Rice production 101 ( Are you interested in rice production business? Read this!)
The Covid-19 pandemic has brought many lessons and challenges for entrepreneurs. For Abubakar Sadiq Falalu, the health crisis has helped affirm one thing: he is in the right line of business. Pandemic or not, people have to eat. Falalu runs a rice production and milling venture in Kaduna State, northern Nigeria. His company FaLGates Foods grows, processes, packs and sells parboiled rice to its largely Nigerian clientele.
Falalu, who just turned 31, began his business in 2016, enthused by the Nigerian government’s Agriculture Promotion Policy that aims to boost local agricultural production and agro-processing to reduce food imports. He studied for a second master’s degree in innovation management and entrepreneurship in China and was wowed by the investment the Asian giant made in agriculture. He toured rice fields, learning all he could about rice production and headed back to Nigeria.
Falalu was inexperienced and didn’t have much capital to hire expertise. Yet, he knew what he wanted to achieve, so he bought an integrated rice processing mill in early 2017, which enabled him to process the rice from beginning to end in one plant.
“I was new to the business. I had no career; just lots of degrees and little practical knowledge. We were eight employees, including me and the security staff, learning how to run a factory without experience. We bootstrapped from 2017 to 2019 and some years we had losses,” Falalu recalls of his early days when he was the mill operator and lived in his factory.
This inexperience almost led the company to fold two years later. “We didn’t have enough working capital to acquire a place of our own, so we ended up with fixed assets on rented premises that had a short-term lease. The owner wanted his place back and we had to disassemble our plant and sell it bit by bit. We lost so much money in vacating the premises, I thought we’d go out of the market.”
After it disposed of its plant, FaLGates outsourced production and continued selling its brand as they had a ready market. “It cost us more and reduced our profit but it was better than doing nothing,” Falalu says.
FaLGates’ saving grace during this trying period was its customer base. The company had managed to get its flagship brand FaLRice to wholesalers all over Kaduna State and other parts of the country.
“As a small company, our best bet was to try and maintain quality and to price slightly lower than our competitors to get market penetration,” explains the businessman.
The firm also took a risk and sold on credit to wholesalers. Falalu remembers a gamble they once took, selling goods worth $25,000 on credit to a new wholesaler. It paid off and in two days, the wholesaler had sold off the entire consignment and paid FaLGates. He became one of their biggest customers, bringing in business worth more than half a million dollars. “Of course, we lost a lot of money because of credit issues but made it up in other places. In business, you win some and lose some.”
He began consulting for investors and businesses that wanted to open rice mills. One of these investors has become his new business partner and they are in the process of starting up a new plant that will be the single largest rice miller in Kaduna State. Valued at $5 million, the mill is set to be commissioned in September 2021.
Funding the company’s growth
How has he managed to fund his enterprise? “Charity begins at home,” Falalu says, laughing. “My mother was my first investor.” She gave him $40,000 which, along with monies made trading goods as a student in China, became his seed capital.
Over time, he has had friends and family join as shareholders. However, he has put governance structures in place and drawn up shareholder agreements to allow him to obtain equity and debt financing.
“Acquiring capital in Nigeria is tough and we have had a lot of rock bottoms. Some deals fell through at signing. Bureaucracy makes everything difficult; what would normally take one week, can take a year. If you can succeed in Nigeria, you can succeed anywhere,” Falalu says wistfully.
His current headache is getting scarce foreign exchange to pay for the machinery the company is buying. “We have the naira but are unable to access the dollars. Getting a letter of credit is not easy.”
He, however, lauds the government’s intervention facilities for those investing in agriculture as this has enabled the firm to access a bank loan at a single-digit interest rate.
Nigeria a major rice consumer
According to the Food and Agriculture Organisation (FAO), Nigeria is Africa’s primary consumers of rice, one of the biggest producers and, simultaneously, of the largest rice importers globally. The nation consumes about seven million tonnes of rice per year and as of 2018, the country imported more than three million tonnes, equivalent to $480 million. A report by PWC states rice accounts for up to 10% of household food spending. With a population exceeding 200 million people, the market is vast and demand far outstrips supply.
“We love to eat rice. In most homes, especially in the south-east, rice is eaten at least once a day. Imported rice is our main competitor. It has caused many local factories to shut down,” Falalu notes but adds that Nigerians appreciate local rice for its quality and better taste. “Our rice takes approximately four to six months from farm to plate, compared to imported rice which has been in silos and shipping containers for up to a year or more. As a result, it loses its taste.”
The government’s policies to boost local farming of rice are bearing fruit as production went up from 3.7 million metric tonnes in 2017 to 4 million metric tonnes in 2018. Rice generates more income for Nigeria’s small-scale farmers than any other cash crop.
Initially, FaLGates bought paddy from third-party farmers. Kaduna borders several rice-producing states, making it a good location. Today, the company has 200 hectares under contract farming. It supplies farmers with inputs then buys back paddy at market value less cost of inputs.
According to Falalu, opportunities in Nigeria’s rice market are attracting big global companies that have significant capital. Local entrepreneurs and farmers will need to think strategically to survive. FaLGates has diversified into rice seedling farming and is acquiring farmland to grow its own paddy as part of a backward integration strategy. By improving on seed varieties, it runs a profitable venture of selling rice seedlings to farmers who are guaranteed higher yields. A 4,600-hectare commercial farm in the pipeline will, in the next five years, help meet up to 50% of the factory’s annual paddy requirement.
FaLGates processes up to 50,000 metric tonnes of rice per year, with a turnover of $3.4 million.
Falalu has also begun maize trading and is looking into beef farming to use the rice bran from his mill as feed. The company’s goal is to grow organically by boosting acreage under cultivation as well as expanding into south-east Nigeria, which consumes more rice than the rest of the country. “I believe in organic growth. We have grown from eight employees to 60.”
Going forward, Falalu sees Africa’s population as a significant asset rather than a liability and is planning an African tour next year to scout for export opportunities, particularly in nations that do not have an established rice industry.