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High-Level Agri-Park Master Business Plan: Amajuba District Municipality

Revision 0 28 April 2016

Prepared by: CSIR Enterprise Creation for Development Address: PO Box 395, Pretoria, 0001


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Confidential between DRDLR and CSIR

EXECUTIVE SUMMARY This document outlines a high-level business case for the Amajuba District Municipality (ADM) 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 ADM is one of ten district municipalities within the KwaZulu-Natal Province (KZN), and has three local municipalities, namely: Dannhauser, Emadlangeni and Newcastle. A DRDLR initiated AP will comprise typically of the following three basic units:

Farmer Production Support Unit(s) (FPSU)

A central Agri-Hub (AH)

A Rural-urban Market Centre (RUMC) The Amajuba Agri-Park will more specifically comprise of an AH located in Dannhauser, and three farmer production support units as follows:

One in Emadlangeni (Utrecht)

Two in Newcastle municipality -Ingogo and Newcastle.

A rural-urban market centre will not be established as part of this agri-park. The agri-park is diagrammatically presented below.

The Amajuba AP will initially focus on three prioritised value chains, namely maize, beef and vegetables. At a later stage the soya and poultry could be considered for inclusion. It is envisaged that the central AH will contain the following business opportunities: maize storage and milling facility; cattle slaughtering facility; and vegetable packing facility.

FPSU 1

AGRI-HUB

Services• Rental space

• Administration

• Transport and logistics

• Business linkages

• Quality management services

• Training and skills development

Vegetables

Maize

Cattle

Material and Information Flow

FPSU 2

FPSU 3

Location : Ingogo

Location : Newcastle

Location : Utrecht

Location : Dannhauser


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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 Amajuba AP could be viable based on the following assumptions:

The AP consists of an AH and three remotely located FPSUs

The AH will house three processing businesses, which will operate as independent entities

The AP can secure 7.5% of opportunity revenue from these businesses as its revenue

The production volumes are phased in at 25% of total production capacity for the first three years, 50% for year four to six and 100% from year seven onwards

Funding of R129.2 million is secured prior to AP establishment A total investment of R129 238 237 as grant funding will be needed over a two year period as follows: R118 538 237 in year zero, and R10 700 000 in year one of operation. If the required grant funding could be secured, 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. The results from preliminary financial modelling show that if a discount rate of 7% is used:

The net present value (NPV) is R27 042 690

The internal rate of return (IRR) is 9.45%

The payback period is 9.4 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 Amajuba Agri-Park. 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 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 ..................................................................................................... 6

LIST OF TABLES ................................................................................................................ 7

LIST OF FIGURES .............................................................................................................. 9

1 INTRODUCTION ....................................................................................................... 11

1.1 Intent/Rationale............................................................................................. 13

1.2 Opportunity/Business description ................................................................. 13

1.3 Feasibility results .......................................................................................... 15

2 BUSINESS AND SERVICES .................................................................................... 16

2.1 Policy and strategy alignment ....................................................................... 16

2.2 Provincial and local economic context .......................................................... 17

2.3 Location / Site ............................................................................................... 18

2.4 Business concept .......................................................................................... 18

2.5 Institutional arrangements ............................................................................ 20

2.6 Products and services .................................................................................. 21

3 MARKET RESEARCH, ANALYSIS AND PLAN ...................................................... 22

3.1 Customers .................................................................................................... 22

3.2 Market demand and sales forecast ............................................................... 22

3.3 Market prices ................................................................................................ 23

3.4 Competition and competitive edge................................................................ 23

3.5 Marketing and distribution ............................................................................. 24

4 MANUFACTURING AND OPERATIONS PLAN ...................................................... 25

4.1 Service inputs ............................................................................................... 25

4.2 Facility .......................................................................................................... 25

4.3 Equipment .................................................................................................... 27

4.4 Regulatory and legal issues .......................................................................... 27

4.5 Systems, processes and procedures ............................................................ 28

4.6 Supply chain management ........................................................................... 30

5 HUMAN RESOURCES AND GOVERNANCE .......................................................... 31

5.1 Key management personnel ......................................................................... 31

5.2 Industry role players ..................................................................................... 31

5.3 Supporting professional advisors and services ............................................. 32

5.4 Human resource requirements ..................................................................... 33

5.5 Governance .................................................................................................. 33

6 RISK MANAGEMENT ............................................................................................... 35


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7 FINANCIAL PLAN AND ECONOMICS OF THE BUSINESS ................................... 36

7.1 Costs ............................................................................................................ 36

7.2 Predicted five year financial statements ....................................................... 37

7.3 Financial analysis ......................................................................................... 39

7.4 Economic benefits of the business ............................................................... 40

APPENDIX A - MARKET ANALYSIS ............................................................................. 42

A.1. INTRODUCTION .......................................................................................... 43

A.2. VALUE CHAIN TYPICAL PRODUCTS ......................................................... 44

A.3. MARKET ANALYSIS .................................................................................... 46

A.4. PRELIMINARY OPPORTUNITIES ............................................................... 68

APPENDIX B - TECHNICAL ANALYSIS ........................................................................ 79

B.1. INTRODUCTION .......................................................................................... 80

B.2. UNITS OF THE AGRI-PARK ........................................................................ 81

B.3. OPPORTUNITIES AND SERVICES ............................................................. 81

B.4. AGRI-PARK CONCEPT ............................................................................... 98

B.5. LOCATION ................................................................................................. 100

B.6. EQUIPMENT .............................................................................................. 104

B.7. SPACE REQUIREMENTS .......................................................................... 104

B.8. SUPPLY CHAIN LOGISTICS ..................................................................... 106

B.9. REGULATORY COMPLIANCE .................................................................. 107

B.10. ORGANISATIONAL DESIGN ..................................................................... 111

B.11. RISK MANAGEMENT ................................................................................. 114

APPENDIX C - FINANCIAL ANALYSIS ....................................................................... 117

C.1. INTRODUCTION ........................................................................................ 118

C.2. COSTS ....................................................................................................... 119

C.3. SALES ........................................................................................................ 121

C.4. PREDICTED TEN YEAR FINANCIAL STATEMENTS ............................... 122

C.5. FINANCIAL ANALYSIS .............................................................................. 128

C.6. ECONOMIC BENEFITS OF THE PROPOSED AP .................................... 130

APPENDIX D - FINANCIAL ASSUMPTIONS ............................................................... 131

APPENDIX E - REFERENCES ..................................................................................... 139

High-Level Agri-Park Master Business Plan Amajuba District Municipality

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GLOSSARY OF TERMS

AH - Agri-Hub ADM - Amajuba District Municipality AP - Agri-Park APAP - Agricultural Policy Action Plan APP - Agri-Parks Programme COGTA - Department of Cooperative Governance and Traditional

Affairs CSIR - Council for Scientific and Industrial Research DAFF - Department of Agriculture, Forestry and Fisheries DAMC - District Agri-park Management Council DAPOTT - District Agri-park Operational Task Team DLM - Dannhauser Local Municipality DRDLR - Department of Rural Development and Land Reform ECD - Enterprise Creation for Development ELM - Emadlangeni Local Municipality ESDF - Emadlangeni Spatial Development Framework FPSU - Farmer Production Support Unit IDP - Integrated Development Plan IRR - Internal Rate of Return KZN - KwaZulu-Natal KZNDARD - KwaZulu-Natal Department of Agriculture and Rural

Development LED - Local Economic Development MTEF - Medium Term Expenditure Framework NDP - National Development Plan NGP - New Growth Path NLM - Newcastle Local Municipality NPV - Net Present Value RUMC - Rural-Urban Market Centre


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LIST OF TABLES Table 1: FPSU types 19 Table 2: Target market segments 22 Table 3: Estimated market demand and sales forecast for the businesses 22 Table 4: Market prices 23

Table 5: Competitors 23 Table 6: Space requirement 26 Table 7: Equipment required 27 Table 8: Opportunity capacities 29 Table 9: Quality management systems 29

Table 10: Industry role players 31 Table 11: Agri-Park human resources 33 Table 12: Risks and mitigation 35 Table 13: Income statement 38

Table 14: Balance sheet 38 Table 15: Cash flow statement 39 Table 16: Sensitivity analysis – reduction in revenue from AP enterprises 40 Table 17: Sensitivity analysis – labour costs 40

Table 18: Estimated jobs from business 41

Table 19: Typical products 44 Table 20: Potential vegetable production 45 Table 21: Maize product prices 48

Table 22: Maize meal products 49 Table 23: Beef market share and sales forecast 55

Table 24: Maize meal industry role players 68 Table 25: Maize storage and milling risks 70 Table 26: Beef industry role players 72

Table 27: Beef abattoir risks 74

Table 28: Vegetable industry role players 76 Table 29: Vegetable packing house risks 77 Table 30: Maize meal classification 82

Table 31: Fortification mix for maize meal 85 Table 32: Equipment list 86

Table 33: Maize mill operation 86 Table 34: Abattoir grades and maximum capacity 87

Table 35: Slaughtering processes 90 Table 36: Equipment list 92 Table 37: Equipment list 96 Table 38: List of communications equipment 97 Table 39: List of vehicles 97

Table 40: Feedlot equipment 99 Table 41: List of AP office equipment 104

Table 42: Estimated construction costs for AP 105 Table 43: Acts and regulations 107 Table 44: Quality management systems 108 Table 45: Agri-park human resources 113 Table 46: Agri-park risks and mitigation 114

Table 47: Investment costs 119 Table 48: Sales forecast for AP 121


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Table 49: Projected income statement 123

Table 50: Projected balance sheet 125 Table 51: Projected cash flow statement 127

Table 52: Sensitivity analysis – reduction in revenue from AP enterprises 129 Table 53: Sensitivity analysis – labour costs 129 Table 54: Jobs created at opportunity level 130


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LIST OF FIGURES Figure 1: Agri-park opportunity description ........................................................................ 14 Figure 2: Agri-Hub site ....................................................................................................... 18 Figure 3: Business concept ................................................................................................ 19

Figure 4: AP Structure ....................................................................................................... 20 Figure 5: ADM agri-park process flow ................................................................................ 26 Figure 6: Agri-park facility layout ........................................................................................ 26 Figure 7: Governance ........................................................................................................ 34 Figure 8: Indirect costs....................................................................................................... 37

Figure 9: Maize production per province ............................................................................ 46 Figure 10: White maize products (tons) ............................................................................. 47 Figure 11: Maize average producer prices ......................................................................... 48 Figure 12: Maize commercial production and consumption ............................................... 49

Figure 13: White maize exports and imports (tons) ........................................................... 50 Figure 14: Maize exports and imports (tons) ...................................................................... 50 Figure 15: White maize export destinations ....................................................................... 51 Figure 16: Maize product exports and imports ................................................................... 51

Figure 17: Beef slaughtering per province (2013) .............................................................. 53

Figure 18: Beef production vs consumption ....................................................................... 54 Figure 19: Beef average producer prices ........................................................................... 54 Figure 20: Cattle herds, abattoirs and slaughters .............................................................. 55

Figure 21: Beef exports and imports .................................................................................. 56 Figure 22: Beef exports by province .................................................................................. 57

Figure 23: Cabbage production, consumption and sales through FPMs ........................... 58 Figure 24: Cabbage pricing ................................................................................................ 59 Figure 25: Cabbage imports and exports (volumes) .......................................................... 60

Figure 26: Cabbage exports and imports (Rands) ............................................................. 61

Figure 27: Tomato production, consumption and sales through FPMs .............................. 62 Figure 28: Tomato pricing .................................................................................................. 62 Figure 29: Tomato exports and imports (tons) ................................................................... 63

Figure 30: Tomato exports and imports (Rands) ............................................................... 64 Figure 31: Potato production, consumption and sales through FPMs ................................ 65

Figure 32: Potato pricing .................................................................................................... 65 Figure 33: Potato exports and imports (tons) ..................................................................... 66

Figure 34: Potato exports and imports (Rands) ................................................................. 67 Figure 35: Maize supply chain map ................................................................................... 68 Figure 36: Maize meal distribution channel ........................................................................ 69 Figure 37: Beef supply chain map ..................................................................................... 71 Figure 38: Beef production and distribution channels ........................................................ 73

Figure 39: Vegetable supply chain map ............................................................................. 75 Figure 40: Vegetable distribution channel .......................................................................... 76

Figure 41: Traditional rubbing and hand stones ................................................................. 82 Figure 42: Maize opportunity ............................................................................................. 83 Figure 43: Maize milling process ....................................................................................... 84 Figure 44: Abattoir opportunity ........................................................................................... 87 Figure 45: Phased throughput increase ............................................................................. 88

Figure 46: Production process ........................................................................................... 89 Figure 47: Vegetable packing opportunity.......................................................................... 93


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Figure 48: Production process for vegetable packing house ............................................. 94

Figure 49: Geographic overview of the AH and FPSUs locations .................................... 100 Figure 50: AH site ............................................................................................................ 101

Figure 51: Facilities at the AH site in Dannhauser ........................................................... 101 Figure 52: Newcastle cattle FPSU ................................................................................... 102 Figure 53: Proposed cattle FPSU site at Newcastle ........................................................ 102 Figure 54: Ingogo vegetable FPSU .................................................................................. 103 Figure 55: Fresh produce market construction site at Ingogo .......................................... 103

Figure 56: Agri-park layout and concept plan .................................................................. 105 Figure 57: AP Structure ................................................................................................... 112 Figure 58: Agri-park organogram ..................................................................................... 113 Figure 59: Indirect costs ................................................................................................... 120 Figure 60: Revenue streams ............................................................................................ 122

Figure 61: Net profit ......................................................................................................... 124


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1 INTRODUCTION The Department of Rural Development and Land Reform (DRDLR) was tasked by government with the implementation of an initiative to establish agri-parks (APs) in each of South Africa’s 44 district municipalities. As part of this initiative, the CSIR’s Enterprise Creation for Development (ECD) unit was commissioned to develop a high-level master agri-park business plan for the Amajuba District Municipality (ADM). ADM is one of the ten district municipalities of the KwaZulu-Natal Province. It is situated in the north-western part of the province and comprises of three local municipalities, namely Dannhauser, eMadlangeni and Newscatle. The AP concept thus entails the use of collective farming, farmer incubation, agri-cluster and eco-village development, as well as the coordination of agricultural activities in identified geographic areas. This concept 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 following are key strategic objectives of the AP:

Kick-starting rural economic transformation in the district

Promoting the skills of and supporting smallholder farmers through:

Provision of capacity building

Mentorship

Farm infrastructure

Extension services

Production inputs

Mechanisation inputs

Enabling joint ownership of the AP equity between state and commercial interests or partners

Bringing underutilised land (especially in communal areas and land reform farms) into full production over the next three years

Expanding irrigated agriculture. The following are the desired outcomes of the APs Programme (APP):

The development of 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 encouragement of black farmers to form joint ventures to supply the APs

Encouragement of private or commercial farmers to join the APs as a lucrative investment opportunity

The development of 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 chain

The AP comprises of three basic units:

Agri-Hub (AH): The AH is a production, equipment hire, processing, packaging, logistics and training (demonstration) unit.


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The Farmer Production Support Unit (FPSU): The FPSU is a rural outreach unit connected with the agri-hub. The FPSU does primary collection, some storage, some processing for the local, and extension services including mechanisation.

The Rural Urban Market Centre Unit (RUMC): The RUMC has three main purposes:

Linking and contracting 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 AH and FPSU, using the latest information and communications technologies

This business plan only focusses on the AH and FPSUs. The RUMC is not district based and as such does not form part of this business plan. 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 will conclude 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.

Phase 2: Development of the business case This phase involved the development of the master agri-park 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: Agri-park 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.


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A structured approach was followed to develop the AP master business plan. The feasibility study entailed firstly conducting ADM 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, 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. 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 outlines a high-level business case for the Amajuba Agri-Park 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 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 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 (COGTA) will also be critical. The AP should therefore also seek to:

Be based on economic advantage

Have all elements of the value chain for dominant products

Ultimately lay the foundation for rural industrialisation. 1.2 Opportunity/Business description The Amajuba Agri-Park will focus on three prioritised value chains, namely; maize, beef and vegetables, and will consist of a central AH and four FPSUs. Figure 1 summarises the description of the ADM Agri-Park.


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Figure 1: Agri-park opportunity description

The central AH will contain the following business opportunities:

Dry maize storage and milling facility

Cattle slaughtering facility

Vegetable packing facility

The success of the AP will mainly rely on the consistent supply of quality raw materials at the right quantities. The transportation of raw materials which are maize, vegetables and cattle will also be critical. Most of these raw materials will be transported by road using the AP’s trucks. The FPSUs will assist with the services offered by the AP in areas further from the AH to enhance the productivity of the farmers. The raw materials will be processed at the processing facilities located in the AH. The maize milling opportunity will produce maize meal, the abattoir will produce beef carcasses and hides, the vegetable packing house will produce packed vegetables. In order to produce these products there is a need for competent workers and adequate utilities such as water and electricity. For the AP to be sustainable, market penetration is crucial. The AP products also have an opportunity to gain access to government markets such as hospitals, prisons and schools.

SUPPLIERS

Farmers

Vitamins and minerals suppliers

Packaging material suppliers

Animal feed suppliers

Auctions

Feedlots

RAW MATERIALS Maize

Maize

Vitamins

Minerals

Packaging

Cattle

Live cattle

Cattle feed

Vegetables

Fresh vegetables

Packaging material

AGRI-PARK OPPORTUNITY

Maize storage & FPSU

Dry maize milling

Packaging

Beef Abattoir

Cattle FPSU

Vegetable packing & FPSU

PRODUCTS Maize

Super maize meal

Special maize meal

Hominy chop (by-product)

Cattle

Carcass

Head and feet

Offal

Hides

Vegetables

Freshly packed vegetables

MARKETS

Retail outlets

Wholesalers

Department of Education

Department of social development

Feedlots

Butcheries

Consumers

Wholesalers

Supermarkets

Fresh produce markets

Hospitals FINANCIAL ANALYSIS

NPV – R27 million

IRR – 9.45%

Payback period – 9.4 yrs -

RESOURCES

Human capital

Electricity

Water

Fuel

Waste removal

Primary agricultural produce

Supply

(Truck)

Distribution

(Truck)

KEY STAKEHOLDERS

DRDLR

Maize farmers

Packaging suppliers

COGTA

Equipment suppliers

DAFF

KZN-DARD

Emerging farmers

Distributors


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1.3 Feasibility results This section presents a summary of the results of the high level feasibility study. Some of the key results from the feasibility study include the following:

The agricultural sector’s contribution to Amajuba District Municipality’s economy is 2.2% to the gross value add and 2.4% to total employment

About 15 542 of households are involved in livestock farming only

An estimated 15 838 households are involved in crop farming only and about 7 747 are involved in mixed farming

Land with the highest agricultural capability is located within Emadlangeni Local Municipality

Most of the commodity value addition activities are conducted by commercial entities

Production outputs of many of the smallholder farmers are at very low levels

Maize, cattle and vegetables are the prioritised commodities at ADM

The following were recommended as immediate beneficiation opportunities for the AH:

Maize milling

Maize silo

Beef abattoir

Vegetable pack house The feasibility study carried out at a high-level recommends that detailed business planning be undertaken as the next phase towards the actual establishment of the AP.


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2 BUSINESS AND SERVICES During Phase 1, a situational analysis of the district completed. The insights from the situational analysis influenced the market and technical research for the AP. Detailed discussions regarding the business and services offered are included in Error! Reference source not found. and Error! Reference source not found. attached to this document. 2.1 Policy and strategy alignment Alignment of major economic initiatives to relevant policies and strategies is important. This enables efficient resource allocation and avoids unnecessary duplication of interventions or activities. This section highlights some of the key policies and strategies in line with the ADM Agri-Park’s objectives. The AP is aligned to the following key national policies and strategies:

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 There are other policies and strategies that were identified as key at provincial and district level, namely:

KwaZulu-Natal (KZN) Department of Agriculture and Rural Development (DARD) Strategic Plan

Provincial Growth and Development Strategy (PGDS)

Provincial Spatial Economic Development Strategy (PSEDS)

Local economic development strategy

Local job creation strategy

Local poverty alleviation policy In terms of the existing programmes and projects, the following are initiatives that could be linked to the ADM Agri-Park:

Profiling land reform farms

Small enterprise development

Amajuba red meat project

Amajuba and Zululand livestock dip tanks

Thokolithemba agricultural cooperative

Karabo Beracah cooperative

History-making leather processing cooperative

Senzangakhona livestock project

Mpondokazishi livestock project

Elandsklip project

Amesbury project


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2.2 Provincial and local economic context 2.2.1 Provincial context

KZN is one of the nine provinces and is located in the south east of SA. The province shares the borders with Eastern Cape, the Free State and Mpumalanga as well as Mozambique, Swaziland and Lesotho which are SADC countries. It accounts for about 7.7% (approximately 94 361 km2) of SA’s land. Although KZN is the smallest in terms of land size, it is home to the second largest population, estimated at approximately 10.91 million in 2011 (Statssa, 2015). KZN’s official unemployment rate was estimated at 20.5% during quarter three of 2015. This is below the overall unemployment rate in the country, which was estimated at 25.5% in the same period. The total labour force (people between 15 and 64 years) in the province is estimated at 3.2 million. In terms of industries contributing to employment in the province, agriculture only accounts for 6% of jobs created, whilst trade, construction and manufacturing are the top three and jointly contribute 53%. Agriculture contributed only 3.6% towards the province’s economy. KZN’s agricultural sector plays a significant role in terms of food security, job creation and economic development, not only in the province but in SA. According to KZN DARD (2015), this sector contributes about 4.4% to the provincial gross value added and 30% to the national agricultural output. The required skills to implement the AP (both primary production and beneficiation activities) could be sourced in the province. According to StatsSA (2012), about 40.3% of people aged 20 and above have either grade 12 (standard 10) and higher qualifications. The province has also identified skills development as one of the key interventions required to unleash the potential of the agriculture sector in the province. Trade in the province is facilitated through the two harbours that are located 200 km from each other in Durban and Richards Bay. Durban is the busiest port in SA (PCC). Primary and value-added products are exported through this harbour. The two harbours have strategically positioned KZN as a key trade facilitating region, enabling the exporting and importing of goods. Goods from key economic regions, such as Gauteng, are also exported through these harbours. 2.2.2 Local economic context

Amajuba District Municipality, which is located in the north-western corner of KwaZulu-Natal, comprises of three local municipalities, namely; Newcastle, Dannhauser, and Emadlangeni. Emadlangeni municipality covers the largest surface area at 3 539 km2

whilst Newcastle and Dannhauser municipalities cover 1 855 km2 and 1 516 km2

respectively (ADM-LED-Strategy, 2011). Urban areas are concentrated along the Newcastle-Madadeni-Osizweni axis as well as around Utrecht, Charlestown, Dannhauser and Hattingspruit. The 2011 census indicated that the population size of ADM is 499 839. Newcastle local municipality accounts for 363 236, whilst Dannhauser local municipality accounts for 102 161 and Emadlangeni Local Municipality accounts for 34 442 of the total district


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population. Newcastle Local Municipality is the most densely populated with an estimated population density of 196 per square kilometre compared to Dannhauser and Emadlangeni with estimated population densities of 67 per square kilometre and 10 per square kilometre respectively. Agriculture, forestry and fishing sector contributed 2.4% to the total employment of ADM. The figure is low, compared to the contribution by wholesale and retail trade, which is the highest at 19.7%, followed by general government at 18.5% (ADM-Vision-2030, 2012). 2.3 Location / Site The location of the AH has already been identified. The possible sites for the FPSUs have been identified and the stakeholders will decide on the recommended sites. 2.3.1 Agri-Hub

The identified AH site is situated at Dannhauser Local Municipality. The site is located along the N11 approximately 17 kilometres from Dannhauser Central Business District. Figure 2 shows the location of the AH.

Figure 2: Agri-Hub site

2.3.2 Farmer Production Support Units

A recommendation was made by KZN-DARD regarding the sites and types of the three FPSUs as follows:

One vegetable FPSUs in Ingogo

One maize FPSU in Utrecht

One cattle FPSU in Newcastle 2.4 Business concept

ADM Agri-Hub 30

0 0’ 6.527” E

280

6’ 16.453” S


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Figure 3 depicts the AP’s business concept.

Figure 3: Business concept

The AP opportunities will source raw materials such as maize, cattle and vegetables from the primary producers, mainly emerging farmers. Three FPSUs will be established to increase the capacity and efficiency of these farmers, as well as to provide effective storage facilities. 2.4.1 FPSU types

Table 1 is an indication of the recommended FPSU types at ADM.

Table 1: FPSU types

FPSU Local Municipality Focus

Maize silo service FPSU Utrecht

(Emadlangeni LM)

Support crop farmers in Emadlangeni with essential farming services

Maize storage service

Cattle and feedlot FPSU

Newcastle (Newcastle LM)

Support cattle farmers in the district with essential cattle farming services and cattle feed

Feedlot Vegetable FPSU Ingogo

(Newcastle LM)

Support crop farmers with essential farming services

Other input materials such as packaging material and food additives will be sourced from suppliers in KZN and Gauteng. The AP will enter into contracts with suppliers of the input

Maize

Farmer

Maize

Farmer

Mixed

Farming Cattle

Farmer

Cattle

Farmer

FPSU Maize

FPSU Cattle

FPSU Vegetable

Veggies

Farmer

Veggies

Farmer

Agri-Hub

Wholesalers Retail Markets Supermarkets End users


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materials. Most primary produce will be processed within the AH. The AH will have processing facilities as follows:

A dry maize milling facility to process maize into maize meal (such as samp and super maize meal)

There will be some form of maize storage at the AH

An abattoir to slaughter cattle from the feedlot and produce beef carcasses

A vegetable pack house to add-value to fresh produce from vegetable storage facilities FPSU

All food producing facilities will be Halaal, Kosher and ISO 22 000 certified. 2.5 Institutional arrangements The AP will comprise of an AH, located in Dannhauser, as well as three FPSUs in Utrecht, Newcastle and Ingogo respectively. 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 4 illustrates the structure of the AP.

Figure 4: 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 maximum levels:

30% held by private sector entities (including commercial farmers and agro-

processing companies)

70% held by emerging farmers, communal farmers and community structures.

Agri-Hub

Maize FPSU

Utrecht (1) Cattle FPSU Newcastle (1)

Vegetable FPSU Ingogo (1)


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Key to the success of the AP will be stakeholder engagement. Throughout the establishment and development of the AP, stakeholder and community involvement will need to be carefully managed. 2.5.1 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 that the AP will be involved during the necessary upgrades to its facilities to ensure the required expanded processing capabilities. A due diligence study will have to be conducted on the existing businesses, to confirm whether such expansion would be viable from a technical and financial perspective. 2.6 Products and services This section discusses the product and services that will be provided by the AP. More information regarding product and services is included in APPENDIX B - attached to this document. 2.6.1 Agri-Hub

The AH will create an enabling environment for value addition and trade by providing suitable infrastructure in the form of machinery, equipment and operating space. The AH based opportunities will produce and sell the following products per annum:

Maize milling (maize meal) – 22 500 tons

Silos (maize grains) – 60 000 tons

Abattoir (beef carcasses) – 6 000 tons

Abattoir (Hides) – 648 tons

Vegetable packing house (packed vegetables) – 2 000 tons 2.6.2 Farmer production support units

The following services will be provided by the FPSUs to livestock and crop farmers (vegetable and maize):

Farming equipment & infrastructure (tractors, ploughing, irrigation support etc.)

Farmer training (technical & business)

Agricultural extension services

Facilitation of R&D and technology development in partnership with relevant organisations, e.g. development of climate-resilient crops

Facilitation of access to finance & government incentives

Facilitation of access to agricultural land


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Farming input supplies (e.g. bulk buying of input material, fertiliser, seeds, animal seeds)

Transportation & logistics of fresh produce

Market information & intelligence

Provide storage facilities (or processing facilities)

3 MARKET RESEARCH, ANALYSIS AND PLAN This section discusses the market aspects of the ADM Agri-Park as a result of the high-level market assessment conducted on the opportunities identified. Additional information relating to market assessment is discussed in APPENDIX A - attached to this document. 3.1 Customers The AP businesses will target customers such as wholesalers, small and big retailers and ultimately the export market. Table 2 indicates AP products and potential customers.

Table 2: Target market segments

Opportunity Products Customers

Maize silos Fresh maize

The AP’s milling facilities

Food and beverage industry

Other maize milling facilities

Maize milling Maize meal and hominy chop

Wholesalers

Small and big retailers

Tuck shops

Hospitality industry

Cash and carries

Cattle feedlot Live cattle Primarily AP’s abattoir

Other abattoirs

Abattoir Beef carcasses

Butcheries

Meat processors

Retailers

Export

Cattle hides Tanneries

Vegetable pack house

Frozen and freshly packed vegetables


Retailers

Small shops and super markets

Tuck shops

Hospitality industry

Green grocery shops

3.2 Market demand and sales forecast Table 3 shows product quantities to be produced by the businesses operating from the AP for distribution into the markets.

Table 3: Estimated market demand and sales forecast for the businesses

Opportunity Products Opportunities Price per unit Sale revenue


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sales forecast (full capacity)

Maize silos Maize grain 60 000 tons R 2 228 R 133 707 000

Maize milling Maize meal 22 500 tons R 4 150 R 93 375 000

Feedlot Cattle 24 0000 cattle heads R 10 814 R 259 538 098

Abattoir Beef carcasses 6000 tons R 9 979 R 59 876 640

Hides 648 tons R 13 870 R 8 987 760

Vegetable packing house

Fresh packed vegetables

2 000 tons R 4 000 R 8 000 000

Total R 563 484 498

The sales revenue for the AP is projected at R11 983 869 in Year 1. 3.3 Market prices Table 4 shows the average prices of products to be sold to the market by the AP businesses.

Table 4: Market prices

Cattle feedlot Product Average price

Maize silos Maize grain R 2.23/kg

Maize milling Maize meal R 4.15/kg

Feedlot Live cattle R 10.81/kg

Abattoir Beef carcasses R 9.98/kg

Hides R 13.87/kg

Vegetable packing house Freshly packed vegetables R 4.00/kg

3.4 Competition and competitive edge The AP’s competitive edge will be its proximity to input suppliers such as local farmers. Potential local farming communities will be linked to the AP as shareholders. This will incentivise the farmers to supply input materials such as, maize, cattle and vegetables at reasonable prices. This will in turn result in the AP’s products being priced competitively. Competitors are likely to lower their prices in order to keep new entrants out. Therefore the AP’s products should be priced competitively. Potential competitors for products to be produced in terms of the AP opportunities are listed in Table 5.

Table 5: Competitors

Maize meals Beef Vegetables

Pioneer Foods (White Star)

Tiger Brands (Ace)

Premier Foods (Iwisa, Impala & Nyala)

Ingogo mills (Sutha)

Newcastle milling (Inguni)

Small independent producers

Karan beef

EAC group

Sparta beef

Master beef

Beefor

Chalmar beef

SIS farming

Small producers

Nature's Garden (Pty) Ltd

Freshmark

Freshline

Small independent producers


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3.5 Marketing and distribution A total amount of R150 000 is allocated to marketing and promotion activities during the inception of the project. This will ensure that the businesses, products and services are well marketed. Marketing and promotion activities will include the following (but not limited to):

Roadshows

Promotional materials

Brand development. The DAMC will also assist in creating awareness in the farming communities, especially during the initial stages of the AP establishment. In terms of product distribution, goods will be distributed to customers using trucks as one of the services offered (to business opportunities) by the AP. Customers will also be allowed to collect goods from the AP and FPSU sites.


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4 MANUFACTURING AND OPERATIONS PLAN 4.1 Service inputs Service inputs will include fuel used for the agri-park’s transportation services as follows:

Transportation of maize grain to the milling facility

Distribution of maize meals to the markets

Transportation of live cattle to the abattoir

Transportation of beef carcasses (using refrigerated trucks) and hides to the markets, and

The use of bakkies (with cooling facilities) to transport fresh vegetables. An amount of approximately R4 million will be allocated to the acquisition of these vehicles. 4.2 Facility 4.2.1 Process flow and facility layout

Figure 5 shows the process flow of the AP. Training and capacity building of the farmers is essential to ensure reliable supply of input material.

Training and capacity building

Input Maize Cattle Fresh

vegetables

Transport services

Processing Maize milling

and

Cattle slaughter

Vegetable packing

End users

Retailers Wholesalers Distribution


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Figure 5: ADM Agri-Park process flow

Figure 6 illustrates the AP facility layout.

ComputerComputer

Agr

i-h

ub

D

ann

hau

ser

Administration block

Vegetables Packing House

Abattoir

Maize milling

Veggetables FPSU Ingogo

Cattle FPSU Newcastle

Maize FPSU Utrecht

Figure 6: Agri-park facility layout

4.2.2 Space requirement

The agri-park will require a total of approximately 14 100 m2 for its infrastructure as detailed in Table 6.

Table 6: Space requirement

Structures Size requirement

Maize milling and storage 1 500 m2

Abattoir 2 000 m2

Vegetable packing house 1 000 m2

Administration block 1 000 m2

Maize FPSU 1 000 m2

Cattle FPSU including feedlot 7 000 m2

Vegetable FPSU 600 m2

Total 14 100 m2


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4.2.3 Utilities

The following utilities will be required to create an enabling environment for the identified opportunities:

The electricity which will be supplied by ADM

Water which will be supplied by ADM

Fuel which will be purchased from local fuel filling stations 4.3 Equipment The machinery and equipment required to setup the agri-park is shown in Table 7:

Table 7: Equipment required

Business equipment Costs

Maize milling equipment R 11 722 358

Abattoir equipment R 17 983 520

Vegetable packing house equipment R 754 722

Communications equipment R 42 977

Vehicles R 4 702 502

Office equipment R 418 845

The total cost of equipment and machinery is estimated at R46 million. 4.4 Regulatory and legal issues There are mandatory regulations, specifications and guidelines that the AP and its business opportunities should adhere to. Regulatory compliance for the AP involves adherence to legislation such as:

Meat Safety Act (Act No. 40 of 2000)

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)

Animal Protection Act (Act No. 71 of 1962) with respect to the handling and transportation of livestock.

The AP will also comply with National Environmental Management Act, which deals with the environmental aspects of organisations. Prior to the establishment of the AP, an Environmental Impact Assessment will be undertaken and the following specialist studied could be required:

Ecological study

Cultural and Heritage study

Aquatic study

Wetland Delineation study


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A Water Use License (WUL) will be required as prescribed in the National Water Act of 1998. These studies will form part of the Environmental Impact Assessment, which will also be undertaken. A budget of R3 000 000 is allocated to regulatory requirements. Detailed regulatory requirements are outlined in APPENDIX B - attached in this document. 4.5 Systems, processes and procedures 4.5.1 Policies and procedures

Financial discipline and good governance should be maintained to enable the legal entity, to achieve stability, consistency and continued success. Policies and procedures need to be developed to ensure compliance with legislation, good governance and effective operations. The policies and procedures that need to be drafted and implemented cover the following areas:

Governance

Procurement

Financial management

Human resources management

General operations

Safety, health, environmental protection and quality. 4.5.2 Manuals and operating instructions

Operating manuals for all machinery and equipment are expected to be provided by respective suppliers. These manuals will be incorporated into the standard operating procedures, which will be developed to ensure consistency and quality in the production processes. These operating manuals will also be utilised to train relevant staff members. All operational staff will have access to the SOPs. Summarised instructions clearly indicating key operations of the machinery will be set out on wall charts close to the relevant machinery and equipment. 4.5.3 Material handling systems

All production facilities will be equipped with storage facilities, including cold storage for packed vegetables. Raw material and finished products will be moved around with forklift. The vegetables will be transported by two bakkies with cooling facilities to and from the agri-park. Ten trucks will be used for the transportation of cattle, beef carcasses, hides, maize grain, maize meal and hominy chop. 4.5.4 Process yield and throughput

The expected output of the opportunities has been guided by the results of the market assessment as seen in Table 8.


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Table 8: Opportunity capacities

Opportunity Nominal capacity

Maize milling 22 500 tons

Silo (maize) 60 000 tons

Feedlot 24 000 Cattle tons

Abattoir (beef carcasses) 6 000 tons

Abattoir (hides) 648 tons

Vegetable packing house 2 000 tons

Transportation 1 035 840 km

The throughput has also been phased in the following manner:

Year 1 to year 3 – 25%

Year 4 to year 6 – 50%

Year 7 to year 10 – 100% 4.5.5 Consumables and maintenance requirements

One of the key responsibilities of the agri-park’s staff will be to service and maintain the AP facilities, including production equipment, forklift and delivery vehicles. Vehicles and forklifts will be serviced at Original Equipment Manufacturer service centres. The maintenance of all the machinery will be done by the supplier of the machinery in line with manufacturer recommendations. The machinery and equipment will be purchased new with warranties included. A total budget of R408 906 per year is allocated for spare parts, consumables and maintenance of the machinery. 4.5.6 Quality management

To ensure the quality of products produced within the AP facilities, quality management systems will be developed. Table 9 shows the relevant quality management systems applicable to the AP facilities and its operations.

Table 9: 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


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Management system

Purpose Regulation compliance

ISO 18001 A Health and safety Management System (OHS)

OHS Act

4.6 Supply chain management The AP opportunities will source raw materials from local farmers in the three local municipalities. These raw materials will be collected by the AP’s vehicles. About ten trucks and two bakkies will be used for the collection of raw materials and delivery of finished products. Suppliers and customers will also be allowed to collect or deliver goods.


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5 HUMAN RESOURCES AND GOVERNANCE The success of the AP will rely on the skills and determination of its human capital. In determining the human resource requirements, specific attention was paid to the technical and business management expertise that will be required. This section sets out details relating to human resource and governance, More information on human resource and governance could be found in APPENDIX B - attached to this document. 5.1 Key management personnel The general manager of the AP will be responsible for overall management of the AP, and he/she will report to the board of directors. The other managers who include financial manager, facilities manager will assist the general manager with the day to day running of the AH and FPSUs. 5.2 Industry role players Industry role players in ADM include, emerging and commercial farmers in the district, equipment suppliers, industry bodies, traders, wholesalers and retailers, traditional leaders, municipalities and government. Table 10 shows a list of some of the industry role players.

Table 10: Industry role players

Stakeholder Role

Food and Agriculture Organisation of the United Nations (UN)

UN organisation with a mandate to achieve food security for all

DAFF Grant funding; technical support; and guidelines and support regarding business establishment

Agri SA Commodity Chamber Federation of agricultural organisations

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

National Agricultural Marketing Council Provides strategic advice to DAFF with respect to the marketing of agricultural products.

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

Farmers Producers of commodities


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5.3 Supporting professional advisors and services The services of the following professional advisors will be sourced:

Agricultural Research Council (ARC) provides training, accreditation and advisory services on agro-processing, agricultural engineering collective agricultural innovations and disease and pest management.

Cedara College of Agriculture is an agricultural college and research station near Howick, Kwa-Zulu-Natal. It offers certificates, diploma and vocational training in Agriculture and has a fully equipped laboratory for crop and animal related research.

South African Grain Laboratory vision is to be recognised as the market leader in grain analysis and related services in Southern Africa.

Howick Veterinary Clinic provides vaccination, parasite control, reproductive performance and animal health as they are essential components of a profitable livestock production system.


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5.4 Human resource requirements Table 11 shows the 24 staff complement of the AP with their roles.

Table 11: Agri-Park human resources

Role Description Quantity

Annual salary rate (R)

Total (R)

Agri-Park general manager

Manages the entire AP on behalf of the Board of owners

1 620 000 620 000

Financial manager Manages the financial affairs of the AP

1 540 000 540 000

Risk and legal manager

Manages the legal issues and acts as company secretary for the AP Board

1 360 000 360 000

Facilities manager Each facility will be managed by a facility manager

4 420 000 1 680 000

Skills development and extension services officers

Facilitate access to services and training for the local farming community

4 280 000 1 120 000

Technicians Maintenance of agri-park equipment

2 196 000 392 000

Food technologist Ensure food safety across within the hub

1 360 000 360 000

PR and Marketing Responsible for agri-park publicity and marketing of services and products

1 360 000 360 000

Receptionist Frontline assistant 1 102 000 102 000

Driver Drivers for the agri-park vehicles 4 102 000 408 000

Cleaners Clean agri-hub and FPSUs 4 48 000 192 000

Total 24 6 134 000

The total labour cost for Year 1 is estimated at R6 134 000. 5.5 Governance Figure 7 shows the suggested governance structure of the AP. The AP will operate as a (Pty) Ltd which reports to the board of directors. In addition the DAMC will provide advisory services.


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Figure 7: Governance

DAMC to advise the board of directors of the company on technical, financial and market related issues. DAMC will comprise of representatives from the DRDLR and KZN-DARD. 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)

Shareholders: 30% commercial

70% emerging

Board of directors

Agri-Park (Pty) Ltd.

DAMC (advisory capacity): DRDLR

WARD (women in agriculture and rural development)

YARD (Youth in agriculture and rural development)

Traditional councils representatives


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6 RISK MANAGEMENT The potential risks that have been identified for the Agri-Park and ways to mitigate these are listed in Table 12:

Table 12: Risks and mitigation

Potential risks Likelihood Impact Overall

risk rating

Mitigation

1. Improper handling of equipment by operators

Medium Low Low Recruit employees with technical knowledge

Continuous training to transfer skills and knowledge

2. Major breakdown of equipment

Low High High Service equipment at given intervals

3. Inability to attract suitably qualified personnel

Medium Medium Medium Offer remuneration in line with industry trends

Comply with all applicable labour legislation

4. Disruption to utility supply

High High High Acquire a generator for back-up and a water borehole

5. Extreme climatic conditions (e.g. drought)

High High High Increase network of suppliers

6. Labour unrest Medium Low Low Build healthy relationships with employees and have a satisfactied work force

7. Crime (potential theft and robbery) and vandalism

Medium Medium Medium Provide security

8. Inferior equipment

Low Low Low Procure equipment from reputable companies

9. Competition with established operations

Medium Medium Medium Vigorous marketing strategy

10. Unwillingness of commercial farmers for mentoring emerging farmers

Medium High Medium Proper arrangement should be made with commercial farmers

Provision of incentive for their support

11. Lack of implementation capacity

Low High High Implementation should be done by reputable entity with track record


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7 FINANCIAL PLAN AND ECONOMICS OF THE BUSINESS The results from the market and technical assessments were used to model the finances of the proposed Amajuba Agri-Park. The financial model projects the financial statements and also gives an indication of financial viability of the proposed business. Several assumptions were made. 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 will be located on state-owned land.

Supplier accounts are payable in 30 days, and customer payment will only be received after 60 days.

The AP will rent out space and machinery to the following enterprises as a revenue stream:

Maize processing and storage facility

Abattoir facility

Vegetable packing facility.

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):

Processed maize products – 22 000 tons

Maize silo – 60 000 tons

Feedlot cattle – 24 000 cattle

Beef carcasses – 6 000 tons

Cattle hides – 648 tons

Packaged vegetables – 2 000 tons

Transportation services – 13 811 200 km.

It is assumed the agri-park will receive 7.5% of the revenue generated by the respective business revenue for its agri-park services.

It also needs to be emphasised that the amounts used are preliminary estimates based on high level analysis with accuracy estimated at ±20%. More details on the financials are included in APPENDIX C - and Error! Reference source not found. attached to this document. 7.1 Costs For any operation there are three types of cost that need to be taken into account, namely investment costs, direct and indirect operation costs. Investment costs are usually once-off costs incurred during the production facility setup or establishment phase for capital expenditure, pre-production expenses and working capital. Both direct and indirect operation costs are incurred only once production starts. However, direct costs will not be incurred in this case since the business of the AP will be mainly


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provision of services. Only indirect operation costs will be incurred. This is costs incurred irrespective of the amount of services delivered (e.g. salaries). 7.1.1 Investment costs

An estimated total investment of R129 238 237 funding will be required for the establishment of the Amajuba District Municipality Agri-park. The initial investment will include the following (amongst others):

Civil works, structures and buildings

Connection & regulatory compliance

Production equipment and machinery

The development of IMS ( ISO 9001, ISO 22 000, ISO 14001 and ISO 18001)

Incorporated fixed assets such as office equipment, forklifts and trucks

Staff training

Working capital for year 1 7.1.2 Indirect operation costs

The total indirect costs for the first year of production is estimated at R21 416 571. These costs will escalate annually by 7%. The contribution by the respective cost items is depicted in Figure 8.

Figure 8: Indirect costs

The largest component of the indirect costs is labour at 31%, followed by depreciation and fuel at 29% and 27% respectively. 7.2 Predicted five year financial statements

27%

2% 31%

1%

1%

9%

29%

0.18%

Utilities

Spare parts consumed

Labour

Labour overhead costs(taxes etc.)

Factory overhead costs

Administrative overheadcosts

Depreciation

Marketing overhead costs


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Based on the cost and sales assumptions projected, 10 year income statements, balance sheets and cash flow forecasts were prepared, as shown in Error! Reference source not found.Table 13, Table 14 and Table 15, respectively.

Table 13: Income statement

Year 1 Year 2 Year 3 Year 4 Year 5 Year 10

Sales revenue 12 870 123 13 771 032 14 735 004 31 514 584 33 720 605 94 617 071

VARIABLE MARGIN 12 870 123 13 771 032 14 735 004 31 514 584 33 720 605 94 617 071

Less fixed costs 21 416 571 22 429 839 23 559 831 24 839 597 26 080 894 34 473 143

Material 6 282 426 6 722 196 7 192 749 7 696 242 8 234 979 11 549 984

Personnel 6 694 648 7 163 273 7 664 702 8 201 231 8 775 317 12 307 837

Marketing (except personnel)

38 520 41 216 44 102 47 189 50 492 70 817

Depreciation 6 287 090 6 287 090 6 287 090 6 305 332 6 305 332 6 736 895

Other fixed costs 2 113 888 2 216 064 2 371 188 2 589 603 2 714 774 3 807 610

GROSS PROFIT (8 546 448) (8 658 807) (8 824 827) 6 674 987 7 639 712 60 143 928

TAXABLE PROFIT - - - 6 674 987 7 639 712 60 143 928

Income (corporate) tax

- - - 1 868 996 2 139 119 16 840 300

NET PROFIT (8 546 448) (8 658 807) (8 824 827) 4 805 991 5 500 592 43 303 628

The projected income statement shows that sales revenue will grow from R12.87 million in Year 1 to R94.62 million in Year 10. It is expected that the AP will make losses during the first three years. It will become profitable from the fourth year of operation onwards.

Table 14: Balance sheet

Establishment Year 1 Year 2 Year 7 Year 10

TOTAL ASSETS 119 000 000 129 722 953 129 768 188 164 513 841 275 661 530

Total current assets 461 763 8 925 358 6 598 876 73 734 439 214 362 414

Inventory on materials & supplies

- 17 451 18 673 26 190 32 083

Work in progress - 36 794 39 243 55 218 67 426

Finished product - 293 435 313 085 440 367 537 939

Accounts receivable - 2 521 580 2 690 458 3 784 212 4 622 708

Cash-in-hand - 171 277 182 376 257 041 313 356

Cash surplus, finance available

461 763 5 884 820 3 355 041 69 171 411 208 788 901

Total fixed assets, net of depreciation

118 538 237 112 251 147 105 964 057 80 984 401 61 299 117

Fixed investments - 118 119 557 118 119 557 125 434 345 125 881 427

Construction in progress

118 119 557 - - - 23 566

Total pre-production expenditures

418 680 418 680 418 680 418 680 418 680

Less accumulated depreciation

- 6 287 090 12 574 180 44 868 624 65 024 557

Accumulated losses brought forward

- - 8 546 448 9 795 001 -

Loss in current year - 8 546 448 8 658 807 - -

TOTAL LIABILITIES 119 000 000 129 722 953 129 768 188 164 513 841 275 661 530

Total current liabilities - 722 953 768 188 1 082 776 1 319 889

Accounts payable - 722 953 768 188 1 082 776 1 319 889


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Total equity capital 119 000 000 129 000 000 129 000 000 129 000 000 129 000 000

Reserves, retained profit brought forward

- - - - 102 038 013

Retained profit - - - 34 431 065 43 303 628

Net worth 119 000 000 120 453 552 111 794 745 153 636 064 274 341 641

The projected balance sheet shows that the AP’s net worth grows from R120.45 million in the first year of operation to R274.34 million in the tenth year. This indicates that the AP will be able to increase the value of the funding invested.

Table 15: Cash flow statement

Establishment Year 1 Year 2 Year 7 Year 10

TOTAL CASH INFLOW 119 000 000 23 593 076 13 816 266 77 311 553 94 703 419

Inflow funds 119 000 000 10 722 953 45 234 75 838 86 348

Total equity capital 119 000 000 10 000 000 - - -

Total short-term finance - 722 953 45 234 75 838 86 348

Inflow operation - 12 870 123 13 771 032 77 235 714 94 617 071

Sales revenue - 12 870 123 13 771 032 77 235 714 94 617 071

TOTAL CASH OUTFLOW 118 538 237 18 170 019 16 346 046 36 406 152 44 964 737

Increase in fixed assets 118 538 237 - - - 23 566

Fixed investments 118 119 557 - - - 23 566

Pre-production expenditures (net of interest)

418 680 - - -- -

Increase in current assets - 3 040 538 203 297 311 022 364 622

Operating costs - 15 090 961 16 101 532 22 647 463 27 665 430

Marketing costs - 38 520 41 216 57 808 70 817

Income (corporate) tax - - - 13 389 859 16 840 300

SURPLUS (DEFICIT) 461 763 5 423 057 -2 529 780 40 905 400 49 738 683

CUMULATIVE CASH BALANCE

461 763 5 884 820 3 355 041 69 171 411 208 788 901

The projected cash flow statement shows a positive cumulative cash balance from the start and throughout the ten year period. This is an indication that the AP will be able to pay its short-term debts. If the required funding (R129.2 million) could be secured for the first two years (including establishment year), 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. It will be the responsibility of the AP (or the implementing agent) to motivate (on an annual basis) to the applicable government departments the amount of funding required for the continued operation of the business. 7.3 Financial analysis 7.3.1 Financial ratios


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If a discount rate of 7% is used:

The net present value (NPV) is R27 024 690

The internal rate of return (IRR) is 9.45%

The payback period is 9.4 years

Because the NPV is positive and the IRR is greater than the discount rate, this indicates an expected positive return for the proposed AP.

7.3.2 Financial conclusion

Therefore, based on the assumptions for the financial model the business could be viable if:

A discount rate of 7% is used

The agri-park can secure 7.5% of business opportunity revenue as AP revenue

Production volumes are phased at 25% of total production capacity for the first three years, 50% for year four to six and 100% from year seven on

Funding for the amount of R129.2 million is secured prior to establishment 7.3.3 Sensitivity analysis

A sensitivity analysis was conducted on selected variables of the financial model, to determine how changes in the sales and labour costs would have on financial viability of the enterprise. Table 16 shows the sensitivity analysis with respect to revenue collection fluctuations.

Table 16: Sensitivity analysis – reduction in revenue from AP enterprises

Original model 10% reduction in sales 20% reduction in sales

NPV R27 042 690 R4 388 727 -R18 265 234

IRR 9.54% 7.43% 5.17%

Payback period 9.4 years 12.7 years 11.8 years

From the results in Table 16, it can be seen that a 10% reduction in revenue from the enterprises will cause the AP to be only marginally viable. A 20% reduction will render it completely unsustainable. Table 17 shows the sensitivity analysis with respect to labour changes.

Table 17: Sensitivity analysis – labour costs

Original model 5% increase 10% increase 15% Increase

NPV R27 042 690 R24 489 642 R21 936 595 R19 383 549

IRR 9.54% 9.30% 9.06% 8.82%

Payback period 9.4 years 9.42 years 9.48 years 9.55 years

Increasing labour costs by as much as 15% will not have a significant impact on the AP’s financial viability, because the NPV remains positive and the IRR remains above the discount rate of 7%. 7.4 Economic benefits of the business


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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 operate and management the AP, approximately 24 direct job opportunities would be created. The job opportunities would include the following:

Qualified staff: 15; and

Grade 12 or low level jobs: 9;

In addition, the following 132 jobs, indicated in Table 18, will be created from businesses which will utilise services of the agri-park.

Table 18: Estimated jobs from business

Business Jobs

Maize milling 6

Silo 35

Cattle feedlot 60

Beef carcass 5

Hides 14

Vegetable packing house 8

Transportation 4

TOTAL 132

These jobs could be filled from the Amajuba District Municipality population.


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APPENDIX A - MARKET ANALYSIS


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A.1. INTRODUCTION A situational analysis was conducted in the Amajuba District Municipality (ADM), in support of the preparation of a business case for an agri-park (AP) in the district, as part of the Department of Rural Development and Land Reform (DRDLR) initiative. The commodities that were selected for the purpose of assessing the viability of value addition are maize, beef and vegetables. 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.


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A.2. VALUE CHAIN TYPICAL PRODUCTS The typical final or intermediate products and services from the selected value chains are listed in Table 19.

Table 19: Typical products

Maize Cattle Vegetables

Maize Meal

Samp

Animal Feed

Starch Paste

Beef Meat

Cow skin (Leather)

Household items

Cabbage

Tomatoes

Potatoes

Spinach

Beans

Sweet potatoes

However, only the following products were considered for market analysis towards preliminary opportunity identification:

Maize meal In the KwaZulu-Natal (KZN) province, for every R100 spent on food, households spend R33 on grain-based products such as maize meal, wheat and rice (StatsSA, 2016). Maize is the most important grain crop in South Africa (SA) as it is the staple food for the majority of the South African population (DAFF, 2013). For the year 2013/14 the country’s human consumption for maize was estimated at 4.5 million tons and the per capita consumption was 86 kg. ADM has a population of approximately 500 000 and the estimated consumption for the district is 43 000 tons. Emerging farmers in the district produce maize but the availability of markets for their produce at market related prices is a concern for them. Milling is seen as a secondary process that would assist farmers with access to markets and contribute towards food security. The farmers have shown interest in participating in the whole value chain of the maize commodity. Currently there are two privately owned mills, both of which are situated in Newcastle and the proposed mill will be located in the agri-park in Dannhauser.

Beef SA is not self-sufficient in the supply and demand of beef because its consumption was higher than its production from 2003 to 2013. The production of beef increased by 4% from 2011/12 to 2012/13. The consumption increased by 38% from 643 000 tons to 892 000 tons between 2003/04 and 2012/13 (DAFF, 2014). During 2009/10, beef production and consumption in SA experienced some increases as the global economic crisis started to ease and the country hosted the FIFA world cup. An opportunity exists to add value to beef by establishing a beef abattoir, which would process beef in ADM.

Vegetables The situational analysis established that 21 508 households are involved in some form of vegetable farming. According to Modi (2015), common vegetables planted in KZN include cabbage, spinach (Swiss chard), beans, sweet potatoes and potatoes. Modi established that most of the vegetables produced by smallholder farmers were used for home consumption. His findings established that about 65% of cabbage, 78% of Swiss chard,


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95% of beans, 85% of sweet potatoes and 80% of potatoes were used for home consumption. The KZN Department of Agriculture and Rural Development (KZN-DARD) has developed a plan to improve vegetable production in ADM. Vegetable projects have been established in the three local municipalities. Table 20 shows a summary for potential vegetable production for selected vegetables.

Table 20: Potential vegetable production

Local municipality

Number of

projects Total ha

Current ha under irrigation

Cabbages Tons

Tomatoes Tons

Potatoes Tons

Lettuce Tons

Emadlangeni 10 566 332 6 269 39 5 451 4

Dannhauser 24 65 35 784 104 683 35

Newcastle 41 95 91 4 049 65 383 35

TOTAL 75 726 458 11 102 208 6 517 74

Potatoes and cabbages have the highest production potential in ADM. The Abstract of Agricultural Statistics (2015) that is generated by the Department of Agriculture, Forestry and Fisheries (DAFF) ranks cabbage as the third most important vegetable sold through the Fresh Produce Markets (FPMs) in terms of quantities. Potatoes and tomatoes are ranked respectively first and second. Cabbages, tomatoes and potatoes were selected as the first three vegetables that the agri-park could focus on, because of the high production potential within ADM and because these are regarded as very important for food security. Other vegetables will be added at a later stage.


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A.3. MARKET ANALYSIS Market analysis for each of the specific products was carried out. A.3.1. Maize A.3.1.1. Industry overview

Maize is the most important grain crop in SA as the staple food for the majority of the population and the major feed grain for beef, sheep, poultry and egg production. Of the total maize produced in the country 60% is white and 40% is yellow maize (DAFF, 2014). White maize is used for human consumption whereas yellow maize is a common inclusion in animal feed. The maize industry is important to the economy of the country, both as an employer and earner of foreign currency through the export of maize and maize products. It is divided into commercial and developing agriculture and commercial farmers are estimated at 9 000 whereas the number of the emerging farmers is not known (DAFF, 2014). The production of maize per province in SA is shown in Figure 9.

Figure 9: Maize production per province

(DAFF, 2014)

The graph compares production by provinces for the period 2007/8 to 2012/13. The KZN province produced low volumes of maize compared to the top three provinces (Free State, Mpumalanga and North West). However, there was a slight improvement on 2011/12 and 2012/13. This study focuses on white maize for further processing into maize meal for human consumption. Farmers harvest maize and the maize is transported to silos for bulk storage. In SA, there are thirteen silo owners with a storage capacity of 15 million tons. Silos keep the maize for the farmers and own some of the stock. Traders or agents market and sell maize to the domestic and export markets. Millers are the main buyers of the maize crop, purchasing maize from farmers or silos. They also have the option of importing maize instead of buying locally produced maize. The maize kernel is processed by two industries namely wet and dry milling. During the dry milling process the maize

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kernels are refined and products such as maize meal (unsifted, sifted, coarse, super and special), samp, grits and hominy chop are produced (DAFF, 2014). Figure 10 indicates that maize meal, at 66%, is produced on a large scale as opposed to other manufactured products.

Figure 10: White maize products (tons)

(SAGIS, 2016)

Four silos are located in ADM and all of them are owned by private companies. The two silos in Newcastle Local Municipality (NLM) are owned by Ingogo and LS group while the other two, situated in Emadlangeni Local Municipality (ELM) and Dannhauser Local Municipality (DLM), are owned by Afgri. There are two privately owned mills in the district. Ingogo Mills is a maize milling plant located halfway between Newcastle and Volksrust, with a capacity to mill 40 000 tons annually. Ingogo Mills produce ‘Sutha Super’ maize meal. Newcastle Mills is located in the central business district in Newcastle and produces Inguni maize meal. A.3.1.2. Market trends

The gross value market trend in maize production follows the pattern of prices and production, since volatile prices characterise the industry. The commercial producers in this deregulated market decide whether to source raw material from the domestic or foreign market. This decision is influenced by factors such as the exchange rate, price, transport costs and quality. The same factors apply when selling their products (DAFF, 2014). The domestic prices of maize fluctuate within a band that is determined by world prices, the exchange rate, domestic stock levels and local maize production. Significant variations occur in production due to the unpredictable weather conditions in the country. Figure 11 shows the average producer prices of maize from 2008/09 to 2012/13.

Maize Chop 30%

Maize Rice 0%

Maize Grits 1%

Samp 3%

Maize meal 66%

Jul 2015 - Jan 2016

Maize Chop

Maize Rice

Maize Grits

Samp

Maize meal


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Figure 11: Maize average producer prices

(DAFF, 2013)

These figures increased marginally by 0.3% from R1 970 per ton in 2011/12 to R1 975 per ton in 2012/13. The highest cost contributor in the production of maize meal is the input material, namely maize. Smaller millers are vulnerable to changes in maize prices. The fluctuation of maize meal prices is also directly linked to the increase of utility costs and the maize price. Table 21 shows prices of maize meal per kilogram over a period of three years.

Table 21: Maize product prices

Maize meal kg Jan 2014 Jan 2015 Jan 2016

1 kg Super maize meal R 8.06 R 8.06 R 9.64

2.5 kg Super maize meal R 17.15 R 17.64 R 21.54

5 kg Super maize meal R 31.68 R 33.72 R 38.88

10 kg Super maize meal R 55.36 R 62.49 Not available

1 kg Special maize meal R 7.31 R 5.53 R 7.37

2.5 kg Special maize meal R 15.42 R 13 43 R 16.39 (StatsSA, 2016)

Figure 12 shows the total commercial maize produced over the period of eleven years and quantities used for human consumption and animal feed.

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Figure 12: Maize commercial production and consumption

(DAFF, 2014)

The estimated maize for human consumption for the country during 2013/14 is 4.5 million tons. ADM could target a market share of 0.5% which translates to 22 500 tons. About 50% could be super maize meal and 20% special maize meal. An estimated 30% hominy chop will be a by-product. Table 22 shows the products and quantities that could be produced.

Table 22: Maize meal products

Product Quantity (tons)

Super maize meal 11 025

Special maize meal 4 725

Hominy chop (by-product) 6 750

In the supply and demand scenarios for SA’s maize market for the 2016/17 marketing year, estimated yields per hectare for white maize vary between 2.95 tons as the worst scenario and 4.25 tons as the best scenario. Based on this information the land required is estimated from 5 294 hectares for the best scenario to 7 627 hectares for the worst scenario (SAGIS, 2016). A.3.1.3. Trade balance

Maize production declined from 14.2 million tons in 2013/14 to just less than 10 million tons in 2014/15, which is for the first time in seven years due to the drought that has affected production negatively. There is a view that SA will import an estimated seventy thousand tons of white maize in the later part of 2015 from Mexico and Zambia (Fin24, 2015). Figure 13 shows that from April 2013 to April 2014, the producers supplied most of their white maize to local processors and exported low quantities. No imports were recorded.

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Figure 13: White maize exports and imports (tons)

(SAGL, 2014)

Figure 14 gives an estimate of the volumes of maize that were exported and imported from SA over a ten-year period. Indications are that from 2008 until 2013 the country was a net exporter of maize.

Figure 14: Maize exports and imports (tons)

(DAFF, 2014)

Figure 15 shows the leading market destinations that SA exported white maize to in the year 2013/ 2014.

Supply Exported Processed Imported

Series1 5 342 204 1 008 923 4 808 674 0

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Figure 15: White maize export destinations

(SAGL, 2014)

Figure 16 indicates that between the July 2015 and January 2016, the volumes exported for special maize meal were 15 000 tons, 5 000 tons for super maize meal and 25 000 tons for other maize product intended for human consumption.

Figure 16: Maize product exports and imports

(SAGIS, 2016)

This shows that it is mostly special maize meal that is exported from the dry milling product range of products whereas low quantities were imported over the same period. For instance less than 4 000 tons of special maize meal and just over 4 000 tons of other maize products intended for human consumption were imported. The positive trade balance of maize suggests that SA has a capability to produce maize that is even exported to other countries. This capability could serve as an advantage to increase production and thus exports. ADM could also take advantage of this opportunity and increase the production of maize through interventions by the proposed agri-park.

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A.3.1.4. Competition

There is a high level of competition within the industry and various factors that contribute to the high rate of competition, one of which is that the milling industry produces standardised products at a market related price. A large market share is controlled by a few companies, namely Pioneer foods, Premier foods, Tiger brands and AFGRI. The market also has a number of medium and small players (DAFF, 2014). In ADM there are two mills, namely Ingogo and Newcastle mills. They both have established brands in the local market. The few role players who command a huge market share sometimes use price to compete, as they are able to negotiate maize prices because they purchase stock in large quantities and this becomes a barrier to entry. A.3.2. Beef A.3.2.1. Industry overview

The red meat industry has evolved from a highly regulated environment to one that is totally deregulated today. Various policies, such as the distinction between controlled and uncontrolled areas, compulsory levies payable by producers, and restrictions on the establishment of abattoirs characterised the red meat industry before deregulation commenced in the early 1990s. The compulsory auctioning of carcasses according to grade and mass in controlled areas, the supply control via permits and quotas, the setting of floor prices, removal schemes, and so forth also affected the red meat industry before deregulation commenced in the early 1990s. Since the deregulation of the agricultural marketing dispensation in 1997, the prices in the red meat industry are determined by demand and supply forces (DAFF, 2014). The beef industry produced around 855 000 tons of meat in 2013. During the same period, around 4 400 tons of beef were imported while around 8 000 tons were exported (DAFF, 2014). Per capita consumption of beef is around 16.60 kg and the number of consumers is around 54.96 million (StatsSA, 2015). Figure 17 illustrates cattle slaughtered per province during 2013.


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Figure 17: Beef slaughtering per province (2013)

Adapted from (DAFF, 2014)

Beef is produced throughout SA. The amount of beef produced depends on infrastructure such as feedlots and abattoirs, not necessarily by the number of cattle available in those areas. The country has highly developed transport infrastructure that allows the movement of cattle and calves from one area to another, even from other countries such as Namibia. Mpumalanga commands the greatest share of beef production in SA accounting for 22% of the beef produced in 2013 followed by the Free State, Gauteng, KZN and North West accounting for 20%, 14%, 11% and 8% respectively (DAFF, 2014). The current situation at ADM is that farmers breed and develop the cattle for feedlots, and the feedlots sell to either auctions or abattoirs that then sell the meat or process it. The final product goes to retailers and consumers. According to StatsSA (2011), 2 345 households were involved in cattle farming activities at ADM in 2015 and owned an estimated 174 768 cattle. A.3.2.2. Market trends

Figure 18 shows the local consumption of beef comparing it to the total production for each year which determines if the country is self-sufficient in terms of beef production.

Western Cape, 6%

Free State, 20%

Gauteng, 14%

Eastern Cape, 6% Kwazulu Natal,

11%

Mpumalanga, 22%

Northern Cape, 8%

North West, 8%

Limpopo, 5%


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Figure 18: Beef production vs consumption

Adapted from (DAFF, 2014)

SA is not self-sufficient because beef consumption was higher than beef production throughout the 2002/03 to 2012/13 period. This makes the country a net importer of beef to satisfy the local demand. Both production and consumption followed the same trend, namely increasing from 2003/04 to 2006/07 and then decreasing during 2007/08. The decline during 2007/08 to 2008/09 was due to the global economic crisis, which led to a decreased in disposable income of a large number of consumers. During 2009/10, beef production and consumption experienced some increases due to the global economic crisis starting to ease, as well as the FIFA world cup, which was hosted in SA. The production and consumption of beef increased by 4% each during 2012/13 compared to 2011/12. There was an increase of 38% in consumption during 2012/13 compared to 2003/04 (DAFF, 2014). The average producer prices of beef from 2002/03 to 2012/13 are illustrated in Figure 19.

Figure 19: Beef average producer prices

Adapted from: (DAFF, 2014)

The prices of beef increased significantly from 2003/04 to 2012/13 mainly due to increased consumption caused by rising living standards of a larger number of consumers and low

2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13

Production 574 610 632 672 770 831 728 764 822 823 855

Consumption 602 643 675 723 810 849 744 767 866 859 892

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domestic production in other years. There was an increase of R15.54 per kilogram in 2012/13 compared to 2003/04. The market players in the beef industry are vertically integrated, meaning that they have their own feedlots, abattoirs, processors and distributors (DAFF, 2014). According to StatsSA (2011), the ADM population was estimated at 500 000 and the national consumption of beef per capita is 16.60 kg (DAFF, 2014). That gives an estimated consumption of 8 297 tons of beef at district level per year. The number of cattle owned by emerging farmers at district level was estimated to be 174 768 during 2015. Figure 20 illustrates a comparison between cattle herds, abattoirs and slaughters per province during 2013.

Figure 20: Cattle herds, abattoirs and slaughters

Adopted from: (DAFF, 2014)

SA is unable to meet its beef consumption demand despite the number of cattle slaughtered having increased considerably from 2002/03 to 2012/13. For the period under review, the country had to import 350 300 tons of beef to satisfy the local market. The imported beef is viewed as a potential market in which the agri-park can capture its share. The estimated market share is assumed at 1% of the imported beef which amounts to 3 503 tons. One cattle weighs an average of 250 kg, which means the agri-park will need to slaughter a total of 14 012 cattle to produce the targeted 3 503 000 kilograms of beef per annum (DAFF, 2014) The market size, market share and sales forecast are shown in Table 23.

Table 23: Beef market share and sales forecast

Market size available (imported meat) 350 300 tons

Estimated Market Share at 1% 3 503 tons

Beef cattle per annum (at 250 kg average weight per carcass) 14 012

A.3.2.3. Trade balance

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Figure 21 compares volumes of imports and exports for beef in SA from 2004 to 2013.

Figure 21: Beef exports and imports


SA’s imports of beef were higher than its exports from 2004 to 2012. This makes the country a net importer of beef during the period of 2004 and 2012 mainly due to the demand which is higher than the supply. SA exported more beef in 2013 than the previous years. There was a significant increase of 86% in the export quantity and a decrease of 36% in the import quantity from 2012 to 2013. The increase in exports might be due to the unbanning of South African bovine animals and its products. SA exported 8 million kilograms and imported 4.4 million kilograms of beef in 2013. It could also be attributed to the global economic crisis which pushed consumers to switch to low priced protein content meats like chicken meat. The beef export quantities started very high in 2004 and decreased substantially in 2005, and then started fluctuating at a decreasing trend from 2005 to 2012. The import quantity reached its lowest level in 2013 whereas exports reached their lowest level in 2005. During 2013, there was a negative trade balance of 3.6 million kilograms in the trade of beef. Values of beef exports from the various provinces of SA are presented in Figure 22.

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Export 7 2 3 3 4 5 4 4 4 8

Import 16 20 19 17 7 10 6 11 7 4

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Figure 22: Beef exports by province


Gauteng recorded high export values of beef between 2004 and 2010, 2012 and again in 2013. This is mainly because most exporters of beef are situated in Gauteng, which is the main exit point, and the greatest proportion of beef was exported to neighbouring countries. Mpumalanga commanded the greatest values during 2011 and the second highest during 2004, 2010 and in 2013 while Western Cape was the second highest from 2005 to 2009. KZN was one of the provinces that exported the lowest values of beef between 2003 and 2013. A.3.2.4. Competition

More than 200 000 cattle are slaughtered at the Sparta Beef Plant every year. This facility has the capacity to produce 400 tons of Sparta Beef products daily. It is centrally located in Welkom in the Free State, ensuring ease of delivery across SA. At this facility, great care is taken to produce safe, hygienic and great tasting meat products. The Sparta Beef Pant is Food Safety System Certification (FSSC) 22000 accredited (Bidvest food, 2015). The Karan abattoir is used for the slaughter of cattle at the Heidelberg farm with a capacity to process up to 2 000 head of cattle every day. It is capable of producing 22 tons of meat products per shift. The abattoir also manufactures and packs a range of value added products including marinated, pickled, par-cooked products and hamburger patties. These products are sold nationally to the food services market in a variety of pack sizes and to the retail market, under their own house brands or under the Karan Beef brand. The Karan Beef plant is located Balfour (Karan, 2016). At ADM, Triple C Abattoir slaughters 100 cattle per day and is in the process of increasing its capacity to 200 cattle per day (KZN-DARD, 2016). The large competitors such as Chalmar and Beefcor produced a total of 633 941 tons of beef in 2011/2012, while other smaller competitors produced about 189 359 tons. Most of the large abattoirs are located in Gauteng. However, Mpumalanga, the Free State and North West also have large abattoirs.

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The large competitors would most likely decrease their prices in response to significant new entrants. The following are some of the competitive advantages of these competitors (ECD: CSIR, 2015):

Vertical integration enables competitors to produce beef at low costs

Long term contracts with famers allow more effective negotiation of costs

Financial stability enables them to sustain production inputs (such as grain and nutritional supplements), which plays a significant role in the feedlot finishing of cattle.

A.3.3. Cabbages A.3.3.1. Industry overview

The distribution of fresh produce to the markets follows several routes. The FPMs are one of those routes. There are 18 national FPMs in SA and two of those, Durban and Pietermaritzburg, are based in KZN (NAMC, 2006). Other distribution channels include supermarkets and informal traders. According to interviews conducted with the ADM Department of Agriculture officials, smallholder vegetable farmers at ADM produced in excess of 11 102 tons of cabbage during 2015. A.3.3.2. Market trends

The national consumption of cabbage has consistently been slightly less than production. An estimated 100 000 tons of cabbages were sold through the national FPMs (DAFF, 2014). Figure 23 shows estimates of cabbages that were produced in SA from 2004 to 2013. The figure also shows an estimate of the cabbages consumed and those that were sold through FPMs.

Figure 23: Cabbage production, consumption and sales through FPMs



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From 2004 to 2013, the production of cabbages decreased from about 172 000 tons to approximately 140 000 tons per year (DAFF, 2014). During 2014, 145 000 tons of cabbages were produced. The decline in production is attributed to increasing high production input costs and unfavourable climatic conditions. More than 70% of the cabbages produced in SA are consumed locally (DAFF, 2014). This statement is in agreement with Modi’s (2015) findings that estimated that 65% of cabbages in KZN was utilised for home consumption. A significant amount of cabbages is distributed though the FPMs. Figure 24 indicates that the average price of cabbage has been fluctuating year on year.

Figure 24: Cabbage pricing Adapted from: (DAFF, 2014)

During 2008 and 2011, the price decreased from the previous year’s selling price. However, overall it has increased from R550 per ton during 2004 to R2 100 per ton during 2013. The national cabbage consumption is estimated at 114 461 tons per annum (DAFF, 2014). With the national population size estimated at 54.96 million in 2015 (StatsSA, 2015), the estimated annual average per capita consumption is 2.62 kilograms. The census 2011 estimated ADMs population size at 500 000. Therefore taking into consideration the population size and the per capita consumption, the local (ADM) market size of cabbage could be estimated at 1 311 tons. According to information from KZN-DARD, smallholder farmers within the district have the potential to produce 11 102 tons of cabbage per annum. Modi (2015) established that smallholder farmers in KZN use about 65% of the produce for household consumption. This will make 3 886 tons per annum available to the markets. This amount translates to an estimated 3% of the national market share.

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A.3.3.3. Trade balance

Figure 25 shows an estimate of the volumes of cabbages that were exported and imported between 2004 and 2013. On average 802 tons were exported and only 9.9 tons were imported.

Figure 25: Cabbage imports and exports (volumes)


Figure 26 depicts the values of cabbages that were exported and imported during 2004 to 2013.

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Figure 26: Cabbage exports and imports (Rands) Adapted from (DAFF, 2014)

Over a ten year period, SA exported about R43.3 million and imported about R1.2 million worth of cabbages. During 2013, there was a positive trade balance of R2.82 million in the trade of cabbages. This indicates that SA is self-sufficient in terms of meeting the local demand for cabbages. A.3.4. Tomatoes A.3.4.1. Industry overview

Tomatoes are regarded as the second most important and popular crop after potatoes in SA (DAFF, 2014). Tomatoes are produced all over the country. The Limpopo province with its warm climate is best suited for the production of tomatoes. Producers in Limpopo delivers approximately 3 600 hectares’ tomatoes annually, which is about half the production in SA. The Underberg in Mpumalanga follows with 800 hectares, and the Border area in the Eastern Cape with close to 450 hectares (Tomato Producers Organisation, 2016) is produced. The country has about 200 varieties of tomatoes. Most producers prefer the varieties that have longer shelf life and are easy to grow under tunnels, as this reduces the chance of diseases (Farmers Weekly, 2012). The vegetable is cultivated commercially, by subsistence farmers and by home gardeners. It is one of the main vegetables traded by small scale entrepreneurs in the informal sector. The commercial sector produces about 95% while the emerging sector contributes only about 5%. During 2013, the production of tomatoes dropped by 5.1% compared to 2012 production levels. The decrease is attributed to unfavourable climatic conditions (DAFF, 2014). Tomatoes are distributed mainly through FPMs, exports, processing and direct marketing. Smallholder vegetable farmers at ADM produced 208 tons of tomatoes during 2015. In addition, 36 tons of tomatoes were produced hydroponically (KZN-DARD, 2016). A.3.4.2. Market trends

Figure 27 indicates that the local consumption of tomatoes is far less than the production.


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Figure 27: Tomato production, consumption and sales through FPMs


About 40% of the tomatoes are distributed through FPMs. It is estimated that the per capita consumption of tomatoes in SA is 12 kg per annum. Over the ten year period from 2004 until 2013, production output increased from about 420 000 tons to about 510 000 tons per annum. In 2013, the average fresh tomato consumption was estimated at 357 754 tons. According to Farmers Weekly (2012) , one of the main producers of tomatoes, ZZ2 in the Limpopo province, typically do not export tomatoes due to their short shelf life. If they do export, they export to countries that are close to SA. Figure 28 indicates that over a ten year period, there has been a steady increase in the price of tomatoes.

Figure 28: Tomato pricing

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Production 420000 460000 420000 410000 470000 520000 530000 500000 550000 510000

Consumption 290000 320000 310000 305000 310000 390000 400000 400000 420000 420000

Sales through FPMs 240000 257000 252000 249000 256000 251000 255000 255000 271000 267000

0

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

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The price has increased from an average of R1 700 per ton during 2004 to R5 000 per ton in 2013. According to DAFF (2014), the per capita consumption of tomatoes in SA is 12 kg per annum, compared to 32 kg in Europe. Based on the estimated population size of 500 000, the market size of ADM is approximately 6 000 tons per annum (6 000 000 kg).

According to information from KZN-DARD, smallholder farmers within the district have the potential to produce 208 tons conventionally and 36 tons hydroponically. The estimated market share under the current circumstances will be about 3.5% of the district’s market. The construction of additional tunnels could increase the market share significantly. A.3.4.3. Trade balance

Figure 29 indicates that the volumes of tomatoes exported far exceed those that were imported.

Figure 29: Tomato exports and imports (tons)


Most of the exports go to the African market. During 2013, SA imported some tomatoes from Asia and Africa (mainly Namibia). Figure 30 indicates that the tomato exports far exceed the imports in terms of rand-value.

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Exports 6000 500 7000 12000 7000 21000 20500 20000 17000 14000

Imports 54 20 35 2 10 160 85 60 10 5

0

5000

10000

15000

20000

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s

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Figure 30: Tomato exports and imports (Rands)


During 2013, exports generated R24 million and only about R5 000 was spent on imports which resulted in a large positive balance of trade. An estimated R164.4 million worth of tomatoes were exported over a ten year period, while about R1 million were imported over the same period. A.3.5. Potatoes A.3.5.1. Industry overview

Potatoes are the most important vegetable crop in SA. According to DAFF (2014), about 19% of the total potato crop is processed. There is a rapid increase in potato processing which is attributed to consumers’ need for ready to eat foods. The processing sector uses potatoes primarily for potato fries (chips), crisps and frozen products. According to Potato SA (2016), the KZN province planted 2 316 ha of the crop during 2015 and produced 5 923 tons. The Limpopo province planted 11 383 ha and produced 33 295 tons of the crop during the same period. According to the KZN-DARD (2016), smallholder vegetable farmers in ADM produced 6 516 tons of potatoes in 2015. A.3.5.2. Market trends

During 2013, potato production decreased by 3% in comparison to the 2012 production output (DAFF, 2014). Figure 31 illustrates the levels of production, consumption and sales through the FPMs.

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Exports 7000000 2000000 7500000 11000000 13000000 18000000 31000000 28000000 23000000 24000000

Imports 150000 70000 95000 0 10000 150000 170000 290000 60000 5000

0

5000000

10000000

15000000

20000000

25000000

30000000

35000000R

and

s

Years


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Figure 31: Potato production, consumption and sales through FPMs

(DAFF, 2014)

The production of potatoes exceeded consumption during the ten year period from 2004 until 2013. The main reason for the lack of growth in potato sales through FPMs has been that most of the potato producers now sell directly to the potato chips companies, processors, wholesalers and retailers. On average, only about 30% of the potatoes are sold through the FPMs. There has been a slight annual increase in production output from 1.8 million tons in 2004 to 2.25 million tons in 2013. The figures released by Potato SA indicate that during 2015, nationally 53 933 ha of potatoes were planted and 1 164 337 tons were produced. During the same period, KZN planted 3 216 ha and produced 59 228 tons of potatoes which is 5% of the national production. Figure 32 shows that even though the average yearly price of potatoes fluctuates it has increased over the ten year period from 2004 until 2013.

Figure 32: Potato pricing


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Producttion 1 800 000 1 750 000 1 850 000 1 900 000 2 050 000 1 850 000 2 100 000 2 300 000 2 400 000 2 250 000

Consumption 1 300 000 1 280 000 1 310 000 1 380 000 1 450 000 1 380 000 1 310 000 1 550 000 1 600 000 1 550 000

Sales through FPMs 890 000 860 000 950 000 930 000 930 000 840 000 910 000 1 000 000 1 040 000 1 020 000

0

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

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According to DAFF (2014), the average national potato consumption is 1 382 145 tons per annum. With the national population size estimated at 54.96 million in 2015 (StatsSA, 2015), the estimated annual average per capita consumption is 25.15 kilograms. The census 2011 estimated ADM’s population size at 500 000. As a result the local (ADM) market size (potato consumption) is estimated at 12 574 099 kilograms. According to information from KZN-DARD, smallholder farmers within the district have the potential to produce 6 517 tons of potatoes. If all the potatoes are sold to the markets, the estimated market share will be 0.5% of the national market. A.3.5.3. Trade balance

Figure 33 shows an estimate of potato exports and imports in tons over a ten year period.

Figure 33: Potato exports and imports (tons)


During 2013, SA exported about 65 000 tons of potatoes and imported about 40 tons. Figure 34 indicates an estimate of potato the export and import rand-value over a ten year period.

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Exports 28 000 18 000 28 000 31 000 29 000 26 000 40 000 47 000 64 000 65 000

Imports 0 25 120 10 320 50 25 20 25 40

0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

Ton

s

Years

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Imports 0 80 000 300 000 20 000 850 000 120 000 60 000 40 000 60 000 110 000

Exports 51 000 000 50 000 000 52 000 000 55 000 000 52 000 000 56 000 000 120 000 00 140 000 00 170 000 00 190 000 00

0

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100 000 000

150 000 000

200 000 000

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ds

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Figure 34: Potato exports and imports (Rands) (DAFF, 2014)

During 2013, SA received an estimated R185 million in potato exports and spent approximately R100 000 on potato imports. As a result, there is a positive balance of trade. A.3.5.4. Competition

The competition in the fresh produce sector is intensive. Fresh produce is sold through the FPMs, super market chains, independent fresh produce shops, informal traders and direct from the farm gate. Products are also imported from other provinces.


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A.4. PRELIMINARY OPPORTUNITIES After having considered the current local situation with respect to the products, and the potential market opportunities analysed at a high level, the following products were identified as the preliminary opportunities suitable for the proposed agri-park:

Maize storage and milling

Beef abattoir

Vegetable pack house. A.4.1. Maize storage and milling Maize milling has been selected as an opportunity because it will give access to markets to emerging farmers; provide food to the community hopefully at lower prices; and create employment for 18 people. Storage will assist emerging farmers to keep their produce and sell it at the appropriate time, and also store the raw material for the milling plant as maize is produced seasonally. A.4.1.1. Supply chain map

Figure 35 depicts the supply chain map for maize-meal.

Figure 35: Maize supply chain map

The intention is to source maize from emerging farmers and store maize produced by farmers within the farmer production support unit (FPSU) and agri park silos. In the case of under supply, maize will be sourced from the four silos located in ADM, either the two in NLM owned by Ingogo and LS Group or the two owned by AFGRI in ELM and DLM. The maize meal will be sold in several unit sizes based on kilogram weight. A.4.1.2. Industry role players

The maize industry has different role players that represent varying interests in the development and growth of the industry. Government has a special interest in this industry because maize is vital for food security. Some of the maize industry role players and their roles are indicated in Table 24.

Table 24: Maize meal industry role players

Stakeholder Role

Farmers Producers of maize

Silos Maize grading and storage

Traders / Agents Traders market and sell maize

Millers Milling companies convert maize into usable form

GrainSA Provide commodity strategic support and services to South African grain producers so that they remain sustainable

National Chamber of Milling, South African Promote and advance the interest of grain millers

Farmers Storage

silos Millers Consumers Retailers Packaging


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Stakeholder Role

Grain Laboratory, Grain Silo Industry, Maize Trust

Wholesalers; Supermarkets, Retail, Stokvels Distribution channels

Department of Health - Hospitals, Department of Correctional services – prisons, Department of Education School nutrition programmes, Department of social development - food packs

Potential markets (preferential procurement)

Sectoral Education and Training Authorities, tertiary education institutions, ARC

Supply of mechanism, skills training, research and development to improve technologies

Financial institutions, government departments

Credit, loans, incentives

DAFF, DRDLR, KZN-DARD, COGTA (Department of Cooperative Governance and Traditional Affairs), KZN EDTEA (Economic Development, Tourism and Environmental Affairs), ADM, NLM, DLM, ELM

Legislation, export and import, packaging, quality, accreditation, legal entity, municipal by-laws, occupational health and safety, water usage, environmental laws

A.4.1.3. Distribution channel

Figure 36 depicts the distribution channel for the maize meal.

Figure 36: Maize meal distribution channel

Goods can be distributed using two main types of channels. Direct distribution is when the product leaves the producer and goes directly to the consumer. Indirect distribution occurs when there are intermediaries between the producer and consumer, such as traders, wholesalers and retailers. The more intermediaries within the channel, the higher the price is likely to be for the final customer, as a result, of the value addition that occurs at each step. In the district there are wholesalers, supermarkets, retailers and potential markets, such as stokvels, and government programmes like school nutrition. Food parcels are other available markets that could be explored, as maize meal form part of the grocery items included in such parcels. Government departments responsible for hospitals and prisons could be engaged pertaining preferential procurement for the supply of maize meal. KZN is the province that benefits the most from social grants, and the food basket of beneficiaries typically includes 5 kg of maize meal (NAMC, 2015).

Maize Mill (Products:

maize meal & hominy chop)

Wholesalers

Traders

Retailers

Consumers


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There are two maize milling companies in ADM. Newcastle Mills distribute their maize meal products from their own three retail outlets located at Newcastle, Osizweni and Annville. Ingogo Mills distribute through its retail outlet and Impuphu Wholesalers, both located in Newcastle. Both existing mills are located in Newcastle, while the agri-park will be in Dannhauser. This opens up the potential to service the Dannhauser and Emadlangeni communities. The trade balance for the maize meal is positive, as exports exceed imports. This could provide an opportunity for ADM to export maize products through the Durban harbour. A.4.1.4. Risks

Table 25 shows the identified possible risks associated with establishing the maize processing facility.

Table 25: Maize storage and milling risks

Risk type Risk Likelihood Impact Overall risk rating

Mitigation

Production Maize price is subject to seasonal price fluctuations

High Medium Medium FPSU will assist emerging farmers with bulk buying of the input material, training on production to enable them to stay competitive.

Consistent electricity supply

High High High Acquire diesel generator that will allow production to continue for one entire batch on back-up power before refuelling.

Difficulty for products to penetrate the market.

High Medium Medium Develop and implement a sound marketing and promotion strategy

Labour unrest Medium Low Low Build healthy relationships with employees and have a satisfactory work force

Logistics Most of the emerging farmers have no trucks to transport maize to the milling factory

High Medium Medium Provide logistics support to farmers

Market High competition from the

High High High Establish a brand that customers will be loyal to and


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Mitigation

established millers

consistently deliver a quality product

Infrastructure Unskilled employees operating milling equipment

Medium Low Low Hire employees with technical knowledge Continuous training to transfer skills and knowledge

Weather Drought, hailstorm and less rainfall affect production of maize


Skills Lack of business skills required to operate the business

Medium Low Low Employ skilled and experienced manager Provide relevant training

Biological and environmental

Pests and diseases that affects the maize crop that will lead to poor quality

Medium High Medium Intervention in primary production

A.4.2. Beef abattoir The beef sector supports the livelihoods and food security of different nations across the world, including SA and the KZN province. Beef production is one of the opportunities identified for the agri-park, based on factors such as its contribution to the economy, food security and current shortage in supply. All beef abattoirs in the country are part of the red meat industry. This industry has evolved from a highly regulated environment before 1997 to one that is totally deregulated today. A.4.2.1. Supply chain map

The supply chain map for beef is outlined in Figure 37.

Figure 37: Beef supply chain map

Input materials (live cattle) are provided by farmers to the abattoir, where they get slaughtered, cut and processed into finished products. These products are distributed, via wholesalers and retailers, to end users for consumption. The agri-park abattoir will get its

Farmers/ Auctions Abattoirs and Processors

Retailers Consumers


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supply of live cattle from farmers in the district. Emphasis will primarily be on emerging farmers and feedlots. A.4.2.2. Industry role players

Farmers, feedlots and abattoirs play a significant role with regard to beef production in the country. Between 65% and 70% of the beef produced in SA is supplied by feedlots (DAFF, 2013). All cattle slaughtered by abattoirs in the country originated from cattle farms and most of these were sold to feedlots for finishing. The South African government also plays an important role with regard to the regulation, as well as the support of the sector. The beef cattle sector is one of the sectors prioritised for food security. Therefore, a number of government incentives are in place to support the sector. Moreover, to ensure food safety and quality compliance, especially regarding the slaughtering, handling and processing of beef products by beef processors, the government has put in place various legislation and regulations. Table 26 shows a summary of the identified key role players in the beef sector.

Table 26: Beef industry role players

Name Roles Player

National Emergent Red-meat Producers Organisation

Represent red meat producers

DAFF Support and regulation of the sector

South African Bureau of Standards Compliance to quality and hygiene

South African National Accreditation System Accreditation of laboratories and inspection bodies

Farmers Producing cattle

Abattoirs Beef slaughtering

South African Feedlot Association Represent SA feedlots

Red Meat Levy Administration Levy administration on behalf of the Red Meat Industry Forum

Wholesale and Retailers e.g. Pick n Pay, Checkers, Woolworths, Spar, Butcheries, fruit and vegetables markets, and other distributers

Distribution of finished beef products

The industry associations assist enterprises in the industry with technical issues and skills development. The wholesale and retail sector plays an important role in making the processed beef products available on their shelves for consumers to purchase. A.4.2.3. Distribution channel

Distribution, which is one of the key elements of marketing, is defined as a method to get products or services through various distribution channels to the target market. It influences the location of the business and the target market, as well as logistical arrangements. Figure 38 illustrates the beef distribution channels.


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Figure 38: Beef production and distribution channels

There are various distribution channels for beef, including wholesalers, retailers and local businesses as well as the export market. Beef is mainly sold by local retailers, such as Pick ‘n Pay, Checkers, Woolworths, Spar, Boxers and Cambridge, as well as different fruit and vegetable supermarkets and butcheries. These distributors usually prefer processed beef products. The distribution channel to be used by the agri-park for beef products will primarily be wholesalers and retailers. The agri-park would also sell smaller package sizes of beef directly to consumers, as well as through smaller establishments such as tuck shops and small supermarkets. For bulk deliveries, the enterprise will initially acquire a three-ton refrigerated truck and a standard bakkie to deliver beef products to customers and local businesses. Clients will also be allowed to collect products using their own transportation, should they prefer this option. In the future, opportunities could be considered for the export of beef products to other countries.

Tanneries Cattle Hides

Big size

Carcass

Head and feet

Offal

Cuts - quarter

Cuts – half

Butcheries and Processors

Package size

5 kg

3 kg

2.5 kg

2 kg

1 kg

Wholesale and Retailers e.g. Pick ‘n Pay, Checkers, Shop rite, Boxer, Cambridge, Spar and other retailers

Package sizes

500 g

1 kg

2 kg

3 kg

Public and local businesses e.g. tuck shops


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A.4.2.4. Risks

There are several risks that can be encountered in operating an abattoir. Possible risks identified are discussed in Table 27.

Table 27: Beef abattoir risks


Mitigation

Production Some of small farmers are not willing to sell their cattle, but keep them for sentimental reasons.

High High High Motivate small farmers to sell their cattle for meat processing

There are not enough feedlots for emerging farmers and there is limited grazing land as land is rented out to commercial farmers and grazing land is used for housing developments.

High Medium Medium Make feedlots available to emerging farmers. Issue grazing land to the black farmers

Not enough bulls for small farmers

Low Low Low Sharing bulls around small farmers

The large competitors have the financial means to compete in terms of purchasing cattle from farmers and auctions. These producers are also able to buy input material in bulk – as a result, they get discounts from suppliers.

High High High Test possibility of vertical integration

Logistics Some small farmers have no transport to take the cattle to the abattoir.

High Medium Medium Provide logistic support

Market It may be difficult to penetrate the markets

High High High Secure more markets to supply

Infrastructure Vandalism by the community


Weather Drought, no efficient water for feeding cattle

High High High Increase current network of supplier’s


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Mitigation

Skills No enough skills to manage finances, marketing and production etc.

Medium Low Low Provide relevant training to small farmers


The permit and authorisation processes takes too long

High Medium Medium Work closely with authorisation officials

A.4.3. Vegetable packing house Vegetable production is one of the activities that support food security in the district. KZN-DARD indicated that they are currently assisting 75 projects with the cultivation of vegetables. Common vegetables planted in KZN include cabbage, spinach (Swiss chard), beans, sweet potatoes and potatoes. The three vegetables that are produced in large quantities in the district are cabbages, tomatoes and potatoes. An opportunity has been identified, whereby smallholder farmers can process their produce through the packing house, to generate additional income. A.4.3.1. Supply chain map

Figure 39 depicts the representative vegetable supply chain map.

Figure 39: Vegetable supply chain map

Fresh produce from farms will be supplied through the packing house, where it will be prepared for customers. Fresh produce is perishable – therefore the handling and transportation vegetables should be done with care. A.4.3.2. Industry role players

The fresh produce industry has different role players that represent varying interests in the development and growth of the industry. The government, through the national DAFF, is the main stakeholder because it regulates the fresh produce sector. Other stakeholders, such as Potatoes SA, represent the interests of specific commodity producers. They also ensure that the continued production of specific commodities is profitable and sustainable. Table 28 presents some of the important role players in the fresh produce industry.

Farmers Packing house

Distribution Consumers Retailers


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Table 28: Vegetable industry role players

Stakeholder type

Stakeholders Role

General DAFF Responsible for the regulatory framework in the agricultural sector

Food and Agriculture Organisation of the United Nations (UN)

UN organisation with a mandate to achieve food security for all

National Agricultural Marketing Council Provides agricultural marketing services

Agricultural Business Chamber Provides support to agri-businesses of all kinds

Agricultural Fresh Produce Agents Sell produce on behalf of the producers to the markets

FPMs Serve as intermediaries between primary producers and the markets

Agri SA Commodity Chamber Federation of agricultural organisations

Fresh Produce Exporters Forum Provides support services to its members that are exporting fruit and vegetables

South African Frozen Fruit and Vegetables Producers Association

Represents the interests of industries that produce frozen fruit and vegetables

Vegetables Potatoes SA Protects and promotes the interests of the South African potato industry

Tomato Producers Organisation Acts as a mouth piece of fresh tomato producers in SA

Fresh Produce Exporters Forum Provides support to South African fresh produce exporters

A.4.3.3. Distribution channel

Figure 40 depicts the distribution channel for vegetables.

Figure 40: Vegetable distribution channel

Importers

Exporters

Consumers

Retailers

Wholesalers

Packers

Collectors/Truckers

Farmers


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The distribution channel for vegetables starts with the production of produce at the farm. Fresh produce is transported to the packing house where it is cleaned, graded and packed into different pack sizes. Thereafter it is transported to different markets. Excess fresh produce can be exported, while fresh produce that is in short supply can be imported. A.4.3.4. Risks

The fresh produce industry is highly competitive and has several risks associated with it. The fact that fresh produce has a short shelf-life increases the potential of risk. Table 29 gives an indication of potential risks in setting up and operating a vegetable packing house.

Table 29: Vegetable packing house risks


Mitigation

Production Insufficient yield, inability to reach required economies of scale. Most produce used for home consumption

High High High FPSU interventions. Advice farmers on best crop management practices to harvest maximum yields

Logistics Some small farmers have no transport to take the produce to markets

High Medium Medium Provide logistic support

Market It may be difficult to penetrate the markets


Infrastructure Possible vandalism and theft


Weather Adverse and extreme weather conditions are detrimental to vegetable farming

High High High Construction of tunnels and installation of irrigation systems

Skills Inability to apply advanced methods and techniques of farming

Medium Low Low Intensive training


Attack by pests and insects

High Medium Medium Establishment of pest control regime


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APPENDIX B - TECHNICAL ANALYSIS


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B.1. INTRODUCTION The technical assessment of the agri-park in the Amajuba District Municipality, 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

Equipment and machinery

Statutory and regulatory requirements

Institutional arrangements.


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B.2. UNITS OF THE AGRI-PARK The AP comprises of three basic units, namely:

Agri-hub: The AH is a production, equipment hire, processing, packaging, logistics and training (demonstration) unit.

Farmer production support units: The FPSU is a rural outreach unit connected with the Agri-Hub. The FPSU does primary collection, some storage, some processing for the local, and extension services including mechanisation.

Rural Urban Market Centre Unit: The RUMC has three main purposes:

Linking and contracting rural, urban and international markets through contracts

Acts as a holding facility, releasing produce to urban markets based on seasonal trends

Provides market intelligence and information feedback, to the AH and FPSU, using the latest information and communications technologies

This document only focusses on the AH and FPSUs, since the RUMC is not district based but shared by a number of APs and is envisaged to be located at large market centres.

B.3. OPPORTUNITIES AND SERVICES The results of the high level analysis of the local situation and market aspects, and inputs made by stakeholders during the two workshops held on 09 February 2016 and 30 March 2016 respectively, were used to identify opportunities and services that inform the concept design of the agri-park. At the first workshop, three commodities were identified. The selection of these commodities involved analysis at high level using the “Value Chain Typology Checklist” tool that had been developed for DRDLR. The three commodities that were selected are maize, cattle and vegetables. From these commodities, three opportunities were identified for further analysis towards the development of a business case. The identified opportunities are the following:

Maize milling facility

Abattoir


This report discusses the results of the assessment of the technical requirements for the opportunities identified. Other services that are expected to be offered by the AP include the following:

Input improvement services

Transportation services

Incubation and skills development programmes

Market development services

B.3.1. Maize milling


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According to the Bureau for Food and Agricultural Policy (2015), maize is the most important grain crop in South Africa. It is the major feed grain for both the majority of the South African population (as a staple food) and the animal feed industry. The grain produced in South Africa comprises of 60% white maize and 40% yellow maize (DAFF, 2014). The white maize is used mainly for human consumption while the yellow maize is used mostly as animal feed.

The earliest records of food production in Africa show that indigenous crops have long been milled to produce coarse flour for cooking. Figure 41shows traditional rubbing and hand grinding stones as a form of milling.

Figure 41: Traditional rubbing and hand stones

(Food and Agriculture Organization of the United Nations, 2006)

New milling techniques have since been introduced to mill rice, maize and cassava. Larger-scale mills are in operation in African countries today. The aim of milling maize for human consumption is to produce a palatable meal and to expose the starch in the endosperm to the digestive juices of the stomach. Maize with a high percentage of translucent or hard endosperm is preferred by the dry milling industry, because it produces more of the popular high-quality and high-value products sought after than the soft maize. The endosperm contains approximately 80% of the carbohydrates. In South Africa, maize is usually left in the field until moisture percentages of 12.5 to 14.0 are reached before it is harvested and delivered to storage. It is then taken to mills and refined into products (ARC-Grain Crops Institute, 2003).

The effect of the moisture content on the fracture of grain is important as grains respond differently to applied forces depending on their moisture content. The proposed maize processing plant will be a mill that produces super maize meal and special maize meal. Hominy chop will be produced as a by-product. The maize milling industry plays a vital role as it produces one of the main foods consumed by the majority of the South African population. Table 30 shows the different classifications of maize meal with their fat, protein, starch and moisture content according to industry specifications.

Table 30: Maize meal classification

Product Name

Description of product or synonym

Particle size distribution

Fat Protein Starch Moisture content

Super maize meal

Maize meal or “cornmeal”

0.3-0.65 mm 1.0% 9.0% 80.0% 13.0%

Special maize meal

Fine meal or “coarse cones”

0.17-0.3 mm 2.3% 9.0% 80.0% 13.5%

(Erasmus, 2003)


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There are two private owned maize milling companies in ADM. Newcastle Mills sell their Inguni super maize meal products at their own retail store and have two outlets at Osizweni and Annville. The Ingogo mill has a retail store and they also sell their Sutha maize meal through Impuphu Wholesale. B.3.1.1. Opportunity description

Figure 42 represents a summary of the maize milling opportunity at the ADM AP, including the flow of materials from the raw material suppliers through to the markets.

Figure 42: Maize opportunity

The mill will produce maize meal packaged into different sizes. The process of maize milling will produce super maize meal and special maize meal. In addition, hominy chop will be produced as a by-product that will be sold to feedlots. The proposed maize milling plant will produce the following maize meal products:

Super maize meal:

2.5 kg

5 kg

10 kg

12.5 kg

25 kg

50 kg.

Special maize meal:

1 kg

2.5 kg.

SUPPLIERS

Maize farmers

Vitamins and minerals suppliers

Packaging material suppliers

RAW MATERIALS

Maize

Vitamins

Minerals

Packaging

PRODUCTION PROCESSES

Dry maize milling

Packaging PRODUCTS

Super maize meal

Special maize meal

Hominy chop (by-product)

MARKETS

Retail

Wholesale

Stokvels

Department of Education

Department of social development

Feedlots

RESOURCES

Human capital

Electricity

Water

Fuel

SUPPLY

(Truck)

Distribution

(Truck)

KEY STAKEHOLDERS

Maize farmers

Packaging suppliers Equipment suppliers

DAFF

KZN-DARD

Distributors


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B.3.1.2. Production process

The raw material (white maize) will be transported to the milling plant from the storage facility. Figure 44 illustrates the process flow for the production of maize meal.

Receiving

Sampling

Weighing

Pre-Cleaning

Storage

Impurity

removal

De-stoning

Filth Test

Conditioning

Moisture

(12%-15%)

Milling

Plansifter

Purifier

Product

Packaging

Storage

33% of Raw

material = Hominy

Chop

67% of Raw

Material =

Finished

product

Sorting Cleaning Conditioning ProcessingReception Packaging

Figure 43: Maize milling process

The main activities during production are receiving that includes sampling to check the quality of the maize, sorting and cleaning, conditioning to the right moisture, processing and packaging. In most cases, the raw materials delivered to the mills are not pure grains. Prior to their processing, foreign materials and other contaminants introduced during the harvest, transport and storage of the grain must be removed. The removal of such impurities guarantees the quality of the end products, by reducing ash content, specks and factors influencing odour and flavour. Sorting and cleaning of the maize is an important step in the process and it involves the removal of foreign material and all that is not maize kernels from the to-be milled grain that lowers the quality of the product such as husk, straw, dust, sand and everything too big or too small and lighter than a maize kernel. It also refers to the removal of poisonous seeds, and material harmful to the milling equipment such as metal and stones. Conditioning involves the addition of moisture to the maize to allow the bran to be peeled off in flakes during milling with plate or roller mills, allowing easy separation in a sifter and most importantly to add mass to the meal.


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B.3.1.3. Production inputs

The province of Kwa-Zulu Natal produced low volumes of maize compared to the top three provinces, namely the Free State, Mpumalanga and North West, but showed a slight improvement over the 2011/12 and 2012/13 years (DAFF, 2014). It is unlikely that the availability of good quality white maize for processing will be a problem, but the fluctuating price of maize might pose a challenge as maize is seasonal. The production inputs required by the milling enterprise are listed below:

Quality white maize (Class 1 white maize or WM1)

Vitamins and minerals

Water (60 litres per hour)

Electricity (200 kVA electricity).

It is a requirement by South African law that maize meal must be fortified and vitamins and minerals added. Table 31 shows the formulations of the fortification mix for maize, based on the micronutrient requirements specified in the Foodstuffs, Cosmetics and Disinfectant Act (no 54 of 1972).

Table 31: Fortification mix for maize meal

Fortifications and diluent Micronutrient requirements (per 1 kg meal

Fortification requirements (per 1 kg meal)

Fortification mix (g/kg)

Vitamin A palmitate 1 (Activity: 75 000 mcgRE2/g)

2085 mcgRE 27.8000 mg 139.0000 g

Thiamine mononitrate (Activity: 78% min.)

2.1875 mg 2.8045 mg 14.0224 g

Riboflavin 1.6875 mg 1.6875 mg 8.4375 g

Nicotinamide/niacinamide 25.000 mg 25.000 mg 125.0000 g

Pyridoxine HCI (Activity: 81% min.) 3.1250 mg 3.8580 mg 19.2901 g

Folic acid (Activity: 90.5% min.) 2.0000 mg 2.2099 mg 11.0497 g

Electrolytic iron3 (Activity: 98% min.) 35.0000 mg 35.7143 mg 178.6714 g

Zinc oxide (Activity: 80% min.) 15.00 mg 18.7500 mg 93.7500 g

Dilute To complete 200 To complete 1 000

B.3.1.4. Equipment required

Table 32 shows the production equipment required for maize milling, with a total cost estimated at R11.7 million.


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Table 32: Equipment list

Processing equipment

Function Quantity Cost

Rollerstand MDDP Break passage

Reduction passages 1

R 8 961 000.00

Sifter MPAU Sifting or separating of flour qualities 1

Degerminator DRPA Removal of germ from maize 1

Separator LABA Cleaning of raw maize 1

Elevator AHGL Light product 1

Control panel Plant control 1

Micro feeder MZMC Addition of vitamins 1 R 77 250.00

On-site training Training to operate the machinery 1 R 77 250.00

Critical spare parts Critical spare parts 1 R 185 400.00

Storage facility 1 R 1 200 000.00

4-pallet jack (standard) 1 R 2 278.86

Forklift 1 R 250 000.00

Bakkie 1 R 300 000.00

Truck (15 ton) 1 R 669 180.00

Total R 11 722 358.86

The production plant will be able to carry out the production process as depicted in Table 33.

Table 33: Maize mill operation

Mill operation Maize storage requirements

Shifts / day

Tons / hour

Hours / week

Hours / month

Tons / week

Tons / month

Tons / year

1 shift 2 40 160 80 320 3 840

2 shifts 2 80 320 160 640 7 680

3 shifts 2 120 480 240 960 11 520

B.3.2. Cattle abattoir

The beef abattoir will focus on the slaughtering of beef cattle, and the selling of beef carcasses. It is envisaged that, when the abattoir operations are optimised and sustainable, a wholesale outlet will be added. The abattoir will have the capacity to slaughter 200 heads of cattle per day. The wholesale outlet will sell meat directly to customers.

Local feedlots and cattle farmers will be suppliers to the abattoir. Consistent quality supply of beef cattle is essential for the operation to be successful.

B.3.2.1. Opportunity/service description

Figure 44shows the summary of the abattoir opportunity description at the proposed ADM AH.


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Figure 44: Abattoir opportunity

According to the Department of Agriculture, Forestry and Fisheries (DAFF), there are approximately 495 abattoirs in South Africa (SA). All registered red meat abattoirs in the country are graded (A, B, C, D or E) under the Abattoir Hygiene Act, to encourage safety compliance of the premises, as well as safety with respect to food handling. Table 34 lists the different abattoir grades and their respective maximum slaughters.

Table 34: Abattoir grades and maximum capacity

Abattoir grade Maximum slaughters per day

Grade E 8

Grade D 15

Grade C 50

Grade B 100

Grade A > 100 up to maximum capacity

The proposed beef abattoir will be a grade-A abattoir, slaughtering a maximum of 200 cattle per day. However, the capacity will be increased in phases over time. The increase in capacity will be highly dependent on the supply of cattle. Ideally each phase will take three years, to be aligned with the development of calves. Emerging farmers will need targeted support, to be in a position to supply 200 cattle per day. Figure 45 represents the phased approach, which will begin with the supply to the abattoir of 57 cattle slaughters per day until it reaches a full capacity of 200 cattle slaughters per day.

SUPPLIERS

Farmers

Auctions

Feedlots

Professional meat inspectors

RAW

MATERIALS

Live cattle

Packaging


Slaughtering

Removal of head and hoof

Evisceration

Hanging and chilling

Cutting and packaging

PRODUCTS

Carcass

Offal

MARKETS

Wholesale

Retail

Butcheries

Consumers

RESOURCES

Utilities (water, electricity and fuel)

Waste removal

Manpower

SUPPLY Road (Truck)

Distribution: Road

(Truck)

KEY STAKEHOLDERS

Product development specialists

Equipment suppliers

DRDLR

Retailer

Department of Agriculture

in KZN

Farmers

RMIF


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Figure 45: Phased throughput increase

The following are the key reasons for phasing in the enterprise’s throughput:

To allow capacity and skills development of the abattoir staff

To establish a sustainable supply of slaughter calves by capacitating and developing emerging farmers

To allow time for the abattoir’s market and business development.

The proposed beef abattoir will produce the following beef products:

Carcasses:

Full carcass

Half carcass

Quarter carcass

Offal:

Liver

Kidneys

Intestines.

Carcasses will be A-grade beef. Offal is sold as fresh products and therefore has to reach the market timeously. Offal is removed from the carcasses and requires thorough cleaning. It is then further cut into small sizes and packaged into plastic for the market.


Phase 1 Phase 2 Phase 3

57 Slaughters 120

Slaughters 200 Slaughters


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Figure 46 shows the beef slaughtering process flow

Figure 46: Production process

Table 35 details the steps of the cattle slaughtering process.

Received and Ante-mortem inspection

Lairages and Slaughtering area

Isolation pens

Dead Cattle Post-mortem area

He

alth

y

Ca

ttle

Stunning, Hoisting and

Bleeding

Removal of heads and feet

Clean area

Removal of hoof

and hides

Evisceration Carcass is split

Primary Inspection

Secondary Inspection

Hanging & Chilling

Cutting

Packaging

Freezing and Dispatch Wholesale, Retailer,

Butcheries and consumers

Destroy Kill and destroy

Wash


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Table 35: Slaughtering processes

Process Description Sample picture

Receiving The beef cattle are received from trucks at the reception area and are offloaded.

Ante mortem inspection A health inspector inspects all

cattle prior to slaughtering.

The ante-mortem inspection takes place in the abattoir pens.

Suspected diseased or injured cattle are screened for isolation slaughter.

Stunning The cattle are rendered

unconscious by shooting it with a pneumatic captive bolt into the brain.

Slaughtering and bleeding After the cattle has been

stunned, it is shackled by the left hind leg and then hoisted onto the overhead conveyor railing and pushed to the sticking point.

A cut is made at the neck to sever a group of blood vessels including jugular veins.

The cattle are bled by passing slowly over the bleeding trough.

Hoof and hide removal Hoofs are removed and the hide is chained and pulled off at the flank by a hide puller.

Evisceration Cattle’s internal organs such as

red and green offal is then removed

Carcass split and inspection

Every carcass and offal is inspected by health inspectors.

Only meat and offal that are fit for human consumption will pass the inspection and unfit meat / offal / parts will be


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Process Description Sample picture

condemned.

Hanging and chilling The carcases that have passed the post mortem inspection are then hanged and chilled in the cold-room.

Cutting The carcasses are then typically

cut into different types of beef cuts and package.

Packaging , freezing and dispatch

The meat is packed into different pack sizes and distributed to wholesalers, butcheries and retailers as well as consumers.


Production inputs are defined as raw materials, utilities and other inputs involved in the production of final products. The abattoir’s primary input is live cattle, which will be procured from feedlots or directly from emerging and commercial farmers. The production inputs include the following:

Raw materials (live cattle and raw beef)

Utilities (water and electricity)

Equipment

Packaging materials (trays, plastic and boxes)

Inbound and outbound logistics.

The abattoir will slaughter 13 845 cattle per annum during its first phase of establishment. To meet this capacity, 57 cattle will be required per day for the first phase. The gross weight of beef to be produced by the abattoir is estimated at 3 420 tons per year (the estimated carcass weight is 250 kg).

Cattle prices are usually influenced by supply and demand. During periods of high beef demand, prices are high; and during low demand periods, the prices are low. The price of beef is also influenced by climatic conditions. During dry seasons, cattle prices increase as a result of declining grass feed. This forces famers and feedlots to heavily rely on expensive cattle feed, which in turn causes the price of beef to increase.

In almost every processing business operation, utilities and related cost are taken into consideration as they affect the profits of the business. The abattoir will require three main utilities, namely water, fuel and electricity.


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The equipment will be installed in AH at Dannhauser Local Municipality, and will initially be based on a capacity of 100 cattle per day. The design will make provision for future expansion to the full capacity of slaughtering 200 cattle per day. The facility will be designed to meet the regulations as prescribed by the SA Meat Safety Act of 2000.

Table 36 shows the equipment required for the setup of the abattoir.


Abattoir equipment Quantity Total price

Panels, drain fitting, steel structure, material handling equipment 1 R 10 920 630

Equipment, splitting and brisket saw 1 R 1 356 600

Rails, scale, running and brisket saw 1 R 707 370

Refrigeration and ventilation 1 R 843 030

Low voltage reticulation 1 R 358 530

Hot and cold water services 1 R 469 965

Effluent pumping and screening 1 R 256 785

Installation 1 R 697 680

Equipment transportation 1 R 130 815

Commissioning, operation manuals and staff training 1 R 33 915

Cold room 1 R 118 200

MAP-packaging machine 1 R 900 000

Vacuum pack machine 1 R 156 000

Geyser 3 000-litre 1 R 22 000

Automatic mains failure (AMF) generator set 1 R 12 000

4-ton refrigerated truck 1 R 1 000 000

Total R 17 983 520

B.3.3. Vegetable packing house

Emerging vegetable and fruit producers in South Africa face many constraints, such as the lack of post-harvest handling. These constraints often cannot be resolved without an external intervention. Worldwide, quality remains the major factor in determining the marketability of fresh produce (MAC, 2008). DAFF has developed regulations and standards, such as Regulation R69 of February 2009 under the Agricultural Product Standards Act, which requires fresh produce to be traceable.

B.3.3.1. Opportunity/service description

An opportunity has been identified for a vegetable packing facility, to assist smaller farmers in the area with the grading and packing of their produce. Figure 47 shows the summary of the vegetable packing opportunity.


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Figure 47: Vegetable packing opportunity

Vegetables will be packed into bulk packs (mostly 1 kg, 2 kg and 3 kg packs). The packed products will depend on cultivars and seasonality.


The facility will focus on primary processing only, which includes washing, trimming, grading and packaging. Figure 48 shows the production process for the envisaged vegetable packing house.

SUPPLIERS

Vegetable farmers

Suppliers of packaging materials

RAW

MATERIALS

Fresh vegetables

Packaging materials


Cutting and trimming

Sorting

Washing

Grading

packaging

PRODUCTS

Freshly packed vegetables

MARKETS

Wholesalers

Supermarkets


Hospitals

RESOURCES

Workers

Equipment

Utilities

Fuel

SUPPLY

(Road)

Distribution

(Road)

KEY STAKEHOLDERS

Farmers

Farmers associations

Equipment suppliers

Retailers


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Figure 48: Production process for vegetable packing house

The primary processing will be tailored to specific vegetable requirements, as appropriate. Therefore, not all produce will go through all the steps in the process.

Fresh produce will be received from suppliers, and undergo quality checks.

Preliminary weighing and registering of produce will be done before proceeding to temporary storage.

Minimal processing includes cutting off excess materials including leaves and roots.

Produce is sorted to remove injured, decaying or defecting products

The extent of washing, rinsing, brushing and wiping will depend on the commodity. A sanitary chlorine solution is added to the washing water in order to reduce contaminants.

Receiving fresh produce

Sorting

Washing & Rinsing

Sizing & grading

Drying (Wiping)

Cutting & Trimming

Extra-large Large Medium Small

Packaging

Cold storage

Delivery


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Sizing is not a prerequisite – however, it is beneficial in cases where prices differ according to size grading. Sizing can be done manually and visually. The easiest way to do this is to have examples of sizing or hand-held gauges to properly size. Limits of decay and injuries for class 1, class 2 and class 3 of all fresh vegetable types are as follows (DAFF, 2009):

Decay – 2%, 8% and 12% respectively

Injuries – 6% for all classes.

Packaging material must comply with the requirements from the Agricultural Product Standards Act No 119 of 1990 and Regulation No R69 of 2009, as follows:

Be clean, dry and odourless

Do not damage the quality of fresh vegetable internally or externally when packed

Do not transmit to fresh vegetables any harmful substances or any substance that may be injurious to human health.

Labelling of products should be done as per the Act 119 of 1990 and Reg. R69 of 2009 requirements, including:

Each container with fresh vegetables destined for sale must be marked in clear and easy-to-read letters and figures

Name of the product

Class

Size or count

Chemical treatment

Expiry date.

Packaged products should be stored for no more than 24 hours at one to five degrees Celsius.

Delivery should be done with a truck that can keep the produce cold.


The primary production input for the vegetable packing is the actual vegetables to be supplied by farmers in ADM. The production inputs include the following:

Raw materials (vegetables and packaging materials)

Utilities (water and electricity)

Inbound and outbound logistics (fuel for the refrigerated truck)


The equipment required for the operations of the enterprise is listed in Table 37.


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Equipment type Items Quantity Total Cost

Main production Packing line (JF Equipment) 1 R 140 897.03

Cold room (BBRW) 2 R 215 000.00

Other Sorting and preparation tables 10 R 21 500.00

Washing basins 1 R 5 375.00

Platform scale 2 R 8 062.50

Electrical printing scale 1 R 1 720.00

Heat sealer 1 R 8 062.50

Pallet jack 1 R 4 837.50

Wrapping machine 1 R 913.75

Labelling machine 1 R 4 515.00

Collection crates 10 R 1 182.50

Pallets (Plastic) 20 R 9 675.00

Wheelie bins 5 R 2 956.25

Trimming equipment 1 R 1 612.50

Grading equipment (Vernier calliper) 2 R 537.50

Water purification system 1 R 48 375.00

Distribution Insulated truck (1 ton) 1 R 279 500.00

Total R 754 722.03

B.3.4. Primary production services

B.3.4.1. Service description

Building the appropriate capacity towards efficient farming practices is important. Emerging farmers will be targeted as beneficiaries of this intervention. The main focus will be on the maize, beef and vegetable value chains. These services will be provided mainly in the form of training and mentoring. Typical training will include the following:

Maize production

Beef cattle management

Vegetable production

Veld management.

To minimise costs to the AP, most of these services will not be held in-house on a full-time basis. Instead, they will be outsourced as and when required. Partnerships with relevant service providers will be developed, to enable preferential provision of services to the AP beneficiaries. There is already farming related services provided by respective government departments and agents. Key towards this intervention is a well-coordinated programme will identify capacity needs and then structure training in such a way that the maximum benefit is realised.

B.3.4.2. Purpose of the service

For the AP enterprises to be successful, it is critical that there should be a consistent supply of good quality products at the right quantities. To this end, relevant input services


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will have to be provided to emerging farmers, to enable them to consistently supply their goods to their respective customers.


In order for the service to be successful, communication is very important. Telephone connections and access to ICT equipment should be made available to the farmers. Table 38 lists the suitable communications equipment that is required.

Table 38: List of communications equipment

Description Quantity Cost

Computer 3 R 15 227

Combo printer, copier and fax 1 R 8 200

Telephone hand sets 3 R 950

Office furniture 3 R 18 600

Total R 42 977

B.3.5. Transportation service

Transportation of commodities from the farms has been identified as a major challenge for many of the emerging farmers. Maize has to be transported to silos and cattle to feedlots, auctions and abattoirs. Vegetables are the most sensitive in terms of harvesting and transportation.

B.3.5.1. Description of the service

The service involves the transportation of goods from farms to the FPSUs or AH. Cattle, maize and vegetables needs to reach their intended destinations in a good condition. Usually farmers do not have the means to own their own trucks. The service will be provided on a pay-as-use basis.


For this service, suitable vehicles are required to provide an appropriate service for the transportation and handling of vegetables, cattle and processed products. The required vehicles are listed in Table 39.

Table 39: List of vehicles

Description Quantity Unit price Total budget

Bakkie with refrigerated canopy 2 R 400 000 R 800 000

Trucks 3 R 1 001 704 R 3 005 112

Forklift 2 R 448 695 R 897 390

Total R 4 702 502


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B.4. AGRI-PARK CONCEPT B.4.1. Agri-Hub

Based on the high level analysis of the opportunities and services identified, the AH with comprise of the following facilities and services:

Maize mill

Maize storage (silos)

Cattle abattoir

Vegetable packing house.

When the Agri-Hub is fully operational, the offerings will be expanded to also include the following:

Laboratory

Animal feed facility

Meat processing facility.

B.4.1.1. Services

It is important for the AH to provide support services that will enhance farming and agro-processing operations. The following services have been identified as important offerings for the AH:

Space for rent

Administration

Transportation and logistics services

Business linkages

Quality management services

Training and skills development.

B.4.2. Farmer production support units

For the enterprises at the AH to remain operational, a consistent supply of raw materials is needed. The FPSUs will function as centres that provide services to improve the quality, the consistency and the quantities of primary agricultural products. Three FPSUs will be established. Services will be tailored according to the specific needs of an area. The following services have been identified for the different areas:

B.4.2.1. Maize FPSU

The FPSU will have storage facilities for the maize. The estimated cost for the establishment of the facility is R1 869 100.

The services to be provided by the FPSU include:

Bulk buying of inputs

Ploughing, irrigation and harvesting training


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Grading (to be outsourced to Grain South Africa)

Storage for maize.

B.4.2.2. Cattle FPSU

Table 40 shows the list of facilities and equipment that the feedlot will require. The estimated cost for this is R5.2 million.

Table 40: Feedlot equipment

Hay feeders for round bales

Panel pens

Hospital pen

Panel reservoir

Hydraulic body and head clamp unit including scale

Feed bunks and water troughs

Wagon rack for silage feeding

Moveable hay racks for cattle.

Cattle body truck

Sick pens


Collection of cattle from the FPSU feedlot

Extension services

Mechanisation

Disease management

Mentorship.

B.4.2.3. Vegetables FPSU

The FPSU will have storage facilities for vegetables. The estimated cost for the establishment of the facility is R215 000.


Storage facilities

Extension services

Mechanisation

Quality control support

Mentorship.


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B.5. LOCATION Figure 49 illustrates the overview of the AH and the FPSUs locations. These locations are only recommended as they have not yet been confirmed.

Figure 49: Geographic overview of the AH and FPSUs locations

B.5.1. Agri-Hub

The location of AH will be at Dannhauser. The 256 ha site is owned by Dannhauser Local Municipality. Figure 50 shows an aerial view of the proposed AH site.

Agri-Hub

Maize FPSU

Cattle FPSU

Veggies FPSU


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Figure 50: AH site

(Google Earth)

The recommended site is located along the N11, approximately 17 kilometres from the Dannhauser Central Business District. There are several facilities on the farm, such as a chicken shed and animal enclosures, as indicated in Figure 51.

Figure 51: Facilities at the AH site in Dannhauser

Utilities, including electricity and water supply, are available at the site.

B.5.2. Farmer production support unit There will be three separate FPSUs for maize, cattle and vegetables. According to the Utrecht farmers association, affiliated farmers in the area produced in excess of 43 000 tons of maize during 2015. This production output excludes the maize that is produced by non-members. According to KZN-DARD, there is an underutilised silo facility at Utrecht that can be used as the location for the maize FPSU. Therefore, the preliminary recommendation is that the maize FPSU should be based at Utrecht, in the Emadlangeni Local Municipality.

ADM Agri-park 30

0 0’ 6.527” E

280

6’ 16.453” S


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KZN-DARD has identified a commercial farmer who is interested in supporting emerging cattle farmers within ADM. The farmer is based in Newcastle along the R34 road to Memel. It is recommended that his farm should be used for the cattle FPSU. Figure 52 and Figure 53 show an aerial view and the existing facilities at the proposed cattle FPSU. -+

Figure 52: Newcastle cattle FPSU

(Google Earth)

Figure 53: Proposed cattle FPSU site at Newcastle

The construction of a fresh produce market at Ingogo provides an opportunity to establish a vegetable FPSU in the area. KZN-DARD has confirmed that there are a reasonable number of farmers around Ingogo, who are actively involved in the production of vegetables. A thorough assessment of the state of these farmers will be done when a detailed business plan is developed. Therefore, it is recommended that one of the vegetables FPSU should be located at Ingogo. The distance from Ingogo to Dannhauser is approximately 60 kilometres. It is recommended that the vegetable packing house should be established next to the Ingogo fresh produce market. Figure 54shows an aerial view of the proposed vegetable FPSU and Figure 55 displays the foundations of the Ingogo fresh produce market, which is under construction.

Cattle FPSU 27

041’58.49” S

29049’45.84” E


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Figure 54: Ingogo vegetable FPSU

(Google Earth)

Figure 55: Fresh produce market construction site at Ingogo

Vegetable FPSU 27

034’22.87” S

29054’00.65” E


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B.6. EQUIPMENT The management of the AP will provide administration and operational support to the AH and FPSUs. The list of equipment in Table 41 will be required for that purpose.

Table 41: List of AP office equipment

Item Quantity Unit cost Cost

Pastel software 2 R 2 600 R 5 200

Microsoft Office software 17 R 3 999 R 67 983

Office furniture (per office) 18 R 7 524 R 135 432

Computer 17 R 10 000 R 170 000

Telephone handsets - portable 20 R 599 R 11 980

CO2 fire extinguisher per unit 5 R 1 650 R 8 250

First aid kit - mountable box 5 R 800 R 4 000

Data projector 2 R 8 000 R 6 000

Total R 418 845

B.7. SPACE REQUIREMENTS B.7.1. Agri-Park layout The AP will comprise of several buildings and facilities. These facilities will be located at the AH site and at the respective FPSU sites. Figure 56 shows a schematic layout and concept plan of the AP.


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ComputerComputer

Agr

i-h

ub

D

ann

hau

ser


Vegetables Packing House

Abattoir

Maize milling

Veggetables FPSU Ingogo

Cattle FPSU Newcastle

Maize FPSU Utrecht

Figure 56: Agri-park layout and concept plan

The AH will be located in Dannhauser. It will comprise of five separate buildings. Four of the buildings will be for operations and one for administration. The estimated costs for the construction of the buildings are based on the usage of bricks and mortar at the AH site and the usage of pre-fabricated materials at the FPSUs. Table 42 gives an indication of the space requirements and costs for the construction of the AP buildings.

Table 42: Estimated construction costs for AP

Component Facility Quantity Estimated space

required (building)

Estimated cost of building

Agri-hub

Maize storage and milling 1 1 500 m2 R 9 605 482

Abattoir 1 2 000 m2 R 18 778 649

Vegetable packing house 1 1 000 m2 R 7 700 597

Administration block 1 1 000 m2 R 2 391 238

FPSU

Maize FPSU 1 1 000 m2 R 2 567 000

Cattle FPSU (including feedlot)

1 7 000 m2 R 11 567 000

Vegetable FPSU 1 600 m2 R 2 567 000

Total R 55 176 966


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B.8. SUPPLY CHAIN LOGISTICS B.8.1. Maize

ADM will benefit from its proximity to both the Richards Bay and Durban harbours. It is situated on significant national roads, namely the N11 connecting Durban and Gauteng, and the N5 that links up with the N3 at Harrismith, leading to Mpumalanga that borders with Swaziland. The R34 links to Gauteng, Richards Bay and Vryheid, and the P308 links to Dumbe. The district was identified as one of the provincial secondary nodes for priority interventions in the Provincial Spatial Development Strategy and some of the major projects targeted, namely the rapid transit rail (Speed Rail), the regional airport, and agro-processing incorporating bio-fuels. The maize milling plant will benefit from the implementation of the above projects, as road transport is the most commonly used mode of transport finished goods and products. The road infrastructure and linkages with national roads are acceptable in the district and province. The milling company will be located in Dannhauser and the intention is to source raw materials from emerging farmers in the ADM. Two trucks will be procured and one will be fetch maize from emerging farmers and the silo next to the milling plant. Furthermore, finished products will be distributed to different locations within the district, as well as nearby districts and provinces identified as potential markets. B.8.2. Beef The most important inbound and outbound logistics for the beef abattoir are centred on the acquisition of the raw materials. The process for acquiring the raw materials will be coordinated with the primary producers. The supply chain of live cattle from farmers and feedlots will be considered in terms of inbound transport. The suppliers and market of the beef abattoir are expected to be mainly within the district’s boundaries, but could also extend into neighbouring districts. The sourcing of sufficient raw materials will need to be prioritised during the establishment phase of the abattoir. The outbound logistics entail the delivery of the final product to the market. The products will be distributed to customers by means of a bakkie and a four-ton truck owned by the AP. In the case of perishable beef products these vehicles will have specialised insulated and refrigerated bodies to transport final products to the market. B.8.3. Vegetables For vegetable logistics it is critical is that the fresh produce should retain its freshness all the time. Fresh produce is sensitive to heat, and therefore should be kept as cool as possible. For this reason, trucks with insulated and refrigerated bodies should be used for inbound and outbound logistics. It is recommended that when fresh produce is transported by vehicles that do not have cooling facilities, the transportation should rather be done at night. One vegetable FPSU will be established, as close as possible to the farmers.


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B.9. REGULATORY COMPLIANCE The food industry in South Africa is regulated by various acts, regulations and guidelines. The consumer has a right to truthful labelling of food according to the Consumer Protection Act and safe 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). Table 43 lists some of the regulations that apply to the food related industries.

Table 43: Acts and regulations

Act / Regulation Purpose

Agricultural Product Standard Act, 1990 (Act No. 119 of 1990)

Provides for the control over:

The sale and export of certain agricultural products;

The sale of certain imported agricultural products;

Related products; and

Matters connected with its products

Foodstuffs, Cosmetics and Disinfectants Act, 1972 (Act No. 54 of 1972

Controls the sale, manufacture and importation of foodstuffs, cosmetics and disinfectants, and provides for incidental matters

Government Notice No. R198 of 30 July 1999

Regulates the general hygiene requirements for food premises and the transport of food

Meat Safety Act (Act No. 40 of 2000)

The purpose of this Act is:

To provide for measures to promote meat safety and the safety of animal products

To establish and maintain essential national standards in respect of processors

To regulate the importation and exportation of meat

To establish meat safety schemes

SANS 10049 Covers hazards in environmental, human, equipment and supplies, thus including food and beverage processes and products

Occupational Health and Safety Act(Act No. 85 of 1993)

The purpose of this Act is:

To provide for the health and safety of persons at work and for the health and safety of persons in connection with the use of plant and machinery

To provide for the protection of persons other than persons at work against hazards to health and safety arising out of or in connection with the activities of persons at work

Regulations Governing General Hygiene Requirements for Food Premises and the Transportation of Food (Regulation 723 of 2002)

Addresses the handling and transportation of food

Agricultural Product Standard Act, 1990 (Act No. 119 of 1990)

Regulations relating to the grading, packing and marking of fresh vegetables intended for sale in the Republic of South Africa, e.g. Regulation 69

Foodstuffs, Cosmetics and Disinfectants Act, 1972 (Act No. 54 of 1972

Controls the sale, manufacture and importation of foodstuffs, cosmetics and disinfectants, and provides for incidental matters

Government Notice No: Regulates the general hygiene requirements for food premises and


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R198 of 30 July 1999 the transport of food

The quality management systems listed in Table 44 will be develop and implemented by the enterprise. These systems can be integrated into an Integrated Management System (IMS)

Table 44: Quality management systems

Management system Purpose

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.

HACCP or ISO 22 000 Management system deals with the analysis of potential food safety hazards in an operation.

ISO 14001 An Environmental Management System (EMS) dealing with the environmental aspects of an organisation.

B.9.1. Environmental requirements

B.9.1.1. Environmental impact

It is estimated that all environmental compliance work related to the AP will cost a total of R3 million. B.9.1.2. 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 addressed before an enterprise can be established. A basic environmental assessment study, that includes ecological and heritage specialist studies need to be performed by an independent environmental expert, to determine the potential environmental impacts. 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 basic assessment, and will cost around R35 000.00. B.9.1.3. 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:


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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.9.1.4. 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.9.1.5. 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, 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 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 (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.


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B.9.1.6. Licensing / Permitting

Most of the agri-park’s activities would utilise water from a river stream, borehole and municipal water supply. A Water Use License (WUL) would be required as prescribed in the National Water Act of 1998. The Act states that the following uses will require authorisation:

Taking water from a water resource

Storing water

Disposing of waste or water in a manner which may detrimentally impact on a water resource (Acts-Online, 2015).

Maize meal has to be fortified in accordance with the regulation relating to the fortification of certain foodstuffs, Regulation R7634 of April 2003. The establishment of an abattoir requires licencing and permission from the municipality, KZN-Dard and the health department. B.9.2. Land tenure

The identified Agri-Hub site is owned by Dannhauser local municipality. The council has ratified the decision by DAPOTT to make use of the site for the purpose of the Agri-Hub.

B.10. ORGANISATIONAL DESIGN B.10.1. Institutional arrangements B.10.1.1. Agri-park

The agri-park (AP) will comprise of an Agri-Hub, located in Dannhauser, as well as three farmer production support units (FPSUs) in Utrecht, Newcastle and Ingogo respectively.

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 57 illustrates the structure of the AP.


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Figure 57: 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, 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.10.1.2. 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.10.2. Human resource requirements The human resource requirements for the AP were determined, with special attention paid to the technical expertise that will be required. It is anticipated that the AP will require 24 staff members as shown in Table 45.

Agri-Hub

Maize FPSU Utrecht

Cattle FPSU

Newcastle

Vegetable FPSU Ingogo


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Table 45: Agri-park human resources

Job title Roles and responsibilities Quantity Annual

salary per person (R)

Total annual cost (R)

Agri-park general manager

Manages the entire AP on behalf of the Board of owners

1 620 000 620 000

Financial manager Manages the financial affairs of the AP

1 540 000 540 000


Manages the legal issues and Acts as company secretary for the AP Board

1 360 000 360 000

Facilities manager Each facility will be managed by a facility manager

4 420 000 1 680 000


Facilitate access to services and training for the local farming community

4 280 000 1 120 000

Technicians Maintenance of agri-park equipment

2 196 000 392 000

Food technologist Ensure food safety across within the hub

1 360 000 360 000

PR and Marketing Responsible for agri-park publicity and marketing of services and products

1 360 000 360 000

Receptionist Frontline assistant 1 102 000 102 000

Driver Drivers for the agri-park vehicles 4 102 000 408 000

Cleaners Clean Agri-Hub and FPSUs 4 48 000 192 000

Total 24 6 134 000

B.10.3. Organogram

Figure 58 illustrates the proposed organogram.

PR and marketing manager

Facilities manager (4)


Agri-Pak General Manager

Financial Manger

Cleaners (4)

Drivers (4)

Technicians(2)

Food Technologist

Skills development and extension

officers (4)

Receptionist

Figure 58: Agri-park organogram


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B.11. RISK MANAGEMENT The AP concept is still new in South Africa. As a result, several risks that are associated with its establishment have been identified. Table 46 shows a list of the possible risks associated with the AP and the possible mitigation thereof.

Table 46: Agri-park risks and mitigation

Value chain

Risk Likelihood Impact Overall

risk rating

Mitigation

Maize

1. Contamination of raw material (silo), production facility and final maize products

Low Medium Medium Implementation of IMS that includes ISO 2200 or HACCP

Monitoring and continuous review of IMS

Ensure food transportation vehicles comply with regulations regarding transportation of food stuff.

2. Lack of adherence to relevant legislation

Low Medium Medium Comprehensive training to be provided to staff

Employ competent staff

Develop policies and procedures aligned to legislations

Cattle

3. Increase in live cattle price

High High High The agri-park to be integrated with the farmers for supply in order to control prices

4. Crime and robbery

Medium Medium Medium Employ security company to safeguard assets

5. Lack of buy-in from key stakeholders

High High High Intensive stakeholder engagement and management prior to and during the establishment of the agri-park

6. Availability of the correct live cattle to slaughter

High High High Vertically integrating the abattoir with the feedlot and farmers to control quality

Identify and develop portfolio of farmers


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Value chain


risk rating

Mitigation

and feedlots to supply the abattoir

Vegetables

7. Poor quality of fresh produce

Medium Medium Medium Extensive training should be provided

8. Insufficient yield, inability to reach required economies of scale

High High High Farmers to be taught best practice

General

9. Improper handling of equipment by operators

Medium Low Low Hire employees with technical knowledge

Continuous training to transfer skills and knowledge

10. Major breakdown of equipment

Low High High Service equipment at given intervals

11. Inability to attract suitably qualified personnel

Medium Medium Medium Offer remuneration in line with industry trends

Comply with all applicable labour legislation

12. Disruption to utility supply

High High High Acquire a generator for back-up and a water borehole

13. Extreme climatic conditions (e.g. drought)


14. Labour unrest Medium Low Low Build healthy relationships with employees and have a satisfactory work force

15. Crime (potential theft and robbery) and vandalism


16. Inferior equipment

Low Low Low Procure equipment from reputable companies

17. Competition with established operations


18. Unwillingness of commercial farmers for mentoring emerging farmers

Medium High Medium Proper arrangement should be made with commercial farmers

Provision of incentive for their support

19. Lack of implementation capacity

Low High High Implementation should be done by reputable entity with


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Value chain


risk rating

Mitigation

track record


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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 Amajuba District Municipality (ADM) 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 – therefore 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:

Maize processing and storage facility

Abattoir facility


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):

Processed maize products – 22 000 tons

Maize silo – 60 000 tons

Feedlot cattle – 24 000 cattle

Beef carcasses – 6 000 tons

Cattle hides – 648 tons

Packaged vegetables – 2 000 tons

Transportation services – 13 811 200 km.

The AP will receive 7.5% of the revenue generated by the respective business, 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 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%.


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C.2. COSTS For the purpose of modelling the finances of the AP, there are two types of costs that were taken into consideration. These are investment costs and indirect operating costs. 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 R129.2 million. The investment costs for the establishment of the ADM AP are listed in Table 47.

Table 47: Investment costs

Type of investment Items for purchase Investment costs

Site preparation and development R 577 440

Civil works, structures and buildings

Maize storage and milling

R 57 743 966

Abattoir



Maize FPSU

Cattle FPSU

Feedlot

Vegetable FPSU

Plant machinery and equipment

Feedlot

R 40 890 601

Abattoir

Maize

Silo maize FPSU


Vegetable FPSU

Auxiliary and service plant equipment

Telephone connections

R 3 010 000 Utilities (water and electricity)

EIA

Incorporated fixed assets

Pastel software

R 5 121 347

Micro soft office software

Computer

Telephone handsets

CO2 Fire extinguishers

First aid kit

Data projector

Vehicles

Office furniture

10 ton trucks

Forklifts

Pre-production expenditure Training, marketing, recruitment and business registration

R 418 680

Contingencies R 10 776 203

Working capital (Year 1) R 10 700 000


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Type of investment Items for purchase Investment costs

Total fixed investment costs R 129 238 237

C.2.2. Indirect costs Indirect operating costs are incurred once operations start and these costs are incurred irrespective of the number of products produced and sold or amount of services provided (for example salaries). The total indirect costs for the first year of production is estimated at R21 416 571. These costs will escalate annually by 7%. The contribution by the respective cost items is depicted in Figure 59.

Figure 59: Indirect costs

The largest component of the indirect costs is labour at 31%, followed by depreciation and fuel at 29% and 27% respectively. The AP will have to attract suitably qualified and experienced personnel to increase its chances of success. The labour costs (salaries) for Year 1 is projected at R6 563 380 per annum.

27%

2% 31%

1%

1%

9%

29%

0%

Utilities

Spare parts consumed

Labour

Labour overhead costs(taxes etc.)

Factory overhead costs

Administrative overheadcosts

Depreciation

Marketing overhead costs

High-Level Master Agri-Park Business Plan Amajuba District Municipality

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C.3. SALES

C.3.1. Sales forecast It is envisaged that the AP will generate income by collecting a maximum of 7.5% from the respective enterprises that rent space or equipment from the AH or FPSUs. Table 48 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.

Table 48: Sales forecast for AP

Revenue streams Unit of

measure Maximum capacity

Average market prices

Maximum enterprise revenue

Maximum AP revenue (7.5% of enterprises)

AP revenue (Y1-Y3, 25% of

maximum)

AP revenue (Y4-Y6, 50% of

maximum)

AP revenue (Y7-Y10, 100% of maximum)

Maize milling Ton 22 000 R 4 150.00 R 91 300 000 R 6 847 500 R 1 711 875 R 3 423 750 R 6 847 500

Silo Ton 60 000 R 2 228.00 R 133 680 000 R 10 026 000 R 2 506 500 R 5 013 000 R 10 026 000

Cattle feedlot Each 24 000 R 10 814.09 R 259 538 160 R 19 465 362 R 4 866 341 R 9 732 681 R 19 465 362

Beef carcasses Ton 6 000 R 9 979.44 R 59 876 640 R 4 490 748 R 1 122 687 R 2 245 374 R 4 490 748

Hides Ton 648 R 13 870.00 R 8 987 760 R 674 082 R 168 521 R 337 041 R 674 082

Vegetable packing house Ton 2 000 R 4 000.00 R 8 000 000 R 600 000 R 150 000 R 300 000 R 600 000

Transportation Kilometre 13 811 200 R 5.63 R 77 757 056 R 5 831 779 R 1 457 945 R 2 915 890 R 5 831 779

Total R 639 139 616 R 47 935 471 R 11 983 869 R 23 967 736 R 47 935 471

C.3.2. Revenue stream comparison Figure 60illustrates a breakdown of the revenue streams from the respective enterprises into the AP.


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Figure 60: Revenue streams

At 41% the feedlot contributes most of the income to the AP, followed by silo and maize milling at 21% and 15% respectively.

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

15%

9% 1%

21% 41%

1% 12% Maize milling

Beef carcass

Veg. packing house

Silo

Cattle feedlot

Hides

Transport


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income statement, sometimes referred to as the statement of earnings or statement of operations, describes the enterprise’s profitability over the entire period of time covered. Table 49 shows the ten year projected income statement of the AP.

Table 49: Projected income statement

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Sales revenue 12 870 123 13 771 032 14 735 004 31 514 584 33 720 605 36 081 048 77 235 714 82 642 214 88 427 169 94 617 071

VARIABLE MARGIN 12 870 123 13 771 032 14 735 004 31 514 584 33 720 605 36 081 048 77 235 714 82 642 214 88 427 169 94 617 071

Less fixed costs 21 416 571 22 429 839 23 559 831 24 839 597 26 080 894 27 847 022 29 414 790 30 935 432 32 631 246 34 473 143

Material 6 282 426 6 722 196 7 192 749 7 696 242 8 234 979 8 811 427 9 428 227 10 088 203 10 794 377 11 549 984

Personnel 6 694 648 7 163 273 7 664 702 8 201 231 8 775 317 9 389 590 10 046 861 10 750 141 11 502 651 12 307 837

Marketing 38 520 41 216 44 102 47 189 50 492 54 026 57 808 61 855 66 185 70 817

Depreciation 6 287 090 6 287 090 6 287 090 6 305 332 6 305 332 6 687 171 6 709 519 6 709 519 6 709 519 6 736 895

Other fixed costs 2 113 888 2 216 064 2 371 188 2 589 603 2 714 774 2 904 808 3 172 375 3 325 714 3 558 514 3 807 610

GROSS PROFIT (8 546 448) (8 658 807) (8 824 827) 6 674 987 7 639 712 8 234 026 47 820 924 51 706 783 55 795 924 60 143 928

TAXABLE PROFIT - - - 6 674 987 7 639 712 8 234 026 47 820 924 51 706 783 55 795 924 60 143 928

Income (corporate) tax - - - 1 868 996 2 139 119 2 305 527 13 389 859 14 477 899 15 622 859 16 840 300

NET PROFIT (8 546 448) (8 658 807) (8 824 827) 4 805 991 5 500 592 5 928 499 34 431 065 37 228 883 40 173 065 43 303 628

The projected income statement shows that sales revenue will grow from R12.87 million in Year 1 to R94.62 million in Year 10. It is expected that the AP will make losses during the first three years. It will become profitable from the fourth year of operation onwards. The reduction in profit in Year 6 is due to the capital costs for replacing fully depreciated assets. The increase in net profits could be attributed to the phasing-in of production (25% in the first three years, 50% in the next three, and 100% from Year 7 onwards). The profit trend is illustrated Figure 61.


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Figure 61: Net profit

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 50 shows the ten year projected balance sheet of the AP.

(20 000 000)

(10 000 000)

-

10 000 000

20 000 000

30 000 000

40 000 000

50 000 000

Year1

Year2

Year3

Year4

Year5

Year6

Year7

Year8

Year9

Year10


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Table 50: Projected balance sheet

Establishment

Operation

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

TOTAL ASSETS 119 000 000 129 722 953 129 768 188 129 821 961 134 689 858 135 441 655 135 935 436 164 513 841 192 017 790 232 271 554 275 661 530

Total current assets 461 763 8 925 358 6 598 876 3 817 002 14 990 231 20 201 424 32 518 017 73 734 439 117 742 908 164 259 109 214 362 414

Inventory on materials & supplies

- 17 451 18 673 19 980 21 378 22 875 24 476 26 190 28 023 29 984 32 083

Work in progress - 36 794 39 243 41 990 45 074 48 074 51 439 55 218 58 893 63 015 67 426

Finished product - 293 435 313 085 335 001 359 471 383 543 410 391 440 367 469 857 502 747 537 939

Accounts receivable - 2 521 580 2 690 458 2 878 790 3 089 044 3 295 927 3 526 642 3 784 212 4 037 652 4 320 288 4 622 708

Cash-in-hand - 171 277 182 376 195 142 209 822 223 418 239 058 257 041 273 697 292 856 313 356

Cash surplus, finance available

461 763 5 884 820 3 355 041 346 098 11 265 441 16 227 587 28 266 011 69 171 411 112 874 787 159 050 219 208 788 901

Total fixed assets, net of depreciation

118 538 237 112 251 147 105 964 057 99 974 876 93 669 544 94 016 139 87 693 920 80 984 401 74 274 882 68 012 446 61 299 117

Fixed investments - 118 119 557 118 119 557 118 119 557 118 417 466 118 417 466 125 069 393 125 434 345 125 434 345 125 434 345 125 881 427

Construction in progress 118 119 557 - - 297 910 - 6 651 927 364 952 - - 447 082 23 566

Total pre-production expenditures

418 680 418 680 418 680 418 680 418 680 418 680 418 680 418 680 418 680 418 680 418 680

Less accumulated depreciation

- 6 287 090 12 574 180 18 861 270 25 166 602 31 471 935 38 159 106 44 868 624 51 578 143 58 287 662 65 024 557

Accumulated losses brought forward

- - 8 546 448 17 205 255 26 030 083 21 224 092 15 723 500 9 795 001 - - -

Loss in current year - 8 546 448 8 658 807 8 824 827 - - - - - - -

TOTAL LIABILITIES 119 000 000 129 722 953 129 768 188 129 821 961 134 689 858 135 441 655 135 935 436 164 513 841 192 017 790 232 271 554 275 661 530

Accounts payable - 722 953 768 188 821 961 883 867 941 063 1 006 937 1 082 776 1 152 843 1 233 541 1 319 889

Total equity capital 119 000 000 129 000 000 129 000 000 129 000 000 129 000 000 129 000 000 129 000 000 129 000 000 129 000 000 129 000 000 129 000 000

Retained profit - - - - 4 805 991 5 500 592 5 928 499 34 431 065 37 228 883 40 173 065 43 303 628

Net worth 119 000 000 120 453 552 111 794 745 102 969 917 107 775 908 113 276 500 119 204 999 153 636 064 190 864 948 231 038 013 274 341 641

The projected balance sheet shows that the AP’s net worth grows from R120.45 million in the first year of operation to R274.34 million in the tenth year. This indicates that the AP will be able to increase the value of the funding invested. 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 51 shows the projected cash flow statement of the AP.


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Table 51: Projected cash flow statement

Establishment Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

TOTAL CASH INFLOW 119 000 000 23 593 076 13 816 266 14 788 777 31 576 491 33 777 801 36 146 922 77 311 553 82 712 281 88 507 868 94 703 419

Inflow funds 119 000 000 10 722 953 45 234 53 773 61 907 57 196 65 874 75 838 70 067 80 699 86 348

Total equity capital 119 000 000 10 000 000 - - - - - - - - -

Total short-term finance - 722 953 45 234 53 773 61 907 57 196 65 874 75 838 70 067 80 699 86 348

Inflow operation - 12 870 123 13 771 032 14 735 004 31 514 584 33 720 605 36 081 048 77 235 714 82 642 214 88 427 169 94 617 071

Sales revenue - 12 870 123 13 771 032 14 735 004 31 514 584 33 720 605 36 081 048 77 235 714 82 642 214 88 427 169 94 617 071

TOTAL CASH OUTFLOW 118 538 237 18 170 019 16 346 046 17 797 719 20 657 148 28 815 655 24 108 499 36 406 152 39 008 906 42 332 436 44 964 737

Increase in fixed assets 118 538 237 - - 297 910 - 6 651 927 364 952 - - 447 082 23 566

Fixed investments 118 119 557 - - 297 910 - 6 651 927 364 952 - - 447 082 23 566

Pre-production expenditures 418 680 - - - - - - - - - -

Increase in current assets - 3 040 538 203 297 227 068 253 887 249 047 278 169 311 022 305 094 340 768 364 622

Operating costs - 15 090 961 16 101 532 17 228 640 18 487 076 19 725 070 21 105 824 22 647 463 24 164 058 25 855 543 27 665 430

Marketing costs - 38 520 41 216 44 102 47 189 50 492 54 026 57 808 61 855 66 185 70 817

Income (corporate) tax - - - - 1 868 996 2 139 119 2 305 527 13 389 859 14 477 899 15 622 859 16 840 300

SURPLUS (DEFICIT) 461 763 5 423 057 -2 529 780 -3 008 942 10 919 343 4 962 146 12 038 423 40 905 400 43 703 375 46 175 432 49 738 683

CUMULATIVE CASH BALANCE 461 763 5 884 820 3 355 041 346 098 11 265 441 16 227 587 28 266 011 69 171 411 112 874 787 159 050 219 208 788 901

The projected cash flow statement shows a positive cumulative cash balance from the start and throughout the ten year period. This is an indication that the AP will be able to pay its short-term debts.


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C.5. FINANCIAL ANALYSIS The information presented in the financial statements was analysed and interpreted using financial ratios. 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 R27 042 690, which indicates a positive return from the AP. 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 9.54%, which is above the discount rate of 7%. Therefore, the AP could be attractive for investment and be financially viable. 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 9.4 years. C.5.4. Sensitivity analysis A sensitivity analysis was conducted on selected variables of the financial model, to determine which changes would either negatively or positively affect the financial viability of the enterprise. The variables used for this exercise were:

Revenue

Discount rate

Labour costs. C.5.4.1. Revenue collection

The impact of a change in sales revenue of the respective enterprises on the revenue of the AP was tested. The results are shown in Table 52.


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Table 52: Sensitivity analysis – reduction in revenue from AP enterprises

Original model 10% reduction in sales 20% reduction in sales

NPV R27 042 690 R4 388 727 -R18 265 234

IRR 9.54% 7.43% 5.17%

Payback period 9.4 years 12.7 years 11.8 years

From the analysis it can be seen that a 10% reduction in revenue from the enterprises will cause the AP to be only marginally viable. A 20% reduction will render it completely unsustainable. C.5.4.2. Discount rate

It is anticipated that the ownership model of the AP will be as follows:

Farmers – 70%

State or commercial – 30%. Commercial investors typically require high returns on investment (ROI) than government funders. To take into consideration the expectations of private investors, a commercial discount rate of 14% was used, in conjunction with a revenue model based on 7.5% of the enterprises’ revenue as income into the AP. The results are summarised as follows:

NPV – -R35 037 380 (negative)

IRR – 9.54% (less than the discount rate of 14%)

Payback period – 9.4 years (long period)

All three indicators are unlikely to be deemed acceptable by commercial investors. C.5.4.3. Labour costs

A sensitivity analysis was also carried out on labour costs, which include salaries and costs such as contributions to the Unemployment Insurance Fund (UIF) and Skills Development Levy (SDL). Table 53 shows the results of the analysis.

Table 53: Sensitivity analysis – labour costs

Original model 5% increase 10% increase 15% Increase

NPV R27 042 690 R24 489 642 R21 936 595 R19 383 549

IRR 9.54% 9.30% 9.06% 8.82%

Payback period 9.4 years 9.42 years 9.48 years 9.55 years

Increasing labour costs even by as much as 15% will not have a significant impact on the AP’s financial viability, because the NPV remains positive and the IRR remains above the discount rate of 7%.


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C.6. ECONOMIC BENEFITS OF THE PROPOSED AP 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 in this study has been calculated by adding the average net profit, the average annual depreciation and the average salary spend over the ten year period. The GVA for the grant funded AP is expected to average at R41 215 520 per annum. 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. C.6.2.1. Jobs created by the AP

The AP is expected to create a total of 24 sustainable job opportunities. These jobs would include the following:

Qualified staff: 15

Grade 12 or lower level jobs: 9. C.6.2.2. Jobs created by enterprises

Table 54 outlines the jobs that could potentially be created by the different enterprise opportunities. These estimates are only indications, as detailed feasibility studies for the respective opportunities have not yet been carried out.

Table 54: Jobs created at opportunity level

Business Jobs

Maize mill and silo 41

Cattle feedlot 60

Beef abattoir 19

Vegetable packing house 8

Transportation 4

TOTAL 132

High-Level Master Agri-Park Business Plan: Amajuba District Municipality

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APPENDIX D - FINANCIAL ASSUMPTIONS

High-Level Master Agri-Park Business Plan: District Municipality

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Assumptions for the financial model

Value Sources/Notes

Feasibility Study

Amajuba district agri-park

• New project

Financial

• Inflation= 7%

• Escalate first year= 0 times

• Stock model=By total

(month in which annual reporting needs to be done)

• Beginning month & year=01/2017

• length=12 months

• 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)

Name Start of Production

End of Production

Nominal Capacity

Maize milling R 2 018.00 R 2 027.00 22 500 Tons

Silo R 2 018.00 R 2 027.00 60 000 Tons

Feedlot R 2 018.00 R 2 027.00 24 000 Cattle head

Beef carcass R 2 018.00 R 2 027.00 6 000 Tons

Hides R 2 018.00 R 2 027.00 648 Tons

Vegetable packing house R 2 018.00 R 2 027.00 2 000 Tons

Transportation R 2 018.00 R 2 027.00 1 035 840 Kilometres

• Type=Local

• Name=South African Rand

• Abbreviation=ZAR

• Exchange Rate=N/A

7% for each year, except for first year(All costs and sales prices will be increased annually by this percentage)

Not applicable


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rate: 7%

• Rate (%) = Use annually updated Calculation (middle rate first)

• Length=Automatic (Construction + Production years)

• Rate (%) = Use annually updated Calculation (middle rate first)


• Rate (%) = Use annually updated Calculation (middle rate first), unless specific partner(s) require a different rate


Description Supplier

Depreciation Years (Use SARS Wear & Tear Rates)

Years of Purchase

Quantity Cost (ZAR) Total

Land Purchase

Site preparation & Development R 1.00 R 577 440 R 577 439.66

Civil works, structures & buildings R 1.00

Maize storage and milling Contractors R 50.00 Y0

R 1.00 R 9 605 482 R 9 605 482 Facilities required for the entire agri-park

Abattoir R 50.00 Y0 R 1.00 R 18 778 649 R 18 778 649

Vegetable packing house R 50.00 Y0 R 1.00 R 7 700 597 R 7 700 597

Administration block R 50.00 Y0 R 1.00 R 2 391 238 R 2 391 238

Maize FPSU R 50.00 Y0 R 1.00 R 2 567 000 R 2 567 000

Cattle FPSU R 50.00 Y0 R 1.00 R 2 567 000 R 2 567 000

Feedlot R 50.00 Y0 R 1.00 R 9 000 000 R 9 000 000

Vegetable FPSU R 50.00 Y0 R 2.00 R 2 567 000 R 5 134 000

R 57 743 966

Plant machinery & equipment:

Feedlot R 10.00

Y0 R 1.00 R 5 200 000 R 5 200 000 Machinery &

equipment required to setup


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the entire agri-park

Abattoir R 10.00 Y0 R 1.00 R 17 983 520 R 17 983 520

Maize R 10.00 Y0 R 1.00 R 12 722 359 R 12 722 359

Animal feed facility R 10.00 Y0 R - R 0 R 0

Silo /maize FPSU R 10.00 Y0 R 1.00 R 2 200 000 R 2 200 000

Silo (Animal feed/agri-park) R 10.00 Y0 R 1.00 R 0 R 0

Vegetable pack house R 10.00 Y0 R 1.00 R 754 722 R 754 722

Vegetable FPSU R 10.00 Y0 R 2.00 R 1 015 000 R 2 030 000

Y0

R 40 890 601

Auxiliary & service plant equipment: Y0

Telephone connections Telkom Y0 R 1.00 R 2 500 R 2 500 Telephone lines

Utilities (Electricity & water) Amajuba DM

Y0

R 1.00 R 7 500 R 7 500 Connection of electricity & water supply

IMS(ISO 9001/22000/ISO 14001/OHSAS 18 000)

Consultants

Y0

EIA for AP Consultants

Y0

R 1.00 R 3 000 000 R 3 000 000 For the agri-hub & FPSUs

R 3 010 000

Incorporated fixed assets (project overheads):

Pastel software R 3.00 Y0,Y3,Y6,Y9 R 2.00 R 2 600 R 5 200

Microsoft Office software Makro R 3.00 Y0,Y3,Y6,Y9 R 17.00 R 3 999 R 67 983

Office furniture (per office) Makro R 10.00 Y0 R 18.00 R 7 524 R 135 432

Computer Makro R 3.00 Y0,Y3,Y6,Y9 R 17.00 R 10 000 R 170 000

Telephone handsets - portable Makro R 5.00 Y0,Y5 R 20.00 R 599 R 11 980

CO2 fire extinguisher per unit ADRE Tools

R 5.00 Y0,Y5

R 5.00 R 1 650 R 8 250

First aid kit - mountable box ADRE Tools

R 5.00 Y0,Y5

R 5.00 R 800 R 4 000

Data projectors Makro R 5.00 Y0,Y5 R 2.00 R 8 000 R 16 000

Two Vehicles Nissan R 5.00 Y0,Y5 R 2.00 R 400 000 R 800 000

10 Trucks Man R 5.00 Y0,Y5 R 3.00 R 1 001 704 R 3 005 112

R 1 001 704.00 R 5.00 Y0,Y5 R 2.00 R 448 695 R 897 390

R 1.00

R 5 121 347


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Preproduction Expenditure

Technical & business training Consultants

Y0 R 2.00 R 48 000 R 96 000 Business + technical training (two days each)

Marketing & roadshows In-house

Y0 R 1.00 R 150 000 R 150 000 During the inception of the project

Recruitment Recruitment agent

Y0 R 1.00 R 61 340 R 61 340

1% of skilled labour

Business registration Consultants

Y0 R 1.00 R 61 340 R 61 340 CIPC, labour, SARS etc.

Set up agri-park control system(products)

Consultants

Y0 R 1.00 R 50 000 R 50 000 For managing the production system

R 418 680

Contingencies

R 10 776 203

Description Years Quantity Cost(ZAR)

Utilities:

Water (Domestic) Y1-Y10 R 12.00 R 525 R 6 304 Domestic use

Electricity (Domestic) Y1-10 R 12.00 R 883 R 10 600 Domestic use

Fuel (diesel)

Y1-10

R 12.00 R 453 802 R 5 445 618 For delivery of final products & collection of raw materials

Maintenance

Spare parts consumed & equipment maintenance

Y1-10

R 1.00 R 408 906.01 R 408 906

Royalties Y1-10

Labour:

Salaries are market related

Agri-pack General Manager Y1-10 R 1.00 R 620 000 R 620 000

Financial manager Y1-10 R 1.00 R 540 000 R 540 000

Risk and legal manager Y1-10 R 1.00 R 360 000 R 360 000


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Facilities manager Y1-10 R 4.00 R 420 000 R 1 680 000


Y1-10

R 4.00 R 280 000 R 1 120 000

Technicians Y1-10 R 2.00 R 196 000 R 392 000

Food technologist Y1-10 R 1.00 R 360 000 R 360 000

PR and Marketing Y1-10 R 1.00 R 360 000 R 360 000

Receptionist Y1-10 R 1.00 R 102 000 R 102 000

Driver Y1-10 R 4.00 R 102 000 R 408 000

Cleaners Y1-10 R 4.00 R 48 000 R 192 000

R 6 134 000

Labour overhead costs (taxes etc.):

SDL Y1-10 R 1.00 R 61 340 R 61 340 1% of labour costs

UIF Y1-10 R 1.00 R 61 340 R 61 340

Factory overhead costs:

Safety clothing Y1-10 R 20.00 R 800 R 16 000

Kosher certificate Y1-10 R 1.00 R 37 000 R 37 000 Annual fees

Halaal certificate Y1-10 R 1.00 R 15 000 R 15 000 Annual fees

Quality management system

Y1,Y3,Y6,Y9 R 1.00 R 40 000 R 40 000 After every three years

Waste removal Y1-Y10 573 R 250 R 143 125

Administrative overhead costs

Stationary Y1-10 R 12.00 R 500 R 6 000 per month

Accounting & Audit fees

Y1-10 R 1.00 R 60 000 R 60 000 Once-off annual fees

Bank Y1-10 R 12.00 R 1 000 R 12 000 per month

Internet & telephone monthly costs Y1-10 R 20.00 R 3 000 R 60 000 per month

Security costs

Y1-10 R 12.00 R 5 000 R 600 000 10 security personnel

Landscaping costs Y1-10

R 138.00 Y1-10 R 1.00 R 986 346 R 986 345.67

Marketing overhead costs:

Marketing & promotion

Y1-10 R 12.00 R 3 000 R 36 000 For exhibitions, website updates etc.

Years Quantity Price (ZAR)


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Y1-Y3 422 R 4 150 R 1 750 781.25 tonnes

Y4-Y6 844 R 4 150 R 3 501 562.50 tonnes

Y7-Y10 1 688 R 4 150 R 7 003 125.00 tonnes


Y1-Y3 1 125 R 2 228 R 2 507 006.25 tonnes

Y4-Y6 2 250 R 2 228 R 5 014 012.50 tonnes

Y7-Y10 4 500 R 2 228 R 10 028 025.00 tonnes


Y1-Y3 450 R 10 814.09 R 4 866 339.33 Cattle

Y4-Y6 900 R 10 814.09 R 9 732 678.66 Cattle

Y7-Y10 1 800 R 10 814.09 R 19 465 357.32 Cattle


Y1-Y3 113 R 9 979 R 1 122 687.00 tonnes

Y4-Y6 225 R 9 979 R 2 245 374.00 tonnes

Y7-Y10 450 R 9 979 R 4 490 748.00 tonnes


Y1-Y3 12 R 13 870.00 R 168 520.50 per tonne

Y4-Y6 24 R 13 870.00 R 337 041.00 per tonne

Y7-Y10 49 R 13 870.00 R 674 082.00 per tonne


Y1-Y3 38 R 4 000 R 150 000.00 tonnes

Y4-Y6 75 R 4 000 R 300 000.00 tonnes

Y7-Y10 150 R 4 000 R 600 000.00 tonnes


Y1-Y3 258 960 R 5.63 R 1 457 478.67 km

Y4-Y6 517 920 R 5.63 R 2 914 957.34 km

Y7-Y10 1 035 840 R 5.63 R 5 829 914.69 km

•Raw Materials=30 days

•Work in Progress =1 day

•Finished Goods 7 days

•Utilities=1 day

•Energy= 1 day

Value

• 60 days

• Cash-in-hand-local=7 days

•Raw Materials=30 days


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•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

(Default for most ECD Projects = Grant Funding, Loans could be included in Scenarios)

Joint Venture Partner Year Amount paid in Total % of profits distributed

% of dividends Received (split between partners

•Tax rate=28 % (or use SARS rates for small business)

Value


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APPENDIX E - REFERENCES


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Acts-Online. (2015). Acts. Retrieved February 06, 2015, from http://www.acts.co.za

ADM-LED-Strategy. (2011). Amajuba District Municipality Review of the LED Strategy. Urban Econ.

ADM-Vision-2030. (2012). Amajuba District Municipality Growth and Development Plan. COGTA and Amajuba District Municipality.

ARC-Grain Crops Institute. (2003, Jan 01). http://www.arc.agric.za/arc-gci/Fact%20Sheets%20Library/Maize%20Production.pdf. Retrieved March 24, 2016, from www.arcagric.za: www.arcagric.za

BFAP. (2015). Adding value in the South African Maize value Chain. Bureau for Food and Agricultural Policy.

Bidvest food, s. (2015). Sparta Beef Plant. Johannesburg: bfs247.co.za.

DAFF. (2009). Government Gazette. Regulations relating to the grading, packing and marking of fresh vegetables intended for sale in the Republic of South Africa.

DAFF. (2013). Profile of the SA beef market value Chain. Pretoria: DAFF.

DAFF. (2013). Trends in the Agriculture Sector. Pretoria: DAFF.

DAFF. (2014). A profile of SA Beef Market Value Chain. Pretoria: DAFF.

DAFF. (2014). A profile of SA Beef Market Value Chain. Pretoria: Department of Agriculture, Forestry and Fisheries.

DAFF. (2014). A profile of SA Beef Market Value Chain. Pretoria: Department of Agriculture, Forestry and Fisheries.

DAFF. (2014). A profile of the South African Beef Market Value Chain. Pretoria: Department of Agriculture, Forestry and Fisheries.

DAFF. (2014). A profile of the South African Cabbage Market value chain. Pretoria: Department of Agriculture, Forestry and Fishieries.

DAFF. (2014). A profile of the South African Potato market value chain. Pretoria: Department of Agriculture, Forestry and Fisheries.

DAFF. (2014). A profile of the South African Tomato market value chain. Pretoria: Department of Agriculture, Forestry and Fisheries.

DAFF. (2014). Maize Market Value Chain Profile. Pretoria: DAFF.

DAFF. (2014). Maize Market Value Chain Profile. Pretoria: Department of Agriculture, forestry and Fisheries.

DAFF. (2015). Abstract of Agricultural Statistics. Pretoria: Department of Agriculture, Forestry and Fishieries.


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(2015). ECD Beef abattoir market study.

ECD: CSIR, O. (2015). ECD Beef abattoir market study. Pretoria: ECD Ofifficers.

Erasmus, C. (2003, September 06). http://upetd.up.ac.za/thesis/available/etd-04302005-092906/. Retrieved March 22, 2016, from http://upetd.up.ac.za/thesis/available/etd-04302005-092906/: http://upetd.up.ac.za/thesis/available/etd-04302005-092906/

Farmers Weekly. (2012). Tomatoes exports expand as market swells. Johannesburg, Gauteng.

Fin24. (2015, November 13). http://www.fin24.com/Finweek/Business-and-economy/sa-to-import-r22bn-in-maize-as-drought-continues-20151112-2. Retrieved March 15, 2016, from www.fin24.com: www.fin24.com

Food and Agriculture Organization of the United Nations. (2006, January 01). Small mills in Africa. Retrieved March 16, 2016, from www.fao.org: www.fao.org

(n.d.). Karan Beef, meat processing.

Karan, B. (2016). Karan Beef, meat processing. Johannesburg: Karan Beef.

KZN DARD. (2015). Strategy for agrarian transformation. KZN DARD.

KZN-DARD. (2016, February). Interview with District officials. (D. officials, Interviewer)

KZN-DARD. (2016, March 15). Summary of ADM potential vegetables production. (E. CSIR, Interviewer)

MAC. (2008). Feasibilty Study for the establishment of two fresh produce depot facilities per province in South Africa. Pretoria: National Agricultural Marketing Council.

Modi, A. T. (2015). A simple model to evaluate integrated vegetables production for food security in KwaZulu-Natal, South Africa. Amsterdam: Food Research International, Elsevier LTD.

NAMC. (2006). National Fresh Produce markets: Section 7 investigation.

NAMC. (2015). The Food Price Monitor. Pretoria: National Agriculture Marketing Council.

PCC. (n.d.). Corridor connect. Retrieved February 2014, 2016, from Port and corridor: http://portandcorridor.org/

Potato-SA. (2016, March). Potatoes production in16 regions - 2015 cro year. Retrieved March 16, 2016, from http://www.potatoes.co.za: http://www.potatoes.co.za/industry-information/regional-information.aspx

SAGIS. (2016, February 29). South African Grain Information Service. Retrieved March 14, 2016, from www.sagis.org.za: www.sagis.co.za

SAGL. (2014). Quality Report South African Maize Crop. Pretoria: South African Grain Laboratory.


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(2015). Sparta Beef Plant.

StatsSA. (2011). Agricultural Statistics. Statistics South Africa.

StatsSA. (2011). Population. Pretoria: Statistics South Africa.

StatsSA. (2012). Census 2011 Municipal report: KZN. StatsSA.

StatsSA. (2015). Statistics South Africa.

StatsSA. (2015). Midyear population estimates 2015. Pretoria: Statistics South Africa.

StatsSA. (2016, January 31). www.statssa.gov.za. Retrieved March 15, 2016, from Statistics South Africa: www.statssa.co.za

Tomato Producers Organisation. (2016, March 17). Tomato Producers Organisation. Pretoria, Gauteng, South Africa.

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