Analysis of MorDates plans to open a new date processing plant in Morocco.

by gail198956 (student)

University Degree Business and Administrative studies

MorDates is a new plant that has opened in Morocco and the firm’s main operations are going to be date post-harvest handling and packaging activities to produce high-quality dates. Dates in Morocco are typically harvested completely ripe and require little or no post-harvest drying. But in order to ensure a high quality product, dates are washed and treated to kill any bacteria. MorDates also plans to export its harvested dates to U.A.E. as part of its operations.

MorDates plans to open a 400 Mega Tonne capacity plant. The total initial cost of investment is approximately $ 219,000.

Once the plant starts to operate, the total cost to treat and pack dates is calculated by adding the initial investment cost to the variable cost for each tonne of dates treated, packaged, and sold.

Breakeven point of the date plant

The above information depicts that if the plant sells 122 mega tonnes of dates to the domestic market at an average selling price of $6,200/MT, it will breakeven, that is, its revenues will surpass the initial investment cost. At this point, MorDates could make an estimated profit of $ 1,700 for each MT of dates sold.

According to the World Bank, “Morocco has one of the “worst” indices for rigidity of labour, including minimum wages and firing costs.” High labour cost weakens competitiveness and encourage informality. Since labour costs are a part of the variable costs, a rise in labour costs would create an effect on the total cost and hence increasing the average total costs.

A rise in the variable costs of production leads to an upward shift both in marginal and average total cost. The firm is not able to supply as much output at the same price. The effect is that of an inward shift in the supply curve of a business in a competitive market.

The IMF (International Monetary Fund) currently predicts Morocco’s 2012 GDP growth should be about 4.5-5%, the same as 2011.

Though the growth rate is not rising at a substantial rate, there is a strong demand for high-quality dates in Morocco, due to low domestic supply ...

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The IMF (International Monetary Fund) currently predicts Morocco’s 2012 GDP growth should be about 4.5-5%, the same as 2011.

Though the growth rate is not rising at a substantial rate, there is a strong demand for high-quality dates in Morocco, due to low domestic supply of high quality dates.

Hence MorDates finds it lucrative to open a date plant in a country like Morocco which would offer high quality dates with high quality packaging. In addition to these, there are many government incentives offered, such as the following:

No land registration fees
Subsidies (10%) for the construction and the equipping of units for cold storage of agricultural products.
Morocco has European-quality road and railway systems for the transport of both passengers and cargo between major cities and air and marine departure points.

Considering there is an unmet demand for high quality dates, it would be a luxury good.

If the price of dates MorDates are offering rise in comparison with the competitors, consumers would prefer to buy from elsewhere instead of MorDates. Therefore the price elasticity is high in nature.

Similarly if the economy continues to do well, and there is an increase in the income level, the demand for these dates will rise. But if the income level falls, there will be a fall in demand as well. Therefore MorDates are income elastic in nature.

Since there are only around 10 firms like MorDates, these firms are interdependent. The firms sell products which are good substitutes of one another. This implies that products have high cross elasticity of demand. This means MorDates cannot afford to take independent action without considering the reactions of other firms.

MorDates will fall under an oligopolistic market structure due to the following reasons:

The date industry is dominated by a small number of large firms – as mentioned previously, throughout Morocco; there are less than 10 functioning date post-harvest and packaging facilities.
High barriers to entry – not many new firms can afford to invest in huge date post harvest and packaging plants.
Firms like MorDates all sell identical goods which are high quality dates.

MorDates strategy to beat competition would be highly based on advertising and marketing. For example, MorDates can be displayed together with goods such as fruits. It is also considered a good idea to display MorDates promotion with various holidays like Christmas or Ramadan.

The demand for high quality dates is generally from the middle to high-end market. The high quality dates can sell for $15 per kg compared to many hybrid varieties that sell for less than $2.

MorDates aims at selling its consumers in smaller better quality boxes, rather than the usual wooden boxes to preserve the quality and therefore selling smaller quantities at higher prices. Packaging dates in attractive cardboard cartons increases their retail value by as much as 40 percent above the price of dates sold in wooden boxes.

MorDates plans on using penetration pricing as its pricing strategy. Using a high price will show the uniqueness of the product.

According to IMF’s article IV Consultation Staff statement on Morocco, published in December, “the domestic economy has performed well since the 2008 financial crisis, something it attributes to several years of sound macroeconomic policies and political reforms.” The IMF has estimated a healthy expansion in 2012.

“Inflation has been maintained through a prudent monetary policy of targeting inflation and ongoing intervention measures of the National via the equalisation fund.”

The challenges for 2012 include dealing with the country’s rising subsidy bill and fiscal deficit. Tackling the deficit is a top priority for Morocco’s government. In order to achieve this, the government aims to improve the country’s subsidy system and to widen the tax base, for example raising taxes on luxury goods and empty properties.

Since MorDates falls on the high priced category, rising taxes would mean rising prices. Hence there are chances that consumers would not be able to afford the rise in price and would choose the other lower priced dates offered in the market by the competitors.

But on the other hand, the government intends to reduce some other taxes, such as those on small farmers. This would prove beneficial to MorDates mainly because the main inputs which are dates from the local markets will be at a much reduced price, therefore reducing the cost of production.

In addition, the government also aims to attract private investment in large scare developments such as MorDates project, by removing “bureaucratic impediment”.

With such ambitious plans by the Moroccan Government, MorDates is well placed to operate in Morocco.

MorDates also plans on exporting its high quality dates to Dubai, U.A.E. Although Dubai is forecasted to grow at a slower pace in 2012, its outlook is more positive than other struggling nations.

Exporting to the U.A.E is a fairly easy process. Some of the advantages to exporting to the U.A.E. are:

Ease of registration
Few restrictions
Low taxes
Very open and pro business environment

Apart from these advantages, there has been an active partnership between Dubai Exports and Maroc exports (Moroccan Export for Export promotion) who have signed a MOU (Memorandum of Understanding) to reinforce the existing trade relations.

Moroccan Dirham is has a much stable exchange rate in comparison to the U.A.E. Dirham. Since the U.A.E. Dirham is pegged with the U.S. Dollars, it has been fluctuating often since the 2008 recession. Therefore as the currency rises in value, companies will find imports to be expensive. Hence this would fall in demand for goods from other countries, which in turn reduces sales for MorDates.