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Creating Companies | Creating Wealth | Creating Jobs January 2013

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Presentation on theme: "Creating Companies | Creating Wealth | Creating Jobs January 2013"— Presentation transcript:

1 Creating Companies | Creating Wealth | Creating Jobs January 2013
Aflasafe Commercialization Strategy Improving the Health and Securing the Income of Nigeria’s Small Holder Farmers Creating Companies | Creating Wealth | Creating Jobs January 2013 Partners: CONFIDENTIAL

2 Consumer can’t see, taste or smell aflatoxin yet it has terrible effects…

3 The Solution USDA / IITA Technology that naturally and cost effectively reduces Aflatoxin levels by 80% to 99%

4 Aflasafe Commercial Strategy
Three Strategic Question Who is the target market for low aflatoxin maize? What premium can this market afford and does the premium provide sufficient economic incentive to sustain farmer adoption? How will the commercial plan to be implemented? “Establish a sustainable premium market for low aflatoxin maize and ensure this premium creates sufficient economic incentive to sustain farmers adoption with the buyer and seller sharing the economic benefits equally”

5 Who is the market for low Aflatoxin Maize?

6 Nigerian Government Bans Poultry Imports
Target Market for Aflasafe Maize Poultry Industry… Key Driver of Domestic Maize Production Correlated Growth In Maize and Poultry Production in Nigeria Drivers Index of growth in production for maize and poultry relative to Nigeria’s production in 1961* Measure: Relative growth in production Nigerian poultry production has grown from 113 Million birds in 2000 to 192 million birds in 2010 Nigerian maize production has grown from 4 million metric tons in 2000 to a 7.3 million metric tons in 2010 Each sector has grown on average 5% per year. Poultry feed is approximately 60% maize. Nigerian Government Bans Poultry Imports In nigeria, the maize market is fundamentally the poultry market (me: what about the binders as an alternative?) About 50% of nigeria maize goes into poultry industry. * Doreo Analysis, FAO

7 Is Aflatoxin an issue for the poultry industry?
Idea is that by creating a poultry-industry market for aflatoxin free maize, smallholder farmers will incidentally produce and consume aflatoxin-free maize at home too. Poultry industry already know of and use binders for maize. Downside is that binders cause productivity issues, so there are improvements to be seen.

8 Aflatoxin has a significant economic impact on poultry production
Majority of Poultry Feed in Nigeria Toxic Impact of Toxic Feed Poultry fed with Contaminated Feed ( >500 PPB) Poultry fed with Safe Feed ( < 20 PPB) Percentage of Toxic Poultry Feed * Measure: % with levels of Aflatoxin over 20 PPB Significant increased mortality Dramatic reduction in live weight / Feed efficiency (40% less in IITA trails) Drop in egg production rate Additional IITA trails in progress *IITA

9 Is the poultry industry currently paying a premium for low aflatoxin maize?

10 Target Farm gate Price of Aflasafe $15 USD per Ha with Target Yields of Aflasafe Maize Farmer of 3.5 MT /Ha Poultry Industry Current Premium by Customer Segment* ($ per Metric Ton of Maize) Economically Sustainable Farm Gate Price of Aflasafe by Customer Segment and Farmer Yield* Tier 3 Customers Tier 2 Customers Tier 1 Customers Target Yield Target Price Toxin Binder Cost Low Low High High Toxin Binder Concentration Low High Low High Price of toxin binders vary from $2 - $4 per kg Concentration of use varies from 1kg – 2kg per metric ton of feed. 600kg of maize per 1000kg of feed Proposition for maize industry: Assume aflasafe maize is at least as good as use of binders Calculate cost of using binders, which ranges from 3-6/13 extra/kilo of feed Assume average poultry producer will pay a $6 premium, and price for farmer is 15/hectare, then farmer must get a yield of 3.5 tons/ha to justify the investment, assuming he’ll get a 6 $ premium. Assumes farmer makes 33% profit on use of Aflasafe * Doreo Analysis

11 What incentive will farmers have to adopt Aflasafe?

12 Phase 1 Aflasafe Pilot Commercialization
Purchase Aflasafe Repackage Aflasafe Farmer Purchase Aflasafe for $15.60/ha Farmer Produces Maize with Yields above 3.5MT/ha Babban Gona Test Maize at Harvest Maize passes test farmer receives $6.25/mt premium Babban Gona markets maize for +$6.25 premium Phase 1 Aflasafe Pilot Commercialization 1 3 5 2 4 6 7 They convinced farmers to buy aflasafe, guaranteeing that they will get at least a 6$ maize premium. Now it is the project’s job to go out and market the maize for that premium. Modest Premium of $6.25/mt (Approximately 2% premium) Works if Farmer Attains Yields of Over 3MT/Ha

13 How do you get farmer yields above 3MT/Ha?
Key issue, however, is how do you accomplish the needed yield increase?

14 Babban Gona: Agricultural Franchise Model
Trust Group 1 Trust Group 2 Trust Group n Small Holder Farmer Members Services Small Holder Farmer Members Services Services Small Holder Farmer Members They’ve developed a “franchise” model that allows for economies of scale. Franachise provides training, credit, inputs, and markets to each franchisee. Allows them to optimize their yields. $500/ha in inputs, etc. Cost effective acquisition/distribution of inputs, and provision of market. Private sector based. This model has worked well in the U.S. 14

15 Babban Gona Services Provided
Training Credit Agric Inputs Good Markets 15

16 Babban Gona Impact Babban Gona Field Non Babban Gona Field
Yield Up to 4.6 MT per Hectare Non Babban Gona Field Expected Yield Less than 1.5 MT per Hectare Significant yield improvements. 16

17 Babban Gona Impact Ibrahim Mustapha Samaila Haruna 4.6 MT/Ha $1,250
Attained yields of 4.6MT/ha i.e. 3X the National Average and almost 6X the average yield in the community. Achieved an economic value net of all loans of over $1,250 from his small 1.1 Hectare farm. From a GDP per capita standpoint he moves from poverty into a lower middle income bracket.. $1,250 Samaila Haruna Achieved an economic value net of all loans of over $2,500 from his small 2.5 Hectare farm. From a GDP per capita standpoint he moves from poverty into a lower middle income bracket. $2,500 Dramatic economic yield. 1 With his earning from his first season in Babban Gona he bought a car. 17

18 How cheap can you produce Alfasafe?

19 Significant Product Development Investment to Reduce COGs Reduced from $20 per Ha to $7 per Ha
Analysis of Ex Factory Price and End Farmer Cost Key Takeaways Aflasafe Estimated Price ex Factory* Measure: USD per Ha Final ex factory price assumes an EBITDA margin of 28% (55 Naira / kg) applied to product to enable factory to be sustainable. Simple, low-cost formulation and manufacturing process developed for use in this manufacturing plant Process amenable to seed processing companies Discussions underway with 2 seed processing companies for manufacturing aflasafe in Nigeria Substrate (Sorghum) Inoculum Labor/OH Packaging SG&A EBITDA Margin Ex Factory Price Aflasafe Estimated Farm Gate Price* Measure: USD per Ha Key actors in distribution are the Distribution Partners (DPs) and Retailers. As product is new and requires addition work by the value chain actors i.e. marketing and education, margins are set slightly higher than normal to encourage effective distribution. Cost to farmer includes labor cost to apply assuming half day at 800 naira per day. Need to get cost of alfasafe as low as possible. COG was $20 two years ago. Now it is down to $7. Ex Factory Price Transport to DP DP Margin Retailer Margin Farm Gate Price * Doreo Analysis

20 How high can the premium for Aflasafe maize go?

21 Poultry Industry Currently Paying an Implied Premium in Lost Profits Aflasafe Treated Maize Dramatically Increases Profitability by up to $0.72/ Broiler Started Lost Gross Profit ($/Broiler Started) of Not Using Aflasafe Treated Maize* Assumptions 2kg live weight Conservative low cost finisher feed mix: $0.50/kg Average bird dies at 4weeks weighing 1kg Price of dressed weight bird: ₦650/kg Cost of day old chick: $1/Chick Thre has been a dramatic improvement in feed conversion and also reductions in mortality rates. * Doreo Analysis

22 The Recommended Premium For Aflasafe Treated Maize is $56/MT vs. $6
The Recommended Premium For Aflasafe Treated Maize is $56/MT vs. $6.25/MT The Poultry Industry Makes Money… the Farmer Makes Money

23 How will the commercial plan be implemented?

24 Strategic Plan to Drive Sustainability Leverage Strong Regulatory Enforcement to Sustain Premium Market for Aflasafe maize 1 Generate Supply of Cost Effective Low Aflatoxin Maize PACA and Pull Mechanism 2 Enforce Regulatory Policy Policy: Build Regulators Capacity Policy: Develop regulatory framework Policy: Phased in regulatory enforcement mechanism 3 Enable Market Forces to Drive Sustainability Market Forces 4 Promote Health Awareness to Value Chain Actors Health Awareness: Farmer Focus Implications: there is interest in poultry sector to pay a premium. Need to get buyers excited and get buyers excited. Health Awareness: Industry Focus Health Awareness: End Consumer 1 2 3 4 5 Year

25 Contact Details Lagos 3B Baajiki Close Lekki Phase I Lagos, Nigeria
London 11 Mount Pleasant London, England SE27 9PU Kola Masha Managing Director +234-(0) Doreo

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