MEMO EXPORT BUSINESS CASE

Masters Energy
Internal Mem o
To: GBE MECTL
From: Head Export Unit
Cc: President, VC, GCOO,HR
Date: April 11, 2016
Subject: EXPORT BUSINESS CASE
Executive Summary
With an initial focus on the importation commodities like Rice, Olive Oil, Wine, etc Masters Energy Commodities Trading Limited (MECTL) is venturing into export of primary commodities like cashews, cocoa and sheanut, Ginger, Charcoal etc. MECTL will overtime gradually refine her operational scope and expand operations into three major business streams, namely import of FMCGs, exports of primary commodities and secondly processing of Raw Cashew Nuts (RCN), Cocoa, Shea nuts etc.
Our major focus is to establish presence in the west African commodities trade, we intend garnering a Market share of at least 5% in our five target agro commodities export.
Industry Analysis
Agro Commodities Market has been a growing industry for the past five years. The most notable growth has been in the Asian and European market where imports have increased almost one-hundred percent and the market price has nearly doubled. The major commodities where this market growth was noticed is in Cocoa, Cashew Nuts (Raw and Roasted) Shea Nuts, Gum Arabic, Processed foods, Processed Timber, Charcoal etc. of specialty roasters and processors has increased from a handful of well known companies to thousands of independent entities. There is a constant struggle within this market to process the best commodities and serve the niche within the larger market. Producers and exporters have made great efforts to improve agricultural techniques, processing methods, and distribution in order to better serve this growing market. Demand for Nigerian Agro Commodities is currently greater than supply.
Mission
MECTL seeks to serve importers and enthusiasts by exceeding minimum acceptable quality standards and by providing the highest quality product at the lowest possible price. Effort will be made to develop and manage close relationships with current and future customers and hope to communicate our appreciation to them through our outstanding, guaranteed product quality, personal service, and efficient delivery. Our commitment to our customers and our country Nigeria will be reflected through honest and responsible business.
Company Locations and Facilities
The MECTL is headquartered at Lagos, Nigeria with processing facilities in various part of the country. main warehouse will be located at Ijesha Lagos. The warehouse will have the capacity to prepare approximately 6,000 MT of exportable agro products. The proposed facility will also handle shipping. In addition we will also acquire or rent warehousing facility up country close to producing areas of our major export commodities- Raw Cashew Nuts (RCN, Cocoa, Shea Nuts, Ginger etc.
Objectives
The objectives of MECTL (Exports Unit):
Venture into and capture not less than 5% market share in our key 5 products . Increase our market share over the next 5 years to over $100million annual turnover .
Lunch into processing and reach a target of 10,000MT for RCN processing, 10mt for Shea nuts processing, and 30,000 MT for Cocoa in the first 5year of operation.
Increase sales substantially in the first full year of operation.
Establish strategic relationships with 20-30 foreign importers of West African Agro commodities.
Increase gross margins in the next three years.
Products
MECTL will deal exclusively in following Agro Allied Cocoa, Cashew, Shea Nuts, Ginger, Charcoal, The commodities are grown in different part of Nigeria. The commodities are purchased directly from growers and are processed as the case may be and packaged for exports. (See enclosed Products Factsheet).
Sourcing
We intend sourcing the commodities directly from the commodities producing areas. Also plan will be made to get direct supply from commodity merchants to our warehouse facility at Lagos. This will help us in mitigating procurement risk. With additional financing, we would be able to buy larger volumes at lower prices by securing contracts with commodities merchants and farmers six months in advance of harvest.
Our keys to success are:
Establishing and maintaining working relationships and contractual agreements with foreign importers and Nigeria commodities merchants/ farmers.
Establishing processing facilities at strategic location to under-cut our competitors, bringing the new processing facilities within the first two years of market entry to derive more margin.
Increasing our profit margin with the use of well developed procurement and logistics model
Effectively communicate to current and potential customers, through targeted efforts, our position as a differentiated provider of the highest quality West African agro commodities.
Competitive Comparison
In order to differentiate our products, from the product offering of competitors, we will ensure we procure the right specification, packaged and barcoded correctly and shipped immediately. In addition, we will ensure that all of the farms and merchants from which MECTL procure the commodities adhere to environmentally sound farming practices and avoid the use of banned pesticides and chemicals in crop production and storage.
There are so many competitors who export similar products to ours. Our research indicates that with the right marketing strategies we could be among the top ten , in terms of quantity and quality. We have the advantage of established distribution channels and reputation. In addition, improvements to our marketing efforts will further separate us from the larger market and from our close competitors.
Market Segmentation
The potential customer groups for MECTL are:
The Indian and Vietnamese importers of Raw Cashew Nuts: Market research suggests that there are approximately 200 importers of Raw Cashew Nuts from Nigeria and other West African countries Like Ghana, Ivory Coast. Combined, they import a total of between 700,000MT and 900,000MT of West African Raw Cashew Nuts per annum.
European Commodities wholesalers/ Merchants: This market serves as a safety valve for our export business. By maintaining relationships with European wholesalers we have an alternative market with established distribution channels.
Supermarket Chains and Industries: As we move towards maximum capacity we will plan to more aggressively target this audience. We hope to eventually reduce transactions with wholesalers and capture their value-added costs as profit. We anticipate that this effort will begin approximately 2 years into operation as our processing facilities become operational.
Some of the target countries and commodities is presented below;
Europe- Cocoa, Shea Nuts/Shea Butter, Gum Arabic, Ginger, Processed foods (yam flour, plantain flour) Charcoal etc ,
USA-Cocoa, Roasted Cashew Nuts, Shea Butter, Processed foods (Yam flour, Plantain flour etc), Ginger, Gum Arabic
China- Cassava Flour, Starch, Ginger, Processed Timber etc
India/ Vietnam Raw Cashew Nuts, Ginger, Gum Arabic
Africa- Processed foods, Noodles, Masters biscuits, etc

Competition and Buying Patterns
The purchase decision for our customer is based on trust in our processes. We plan to have established relationships with our customers which extend beyond that of the buyer/seller. By deploying the best operational model, MECTL label means that the product has been chosen and prepared with the highest quality standards in mind.
Main Competitors
There are over 1000 exporters of Agro Commodities from Nigeria. According to the NEPC most of these exporter are SMEs with very limited financial capability hence they resort to exporting very little quantity, usually few containers. Notable exporters like Olam Group, Kelwaram, Stallion Group are also our main competitors. However we intend penetrating the market by developing a very strong procurement and foreign market presence.
Marketing Strategy
MECTL marketing strategy will include the use of online Media advertising and direct selling to importers in the United States, Europe, Asia. We will capitalize on existing relationships with foreign firm we import commodities like rice, Olive Oil , Wine, etc for market information and leads. We will also procure the services of confirming houses, export brokers. etc
Through our membership of trade sections of embassies, Chambers of Commerce and Industry we intend gaining market insight in our target countries. This could be done by being part of National business delegation to the target countries.
We also plan to maintain foreign presence in some target countries or converging point like UAE, China, Europe, India and USA. This will help us to meet our prospective customers to easily and also will boost the confidence by our prospective customers.
Promotion Strategy
Relationships are key to success in the export business. Visits will be made to our prospective importers. As we commence operation additional accounts and contacts with will be established and maintained through personal contact. Personal selling will remain our most important means of promotion. The Head, Export will lead this effort but effort will be made for our Export business to be of interest to all management staff as they could solicit for business on behalf of ME Group Export Unit. In addition to personal selling we have identified several specialty publications and Portals within which advertisements will run. Direct mail, in the form of personal letters will also be used to communicate with existing and potential customers.
Sales Literature
Additional sales literature will include a website, direct mail to processors and importers, and print advertising in several trade publications. We will also subscribe with relevant trading portals like www.alibaba.com , www.tradekey.com , www.globalbuyersonline.com etc through this portals we will advertise our export commodities to the target markets.


Strategic Alliances
We plan to develop strategic alliances with foreign importers. They have the ability and willingness to purchase larger quantities of our products and recommend us to other importers. Additional alliances with export brokers, trade associations, export desk of our bankers, commodities merchant/producers will form the cornerstone of our export operation.
Personnel Plan
The Head Export will coordinate all marketing and operation plan, he will be trained on Legal and Financial aspects of international business. However, there will be supervisors of key unit- Procurement, documentation, operation. As our operation expands there will be operations heads and supports staff for processing facilities that will come on-stream. More employees will also be added to increase administrative, marketing and accounting support.

Financial Plan
We propose to finance our export transaction through a combination of debt and cash flow. Construction of processing facilities will be mainly funded by longterm debt. Effort will be made to source for cheap fund from the Non-oil export stimulation fund from Neximbank and commercial banks with an interest rate of less than 10% .Purchase of the larger facility and equipment will require approximately eighty percent debt financing. Additional technology will be primarily financed with cash-flow
In addition, we must achieve gross margins of between twenty five and thirty percent and hold operating costs no more than seventy-five percent of sales.
SWOT ANALYSIS
Strength
Firstly, the owners (MASTERS ENERGY GROUP) industry connections are the primary asset of the company, which makes introduction to the target partners and customers decision –makers much more likely.
Also, Our industry exposure in importation of FMCG is a major strength to our export operations.
Thirdly our financial capability is a major strength as sourcing for fund for export operations and expansion will not be too difficult.

Weakness
Our status as a new exporter without the requisite experience in export operation is the major weakness, however we will leverage on strategic alliance with experienced export consultants, brokers, Export Management Companies (EMCs) to build the needed capacities in a very short period.

Opportunities
With the decline of Nigeria's non-oil export revenue receipts from US$10.53 Billion in 2014 to US$4.39 Billion in 2015 coupled with the with over 70% fall in crude oil prices government efforts is mainly on stimulation of non-oil export. Stimulation packages to encourage SMEs and exporters is over N500 Billion .
Nigeria is a major producer and exporter of Cocoa, Raw Cashew Nuts, Shea Nuts, Gum Arabic, Charcoal, Processed timber etc.
Agro Commodities Market has been a growing industry for the past five years. The most notable growth has been in the Asian and European market where imports have increased almost one-hundred percent and the market price has nearly doubled.
Demand for Nigerian Agro Commodities is currently greater than supply.

Threat
The nature of international commodity market, with vagaries in prices of commodities
Poor access to international market
Policy summersault- Inconsistent macroeconomic framework, amongst others.
Costs associated with international trade
Future/potential competition from large corporations like OLAM Group, Kelwaram Group, Stallion Group etc.
Logistics/Infrastructural gaps
Quality standards/Packaging issues
High Cost of operation in Nigeria

Market Analysis Summary
Agro commodities constitute the second highest foreign exchange earner for Nigeria. Nigeria is a major producer and exporters of the following commodities- Cocoa, Raw Cashew Nuts, Shea Nuts, Sesame Seeds, Hibiscus Flower, Ginger, Gum Arabic etc.imports of these commodities have increase over the years to the United States, Europe and Asia. In addition, demand for these commodities is above the market clearing level, and market price and crop yield estimates are at an all time high.
For commodities like, Cocoa, RCN and Shea Nuts the increase in the number of independent specialty roasters in the United States , Europe , China, India and Vietnam has contributed to and is an indicator of the increased demand . Within the larger export market our target market is the specialty roaster/processors of these raw commodities. These discerning customers want the highest quality commodities. They serve the growing "gourmet" commodities market and are represented by large companies and thousands of smaller processors. The aforementioned commodities from Nigeria are considered to be the best qualities in the world and as such, the demand is high. We estimate that the market for these commodities from Nigeria is over ($USD) Five-billion market.
Effort will be made to leverage on our key strength while working assiduously to undercut our competitors.


The undersigned is available for any clarification that may be needed.
This is for your information and further action.

Thank you.

AGHEDE Benjamin

















PRODUCTS FACTSHEET
Product Name: Cocoa
Specie: Theobroma Cacao
HS Code: 180100
Major Producing Areas: Oyo, Osun, Ekiti, Ondo, Ogun, Edo, Abia and Cross River State.
Marginal Producing areas: Kwara, Delta, Kogi, Akwa Ibom, Taraba and Adamawa States.
Uses:
Production of butter, cake, sweetens, powder, etc
Cocoa butter is used for the manufacturing of chocolate. It is also useful in the cosmetic industry.
The Cocoa cake or powder is used in manufacturing of chocolate as well as Cocoa based beverages such as Vitalo, Bourn vita, Milo, Chocolate, Chocomilo, Richoco etc.
Cocoa cake is also important in the baking industry in the manufacturing of flavorings.
The husk is food for ruminants (Cattle, Sheep and Goats)
The husk can be dried and milled to replace up to 40% of grain requirement component of poultry feed.
Cocoa sweetens contains Pectin which widely used in the food and pharmaceutical industries. It can also be processed into soft drinks, wines, alcohol etc.
Quality Standard for Export:
Grade
% Slatey
% Mouldy
% Other Defects
1
3 maximum
3 maximum
3 maximum
2
8 maximum
4 maximum
6 maximum
No. Grade
More than 8
More than 4
More than 6
Main Crop & Light Crop:
Another criterion for measuring the quality of cocoa bean is when 300 beans randomly selected from the lot is found to weigh NOT less than 312g. This is classified as Main Crop (MC). If on the other hand, 300 counts of randomly selected cocoa beans weigh less than 312g, the lot is regarded as a Light Crop (LC).
PACKAGING:
Cocoa Beans: Cocoa beans, after proper drying to moisture content of not more than 8% are bagged in new jute bags which are clean and strong, weighing 65kg net.
Cocoa Butter: This is packed in lined cartons of 25kg net weight.
Cocoa Cake/Powder: They are packed into lined paper bags of 25kg net.
IMPORTING COUNTRIES:
Netherlands, USA, Germany, Malaysia, France, UK, Canada, Turkey, Russian Federation, Italy, Spain, Japan etc.
Products Factsheet
Product Name: Cashew Nuts
Species: Anacardium Occidentale
HS- Code: 0801310000
Major Producing Area: Abia, Anambra, Akwa Ibom, Benue, Cross River, Delta, Ebonyi, Edo, Ekiti, Enugu, Imo, Kwara, Kogi, Niger, Nassarawa, Ogun, Osun, Oyo and Taraba.
Estimated Production: 200,000MT
Quality/Standard: Out-turn/Yield(KOR): 43 to 48 lbs per 80kg (good)
48 to 55 lbs per 80kg (Excellent)
Nut count (Number of Raw Cashew nuts per kg)
170 - Excellent
Foreign Matter – 2%
180 - Very Good
Defective - 5% Max
190 - Good
Insect Damages - Non
200 - Middle
Stone - Non
Moisture - 8% Max
Plumb - Very plumb, plumb, slightly plumb
Packaging: The Cashew Nuts are packaged in jute bags while the processed kernel are packed using vacuum packaging system with low density polyethylene film and corrugated fibre boards materials.
Uses:
The nut is processed to snacks, use in recipe
The shell is used in lubricants, paints , etc
Importing Countries: India, Vietnam, Singapore, UAE, USA
Unexplored/emerging/ New Markets: Brazil, Vanuatu, Saudi Arabia, Belgium.

Product Factsheet – Sheanuts
Product Name: Sheanut
Species: Vitellaria
HS Code: 1207991000
Major Producing Areas: Niger, Kwara, Oyo, Kogi, Ogun and Benue States.
Estimated Production Figure: 325,000MT
Quality/Standard:
Oil content………………..…48%
Free fatty Acid……………..5%
Moisture………………..……..6%
Impurities…….………………2%

Packaging:
Clean hydrocarbon-free jute bags are used to package Shea nuts
Uses:
Used in the production of Sheabutter which is used in the costmetics, confectionary, Pharmaceuticals and other such industries.
Importing Countries: Europe, America.
National Association:
National Shea Producers Association of Nigeria (NASPAN)




Product Factsheet Ginger
Product Name: Ginger
Botanical Name: Zinger Officinale
HS Code: 0910110000

Major Producing Areas:
Kaduna, Nasarawa, Benue, Niger and Gombe States with Kaduna State as the major producer.
Estimate Production Figure:
156,000 MT
Quality/Standard:
Moisture content - about 8.90% max
Starch - (g/100 dr.wt)
Total reducing sugars - (g/100 dr.wt)
Crude Protein - (g/100 dr.wt)
Crude fibre - (g/200g dr.wt)
Total Ash - (g/100 dr.wt)
Ascorbic Acid - (g/100 dr.wt)
Oil content - 2-4%
Impurities - 0-2%
Microbes - Negative


Packaging:
The fresh ginger are packaged in PVC cartons or corrugated fibre box with inner lining of PE films while the dried split ginger are packaged in a clean propylene woven bags.
Uses:
Ginger Biscuits, Ginger Marmalade, Ginger Ale/Peppermints, Ginger Juice, Ginger Oleoresin (a pure solvent extract, mostly applicable to food, Pharmaceutical and Cosmetics). Ginger Powder and Sterilized Ginger Spices, Concentrated Ginger Tonic (a blend of Ginger and Honey used for the cure of cough) and Ginger Tea.
Importing Countries:
India, China, Bangladesh, Germany, Saudi Arabia, Netherlands.
Unexplored markets:
Morocco, Ukraine, Egypt, United Arab Emirate.
National Association:
National Ginger Association of Nigeria (NGAN)


Product Factsheet Sesame Seeds
Product Name: Sesame Seeds
Botanical Name: Sesamum indicum
HS Code: 120740

Major Producing Areas:
Nasarawa, Gigawa, Benue, Yobe, Kano, Taraba, Katsina, Kogi, Gombe, Kebbi and Zamfara State as the major producer.

Types
there are two types of Sesame produced in Nigeria:
White, which is the food-grade used in bakery industry. The seeds are 98% white.
Brown /Black/ Mixed, which is primarily the oil grade.
The white food grade is grown around the towns of keffi, Lafia, Makurdi, Doma and in other areas of Nassarawa, Taraba and Benue States.
The brown / mixed grows in the the far North, in Kano State and around Hadeja in JIgawa State and in the Southern part of Kaduna State.
Several varieties of sesame are cultivated in Nigeria. The basic agronomic characteristics of the varieties are shown in the table below.
Variety
Days to maturity
Seed Colour
Seed Size mm
Oil content
Potential Yield Kg/ha
NCRI BEN 01M
102-115
White
3
45%
1000
NCRI BEN-02M
102-115
Light
3
45%
750
NCRI BEN-032
125-140
Brown
2
40%
600
E-8
90
White
3.6
50%
1000
YANDEV-55
125
Light
2.5
45%
600
PROCESSING OF SESAME SEEDS
Sesame can be processed into several different stages, such as (1)simple cleaning (2)cleaning and hulling (3)Cleaning, Hulling and drying (4) Cleaning , Hulling, Drying, Crushing for oil.
In Nigeria, the primary processing facilities focus exclusively on cleaning, there are a few commercial cleaning facilities and they are all privately held.
PACKAGING
The sesame seeds are packaged using polypropylene woven sacks or bags. The sack must have high impact resistance, good tensile strength. The size of the pack varies from25kg, 50kg and 100kg depending on the importers requirement.
Other products of sesame seeds like oil and confectionaries are packaged in glass, PET, polyethylene (PE) and laminates.
EXPORT
About 60% of sesame produced in Nigeria is exported to the major consuming countries. Export from Nigeria is mostly entirely in seed form due to the low level of commercial oil extraction. There are cleaning facilities available in Lagos, Kano, and Lafia and the level of hulling operation is increasing by the day in Nigeria.
PRODUCTING/EXPORTING COUNTRIES
The leading producers/exporters of sesame see are India, Ethiopia, Sudan, China, Nigeria. Others include Paraguay Mexico, Venezuela, Tanzania Pakistan and Uganda etc.
PRICE
The International price for 98% cleaned sesame seed is consistently quoted in the Public Ledger, a well known Commodity Journal published in London.