high-level master ap business plan: umgungundlovu district municipality revision … ·...

High-Level Master AP Business Plan: uMgungundlovu District Municipality

Revision 0 28 April 2016

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

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

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Confidential between DRDLR and CSIR

EXECUTIVE SUMMARY The Department of Rural Development and Land Reform was mandated to execute the planning and establishment of AP in each of the 44 district municipalities in South Africa. These AP are aimed at creating an enabling environment for economic development and job creation, with a focus on value chains for dominant products. The department contracted the CSIR’s Enterprise Creation for Development (ECD) to develop a master AP business plan for uMgungundlovu District Municipality (uMDM). The AP is meant to comprise of three basic units, namely:

Farmer production support units

An agri-hub

A rural urban market centre – possibly one per province. The process of developing the master business plan is structured according to the following phases:

Phase 1:Feasibility study

Phase 2: Development of the business case

Phase 3: Detailed business planning

Phase 4: AP establishment

Phase 5: Operation and aftercare The development of the business plan involved only Phase 1 and 2, and focused on farmer production support units and the agri-hub. The feasibility study identified following opportunities as having the potential to create job opportunities for the uMDM community:

Cattle feedlot – for cattle finishing

Beef abattoir – producing beef carcasses

Meat processing facility – processing beef carcasses into wors, mince, beef cuts, biltong and beef sausages

Vegetable pack house – processing fresh vegetables into freshly packed and frozen vegetables

Vegetable storage – to provide storage services to crop farmers

Dry maize milling – to produce maize meal, maize grits, samp and maize rice

Animal feed production – to produce animal feeds for poultry and livestock

Maize silo – to provide storage services to maize farmers

Agro-processing opportunities include a beef abattoir, a meat processing facility, a vegetable pack house, an animal feed and a dry milling facility which will all be established within the agri-hub. This agri-hub will be located in Umngeni Local Municipality. A feedlot facility will be established in Mpofana. Storage facilities, such as maize silos and vegetable storage facilities will be established within different local municipalities as follows:

Vegetable storage and service farmer production support units – Mkhambathini, Richmond, Richmond and Umshwathi

Maize silos – Impendle A rural-urban market centre will not be established as part of this agri-park. The agri-park can be diagrammatically presented as follows:


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The uMDM Agri-Park will initially focus on three prioritised value chains, namely beef cattle, maize and vegetables. At a later stage, soybean, dairy, piggery and poultry value chains could be considered for inclusion. Finished and packed products will be supplied to markets such as retail, wholesale, tuck shops, school feeding schemes, local hawkers, other food and beverage industries, as well as the hospitality industry. Some of the products (including fresh crops) will be exported. A warehouse and retail facility will be established within the agri-hub to facilitate sales on site. The uMgungundlovu AP will be legally registered as (Pty) Ltd. This company will be manage the entire infrastructure and will generate income by collecting 4.5% of the sales revenue from the AP opportunities. The opportunities will be implemented by individual businesses. A total investment of R192 042 939 funding will be needed for the establishment of the AP. If the required grant funding could be secured for the establishment, the business will have a positive cash flow from its inception. A financial model was developed to assess the AP financial viability (excluding opportunities).


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The projected ten financial statements reveal a potentially viable business that is profitable from year one. It is also projected to maintain a positive cumulative cash flow over the ten year period. The projected financial performance is summarised by the following indicators:

The net present value (NPV) is R2 144 961 at a discount rate of 7%

The internal rate of return (IRR) is 7.15%

The payback period is 9.7 years

This financial model returns a reasonable payback period, a positive NPV and a positive IRR. The projected ten year financial statements illustrate a healthy business. It is therefore concluded that the uMDM AP could be potentially viable. It should be noted that these results are based on a high level analysis and that detailed feasibility studies should be undertaken to assess the viability of the individual opportunities that would be resident in the AP.


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TABLE OF CONTENTS

EXECUTIVE SUMMARY ..................................................................................................... 2

GLOSSARY OF TERMS ..................................................................................................... 7

LIST OF TABLES ................................................................................................................ 9

LIST OF FIGURES ............................................................................................................ 11

1 INTRODUCTION ....................................................................................................... 13

1.1 Intent/Rationale............................................................................................. 14

1.2 Opportunity/Business description ................................................................. 15

1.3 Feasibility study results ................................................................................. 16

2 BUSINESS AND SERVICES .................................................................................... 17

2.1 Policy and strategy alignment ....................................................................... 17

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

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

2.4 Business concept .......................................................................................... 19

2.5 Institutional arrangements ............................................................................ 21

2.6 Products and services .................................................................................. 22

3 MARKET RESEARCH, ANALYSIS AND PLAN ...................................................... 23

3.1 Customers .................................................................................................... 23

3.2 Market demand and sales forecast ............................................................... 24

3.3 Market prices ................................................................................................ 25

3.4 Competition and competitive edge................................................................ 25

3.5 Marketing and distribution ............................................................................. 26

4 MANUFACTURING AND OPERATIONS PLAN ...................................................... 27

4.1 The AP facilities ............................................................................................ 27

4.2 Machinery and equipment ............................................................................ 29

4.3 Regulatory and legal issues .......................................................................... 29

4.4 Systems, processes and procedures ............................................................ 30

4.5 Supply chain management ........................................................................... 31

5 HUMAN RESOURCES AND GOVERNANCE .......................................................... 32

5.1 Key management personnel ......................................................................... 32

5.2 Industry role players ..................................................................................... 33

5.3 Supporting professional advisors and services ............................................. 33

5.4 AP governance ............................................................................................. 33

6 RISK MANAGEMENT ............................................................................................... 34

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

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

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


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7.3 Financial analysis ......................................................................................... 42

7.4 Economic benefits of the business ............................................................... 43

APPENDIX A - MARKET ANALYSIS ............................................................................. 45

A.1. INTRODUCTION .......................................................................................... 46

A.2. BEEF OPPORTUNITY ................................................................................. 47

A.3. MAIZE OPPORTUNITY ................................................................................ 55

A.4. VEGETABLE OPPORTUNITY...................................................................... 64

A.5. Preliminary opportunities .............................................................................. 80

APPENDIX B - TECHNICAL ANALYSIS ........................................................................ 96

B.1. INTRODUCTION .......................................................................................... 97

B.2. OPPORTUNITIES AND SERVICES - BEEF ................................................ 98

B.3. OPPORTUNITIES AND SERVICES – VEGETABLES ............................... 109

B.4. OPPORTUNITIES AND SERVICES – MAIZE ............................................ 117

B.5. CONCLUSIONS AND RECOMMENDATIONS ........................................... 131

B.6. AP CONCEPT ............................................................................................ 137

B.7. LOCATION ................................................................................................. 139

B.8. EQUIPMENT .............................................................................................. 141

B.9. SPACE REQUIREMENTS .......................................................................... 142

B.10. SUPPLY CHAIN LOGISTICS ..................................................................... 145

B.11. REGULATORY COMPLIANCE .................................................................. 145

B.12. ORGANISATIONAL DESIGN ..................................................................... 148

B.13. RISK MANAGEMENT ................................................................................. 151

APPENDIX C - FINANCIAL ANALYSIS ....................................................................... 153

C.1. INTRODUCTION ........................................................................................ 154

C.2. COSTS ....................................................................................................... 154

C.3. SALES ........................................................................................................ 156

C.4. PROJECTED TEN YEAR FINANCIAL STATEMENTS .............................. 157

C.5. FINANCIAL ANALYSIS .............................................................................. 161

C.6. ECONOMIC BENEFITS OF THE PROPOSED AP .................................... 163

APPENDIX D - FINANCIAL ASSUMPTIONS ............................................................... 165

APPENDIX E - REFERENCES ..................................................................................... 175


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GLOSSARY OF TERMS

ACBio - African Centre for Biodiversity

AH Agri-Hub

AP Agri-Park

BFAP - Bureau for Food and Agricultural Policy

BOD - Board of Directors

COGTA - Department of Cooperative Governance and Traditional Affairs

CSIR - Council for Scientific and Industrial Research

DAFF - Department of Agriculture, Forestry and Fisheries

DAMC - District AP Management Council

DAPOTT - District AP Operating Task Team

DARD - Department of Agriculture and Rural Development

DRDLR - Department of Rural Development and Land Reform

ECD - Enterprise Creation for Development

EIA - Environmental Impact Assessment

FPSU - Farmer Production Support Unit

GDP - Gross domestic product

GGP - Gross geographic product

IDP - Integrated Development Plan

IGDP - Integrated Growth and Development Plan

IMS Integrated Quality Management System

IPAP - Industrial Policy Action Plan

ITC - International Trade Centre

KZN - KwaZulu-Natal

LED - Local Economic Development

LM - Local Municipality

MTSF - Medium Term Strategic Framework

NAPOTT - National AP Operating Task Team

NDP - National Development Plan

NFPM - National Fresh Produce Market

NGP - New Growth Path

PAPOTT - Provincial AP Operating Task Team

PGDS - Provincial Growth and Development Strategy

PLAS - Proactive Land Acquisition Strategy

PSEDS - Provincial Spatial Economic Development Strategy

RUMC - Rural-Urban Market Centre

SA - South Africa

SMME - Small, Medium and Micro Enterprise

SOP - Standard Operating Procedure

uMDM - uMgungundlovu District Municipality


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UNICEF - United Nations Children's Emergency Fund


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LIST OF TABLES Table 1: Types of FPSUs ................................................................................................... 20

Table 2: Target market segments ...................................................................................... 23 Table 3: Estimated market demand and sales forecast ..................................................... 24 Table 4: Market prices ....................................................................................................... 25 Table 5: Competitors.......................................................................................................... 25 Table 6: Quality management systems .............................................................................. 31

Table 7: Risks and mitigation ............................................................................................. 35 Table 8: Income statement ................................................................................................ 39 Table 9: Balance sheet ...................................................................................................... 40 Table 10: Cash flow statement .......................................................................................... 41 Table 11: Sensitivity analysis – % revenue collected ......................................................... 42

Table 12: Sensitivity analysis on labour costs .................................................................... 43

Table 13: Estimated jobs from business ............................................................................ 44

Table 14: Beef products ..................................................................................................... 47 Table 15: Beef value added products ................................................................................ 49 Table 16: Leather market ................................................................................................... 52 Table 17: Leather trade balance ........................................................................................ 53

Table 18: Tannery competitors .......................................................................................... 54 Table 19: Maize products ................................................................................................... 55

Table 20: Maize meal products .......................................................................................... 57 Table 21: Wet milling yields ............................................................................................... 59 Table 22: Wet milling product quantities ............................................................................ 59

Table 23: Animal feed producers ....................................................................................... 63 Table 24: Typical vegetable products ................................................................................ 64

Table 25: Potential cabbage products ............................................................................... 67 Table 26: Envisaged cabbage quantities for distribution .................................................... 69

Table 27: Potential tomato products .................................................................................. 70 Table 28: Envisaged tomato quantities .............................................................................. 72 Table 29: Potential potato products ................................................................................... 74 Table 30: Envisaged potato quantities for distribution ....................................................... 76

Table 31: Potential carrot products .................................................................................... 77 Table 32: Envisaged carrot quantities for distribution ........................................................ 79 Table 33: Beef industry role players .................................................................................. 83 Table 34: Identified beef value chain risks ......................................................................... 84 Table 35: Land requirement ............................................................................................... 86

Table 36: Industry role players ........................................................................................... 87 Table 37: Identified maize value chain risks ...................................................................... 88 Table 38: Land requirement ............................................................................................... 91 Table 39: Industry role players ........................................................................................... 92 Table 40: Distribution by NFPMs ....................................................................................... 92

Table 41: Potential risks ..................................................................................................... 93 Table 42: List of feedlot equipment .................................................................................... 99

Table 43: List of abattoir equipment ................................................................................. 102 Table 44: List of meat processing equipment .................................................................. 105 Table 45: Tannery machinery and equipment .................................................................. 108 Table 46: Equipment – purees, pastes and juices ........................................................... 112 Table 47: Vegetables pack house products ..................................................................... 112 Table 48: Equipment for vegetable pack house ............................................................... 114


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Table 49: Equipment required – Vegetable FPSU ........................................................... 116

Table 50: Maize milling equipment .................................................................................. 120 Table 51: Wet milling equipment ...................................................................................... 122

Table 52: Corn germ oil production equipment ................................................................ 125 Table 53: Production equipment – animal feed ............................................................... 127 Table 54: Pelleting equipment list .................................................................................... 127 Table 55: Equipment - Silo facility .................................................................................... 129 Table 56: Required equipment for service FPSU - maize ................................................ 129

Table 57: Laboratory equipment ...................................................................................... 130 Table 58: Overall production machinery and equipment .................................................. 141 Table 59: Ancillary and admin equipment ........................................................................ 141 Table 60: AP space requirement ..................................................................................... 144 Table 61: Relevant management systems ....................................................................... 146

Table 62: Human resource requirement .......................................................................... 150 Table 63: Identified AP risk .............................................................................................. 152

Table 64: Investment costs .............................................................................................. 155 Table 65: Sales revenue – full capacity ........................................................................... 156 Table 66: Income statement ............................................................................................ 158 Table 67: Balance sheet .................................................................................................. 159

Table 68: Cash flow statement ........................................................................................ 160 Table 69: Sensitivity - % revenue collected ..................................................................... 162 Table 70: Sensitivity analysis – labour costs .................................................................... 163

Table 71: Jobs created by opportunities .......................................................................... 164


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LIST OF FIGURES Figure 1: AP description 15

Figure 2: The agri-hub site 19 Figure 3: Business concept 20 Figure 4: The AP structure 21 Figure 5: The AP layout 28 Figure 6: The AP’s organogram 32

Figure 7: Governance 34 Figure 8: AP indirect costs 37 Figure 9: Cattle industry 48 Figure 10: SA Beef consumption vs production 49 Figure 11: SA beef exports 50

Figure 12: Beef trade balance 51

Figure 13: Beef competitors 51

Figure 14: SA leather exports 53 Figure 15: SA maize industry 56 Figure 16: Human consumption of maize (dry milling) 57 Figure 17: Maize trade balance 58

Figure 18: Milling market 58 Figure 19: SA maize starch exports 60

Figure 20: Maize starch trade balance 60 Figure 21: Animal feed market size 61 Figure 22: SA animal feed exports 62

Figure 23: Animal feed trade balance 62 Figure 24: Vegetable industry 65

Figure 25: SA’s cabbage production and consumption 66 Figure 26: Market destination for cabbages exported by SA 67

Figure 27: SA’s Cabbage market size 68 Figure 28: SA’s trade balance for cabbages 69 Figure 29: SA’s tomato production and consumption 70 Figure 30: SA tomato exports 71

Figure 31: SA tomato product exports 71 Figure 32: SA’s tomato market size 72 Figure 33: SA’s trade balance for tomato ketchup and other tomato sauces 73 Figure 34: Potato production and consumption 74 Figure 35: SA’s market destination for potatoes 75

Figure 36: SA’s potato market size 75 Figure 37: SA’s trade balance for potatoes 76 Figure 38: Carrot production and consumption 77 Figure 39: SA’s export destination for carrots and carrots products 78 Figure 40: SA’s carrot market size 78

Figure 41: SA’s trade balance for carrots 79 Figure 42: Competitors in the processed vegetable industry 80

Figure 43: Beef opportunities 81 Figure 44: Beef supply chain 82 Figure 45: Risk analysis for beef 85 Figure 46: Maize opportunities 85 Figure 47: Supply chain for the maize industry 86 Figure 48: Risk analysis for maize 89


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Figure 49: Preliminary opportunities 90

Figure 50: Supply chain 90 Figure 51: Distribution of processed vegetables 93

Figure 52: Risk analysis for vegetables 95 Figure 53: Feedlot opportunity description 98 Figure 54: Feedlot production process 99 Figure 55: Feedlot organogram 100 Figure 56: Abattoir opportunity description 101

Figure 57: Abattoir production process 102 Figure 58: Abattoir organogram 103 Figure 59: Meat processing facility opportunity description 104 Figure 60 : Beef processing process flow 105 Figure 61: Meat processing facility organogram 106

Figure 62: Tannery opportunity description 107 Figure 63: Tannery production process 107

Figure 64: Tannery organogram 109 Figure 65: Opportunity description – Pastes, puree and juices 110 Figure 66: Process flow: Vegetable puree, paste and juice 111 Figure 67: Opportunity description – vegetable pack house 113

Figure 68: Vegetable packing process 113 Figure 69: Vegetable pack house organogram 115 Figure 70: Vegetable storage and services FPSU 116

Figure 71: Dry milling opportunity description 118 Figure 72: Maize milling production process 119

Figure 73: Dry maize milling production organogram 120 Figure 74: Wet milling opportunity description 121 Figure 75: Wet milling production process 122

Figure 76: Wet milling facility organogram 123

Figure 77: Maize oil facility opportunity description 124 Figure 78: Maize oil production process 124 Figure 79: Maize oil facility organogram 125

Figure 80: Opportunity description - Animal feed production facility 126 Figure 81: Animal feed production process 127

Figure 82: Animal feed production organogram 128 Figure 83: Existing abattoirs in uMDM 131 Figure 84: Grassland in uMDM 132

Figure 85: Minimum number of cattle owned by households in per LM 133 Figure 86: Agricultural land use in uMDM 134

Figure 87: Locations of FPSUs and the agri-hub 139 Figure 88: AP site 140 Figure 89: The uMDM layout and concept plan. 143 Figure 90: Abattoir registration process 147

Figure 91: AP Structure 148 Figure 92: The AP’s organogram 149 Figure 93: uMDM indirect costs 156


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1 INTRODUCTION The Department of Rural Development and Land Reform (DRDLR)was commissioned by government to undertake the planning and establishment of AP in each of the 44 district municipalities in South Africa (SA). The CSIR - Enterprise Creation for Development (ECD) unit was appointed to develop a master AP business plan for uMgungundlovu District Municipality (nMDM). uMDM is one of ten district municipalities in the KwaZulu-Natal (KZN) province. It comprises of seven local municipalities (LMs) namely Impendle, Mkhabathini, Mpofana, Msunduzi, Richmond, uMgeni and uMshwathi. The AP concept 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 co-exist. The following are key strategic objectives of the AP:

Kick-starting rural economic transformation in the district

Promoting the skills of and support 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

Expand irrigated agriculture. The following are the desired outcomes of the AP 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 AP

Encouragement of private or commercial farmers to join the AP 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 will comprise of three basic units:

Farmer production support units (FPSUs)

An Agri-Hub (AH)

A Rural Urban Market Centre (RUMC) – possibly one per province.


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The process of developing the AP’s high-level master business plan was carried out in the following phases:

Phase 1: Feasibility study:

Stakeholder engagement, especially the District Agri-Park Operational Task Team (DAPOTT)

Situational analysis to understand the intent and gain better insights into the local and regional context

Industry, market, and technical overview

Identification of at least three preliminary opportunities that could lay the foundation for further development in the district.

Phase 2: Development of the business case:

The development of the master AP business plan or high-level business case for the district municipality.

Phase 3, 4, and 5, which were not part of the initial contract, will entail the following:

Phase 3: Detailed business planning

Undertaking of detailed assessment of the selected business opportunities

Detailed site or property development assessments

Detailed unpacking of the AP’s ownership and institutional arrangements

Phase 4: AP establishment

Sourcing of funding for the establishment of the AP from both public and private sector

Establishment of the proposed AP.

Phase 5: Operation and aftercare

Technical and business support in line with the expectations of primary investors, especially the South African government.

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 these 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 appears to be failure in coordinating developmental activities and providing an integrated package of services (matching 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 socially inclusive manner. The model 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 be critical. The AP should therefore also seek to:

Be based on economic advantage

Have all elements of the value chain for dominant products


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Ultimately lay the foundation for rural industrialisation. 1.2 Opportunity/Business description Figure 1 shows the description of the uMDM Agri-Park.

Figure 1: AP description

The following have been identified as immediate opportunities for the AP:

Cattle feedlot

Beef abattoir

Meat processing facility

Vegetable pack house

Vegetable storage

Dry maize milling

Animal feed production

Maize silos Suppliers of raw materials are key to the success of the AP with an emphasis on cattle, maize and vegetable farmers. Raw materials (such as cattle, maize and vegetable) will be transported by road using the AP trucks. These will be sold in the form of value-added products, as well as basic commodities. The target market segments include retail, wholesale, the hospitality sector, cattle farmers and feedlots (for animal feed), as well as the export market. Products will mainly be distributed to these markets by road. Figure 1 highlights some of the identified key stakeholders of the AP. The required resources include manpower, electricity, fuel and waste removal services.


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1.3 Feasibility study results Some of the key results from the feasibility study are set out below:

The current agricultural land use in the district is as follows:

Grasslands (33%) – 309 399 ha

Plantations, mainly timber (16%) – 151 766 ha

Sugarcane (9%) – 88 800

Other commercial agriculture (8%) – 78 365 ha

Subsistence agriculture (2%) – 17 473

About 458 862 ha of land in the district is considered arable. Approximately 22.5% is classified as high potential agricultural land.

The key commodities cultivated in the district in the local municipalities include beef cattle, maize, dry beans, vegetables, soybeans, sugarcane, dairy and pigs.

Maize, vegetables, and beef were prioritised for the uMDM Agri-Park.

Current beneficiation activities (linked to the three value chains) in the district include maize milling, animal feed production, abattoirs, meat processing, and vegetable packing.

The following were recommended as immediate beneficiation opportunities for the agri-hub:

Beef abattoir



Animal feed facility

Maize silo The feasibility study was carried out at a high-level. It recommends that detailed business planning be undertaken as the next phase in the process of establishing the AP. The remainder of this document contains a high-level master business plan. This business plan is not meant to be used for securing investments into the AP. It 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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2 BUSINESS AND SERVICES 2.1 Policy and strategy alignment The uMDM Agri-Park is aligned to several national, provincial and local policies and strategies. This section highlights some of the key policies and strategies in line with the AP’s objectives. The National Development Plan (NDP) identified agriculture as having the potential to contribute to economic development and job creation. The main vision of the NDP includes achieving the following agricultural sector targets by 2030:

One million new jobs created

One million hectares under production, through the following key activities:

Expanding areas of irrigated agriculture

Better land use in communal areas and land reform projects for commercial production

Identifying and supporting commercial agriculture sectors

Supporting job creation in upstream and downstream industries

Developing strategies that allow new entrants to access product value chains The National Growth Path (NGP) promotes the creation of jobs through agriculture and agro-processing. The key targets for this framework are as follows:

145 000 new jobs created by agro-processing by 2020

Upgrading of the living conditions of 660 000 farm workers

300 000 new smallholder farmers created. Programme 2 of the KZN Department of Agriculture and Rural Development (DARD) Strategic Plan makes reference to the need to empower and transform communities, thereby enabling them to participate in sustainable agricultural and environmental practices, to realise economic development and food security in the province. The Integrated Development Plans (IDPs) of different LMs are aligned to this strategy. The KZN Provincial Growth and Development Strategy (PGDS) was designed primarily to facilitate sustainable economic growth and to reduce the growing inequality in the province by unleashing agricultural potential and enhancing industrial development through trade, investment and exports 2.2 Provincial and local economic context 2.2.1 Provincial context and local economic context

The proposed AP will be established in uMDM, located in KZN. uMDM is a Category C municipality which, according to the Constitution of SA (1996), has municipal executive and legislative authority in an area that includes more than one municipality. The district covers approximately 8 500 km², and its population is estimated at 1 017 763 (uMDM, 2015). The uMDM jurisdiction covers seven local municipalities, comprising both rural and urban areas. The following LMs fall under uMDM:

Mooi Mpofana


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Umngeni

Umshwathi

Richmond

Mkhambathini

Impendle

Msunduzi After eThekwini, the district is the second largest in KZN in terms of geographical area. It contributed 8.1% towards the provincial GDP in 2013 (KZN Treasury, 2012/13). The key economic activities in the district (uMDM, 2015) are:

Agriculture, forestry and fishing - 11%

Mining and quarrying - 1%

Manufacturing - 14%

Electricity, gas and water - 3%

Construction - 3%

Wholesale and retail - 10%

Transport and storage - 9%

Finance/real estate - 17%

Community services - 28% Msunduzi leads in terms of contribution to GGP, accounting for 73%; followed by uMngeni at 9%; and Umshwathi LM at 7.5% (uMDM, 2015). 2.3 Location / Site Generally, the selection of the final location of both the AH and FPSU will be guided by the basic infrastructure required, such as the proximity to water supply, electricity supply and environmental requirements. 2.3.1 Agri-Hub

The location of the AP was identified in uMngeni LM, just outside Howick. This land is privately owned by a trust. Negotiations are currently underway regarding the use of this land. The size of the identified site is about 320 ha. The AP will require about 10 ha of this land. Figure 2 shows the site identified for the AH.


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Figure 2: The agri-hub site

As depicted in Figure 2, the AH site is situated along the R617 road, which connects the site to the N3 corridor 2.3.2 Farmer production support units (FPSU)

The FPSUs will be established within the following local municipalities:

Mooi Mpofana

Umshwathi

Richmond

Mkhambathini

Impendle

Msunduzi The actual locations of the FPSUs have not been identified yet. 2.4 Business concept Figure 3 depicts the AP business model.


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Figure 3: Business concept

The AP opportunities will primarily source raw materials (such as beef cattle, vegetable and maize) from farmers in the district. Four FPSUs will be established to increase the efficiency of these farmers, as well as to provide effective storage facilities. Table 1 shows a list of FPSU to be established.

Table 1: Types of FPSUs

FPSU Local Municipality Focus

Maize silo, dry milling and service FPSU

Impendle LM

Support crop farmers in Impendle and Umngeni with essential farming services

Maize storage service

Maize milling using an existing maize plant in Impendle

Vegetable storage and service FPSUs

Richmond,

Umshwathi

Mkhambathini

Msunduzi

Support crop farmers with essential farming service

Vegetable storage service

Feedlot and service FPSUs Mpofana LM Support cattle farmers in the

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

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

A meat processing facility to process most of the beef carcasses into beef cuts, wors, mince, beef sausage, and biltong

A vegetable pack house to add-value to fresh produce from different vegetable storage facilities (FPSUs)

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


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An animal feed production facility to produce animal feed, mainly using white maize and hominy chop produced by the dry milling facility.

A silo will be located in the AH to store maize used for both the dry maize and the animal feed facilities.

A warehouse and retail facility within the AH to facilitate trade on site. All food producing facilities will be Halaal, Kosher and ISO 22 000 certified. 2.5 Institutional arrangements 2.5.1 AP

The AP will comprise of an AH, located in Umngeni LM, as well as FPSUs in Msunduzi, Mkhambathini, Impendle, Richmond, Umshwathi and Mpofana. 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 4 illustrates the structure of the AP.

Figure 4: The AP structure

The AP will be registered as a private (Pty Ltd.) company. Initially, all the shares will be held in a trust by one of the organisations that are part of the District AP 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.


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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. 2.5.2 Business opportunities

The potential opportunities identified for the AP will 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 principles 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 an opportunity, it is expected 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 business to confirm whether such expansion would be viable from a technical and financial perspective. 2.6 Products and services This section outlines the AP’s products and services. More information about products and services of the AP is included in APPENDIX A -. 2.6.1 Agri-hub

The AH will create an enabling environment of value addition and trades by providing appropriated infrastructure in the form of machinery, equipment and operating space. The AH based opportunities will produce and sell the following products at full capacity:

Feedlot (cattle) - 8 222 cattle

Abattoir (beef carcasses) - 3 700 tonnes

Abattoir (cattle hides) - 8 222 cattle

Meat processing (wors, mice, beef cuts, biltong and beef sausages) - 2 590 tonnes

Vegetable pack house (frozen and freshly packed vegetables) - 15 134 tonnes

Maize meal (maize rice, grits, samp and super maize meal) - 22 500 tonnes

Animal feed - 23 700 tonnes

Fresh maize - 46 200 tonnes Laboratory services will also be offered onsite. 2.6.2 Farmer production support units

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

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

Farmer training (technical & business)

Business incubation

Agricultural extension services


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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

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

Vegetable sorting and grading

Transportation & logistics of fresh produce and livestock

Market information & intelligence

Storage facilities (or processing facilities) The storage facilities will store and sell the following products:

Fresh vegetable from vegetable storage facilities - 22 701 tonnes

Raw maize from silos - 46 200 tonnes

3 MARKET RESEARCH, ANALYSIS AND PLAN This chapter sets out the details relating to market information. For further information, please refer to APPENDIX A -. 3.1 Customers The AP opportunities (AH production facilities and FPSUs) will target customers such as cash and carry retail outlets, small super markets, small shops, big retailers and the export market. Table 2 explains the AP opportunities, the products and the related customers.

Table 2: Target market segments

Opportunity Products Customers

Cattle feedlot Live cattle Primarily AP’s abattoir

Other abattoirs

Abattoir Beef carcasses

Primarily AP’s meat processing facility

Retailers

Export

Cattle hides Tanneries


Wors, mice, beef cuts, beef sausages

Retailers

Small shops and super markets

Tuck shops

Hospitality industry

Cash and carries


Frozen and freshly packed vegetables

Retailers

Food and beverage industry


Tuck shops


Cash and carries

Feeding schemes


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Opportunity Products Customers

Vegetable storage Fresh vegetables (from farms)

The AP’s vegetable pack house

National Fresh Produce Markets

Vegetable hawkers

Retailers


Tuck shops

Feeding schemes


Cash and carries

Fruit and vegetable markets

Export

Maize meals Maize rice, grits, samp and super maize meal

Retailers


Tuck shops


Cash and carries

Feeding schemes

Households

Animal feeds Animal feed The AP’s cattle feedlot

Livestock sector

Maize silos Fresh maize

The AP’s milling facilities


Other maize milling facilities

Retailers

Export

The AP’s staff members will play a significant role in terms of facilitating access to these markets. 3.2 Market demand and sales forecast Table 3 shows the growth of products to be sold and produced within the AH and FPSUs.

Table 3: Estimated market demand and sales forecast

Opportunity Products Opportunity

sales forecast (full capacity)

Price Sale revenue

Feedlot Live cattle 8 222 cattle R 10 814.09 R 88 913 427

Abattoir Beef carcasses 3 700 tonnes R 9 979.44 R 36 923 928

Cattle hides 8 222 cattle R 13.87 R 3 079 057


Wors, mice, beef cuts, beef sausages

2 590 tonnes R 32 000 R 82 880 000


Frozen and freshly packed vegetables

15 134 tonnes R 4 000 R 60 536 000

Vegetable storage

Fresh vegetables (from farms)

22 701 tonnes R 3 750 R 85 128 750

Maize meals Maize rice, grits, samp and super

22 500 tonnes R 4 150 R 93 375 000


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sales forecast (full capacity)

Price Sale revenue

maize meal

Animal Feeds Animal feed 23 700 tonnes R 2 667 R 63 200 000

Grain silos Fresh maize 46 200 tonnes R 2 228 R 102 954 390

Total R 616 990 552

The combined sales revenue of the AP opportunities is projected at R616 990 552. 3.3 Market prices Table 4 illustrates the average prices of products to be sold to the market by AP opportunities.

Table 4: Market prices

Cattle feedlot Product Average price

Abattoir Live cattle R19.80 / kg

Meat processing facility Wors, mice, beef cuts, beef sausages R32.00 / kg

Vegetable pack house Frozen and freshly packed vegetables R40.00 / kg

Vegetable storage Fresh vegetable(from farms) R37.50 / kg

Maize meal Maize rice, grits, samp and super maize meal

R41.50 / kg

Animal feeds Animal feeds R30.00 / kg

Maize silos Fresh maize R22.28 / kg

3.4 Competition and competitive edge Potential competitors for products to be produced in terms of the AP opportunities are listed in Table 5.

Table 5: Competitors

Beef Vegetables Maize meals Animal feeds

Karan beef

Bull brand

EAC group

Sparta beef

Master beef

Beefor

Chalmar beef

SIS farming

Small producers

Tiger Brands Ltd

McCain Foods Ltd

Rhodes Food Group

Nature's Garden (Pty) Ltd

Hillcrest Berry Orchards

Miami Canners cc

Bidvest Group Ltd

Pakco (Pty) Ltd

Maxims Packers (Pty) Ltd

Pioneer Foods (White Star)

Tiger Brands (Ace)

Premier Foods (Iwisa, impala & Nyala)

Small producers

AFGRI

Bokomo Voere

Epol

KK Animal Nutrition

Meadow feeds

Noordwes Voere

Senwesko Voere

Voermol Feeds


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Beef Vegetables Maize meals Animal feeds

Denny Mushrooms (Pty) Ltd

Kraft Heinz Co

Weigh-Less South Africa (Pty) Ltd

Private Label

These competitors could reduce their prices in response to new entrants. The AP’s competitive advantage will be proximity to input suppliers, such as beef cattle, maize and vegetable farmers. Potential farmers will be linked to the AP, possibly as beneficiaries. This will enable the park to effectively manage the prices of key input materials such as the price of cattle, vegetables and maize, thus enabling the AP’s products to be price competitive. 3.5 Marketing and distribution 3.5.1 Marketing and promotion

A marketing strategy will be developed during the implementation of the AP. The strategy will cover the following areas (amongst others):

Brand development

Promotional material & roadshows

Website development

Promotional strategy

In-store activation In-store activation involves strategically placing sales agents in supermarkets and stores to facilitate free tasting of products by customers, aimed at increasing product sales A budget of about R186 000 will be allocated to marketing and related activities. 3.5.2 Product distribution

Finished products will be distributed to the market through the following channels:

The AP’s warehouse and retail facility - this facility will be established within the AP to enable sale of products onsite. Retail spaces will be allocated to each opportunity, including equipment such as cash registers. An estimated budget of R8 000 is allocated to the acquisition of the tilling machine.

Local distribution channels – this includes wholesale and retail, including small supermarkets and tuck shops. Packaged products will be delivered to these outlets by road using the AP’s truck.

Export – some of the products will be supplied to the export market. These products will be transported to the Durban harbour for export distribution using the AP’s trucks.


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4 MANUFACTURING AND OPERATIONS PLAN This chapter sets out the details relating to manufacturing and technical information. Further information is included in APPENDIX B - attached to this document. 4.1 The AP facilities 4.1.1 AP facility layout

Figure 5 illustrates the AP facility layout.

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

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Figure 5: The AP layout

The AP would require approximately 24 580 m² of building floor space. The total land requirement is estimated at 10 ha, including areas such as parking spaces and roads to allow the movement of delivery and collects vehicles. The building cost is estimated at R50 913 696.


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4.1.2 Utilities

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

Electricity, which will be supplied by uMDM

Municipal water will be supplied by uMDM

Fuel which will be purchased from local fuel filling stations 4.2 Machinery and equipment The machinery and equipment required to setup the AP include the following:

Beef facility

Feedlot facility

Abattoir equipment


Dry milling facility

Animal feed facility

Silo and service FPSU(Dry milling)

Silo (Animal feed/AP)


Vegetable storage and Service FPSU

Lab equipments

Trucks X 3

Forklift (Agri-hub) X 4

Bakkie X 1 The total cost of machinery and equipment listed above is estimated at R108 702 625. 4.3 Regulatory and legal issues The AP’s abattoir and feedlot will be obligated to comply with Animal Protection Act (Act No. 71 of 1962) with respect to the handling and transportation of livestock. A Standard Operating Procedure (SOP), with rules and regulations of how to handle animals will be developed. A budget of R50 000 has been allocated for the development of this SOP. The regulation relating to general hygiene requirements for Food Premises and the Transportation of Food (FPTT) published under government notice no. R723 of 12 July 2002 will be applicable. This regulation prescribes that all premises and vehicles handling or processing food must obtain a certificate of acceptance, issued by an approved health inspector. The building design should be according to the specifications outlined in this regulation. All vehicles used to transport food products, will also comply with this legislation. The AP will also comply with National Environmental Management Act, which deals with the environmental aspects of organisations. Compliance to these legislations will be facilitated by the implementation of the Integrated Quality Management Systems (IMS) as follows:


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ISO 9001:2008

HACCP or ISO 22 000

ISO 14001 Prior to the establishment of the AP, specialist studies will be carried out. These studies include the following:

Ecological study

Cultural and Heritage study

Aquatic study

Wetland Delineation study These studies will form part of the Environmental Impact Assessment, which will also be undertaken. A budget of R3 000 000 is allocated to the EIA. 4.4 Systems, processes and procedures 4.4.1 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. 4.4.2 Manuals and operating instructions

Operating manuals for all machinery and equipment will be obtained from respective suppliers. These manuals will be incorporated into the SOPs, 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. 4.4.3 Material handling and storage

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 forklifts. A total of 10 forklifts will be purchased for the Agri-hub (x4) and FPSUs (X6). A total of R4 486 950 will be allocated to the acquisition of the forklifts. Small items will be moved by trolley and by staff members of each production facility.


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4.4.4 Consumables and Maintenance requirements

One of the key responsibilities of the AP’s staff will be to service and maintain the AP facilities, including production equipment, forklifts 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. New machinery and equipment will be purchased, with warranties included. A total budget of R1 131 315 per year is allocated for spare parts, consumables and maintenance of the machinery. 4.4.5 Quality management

To ensure the quality of products produced within the AP facilities, quality management systems will be developed. Table 6 shows relevant quality management systems applicable to the AP facilities.

Table 6: 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.


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

National Environmental Management Act

ISO 18001 A Health and safety Management System (OHS)

OHS Act

The management systems will be integrated and implemented as IMS at an estimated cost of R800 000. 4.5 Supply chain management The AP opportunities will source raw material from farmers in the seven LMs. These raw materials will be collected by the AP’s trucks. About six bakkies will be purchased to assist with the collection of raw material, especially small loads. Finished products will also be delivered by road using the AP’s trucks. Suppliers and customers will also be allowed to deliver or collect goods using their own transport. The warehouse and retail facility will also enable customers to buy products on site.


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The AP will acquire three 10 tonnes delivery trucks at a cost of about R3 005 112, and the six bakkies at R2 350 000.

5 HUMAN RESOURCES AND GOVERNANCE The success of the AP will rely on the skills and determination of its human resources. In order to ensure success, it is important to select a full complement of well skilled management, administrators and production staff. 5.1 Key management personnel Figure 6 shows the AP’s organogram.

Figure 6: The AP’s organogram

The AP will employ a General Manager (GM). This GM’s key responsibility is to oversee the operations of the entire AP. In addition, the GM will establish and manage relations with suppliers and markets, and also do business development. The GM will also ensure that all policies and procedures are in place and all risks are addressed and mitigated. A total of 24 people will be employed and the following positions will be filled:

General Manager

FPSU Manager

Operations/Business Development Manager

Facility Manager

Administrator

Driver


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Food Technologist

Technician (Mechanical and electrical)

Marketing Officer

Business Advisor

Coordinator: FPSU The total manpower cost for year 1 of operation of the AP will be R6 270 000 per annum. 5.2 Industry role players The key industry role players include farmers, wholesalers, retailers, industry associations, additives suppliers, government and funding organisation. APPENDIX A - sets out details relating to industry role players 5.3 Supporting professional advisors and services Product and process development will be required prior to the establishment of the AP opportunities. The following potential product development specialists could be approached:

Durban University of Technology’s Food technology - based in Durban

Agri-Processing Technology Station (ATS) – based at Cape Peninsula University of Technology.

Limpopo Agro-processing Technology Station (LATS) – based at the University of Limpopo, Turfloop campus.

The cattle feedlot will require veterinary services from an accredited and reputable service provider. These services include vaccination, parasite control, reproductive performance and nutritional health of the herd. Howick Veterinary Clinic was identified as one of the potential supplier of veterinary services. The clinic is situated in Howick in Umngeni LM. All animals entering the abattoir will be inspected before slaughtering (ante-mortem inspection), as well as after slaughtering. According to the Meat Safety Act (Act no. 40 of 2000), such inspection must carried out by a registered meat inspector. IMQAS was identified as one of the service providers for meat inspection services. Meat inspection services will cost approximately R300 000 per annum. 5.4 AP governance Figure 7 shows the governance structure of the AP.


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Figure 7: Governance

The AP will be legally registered as a (Pty) Ltd, with a Board of Directors (BOD). The DAMC’s role will be to advice the BOD of the AP on technical, financial and market related issues. DAMC will comprise of representatives from the following institutions: DRDLR

DAPPOT

Farmer’s union/association

uMDM 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). The General Manager (GM) of the AP will be responsible for the day-to-day management and he/she will report to the BOD.

6 RISK MANAGEMENT


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The potential risks that have been identified for the AP and ways to mitigate these are listed in Table 7.

Table 7: Risks and mitigation

Potential risk Likelihood Impact Overall

risk rating

Mitigation measure

Low vacancy rate Medium High High Affordable rental fees

Food poisoning and contamination

High High High

The AP to be designed in line with quality standards (e.g. HACCP or ISO 22 000)

Establish laboratory for food testing

The facility to be continuously cleaned

Inferior equipment High High High Reputable suppliers to be

used

Labour unrest Low High Medium Comply with all applicable

labour legislation

Crime and robbery Low Medium Medium Employ security

personnel to safeguard the premises

Lack of buy-in from key stakeholders (such as farmers, public sector & potential markets)

Low Medium Medium

Intensive stakeholder management before to the establishment of the AP

Unaffordable rent or fees (for tenants)

High High High AP to link opportunities

with market to maximise opportunity profits


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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 uMgungundlovu AP. 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 a 100% grant funding

A discount rate of 7% is used

The cost of land acquisition is not included

The model assumes that accounts are payable in 30 days and receivables are only in 60 days

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

Feedlot

Abattoir

Meat processing


Vegetable storage

Grain silos

Dry maize milling

Transportation (Delivery and collection of products)

The revenues of the respective businesses is estimated on the production of the following products quantities:

Live cattle - 8 222 cattle

Beef carcasses - 3 700 tonnes

Cattle hides - 8 222 cattle

Processed meat (wors, mice, beef cuts, biltong and beef sausages) - 2 590 tonnes

frozen and freshly packed vegetables) - 15 134 tonnes

Fresh vegetables - 22 701 tonnes

Maize meals (rice, samp, grits and super maize meal) - 22 500 tonnes


Fresh maize - 46 200 tonnes

It is assumed the AP will retain 4.5% of the revenue generated by the respective business as revenue for its AP 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 financials are included in APPENDIX C - 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 operation costs and indirect operation costs.


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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 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

A projected total of R193 200 739 funding will be required for the establishment of the uMgungundlovu AP. 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 7.1.2 Indirect operation costs

The estimated indirect costs to be incurred on the first year of operation are R21 825 037 for AP. The largest cost is depreciation at 50%, followed by labour at 25% as depicted

Figure 8: AP indirect costs

7.2 Predicted five year financial statements

0.02% 0.04%

7%

4%

25%

1%

0.41%

13%

50%

0.14% Water -domestic

Electricity-domestic

Fuel- logistics

Spare parts & maintanance

Labour

Labour overhead costs (SDL & UIF)

Factory overhead(Saftey clothing, Kosher,Halaal & QMS)Administrative overhead(Bank charges,stationary,security, internet etc.)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 Table 8, Table 9 and Table 10.


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Table 8: Income statement Production

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

Sales revenue 14 446 045 15 457 268 16 539 277 35 449 017 37 930 448 40 585 580 86 863 687 92 944 145 99 450 235 106 411 752

VARIABLE MARGIN

14 446 045 15 457 268 16 539 277 35 449 017 37 930 448 40 585 580 86 863 687 92 944 145 99 450 235 106 411 752

Less fixed costs 27 187 399 28 086 703 29 094 755 30 248 693 31 350 379 33 115 438 34 529 062 35 878 674 37 391 488 39 044 552

Material 3 008 030 3 218 592 3 443 894 3 684 966 3 942 914 4 218 918 4 514 242 4 830 239 5 168 356 5 530 141

Personnel 6 908 562 7 392 161 7 909 613 8 463 286 9 055 716 9 689 616 10 367 889 11 093 641 11 870 196 12 701 109

Marketing (except personnel)

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

Depreciation 13 685 970 13 685 970 13 685 970 13 708 861 13 708 861 14 239 014 14 267 057 14 267 057 14 267 057 14 301 411

Other fixed costs 3 546 317 3 748 763 4 011 177 4 344 391 4 592 396 4 913 864 5 322 066 5 625 883 6 019 695 6 441 073

GROSS PROFIT (12 741 354) (12 629 435) (12 555 478) 5 200 324 6 580 069 7 470 142 52 334 625 57 065 471 62 058 747 67 367 200

TAXABLE PROFIT

- - - 5 200 324 6 580 069 7 470 142 52 334 625 57 065 471 62 058 747 67 367 200

Income (corporate) tax

- - - 1 456 091 1 842 419 2 091 640 14 653 695 15 978 332 17 376 449 18 862 816

NET PROFIT (12 741 354) (12 629 435) (12 555 478) 3 744 233 4 737 650 5 378 502 37 680 930 41 087 139 44 682 298 48 504 384

The overall projected income statement shows that sales will grow from roughly R14.4 million in Y1 to R106 million in Y10. The income statement shows that the AP is projected to be profitable from Year 4 onwards.


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Table 9: Balance sheet Establishment Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

TOTAL ASSETS 192 500 000 194 308 302 194 375 722 194 452 423 198 283 095 199 359 956 200 094 770 232 503 090 249 626 570 294 423 975 343 051 524

Total current assets 79 261 2 832 179 3 956 134 4 789 492 22 329 026 31 829 805 51 083 319 103 137 197 158 593 617 217 097 054 280 026 013

Inventory on materials & supplies

- 8 356 8 941 9 566 10 236 10 953 11 719 12 540 13 417 14 357 15 362

Work in progress - 27 855 29 678 31 755 34 124 36 357 38 902 41 803 44 538 47 656 50 992

Finished product - 261 779 279 213 298 758 320 690 342 048 365 991 392 859 419 023 448 355 479 740

Accounts receivable - 2 250 238 2 400 122 2 568 131 2 756 639 2 940 253 3 146 071 3 377 001 3 601 936 3 854 072 4 123 857

Cash-in-hand - 203 289 216 629 231 793 249 038 265 380 283 957 305 082 325 102 347 859 372 209

Cash surplus, finance available

79 261 80 662 1 021 551 1 649 489 18 958 299 28 234 815 47 236 680 99 007 912 154 189 600 212 384 756 274 983 854

Total fixed assets, net of depreciation

192 420 739 178 734 769 165 048 799 151 736 663 138 027 801 133 348 118 119 567 067 105 300 010 91 032 953 77 326 921 63 025 510

Fixed investments - 192 042 939 192 042 939 192 042 939 192 416 773 192 416 773 201 445 951 201 903 914 201 903 914 201 903 914 202 464 938

Construction in progress 192 042 939 - - 373 834 - 9 029 178 457 963 - - 561 024 -

Total pre-production expenditures

377 800 377 800 377 800 377 800 377 800 377 800 377 800 377 800 377 800 377 800 377 800

Less accumulated depreciation

- 13 685 970 27 371 940 41 057 910 54 766 772 68 475 633 82 714 647 96 981 704 111 248 761 125 515 817 139 817 228

Accumulated losses brought forward

- - 12 741 354 25 370 790 37 926 268 34 182 034 29 444 385 24 065 882 - - -

Loss in current year - 12 741 354 12 629 435 12 555 478 - - - - - - -

TOTAL LIABILITIES 192 500 000 194 308 302 194 375 722 194 452 423 198 283 095 199 359 956 200 094 770 232 503 090 249 626 570 294 423 975 343 051 524

Total current liabilities - 1 028 302 1 095 722 1 172 423 1 258 862 1 342 307 1 436 268 1 542 160 1 644 383 1 759 490 1 882 655

Subsidies, grants 192 500 000 193 280 000 193 280 000 193 280 000 193 280 000 193 280 000 193 280 000 193 280 000 193 280 000 193 280 000 193 280 000

Reserves, retained profit brought forward

- - - - - - - - 13 615 048 54 702 187 99 384 485

Retained profit - - - - 3 744 233 4 737 650 5 378 502 37 680 930 41 087 139 44 682 298 48 504 384

Net worth 192 500 000 180 538 646 167 909 210 155 353 732 159 097 966 163 835 615 169 214 118 206 895 048 247 982 187 292 664 485 341 168 869

The overall projected balance sheet shows a positive net worth of R192 500 000 in year 1, which is expected to grow to R341 168 869 by end of year 10.


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Table 10: Cash flow statement

Establishment

Production

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

TOTAL CASH INFLOW 192 500 000 16 254 347 15 524 688 16 615 978 35 535 456 38 013 893 40 679 541 86 969 578 93 046 369 99 565 342 106 534 916

Inflow funds 192 500 000 1 808 302 67 420 76 701 86 439 83 445 93 961 105 891 102 224 115 107 123 164

Total equity capital 192 500 000 780 000 - - - - - - - - -

Total short-term finance - 1 028 302 67 420 76 701 86 439 83 445 93 961 105 891 102 224 115 107 123 164

Inflow operation - 14 446 045 15 457 268 16 539 277 35 449 017 37 930 448 40 585 580 86 863 687 92 944 145 99 450 235 106 411 752

Sales revenue - 14 446 045 15 457 268 16 539 277 35 449 017 37 930 448 40 585 580 86 863 687 92 944 145 99 450 235 106 411 752

TOTAL CASH OUTFLOW

192 420 739 16 252 946 14 583 799 15 988 040 18 226 646 28 737 378 21 677 676 35 198 346 37 864 681 41 370 186 43 935 818

Increase in fixed assets 192 420 739 - - 373 834 - 9 029 178 457 963 - - 561 024 -

Fixed investments 192 042 939 - - 373 834 - 9 029 178 457 963 - - 561 024 -

Pre-production expenditures (net of interest)

377 800 - - - - - - - - - -

Increase in current assets

- 2 751 517 183 065 205 421 230 724 224 263 251 649 282 646 274 732 308 281 329 861

Operating costs - 13 462 909 14 359 517 15 364 683 16 492 643 17 591 026 18 822 398 20 204 197 21 549 763 23 058 246 24 672 324

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 - - - - 1 456 091 1 842 419 2 091 640 14 653 695 15 978 332 17 376 449 18 862 816

SURPLUS (DEFICIT) 79 261 1 401 940 889 627 938 17 308 810 9 276 516 19 001 865 51 771 232 55 181 688 58 195 156 62 599 098

CUMULATIVE CASH BALANCE

79 261 80 662 1 021 551 1 649 489 18 958 299 28 234 815 47 236 680 99 007 912 154 189 600 212 384 756 274 983 854

The cash flow shows that the AP would require a total amount of R192 500 000 for establishment. If this funding is secured, the AP is projected to have a positive cash flow from Year 1 to Year 10. Assuming a zero dividend approach, the cumulative cash flow is expected to be R274 983 854 by Year 10.


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7.3 Financial analysis 7.3.1 Financial ratios

If a discount rate of 7% is used:

The net present value (NPV) is R 2 144 961

The internal rate of return (IRR) is 7.15%

The payback period is 9.67 years

If a discount rate of 7% is used, the NPV for this venture is positive, which indicates an expected positive return for the AP.

7.3.2 Sensitivity analysis

In order to determine how changed circumstances would affect the financial viability of the AP, a sensitivity analysis was conducted on different variables of the financial model. Table 11 shows the outcomes of the sensitivity analysis regarding the percentage of revenue collected from opportunities.

Table 11: Sensitivity analysis – % revenue collected

3.5% revenue collected

4% revenue collection

Likely – 4.5% revenue collected

(likely)


NPV (ZAR) -R53 597 881 -R25 259 508 R 2 144 961 R56 765 205

IRR 3.09% 5.23 7.15% 10.63%%

Payback period (years)

11.11 10.30 9.67 8.77

Outcome Marginally profitable with deficits from year to year 3

Profitable with deficits from year to year 3

Profitable Profitable, would likely attract private investors

If only 3.5% of opportunity revenue is collected, the large negative NPV indicates that the AP will not generate the desired levels of income. The IRR of 3.09% indicates a return of well below the discount rate (expected return). If 4% of revenue is collected, the AP expects an IRR of 5.23%, and a substantial negative NPV. This is unlikely to attract private investors. If 4.5% of revenue is collected, the AP meets expectations with an IRR of 7.15%, and a small positive NPV. If revenue collected increases to 5.5%, both the IRR and NPV are positive at 10.63% and R56 765 205 respectively. The payback period is less than 9 years. At 5.5% collection, the AP would be likely to be able to attract private investment The viability of the AP is quite sensitive to the level of income collected from the opportunities Table 12 shows the outcomes of the sensitivity analysis on labour costs.


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Table 12: Sensitivity analysis on labour costs

Likely scenario (base)

5% increase 10% increase 15% Increase

NPV (ZAR) R 2 144 961 -R474 352 -R3 042 306 -R5 712 978

IRR 7.15% 6.97% 6.79% 6.61%


9.67 9.73 years 9.78 9.84

Outcome Profitable Profitable Profitable Profitable but with cash-flow deficit from year 1 to year 3

Table 12 shows that increasing labour costs by 5%, 10% and 15% would have a significant impact on the AP. While the IRR remains positive around 7%, increasing labour costs result in a negative NPV. Increasing labour costs by 15% would result in cash-flow deficits between Year 1 and Year 3. In all three cases the AP would be profitable within a relatively short time, indicating a moderate sensitivity to increases in labour costs 7.3.3 Financial conclusion

The projected ten year financial statements, financial ratios and sensitivity analysis all indicate that the uMDM AP could be a potentially viable business. Based on the assumptions of the financial model, the AP could be viable if:

AP opportunities sales are optimised to enable enough AP revenue

Minimum percentage revenue collection is set at 4.5%

Labour costs used in the model are not increased by more than 10%

Establishment costs and working capital is secured. Based on the sensitivity analysis, the level of revenue collection will have a major impact on the financial performance of the AP. The AP will recruit a Business Advisor to assist the AH production facilities and FPSUs to access markets, aiming at maximising sales revenue for the AP. 7.4 Economic benefits of the business The establishment of the AP 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 uMDM. 7.4.1 Jobs

Based on the number of people needed to operate the operations, management and auxiliary staff, the AP could yield 23 direct job opportunities. The job opportunities would include the following:

General Manager

FPSU Manager (x6)



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Facility Manager

Administrator

Driver (x3)

Food Technologist (x2)

Technician (x2)

Marketing Officer

Business Advisor, and

FPSU Coordinator (x6) Also, the following jobs will be created from businesses which will implement the AP’s production facilities.

Table 13: Estimated jobs from business

Commodity Opportunity No of jobs

Beef

Feedlot 17

Abattoir 18

Meat processing 19

Maize Dry milling facility 22

Animal feed production 13

Vegetable Vegetable pack house 14

Total

103

These jobs could be filled from the uMDM population.


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APPENDIX A - MARKET ANALYSIS


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A.1. INTRODUCTION The AP concept design is guided by the services that will be provided to potential customers. These services will be influenced by the preliminary opportunities identified as having the potential to initiate businesses or industries in the proposed AP. The opportunities were identified in the form of primary produce and final and/or intermediate products. The products considered were identified in terms of the value chains selected for assessment for the AP. Three value chains were selected through a rigorous process involving an analysis of all commodities in the district using the “value chain typology checklist” tool. The results thereof were discussed with stakeholders in a workshop. The following value chains were selected:

Beef

Maize

Vegetables

A high level understanding of the market situation relating to the specific products was considered in the process of identifying opportunities. This market analysis does not constitute a comprehensive market feasibility study and only involved factors that assisted in qualifying and validating the identified product opportunities from the market point of view. The key factors considered included:

Market size

Market trends

Trade balance

Competition. The beneficiaries of this initiative identified some specific services, and where markets could not quantified, other reasonable inputs were also considered. The selection process for products selected for market analysis, took the following into consideration:

The strategic objectives of the AP program

The guiding principles for the establishment of the AP

The desired outcomes. The following objective, guiding principles, and desired outcome were particularly considered:

Objective:

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

Guiding principle:

Maximise access to markets for all farmers, with a bias to emerging farmers and rural communities

Maximise the use of existing agro-processing, bulk and logistics infrastructure, including availability of water, energy and roads.


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Desired outcome:

Develop 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.

A.2. BEEF OPPORTUNITY A.2.1. Typical beef products Final or intermediate products typically found in the beef and cattle value chain are listed in Table 14.

Table 14: Beef products

Product category Products

Beef

Full beef carcass

Red offal and green offal

Cow feet and heads

Tallow

Mince

Burger

Wors

Beef sausages

Beef cuts

Biltong

Cattle hides Leather

A high level market analysis was conducted on listed beef and cattle products as outlined in the following section. A.2.2. Beef industry overview The beef sector supports the livelihood and food security of many nations. The beef sector contributes 15% of the total global food energy and 25% of global dietary proteins (DAFF, 2014). Beef cattle are primarily produced by cattle farmers. There are three major groups of beef cattle farmers in SA:

Commercial farmers – have relatively high and comparable production. Production is normally based on synthetic breeds and/or crossbreeding.

Emerging farmers – black beef farmers who either own or lease land, and herds generally consist of indigenous crossbred or exotic types of cattle

Communal farmers - mainly farm for home consumption and their cattle are mostly indigenous types.

Figure 9 depicts the beef industry opportunities.


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Figure 9: Cattle industry

Feedlots and abattoirs play an essential role with regard to beef production. Feedlots are mainly used for intensive cattle production by administering specific animal feeds to cattle. Weaners (calves) are usually taken to the feedlots when they are six months old, with an average weight of 220 kg. Weaners are calves separated from their mothers at six months of age. Within the feedlot, grain feed is administered to these weaners, enabling them to gain additional 250 kg in three months. At just over 450 kg, cattle will be ready for slaughtering by abattoirs. According to DAFF (2014), SA has approximately 495 abattoirs and 70 feedlots. Most of these feedlots and abattoirs are vertically integrated (DAFF, 2012). Some producers have further integrated to include wholesalers, and distribute their own beef products. About 75% of cattle slaughtered in SA are produced by feedlots. This industry has evolved from a highly regulated environment before 1997, to one that is totally deregulated today. Prior to the regulation of the red meat industry, the following policies were implemented:

The distinction between controlled and uncontrolled areas

Compulsory levies payable by producers

Restrictions on the establishment of abattoirs

The compulsory auctioning of carcasses according to grade and mass in controlled areas

The setting of floor prices.

Since the deregulation of the agricultural marketing dispensation in 1997, the prices in the red meat industry are determined by supply and demand forces (DAFF, 2013). A.2.3. Beef market analysis A.2.3.1. Beef market trends

The local beef market size was estimated at 892 000 tonnes in 2013 (DAFF, 2013). Figure 10 shows SA’s beef production and consumption between 2007/8 and 2012/13. Beef demand is projected to increase by almost 28% between 2016 and 2024, resulting in nearly 200 000 tonnes of additional consumption by the year 2024 (BFAP, 2015).


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Figure 10: SA Beef consumption vs production

Adopted from: (DAFF, 2014)

Beef consumption exceeded production between 2007/08 and 2012/13. This suggests that SA is not self-sufficient in terms of beef production. According to DAFF (2013), beef is imported from other countries to supplement the local supply. The beef shortfall in 2012/13 was estimated at about 37 000 tonnes. The uMgungundlovu District Municipality (uMDM) AP would target 10% of this shortfall and produce about 3 700 tonnes (about 1 850 000 kg) of beef annually. A.2.3.2. Potential beef products

Beef can be marketed as beef carcasses or as value added products. Table 15 shows value added products that could be produced and distributed by the AP.

Table 15: Beef value added products

Product Typical mass

Full beef carcass 253 kg

Red offal and green offal 10 kg

Cow feet and heads 10 kg

Tallow 10 kg

Mince

1 kg

2 kg

3 kg

10 kg

Burgers 10 kg

Wors

1 kg

2 kg

3 kg

10 kg

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13

Production 830 700 727 500 763 600 822 100 823 300 855 000

Consumption 849 000 744 000 767 000 866 000 859 000 892 000

892 000

0100 000200 000300 000400 000500 000600 000700 000800 000900 000

1 000 000

Qu

an

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(T

on

nes)

SA beef production vs consumption


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Product Typical mass

Beef sausages 500 g

10 kg

Beef cuts 2 kg

10 kg

Biltong 10 kg

Cattle hides 26 kg

The products would be distributed through the wholesale and retail markets. The AP could also export some of the value-added products. Figure 11 shows export destinations for South African beef.

Figure 11: SA beef exports

Source: (ITC, 2015)

The largest beef export markets for SA are Mozambique, Lesotho, Kuwait and Swaziland. Beef consumption in the African market is expected to increase based on the continent’s rapid population growth. According to UNICEF (2014), the population is expected to double from 1.2 billion to 2.4 billion between 2015 and 2050, and ultimately reaching 4.2 billion by 2100. This is expected to present more export prospects in the African market. A.2.3.3. Trade balance

In order to determine the possibilities of import substitution of beef, the trade balance was

considered.


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Figure 12: Beef trade balance

Source: (ITC, 2015)

Figure 12 shows that SA’s trade balance for beef (2011- 2015) remained positive as the value of exported beef was more than that of imports. In 2015, the value of exported and imported beef was respectively estimated at R860 247 000 and R64 915 000. This suggests that SA is a net exporter of beef. A.2.3.4. Competition

The competitors in the beef market were identified as shown in Figure 13

Figure 13: Beef competitors

(DAFF, 2013)

Karan Beef is the market leader with a share of 25%, followed by Bull brand and Beef Master at 12% and 10% respectively. Most of the beef market leaders have vertically integrated their feedlots and abattoirs. Small beef producers share about 23% of the market.

2011 2012 2013 2014 2015

Imports 124 145 170 616 144 533 161 056 64 915

Exports 211 604 278 158 351 965 580 379 860 247

Balance 87 459 107 542 207 432 419 323 795 331

0

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Beef meat trade balance

25%

12%

6%

7% 10%

4%

23%

5%

8%

Market share in the beef industry

Karan Beef

Bull Brand

EAC group

Sparta Beef

Beef Master

Beefcor

SMMEs

Chalmar

SIS


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A.2.4. Tannery A.2.4.1. Tannery industry overview

Tanneries convert raw animal hides and skins into finished leather. The three types of hides and skins mostly used in leather manufacturing come from cattle, sheep, and pigs. It is envisaged that the uMDM AP’s tannery would also process skins and hides from these animals. The finished leather is used by the automotive sector (for vehicle interior upholstery), the furniture industry, and the clothing and textile industry. This suggests that this opportunity could be linked to these industries within the district. According to the International Trade Centre (ITC) report (2010), about 70% to 80% of the local hides are suitable for the automotive sector. This report also indicated that the automotive sector consumes most of the leather produced in the country. According to the chairman of Skins, Hides & Leather Council (SHLC), Mr Ernest Heunis (2014), the automotive sector demands high quality leather, and most of these companies prefer Nguni cattle hides, because of the durability and quality. Quality hides are usually procured from abattoirs, as a by-product of slaughtering. Hides can also be obtained from communal slaughter facilities however; these hides are usually of inferior quality. A.2.4.2. Market trends

The availability of hides and skins depends on the size of the slaughter facilities (DAFF, 2013). Table 16 shows SA’s leather market sizes.

Table 16: Leather market

Product Market size

Automotive leather 8.3 million m² ²)

Leather goods and footwear 1.2 million m²

Total 9.5 million

Source: (ITC, 2010)

The number of hides produced will depend on the number of slaughtered animals. It is envisaged that the abattoir, which will form part of the AP, will slaughter about 8 222 cattle per annum, implying that about 8 222 hides will be converted into leather. This will enable the tannery to produce about 38 192 m² of leather per annum and claim about 0.4% of the tannery market. A.2.4.3. Potential products

The AP would process hides and skins into finished leather to supply to the local automotive, footwear and leather sectors. Finished leather could also be exported to other countries. Figure 14 shows SA’s export destinations for leather.


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Figure 14: SA leather exports

The major export markets for SA leather in 2015 were Italy (25%), and China (25%), followed by Vietnam and Thailand at 10% and 7% respectively. The AP could target these countries for leather exports. A.2.4.4. Trade balance

In order to determine the possibilities of export substitution of cattle hides and skin, the trade balance was considered.

Table 17: Leather trade balance

2011 2012 2013 2014 2015

Imports R265 339 R289 812 R291 390 R 351 668 R 331 118

Exports R407 080 R553 084 R920 196 R1 379 486 R1 336 643

Trade balance R141 741 R263 272 R628 806 R1 027 818 R1 005 525

Source: (ITC, 2015)

Table 17 shows a positive trade balance for leather products between 2011 and 2015, indicating that SA exports more leather than it imports. A.2.4.5. Competition

About 32 registered tanneries were identified through the DAFF database. Some of these tanneries are located in Gauteng, Eastern Cape, Western Cape and KwaZulu-Natal as listed in Table 18.


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Table 18: Tannery competitors

Name of tannery Location

1. African Hide Trading Eastern Cape

2. AfriTan Tannery KwaZulu-Natal

3. Bader SA Gauteng

4. Beit Ore Tannery Limpopo

5. ERA Pellis CC Eastern Cape

6. Feltex Automotive Leathers KwaZulu-Natal

7. Gringo Leathers KwaZulu-Natal

8. Hannitan Leather CC Gauteng

9. Hidskin Gauteng

10. Horne Tanning CC Eastern Cape

11. Klein Karoo International Western Cape

12. Kwiktan Gauteng

13. Leather from Hart KwaZulu-Natal

14. Mario Levi Manufacturing Eastern Cape

15. Midlands Tannery Gauteng

16. Mossop-Western Leathers Western Cape

17. O&T Trading KwaZulu-Natal

18. Oasis Tanning Company Gauteng

19. Ostriland Import Export Western Cape

20. Ostrimark SA (Pty) Ltd Eastern Cape

21. Pelts Products Eastern Cape

22. Philippe Genuine Ostrich Products Eastern Cape

23. Prince Albert Tannery Western Cape

24. Rein Tanning Western Cape

25. Richard Kane and Co Western Cape

26. Seton SA Gauteng

27. Skhumba Skins of Africa KwaZulu-Natal

28. Southern Cape Ostrich Tannery Western Cape

29. Swartland Tanning Western Cape

30. The ING Thing cc KwaZulu-Natal

31. Woods Tanning cc Eastern Cape

32. Zenda SA Gauteng (DAFF, 2012)

Most tanneries have standing agreements or contracts with abattoirs and farmers in KwaZulu-Natal. The majority of these tanneries purchase hides from abattoirs in advance, even before the animals are slaughtered (Heunis, 2014). Therefore, almost all hides produced by approved abattoirs are already committed and may not be available to the market. The AP would primarily source hides from the proposed AP abattoir. Hides could also be sourced from communal slaughterers in the district.


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A.3. MAIZE OPPORTUNITY A.3.1. Maize typical products Typical final or intermediate products from the maize value chain are listed in Table 19.

Table 19: Maize products

Primary products Value added products

Dry milling products

Super Maize meal

Samp

Maize rice

Maize grits

Wet milling products

Starch

Gluten

Germ

Husk

Maize oil

Animal feeds Livestock animal feeds

A high level market analysis of various maize products was carried. A.3.2. Industry overview In the 2012/2013 season, South Africa’s’ total maize production was reported at 12 403 000 tonnes. Maize is one of the most important grain crops in South Africa (SA), both as a major feed grain and stable food. Key maize production areas include Free State, Mpumalanga and North West provinces (DAFF, 2012/2013). The two types of maize grown in SA are yellow and white maize. About 48% of maize produced in SA is white maize, whilst 52% is yellow maize (DAFF, 2013). Yellow maize is used as an animal feed grain (mainly poultry) and white maize is used as stable food for most of the local communities. White maize is used to produce maize meal such as samp, maize rice, maize grits and super maize meal, through a dry milling process (DAFF, 2012). The by-product of dry milling is hominy chop which is used for animal feed production. Figure 15 illustrates the local maize industry. Locally, white maize is also used to produce other products such as starch, and its co-products germ, husk and gluten. Maize starch is usually dried and sold as starch powder, or it is further processed to produce products such as sweeteners and dextrose. Husks and gluten are used as supplements in the production of animal feeds. Germ is used to produce maize oil, which could be further beneficiated into cooking oil, bar soaps and cosmetic products.


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Figure 15: SA maize industry

SA also exports raw maize. In the 2013/2014 market year, South Africa had a surplus of 5 747 000 tonnes. Raw maize is exported either through the Durban harbour in KZN or through the Randfontein grain market in the Gauteng Province (DAFF, 2014). Before the deregulation, marketing in South Africa was dominated by a single-channel flow of grain from rural areas into the urban milling system which provided preferential access to buyers. This hindered the development of a more decentralised and lower-cost system. The milling industry was deregulated in 1997 and the maize board was abolished. This created a flexible trade environment, whereby maize producers are free to buy from their preferred suppliers and to sell to their preferred customers. A.3.3. Dry milling market analysis A.3.3.1. Market trends

SA’s maize meal consumption (market size) was estimated at 4.5 million tonnes per annum in 2013/14 (BFAP, 2015). This includes the consumption of different maize meals. Based on this consumption, it is estimated that the uMDM AP would target about 0.5% of the market and produce an estimated 22 500 tonnes per annum. This will include the production of products such as rice, maize meal, and samp products.


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Figure 16: Human consumption of maize (dry milling)

Source: (ITC, 2015)

Figure 16 shows that consumption remained steady between 2008/09 and 2013/14. This depicts an inadequate growth in the local maize consumption, and a possible barrier to entry for new entrants. In addition, this also suggests that the milling capacity is able to fulfil the local demand and it would be difficult for new entrants to penetrate and claim their share of the market. However, there are identified opportunities in the district that warrant further investigation. According to Impendle Local Municipality’s IDP (2012) all the wholesalers in the municipality import their maize meal from as far as Harrismith. A.3.3.2. Dry milling products

Table 20 illustrates products and their quantities that could be produced by the uMDM AP.

Table 20: Maize meal products

Product Quantity(tonnes)

Super Maize meal 11 250

Samp 3 750

Maize rice 3 750

Maize grits 3 750

These products are staple foods for some communities. They would be distributed through wholesale and retail, cash and carries, tuckshops and market agents. A.3.3.3. Trade balance

There are no exports and imports of dry milling products specifically recorded for South Africa. However, Figure 17 shows a trade balance of raw maize.

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Figure 17: Maize trade balance

Source: (ITC, 2015)

The trade balance for maize was positive between 2011 and 2015. This indicates that during this period, maize exports have exceeded imports. This could be attributed to the fact that SA’s maize production exceeds consumption, and the surplus is exported. According to DAFF (2012), uMDM also exports maize through the Durban harbour. A.3.3.4. Competition

Figure 18 shows competitors in the maize milling industry.

Figure 18: Milling market

Source: (ACBio, 2013)

The market leader in the milling industry is Premier Foods with a share of 25.5%, followed by Pioneer Foods and Tiger Brands at 25.3% and 22.5% respectively. One of the Tiger Brands (Ace) milling facilities is located in Pietermaritzburg, within the uMDM. Competitors in the maize milling market would likely reduce their price in response to new entrants. The competitive advantage for the AP will be linkages to farmers and close proximity to raw materials.

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2011 2012 2013 2014 2015

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25.3%

22.5% 25.5%

26.7%

Pioneer Foods (White Star)

Tiger Brands (Ace)

Premier Foods (Iwisa,impala &Nyala)

Others


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A.3.4. Wet market analysis A.3.4.1. Market trends

White maize is also used to produce wet milling products, such as starch and its co-products, namely gluten, husk and germ. According to BFAP (2015), SA converts more than 600 000 tonnes of maize, annually, into starch and its co-products, gluten, germ and husk. Table 21 illustrates the estimated yields of raw maize (corn) for the wet milling process, based on the 600 000 tonnes.

Table 21: Wet milling yields

Product Estimated

yield Estimated yields

(tonnes)

Starch 61% 366 000

Gluten 8% 22 800

Germ 3.8% 48 000

Husk and others 27.2% 163 200

Adopted from: (Minnesota Corn Growers Association)

The market size estimation is based on the quantity of maize processed in the wet milling process. Based on the quantity of maize processed, The AP would target 1% of the maize processed in SA and produce about 6 000 tonnes of maize into starch, gluten, germ and husks. A.3.4.2. Potential products from wet milling

Table 22 shows the quantities of wet milled products to be produced if a total 6 000 tonnes is targeted.

Table 22: Wet milling product quantities

Product Quantities (tonnes)

Starch 3 660

Gluten 228

Germ 480

Husk and others 1 632

Wet milling products will be sold locally to the food, cosmetic and animal feed industry. These products will also be exported to other countries. SA also exports wet milling products. Figure 19 shows the export destinations for SA starch.


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Figure 19: SA maize starch exports

The largest destination for SA maize starch is Philippines, accounting for 22.5% of the total starch exports. Other large markets include Zimbabwe, Taipei and Australia. The AP would also target these countries for maize starch exports. A.3.4.3. Trade balance

Figure 20 shows SA’s trade balance for maize starch.

Figure 20: Maize starch trade balance

Source: (ITC, 2015)

SA had a positive starch trade balance between 2011 and 2015, which implies that value of exported maize starch was more than that of imported maize starch.

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A.3.4.4. Competition

Only one local maize starch producer (Tongaat Hullet starch) was identified. A.3.5. Animal feed market analysis A.3.5.1. Market trends

The animal feed industry utilises yellow maize to produce animal feeds. Animal feed consumption (market size) increased from 3.36 million tonnes to 4.74 million tonnes per annum between the year 2007/8 and 2013/14. According to BFAP (2015), the consumption is projected to increase by 2.64 million between 2013/14 and 2023/24 due to the rising demand for animal-based products.

Figure 21: Animal feed market size

Source: (ITC, 2015)

Figure 21 shows that the size of the animal feed market grew between 2005/06 and 2013/14. This indicates that there could be opportunities for new entrants into this market. Based on the consumption of 4.74 million tonnes in 2013/14, the AP would target 0.5% of this consumption and produce 23 700 tonnes of animal feed per annum. A.3.5.2. Potential animal feed products

The uMgundundlovu AP would produce feed suitable to be consumed by the following animals:

Poultry

Cattle

Sheep

Goat These products would be supplied to poultry farmers, feedlots, sheep and cattle farmers. The animal feed opportunity could be linked to the beef opportunity for the supply of cattle feed. This would ensure the continuous and sustainable supply of the feedlot. Animal feed would also be exported. Figure 22 shows the export destinations for animal feed.

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Figure 22: SA animal feed exports

Figure 22 shows that Namibia is the largest market (about 23% of SA exports) for animal feed produced in South Africa. Other potential markets include Zimbabwe, Botswana, Zambia and Swaziland. These countries would be targeted for distribution of some of the animal feed produced by the uMDM AP. A.3.5.3. Trade balance

Figure 23 shows the SA’s trade balance for animal feed between 2011 and 2015.

Figure 23: Animal feed trade balance

Source: (ITC, 2015)

SA had a positive trade balance between 2012 and 2015, and negative trade balance only in 2011. This indicates that the value of animal feed exports was more than the import value between 2012 and 2015. Competition Table 23 shows some of the key competitors in the animal feed market.

-10 000

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2011 2012 2013 2014 2015

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Table 23: Animal feed producers

Company Location

AFGRI

Peterson (Eastern Cape), Pietermaritzburg (KZN), Isando (Gauteng), Bethlehem (Free State), Kinross (Mpumalanga)

Bokomo Voere Malmesbury

Epol Pretoria, Rustenburg & Pietermaritzburg

KK Animal Nutrition Amanzimtoti

Meadow feeds Pietermaritzburg

Noordwes Voere Litchtenburg

Senwesko Voere Bloemfontein

Voermol Feeds Tongaat

Most of these competitors could reduce their prices in response to new entrants into the animal feed market as their strategy to retain their market share.


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A.4. VEGETABLE OPPORTUNITY A.4.1. Vegetables typical products The typical products from the vegetable value chains are listed in Table 24.

Table 24: Typical vegetable products

Primary products Value added products Mixed/Blended/Salads products

Cabbage Raw packed cabbage

Chopped & packed cabbage

Cabbage and carrot salad

Mixed frozen potatoes and carrots

Tomatoes

Raw packed tomatoes

Tomato sauce/ketchup

Tomato paste and puree

Tomato juice

Powdered tomato

Potatoes

Raw packed potatoes

Potato paste

Chopped & packed potato chips

Potato flour

Potato crisps

Carrots

Raw packed carrots

Carrot juice

Frozen carrots

A high level market analysis for the products was undertaken as outlined in the following the next section. A.4.2. Vegetables industry overview Vegetables are produced by horticultural farmers. They are consumed in diverse ways such as ingredients in many dishes and sauces. They are largely distributed through National Fresh Produce Markets (NFPM) as fresh produce. In addition, vegetables are used for hawking by small-scale entrepreneurs in the informal sector. Some of the vegetables are used to produce value added products such as frozen and freshly packed vegetables, purees, pastes and juices. Figure 24 depicts the structure of the South African vegetable industry.


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Figure 24: Vegetable industry

During the situational analysis, it was discovered that vegetable cultivation occurs throughout the uMDM. This suggests that with structured intervention, there could be prospects for vegetable cultivation and beneficiation. This could assist the district to facilitate job creation and stimulate economic activities, especially in rural areas. A high level market assessment was carried out to investigate potential market opportunities for the uMDM AP. This assessment focused on the following vegetables.

Cabbages

Tomatoes

Potatoes, and

Carrots. Table 24 also lists possible products that could be produced by adding value to these vegetables. A.4.3. Cabbage market analysis A.4.3.1. Cabbage industry

Cabbages are primarily produced by commercial and emerging farmers, and commonly marketed through the NFPMs, the informal market and chain stores. According to DAFF (2014), SA produced an estimated 141 000 tonnes of cabbage in 2013. The consumption in the same year was estimated at just below production, at 139 000 tonnes. Figure 25 shows cabbage production and consumption between 2004 and 2013.


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Figure 25: SA’s cabbage production and consumption

Source: (DAFF, 2014)

Figure 25 shows that SA’s cabbage production is slightly higher than consumption, implying that SA is self-sufficient in terms of cabbage production. This is consistent with the findings of the situational analysis, that the Pietermaritzburg Fresh Produce Market is usually over supplied with cabbages. SA’s cabbage surplus was exported through market agents and marketing companies (DAFF, 2014). In 2013, the cabbage exports from KwaZulu-Natal were recorded in eThekwini Metropolitan Municipality. The cabbage industry operates in a deregulated environment, and as a result the prices are usually determined by the forces of supply and demand. This suggests that when the supply of cabbage exceeds the demand, prices tend to be lower than average. Likewise, when the demand exceeds the supply, prices tend to rise. A.4.3.2. Cabbage products and potential markets

Cabbage is commonly used raw in salads, such as coleslaw, as a cooked vegetable, or preserved in pickles or sauerkraut. Table 25 shows cabbage and cabbage products that could be produced by the AP and their potential markets.

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Table 25: Potential cabbage products

Products Potential markets

Freshly packaged cabbage (full)

National Fresh produce markets

Pietermaritzburg Fresh Produce Markets

Durban Fresh Produce market

Johannesburg Fresh Produce market

Tshwane Fresh produce Market

Chopped & packed cabbage Retail and wholesale

Pick n Pay

Spar

Woolworths

Checkers

Small super markets and tuck shops


Cabbage and carrot salad (Coleslaw)

Cabbage soup

SA also exports cabbages to other countries through, amongst other harbours such as the Durban harbour. The district can also export some of its cabbages since it’s situated next to this harbour. Figure 26 shows the market destination for cabbages exported by SA to other countries through the different export exit points such as Cape Town harbour, OR Tambo International Airport and Durban harbour.

Figure 26: Market destination for cabbages exported by SA

Source: (ITC, 2015)


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Lesotho is SA’s largest cabbage export market destination, followed by Botswana, Namibia and the United Kingdom. Annual imports of cabbages from the rest of the world to the following countries grew by over 40% between 2010 and 2014:

Lesotho

Mozambique

Kenya, and

Gabon. The countries listed above could be potential export destinations for cabbages cultivated in the district. A.4.3.3. Market trends

The local cabbage market was estimated at 139 000 tonnes per annum in 2013. Figure 27 shows the market size trend (consumption between 2004 and 2013).

Figure 27: SA’s Cabbage market size


The average annual market size for cabbages was estimated at 139 800 tonnes between 2009 and 2013. This includes fresh and processed cabbages. The figure also shows that the consumption of cabbage decreased between 2004 and 2006, and remained steady between 2006 and 2013. According to DAFF (2014), approximately 74% of cabbages were distributed by NFPM in 2013, and the remaining 26% were distributed through direct sale from producers to wholesalers, retailers, processors, informal traders, exports and consumers. It is envisaged that uMgungundlovu AP would target about 2% of the SA’s cabbage market, and processes about 2 796 tonnes of cabbages per annum. These cabbages would be distributed to the local market as fresh produce or value added products, and the surplus could be exported. Table 26 illustrates the proposed quantities of cabbage products.

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

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Table 26: Envisaged cabbage quantities for distribution

Products % Distribution Quantity per year

Freshly packaged cabbage (full) 50% 1 398

Chopped & packed cabbage 25% 699

Cabbage and carrot salad (Coleslaw) 25% 699

Total 2 796

A.4.3.4. Trade balance

Figure 28 shows a positive trade balance for, fresh or chilled cabbages.

Figure 28: SA’s trade balance for cabbages

Source: (ITC, 2015)

As shown in Figure 28, for the period under review (2011-2015) the trade balance has been positive. A.4.4. Tomatoes market analysis A.4.4.1. Tomato industry

According to DAFF (2014), the tomato is SA’s second most important and popular vegetable crop after potato. It is cultivated commercially, and by communal, subsistence, community and home gardens. There are about 695 commercial and emerging tomato farmers. According to DAFF (2014), the tomato industry employs about 22 500 people with at least 135 000 dependents. Tomatoes are produced throughout the country. Limpopo accounts for about 75% of tomatoes produced in SA. Commercial farmers contribute about 95% to SA’s tomato production, whilst the emerging sector contributes about 5% (DAFF, 2014). Figure 29 shows SA’s tomato production and consumption.

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Figure 29: SA’s tomato production and consumption


Tomato production exceeds consumption, indicating that SA is self-sufficient in terms of tomato production. According to DAFF (2014), tomato surplus is exported to countries such as Lesotho, Mozambique, Namibia, Botswana, Zimbabwe, and Angola. A.4.4.2. Tomato products and potential markets

Tomato processing entails canning, freezing, dehydration and juice. Tomato is also used as an ingredient in many dishes, sauces (such as tomato sauce or ketchup). The tomato industry experienced an increase in growth mainly from canning (DAFF, 2014). Table 27 shows typical tomato products that could be produced by the uMDM AP, including typical products sizes and their potential markets.

Table 27: Potential tomato products


Raw packed tomatoes






Tomato sauce/ketchup Retail and wholesale

Pick n Pay

Spar

Woolworths

Checkers



Tomato paste and puree, including canned tomatoes

Tomato juice

Tomato powder

The AP could also export tomatoes and tomato products through the Durban harbour. Figure 30 shows SA’s export destination for tomatoes and tomato products from SA. Tomato exports are mainly facilitated through the exit points such as Durban and Cape Town harbours.

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Figure 30: SA tomato exports

Source: (ITC, 2015)

Botswana is the largest export market for tomatoes, accounting for about 37.7% of the total tomatoes exported by SA, followed by Lesotho, Mozambique and Namibia at 19.7%, 19.4% and 15.1% The AP would export tomato products such as petchups, pastes and puree to some of the countries shown in Figure 31

Figure 31: SA tomato product exports

Source: (ITC, 2015)

As seen in Figure 31, Namibia and Botswana are SA’s largest market for tomato products, at 34.4% and 34.2% respectively. The AP would target these countries and other countries depicted for the export market.


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A.4.4.3. Market trends

Figure 32 shows the SA’s tomato consumption was estimated at 410 000 tonnes per annum.

Figure 32: SA’s tomato market size


The average tomato consumption (market size) between 2009 and 2013 was estimated at 405 600 tonnes per annum. It is envisaged that the uMDM would target 1% of the estimated market size and process about 4 056 of tomatoes. Tomatoes would be distributed as fresh and value added products listed in Figure 29.

Table 28: Envisaged tomato quantities

Products % Distribution Annual quantity

Raw packed tomatoes 40% 1 622

Tomato sauce/ketchup 15% 608

Tomato paste and puree 15% 608

Tomato juice 15% 608

Tomato powder 15% 608


Figure 33 shows a positive trade balance for tomato ketchup and other tomato sauces.

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Figure 33: SA’s trade balance for tomato ketchup and other tomato sauces

Source: (ITC, 2015)

The trade balance for tomato products such as ketchup, paste and puree was positive between 2011 and 2015. The trade balance for fresh tomatoes was estimated at USD 8.6 million in 2015 (ITC, 2015). A.4.5. Potato market analysis A.4.5.1. Potato industry

Potatoes are primarily produced by horticultural farmers. They are produced all year round, under both irrigation (about 75% of land) and on dry land (about 25% of land). According to DAFF (2014), there are currently 569 potato farmers. The number of potato producers declined by 6.6% between 2012 and 2013. This could be attributed to the oversupply of potatoes in the country. In 2013, the potato industry contributed about 54.2% to the total gross value of vegetable production, 11.9% of horticultural products and 3% of total agricultural products (DAFF, 2014). The key potato production areas include Limpopo, Free State, Western Cape, Mpumalanga, KwaZulu-Natal (KZN) and Eastern Cape. The uMDM is amongst the areas cultivating potatoes in KZN. Figure 34 shows SA’s potato production and consumption between 2004 and 2013.

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Figure 34: Potato production and consumption


Production exceeded consumption between 2004 and 2013, indicating that SA is self-sufficient in terms of potato production. About 19% of the locally produced potatoes are used by the processing industry. This industry uses potatoes primarily for french fries, crisps, and frozen products. Potato processors also produce products such as dry, frozen and fresh chips. A.4.5.2. Potato product and potential market

About 19% of potatoes are processed annually. According to DAFF (2014), there is a local rapid increase in potato processing. The increased potato processing can be attributed to the consumer need for convenience and ready to eat meals. Table 29 shows potential products that the uMDM AP could produce.

Table 29: Potential potato products


Raw packed potatoes






Potato paste

Retail and wholesale

Pick n Pay

Spar

Woolworths

Checkers



Chopped & packed potato chips

Potato flour

Potato crisps

According to DAFF (2014), sales of potatoes at NFPMs have been declining over the years; however they remain an important distribution channel for fresh potatoes in SA. The

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2 500 000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

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AP would export some of the potatoes and potato products. Figure 35 shows SA’s export destination for potatoes.

Figure 35: SA’s market destination for potatoes

Source: (ITC, 2015)

Angola, Namibia, Mozambique and Botswana are the leading export markets for potatoes produced in SA. uMDM would also target these countries for potato exports. Figure 35Table 38 also shows that potato export to Angola and Zambia has increased in 2014. A.4.5.3. Market trends

Figure 36 shows SA’s potato consumption between 2004 and 2013.

Figure 36: SA’s potato market size


The average market size for potatoes was estimated at 1 464 000 tonnes per annum and it has remained steady between 2011 and 2013. It is envisaged that the enterprise could target about 1% of this market and produce 14 640 tonnes of potatoes. These potatoes will be distributed in the local market as depicted in Table 30.

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Table 30: Envisaged potato quantities for distribution

Products % Distribution Quantity per year

Raw packed potatoes 30% 4 392

Potato paste 17.5% 2 562

Chopped & packed potato chips 17.5% 2 562

Potato flour 17.5% 2 562

Potato crisps 17.5% 2 562


Figure 37: SA’s trade balance for potatoes

Source: (ITC, 2015)

As indicated in Figure 37, SA had a positive trade balance between 2011 and 2015. A.4.6. Carrot market analysis A.4.6.1. Carrot industry

Carrots are produced in most parts of the country by commercial, communal and home gardeners. National fresh produce markets are the key distribution channel for carrots. In 2013, about 113 355 of carrots were distributed through the NFPMs and 17 680 were processed to products such as chopped carrots, grated carrots (for salads) and carrot juice. Carrots are also distributed through wholesale and retail shops. Key carrot production areas are Western Cape, Gauteng, Free State, North West, KwaZulu-Natal and Mpumalanga. Figure 38 shows SA’s production and consumption of carrots between 2004 and 2013.

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2011 2012 2013 2014 2015

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Figure 38: Carrot production and consumption

Source: (ITC, 2015)

SA is self-sufficient in terms of carrot production and consumption because production exceeds consumption. SA also exports carrots surplus to other countries. A.4.6.2. Carrot products and potential markets

Table 31 shows the identified carrot products that could be targeted by the uMDM AP, and potential markets for these products.

Table 31: Potential carrot products


Raw packed carrots






Carrot juice

Retail and wholesale Spar

Pick n Pay

Spar

Woolworths

Checkers



Frozen carrots

There are also export prospects for fresh carrots and value added carrot products such as frozen and carrot juice. In 2013, SA exported about 13 737 tonnes of carrots. Figure 39 shows the export destinations for fresh carrots. uMDM would also target the export market.

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Figure 39: SA’s export destination for carrots and carrots products

Source: (ITC, 2015)

The largest export markets for SA include Angola, Botswana, United Kingdom and Mozambique. These countries would also be targeted by the agri-hub. A.4.6.3. Market trends

Figure 40 depicts the consumption (market size) trend for carrots in SA.

Figure 40: SA’s carrot market size

Source: (ITC, 2015)

The market size for carrots was estimated at 160 000 tonnes in 2013. The uMDM AP could target 1% of this market and produce about 1 600 tonnes of carrots. These carrots would be distributed in the market as shown in Table 32.

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Table 32: Envisaged carrot quantities for distribution

Product % Distribution Estimated quantity

Raw packed carrots 50% 800

Carrot juice 25% 400

Frozen carrots 25% 400


Figure 41 shows a positive trade balance for carrots between 2011 and 2015.

Figure 41: SA’s trade balance for carrots

Source: (ITC, 2015)

The positive trade balance suggests that SA exports more carrots than it imports. A.4.7. Competitors Figure 42 shows competitors in the processed vegetable industry.

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Figure 42: Competitors in the processed vegetable industry

Source: (Euromonitor, 2015)

Tiger Brands is the market leader at 34%, followed by house brands at 25% and McCain at 14%. It is anticipated that most of these competitors would lower their prices in response to new entrants. This suggests that the AP should promote efficiency in terms of both farm production and agro-processing. Vertical integration of opportunities and inputs supply should also be promoted. The competitive edge for the AP would be strong linkages to farmers. In order for the competitive advantage to be realised, strong farmer support programmes would be required. Other competitors (especially for fresh produce) include different horticultural farmers in different areas of SA.

A.5. PRELIMINARY OPPORTUNITIES After having considered the current local situation with respect to the primary production and value addition, and the potential market opportunities analysed at a high level, the following products were identified as preliminary opportunities suitable for the proposed AP:

Beef opportunities

Feedlot

Abattoir

Meat Processing facility

Tannery

Maize opportunities

Dry milling facilities

Wet milling facilities

Maize oil production facility

Animal feed production facility

Silos

34%

14%

8%

3%

2% 1%

1%

1%

1%

1%

0.1%

0.1%

25%

9%

Tiger Brands Ltd

McCain Foods Ltd

Rhodes Food Group

Nature's Garden (Pty) Ltd

Hillcrest Berry Orchards

Miami Canners cc

Bidvest Group Ltd

Pakco (Pty) Ltd

Maxims Packers (Pty) Ltd

Denny Mushrooms (Pty) Ltd

Kraft Heinz Co

Weigh-Less South Africa (Pty) Ltd

Private Label

Others


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Vegetable opportunities

Paste, puree and juices


Vegetable storage facility This section sets out details relating to the supply chains, industry role players and distribution channel for these opportunities. A.5.1. Beef opportunities Error! Reference source not found. depicts potential opportunities suitable for the proposed AP:

Figure 43: Beef opportunities

The four opportunities could co-exist, thus the abattoir requires a sustainable supply of beef cattle which would be provided by the feedlot. Meat processing would require slaughter cattle and one of the by-products of cattle slaughtering is hides. Hides will be used to produce leather by the tannery. A.5.1.1. Supply chain map

Weaners are usually transported by road to the feedlot. Auctions also play a significant role of supplying cattle to both the feedlot and abattoirs. Once they are ready for slaughtering (at about 450 kg), cattle are then transported from the feedlot to the abattoirs by road. After slaughtering, the beef carcass is processed into different beef products, and these products are then supplied to the retail market for distribution. Beef products are distributed through various wholesale and retail establishments. Beef products are also exported through various export exits such as the Durban harbour. Figure 44depicts the supply chain for the beef processing industry.


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Figure 44: Beef supply chain

For the AP to successfully fulfil the targeted beef quantity of 3 700 tonnes and 38 192 m² of leather per annum, about 8 222 cattle will have to be slaughtered annually (29 cattle per day). These quantities could be achieved by intensifying beef cattle production through a feedlot. It is therefore essential to identify potential emerging beef farmers to supply beef cattle to the beef opportunity. A.5.1.2. Industry role players

Table 33 shows key stakeholders in the beef production sector.


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Table 33: Beef industry role players

Type of role players Names Roles

Cattle and beef production

Abattoirs Beef processing

Feedlots Finishing cattle for slaughtering

Commercial farmer Producing cattle

Emerging Producing cattle

Communal farmers Producing cattle

Industry Association

National Emergent Red-meat Producers Organisation

Represent red meat producers

South African Feedlot Association

Represent SA feedlots

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

Red Meat Abattoir Association Representing red meat abattoirs

Red Meat Producers’ Association

Representing red meat producers (commercial)

Red Meat Industry Forum (RMIF)

Representing Red Meat Industry (Value chain)

Skin, Hides and Leather Council Representation of the skin, hides and leather industry

Wholesale and retail

Shoprite, Checkers, Spar, Pick n Pay, Woolworths, Butcheries, fruit and vegetables markets, and other distributers

Distribution of finished beef products (cut and processed meat)

Public sector

National Department of Agriculture, Forestry and Fisheries

Support and regulation of the sector

Different provincial departments of Agriculture

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.

A.5.1.3. Distribution channel

Beef is mainly distributed through distribution channels such as retailers, wholesalers, as well as the export markets. The main retail channels include Spar, Shoprite, Checkers, Woolworths, including different butcheries. Beef is usually sold as processed beef such as beef cuts, mince, hamburgers, biltong, meat balls and wors. A.5.1.4. Risks

Table 34 shows the risks identified for the beef opportunities.

http://www.daff.gov.za/




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Table 34: Identified beef value chain risks


risk rating

Mitigation

1. Availability of cattle High High High

Capacity building of farmers

Increase farming space

2. Limited skills to operate the feedlot

Medium High Medium

Training of staff on feedlot management

Appoint a mentor/experts

3. Availability of suitable agricultural land

High High High Facilitate access to

land or farmers

4. Increase in input prices (feed and calves)

High Medium Medium Link farmers to the

AP to facilitate cost reduction

5. High number of rejected cattle for processing

Medium Medium High Link the feedlot with

the abattoir to control quality

6. High transport costs Medium Low Medium Develop economic

transportation plan

7. Inferior equipment Medium High High Use reputable

suppliers

8. Food poisoning and contamination

High High High

Employ competent staff

Develop HACCP or ISO 22 000

9. Lack of adherence to relevant legislation

Medium High High

Provide training on regulation

Develop policies and procedures aligned to legislations

10. Labour unrest Low Medium Medium Comply will all

applicable labour legislation

The risks were rated in terms of the likelihood and the impact each risk would have on the proposed maize opportunities. This was done using the scale of 1 (low) to 5 (High). The overall risk rating was determined by adding both ratings and Figure 45 shows the top five risks prioritised using the overall risk rating.


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Figure 45: Risk analysis for beef

A.5.2. Maize opportunities

Figure 46: Maize opportunities

As depicted in Figure 46, five opportunities were identified as follows:

Dry milling – to produce maize meals such as samp, maize grits, maize rice and super maize meal and hominy chop as a by-product. Hominy chop will be supplied to the animal feed production for feed production.

Wet milling – to produce starch and co-products, namely germ, gluten, husk. Gluten and husk will be supplied to the animal feed production.

Animal feed – will produce feed for the cattle and poultry industry. Animal feed will be supplied to the AP cattle feedlot.

Maize oil production – this operation will use germ produced by the wet milling facility.

Silos – mainly storage of maize from maize farmers. Maize will be supplied to the dry milling facility, wet milling facility and animal production. Raw maize can also be

0 2 4 6 8 10 12

Food poisoning and contamination

Labour unrest

High number of rejected cattle for processing

Limited skills to operate the feedlot

Inferior equipment

High transport costs

Lack of adherence to relevant legislation

Increase in input prices (feed and calves)

Availability of cattle

Availability of suitable agricultural land


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exported or sold as fresh from this facility. Fresh maize for the local market will be distributed through the vegetable storage facility.

A.5.2.1. Supply chain map

Figure 47 illustrates the supply chain of the maize industry.

Figure 47: Supply chain for the maize industry

After harvesting, raw maize is transported by road to maize silos for storage. From silos, maize is transported by road or railway to maize millers. Maize millers then convert maize into various value added products, and supply packaged products to various markets, such as wholesale and retail, animal feed distribution channels, as well as their export customers. For the maize opportunity to meet its targeted quantities, a sustainable supply of raw maize will be required. Table 35 illustrates the requirement of the uMDM AP in terms of raw maize quantities and arable land.

Table 35: Land requirement

Maize opportunity Raw maize required

(tonnes) Agricultural Land requirement (ha)

Dry milling (white maize) 22 500 2 813

Wet milling (White maize) 6 000 750

Animal feed (yellow maize) 23 700 2 963

Total 52 200 6 526

A total of about 6 526 ha of land would be required for maize cultivation, 3 563 ha cultivated with white maize and 2 963 ha cultivated with yellow maize. If a 10% contingency buffer land is added, the land requirement would be 7 177 ha. A.5.2.2. Industry role players

Table 36 shows the categories and names of key player in the maize industry, as well as their roles.


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Table 36: Industry role players

Role player Names Role

Maize production Various farmers Supply fresh maize

Associations

Grain SA, National Chamber of Milling (NCM), National Association of Maize (NAMM), Grain Silo Industry (GSI)

Provides leadership on all key agricultural issues to commercial farmers and related agricultural organisations

Equipment suppliers Different equipment suppliers Represent the maize industry


Pick n Pay, Checkers, Woolworths, Spar, fruit and vegetables markets, National Fresh Produce Markets and other distributers

Distribution of maize products

Public sector

KZN Department of Agriculture and Rural Development

Supports and regulation of the sector

Department of Agriculture, Forestry and Fisheries (DAFF)

Supports and regulation of the sector

Department of Rural Development and Land Reform

Farmers development and sustainable use of natural resources

uMgungundlovu District Municipality and its Local Municipalities

Farmers development and sustainable use of natural resources


There are a number of distribution channels for maize meal such as market agents, retailer, wholesalers and retailers. Retailers include Checkers, Pick n Pay, Spar, Woolworths, Massmart and other retailers. Producers of animal feeds and wet milling product seem to distribute their own products. A.5.2.4. Risks

Table 37 below shows the risks identified for maize meal opportunities.


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Table 37: Identified maize value chain risks

Potential risk Likelihood Impact Overall risk

rating Mitigation

1. Inferior equipment

Medium High High Use reputable

suppliers

2. Availability of maize

Medium High High

Contracts to be signed with commercial farmers for the supply of raw maize

Uplift emerging farmers to be additional suppliers

3. Increase in maize price

High Medium Medium

Sensitivity analysis of cost prices

Negotiating favourable contracts with suppliers

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

Low High High

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.

5. Inability to find the right human resources

Medium Low Medium

Recruitment agents could be utilised if the right human resources cannot be found

Offer remuneration in line with industry trends


Medium Medium High

Comprehensive training to be provided to staff

Employ competent staff

Develop policies and procedures aligned to legislations

7. Labour unrest Medium Medium Medium

Comply with all applicable labour legislation

Employ competent


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Potential risk Likelihood Impact Overall risk

rating Mitigation

and knowledgeable management

8. Uncertain climate conditions

High High High

Breed varieties that can adapt to changing climate conditions

Sensitivity analysis of import parity prices

9. Inability to secure market for specified product mix

Medium High High Ensure promotion

of the entire maize value chain

10. Lack of buy-in from key stakeholders

Low Medium Medium

Stakeholders should be intensively engaged with regard to the establishment of the enterprise

Figure 48 shows the risk prioritisation using the overall risk factor

Figure 48: Risk analysis for maize

0 1 2 3 4 5 6 7 8

1. Inferior equipment

3. Increase in maize price

4. Contamination of raw material(silo),…

5. Fraud and corruption

6. Inability to find the right human resources


8. Disruption to utilities supply

9. Crime and robbery

10. Labour unrest

11. Uncertain climate conditions


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A.5.3. Vegetable opportunities After having considered the current local situation with respect to the products, and the potential market opportunities analysed at a high level, several opportunities were consider for uMDM AP. Figure 49 depicts preliminary opportunities suitable for the proposed AP:

Figure 49: Preliminary opportunities

Three opportunities were identified as follows:

Puree, paste and vegetable juice – to produce pastes, puree, juices and powders

Vegetable pack house - to pack vegetables, chop and freeze, and

Central bulk storage and supply – situated next to farmers to efficiently supply fresh vegetable to the two processing facilities, as well as the NFPMs.

A.5.3.1. Supply chain map

Fresh vegetables would be sourced from vegetables farmers and would be transported to the agro-processing facility by road. After value addition, final products would also be distributed to the local market (such as wholesalers, retailers and NFPMs) by road (Figure 50).

Figure 50: Supply chain


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One of the key aspects towards the success of the AP is the availability of arable agricultural land. Fresh vegetables would be required as input for production. Table 38 shows land requirement for the AP vegetable opportunities.

Table 38: Land requirement

Vegetables Quantity required

(tonnes) Share of SA market size

Yields/tonne Land

requirement

Cabbages 2 796 2% 50 56

Tomato 4 056 1% 45 81

Carrots 1 600 1% 30 32

Potatoes 14 640 1% 28 293

Total 23 092

462

Overall, the vegetable opportunity would require at least 23 092 tonnes to achieve the targeted quantities. This would require a combined arable land size of 462 ha. If 10% contingency on land is considered, the total land requirement is estimated at 508 ha. According to the uMDM status quo report (2012), the entire district has about 78 365 ha under commercial land and 17 473 ha under subsistence agriculture. Therefore, the district has enough land to produce the required quantities of fresh produce. However the required land will still have to be identified. A.5.3.2. Industry role players

Table 39 shows the categories and names of key player in the vegetable industry, as well as their roles.


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Table 39: Industry role players

Role player Names Role

Vegetable production Different farmers Supply fresh vegetables

Association SA Frozen Fruit and Vegetable Producers’ Association

Vegetable industry representation

Equipment suppliers Different equipment suppliers Represent the vegetable industry


Pick n Pay, Checkers, Woolworths, Spar, fruit and vegetables markets, National Fresh Produce Markets and other distributers

Distribution of processed and fresh vegetables

Public sector

KZN Department of Agriculture and Rural Development Supports and regulation of the

sector Department of Agriculture, Forestry and Fisheries (DAFF)

Department of Rural Development and Land Reform Farmers development and

sustainable use of natural resources

uMgungundlovu District Municipality and its Local Municipalities


Locally, there are various ways used to distribute both fresh and processed vegetables. Table 40 shows the distribution of fresh fruit in the NFPMs in 2013.

Table 40: Distribution by NFPMs

Fresh vegetable % of SA production

distributed

Cabbage 74%

Potato 75%

Tomato 51%

Carrot 95%

The NFPMs continue to be one of the key distributer of fresh vegetables. The AP would target the following NFPMs for distribution of fresh vegetables:




Tshwane Fresh produce Market Figure 51 shows the distribution channels of processed vegetables.


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Figure 51: Distribution of processed vegetables

Source: (Euromonitor, 2015)

Most of the processed vegetables are distributed by supermarkets. Supermarket includes big retailers such as Pick n Pay, Checkers, Woolworths and Spar. The uMDM AP would target these retailers for the distribution of processed vegetables. A.5.3.4. Risks

Potential risks that could affect the operations of the hub were also identified. Table 41 shows a list of those potential risks.

Table 41: Potential risks

Risk Likelihood Impact Overall risk

rating Mitigation

1. Availability of raw material

High High High

Expand cultivation/farming activities

Partnerships with commercial farmers

Provide training to build skills for primary production


Low High High

Comprehensive training to be provided to beneficiaries

Develop policies and procedures aligned to legislation


Low High High Implement

quality

8% 1% 3%

8%

66%

14% Convenience Stores

Discounters

Forecourt Retailers

Hypermarkets

Supermarkets

Traditional GroceryRetailers


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Risk Likelihood Impact Overall risk

rating Mitigation

of products management system such as HACCP and ISO 22 000

4. Inferior equipment Medium High Medium Use reputable

suppliers

5. High number of rejected raw material/high wastage (mainly fruits)

Medium Low Low Ensure quality

output of inputs at farm level

6. Increase in raw material price

High Low Medium

Vertical integration to control input prices

7. Labour unrest Medium Medium Medium

Comply with all applicable labour legislation

8. Crime and robbery Medium Medium Medium Deploy security

on premises

9. Lack of buy-in from key stakeholders (such as farmers & potential markets)

High High High Stakeholder

engagement from inception

10. Unfavourable climatic condition / drought

High High High R&D, focusing

on developing resistant crops

11. Increase in logistic costs

High Low Medium In-house

logistics

12. Competitors dropping price due to new entrants

Vertical integration to control input prices

Figure 52 was generated using the overall scores to identify the top six risks identified.


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Figure 52: Risk analysis for vegetables


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APPENDIX B - TECHNICAL ANALYSIS


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B.1. INTRODUCTION The main focus of this technical study was on the components of the uMgungundlovu AP (AP). The AP comprises of three distinct but interrelated basic components, namely:

The Farmer Production Support Unit (FPSU):

The FPSU is a rural small-holder farmer outreach and capacity building unit that links farmers with markets.

It does primary collection, some storage, provides some processing for the local market, and provides extension services (including mechanisation).

The Agri-hub (AH) – a production, equipment hire, processing, packaging, logistics, innovation and training unit.

The Rural Urban Market Centre (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 Agri-Hub and Farmer Production Support Units, using the latest Information and communication technologies

It will not be established in every district municipality (DM), but rather in large commercial centres linking a number of DMs; therefore it is not covered in this technical study. The technical aspects affecting the design and operation of the uMgungundlovu District Municipality AP were assessed. The results of the assessment were used in the development of the concept design financial model for the AP. This assessment focussed mainly on the following:

AP concept

Location for AH and the FPSU

Equipment

Regulatory compliance

Institutional arrangements. Opportunities and services that inform the concept design of the AP were identified. They were identified through the results of a high level analysis of the local situation and market aspects, and inputs made by stakeholders during the two workshops/meetings held on 5 February and 15 February 2016.


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B.2. OPPORTUNITIES AND SERVICES - BEEF B.2.1. Feedlot The AP feedlot will be designed to produce 8 222 calves annually, and will be able to accommodate about 3 000 cattle at any given time. B.2.1.1. Feedlot opportunity description

Weaner calves will be sourced from auctions and farmers within uMgungundlovu District Municipality (uMDM). Animal feeds and supplements will also be locally sourced. The cattle will be transported by road from the farmer to the feedlot and from the feedlot to the abattoir. About 35 job opportunities would be created by the AP feedlot enterprise. The overall opportunity is described in Figure 53.

Figure 53: Feedlot opportunity description

B.2.1.2. Production process

The production process begins with the purchasing of calves from farmers and at auctions. The calves are then placed in an incubation pen to initially introduce them to a grain diet before taking them to feeding pens (for full grain diet). They are held in the feeding pens for a period of about four months. The production process is illustrated in Figure 54.


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Figure 54: Feedlot production process

Cattle feed suppliers and veterinarians play a significant role in the production process. Some of the big feedlots have cattle grazing fields to reduce production costs. B.2.1.3. Production inputs

Production inputs are defined as inputs material, utilities and other inputs involved in the production final products. Production inputs will include the following:

Animal feeding – sourced from animal feed suppliers within the district

Animal vaccine - sourced from service provider in the province

Weaner calves – sourced from farmers within uMDM

Electricity – supplied by Eskom

Water – supplied by the uMDM and will also be sourced from a borehole

Transportation - AP’s truck will be made available. B.2.1.4. Equipment required

Feedlots are generally highly capital intensive and the costs increase as the size of the facility increases. The main cost drivers of feedlots infrastructure are panel pens, also known as kraals. The AP feedlot will require 25 pens with an average size of 1 080 m2. Each pen will accommodate about 120 cattle. Table 42 shows a full list of the required equipment for the feedlot.

Table 42: List of feedlot equipment

Description Quantities Estimated cost

Kraal pens 26 R 1 765 500

Feed bunks and water troughs 1 R 1 284 000

Hydraulic body and head clamp unit including scale

1 R 321 000

Panel reservoir 1 R 208 650


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Description Quantities Estimated cost

Forklift 1 R 298 530

Cattle body truck 1 R 2 568 000

Bakkie 1 R 214 000

Effluent Management System 1 R 2 140 000

Hospital pen 1 R 70 620

Induction facility 1 R 70 620

Dispatch 1 R 70 620

Bucket Loader 1 R 428 000

Total 1 R 9 439 540

B.2.1.5. Organogram

Figure 55 shows the manpower required to operate the feedlot. About 17 people will be employed by the feedlot.

Figure 55: Feedlot organogram

The Feedlot Manager will oversee the operations of the feedlot. Feed Controllers’ responsibility is to manage the cattle feeding schedule, whilst Pen Controllers will monitor all cattle in the pen, as well as receiving cattle from farmers. B.2.2. Abattoir opportunity The proposed abattoir will about 3 700 tonnes (about 1 850 000 kg) of beef annually. The daily cattle slaughter is estimated at 35 cattle. B.2.2.1. Abattoir opportunity description

The abattoir enterprise will produce different products from the slaughtered cattle which include:

Fresh carcass

Red and green offal

Tallow

Skin and hides

Beef cuts

Cow feet and heads


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Cattle will be primarily sourced from AP’s feedlot. These cattle and final products will be

transported by road. The beef products will be distributed to wholesale, retail and export

markets at the later stage.

About 18 job opportunities will be created by the abattoir. The overall opportunity is

described in Figure 56.

Figure 56: Abattoir opportunity description


Figure 57 shows different stages of abattoir beef production process.


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Figure 57: Abattoir production process

Abattoirs consists of various activities, each responsible for performing specific operations such as ante mortem inspection, stunning, slaughtering, hide removal, evisceration, hanging, cutting, packaging, freezing and distribution. B.2.2.3. Production inputs

Production inputs are defined as input material, utilities and other inputs involved in the production of final products. The following are production inputs for the abattoir:

Beef cattle – to be sourced from the feedlot, beef cattle farmers and auctions

Water – to be supplied by uMDM

Electricity – will be sourced from Eskom

Transportation – the AP will make transportation services available. B.2.2.4. Equipment required

The Abattoir will slaughter about 30 cattle per day at inception, and 200 cattle per day at full capacity. Table 43 shows a list of equipment required to setup the abattoir.

Table 43: List of abattoir equipment

Abattoir equipment Quantity Total price

Panels, drain fitting, steel structure, material handling equipment 1 R 13 747 146

Equipment, splitting and brisket saw 1 R 1 707 720

Rails, scale, running and brisket saw 1 R 890 454


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Abattoir equipment Quantity Total price

Refrigeration and ventilation 1 R 1 061 226

Low voltage reticulation 1 R 451 326

Hot and cold water services 1 R 591 603

Effluent pumping and screening 1 R 323 247

Installation 1 R 878 256

Equipment transportation 1 R 164 673

Commissioning, operation manuals and staff training 1 R 42 693

Total R 19 858 344

B.2.2.5. Human resource requirement

Figure 58 shows that about 18 people will be required to operate the proposed abattoir.

Figure 58: Abattoir organogram

The General Manager will mainly oversee the entire operations of the abattoir. Food Technician will be responsible for food testing and quality control. The Stock Controller will be responsible for record keeping, as well as managing the delivery and collection of raw materials. Supervisors will manage the slaughtering process and the implementation of quality control systems and slaughters will be responsible for operating abattoir equipment. B.2.3. Meat processing opportunity The AP’s meat processing facility will produce different kinds of beef meat, as follows:

Beef cuts – 777 tonnes

Mince – 389 tonnes

Burgers – 259 tonnes

Wors – 777 tonnes

Biltong – 130 tonnes

Sausages – 259 tonnes


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B.2.3.1. Meat processing opportunity description

Fresh carcasses will be sourced from the AP abattoir. The carcass will be cut, deboned and minced using equipment in the facility. The final products will be transported to wholesale and retailers by road. The product would also be exported to the African and EU markets. About 22 job opportunities will be created by the meat processing enterprise. The overall opportunity is described in Figure 59.

Figure 59: Meat processing facility opportunity description

A.2.3.2 Production process

Figure 60 shows the process flow for the production of products such as mince, biltong, wors, sausages and burgers from a beef carcass.


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Figure 60 : Beef processing process flow

A.2.3.4 Production inputs

Production inputs are defined as inputs material, utilities and other inputs involved in the production of final products. Production inputs will include the following:

Water – sourced from municipally water supply

Electricity – supplied by ESKOM

Cattle carcasses – sourced from abattoirs, including the AP abattoir.

Transportation – the AP will make transportation available. A.2.3.5 Equipment

Table 44 shows the equipment required to setup of the meat processing facility.

Table 44: List of meat processing equipment

Beef processing equipment Quantity Total price

Mincers 3 R 157 290

Band saw 3 R 144 450

Cold room 1 R 126 474

Automated patty machine 1 R 169 595

Biltong dryer 1 R 26 750

Smoker 1 R 74 900

Biltong cutter 2 R 36 380

Vacuum pack machine 1 R 166 920

Sausage filler 1 R 108 605

Total R 1 011 364


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A.2.3.6 Human resource requirements

Figure 61 shows the manpower required to operate the meat processing facility.

Figure 61: Meat processing facility organogram

As depicted in Figure 61, about 19 people will be employed by the meat processing facility. The General Manage will manage the meat processing facility; whilst the Supervisor will be manage production lines, including the implementation of quality management systems. Stock Controller will be responsible for record keeping, as well as managing the procurement of raw materials and delivery of finished products. B.2.4. Tannery opportunity The tannery will produce about 38 192 m² of leather annually. This leather will be supplied to both the automotive and the footwear and leather goods industry. B.2.4.1. Tannery opportunity description

Cattle hides will primarily be sourced from the AP abattoir. Tanning chemicals will be sourced from suppliers in KZN and Gauteng. Finished leather will be supplied to both the footwear and leather goods, and automotive sector. About 17 job opportunities could be created by the envisaged tannery. The overall opportunity is described in Figure 62.


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Figure 62: Tannery opportunity description


Figure 63 shows the process flow for the production of leather from cattle hides.

Figure 63: Tannery production process


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Two types of leather will be produced after the splitting process, namely split and top grain leather. These two products will be further processed to produce to finished leather. Some tanneries process hides and skin up to the tanning stage and sell them as wet blue. Other tanneries process wet blues to create finished leather for shoes, furniture, bags, and luggage accessories. The proposed tannery will produce finished leather. B.2.4.3. Production inputs

Production inputs are defined as inputs material, utilities and other inputs involved in the production final products. The following are production inputs of the tannery:

Raw cattle hides – to be primarily sourced from the AP abattoir

Chemicals – will be sourced from suppliers in KZN and Gauteng

Electricity – Eskom will supply electricity B.2.4.4. Equipment required

Table 45 lists machinery and equipment required to establish the tannery.

Table 45: Tannery machinery and equipment

Equipment Quantity Costs Total cost

Drums x 3 3 R 72 564 R 217 692

Embossing and Ironing machine 1 R 290 301 R 290 301

Fleshing machine 1 R 461 854 R 461 854

Measuring machine 1 R 184 742 R 184 742

Polishing and Glazing machine 1 R 277 112 R 277 112

Roll coating machine 1 R 329 896 R 329 896

Shaving machine 1 R 257 319 R 257 319

Sole leather rolling machine 1 R 369 421 R 369 421

Splitting machine 1 R 382 679 R 382 679

Spraying machine 1 R 511 892 R 511 892

Staking and Stretching machine 1 R 646 487 R 646 487

Forklift 1 R 225 000 R 225 000

Scale machine 1 R 11 375 R 11 375

Drying machine 1 R 469 234 R 469 234

Sammying setting out machine 1 R 290 308 R 290 308

Buffing machine 1 R 350 000 R 350 000

Accessories 1 R 5 000 R 5 000

Trolleys 4 R 750 R 3 000

Compressor 1 R 6 000 R 6 000

Total R 5 289 312


Figure 64 shows the organogram of the proposed tannery. A total of 16 people would be employed by the tannery.


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Figure 64: Tannery organogram

The General Manager will oversee the operations of the tannery. The Marketing and Sales Manager will be mainly responsible for product marketing and business development. The Supervisor will be responsible for managing the production line whilst operator will operate the tannery machinery. The HR and Finance Manager will manage finance and human resources, including all training activities.

B.3. OPPORTUNITIES AND SERVICES – VEGETABLES B.3.1. Vegetable paste, puree and juices opportunity The vegetable paste, puree and juices production facility will produce the following production:

Tomato paste – 456 tonnes

Tomato puree – 171 tonnes

Tomato juice- 304 tonnes

Tomato powder – 456 tonnes

Carrots juice – 280 tonnes Vegetable juice is an unfermented liquid intended for direct consumption. It is obtained from the edible part of one or more ripe vegetables. Vegetable juices are free of skins, seeds and other granular parts of the vegetables. Juices may be clear, turbid, or pulpy and could be concentrated and reconstituted with water. Juice concentration entails the evaporation of water from the juice and reconstitution is the addition of water to a concentrate in order to bring it to its standard strength level. Vegetable puree is a cloudy or pulpy substance, obtained by crushing either cooked or raw vegetables. Paste is produced by removing a required proposition of water from vegetable puree through evaporation. Tomato ketchup is made by blending tomatoes paste with salts, spices, sweetening ingredients, vinegar and other flavouring ingredients.


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B.3.1.1. Opportunity description

Figure 65 depicts the opportunity description for the paste, puree and juices opportunity.

Figure 65: Opportunity description – Pastes, puree and juices

Key to this opportunity would be suppliers of raw material (vegetables farmers) and suppliers of additives and packaging materials. Essential resources include manpower, municipal water and electricity supply, as well as waste removal service. Three product categories would be produced, namely paste and purees, tomato juices and carrot juices. These products would be supplied to the wholesale, retail, hospitality and the export market. B.3.1.2. Production process

Figure 66 depicts the process flow for the production of paste and puree.


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Figure 66: Process flow: Vegetable puree, paste and juice

The production process starts with the receiving, washing, grinding and sorting of fresh vegetables. Then carrot and tomato juice will then be extracted, filtered and pasteurised before it is stored. Tomato juice will be further concentrated and used to produce pastes, purees and ketchups (sauces) by blending with other ingredients. All finished products (juices, pastes, puree, and ketchups) will be pasteurised before distribution. B.3.1.3. Production inputs

Production inputs can be defined as inputs used to produce an output. With respect to the paste, puree and juicing opportunity, the production inputs will entail the following:

Fresh tomatoes – sourced from by local farmers

Fresh carrots – sourced from by local farmers

Additives (such as spices, sugar, Ascorbic acid and flavourings, vinegar) – supplied by additive supplies in KZN and Gauteng



Transportation – AP’s truck will be made available B.3.1.4. Equipment required

Table 46 depicts the equipment required by the paste, puree and juicing opportunity.


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Table 46: Equipment – purees, pastes and juices

Equipment Quantity Plant Description Price

Puree, paste, juices and ketchup plant

1 Washer inoxall, chopper, hb/cb group, pulper/refiner supercreamer, centrifugal pump, mixing tank sms 2 000 litres, centrifugal pump, forced circulation evaporator mod. Tomatech 1e-2.000 including electric panel for the whole line, tank 500 l, monoscrew pump, tubular steriliser stth 1.000 and 1-head aseptic filler with aseptic tank. The plant includes accessories

R 19 550 000

Tomato ketchup plant 1 SAUCEMATIIC 1200 vacuum pan R 7 310 000

Total price R 26 860 000

The equipment cost for the production of purees, paste and juices is estimated at R26 860 000. B.3.2. Vegetable pack house opportunity The vegetable pack house will produce the products listed in Table 47.

Table 47: Vegetables pack house products

Products Quantities

Freshly packaged cabbage 1 398

Chopped & packed cabbage 699

Cabbage and carrot salad 699

Raw packed tomatoes 1 622

Raw packed potatoes 4 392

Chopped & packed potato chips 2 562

Potato crisps 2 562

Raw packed carrots 800

Frozen carrots 400

Total 15 134

It is envisaged that the vegetable pack house will process and pack a total of 15 134 tonnes of vegetables per annum. This quantity is based on assumptions derived from market prefeasibility. B.3.2.1. Opportunity description

Figure 67 illustrates the vegetable pack house opportunity.


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Figure 67: Opportunity description – vegetable pack house

Vegetable farmers will supply fresh vegetables to the vegetable pack house. Vegetables will be packed as fresh, frozen, and salads. These products will be supplied to the wholesale, hospitality, supermarkets, school feeding schemes, as well as the export market. B.3.2.2. Production process

Figure 68 depicts the production process flow for the packing of fresh and frozen vegetables.

Figure 68: Vegetable packing process


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The process begins with the sorting, packing washing, peeling and trimming. Vegetables are shredded, sliced, grated, cubed or trimmed and packed as froze or fresh before they are distributed to the market. B.3.2.3. Production inputs

The following will be production inputs for the vegetables pack house opportunity:

Fresh tomatoes – supplied by local farmers

Fresh vegetables – supplied by local farmers

Fresh carrots – supplied by local farmers

Fresh cabbage – supplied by local farmers


Water – supplied by the uMDM and will also be sourced from a borehole.

Transportation – AP’s truck will be made available

Packaging material – sourced from suppliers in KZN and Gauteng B.3.2.4. Equipment required

Table 48 shows typical equipment required to setup the envisaged vegetable pack house.

Table 48: Equipment for vegetable pack house

Equipment Quantity Cost

Brunner Anliker – GSM Multicut 240 1 R 405 384

GSM Multicut 240 (blade changes) 1 R 42 837

Afinox – Blast Freezer 1 R 102 030

Smart Cooking – Pressure Steamer 1 R 280 662

Bosch Terra 25 – Packaging 1 R 793 000

Dishwasher 1 R 12 000

Isuzu NPR 400 1 R 400 000

Total 1 R 2 035 913

The total cost of machinery is estimated at R2 035 913. B.3.2.5. Human resource requirement

About 14 people will be required to operate the vegetable pack house facility. Figure 69 shows the organogram for this facility.


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Figure 69: Vegetable pack house organogram

The General Manager will oversee the entire operation of the facility, whilst the Operations Manager oversees the operations and technical aspects of the business. The supervisor will manage production lines and implement the required quality standards. Two machine operators, one driver and six general workers will be recruited. The Marketing Manager will be responsible for the implementing the marketing strategy of the business. B.3.3. Vegetable storage and service FPSUs B.3.3.1. Description and purpose of the service

The vegetable storage facility (facility FPSU) is aimed at receiving and storing fresh vegetables from farmers and vegetables bulk storage. This facility should be strategically located next to farmers to facilitate easy transportation of vegetables, and easy access to markets. A service FPSU equipped with offices, storage rooms (for fertilisers, seedlings etc.) and training room for farmers will be linked to the facility. The service FPSU will offer the following services:







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

Transportation & logistics of fresh produce



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Figure 70 illustrates the vegetable storage and service FPSU concepts. These facilities will be able to store about 120 tons of vegetables each at any given time.

Figure 70: Vegetable storage and services FPSU

In order to preserve quality attributes of vegetables after harvesting, fresh vegetables will have be stored under appropriate conditions, such as temperature and humidity controlled environments. The vegetable storage facility will be able to provide an enabling environment to allow longer shelf life of fresh vegetables. These facilities will be located next to farmers as FPSUs. As depicted in Figure 70, it is envisaged that the vegetable storage facility will supply fresh vegetables to the AP processing facilities and other markets such as retail, fresh produce markets, consumers and hawkers. B.3.3.2. Equipment required

Table 49 shows a list of equipment required to setup the vegetable storage and service FPSU.

Table 49: Equipment required – Vegetable FPSU

Equipment Quantity Cost Total cost

Tractors 3 R 324 000 R 972 000

Ploughs 3 R 25 000 R 75 000

Cultivators 1 R 36 000 R 36 000

Planters 1 R 100 000 R 100 000

Vegetable transplanters 1 R 95 650 R 95 650

Land rollers 1 R 65 000 R 65 000

Fertiliser spreaders 3 R 74 000 R 222 000

Disc ploughs 3 R 38 000 R 114 000

Disc harrows 3 R 140 000 R 420 000

Ripper 3 R 30 000 R 90 000

Seed drills 3 R 148 400 R 445 200


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Office furniture 2 R 7 524 R 15 048

Office computer 2 R 10 000 R 20 000

Training centre furniture(chairs & tables) 30 R 1 200 R 36 000

Forklift 1 R 448 695 R 448 695

R 3 154 593

An estimated amount of R3 154 593 per FPSU would be required for machinery and equipment.

B.4. OPPORTUNITIES AND SERVICES – MAIZE B.4.1. Dry milling opportunity The dry milling facilities will produce the following products:

Super Maize meal - 11 250 tonnes

Samp - 3 750 tonnes

Maize rice - 3 750 tonnes

Maize grits - 3 750 tonnes B.4.1.1. Opportunity/service description

Suppliers of input materials include maize famers, vitamins and mineral suppliers, as well as packaging material suppliers. The production process entails dry milling process to produce products such as maize samp, maize rice, maize grits and super maize meal. These products will be supplied to the retail, wholesale, feeding schemes and the export market. The dry milling opportunity is described in Figure 71.


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Figure 71: Dry milling opportunity description


As illustrated in Figure 71 the production process of dry milling products starts with the receiving of fresh maize (usually from silos). Maize will then be sampled, sorted cleaned and conditioned before it is processed into different products. During processing, maize is milled in to different maize meals (maize rice, maize grits, samp and super maize meal). Hominy chop is produced as a by-product. Maize meal products are then packaged and distributed to the market. Hominy Chop is usually supplied to animal feed producers.


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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 72: Maize milling production process

B.4.1.3. Production inputs

Production inputs, other than maize as a raw material, will include the following:




Packaging material – purchased from suppliers in KZN and Gauteng.

Vitamins (Vitamin A, Thiamine B1, Riboflavin B2, Niacin, Folic Acid and Pyridoxine B6) – locally sourced from vitamin suppliers in KZN and Gauteng.

Minerals (Iron and Zinc) – supplied by vitamin suppliers in KZN. B.4.1.4. Equipment required

Table 50 shows a list of maize milling machinery and equipment required to establish a maize milling facility.


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Table 50: Maize milling equipment

Equipment Quantities Total price

Cleaning section 15 ton/h 1 R 6 831 168

Milling section a 300ton/day 1 R 8 460 528

Maize flour packing section b 12-15 1 R 2 901 840

Bran packing section a 8-10 ton/h 1 R 1 117 680

Spout and Aspiration Pipes and Equipment. All spouting in stainless steel

1 R 1 390 688

Montage and Connection Equipment 1 R 855 808

Montage Service 1 R 1 051 392

Diagram Service 1 R 1 156 512

Complete Factory Electrical Installation 1 R 5 081 600

Complete Factory PLC Automation 1 R 1 702 400

Prefabricated metal building for 600TPD mill 1 R 8 265 248

Shipping from Turkey 1 R 2 911 120

Total R 41 725 984


Figure 73 shows the organogram for the maize dry milling facility.

Figure 73: Dry maize milling production organogram

About 43 people would be required to operate the maize milling facility. The General Manager will oversee the operations of the dry milling facility. The production Supervisor will be responsible for the supervision of the production line and the implementation of quality management systems and operators’ role will be to operate the production plant. B.4.2. Wet milling production process The wet milling production facility will produce the following products:

Starch - 3 660 tonnes

Gluten – 228 tonnes

Germ – 480 tonnes

Husk and others - 1 632 tonnes


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B.4.2.1. Opportunity/service description

Farmers will play a significant role in terms supplying white and yellow maize. Maize will be transported to the processing facility by road. Products to be produced by this facility include starch, germ, gluten and husk. These products will be distributed to the following market:


Retail and wholesale

Export Figure 74 shows the wet milling opportunity description.

Figure 74: Wet milling opportunity description


As depicted in Figure 75, the wet milling process (starch, gluten, germ and husk) starts with the soaking of corn in water, followed by the separation of starch and gluten. Starch is then dried into powdered starch, packaged and supplied to industry for further processing. Gluten and husk are usually supplied to the animal feed facility and germ is used to produce oil.


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Figure 75: Wet milling production process


Water – will be supplied by the uMDM and will also be sourced from a borehole

Electricity – will be supplied by Eskom


Packaging material – will be sourced from suppliers in KZN and Gauteng B.4.2.4. Equipment required

Table 51 shows the production plant required to setup the wet milling facility.

Table 51: Wet milling equipment

Item Quantity Plant process description Price

Corn Starch Processing Plant – 5 tonnes/ hour

1 Cleaning section

Steeping section

Screening section

Separation and

washing section

Starch drying section

R21 924 000


Figure 76 shows the manpower required operating the wet milling facility.


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Figure 76: Wet milling facility organogram

The General Manager will oversee the entire business operations, as well as business development. Production supervisors will be responsible for managing the production line and implementing quality management systems. The responsibilities of the Stock Controller include record keeping and managing the delivery and collection of raw materials. Quality Control (QC) officer will facilitate product testing for both raw and finish products. Operator will be responsible for the operations of the production facility. B.4.3. Maize oil opportunity The maize oil production facility will produce about 384 tonnes of maize oil annually. The oil will be produced from germ produced by the wet milling facility. B.4.3.1. Opportunity/service description

The maize oil facility will mainly utilise maize germ produced from the wet milling facility. Other key input material includes packaging materials. Maize oil would be supplied to the following markets:


Wholesale

Retail

Export

Figure 77 illustrate the entire maize oil production opportunity.


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Figure 77: Maize oil facility opportunity description


The germ obtained from the wet milling is further processed to extract oil. The corn is cleaned, softened, flaked, cooked, prepressed and filtered as shown in Figure 78.

Figure 78: Maize oil production process


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Production inputs, other than the germ as a raw material, will include the following:

Water – supplied by the uMDM and will also be sourced from a borehole.



Packaging material – local packaging suppliers B.4.3.4. Equipment required

Table 52 shows equipment required to establish maize oil production facility.

Table 52: Corn germ oil production equipment

Description Quantity Estimated cost

50TPD Pre-treatment & pre-pressing plant

1 R 2 193 600

30TPD Solvent extraction plant 1 R 2 025 600

20TPD Oil refinery 1 R 3 742 400

Auxiliary equipment 1 R 737 600

Total R 8 699 200


Figure 79 shows the manpower required to implement the wet milling facility.

Figure 79: Maize oil facility organogram

The General Manager will manage the operations of the maize oil facility. The production Supervisor will be responsible for the supervision of the production line and the implementation of quality management systems and operators’ role will be to operate the maize oil production facility. B.4.4. Animal feed production process The animal feed facility will produce feeds for the following animals:

Poultry

Cattle


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Sheep

Goat The facility will produce about 23 700 tonnes of animal feeds. B.4.4.1. Opportunity/service description

Key to this opportunity would be suppliers of various raw materials. The production process entails maize grinding and mixing of different ingredients with crushed maize to produce animal feeds. Animal feed will mainly be supplied to wholesalers, livestock farmers and feedlots. In the future, animal feed could be exported to other countries. Figure 80 descripts the animal feed opportunity.

Figure 80: Opportunity description - Animal feed production facility


As shown in Figure 81, the raw material is collected and stored for grinding and mixing. The mixture can either be packed or pelleted and packed before storing for dispatch.


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Figure 81: Animal feed production process


Production inputs that will be used by the processing facility are as follows:

Yellow maize – sourced from farmers within uMDM.

Soya oil cake – sourced from suppliers in Gauteng and KZN.




Packaging material – sourced from suppliers in KZN and Gauteng. B.4.4.4. Equipment required

Table 53 lists the production equipment required for the facility.

Table 53: Production equipment – animal feed

Description Supplier Quantity Specification Price

Hammer mill Agricon 1 3 000kg/hr R 671 324.34

Auger ( screw conveyor) Agricon 1 4 000kg/hr R 24 042.60

Mixer with scale Agricon 1 1000kg R 181 294.20

Auger ( screw conveyor) Agricon 1 4 000kg/hr R 24 042.60

Hopper Agricon 1 500kg R 90 322.20

Auger for 6 silos Agricon 6 4 000kg/hr R 144 255.60

Stitching machine Agricon 1 30 sec/ bag R 3 898.80

Forklift Barloworld 2 1.8 ton R 259 304.40

Total R 1 398 485

Table 54 illustrates the list of equipment used for pelleting.

Table 54: Pelleting equipment list

Description Supplier Quantity Specification Price

Pellet mill Agricon 1 2 500kg/hr. R 302 100

Dry pellet cooler Agricon 1 1 500kg/hr.

R 142 500

Cyclone with fan system Agricon 1 R 33 773

Cooler elevator from pelletizer to cooler Agricon 1 R 37 050

Total R 515 423


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Figure 82 shows the manpower required to operate the animal feed production facility.

Figure 82: Animal feed production organogram

About 13 people will be employed by this facility. The Factory Manager will manage the entire animal feed production facility. The production Supervisor will be responsible for the supervision of the production line and the implementation of quality management systems and Nutritionals will handle all issues relating to production product formulations and ratios. B.4.5. Maize silos and service FPSU B.4.5.1. Service description and purpose

Silos will be primarily used for maize storage. Two silos will be established as follows:

Agri-hub silo - will primarily support the animal feed facility

Silo and service FPSU – established as an FPSU to support farmers with maize storage.

The following offerings will be provided by service FPSU for maize:







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

Transportation & logistics of fresh produce



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B.4.5.2. Equipment required

Table 55 shows a list of equipment required to setup a silo facility. The silos have the capacity of 1 000 tonnes each.

Table 55: Equipment - Silo facility

Silo equipment Quantity Price

Intake pit 1 R 14 160.00

No.1 bucket elevator 1 R 10 496.00

Vibrating service 1 R 55 088.00

Permanent magnet drum 1 R 12 064.00

High pressure impulse dust collector

1 R 91 808.00

Centrifugal fan 1 R 5 776.00


No.1 chain conveyor 1 R 80 000.00

Electric valve 2 R 11 552.00

500 tons bolted steel silo 3 R 1 471 440.00

Level indicator 6 R 15 744.00

Temperature monitoring system

3 R 94 416.00

Ventilation system- Silo bottom centrifugal fan

6 R 50 304.00

Ventilation system- Silo top axial fan

3 R 11 808.00

Air passage 3 R 98 352.00

Manual/ electric gate 3 R 22 032.00




No.2 Elevator derrick 1 R 102 288.00

Trestle on top 1 R 118 032.00

Support on the side wall 3 R 25 584.00

Articulated chute 1 R 39 344.00

Dust cleaning air flue 1 R 25 712.00

Electric control system 1 R 196 720.00

Total R 2 806 080.00

Table 56 shows the equipment required to setup the service FPSU.

Table 56: Required equipment for service FPSU - maize


Tractors 10 R 324 000 R 3 240 000

Ploughs 10 R 25 000 R 250 000

Cultivators 2 R 36 000 R 72 000

Planters 2 R 100 000 R 200 000

Vegetable transplanters 2 R 95 650 R 191 300

Land rollers 2 R 65 000 R 130 000

Fertiliser spreaders 10 R 74 000 R 740 000


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Disc ploughs 10 R 38 000 R 380 000

Disc harrows 10 R 140 000 R 1 400 000

Ripper 10 R 30 000 R 300 000

Seed drills 10 R 148 400 R 1 484 000

Office furniture 10 R 7 524 R 75 240

Office computer 10 R 10 000 R 100 000

Training centre furniture(chairs & tables) 30 R 1 200 R 36 000

Forklift 2 R 448 695 R 897 390

R 9 495 930

The total equipment budget required for the setting-up of the silo and service FPSU is estimated at R12 302 010. The AP silo would cost about R2 806 080. B.4.6. Food laboratory A food production facility is usually equipped with food testing laboratories. The purpose for laboratories is mainly to conduct basic microbial and chemical testing to ensure food quality. The AP would also setup a food laboratory as part of the quality management system. This laboratory will conduct basic microbial and chemical tests to ensure the quality and safety of foods produced by in-house agro-processing facilities, such as beef, vegetable and maize processing. Table 57 shows the equipment required to set-up as basic food testing laboratory.

Table 57: Laboratory equipment

Equipment Quantity Unit price Total cost

Spectrometer 2 R 12 000 R 24 000

Moisture analyser 2 R 19 200 R 38 400

Refractometer 2 R 9 000 R 18 000

Titrators 1 R 67 000 R 67 000

Microscope 2 R 11 000 R 22 000

Scale 2 R 500 R 1 000

Incubators 1 R 21 987 R 21 987

Accessories 1 R 6 000 R 6 000

Total R 198 387


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B.5. CONCLUSIONS AND RECOMMENDATIONS B.5.1. Beef opportunity B.5.1.1. Feedlot

A feedlot will be essential in terms of intensive cattle production and finishing. Cattle grain-finishing produces tender beef that is acceptable to the markets. Within feedlots, cattle are monitored daily to ensure that their health and dietary needs are being met, and to monitor any indications of potential issues. Cattle will typically spend 60 to 200 days in a feedlot until they reach the optimum weight for slaughter in the abattoir. There is one feedlot that was identified in the district. This feedlot is owned and operated by Triple A Beef, one of South Africa’s largest beef producers. The Triple A feedlot is located within the uMDM, in Cramond. This feedlot would likely not supply the AP opportunity as it is vertically integrated to the company’s abattoir, which is also located in the district. It is therefore recommended that the feedlot be establish as one of the AP’s immediate opportunities. This feedlot should be linked to the AP’s abattoir. The feedlot will require about 690 cattle every month for finishing. Based on the estimated market share carried out during the market study, the overall estimated cost of establishing the proposed feedlot is estimated at R17 072 000. B.5.1.2. Abattoir

The abattoir will slaughter beef cattle, and produce beef carcasses, as well as cattle hides. There about ten abattoirs identified in the district as depicted in Figure 83.

Figure 83: Existing abattoirs in uMDM


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Figure 83 shows that the following three types of abattoirs exist in the district:

Rural abattoir – slaughtering a maximum of two animals

Mooi Mpofana Local Municipality (LM) X 1

Msunduzi LM X 1

Low throughput abattoirs – slaughtering maximum of 20 animals per day

Richmond LM X 1

Mkhambathini LM X 1

Msunduzi LM X 2

High throughput – slaughtering more than 20 animals

Msunduzi LM X 2

Richmond X 1

Mkhambathini X 1 The Situational Analysis revealed that the top three local municipalities with the most extensive grasslands, suitable for livestock production are Impendle, Mooi Mpofana and Umngeni. Figure 84 shows the size of the grassland areas in the local municipalities.

Figure 84: Grassland in uMDM

Adopted from: (IES, 2012)

The total grassland in the district is estimated at 309 326 ha. This land could accommodate about 118 971 Livestock Units (LSU) based on 2.6 LSU/ha. According to a presentation by DARD (2016), the total number of cattle in uMDM is estimated at 155 482. The data in Figure 84 is consistent with agricultural household statistics (2011) regarding the number of households owning cattle in uMDM illustrated by Figure 85.

102 855 95 204

55 728

18 398 13 246 12 166 11 728

0

20 000

40 000

60 000

80 000

100 000

120 000

Impendle MooiMpofana

Umngeni Richmond Umshwathi Mkhambathini Msunduzi

Hecta

rs


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Figure 85: Minimum number of cattle owned by households in per LM

Source: (IES, 2012)

According to Figure 85, it is estimated that most of the cattle owned by households occur in uMngeni, Mpofana, Msunduzi and Impendle LM. The figure indicates that the minimum quantity of cattle owned by households is estimated at 58 235. Based on the current existing district’s abattoir infrastructure and agricultural situation in terms of cattle production, it is recommended that the proposed abattoir be established in uMngeni LM. This abattoir should be established within the agri-hub as an immediate opportunity. This abattoir would source cattle from the proposed feedlot, as well as communal, emerging and commercial farmers from different local municipalities. The abattoir will require only 8 222 cattle per annum for slaughtering. These cattle would be sourced from the commercial, emerging and households. B.5.1.3. Meat processing facility

The meat processing facility will process beef carcass produced by the AP abattoir and produce different beef products. About 14 meat processers were identified in the district, most of which are located in Pietermaritzburg, within Msunduzi LM. It is therefore recommended that a meat processing facility be established next to the abattoir (within the agri-hub), as an immediate opportunity. This facility would be designed to produce 9 tonnes of processed beef per day. B.5.1.4. Tannery

It is anticipated that the about 8 222 cattle hides would be produced as a by-product from the proposed abattoir slaughtering process. These hides could be converted into approximately 38 192 m² of finished leather. There is one tannery identified within the district, located in Pietermaritzburg. The supply of cattle hides will require a sustainable supply of cattle hides. This will require a fully functional abattoir. It is therefore recommended that a tannery be established in Umngeni LM to process cattle hides obtained from cattle slaughtering. This tannery should be established as a future opportunity to allow the abattoir to operate optimally.

12 137 11 824 10 479

8 495

5 828 5 683

3 790

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000


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B.5.2. Maize opportunities B.5.2.1. Dry milling facility

The dry milling facility would produce maize rice, maize grits, samp and super maize meal. Several maize millers were identified in uMDM. Most of these companies are located in Pietermaritzburg, within the Msunduzi LM. Amongst these companies are Tiger Mill (Subsidiary of Tiger Brands), Pioneer Foods and Pride Milling. Impendle Local Municipality has acquired a maize meal plant. According to the business plan for this facility, maize will be obtained from the Free State. According to DAFF (2015), consumption per capita for maize is estimated at 82.13 kg per annum. Considering the population in uMDM (About 1 017 763) and consumption per capita, the district market size could be estimated at 83 588 tons per annum. The quantity targeted for the dry milling facility is about 22 500 per annum (27% of the district market size). This quantity will be able to feed about 264 618 people. It is recommended that the maize milling facility in Impendle LM be linked to the AP. The acquisition of this plant was supported by Impendle LM. According to Impendle IDP (2012), the capacity of this plant is 1 ton per hour. In order to achieve the targeted quantity of 22 500 maize meals per annum, additional maize milling plant will be required. It is therefore recommended that a maize milling capacity be established. This facility should be established within the agri-hub as an immediate opportunity. The maize facility will need to be supported in terms of raw maize supply. Figure 86 shows the current land use in the seven local municipalities.

Figure 86: Agricultural land use in uMDM

Source: (IES, 2012)

The land use illustrated by Figure 86 includes the following:

Commercial agriculture - entails crops cultivation on dryland, annual commercial crops, including sugarcane emerging farmer

Subsistence farming – farming by households. Figure 86 shows that the most commercial crop farming occurs in Mooi Mpofana, followed by Umgeni, Impendle and Richmond. It also shows that Umshwathi leads in terms of subsistence agriculture, followed by Impendle.

Impendle Mooi Mpofana Umngeni Richmond Umshwathi Mkhambathini Msunduzi

Commercial Agriculture 5 870 31 512 27 450 6 197 3 022 3 200 1 113

Subsitance Agriculture 4 229 668 16 999 5 511 3 112 2 932

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

Hecta

res


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The agricultural land required to fulfil the quantities targeted for the dry milling facility is estimated at 2 813 ha. Maize should therefore be sourced from throughout the district and be supplied to the maize milling facility in Impendle, as well as the proposed dry milling facility to be established with the agri-hub. A maize silo should be established for effective storage of raw maize. B.5.2.2. Wet milling facility

The wet milling facility would produce starch and its co-products, namely germ, husk, and gluten. Both white and yellow maize could be used as raw material for the wet milling process. Market prefeasibility revealed that the national market size is estimated at 419 457, and grew by 3% between 2013 and 2014, indicating market prospects for this product. The major starch producer is African Products, with two wet milling facilities located in Gauteng. One starch producer (Natal Starch) was identified in Pietermaritzburg, within the Msunduzi LM. The operations of starch production would require advanced skills. In addition products such as corn sweeteners, syrups, dextrose and fructose would require product development. It is therefore recommended that this facility be considered for future establishment within the agri-hub. Based on the market prefeasibility, a 3 ton/hour plant is suggested. The size of agricultural land required to supply the targeted quantity of maize is estimated at 750 ha. B.5.2.3. Maize oil production facility

The maize oil production facility would further process germ obtained from the wet milling facility to maize oil. It is estimated that 480 tonnes of germ per annum would be produced and converted into 413 tonnes of oil. It is recommended that this opportunity be established after the wet milling facility is optimally operational and sustainable. B.5.2.4. Animal feed facility

The animal feed facility would use the following to produce animal feeds:

Yellow maize - 23 700 tonnes per annum

Hominy chop from dry milling operation - 11 082 tonnes

Gluten and husk from the wet milling facility - 1 860 tonnes Combined, the facility would produce about 36 642 tons of animal feed. The following competitors are located within the district:

Epol

NWK

AFGRI These competitors currently supply most of the animal feeds to farmers in the district. Nevertheless it is envisaged that an immediate animal feed demand of about 36 000 tonnes (based on feedlot capacity of 3 000 cattle and monthly consumption of 1 tonne per head) would be created by the feedlot. It is therefore recommended that this opportunity be established as an immediate opportunity. It should however be phased in and established after the optimal operation of the Impendle LM dry milling facility, to allow the


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identification of land and cultivation of maize. The size of agricultural land required to supply the targeted quantity of maize is estimated at 2 963 ha. B.5.3. Vegetables opportunities B.5.3.1. Puree, paste and juices facility

The puree, paste and juices production facility would add value to the vegetables produced in the district, such as carrots, cabbages and tomatoes. These products are highly innovative and the production facility requires highly skilled operators. Product development will have to be carried out prior to the establishment of the production facility. The market prefeasibility revealed that the market size for these products is small at 44 693 tonnes per annum. These estimations were made using Euromonitor (2015) and StatsSA (2011) reports. It is therefore recommended that this opportunity be considered for future establishment. B.5.3.2. Vegetable pack house

The vegetable pack house will pack both fresh and frozen vegetables produced in the district. The market prefeasibility revealed that most of the locally vegetables produced are consumed locally. SA’s vegetable market size is estimated at 2.25 million tonnes per annum (NAMC, 2012). According to DAFF (2015), vegetables per capita consumption is estimated at 43.01 kg per year. Considering the population in uMDM, the district vegetable market size is estimated at 43 774 tonnes per year. There were no vegetable pack houses identified in the district. It is therefore recommended that a vegetable pack house be established as an immediate opportunity. It is envisaged that the pack house would produce a total of 15 134 tonnes (about 34.6% of the district market) of vegetables annually. Vegetable storage facilities, linked to service FPSUs, should be established primarily to supply the vegetable pack house. To supplement the supply of fresh produce, vegetables should be also be sourced from Pietermaritzburg Fresh Produce Market (FPM). The arable land required to yield the quantities required by the pack house is estimated at 462 ha. Figure 86 shows current land utilised in the district that could be targeted for vegetable cultivation. Some of the land should be used to cultivate vegetables. Agricultural households should be also linked to this opportunity. This would promote a communal estates initiative. Communal estates are group of emerging farmers registered as a legal entity with the aim to farm commercially in a communal area. Through this programme, about 800 ha of land has been earmarked for maize cultivation within uMDM (DARD, 2016). B.5.3.3. Vegetable storage and service FPSU

The vegetable storage facility will ensure the sustainable supply of fresh vegetables to the vegetable pack house. Fresh vegetables could also be supplied to other markets from these FPSUs. The vegetable storage and FPSUs should be established in key production areas for vegetables. The following FPSUs and their location are recommended:

Vegetable storage and service FPSU – in Richmond, Mkhambathini and Umshwathi.

Service FPSU – in Msunduzi LM.


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There is a FPM in Msunduzi LM, located just outside Pietermaritzburg. This FPM would likely compete with the vegetable storage facility should it be established in Msunduzi. Partnership should be created with this NFPM.

B.6. AP CONCEPT The AP concept was informed by the preceding section (Conclusions and recommendations), including the high level market study, situation analysis and engagement with key stakeholders, such as the District AP Operational Task Team (DAPOTT). Also included in this section are proposed locations of both the AP and FPSUs. B.6.1. Agri-hub B.6.1.1. Agri-hub production facilities

Based on the high level analysis of the opportunities and services identified, the agri-hub with comprise of the following facilities as immediate opportunities:

Beef abattoir – the abattoir will slaughter cattle and primarily supply carcasses to the meat processing facility. Beef cattle will be sourced from the AP feedlot.

Meat processing facility – The meat processing facility will further process beef carcasses into products such as beef cuts, mince, wors, beef sausages and biltong. These products will be packed within this facility and supplied to markets.

Vegetable pack house – the pack house will process fresh vegetable into frozen and freshly pack vegetables. This facility will mainly source fresh vegetables from various vegetable storages.

Animal feed facility - the animal feed facility will produce animal feeds using maize. This facility will source raw maize from the silo, which will be established within the AP. The facility will supply animal feed to the proposed feedlot, as well as livestock farmers in and outside the district.

Dry milling facility – this facility will produce maize meals such as maize grits, samp, maize rice and super maize meal. This facility will also source maize from the proposed onsite maize silo.

The agri-hub future opportunities include the following:

Wet milling facility - this facility will produce starch and its co-products, such as germ, gluten and husk. Starch will be supplied to the food and beverage industry, whilst germ will be supplied to the AP’s maize oil production facility. Gluten and husk will be supplied to the animal feed facility as these products are used as some of the ingredient in the production of animal feeds.

Maize oil facility – The maize oil production facility will produce oil, primarily using germ obtained from the wet milling facility. This oil will also be supplied to the food and beverage industry.

B.6.1.2. Agri-hub services

The following were identified as potential services of the AP:


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Laboratory - In order to ensure quality of raw material and processed food, a basic food testing laboratory will be required. Therefore, a food testing laboratory will be established within the agri-hub. The laboratory will undertake both microbial and chemical tests. Qualified personnel will be employed to carry out all the required tests.

Warehouse and retail facility - this facility will be established to facilitate sales on site. This will enable customers to purchase products produced by the AP’s processing facilities onsite. Four retail spaces will be allocated to each production facility, including, four tilling machines.

B.6.2. Farmer production support units FPSUs will be crucial in ensuring the sustainable and efficient supply of quality raw material by supporting farmers with essential services. Although services required by farmers will differ from area to area, the situational analysis revealed that most of them have been found to be common. The findings of the situational analysis were used to design products and services of FPSUs. The following FPSUs would be remotely located within the various local municipalities:

Beef opportunity

Feedlot and service FPSU

Maize opportunity

Maize silo and service FPSU

Vegetable opportunity

Vegetable storage and service FPSUs

Service FPSU Some of the equipment and infrastructure such as tractors, farming implements and irrigation systems are already in place in uMDM. The district, local municipalities and DARD are involved in various initiatives to support farmers with essential farming service such as irrigation, input supply and tractors. These projects will be linked to the AP to further facilitate the success of the AP.


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B.7. LOCATION B.7.1. Agri-hub and Farmer production support units Figure 87 shows a mapped location of the agri-hub and FPSUs based on immediate opportunities.

Figure 87: Locations of FPSUs and the agri-hub

The location of FPSUs and the AP depicted in Figure 87 is based on immediate opportunities. The AP would be established in Umngeni LM. A site has already been identified just outside Howick. This site is privately owned and its size is about 320 ha. Figure 88 shows the site on Google Maps.


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Figure 88: AP site

Various FPSUs will be remotely established as follows:

Beef opportunity

Feedlot and service FPSU – in Mpofana LM

Maize opportunity

Maize silo and service FPSU – Impendle LM

Vegetable opportunity

Vegetable storage and service FPSUs – in Richmond, Mkhambathini and Umshwathi LM

Service FPSU – Msunduzi LM The actual locations of these FPSUs have not been identified.


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B.8. EQUIPMENT Table 58 shows a summary of production equipment required to setup the AP

Table 58: Overall production machinery and equipment

Immediate Future

Machinery and equipment Cost Cost

Beef Feedlot R 18 267 040 -

Abattoir R 19 858 344 -

Meat processing facility R 1 011 364 -

Tannery R 5 659 563.84

Maize Dry milling facility R 41 725 984 -

Animal feed facility R 2 108 018.44 -

Wet milling facility - R 9 600 000.00

Maize oil facility - R 8 699 200

Silo and service FPSU(Dry milling) R 12 302 010 -

Silo (Animal feed/AP) R 2 806 080.00 -

Silo (Wet milling) - R 2 806 080.00

Vegetable Paste, puree and juices - R 26 860 000.00

Vegetable pack house R 2 235 913 -


R 3 154 593 -

Agri-hub Laboratory

Lab equipment R 198 387 -

Vehicles

Trucks X 3 R 3 005 112

Forklift (Agri-hub) X 4 R 1 794 780

Bakkie X 1 R 235 000

Total R 108 702 625 R 53 624 844

A total of about R66 976 641 will be required for the acquisition of machinery and equipment for immediate opportunities. Table 59 shows a list of the agri-hub’s ancillary and administration equipment.

Table 59: Ancillary and admin equipment

Item Quantity Unit price Cost

Pastel software 2 R 2 600.00 R 5 200

Microsoft Office software 20 R 3 999.00 R 79 980

Office furniture (per office) 20 R 7 524.00 R 150 480

Computer 20 R 10 000.00 R 200 000

Telephone handsets - portable 20 R 599.00 R 11 980

CO2 fire extinguisher per unit 5 R 1 650.00 R 8 250

First aid kit - mountable box 5 R 800.00 R 4 000

Till Machine (warehouse and retail)

4 R 2 000.00 R 8 000

Total R 467 890


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B.9. SPACE REQUIREMENTS B.9.1. AP layout Figure 89 shows the entire AP layout based on immediate opportunities.

High-level Agri-Park Master Business Plan: uMgungundlovu District Municipality

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Figure 89: The uMDM layout and concept plan.

High-level Agri-Park Master Business Plan: uMgungundlovu District Municipality

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Table 60 shows the space requirement and cost of building for various components of the AP.

Table 60: AP space requirement

Immediate

Future

Quantity

Space required (m²)

Estimated building cost

Space required (m²)

Estimated building cost

Agri-hub

Beef abattoir 1 21 600 R 15 139 400 - -

Meat processing facility 1 300 R 3 068 000 - -

Vegetable pack house 1 100 R 1 770 000 - -

Animal feed facility 1 380 R 3 587 200 - -

Dry milling facility 1 1 000 R 7 611 000

Office block and laboratory 1 150 R 2 094 500 - -

Warehouse and retail facility 1 350 R 3 392 500 - -

Wet milling facility 1 - - 1080 R 8 130 200

Maize oil production facility 1 - - 250 R 2 743 500

Paste, puree and juice facility 1 - - 850 R 6 637 500

Total (Agri-hub) 23 880 R 36 662 600 2 180 R 17 511 200

FPSUs

Vegetable storage & service FPSU

4 1 400 R 10 207 000 - -

Silo and Service FPSU 1 100 R 1 770 000 - -

Feedlot and service FPSU 1 100 R 1 770 000 - -

Tannery 1 1 050 R 20 696 130

Total (FPSU) 1 600 R 13 747 000 - -

Overall (AP + FPSU) 25 480 R 52 179 600 3 230 R 38 207 330

It is estimated that the AP would require about 24 580 m² of building floor space. The total AP land requirement is estimated at 49 160 m² (or 5 ha), including areas such as parking spaces and roads to allow the movement of delivery and collects vehicles.


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B.10. SUPPLY CHAIN LOGISTICS The agro-processing (value-addition) facilities will primarily source raw material from farmers in the uMDM. These raw materials will be transported by the AP’s truck. Three 10 ton trucks would be purchased for this purpose. If the demand is high, transportation of raw material could be outsourced. Other raw materials such as additives and packaging material will be collected by the AP’s bakkie. Finished goods, work in progress (WIP), and raw materials will be moved around the processing facilities with a forklift. About four forklifts will be acquired. Small items will be moved manually with small trolleys, by staff members. Finished products will mainly be transported by the AP’s 10-ton trucks for big loads and the bakkie for smaller loads. All vehicles will be fully fitted with specialised food storage bodies and livestock handling facilities as prescribed by Food Premises and the Transportation of Food regulation. The daily route plan should be economical.

B.11. REGULATORY COMPLIANCE There are mandatory regulations, guidelines and specifications that the AP should comply with. In order to promote operational transparency and ensure regulatory compliance, the AP may need to adopt the use of combined and coordinated sets of compliance controls in the form of Integrated Management System (IMS). The IMS ensures that all compliance requirements are met without unnecessary duplication of management systems activities or processes. This section sets out the details relating to the regulatory compliance relevant to the AP. B.11.1. Environmental impact 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, suggests that all environmental regulatory requirements need to be addressed before the establishment of enterprises. The AP activities entail production processes which would likely produce waste material, therefore a comprehensive environmental assessment study, that includes ecological and heritage specialist studies will have to be carried out by an independent environmental expert, to determine the potential environmental impacts. The cost of this assessment is estimated at R1.5 million. Usually, EIA takes up to eight months to complete. The National Environmental Management: Biodiversity Act, 2004 (Act No. 10 of 2004) would also be applicable to the AP. The purpose of this regulation 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


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biodiversity. Accordingly, an ecological specialist assessment will have to be undertaken. The estimated cost to carry out this assessment is estimated at R120 000.

The impact of the project on cultural and heritage may need to be evaluated. 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. 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). The cost to undertake the cultural and heritage impact assessment is estimated at R120 000. B.11.2. Animals Protection Act (Act No. 71 of 1962 ) Feed lots and abattoir operations entail dealing with livestock. The beef industry is obligated to comply with Animals Protection Act (Act No. 71 of 1962) with respect to the handling and transportation of livestock. This legislation gives rules and regulations of how to handle animals. The AP will have to comply with this regulation. B.11.3. Quality management Food processing facilities are regulated by government to ensure hygienic practices and food safety. These regulations entail aspects such as facility design and layout, food handling processes and waste management. Table 61 lists relevant legislations and quality management systems applicable to the AP’s food production facilities.

Table 61: Relevant 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


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.

National Environmental Management Act

ISO 18001 A Health and safety Management System (OHS)

OHS Act

These management systems will be integrated and implemented as IMS at an estimated cost of R400 000.


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B.11.3.1. Potential specialist studies

The following specialist studies will form part of the EIA:

Ecological study

Cultural and Heritage study

Aquatic study

Wetland Delineation study Both the aquatic and wetland studies are dependent on the type of site to be allocated for the AP and FPSUs. It is likely that these two studies would be carried, considering the identified site of the agri-hub. B.11.3.2. Licensing / Permitting

Most of the AP’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).

The establishment and operation of an abattoir requires a licence/permit. To obtain this permit, an array of steps must be undertaken. Figure 90 illustrate a summary of the abattoir registration process.

Figure 90: Abattoir registration process

A geotechnical study to evaluate the conditions of the site for the purpose of designing and constructing the abattoir may be required. The estimated cost of R50 000 would be required to carry out this study.


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B.11.4. Land tenure An AP site has been identified in Umngeni LM. This site is privately owned by a trust. The uMDM District AP Operational Task Team (DAPOTT) is currently negotiating with this trust with respect to the use of land for the AP activities. Figure 88 shows a map of the identified site.

B.12. ORGANISATIONAL DESIGN B.12.1. Institutional arrangements B.12.1.1. AP

The AP will comprise of an agri-hub, located in Umngeni LM, as well as FPSUs located in Mpofana, Impendle, Umshwathi, Mkhambathini, uMngeni, Msunduzi and Richmond LMs. 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 91 illustrates the structure of the AP.

Figure 91: 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 AP 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)


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70% held by emerging farmers, communal farmers and community structures. B.12.1.2. 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.12.2. Organogram Figure 92 shows the manpower required to operate the entire AP.

Figure 92: The AP’s organogram

About 23 people would be required to operate the AP. B.12.3. Human resource requirement Table 62 shows the details regarding the 22 staff members.


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Table 62: Human resource requirement

Job title Key

Responsibility

Minimum requirement

No of

staff

Estimated monthly salary (ZAR)

Total annual Cost (ZAR)

General Manager Oversee the operations of the entire AP

Qualification in food technology or related fields.

Eight years’ experience in food processing.

Knowledge of HACCP/ISO 2200

1 45 000 540 000

FPSU Manager Oversee the operations of the Farmer Production Support Unit

Three year qualification in agriculture or related fields

Four years farming experience

6 30 000 2 160 000


Responsible for the enterprise financial, procurement and salary payments, as well as Human resource, business development and marketing activities.

Diploma or degree in Operations Management

Four years’ experience in the financial and business development environment

1 30 000 360 000

Facility Manager Oversee all the repairs and general maintenance of the building, equipment and furniture.

Diploma or degree in Facilities, Engineering or quantity surveying management

Four years’ experience in the building industry environment

1 35 000 420 000

Administrator

Responsible for administration and reception duties

Matric

Two year reception or administration experience

1 8 000 96 000

Driver Responsible for deliveries and collections,

Three years’ heavy motor vehicle driving

3 8 500 306 000


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Job title Key

Responsibility

Minimum requirement

No of

staff

Estimated monthly salary (ZAR)

Total annual Cost (ZAR)

including admin office and office matters

experience

Code EC driving licence

Food Technologist Oversee all hygiene and quality management, including lab testing

Qualification in Food Technology of related fields

Two years’ experience food processing

1 25 000 300 000


Responsible for all electrical and mechanical issues relating to production machinery, including the factory

Qualification in Engineering

Three years’ experience in engineering environment

2 16 000 384 000

Marketing Officer Assist with marketing and promotion activities

Qualification in Marketing

Three years’ experience in the marketing environment

1 16 000 192 000

Business Advisor Responsible for business development, business support to small processors and facilitation of incentives on behalf of small operators/SMMEs within the AP

Three year qualification in Commerce, Economics or related fields

Four years’ experience as a Business Advisor or related fields

1 30 000 360 000

Coordinator: FPSU Responsible for coordination activities of the FPSU, including business support, training, extension services etc.

Three year qualification in Agriculture or related fields

Two years farming experience e

6 16 000 1 152 000

Total 24 6 270 000

B.13. RISK MANAGEMENT Table 62 shows the risks identified for the AP.


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Table 63: Identified AP risk


risk rating

Mitigation

1. Low vacancy rate Medium High High Affordable rental fees


High High High The AP to be designed in line with quality standards (e.g. HACCP or ISO 22 000)

Establish laboratory for food testing

The facility to be continuously cleaned

3. Inferior equipment High High High Reputable suppliers to be used

4. Labour unrest Low High Medium Comply with all applicable labour legislation

5. Crime and robbery Low Medium Medium Employ security personnel to safeguard the premises

6. Lack of buy-in from key stakeholders (such as farmers & potential markets)

Low Medium Medium Intensive stakeholder management before to the establishment of the enterprise

7. Unaffordable rent High High High AP to linked opportunities with market to maximise profits


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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 uMgungundlovu AP. 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 a 100% grant funding

A discount rate of 7% is used

The cost of land acquisition is not included

The model assumes that accounts are payable in 30 days and receivables are only in 60 days

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

Feedlot

Abattoir

Meat processing


Vegetable storage

Grain silos

Dry maize milling

Transportation (Delivery and collection of products)

The revenues of the respective businesses is estimated on the production of the following products quantities:

Live cattle - 8 222 cattle

Beef carcasses - 3 700 tonnes

cattle hides - 8 222 cattle

Processed meat (wors, mice, beef cuts, biltong and beef sausages) - 2 590 tonnes

frozen and freshly packed vegetables) - 15 134 tonnes

Fresh vegetables - 22 701 tonnes

Maize meals (rice, samp, grits and super maize meal) - 22 500 tonnes


Fresh maize - 46 200 tonnes It is assumed the AP will retain 4.5% of the revenue generated by the respective business as revenue for its AP services

C.2. COSTS C.2.1. Investment costs Table 64 shows a list of investment cost required to establish the entire AP (AP and FPSUs).


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Table 64: Investment costs

Items Establishment

Site preparation Preparation of agri-hub and FPSU sites

R 504 096

Civil works, structures and buildings

Beef abattoir R 15 139 400

Meat processing facility R 3 068 000

Vegetable pack house R 1 770 000

Animal feed facility R 3 587 200

Dry milling facility R 7 611 000

Office block & laboratory R 2 094 500

Warehouse & retail facility R 3 392 500

Vegetable storage & service FPSU R 10 207 000

Silo & service FPSU R 1 770 000

Feedlot & service FPSU R 1 770 000

Plant machinery and equipment

Feedlot R 18 267 040

Abattoir R 19 858 344

Meat processing facility R 1 011 369

Animal feed facility R 2 108 018

Silo & service FPSU-maize R 12 302 010

Dry milling plant R 41 725 984

Silo-animal feed (AP) R 2 806 080

Vegetable pack house R 2 235 913

Vegetable storage & service FPSU R 12 618 372

Lab equipments R 198 387

Connection & regulatory compliance

Telephone connection R 2 500

Utilities connection (water & electricity)

R 7 500

IMS (ISO 9001/22 000/14 0001 & 18 000)

R 800 000

EIA R 3 000 000

Incorporated fixed assets Pastel software R 5 200

MS software R 79 980

Office furniture R 150 480

Computers R 200 000

Telephone handset R 11 980

Fire extinguishers R 19 800

First aid kit R 9 600

10 tons trucks R 3 005 112

Forklift R 1 794 780

Bakkie R 1 410 000

Till machine R 8 000

Contingencies Contingencies R 17 492 794

Working capital Working capital

Pre-production expenditure

Recruitment, staff training and production system

Total investment costs R 192 042 939


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A total of budget of about R192 042 939 would be required for the establishment of the AP. Additional R5 456 259 in working capital will be required in the first year of operations. C.2.2. Indirect costs Indirect costs are incurred irrespective of whether products have been manufactured and sold. The indirect costs of uMDM AP are estimated at R21 825 037 in the first year of operation. Figure 93 shows the details of these costs.

Figure 93: uMDM indirect costs

Figure 93 shows that the largest cost is depreciation at 50%, followed by labour and administrative overhead at 25% and 13%, respectively.

C.3. SALES The sales revenue of the park would be generated by collecting about 4% of the revenue generated by each of the opportunities. Table 65 shows the total expected revenue of the AP and the revenues collected from each opportunity.

Table 65: Sales revenue – full capacity

0.02% 0.04%

7%

4%

25%

1%

0.41%

13%

50%

0.14%

Water -domestic

Electricity-domestic

Fuel- logistics

Spare parts & maintanance

Labour

Labour overhead costs (SDL & UIF)

Factory overhead(Saftey clothing, Kosher,Halaal & QMS)

Administrative overhead(Bank charges,stationary,security, internet etc.)

Depreciation

Marketing overhead costs


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revenue %

collected AP income

Feedlot Finished cattle R 88 913 427 4.5% R 4 001 104

Abattoir Beef carcasses R 36 923 928 4.5% R 1 661 577

Cattle hides R 3 079 057 4.5% R 138 558


Processed beef R 82 880 000 4.5% R 3 729 600


Packed Vegetables R 60 536 000 4.5% R 2 724 120

Vegetable storage Fresh Vegetables R 85 128 750 4.5% R 3 830 794

Maize meals Maize meals R 93 375 000 4.5% R 4 201 875

Animal Feeds Animal feed R 63 200 000 4.5% R 2 844 000

Grain silos Silos R 102 954 390 4.5% R 4 632 948

Transportation Transportation services

R 1 790 392 4.5% R 80 568

Total R 618 780 944 R 27 845 142

It is anticipated that the AP would generate income of about R27 845 142 at full capacity.

C.4. PROJECTED TEN YEAR FINANCIAL STATEMENTS Based on the expected AP costs and assumptions of projected sales by the opportunities, projected ten year, income statements, balance sheets and cash flow statements were prepared


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C.4.1. Income statement The income statement reports on the AP’s projected earnings to interested and affected parties such as investors, shareholders, employees and creditors over a specific period of time. It presents a picture of the AP’s profitability over a ten year period.

Table 66: Income statement Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Sales revenue 14 446 045 15 457 268 16 539 277 35 449 017 37 930 448 40 585 580 86 863 687 92 944 145 99 450 235 106 411 752

VARIABLE MARGIN

14 446 045 15 457 268 16 539 277 35 449 017 37 930 448 40 585 580 86 863 687 92 944 145 99 450 235 106 411 752

Less fixed costs 27 187 399 28 086 703 29 094 755 30 248 693 31 350 379 33 115 438 34 529 062 35 878 674 37 391 488 39 044 552

Material 3 008 030 3 218 592 3 443 894 3 684 966 3 942 914 4 218 918 4 514 242 4 830 239 5 168 356 5 530 141

Personnel 6 908 562 7 392 161 7 909 613 8 463 286 9 055 716 9 689 616 10 367 889 11 093 641 11 870 196 12 701 109

Marketing (except personnel)

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

Depreciation 13 685 970 13 685 970 13 685 970 13 708 861 13 708 861 14 239 014 14 267 057 14 267 057 14 267 057 14 301 411

Other fixed costs 3 546 317 3 748 763 4 011 177 4 344 391 4 592 396 4 913 864 5 322 066 5 625 883 6 019 695 6 441 073

GROSS PROFIT (12 741 354) (12 629 435) (12 555 478) 5 200 324 6 580 069 7 470 142 52 334 625 57 065 471 62 058 747 67 367 200

TAXABLE PROFIT

- - - 5 200 324 6 580 069 7 470 142 52 334 625 57 065 471 62 058 747 67 367 200

Income (corporate) tax

- - - 1 456 091 1 842 419 2 091 640 14 653 695 15 978 332 17 376 449 18 862 816

NET PROFIT (12 741 354) (12 629 435) (12 555 478) 3 744 233 4 737 650 5 378 502 37 680 930 41 087 139 44 682 298 48 504 384

The income statement shows that the AP would start to be profitable from the fourth year onwards, generating A net profit of R 48 504 384 by year ten. The largest cost contributor is depreciation of the production equipment at over R 13.68 million.


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C.4.2. Balance sheet The balance sheet shows an increase in the AP’s net worth from R180.54 million in the first year to R341.17 million in year ten. Based on a zero dividend policy, it also shows that projected retained profit would grow from R3.74 million in the fourth year to R48.5 million in year ten.

Table 67: Balance sheet Establishment Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

TOTAL ASSETS 192 500 000 194 308 302 194 375 722 194 452 423 198 283 095 199 359 956 200 094 770 232 503 090 249 626 570 294 423 975 343 051 524

Total current assets 79 261 2 832 179 3 956 134 4 789 492 22 329 026 31 829 805 51 083 319 103 137 197 158 593 617 217 097 054 280 026 013

Inventory on materials & supplies

- 8 356 8 941 9 566 10 236 10 953 11 719 12 540 13 417 14 357 15 362

Work in progress - 27 855 29 678 31 755 34 124 36 357 38 902 41 803 44 538 47 656 50 992

Finished product - 261 779 279 213 298 758 320 690 342 048 365 991 392 859 419 023 448 355 479 740

Accounts receivable - 2 250 238 2 400 122 2 568 131 2 756 639 2 940 253 3 146 071 3 377 001 3 601 936 3 854 072 4 123 857

Cash-in-hand - 203 289 216 629 231 793 249 038 265 380 283 957 305 082 325 102 347 859 372 209

Cash surplus, finance available

79 261 80 662 1 021 551 1 649 489 18 958 299 28 234 815 47 236 680 99 007 912 154 189 600 212 384 756 274 983 854

Total fixed assets, net of depreciation

192 420 739 178 734 769 165 048 799 151 736 663 138 027 801 133 348 118 119 567 067 105 300 010 91 032 953 77 326 921 63 025 510

Fixed investments - 192 042 939 192 042 939 192 042 939 192 416 773 192 416 773 201 445 951 201 903 914 201 903 914 201 903 914 202 464 938

Construction in progress 192 042 939 - - 373 834 - 9 029 178 457 963 - - 561 024 -

Total pre-production expenditures

377 800 377 800 377 800 377 800 377 800 377 800 377 800 377 800 377 800 377 800 377 800

Less accumulated depreciation

- 13 685 970 27 371 940 41 057 910 54 766 772 68 475 633 82 714 647 96 981 704 111 248 761 125 515 817 139 817 228

Accumulated losses brought forward

- - 12 741 354 25 370 790 37 926 268 34 182 034 29 444 385 24 065 882 - - -

Loss in current year - 12 741 354 12 629 435 12 555 478 - - - - - - -

TOTAL LIABILITIES 192 500 000 194 308 302 194 375 722 194 452 423 198 283 095 199 359 956 200 094 770 232 503 090 249 626 570 294 423 975 343 051 524

Total current liabilities - 1 028 302 1 095 722 1 172 423 1 258 862 1 342 307 1 436 268 1 542 160 1 644 383 1 759 490 1 882 655

Subsidies, grants 192 500 000 193 280 000 193 280 000 193 280 000 193 280 000 193 280 000 193 280 000 193 280 000 193 280 000 193 280 000 193 280 000

Reserves, retained profit brought forward

- - - - - - - - 13 615 048 54 702 187 99 384 485

Retained profit - - - - 3 744 233 4 737 650 5 378 502 37 680 930 41 087 139 44 682 298 48 504 384

Net worth 192 500 000 180 538 646 167 909 210 155 353 732 159 097 966 163 835 615 169 214 118 206 895 048 247 982 187 292 664 485 341 168 869


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. C.4.3. Cash flow statement The cash flow statement discloses how the AP expects to raise money and how it expects to spends those funds It also measures its ability to cover its expenses in the short term. Generally speaking, an operation that is consistently earning more cash than it spends is considered to be viable.

Table 68: 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 192 500 000 16 254 347 15 524 688 16 615 978 35 535 456 38 013 893 40 679 541 86 969 578 93 046 369 99 565 342 106 534 916

Inflow funds 192 500 000 1 808 302 67 420 76 701 86 439 83 445 93 961 105 891 102 224 115 107 123 164

Total equity capital 192 500 000 780 000 - - - - - - - - -

Total short-term finance - 1 028 302 67 420 76 701 86 439 83 445 93 961 105 891 102 224 115 107 123 164

Inflow operation - 14 446 045 15 457 268 16 539 277 35 449 017 37 930 448 40 585 580 86 863 687 92 944 145 99 450 235 106 411 752

Sales revenue - 14 446 045 15 457 268 16 539 277 35 449 017 37 930 448 40 585 580 86 863 687 92 944 145 99 450 235 106 411 752

TOTAL CASH OUTFLOW

192 420 739 16 252 946 14 583 799 15 988 040 18 226 646 28 737 378 21 677 676 35 198 346 37 864 681 41 370 186 43 935 818

Increase in fixed assets 192 420 739 - - 373 834 - 9 029 178 457 963 - - 561 024 -

Fixed investments 192 042 939 - - 373 834 - 9 029 178 457 963 - - 561 024 -

Pre-production expenditures (net of interest)

377 800 - - - - - - - - - -

Increase in current assets

- 2 751 517 183 065 205 421 230 724 224 263 251 649 282 646 274 732 308 281 329 861

Operating costs - 13 462 909 14 359 517 15 364 683 16 492 643 17 591 026 18 822 398 20 204 197 21 549 763 23 058 246 24 672 324

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 - - - - 1 456 091 1 842 419 2 091 640 14 653 695 15 978 332 17 376 449 18 862 816

SURPLUS (DEFICIT) 79 261 1 401 940 889 627 938 17 308 810 9 276 516 19 001 865 51 771 232 55 181 688 58 195 156 62 599 098

CUMULATIVE CASH BALANCE

79 261 80 662 1 021 551 1 649 489 18 958 299 28 234 815 47 236 680 99 007 912 154 189 600 212 384 756 274 983 854

The cash flow statement shows a projected positive cumulative cash balance throughout the ten year period. It also shows that the AP would require a budget of R192.5 million for establishment.

High-Level Master A gri-Park Business Plan: uMgungundlovu District Municipality

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C.5. FINANCIAL ANALYSIS C.5.1. NPV The Net Present Value (NPV) compares the value of an investment to the its value of that in the future, taking the expected returns into account. If a discount rate of 7% is used, the NPV for this venture is R 2 144 961, which indicates a expected positive return for the AP. C.5.2. IRR The Internal Rate of Return (IRR) can be used to compare the profitability of investments. It is also called the discounted cash flow rate of return. The IRR for this venture is 7.15%, which is above the discount rate of 7%. This indicates that the AP could be financially viable. C.5.3. Payback period The payback period gives an indication of how long the AP would have to operate to generate profits, and before it would be able to repay the initial investment. The payback period for this venture is 9.7 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. Sensitivity analysis – revenue

Sensitivity analysis on revenue collected entails the analysis of park revenue based on a range of percentages of revenue that could be collected from selected opportunities Table 69 shows the results of the sensitivity analysis.


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Table 69: Sensitivity - % revenue collected


4% revenue collection

Likely – 4.5% revenue collected

(likely)


NPV (ZAR) -R53 597 881 -R25 259 508 R 2 144 961 R56 765 205

IRR 3.09% 5.23 7.15% 10.63%%


11.11 10.30 9.67 8.77

Outcome Marginally profitable with deficits from year to year 3

Profitable with deficits from year to year 3

Profitable Profitable, would likely attract private investors

Table 70 shows that the AP will be sensitive to the revenue collected, as depicted by variations in IRR and NPV. If only 3.5% of opportunity revenue is collected, the large negative NPV indicates that the park will not generate the desired levels of income. The IRR of 3.09% indicates a return of well below the discount rate (expected return) If revenue collected increases to 5.5%, both the IRR and NPV are positive at 10.63% and R56 765 205 respectively. At 5.5% collection, the AP would be likely to be able to attract private investment. C.5.4.2. Sensitivity analysis – discount rate

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

Farmers – 70%

State/commercial – 30% Commercial investors typically require high Returns on Investment (ROI). To take into consideration the expectations of private investors, an appropriate commercial rate of 14% (discount rate) in conjunction with a revenue model based on 4.5% of opportunity revenue collection were used, producing the o results set out below:

NPV – -R75 564 419

IRR – 7.15 %

Payback period – 9.67years All three indicators are unlikely to be deemed acceptable by commercial investors. C.5.4.3. Sensitivity analysis - labour costs

A sensitivity analysis was also conducted on the labour costs as set out in Table 70


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. Table 70: Sensitivity analysis – labour costs

Likely scenario (base)

5% increase 10% increase 15% Increase

NPV (ZAR) R 2 144 961 -R474 352 -R3 042 306 -R5 712 978

IRR 7.15% 6.97% 6.79% 6.61%


9.67 9.73 years 9.78 9.84

Outcome Profitable Profitable Profitable in year 1 and year 2

Profitable with deficit from year 1 to year 3

Table 70 shows that increasing in labour cost (by 5%, 10% and 15%) would have small but significant impact on the AP. There would be deficit between year 1 to 3 if labour costs are increased by 10% and 15%.

C.6. ECONOMIC BENEFITS OF THE PROPOSED AP C.6.1. GVA The 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 establishment or operation of a venture. The GVA for this venture is expected to average at R45 937 534 per annum. C.6.2. Jobs It is envisaged that the AP would directly or indirectly create and sustain about 1 084 jobs. This section sets out details relating to jobs to be created and sustained by the AP. C.6.2.1. Jobs created by the AP

Based on the AP’s activities such as facility management, transportation, security services, as well as providing space, machinery and equipment to processors, about 24 direct job opportunities would be created by both the AP and FPSUs. The direct job opportunities would include the following:

General Manager

FPSU Manager (x6)


Facility Manager

Administrator

Driver (x3)

Food Technologist (x2)

Technician (x2)

Marketing Officer


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Business Advisor, and

FPSU Coordinator (x6) Additional jobs would be created by outsourced services by the AP as follows:

Security services – security guard (x20)

Landscaping service – 10 landscape Technician (x10) Overall, the AP could create about 54 people. C.6.2.2. Jobs created by the opportunities

Job opportunities would also be created by individual opportunities as depicted in Table 71. .

Table 71: Jobs created by opportunities

Opportunity No of jobs

Beef Feedlot 17

Abattoir 18

Meat processing 19

Maize Dry milling facility 22

Animal feed production 13

Vegetable Vegetable pack house 14

Total 103

It is anticipated that 103 jobs would be created by establishing the selected opportunities. It is envisaged that additional jobs (about 927) would either be sustained or created by farming enterprises as a result of the AP activities as follows:

Beef – 214 jobs

Maize – 63 jobs

Vegetables – 650 jobs


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APPENDIX D - FINANCIAL ASSUMPTIONS


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Description Value Sources/Notes

1.Project ID

Project Type: Industrial

level of Analysis: Feasibility Study

Project Title uMgungundlovu AP

Project Classification: • New project

Depth of Analysis: Financial

Special Features: • Inflation= 7%

• Escalate first year= 0 times

• Stock model=By total

2.Planning Horizon

Month of Balance (month in which annual reporting needs to be done)

Construction phase • Beginning month & year=01/2017

• length=12 months

Production phase • 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)

3.Products Name Start of Production

End of Production

Nominal Capacity

Products: Feedlot-cattle 2018 2027 8 222 tonnes

Abattoir-beef carcasses 2018 2027 3 700 tonnes

Hides 2018 2027 221 994 No of hides

Meat processing 2018 2027 2 590 tonnes

Packed Vegetables 2018 2027 15 134 tonnes

Fresh Vegetables-FPSUs 2018 2027 22 701 tonnes

Maize meals 2018 2027 22 500 tonnes

Animal feed 2018 2027 23 700 tonnes

Silos 2018 2027 46 200 tonnes

Transportation 2018 2027 316 800 tonnes

4.Currencies


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Currency • Type=Local

• Name=South African Rand

• Abbreviation=ZAR

• Exchange Rate=N/A

5.Inflation

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

6.Joint Venture Partner

Joint Venture Partner Not applicable

7.Discounting rate: 7%

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

• Length=Automatic (Construction + Production years)

Total equity capital: • Rate (%) = Use annually updated Calculation (middle rate first)


For all Joint Venture Partners:

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


8.Fixed Investments:

Fixed Investments: Description Supplier Depreciation Years (Use

SARS Wear&Tear

Rates)

Years of Purchase

Quantity Cost(ZAR) Total

Land Purchase 1 -

Site preparation & Development

1 R 504 096 R 504 096

Civil works, structures & buildings

Beef abattoir Contractors 50 Y0 1 R 15 139 400 R 15 139 400 Facilities required for the entire AP

Meat processing facility 50 Y0 1 R 3 068 000 R 3 068 000

Vegetable pack house 50 Y0 1 R 1 770 000 R 1 770 000

Animal feed facility 50 Y0 1 R 3 587 200 R 3 587 200

Dry milling facility 50 1 R 7 611 000 R 7 611 000

Office block and laboratory

50 Y0 1 R 2 094 500 R 2 094 500


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Warehouse and retail facility

50 Y0 1 R 3 392 500 R 3 392 500

Vegetable storage & service FPSU

50 Y0 1 R 10 207 000 R 10 207 000

Silo and Service FPSU 50 Y0 1 R 1 770 000 R 1 770 000

Feedlot and service FPSU

50 Y0 1 R 1 770 000 R 1 770 000

R 50 409 600

Fixed Investments: Plant machinery & equipment:

Feedlot Vision Cattlequip

10 Y0 1 R 18 267 040 R 18 267 040 Machinery & equipment required to setup the entire AP

Abattoir I`Vimbi Technologies

10 Y0 1 R 19 858 344 R 19 858 344

Meat processing facility Catering Equipment

10 Y0 1 R 1 011 364 R 1 011 364

Animal feed facility 10 Y0 1 R 2 108 018 R 2 108 018

Maize dry milling facility 10 Y0 1 R 41 725 984 R 41 725 984

Silo and service FPSU Jiusheng Silo 10 Y0 1 R 12 302 010 R 12 302 010

Silo (Animal feed/AP) Jiusheng Silo 10 Y0 1 R 2 806 080 R 2 806 080

Vegetable pack house 10 Y0 1 R 2 235 913 R 2 235 913


10 Y0 4 R 3 154 593 R 12 618 372

Lab equipment 5 Y0 1 R 198 387 R 198 387

R 113 131 512

Auxiliary & service plant equipment:

Y0

Telephone connections Telkom Y0 1 R 2 500 R 2 500 Telephone lines

Utilities(Electricity & water)

uMgungundlovu DM

Y0 1 R 7 500 R 7 500 Connection of electricity & water supply

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

Consultants Y0 1 R 800 000 R 800 000 Once-off

EIA Consultants Y0 1 R 3 000 000 R 3 000 000 For the agrihub & FPSUs

R 3 810 000


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Incorporated fixed assets(project overheads):

Pastel software 3 Y0,Y3,Y9 2 R 2 600 R 5 200

Microsoft Office software Makro 3 Y0,Y3,Y9 20 R 3 999 R 79 980

Office furniture (per office)

10 Y0 20 R 7 524 R 150 480

Computer Makro 3 Y0,Y3,Y9 20 R 10 000 R 200 000

Telephone handsets - portable

Makro 5 Y0,Y5 20 R 599 R 11 980

CO2 fire extinguisher per unit

ADRE Tools 5 Y0,Y5 12 R 1 650 R 19 800

First aid kit - mountable box

ADRE Tools 5 Y0,Y5 12 R 800 R 9 600

10 ton Truck Man Truck 5 Y0,Y5 3 R 1 001 704 R 3 005 112

Forklift 5 Y0,Y5 4 R 448 695 R 1 794 780

Bakkie Nissan 5 Y0,Y5 6 R 235 000 R 1 410 000

Till machine( warehouse and retail)

Makro 3 Y0,Y3,Y9 4 R 2 000 R 8 000

R 6 694 932

Preproduction Expenditure

Develop technical/training manuals

Consultants Y0 1 R 15 000 R 15 000

Technical & business training

Consultants Y0 2 R 48 000 R 96 000 Business + technical training (two days each)

Marketing & roadshows In-house Y0 1 R 150 000 R 150 000 During the inception of the project

Recruitment Recruitment agent

Y0 1 R 28 800 R 28 800 1% of skilled labour

Business registration Consultants Y0 1 R 38 000 R 38 000 CIPC , labour, SARS etc.

Set up AP control system(products)

Consultants Y0 1 R 50 000 R 50 000 For managing the production system


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R 377 800

Contingencies R 17 492 794

9.Production Costs

Indirect Costs: Description Years Quantity Cost(ZAR)

Utilities:

Water (Domestic) Y1-Y10 12 R 321 R 3 857 Domestic use

Electricity (Domestic) Y1-10 12 R 883 R 10 600 Domestic use

Fuel(diesel) Y1-10 12 R 138 790 R 1 665 481 For delivery of final products & collection of raw materials

Maintenance

Spare parts consumed & equipment maintenance Y1-10 1 R 1 131 315. R 1 131 315

Royalties Y1-10

Labour:

General Manager Y1-10 1 R 540 000 R 540 000 Manage the AP operations

FPSU Manager Y1-10 6 R 360 000 R 2 160 000 Manage for FPSUs


Y1-10 1 R 420 000 R 420 000 Oversee the AP operations

Facility Manager Y1-10 1 R 420 000 R 420 000 Manage facilities

Administrator Y1-10 1 R 96 000 R 96 000 Reception & admin

Driver Y1-10 3 R 102 000 R 306 000 Truck driver

Food Technologist Y1-10 1 R 300 000 R 300 000 Lab testing & product development


Y1-10 2 R 192 000 R 384 000 To address all technical issues

Marketing Officer Y1-10 1 R 192 000 R 192 000 Responsible for Marketing & promotion activities


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Business Advisor Y1-10 1 R 360 000 R 360 000 Business support, develop opportunity BP & business development

Coordinator: FPSU Y1-10 6 R 192 000 R 1 152 000 Facilitate all FPSU activities, including training & incentives

R 6 330 000

Labour overhead costs (taxes etc.):

SDL Y1-10 1 R 63 300 R 63 300 1% of labour costs

UIF Y1-10 1 R 63 300 R 63 300

Factory overhead costs:

Safety clothing Y1-10 24 R 500 R 12 000 For all the AP staff

Kosher certificate Y1-10 1 R 37 000 R 37 000 Annual fees

Halaal certificate Y1-10 1 R 15 000 R 15 000 Annual fees

Quality management system

Y1,Y3,Y6,Y9 1 R 40 000 R 40 000 After every three years

Administrative overhead costs

Stationary Y1-10 12 R 500 R 6 000 per month

Accounting & Audit fees Y1-10 1 R 60 000 R 60 000 Once-off annual fees

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

Internet & telephone monthly costs

Y1-10 23 R 3 000 R 69 000 per month

Security costs Y1-10 30 R 50 400 R 1 512 000

Landscping costs Y1-10 10 R 42 000 R 420 000

Business Insurance Y1-10 1 R 1 131 315.12

R 1 131 315

Marketing overhead costs:


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Marketing & promotion Y1-10 12 R 3 000 R 36 000 For exhibitions, website updates etc.

10.Sales Programme

Revenue based income: Feedlot-cattle

Years Quantity Price(ZAR)

Y1-Y3 92 R 10 814.09 R 1 000 276 Tonnes

Y4-Y6 185 R 10 814.09 R 2 000 552 Tonnes

Y7-Y10 370 R 10 814.09 R 4 001 104 Tonnes

Abattoir-carcasses Y1-Y3 42 R 9 979 R 415 394 Tonnes

Y4-Y6 83 R 9 979 R 830 788 Tonnes

Y7-Y10 167 R 9 979 R 1 661 577 Tonnes

Abattoir-hides Years Quantity Price(ZAR)

Y1-Y3 2 497 R 13.87 R 34 639 Kg

Y4-Y6 4 995 R 13.87 R 69 279 Kg

Y7-Y10 9 990 R 13.87 R 138 558 Kg

Revenue based income: Meat processing-beef


Y1-Y3 29 R 32 000 R 932 400 Tonnes

Y4-Y6 58 R 32 000 R 1 864 800 Tonnes

Y7-Y10 117 R 32 000 R 3 729 600 Tonnes

Revenue based income: Vegetable pack house


Y1-Y3 170 R 4 000 R 681 030 Tonnes

Y4-Y6 341 R 4 000 R 1 362 060 Tonnes

Y7-Y10 681 R 4 000 R 2 724 120 Tonnes

Revenue based income: Fresh Vegetable(FPSU)


Y1-Y3 255 R 3 750 R 957 698 Tonnes

Y4-Y6 511 R 3 750 R 1 915 397 Tonnes

Y7-Y10 1 022 R 3 750 R 3 830 794 Tonnes

Revenue based income: Maize meals


Y1-Y3 253 R 4 150 R 1 050 469 Tonnes

Y4-Y6 506 R 4 150 R 2 100 938 Tonnes

Y7-Y10 1 013 R 4 150 R 4 201 875 Tonnes


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Revenue based income: Animal feed


Y1-Y3 267 R 2 667 R 711 000 Tonnes

Y4-Y6 533 R 2 667 R 1 422 000 Tonnes

Y7-Y10 1 067 R 2 667 R 2 844 000 Tonnes

Revenue based incomes: Silos


Y1-Y3 520 R 2 228 R 1 158 237 Tonnes

Y4-Y6 1 040 R 2 228 R 2 316 474 Tonnes

Y7-Y10 2 079 R 2 228 R 4 632 948 Tonnes

Revenue based income: Transportation


Y1-Y3 79 200 R 5.65 R 447 598 Km

Y4-Y6 158 400 R 5.65 R 895 196 Km

Y7-Y10 316 800 R 5.65 R 1 790 392 Km

11.Working Capital

Inventory •Raw Materials=30 days

•Work in Progress =1 day

•Finished Goods 7 days

•Utilities=1 day

•Energy= 1 day

Description Value

Account Receivable • 60 days

Cash-in-hand: • Cash-in-hand-local=7 days

Account Payable: •Raw Materials=30 days

•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


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•Direct Marketing Costs = 30 days

12. Sources of Finance (Default for most ECD Projects = Grant Funding, Loans could be included in Scenarios)

Grant Grant Year Amount paid in Total % of profits

distributed

% of dividends Received(split between

partners

192 500 000 2017 192 500 000 None

None

None

None

None

None

13.Tax Allowances

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

Description Value


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APPENDIX E - REFERENCES


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Constitutional Assembly. (1996). The Constitution of the RSA.

ACBio. (2013, October 18). Food fascism in SA: tiger brands, pioneer and premier force the nation riskyGM maize. Retrieved March 10, 2016, from www.ACBio.org.za: http://acbio.org.za/food-fascism-in-south-africa-tiger-brands-pioneer-and-premier-force-feeding-the-nation-risky-gm-maize/

Acts-Online. (2015). Acts. Retrieved February 06, 2016, from Acts-Online: http://www.acts.co.za

BFAP. (2015). Adding value inthe South African maize value chain. BFAP.

BFAP. (2015). Agricultural Outlook 2015-2024. Pretoria: BFAP.

DAFF. (2012). A Profile of the South African Hides, Skins and Leather Market Value Chain. Pretoria: DAFF.

DAFF. (2012). A profile of the South African beef market value chain. Pretoria: DAFF.

DAFF. (2012). Maize value chain profile. Pretoria: DAFF.

DAFF. (2012/2013). Pocket Guide to South Africa. Pretoria: DAFF.

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

DAFF. (2013). Profile of the South African hides, Skins and Leather market value chain. Pretoria: DAFF.

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

DAFF. (2014). A profile of SA tomato market value chain. DAFF.

DAFF. (2014). A profile of the south african potato market value chain. DAFF.

DAFF. (2014). Maize market value chain profile. Pretoria: DAFF.

DAFF. (2014). Profile of beef market value chain. DAFF.

DAFF. (2014). Profile of cabbage market value chain. DAFF.

DAFF. (2015). Abstract of agricultural statistics. Pretoria: DAFF.

DARD. (2016). Progress on implementation of the agrarian transformation. DARD.

DARD. (2016). Special MINMEC meeting. DARD.

Euromonitor. (2015). Packaged food in SA. Euromonitor.

Heunis, E. (2014, September 10). SA tanneries. (N. Mashamaite, Interviewer)

IES. (2012). uMDM Status quo report. uMDM.


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IES. (2012). uMDmStatus quo report. uMDM.

Impendle LM. (2012). Impendle IDP 2012/13-17. Impendle LM.

Impendle LM. (2012). Impendle LM IDP. Impendle LM.

ITC. (2010). Market and market opportunities for leather and leather products from africa. Geneva: ITC.

ITC. (2015). Trade map. ITC.

ITC. (2015). Trade Map. Geneva: ITC.

KZN Treasury. (2012/13). Municipal finance 4th quarter review close-out report 2012/13. KZN Treasury.

Minnesota Corn Growers Association. (n.d.).

NAMC. (2012). SA fruit trade flow. Pretoria: NAMC.

StatsSA. (2011). Agricultural households. Pretoria: StatsSA.

StatsSA. (2011). Manufacturing industry: Production, 2011. Pretoria: StatsSA.

uMDM. (2015). uMDP IDP. UMDM.

UNICEF. (2014). Generation 2013 Africa. New York: UNICEF.

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