equity increased from R118 million year 0 (set-up year) to R266 million in year 10. This indicates that the proposed AP has potential to grow the value of investment made into it.
Description Set-up Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
TOTAL ASSETS 118 188 978 118 216 651 118 220 181 118 222 366 119 560 686 188 398 915 190 107 856 197 937 304 206 580 799 216 111 355 226 536 224
Total current assets 0 2 184 313 3 915 967 5 410 733 9 790 050 70 780 353 77 858 590 89 530 707 102 016 870 114 842 048 129 137 466
Inventory on materials & supplies - 5 410 5 789 6 194 10 282 11 002 11 772 15 581 16 671 17 838 19 087
Work in progress - 23 837 27 115 29 013 34 699 37 127 39 726 45 492 48 676 52 083 55 729
Finished product - 27 543 31 080 33 256 39 238 41 985 44 924 51 053 54 627 58 450 62 542
Accounts receivable - 27 657 31 203 33 387 39 378 42 135 45 084 51 225 54 810 58 647 62 752
Cash-in-hand - 22 132 25 291 27 062 28 956 30 983 33 152 35 472 37 955 40 612 43 455
Cash surplus, finance available 0 2 077 733 3 795 488 5 281 821 9 637 497 70 617 121 77 683 932 89 331 885 101 804 131 114 614 417 128 893 900
Total fixed assets, net of depreciation 118 188 978 115 166 307 112 143 636 109 482 558 106 441 561 115 621 807 112 249 266 108 406 597 104 563 929 101 269 307 97 398 758
Fixed investments - 68 341 743 68 341 743 68 341 743 68 698 253 68 698 253 80 919 496 81 356 237 81 356 237 81 356 237 81 891 262
Construction in progress 68 341 743 - - 356 510 - 12 221 243 436 740 - - 535 026 -
Total pre-production expenditures 49 847 235 49 847 235 49 847 235 49 847 235 49 847 235 49 847 235 49 847 235 49 847 235 49 847 235 49 847 235 49 847 235
Less accumulated depreciation - 3 022 671 6 045 342 9 062 930 12 103 927 15 144 924 18 954 205 22 796 874 26 639 543 30 469 191 34 339 740
Accumulated losses brought forward - - 866 031 2 160 578 3 329 074 1 996 755 - - - - -
Loss in current year - 866 031 1 294 547 1 168 496 - - - - - - -
TOTAL LIABILITIES 118 188 978 118 216 651 118 220 181 118 222 366 119 560 686 188 398 915 190 107 856 197 937 304 206 580 799 216 111 355 226 536 224
Total current liabilities - 27 672 31 203 33 387 39 389 42 135 45 084 51 233 54 810 58 647 62 752
Accounts payable - 27 672 31 203 33 387 39 389 42 135 45 084 51 233 54 810 58 647 62 752
Total equity capital 118 188 978 118 188 978 118 188 978 118 188 978 118 188 978 118 188 978 118 188 978 118 188 978 118 188 978 118 188 978 118 188 978
Reserves - - - - - - 68 171 046 71 873 793 79 697 093 88 337 010 97 863 729
Retained profit - - - - 1 332 319 70 167 802 3 702 747 7 823 299 8 639 917 9 526 719 10 420 764
Net worth 118 188 978 117 322 948 116 028 400 114 859 904 116 192 223 186 360 025 190 062 772 197 886 071 206 525 988 216 052 708 226 473 471
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C.4.3. Cash flow statement The cash flow statement discloses how the enterprise raises money and how it spends those funds during a given period. It also measures its ability to cover its expenses in the short term. Generally speaking, a business that is consistently earning more cash than it spends is considered to be of good value. Table 65 shows the projected cash flow statement of the AP.
Table 65: Projected cash flow statement
The projected cash flow indicates that the proposed AP would have sufficient funds to pay for its current liabilities.
Description Set-up Year Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10
TOTAL CASH INFLOW 118 188 978 12 140 897 12 964 682 13 870 616 18 555 548 88 380 111 23 745 344 30 112 997 32 217 905 34 473 168 36 886 289
Inflow funds 118 188 978 27 672 3 531 2 184 6 002 2 746 2 949 6 149 3 577 3 837 4 105
Total equity capital 118 188 978 - - - - - - - - - -
Total short-term finance - 27 672 3 531 2 184 6 002 2 746 2 949 6 149 3 577 3 837 4 105
Inflow operation - 12 113 225 12 961 151 13 868 432 18 549 546 88 377 365 23 742 394 30 106 849 32 214 328 34 469 331 36 882 184
Sales revenue - 12 113 225 12 961 151 13 868 432 18 549 546 88 377 365 23 742 394 30 106 849 32 214 328 34 469 331 36 882 184
TOTAL CASH OUTFLOW 118 188 978 10 063 165 11 246 927 12 384 283 14 199 871 27 400 488 16 678 533 18 465 044 19 745 660 21 662 882 22 606 806
Increase in fixed assets 118 188 978 - - 356 510 - 12 221 243 436 740 - - 535 026 -
Fixed investments 68 341 743 - - 356 510 - 12 221 243 436 740 - - 535 026 -
Pre-production expenditures 49 847 235 - - - - - - - - - -
Increase in current assets - 106 580 13 899 8 434 23 641 10 679 11 426 24 164 13 918 14 892 15 934
Operating costs - 9 915 369 11 188 926 11 972 151 14 125 738 15 114 540 16 172 558 18 379 026 19 665 558 21 042 147 22 515 097
Marketing costs - 41 216 44 102 47 189 50 492 54 026 57 808 61 855 66 185 70 817 75 775
SURPLUS (DEFICIT) - 2 077 733 1 717 755 1 486 333 4 355 676 60 979 624 7 066 811 11 647 953 12 472 246 12 810 286 14 279 484
CUMULATIVE CASH BALANCE - 2 077 733 3 795 488 5 281 821 9 637 497 70 617 121 77 683 932 89 331 885 101 804 131 114 614 417 128 893 900
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C.5. FINANCIAL ANALYSIS The information presented in the financial statements was analysed and interpreted using the NPV and IRR. The analysis also investigated how long it will take for the AP to pay back the investment made, and how sensitive it is to changes in its revenue stream. C.5.1. NPV The Net Present Value (NPV) compares the value of money today to the value of that same money in the future, taking into account inflation and returns. Investors prefer a positive NPV to a negative one. If a discount rate of 7% is used, the NPV for the proposed AP is R16 320 078, which indicates a marginally positive return from the AP, considering the R118.2 million investment required. However, considering that the AP will not only result in the social uplifting of local communities, but will also lead to local economic growth and possibly wealth in the long term, it is an acceptable return. C.5.2. IRR The Internal Rate of Return (IRR) measures and compares the profitability of investments to each other. It is also called the discounted cash flow rate of return. The IRR should be equal or above the discount rate for the investment to be attracted into a venture. The IRR for the proposed AP is 8.88%, which is just above the discount rate of 7%. Therefore, the AP could be marginally financially viable. Viewed in the context of the developmental goal of the AP and local economic growth, it is a fair return. C.5.3. Payback period The payback period gives an indication of how long the business would have to operate to generating sufficient profits to be able to repay the initial investment. The payback period for the AP is 11.67 years. It would have been ideal for the payback to be achieved before the estimated lifespan of the project which is ten years. However, considering that this is a developmental project and that other measures like the NPV and IRR are positive, it is acceptable. C.5.4. Sensitivity analysis A sensitivity analysis was conducted on two variables, to determine the impact they would have on the financial returns of the business. The variables used for this exercise were:
Revenue
Labour costs
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C.5.4.1. Revenue
The results of revenue sensitivity analysis are as presented in Table 66. The original model was based on the AP receiving 10% of each enterprise’s revenue as income for the AP.
Table 66: Sensitivity – Revenue collected
Original model 9.5% revenue collection 9.0% revenue collected
NPV R16 320 078 R6 222 968 -R3 874 141
IRR 8.88% 7.72% 6.54%
Payback period 11.63 years 11.87 years No payback found
The AP’s financial sustainability is very sensitive to the revenue collected, with only one percentage point decrease leading to the AP not being viable. This indicates that the 10% revenue from each enterprise is the minimum to be collected from businesses, for the AP to survive. However, half a percentage decrease still yields positive results indicating financial viability though marginal. C.5.4.2. Labour
The results of the labour analysis are as presented in Table 67
Table 67: Sensitivity analysis – labour costs
Original model 10% increase 20% increase 50% Increase
NPV R16 320 078 R10 117 456 R3 914 835 -R14 693 030
IRR 8.88% 8.17% 7.46% 5.27%
Payback period 11.63 years 11.92 years 11.92 years No payback
The AP is not very sensitive to labour costs. This is good, considering that salaries are the highest component of the operational costs. The estimated salaries of senior managers have been modelled at slightly lower than the market rates – therefore these salaries could be increased. Also, if the AP grows and needs to recruit more personnel, it should still be able to sustain its operations.
C.6. ECONOMIC BENEFITS OF THE PROPOSED AGRI-PARK C.6.1. GVA The gross value added (GVA), also known as the localised gross domestic product (GDP) is a measure of the value of goods and services produced in an area, industry or sector of the economy. It takes into account revenues, final sales and net subsidies, which are incomes to the business, as well as salaries, wages and dividends. The GVA is an indication of the economic activity that can take place in a certain geographical area, brought about by the establishment or operation of a venture. The GVA for the grant funded AP is expected to average at R 21 112 209.90 per annum. This excludes the GVA that could accrue from the respective businesses opportunities and
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this can only be estimated during phase 3 when detailed assessment of each opportunity is done. C.6.2. Jobs The ability to generate jobs is usually considered as one of the economic benefits for any economic initiative. It is anticipated that the proposed AP will generate direct jobs through the management and operation of the AH and FPSUs, as well as through the respective enterprises that will be established as tenants of the AP. It is also expected that the number of jobs will grow over the ten years. For example, as there is demand for good quality beef cattle, an initiative like the cattle breeding programme (which is only dependent on the dedication of famers and support from the AP) could be replicated, if successful, resulting in more jobs at the AH and the farms. C.6.2.1. Jobs created by the AP
The AP is expected to create 22 permanent jobs as per the staffing requirements. These jobs would include the following:
Qualified staff: 19
Grade 12 or lower level jobs: 3 C.6.2.2. Jobs created by enterprises
Table 68 outlines the jobs that could potentially be created by the different business opportunities. These estimates are only indications, as detailed feasibility studies for the respective opportunities have not yet been carried out.
Table 68: Jobs created at opportunity level
Business Jobs
Poultry abattoir 35
Broiler farms 150
Broiler hatchery 20
Hatching-egg farm 35
Livestock feedmill 15
Cattle farmers 100
Wholesale / retail 10
Total 365
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APPENDIX D - FINANCIAL ASSUMPTIONS
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Assumptions for the financial model
Description Value Sources/Notes
1.Project ID
Project Type:
level of Analysis: Feasibility Study
Project Title Lejweleputswa
Project Classification: • New project
Depth of Analysis: Financial
Special Features: • Inflation= 7%
• Escalate first year= 0 times
• Stock model=By total
2.Planning Horizon
Month of Balance (month in which annual reporting needs to be done)
Construction phase • Beginning month & year=01/2017
• length=12 months
Production phase • length= 10 years
• length of start-up phase=months(included in above years)
• Reference year=10 (no of years after start by which payback will happen)
3.Products Name Start of Production
End of Production
Nominal Capacity
Products: Poultry abattoir 2018 2027 120 000 Broiler carcass
Broiler farm 2018 2027 120 000 Broilers - live
Hatchery 2018 2027 132 000 Day1 chicks
Hatching -egg farm 2018 2027 165 000 Fertilized eggs
Livestock feedmill 2018 2027 500 Ton
Cattle breeding and market linkages -
2018 2027 286 Weaners
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Weaners
Cattle breeding and market linkages - Cows
2018 2027 480 Cows
Wholesalers / retailers
2018 2027 10 000 Items
Transport - 10 ton truck for cattle
2018 2027 144 096 Km
Transport - 10 ton truck for Broiler and chicks
2018 2027 192 960 Km
Transport - 3 ton truck for Broiler meat
2018 2027 76 800 Km
Transport - 2 bakkies for eggs
2018 2027 19 200 Km
4.Currencies
Currency • Type=Local
• Name=South African Rand
• Abbreviation=ZAR
• Exchange Rate=N/A
5.Inflation
Inflation Rate: 7% for each year, except for first year(All costs and sales prices will be increased annually by this percentage)
6.Joint Venture Partner
Joint Venture Partner Not applicable
7.Discounting rate: 7%
Total investment: • Rate (%) = Use annually updated Calculation (middle rate first)
• Length=Automatic (Construction + Production years)
Total equity capital: • Rate (%) = Use annually updated Calculation (middle rate first)
• Length=Automatic (Construction + Production years)
For all Joint Venture Partners:
• Rate (%) = Use annually updated Calculation (middle rate first), unless specific partner(s) require a different rate
• Length=Automatic (Construction + Production years)
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8.Fixed Investments:
Fixed Investments: Description Supplier Depreciation Years (Use SARS Wear & Tear Rates)
Years of Purchase
Quantity Cost(ZAR) Total
Land Purchase
Site preparation & Development
Civil works, structures & buildings
AH administration building
50 Y0 1 R 2 989 650 R 2 989 650
FPSU1-Poutry Administration building
50 Y0 1 R 374 490 R 374 490
FPSU2-Cattle Administration building
50 Y0 2 R 624 150 R 1 248 300
Abattoir administration building
50 Y0 1 R 312 075 R 312 075
Hatchery administration building
50 Y0 1 R 312 075 R 312 075
Hatching-egg farm administration building
50 Y0 1 R 436 905 R 436 905
Poultry abattoir Contractors 50 Y0 1 R 2 209 035 R 2 209 035 Facilities required for the entire agri-park
Broiler farmhouses 50 Y0 25 R 374 490 R 9 362 250
Hatchery 50 Y0 1 R 4 005 130 R 4 005 130
Hatching -egg farmhouse
50 Y0 4 R 1 358 937 R 5 435 748
Livestock feedmill 50 Y0 1 R 1 934 557 R 1 934 557.01
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AH Wholesale / retail building
50 Y0 1 R 249 660 R 249 660
AH Fresh produce stalls
50 Y0 1 R 282 150 R 282 150
AH Warehouse/Workshop
50 Y0 1 R 748 980 R 748 980
R 29 901 005
Fixed Investments: Plant machinery & equipment:
Auction pens 10 Y0 2 R 165 000 R 330 000
Abattoir plant and equipment
10 Y0 1 R 2 058 666 R 2 058 666
Broiler houses 10 Y0 1 R 4 044 282 R 4 044 282
Hatchery plant and equipment
10 Y0 1 R 1 404 700 R 1 404 700
Hatching-egg farm houses
10 Y0 1 R 647 085 R 647 085
Feedmill 10 Y0 1 R 1 800 000 R 1 800 000
R 10 284 733
Auxiliary & service plant equipment:
Y0
Telephone connections
Telkom Y0 20 R 2 500 R 50 000 Telephone lines
Utilities (Electricity & water)
LDM rates Y0 1 R 7 500 R 7 500 Connection of electricity & water supply
IMS(ISO 9001/22000/ISO 14001/OHSAS 18 000)
Consultants Y0 1 R 400 000 R 400 000 Once-off
EIA Consultants Y0 1 R 3 200 000 R 3 200 000 For the AH & FPSUs
R 3 657 500
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Incorporated fixed assets(project overheads):
Pastel software 3 Y0,Y3,Y6,Y9
2 R 2 600 R 5 200
Microsoft Office software
Makro 3 Y0,Y3,Y6,Y9
18 R 3 999 R 71 982
Office furniture (per office)
10 Y0 18 R 7 524 R 135 432
Computer Makro 3 Y0,Y3,Y6,Y9
13 R 10 000 R 130 000
Telephone handsets - portable
Makro 5 Y0,Y5 20 R 599 R 11 980
CO2 fire extinguisher per unit
ADRE Tools
5 Y0,Y5 34 R 1 650 R 56 100
First aid kit - mountable box
ADRE Tools
5 Y0,Y5 14 R 800 R 11 200
10 ton Truck Man Truck 5 2Y0,3Y5 3 R 1 098 991 R 3 296 973
Forklift 5 Y0,Y5 5 R 448 695 R 2 243 475
Bakkie Nissan 5 Y0,Y5 5 R 235 000 R 1 175 000
3 .5 ton truck - Refrigerated
Isuzu 5 Y0,Y5 3 R 450 000 R 1 350 000
Till machine( warehouse and retail)
Makro 3 Y0,Y3,Y6,Y9
5 R 2 000 R 10 000
R 8 497 342
Preproduction Expenditure
Develop technical/training manuals
Consultants Y0 1 R 200 000 R 200 000
Technical & business training
Consultants Y0 2 R 48 000 R 96 000 Business + technical training (two days each)
Marketing & In-house Y0 1 R 150 000 R 150 000 During the
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roadshows inception of the project
Recruitment Recruitment agent
Y0 1 R 26 840 R 26 840 1% of skilled labour
Business registration Consultants Y0 1 R 60 000 R 60 000 CIPC , labour, SARS etc.
Quality systems Consultants Y0 1 R 100 000 R 100 000 For managing the production system
Cattle purchase Y0 1 R 45 953 361
R 45 953 361
R 46 586 201
Contingencies R 9 892 678
9.Production Costs
Indirect Costs: Description Years Quantity Cost(ZAR)
Utilities:
Water (Domestic) Y1-Y10 12 R 1 000 R 12 000 Admin buildings
Electricity (Domestic) Y1-10 12 R 5 000 R 60 000 Admin buildings
Fuel(diesel) Y1-10 12 R 6 000 R 72 000 For extension officers and maintenance staff
Maintenance
Spare parts consumed & equipment maintenance Y1-10 1 R 257 118.31
R 257 118 2.5% of total equipment costs
Royalties Y1-10
Labour:
General Manager Y1-10 1 R 650 000 R 650 000 Manage the agri-park operations
Personal Assistant Y1-10 1 R 240 000 R 240 000
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Shared services Manager
Y1-10 1 R 500 000 R 500 000 Oversee the agri-park operations
Technical/Operations Manager
Y1-10 1 R 500 000 R 500 000 Manage facilities
HR Co-ordinater Y1-10 1 R 380 000 R 380 000 Reception & admin
Management Accountant
Y1-10 1 R 380 000 R 380 000 Truck driver
Agricultural technician/Advisor
Y1-10 4 R 114 000 R 456 000 Lab testing & product development
Maintenance technician
Y1-10 1 R 300 000 R 300 000 To address all technical issues
Artisans Y1-10 3 R 240 000 R 720 000 Responsible for Marketing & promotion activities
Drivers Y1-10 5 R 92 000 R 460 000 Business support, develop opportunity BP & business development
General workers Y1-10 3 R 48 000 R 144 000 Facilitate all FPSU activities, including training & incentives
R 4 730 000
Labour overhead costs (taxes etc.):
SDL Y1-10 1 R 47 300 R 47 300 1% of labour costs UIF Y1-10 1 R 47 300 R 47 300
Factory overhead
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costs:
Safety clothing Y1-10 40 R 500 R 20 000 For all the agri-park staff
Kosher certificate Y1-10 1 R 37 000 R 37 000 Annual fees
Halaal certificate Y1-10 1 R 15 000 R 15 000 Annual fees
Quality management system
Y1,Y3,Y6,Y9
1 R 40 000 R 40 000 After every three years
Administrative overhead costs
Stationary Y1-10 20 R 500 R 10 000 per month
Accounting & Audit fees
Y1-10 1 R 60 000 R 60 000 Once-off annual fees
Bank Y1-10 12 R 1 000 R 12 000 per month
Internet & telephone monthly costs
Y1-10 20 R 3 000 R 60 000 per month
Security costs Y1-10 8 R 6 000 R 48 000
Landscaping costs Y1-10 12 R 2 500 R 30 000
Insurance Y1-10 1 R 952 693 R 952 693 1% of total investment
Marketing overhead costs:
Marketing & promotion
Y1-10 12 R 3 000 R 36 000 For exhibitions, website updates etc.
10. Direct costs
Transport - 10 ton truck for cattle
Description: Years Quantity Price(ZAR) Total
Y1-Y3 72 048 R 8.00 R 576 384.00
Y4-Y6 115 277 R 8.00 R 922 214.40
Y7-Y10 144 096 R 8.00 R 1 152 768.00
Transport - 10 ton truck for Broiler and chicks
Description: Years Quantity Price(ZAR) Total
Y1-Y3 96 480 R 8.00 R 771 840.00
Y4-Y6 154 368 R 8.00 R 1 234 944.00
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Y7-Y10 192 960 R 8.00 R 1 543 680.00
Transport - 3 ton truck for Broiler meat
Description: Years Quantity Price(ZAR) Total
Y1-Y3 38 400 R 4.80 R 184 320.00
Y4-Y6 61 440 R 4.80 R 294 912.00
Y7-Y10 76 800 R 4.80 R 368 640.00
Transport - 2 bakkies for eggs
Description: Years Quantity Price(ZAR) Total
Y1-Y3 9 600 R 3.20 R 30 720.00
Y4-Y6 15 360 R 3.20 R 49 152.00
Y7-Y10 19 200 R 3.20 R 61 440.00
11.Sales Programme
Poultry abattoir Years Quantity Price(ZAR)
Y1-Y3 60 000 R 39.00 R 2 340 000.00 Broiler carcass
Y4-Y6 96 000 R 39.00 R 3 744 000.00 Broiler carcass
Y7-Y10 120 000 R 39.00 R 4 680 000.00 Broiler carcass
Broiler farm Years Quantity Price(ZAR)
Y1-Y3 60 000 R 18 R 1 098 000.00 Broilers
Y4-Y6 96 000 R 18 R 1 756 800.00 Broilers
Y7-Y10 120 000 R 18 R 2 196 000.00 Broilers
Hatchery Years Quantity Price(ZAR)
Y1-Y3 66 000 R 6.15 R 405 900.00 Day-old chick
Y4-Y6 105 600 R 6.15 R 649 440.00 Day-old chick
Y7-Y10 132 000 R 6.15 R 811 800.00 Day-old chick
Hatching -egg farm Years Quantity Price(ZAR)
Y1-Y3 82 500 R 3.5 R 288 750.00 Fertilized eggs
Y4-Y6 132 000 R 3.5 R 462 000.00 Fertilized eggs
Y7-Y10 165 000 R 3.5 R 577 500.00 Fertilized eggs
Livestock feedmill Years Quantity Price(ZAR)
Y1-Y3 250 R 4 992 R 1 248 000.00 tonnes
Y4-Y6 400 R 4 992 R 1 996 800.00 tonnes
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Y7-Y10 500 R 4 992 R 2 496 000.00 tonnes
Cattle breeding and market linkages - Weaners
Years Quantity Price(ZAR)
Y2-Y5 286 R 3 000 R 857 400.00 Weaners
Cattle breeding and market linkages - Cows
Years Quantity Price(ZAR)
Y6-Y10 480 R 8 000 R 3 840 000.00 Cow
Wholesalers / retailers Years Quantity Price(ZAR)
Y1-Y3 5 000 R 100 R 500 000.00 Item
Y4-Y6 8 000 R 100 R 800 000.00 Item
Y7-Y10 10 000 R 100 R 1 000 000.00 Item
Transport - 10 ton truck for cattle
Years Quantity Price(ZAR)
Y1-Y3 72 048 R 10 R 720 480.00 km
Y4-Y6 115 277 R 10 R 1 152 768.00 km
Y7-Y10 144 096 R 10 R 1 440 960.00 km
Transport - 10 ton truck for Broiler and chicks
Years Quantity Price(ZAR)
Y1-Y3 96 480 R 10 R 964 800.00 km
Y4-Y6 154 368 R 10 R 1 543 680.00 km
Y7-Y10 192 960 R 10 R 1 929 600.00 km
Transport - 3 ton truck for Broiler meat
Years Quantity Price(ZAR)
Y1-Y3 38 400 R 6 R 230 400.00 km
Y4-Y6 61 440 R 6 R 368 640.00 km
Y7-Y10 76 800 R 6 R 460 800.00 km
Transport - 2 bakkies for eggs
Years Quantity Price(ZAR)
Y1-Y3 9 600 R 4 R 38 400.00 km
Y4-Y6 15 360 R 4 R 61 440.00 km
Y7-Y10 19 200 R 4 R 76 800.00 km
12.Working Capital
Inventory •Raw Materials=30 days
•Work in Progress =1 day
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•Finished Goods 7 days
•Utilities=1 day
•Energy= 1 day
Description Value
Account Receivable • 60 days
Cash-in-hand: • Cash-in-hand-local=7 days
Account Payable: •Raw Materials=30 days
•Utilities=30 days
•Energy= 30 days
•Repair, maintenance, materials= 30 days
•Labour= 1day
•Labour Overheads = 1 day
•Factory Overheads= 30 days
•Administrative Costs = 30 days
•Direct Marketing Costs = 30 days
13. Sources of Finance (Default for most ECD Projects = Grant Funding, Loans could be included in Scenarios)
Equity, Risk Capital Joint Venture Partner Year Amount paid in
Total % of profits distributed
% of dividends Received(split between partners
None
None
None
None
None
None
14.Tax Allowances
Income •Tax rate=28 % (or use SARS rates for small business)
Description Value
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APPENDIX E - REFERENCES
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