Published on March 12, 2014
The Business of Agroforestry: Opportunities & Challenges for Commercial Investment in Agroforestry-based Ventures Sagun Saxena Rahul Barua World Congress on Agroforestry New Delhi 10 – 14 February 2014
• 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 2 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 3 Uganda • AgVentureLab • BoP retail
4 • Research unmet market needs in target sectors • Explore innovative technologies & business models • Develop venture concepts • Identify potential partners Explore Market Opportunities Design New Business Models Launch Ventures Introduction: What we do
5 • 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 New Business Models Launch Ventures Introduction: What we do
6 • 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, develop ment • 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 New Business Models Launch Ventures 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 7 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 8 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 9
Using charcoal impacts women’s health and quality of life 10
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) 11
Meanwhile, Charcoal is often a primary source of cash income in rural areas 12
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?
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 hands Safe: Not pressurized; won’t leak or explode 14 Loaded into stove after 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 15 A vertically-integrated business model is essential to secure margin over long-term
16 $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 Economic Development 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 17
Distribution: The cooking fuel is bottled in a custom-built facility in Maputo 18
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 19
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 SubsistenceFood ProcessedintoFoodProd ProcessedintoEthanol ProcessedintoDieselAlt Pruningasfirewood/mulch Ecosystemservices(z) Cassava X x X Cowpeas* X X x x Soyabean * x X x Sorghum X x s x Ground nuts* 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 22 KEY ELEMENTS • Better planting material • Crop rotation • Agroforestry • No burning • Integrated pest mgmt
Cultivation: Over 1000 smallholder farmers adopted the approach in 2012-2013 Baseline farming is subsistence-only Lack 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 fertilizer and help improve soil over time CleanStar provides free planting material and guidance to farmers that agree to adopt system 23
24 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
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 25
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
29 USA Sagun Saxena, Managing Partner CleanStar Ventures LLC 373 Park Ave South, 6th Floor New York, NY 10010 firstname.lastname@example.org BRAZIL Richard Taylor, Presidente CleanStar Brasil Bioenergia Ltda Rua Carlos Goís 469/401 Leblon CEP 22440-040, Rio de Janeiro email@example.com UGANDA Greg Murray, Managing Partner CleanStar Ventures 41 Luthuli Avenue Bugolobi, Kampala firstname.lastname@example.org AUSTRALIA Don Murray , Chairman CleanStar Australia Pty Ltd Level 29, The Chifley Tower 2 Chifley Square Sydney NSW 2000 email@example.com INDIA Vikalp Pal Sabhlok, Partner CleanStar Ventures Bangalore firstname.lastname@example.org Contact Us www.cleanstarventures.com
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