FEASIBILITY STUDY FOR FRUITS AND VEGETABLES PRODUCTION

Tomato Farming Business Plan

APRIL 27, 2020

AFE BABALOLA UNIVERSITY

ADO-EKITI, EKITI STATE.

NAME: Atule Iye Favour

DEPARTMENT: Nursing Science

MATRIC NUMBER:18/mhs02/049

LEVEL: 200 Level

Table of Contents

1. Executive Summary .................................................................................................................. 1

1.1. The Problem ........................................................................................................................... 1

1.2. The Opportunity ..................................................................................................................... 1

1.3. Mission ................................................................................................................................... 2

1.4. Value proposition ................................................................................................................... 2

1.5. Theory of change .................................................................................................................... 2

1.6. Solution ................................................................................................................................... 2

1.7. Social Return on Investment ................................................................................................... 3

1.8. Financials ................................................................................................................................. 4

1.9. Management Team .................................................................................................................. 4

2. Introduction .............................................................................................................................. 5

3. Operational Summary .............................................................................................................. 6

3.1. Organizational Structure ......................................................................................................... 6

3.2. Value Proposition .................................................................................................................... 6

3.3. Business Model ........................................................................................................................ 6

3.4. Profit formula (Unit Economics) ........................................................................................... 13

3.5. Measuring results ................................................................................................................... 14

4. Market Analysis ...................................................................................................................... 17

4.1. Industry analysis ................................................................................................................... 18

4.2. Our competitive edge ............................................................................................................. 21

4.3. Risk Analysis ......................................................................................................................... 21

5. Strategy for Growth ............................................................................................................... 24

6. Management Summary .......................................................................................................... 26

6.1. Management team .................................................................. Error! Bookmark not defined.

6.2. Advisors .................................................................................. Error! Bookmark not defined.

6.3. Personnel Plan ....................................................................................................................... 29

7. Financial Plan ......................................................................................................................... 30

7.1. Revenues ................................................................................................................................ 30

7.2. Expenses ................................................................................................................................ 31

7.3. Net surplus ............................................................................................................................. 31

7.4. Quarterly statement of income ............................................................................................. 31

7.5. Annual cash flow statement ................................................................................................... 32

7.6. Capital Requirements ............................................................................................................ 32

2

1

CHAPTER 1

EXECUTIVE SUMMARY

1.1. The Problem

Nigeria is simultaneously the world’s 13th largest tomato producer and the

world’s largest importer of tomato paste. Although approximately 200,000 Nigerian

farmers grow over 1.5 million metric tons of tomatoes every year, half of their harvest is

lost before reaching the market, and the remaining 50% is subject to significant downward

pressure on price due to common gluts in the markets and the perishable nature of the crop.

Farmers, who are among Nigeria’s most financially vulnerable population, bear the burden

of both these post-harvest losses and this price uncertainty. Smallholder tomato farmers

lack access to a consistent, large market for their produce, rendering them unable to

consistently make a profit and dis-incentivized to increase their yields or change their

farming practices. As a result, domestic supply cannot meet local demand for fresh

tomatoes, which exceeds 2 million metric tons or $2.5 billion annually. The country

supplements local demand for fresh tomatoes with $360 million (over 300,000 metric tons)

of imported tomato paste annually.

Nigeria is t he most populous country in Africa and the seventh most populous in the world

– its population is expected to grow from 170 million today to over 440 million by

2050. This has grave implications for the country’s food security situation, given

that it is heavily dependent on food imports. If global food prices were to spike and drive

up the price of imports, as they did in 2007-2008, Nigeria would struggle to feed its

population.

1.2. The Opportunity

A well-located, commercial tomato processing operation focused on continuous production

rather than absorbing seasonal harvest gluts can increase incomes over five times for

participating smallholder farmers, who comprise 75% of Nigeria’s workforce.

The Nigerian Federal Ministry of Agriculture and Rural Development has made a

commitment to improve farm-to-processor links in the tomato value chain, but no business

2

has yet developed a viable, sustainable model to competitively aggregate, process, package

and sell tomato paste domestically. Our model links farmers directly to paste production,

simultaneously reducing poverty for small holder farmers, who are among the country’s

most vulnerable population, and decreasing Nigeria’s dependence on an imported food

product that is a dietary staple in Nigerian cuisine

1.3. Mission

Tomato Jos is an agricultural production company that believes in the power of farming

and processing local food products for local consumption. Our mission is to make tomato

production a sustainable, profitable business for

Nigerian farmers.

1.4. Value proposition

Value to farmers: we give farmers the tools and

the incentive to sell a greater proportion of an

increased tomato yield at a consistent, fair price.

Value to consumers: we provide consumers with

access to domestic tomato paste that matches the quality of imported products at a lower

cost.

1.5. Theory of change

If we can connect Nigerian farmers to domestic consumers of processed tomato products,

we will improve the lives and incomes of smallholder farmers, provide more non-farming

job opportunities for the increasingly urban population, and increase the stability and

sustainability of the food supply in Nigeria.

1.6. Solution

Substantially improving the livelihood of smallholder tomato farmers requires moving

multiple metrics simultaneously. Farmers must be able to sell more of their product, by

increasing yields and reducing post-harvest losses; they must be able to capture a greater

amount of the value of their harvest; and they must be less vulnerable to seasonal price

3

fluctuations. To make this possible, Tomato Jos embeds farmers’ production within

a supportive, self-contained agribusiness ecosystem focused on local production,

processing, distribution, and farming practice improvement.

At scale, Tomato Jos will operate three business lines: (1) Farm and agricultural center with

farmer education and bundled inputs to help smallholder farmers grow and harvest crops

more efficiently;; (2) Logistics and supply chain support to navigate the “last mile”

to smallholder farms and safely bring produce to the processing facility; and (3) Food

processing and packaging facility that prepares finished goods for distribution in Nigeria.

As the business attains profitability, Tomato Jos will consider options to reinvest a portion

of profits into expanded agricultural support programs for farmers in the surrounding

community. Through investment in the community, we hope to further align farmer

outcomes with the success of our venture and improve the lives of smallholder farmers and

the competitive landscape for local agriculture, translating into future returns for the

business.

1.7. Social Return on Investment

Tomato Jos will have a large positive impact on Nigeria’s agribusiness sector, the

social fabric, and overall economy by ultimately achieving the following:

● Increase revenues from tomato sales five times for participating smallholder farmers

by year five.

● Create a demonstration farm that actively spreads agricultural best practices to the

surrounding community.

4

● Provide a consistent market for approximately 1,000 farmers within our network by

year five.

● Link farmers to markets and strengthen value chains through logistics systems that are

able to navigate the “last mile” to smallholder farms.

● Improve access to the appropriate quantities of fair-priced inputs such as fertilizers and

high-yielding seeds through bundling and pooled procurement.

● Reduce financial risk from volatile crop prices by offering forward purchasing

agreements.

1.8. Financials

Tomato Jos follows a low margin, high volume base of the pyramid model where profit is

driven by both scale and technological innovation to control costs. We project that Tomato

Jos will become profitable within three years of launch following investment focused on

expanding the farmer network, our nucleus farm and expanding tomato paste processing

capacity. Over this period we anticipate that Tomato Jos will undergo two key capital

raises: a $500,000 in seed equity in the first quarter of year two to fund our Nigerian nucleus

farm expansion, launch the Dami system and begin processing tomato paste. Following the

successful scale-up a $3,000,000 growth equity subscription in quarter one of year four is

required to fund expansion of the business model. Once Tomato Jos reaches scale we

believe that profit margins will approach 15%.

1.9. Management Team

Our four founding members have over 10 years of combined work experience in Africa,

with professional and educational backgrounds that span agribusiness, logistics and supply

chain management, consulting, finance, marketing and business development, investment

management and nonprofits.

Mira Mehta, CEO: Two years’ investment management experience, four years at

Clinton Health Access Initiative (CHAI) solving HIV-related operational and supply chain

problems in Nigeria.

5

Nike Lawrence, COO: Five years’ investment banking research, one year at Acumen

Fund building agriculture and healthcare pipelines and portfolios in Liberia, Sierra Leone,

and Ghana.

Shane Kiernan, CFO: Three years’ investment banking / management experience, two

years at CHAI assisting national governments to secure financial resources for national

health systems.

Jared Westheim, CTO: Three years’ healthcare consulting experience, three years at

CHAI and Technoserve implementing international development and agribusiness projects

in Africa.

CHAPTER 2

INTRODUCTION

In Nigeria many farmers complain of having to borrow at 100% interest rates from local

lenders to buy seeds and fertiliser. And once the tomatoes have been harvested, local

producers have limited access to consumers in cities such as Lagos and Abuja.

Furthermore, with labour and raw inputs scarce, mechanisation often

limited and weather patterns increasingly unpredictable, small-scale farmers like Kutumbi

can struggle just to break even.

Tomato Jos wants to change the lives of smallholder farmers like Kutumbi by improving

access to education around best practices, increasing access to high-quality inputs, and

enabling access to end consumers. Farmers selected to work with Tomato Jos receive seeds,

fertiliser and other resources on interest-free credit. They are trained by agronomy

managers who help monitor the progress of their tomato field and Tomato Jos buys their

produce at market price, thereby securing tomatoes for its processing plant.

Farmers like Kutumbi previously yielded 7 metrics tonnes of Tomatoes per hectare that

could sell for around $1000 at the local market. Now farmers utilizing the Tomato Jos

6

model can increase their yield to 26 metric tonnes per hectare reaping more than $5000

from selling to Tomato Jos for tomato paste processing.

“This is still a new thing," says Kutumbi cautiously, "I hope it will work because

if it does, it will help me, my family, and our community. Things could be much better

than before," he continues, "and maybe if my children see farming can be profitable, they

will even want to stay and be farmers too!"

CHAPTER 3

Operational Summary

3.1. Organizational Structure

Tomato Jos plans to operate as a for-profit entity.

3.2. Value Proposition

Operating a vertically integrated tomato processing business enables end-to-end control

and allows Tomato Jos to add value both to farmers on the upstream side and end customers

downstream.

Value to farmers: we give farmers the tools and the incentive to sell a greater proportion

of an increased tomato yield at a consistent, fair price.

Value to consumers: we provide consumers with access to domestic tomato paste that

matches the quality of imported products at a lower cost.

3.3. S Business Model

7

How Tomato Jos Generates Revenue

At scale, Tomato Jos will generate revenue by manufacturing tomato paste, branding and

packaging it, and selling it directly to two major supermarket chains, Shoprite and Spar,

and indirectly to open-air markets through regional distributors. Approximately 55% of the

tomatoes used for paste production will originate from farmland directly operated by

Tomato Jos (“the nucleus farm” or “the nucleus estate”), while the remaining 45%

will be purchased from smallholder farmers (“the network”) operating within a

20mile radius of our production facility (“the factory”).

The profitability of our company depends on our ability to run the factory at minimum

capacity over the course of the tomato harvesting season - because tomatoes are fragile and

spoil within 1-2 days of harvesting, a constant supply of tomatoes must be delivered to the

factory every day. We believe that the best way to generate this constant supply of high-

quality tomatoes while remaining asset light is through a “nucleus estate” contract

farming model. The nucleus estate contract farming model is common for tomato

processing facilities in the US and China, the two leading countries for tomato paste

production, and the characteristics of this model are defined by the Food and Agriculture

Organization of the United Nations (FAO) as follows:

● Involves a centralized processor and/or packer buying from a large number of small

farmers

● Vertically coordinated with quota allocation and tight quality control

● The sponsor also manages a central estate or plantation

● The central estate is usually used to guarantee throughput for the processing plant

and is sometimes used for research as well

● Involves a significant provision of material and management inputs

The Nucleus Farm

In its first year of operation, Tomato Jos will establish a 3 hectare nucleus farm in order to

prove that tomato yields in Nigeria can be improved from 7 MT/Ha to 30 MT/Ha over the

course of one year, solely by using high quality seeds and fertilizer, and by making basic

improvements in farming techniques. In order to comply with government regulations,

8

which have barred the use of genetically modified (GM) seeds, Tomato Jos will source

only hybrid seeds, which are created through farm-based cross-pollination of two different

plants rather than the lab-based genetic modification.of a single plant’s DNA.

At scale, Tomato Jos plans to operate a nucleus estate with a 10 hectare

“best practices” greenhouse and a 500 hectare open-air farm that yield 150 MT/Ha

and 75 MT/Ha, respectively. These facilities will be used to guarantee a minimum

throughput for the factory, train farmers in the network on farming best practices, and

conduct ongoing research on tomato harvesting.

The Network

In year two, Tomato Jos will recruit its first

cohort of farmers into the network, which

will comprise 60 hectares. By year five, the

company will work with a network of

farmers operating on 1,000 hectares.

Although formal market surveys have not

been conducted, primary information

gathered from farms, villages, markets and

distributors during the team’s visit to

Nigeria in March 2014 suggests that our

principal customers are smallholder farmers who grow for the market. The average

smallholder tomato farm size in Nigeria ranges from 1-2 hectares. A few large-scale

farmers plant from 10 to 200 hectares of tomatoes, leaving the overall average tomato field

size at 1.5 hectares.

For our first farmer cohort, we will rely upon our existing local partners on the ground, a

cooperative of mid-sized vegetable farmers, to refer us to smallholder farmers whom we

can interview and vet in the first year as we set up the nucleus farm. As we scale, we expect

though that our greatest product champions and advocates will be the farmers in our

9

network. A successful Tomato Jos network farmer who has been using Tomato Jos inputs

and best practice methods will be able to demonstrate within his own social network the

financial and labor benefit associated with our model. For our most successful and

enthusiastic farmers we will have them hold field days at which all farmers in the village

and the community can be invited. At these field days the appropriate Tomato Jos

agronomy manager will be invited to speak at the field days and explain how our

partnership works.

Following up on these leads is the role of our agronomy managers who are vital to the

continued expansion of our network farmer model. It is the agronomy managers who are

responsible for applying the Tomato Jos evaluation criteria to prospective farmers to

determine their suitability to work with Tomato Jos. Other engagement mediums

(advertising, radio, billboards, print, social, local sponsorship, etc) will be evaluated on a

case-by-case basis to determine the suitability of each mode of communication.

The Dami System for Continuous Improvement

Tomato Jos will offer a complete bundle of services called a “Dami” (which

means “bundle” in Hausa, one of the main languages spoken in Nigeria) to help

all farmers in the network achieve a yield of 30 MT/Ha. In general, all of the farming

inputs and capital equipment that Tomato Jos sells to farmers in the network will be sold

without making a profit; that is, we will sell these items to farmers at our own purchase

price. The Dami consists of four main components:

1. Improved Inputs: Sell high quality seeds, fertilizer and pesticides at our purchase

price, in bundled packages so that farmers can easily determine how much of each item

to use.

2. Training Support: Educate farmers on tomato-farming best practices through

NGOdeveloped curricula and hands-on training at the nucleus farm.

3. Forward Contract Financing: Specify a price in advance of the growing season for

delivery of a specified quantity of tomatoes, reducing farmers’ exposure to

seasonal price fluctuations and guaranteeing a market for increased yields.

10

4. Guaranteed Market and Transport for Produce: Establish a processor on-site that

will absorb all surplus production at a reliable price and manage transport from farm to

factory.

Once farmers in the network are able to achieve a yield of at least 30 MT/Ha consistently

over three harvesting cycles, they will be classified as “bronze level” farmers.

Tomato Jos will support its bronze farmers to make further gains in yield by selling them

highquality drip irrigation systems at our own purchase price.

In the US, where open-air farming is the main technique used to grow paste tomatoes, drip

irrigation systems have been known to increase yields by a factor of 50%. As such, farmers

in the network who are able to achieve a yield of at least 45 MT/Ha consistently

over three harvesting cycles will be classified as “silver level” farmers. Tomato Jos

will support its silver farmers to make further gains in yield by selling them the materials

needed to build a greenhouse at our own purchase price.

Farmers in the network who are able to achieve a yield of at least 80 MT/Ha consistently

over three harvesting cycles will be classified as “gold level” farmers. As

the most advanced and motivated farmers within the network, and also (by default) as

the farmers with the longest relationship with our company, the gold farmers will be

eligible to participate in the Tomato Jos paste franchise program. This program enables the

gold farmers to procure low-volume paste production equipment and produce tomato paste

for resale to Tomato Jos, which will package, brand and sell this paste alongside the paste

produced in the factory.

In this way, over a period of three to five years, Tomato Jos will transform the most

dedicated and motivated farmers into entrepreneurs who create non-farm jobs in their

communities and are able to capture a larger portion of the tomato value chain by selling

paste rather than tomatoes.

11

Transporting Tomatoes from the Network to the Factory

To transport the tomatoes from our network farmers and the nucleus farm to the processing

facility we will use a fleet of leased trucks. A typical tomato truck holds 22 M/T of

tomatoes, which is about 300,000 tomatoes. We anticipate a need for one truck in year one

and scaling to 20 trucks by year 5. An additional benefit to leasing the vehicles is the benefit

of a maintenance program and the not requiring the capital expenditure and depreciation

associated with owning the vehicles.

Running the Tomato Paste Processing Facility

The tomato paste processing facility enables Tomato Jos to transform highly perishable,

raw tomatoes into long-lasting, higher-value tomato paste, and as such it will always play

a large role in the ongoing operations of the company. During the paste production season,

which is expected to reach 6 months by year five, the factory will run continuous

production to minimize tomato wastage and maximize power efficiency. The biggest cost

associated with running the factory is power, for two main reasons. First, the “hot

break” equipment used in the critical evaporation stage of processing requires constant

nearboiling temperatures. Second, Nigeria’s unreliable national power grid will

require Tomato Jos to run the plant with diesel rather than electricity up to 75% of the

time.

Tomato Jos has opted to invest in medium-capacity infrastructure for the factory for three

major reasons. First, the overall capital outlay is much smaller for medium-capacity

equipment than for full-scale equipment; second, the modular approach allows us to scale

manufacturing capacity in sync with the growth of the nucleus farm and network; and third,

in order for Tomato Jos to work closely with golden farmers to set up satellite processing

facilities, our company needs to have a clear understanding of equipment that the golden

farmers will use. Staffing requirements will vary based on whether or not the factory is

producing paste. Year-round staff requirements include a plant manager, engineers to

maintain and service the equipment, and a skeleton crew of 5 to 8 additional workers.

During paste production season, the employee requirement increases significantly for both

skilled and unskilled labor, from 8 and 10 to 18 and 75, respectively.

12

Marketing Paste in Domestic Channels

Lastly, Tomato Jos will secure an end market for our local brand of tomato paste. Our

approach will be two-pronged: first we will ensure the offtake of our packaged output to

large retail centers, and second our traditional marketing efforts will drive consumer

purchases of our unique product.

1. Get Tomato Jos products on shelves. Initially, we plan to sell Tomato Jos

products to both large supermarket chains and traditional open air markets. The two largest

supermarket chains in Nigeria are Shoprite and SPAR, which is the world’s

largest food retailer. Both Shoprite and SPAR are large enough that they contract and

purchase local food products directly from local manufactures without going through a

distributor. Tomato Jos will use its fleet of trucks to deliver products directly to the

supermarkets, thereby preserving margin for us and the supermarkets.

While we expect that our initial placement with these supermarkets will be on a trial basis,

once we demonstrate consumer demand, we intend to secure long-term, yearround delivery

contracts with each of these chains for each of their 16 locations throughout the country

(as of 2013).

Despite any success that we have with Shoprite and SPAR, we plan to diversify our

distribution channels to traditional open air markets because only 5% of food in Nigeria is

retailed through supermarkets. Tomato Jos’ fleet will transport our product to

centralized, large open air market distributors based in Abuja and Lagos. From there, these

distributors will ensure that our product makes it to the largest open air markets in the

largest cities in the country. While the price for fresh vegetables fluctuate in the open air

markets, the price for our product and other packaged goods in the market remain fixed.

The largest driver of costs to be successful in placing our product on retail shelves will be

13

the transportation costs, namely the diesel, required to truck our product to the various

supermarket chain outlets.

Our current product (70g sachets of tomato paste) is the most commonly purchased size of

tomato paste in Nigeria’s retail market. However, over time, we plan to extend

our distribution model into the food services industry, supplying larger drums of tomato

paste to the food services market (i.e. restaurants and hotels).

2. Drive consumer purchases. We will drive consumer purchase by promoting a

brand that is high quality and uniquely Nigerian. Our branding strategy will be to target the

lower-, middle-, and upper-income market segments as they all purchase and use tomato

paste for everyday meals.

Tomato Jos will rely on very frequent traditional marketing methods, such as radio

advertisements, billboards, and taste tests on-site in supermarkets to drive first time trial of

our product. We also plan to get state and federal level government endorsement of our

product as a product that is 100% made and packaged in Nigeria. We will encourage repeat

trial of the product by linking purchase of the product directly to the farmers in our program

via advertisements and social media.

The social media portion of our branding strategy will involve launching pages on

Facebook, Twitter, etc. and sharing stories of our farmers on a regular basis.

The largest cost driver for this piece of our operations will be the traditional marketing

spend on advertising space as we plan to flood the market with our unique positioning early

and often.

3.4. Profit formula (Unit Economics)

Tomato Jos expects to produce over 6 million 70 gram sachets of tomato paste in year two

and over 100 million sachets in year five. From our primary research in Nigeria, we know

14

that these 70 gram sachets are the most popular size with consumers and sell in the market

for 40-50 Naira per sachet.

Using this retail-selling price as a starting point we work backward to assume that the retail

margin is 40% of the selling price. Our COGS represent 30% of the cost with our margin

and other expenses accounting for the remaining 30%.

3.5. Measuring results

We measure our success in terms of financial returns, agricultural output as well as social

impact achieved, and will continually measure our progress in these areas. Management

will be held accountable to specific financial, agricultural and social indicators, and their

performance will be evaluated regularly.

Our Farmer performance record (annex 8) provides the ability to track detailed agricultural

and social metrics, which will be reported to investors, partners and other stakeholders on

a regular basis. Tomato Jos will provide social value to our partner farmers in several ways.

In the first three years of operations we will focus on improving yield per hectare and

reporting impact in the following key areas:

15

Increase in crop cycle income

Our most readily quantifiable social impact is the increase in the Gross Margin achieved

by farmers. This is the difference between the Gross Farm Income (GFI) and the total

variable cost (TVC). Tomato Jos will use this technique to track and determine the cost

and return associated with tomato production for our farmers. It is mathematically

expressed as; GM = GFI – TVC

Where;

GM = Gross Margin (Naira/Ha)

GFI = Gross Farm Income (Naira)

TVC = Total Variable Costs (Naira/Ha)

And

NFI = GM – FC

Where;

NFI = Net Farm Income (Naira/Ha)

TFC = Fixed Cost (Naira/Ha)

Other financial metrics we will track include:

Gross Ratio: is the total cost of production divided by the gross revenue. A less than 1

ratio is desirable for our farmers. The lower the ratio the higher the return per naira

invested.

Operation Ratio: is the total variable cost divided by gross income. It shows the proportion

of the gross income that goes to pay for the operating costs. The lower the ratio the higher

the return on investment.

Return on capital investment: is the gross Margin divided by total variable cost.

Increase in tomato yield per hectare - Knowledge component

Assuming the majority of the farmers in our network produce 26,000 M/T per hectare in

year 5, the financial benefit from our farmers to the economy is over $100 million per

annum. Our farmers producing 26,000 tons at a net income of $4000 per year achieve this

16

figure. By year five, the social impact of Tomato Jos, based solely on this metric, could be

as much as $5000 per farmer per year.

In tandem with yield increases Tomato Jos agronomy managers improve physical

accessibility by farmers to improved inputs (seed, chemicals, fertilizer) by providing free

delivery of all the raw material. We will measure improved tomato yield per hectare by

tracking the total amount of produce harvested for grading. By 2016, we forecast that

Tomato Jos will achieve 70 M/T per hectare in our greenhouses.

Decrease post harvest losses

Estimates suggest that Nigeria loses 40-60% of its tomato production after harvest. These

post-harvest losses are decreases in the amount of agricultural produce that actually reaches

markets in a salable condition. These losses may occur before transport due to many causes,

including suboptimal application of fertilizer, inappropriate irrigation, diseases, water loss,

and poor ventilation of products. During transport, other losses frequently occur, including

mechanical injury, temperature changes, and contamination.

By improving both farmer transport of produce, increasing the availability of market, and

improving farming practices, Tomato Jos plans to substantially decrease the percentage of

tomatoes that are lost after harvest.

Other metrics

We will use the pilot test findings to build out our metrics further and set specific targets.

Additional key indicators for measuring financial returns and social impact will likely

include:

● Sales – Scale of outreach

● Number of farmers – Size of farmer network and its value as a barrier to entry

● Average crop cycle days – Capturing improvements to the length of the harvest cycle

● Farmer satisfaction – Ability to meet or exceed farmers expectations

● Increased employment – Increasing employment is another key social impact for

Tomato Jos particularly among the young.

17

CHAPTER 4

Market Analysis

In Nigeria, the market opportunity for producing tomato paste for domestic consumption

alone is immense. Despite being sub-Saharan Africa’s largest producer of tomatoes, the

country spends over $360 million annually to import over 300,000 metric tons of tomato

paste. Tomato paste has become highly integrated into the Nigerian diet. Household

consumers often choose to buy paste over tomatoes, since ease of transport, low costs of

production, and less wastage for the product allow it to be offered at a lower market price.

The regional opportunity is even larger. In 2011, Sub-Saharan Africa imported 550,000

metric tons of tomato paste, and, for seven years’ prior, consumption had been growing at

13% annually. Capturing portions of the tomato paste market domestically and regionally

could offer large returns.

Annually, 40-60% of Nigeria’s tomato harvest is wasted. Without domestic

manufacturers buying, processing, and thus preserving tomatoes that otherwise quickly rot,

farmers have no market for their produce. Excess farm production already exists that could

be profitably absorbed by a processing business.

Nigeria’s government has made a commitment to produce more of its finished and raw

agricultural products domestically, and plans to cut imports by more than $10 billion

annually. In the past, Nigeria’s commitments to increasing domestic production

have translated into its government actively protecting infant industries and by increasing

availability of Central Bank financing.

18

4.1. Industry analysis

Agriculture in Nigeria

Agriculture comprises approximately 40% of Nigeria’s GDP. Nigeria has the

greatest area allocated to arable crops production across the entire region. There are 84

million hectares of arable land but only 40% is cultivated. Nigeria also has 263 billion cubic

meters of water – with two of the largest rivers in Africa. The agricultural sector is the

largest sector of the State’s economy, employing over 70% of the adult labour force.

The agriculture sector has a large impact on many aspects of development, from the dietary

and caloric needs of the population to the state’s industrialization efforts and the

overall quality of life of the people. At the same time, agricultural production and

productivity depend largely on the quality of land and sustainable practices. Consequently,

there is a need to make agriculture economically viable by seeking a balance between

efficient and productive agricultural enterprise and environmental protection and

sustainability.

Nigeria produces 1.7 million metric tons of tomatoes annually. These tomatoes are grown

in two seasons, which correspond to the country’s rainfall. Despite the country’s

large overall production, smallholders, who are the majority of Nigeria’s

farmers and farm less than 2 hectares, get extremely low yields year after year. While the

average yield in North America is 494 metric tons per ha, Nigerian farmers average only 7

metric tons per ha.

During the dry season, which spans from January to April, tomatoes tend to be plentiful;

during the wet season, which stretches from April to September fewer tomatoes are grown.

The boom and bust of Nigeria’s tomato production corresponds to severe price

fluctuations: the price that farmers are able to command for their tomato crop varies

seasonally from 600 to 3000 Naira per 36 KG basket.

Low yields are at least partially caused by these seasonal pricing fluctuations. Since farmers

receive the lowest market price during periods when production reaches its peak, they have

19

reduced incentive to increase their yields, since the market cannot absorb the temporary

produce glut. Advanced pricing guarantees, which would disregard fluctuating market

prices, could incentivize smallholder farmers to produce more crops than they currently

do.

Farming practices also tend to be suboptimal. In many cases, smallholder farmers cannot

afford or do not have access to improved inputs. This may particularly be the case for seed,

which has few domestic Nigerian producers. Fertilizers on the market may often be fake

or unlabeled. In other cases, improved inputs are not adequately applied, since technical

knowledge of agronomy best practices is often unavailable.

Competition

There are currently no large-scale domestic producers of tomato paste in Nigeria. In the

Kadawa valley region to the North, Dangote Holdings, Ltd, has made plans to develop a

large-scale tomato paste processing facility. Dangote’s facility announced that it would

launch in November of last year with a total capacity of 400,000 MT/year, but so far it has

remained unopened. It is unclear whether regional conflict has slowed construction or

whether internal analysis found the low yields of smallholder farmers would be able to

economically support such a large-scale manufacturer.

Competition will most likely come from other tomato farmers and imported products.

Although over 200,000 farmers may produce tomatoes throughout Nigeria, raw tomato

products tend to be more expensive than paste in Nigeria due to high costs and wastage

rates from bringing raw produce to market. Since raw paste and tomatoes are substitutable

goods, in local markets, paste and tomatoes will compete.

Market analysis conducted during the team’s trip to Nigeria in March 2014 revealed

that multiple tomato paste brands exist within Nigeria, most of which originate in China.

Major companies involved in this space include Olam, which produces Tasty Tom, Chi

Ltd, which produces Peppe Terra, Noclink Ventures, which produces Taima, Tomavita,

and

20

Tomato Fun, and Watanmal, which produces Gino and Pomo tomato paste. These multiple

brands target Nigerian consumers without segmenting the market, and make little to no

effort to differentiate themselves. Some brands such as Tasty Tom are packaged for

individual consumption in Nigeria after being bulk imported from foreign markets. Within

the retail market, 70-gram servings of tomato paste are the most popular size - they are

packaged in either small cans or sachets and sold for 40-50 naira throughout the country.

Imported tomato paste is widely distributed by all supermarkets and open air markets, most

small, private markets, and some non-food retailers.

Pricing

A major strategy of Tomato Jos is to offer the fairest market prices to our farmers to ensure

a high volume quality inputs for the factory and drive down the cost of production. The

marginal cost of paying above-market prices for tomatoes produced in our network is lower

than the marginal cost of running the paste factory below capacity, thus providing us with

a continued incentive to pay a fair price for our raw material. Tomato Jos will strive to keep

its gross margin at the minimum required to cover costs of the raw inputs, operating costs

and overhead, and to show a reasonable profit. However, an effort will be made to

accumulate sufficient reserves to permit Tomato Jos to continue to expand and allow more

farmers access to our economies of scale and to end consumers. Operating costs will be

kept to a minimum.

Selling prices will be based on market information about the price levels of competitors

and prevailing retail operating margins.

Working closely with our key partners

(Shoprite & Spar) we aim to develop long term

supply agreements to align our production

forecast with retailers’ respective growth

strategies.

21

4.2. Our competitive edge

Our competitive edge lies in our vertically integrated value chain that offers the most

advanced inputs with the support and training to maximise the full potential of our

network farmer’s small holding and offers access to guaranteed pricing. This

places Tomato Jos in a uniquely unoccupied territory in Nigeria.

Key competitive advantages:

1. Reduced Input costs: Tomato Jos acts as a bulk purchaser of inputs on behalf of our

smallholder farmers, realizing a significant discount in purchase price of cultivation

inputs and passing 100% of those cost savings along to the farmer

Why is this sustainable: While a competitor can replicate these savings, the trust and

goodwill built with our community of farmers over these years are not easily replicable.

2. Vertical integration: One stop shop for farmers and training to optimize inputs

3. Local Nigerian brand: government and consumer support

4. Skills acquisition for farmer: from farmer to businessman

As a result, we will appeal to the target markets of many of our competitors while offering

services superior to each of the components of the value chain.

4.3. Risk Analysis

Security

There is a high threat from terrorism in Nigeria. Boko Haram is an Islamist extremist group

in Nigeria that aspires to establish Islamic law in Nigeria, to destabilise the Nigerian

government and to remove western influence from the country. Boko Haram regularly

mounts attacks in northern Nigeria. The majority of attacks occur in the northeast,

particularly in Borno and Yobe states where Boko Haram has based its operations. There

have, however, been a number of Boko Haram-related attacks in other Nigerian states.

22

To mitigate the threat associated with terrorism we plan to operate in a state deemed by the

US State Department to be at low risk of insurgency. Additionally, we will work closely

with foreign offices and security companies to compile a weekly risk assessment report that

captures alerts on changing threats to safety and security of personnel, critical

infrastructure, supply lines and transportation routes. Finally, we will work with best

practice private security companies to secure our operational assets and, more importantly,

protect our staff.

Political

In February 2015 Nigeria will hold presidential and legislative elections. The elections

represent both an opportunity and a threat to Tomato Jos. There are many threats associated

with the election that could materialize and threaten the stability of the country. If elections

are contested and disputed, there could be a rise in insurgent activity, creating a threat to

life and property. Tomato Jos will be operating the pilot project at the time of the elections

and will continually monitor the threat associated with the political risk (see security risk

above).

Newly elected State Governors are keen to promote their region and may be able to offer

tax breaks or reduced rent for companies bringing employment to their state. Postelection,

state governors will be keen to deliver on election promises so positioning Tomato Jos as

public-private partnership to boost employment could yield advantages.

Corruption

Tomato Jos believes that competitive advantages gained from corruption are spurious and

unsustainable. We categorise corruption risk by:

1. Informal payments — improper payments by businesses in Africa can arise due to

significant levels of “red tape,” particularly relating to business permits, licenses

and the import of goods.

2. Use of intermediaries — agents, brokers and facilitators are used to “assist”

with negotiations. Fees paid to these intermediaries are often non-distinct and might

be used to disguise bribes.

23

3. Petty corruption — petty corruption can be found in areas such as identity checks,

speeding or payload tickets or other such cloaked offences.

We acknowledge that operating in Nigeria we face significant operational challenges to

overcome corrupt practices. To that effect, Tomato Jos has developed an anti-corruption

program designed to mitigate the impact of corruption on our business:

1. Conduct a risk assessment program

2. Implement anti-corruption policies and controls

3. Implement anti-corruption financial controls

4. Conduct anti-corruption compliance training

5. Monitor the program

6. Re-assess risk and modify program

Operational

Production resources: Operating in rural areas of Nigeria poses many operational

challenges, from an irregular electrical supply with frequent service interruptions, to the

risk that our supply chain could be interrupted due to poor infrastructure causing truck

breakdowns. Having a consistent power supply is vital for processing operations. We will

invest in sufficient redundancy capacity through diesel generators that will enable that plant

to run for one entire batch on back-up power before requiring refueling. We attempt to

mitigate supply chain risk by leasing our transportation equipment with appropriate

maintenance contracts put in place.

Environmental: Droughts may occur during the optimal planting season for tomatoes,

exposing Tomato Jos to the risks and the challenges of securing sufficient water for crop

irrigation and processing at the factory. To offset the effects of drought, Tomato Jos will

reduce the reliance on annual rains at the nucleus farm by constructing bore holes with a

capacity sufficient for growing and processing operations. In addition, in year 2 we will

build a fresh water holding tank that is capable of storing 10 million meters3 of rainwater.

24

Additionally, as one component of evaluating a farmer’s suitability to join the

Tomato Jos farmer network, the agronomy manager will determine all water sources

available to the farmer and using a scale rate each farmers drought risk.

Financial

Farmer counterparty risk: Tomato Jos places considerable amount of trust in its network

of farmers. Because our farmers receive all inputs on credit, Tomato Jos goes through an

intensive farmer evaluation process to rank farmers on their suitability for inclusion to our

network. We believe that this is important to establish trust with our farmers in order for

them to produce high yieldng, high-quality tomatoes and become our greatest advocates

and marketing tools for further network expansion. Tomato Jos is looking to mitigate this

risk by partnering with local microfinance institutions such as ACCION to roll-out or credit

scheme.

Pricing risk: Tomato Jos covers pricing risk by agreeing with farmers on a set

riskweighted average price in advance of the growing season. By offering one set price,

Tomato Jos can plan processing production and also manage price volatility of our most

important production input.

CHAPTER 5

Strategy for Growth

Tomato Jos is launching with the concept of scale at the outset. Our nucleus farm and

networked outgrower model is designed with a view to expand across Nigeria and reach

hundreds of thousands of farmers.

25

Phase 0: Concept Development and Market Research. Jan - May 2014

The purpose of Phase 0 is to prove the various parts of the Tomato Jos value proposition

(to farmers and to consumers), to raise funds for Phase 1, and to lay the groundwork for

operations in Nigeria.

To date, we have secured $2,000 grant funding from the Harvard Business School Social

Enterprise Initiative which we used to visit Nigeria in March 2014:

Business Environment Context. We met with the following experts in Abuja to gain

insight on agribusiness in Nigeria: Doug Climan, Economic Officer for the U.S. State

Department in Nigeria; Paul Lubeck, a northern Nigeria expert at the University of

California, Santa Cruz; and Zannat Ferdous, a senior Market Analyst with Propcom

Maikarfi, a DFID funded NGO that aims to reduce poverty in Nigeria by enabling rural

markets to work better for the poor.

Cultivation. We conducted nine 1-hour in-person interviews with nine large-scale (10100

Ha) and smallholder (0.1-2 Ha) farmers based in Plateau state, Nigeria, the region with the

most suitable climate for vegetable farming. All interviews took place at the farms,

revealing valuable information about best practices and typical farming techniques. We

also visited the local agricultural services and training center and spoke to the head

agronomist about the equipment rental services and hands-on technical assistance available

for smallholder farmers and the particularities of the region’s growing conditions.

Processing. We toured a dairy processing plant and corn processing facility located in

Plateau and met with the heads of operations for each. We spoke at length about processing

challenges, such as hiring and training techniques for staff, assessing the tradeoffs around

mechanization, and access to electricity and other forms of infrastructure. We have also

interviewed technical leads from the two largest domestic tomato paste processing

companies in the United States.

Marketing: We conducted six interviews at three open air markets in multiple Nigerian

cities, where the lower- and middle-classes purchase their produce, and three high-end

26

supermarkets. These conversations revealed consumer preferences; pricing and margin

trends for raw tomatoes and tomato paste; and product transportation costs and challenges.

Phase 1: Establish Nucleus Farm. Jun 2014 - May 2015

The purpose of Phase 1 is twofold: (1) prove that we can effectively “feed” the

factory by establishing a nucleus farm that grows high-quality paste tomatoes at a yield

of 30 MT/Ha; and (2) conduct intensive outreach to identify motivated tomato farmers and

lay the groundwork for our outgrower network.

Phase 2: Develop Farmer Network and Paste Factory. Jun 2015 - May 2017 The

purpose of Phase 2 is to put our model into action by scaling the nucleus farm, constructing

a tomato paste manufacturing facility, and building out the farmer network using the Dami

system to provide a constant source of tomatoes for paste.

Phase 3: Scale for Growth. Jun 2017 - May 2019

As the strongest farmers in our network begin to see substantial increases in their yields

and graduate to gold-level performance levels, Tomato Jos will continue to scale the model

by rapidly increasing the size of the network to include more farmers.

CHAPTER 6

Management Summary

6.1. Management team

Mira Mehta:

27

Mira graduated from Brown University in 2006. She worked in asset management at

BlackRock for two years, and then moved to Nigeria to work for the Clinton Health Access

Initiative (CHAI). She spent two years working with the Ministry of Health HIV/AIDS

Division, the US Government, and various UN organizations to forecast and import HIV

commodities and accelerate new drug approvals at NAFDAC. Mira then moved into a

regional role, working to strengthen the relationship between diagnostic suppliers (Roche,

Abbott, and BD) and Ministries of Health in over 12 African countries, and scaling up HIV

diagnostic services across the continent. She has strong operational experience with the

supply chain for HIV products, and also helped to set up and operate national sample

transportation systems for infant HIV testing in multiple African countries.

Mira is currently a second-year student at Harvard Business School, pursuing an MBA. She

would like to return to Nigeria to work in the agribusiness, basic materials, or healthcare

industries. Her goal is run a company or a business line that supports economic growth,

helps diversify Nigeria’s economy away from oil and gas, and provides a source of skilled

labor to the workforce.

Nike Lawrence:

Nike is a Liberian national who is pursuing an operational role in West

Africa’s agribusiness sector upon graduating from Harvard Business School in Spring of

2014. She received her undergraduate degree in Operations Research / Industrial

Engineering from Princeton University and launched her career in research at Morgan

Stanley where she remained for nearly 5 years. Subsequently, she moved to Accra, Ghana

where she built the agriculture and healthcare pipelines and portfolios for Acumen Fund

West Africa, covering Liberia, Sierra Leone, and Ghana. She spent this past summer

working in Cote d'Ivoire with Entrepreneurial Solutions Partners, a post-conflict private

sector development firm specializing in competitiveness advisory for governments and

investments in SMEs. Her focus was on advising a defunct cassava processing and export

28

company on how to restart their operations. She is looking forward to returning to the

continent and contributing to the income generation and poverty alleviation that can be

achieved through an integrated approach to agribusiness.

Shane Kiernan:

Shane received his undergraduate degree in Business and Legal Studies from University

College Dublin in 2004 and went on to graduate with a Masters degree in Real Estate

Investment from Cass Business School, London in 2005. He worked as an investment

banker in London where he worked in Debt Capital Markets for Deutsche Bank and Real

Estate Private Equity for BlackRock. Shane brings entrepreneurial experience to the team

having established in 2008 a Dublin-based business called DealHunter that enabled

consumers in Southern Ireland to buy products from Northern Ireland more cheaply. After

selling DealHunter in 2010 he moved to Kenya to work for the Clinton Health Access

Initiative where he spent two years assisting national governments to secure financial

resources for national health systems on three continents. With the benefit of a Fulbright

scholarship Shane is currently pursuing a Masters in Health Policy & Management at the

Harvard School of Public Health and graduates in May 2014. Shane is looking forward to

returning to Africa to pursue entrepreneurial opportunities with a transformative social

impact.

Jared Westheim:

Jared Westheim is an international development professional with six years of experience

working on projects in healthcare, new technology, and agribusiness in the developing and

developed world. After three years as a healthcare consultant advising hospitals and health

systems on financial turnaround and the clinical impacts of health reform for the Advisory

Board Company, Jared began work in Rwanda on a variety of projects, including

agribusiness evaluation and project management as a volunteer consultant for Technoserve.

29

In September 2011, Jared joined Clinton Health Access Initiative in Zimbabwe, where he

undertook a project to introduce new laboratory technologies, modernize treatment

guidelines, and organize health sector procurement and financing. Since then, Jared has

helped analyze procurement reform on behalf of an international aid bilateral and planned

new joint venture with manufacturers in Africa to improve access to processed nutritional

products for mothers and children. Jared continues to work for CHAI to develop its internal

communications and knowledge sharing strategy. He graduated from Dartmouth College in

2008, summa cum laude with high honors.

6.2. Personnel Plan

The following hires are identified as key postions to be filled within the first 18

months of operation.

6.3.1. Director of Agronomy (DA)

The DA is key appointment to the Tomato Jos team and should be hired

within the first 90 days of trading. In the pilot phase though we intend

utilizing the services of consultant The DA will be a qualified agronomist

and will be responsible for determining the agricultural best practices

determining how the soils, pesticides, fertilizers, and seeds come together

to make Tomato Jos farmers more productive. Prior to the recruitment of a

permanent DA we rely on the input of consultant agronomists introduced

to us via our advisors.

6.3.2. Agronomy Managers (AMs)

The AMs are hired to work as middlemen between the farmers and the

Director of Agronomy. The AMs explain the needs of the Farmers to the

DA, and the findings of the DA to the Farmers. The AMs are crucial to

articulate to the Tomato Jos farmer network how to achieve the greatest

return on investment and yield the largest harvest with the least amount of

capital. We anticipate one AM will be needed per hundred hectares.

6.3.3. Finance Manager (FM)

30

The FM is another key FTE hire in the Tomato Jos FTE team. The FM

will work with Executive team to prepare financial statements and local

tax returns. The finance manager will be experienced in preparing

anticorruption policy and procedures guidelines.

CHAPTER 7

Financial Plan

7.1. Revenues

In the first year of our pilot operation our objective is to sell all the tomatoes that we

produce in local markets and to a small number of established retail partners in Jos and

Abuja. We have conservatively estimated an average tomato yield of 17 metrics tonnes per

hectare that we can sell at an average price of $288 per tonne giving us over $14,000 in the

first year.

Following the successful demonstration of our agricultural capabilities we expect a

consistent scale-up in revenues from $800,000 million in year 2 to $13 million in year 5.

31

By that time we expect to be selling processing nearly 100 million sachets of tomato paste

per annum.

7.2. Expenses

In the first year our largest expense is personnel, with salaries and benefits estimated to be

around $49,000. This expense is in relation to the hiring costs associated with recruiting a

full-time Agronomist. After the completion of the pilot phase the largest ongoing cost is

projected to be the raw inputs (seeds, fertilizer and agrochemicals) utilized by the farmer

network and the nucleus farm.

Following the successful equity subscription in year two we will expand our nucleus farm

through land rental and greenhouse construction, commission the first phase of our tomato

paste processing factory and rollout our farmer network engagement strategy. This capital

acquisition program is expected to cost $0.5 million and will be financed through the

second capital raise and also from cashflow from normal operations.

Our wage projections reflect our focus on building a very lean, highly skilled team. With

the exception of the Agronomist and farm labor the Founders will cover all of the roles

before the seed round is raised, during which time they will not earn salaries. After raising

the seed round, founders will draw a salary of $5,000 per person per month (until Tomato

Jos is cashflow positive, at which point it may increase), and additional hires will be made

in the Agronomy and Marketing departments.

7.3. Net surplus

Despite a minimal loss in years one and two, we will be fiscally sound and selfsustaining

once we reach scale following the investment program in year 2. (see appendix 8.4)

7.4. Quarterly statement of income

Tomato Jos exhibits seasonality in expenses and income in accordance with the growing

cycles and the prevailing market fluctuation in prices. The planting season begins in

32

September and harvesting ends in July, thus our largest expenses will be incurred in the

first and second fiscal quarters (see Appendix 8.4).

Once processing capacity is established revenues we anticipate to reveue distribution to

stabilize with the bulk of revenues realized in the second and third quarters.

7.5. Annual cash flow statement

The Annual cash flow statement attached in Appendix 8.4.

7.6. Capital Requirements

Tomato Jos’s funding strategy is based on three key capital inflows:

1. $100,000 of prize winnings and small grant funds from Harvard and other personal

sources in Q1 Year 1

2. $500,000 of seed stage equity secured in Q1 Year 2 to establish the proof of concept

nucleus pilot farm and begin. In this phase we expect to raise through development

financing organizations such as DIFID, USAID, CIDA and also angel investors.

3. $3,000,000 of growth equity secured in Q1 Year 4 to scale processing capacity

significantly. In this phase we expect to raise finance through private equity

investors and/or through an investment by a strategic partner.

33

2