Sovereign clinches major BEE contract

Transaction with Cultiver

LISTED Sovereign Foods has entered into an empowerment transaction with Cultiver Investments that could potentially result in the black empowerment agricultural company realising a turnover of R659 million over the next 10 years.

Chris Coombes, the chief executive of Sovereign Foods, South Africa’s third largest producer and distributor of poultry products, said yesterday that this was based on future estimates for day-old chicks to meet the demands of Cultiver’s clients.

Coombes said it would, in turn, set Cultiver well on a path to becoming one of South Africa’s largest 100 percent black-owned poultry hatching and rearing operations over the next three years.

The transaction would also benefit the economy through the creation of new jobs.

Muzi Twala, a director at Cultiver, said the company had already secured and provided employment for at least 151 individuals and would be able to substantially increase this number.

Expansion

Twala added that in line with its expansion plans, the company expected to create more than 700 new direct jobs over the next few years, with a total of 1 000 direct and indirect jobs expected to be created through the value chain as a result of the deal with Sovereign.

In terms of the landmark black economic empowerment (BEE) deal for the country’s poultry industry, Sovereign Foods has signed a 10-year preferential procurement off-take agreement for day-old chicks hatched and reared by Cultiver on its farms in Limpopo.

Sovereign has further incorporated components of management support, farming skills transfer and credit facilities for Cultiver to make the transaction a far-reaching, multi-dimensional empowerment deal.

Cultiver, a BEE beneficiary in terms of the Proactive Land Acquisition programme, leases breeder and hatchery operations outside Mokopane and a broiler farm outside Polokwane in Limpopo.

Coombes said the off-take deal would remove barriers for entry and market risks for the company while “contributing to growth and sustainability of a relatively young start-up, eager to grow and make its mark” and to food security.

Twala stressed that Cultiver would retain its existing ownership structure and operate independently from Sovereign Foods.

However, Twala said Cultiver would “remain in very close orbit to Sovereign” to access its knowledge, research and development, and best practices related to day old chick and broiler production.

Ettienne du Preez, the group executive for agriculture at Sovereign Foods, said for an empowerment transaction to be successful and sustainable, it was critical to support and train management in all aspects of a business, which Sovereign Foods looked forward to doing.

Twala added that Cultiver had obtained 125 000 breeder birds from Sovereign Foods and the placement of additional parent stock at its Polokwane farms was well under way.

“This will enable Cultiver to produce approximately 342 000 hatching eggs per week from which 285 000 day-old chicks will be hatched per week. This, in turn, will result in an output of 23 000 tons of broiler meat per annum,” he said.

Win-win deal

Coombes said the transaction is a win-win deal for both companies. “For Cultiver, the deal entails skills transfer, access to finance, and the removal of market risk, allowing the senior management team to hone farming and management skills.

“For us, the long-term offtake agreement creates security in relation to our supply chain, while locating it within the government’s national transformation and empowerment policy frameworks,” he said.