M a k i n g s e n s e o f d e v e l o p m e n t

May 2012, World Bank, Washington

Michiel Arnoldus

Agro-processing in Africa: how to make it work…

M a k i n g s e n s e o f d e v e l o p m e n t

Agro-processing: issues and opportunities

The timeline of economic development

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Production

Fresh Produce Exports & Niche markets

Processing Local & Regional Markets

Industrial Clusters ?

2005 2010 2015 ?2000

The holy grail of development…

Fresh produce export to EU and US

But fresh produce export has a downside…

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Vulnerability to rising transport cost

Political instability & perishable produce…not ideal

What to do with 2nd,3d & 4th grade? Fresh produce = low added value

Advantages of processing

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Spreading risk

Longer Season

Using waste & by

products

More turnover to

cover overheads

More value added in country

The 2 most common myths

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The market is huge

There are mountains of unused raw material

Supply MarketProcessing

Market is leading, not supply…

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There are tons of pineapple..lets use it

Help, we can’t sell! Some

market research?

Lets build a juice plant for export

Traditional development model

Pineapple surplus

Market research

pineapple products

StrategySupply,

processing marketing

Alternative model (medium term)

Competitivity analyses

Choose products

Sector strategy

Implementation

Ideal scenario if there is time…

A competitive processing industry makes efficient use of all grades

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Fresh export

Local & regionalFresh market

High value processed product

Medium value processed product

And waste inside the factory

Main product Waste Waste product

Cassava starch Waste fiber Cattle feed

Timber Sawdust Particle board

Vanilla Pods after extraction Vanilla specks for ice-cream & yoghurt

Dried mango & IQF Pulp on pip & over ripe pieces & offcuts & peels

Dried mango rolls & juiceCompost

Pine apple juice Skins, cores, crowns Fiber, cattle feed, compost

Meat Bones, meat on head & bones, intestines, hides

Glue, sausage & processed meat products, leather

Soy bean oil Press cake Poultry feed

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Waste products are often not profitable but help cover fixed costs..

Which technology & scale do you invest in?

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Economies of scaleProfessionalismNot scalablemarket access

Easy to managePro-poorMany beneficiaries

Economies of scaleManagable by local

entrepreneurMarket accessProduct quality

Easier to financeLarge impact possible

in short time

Promoting talent to semi-industrial

Finding right technologyProfessionalisationFinding talentFinance

Large invesment = high volume & scale = difficult to managePoliticians get involved

Not possible for every productBeware of opportunists

Complex technology in Africa: maintenance, repair, handling

Cottage industry

Semi - industrial

Fully industrial

Selection of beneficiaries: considerations

Cooperatives & women’s groups• Nice story but serious business or social activity?• Slow decision making & very limited professional capacity

Large corporation with hired mgt• Involvement and sence of urgency of mgt ?• Very professional, but profitable?

Small & Medium size entrepreneur• Dynamic and involved, but often risk averse• Willing to change and professionalise?

Selection criteria for technology in Africa

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Robust-ness

Mainte nance &

repair

Trust-worthy supplier

Effect of Power cuts

Energy source

Easy to operate

Price

Scale Operating cost

Local presence supplier

Complexity

Technology suppliers: a dilemma

Good quality but expensive Simple, sturdy, cheap,

but bulky. Service? Warranty? Efficiency?

Very cheap, but quality? Service? Warranty?

Quality, compact, Africa proof, reasonable price, but smaller assortment. Service? ?

Introduction & testing of new equipment

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The best test is a working machine in a real company

Public money is useful to reduce risk for early adopter, if results are public

Never 100% for free: Make sure everyone feels the pain of failure

Public organisations are ill equiped for small purchases

Matching grants for selected entrepreneurs

M a k i n g s e n s e o f d e v e l o p m e n t

Case Study: Mango processing in Mali and Burkina Faso

Mali and Burkina Faso Context

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Large volumes of

non exportable

mango

Land locked complex

expensive transport

1 large industrial

juice & pulp plant

Franco-phone

Limited industrial

base

Cottage industry of

drying & juice 100,000s of

small orchards

150 drying facilities

Donor darlings

Organic & fair trade doctrine

Situation in 2009

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Dried mango export crashed from 600 ton to 150 ton

Total lack of innovation in drying technology

No pulp export from large high tech plant DAFANI

Question: what is the problem with export?

High local demand for juice; DAFANI popular but not profitable, small guys limited by packaging issue

Which Product, for which Market with which Technology ?

Plan of attack

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1Analyse EU, US, ME & local markets

3Find right equipment for local context, customer requirements & price level

2Analyse local production

4Define strategic options:

Product + Market + Technology

5Define pilots

6Implement pilots

M a k i n g s e n s e o f d e v e l o p m e n t

Dried mango

What consumers, retailers & importers tell us about dried mango

• Burkina product is chewy, sticks to teeth, brown, limited flavour, inconsistent quality

• South Africa is market leader and best quality

• EU market is growing slowly• 2008 importers overestimated demand• No market in Middle East• Local demand limited by quality & price

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Causes of quality issues in dried mango

• Outdated small ovens & no innovation in 15 years• No pre-treatment, poor storage & transport conditions• General hygene issues in production• Stuck in organic-fair trade

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You can’t find a single principle of mango drying in these oven’s.

(South African expert)They are baking the

product, not drying (SA market leader)

We don’t have a proper oven to work with. And each one is different ! (Entrepreneur)

Finding the right drying technology…

• 2 small local manufacturers make specific mango ovens• Simple & robust technology• Obvious choice: Dryers for Africa container dryers• One oven replaces 12 local ovens• Better quality @ lower cost

•If South Africa is market leader, let’s copy them!

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Pre-treatment, storage & transport…

• Pre-treatment: Asorbic & citric acid for organic, Metibysulfate for conventional

• Cold Storage & refrigerated transport• Packaging under Nitrogen & co2

Finding the optimal combination for cost & quality

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M a k i n g s e n s e o f d e v e l o p m e n t

Pulp & Other products

What pulp importers, juice & dairy companies tell us

• India dominates with Alphonso (1200$/ ton) and Totapuri (600$ ton)

• Many competitors in low segment (Peru, Brazil, Mexico)

• Some intermediate varieties (800-1000$/ ton)• BF-Mali varieties unknown • Growing market but low end is saturated• Middle East buys lowest quality from India

uninteresting • US buys from South America• Opportunity: Individually Quick Frozen cubes in EU!

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Issues in local juice & pulp production

• Small producers are limited by packaging : too small for Tetra Pak & plastic, new glass too expensive

• DAFANI• Uses high tech equipment for juice on local market

not profitable• Insufficient control of supply & processing• No real market knowledge & no partners to market

new varieties

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Strategic options

• Conventional & organic dried mango for EU and US market with South African tunnel dryers

• Pulp for EU market and juice for regional market with DAFANI• IQF for European market• Mango bars for local market

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Pilots

1. Adaptation kit for current Atesta ovens2. SA tunnel dryers, preferably in JV with SA company with

local entrepreneurs who pay 50% of investment cost3. Pre-treatment, storage & transport 4. Feasibility study mango bars local market5. Support DAFANI with market research to asses demand

and value of local varieties6. Feasibility study IQF for EU market

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M a k i n g s e n s e o f d e v e l o p m e n t

Implementation

Procurement of tunnel dryers…

1. Language barrier2. Cultural barrier3. World Bank procedures & local interpretation4. Transport & payment5. Adaptation to local context needed (electricity usage) But 6 dryers are arriving now in Mali and BF!

How difficult can it be?

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Making a joint venture between competitors

Dawid van den Berg, LVA: 450 ton/ year in 3 factories in South Africa

Hi, I’m your competitor, can I see your factory & cost price?

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Youssouf Coulibaly, Kene Yiriden, 30 ton/ year in Mali

Visiting each other’s factories

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Building mutual trust

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How competitors are complementary

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More demand then production capacity

South Africa

Lack of mango

Right Technology & know how

Season: December – April

10kg fresh = 1kg dry

1500kg dry mango per employee per season

More equipment but lower depreciation per kg

Mali & Burkina Faso

Lack of demand & mkt capacity

Mountains of mango

Outdated technology & lack of knowledge

Season: April - August

17kg fresh = 1kg dry

450kg per employee per season

Mango & labour are 1/3d -1/2 the price of SA

The outcome: a production agreement

• LVA: training, HACCP support, lab testing and equipment procurement support, marketing

• 3 Mali and 3 BF entrepreneurs: will produce and sell product wholesale to LVA

• Fresh mango exporter Fruiteq: quality control, cold storage and logistics to EU customers from LVA

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Local oven 2.0: a lesson in innovation

A lesson in innovation

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Time invested: 6 months

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South Africa Mali & Burkina Faso

15 years

Budget: €5000 € millions

Result: premium quality, 2x capacity, ½ gas, HACCP, safe

CEAS, exporters, universities, manufacturers, EU engineers

Result: 0

1 artisan, drying equipment manufacturer, 1 local expert

Feasibility study Mango bar for local market

Hypothesis: A product with cheaper ingredients is more affordable for local people

Consumer focus groups: • Quality is bigger issue than price• South African mango rolls from waste pulp are perceived as

premium product!

Next steps:• Pilot local production• Calculate cost, wholesale & retail price• Consumer tasting panel

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IQF feasibility study

1. Market research to confirm demand, competitors, buying criteria & CIF price

1. Establish feasibility of frozen transport chain

2. Find suitable equipment & calculate cost price

3. Test if local varieties can be cut4. Present samples to importers to test

acceptibility local varieties

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M a k i n g s e n s e o f d e v e l o p m e n t

Questions?