Lichtenburg Nut Company Business Plan — Raw Material Supply and Contract Farming
The contract farming programme securing groundnut supply, and why owning the input is central to the model.
Section 14 of 37
Raw Material Supply and Contract Farming
Jump to section
- 0. Basis of Preparation and Important Notice
- 1. Executive Summary
- 2. Investment Thesis
- 3. The Company
- 4. Problem, Customer Need and Value Proposition
- 5. Products and Services
- 6. Industry Analysis
- 7. Market Analysis
- 8. Customer Analysis
- 9. Competitive Landscape
- 10. Business Model
- 11. Go-to-Market Strategy
- 12. Operating Model
- 13. Raw Material Supply and Contract Farming
- 14. Quality, Food Safety and Aflatoxin Control
- 15. Management and Organisation
- 16. Strategic Plan
- 17. SWOT Analysis and Strategic Implications
- 18. Risk Analysis
- 19. ESG and Development Impact
- 20. Implementation Roadmap
- 21. Financial Model and Assumptions
- 22. Projected Income Statement
- 23. Projected Balance Sheet
- 24. Projected Cash Flow
- 25. Capital Expenditure
- 26. Working Capital
- 27. Funding Requirement and Structure
- 28. Debt Serviceability
- 29. Break-even Analysis
- 30. Scenario and Sensitivity Analysis
- 31. Valuation and Investment Returns
- 32. Key Performance Indicators and Management Dashboard
- 33. Conclusion and Recommendation
- A. Appendix A: Detailed Assumption Register
- B. Appendix B: Ten-Year Financial Summary
- C. Appendix C: Glossary and Sources
Groundnuts are 40% of net revenue and cannot be hedged; the contract farming programme is therefore an operational necessity, not a corporate social responsibility initiative
13.1 Requirement and sourcing split
Table 33. Raw material requirement and sourcing split
|
Measure |
FY2029 |
FY2030 |
FY2031 |
FY2032 |
FY2033 |
|---|---|---|---|---|---|
|
Finished product volume (t) |
1,180 |
1,840 |
2,340 |
2,730 |
3,000 |
|
Kernel requirement (t) |
1,186 |
1,849 |
2,363 |
2,763 |
3,041 |
|
Contracted in-shell requirement (t), 75% of kernels |
1,271 |
1,981 |
2,532 |
2,961 |
3,259 |
|
Share of the national crop |
1.7% |
2.6% |
3.3% |
4.1% |
5.2% |
|
Number of contracted growers |
10 |
13 |
15 |
17 |
18 |
|
Bought shelled kernels (t), 25% of requirement |
296 |
462 |
591 |
691 |
760 |
A 25% spot allocation is retained deliberately. It provides flexibility when contracted deliveries fall short and avoids the company being fully committed at a fixed price in a falling market.
13.2 The economics of shelling in-house
Table 34. Comparative cost of in-house shelling
|
Route |
Basis |
Cost per kg kernel |
Notes |
|---|---|---|---|
|
Contracted in-shell, shelled in-house |
R14,900/t in shell at 70% kernel recovery, plus R0.82/kg shelling cost |
R22.11 |
Also yields shells for biomass fuel and off-grade kernels for the crushing and feed market |
|
Bought shelled kernels |
R24,800/t delivered |
R24.80 |
No by-product recovery; no lot traceability to grower |
|
Blended at 75% own-shelled |
R22.78 |
Saving of R2.02/kg against buying all kernels |
|
|
By-product credit |
Shell biomass energy offset plus off-grade kernel sales |
(R1.15) per kg of finished output |
Worth R4.1m a year at Year 5 volume |
The R11.2m shelling, intake and storage investment recovers its cost from the kernel saving and by-product credit within approximately two and a half years at Year 3 volumes. Its strategic value — lot-level traceability — is not captured in this calculation.
13.3 Grower contracting model
- Pre-season contracts are concluded between September and November for the following season’s delivery, fixing hectares, expected tonnage and a base price with a quality adjustment schedule.
- Quality-linked pricing pays a premium of up to 6% for lots delivered below 6 ppb aflatoxin and below 7.5% moisture, and discounts lots that require additional drying or sorting. This aligns the grower’s incentive with the company’s core commercial claim.
- Agronomic support is provided at the company’s cost: a field officer visits contracted growers at planting, mid-season and pre-harvest, with particular attention to harvest timing and windrow drying, which are the two field decisions that most influence aflatoxin outcomes.
- Input finance of up to 30% of contract value is available against delivery, funded from the revolving facility. This is a genuine credit exposure and is capped at R4 million in aggregate.
- The grower and employee trust holds 6.3% of the company’s equity, vendor-financed from dividends. This is a supply security instrument as much as a transformation instrument: growers who own a share of the processor are less likely to divert a good lot to a spot buyer in a strong year.