Fasal Foods: Choosing Between an Estate Farm and Outgrowers
Fasal Foods Limited processes tomato paste in Kano and supplies 18 states. Its plant can handle 120,000 tonnes of fresh tomatoes a year, but utilisation has fallen to 58% because only about 60% of raw material is sourced locally; the balance is imported concentrate costing $1,150 per tonne before a 35% duty. The naira has lost 38% against the dollar in 14 months, and finance reports nine months of cash cover at current burn. The managing director wants a three-year growth plan built on a sales team forecast of 22% annual volume growth, although the forecast has no signed customer contracts behind it. Two options dominate debate: a ₦4.2 billion, 2,500-hectare estate farm with an 18-month gestation, or contracts with 1,200 smallholder outgrowers at a guaranteed floor price. A director warns that the estate farm will consume the entire capex budget and that outgrowers have previously side-sold to competitors. The board meets in three weeks.
1. Critically assess the planning process revealed in the case. What planning defects must the board correct before choosing between the estate farm and the outgrower scheme?
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Diagnosis: the document is a forecast-plus-capex proposal, not a strategic plan. Four defects stand out. First, evidence: the 22% growth figure is a sales-team aspiration with no signed contracts, so planning is driven by optimism rather than demand evidence. Second, horizon mismatch: a three-year growth plan is built on nine months of cash cover, which means the plan is not financially feasible unless funding is secured or the plan is staged. Third, single-point forecasting: the 38% depreciation and 35% duty are treated as constants rather than variables, and there are no scenarios for yield, FX, duty or competitor pricing. Fourth, no options appraisal: the estate farm and outgrower scheme are debated as a binary choice without stated criteria, risk assessment or a reversibility test.
Two further gaps matter. There is no stakeholder analysis of outgrowers, host communities or lenders, and no capacity-demand reconciliation: at 58% utilisation the binding constraint is raw material supply, not market demand, so a demand forecast alone cannot justify expansion.
Corrective steps: convert the volume figure into contracted and uncontracted demand; build low, base and high scenarios with explicit trigger points; state and weight decision criteria; quantify capex, working capital and payback under each scenario; test execution capability; and require a risk register with named owners. The board should refuse to choose until the supply constraint is quantified and the cash plan reconciles to the chosen option.
2. Recommend a course of action to the board, setting out the decision criteria and at least three implementation safeguards.
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Recommendation: adopt a staged hybrid, with the outgrower scheme as the core and the estate farm as a later option rather than a simultaneous commitment.
Criteria: supply security, capital efficiency, speed to impact, execution risk, reversibility and stakeholder acceptability. On these criteria the estate farm scores well on control but poorly on capital efficiency (₦4.2bn against nine months of cash), speed (18-month gestation) and reversibility. The outgrower scheme scores well on speed and capital efficiency but poorly on side-selling risk unless the contract design changes.
Deal design: (i) pilot 250–300 outgrowers in the first season with written offtake contracts, a floor price indexed to input costs, input credit recovered at delivery, and liquidated damages for side-selling; (ii) work through a cooperative or aggregator to reduce the cost of monitoring 1,200 scattered farms; (iii) reserve about 300 hectares of company land for a demonstration farm to test yields before any ₦4.2bn release; (iv) hedge the imported concentrate exposure and renegotiate duty assumptions with customs advisers; (v) release estate capex only through stage gates tied to yield, side-selling rate and cash cover.
Safeguards: a monthly supply dashboard; board risk-committee oversight; a financing condition (equity or long-tenor debt) before any capex; a contractual cap on the volume the company must accept; and a quarterly review that can stop the rollout. This preserves optionality and matches the plan to cash.