Research on the Performance of the Manufacturing Sector

SECTION 5: MANUFACTURING SUB SECTOR ANALYSIS

Introduction

The manufacturing subsector analysis provides us with a detailed qualitative analysis of the subsectors that make up the manufacturing sector as a whole. This section of the report will provide the reader with an overview each subsector, a description of the activities present in the value chains as well as current and future opportunities for SMMEs in this subsector and an identification of constraints and barriers that SMMEs face within these subsectors.

The Agro – Processing Subsector

Overview

The definition of Agro-processing is the process or action taken by manufacturers of converting primary (raw) agricultural products into consumable commodities suitable for consumption.

The Agro – Processing process begins with the primary activity of agriculture whereby activities such as Farming, livestock, horticulture and forestry take place. Thereafter these “raw materials are supplied to manufacturers, who then begin the activity of processing the raw materials through actions such as Milling, Fermenting, Slaughtering, Blending, Cutting and Moulding. The manufactured products are then packaged and supplied to the wholesale and retail markets to be sold to consumers. See Diagram 1 for visual description.

Agro Processing is a widely diverse subsector and is vital to the production of food products as well as the processing of wood for furniture and paper products.

Value Chain Description of the Agro Processing Subsector

Figure : Agro Processing Value Chain

When looking at the different stages of the value chain of the agro – processing subsector it is clear that the area where SMMEs can operate in phase 3 (actual processing/manufacturing of raw materials) and phase 4 the packaging of processed products. SMMEs can also operate in phase 1 and 2 as suppliers of inputs, tools and fertilisers to the primary sector. SMMEs in the manufacturing sector could also be consumers of the processed products as inputs into other manufacturing activities e.g. Bakery use of flour, sugar, milk etc.

The Agro processing subsector could be a vehicle for potential job creation, the Agri-food complex has a number of competitive advantages making it an important trading partner and a viable investment destination as the world class infrastructure, counter seasonality to Europe, vast biodiversity and marine resources as well as competitive input costs make South Africa a world player on the worlds markets.

The Agro-processing/food processing industry consists of various subsectors including:

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  Meat processing
  
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  Dairy products
  
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  Fruit and vegetable processing
  
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  Grain mill products
  
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  Sugar mills and refineries
  
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  Wine
  
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  Fruit juices
  
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  Beer
  
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  Cocoa
  
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  Chocolate and sugar confectionery
  
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  Bakery products
  
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  Prepared animal feeds
  
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  Other food products/ ingredients:
  
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    Starch and starch products
    
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    Baby food
    
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    Chips
    
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    Baking powder
    
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    Yeast
    
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    Condiments
    
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    Mustard
    
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    Vinegar
    
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    Edible salt refining
    
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    Tea and coffee processing and packing
    
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  Tobacco
  
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  Essential oils
  
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  Leather
  

Training and Development in the Agro-Processing subsector

Training and development in the agro processing subsector includes specialised skills and training or skills development. This would be quite costly for SMME businesses, however training could be provided through on the job training, internship or learnership programmes. SMME businesses could also register with MerSeta or other training institutes to assist with the skills improvement.

The following traceability requirements may also be required from food business operators. They should:

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  establish the traceability of food products at all stages of production, packing, handling and distribution;
  
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  be able to identify any person or supplier from whom they have been supplied with food products, or any substance intended to, or expected to be used in the production or processing of these food products;
  
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  have in place systems and procedures to identify other businesses to which their food products have been supplied;
  
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  ensure that adequate procedures are in place to withdraw food products from the trade where such food products present a serious risk to the health of consumers;
  
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  immediately withdraw food products from the trade which were identified as food products that present a serious risk to the health of consumers;
  
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  immediately inform the Executive Officer of such withdrawal;
  
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  keep records of the information mentioned as well as any other
  
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  relevant information for at least two years;
  
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  registration with DAFF as a food business operator.
  

Opportunities for SMMEs in the Agro Processing Subsector

Opportunities for SMMEs in the Agro – processing subsector lie in:

1. 
   The actual processing activities i.e. Milling, Fermenting, Slaughtering, Blending, Cutting and Molding. This will include activities such as the processing and manufacturing of:
   
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     Meat products (traditional and processed meats products, biltong).
     
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     Organic foods (vegetables, fruit).
     
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     Indigenous tea products.
     
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     Bio fuels.
     
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     Fruit and vegetable products such as Jams and dried fruit.
     
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     Juice production.
     
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     Confectionary products such as chocolates and sweets
     
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     Animal Feed products
     
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     Table condiments and spices
     
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     Paper manufacturing
     
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     Furniture manufacturing.
     
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     Baking products, bread, biscuits and cakes
     
2. 
   The packaging of the processed commodities for human consumption.
   
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     The Manufacturing of packaging items for agro processed goods such as containers and plastic bags.
     
3. 
   As suppliers to the primary phase of agro-processing
   

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  The manufacturing of farming tools and equipment.
  
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  The Manufacturing of fertilizer and related products
  
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  Animal feed products.
  

Challenges and Barriers Facing the Agro Processing Subsector

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  Rural retailers are mainly affected by the depressed state of rural economies, overtrading, the lack of finance and financial infrastructure, the lack of business training, ageing infrastructure and the weakness of local government and of social capital.
  
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  Informal traders’ main challenges include the poor quality of their equipment and infrastructure, competition, cash flow and stock shortages.
  
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  For independent, small wholesalers stumbling blocks arise from vertical integration and wholesaler consolidation, price pressures, the tendency of market giants to expand their ranges of products and services, the lack of skills relating to technological improvements and the lack of integrated supply chain management techniques.
  
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  E-tailers are severely confronted with the difficulty of setting up a competitive business model under the price pressure exerted by shop-based retailers, Web site design and marketing challenges, customer gaining and delivery and logistics are complex tasks. The low penetration of the Internet in South Africa, especially the lack of affordable access to broadband, currently strongly restricts the business opportunities of e-tailers, causing them very low profits and low life expectancy.
  
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  Finance, i.e. scope and allocation of financial resources;
  
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  Human resource capacity, i.e. the number of people and level of skills available in critical technological sectors;
  
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  Technology, i.e. lack of access, affordability, appropriateness and lack of a coordinated innovative culture;
  
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  Lack of information on opportunities;
  
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  Competition barriers;
  
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  Distribution barriers;
  
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  Regulatory barriers; and
  
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  Price of raw materials.
  

The Job Creation Ability of the Agro Processing Subsector

Sector	Synopsis	Job Creation Ability
The Agro processing Subsector	The agro processing sector is potentially the strongest driver for job creation, especially in the primary and secondary phases. The weaker rand makes the market attractive to foreign investment. Due to the current local and international demand for convenience foods (canned products and processed foods) the impact is positive for south African companies in the agro processing sector. In the primary phase the has been initiatives to form cooperatives to supply the large food processing companies with produce / raw materials, by communities in rural areas in the process creating employment in large rural communities. In the food processing sector smaller existing companies require access to the international market to expand and grow.	High potential for job creation due to foreign investment and expanding markets as well as the increase in demand for processed foods.

The Agro Processing Sector: SWOT Analysis

Strengths Alternative season production Low power costs Labour availability Integrated production systems Technology institutions Government support organisations Potential for diverse production Presence of multi-nationals Sector-specific incentives Water quality and availability	Weaknesses Lack of infrastructure for perishables Transport inland/port charges/long distances Small domestic market Production volumes are small Distances to global markets Skills (Management) Access to local markets Value adding technologies
Opportunities Biotechnology Sustainable utilization of indigenous and other genetic resources SADC Smart farming Sector specific incentive schemes Technology Shift to less intensive natural resource use production system Competition Commission Support partners	Threats Environmental issues Soil degradation Resources planning and management Water quality and availability Cost of entry into markets Subsidised production/exports in developed nations Trade barriers Compliance with target markets Cheap imports

Table 9: SWOT analysis for Agro processing sub sector