Session 3.5 the business of agroforestry opportunities

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







LaunchVentures


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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







LaunchVentures




& Food production



USA • Head office


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CASE STUDY 1



& Food production



USA • Head office


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• 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

[email protected]

BRAZIL

Richard Taylor, PresidenteCleanStar Brasil Bioenergia LtdaRua Carlos Goís 469/401Leblon CEP 22440-040, Rio de Janeiro

[email protected]

UGANDA

Greg Murray, Managing PartnerCleanStar Ventures41 Luthuli AvenueBugolobi, Kampala

[email protected]

AUSTRALIA

Don Murray , ChairmanCleanStar Australia Pty LtdLevel 29, The Chifley Tower2 Chifley Square Sydney NSW 2000

[email protected]

INDIA

Vikalp Pal Sabhlok, PartnerCleanStar Ventures Bangalore

[email protected]

Contact Us

www.cleanstarventures.com

mailto:[email protected]






http://www.cleanstarventures.com/

Session 3.5 the business of agroforestry opportunities

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