Journal of Agricultural Economics and Development Vol. 2(1), pp. 024-034, January 2013 ISSN 2327-3151 ©2013 Academe Research Journals

Full Length Research Paper

Small millers’ and bakers’ perceptions of the limitations of agro-processing development case study: Wheat-milling and baking industries

André Louw¹*, Gerhard Troskie¹ and Mariëtte Geyser²

¹Department of Agricultural Economics, Extension and Rural Development, University of Pretoria, Pretoria, 0002,

South Africa.

² Unit of Environmental Sciences and -Management, North-West University, Potchefstroom campus, Potchefstroom, South Africa.

*Corresponding author. E-mail: andre.louw@up.ac.za. Tel: (+27 12) 420 5772. Fax: (+27 12) 420 4958.

Accepted 31 December, 2012

Abstract

In South Africa the milling and baking industries are highly concentrated, and most of the major millers are vertically integrated with bakeries and this study aimed to identify the factors that restrict the development of agro-processing in the small wheat-milling and -baking industries in the rural areas of South Africa. Data was collected by means of a structured questionnaire and by conducting 15 interviews with various small wheat-milling and baking firms in the supply chain and with major role-players. The study found that the small wheat-milling and -baking industries had high barriers to entry, including the ability to acquire  capital to start operations; to establish a market; to acquire knowledge of the wheat-milling and -baking industries; to uphold a well-maintained infrastructure; to acquire marketing knowledge, and require  the necessary cash flow. The barrier to exit was to sell machinery at book value. They were exposed to wheat price volatility, and did not have the cash flow or the knowledge to counteract these price risks through risk-mitigating strategies available through derivative markets. They took several months to recover from setbacks which sometimes proved to be detrimental. Large-scale wheat millers and bakers had a competitive advantage over their smaller-scale counterparts to overcome above obstacles. 

Key words: Food processing, wheat, commodities, development, barriers to entry, small wheat millers and bakers, agribusiness, risk, finance.