The National Agricultural Marketing Council in South Africa had advised that for small scale vegetable farmers to gain entry into the commercial market stream required at least two marketing and transportation centres to be established in each Province. With this in mind, Agri-Africa Consultants was tasked to determine if a sound business case could be made for a Packing and Cooling Facility (P&CF) to be located in the lower Olifants River area of the Western Cape Province.
The predominate crops in this area are grapes, both wine and table. Commercial vegetable production that existed was dominated by approximately thirty vertically integrated greenhouse operations producing for supermarket chains based in Cape Town. The considerably more modest production of field-grown vegetables served the small local market.
After an extended round of gathering information, including several group and individual interviews and an investigation into irrigation infrastructure, two important roadblocks to a P&CF were encountered. The first was a cap on the irrigation water additionally needed to accommodate the increased vegetable production required to take up the capacity of the facility. The second was a reluctance by emerging small farmers to incorporate vegetables into their traditional livestock-leaning production mix. In essence, the viability of a P&CF would depend on the willingness of both emerging and commercial farmers to divert scarce water, land and capital from familiar crops to new, less familiar enterprises.
Three core business questions emerged:
- Do sufficient financial incentives exist for famers to switch, partially or exclusively, to vegetable production?
- What processing capacity (scale) would allow the P&CF to optimise potential throughput against overheads and capital costs?
- What is the minimal size of the investment and the returns offered?
The necessary conditions for an affirmative business case for the P&CF were evaluated by reference to simulation modelling and testing. A number of connected variables, among them anticipated grower margins, yields, throughput, packing/cooling fees, crop selection, costs, were linked through algorithmic formulae to predict outcomes of described scenarios. These scenarios provided essential quantitative guidance, of particular relevance being the returns required to attract investors or lenders.
The same scenario analysis provided qualitative guidance towards a better understanding of the concerns among potential stakeholders, particularly their resistance to change and aversion to risk. The interplay between qualitative factors (lack of grower commitment, unpredictable water supply) and quantitative factors (unattractive commercial returns) made a ‘hard’ business case for the proposed P&CF untenable. A ‘soft’ case could be made, however, for a sectionally designed P&CF, starting small, though more easily expandable, and with access to grant and/or soft loan funding.