Africa Improved Foods is a manufacturer of cereal-based products for the Rwandan government and humanitarian organisations such as the World Food Programme. GTR speaks to Ramesh Moochikal, the firm’s chief executive officer, about its financing strategy and supply chain challenges in Africa.

 

Snapshot:

  • Name: Ramesh Moochikal
  • Company: Africa Improved Foods
  • Title: Chief executive officer
  • Country: Rwanda
  • Sector: Soft commodities

 

 

GTR: Can you briefly tell us about Africa Improved Foods? What types of goods does the company produce, which regions are you active in, and where does the firm procure from and export to?

Moochikal: We are a social impact organisation that has produced nutritious foods locally in Rwanda since 2017 to battle malnutrition in Africa. Specifically, we aim to tackle the issue of stunting in young children, which can result in lifelong, irreversible learning difficulties if their diet is imbalanced before the age of two.

President Paul Kagame recognised that his country had a significant stunting challenge, and he invited our founder – who was the then-chairman of Royal DSM, a Dutch company significant in the production of micronutrients – to set up a facility that would help Rwanda battle malnutrition. Our founder’s idea was to start in Rwanda and then expand our footprint elsewhere on the continent. In 20 years, 40% of the world’s labour force is going to be African and if 35% of them are going to have learning challenges, what kind of labour force are you creating for the world?

Today, we are the largest grain buyer in Rwanda, and we try to localise our raw material as much as possible, buying from Rwanda, or at best, from Zambia or Tanzania, to avoid imports as much as possible.

Approximately 1.5 million people in Africa eat our food every day. We currently have an asset footprint in Rwanda, but our product is also sent to Ethiopia, South Sudan, the Democratic Republic of the Congo (DRC), Uganda and Tanzania, primarily through an established partnership with the World Food Programme (WFP). The government of Rwanda is a large customer and so are institutions like UNICEF, the Red Cross and Médecins Sans Frontières (MSF). About 10% of our product is sold commercially in the local markets, priced at an accessible and affordable price for the lower middle class.

 

GTR: Given the focus on buying locally, what supply challenges did your company face when it started in Africa?

Moochikal: We work very closely with the farming communities to ensure the quality of our inputs and to improve their yield. When the factory first started operations, 98% of the maize we procured was rejected because it had aflatoxins. Today, after working with farmers for seven years and helping improve their agricultural processes, we only reject about 1%. Imagine the value impact for the farmers through these efforts.

Aflatoxin is an acid that builds up and erodes the quality of the crop and, more importantly, is carcinogenic. Peanuts, cotton seeds, soya beans and maize all carry aflatoxin. There’s no plant or machinery in the world that can remove the toxins, so you have to buy aflatoxin-free input.

A notable example of how we have helped farmers is by encouraging them to sell us corn still attached to the cob rather than detaching it themselves. Aflatoxin develops in the scab formed during the detachment process, so by having the farmers leave the corn on the cob, we can control this critical stage. We dry and detach the corn ourselves, which is costly since we purchase the otherwise worthless cob. But we took on this aspect of the supply chain because it transformed the quality of the crop.

 

GTR: What are the company’s main sources of finance, and which types of lenders does the firm mainly use?

Moochikal: Our equity investors are FMO – the Dutch development bank, the International Finance Corporation and the Royal DSM, our private sector partner. Our working capital is financed largely through local banks that we borrow from, and that works quite well because we pay for the corn in local currency.

The currencies are reasonably stable, so we can borrow at market prices, fund our working capital needs, and churn out produce. When we export to the WFP, we sell in dollars.

Last year, we earned foreign currency to the tune of about US$80mn. To put that into perspective, the entire coffee industry of Rwanda earns between US$70mn and US$100mn annually, depending on the price of coffee.

Bank loans are our main source of finance as we do need them for trade finance. Our business is quite simple. We buy raw material, process it, store it in the factory and supply the government of Rwanda and the WFP as needed. As a reputable company, we are well known in the banking circles.

We spent US$65mn to construct our plant in Rwanda. This was largely funded by equity. We have a clear five-year growth plan wherein we intend to be in three more countries. We are raising largely equity capital to fund that growth.

 

GTR: What are the key challenges facing your suppliers currently, whether in Rwanda or elsewhere in Africa?

Moochikal: The maize crop yield in Rwanda has grown significantly and the country is now becoming self-sufficient in corn. In fact, this year, we have not bought a single grain of imported corn. In the past we have had to buy almost 40% of our corn from either Zambia or Tanzania.

The challenge that our suppliers face is that nearby countries like Zambia, a regular supplier of soya and corn, are experiencing weather disruptions. Zimbabwe is going through the same difficulties, as are Mozambique and Malawi.

Weather is a big culprit. The rain patterns and the sunlight patterns have all changed. Significant other crops like sorghum have been damaged in Rwanda because the sunlight was inadequate and the grain did not mature.

Logistics remains a sizeable challenge, especially when shipping goods. Shipping lines focus on their cost book, and they do not really care about the connectivity. As an example, MSF asked us to deliver food to them in Chad. Between Rwanda and Chad, there is the DRC and the Central African Republic.

But we had to take the product from Rwanda to Mombasa, go around the Cape of Good Hope, come to Douala, and truck it to Chad. The whole process takes 40 days instead of 12. The shipment also had to go through four different hands, which increases the risk of stocks getting damaged, or rain and other elements ruining the product. Transit risks are significant.

Africa needs homegrown logistics solutions so we do not have to rely on archaic rules. There are enough truckers in Africa, but there are so many security challenges, paperwork challenges, and border-crossing issues that the truckers are not willing to take on some of these risks. Change is needed for intra-African trade to flourish.

 

GTR: Looking ahead, what are your company’s plans for the coming years? Are you seeking to significantly boost production, or enter into new import/export markets?

Moochikal: The founder of Africa Improved Foods is very clear that he wants to impact malnutrition in all of Africa. We have very ambitious growth plans and are looking at opening processing plants in new countries. We would replicate the same Rwanda model: buying and processing locally, and supplying to the relief schemes, as well as the government and local population. Ethiopia, Nigeria, Ghana and Zambia are all in our purview. We are in various conversations to raise capital, though it will take three or four generations of leaders – after me – to finish the job. The current impact we make on 1.6 million lives per day would be over 10 million lives per day in the next five years. Then we are moving the needle. But one company cannot solve Africa’s malnutrition problem. You need 100 companies like ours. I’m hoping that by doing what we are doing, and by becoming a role model in the sector, we can inspire other companies to come to Africa and, in the end, solve for malnutrition on the continent.