In various agricultural trials, sorghum has proved to be a viable alternative to barley primarily due to the rising cost of producing barley and the high international prices. While the beer industry is one of the major consumers of barley worldwide, the bio fuel industry is competing for the available crop for use in producing fuel ethanol. With global production levels of barley relatively steady, a rise in demand is likely to push prices up even further. This will squeeze profit margins for major users of barley and force up prices of finished goods. Beer consumption is likely to fall as beer companies pass on higher costs to the consumer.
The food industry is turning to sorghum to provide solutions for people diagnosed as being gluten intolerant. Sorghum is gluten free and hybrid species have produced flour that makes quality bread and cakes. The potential for this product to replace wheat is enormous and the low cost of production will translate into lower consumer prices.
Sorghum is a crop native to Africa and does well in tropical regions. Most communities grew the crop as a staple food. With the introduction of maize, outputs declined as more farmers adopted maize as their main food crop. Changing weather patterns have encouraged African governments to reintroduce the crop because of its drought resistant qualities. Scientists have also developed improved varieties that are pest resistant, high yielding and possess improved malting qualities. The stalks are an important source of molasses and have great potential for the bio fuel industry. Costs of production in the US average 110 per acre, which compares favorably with 140 per acre for barley. In Africa, this cost falls to as little as 45 per acre.
With most developing countries striving to attain the millennium development goals of food security, poverty eradication, and better lifestyles for all, the introduction of sorghum as a major cash crop is a great boon to African farmers especially in the tropical regions. East and central Africa are high potential areas for growing this crop as the ideal weather conditions include average rainfall and plenty of sunshine. Since population densities in these areas are low, the potential for large-scale farming is very high. Applying modern technology to traditional farming practices can greatly improve outputs and lead to a doubling of the current world production of approximately 60 million tons.
Rising costs of fuel are eroding gains most nations are making through renewed economic growth policies. Sorghum molasses can alleviate this situation and provide cheaper sources of power for sorghum producing countries hard hit by inflation and high electricity costs. Lower production costs arising from cheaper fuels will improve the price competitiveness of exports and lead to increased foreign trade. Based on these factors, the global business opportunity that exists is for an investor to negotiate with African governments to support a massive sorghum production program with the aim of increasing outputs for the crop. In Nigeria, sorghum has replaced barley as the main ingredient for malting purposes. Replicating this scenario throughout Africa and the rest of the world is possible provided sorghum production meets the market demands.
The business model will take the form of agricultural production and marketing firm. Contracted farmers will grow the crop under controlled conditions with the promise of guaranteed minimum returns. The company will invest in regional buying and processing centres and provide adequate transport facilities to ensure timely delivery of harvested crop. Bonus payments to efficient farmers will encourage better crop management and provide the incentive to produce more. By building molasses plants and producing ethanol from sorghum off cuts, the company will increase its income streams. This will enable the company to reduce its operating costs, as it will have a cheap source of power to run its factories.
The main markets for the crop will include the global brewing industry and major food factories dependant on wheat as their key ingredient. Lower input prices will attract these market players to adopt sorghum as an alternative to barley or wheat. With an assured market, the company can develop its network of out growers and expand the area under cultivation by venturing into Southern Africa.
Tropical Africa is the most appropriate location to establish this business venture primarily because the crop is indigenous to the region. The climatic conditions are ideal for high production while the land is cheap and readily available. Low population densities mean that introducing large-scale farming is viable without additional costs of relocating families. Labor costs are low and high employment in rural areas will ensure a steady supply of workers to till the land and harvest the crop. East and central Africa have a number of port gateways that will ensure efficient export of the crop to international destinations.
Internet penetration and mobile phone densities are still very low in Africa. This contrasts greatly with the situation in Europe and Asia. As part of the millennium development goals, the global community has committed itself to ensuring every person has access to some form of communication. Nokia Company has a good business opportunity of increasing its market share by introducing low cost phones with internet capabilities to rural Africa. With an estimated population of about 1 billion, only 63 million people are connected to the internet or have reliable telecommunication services. Africas use growth figures for the period 2000-2009 are 1,394, which exceeds the rest of the world at 394.
Through aggressive marketing and the development of user-friendly phones, Nokias sales will increase tremendously. A key marketing tool is the need to provide phones that have solar charging capabilities as most of rural Africa remains unconnected to national electricity grids.
Module 2 Analyzing International Competitors
Diageo Breweries Experiment with Sorghum
Diageo Breweries through its affiliates in Uganda, Tanzania, and Kenya is promoting sorghum cultivation to supplement their malting needs. In Uganda, Nile Breweries have switched from using barley to sorghum in the malting process. The current technology is limited to producing malt used in low-end beers as research continues for a solution to the entire brewing process. Their efforts are geared to meeting their local demands with future prospects of satisfying the needs of the foreign branches. The company is working through third parties to avoid increasing its overheads by establishing an agricultural unit. With the focus mainly on producing malt, the companys immediate goals do not include ethanol production or sorghum for the food industry.
Ethanol production in Africa is low and its use is not as widespread as in the developed world. Energem Resources Inc. currently produces ethanol in Kenya and relies on the supply of sugarcane molasses as its raw material. The supply of molasses has become erratic due to the poor state of the sugar industry and the company is unable to meet local demands. This has forced the country to import ethanol from other countries to meet demands. By processing sorghum molasses into ethanol, an investor will reap good profits exporting the fuel to those countries that require more quantities than they can produce. The business opportunity of satisfying the needs of food industries in developed nations will ensure that loss of demand from the brewing industry does not lead to a loss of market for the crop. Increased demand for the crop by competing needs will translate into higher producer prices paid by the investor as opposed to those offered by the Diageo Company. Higher prices will encourage more farmers to sign up with the investor and thus increase the acreage under plantation.
Efficient transportation facilities will ensure that the goods arrive at the market on time so producers can meet their production targets. Reliable markets with a growing demand encourage increased production and enable an investor to conduct research into developing products of a higher quality. Good quality products fetch better prices on the international market, increase the incomes of those along the production, and supply chain.
With lower costs of production due to efficient mechanisms and economies of scale, profit margins will increase which will translate into better prices for the suppliers of raw materials. Increased income for the supplier will have a multiplier effect on the economy resulting in higher growth rates and increased consumer spending which will spur all sectors of the economy.
Locating a business where the cost of production is low will give a distinct advantage in the production of a commodity. Sorghum production in the US is possible but the high cost of labor and machinery compare poorly with alternative locations like Africa. Ideal production conditions improve the yields of agricultural products. Africa is blessed with sunny conditions throughout the year. This factor makes it possible to harvest crops at least three times per annum as opposed to those lands that experience winter seasons. Proximity to the markets is another consideration when establishing a business. Transport costs make up a significant percentage of the finished good and the closer the production is to the market the lower the final cost. East and Central Africa have port gateways on the Atlantic and Indian oceans that are served by international shipping lines.
Developed financial markets are important for international commerce. Modern business transactions are conducted using electronic money transfers and internet banking thus ensuring speedy exchange of money and delivery of goods. Unrestricted repatriation of profits and stable exchange rates are the hallmark of a stable economic system. This encourages foreign direct investment and assures investors that their investments are safe.
Political stability is very important for a good business environment. Smooth transfer of power and established political structures create confidence in the business community. Investment tends to be very high in those states where political stability is assured, as the costs of production remain, low as a result peace and security.
The food industry is turning to sorghum to provide solutions for people diagnosed as being gluten intolerant. Sorghum is gluten free and hybrid species have produced flour that makes quality bread and cakes. The potential for this product to replace wheat is enormous and the low cost of production will translate into lower consumer prices.
Sorghum is a crop native to Africa and does well in tropical regions. Most communities grew the crop as a staple food. With the introduction of maize, outputs declined as more farmers adopted maize as their main food crop. Changing weather patterns have encouraged African governments to reintroduce the crop because of its drought resistant qualities. Scientists have also developed improved varieties that are pest resistant, high yielding and possess improved malting qualities. The stalks are an important source of molasses and have great potential for the bio fuel industry. Costs of production in the US average 110 per acre, which compares favorably with 140 per acre for barley. In Africa, this cost falls to as little as 45 per acre.
With most developing countries striving to attain the millennium development goals of food security, poverty eradication, and better lifestyles for all, the introduction of sorghum as a major cash crop is a great boon to African farmers especially in the tropical regions. East and central Africa are high potential areas for growing this crop as the ideal weather conditions include average rainfall and plenty of sunshine. Since population densities in these areas are low, the potential for large-scale farming is very high. Applying modern technology to traditional farming practices can greatly improve outputs and lead to a doubling of the current world production of approximately 60 million tons.
Rising costs of fuel are eroding gains most nations are making through renewed economic growth policies. Sorghum molasses can alleviate this situation and provide cheaper sources of power for sorghum producing countries hard hit by inflation and high electricity costs. Lower production costs arising from cheaper fuels will improve the price competitiveness of exports and lead to increased foreign trade. Based on these factors, the global business opportunity that exists is for an investor to negotiate with African governments to support a massive sorghum production program with the aim of increasing outputs for the crop. In Nigeria, sorghum has replaced barley as the main ingredient for malting purposes. Replicating this scenario throughout Africa and the rest of the world is possible provided sorghum production meets the market demands.
The business model will take the form of agricultural production and marketing firm. Contracted farmers will grow the crop under controlled conditions with the promise of guaranteed minimum returns. The company will invest in regional buying and processing centres and provide adequate transport facilities to ensure timely delivery of harvested crop. Bonus payments to efficient farmers will encourage better crop management and provide the incentive to produce more. By building molasses plants and producing ethanol from sorghum off cuts, the company will increase its income streams. This will enable the company to reduce its operating costs, as it will have a cheap source of power to run its factories.
The main markets for the crop will include the global brewing industry and major food factories dependant on wheat as their key ingredient. Lower input prices will attract these market players to adopt sorghum as an alternative to barley or wheat. With an assured market, the company can develop its network of out growers and expand the area under cultivation by venturing into Southern Africa.
Tropical Africa is the most appropriate location to establish this business venture primarily because the crop is indigenous to the region. The climatic conditions are ideal for high production while the land is cheap and readily available. Low population densities mean that introducing large-scale farming is viable without additional costs of relocating families. Labor costs are low and high employment in rural areas will ensure a steady supply of workers to till the land and harvest the crop. East and central Africa have a number of port gateways that will ensure efficient export of the crop to international destinations.
Internet penetration and mobile phone densities are still very low in Africa. This contrasts greatly with the situation in Europe and Asia. As part of the millennium development goals, the global community has committed itself to ensuring every person has access to some form of communication. Nokia Company has a good business opportunity of increasing its market share by introducing low cost phones with internet capabilities to rural Africa. With an estimated population of about 1 billion, only 63 million people are connected to the internet or have reliable telecommunication services. Africas use growth figures for the period 2000-2009 are 1,394, which exceeds the rest of the world at 394.
Through aggressive marketing and the development of user-friendly phones, Nokias sales will increase tremendously. A key marketing tool is the need to provide phones that have solar charging capabilities as most of rural Africa remains unconnected to national electricity grids.
Module 2 Analyzing International Competitors
Diageo Breweries Experiment with Sorghum
Diageo Breweries through its affiliates in Uganda, Tanzania, and Kenya is promoting sorghum cultivation to supplement their malting needs. In Uganda, Nile Breweries have switched from using barley to sorghum in the malting process. The current technology is limited to producing malt used in low-end beers as research continues for a solution to the entire brewing process. Their efforts are geared to meeting their local demands with future prospects of satisfying the needs of the foreign branches. The company is working through third parties to avoid increasing its overheads by establishing an agricultural unit. With the focus mainly on producing malt, the companys immediate goals do not include ethanol production or sorghum for the food industry.
Ethanol production in Africa is low and its use is not as widespread as in the developed world. Energem Resources Inc. currently produces ethanol in Kenya and relies on the supply of sugarcane molasses as its raw material. The supply of molasses has become erratic due to the poor state of the sugar industry and the company is unable to meet local demands. This has forced the country to import ethanol from other countries to meet demands. By processing sorghum molasses into ethanol, an investor will reap good profits exporting the fuel to those countries that require more quantities than they can produce. The business opportunity of satisfying the needs of food industries in developed nations will ensure that loss of demand from the brewing industry does not lead to a loss of market for the crop. Increased demand for the crop by competing needs will translate into higher producer prices paid by the investor as opposed to those offered by the Diageo Company. Higher prices will encourage more farmers to sign up with the investor and thus increase the acreage under plantation.
Efficient transportation facilities will ensure that the goods arrive at the market on time so producers can meet their production targets. Reliable markets with a growing demand encourage increased production and enable an investor to conduct research into developing products of a higher quality. Good quality products fetch better prices on the international market, increase the incomes of those along the production, and supply chain.
With lower costs of production due to efficient mechanisms and economies of scale, profit margins will increase which will translate into better prices for the suppliers of raw materials. Increased income for the supplier will have a multiplier effect on the economy resulting in higher growth rates and increased consumer spending which will spur all sectors of the economy.
Locating a business where the cost of production is low will give a distinct advantage in the production of a commodity. Sorghum production in the US is possible but the high cost of labor and machinery compare poorly with alternative locations like Africa. Ideal production conditions improve the yields of agricultural products. Africa is blessed with sunny conditions throughout the year. This factor makes it possible to harvest crops at least three times per annum as opposed to those lands that experience winter seasons. Proximity to the markets is another consideration when establishing a business. Transport costs make up a significant percentage of the finished good and the closer the production is to the market the lower the final cost. East and Central Africa have port gateways on the Atlantic and Indian oceans that are served by international shipping lines.
Developed financial markets are important for international commerce. Modern business transactions are conducted using electronic money transfers and internet banking thus ensuring speedy exchange of money and delivery of goods. Unrestricted repatriation of profits and stable exchange rates are the hallmark of a stable economic system. This encourages foreign direct investment and assures investors that their investments are safe.
Political stability is very important for a good business environment. Smooth transfer of power and established political structures create confidence in the business community. Investment tends to be very high in those states where political stability is assured, as the costs of production remain, low as a result peace and security.
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