Building Capacities through Local Production of

Processed Foods for School Feeding Activities

May 2012

WFP Food Safety and Quality Unit

ODPFQ, Rome

SUPPLY

CHAIN

APPROACH

CHANGING

CONTEXT

Cash vs. In Kind donations (~60 vs. 40 %)

Food procured locally (~85 %)

Nutritious foods (~25 %)

WFP purchases more food, among which more sensitive products

produced/purchased locally and targeting the most vulnerable

WFP operational practices are switching from:

- End product testing

- To a more proactive and preventive system

Safety & Quality along WFP’s food supply chain

SUPPLY

CHAIN

APPROACH

AIM

Continuously improve food safety and quality along the

supply chain by reducing and preventing safety issues

SUPPLY

CHAIN

APPROACH

• FARMERS

• PROCESSORS

• INSPECTION

COMPANIES

• LABORATORIES

• TRANSPORTERS

Post harvest storage

and handling Corn & Aflatoxin

Audits, conformity with

international standards

Jointly with UNICEF and

MSF

Support their capacity in

perform their activities

Assessing their needs

(guidelines/equipment)

SOPs

Guidelines

SUPPLY CHAIN ACTORS WFP ACTIVITIES APPLICATION

Long Term Agreements

to enable to invest more

carefully in WFP needs

Blue Box, a kit of grain testing

tools for on-the-spot screening • WFP STAFF

Trainings on the

principles of food quality

and food safety

PROCESSED

FOODS

KNOW HOW

PRODUCT

CUSTOMIZATION

PRODUCT

IMPROVEMENT

Shelf life

Premix composition

Proteins (source, level)

Packaging

Antioxydants…

Stability

Exploratory study on a

fortified fruit bar

PRODUCT

DEVELOPMENT

WHAT WFP DOES COMMODITY

Jellified

bar

High

Energy

Biscuits

Fortified

Blended

Foods

Corn based / Ethiopia

Rice based / Asia

Wheat based / Sudan

EXAMPLES

SCHOOL

FEEDING

(HEB)

BETTER PROGRAMME EFFICIENCY

• Local products (customized) are more adapted

• Fresher products who did not have to travel oversea

STIMULATES LOCAL AGRICULTURE

• Provide market outlets for local agriculture

• Processed foods offer more opportunities (various RM, switchable)

REDUCES PIPELINE BREAKS

• CONTINUOUS – less interruption in the distribution

• REACTIVITY – no lead time between procurement and distribution

AFGHAN

CASE

STUDY Feasibility Technology Engineering Manage Finance Risk Tests

Feasibility study:

Rationale: Local School Feeding

Target: on-site school feeding: 1.5 million children

to receive a daily ration of fortified biscuits during

the school year to increase and maintain

enrolment and relieve short- term hunger;

Demand: ~ 30,000 MT/year

Buyer: WFP

Technical analysis:

Available budget: several $ million

Delay of execution: 1-2 years from green field

Industry (willingness, investment capability,

knowledge-capacity, seriousness, …)

Technical specification to meet (maintenance,

complexity, …)

Norms and regulations

Quality concerns

Sustainability: economical, social, environmental

Security: internal (site), external (environment)

Raw Material: availability, quality, cost,

Auxiliary material, utilities: water, power, etc.

AFGHAN

CASE

STUDY Feasibility Technology Engineering Manage Finance Risk Tests

Project engineering:

Choice of the technology: 2 strategies

1. Existing factories (investment minimum, mostly private)

2. Turnkey factories (high investment, WFP or partner)

Operational management of the project:

Organization layout: articulating innovative

programmes with administrative and financial

procedures / agreements

Sustainable management:

Maximizing locally sourced raw materials:

First 100 % imported raw materials

Then the wheat

Then substituting imported raw material

with locally produced ones (milk vs. soya)

AFGHAN

CASE

STUDY

Needs: 3,700 mt

Capacity: 3,200 mt

Needs: 5,890 mt

Capacity: 2,000 mt

Needs: 8,553 mt

Capacity: 2,000 mt

Needs: 6,555 mt

Capacity: 1,200 mt

Needs: 1,983 mt

Capacity: 1,200 mt

Feasibility Technology Engineering Manage Finance Risk Tests

AFGHAN

CASE

STUDY

AFGHAN

CASE

STUDY Feasibilit

y Technolo

gy Engineering Manage Finance Risk Tests

WFP ERRATIC ORDERS

- Competitive tendering

- Cost Effectiveness challenged by India

- Need time to reduce cost through mass procurement of RM and use of soybean

SPARE CAPACITY

• WFP demand is not the main activity

• WFP contributes to maximize the use of the production tool

• But the changes in safety and quality apply for the rest of the production

INVESTMENT

• 100 % private

• WFP role is only advices

AFGHAN

CASE

STUDY Feasibilit

y Technolo

gy Engineering Manage Finance Risk Tests

HEB sold

to

LOCAL

PARTNER WFP

CFPU

HEB paid

to

leased to

repayment

(100%)

purchases

Forward contract mechanism

WFP Funding (100% of the initial investment capital)

3rd party payment mechanism repayment of the investment shared between GAIN and WFP repayment

AFGHAN

CASE

STUDY Feasibilit

y Technolo

gy Engineering Manage Finance Risk Tests

AFGHAN

CASE

STUDY

per$year$ per(metric(ton(

REVENUE 1,316,762 US$/year

1,108 US$/MT

MARGINS 12.5% 164,595 US$/year 139 US$/MT

TOTAL 1,481,357 US$/year 1,247 US/MT

Industrial Contribution

Raw Materials 958,992 US$/year

807 US$/MT

Packaging (foil) 55,844 US$/year 47 US$/MT

Packaging (box) 84,360 US$/year 71 US$/MT

Energy 96,506 US$/year 81 US$/MT

Labor 82,800 US$/year 70 US$/MT

Operating Exp. 41,859 US$/year

35 US$/MT

R&D 0 US$/year 0 US$/MT

Depreciation 4,450 US$/year 4 US$/MT

Total 1,324,812 US$/year 1,115 US$/MT

RESULT 156,545 US$/year 132 US$/MT

Tax 20% 31,309 US$/year 26 US$/MT

PROFIT 125,236 US$/year 105 US$/MT

Year 1 2 3 4 5 6

Shifts # 1.5 2 2 2 2 2

Quantity sold to WFP MT 891 1,188 1,188 1,188 1,188 1,188

Sale Price US$/MT 1,247 1,272 1,297 1,323 1,350 1,377

Profit after tax US$/MT 105 105 105 105 105 105

Contribution per MT (50% profit) US$/MT 53 53 53 53 53 53

Contribution per year US$/year 46,784 62,379 62,379 62,379 62,379 62,379

Revolving Fund US$ 109,163 171,542 233,922 296,301 358,680

Purchasing Price US$/MT 1,195 1,219 1,245 1,271 1,297 1,324

Procurement budget US$ 1,111,239 1,511,285 1,541,510 1,572,340 1,603,787 1,635,863

Contribution/Sale price % 4% 4% 4% 4% 4% 4%

Purchasing Price/Sale Price % 96% 96% 96% 96% 96% 96%

Feasibility

Technology

Engineering Manage Finance Risk Tests

ANNEX I: Cost Breakdown for HEB production (Cost of Sold Goods)

!!!!!!!!!!

Raw$Material$Breakdown$

! price! 1!MT!dough!

kg $/MT US$

flour 56.54 370 209.20

sms 0.00 0 0.00

whey powder 7.84 1,976 154.92

shortening 13.40 1,618 216.81

lecithin 0.22 2,235 4.92

amoniuim 0.31 564 1.75

soda 0.09 1,882 1.69

sugar 12.41 941 116.78

glucose 0.43 706 3.04

water 8.30 35 2.91

vanilla 0.03 4,706 1.41

salt 0.43 196 0.84

Total 100.0 714.3

Production$Capacity$Breakdown$

kg/hour 270

hour/shift 8

shift/day 2.0

day/week 6

week/month 3.82

month/year 12

MT/year 1,188

MT/month 99.0

MT/shift 2.16

Factory(Price(Raw$Material$

BISCUIT 807 $/MT

Packaging$FILM 47 $/MT

CASE 71 $/MT

Labor$

LABOR 67 $/MT

Energy$

ENERGY 81 $/MT

OPEX$Various$OPEXV 35 $/MT

TOTAL 1108 $/MT

OPTIMIZED!

WATER LOSS 13.0%

Packaging$Breakdown$Packaging

type Cost

kg(HEB)/

unit g/unit unit/MT

Film 9.4 $/kg 0.1 0.5 10,000

Case 0.71 $/unit 10 100

Labor$Breakdown$

Job type #

people

US$/month/

shift/person

US$/

month

Worker 17 150 2,550

Others 2 150 300

Supervisor 1 250 250

Store assistant

1 200 200

TOTAL 21 3,300

Operating$Exp.$Breakdown$

Description( US$/month(Accountant 150

Mechanic /

Electrician 100

Lab. Technician 0

Driver 75

Staff food 2,068

Staff uniforms 153

Supplies office, Cleaning, Lab

118

Maintenance

buildings & equipment

118

Transport/vehicles

(fuel and maintenance)

706

TOTAL 3,488

Energy$Breakdown$$kg/hour 17

US$/kg 1.29

US$/shift 175 Variables

Formulas

Fixed

Prices

ANNEX II: Regional approach of HEB local procurement in Afghanistan through P4P

Locally sourced raw

materials

Provinces

List of HEB Suppliers in Afghanistan

WFP CO

AFG needs

in HEB in 2011

Local

procurement HEB budget

Soy flour

(10% of the

dough recipe)

Wheat flour

(56% of the dough

recipe)

Plant(s)

location

Plant

#

Plant

type

Prod. Capacity* (MT/year)

MT/year DAP WFP

warehouse (1,400 US$/MT)

MT/year MT/year

Herat

Herat 2 Private factory

3,200 3,743 4,480,000 355 1,989 Badghis

Helmand

Kabul

Kabul 1 Private

factory 2,000 8,553 2,800,000 222 1,243 Kapisa

Parwan

Nangarhar

Jalalabad 1 CFPU 1,200 6,555 1,680,000 133 746

Kunar

Laghman

Khost

Paktya

Kunduz

Faizabad 1 CFPU 1,200 1,983 1,680,000 133 746 Badakhshan

Baghlan

Takhar

Balkh

Mazar 1 Private

factory 2,000 5,890 2,800,000 222 1,243

Faryab

Jawzjan

Samangan

Sar-i-Pul

TOTAL 6 9,600 26,724 13,440,000 1,066 5,967

!*Two!shifts/day,!8!hours/shift,!6!days/week,!4!weeks/month,!11!months/year!**In!red!the!two!CFPUs,!one!in!Jalabad!and!the!second!one!in!Faizabad!

!

AFGHAN

CASE

STUDY Feasibilit

y Technolo

gy Engineering Manage Finance Risk Tests

TO

CONCLUDE

Demand for development of local production of processed foods is increasing but faces structural problems:

lack of investment capacity linked to an overall lack of support for the sector, inadequate level of quality

management and analytical laboratories, technical know-how that does not enhance local resources at the

expense of imports...

Agriculture is being forced to rapidly increase production to feed the growing urban population

The challenge of a changing food sector is both quantitative and qualitative

Domestic demand is indeed the main outlet for local agricultural products and an important engine of economic

development and enhancement of rural production

In such context where food industry plays a strategic role in improving the competitiveness of national production, WFP is

taking part in this change