the business of agroforestry: opportunities & challenges for commercial investment...
TRANSCRIPT
The Business of Agroforestry:Opportunities & Challenges
for Commercial Investment inAgroforestry-based Ventures
Sagun SaxenaRahul Barua
World Congress on Agroforestry New Delhi
10 – 14 February 2014
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• A privately-held venture development company with offices in New York, Kampala & Rio de Janeiro
• Focused on Agriculture, Energy and Retail sectors in India, Africa & Brazil since 2007
• Create ventures from “blank-sheet” stage through to commercial operation
• Earn return only from capital gains or dividends generated by successful ventures– Not a consulting services or donor-supported organization
Introduction: Who we are
Brazil • Forestry• Silvi-pastoral systems • Biomass energy
Mozambique • Clean Cooking Fuel
& Food production
India• Diesel displacement • Off-grid energy
Australia• Aviation fuel• Forestry
USA • Head office
Haiti• Clean cooking
Introduction: Where we operate
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Uganda• AgVentureLab• BoP retail
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• Research unmet market needs in target sectors
• Explore innovative technologies & business models
• Develop venture concepts
• Identify potential partners
Explore Market Opportunities
Design NewBusiness Models
LaunchVentures
Introduction: What we do
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• Refine venture concept in field with target customers and partners
• Develop business and technical models
• Estimate pilot launch budget & mobilize funding
• Research unmet market needs in target sectors
• Explore innovative technologies & business models
• Develop venture concepts
• Identify potential partners
Explore Market Opportunities
Design NewBusiness Models
LaunchVentures
Introduction: What we do
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• Refine venture concept in field with target customers and partners
• Develop business and technical models
• Estimate pilot launch budget & mobilize funding
• Recruit “founding” team
• Oversee detailed design, engineering, development
• Launch pilot operation
• Strengthen venture model based on lessons from launch
• Run roadshow & help raise implementation capital
• Research unmet market needs in target sectors
• Explore innovative technologies & business models
• Develop venture concepts
• Identify potential partners
Explore Market Opportunities
Design NewBusiness Models
LaunchVentures
Introduction: What we do
Brazil • Forestry• Silvi-pastoral systems • Biomass energy
Mozambique • Clean Cooking Fuel
& Food production
India• Diesel displacement • Off-grid energy
Australia• Aviation fuel• Forestry
USA • Head office
Haiti• Clean cooking
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Uganda• AgVentureLab• BoP retail
CASE STUDY 1
Brazil • Forestry• Silvi-pastoral systems • Biomass energy
Mozambique • Clean Cooking Fuel
& Food production
India• Diesel displacement • Off-grid energy
Australia• Aviation fuel• Forestry
USA • Head office
Haiti• Clean cooking
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Uganda• AgVentureLab• BoP retail
• Introduction to the Market Opportunity we identified
• Overview of the Business Model CleanStar developed
• Why Agroforestry? • Opportunities• Challenges
• Conclusions
CASE STUDY 1
Charcoal industry across Africa• Over $10 billion annual cash spend• $25-$35/month per urban household• Between 10-30% of household income
Charcoal is the primary cooking fuel for urban consumers throughout SSA
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Using charcoal impacts women’s health and quality of life
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Charcoal-based deforestation• Causes erosion, degradation & flooding• 10kg of wood = only 1kg charcoal• Major Greenhouse Gas emissions
Charcoal has wiped out nearly one third of Africa’s natural forest cover (FAO)
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Meanwhile, Charcoal is often a primary source of cash income in rural areas
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Market Opportunity: replacing charcoal for urban cooking
• Can a new cooking solution be launched for urban households?
• Must be affordable and deliver enough incentives over charcoal– Fast: must save time– Safe: parents must be comfortable letting children cook– Convenient: fuel must be available everywhere and in small amounts– Clean: users are tired of dirty pots, walls, hands & hair
• Various solutions considered:– Biomass briquettes: not faster, expensive to distribute, not much cleaner– LPG Cooking gas: considered unsafe, stove too expensive, fuel supply– Ethanol gel: too weak flame, fuel too expensive– Ethanol liquid fuel: never been tried commercially?
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Business Model: New ethanol cooking solution
Ethanol Stove:Fast: Ignite & extinguish instantly; 2x efficiency of Improved Charcoal Stoves Clean: No smoke or odour; no soot on walls; fuel handled without dirtying handsSafe: Not pressurized; won’t leak or explode
Loaded into stoveafter refilling
Ethanol fuel • Ethyl alcohol with denaturant & color• Can be produced locally from different feedstocks• Can be bottled and sold in small amounts
Business Model: How can ethanol fuel be produced and marketed sustainably?
• Partnering with smallholders to produce feedstock using improved planting material and practices
• Procuring surpluses directly from farmers and processing them into food & cooking fuel products for urban use
• Retailing products via own shops + 3rd parties, under NDZiLO brand
15A vertically-integrated business model is essential to secure margin over long-term
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$21 million was raised in commercial equity and debt investment from strategic corporate and institutional investors between 2010-2013
Founder, impact venture developer, Africa, Asia & Latin America Urban Cooking Fuel, Sustainable Agriculture, BoP Retail, Rural Utilities
Global leader in enzymes for bioenergy and agriculture $2 billion revenue & 6,000 people
US ethanol process technology contractor Built 6.7 billion gallons of ethanol capacity globally over last 30 yrs
Leading global bank, $50 billion environmental commitment Innovative financier in carbon and climate solution markets
Impact investor in post-conflict societies, part of Soros group Invests in sustainable businesses that alleviate poverty
Danish government-owned Development Finance Institution Invests in sustainable businesses in least developed countries
Soros EconomicDevelopment Fund
Distribution: Since early 2013, stoves and bottled cooking fuel are being sold via direct sales team, company stores and large network of 3rd party retailers
Large direct sales team delivers in-home demonstrations and takes orders
Customers visit shops to fulfil orders and collect stoves & fuel
Customers return every day / week to buy fuel
NDZiLO shop network in low-income neighbourhoods
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Distribution: The cooking fuel is bottled in a custom-built facility in Maputo
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Processing: The cooking fuel has been produced in a custom-built facility in central Mozambique (pilot plant opened May 2012; now being upscaled)
Sales team undertakes in-home demonstrations and take orders
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Cultivation: What is the best farming strategy?
• Many different ethanol feedstock sources possible – Sugarcane, Sweet Sorghum, Cassava
• Many commercial farming models possible– Large-scale land acquisition for sugar cane plantation– Contract Farming / Outgrower Schemes with Smallholders– Tenant farming / Sharecropping– Joint ventures– Farmer-owned businesses
Cultivation: Guiding principles for strategy
• Engage subsistence farmers (ex-charcoal producers) in cultivation
• Build on their existing knowledge & capabilities
• Don’t burden them with more risk (i.e. no debt)
• Provide year-round benefits in terms of food security & income
• Recognize gender issues & opportunities
• Design for long-term sustainability & mutual growth
Rotation 1
Rotation 2
Rotation 3
1 ha Forestry Shelterbelt Zone
1 ha Agroforestry Zone
Cultivation: CleanStar co-designed a smallholder-based agroforestry program that is low-input and resilient
Subsistence Food
Processed into Food Prod
Processed into Ethanol
Processed into Diesel Alt
Pruning as firewood/mulch
Ecosystem services (z)
Cassava X x X
Cowpeas* X X x x
Soyabean * x X x
Sorghum X x s x
Groundnuts* X X x
Native trees* x X
Pongamia* y X x x
Lucaena* y x X
Pigeonpea* x x X
X : main uses; x : secondary uses; y : leaves can be used as fodder; s: if sweet variety of sorghum; * : leguminous /nitrogen-fixing ; ** : cycle nutrients, promote biodiversity, sequester CO2, provide shade, retain moisture
Mix of multi-purpose crops & trees
Integrated food & energy farming system boosts local food security & cash income
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KEY ELEMENTS• Better
planting material
• Crop rotation
• Agroforestry• No burning• Integrated
pest mgmt
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Cultivation: Over 1000 smallholder farmers adopted the approach in 2012-2013
Baseline farming is subsistence-onlyLack of inputs/storage/markets
CleanStar has identified high-yielding disease-free cassava, soya, beans, sorghum, pigeon peas through collaboration with IIAM & IITA
Nitrogen-fixing trees provide free fertilizerand help improve soil over time
CleanStar provides free planting material and guidance to farmers that agree to adopt system
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Cultivation: The cassava is pre-processed, procured and transported to the plant
Community-level pre-processing
Local aggregation and storage
Standardized inspection, weigh & pay Efficient transport to pilot plant
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POTENTIAL BENEFITS OF 20% ADOPTION OF ETHANOL-BASED COOKING IN AFRICA
• 5 million women save time & improve quality of life
by avoiding need to buy, handle & ignite charcoal
• 25 million people saved from indoor air pollution, charcoal burns, or unsafe LPG equipment
• 50 million trees saved every year
• 90 million tons CO2e emissions reduction every year
• 1.5 million farmers benefit from greater and more diverse income every year
• 500,000 new jobs created in urban and rural areas
Benefits of this approach are becoming clearer and can be scaled across sub-Saharan Africa where charcoal is used
Summary of Key Opportunities Presented by Agroforestry Approach
• Reduction of common risks– Low input and low cost faster scalability – Mutual value creation with local communities– Multiple layers of resilience to market shocks– Creation of multiple product value chains with low cost base
• Delivery of environmental benefits– Improved soil fertility and health– Restoration of multiple ecosystem services– Potential to receive PES (e.g. carbon)
• Delivery of real social and economic benefits to local communities – Food security and nutrition– Income (increase and smoothing)– Knowledge, capacity, and resilience
Summary of Key Challenges Presented by Agroforestry Approach
• Design of business model– Identify “anchor” market opportunity– Build internal and network resilience to market shocks
• Design of venture– Identify appropriate stakeholders and create venture ecosystem– Manage expectations
• Venture development and implementation – Prove out initial hypotheses– Adjust to local community responses– Manage stakeholder platform– Allow for continued innovation and operational improvements
Conclusions & Takeaways
• For commercial developers and investors– Agroforestry an attractive approach to reducing commercial risk and
delivering developmental benefits to local communities– Requires a platform of stakeholders - design and maintain carefully– Requires ongoing innovation, patient capital, and stakeholder
management
• For research, NGO & governmental organizations– Publicly funded groups can support commercial actors during early
stage design and development activities– Advocate streamlined institutional processes within host country
governments– Continue public-private linkages to ensure best practices are
implemented and shared
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USA
Sagun Saxena, Managing PartnerCleanStar Ventures LLC 373 Park Ave South, 6th FloorNew York, NY 10010
BRAZIL
Richard Taylor, PresidenteCleanStar Brasil Bioenergia LtdaRua Carlos Goís 469/401Leblon CEP 22440-040, Rio de Janeiro
UGANDA
Greg Murray, Managing PartnerCleanStar Ventures41 Luthuli AvenueBugolobi, Kampala
AUSTRALIA
Don Murray , ChairmanCleanStar Australia Pty LtdLevel 29, The Chifley Tower2 Chifley Square Sydney NSW 2000
INDIA
Vikalp Pal Sabhlok, PartnerCleanStar Ventures Bangalore
Contact Us
www.cleanstarventures.com