Agriman RPT - Integrated Meat Production Oct2002

1
ABREVIATIONS AND ACRONYMS

ADG
Average Daily Gain
BEE
Black Economic Empowerment
BU
Business Units
CLS
Cattle Loan Scheme
EG&D
Economic Growth and Development
FCR
Feed Conversion Ratio
FFS
Fast Food Shops
FMCG
Fast Moving Consumer Goods
FMD
Frozen Meat Depot
GAP
Good Agricultural Practices
HACCP
Hazard Analysis Critical Control Point
ISO
International Standards Organisation
KISS
Keep it Safe and Simple
KSF
Key Success Factors
LP
Limpopo Province
LPDA
Limpopo Dept. of Agriculture
LU
Livestock Unit
MIS
Management Information Systems
NDA
National Development Agency
ROM
Rough Order of Magnitude
SCA
Sustained Competitive Advantage
SMME
Small Medium Micro Enterprises
TA
Tribal Authority
UFF
Up Front Fee
IBP
Integrated Broiler Project
NFI
Net Farm Income
PDIs
Previously Disadvantaged Individuals
MEAT PRODUCTION, PROCESSING AND DISTRIBUTION AN INTEGRATED STRATEGY

AGRIMAN & ASSOCIATES
MEAT PRODUCTION, PROCESSING & DISTRIBUTION AN INTEGRATED STRATEGY

EXECUTIVE SUMMARY
BACKGROUND
A countrys economic resources consist of Natural Resources (Land, climate, minerals,
water, fauna & flora), Human Resources (entrepreneurs, skilled and unskilled people) and
Financial Resources (development and working capital). For a country to achieve
Economic Growth and Development, scarce economic resources should not be allowed to
be lie idle and must be optimally managed to meet the Triple Bottom Line of being
Financially, Socially and Environment Sustainable. These resources should be protected to
prevent them being degraded (erosion, encroachment etc.) and/or lost (overseas emigration
of skills or overseas capital investment). The Limpopo Province has an abundant amount of
economic resources that can be deployed to achieve significant socio-economic benefits for
its generally very poor people. Sustainable primary and secondary agricultural enterprises
have a significant role to play in the Economic Growth and Development of regions,
provinces and countries. The national and provincial government are in the process of
privatising or restructuring many of their unsustainable projects to allow them to focus on
the governments core functions and competencies and to somehow make these projects
sustainable. The LPDA have a large number of redundant agri-projects that could be
productive if well managed and coordinated into integrated operations. However, the LPDA
have already spent many millions on these projects and wish to relieve themselves of the
financial and managerial burden of these projects in an equitable and sustainable manner.
The problem arises as to how this can be done in a financial, social and environment
sustainable way, that is acceptable to all stakeholders.
INTRODUCTION
This report is intended to provide an equitable and tenable strategy for the rejuvenation and
sustainable functioning of currently redundant LPDA owned and managed projects. Bearing
in mind that agricultural enterprises are cyclical, under the current marketing environment
and trading conditions, many of the LPDA projects or enterprises were found to
unsustainable as Stand Alone enterprises if operated on their own they need to be
integrated to be sustainable. A process known as inter-firm cooperation or Integration
can achieve this. This integration can be complete, where more than one enterprise are
combined as one legal entity, or partial by independent ownership with cross shareholding
or contractual agreements between enterprises. The proposed strategy is the Vertical
Integration of a number of usually distinct enterprises into integrated Business Units that
benefit financially from the integration process and thus previously unsustainable projects
can become sustainable.
NATURE AND DEFINITION OF THE PROJECT
Problem Hypothesis - Typically the primary agricultural production operations such as
cattle farms and chicken farms require the highest capital investment yet make the lowest
profit margin % (0-5%) and thus the lowest Return on Investment (ROI). For example, the
current unfavorable trading conditions in the broiler chicken industry, as a result of very high
feed prices, has seen a number of small and larger producers closing. The next functional
level of processing and adding value functions, e.g. feed Mills and abattoirs, usually make a
higher % profit margin (5 20%) and ROI and the distribution functions of wholesale and
retail shops, makes an even higher profit margin % (40% +) and ROI. Viability studies have
shown that Business Units (BUs), within the same product supply chain (e.g. Beef cattle
farms & beef abattoirs) and that are closely linked, vary significantly in their ability to make a
profit and thus to remain financially sustainable. This fact poses a serious problem for
agricultural development in the province, as many primary producing enterprises are not
viable as stand alone enterprise.
Solution - The proposed strategy provides a solution to the above problem by creating a
demand for primary agricultural products from frozen meat depots and shops. The Strategy
then integrates closely related Business Units, within the same operations (e.g. cattle farms,
feedlots and abattoirs), thus allowing the primary production enterprises to share the profit
of the more profitable processing and distribution enterprises. The Frozen meat depots and
shops create the market demand which sustains the primary (Production) and secondary
(Processing) enterprises the demand pull effect. The integration strategy allows the less
profitable enterprises to share the profits of the more profitable enterprises and it thus
makes primary production viable.
Institutional Structures The projects and their infrastructure are state assets that need to
be held in trust for the citizens of S.A. Grouping the firms to be integrated under the
umbrella of a Section 21 company can best do this. Each firm or sole proprietor then leases
the asset from the Sec. 21 Company for a long-term period. This structure protects state
assets while allowing the private sector to manage independently of the state. The Sole
Proprietorship or Community Public Private Partnership (CPPP) Model structured within the
framework of an equity sharing Pty Ltd Company is the most tenable structure and the
LPDA are in the process of implementing this model. This integration strategy is secured by
shareholders agreements or legally binding supply and purchase agreements that specify
price, quality, quantity and timing. The key to success of the integration strategy is to create,
manage and maintain a Value Chain that links certain Business Units from primary
production through to retail selling.
Managerial Structures Business Units will be independently managed according to
industry norms while enjoying continual support from the LPDA and a coordinating entity. An
efficient Coordinating Entity consisting of Project Managers/Consultants with managerial,
marketing, technical, financial and legal capacity and experience is essential to the process.
This entity will not provide day-to-day management but Strategic Management and guide
and steer the implementation of the integrated strategy and Business Units over time and
changing business conditions. This entity will implement the strategy and manage the entire
process.
The Proposed Strategy
1) The proposed strategy is a forward and backward Integration Strategy that will
integrate a number of redundant; LPDA owned agriculture related projects and a number
of still to be established agricultural related and food distribution enterprises.
2) The aim of the strategy is to provide participating enterprises or Business Units with
benefits from low cost products with standardised quality and quantity of supply, access
to capital and markets, and managerial, financial, marketing and technical support. i.e.
each Business Unit will create a demand for the products of the next Business Unit and
thus justifies its establishment.
3) The integration strategy encompasses two main products, beef and chicken in their
respective production, processing and distribution functions.
4) The integration process will create a demand for beef and chicken and a sustainable
Value Chain which will link each Business Unit with on-going quality products, at the
desired quantity of supply, at a market related cost.
Main Operations And Product Lines
The final product of the proposed integration strategy is Frozen Meat. The 3 main frozen
meats consumed in the province are Chicken, Beef and Fish.
Chicken - Chicken products will be procured from the soon to be rejuvenated LPDA
Integrated Broiler Project (Cost R19M) consisting of Breeder farmers, a Hatchery, Broiler
farmers and an Abattoir. Production is planned for 40,000 birds per week and will
commence early in 2002.
Beef Beef products will be procured from still to established beef breeder farms, a 20
head per day beef feedlot and a beef abattoir and processing facility.
Fish - Fresh water fish production is not competitive at this point in time and the depots and
shops will make use of sea fish purchased in bulk.
Livestock Feed Feed makes up approximately 67% of the cost of production of Beef
feedlots, broiler breeders and broiler farmers. They require scientifically formulated and
mixed feed rations. Farmers on state owned irrigation and dryland crop farms will produce
raw materials for a feed mill that will mill, mix and pellet feed for the feedlot and chicken
Business Units.
IMPLEMENTATION HORIZON
Assuming full support and capital, once commissioned this strategy could be implemented
within 2 and be fully operational in 3 years. The development of the proposed integration
strategy over time, in distinct phases and sub-phases, will take it vertically deeper and
deeper backwards with occasional horizontal spin-off enterprises. (Transport, piggery,
tannery, leather processing, broiler farm services and contract ploughing). The Depots and
Shops are the basis for the demand of the primary products produced and they must be in
place to absorb these products as they are produced. The Integrated Strategy will be
implemented over a number of phases. Related enterprises will be grouped and linked or
integrated according to their product line and ability to be sustainable. The following are the
logical integrated business units.
1)
Crop production At present current market prices for maize and other feed
ingredients are high and crop farmers with economies of scale are sustainable on
their own subject to good rainfall. A Feed Mill can be loosely integrated with crop
farmers as contract growers. Emerging crop farmers will have a captive market in the
feed mill.
2)
Feed Mill, Broilers and Breeders current feed prices have made breeders and
broiler farmers less profitable as prices have not responded to increased feed costs.
The feed millers work on a mark-up on cost basis and are not affected in the same
way by higher feed prices. The broilers and breeders need to own a feed mill to shift
the millers margin to their operations to make then sustainable. The breeders have a
captive market in the hatchery and the broilers have a captive market in the chicken
abattoir.
3)
Cattle farms, feedlots and abattoirs Cattle farms need to be large with high
capital investment in land and livestock and thus provide a relatively low return on
investment. Feedlots have also been adversely affected by feed prices. Beef
abattoirs, however, are not expensive to build and operate, they turn their money
over quickly and are currently making good returns. This is due to the high price for
the 5th quarter. The cattle farms will own the feedlot and abattoir and benefit from
their high profits. The cattle farms have a captive market in the feedlot and the
feedlot has a captive market in the beef abattoir.
4)
Hatchery the hatchery business is a markup on cost type of business that passes
all increases on the purchaser. As the broiler industry is under pressure at present
sales are down at present but it does have a captive market of 40,000 chicks per
week (~60% of average production) in the broiler farms. The hatchery and broiler
farms will be loosely integrated by a supply contract.
5)
Chicken abattoir, Frozen meat depots and shops Chicken abattoirs are capital
intensive and trading conditions are tough at present although stocks and thus prices
are starting to move. The abattoir needs to piggyback on the profits generated by a
number of frozen meat depots and satellite franchised retail frozen meat shops. Both
depots and shops are mark-up type businesses with relatively low risk and potentially
high profits.
Phases of implementation;
1) Integrated Broiler Project (IBP)
Eight Mashashane broiler breeder farmers 3 already started
Mashashane Hatchery in the process of refurbishment
Sixteen Lebowa Broiler Farmers About to start refurbishment, open date 03/03
Qlity Chicks Abattoir About to start refurbishment, open date 04/03
2) Integrated Beef Production
Beef Abattoir 2003
Beef Feedlot 2003
Beef Cattle Farms 2003
3) Feed Production
Feed Mill 2003
Crop Farms 2003
4) Integrated Distribution
Frozen Meat Depots 03/03
Frozen Meat Shops 03/03
MARKETS AND MARKETING
Although the Limpopo Province is not agriculturally rich, it has abundant resources and the
potential to produce a significant proportion of its own feed and food products. However, at
present most of the feed and food products are imported into the province. There is a
significant market and opportunity in the province for locally produced feeds and food and
thus for branded Frozen Meat Depots and Frozen Meat Shops that target lower income
consumers. The establishment of 8 new platinum mines will significantly increase the
spending power of consumers in the region and create a multiplier effect in the region.
Chicken and beef meat are products purchased by the state (hospitals, prisons, defense
forces and schools) and the proposed BUs will benefit from the Captive Market created by
the government preferential tender procedure for Black Economic Empowerment firms. The
integration process itself creates contractual captive markets for Business Units that are
part of the Value Chain. The mark-up on bulk and retail fast food meat is generally high
and there is scope for integrated firms, that share profit at different sites, to successfully
compete with value, quality, service and price.
FINANCIAL REQUIREMENTS AND PERFORMANCE

INVESTMENT REQUIRED
Table 1 below shows the estimated level of investment for each functional operation and
each Business Unit within each operation. It has been assumed that existing state owned
projects, some with developed infrastructure, will be used and thus capital requirements are
low. The cattle farms will be stocked from the proposed state development herd and farmers
will not have to buy in breeding stock. From table 1 it can be seen that the ratio of
development capital : Net Farm Income is very favourable at 1:1.24. Table 2 shows how the
integration process shifts profits to the less profitable enterprises to make them viable.
RISKS INVOLVED
Each Business Unit in the integration strategy is speculative and is exposed to normal
business and agricultural risks. The essence of the integration strategy is, however, Risk
Reduction and creating a reliable supply of quality product. Added to this are other risk
reducing factors such as;
The use of state land and infrastructure at very low cost
The creation of Captive Markets between Business Units and Government institutions
through the Preferential Tender Process that favors empowerment products
Deploying a coordination entity to holistically manage the strategy. This entity will
provide technical, marketing and managerial support at all levels in all enterprises
CONCLUSION
The planning phase of the LPDA Integrated Broiler Project has clearly shown that the
proposed Integration Strategy is more than a mechanism to ensure quality and supply It
is a financial necessity. The primary production enterprises particularly, need forward
integration into the adding value enterprises. It is envisaged that the proposed strategy may,
either directly or indirectly, touch the lives of approximately 3,000 people. It will rejuvenate
LPDA projects while providing empowerment through training and mentoring and creating
SMME, farming and work opportunities. The LP has the resources required to implement
the strategy what is needed is vision and courage and the full commitment and Buy-In of
all the stakeholders.

TABLE 1
CONSOLIDATED FINANCIAL HIGHLIGHTS - INTEGRATED

DEV.
WORKING
TOTAL
CAPITAL
CAPITAL
CAPITAL
NFI
ROI
Group 1 - Mill, breeders and broilers

Chick breeders x 8
R 480,000
R 6,649,057
R 7,129,057
R 977,285
13.71%
Feed Mill
R 1,550,550
R 15,824,007
R 17,374,557
R 1,582,401
9.11%
Broilers x 16
R 3,879,000
R 22,421,400
R 26,300,400
R 224,214
0.85%
Sub-Total
R 5,909,550
R 44,894,464
R 50,804,014
R 2,783,900
5.48%
Maize
R 400,000
R 9,500
R 409,500
R 402,000
98.17%
Sorghum
R 400,000
R 5,500
R 405,500
R 110,000
27.13%
Soya
R 400,000
R 8,500
R 408,500
R 163,600
40.05%
Lucerne
R 400,000
R 7,100
R 407,100
R 240,000
58.95%
R 1,600,000
R 30,600
R 1,630,600
R 915,600
56.15%
R 400,000
R 541,949
R 941,949
R 87,652
9.31%
Group 2 - Crop production
Sub-Total
Group 3 - Beef Production
Cattle Farms
Feedlot
R 500,000
R 7,601,344
R 8,101,344
R 837,295
10.34%
Abattoir & Processing
R 1,200,000
R 21,692,080
R 22,892,080
R 3,070,162
13.41%
Sub-Total
R 2,100,000
R 29,835,373
R 31,935,373
R 3,995,110
12.51%
R 100,000
R 5,966,284
R 6,066,284
R 478,048
7.88%
Abattoir & Processing
R 2,800,000
R 26,978,670
R 29,778,670
R 1,127,787
3.79%
FMD
R 1,000,000
R 12,432,015
R 13,432,015
R 1,399,082
10.42%
Group 4 - Hatchery
Hatchery
Group 5 - Chicken abattoir and distribution
FFS
Sub-Total
TOTAL
R300,000
R1,335,839
R 1,635,839
R 409,058
25.01%
R 4,100,000
R 40,746,524
R 44,846,524
R 2,935,927
6.55%
R 13,809,550
R 121,473,245
R 135,282,795
R 11,108,585
8.21%

TABLE 2
COMPARATIVE ANALYSIS NFI - INTEGRATED vs NON-INTEGRATED
NFI
Integrated
Group 1 - Mill, breede rs and broilers
Chick breeders x 8
NFI
Non-Integrated
R 1,504,752
R 977,285
R0
R 1,582,401
Broilers x 16
R 1,279,148
R 224,214
Sub-Total
R 2,783,900
R 2,783,900
Maize
R 402,000
R 402,000
Sorghum
R 110,000
R 110,000
Soya
R 163,600
R 163,600
Lucerne
R 240,000
R 240,000
Sub-Total
R 915,600
R 915,600
R 4,783,978
R 876,520
Feed Mill
Group 2 - Crop Production
Group 3 - Bee f Production

Cattle Farm
10
Feedlot
R0
R 837,295
Beef Abattoir & Processing
R0
R 3,070,162
R 4,783,978
R 4,783,978
R 478,048
R 478,048
R 18,349,642
R 1,127,787
Sub-Total
Group 4 - Hatchery
Group 5 - Chicken abattoir and distribution
Chicken Abattoir & Processing
5
25
FMD
R0
R 6,995,411
R0
R 10,226,444
Sub-Total
R 18,349,642
R 18,349,642
TOTAL
R 27,311,168
R 27,311,168
FFS


10
ZEBEDIELA
LEBOWAKGOMO
POLOKWANE
GILLEMBERG

11
TABLE 3
INTEGRATED PRODUCTION PROCESSING & DISTRIBUTION STRATEGY - ESTABLISHMENT SCHEDULE
MAIN PHASE
SUB-PHASE
DISTRIBUTION
Frozen Meat Depot (FMD)
Selection
Training
Construction
Implement FMD
Fast Food Shop
Selection
Training
Construction
Implement FFS
INTEGRATED BROILER PRODUCTION
Mashashane Broiler chick production
Ref urbish Breeder f arms 1 - 8
Training
Implement Breeder f arms 1 - 8
Ref urbish Hatchery
Training
Implement Hatchery
Lebow a Broilers
Ref urbish 4 interim broiler f armers
Implement 4 interim broiler f armers
Relocate 16 broiler f armers
Training
Implement 16 broiler f armers
Ref urbish broiler abattoir
Training
Imlement broiler abattoir
2002
S O
2003
J
F
2004
J
F
INTEGRATED BEEF PRODUCTION

MAIN PHASE
SUB-PHASE
Beef Abattoir and processing f acility
Construct f acility
Training
Implement f acility
Beef Feedlot
Construct f acility
Training
Implement f acility
Cattle f arms
Identif y f arms/areas
Establish inf rastructure
Training
Acquire cow s
Implement
INTEGRATED CROP PRODUCTION AND M ILL
Mill
Construct f acility
Training
Implement f acility
Crop f arms
Identif y f arms/areas
Establish inf rastructure
Training
Implement

2005
J
F
12
FIGURE 2
ORGANISATIONAL STRUCTURE
SECTION 21
HOLDING
COMPANY
THE CO-ORDINATING ENTITY
Financial/admin Manager
Marketing/Technical Manager
Production/Technical Manager
HR & PR Manager
Legal/Admin Manager
Beef
Operation
Cattle
Farms BU
(S/Prop)
Feedlot
Chicken
Operation
Breeders
Farms BU
(S/Prop)
BU Pty Ltd
Feed Mill
BU Pty Ltd
Beef
Abattoir &
Processing
BU Pty Ltd
Broilers
Farms
(S/Prop)
Distribution
Operation
Broiler
chick
Hatchery
BU Pty Ltd
Chicken Abattoir &

Processing
BU Pty Ltd
Crops Farms
BU
(S/|Prop)
Frozen Meat Depot

BUs
Fast Food Shop

BUs

FIGURE 3
The Community Employee Public Private Partnership Model (CEPPP):
NOTE: C = Contribution, B = Benefit
THE STATE (LPDA)
Stop the cash drain

B
Focus on core functions
Policies are addressed
Developed Infrastructure
Land
Security of tenure
THE COMMUNITY
Employment
Empowerment
Contract
Labour Force
Stability & Security
Goodwill
Contract farmers
THE EMPLOYEES
B
THE CEPPP (Pty) Ltd
Financially Sustainable
Socially Sustainable
Environment Sustainable
Employment B
Empowerment
Equity share
Labour input
Stability
Experience
THE INVESTOR
Capital
Expertise & management
Private sector drive
Use of infrastructure
Business opportunity
Good cost : Benefit ratios
Security of tenure

FIGURE 4
PRODUCTION PROCESSING & DISTRIBUTION OPERATIONS
P
R
O
D
U
C
T
I
O
N
P
R
O
C
E
S
S
I
N
G
BEEF WEANER
PRODUCTION
CROP
PRODUCTION
FEED MILLING
AND
PROCESSING
DIST
R
I
B
U
T
I
O
N
BROILER
CHICK
PRODUCTION
BEEF FEEDLOT
PRODUCTION
BROILER
PRODUCTION
BEEF
ABATTOIR &
PROCESSING
BROILER
ABATTOIR &
PROCESSING
FROZEN MEAT COLD

STORAGE (FMD)
FROZEN
FISH
C
O
O
R
D
I
N
A
T
I
N
G
E
N
T
I
T
Y
FROZEN MEAT
SHOPS (FMS)

MEAT PRODUCTION, PROCESSING & DISTRIBUTION AN INTEGRATED STRATEGY

BACKGROUND:
The role of primary agricultural production in developed countries:
Countries with well-developed economies have become extremely rich by optimally
combining their Economic Resources in order to add value to primary products. Their
governments have facilitated economic growth and development by allowing a free market
system to prevail. They have created an Investor Friendly investment environment that
encourages foreign and local private investment and reduces the flight of skills and capital.
Primary agricultural production once played a major role in their economies but today they
rely more on high tech and sophisticated secondary adding value, services and processing.
However, self sufficient and sustainable food production remains a desirable strategic
capability that provides a country with food security and reduces its dependency on other
countries. Governments of even well developed countries, whose agricultural sector is
relatively small and insignificant, protect their farmers and thus their food security, with
legislation, subsidies, import tariffs and duties. They also ensure that their natural, financial
and human resources do not lie idle or disappear by encouraging and facilitating
development, including agricultural development. South African leaders need to emulate
this scenario by providing a safe, secure and low risk investment environment for foreign
and local private investment.
The role of primary agricultural production in undeveloped countries:
It is a well-known fact that primary agricultural production (Farming), plays a major role in
the economic growth and development of developing provinces and countries like the
Limpopo Province and S.A. In S.A. and the Limpopo Province (LP), many economic
resources are lying idle and primary agriculture still has a major role to play in poverty
alleviation and Economic Growth and Development. The Limpopo Province has all the
necessary economic resources, Natural resources (land, water, climate, minerals, fauna &
flora) financial resources (public, private and institutional capital investment) and Human
resources (skilled and unskilled workers) to create Economic Growth and Development
from agricultural projects. The local government and the Limpopo Dept. of Agriculture LPDA
are responsible for creating the structures and mechanisms that will provide a safe, secure
and low risk investment environment for foreign and local private investment. This
investment environment is the foundation and basis for economic growth and development.
Pertinent international and local trends in agriculture:
A dominant international trend, for many years, has been a consolidation of small farms into
medium size farms and latterly into even large, scientific and high tech farms requiring
technical, financial and managerial expertise. This trend has been necessitated by stiff
competition between agricultural products and shrinking Gross Margins per Ha., particularly
for the mass-produced commodities. In S.A., which provides its farmers with less protection
than most countries, the size of an Economic Farming Unit has been increasing year on
year. Only very efficient farmers, in ideal production environments, who can keep production
and capital costs down, yields high and spread their fixed costs, can achieve economies of
scale and survive. This trend forces many people off the land and into cities and the
remaining farmers are forced to look for various ways of increasing their margins or
supplementing their income to survive. Taking a job and increasing the size of their farming
operation are two options, another is to diversify and integrate (inter-firm co-ordination)
horizontally or vertically (forward and/or backwards) in an attempt to increase turnover,
reduce risk, add value and spread fixed costs many farmers choose this option. Agrirelated enterprises that were traditionally independently owned and managed are being
consolidated, integrated and co-ordinated. For example crop farmers and cattle breeders
are now starting their own feedlots, abattoirs and butcheries to add value. Although every
one needs to eat, there are many competitive food products competing for the consumers
Rand. S.A. is generally lenient with regard to imports and even overseas countries can
compete with our locally produced products. It is important to realise that our farmers are in
a Global market and compete against farmers in all other countries.
The pertinent status of agriculture in S.A. and the Limpopo Province:
South Africas estimated population is 40.584m, the Limpopo Province makes up 12% of
that at 4.93m, 96,6% of which falls into the Black population group. South Africa is a semiarid country with an average rainfall of only 497 mm compared to the world average of 860
mm and only 3% of the country receives what is considered good rainfall. 60% (73.38m
Ha.s) of the total landmass of 122.3m Has is grazing land. The Limpopo Province has a
total area of 11.96m ha. , 10.548m is farmland (88.2%) only 1.7m ha. is potentially arable
(14,2%) and grazing 8.847m ha. (85.8%) which consists of 2,644 commercial farming units.
The province has ~ 1.203m head (8.9%) out of a total of 13.506m head but it has 10.54% of
the grazing this is due to the generally low carrying capacity as a result of low rainfall. The
province is thus generally a poor farming region with a low rainfall and this is highlighted by
the low level of maize production in the LP, during 2001/02, of 88,000 tons (0.01%) vs. the
country total of 7.225m tons. Large areas are thus suited to extensive livestock production,
yet most of the meat consumed in the province is imported from other provinces. The
drought years in the late 80;s and 90;s and a depreciating ZAR:US$ have encouraged
many cattle farmers to switch to game farming. Game farming is suited to the dry climate of
the province, has relatively low operating costs and is an export. The provinces cattle
breeding herd has dropped significantly from the 1980 total of 508,000. Feedlot operators
have been forced to look further and further a field for weaners and stud farmers have found
their market for bulls and breeding stock dwindle. This trend offers an opportunity for
emerging farmers to enter the industry, take up the slack and provide the province with its
red meat requirements.
LPDA Projects Of the 10.548m ha. farmland, commercial agriculture utilises 7.153m ha.
(78%) of the farmland in the province and developing agriculture, in former homelands,
makes up 3.612m ha. (32%) of the province. 2.863m ha. (79%) is available in former
homelands for grazing land for extensive cattle production. In the past, state owned and
managed agricultural projects, have been planned and developed from a purely production
point of view. They were Production Driven and little attention was paid to market trends
and marketing and their ever-changing dynamic environment. The approach was to plant
what can grow and what needs lots of labour and not what will provide the best Gross
Margin per ha. or what is sustainable. These projects were technically well planned,
situated and implemented and the Government has spent billions of Rands on thousands of
agri-projects in the Limpopo Province alone. These projects can potentially provide many
farming, job and SMMEs for the people of the Limpopo Province if correctly organised and
co-ordinated. They need to be planned, managed and implemented with a market in mind if
they are to contribute to economic growth and development. In the past, many LPDA
agricultural projects were created in an attempt to alleviate poverty. The strategy was to
create as many employment opportunities and small farming opportunities as possible.
Although well meaning, this strategy has exacerbated poverty and failed dismally because
these projects were not self sustainable;
1) Employing too many employees at above the market rate is financial suicide and not
sustainable.
2) Providing emerging farmers with small plots to produce low value commodity crops goes
directly against the world economic trend of increasing farm size to maintain a viable
economic unit. Small farms are only sustainable if very high, tech high value crops are
cultivated.
Current problems and problem hypothesis:
The rejuvenation of existing projects or new projects requires that they be sustainable as
stand alone projects. The fact that many primary farming enterprises are not sustainable on
their own thus hampers agricultural development in the region. Part of the Brief of this
Strategic Business Plan is to provide a strategy that will create farming and SMME
opportunities and employment opportunities by utilising redundant LPDA projects. A strategy
that embraces free market ideals and private sector drive was recognised as being the only
tenable solution. A strategy acceptable to all the stakeholders while remaining commercially
orientated. The strategy requires the public and private sector to work together on a Joint
Venture basis to satisfy the needs and desires of all the stakeholders. To ensure high levels
of product quality, quantity and a free flow of core inputs and open distribution channels an
Integrated strategy is proposed. Integration relies on a Value Chain being created and
maintained between suppliers of critical raw materials. This value chain starts with dryland
and irrigation crop production and ends as meat on a consumers plate. Projects that would
normally not be viable become viable as they now share in the profit of the adding value
process.
PROJECT SCOPE
This report is intended to provide a Strategic Business Plan that shows how LPDA projects
can be incorporated and integrated (Inter-firm co-ordination), in an equitable and
sustainable way, into a commercially viable strategy for the production and distribution of
frozen beef, chicken and fish meat. The proposed strategy relies on contractual Market
Driven integration between groups of related Business Units within each functional
operation. The emphasis has thus been placed on the final marketing channels of wholesale
and retail outlets that provide the initial marketing Pull or final product demand that will
drive and provide the Derived Demand for each integrated Business Unit. Phase 1 has to
succeed prior to the next phases being implemented and the main thrust of this report is to
show how the Frozen meat Depots and retail shops can be financially viable and thus
create a market demand for primary agricultural production. The proposed strategy utilizes 3
main product lines, Beef & Chicken and each has an independent line of integration that
converge at the wholesale depots. Each product line has a number of operations
categorised as production, processing and distribution operations that form the integrated
chain. Each product line integration can go as far back as crop production and there are
many spin-off enterprises from the process. Each Business Unit can be categorised as
either having a production, processing or distribution emphasis. All 3-product lines converge
at the wholesale and retail category or phase. Each operation will be implemented in
phases with the distribution operation of wholesale and retail selling being the catalyst that
pulls the other phases. The pinnacle of the strategy is the distribution operation, which
consists of wholesale Frozen Meat Depots (FMD) and retail Fast Food Shops (FFS) that
supply beef, chicken and fish meat to retailers and consumers. The FMD & FFS are thus
the driving force that creates demand for the intermediate products and all the BUs in the
integration chain.
ASSUMPTIONS AND CONCEPTS
Assumptions - It is assumed that the current national and provincial policies regarding
state owned, funded and managed agricultural and agro-industrial projects will be
supported, implemented and championed by the provincial legislature. Assumptions are;
1) LPDA projects will be incorporated into the proposed strategy.
2) The process will be market driven according to industry norms.
3) The Business Units will be integrated, established in phases and co-ordinated by an
independent co-ordinating entity.
Key Concepts - The following key concepts will be followed in the proposed strategy;
1) All Business Units will be free market, free enterprise, commercial and profit oriented.
2) The proposed strategy uses inter-firm integration as a means to create a share profits
among enterprises, Value Chain, secure the supply of critical raw materials, create
captive markets and source development and working capital.
3) The Community Public Private Partnership model will be used where applicable
Key success Factors
For the proposed strategy to succeed a number Key Success Factors need to be put into
place and entrenched prior to implementation. It is considered that each of these KSF is a
potential Fatal Flaw and if not entrenched the strategy will fail;
1) All stakeholders must be identified and all must unequivocally and irrevocably Buyin and support the strategy and the co-ordinating entity, from inception, to its longterm conclusion. Employees must realise that they are part owners of a commercial
business and their future employment depends on the sustainability of the BU.
2) A Co-ordinating entity that will hold the process together, should be identified and
be able to provide mentoring, technical, managerial, financial and marketing support,
to each Business Unit, from inception to its long term conclusion.
3) The integration process and each Business Unit must meet the Triple Bottom
Line requirement of being Financially, Socially and Environment Sustainable.
4) Each SBU that participates in the process must be a commercially orientated, Profit
Driven, independent business entity that is an economic unit and has the ability to
be sustainable i.e. profitable.
5) The integration process must be a Market Driven phase-by-phase process that
will commence with retail Frozen Meat Shops (FMS) and wholesale Frozen Meat
Depots (FMD) the distribution Business Units (Phase 1) which will pull and
integrate the processing (Phase 2) and production (Phase 3) Business Units into
viable enterprises.
Fundamental to this report is that the rationale for an Integrated Organisational Structure
is justified by the advantages that it creates for each enterprise. This report will show the
advantages of integration, linking and possible cross shareholding in the frozen meat
production processing and marketing chain. Good Agricultural Practices (GAP) are
assumed for each Business Unit. Compliance with national soil conservation regulations,
meat hygiene and health regulations cannot be compromised. ISO 9000 accreditation is
a must and HACCP certification should be considered. The overriding key success
factor of the strategy is that each Business Unit must be able to financially justify its own
existence and be financially independent from the other Business Units. The benefits
that enterprises acquire from integration are in the form of shared profits, dedicated
suppliers, captive markets and satisfied customers who form the short-term supply and
purchase contracts that link these enterprises.
THE STAKEHOLDERS
A golden rule in project development is to identify and get the buy in from all the
stakeholders. Stakeholders have been identified as;
1) The LPDA
2) Investors and shareholders
3) Adjacent communities
4) Employees and employee organisations
STRATEGY OVERVIEW
The meat production function starts as crop production, progresses to feed manufacture,
meat production, then adding value and processing and ends as a marketing and service
type enterprise that puts a portion of beef, chicken beef or fish on a consumers plate. These
enterprises are linked and integrated together by market related forces. Each enterprise will
be able to buy and sell on the open market once they have met their contractual obligations.
Short-term performance related contracts provide stability of supply and sales. Short term
shortfalls or over production are solved by sourcing product or markets elsewhere. These
enterprises need to be co-ordinated and synchronised so that they can mesh and work
together. This co-ordination function needs to be provided by a Co-ordinating Entity (Service
provider) that understands the agricultural sector, the industry and the characteristics of
each BU and can facilitate on-going trade between the BUs. This entity will be a service
provider to each BU within each operation.
Integration or Inter-enterprise Co-ordination:
Integration or inter-enterprise co-ordination refers to a process of organising and coordinating discrete stages of production into multi-stage Business Units that provide synergy
and economic benefits. Two different forces have an important bearing on the organisation
of enterprises;
1) New technology has provided opportunities from specialisation that give rise to new
economic stages of production or Business Units. A Business Unit is an operating
process that starts with a marketable input and ends with a saleable product.
2) Changes in marketing have increased the payoff (A premium) from close co-ordination in
order to ensure that products, at different stages, meet the specifications demanded by
the market. Products that do not meet these specifications are sold at a lower price or
dumped.
In a free market orientated economy such as ours, integration and co-ordination is guided by prices
and other factors external to the firm. Internal integration is achieved if there are;
1) Important supplementary's or complimentary's between Business Units.
2) Market control advantages for inputs and/or outputs and financing advantages.
3) Lags or malfunctions in response to market stimuli manifested by competition, outdated
technology, product quality or capital rationing.
Integration may be vertical or horizontal;
Horizontal Integration Co-ordination of two or more units of production in the same economic
stage. This achieves economies of scale, reduces risk and input prices. E.g. Silage and hay making
on a dairy farm.
Vertical integration Co-ordination of successive stages of production and distribution e.g. making
cheese from farm milk. Vertical integration may be achieved in many ways and to varying degrees.
1) Forward Contracting usually involves a relatively low level of integration depending on various
types of contracts;
1.1)
A Market-Specification Contract refers to a contract that allows the farmer to manage
and produce as he pleases as long as the product produced meets the timing, quantity and
quality specifications of the customer.
1.2)
A Production-Management Contract refers to a higher level of integration and the
customer specifies certain inputs and management practices to ensure the product meets
the market specifications.
1.3)
A Resource-Providing Contract refers to even higher integration level where the
customer provides inputs of a particular specification (e.g. seed or chicks) and are usually
financed by the customer and the customer thus becomes a major source of operating
capital.
In all these contracts, either quantities, prices or markets are normally guaranteed if the
specifications are met. Total Integration involves the co-ordination of successive stages under one
decision-making unit.
A common characteristic of all of the various integration models is the necessity of maintaining the
Value Chain from one Business Unit to the next Business Unit. If this chain is broken integration
stops at that point. As a starting point (Phase 1) the proposed strategy integrates market driven
wholesale and retail Business Units.
The rationale for integration is to be found in the following factors;
1) Sustainability of primary production enterprises Due to factors out side of the control of the
enterprise, many of the primary production agri-enterprises (cattle farms and broiler farms) and
even some adding value and processing enterprises (Chicken abattoirs and feedlots) are not
financially sustainable as stand alone projects. To be viable they have to be linked and
integrated with further value adding processes or functions. The extra margins created by the
more profitable enterprises then subsidise the less profitable enterprises, which are then
financially justified.
2) Product Quality - Fresh and frozen meat has to be of high quality to be acceptable. Quality has
to be maintained from primary production through to the final product. A Value Chain has to be
established and maintained throughout the life cycle of each Business Unit. Quality products
require quality inputs and if inputs are poor the outputs will also be poor.
3) Product Quantity To achieve economies of scale, each adding value process has a breakeven quantity of core product needed to cover fixed costs. A market based integration strategy
helps each Business Unit secure a suitable quantity and quality of product.
4) Sharing of skills and risk reduction Integration allows primary producers to become involved
in the adding value process and marketing and processors to become involved in primary
production and thus reduce risk and provide some diversification.
5) Sourcing and leveraging development and working capital Captive markets are every
businesses ideal and an integrated structure links Business Units enabling them to better raise
capital.
6) Creating captive markets Empowerment projects enjoy preferential tender procedures that
can provide a captive market. The broiler chicken market is currently over supplied and producer
margins are at break-even or negative. Securing a market outlet is vital for success. Assuming
quality specifications are met integration provides a captive market for suppliers. The aim of the
Frozen Meat Depots and Frozen Meat Shops are to provide an integrated captive market for the
Qlity Chicks abattoir and the beef abattoir that in turn provide a captive market for the primary
product producers (broilers, feedlots & crops).
This strategy will provide the following major benefits;
1) The strategy links production enterprises to adding value and marketing enterprises and thus
makes them financially sustainable.
2) It secures a market for the primary producer and the supply of quality products for the seller.
3) Risk may be reduced and access to finance improved.
4) Emerging entrepreneurs or Shareholder managers will have an opportunity to own a small low
cost low risk retail business opportunity or a larger wholesale cold storage depot. These
enterprises provide employment and equity sharing and better use LPDA projects.
5) Linked to this distribution enterprise are other enterprises that integrate backwards into
processing (abattoirs & Feed Mill)) and primary production (feedlots, fish, crop and cattle farms)
on redundant state owned projects. These enterprises provide employment and equity sharing.
6) This integration and linking through the market demand generated by the retail and cold storage
depots provides many spin-off enterprises contract transport at many levels, contract
ploughing, tannery, shoe & leather goods factory farm services and many more not yet identified.
7) A farmer or businessman who cannot acquire financing because of a small inefficient operation,
or a lack of managerial skills, or market uncertainties will benefit greatly from integration. The
independence he may have to forego through various contracts with suppliers or distributors is
outweighed by the benefits. The current status of LPDA owned projects is dismal production
has ceased, what is produced is of poor quality and cannot be effectively sold and distributors
are not interested in the produce because of poor quality, timing and quantity. Integration
provides an organisational solution to this situation.
DEPTH AND PHASES OF INTEGRATION

The development of the proposed integration strategy over time, in distinct phases and subphases, will take it vertically deeper and deeper backwards with occasional horizontal spinoff Business Units. (Transport, piggery, tannery, leather processing, broiler farm services
and contract ploughing).
Distribution Operation
It is important that this operation is integrated with the chicken abattoir and synchronised
with the broilers as it requires the frozen chicken stock and the IBP require a market for their
products.
Phase 1 Phase 1 is the establishment of Frozen Meat Depots in larger centers.
Phase 2 is the establishment of Frozen Meat Shops in rural towns. These 2 phases
create the initial Market Demand and is the power house and driving force of the entire
strategy
Chicken Operation (LPDA R16m Integrated Broiler Project)
Phase 1 Phase 1 of the chicken operation is the establishment of Mashashane Breeder
farmers. This phase commenced in May 2002. Eight farms have been refurbished, a farm
and farmer will be commissioned every 2 months. They will produce fertile broiler eggs for
sale to Mashashane Hatchery. As feed is the most expensive input breeders will be
integrated with a feed mill.
Phase 2 Mashashane Hatchery will purchase fertile eggs from the 8 breeder farmers,
incubate the eggs and sell to Lebowa broiler farmers and other broiler farmers. The
Hatchery will be able to supply all the chick needs of the broiler farms. Mashashane
Hatchery is a stand-alone project that has a captive market in the broiler farms.
Phase 3 Lebowa Broilers, a redundant ex LPDA project, will be refurbished and
commence full production (8,000 birds per day) early in 2003. Lebowa broilers will purchase
day old chicks from Mashashane Hatchery capacity 80,000 chicks per week. All broilers
produced will be sold to Qlity Chicks abattoir. As feed is the most expensive input broiler
farmers will be integrated with a feed mill.
Phase 4 Qlity Chicks Abattoir, a redundant ex LPDA project, will be refurbished and
commence operation early in 2003. Qlity Chicks will purchase term broilers from Lebowa
Broilers. Due to current market forces, stand-alone chicken abattoirs are not viable and Qlity
chicks will need to be integrated with the frozen meat depots and shops.
Beef Operation
The beef operation will be fully integrated as one legal entity. The cattle operation will take
time to produce its first weaners and should be implemented first. The feedlot and abattoir
then follow as a natural progression but should be synchronised with weaner production.
Phase 1 Phase 3 is establishment of cattle farmers who breed weaners for sale to the
feedlot. This phase will entail the genetic improvement of the local cattle through a Cattle
improvement Scheme and the establishment of the LPDA Cattle loan Scheme.
Phase 2 Phase 2 will be the establishment of a beef feedlot. The feedlot will purchase
weaners from cattle farmers, fatten and sell steers to the beef abattoir.
Phase 3 Phase 1 of the beef operation will be the establishment of a 20 head per day
beef abattoir and processing facility. The abattoir will sell beef cuts to the Frozen Meat
Depot and purchase steers from feedlots.
Feed Operation
Phase 1 Phase 1 of the feed operation is the establishment of a feed mill with a capacity
of 50 tons of feed per day. This capacity is linked to the requirements of the breeders,
broilers and feedlot plus 20% spare for selling to the open market. The mill will purchase
feed from contracted crop farmers. It will store, mill, mix, formulate and deliver feed to the
feedlot, Lebowa broilers and Mashashane breeders. The feedlot will be integrated with the
breeders and broilers and they will benefit from the profit from the feed mill.
Phase 2 Phase 2 is the establishment of consolidated irrigation and dryland crop farms
that will produce raw materials (Maize, Sorghum, Sunflower, Soya and Lucerne) for the feed
mill. The feed mill will be a captive market for the crop farmers.
The timing schedule for these phases is illustrated in Table 3
MAIN OPERATIONS AND INDEPENDENT BUSINESS UNITS.
The proposed integration process has a number of levels that will be approached in phases
and sub-phases. Fundamental to the success of the strategy and the whole integration
process is that each group of Business Units will be sustainable in its own right and
although it will be closely linked to the other groups or Business Units it will not be totally
dependent upon them. Inter-firm co-ordination can take a number of forms from simple
contracts to total integration. For the purposes of this business strategy a combination of
moderate contractual links and complete integration will be used. The Integrated
Strategy will be implemented over a number of phases. Related enterprises will be grouped
and linked or integrated according to their product line and ability to be sustainable. The
following are the logical groupings for the integrated business units.
1) Crop production At present current market prices for maize and other feed
ingredients are high and efficient crop farmers with economies of scale are
sustainable on their own subject to good rainfall. A Feed Mill can be loosely
integrated with crop farmers as contract growers. Contract growers can be assisted
by the mill with technical support, seed and even fertiliser. Emerging crop farmers will
have a captive market in the mill and the mill provides the farmers with technical
support.
2) Feed Mill, Broilers and Breeders current feed prices have made breeders and
broiler farmers less profitable as prices have not responded to increased feed costs.
The feed millers work on a mark-up on cost basis and are not affected in the same
way by higher feed prices. The broilers and breeders need to own a feed mill to shift
the millers margin to their operations to make them sustainable. The breeders have
a captive market in the hatchery and the broilers have a captive market in the
chicken abattoir. Well-designed and managed feed mills with a captive market can
make good profit margins.
3) Cattle farms, feedlots and abattoirs Cattle farms need to be large with high
capital investment in land and livestock and thus provide a relatively low return on
investment. The cattle farms will own the feedlot and abattoir and benefit from their
high profits. The cattle farms have a captive market in the feedlot and the feedlot has
a captive market in the beef abattoir. Feedlots have also been adversely affected by
feed prices. Beef feedlots and abattoirs, however, are not expensive to build. The
problem with feedlots is the capital required to maintain stock levels and typically
medium to large feedlots hold stock of millions of Rand. The solution to this lies in
only paying for the animal once it has been sold by the abattoir. This adds
approximately 4 months to the cattle farmers payment date but as a group reduces
working capital requirements significantly and the farmers benefits tremendously. The
cattle farms benefit in the adding value proceeds of the feedlot and abattoir. Abattoirs
turn their money over quickly and are currently making excellent returns. This is due
to the high demand and price for the 5th quarter of approximately R500-00.
4)
5)
Hatchery the hatchery business is a markup on cost type of business that passes
all increases on the purchaser. As the broiler industry is under pressure at present
sales are down at present but it does have a captive market of 40,000 chicks per
week (~60% of average production) in the broiler farms. The hatchery and broiler
farms will be loosely integrated by a supply contract.
Chicken abattoir, Frozen meat depots and shops Chicken abattoirs are capital
intensive and trading conditions are tough at present although stocks and thus prices
are starting to move. The abattoir needs to piggy-back on the profits generated by a
number of frozen meat depots situated at main centres and satellite franchised retail
frozen meat shops. Both depots and shops are mark-up type businesses with
relatively low risk and potentially high profits.
Spin-off enterprises:
The following supplementary Spin-off enterprises could also be established.
1) Transport between various Business Units and operations, from refrigerated trucks, to
livestock trucks, to grain and feed trucks.
2) A Tannery to process the hides from the abattoir.
3) A leather products factory adding value to the tanned hides.
4) Leather shops to sell the leather goods (shoes, belts, hats, etc.)
5) Farm services for the Chicken operation catching and loading, cleaning, washing and
disinfecting houses.
6) A small piggery that utilises mortalities and culls from the broiler farms and waste from
the mill.
7) Contract ploughing, planting, cultivating and harvesting for the crop farms.
Within each of the five main groups a number of smaller Business Units will be
completely integrated. The reason for this grouping into four main operations is as a
result of the varying profit potential of each Business Unit, particularly between the
primary production Business Units and the processing Business Units. For example in
beef production and processing the abattoir and processing facility makes a significantly
better profit and return on capital investment versus cattle ranching or feedlots. In the
interest of survival and developing primary agriculture the integration link proposed
should spread profit evenly between the production orientated Business Units and
processing orientated Business Units so that the production Business Units can share in
the adding value process and ensure their long term survival. Spreading the profit can
be achieved in 2 ways;
1) Manipulating and setting prices between BUs. This may result in conflict between 2
Business Units and because market prices change continuously it is difficult to
control.
2) Establishing companies with integrated Business Units or groups of enterprises that
are owned by the primary producers. Cross share holding is also a possibility.
MANAGEMENT OF THE STRATEGY BY THE CO-ORDINATING ENTITY:
An independent Co-ordinating Entity is needed to provide managerial, technical, financial,
legal, Management Information Systems and marketing support, backup and mentoring to
the operation and each Business Unit. The entity will not manage individual Business Units
each Business Unit will have its own internal management structure. The co-ordinating
and supporting entity should be tasked to provide certain project management deliverables,
on-going support and consultancy services and be responsible for the following phases of
establishment and on-going support;
1) Establishing and co-ordinating the Frozen Meat Depots & Frozen Meat Shops
2) Establishing and co-ordinating the Beef Abattoir & Processing facility and the feed
mill.
3) Establishing and co-ordinating the beef and crop primary production farms
4) Manage the integration strategy by providing on-going technical, financial, MIS,
accounting, marketing, legal and HR services.
The full implementation of the strategy will be a 2-3 year project, tackled in phases, with
clearly defined sub-phases and deliverables. The following are the proposed main
deliverables.
1) Assessment of the proposed strategy Business Plan and due diligence
2) Documenting a Procedures and Policy manual for the implementation of the strategy
3) Frozen Meat Depots & Frozen Meat Shops establishment
4) Beef Abattoir and processing facility establishment
5) Beef Feedlot establishment
6) Beef Farms establishment
7) Feed Mill establishment
8) Crop farms establishment
Note: The Chicken BUs (Breeders, hatchery, broilers and abattoir) are in the process of
being rejuvenated by the LPDA Integrated Broiler Programme (IBP).
The managing entity should be a team of people with the following capacity, skills &
experience;
1)
2)
3)
4)
5)
6)
General management (Plan, organise, co-ordinate, lead, implement & control)

Markets and Strategic Marketing (price, products, promotion & distribution)
Technical (crops, broilers, breeders and cattle production)
Financial management, administration and accounting
Human resource management and public relations
Legal skills
THE BEEF MEAT INDUSTRY:

The red meat industry consists of cattle, sheep, pigs, & goats and contributed 12.7% of the
total agricultural production during 2000/01. Cattle numbers in S.A. have been virtually
static since 1980 at approximately 13.5m head and approximately 2.1m head are
slaughtered annually. Beef prices have been moving up steadily from R8.49/kg in 2000 and
during 2002 from a low of R11.88/kg (Class A1) in February up to a current price of
R15.80/kg. Imports of both lamb, mutton and beef have been increasing. Total chicken meat
production in S.A. in 2000/01 was approximately 797,000 tons per annum and consumption
was 843,000 tons or 19.59 per capita which exceeds red meat production of 571,000 tons,
consumption of 598,000 tons or 13.31 kg per capita. A difference of 6.28 kg/capita in favour
of chicken meat.
The beef meat industry in S.A. is made up of the following main enterprises;
1) The beef cattle breeder/farmer
Of the total landmass of the LP, 22.3m Has is climatically dry grazing land. This physicalbiological environment means that cattle farming should be the most important farming
activity. This also means that the region is environmentally sensitive and can easily be
damaged by poor farming practices unfortunately this has already happened in many
areas. However, if well managed, large areas of natural grassland can provide a low cost
sustainable feed source for cattle production.
The Beef Cattle farmer manages a cowherd that produces weaner calves (~ 220 kg live
weight) for sale to the feedlots or for self-feeding. This enterprise requires a large grazing
farm, is subject to normal agricultural risk, is capital intensive and returns on capital are
relatively low. An economic unit is considered to be a breeding herd of between 200 - 250
cows. This farm can also acts as a store of weaners destined for the feedlot. A feedlot
needs a regular supply of weaners every month and the farm acts a buffer of weaners to
supply the feedlot. It also allows the weaners to grow out on low cost grazing.
Commercial extensive cattle farms need to be large enough to sustain an approximately
200 cow breeding herd to be an economic unit. This must then be matched to the
microclimate of the farm and its stocking rate expressed as ha.s per animal unit (AU) or
head. A stocking rate of 5 ha. per animal unit means a 200-cow unit (1.2 animal units) will
need 1,200 ha of grazing. This is an average figure that can vary from season to season
depending on the amount and frequency of rainfall.
Cattle farm management systems usually consist of 2 systems or a combination of these 2
systems depending on the current rainfall cycle;
1) Fattening and finishing oxen off the veld.
2) Weaner production for sale to feed lots.

Fattening oxen off the veld This is a flexible, slow turnover system with a relatively small
cowherd with many followers (Oxen between 1 3 years old). Oxen are fattened off the
sweet veld and sold directly to an abattoir. This system is suited to low stocking rate large
farms in the lower rainfall, drought prone areas for 2 main reasons;
1) Lower rainfall areas have palatable nutritious veld suited to fattening oxen without any
supplements.
2) In times of drought oxen can be easily and quickly sold for slaughter to reduce the
number of stock on the farm and leave more grass for the breeding cows (the factory of
the farm).
This system can take advantage of a niche export market for organically grown beef. If
export is considered to the EU then the abattoir has to be certified for export and has to
meet strict EURO-GAP, ISO and HACCP criteria and all meat is de-boned to prevent
transporting portions with no export value (i.e. bones).
Weaner production system This system is a less flexible, faster turnover system with a
relatively large cowherd with few followers (only replacement heifers). This system is suited
to smaller farms with higher stocking rates, higher rainfall and less drought prone areas.
Weaners or long-weaners are sold each year directly to feedlots that fatten for slaughter. A
double breeding system (Winter & summer calving) can be used to spread the flow of
weaners to the feedlot and reduce the number of breeding bulls needed. A comparison
between the weaner and ox fattening system herd compositions, annual sales and costs is
tabulated in the index. Under these circumstances and prices the weaner system is
preferable. This situation can change as prices change. The weaner system is more
vulnerable under drought situations as breeding stock has to be sold to reduce stocking
rates.
The proposed integrated system utilises a feedlot to fatten the weaners. The weaner
production system has thus been chosen for this model, however, many areas in the
province are suited to oxen fattening and the 2 can be done in parallel.
The LPDA has many thousands of ha.s of good cattle grazing in redundant state cattle and
sisal projects. These projects will make ideal cattle breeding farms. Where necessary these
projects should be divided into suitable size (100 ha.) grazing camps according to
homogenous vegetation type and physical aspects. Each camp must have a water trough
and a small handling facility. A central dip and handling facility must also be constructed to
dip, handle, treat, weigh, load and sort cattle. These farms then need to be stocked with
fertile cows that can produce a suitable weaner. These cattle can come from local owners or
be brought in.
Projects that could be used and/or converted in the short term are - Zebediela, Gillemberg,
Mara, some Sisal & other projects to name a few.
Beef cattle genetic improvement scheme
An integrated beef system that aims to commercially produce top quality meat from a
feedlot needs well-managed cowherds that are productive and genetically capable of
producing a good quality weaner suited to feedlot fattening. Most cattle found in tribal areas,
although hardy, are inbred, of poor quality and are not genetically suited to producing a calf
suited to feedlot fattening. A Cattle Improvement Scheme must be established to improve
the genetics of local cattle so that they;
1) Calve regularly.
2) Raise a calf that will be an acceptable weaner for feedlots.
A cattle improvement scheme of this nature can be done in 2 ways;
1) The local cattle improvement scheme.
2) The introduced cattle scheme.
The local cattle improvement scheme
The overall aim of the scheme is to improve the genetic make-up of tribal cattle so that they
can improve their meat producing ability and thus play an important part in supplying the
proposed feedlot with genetically suitable weaners. An important secondary benefit is the
capacity building and establishment of viable commercial cattle farmers amongst the
emerging farmers group. This scheme concept is simple, yet it may be difficult to implement
in practice due to cultural and traditional value of tribal cattle, which is not commercially
orientated. (LPDA extension Officers to assist). The scheme is based upon the fact that 1
(e.g. Bonsmara) bull can cover up to 50 cows in a 3 month breeding season. The impact of
this bull on the herd is significant as 50% of its genes will be present in its progeny and if
repeated for 4 generations (i.e. F4 in only 10 years) the 4 th generation progeny will be
almost 93% pure Bonsmara. The main traits that will be beneficial will be
1) increased fertility a cow must raise a calf every year.
2) Increased cow milk production and thus increased weaning weight.
Implementation of the scheme;
1) A cow owner brands his cows with his recognisable brand. A digital photo can also be
taken and recorded. This cow will remain his property and all its progeny will be sold for
his account less a management fee per head. The owner of cattle effectively becomes a
shareholder of the farming operation.
2) Cows from many owners can thus be combined into large herds so that they can be
managed as a unit and bulled with good bulls.
3) Each farm will be run according to strict commercial norms at market related
employment levels. Operational costs are divided amongst the participating farmers
proportionally to the number of head they own in the scheme. Sales are disbursed on an
animal-by-animal basis and not pooled and divided proportionately.
4) Each cow will be numbered and a record kept of its calving history, wean weights etc. to
determine its production capability. Below average cows must be culled and replaced by
a younger genetically improved heifer. Revenue from culled cows are paid over to the
owner.
5) Heifers from the best cows will be retained as replacement stock for the original cows
when they are culled or die and they will in turn remain the property of the original owner
i.e. he has an immortal and continually genetically improving cow.
This scheme has a number of benefits;
1) Cows are removed from overgrazed areas and placed on areas with good grazing. The
over grazed areas are rested and measures taken to prevent erosion.
2) Cows are better fed and managed and will thus produce more and better calves in their
productive life.
3) Good bulls will genetically improve progeny.
4) The owner does not loose anything and in fact gains as his cows are continually
replaced by a young improved animal.
5) These cows produce a weaner that is acceptable to the feedlot and they then become
part of the Value Chain.
6) The emerging farmer becomes empowered through financial security and capacity
building at farmers days and courses.
The introduced Cattle Loan Scheme This Cattle loan scheme will rely on a large
herd of good quality cows that are provided to emerging farmers on loan. It is proposed that
the LPDA purchase a large herd of young (pregnant with their 2 nd calf) breeding cows and
uses these cows to kick-start the scheme and thus a programme to educate and facilitate
emerging cattle farmers. New cattle farmers face 2 major cost factors upon establishment
and thus barriers to entry;
1) The cost of the land - By utilising currently unproductive state land for large cattle
farms that only pay rental to a T/A the capital cost of purchasing land is not incurred.
2) The cost of the cattle a Cattle Loan Scheme will provide a new emerging farmer
with a small herd of LPDA owned breeding cows on loan and thus the cost of
purchasing breeding stock is not incurred.
Implementation of the scheme;
1) A group of emerging farmers becomes equal shareholders in a profit motivated (Pty) Ltd.
Company that operates a large cattle farm on state land. Other shares can be owned by
an investor/s who injects working capital.
2) The company leases the land from the TA.
3) The LPDA loans young, fertile breeding cows to the emerging farmers pro-rata to the
shares they own in the company. The company manage these cows commercially. The
cows remain the property of the LPDA.
4) The farm must be commercially orientated and managed by a well-trained cattleman.
The emerging farmers become the employees and are hired according to the going
rate.
5) Each cow remains the property of the state until it has been replaced by the emerging
farmer with a pregnant heifer, which replaces the original cow, which can now be used
on another project.
6) All weaners for sale are sold to the feedlot and cull cows directly to the abattoir.
7) This system can be combined and run together with the Local Cattle Improvement
Scheme.
The benefits of this scheme are;
1) It establishes a viable and sustainable beef cattle enterprise on currently redundant
projects at very low cost.
2) It provides employment and empowerment through capacity building and share holding.
3) It provides a stable and regular supply of weaners to the feedlot.
4) It provides a mechanism for the LPDA to establish cattle operations in a sustainable
manner.
STEER FEEDLOT INDUSTRY

Most beef consumed in S.A. today is stall fed in feedlots. Feedlots are usually situated as close to
low cost grain producing areas (low cost feed) and large cities (Consumers) as possible. Todays
fussy mid to high income consumer chooses the leaner, meaty cuts from a young animal (tender)
with some marbling (fat deposits between muscle fibres) for flavour. The lower income segment of
the market prefers the lower priced, more fatty forequarter cuts.
For young growing animals to grow fast and deposit fat they need to be fed intensively on a highenergy ration and not expend energy looking for food (walking and grazing). The practical solution is
to confine and stall feed young steers intensively for 3 4 months in a feedlot. This confinement
means that animals cannot graze and look for their own feed. Feed rations are thus formulated from
available ingredients and scientifically mixed and supplemented to provide a balanced feed. The
genetic ability of an animal to convert feed into meat is fundamental to the success of a feedlot and
is usually expressed as a Feed Conversion Ratio (FCR). The feed conversion ratio is the ratio of
feed kgs consumed to gain 1 kg of meat. The feed conversion ratio depends on the animals genetic
ability and the composition of the feed a typical feed conversion ratio is 5 - 6 kgs feed per kg of
gain. Feedlots require good husbandry and management and procuring low cost yet high quality
feed is a success factor. Animals need to be weighed regularly to ensure they are on track to
achieve the target weight. This weight is often expressed as the Average Daily Gain ADG. Feedlot
animals enter the feedlot soon after being weaned from their mothers. After being dipped, dosed and
vaccinated the steers are sorted by gender and size and they then start a 7-day adaptation period,
on an adaptation ration, to acclimatise their rumen (stomach) to a new ration. Once completed they
are moved to small pens with water and fed ad lib on a full ration.
New steers weigh on average about 220 kgs and are ready for slaughter at 400 kgs, a gain in
weight of 180 kg's over 90 120 days (Average Daily Gain of 2kgs 1.5kgs). Feed is the major
production cost in a feedlot and the more weight that can be added to the animal, while using as
little feed and time as possible, to reach a target weight, is the goal. The 2 main factors influencing
the profitability of a feedlot fed animal are the 2 main cost items, purchase price and feed cost.
These 2 factors are called the market margin and the feed margin.
Feedlots do not require a large amount of land and are often situated on wasteland (non-arable,
gravel or stony ground). The ideal site is gently sloping, has a good secure water supply and is close
to a low cost feed source. Small feedlots often buy premixed complete feeds from feed companies
and larger feedlots try to grow and mix their own rations to keep costs down or add value to crops.
The establishment cost of a feedlot depends on many different factors such as the material used
level of automation, the necessity to store large volume of feed etc. A feedlot is not very expensive
to construct, typically a 1,500 head feedlot will cost anything between R400,000 to R600,000 to
construct depending on the sophistication of the feeding system.
The Beef to Grain ratio The amount in kgs of grain that can be purchased per kg of beef income.
S.A. ratio is currently approximately 8 : 1. The Beef Grain Ratio in the USA is 20:1, significantly more
favourable than in S.A..
The market margin - The market margin is the difference in price of the purchase price per kg of
the live weaner from the farmer and selling price per kg of the live steer to the abattoir. If the selling
price/kg beef is greater than the purchase price/kg beef then the market margin is positive and vice
versa.
The feed margin - The feed margin is the difference between the selling price per kg and the cost of
feed used to gain that kg.. If the sale price per kg is greater than the total feed cost to add I kg, then
the feed margin is positive and vice versa. E.g. The beef feedlot sale price is R9.00/kg live weight
and the cost per kg of feed is R1.40/kg, it takes on average 6 kg of feed to add 1 kg of beef (6kg x
R1.40 = R8.40), the feed margin is thus R9.00 R8.40 = R0.60 per kg. A total margin of R108.00
per head that gains 180 kg.
The feedlot owner is thus in one of the following situations
1) Both feed and market margins are negative the worst situation and will result in a loss.
2) Feed Margin is positive and market margin is negative

3) Feed margin is negative and market margin is positive.
The feed and market margins are positive - the ideal situation.
The abattoir and processing facility
The abattoir slaughters the fed animals and sells the carcasses and tertiary products to butchers
and/or wholesale distributors. The norm in the abattoir trade is that the profit is made with the 5 th
quarter (Offal, hide, head & feet). The carcass itself pays the bills and is often sold at a small loss.
The 5th quarter value is mainly determined by the hide which can sell for up to R400.00 per unit. The
5th quarter value ranges from R500.00 R700.00 . An abattoir establishment cost is approximately
R15,000 per head throughput (i.e. R300,000 for a 20 head abattoir). The building is not that
expensive, however, the chiller rooms are expensive. A good water supply is important
(90L/carcass). It is important to build and operate strictly according to health regulations and train
the staff properly. The current abattoir selling price per kg is R15.80 per kg for a whole carcass and
hindquarter and R15.30 per kg for a fore quarter. A beef abattoir will need to be constructed. Ideally
the beef abattoir should be close to the beef steer feedlot to reduce transport costs. This distance
should be less than 2 km to allow the steers to be walked to the abattoir without expending too much
energy. The loading, travelling and off loading of road transport is a major contributor to stress,
weight loss and bruising that reduces quality. The abattoir will be a 25 head per shift abattoir (~ 550
per month). It would be practical to situate the beef abattoir adjacent to the chicken abattoir that has
considerable freezer capacity that could be shared. It is recommended that the abattoir is situated at
either Lebowakgomo or near Polokwane.
Beef processing and packaging
The beef processing facility that will be used as the bulk beef processing and portioning facility will
be attached to the abattoir with its own freezer units. This facility consists of Stainless Steel
worktables, meat saws, portioning and packaging equipment and receives carcasses from the
abattoir portions, processes and packages the meat into the different cuts. Expensive cuts are sold
to up market stores, restaurants and butcheries. The more affordable cuts and tertiary products are
sold to the Frozen Meat Depots.
Wholesale distributors - purchase carcasses from the abattoirs, cut up the carcasses for fast food
outlets, restaurants and retail consumers for home use. In the rural areas the main demand is for the
cheaper fore quarter cuts (Neck, shin brisket etc. and tertiary products) while the urban areas
demand the more expensive hindquarter cuts (Rump, fillet etc.). Generally cutting up costs are
R2.50 R3.00 per kg. A whole carcass, cut into family cooking portions, roasts, steaks, chops,
stewing, mince, wors, soup, dogs bones etc. can be purchased for R19.00 per kg.
CURRENT PRICES FOR FORE QUARTER CUTS
CUT
Short-rib
Shin
Brisket
Neck
Mince
Mince (top-side)
Wors (Soya mix)
Wors (Soya mix)
PRICE/KG
R 23.95
R 24.00
R 23.95
R 24.95
R 24.50
R 25.50
R 13.95
R 23.50

Retail distributors (Butchers, Restaurants, hotels, caterers and lodges, stores, and fast food
outlets) further add value by cooking and preparing meals for consumers. In the rural areas the
demand is for a low cost tasty meal. Pap en vlies and the buy n braai concept are very popular.
The cattle hide Industry is a spin-off of the beef industry;
The hide market in S.A. is dictated by the export market demand for tanned leather. 90% of S.A.s
leather is exported to Italy where it is processed further and cut into very thin slices for use in high
value clothing, furniture and motor car seats. A cowhide can be cut into 4 5 slices. This valueadded leather is then imported back into S.A. for use in our furniture clothing and car manufacturing
industry. The reason why this is not done locally is due to economies of scale and the capital cost of
the equipment needed to slice and process the skins. The main tanneries in the country are to be
found in Port Elizabeth, Brits and Silverton. Area agents in the rural areas go around and buy wet
green skins or wet salted skins from small abattoirs and farmers. Every week a Regional agent
collects these skins by truck and finds the best price from the tannery for the Area agent. The
tannery tans the skin and bulk packs for export to Italy.
Current prices FOB abattoir are;
1) Green skins sell for R12.00 R14.00 per kg collected or approximately R360.00 R420.00 per
30 kg skin.
2) Salted skins sell for R14.00 R16.00 per kg collected or approximately R420.00 R480.00 per
30 kg skin.
Average skin weight for a feedlot fed animal is 30 kgs per skin. Prices vary up and down by
approximately 10% during the year. Because 90% of hides are exported, the price is Rand US$
dependant. Tanneries sell various different grades of unsliced leather to local manufactures of
leather goods veldskoens, belts, hats, saddles, harnesses, collars, key rings, balls etc. Many of
these products can be hand made in small one-man businesses (SMMEs) and could provide many
SMME and work opportunities.
THE CHICKEN MEAT INDUSTRY:

Total chicken meat production in S.A. in 2000/01 was approximately 797,000 tons per
annum and consumption was 843,000 tons or 19.59 per capita which exceeds red meat
consumption of 871,000 tons or 19.37 kg per capita. The chicken meat production industry
in S.A. is characterised by a small number of large production operations that produce 77%
of all chicken with Rainbow Chicken being the largest followed by Early Bird. Chicken meat
is the single most important contributor (~ R6,019m per annum) to agricultural production in
S.A. The medium to large operations are all high tech sophisticated enterprises that
compare favourably with any 1st world country. The smaller operations use varying degrees
of technology from relatively basic to very sophisticated automated controlled environment
systems. Generally broiler production can be considered an intensive farming operation
characterised by low margins per unit, high risk and high sensitivity to feed prices and thus
the Rand : US$ exchange rate. Small producers, often part-time chicken farmers, enter and
exit the market freely depending on the price cost ratios at the time. There is a large cash
market for live chickens, mainly in rural areas, as better value per kg is achieved. Currently
a tariff protects the local industry as US, Brazil & EU farmers can produce at lower cost due
to subsidised feed costs. During the past year many smaller and a few large broiler
operations have closed due to adverse markets and trading conditions. Prices have
strengthened slightly to R11.30 per kg and are likely to hold for some time.
The chicken meat industry in S.A. is made up of the following main enterprises;
Broiler day old chick production (Breeders & Hatchery) Day old broiler chick production
is a specialised farming and hatching operation that takes a high level of management.
Broiler chick production enterprises are usually totally integrated with a hatchery but
contract growing is practised. Breeders in a ratio of approximately 3 hens to 1 cock are

mated and hens produce approximately 115 grade 1 chicks per cycle. Fertile eggs are
incubated over a 19 21 day period, hatched, graded, medicated, packaged and sold to
broiler farmers. The current prices for chicks are R2.60 VAT excl.
Broiler farmers Broiler production is the intensive rearing of broiler chicks from day old
up to their target weight of 1.7kg live weight (1.2 kg's dressed what.), maximum growth
rate (Daily Gain), now at approximately at 38 days. Feed costs make up approximately
75% of production costs and profitability is very sensitive to all feed related factors such
as price, quality, feed conversion ratios, health, daily gains etc. Birds are sold live to
hawkers or to an abattoir for slaughter.
Broiler abattoir Broiler abattoirs and farms are often integrated into one operation
where the farmer is adding value. Alternatively birds are produced under varying types
of contracts. Profitability at the abattoir is dependent on the quality on the birds
delivered and keeping shrinkage and overheads (Particularly labour and energy costs)
down. Abattoirs are expensive to establish and require a constant throughput
throughout the year to achieve break-even. Having a secure market for the birds
slaughtered, even during tough times, is a highly desirable and a KSF. Supply contracts
and/or further integration into marketing channels are considered essential to provide
SBUs with secure markets at periodically fixed prices. During adverse trading
conditions integrated BUs can assist each other by cross subsidisation.
Breeder & Broiler Farmers It is recommended that the breeder and broiler farmers
operate individually as sole proprietors but organize themselves into a buying and selling
association to glean benefits from bulk purchases and product quantity. The reason for
remaining independent is to protect and reward the good farmers and prevent poor farmers
from piggy backing on the good farmers. These Business Units do not need private
investors as the LPDA is in the process of structuring a Grant/Loan scheme to assist these
farmers become established. The co-ordinating entity will assist these farmers to work
together as a group and establish the contracts between the farmers and the LPDA,
hatchery or abattoir.
Chicken Abattoir
The integration of the Frozen Meat Depot includes being a major customer of an existing,
ex LPDA, chicken abattoir (t/a Qlity Chicks) and adding value facility. This 70,000 bird per
week abattoir is situated in the Lebowakgomo Industrial sites ~ 60km South of Polokwane.
The LPDA is currently busy with a programme to revitalise the hatchery, broilers and
abattoir in an IBP. The existing infrastructure of the abattoir is significant and all in place.
Some machinery and equipment needs to be serviced, upgraded and replaced. Refer to the
attached cost projections. This is expected to be completed by the end of April 2003.
FRESH WATER FISH PRODUCTION
The Limpopo Province is land locked and fish production is limited to fresh, mainly warm
water species. Catfish, carp and Bream being the most important commercial varieties.
High capital costs, high feed prices and low demand renders this industry unviable at
present. The large volume sea fish industry has the economies of scale to deliver produce
to Polokwane at a cost lower than fresh water fish production costs.
The Warm Fresh Water Fish Industry in S.A. is made up of the following main
enterprises;
1) Warm fresh water fish farming (Tilapia, Catfish and carp) is not financially viable as a
sustainable Business Unit at present. The reasons for this are;
2) The high cost of feed. Fish compete for feed ingredients with other high feed conversion
livestock (broilers) and although feed conversion is marginally better, fish cannot achieve
the same high selling prices.
3) The sea fish industry is massive with economies of scale and frozen sea fish can be
landed locally at lower cost than fresh water fish can be grown.
4) Low intensity fish farming using broiler litter reduce the feed bill but yield is reduced to
such an extent that the capital cost of building the dams and processing facility is not
justified.
For the purposes of this strategy frozen sea fish will be purchased and distributed.
At present there is a slight shortage for sea fish and bulk prices are considered to be firm;
1) 1st grade Pilchards R6.87 per kg
2) 2nd grade Pilchards R5.00 per kg
3) Maasbanker R7.00 per kg
4) Baby Hake R11.60 per kg
All prices FOB Polokwane excluding VAT (Seaworld, Vector Logistics)
THE FEED AND CROP INDUSTRY
The feed operation is made up of crop producers that supply the raw material, millers who store, mix
and formulate feeds and distributors (wholesale and retail)
The Feed Mill
The feed milling industry in S.A. is dominated by a number of large milling companies such as
Meadow Feeds and Epol and a number of medium and smaller millers who target niche markets
and survive by keeping fixed costs low. The establishment of a mill is capital intensive and largely
depends on whether a fully computerised and automated operation is desired or a more manual
labour intensive operation will suffice. However, certain operations cannot be done manually as
grams (e.g. growth hormones) need to be evenly mixed with tons of raw materials. The balancing of
the ration to minimise costs while complying with feed specifications is a specialised function.
Computerised Linear Programming techniques are used to determine lowest cost formulations. The
miller needs to know the cost of the raw material and its chemical composition. The computer is
programmed to provide the least cost combination of a number of feed raw materials within the
constraints of the feed ration specifications. The programme then tells the miller the quantities and
proportions of each raw material to be mixed together. The raw material cost typically makes up
80% of the total cost while operating costs make up the 20% balance. The viability of a mill is largely
dependent upon the cost of capital and the cost : quality ratio of the raw materials purchased. Good
quality raw materials are the basis for good quality and value for money feed. Good quality feed is
thus dependant on the ability of crop farmers to provide a constant supply of good quality raw
materials. This is the starting point of the Value Chain for the proposed integration strategy. Good
quality raw materials = good quality feed = good quality broilers and steers = good quality meat = a
satisfied consumer.
Crop Farmers
The crop farms Business Units should be large economic units to achieve economies of scale.
Farmers of small units should be co-ordinated into large units by means of a Pty Ltd. If the number
of farmers exceeds 50 then they will need to be organized into a Farmers Trust, which will own
shares in a Pty Ltd.. Ex small holder farmers can become the crop Business Unit or large unit
employees. Either private investors need to be invited or the LPDA will need to assist to finance
these BUs. Employee Trusts and Local Community Trusts can also be involved as shareholders or
lessors that lease land to the Business Unit. A number of large crop farms can form an association
to buy in bulk and sell in bulk to the Feed Mill. The co-ordinating entity will assist these farmers to
work together as a group and establish the contracts between the farmers and the LPDA and the
Feed Mill. Producing the desired quantity of a good quality raw material at a market related price is
essential to the sustainability of the crop farmer and the feed mill. The crop farmer and the feed mill
will be closely linked by contractual agreements to sell and buy.
It is envisaged that crop farmers will be both irrigation farmers (Maize, Soya and Lucerne) and
dryland farmers (Sorghum and sunflower). Table .shows the current relative price and cost
structures for each crop. Ideally a crop rotation with a legume crop at least every second season is
desirable. The crop Business Units create contract ploughing, planting and harvesting spin-offs
THE FROZEN MEAT DEPOT AND FROZEN MEAT SHOP BUSINESS STRATEGY:
A fundamental principle of the Frozen Meat Depot & Frozen Meat Shops strategy is to
provide SMME business opportunities and employment opportunities for rural previously
disadvantaged citizens. Previously disadvantaged people have many barriers to entry into
Small Medium Micro Enterprises (SMMEs). The most important being;
1) Access to development and working capital.
2) Skill acquisition and business training.
3) The risk associated with starting a business.
4) On-going support and mentorship
Assumptions And Concepts

Ownership Structure of each Business Units:
Each small Business Unit is an entity on its own and each has a unique ownership structure
based upon its own unique characteristics and will be influenced by the type of operation
and the needs of the relevant stakeholders. Possible ownership structures are;
1) Sole proprietors
2) Partnerships
3) Close Corporations
4) Pty Ltd Companies
5) Trusts
The Frozen Meat Depot and Frozen Meat Shop The Depots are medium sized
enterprises owned by the broiler abattoir (Pty) Ltd. The Frozen Meat Shops are small
franchised enterprises owned by Owner/Operators as sole proprietors. Private investors,
development agencies and donors should be invited to finance these low cost Business
Units.
A sustainable low cost enterprise, for rural entrepreneurs, that removes the barriers to entry,
reduces the financial and managerial risk, can provide many socio-economic benefits and
be a model for future SMMEs. The concept incorporates mentoring, easy to manage and
very low cost franchising into a business model that holds the hand of the entrepreneur
while they become established, trained and skilled in their new enterprise. Keeping it Safe &
Simple (KISS) will be the motto.
Franchising - The well-known and accepted business model of Franchising will be used
as the format for capacity building and mentoring. Unlike classical franchising that requires
a major investment in Goodwill and the name and trading rights of the Franchisor this
format will not require an up Front Franchise Fee (UFFF). Being a Greenfield
THE FRANCHISED FROZEN MEAT SHOP (FMS)
The Governments electrification programme in rural areas has greatly facilitated the ability
of rural entrepreneurs, interested in the fast food service industry, to establish low cost
effective fast food shops that need electricity to operate effectively.
The Concept
The Frozen Meat Shop is designed to be a low cost, low risk, franchised frozen meat outlet.
The owner may also add further value by offering ready to prepare frozen meat and fast
foods. The aim to provide low cost consumers with fast food on their way to work and low
cost ready to prepare meat to customers on their way back from work to home.
Lost cost low risk
The low cost, low risk approach is achieved by using a movable 6m or 12m container, fitted
out as a shop or fast food outlet. This means that if the site proves unsuitable or the
business fails it can be moved or sold. Each 6m container will be a freezer container
consisting of a 4m freezer and 2m shop area. Each 12m container will be shop fitted with a
front shop, a stainless steel kitchen and a freezer or store room.
Container shop fitting
Option A - The fast food shop 12m container will be fully fitted to a standardised plan and
painted with signage, menus etc. An electricity connection (pre-paid or metered) will provide
lighting, warmers, microwave and refrigeration power. Cooking will be done on gas. A water
connection will supply water, alternatively water will be brought in by container. Wastewater
will be filtered and let out into storm water drains.
Option B The frozen meat shop 6m container is a lower cost option and entails the use of
a 6m refrigerated freezer container with a second internal sliding door 2m in from the
main door. A removable counter is placed between the 2 main doors and an awning
provides shade over the outside. The 2m space is shop space and is manned by 1 or
2 people, 1 operating a till and the other collecting meat from the container. The
freezer section is divided along its length by a narrow passage with shelves on either
side. Plastic crates with pre-cut meat are stacked on these shelves.
Franchising
The franchising business model is a tried and trusted model that allows a Franchisee to
operate using the name, style, processes and systems of a Franchisor. Franchising
provides many benefits for the new entrepreneur that assists him/her to succeed in their
new venture. These benefits include a proven brand, training, shop fitting, on-going
management assistance, systems and processes, supply of products and advertising. The
down side of franchising is that it requires discipline to adhere to the rules of the franchise
and the cost of acquiring a franchise can be prohibitive.
Store location
Good store location is fundamental to the success of a fast food outlet. The identified target
market, low income consumers, congregate at taxi and bus ranks on their way to and from
work and these areas will be target sites for the shops. The 8 new mines that are to be
established at various sites will employ thousands of well-paid workers who will be potential
customers on their way to and from work. In the smaller rural towns the outlet will also be
relatively close to residential areas and will be a convenient gathering place. The movable
nature of the container allows them to be quickly and easily situated and established in the
heart of taxi and bus ranks. The shop provides tables and chairs for clients to sit and eat
and a braai facility to braai meat. The Makwinya mobile food trolley gives the shop the
ability to have a mobile kitchen that can manoeuvre close to bus stops schools, factories
etc.
Product range Take away
The nature of the target market and the limited space provided by a container limit the
product range to a number of basic yet popular take away meals. Maize Meal and bread
form the traditional staple. The meals will be Pap n Vlies (beef & chicken stew & curry or
sausage), rotisserie grilled & spiced whole chicken and chicken pieces, Bunny chow (beef &
chicken stew & curry filling), various pre-made pies (King pie) and Makwinyas.
Complimentary products like cold drinks, cigarettes, etc..
enterprise there is no existing brand name, process or style to buy. Franchising has a
number of advantages for the new entrepreneur;
1) It provides training in management, procedures and systems.
2) It provides on-going assistance once the business has started.
3) It provides a marketing and business plan to motivate a loan.
4) It provides generic marketing to increase brand awareness and build.
This low cost franchise has been specifically structured to cater for the needs of previously
disadvantaged rural entrepreneurs and to cater for the unmet needs of rural consumers.
The fast food shop caters for consumers that want to buy fresh meat to cook on site (braai)
or cook at home and consumers that want to grab a bite. It is similar to a butchery, without
the expensive butchery equipment but with a kitchen. The outlet will stock pre-worked and
packed frozen meat products, tertiary products and supply simple fast foods. Meat products
will be kept in chest freezers and displayed in display fridges. Pre-worked meat will be
purchased in bulk and stored at the main depot and delivered to the outlets in a ready to
buy format. This means that the retail shop does not need to process any meat. Rural
consumers have many unmet needs and due to their location they have limited choice and
often have to pay more than other consumers in cities. The Franchise has been created to
meet these needs and provide consumers with a better choice of products. The frozen meat
shop is simply a frozen meat store that sells frozen meat. Meat is prepacked in ready to sell
portions and delivered from the main depot.
Product range Meat portions
On their way home consumers want to be able to buy a quick convenient low cost portion of
beef, chicken & fish meat to take home to cook at home. The meat portions provided are
pre-weighed and packaged for convenience and control purposes. These packs are
displayed in display freezers. The nature of the low cost beef meal portions and pre-packs
means that mainly forequarters will be used. The forequarter is the lower grade and lower
cost meat because it has more gristle, fat and bone and is preferred by black consumers
because of its good taste and value for money. The hindquarter has the steaks and roasts
preferred by white consumers. This fits in well with the abattoir, which can sell high value
hindquarters to upmarket butcheries and the forequarters and tertiary products to the shops.
Other products
The shops will sell a small range of complimentary products cold drinks, milk, bread,
cigarettes, etc.
Other services
The outlets, situated in rural the villages, are also envisaged as a gathering place. A TV and
music will provide for some entertainment. The trolley will roam the streets, attend soccer
matches and stop at schools at break and lunch times.
THE FROZEN MEAT COLD STORAGE DEPOT (FMD)
The concept
The Frozen Meat Depot is a cold storage depot for frozen meats mainly beef, chicken and
fish. The owner /manager will be responsible for developing, supplying and controlling the
franchised Shops and other shops in its region. The more shops it can open the more
turnover it can generate. As turnover is generated so mark-up % can be reduced to allow
the FFS to be more viable and competitive.
Chickens will come in standard packs of whole chickens, pieces, chunks, soup packs and
tertiary packs. There are 2 options for Beef;
1) Option 1 is to receive whole carcasses and to cut, process and package on site. This
is a relatively easy adding value process but it does require tight control, more capital
in equipment.
2) Option 2 is to buy in already cut and packaged potions that are ready to distribute.
This is an easier option but the product is more costly and provides less work
opportunities. It may be advisable to start-up using this option and then to progress
to on-site processing later.
Control
All packs are pre-weighed and invoiced per kg. All deliveries are checked for accuracy
and received weights and output weights provide an accurate control to prevent theft.
Once packaged and stored limited access to freezers will provide control. MIS will
control and reconcile carcass weights in, processed, stored and delivered. The industry
has norms for weight loss due to cutting and evaporation. Each carcass can be
individually processed and the total weight of each cut can be monitored and losses
tracked during the process.
Location
The Depots location is not as critical as the Shops, however, it should be easily visible and
provide easy access. The larger towns that have a high-density population are the obvious
sites for locating the Depots. Polokwane may be able to host 2 depots.
The Depots will also be designed so that as much as possible can to be easily moved and
resold if necessary. The main structure will be a hired permanent building or a modular steel
farm shed cladded with IBR sheets. Modular freezer rooms for holding large quantities of
frozen product, alternatively freezer containers that can be easily removed and relocated
will be used. The processing and packaging room will be a clean area where meat is cut up
and packaged. Each Depot will have a retail factory shop for selling to the public. One side
of the shop will handle bulk purchases and the other smaller retail purchase.
Training
Training forms an essential part of the empowerment process. A full training plan will be
developed to determine the training needs and costs. This estimation will include the
following tasks;
1) Functional analysis and required profiles
2) Profile of employees and future employees
3) Gap analysis
4) Quantification of the training needs, identify trainers and request quotes
5) Preparation of a detailed training budget and implementation plan for submission to
the National Development Agency.
Products
The products traded by the depot will be all frozen meats fish, chicken & Beef (pork &
mutton on order). Beef products will be sub-divided into various cuts each with a different
price. It will do a limited processing into sausage & mince. It will bulk pack cuts for delivery
to its designated FFSs. This will entail de-boning and weighing.
Services
Each Depot will make use of a sub-contracted driver/owner operated insulated delivery
truck to deliver to outlets and its own designated Shops. Initially to reduce costs this
function can be sub-contracted but may be incorporated later. If sub-contracted it does
provide another SMME opportunity for a transport sub-contractor.
Gaining market share

To gain market share in the short term while the retail outlets are becoming established
existing butcheries and shops will be supplied. Breaking into the market to gaining market
share and customer loyalty can be approached in a number of ways;
1) Normally market share is gained over time by providing good value and reliable
service.
2) This can be speeded up by certain pre-emptive moves to speed up the process
these include opening specials (low initial prices), consignment stock (buy now
pay later), and other sales promotion techniques.
3) A display fridge loan system similar to the Coca-Cola and ice cream companies can
be used. A shop will be given a stocked display fridge (consignment stock), which will
be prominently placed. The shop owner must pay for the stock he has sold prior to
new Stock being supplied.
4) A sales person who monitors stock, takes orders, ensures payment and checks on
use of the display fridge will monitor the system. If the shops purchases do not meet
expectations then the display fridge will be removed.
Each of the above-mentioned strategies has initial capital and cash flow implications and
should carefully considered prior to adoption.
One of the fundamental aims of the proposed Integration Strategy is to facilitate the
marketing of primary and processed products. The Depots and the Shops need frozen
meat, which is supplied by the chicken and beef abattoirs, which is supplied by the broilers,
and feedlot, which is supplied by the chick breeders and hatchery and cattle farms. The
feedlot breeders and broilers also need feed, which is supplied by the Feed Mill, which is
supplied by the crop farmers. These Business Units are linked by a market contract to
supply a specific quality at a specific price on a specific date. The Depts. and Shops are the
outlet to final users the consumers and thus they are the main driving force that pulls the
products through the processing and productions phases. They are, however, not the only
outlets. Once a BU has met their contractual obligation they can sell to anyone and if the
supplier does not meet the specifications, quantities and timings of the purchaser they may
purchase from anyone. As good quality meat is specified a Value Chain is created that
demands good quality at every BU and operational level. A major advantage of this strategy
is that it provides the production and processing operations with a captive market for most if
not all their product. A market for the products of the Depots and Shops must be developed
prior the other markets being created. Because the Depots and Shops are developed in
sub-phases with minimal capital invested and thus low risk they are an ideal phase 1. The
marketing thrust of this proposal is thus aimed at the Depots and Shops.
Market Segmentation
The Depots - The marketing strategy has been devised based upon the main target
market. The main target markets for the Depots will be;
1) Retail shops that require good quality and value, delivered, bulk, pre-worked frozen
chicken and fish products or chilled beef products that it can cook, add value to or
portion and sell immediately.
2) Government institutions such as, prisons, hospitals, schools, universities and the
defense force that bulk purchase ready to prepare meats.
3) Hotels, lodges, caterers, restaurants, takeaways, cafs etc.
4) The Depots will have its own shop that will retail to consumers who want to take
advantage of the bulk discounts.
Customer needs Customers within the identified segment prefer lower cost cuts that give
better value for money.
Product The product mix will include pre-packed frozen poultry products (whole chicken,
Individually Quick Frozen portions, soup packs, heads & feet, mala etc.) frozen fish and
beef that has been worked and packed into various cuts and portion sizes (Wors, mince deboned cuts, stew meat, soup meat, brisket steaks, and tertiary products).
Prices Depots will as far as possible, standardise prices by adding a fixed % mark-up.
Prices will be controlled and managed by signage that states prices, a programmed cash till
that utilizes codes for each product and pre-marked packed meat. MIS will reconcile
purchases with sales to track gross and nett profit. To break into the market and achieve
market share low prices based upon cost + 10% will be set for a few months.
Promotion
Advertising Generic radio advertising will be used extensively to create awareness and
promote the image of the new brand, particularly soon after opening. Prominent shop
signage and freezer display signs will be used.
Publicity - will be extensively used to promote the franchise, its Black Economic
Empowerment (BEE) role, ownership structure and potential for SMME entrepreneurs.
Sales Promotion The display freezer system, opening specials, bulk discounts, promos
etc will be used.
Personal Selling - Staff will be well trained in customer relations and provide a fast, friendly
and efficient service.
Distribution
Distribution will be through existing shops and the integrated Shops.
The Shops The main target market for the retail shops are;
1) The lower income consumer that requires a low cost meat portion to cook at home at
their convenience without too much work having to be done on it.
2) The person who wants to buy a fast low cost simple meal on the move.
Generally the target market can be defined as Lower income consumers, situated in
urban and rural areas, that prefer a low cost yet tasty & nutritious meal and meat portion.
Consumer needs Consumer who patronise the Shops will need low cost tasty meals in a
hurry to take-away to eat or to take home to cook.
Products - Fast food products will be low cost simple take away - roasted chicken, pies,
makwinyas, pap n vlies, bunny chow, stews, curries etc. Owner managers will be allowed to
develop and mould their product offering to the target market. Other non-perishable
products will also be sold.
Prices Shops will as far as possible, standardise prices by adding a fixed % mark-up.
Prices will be controlled and managed by signage that states prices, programmed cash till
that utilises codes for each fast food product. Management Information Systems will
reconcile purchases with sales to track gross and nett profit and their respective %s. To
break into the market and achieve market share low prices based upon cost + 10% will be
set for a few months.
Publicity - will be extensively used to promote the franchise, its BEE role, ownership
structure and potential for SMME entrepreneurs.
Sales Promotion Opening specials, promos on various meals, music, TV, braai facilities
and eating tables will be used.
Personal selling Staff will be well trained in customer relations and provide a fast and
friendly efficient service.
Distribution
Distribution will be through existing shops and the integrated Shops.
CAPITAL
The phased development strategy allows the Depots & Shops to be established with
minimal capital investment. The pilot Depots will utilise leased property and buildings.
Freezers and equipment will be financed to reduce initial capital costs. The pilot Depots and
Shops must be successful prior to further development. Capital to fund these projects will
have to be raised from financial institutions (loan or grant), the Public and Private Sector
investors.
MANAGEMENT AND MANAGEMENT TRAINING
Management consists of Planning, Organising Implementing, Leading and Controlling.
Good management is fundamental to the success of each Business Unit. Phase 1 the
establishment of the Depots consists of a number of sub-phases. The installing and training
of Depots managers is sub-phase 1 of phase 1 of the integration process. A panel will select
prospective owner/managers in a transparent, standardised and accountable manner with a
laid out policy. A policy point for selecting Shops and Depot manager/owners will be to
empower those without financial security and independence and not to enrich those who
are already financially secure. Owner/managers will not have other interests and will be full
time managers and may not sub-let or contract out management.
Management of the Depot and manager training:
The Co-ordinating entity will advertise for and select suitable prospective managers for the
FMD. The selection process will be standardised, transparent and equitable and will based
upon the following using a point scoring system for ;
Education, Experience, Communication skill, Gender, Capital to invest
A short list of prospective managers will be selected from the 8 largest centres in the
province (2 from Polokwane) and trained using theory and on the job training. To become a
manager the course has to be passed. The first FMD will be a pilot SBU and a training
ground and the manager trainees will be the workers. Each will rotate through the different
positions to get experience in each phase of the enterprise. The co-ordinating entity will
provide the interim management for the FMD. Once the depot is operating at a sustainable
capacity the best prospective manager for Polokwane is selected to take over under the
watchful eye of the co-ordination entity. As each new depot is opened in a new area the
trainee from that area will be appointed as manager. The same procedure is followed for the
next manager and so on until all managers are in place. The procedure is not time
dependent but profit dependant. As each manager becomes comfortable with his operation
so the co-ordinating entity withdraws and relies on occasional visits and detailed
management information systems (MIS). As the co-ordinating entity withdraws from the
FMD they start the process of establishing the FFS within the FMDs area.
FIG 8
FROZEN MEAT DEPOT LAYOUT PLAN
BEEF
FREEZER
CHICKEN
FREEZER
FISH &
TERTIARY
FREEZER
D
E
L
I
V
E
R
I
E
S
45M

WORK TABLES
WORK TABLES
WORK TABLES
OFFICE
FRONT SHOP
DISPLAY
COUNTER
ENTRANCE
Management of the FFS:

Promotion
Advertising Generic radio advertising will be used extensively to create awareness and
promote the image of the new brand, particularly soon after opening. Prominent shop
signage and freezer display signs will be used.
The Co-ordinating entity will advertise for and select suitable prospective managers for the
FMD. The selection process will be standardised, transparent and equitable and will based
upon the following using a point scoring system for ;
Education
Experience
Communication skill
Gender
Capital to invest
A short list of prospective FFS managers will be selected from the Polokwane area and
trained using theory and on the job training. A Pilot FFS situated in Polokwane will be used
as the training site. Trainee manager will be the initial workers and each will rotate through
the system. To become a manager the theory and practice course has to be passed.
Once trained by the co-ordinating entity each FFS manager/owner will be set-up in their
own town with their own shop. The co-ordinating entity and FMD managers will be
responsible for monitoring the FFS progress within their area. The co-ordinating entity will
install MIS systems for the control of the FFS and monitor these shops until they are in a
comfort zone and the FMD managers can service and control the shops in his area. At this
stage the co-ordinating entity appoints a FMD & FFS co-ordinator that focuses of the FMD &
FFS the entity then withdraws their presence from the FMD & FFS and starts to focus on
the establishment of phase 2, the beef processing SBUs, while never taking its eye off the
driving force the FMD & FFS.
SOCIO-ECONOMIC
It is not within the scope of this strategy proposal to quantify the socio-economic benefits of
a successful integration process. However, it is common knowledge that the present status
quo of the population in the province is a massive financial burden on the state and
ultimately the taxpayer. Any attempt to provide sustainable socio-economic benefits should
be encouraged. A main thrust of this initiative is to provide sustainable socio-economic
benefits at as low a cost as possible. To be sustainable each shop, depot or SBU must be
profitable within a short a time as possible. It is impractical to assume that every shop or
SBU will be a resounding success, more than 50% of all small SMMEs fail within 3 years
and this is part of capitalisms intrinsic selection and education process. However, the coordinating entity will be able to minimise this occurrence by correct manager/owner
selection, training, MIS, quality control and early intervention when necessary. Each SBU
should be considered speculative and not another handout a Use it or loose it policy
will prevail. All SBUs will have to make a contribution once they have received a benefit.
Emerging entrepreneurs need to learn the hard way but with support and mentorship. The
country, province and PDIs need a success story. The proposed strategy is a possible
formula for success but the participants who partake of this strategy are ultimately
responsible for their own fate.
The proposed strategy has a diverse range of possible socio-economic benefits ranging
from capacity building to environment issues. It is impossible to estimate the final number of
direct and indirect beneficiaries from such a deep integration strategy. A ROM estimate
indicates that if the integration process is complete and goes as far back as crop production
then more than 10,000 souls could benefit either directly or indirectly;
1) Theoretical and practical training at all levels in all SBUs.
2) SMME and farming opportunities.
3) Employment opportunities
4) Many potential spin-off enterprises.
5) Better use of state projects.
6) Genetic improvement of livestock.
7) Environment friendly and GAP.
8) Economic empowerment
9) Financial and food security
10) Stop the cash drain from state projects
ENVIRONMENTAL IMPACT
For any strategy to succeed it must be environment sustainable. Phase 1 of the strategy is
urban based and little or no environment impact is envisaged. No harmful emissions or
waste products are manufactured. Waste disposal, although minor, will rely on existing
services within the urban area. Phase 2, the processing phase, will include the construction
of a beef abattoir that will need an EIA prior to establishment. The proposed site is
Lebowakgomo or Polokwane Industrial sites and water borne sewerage and storm water
drains must be investigated. The proposed production phases of feedlot, cattle and crop
farms will need an EIA prior to establishment. The production phases will be situated in
sparsely populated rural areas zoned for and approved for agriculture production
INFRASTRUCTURE AND LOGISTICS
Phase 1, the FMD and FFS, will initially make use of rented buildings with new or used
equipment. Subsequently it will make use of or newly constructed and manufactured
infrastructure. Phase 2, the processing phase, will use of both existing and new
infrastructure. The existing Mashashane breeder, hatchery and Qlity Chicks abattoir
facilities will be utilised. A new broiler facility, feedlot and beef abattoir will be erected.
Existing projects will be converted into large cattle and crop farms. The logistics of the
proposed strategy are normal manageable operational logistics that any similar enterprise
would experience and there are no factors beyond the capacity of the proposed SBUs or
their manager/owners. Transport between BUs is a major spin-off that can be subcontracted or done by each BU with financed vehicles.
KEY RISKS
A fundamental characteristic of the proposed strategy is to reduce risk while maximising
financial and socio-economic benefits. One can argue, due to the current socio-economic
costs of unemployment and redundant state projects that are a drain on the state coffers,
that the biggest risk lies in not doing anything. The proposed strategy is a number of
integrated commercial SBUs each with inherent commercial financial risk factors and each
one should be considered speculative. Although commercial by nature, the proposed
strategy is a development BEE project that can benefit from certain risk reduction tactics;
1) Grant training funds will be sourced from the NDA.
2) Local and overseas donors will be requested to assist with capacity building,
development and working capital.
3) Investors will be invited to invest and be Strategic Partners that bring capital,
expertise and private sector drive and form JV with employees and communities.
4) Existing low cost state infrastructure and land will be utilised at processing and
production levels.
5) Selection of the right personnel
6) The training levels of the personnel
7) The organisational and ownership structure, which will incentivise employees and
managers.
8) The on-going MIS, quality monitoring and control, intervention, support and
mentorship from the co-ordinating entity.
The FMD Industry A number of wholesale type FMD have been established recently. The
electrification of rural areas and purchasing of freezers and fridges has contributed
significantly to the growth of fresh and frozen meat purchasing. The FMD is a relatively low
risk business that can be operated easily and efficiently with a small work force. Mark-up is
usually between 30% 40% but varies from portion to portion and time of month and year.
The FFS Industry The fast food and convenience food retail industry is growing year on
year as more households are pressurised into convenience shopping. In rural areas many
employees work some distance from their home and buying and eating food on the move at
taxi ranks and bus stops has become the norm. On the way home many consumers buy a
loaf of bread and some meat as relish to take home to cook. The emphasis is on value for
money, fast and convenient foods. In the lower segment of the market FFS will have to
compete with the informal sector that has low overheads.
The FMD & FFS in the economic environment The reduction in disposable income of
consumers has generally badly affected many retail sectors. However, people have to eat
and consumers continuously look for the best deal. Factors such as gambling, lotto, cell
phones, expensive cash loans and funerals have been cited as the main reasons. The food
industry has seen a reduction in demand for high cost fancy foods and a move to basic
staple low cost value for money food. Food however is an essential product as every
person must eat it is the buying pattern that is changing and the FFS will position itself to
take advantage of this phenomena.
SWOT Analysis:
Opportunities The main opportunity lies in the ability to provide customers and
consumers with good quality low cost value for money convenient ready to cook meat or a
tasty and filing meal on the move. Positioning at taxi & bus stops is important. The relative
low cost of the franchise reduces overhead costs and this allows the benefit to be passed
on to consumers. The integrated nature of the operation has quality, supply and cost
benefits. Being a BEE initiative the FMD will benefit from the government preferential tender
formula and will be able to compete with bigger lower cost operations. The province and
particularly Polokwane and towns close to the proposed new platinum mines will enjoy an
increase in household earnings and thus disposable income.
Threats Other entrepreneurs who identify the increased spending power generated by the
new mines and open in competition. The longer-term effect of aids will further reduce retail
spending, as negative population growth in the LP becomes a reality.
Internal analysis:
Performance and abilities The FFS retail shop concept is based upon the well-proven
sound business practices and principles of franchising without the high UFF. The
fundamentals for success are low start-up and overheads, integrated enterprises, keeping it
Safe & Simple (KISS) and the ease of management system and continued support. The coordinating entity has experience in sales, franchising and the retail industry. Technical
support from associates and consultants is readily available.
Constraints The existing constraints are start-up capital and capital for franchisees.
Strengths The main strength of the franchise is its business strategy. Phased
development, Keep it simple and low cost with assistance and support from the coordinating entity. Franchising has proved itself as a means to grow the business and share
wealth with owner managers of the shops. Integration will improve the quality, supply and
cost of critical inputs. All owner managers will be residents in the village where the franchise
is placed. Local knowledge at the retail level is a Key Success Factor (KSF). The business
strategy has many socio-economic benefits particularly the employment and
empowerment of previously disadvantaged people.
Weaknesses The main weakness is the need for borrowed capital, which incurs high
interest costs. This may be overcome by acquiring donor capital or by introducing equity
partners.
Business and ownership structure of the FMD & FFS:

Each SBU will be structured to suit its functionality. A fundamental principle of the business
strategy will be to include managers, employees and franchisees as equity owners.
Franchisees will be owner managers of their own retail shop. Managers and employees will
be rewarded for being productive and for long service by either profit sharing in the form of
performance related incentives or by equity ownership. Equity in the company can be
provided as security for development and working capital loans. Lenders will, during the
period of the loan, be the owners of the company. As the loan is paid up, equity will be
transferred back to company employees and franchisees. A third party (an individual or
organisation) who can provide security to a financial institution for a loan will also hold
equity during the period of exposure and risk. Once the loan is paid off equity will revert to
the managers, employees and franchisees.
FINANCIAL PROJECTIONS, BUDGETS AND FINANCIAL ANALYSIS:
The financial projections for the Management Division, Wholesale Depots and Retail Outlets
are shown as independent enterprises. The farm, feedlot and abattoir will be budgeted for
and assessed separately if and when the production phase is implemented. Certain
conservative assumptions have been made in both the annual budgets and cash flow
budgets. The purchase of all vehicles and equipment has been assumed to be in cash and
it is not financed.
CONCLUSIONS
The province has the economic resources to successfully implement the proposed
Integration Strategy and thereby generated significant socio-economic benefits. The
provinces scarce economic resources need to be protected and deployed in such a manner
that they can provide socio-economic benefits and generate EG & D for the province. In
order to meet the needs of all the stakeholders, whether public, or private the proposed
strategy must be financially sustainable, socially sustainable and environment sustainable.
These are the three pillars upon which EG&D stands remove any one of these pillars and
the system collapses. The proposed strategy, to achieve its goal, needs to be well planned,
financed, implemented and controlled by a co-ordinating entity with the necessary skills and
experience.
REFERENCES
Financial Management in Agriculture - Barry, Hopkins, Baker
Farm Planning & Control Barnard & Nix
Intensive Red Meat Production ARC publication
Strategic Market Management Aaker
Managerial Finance Weston & Brigham
Poultry & Meat Manual Dept. of Environment Health Pretoria Technicon
Feeds & Feeding Cullison

MEAT PRODUCTION, PROCESSING

AND DISTRIBUTION AN INTEGRATED
STRATEGY
A STRATEGY PROPOSAL FOR MULTI-SECTORAL DEVELOPMENT IN THE LIMPOPO

PROVINCE
COMPILED BY:
Ian Macdonald
t/a AGRIMAN & ASSOCIATES
P.O. Box 1078
Louis Trichardt 0920
Tel: & Fax: (015) 5161187
Email: immac@mweb.co.za
October 2002
CONTENTS
ABREVIATIONS AND ACRONYMS
EXECUTIVE SUMMARY
BACKGROUND
PROJECT SCOPE
ASSUMPTIONS AND CONCEPTS
THE STAKEHOLDERS
STRATEGY OVERVIEW
DEPTH AND PHASES OF INTEGRATION
MAIN OPERATIONS AND INDEPENDENT BUSINESS UNITS
PAGE
1
2
14
16
17
18
18
20
21

MANAGEMENT OF THE STRATEGY BY THE CO-ORDINATING ENTITY

THE BEEF MEAT INDUSTRY
BEEF STEEF FEEDLOT
THE CHICKEN MEAT INDUSTRY
FRESH WATER FISH INDUSTRY
FEED AND CROPPING INDUSTRY
FROZEN MEAT DEPOT & FROZEN MEAT SHOP BUSINESS STRATEGY
FRANCHISED FROZEN MEAT SHOPS
FROZEN MEAT COLD STORAGE DEPOT
CAPITAL REQUIREMENTS
MANAGEMENT AND TRAINING
ENVIRONMENTAL IMPACT
INFRASTRUCTURE AND LOGISTICS
KEY RISKS
FINANCIAL PROJECTIONS, BUDGETS AND FINANCIAL ANALYSIS
CONCLUSION
REFERENCES
23
24
28
30
32
32
33
34
36
38
39
40
43
43
43
45
45
45
TABLES & FIGURES

TABLE 1: CONSOLIDATED FINANCIAL HIGHLIGHTSS INTEGRATED
TABLE 2: COMPARATIVE ANALYSIS INTEGRATED vs NON-INTEGRATED
TABLE 3: GANNT CHART
7
8
10
FIGURE 1: LIMPOPO PROVINCE PROJECT SITES

9
FIGURE 2: ORGANISATIONAL STRUCTURE
11
FIGURE 3:THE COMMUNITY PUBLIC PRIVATE PARTNERSHIP
12
FIGURE 4:PRODUCTION, PROCESSING AND DISTRIBUTION OPERATIONS 13
APPENDIX A
LAYOUT PLAN FFS

APPENDIX B
BROILER CHICKEN MARKETING SURVEY

APPENDIX C

FINANCIAL SPREADSHEETS


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1

ABREVIATIONS AND ACRONYMS

Average Daily Gain

Black Economic Empowerment

Cattle Loan Scheme

Economic Growth and Development

Feed Conversion Ratio

Fast Food Shops

Fast Moving Consumer Goods

Frozen Meat Depot

Good Agricultural Practices

Hazard Analysis Critical Control Point

International Standards Organisation

Keep it Safe and Simple

Key Success Factors

Limpopo Dept. of Agriculture

Management Information Systems

National Development Agency

Rough Order of Magnitude

Sustained Competitive Advantage

Small Medium Micro Enterprises

Integrated Broiler Project

Net Farm Income

Previously Disadvantaged Individuals

MEAT PRODUCTION, PROCESSING AND DISTRIBUTION AN INTEGRATED STRATEGY

MEAT PRODUCTION, PROCESSING & DISTRIBUTION AN INTEGRATED STRATEGY

FINANCIAL REQUIREMENTS AND PERFORMANCE

MEAT PRODUCTION, PROCESSING AND DISTRIBUTION AN INTEGRATED STRATEGY

CONSOLIDATED FINANCIAL HIGHLIGHTS - INTEGRATED

Group 1 - Mill, breeders and broilers

Group 2 - Crop production

Abattoir & Processing

Abattoir & Processing

MEAT PRODUCTION, PROCESSING AND DISTRIBUTION AN INTEGRATED STRATEGY

Group 2 - Crop Production

Group 3 - Bee f Production

Beef Abattoir & Processing

MEAT PRODUCTION, PROCESSING AND DISTRIBUTION AN INTEGRATED STRATEGY

MEAT PRODUCTION, PROCESSING AND DISTRIBUTION AN INTEGRATED STRATEGY

MEAT PRODUCTION, PROCESSING AND DISTRIBUTION AN INTEGRATED STRATEGY

INTEGRATED BEEF PRODUCTION

MEAT PRODUCTION, PROCESSING AND DISTRIBUTION AN INTEGRATED STRATEGY

THE CO-ORDINATING ENTITY

Chicken Abattoir &

Frozen Meat Depot

Fast Food Shop

MEAT PRODUCTION, PROCESSING AND DISTRIBUTION AN INTEGRATED STRATEGY

THE STATE (LPDA)

Stop the cash drain

Policies are addressed

MEAT PRODUCTION, PROCESSING AND DISTRIBUTION AN INTEGRATED STRATEGY

FROZEN MEAT COLD

MEAT PRODUCTION, PROCESSING AND DISTRIBUTION AN INTEGRATED STRATEGY

MEAT PRODUCTION, PROCESSING & DISTRIBUTION AN INTEGRATED STRATEGY

DEPTH AND PHASES OF INTEGRATION

General management (Plan, organise, co-ordinate, lead, implement & control)

THE BEEF MEAT INDUSTRY:

MEAT PRODUCTION, PROCESSING AND DISTRIBUTION AN INTEGRATED STRATEGY

STEER FEEDLOT INDUSTRY

2) Feed Margin is positive and market margin is negative

MEAT PRODUCTION, PROCESSING AND DISTRIBUTION AN INTEGRATED STRATEGY

THE CHICKEN MEAT INDUSTRY:

contract growing is practised. Breeders in a ratio of approximately 3 hens to 1 cock are