Case Study: Meridian Consolidated The Company

Essentials

Company: Meridian

Website: meridianconsolidated.com

Region: East Africa

Sector: Agri-inputs

Business focus: Manufacture and distribution of specialized fertilizer blends; processing and storage of agricultural products; chain of retail stores

Size: > US$300m revenue

GP: Phatisa - African Agriculture Fund

Date of investment: October 2014 Impact Highlights

Since entry, Phatisa has worked with Meridian to significantly improve governance structures and setting standard processes and procedures. Its profit improvement programs across Meridian’s six business units aim to achieve a marked increase in annual fertilizer production while reducing costs and complying with international ESG standards.

With Phatisa’s support, Meridian transformed from a simple fertilizer manufacturer and distributor into a one-stop-shop for smallholder farmers offering affordable inputs and implements, as well as a network for the purchase of farm outputs. During its tenure as shareholder, Meridian added about 1,000 additional employees including seasonal and contract workers, impacting 53,500 smallholders and vendors.

Phatisa was also instrumental in mobilizing the AAF’s TAF to provide funds and the necessary expertise to roll out the PIPS in Malawi through Meridian’s existing network of retailers in the country. If scaled successfully, the project could potentially improve the productivity and livelihoods of millions of smallholder farmers and firmly ground Meridian’s market leadership in Malawi’s fertilizer industry.

The Impact of Private Capital in Emerging Markets

Meridian’s StoryThe Meridian Group is a manufacturer and distributor of fertilizer and trader of agricul-tural commodities across Malawi, Mozam-bique, Zambia and Zimbabwe. The original companies making up the Group trace their origins back to 1990. Organized along six business units, the Group currently employs over 3,000 people, who facilitate the dis-tribution of over 350,000 tons of fertilizer throughout Southern Africa and the purchase and transportation of over 70,000 tons of agricultural commodities each year.

The Phatisa deal team identified, structured, and negotiated the Meridian acquisition through its African Agriculture Fund (AAF) in October 2014. Agriculture and agro-food related industries are two of the top five con-tributors to GDP growth in Southern Africa. Poor soil fertility is one of the leading causes of food insecurity in Africa; however, the balanced application of fertilizer can restore soil health and dramatically increase agricul-tural yields and profitability. This translated into attractive growth prospects for Meridian. The Group had enormous expansion potential with an existing regional footprint that pro-vided infrastructure for additional growth in Zambia and Tanzania. Meridian also provided end-user farmers with affordable farming implements and customized fertilizer blends aimed at increasing local food production, whether for cash crops or for subsistence farming.

The Role Played by Private CapitalBy partnering with Meridian, Phatisa saw an opportunity to transform a fertilizer manu-facturer and distributor into a one-stop shop for farmers, offering inputs and implements (fertilizer, crop protection chemicals, seeds, salt, tools, soap, etc.), as well as a network for the purchase of farm outputs. Phatisa prior-itized investing in the asset base of the core operations, profit improvement programmes in each of the business units, and implement-ing an Environmental, Social and Governance (ESG) action plan. At the time of Phatisa’s investment, Meridian’s profitability was below expectations, it had a suboptimal organi-zation structure and inconsistent operating procedures across its businesses.

Phatisa implemented profit improvement pro-grams across all six business units, including a complete review of the fertilizer supply chain, the optimization of the organizational struc-ture and the strengthening of the Meridian Management Team, as well as the standard-ization and roll-out of required policies and procedures especially in the areas of human resources management and health and safety. With investment in local manufacturing infrastructure, cost savings were realized but importantly this resulted in a marked increase in capacity of fertilizer through the whole supply chain.

A major initiative made possible by the Phati-sa-Meridian partnership was the Productivity Improvement Program for Smallholders (PIPS). PIPS was a €600,000 pilot project launched in Malawi by the Technical Assistance Facility (TAF) of AAF with the goal of sustainably in-creasing the yields and incomes of smallhold-er farmers by providing them with access to customized fertilizers and agronomic advice through Meridian’s retail network. Malawi, a focal market for Meridian, is one of the poorest countries in the world. Its smallhold-er farmers, who constitute the vast majority of the country’s population, had been using an outdated blanket fertilizer consisting of single basal compound, top dressing and application rates formulated 30 years ago to deliver high nutrient fertilizer at the lowest possible cost. The continued use of this blend over time without proper conservation had depleted the soil of much needed nutrients, limiting the productivity and potential income of smallholder farmers. By mobilizing the TAF, Phatisa was able to de-risk a project to intro-duce superior blended fertilizer customized to specific crops and soil types. This would otherwise have taken years for Meridian to make commercially viable, and by accelerating it has unlocked unrealized value in Meridian’s existing fertilizer retail network to provide smallholder customers with better basic in-puts and advice on best agricultural practices, while driving sales.

“Through our involvement with Meridian, we have seen the business quickly scale up and increase its profitability significantly; but most importantly, together we have delivered tangible sustainable impact by increasing the productivity of thousands of smallholder farmers.” Martin Kromat Senior Partner, Portfolio Management,PHATISA

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IMPACT HIGHLIGHTSInitial Investment 2017

Enterprise Value US$66m US$130m

Women as a % of Employees 2% 25%

Environmental management system in place No Yes

Health and Safety Policies in Place No Yes

Investment in Local Communities Unknown US$105,000

Beyond the Bottom LineAs a result of incorporating ESG criteria into its due diligence process, Phatisa was able to identify salient ESG issues within the Meridian operation and devise a corrective action plan to a level compliant with the IFC Performance Standards. A Group-level Environmental Health and Safety Officer was appointed to oversee the implementation of Meridian’s Environmental and Social Action Plan.

The PIPS project in Malawi—which was initial-ly implemented by the African Fertilizer and Agribusiness Partnership (AFAP), Columbia University and AGMARK, under the manage-ment of TechnoServe—has been promoting soil testing through a new unit established at Meridian to provide data-driven recom-mendations for fertilizer blends tailored for specific nutrient requirements. This in turn supports soil rehabilitation, enhances fertilizer impact and efficacy and ultimately increases the income of smallholder farmers. To date, the project has conducted over 2,500 soil tests across the central and southern African region, contributing to the development of five customized fertilizer blends for maize, soy, groundnuts and sweet potato. Further-more, 60 demonstration plots showed that maize fertilizer blends perform 16-20% better than standard blends and soy and ground-nut blends perform 22-26% better. With the goal of increasing the productivity of at least 12,000 smallholder customers, a network of 60 agro-dealers or “agronauts” were trained to market products and provide extension advisory to their smallholder customers.