Agribusiness is a broad concept that covers input suppliers, agro-processors, traders, exporters and retailers. Agribusiness provides inputs to farmers and connects them to consumers through the financing, handling, processing, storage, transportation, marketing and distribution of agro-industry products and can be decomposed further into four main groups:
- Agricultural input industry for increasing agricultural productivity such as agricultural machinery, equipment and tools, fertilisers, pesticides, insecticides, irrigation systems and related equipment.
- Agro-industry: food and beverages, tobacco products, leather and leather products, textile, footwear and garment, wood and wood products, rubber products, as well as construction industry products based on agricultural materials.
- Equipment for processing agricultural raw materials, including machinery, tools, storage facilities, cooling technology and spare parts.
- Various services, financing, marketing and distribution firms, including storage, transport, ICTs, packaging materials and design for better marketing and distribution
Source: The United Nations Industrial Development Organization (UNIDO), as found at http://agbiz.co.za/about-us/what-is-agribusiness
The changes in South Africa reflect the UNIDO definition. A look at the membership of Agbiz (see “Companies involved” heading) shows a wide spectrum of companies in addition to the former co-operatives, now operating as companies.
International business environment
Over the past few years The World Bank has published two publications, viz. “Agribusiness and Innovation Systems in Africa”, and “Growing Africa: Unlocking the potential of Agribusiness”, emphasizing the critically important role that agribusiness needs to play in Africa’s development.
Agriculture and agribusiness together are projected to be a US$ 1,0 trillion industry in Sub-Sahara Africa by 2030, compared to US$ 313 billion in 2010 , and they should thus be at the top of the agenda for economic transformation and development. Agribusiness can play a critical role in jump-starting economic transformation through the development of agro-based industries that provide much-needed jobs and incomes. Successful agribusiness investments in turn stimulate agricultural growth through the provision of new and expanded markets, and the development of a vibrant input sector.
Source: Dr John Purchase
Local business environment
South Africa has a relatively well-developed agribusiness sector, constituted by a:
- Strong input sector: seed, fertilizer, crop protection and veterinary chemicals, animal feed, packaging, agricultural machinery, fuel, etc. and generally strongly technology-based.
- Strong financial sector: major banks, DFI’s, insurance companies, auditors, agribusinesses, etc.
- Storage, trade and agro-logistics companies: well developed and competitive sub-sector.
- Agro-processing and packaging sub-sector
- Retail Sector, comprising primarily four major supermarkets.
These sub-sectors all play a major role in ensuring that most South African agro-food value chains are, generally speaking, globally competitive, thus ensuring a positive agricultural trade balance and a relatively good level of national food security. As is the practice internationally, South Africa has also embarked on an exercise of mapping value chains, primarily to achieve greater efficiencies, but also to identify specific constraints and to ascertain fair value capture in the value chain by role players.
It is critical that agribusinesses:
- Know their consumers/clients, since major shifts in food demand are taking place
- Provide major value contribution in the respective value chains
- Develop talent/skills of personnel
- Introduce cutting edge technology for productivity and efficiency gains
- Know the rules of the game, and realise these are continuously changing
- Implement cutting-edge management to manage risks, but also to seize the many opportunities at hand
Source: Dr John Purchase
An example of an agribusiness
The VKB Group remains a proud agricultural producer owned business with a dedicated focus to assist farmers, through products and services, with sustainable production of food. Much has been published about the strategic expansion through investments in the food value chain to add value to commodities produced by farmers, focused on our service area.
The financial results of the VKB Group over the last years reflect the company’s ability to keep aligned with the above mentioned strategic vision to unlock cumulative margins in the value chain whilst maintaining our focus on our well-established farming business.
The rapid growth experienced by the Group required a more agile management structure to support the requirements for a higher level of focus and specialization. In order to achieve this, the board of directors approved a structure which allows the specialized management of two dedicated operational business units and one support services business unit.
The one business unit continues to focus on the model inherited from our cooperative history. The financial wellbeing of the agricultural producer remains the key driver for strategies in this division. VKB continues to capitalize on the critical mass gained by the incorporation of NTK Agricultural and the exploitation of value adding synergies within all companies within the VKB Group.
Products and services relevant to this business unit include:
- Production inputs such as fertilizer, fuel, chemicals and seed;
- A wide range of retail products through dedicated retail outlets in Limpopo and Eastern Free State, such as animal feed and -medicine, fencing material, groceries and lifestyle products;
- Marketing, handling and storage of grain;
- Mechanisation equipment, parts outlets and service centres: and
- Financing and Insurance.
A key success driver for the above mentioned continues to be the creation of financial value for producers through a discount incentive scheme based on value of business conducted with VKB on an annual basis.
The second business unit, which is an assembly of industries in the food value chain, focuses and expands – through the maintenance of existing factories and operations – the improvement of efficiencies and continuation of investigations of opportunities generically relevant to the food value chain integration strategy.
The Grain Field Chickens abattoir has reached a capacity of 760 000 chickens that are slaughtered per week and gives significance to the performance of the TripleV animal feed factory in Vrede, which focuses on both the manufacturing of high quality broiler feed for the contracted growers of Grain Field Chickens as well as products that will also start to gain exposure through the TripleV Animal Feed brand in the commercial animal feed market for balanced feed.
VKB also ensures maximum gains for shareholders through the establishment of recognized trademarks and products through retailers countrywide. This includes human food brands like Magnifisan Maize Meal, Grain Field Chickens, MFoods and Farmfields. The same applies to our animal feed brands such as Nu-Pro and TripleV.
The range of basic food produced and reworked by factories within the group is supported by the strategic sourcing, branding and distribution of commodities like rice and beans through a dedicated logistics division under the MFoods trademark.
Free State Oil, a wholly-owned subsidiary of the VKB Group, produces soya oil which remains a sought after product in the general consumer markets as well as soya oil cake, an important raw material protein source in the manufacturing of animal feed for Nu-Pro and TripleV.
The support services business unit keeps the group aligned with the growing need for a specialized, qualified and transformed workforce, efficient IT solutions, financial support and marketing.
This dynamic, revolutionary company continues to gain consumer confidence and market share by underlining our strategic initiatives with our corporate values of transparency, integrity, sustainability, fairness and accountability. This achievement is made possible through continuous investment in programs to improve and train our employees, the strive to maintain a unique, positive customer experience and the building of strong brand awareness through various media platforms.
VKB believes that it all starts on the farm, but also that diversification and integration in the value chain relevant to the products produced in our service area, is the key to success and sustainability in the future. This keeps the company close to its roots, but allows all stakeholders to be positively affected by the way we grow this exciting business in the future.
Source: VKB Group. For more, see www.vkb.co.za.
Agricultural Business Chamber (Agbiz) Tel: 012 807 6686 www.agbiz.co.za
Agbiz strives to support its member organisations by creating an environment within which they are enabled to operate as competitive and innovative business enterprises. Agbiz is affiliated to Business Unity South Africa (BUSA), the NEPAD Business Foundation (NBF), and the International Food and Agribusiness Management Association (IFAMA). It works in association with international organisations such as:
- Business and Industry Advisory Committee to the Organisation for Economic Co-operation and Development (BIAC OECD)
- United States Agency for International Development (USAID)
- Food and Agriculture Organisation of the United Nations (FAO)
- United Nations Development Programme (UNDP)
- United Nations Economic Commission for Africa (UNECA)
Agribook.Digital’s Featured Partners
Oos Vrystaat Kaap (OVK) Bpk – Is an agricultural business that strives to create prosperity and sustainability through: Supply of competitive inputs to agricultural producers; Acquisition, marketing and processing of agricultural products and the Supply of products and services to the broader public.
VKB Group – Focused on progressively managing solutions for the changing and various needs of agricultural producers and related stakeholders.
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