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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:. The Solution. USDA / IITA Technology that naturally and cost effectively reduces Aflatoxin levels

cameran-barrett
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Creating Companies | Creating Wealth | Creating Jobs January 2013

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

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

  3. 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”

  4. Who is the market for low Aflatoxin Maize?

  5. Target Market for Aflasafe MaizePoultry Industry… Key Driver of Domestic Maize Production Correlated Growth In Maize and Poultry Production in Nigeria Drivers • 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. Index of growth in production for maize and poultry relative to Nigeria’s production in 1961* Measure: Relative growth in production Nigerian Government Bans Poultry Imports * Doreo Analysis, FAO

  6. Is Aflatoxin an issue for the poultry industry?

  7. Aflatoxin has a significant economic impact on poultry production Impact of Toxic Feed Majority of Poultry Feed in Nigeria Toxic Poultry fed with Safe Feed ( < 20 PPB) Poultry fed with Contaminated Feed ( >500 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

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

  9. 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 2 Customers Tier 1 Customers Tier 3 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 • Assumes farmer makes 33% profit on use of Aflasafe * Doreo Analysis

  10. What incentive will farmers have to adopt Aflasafe?

  11. Phase 1 Aflasafe Pilot Commercialization 1 3 5 2 4 6 7 • Modest Premium of $6.25/mt • (Approximately 2% premium) Works if Farmer Attains Yields of Over 3MT/Ha

  12. How do you get farmer yields above 3MT/Ha?

  13. Babban Gona: Agricultural Franchise Model Small Holder Farmer Members Small Holder Farmer Members Small Holder Farmer Members Services Services Services 14

  14. Babban Gona Services Provided 15

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

  16. Babban Gona Impact • Ibrahim Mustapha • Attained yields of 4.6MT/ha i.e. 3X the National Average and almost 6X the average yield in the community. • 4.6 MT/Ha • 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 • 1 • With his earning from his first season in Babban Gona he bought a car. 17

  17. How cheap can you produce Alfasafe?

  18. Significant Product Development Investment to Reduce COGsReduced from $20 per Ha to $7 per Ha Analysis of Ex Factory Price and End Farmer Cost Key Takeaways • 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 Aflasafe Estimated Price ex Factory* Measure: USD per Ha 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. Ex Factory Price Transport to DP DP Margin Retailer Margin Farm Gate Price * Doreo Analysis

  19. How high can the premium for Aflasafe maize go?

  20. Poultry Industry Currently Paying an Implied Premium in Lost ProfitsAflasafe 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 * Doreo Analysis

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

  22. How will the commercial plan be implemented?

  23. 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 Health Awareness: Industry Focus Health Awareness: End Consumer 1 2 3 4 5 Year

  24. Contact Details Lagos 3B Baajiki Close Lekki Phase I Lagos, Nigeria London 11 Mount Pleasant London, England SE27 9PU Kola Masha Managing Director kola.masha@doreopartners.com +234-(0)-805-5000-350 www.doreopartners.com Doreo

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