With over $5million (N2billion) already committed into construction of the Tomato Jos processing plant and farming project, MIRA MEHTA, the company’s CEO in this interview with CALEB OJEWALE, shares updates on the project, which had slight delays due to COVID-19; from building to importation of equipment from Italy. She also speaks on the challenges of accessing an approved CBN loan, dealing with surprises at the ports when equipments arrived, N100mn spent on generators and other lessons future entrepreneurs can learn. Excerpts:
What’s been happening with the processing plant 10 months after that last interview, where you discussed your plans?
After the groundbreaking ceremony, we were still finalizing the design for the factory and shortly after this, all construction projects were put on hold because of the COVID shut down. So we were not able to start civil works construction until the end of July to early August.
This made us nervous because as you know, we have a tight timeline, even in any part of the world and in any normal timeframe, putting up a multimillion-dollar factory, and commissioning it within a year is a pretty ambitious task. However, we have been able to move largely on target.
The equipment that we ordered from Italy is now onsite. 16 out of 17 containers are onsite and we are in the middle of assembling them. One of the challenges we faced on the equipment side was that our OEM (Original Equipment Manufacturer), is an Italian company that also faced major challenges with the COVID situation. As you know, Italy was one of the hardest hit countries.
I was also out of the country for four months, which is the longest I’ve been away from Tomato Jos since I started it. So that was also very challenging. I took one of the emergency flights back to the U.S. sponsored by the American government.
I was then stuck in the U.S. and unable to return to Nigeria until the end of September. Managing a multi-million dollar asset purchase and a multi-million civil works project remotely was something that was unexpected and quite challenging, but I have to praise the team that remained on the ground. Largely to their credit, we are only, I would say about a month behind schedule in terms of when we want to commission our factory, which I think is quite remarkable for 2020.
By how much would all this affect the product launch itself?
Our goal originally was to launch the product in June of 2021, but I think September is a more realistic option for us.
You mentioned that construction is only going to be a month behind schedule, so, why 3-month delay for the product launch itself?
Although we’ll have the plant commissioned, there are a number of other things that have to happen. One of the major things that has to happen is getting our sachet design approved by NAFDAC and that takes time. Getting NAFDAC approval is very crucial in order to start selling the product. Given the delays in our packaging machine, we may have to delay our NAFDAC registration process until we can get those equipments on ground.
You also mentioned that you have 16 out of 17 containers on site already. Is the outstanding one that of packaging?
Yes, exactly. We have two packaging machines. The equipment producer for the Sachet machines was hit hard by COVID. They were originally supposed to send that equipment in July with the rest of the containers, but they had to delay their shipment until November. Even as of today, that equipment has not left Italy.
When is the construction likely to be concluded?
We are looking at the end of January for everything except for the packaging machine. That means the civil works should be done by the end of January, all of the installation of the other 16 containers worth of equipment and all of the other utilities. For example, our generators, our water treatment system, and all other non-equipment parts of the factory should all be done by the end of January.
Looking at all these installations you’ve had to do, how much of local expertise is being brought on board or are they all the foreign guys that made the equipment?
We have one foreign representative of the OEM who is currently in Nigeria and supporting the installation, but we’ve hired a local engineering firm to support the installation. So all of those guys are Nigerian. They have brought up at this point about eight people that are onsite assisting in the assembly.
We also have a team of five technical people from the processing team who are joining and assisting. They’re also able to learn as they put the equipment together because they’re the ones that will be maintaining and operating the equipment.
Our civil works contractor is also a Nigerian firm and has 100 percent local staffing and the installation team is a Nigerian firm with a hundred percent local staffing. We really feel strongly about promoting as much as we can in employment and opportunities for Nigerians. I know I’m not Nigerian, but I still feel really strongly about that.
You earlier mentioned generators being installed, how much of a challenge is power going to be?
Oh man! Power is a huge challenge. One of the things we want to do in 2021 or 2022 is try and connect to the grid. We had to purchase three different generators depending on what type of production we are doing; if we are making tomatoes into paste, making paste into the sachet tomato, or if we are going from tomatoes straight into the sachet, we need different power requirements on the electrical side.
This automatically means a huge asset expenditure and we spent over N100million on generators, which is a lot of money. Running those generators is going to be another huge challenge for us. The largest generator requires something like 3000 litres, a day of diesel rather. Even beyond electrical power, we also have a large boiler with six tons of steam capacity per hour. And that boiler also consumes diesel. So energy is one of the highest cost of production for us, and we are looking for any way that we can to bring that cost down.
Have you considered alternative sources of power generation?
We thought about solar and actually did a lot of research into it. The big challenge with solar for us is that our energy requirements are extremely intensive for a short time during the year, and then drop to almost zero for the rest of the year.
While we are in production, we have a very high-energy requirement, but that production lasts for a maximum of 90 days, and then we have a 270 day period where we really don’t need to use those assets. In America or other places where the grid is much more fully established, what companies like mine do is they invest in solar.
When they are not using the solar energy, they are actually feeding into the grid with their solar panels. And that is also helping to offset their costs. Unfortunately, in Nigeria, we would not be able to do that because there is no intake option for solar to enter into the grid and feed other communities.
The power requirements just aren’t there in our area, outside of our factory. Therefore, cost of the solar assets is very hard to afford without grants or some kind of support in paying for it.
What is the capacity of your generators?
The largest generator is 770 KVA, then we have a 650 KVA in the medium size and a 220 KVA on the small size.
You mentioned the highest the generators will work is three months in a, does that mean you will not be producing the paste year round?
That is correct. The whole reason that my company focused on farming initially and putting processing afterwards is because we needed to prove to our investors that we could grow tomatoes at a competitive cost per ton. I talk about the cost of growing tomatoes all the time, because tomatoes are the largest cost of tomato paste and even more than energy.
And you can really only produce tomatoes at the right cost per ton during tomato season. Outside of that season, your yield has dropped and your cost per ton increases and you cannot make a competitive product. So what we plan to do is process all of our tomatoes into paste during those 90 days of production.
And then once we get our packaging line, which runs at a slower rate than the main processing line, we can actually package throughout the year. But the tomatoes that we’re packaging would have all been grown during that 90 day production period.
For the finished products, are you looking at just a single brand or different brands with perhaps different varieties?
Initially we are looking to launch just a regular Sachet tomato, similar to tasty Tom or Gino under the Tomato Jos brand.
We are really trying to position it as a third main brand to run alongside those other two large brands. Of course, we know that their customers are very loyal, but there are a number of smaller brands where we think we can sort of compete in the sort of secondary tier.
As we grow, we certainly want to launch its tomato, pepper, and onion product. We have seen that gain popularity hugely across the country.
As earlier mentioned, by September 2021, people can expect to start seeing Tomato Jos in the markets?
That is correct. We are initially going to be launching in Abuja and Kaduna. Our first production run is going to still be limited in quantity. We will probably only produce 40 to 50 trucks of product, so we can’t yet hit Lagos with that kind of a small volume, but as we continue to grow, every year we will launch in new cities and new States so that we can continue to get the product into the hands of the people.
In sourcing your tomatoes is it all going to come from your farm, or are you looking at an out-growers network?
Right now, about 60 percent of our tomatoes come from smallholder farmers, and the remaining 40 percent comes from our commercial farm, but those farmers are split evenly. Some of them are out-growers and some of them are in-growers on our land. As you may recall, we have what we call a model farm, which serves as a school for smallholder farmers.
They come to our land where they get small plots and learn how to farm through best practices, using our inputs on a loan, and then graduate to become out-growers. As we continue to grow, we will have more graduated farmers as out-growers, and we’ll be able to include more model farmers as in-growers.
When did you start installing the processing equipment?
The equipment arrived in mid-September at the Lagos ports, and we were able to get it to Kaduna by mid-November. So it took us about two months to get it cleared from the ports and then transported up to Kaduna. Installation began in mid-November. But one of the challenges we faced was that the civil works was so far behind schedule that the installation team was really limited in what they could do.
We’ve been now installing for about a month, but really it’s only been three weeks of very hard work. The installation team is going to work through Christmas and New Year and try to finish everything by mid to end of January.
It takes a long time because every single bolt on every single piece of equipment has to be tightened by hand. We also have kilometres of pipeline to be welded together because a lot of the tomato processing happens inside pipes. And those pipes all have to be welded and connected to the different pieces of equipment.
What delayed the clearing for two months at the ports?
Oh, that was actually pretty fast! We were really impressed. One of the reasons that it took a little bit longer was because we were trying to get approval on the consignment. So, because this is an agriculture processing equipment, we’re supposed to be able to import it duty free, but of course, that sometimes can be a challenge with the ports and we did not have that clearance in advance of when those equipments got to the port, so that caused some delay.
Generally speaking, Nigeria’s ports can be difficult to work inside just because there is so much backlog of different consignments in there. Also, sometimes, some of the infrastructure can be a little bit of a challenge.
To give you an example, our boiler, which we imported from the OEM was just slightly too big to fit inside a container. And that meant it had to be loaded on what’s called a flat rack. Very few cranes at the port are equipped to move flat racks from a container ship onto the main land. Therefore, we had a challenge finding the right equipment to appropriately move that piece of our factory from the ship onto land. That ended up taking some time. Things like that ended up making it take a little bit longer, but on the whole, we were actually pretty happy with the eight week process. We thought that was quite fast.
In the end you got clearance for it to be duty free, I believe?
We ended up paying duty anyway, but not as much as we would have had to. So I think we ended up paying about 5 percent duty (to import agricultural equipment) even though it should have been duty-free.
I’m also curious, what delayed civil works which in turn delayed commencement of installation?
One of the challenges for us was funding. We have been really fortunate to have strong banking partners. Through FCMB and Central Bank, we were able to access one of the agricultural loans called Real Sector Support Facility (RSSF). That loan was approved in July, but we have only been able to draw down on the first tranche of it in early December.
The loan approval process took a really long time and that ended up with us delaying payments to the to the civil works contractor. That is really, what caused the delay on that side, you know, and then those things have a chain reaction. Once you have one delay, everything else kind of gets delayed too.
We are grateful for the fact that we even were able to get this kind of a loan at all. You know, it’s been super helpful and extremely impactful on our business to enable us to actually have the funds that we need to do this intensive work on the farm.
Planning in one’s mind on paper is usually easier to put down. Now that the real stuff is on ground and real work has started, what major challenges have you encountered that changed your perspective on how easy you thought it all was going to be?
Definitely just access to the capital. I thought that the loan was going to come in all at once and it, and it hasn’t, and you know, just the amount of time that it takes to, go back and forth, get all the documentation, cross your T’s dot your I’s dot your I’s again in blue ink, because you used black ink the other time.
I didn’t really realize that even once you got a loan approval, you could still take months to actually be able to draw down on the loan. So that was one thing that was surprising and definitely I didn’t plan for. And then we had a cash crunch, you know, we ended up having a challenge in being unable to pay some of our contractors right on time.
I think another thing that is related is just that even in the factory compound where we are doing all this work; we now have a civil works contractor that’s trying to complete the factory itself. We have an installation contractor that’s supporting our team to do the installation of the equipment inside that factory and physically scheduling out who’s going to be doing work in what area of the factory is actually really important, you know.
It is often very detail oriented and you know, even small things can lead to hours of delays if we have not communicated very well. I just kind of thought it would all just happen, but you have to make it happen.
What is the value of all these processing equipment you are bringing in?
The value of the processing equipment is a little over $3 million, imported into Nigeria from Italy. We have also purchased a number of pieces of equipment in Nigeria as well, including the factory building, and things like the Weybridge, the generators, the water treatment system and others. Overall, the factory is probably going to be a $5 million investment.
What challenges did you encounter in assessing the required foreign exchange?
If you remember, we raised equity funding earlier this year in what we call our holding company, which is an American company. Therefore, the first part of the equipment payments were all made from the U.S. where we already had dollars. The (CBN) loan was supposed to cover the civil works and the Nigerian related asset expenditures.
The challenge that we faced was since the loan took so long for us to access, we ended up using a lot of the American dollars for Nigerian expenses. Now we are in a position where we have to source for foreign exchange for that final container and that’s a big challenge.
We have an application right now with the Central Bank, requesting their support to allocate dollars for us to make that final payment. We are doing the best that we can to try and explain very well why we need that foreign exchange and what it will mean for us if we can get this container quickly into the country.
How much funding did you raise?
We raised $4.5million out of which we also spent about a million dollars on farming assets. In addition to the $5 million on the factory, we probably invested one to one and a half million dollars on the farming side to expand on our farm.
Tell me a bit about the farming expansion you’ve been doing?
As you may recall, we have a 500 Hectare land and right now we’re only farming about 50 hectares of land within that allocation. We have now invested in an additional 70 hectares of land, which will be farmed under drip irrigation. That system typically costs around $5,000 a Hectare. That was another nine containers worth of equipment that we imported this year.
How much of a nightmare is security considering the situation over there?
Security is a challenge and it would remiss to say that it’s not a challenge. The biggest fear that I have is that something will happen to our staff on the road to work or on the way back home from work. We try to drive with security and some of the roads can be a little bit lonely. It is one of the things I think about the most.
Any other things you’d like to share with us as we wrap us this session?
We remain grateful for the conducive working environment, and to the community for continuing to support everything that we’re doing. We are also really grateful to the farmers who continue to work with us.
I’m really excited about all the growth that’s ahead for us in 2021. We are really excited to launch a consumer product and we hope that the consumers are going to love it. What we’re trying to do is no small task and I’m extremely proud of the work that our whole team has put into.
