An olive branch for financial peace of mind

Jannie and Wouter Kriel from Montagu, Western Cape have ensured the commercial viability of their olive farm by buying in and processing olives while waiting for their orchards to mature. Their investment in an oil mill earlier this year has also realised product diversification, business expansion and greater returns. Glenneis Erasmus reports.



 

Jannie and Wouter Kriel from Montagu, Western Cape have ensured the commercial viability of their olive farm by buying in and processing olives while waiting for their orchards to mature. Their investment in an oil mill earlier this year has also realised product diversification, business expansion and greater returns.
Glenneis Erasmus reports.

ONE OF THE GREATEST PROBLEMS FACING NEW farmers is the time for newly established farming operations to become profitable. This is especially the case in the fruit, wine, olive and dairy industries where producers have to supply inputs without any return on investment for up to four years – the time it takes for trees or animals to become commercially viable.

It’s not surprising then that underestimating the cost of supporting an operation until it becomes self-¬sustaining has led to the financial downfall of many farmers. But not so for Jannie Kriel from Syferfontyn farm in Montagu, Western Cape.

He was also confronted with this dilemma when he started producing olives. He decided to buy in olives, which helped buffer farm-related production costs and secure a market for his produce. Jannie soon realised he would need higher volumes of olives if he wanted to keep his business sustainable.

Jannie’s value-adding activities began on a relatively small scale in 2002 when he processed a ton of olives produced on his farm for the table olive market. All were sold in bulk to Montagu Dried Fruit. Jannie and his son Wouter then went into partnership with Montagu Dried Fruit. Together they sourced fresh olives, which they processed and sold via Montagu Dried Fruit. In 2004 the Kriels decided to go independent.

In partnership with SA olive specialist Linda Costa, they established the company Montagu Olives which allowed them to focus on adding value to olives and the marketing of these products. The move was driven by olive orchard expansion around Montagu. Jannie predicts that production in the region will rise to between 500 tons and 1 000 tons over the next 10 years and Montagu Olives wants to position itself to add value to the bulk of olives produced from the region when they become available to the market.

Production at Montagu Olives was further expanded to include oil production when Jannie and Wouter bought a Campagnola Buonolio Top Cold-Press Olive Oil mill early this year. The oil mill was originally developed to allow small-scale olive producers in Europe to make their own high-quality, extra-¬virgin oil. ¬Jannie stresses this unit is ideal for South African olive producers who produce more than 20 tons of olives per season.

The mill has low maintenance costs and it doesn’t use much electricity. However, Montagu Olives had to implement some electricity supply alterations as the machine requires a three-phase power supply. The small size of the machine allows it to be operated without a conveyer belt.

Olives are washed and the leaves removed by hand before they are placed in the oil mill. Oil is separated from the pumice and water in one step, in contrast with some other oil mills that first separate the oil with the water from the pumice, and then require an additional process to separate the water and oil. Jannie says he prefers the two-step machine as the extraction process is much simpler.

A huge advantage of this mill over some larger mills is that it can be cleaned relatively quickly and parts that need cleaning are easily accessible. Jannie advises larger companies to buy one of these smaller mills to ensure continuous production during harvest time while the large mills are being cleaned.

The Kriels’ use of the mill has facilitated product diversification, which in turn has enabled the company to apply stricter selection criteria for olives. Ultimately this has enhanced the quality of table olives produced by the factory. Now the olives are sorted as they come in and the lower grade ones are processed into oil the same day. In the past, lower grade olives had to be sold to processors for oil extraction.

A worthy investment
Jannie says the initial capital investment to buy the mill has been more than justified by the returns and improved factory performance. Montagu Olives bought the mill at the start of 2006 for around R150 000 at a five-year financing cost of about R36 000 a year (R3 000 per month). Only eight tons of oil olives were processed in 2006, yielding 1 300 litres of extra virgin oil, which was sold in bulk for R40 a litre for R52 000. Production therefore covered the oil mill’s financing cost at R9 000 for three months and the purchase price of R36 000 for the olives that were bought.

The prospects for 2007 look even better. Jannie predicts that the mill will be operating at full capacity as Syferfontyn is expected to have a higher yield this year and the company has secured more olives from other producers for next year. The mill, which has the capacity to process around 80kg of olives an hour, will process around 25 tons of olives over a 40-day season with a maximum processing rate of one ton a day. This will realise around 4 200 litres of oil for an income of about R168 000.

It is expected that the income generated in 2007 will cover the estimated R90 000 worth of olives that will be bought in for oil production, the financing costs for 12 months, labour and electricity. In effect, the mill will generate a small profit while substantially improving the production process in the factory, Jannie says.

Montagu Olives’ oil is sold in bulk to well-established oil processors who then sell the oil under their brand name. “Selling olive oil under your own brand requires large capital investment and marketing. We therefore prefer to supply our product in bulk to oil processors that already have an established market,” Jannie explains.

Jannie will have to buy another mill within the next two years to meet the growing demand for his Montagu olives. “For us, it makes more economic sense to buy smaller mills as the capacity of the company increases. The financing costs associated with a large mill can nullify the economical advantages gained through adding value to olives via oil production. It is crucial that the cost and capacity of the mill suit the size of the operation.”

Smaller mills also require less servicing than larger mills and having more than one mill ensures that a company can continue to extract oil should one of the mills break. Jannie believes when chosen wisely, oil mills are extremely beneficial.
Contact Wouter Kriel on 076 190 6683 or e-mail [email protected]. |FW

The Kriels’ olive farm – in a nutshell
Jannie Kriel bought his farm Syferfontyn in 1996 primarily as a capital investment and weekend farm. He soon became aware of the increasing demand for olives and realised that the farm would be an even greater asset if it were converted into an olive farm. Around 7,5ha of trees were planted that same year.

Initially, only Mission and Manzinilla trees were planted as these ¬cultivars are readily available, relatively fertile, easy to manage and the fruit can be used for table olive and oil production. Black table olives ¬primarily come from Mission trees and green table olives from Manzinilla. Cultivating different types allow the Kriels to adapt their supply to market demand.

Olive trees usually only yield commercial crops around four years after planting. However, the brackish soil at Syferfontyn results in trees taking a couple of years longer to reach full production. The farm is also isolated from other olive farms, resulting in a lack of pollen for cross-pollination for fruit formation.

These problems have been overcome over the past few years through interventions aimed at improving the soil and the addition of more olive trees, especially olive oil cultivars. Production has been expanded to 10 000 trees covering 15ha over the past couple of years.