Dried Food Processing

Market Development Unlocking Opportunity to Change Lives

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from

BACKGROUND

Underlying Problems

Cheetah’s Investment Approach

Concept Description

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Underlying Problems:4 Halves of the Have-Nots

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Solution: A food processor that turns harvest losses

to an advantage

Cheetah’s Investment Strategy

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Integrated Development Equation: ideq

Crops(Harvest Losses)

Food Drying, Processing, Marketing

Cash,Food Security,

& Improved Nutrition

New Opportunity

Concept Summary

Solar-based drying is oldest ‘processing’ technology

Simple, reliable food safety, culturally familiar, and low cost storage

New drying technology allows opportunity for scale

Provides life changing impact in rural villages

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INVESTMENT APPROACHIntroduction and Summary

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Mission

Why

• Increase food security, decrease hunger and malnutrition, and create opportunity for poor families…

How

• by enabling large scale drying of local foods through value-added management into markets of value…

What

• through further processing, product development, certifications, marketing and distribution…

Who

• based on a supply chain sourcing these dried foods from local village groups.

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Grass Roots Development

Led by partner NGOs including MUVI, fintrac, Cheetah, Africare, Care, Concern and othersFormation or leverage of existing farmer cooperatives, women’s groups, savings associations, etc.Concept introductions, capacity building (programmatic or financial support)Improved agronomyGroup based not individual management

Distribution of Technology and Capacity Building

Led by Reservoir with program support from SUA and NGOsContract manufacture and distribution of solar dryers.Distribution through local franchisee shopsTraining materials and training leadership on dryer use, food processing, and food safety

Processing & Sales

Led by new startup named Sunborn FoodsContract purchasing of dried food from farmer groupsProcessing, packaging, marketing and sales of dried foods

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Three Value Chain Components

Business Model

1. Contract with food drying groups to purchase their outputs

2. Partner with distributor of dryers (Reservoir) and NGOs to connect with village based food drying groups

3. Establish food processing factory using simple and affordable processing technologies to reduce investment requirements in early years

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Approach

Be a leading processor and marketer of solar dried foods.

1. Leverage distributed solar capacity of 1000s of village based dryers

2. Provide capacity building in technology including food science, recipes, and food safety

3. Purchase village dried fruits and vegetables providing reliable, guaranteed market

4. Provide processing, marketing and distribution of dried food products

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Strategies

1. Produce high quality, highly nutritious and safe products

2. Keep processing model simple and low-cost

3. Obtain various certifications

4. Where appropriate, mill products into usable flours, teas and herbs

5. Markets: snacks, local packaged foods, ingredient to other product manufacturers, special attention on unique flour products

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MARKETING

The Four Ps of Marketing:

Product

Price

Place

Promotion

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• Pay attention to the 4 Ps!• Distribution systems lacking:

– Identify wholesale opportunities– Be product friendly to informal sector– Create multilayer distribution

with profit for every layer

• Biggest impediment to success is scale: market is big but local producers are small (is reason why imports are prevalent) so plan to achieve scale

• Be wary of preference for “cultural sensitization” and conduct aggressive customer focused marketing

• Competition is international – is needed quality level• Start local; export markets are difficult to meet standards and

expensive to support13

Avoiding Common

Local Marketing Mistakes

PRODUCT: Foods Able to be Dried

• Potatoes• Cassava• Bananas• Sweet Potatoes• Other Staples• Tomatoes• Mangos• Pineapples• Apples• Pears• Other Fruits

• Pumpkins• Carrots• Onions• Garlic• Hot and other

Peppers• Other Vegetables• Spinach• Rosemary• Other Herbs and

Leaves

• Hibiscus• Lemon Grass• Tea Leaves• Ground Nuts• Cocoa• Vanilla• Meat• And much more!

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PRODUCT: Dried Foods Currently Available in Scale: FLAVORS

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• Potatoes• Cassava• Bananas• Sweet Potatoes• Other Staples• Tomatoes• Mangos• Pineapples• Apples• Pears• Other Fruits

• Pumpkins• Carrots• Onions• Garlic• Hot and other

Peppers • Other Vegetables• Spinach• Rosemary• Other Herbs and

Leaves• Hibiscus

• Lemon Grass• Tea Leaves• Ground Nuts• Cocoa• Vanilla• Meat• And much more!

PRODUCT: Large Scale Food Processing

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Typical Food Factories:– Expensive Packaging– Ship water weight (expensive)

+ Massive scale possible in central location

+ Compete processing in minutes to hours

+ Energy intensive

Food Drying:+ Cheap packaging+ Cheap shipping

– Difficult to take to scale centrally

– Complete processing in hours to days

– Energy efficient

New Dryer design overcomes these problems by outsourcing to villages so NEW PRODUCT OPPORTUNITIES

PRODUCT: Tomatoes & Onions are Priority (General Situation)

• New dryer design allows for widespread village use – enabling drying of tomatoes and onions for first time

• Tomatoes and onions (flavorings) have highest local demand differential

• Flavorings most successful drying application across all food commodities

• Tomatoes (plus onions, garlic) largest flavoring ingredients: ketchup, sauces, ingredients used

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• 70% of tomato production is in Iringa• Plus large Iringa crops of onions and garlic• MUVI has organized and registered 5600

tomato farmers (and growing)• Fintrac has local presence and expertise

in tomatoes• Cheetah’s Reservoir and Sunborn Foods

to begin operations in Iringa

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PRODUCT: Tomatoes & Onions are Priority (Specific Situation)

CO

NF

IDE

NT

IAL

PRODUCT Tomatoes: Major New Product Opportunity

• Launch tomato flavorings in a dried form (as is common to flavorings)

• Compete through substantially lower processing costs and seasonal demand differential

• Launch powdered ketchup, chili sauces, and plain tomato flour

• IMPORTANT: Apparent risks are in execution not market opportunity

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PRODUCT: Not Only Tomatoes

• Farmers can use dryersfor a wide variety of products to expand opportunity, increase income, improve food security

• Sunborn needs broader product line to leverage factory investment in tomato off-season

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Fruit based snack foods considered 2nd largest opportunity: massive harvest losses, high demand differential, high profit margins,

widespread crop availability, matches snack food input purchasing pattern

Potatoes and cassava 3rd: large local market size, significant post harvest losses, growing demand for potatoes, use as

ingredient in other foods

Weaning foods, nutrition improvement

solutions are next based on NGO

distribution support

PLACE: Start Local

1. Start with local markets – in the company’s own region

2. When successful expand in concentric rings

3. Buyers in big cities require scale and high quality – avoid until prepared

4. Go to East African nations next

5. Western nations last – they have difficult standards and expensive sales process

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Why think about exports when local demand is high, malnutrition prevalent and food is being imported? (Only reason is that western markets have distribution structures.) Real need is local so start local. It gives opportunity to go to scale and improve quality.

PLACE: Key Local BuyersMany of the buyers are already defined by the PRODUCT component of the Marketing Plan. However: the following are the key segments:• Snack foods to local shops and casual vendors through

the company and distributors to be identified• Bulk flavorings to wholesale processors (already in

communication with Tropical Heat)• Midsized packages to Supermarkets and restaurants• Experiment with daily use packaging for rural areas• Bulk to NGOs using for nutritional supplements

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PRICE: Local Situation

• Be aware of price sensitivity to pricing thresholds (like 500 and 1000 shillings for snack foods)

• Consider buyers who purchase a day’s supply, especially in rural areas

• Processed foods have fixed prices even if inputs are varying in cost seasonally

• Be ready to serve a multilayered distribution system with profit for every tier

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PRICE: Demand Price Survey

24Tomatoes (Top Fl

avorin

g Staple)

Key Flavo

ring St

aplesFru

its

Primary

Starch

Staples

Seco

ndary Sta

rch St

aples

Snack

Food So

urces

0%

20%

40%

60%

80%

100%

Scarce to Plenty: Market Demand Differential

Farm Margin Scarce to PlentyMarket Margin Scarce to Plenty

Tomatoes (and Onions) win!

PRICE: Possible False Assumption

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With every processed food (except maize) we can demonstrate that the market price has little to do with the plenty to scarce differential.

PROCESSING IS NOT BEING USED AS STORAGE TO OVERCOME THE PLENTY TO SCARCE PRICE DIFFERENTIAL OF UNPROCESSED FOODS.)

PRICE: Processing Margins Survey

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Potatoes/C

risps

Peanuts/

Roasted

Popcorn

Maiz

e

Cassav

a

Sunflower S

eeds/Oil

-20%

0%

20%

40%

60%

80%

100%

120%Processing Gross Margins

Farm Plenty Source

Market Scarce Source

Conclusions:• High gross margins

available for all intensively processed foods (80-95%)

• Only maize is seasonally adjusted

• Many inputs are bought in plenty season and then processed through the year

• Oil processing is impacted by large amount of imports (60%)

PROMOTION: Usual Methods

The usual promotional methods will be used: • Western quality logos (and near western

grade packaging except in small packs)• Sales people with face-to-face contact• Sample packs and sidewalk tasting

promotions• Advertising but linked to measurable

performance results

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BUSINESS PLAN

Competitive Analysis

Partnerships

Staffing

Risk Analysis

Plan Milestones

Financial Data

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Village Outsourcing Changes LivesHigher income of villagers through processing value-add and higher prices for crops

Brings value to harvest losses, including undersized or excess crops

Improves local food security by preserving food from season of plenty to season of scarcity

Creates income opportunities for women beyond farming

Assists vulnerable children and HIV+ people with improved nutrition

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If it pays it stays

Village Outsourcing Changes FoodEnables solar drying: a ‘green’ solution that has marketing value and reduces processing costs

Shifts value downstream: increasing the income of villagers and reduces labor processing costs

Simplifies and reduces shipping and packaging across the value chain, including from the farm

UNLOCKS OPPORTUNITIES FOR NEW PRODUCTS

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New Product Development Opportunities

Existing dried food processors are small, of

limited capacity, and unsophisticated

marketing

Traditional processers (e.g. tomato paste canning) have high

costs of capital, operations, and

packaging

Competitive Advantages for Business Model

Distributed Resources• Capital investment, labor,

energy savings, and SCALE of 1,000’s of villagers

Diverse Products• Wide variety of available

raw foods expands product line

Local climates• Effective for food drying

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Key PartnershipsReservoir • Distributor of high-efficiency food dryer

NGOs

• Leverage existing formed groups, including possible group finance, support of field costs (interested partners include MUVI, fintrac, Africare, Care, Concern, etc.)

Finance• Local banks (TIB) provides finance of input

cash flow needs

SUA• Provides technical advice on training

manual , food safety, etc.

Partners In Food

Solutions

• General Mills food scientists provide expert assistance.

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Shared Success Reservoir

needs guaranteed market to arrange for finance and drive dryer sales

Sunborn needs dryer sales to provide dried foods for processing

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Tomatoes: Going to Scale

1. Reservoir and Sunborn go to scale together

2. Start with local markets

3. Farmers sell fresh produce on own & dry excess (harvest losses)

for separate sale

4. Pearl and NGO partners help farmers increase farm production

over time

5. Over time farmers add drying capacity & shift use for dry –

based on opportunity

6. Dried goods have increased market distribution time

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CEO (Cheetah in Yr. 1)

Marketing (Volunteers Managed by Cheetah Yr. 1)

Food Science and Product Development (Assisted by

SUA)Assistant (Year 2)

Sales and DistributionManager

Field Sales Person (Year 2)

Factory Operations Manager

Factory Workers 1 (Yr 1), 5 (Yr 2), 13 (Yr 3)

Field Management: Input Procurement Field Liaison (Year 2)

Accounting (Outsourced to Cheetah indefinitely)

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Staffing

Cheetah holds down initial costs by outsourcing services in early stage companies

Year 1 Plan Milestones1. Select factory site, procure equipment, install, and

begin operations

2. Contract with local groups to supply inputs; by end of year 1 engage with at least 2000 drying entrepreneurs

3. Obtain food safety certifications

4. Test market target products and develop starting product offering

5. Establish relationships with at least three major wholesale buyers

6. Find distribution channels for snack foods

7. By end of year 1, recruit CEO preferably with investment

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Years 2-3 Plan Milestones

1. Expand production and trial new products for possible product line expansion

2. Partner with NGOs to offer elsewhere

3. Consider export potential

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Production Year 1 Year 2 Year 3Number of Farmers Yr End 493 1,773 3,309 Monthly Avg Number of Farmers 253 1,105 2,672

Raw kilos dried 146,246 613,329 1,716,637 Dried kilos output 14,625 61,333 171,664 Raw Kilos/Farmer/In Year 578 555 643 Raw Kilos/Day 3.2 3.0 3.5 Farmer Estimated Annual Income USD

1,445

1,387

1,606

Forecast Production Dependencies

Year 1 Year 2 Year 3-100,000

100,000

300,000

500,000

700,000

900,000

1,100,000

3 Year Forecast P&L

Revenue ExpensesNet Profit w/VAT

Year 1 Year 2 Year 3

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

80,000

100,000

OPERATIONAL CASH FLOW EXCLUSIVE OF INVESTMENTS/LOANS

Cash Flow Min Month Cash Flow Max Month

Investment Sources and UsesSources of Cash USD Donor Funded 30,000 Outside Investors 150,000 Local Investors 50,000 Total Investment At Start 230,000

Input Cash Flow Loan in Yrs 2 & 3 300,000

Uses of CashCapital Expenses 80,000Startup Running Costs 120,000Input Cash Flow 300,000