Presentation on theme: "Creating Companies | Creating Wealth | Creating Jobs January 2013"— Presentation transcript:
1Creating Companies | Creating Wealth | Creating Jobs January 2013 Aflasafe Commercialization Strategy Improving the Health and Securing the Income of Nigeria’s Small Holder FarmersCreating Companies | Creating Wealth | Creating JobsJanuary 2013Partners:CONFIDENTIAL
2Consumer can’t see, taste or smell aflatoxin yet it has terrible effects…
3The SolutionUSDA / IITA Technology that naturally and cost effectively reduces Aflatoxin levelsby 80% to 99%
4Aflasafe Commercial Strategy Three Strategic QuestionWho 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”
6Nigerian Government Bans Poultry Imports Target Market for Aflasafe Maize Poultry Industry… Key Driver of Domestic Maize ProductionCorrelated Growth In Maize and Poultry Production in NigeriaDriversIndex of growth in production for maize and poultry relative toNigeria’s production in 1961*Measure: Relative growth in productionNigerian poultry production has grown from 113 Million birds in 2000 to 192 million birds in 2010Nigerian maize production has grown from 4 million metric tons in 2000 to a 7.3 million metric tons in 2010Each sector has grown on average 5% per year.Poultry feed is approximately 60% maize.Nigerian Government Bans Poultry ImportsIn 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
7Is 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.
8Aflatoxin has a significant economic impact on poultry production Majority of Poultry Feed in Nigeria ToxicImpact of Toxic FeedPoultry 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 PPBSignificant increased mortalityDramatic reduction in live weight / Feed efficiency (40% less in IITA trails)Drop in egg production rateAdditional IITA trails in progress*IITA
9Is the poultry industry currently paying a premium for low aflatoxin maize?
10Target Farm gate Price of Aflasafe $15 USD per Ha with Target Yields of Aflasafe Maize Farmer of 3.5 MT /HaPoultry Industry Current Premium by Customer Segment*($ per Metric Ton of Maize)Economically Sustainable Farm Gate Price of Aflasafe by Customer Segment and Farmer Yield*Tier 3CustomersTier 2CustomersTier 1CustomersTarget YieldTarget PriceToxin Binder CostLowLowHighHighToxin Binder ConcentrationLowHighLowHighPrice of toxin binders vary from $2 - $4 per kgConcentration of use varies from 1kg – 2kg per metric ton of feed.600kg of maize per 1000kg of feedProposition for maize industry:Assume aflasafe maize is at least as good as use of bindersCalculate cost of using binders, which ranges from 3-6/13 extra/kilo of feedAssume 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
11What incentive will farmers have to adopt Aflasafe?
12Phase 1 Aflasafe Pilot Commercialization Purchase AflasafeRepackage AflasafeFarmer Purchase Aflasafe for $15.60/haFarmer Produces Maize with Yields above 3.5MT/haBabban Gona Test Maize at HarvestMaize passes test farmer receives $6.25/mt premiumBabban Gona markets maize for +$6.25 premiumPhase 1 Aflasafe Pilot Commercialization1352467They convinced farmers to buy aflasafe, guaranteeing that they will get at least a 6$ 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
13How do you get farmer yields above 3MT/Ha? Key issue, however, is how do you accomplish the needed yield increase?
14Babban Gona: Agricultural Franchise Model Trust Group 1Trust Group 2Trust Group nSmall Holder FarmerMembersServicesSmall Holder FarmerMembersServicesServicesSmall Holder FarmerMembersThey’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
16Babban Gona Impact Babban Gona Field Non Babban Gona Field Yield Up to 4.6 MT per HectareNon Babban Gona FieldExpected Yield Less than 1.5 MT per HectareSignificant yield improvements.16
17Babban 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..$1,250Samaila HarunaAchieved 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.$2,500Dramatic economic yield.1With his earning from his first season in Babban Gona he bought a car.17
19Significant Product Development Investment to Reduce COGs Reduced from $20 per Ha to $7 per Ha Analysis of Ex Factory Price and End Farmer CostKey TakeawaysAflasafe Estimated Price ex Factory*Measure: USD per HaFinal 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 plantProcess amenable to seed processing companiesDiscussions underway with 2 seed processing companies for manufacturing aflasafe in NigeriaSubstrate (Sorghum)InoculumLabor/OHPackagingSG&AEBITDAMarginEx Factory PriceAflasafe Estimated Farm Gate Price*Measure: USD per HaKey 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 FactoryPriceTransport to DPDP MarginRetailer MarginFarm Gate Price* Doreo Analysis
21Poultry Industry Currently Paying an Implied Premium in Lost Profits Aflasafe Treated Maize Dramatically Increases Profitability by up to $0.72/ Broiler StartedLost Gross Profit ($/Broiler Started) of Not Using Aflasafe Treated Maize*Assumptions2kg live weightConservative low cost finisher feed mix: $0.50/kgAverage bird dies at 4weeks weighing 1kgPrice of dressed weight bird: ₦650/kgCost of day old chick: $1/ChickThre has been a dramatic improvement in feed conversion and also reductions in mortality rates.* Doreo Analysis
22The 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
24Strategic Plan to Drive Sustainability Leverage Strong Regulatory Enforcement to Sustain Premium Market for Aflasafe maize1Generate Supply of Cost Effective Low Aflatoxin MaizePACA and Pull Mechanism2Enforce Regulatory PolicyPolicy: Build Regulators CapacityPolicy: Develop regulatory frameworkPolicy: Phased in regulatory enforcement mechanism3Enable Market Forces to Drive SustainabilityMarket Forces4Promote Health Awareness to Value Chain ActorsHealth Awareness: Farmer FocusImplications: there is interest in poultry sector to pay a premium. Need to get buyers excited and get buyers excited.Health Awareness: Industry FocusHealth Awareness: End Consumer12345Year
25Contact Details Lagos 3B Baajiki Close Lekki Phase I Lagos, Nigeria London11 Mount PleasantLondon, EnglandSE27 9PUKola MashaManaging Director+234-(0)Doreo