Poultry enterprise invests in feed mill to reduce costs
August 25, 2022
Increasing feed prices in Malawi, and beyond, have been limiting the ability of agribusinesses to compete effectively. With CASA-led technical assistance, a poultry business in Malawi was able to construct their own feed mill and reduce feed prices, thereby enabling them to cut production costs and boost profits.
By January 2022, soaring feed prices, was negatively affecting agribusinesses in Malawi.
For Nyaluwanga Poultry Farms, this was an early sign that its competitiveness was under threat.
They took immediate steps to protect themselves against the rising cost of production, by fast-tracking implementation of one of the commercial strategic ideas prescribed in its newly developed business plan. This would involve the procurement and installation of their own feed mill.
The commercial strategy was developed through technical assistance provided by the CASA Programme, and was recommended to help the company to reduce the cost of feed compared to the present scenario that involves sourcing feed from other millers.
As a family run business, Nyaluwanga Poultry Farms was set up in 2014 as a broiler chicken enterprise. Set on a 12ha of land at Choma in Mzuzu, northern Malawi, Nyaluwanga Farms Limited is made up of seven chicken houses with a full holding capacity of 18,500 birds per growing cycle of 7 weeks. The company aims to be the leading producer of poultry and poultry products in the northern region of Malawi, and partnered with CASA Malawi in August 2020 to support them towards achieving their long-term growth plans.
Through this partnership, CASA provided technical support to the company that, amongst other things, involved carrying out a business feasibility assessment to identify key growth pathways.
The role of CASA
A business plan was created that recommended investment into own feed production, expansion of production and processing capacity through third party investment finance. The expansion of production capacity would take construction of three extra chicken houses that would increase holding capacity from 18,500 to 36,500 birds per cycle.
The causes of increasing feed prices
Nyaluwanga had already identified cost of feed as the biggest constraint against growth, a problem partially caused by the Ukraine war and COVID-19 pandemic causing commodity prices to rapidly increase. This, in addition to record prices for fertilizers and fuel in Malawi, contributed to a very challenging market for poultry businesses and other agri-businesses.
Proto Feeds, a company that supplies feed to Nyaluwanga, increased its prices four times between January 2022 and early July 2022. With the current capacity of 18,500 birds per cycle, Nyaluwanga bought 392 metric tonnes of feed from the company, for six cycles of production in 2021.
Since March 2022, feeds prices have increased on a monthly basis. By July 2022, broiler feed prices have risen by 86% compared to May 2021. This has made economic production of poultry products by most SMEs unsustainable – the proportional cost of feed in poultry production was already high and made up of about 70-80% of total production.
The increasing feed prices, directly affect Nyaluwanga’s ability to fully off-set growing costs of production through higher product prices because consumer buying power has also declined. This has resulted in low profitability, therefore threatening the long-term viability of the business.
Mitigating risks
To mitigate this risk, the company decided to use the directors’ own funds to invest in a feed mill, which would ordinarily have been acquired through third-party financing. Own feed production will take out transport costs of buying from Lilongwe and Blantyre based feed suppliers. To this effect, Nyaluwanga has made a 50% advance payment towards acquisition of a 12 t/day (8-hour run) capacity feed mill, which is expected to be delivered by September 2022. With this feed mill, the company estimates it will be able to reduce the cost of production by 40% and enhance profitability by at least 20%. In addition, Nyaluwanga will be able to extend its lines of business and supply other smallholder poultry producers in the Northern region with excess feed. This will also enhance the company’s resilience against external shocks.
Further information
Watch the pitch by Cecelia Mseteka, Managing Director of Nyaluwanga Farms Limited during the AGRF Deal Room 2021, here