‘If you can’t sell it, don’t grow it’

Establishing a viable agricultural and agro-processing business in Limpopo or anywhere else for that matter requires hard work, luck and good timing, especially regarding the weather and market access. But following a few basic yet important steps can significantly reduce the risk associated with agricultural and agro-processing projects.

Ed Jowitt, chief executive of the Sysman Group, took delegates at the Limpopo International Investor Conference — held recently at the Carousel Casino in North West province — through a how-to guide on getting to a bankable proposition in agribusiness and agro-processing. “If you can’t sell it, don’t grow it,” says Jowitt, “and if you can’t sell it profitably, don’t establish a factory.”

He describes a bankable proposition as one that has a high probability of success, is guaranteed to turn a profit, is acceptable to equity funders and institutional investors and, given the prevailing conditions in South Africa, is geared towards job creation.

Jowitt says the entire process starts with a feasibility study where the entrepreneur examines the opportunity and establishes market and pricing. She identifies the production season and the land on which farming will take place, as well as assessing farming capabilities based on the expertise and technology available.

After evaluating the workforce, the farmer must then identify risks ranging from climate change risk to soil type, water and power supply as well as labour matters, including the possibility of strikes. This is followed by the calculation of costs and revenues, and an internal rate of return on investments, which for agriculture projects ranges from 20% to 25%. All of this enables the entrepreneur to determine her funding requirements.

The production season, the reliability of the production process and the experience of the grower are very important considerations in agricultural projects. In agro-processing the decision of whether to outsource the growing process, grow the required product internally, or use a mixture of both is also extremely important. The production planning process must also allow for traceability and control.

“It is important to demonstrate that the project is market led and that it is a profitable and practical solution,” says Jowitt. A project implementation plan outlining who does what is critical; it shows who is responsible for operating and maintaining the farming operation. This is where the entrepreneur also demonstrates skills transfers that will occur as a result of the project, especially if funding is from development financiers such as the Land Bank.

The process requires the conclusion of a detailed scope of work agreement, which gives a detailed assessment of the project, bankable project proposal as well as funding. It can be a long but rewarding road from conception to feasibility, sourcing funding to building and operating.

The Sysman Group has a team with more than 80 years’ experience gleaned over a 30-year period. The group has developed projects in 80 countries across the world, with many on the African continent. They have done juice manufacturing and beef processing in Brazil, maize production in China and Turkey as well as soybean processing in South America and Asia. In Africa, they have done fresh fruit processing for export to the UK out of South Africa and cocoa production in West Africa.

Such experience can prove critical to the success of a farming project, especially in South Africa’s challenging conditions, which currently include mitigating the effects of climate change.