Entrepreneurship Zone: 20 March 2023 :: 31-year-old Nigerian reveals how he established his rice production business

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Entrepreneurship Zone: 20 March 2023 ::   31-year-old Nigerian reveals how
he established his rice production business

 

	
 


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The Covid-19 pandemic has brought many lessons and challenges for
entrepreneurs. For Abubakar Sadiq Falalu, the health crisis has helped
affirm one thing: he is in the right line of business. Pandemic or not,
people have to eat. Falalu runs a rice production and milling venture in
Kaduna State, northern Nigeria. His company FaLGates Foods grows, processes,
packs and sells parboiled rice to its largely Nigerian clientele.

Falalu, who just turned 31, began his business in 2016, enthused by the
Nigerian government’s Agriculture Promotion Policy that aims to boost local
agricultural production and agro-processing to reduce food imports. He
studied for a second master’s degree in innovation management and
entrepreneurship in China and was wowed by the investment the Asian giant
made in agriculture. He toured rice fields, learning all he could about rice
production and headed back to Nigeria.

Falalu was inexperienced and didn’t have much capital to hire expertise.
Yet, he knew what he wanted to achieve, so he bought an integrated rice
processing mill in early 2017, which enabled him to process the rice from
beginning to end in one plant.

“I was new to the business. I had no career; just lots of degrees and
little practical knowledge. We were eight employees, including me and the
security staff, learning how to run a factory without experience. We
bootstrapped from 2017 to 2019 and some years we had losses,” Falalu recalls
of his early days when he was the mill operator and lived in his factory.

This inexperience almost led the company to fold two years later. “We
didn’t have enough working capital to acquire a place of our own, so we
ended up with fixed assets on rented premises that had a short-term lease.
The owner wanted his place back and we had to disassemble our plant and sell
it bit by bit. We lost so much money in vacating the premises, I thought
we’d go out of the market.”

After it disposed of its plant, FaLGates outsourced production and
continued selling its brand as they had a ready market. “It cost us more and
reduced our profit but it was better than doing nothing,” Falalu says.

FaLGates’ saving grace during this trying period was its customer base. The
company had managed to get its flagship brand FaLRice to wholesalers all
over Kaduna State and other parts of the country.

“As a small company, our best bet was to try and maintain quality and to
price slightly lower than our competitors to get market penetration,”
explains the businessman.

The firm also took a risk and sold on credit to wholesalers. Falalu
remembers a gamble they once took, selling goods worth $25,000 on credit to
a new wholesaler. It paid off and in two days, the wholesaler had sold off
the entire consignment and paid FaLGates. He became one of their biggest
customers, bringing in business worth more than half a million dollars. “Of
course, we lost a lot of money because of credit issues but made it up in
other places. In business, you win some and lose some.”

He began consulting for investors and businesses that wanted to open rice
mills. One of these investors has become his new business partner and they
are in the process of starting up a new plant that will be the single
largest rice miller in Kaduna State. Valued at $5 million, the mill is set
to be commissioned in September 2021.


Funding the company’s growth


How has he managed to fund his enterprise? “Charity begins at home,” Falalu
says, laughing. “My mother was my first investor.” She gave him $40,000
which, along with monies made trading goods as a student in China, became
his seed capital.

Over time, he has had friends and family join as shareholders. However, he
has put governance structures in place and drawn up shareholder agreements
to allow him to obtain equity and debt financing.

“Acquiring capital in Nigeria is tough and we have had a lot of rock
bottoms. Some deals fell through at signing. Bureaucracy makes everything
difficult; what would normally take one week, can take a year. If you can
succeed in Nigeria, you can succeed anywhere,” Falalu says wistfully.

His current headache is getting scarce foreign exchange to pay for the
machinery the company is buying. “We have the naira but are unable to access
the dollars. Getting a letter of credit is not easy.”

He, however, lauds the government’s intervention facilities for those
investing in agriculture as this has enabled the firm to access a bank loan
at a single-digit interest rate.



FaLRice, a brand of rice produced by FaLGates.


Nigeria a major rice consumer


According to the Food and Agriculture Organisation (FAO), Nigeria is
Africa’s primary consumers of rice, one of the biggest producers and,
simultaneously, of the largest rice importers globally. The nation consumes
about seven million tonnes of rice per year and as of 2018, the country
imported more than three million tonnes, equivalent to $480 million. A
report by PWC states rice accounts for up to 10% of household food spending.
With a population exceeding 200 million people, the market is vast and
demand far outstrips supply.

“We love to eat rice. In most homes, especially in the south-east, rice is
eaten at least once a day. Imported rice is our main competitor. It has
caused many local factories to shut down,” Falalu notes but adds that
Nigerians appreciate local rice for its quality and better taste. “Our rice
takes approximately four to six months from farm to plate, compared to
imported rice which has been in silos and shipping containers for up to a
year or more. As a result, it loses its taste.”

The government’s policies to boost local farming of rice are bearing fruit
as production went up from 3.7 million metric tonnes in 2017 to 4 million
metric tonnes in 2018. Rice generates more income for Nigeria’s small-scale
farmers than any other cash crop.


Expansion plans


Initially, FaLGates bought paddy from third-party farmers. Kaduna borders
several rice-producing states, making it a good location. Today, the company
has 200 hectares under contract farming. It supplies farmers with inputs
then buys back paddy at market value less cost of inputs.

According to Falalu, opportunities in Nigeria’s rice market are attracting
big global companies that have significant capital. Local entrepreneurs and
farmers will need to think strategically to survive. FaLGates has
diversified into rice seedling farming and is acquiring farmland to grow its
own paddy as part of a backward integration strategy. By improving on seed
varieties, it runs a profitable venture of selling rice seedlings to farmers
who are guaranteed higher yields. A 4,600-hectare commercial farm in the
pipeline will, in the next five years, help meet up to 50% of the factory’s
annual paddy requirement.

FaLGates processes up to 50,000 metric tonnes of rice per year, with a
turnover of $3.4 million.

Falalu has also begun maize trading and is looking into beef farming to use
the rice bran from his mill as feed. The company’s goal is to grow
organically by boosting acreage under cultivation as well as expanding into
south-east Nigeria, which consumes more rice than the rest of the country.
“I believe in organic growth. We have grown from eight employees to 60.”

Going forward, Falalu sees Africa’s population as a significant asset
rather than a liability and is planning an African tour next year to scout
for export opportunities, particularly in nations that do not have an
established rice industry.



Abubakar Sadiq Falalu

 


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