In the animal feed milling industry, different materials (Cereals, Coarse powders, and Fine powders, Mash, Bran, Liquids and Molasses) are milled, fed and weighed, and mixed together including additives to obtain the final product.
Corn, Sorghum, Wheat and Barley are the most used cereals in the preparation of feed for the livestock, poultry, swine, and fish industry. Roller and Hammer mills are the two types of processing equipment generally used to grind grains into smaller particle sizes.
Milling cereal grains by mechanical action involves several forces like compression, shearing, crushing, cutting, friction and collision. The particle size of the ground cereal is very important in the animal feed production, smaller particle sizes increase the number of particles and the surface number of particles and the surface area per unit volume which increase access to digestive enzymes.
Feed Milling Process
Feed Mill is a process and/or a combination of processes used to produce a processed food for fish, animal or human consumption. The top two players have an installed capacity of approximately 11,000 MT per day and control over 65% of the market. Given the industry‘s high fixed cost regime, profitability is largely dependent on the company‘s ability to increase volumes.
Shortages of cassava flour coupled with surging wheat prices at the world market are adversely affecting the operations of flour milling companies in the country.
Rising prices of wheat is therefore a major challenge being faced in the industry as a ton of wheat is currently priced at between $180 and $240 respectively.
Critical Success Factors
1. Capacity
One major critical factor for the success of flour millers is capacity. Being a volume driven market, the ability to constantly increase its production capabilities clearly distinguishes the more successful players from the less successful. The ability to increase capacity is also directly related market share, ultimately leading to greater output and profitability.
2. Marketing Strategy
Aggressive marketing is a significant factor for the success of flour millers. Being a manufacturing related industry with keen competition among its players, large resources should be deployed towards promotions, advertisements and general publicity.
Various media for marketing are usually deployed such as print (newspapers and magazines), electronic (TV, radios and internet) as well as billboards and sponsorships of events /programmes. All these efforts create awareness in the minds of consumers, invariably leading to greater patronage.
3. Adequate Distribution
An effective and efficient distribution network is a key requirement for the success of flour millers. Since flour is consumed in virtually all areas of the country, it is pertinent that the end product gets to the final consumer as at when needed. Also, the demand for flour is heavy in certain areas and as such producers should ensure a higher preference in such areas. Adequate distribution network therefore compliments the productive and marketing strategies of the companies.
4. Good Management
Just like in any other industry, an essential ingredient for success lies in the quality of its management team. The track record, experience and competence of top management determines to a large extent the ability to grow volumes and margins.
Most of the flour milling companies are owner managed and so it bestows on the owners to clearly distinguish family from business. Also, competent staff should be employed in strategic units to ensure a positive impact on the company‘s bottom line.
5. Adequate Storage Facilities
Wheat is essentially a perishable commodity, therefore adequate storage remains a key success factor. With proper storage in place, losses and wastages due to spoilage and deterioration will be reduced to the bearest minimum.
With companies incurring high cost outlays due to overheads from distributing, marketing and other miscellaneous costs, reduction of wastages will greatly help reduce overall cost burden and help improve profitability.
Storage Facilities should therefore be situated close to distributors in order to reduce turnaround time and to save costs. In addition to the quality of the facilities, they should also be kept safe to prevent losses from theft and pilferation.
6. Pricing
Pricing within the flour milling market is regulated primarily by the Flour Millers Association. However, the big players prefer to set prices which are higher than the fixed price in order to increase their margins and grow profits. Since costs are very high, most producers usually make the extra cash through optimal pricing of their products.
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Challenges and Risk Factors
Regulatory and Operating Environment Due to the strict and highly regulated operating environment in which flour millers operate, import duties, levies, taxation and other encumbrances impose heavy burdens on manufacturers thereby increasing overall cost of production. Such heavy overheads reduce producers overall margins.
1. Lack of Sufficient Infrastructure
The problem of infrastructure continues to be the bane within the real sector of the economy. Since flour millers require constant electricity to run their heavy duty machinery, its inadequacy and/or ineffectiveness imposes heavy financial burdens.
2. Low Demand for Wheat
Comparatively, demand for wheat in Nigeria is very low. Official statistics suggest that at 69g per capita, wheat consumption in Nigeria (relative to its 2006 population figure of 140 million) is below that of other developing economies such as Syria (490g), Turkey (484g), Chile (370g), Egypt (397g), Argentina (344g) and South Africa (318g) with much less population headcount. This demand inadequacy creates supply gaps especially in certain areas where demand is extremely low.
3. Continuity
Most flour milling concerns have issues of continuity since a large portion of their equity contribution is dependent on single individuals. Only 3 of the 21 flour milling companies are quoted while the 18 private companies are characterized by sole ownerships by key men. As such, the instance of death or incapacity of the individual owners renders the companies concerned vulnerable to possible financial crises and/or liquidation.
4. High Cost of Operations
Even though the industry is highly competitive with free entry and exit, the existence of high initial set-up costs means that only high net worth individuals and/or institutions have access to the financial capital required to run the business. Also, the high cost structure and capital intensive nature of flour milling imposes huge economic difficulties for prospective and existing manufacturers.
5. Foreign Exchange Fluctuation
Due to poor climatic conditions, majority of the wheat used by local manufacturers is imported especially from countries like the US and Brazil. Such practices create foreign exchange risks as currency volatility sometimes works against the producers. However, the recent appreciation of the naira against the dollar seems like a good omen which would help hedge against such risks.
6. Inflationary Pressures
In the past, inflationary pressures have been a major impediment to the growth of producers. Official figures from the Federal Office of Statistics (FOS) suggest that the consumer price index has been on the rise for the few years.
However, due to Nigeria‘s economic recovery programme, inflation is now on a steady and consistent decline having attained single digit figures in recent times.
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