UAC sells livestock feeds business for $15m

UAC sells livestock feeds business for $15m

UAC of Nigeria is selling its controlling stake in Livestock Feeds Plc to Sunbeth Global Concepts for N19.5 billion, about $15 million. UAC holds 73.29% of Livestock Feeds and will transfer that stake to Sunbeth, a company with interests in agricultural sourcing, trading, warehousing, processing and supply chains.

The deal puts an established Nigerian animal-feed manufacturer into the hands of a buyer that already operates in several parts of the agricultural market. That could matter to businesses well beyond the two companies involved. Livestock Feeds makes and distributes feed used by poultry and livestock farmers. Those farmers buy feed from distributors and agricultural retailers, while the manufacturer buys ingredients from suppliers further up the chain.

So a change at the manufacturer can eventually show up at the farm. For a small poultry farmer, the immediate concern is usually not who owns the feed company. It is how much a bag of feed costs and whether the product is available when it is needed. Feed is a large running expense for poultry farmers, particularly those operating on a small scale. A farmer raising broilers or layers has to keep buying feed throughout the production cycle, alongside chicks, medicines, labour, electricity and transport. There is not much room to simply stop buying it when prices increase.

What Sunbeth could change

Sunbeth already has businesses involved in sourcing and handling agricultural products. That gives it the option of linking more of those activities to Livestock Feeds. The company could, for example, use its existing relationships with agricultural suppliers when buying raw materials for the feed business.

It could also look at how those materials are stored and transported before reaching the manufacturing plants. If that leads to lower costs or fewer delays, there could be benefits for the businesses further down the chain. But the opposite is possible too. Changing suppliers, distribution arrangements or purchasing volumes can create problems for smaller businesses that have built their operations around an existing customer. That is why grain traders, transporters and other suppliers will have an interest in what happens after the transaction closes.

The grain business behind the feed

Animal feed starts with agricultural commodities. Maize and soybean products, among other ingredients, have to be sourced and moved before they become finished feed. That creates a market for farmers and traders. A small grain producer may not sell directly to Livestock Feeds. It may sell to an aggregator or trader, who combines supplies from several farmers and then sells to a larger buyer.

Transporters move those products between farms, collection points, warehouses and factories. If production at Livestock Feeds grows, there could be more demand moving through this network. But if raw material prices climb, the pressure moves in the other direction. Higher input costs increase the cost of making feed, which can eventually affect distributors and farmers.

Small retailers are in the middle

There is another group that could feel the effects: the businesses selling feed to farmers. An agricultural shop may keep several feed products in stock and sell them in smaller quantities to farmers in the surrounding area. These retailers have their own costs to manage, including transport, storage and working capital. If a manufacturer changes its distribution model, those businesses may have to adjust too.

For example, a change in minimum order sizes or delivery arrangements could make it harder for a small retailer to keep certain products in stock. On the other hand, an expanded distribution network could bring more products into areas that currently have limited supply. There is no indication yet of exactly how Sunbeth plans to change Livestock Feeds' distribution operation.

Farmers will notice the practical changes

For farmers, the acquisition will probably become relevant through much smaller decisions. Where can feed be bought? How much does it cost? Is the right product available? Can a distributor deliver it on time? Those questions are more important to a small poultry or livestock business than the size of the acquisition. If feed becomes easier to source, that can remove one headache for farmers.

If prices rise, the calculation changes. A poultry farmer may have to increase the price of eggs or chicken, cut the size of the next production cycle or look for another supplier. That is why the ownership change is worth following from the SME side.

A bigger agricultural business

For Sunbeth, the acquisition adds manufacturing to a business that already has exposure to agricultural sourcing, processing, warehousing and trading. That could give the company more control over several steps between the farm and the finished product. Whether that produces meaningful efficiencies remains to be seen.

It will also depend on how much of the business Sunbeth keeps local, which suppliers it works with and whether it invests in increasing production. For smaller businesses, those decisions could matter more than the acquisition itself. A grain supplier could gain a bigger customer. A truck operator could move more raw materials. A warehouse could handle more stock. A retailer could sell more feed.

Or some of those businesses could lose work if Sunbeth changes the way Livestock Feeds buys and distributes its products. The transaction does not answer those questions yet. What it does do is put a major Nigerian feed manufacturer under new ownership. The next few months will show whether that results in more production, a wider distribution network and more opportunities for the smaller businesses that sit around Nigeria's livestock industry — or simply a change in who owns the company.