Fruit Market Opportunities in Sub-Saharan AfricaA “win-win” opportunity to improve the fruit supply chain

Presentation for Procurement for Development Forum

April 30th 2009

1

Bill & Melinda Gates Foundation and TechnoServe focus on value chain partnerships that reduce poverty in a scalable and sust ainable way

• Objective : Reducing number of hungry people in SSA by 146 million (~75%) from 2004 to 2025 through increasing farm income

Investment areas

• Value chains prioritized by size and growth, stakeholder commitment and level of impact

• Geographic focus driven by investment readiness index and greatest need

• Cost-benefit ratios

• Degree of impact on the greatest number of poor

• Size of current market demand and growth rate

• Staple crops

• Fruits and vegetables

• Alternative crops

Approach to prioritize MNCs partnership

• Export led cash crops

Improved banana value chains

in Kenya & Uganda

40,000 smallholder fruit farmers directly linked to urban wholesalers.

Farmer incomes more than doubled. Increasing productivity and product quality to further boost income.

Now looking to invest in expanding and diversifying fruit production – farmers see fruit as a viable cash crop.

Business development for wholesalers and fruit process companies to ensure maximum utilisation of the farmers crop and maximum income.

Trade volumes in banana alone now approaching 140,000Mt/yr and valued at over $11 million .

There is growing interest and momentum in multi-party p artnership focused on the fruit value chain

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3

Production Processing Marketing

Value Chain Approach to Strategic Intervention

Enabling Environment: •Policy / Regulation, Access to Finance, Infrastructure

• Demand generation / down-stream promotion

• Demand guarantees to processors; bankable pledges of future demand

• Financial and managerial support for the in-country juice processing sector

• In-kind contributions of technical assistance in processing, warehousing, and distribution

MNCs have a critical role to play in the partnership

Multinational corporations (MNC)Bill & Melinda Gates Foundation

• Fund analysis to identify opportunities

• Convene key stakeholders to collaborate on public sector policy and investment

• Grant-making to implementing agencies

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Three strategies stand out for having the greatest pot ential to increase SSA smallholders’ participation in the fruit value chain

Intervention strategies

Growth opportunity for SSA

Medium

High

Complexity of interventions needed

Low High

Domestic markets -processed

Export to “Mature”proximate markets

- processed

Domestic markets-fresh

Export to “Mature”proximate markets

- fresh

Export to “New”proximate markets

– processed

Export to “mature”proximate markets

- processed

2

1

3

5

6

4

Processed Fresh

Source: Interviews; Euromonitor market intelligence: Fruit and Juice

Mango and passion fruit juice concentrate has been id entified as an area of focus due to strong demand and opportunities to reduce costs

Strong demand for fruit juice concentrate – esp. mangoes and passion among

leading commercial players

2,800

18,000

0

5,000

10,000

15,000

20,000

Mangoes Passion

Current demand for juice concentrate from commercia l players(Expressed in MT of fresh production)

MT of concentrate

1200 185

Switching to locally sourced concentrates could reduce costs by 15-20% and

improve lead times

Note: *Major commercial players include Coke, Del Monte, and Britania ; assumes that concentrate is 3X the strength of fresh fruit for Mangoes and Passion; assumes that 5kg of fresh fruit (including stems and skin) is required to yield 1kg of fresh pulp; total production calculated for Uganda and Kenya only

Source: Coke; Britania; Del Monte; Milly processors; Ministry of agriculture, Kenya (2006); Ministry of agriculture, Uganda (2006)

0

20

40

60

80

100100

Import model

Overhead

80-85

Packaging

Concentrate

Local sourcing model

-18%

Relative cost structures

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Market growth rates in local demand for mango and pass ion juice concentrates could involve ~20-65K farmers by 2011

Potential number of smallholders impacted from incr eased local juice concentration production (in K’s)

0

10

20

30

40

50

60

70

High9

27

2008

Low

High12

36

2009

Low

High16

49

2010

Low

High

Low

66

2011

22

Note: Assumes that farmers have an average of 1 hectare of land with a 55% wastage rate on fruit; assumes that farmers attain the average Kenyan yield for the two fruits; Low case is where a farmer dedicates 1/2 hectare to production, high cases assumes 1/6 of a hectare is dedicatedSource: Interviews; data from commercial players; Dalberg analysis; Ministry of Agriculture (Kenya)

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Success story: Frigoken, a vegetable processing company in Kenya, gre w annual exports to 1,300 containers and raise farmer inco me by up to 400%

1,500

65,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Frigoken green bean production(containers shipped)

Source: Frigoken

20

1,300

0

200

400

600

800

1,000

1,200

1,400

Smallholder farmers Frigoken works with

2008

+4,233%

2008

+6,400%

1995

1989

Impact

• Frigoken currently provides support

to famers through:

• Subsidized inputs

• Training from agronomists

• Maintain close contact throughout

production via field controllers

• Frigoken’s model can be adapted and

applied to the fruit market

• Considering a move into high-value

fruits such as passion fruit.

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Significant challenges in the supply chain constrain food transformation in SSA

ProductionConsolidation /

Distribution Processing Wholesale Retail

Domestic / regional markets

Export markets

• Preference for estate production of cash crops

• Lack of production for export-oriented tastes / needs

• Decentralization• High cost of

inputs • Lack of

irrigation / use of technologies

• Poor market information

• Low quality• Lack of fertilizer

• Value capture through dis-intermediation of the value chain

• Lack of cold-storage capacity

• High transport cost

• Lack of local processing facilities

• Insufficient market information

• Limited access to “premium”channels

• Difficult for farmers to access market directly

• Farmers receive low price for produce

• Product perishability

• Lack of sufficient port infrastructure

• Tariff barriers

• Lack of production for export-oriented tastes / needs

• Access to export markets

• Cold-storage capacity

• Lack of sufficient / efficient port infrastructure

• Tariff barriers

• Certification Standards

Difficult to access finance across the value chain

Source: Interviews; Dalberg research

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We are engaging relevant MNCs to partner with in the stru cturing and implementation of a multi-year intervention in SSA

2008 2009

Nov Feb May Sep

2010 – 2012

Research macro opportunity in fruit supply chain

Identify specific market opportunities

Conduct stakeholder workshop in London

TechnoServeto develop plans for multi-year intervention

BMGF to fund implementation of multi-year intervention

Today

ResearchStakeholder engagement

Intervention structuring

Implementation

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UK

• Steve Harris (SHarris@tns.org) TechnoServe

• Steve Homer (steve@biospartners.co.uk) Bios Partners

US

• Richard Rogers(Richard.rogers@gatesfoundation.org)Bill & Melinda Gates Foundation

• Simon Winter (SWinter@tns.org) TechnoServe

• Susan Bornstein(SBornstein@tns.org)TechnoServe

• Thomas Carroll (Thomas.Carroll@dalberg.com)Dalberg Global Development Advisors

Our contact information

Questions and comments?

Background on TechnoServe:A global non-profit development organization

• Founded in 1968 by businessman, Ed Bullard, who pioneered the private sector approach to solving poverty

• $50M in projected revenues in 2009 from various public and private sector sources

• Employs approximately 550 people, many of whom are former industry experts or management consultants

• Operates in 19 countries; 7 countries in Latin America and 9 countries across Africa, and India

Key facts

Current Work

Extensive past work

Short term past work

Affiliates

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Our Approach – Building Businesses and Industries

The core elements of our approach:

Identify a high-potential industry that can support scaleable, replicable businesses that

benefit the rural poor, and the point(s) along the value chain

where interventions can be most effective

Find someone with business aptitude and the drive and determination necessary to

succeed

Provide the necessary technical and business development

support to help the business reach its full potential

Promote regulations and policies that improve the business climate

Improve the business model based on experience and use it

to launch or expand more businesses within the industry

Improve the business environment

Analyze the business

opportunity

Identify the entrepreneur

Refine and scale up to expand impact

Develop the business

2007 Results: 706 businesses generating $149M in revenues,buying almost $50M in products from 255,000 rural producers