SA imports about 30,000 tonnes of tomato paste annually to meet demand. The acquisition should help the company push down costs by pursuing its strategy of owning the makers of its key ingredients.
While SA is self-sufficient in tomato production, the development of a local industry of scale in the manufacturing of tomato paste has been slow. As a result, more than 77% of tomato pastes, purees and concentrates are imported from China.
Kevin Hedderwick, Famous Brands’ group strategic adviser, said the company was importing about 2,000 tonnes. "But what we can do now is to protect and build the local industry. Our annual spend on these imports (as a company) is about R40m."
The Department of Trade and Industry has also tried to incentivise investment and in 2012 raised the general rate of duty on tomato pastes, purees and concentrates from 15% to 37%, which is the World Trade Organisation-bound rate.
The facility cost R200m to build and was sold to Famous Brands in liquidation for about R35m. The factory would allow Famous Brands to secure its supply chain by owning makers of key ingredients. Earlier in 2016, the group acquired French fries supplier Lamberts Bay Foods from Oceana for an undisclosed amount.
"We will be able to produce our products at a price that is significantly lower. So, where we use tomato paste — as in pizza — we will be able to keep the price of pizza for our consumers down," Hedderwick said. Famous Brands planned to expand the customer base beyond its franchisees, capitalising on the shortage in the local market, Hedderwick said. "We would also be open to exporting paste, taking particular advantage of the weaker rand."
Vestact analysts said the new plant would provide jobs for the community and a reliable partner for the domestic growers of tomatoes.
"Expect this (acquisition) to continue to drive manufacturing costs for Famous Brands lower, and that is an excellent thing for all shareholders of the business," the analysts said.
JSE-listed Tiger Brands and AH-Vest are the only other manufacturers of tomato paste, but do so for their own needs.
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