Invest in Irrigated Lucerne Production in Southern Africa

Opportunity Snapshot

  • Country: South Africa South Africa
  • Industry: Agriculture
  • Stage: Start-up
  • Investment size: $440,000 / min. $435,000
  • ROI: 51% in 10 years
  • Type of investment: Debt
Invest in Irrigated Lucerne Production in Southern Africa Lucerne, or alfalfa is the plant which has been longest grown specifically for animal feed. Image courtesy: Joshua Mayer, 2009, Flickr CC.

Investment Opportunity

Lucerne, or alfalfa is the plant which has been longest grown specifically for animal feed. The word ‘alfalfa’, means ‘best fodder’. Lucerne is the king of fodder.

Lucerne is a perennial crop with a productive stand life of 5-7 years. It is widely grown as forage for cattle and is often harvested as hay.
The use of Lucerne in the form of hay is a popular practice in South Africa.

The production and selling of Lucerne to target markets as hay or pellets.

Target markets
Dairy producers are the most important purchasers of Lucerne hay.
Dairy cattle are fed for production of milk and milk production is enhanced with high quality hay.

Beef, sheep and goat markets typically put less emphasis on high-quality Lucerne.
Medium and low quality hay is acceptable. Livestock producers incorporate Lucerne to provide supplement feed during weaning or reproduction and finishing animals - placing an animal on a high protein diet prior to sending it to market.

Horse owners demand weed free, bright green Lucerne.

Export market - South Africa is ranked 7th among the Lucerne exporting countries in the world.

Game Parks/ Lodges and farm
Lucerne pellets are used for grazing game during drought, breeding projects, game in small grazing areas and game in captivity.

To successfully transform the business to suit the needs of the growing market and to create a corporate image of the Company.
To negotiate and secure contracts.
The Company intends to achieve at least 13% market share respectively in the near vicinity (North West Province, Free State and Gauteng) and 8 % market share respectively of the further situated areas (Mpumalanga, Northern Cape and Eastern Cape).

• Build the farm up to be able to supply 7500 bales on a monthly basis to the various markets
• Reach profits that will allow the family to make sufficient incomes and add diversity to the farm
• Doubling the first years Turnover in the second year
• Become the leading supplier of high quality Lucerne in our area
• Supply Lucerne to a national feeding mill
• Supplying export quality Lucerne
• To be recognized as a major role-player in the production of Lucerne

Key milestones
Milestone (Start date-End date): Budget
Secure funding (01/03/2016-16/03/2016): R 6 600 000
Purchase Land (18/03/2016-04/04/2016): R 300 000
Building shed (21/02/2016-01/04/2016): R 350 000
Soil analysis (18/03/2016-02/04/2016): R 10 000
Equipment (18/03/2016-02/04/2016): R 4 398 217
Personnel (21/03/2016-25/03/2016): R 199 535
Land preparation
Deforestation (27/03/2016-11/04/2016): R 7 753
Ripping of land (12/04/2016-17/04/2016): R 7 753
Application of herbicides (18/04/2016-20/04/2016): R 10 553
Ploughing (21/04/2016-23/04/2016): R 7 753
Land preparation with off-sets (22/04/2016-24/04/2016): R 7 753
Fertilization (24/04/2016-26/04/2016): R 66 608
Fences (26/04/2016-06/05/2016): R 141 500
Irrigation (26/04/2016-07/05/2016): R 254 300
Seedbed preparation (08/05/2016-10/05/2016): R 7 753
Planting of seed (11/05/2016-13/05/2016): R 7 753
Harvesting - 14/06/2016

Business Need Amount
Purchasing of land (22.5 hectares): R 300 000

Other assets:
Shed: R 350 000
Truck: R 284 000
Equipment: R 5 001 805
Cash Flow: R 664 195
Total: R 6 600 000

Own contribution
Farm Doringkloof - 25.6960 hectares (4.7 hectares is usable for irrigated Lucerne)
Total: R 2 118 000

Business Term Loan 10 years
Interest rate 9.5%

Competitive Advantage

The keys to success
• Climate/ weather conditions
• Growth
• Irrigation
• Right soil condition
• Timing
• To establish and maintain a good stand
• Harvesting at the correct stage
• Low production cost

Competition and Buying Patterns
The Company will be selling Lucerne of high quality to various buyers.

Strategy and Implementation Summary
The focus on delivering high quality is the farm strategy. Its method of implementation is simply reliance on the farm’s reputation for delivering the best quality in a forthright manner.

Competitive Edge
With high input cost the Company will continually refine and evaluate how resources are allocated. The farm is family owned and operated, which allows for fluctuation and latitude in duties and operation assignments.
Additionally the farm will utilize its own land and accumulate additional land to reduce expensive rent costs and have an asset that gives the farm additionally value and equity.

Sale Strategy
The Company will continue to sell Lucerne to locals and commodities auction markets. The farm will sell Lucerne to dairy farms, beef cattle farms, beef feedlots, sheep farms, goat farms, horse equestrians and game farms. Additionally, the farm will utilize wholesale buyers that will come to the farm to buy Lucerne at auction pricing. There are also additional animal feeding companies throughout South Africa that can be utilize to buy Lucerne directly from us.

Rationale for the deal

Marketing Strategy
The marketing strategy is to deliver high quality Lucerne and a reliance on the Company’s reputation for delivering the best quality in a forthright manner. Being fully trained and experienced in marketing and marketing related activities, we intend to engage into a detailed marketing plan.
It is the believe of the Company that if focus is turned on quality and customers’ tangible and intangible needs, the Lucerne industry have ample opportunities.

One of the main objectives of the marketing plan is to stimulate the market with:
• Quality Lucerne products
• Full fill the tangible and intangible needs of the customer
• Outstanding customer service
• Offer products that the market wants

The Company was first established in 2005. It only recently came into operation and is heading into its 6th month of operation. The farm began to purchase sheep in February 2015 to put the business in position to grow.

Use of financing

• Labour
• Hydraulic Oil
• Grease
• Oil
• Fertilizer granules
• Fertilizer liquid
• Lime
• Gypsum
• Herbicides
• Electricity
• Diesel
• Baling Twine
• Wear and Tear
• Breakdowns

The business need is calculated as follows:
Purchasing of land (22.5 hectares) - R 300 000.00
Shed - R 350 000.00
Truck - R 284 000.00
Equipment - R 5 001 805.00
Cash Flow - R 664 195.00
Total establishment need amount - R 6 600 000.00

Opportunity for the investor

Business Term Loan payable over 10 years (120 months) at an interest rate of 9.500%

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