McCain is one of the largest buyers of potatoes worldwide. In South Africa, McCain is actively looking to build long-term, sustainable growth opportunities, both locally and into Africa by developing new channels for potato and vegetable farmers in the formal and emerging markets.
The Managing Director of McCain South Africa, Rob Stevens, is excited about the farming and farm-to-fork opportunities for frozen potatoes and vegetables in the informal, emerging township market.
“It’s an incredibly lucrative market that the big retailers are trying to penetrate but a completely different supply chain approach is required. All the research shows that the key to this market is in the buying behaviour of the township consumer,” he explains.
“The township consumer in the emerging market in South Africa and other parts of Africa is largely driven by two key aspects: convenience and available cash. So, for example, if you go into Tembisa (a large township on Gauteng’s East Rand) you will find microbusinesses – from tailors to mini restaurants in people’s homes to spazas – are buzzing at all hours.”
Convenience is about operating hours (having access to what you need whenever you need it) and about proximity to your home. Your eatery, restaurant, tailor, shoe repairer and spaza need to be close by. The key here is that when you are constrained by transport and you use taxis or public transport you require these convenience factors.
In terms of available cash, many people in the informal sector live on daily or weekly wages or they earn lower-income bracket monthly salaries. This distinguishes their buying pattern, as Stevens explains:
“In the formal sector, when a shopper buys a pack of nappies, for example, they generally buy in bulk – a pack of 48 or 60 – because they have the cash or credit facilities to do so. The lower income consumer in the township market buys the same nappies but they only buy a few at a time – enough for a day or two.
“The same principle applies to food because of cash constraints and also because many people do not have the fridge or freezer space for bulk storage. Therefore people buy daily.”
McCain SA embraced these factors in their business growth strategy for the emerging, informal township market, which is one of the markets they service in South Africa. The other is the food service market in the formal economy, which includes restaurants and restaurant chains and the retail segment via the major retail chains.
“When we decided hat we wanted to enter the emerging/township market, we undertook substantial on-the-ground research in several of the big townships in Gauteng, Cape Town, Port Elizabeth and Durban. We immersed ourselves in the townships where we spoke to people, we ate with people, and we discussed what works and doesn’t work with shoppers and consumers,” Stevens explains.
“We discussed our farm to fork business with people in the townships; that McCain starts with the farmers who grow the potatoes and vegetables, which we freeze and package straight from the farm. We needed to prove to the business operators of the spazas, food outlets and taverns who sell food that our frozen potato chips and vegetables are preferable because they are pre-prepared, time efficient, the quality is guaranteed and they have a longer shelf life.”
Stevens explains that when McCain entered South Africa in 2000 only 10% of chips sold in restaurants and eateries were frozen. Today, it’s approaching 80%.
“We can demonstrate that in addition to quality and freshness, our products are more cost effective, even though it appears to be more expensive up front. So, for example, you might be paying R30 for 10kgs of fresh potatoes for chips, while we are selling 10kgs of cut chips for over double the fresh potato price. But once you factor in the time it takes to peel the potatoes and the peel wastage, our price is more cost effective. We have repeatedly proved this,” he says.
Once they felt their customer base was in place for frozen potato chips in the townships, McCain found they had to use a completely different supply chain methodology. “You cannot have 30-ton trucks delivering your product to one spaza or tavern; the trucks cannot fit in the narrow streets. You need a one-ton truck that does 30 small deliveries,” Stevens explains.
“We also found out the expensive way that a massive, distribution centre in the townships is not the way to go; you need to approach distribution totally differently. We made the mistake of renting large, on-site storage facilities serviced with admin staff – the traditional overhead structure approach. It was expensive and it did not service or meet the needs of this market. We closed that down and instead, we developed a McCain Micro Distributor network specifically to service the townships, providing the infrastructure for a ready to run business from day one.
Delivers are made to the McCain Micro Distributors from our current main distribution centre on a weekly basis or more if their sales require.
Our micro-distributors drive bakkies and motorbikes that are fitted with cooler boxes, and they make regular deliveries of the packaged frozen potato chips and vegetables to the food outlets.”
The McCain micro-distributors have 200-litre freezers loaned to them by McCain, which they keep at their homes in the same areas as their customers, and where they store the frozen, packaged potato chips and vegetables. McCain trucks deliver to them from our main distribution centre on a weekly basis or more if their sales require it, and they pay McCain on a weekly basis.
Each McCain micro-distributor does approximately 150 deliveries per week. They are paid on delivery – all by smartphone, which is far safer and more accurate. They earn R10 000 to R15 000 a month gross profit and they pay off the loan of the freezer and the bakkie or motorbike to McCain, which amounts to approximately R200 000’s worth of assets, at an affordable monthly amount over three to four years.
In the first half of this year they started with a team of twelve micro-distributors in Gauteng, and they are now rolling out this system at a national level, with plans to develop it into the rest of Africa.
“This system is proving really successful at developing a team of micro-distributors who are entrepreneurs making a decent living while at the same time having the security of being part of McCain.”
They are growing the system in all the big cities and looking for suitable candidates. “One of my colleagues offered the opportunity to a salesperson at Sportsmans Warehouse because he had all the attributes that McCain looks for, in our partner distributors, notably the right energy and attitude,” Stevens explains. “We are proud to say that he now has his own successful business as a McCain Micro Distributor.
McCain and Farmers
In South Africa, McCain currently has 120 contract potato farmers of all sizes – from 10ha to 600ha – from all the provinces. McCain currently has approximately 90 contract vegetable farmers countrywide.
“Some farmers prefer to go it alone because they say they can get better prices on the fresh market. Sometimes they can, because the fresh market prices shift all the time, but what McCain offers our contract farmers is a guaranteed price irrespective of what happens in the market,” explains Stevens who believes the smartest option is for farmers to engage in a hybrid strategy where they have part of their harvest on contract and another part on the open market.
McCain also owns and runs their own potato and vegetable farms, including 500ha of potatoes and 50ha of carrots in the Lichtenburg region. They grow peas and other vegetables in the Loskop region and around Marble Hall where they also have a chilling and pre-processing facility. McCain has four test farms where they test seeds, fertilisers, pesticides and herbicides. The main test farm is in Bapsfontein, between Delmas and Bronkhorstspruit.
Stevens says: “On our McCain farms our harvest months for potatoes is February to May and we store over 20 000 tons of potatoes in very high tech storage facilities in Delmas for six to nine months. Our contracted commercial farmers supply us throughout the year.”
Emerging potato farmers
“We have an incredible emerging potato farmer project in Soekmekaar, which we started in 2013 and which includes potatoes, sweet potatoes, sweet potato plant material production, carrots and sweet corn,” Stevens explains.
“Our top emerging farmers are producing 150 to 200ha per year. They have developed to this point over several years. Some of the farmers started with 10ha and then negotiated rentals with their neighbours or in community-owned lands in order to expand.”
McCain works on a five-year plan with emerging farmers, with the aim of farmers achieving self-sustainability after five years. “After five years of partnering with us they really know how to farm potatoes and vegetables. One of the reasons why so many emerging farmer projects fail is because they have money ploughed into the projects but they are not trained to become commercial farmers. At McCain we are not interested in developing people to become subsistence farmers; we are developing viable commercial farmers who can supply us with potatoes at a fair price – it’s a virtuous circle.
“As part of this, McCain joins hands with Potato SA and other companies, fertilizer and chemical suppliers, to reduce the risks and inputs of emerging farmers.”
As with any form of farming, developing new farms is difficult and expensive, and there are failures along the way. “The drought has been an absolute disaster for many farmers and as a country we need to assist our farmers to pull through this,” says Stevens.
At McCain they use pivots for irrigation but they are researching the most effective irrigation methods with water scarcity being such an issue. Drip irrigation is one of the options.
“Irrigation, as we all know, is expensive and we need to weigh up the input versus the long-term sustainability costs. Fortunately, potatoes are one of the lowest utilisers of water out of all of our major crops.”
Stevens says that southern Africa is fortunate to be amongst the handful of regions in the world that are optimally suited to growing potatoes and vegetables. Our daylight hours and the type of heat we have are some of the factors.
“Our agronomy team has identified the best growing areas in South Africa and we are happy to talk to farmers who would like to find out more about potentially growing potatoes for McCain and also about exporting into Africa and the Middle East. The biggest issue in exporting into Africa is the phytosanitary aspect and we know how to manage this, so if South African farmers want to access these markets then come and talk to us. McCain is all about growth and partnerships.”
Anyone who wishes to find out more about McCain’s micro-entrepreneur and farming opportunities, contact Rob Stevens at McCain:
Tel: 011 856 6000
About Rob Stevens
Rob Stevens joined McCain in 2012. He grew up in Bloemfontein, trained as a chef and worked in the restaurant and food industry for several years, including the Spur group and Tiger Brands. At the age of 30 he decided he needed a degree and graduated with a Bachelor of Economics from Stellenbosch University at the age of 33.
Emerging farmer Elias Monhla from Soekmekaar in Limpopo Province who is working with McCain, hosted a McCain Customer Day on his farm. With him is Jaap Engelbrecht, McCain Manager: Potato Supply.
Emerging farmer Elias Monhla from Soekmekaar is working with McCain. Today, his farm supports 90% of the Soekmekaar community and is a model for future farming projects. Soekmekaar is a small rural village in the Molemole Municipal District, Limpopo Province. Monhla says: “The objective is to produce sustainable, commercial black farmers. McCain is involved with us by transferring necessary skills. As a farmer I tried to go it alone but I did not manage. In the five years of the mentorship programme with the emerging farmers, they teach us everything about commercial farming. This includes financial management, from the cost of the seed to the cost of the entire production. By the fifth year I must be able to stand on my own. They also help us to buy in bulk at an affordable price because we are using their network for the seed, fertilisers and equipment. When you are able to grow your farm, more people are employed, when you employ more people, a lot of families are fed and they can uplift their education and standard of living. The McCain method is not easy but it is the best way to develop a lot of emerging farmers.”
Sustainable Potato Farming
Vegetable agronomy and the transfer of knowledge to contract growers have played key roles in McCain’s worldwide success. Today, approximately 80% of our raw product is supplied by contract farmers, and our role is to share our research, knowledge and expertise with our grower partners to ensure their operations have the least impact on the environment and deliver a quality product and a profitable return. This transfer of knowledge and expertise has helped to develop local economies the world over.
McCain’s variety and agronomy trials help us to improve year on year and we do have promising varieties within the varieties that we trial each year.
The satellite system that we use (Smart sampling) is crucial to our forecasting and crop intelligence model. We started to run trials on two other systems that could prove to be better and are supported by local agents. We will make a final decision on this in 2017.
McCain Food has a Global CSR programme to reduce pesticides, reduce our carbon footprint and promote responsible water use
Focus Areas for the McCain Agri Team:
- High CSR Focus
- Improve Crop Intelligence
- Improve Store Quality
- Remove risk of losses with Bagging System
- Variety Development Plan
- Technology transfer – to improve production (better yields, quality)
McCain continuously increases the procurement of potatoes from emerging farmers and achieved 21,000ton in 2015. The aim was to reach 30% in 2016 but we will only reach this goal in 2018 due to lower field yields that new farmer achieve during their first few years.
Actively assist farmers to reduce the high input costs of potato and vegetable farming by increased efficiencies and improved varieties.
A global company
Rob Stevens explains: “As a global company we cross share all learning with regards to new farming techniques, irrigation, fertilizers etc. Our commercial side of the business is no different – we are in constant contact with our Sister McCain companies around the world and we openly share all new projects. McCain India is an example. India is very similar from a business perspective to ourselves in South Africa and they are very interested in the McCain Micro Distributor Project, about which we are sharing all our learnings.