Namib Poultry Cooperative: Processing Plant or Live-Bird Lobbying?
Namib Poultry Cooperative in Oshakati produces 80,000 broilers per month and sells mainly live birds to informal traders at N$52 each. Feed costs have risen 22% in a year and imported frozen chicken has pushed retail prices down. A retailer offers a contract for 30,000 processed chickens per month at N$68 each for two years, but requires a processing plant costing N$9 million, cold-chain certification and 45-day payment terms. The cooperative has N$2.5 million reserves and can borrow N$6 million at 15%; members oppose debt after a previous default. Processing variable cost would add N$9 per bird; current live-bird variable cost is N$38. Fixed costs are N$1.1 million per month. The contract would use 30,000 birds, leaving 50,000 for informal sales. Imports may fall if new tariffs are introduced. Decide whether to accept the contract and build the plant, or continue with live sales and lobby for tariffs.
1. Calculate current monthly profit and the monthly profit if the contract is accepted, before depreciation, including loan interest.
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Current live-bird position
- Contribution per bird = N$52 - N$38 = N$14
- Total contribution = 80,000 x N$14 = N$1,120,000
- Fixed costs = N$1,100,000
- Monthly profit = N$20,000
The current business is barely profitable. A small fall in price or rise in feed cost would create a loss.
Contract position
- Processed contribution per bird = N$68 - (N$38 + N$9) = N$21
- Processed contribution = 30,000 x N$21 = N$630,000
- Remaining live contribution = 50,000 x N$14 = N$700,000
- Total contribution = N$1,330,000
- Loan interest = N$6,000,000 x 15% / 12 = N$75,000 per month
- Profit before depreciation = N$1,330,000 - N$1,100,000 - N$75,000 = N$155,000
Judgement: The contract raises monthly profit from N$20,000 to about N$155,000 before depreciation, an improvement of N$135,000. However, the plant costs N$9 million, while reserves plus the loan provide only N$8.5 million, leaving a N$500,000 funding gap. The 45-day payment terms also create a receivables burden of roughly N$3.06 million on N$2.04 million monthly contract revenue, so working capital must be funded.
2. Assess the non-financial factors that should influence the cooperative's decision.
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Member opposition to debt is a major governance risk. Members have experienced a previous default, so a N$6 million loan may not be approved or may cause conflict. The cooperative needs transparent cash-flow projections and a member vote, not just a profitable calculation.
Retailer dependence is significant. The contract uses 30,000 of 80,000 birds, or 37.5% of output. If the retailer demands lower prices or delays payment, the cooperative has limited bargaining power. A two-year contract reduces uncertainty, but it also locks the cooperative into one buyer and a cold-chain system that is expensive to switch away from.
Import tariff uncertainty cuts both ways. Tariffs could raise live-bird prices and make the contract less attractive, or they could reduce frozen imports and create more demand for local processed chicken. The cooperative should not rely on tariffs it cannot control.
Capability and reputation: processing requires cold-chain certification, quality control and new skills. Failure could damage the cooperative's reputation with informal traders. On the other hand, processing adds value, reduces dependence on live sales and may create stable employment. The decision is therefore not only about N$155,000 monthly profit; it is about member trust, buyer power and operational capability.
3. Recommend a decision with conditions.
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Recommendation: Accept the contract only if the funding gap and working-capital strain are solved and members approve. Do not build the plant on an unconditional basis.
Conditions:
- Close the N$500,000 plant funding gap through a supplier credit agreement, a grant, or a smaller plant. Do not start construction with no cash buffer.
- Negotiate 30-day payment terms, a deposit, or invoice discounting with the retailer. Otherwise the cooperative must borrow extra working capital, which raises interest and risk.
- Obtain member approval through a clear vote, with a cap on debt and a break-even plan. The previous default makes this essential.
- Protect the informal live-bird business. The remaining 50,000 birds still generate N$700,000 contribution and are a cushion if the contract fails.
If these conditions cannot be met, continue with live sales and lobby for tariffs, while improving feed contracts and quality. The processing plant is strategically attractive because it adds value and reduces exposure to low-price live sales, but the current funding and governance risks are too high for an unconditional yes.