World Ostrich Association Newsletter No. 74
Included in this edition:
1. Ostrich Value Chain
2. Developments in Southern Africa
3. Access to Markets
1. Ostrich Value Chain
We receive many emails from people asking for assistance when wishing to join the industry – usually as a farmer. The first question we always ask is “what is the scale you wish to enter” is there an infrastructure in place to slip into. If the answer is no sufficient resources are required to build the infrastructure, volume required for viability and market development.
Unfortunately as our industry has developed over the last couple of decades, the approach has generally been to sell a trio or a few chicks to new farmers before the building of sufficient infrastructure to support new producers. Earlier newsletters have discussed the principals and importance of value chains. A new initiative came into being in March that incorporates those principles and illustrates one route to accomplish them.
2. Developments in Southern Africa
Many of you will be familiar with the ostrich operation run by Peter Cunningham in Bulawayo, Zimbabwe. In recent years a project based on this operation has been developed to help small farmers into viable ostrich production in South Africa. They have recently published their business plan and presentation on the internet, the company started trading under the current infrastructure in March. The home page is http://www.khula-sizwe.com. The plan addresses many of the issues required to provide sufficient infrastructure to support small producers. They list the following key points as barriers to entry for small farmers:
Lack of infrastructure & collateral for production loans
Lack of Industry and market information
Lack of technical knowledge and experience
High Industry entry costs
Inability to supply high volumes demanded by the industry
Inability to comply to quality standards and registration requirements for market access
The above list can be consolidated into 3 major areas that we will discuss in this newsletter.
Before investing in ostrich farming or an ostrich project, it is extremely important to know the markets to be serviced as different markets have different requirements relating to such things as:
State Veterinary Requirements
Buyer Veterinary Requirements
Type of Meat Cuts, Skin, Fat etc.
This business plan illustrates just how important knowing your markets is before building the infrastructure. For example their target market is the EU and to supply that market the supplying farms require registration by the EU, so it will be essential to know the regulations prior to construction. You will note the requirement of quarantine pens. These are required in Southern Africa to satisfy the EU in relation to Congo Fever, a tick born infection.
Even when supplying domestic markets only, it will still be essential to know the requirements of the local veterinary authorities and local buyers. Do your buyers require you to be part of an assurance scheme, if they do, what are the requirements? Newsletter No. 55 discussed assurance schemes.
Their excellent graphics illustrate the aspects to support a group of small farmers and explain why it is extremely difficult, if not impossible for those producing small volume to work alone:
Figure 1 - One Farmer working in isolation
Figure 1 illustrates how one farmer working alone produces less volume than many farmers working in collaboration to build volume – figure 2. This principal applies to all aspects of agriculture and not simply ostrich production. However, because ostrich production is new, usually there is no infrastructure already in place to enable new entrants to simply slot into.
Figure 2 - Benefits of Collaboration
Figure 3 illustrates the various aspects required to provide support and achieve economies of scale that are impossible when farmers are working in isolation. Another benefit is the ability to program production through the slaughter and processing plants to enable them to maintain regular throughput.
Figure 3 - Small Farmer Support [Copyright: Khula Sizwe South Africa]
Summarising the different components that working in a collaborative enterprise of small farmers to build a complete value chain:
- Where to sell
- When to sell
- Product Quality
- Practical Support
- Inputs (ostrich)
- Business Type
- Available resources
- Practical Support
- Confidence and Vision
- Business Planning
- Contracts to supply
- Security of inputs
- Budgets and Financial Controls
- Funding Requirements
- Capital for Infrastructure
- Working Capital
- Social Support
The structure of this particular enterprise has been developed to support the development of small farmers, with all the farmers operating as independent enterprises that also have share ownership in the processing company. There are many ways to structure the different elements of a value chain. The important factor is that to start ostrich production, all elements must be in place. If not there must be provision in the business plan to build all these elements and ensure adequate resources for capital investment and working capital before commencement of the project is in place. If there is insufficient capital, as is continually proven over the past two decades, the operations fail. In today’s markets it is very difficult to operate on a small scale in a sustainable manner when working alone in many livestock businesses. Another reason for failure is failing to meet the production targets laid down in the business plan. In this plan any farmer suffering mortality of greater than 30% and a feed conversion ratio greater than 3:1 at 50kgs will be removed from the scheme.
Figure 4 - Generic Ostrich Value Chain
[Click on graphic to view larger picture]
Figure 4 is a generic Ostrich Value Chain, illustrating the components that need to be in place. Some elements, such as crop production can be outsourced. Every single member of the chain is interdependent on the other for the success of the whole. The success of the whole is essential for each member to optimise their return.
Once the infrastructure required to supply the targeted markets is defined, it is then possible to establish the capital investment and working capital required for the various sectors of the value chain. In this structure funding the collaborative approach enables the small farmers to operate independently, but still have a stake in the processing business. This particular business model, with farmers operating on such a small scale requiring movement of chicks and feedlot birds introduces certain management aspects adding additional management costs and biosecurity risks.
In this model all operations are independently owned and financed, with the central trust assisting with the business plan and funding applications. Currently in South Africa there are special funding schemes to support the development of farmers from the previously disadvantaged communities as a result of Apartheid. Each country will have different challenges and opportunities to structure their ostrich projects.
The advice of the World Ostrich Association to any new comers is to ensure the business plan incorporates all aspects of the value chain with the finances in place prior to commencement. We still find a few people being tempted with offers of buy-back schemes prior to the development of the infrastructure and markets. The wording of these schemes needs to be viewed extremely carefully. Do not join any scheme that is based on selling birds to other producers. Production for slaughter birds must be the objective.