Developing a potato value chain

Lt strategy talks

POTATO VALUE ADDITION OPPORTUNITIES IN NYANGA

“With enough strategy and effort everything is possible”

Page 1

Lt strategy talks Preamble 1.0 2.0 3.0 4.0 5.0

6.0

7.0 8.0 9.0 10.0

11.0

Agriculture is about food production.

Human beings require food to be alive. Without food the human body will starve and die.

People generally have different eating habits however it is almost a universal practice that most individuals eat three meals a day, which is in the morning, afternoon and evening.

This circle goes on and on without ending throughout the passage and history of humanity. It never ends until life itself as we know it ceases on earth.

The economic implication of this is as follows:  A country like Zimbabwe has a human population estimated to be around 15 million.  Each of the 15 million desires to have three meals a day,  This means that 45 million meals per day  1,395 billion meals per month  16,740 billion meals per year.

If we assume that a minimum meal cost 0.50 cents it means that on an average day a minimum of $22,500,000 is changing hands in meals only. Per month $697 million changes hands and $8, 3 billion per year.

The above is an over simplified demonstration of the economic quantum at the lowest possible values circulating in food in Zimbabwe.

But what our farms produce might need further processing to put their produce in the right and desirable form to be called food by the population.

The processing is mostly what people will pay more for as they buy their food. And this could be where the most value of the minimum and simplistic calculation of $8, 3 billion per year lies.

Sadly Zimbabwe has limited capacity for value addition or further processing and relies more on other nations thus missing out on the significant portion of money that its population pays to acquire food.

This to a larger extent cause huge economic imbalances The Vision is:

12.0 13.0

14.0 15.0 16.0 17.0

To build a Potato processing plant in Nyanga capable of processing 5 tonnes/ hour of fresh Potatoes To be operated by Potato Growers Association as a separately incorporated entity, with the association, individual growers and any other interested stakeholders subscribing to the entity as paid up shareholders To employ local youths thereby boasting the local Nyanga economy through increased employment numbers and increased disposable incomes To target supermarkets, fast food outlets and schools as potential markets To position the product as a capable and sound competition to imports of same such as Maccains To lobby regulators, markets and all other interested stakeholders to support the initiative under the buy Zimbabwe concept.

“With enough strategy and effort everything is possible”

Page 2

Lt strategy talks

Does the vision have a profitable market?

Market context 18.0 19.0 20.0 21.0 22.0

The potato is seemingly overtaking maize as a staple food.

The new generation ,represented by the born free-those born after 1980, now prefer meals containing potatoes more than maize This generation is the “French fries” generation. For them eating is more than just feeding. It is a statement of class and fashion. They believe in eating on the go and Potato matches their desire Sadza or maize porridge is no longer “cool” enough for them Interestingly this is a generation that makes the most of Zimbabwean demographics as shown by the latest population census numbers below: Age rate 0-14 years 15-24 years 25-54 years 55-64 years 65 years and above

23.0 24.0

Percentage rate 38.4% 22.1% 32.3% 3.6% 3.5 %

Male 2 670 642 1 527 964 2 298 355 180 554 193 385

female 2 651 440 1 520 255 2 153 659 318 410 293 057

It is no surprise that brands like Nandos; Lick & Eat, Chicken Inn, KFC have established a solid and profitable existence in Zimbabwe.

The vision seeks to be a supplier of value added raw material for these brands.

Imagined Product 25.0 26.0

Supply ready to cook French fries and other related Potato products The target markets are:  Fast Food outlets  Supermarkets  Schools

27.0

The following is the value proposition to customer:  Elimination of wastage from offcuts

“With enough strategy and effort everything is possible”

Page 3

Lt strategy talks  

Reduction of costs of processing-there will be no need to employ Potato cleaners, peelers or fry cutters A high quality assurance

Imagined factory process 28.0 29.0

30.0

31.0 32.0 33.0

34.0

35.0 36.0

Raw potatoes are brought into the plant in the receiving area where they are washed to remove plant material, dirt and stones.

To make the best possible use of the raw materials the potatoes are next sized. Large potatoes are separated for use on French fry production lines. Smaller potatoes are used in specialty items or French fries not requiring long length.

Peeling and scrubbing comes next; high pressure steam loosens the potato skins. Any remaining skin is removed by automated brush peelers. The potatoes then move to the trimming area where gross defects are removed by hand.

The final stage before cutting is pre-heating, where the potatoes are slightly softened by heating them in water. This vital step prevents the potatoes form shattering during the cutting process.

The potatoes are sent through a set of knives and are cut into fries of the desired dimensions.

Defects are removed from the freshly cut fries using a sophisticated electronic system that detects dark spots and triggers a series of knives that slice away the defective spots. The fries are then graded by length before moving to the blanching process where they are dipped in warm water to deactivate enzymes that can cause discoloration.

The fries then move through a dryer, where warm air is circulated to quick dry the surface of each fry, before they are deep-fried by the fryer. Pre-cooling and freezing come next followed by length grading and final inspection.

The finished fries are ready for packaging, and then placed in cold storage in preparation for shipping.

This entire process is monitored and controlled with a distributed PLC/HMI system. This control system also operates the utility systems for steam generation, refrigeration and waste water treatment as well as facility subsystems including HVAC and lighting.

Imagined plant schematic 37.0

The following is the imagined schematic of the plant:

“With enough strategy and effort everything is possible”

Page 4

Lt strategy talks

French Fries Plant

Imagined Instrumentation 38.0 39.0

40.0

A number of countries supply food processing instrumentation. This includes countries like China, Germany, India and many others For instances MAZDA SPECIALITY MACHINE SYSTEMS, Admin Office: 814, Dalamal Towers, Nariman point,Mumbai 400 021, INDIA design, set up food processing + specialty industrial projects such as Ideal design considerations for competitive state-of-the-art potato French fries production. Capacity range is 200 kgs to 5000 kgs of finished products per hour Below is some of the instrumentation:

“With enough strategy and effort everything is possible�

Page 5

Lt strategy talks

Current Government Policy in Support of the imagined Vision (Opportunities within National Policy frame work to enhance achievement of the Vision) 41.0

42.0

One of the critical success factors of ZIMASSET enunciated under section 3.6.1 (x) is “Value addition and beneficiation in productive sectors such as mining, agriculture and manufacturing”.

This vision will act as a catalyst in boasting the quantum of potatoes grown given the establishment of a reliable and better market for the farmers in Nyanga. The vision is also a manufacturing plant hence will directly have an impact on manufacturing numbers.

In The 2016 National budget statement, the minister reported that Government had removed customs duty and also provided a VAT deferment facility on importation of industrial and capital equipment. The opportunity that this has to the vision is that the new policy is an incentive to agro processors and manufacturers of agriculture inputs equipment and machinery.

Operationalizing the Vision Company formation

43.0

44.0 45.0 46.0 47.0

The idea of a company is of paramount importance to bring about a commercial aspect to the operation through separation of ownership and management. The company idea will ensure establishment of sound corporate governance structures to assure project success It is proposed that the Potato Seed Growers Association (P.S.G.A) becomes the chief promoter of this project P.S.G.A is to issue a prospectus inviting reputable growers to subscribe as shareholders P.G.S.A itself will return a certain percentage of shareholding Other interested stakeholders should also be invited; needy of invitation might include Pension funds; NSSA, Insurance Companies; Nyanga Town Council etc. The advantage of having these is that they will ensure that the operation is run along the best possible principals thereby guarantying the going concern of the establishment.

“With enough strategy and effort everything is possible”

Page 6

Lt strategy talks 48.0

Once this is done successfully the company is then registered and an initial board is set up based on expertise.

The relationship of the Company with the Nyanga Community 49.0

The relationship between the imagined company and the community will possibly be as summarized in the diagram below:

COMMUNITIES PAID SALARIES SALARIES

GROWERS (Small Growers)

LABOUR

PRODUCE DIVIDENDS PROCEEDS

PLANT OWNED BY A COMMERCIAL COMPANY OWNED BY GROWERS

LABOUR

PROVIDES MARKETS

PRODUCE

MARKETS

MAJOR SUPERMARKETS FAST FOODS OUTLETS

LABOUR

COMMUNITIES

The process of stakeholder engagement 50.0 51.0 52.0 53.0 54.0 55.0

The process of engagement with key stakeholders will start soon after the establishment of the preliminary board. The following are key stakeholders needing immediate engagement: Ministry of Industry and Commerce-for formalization and registration support, this might also include introduction other potential investors, partners and markets Ministry of Local Government particularly Nyanga Town Council for lease of land to build the plant Funding partners like NGOs, Banks and other Development Finance Institutions Markets including Fast foods outlets; schools; super markets etc.

Certifications authorities and organizations such as ISO

“With enough strategy and effort everything is possible”

Page 7

Lt strategy talks Project Funding Strategies

56.0

Equity strategy Use the subscriptions by Shareholders to procure the plant and equipment and then borrow for working capital

57.0

Debt Strategy Borrow both capex and working capital. Below we explore possible sources of debt:

58.0

Norfund

Norfund – the Norwegian Investment Fund for Developing Countries – was established by the Norwegian Parliament in 1997. The organisation is the government’s main instrument for combatting poverty through private sector development and Norfund’s objective is to contribute to sustainable commercial businesses in developing countries. Funding is provided via capital allocations from Norfund’s development assistance budget. Norfund provides equity, other risk capital, and loans to companies in selected countries and sectors where businesses lack access to sufficient capital to develop and grow. The sectors in which Norfund invests are clean energy, financial institutions and agribusiness, in addition to small and medium sized companies through investment funds. Their main investment regions are Southern and Eastern Africa and we have offices in Nairobi, Johannesburg and Maputo. Norfund also invests in selected countries in South-East Asia and Central America via our regional offices in Bangkok and San José.

At year-end 2014, Norfund had a portfolio of about USD 1.7 billion (NOK 12,8 billion) and 61 employees. Norfund offers risk capital in the form of Equity, loan and the combination of the two.

Norfund always invests together with partners with deep industry knowledge. The investment horizon is 5-10 years. Norfund has defined specific investment areas (regions and sectors) to ensure the necessary skills and competencies. Norfund primarily invests equity, taking shares up to 35% in companies, but also offers different types of loans with different risk profiles. To maximize financial and developmental success in the investee companies, Norfund strives to be a value adding owner beyond the mere capital investment. Norfund’s investment teams have extensive experience in project development and governance, and works closely with the partners to develop the companies.

59.0

Below is an example of a Zimbabwean project funded by Norfund:

Matanuska Matanuska is a banana plantation in northern Mozambique, established in cooperation with East African farmers.

“With enough strategy and effort everything is possible”

Page 8

Lt strategy talks The plantation employs about 2,600 people and is expected to increase to 3,000 people over time. The project operates in its first phase, which consists of planting and putting 3,000 hectares into production. When the plantation operates at capacity, more than 150 containers will be exported weekly to Middle East, Asia and Europe and bring valuable export revenues to Mozambique.

60.0

Create Fund

What is CREATE Fund?

The ‘Credit for Agriculture Trade and Expansion’ (CREATE) Fund, is a fund set up by the ‘Zimbabwe Agricultural Development Trust’ (ZADT), a non-governmental organisation set up to hold and administer funds for supporting smallholder farmers directly and indirectly in market-driven approaches to sustainable agriculture development. The fund was necessitated by the need to finance the agricultural value chain from grassroots, whilst concurrently contributing to increased output, higher quality produce, development of infrastructure and improve the livelihood of the small holder farmer.

Target Market The target market includes the following, with the exception of tobacco and cotton value chain actors: 1. Value chain actors in which smallholder farmers meaningfully benefit directly or indirectly, for example contracting companies, processors, traders, transporters, agro dealers, distributors, microprocessors and service providers.

2. Those who procure from, sell to, and distribute to low income groups and are engaged in other agro-rural economic activities that create rural employment.

3. Those players who would like to increase capacity of storage of produce and livestock.

“With enough strategy and effort everything is possible”

Page 9

Lt strategy talks 61.0

Commercial Bank Funding

“With enough strategy and effort everything is possible�

Page 10