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ConceptNotefortheUseofResourcesfromtheFIPCompetitiveSet‐Aside

1. Country/Region: Brazil/MinasGerais

2. CIFProjectID#:

3. Project/ProgramTitle:

Macauba– PlantOilwithImpact

4. DateofEndorsementoftheInvestmentPlan:

May18th,2012

5. FundingRequest(inmillionUSDequivalent):

Grant:N/A Non‐Grant (loan,equity,guarantee,etc.):3millionUSD

6. ImplementingMDB(s):

Inter‐AmericanDevelopmentBank(IADB)/FOMIN

X PrivatesectorarmPublicsectorarm

7. ExecutingAgency:

8. MDBFocalPointandProject/ProgramTaskTeamLeader(TTL):

Headquarters‐ FocalPoint:

GloriaVisconti

ClimateLeadSpecialist

IADB

gloriav@iadb.org

TTL:

GregoryWatson

ClimateSeniorSpecialist

FOMIN

gregoryw@iadb.org

I. Project/ProgramDescription

MACAUBA–PLANTOILWITHIMPACT–DESCRIPTION

ByestablishingagroforestrysystemswithMacauba,theprojectaimstobuildthefirstvaluechainforvegetableoilproductionwithoutlandusechangeinBrazil.Macaubapalmtreeswillbeintegratedintoexistingpastureskeepingthenumberofcattleconstant.Hence,vegetableoilproductionwillnotreducethepastures’productivity.TheprojectislocatedintheCerradoregionofAltodoParanaiba,MinasGerais,Brazil.ItdirectlytranslatesknowledgeandexperiencefromaEuropeanUnion‐fundedEUR2.7mresearchprojectatLeuphanaUniversityLuneburg(Germany)intoaction.Inthecontextofthisresearchproject,afeasibilitystudywasconductedinMinasGerais2012‐2013.Intotal,300tonsofMacaubafruitswereharvestedtoempiricallyanalyzethetechnicalfeasibility,economicviabilityandsustainabilityoftheproposedsystem.1

1Thestudycanbedownloadedhere:http://www.leuphana.de/fileadmin/user_upload/portale/inkubator/download/Summary_Macauba_Feasibility_Study.pdf.

Picture 1) Wild Macauba trees on pasture land

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Macauba(Acrocomiaaculeata)isapalmtreewhich isnativetotheCerradoprojectregioninBrazil(seePicture3,maponnaturaloccurrence). yieldsatleast30‐40kgfruitperpalmp.a.(upto130kgperpalmwereobservedduringthe

feasibilitystudy),whichcanbeprocessedintoplantoil,animalfodderandadensebiomassgranulate.

needssignificantlylessprecipitationthantheconventionaloilpalm(Elaeisguineensis)andisresistanttodroughts.2

canbeintegratedintoexistingpastureswithoutreducinggrassyieldsasdemonstratedbytheCentroAgronómicoTropicaldeInvestigaciónyEnseñanza.3

Macaubaisharvestedaftercoffeeprovidingadditionalincomesforworkerswhenseasonalunemploymentratestraditionallyrise.Macaubapulpandkerneloilhaveasimilarcompositionandqualityasconventionalpalmoilandpalmkerneloil,respectively,andcouldbecomesubstitutesforthoseproducts.

IntheBrazilianCerrado,500,000km2(=50millionha)ofpasturesareavailable,mostofwhicharesuitableforMacauba.Withthisapproach,oilquantitiesexceedingthesizeoftoday’stotalglobalpalmoilmarketcanbeproducedwithoutanyimpactsonfoodsecurityornaturalecosystems.

Thetotalfinancingvolumerequiredfortheproject(debt+equity)amountstoUSD6m.Theprojectwillserveasaflagshipmodel,incubatinganewindustrywithsignificantpotentialtoscale.FIPfundingisrequiredtobridgethepioneergapandestablishthesilvopastoralMacaubapilot.

ThisprivatesectorproposalwillcomplementthepublicsectorprojectsincludedintheInvestmentPlan(IP),testingnewmodalitiesthatwillengageSmallandMediumEnterprises(SMEs).WhiletheprojectspresentintheIPwillcreatetheenablingconditionsforprojectstohappen,thepresentproposalwillputinpracticeaprivatesectorapproachthatwilladdupenvironmentalandsocialbenefits.

2 Fabianie de Gois Aquino et al: Distribuição geográfica das espécies Acrocomia aculeata (Jacq.) lodd. ex Mart. e Caryocar brasiliense cambess. no bioma Cerrado, 2008. 3 Villanueva et al. (2008): Disponibilidad de Brachiaria brizantha en potreros con diferentes niveles de cobertura arbórea en el trópico subhumedo de Costa Rica., Centro de Agricultura Tropical de investigación y Enseñanza. Turrialba, Costa Rica.

Picture 2) Agroforestry system with Macauba trees on pasture land

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IMPLEMENTATION

Theprojectwillincludethefollowingtwoelements:

A. EstablishingaMacaubaTrainingCenter

i. TheCenterwilltrainandenablesmallholderstoincreaseanddiversifytheirincomesbyharvestingthefruitsofexisting(wild)Macaubapalmtrees.

ii. AnexistingoilmillandstoragefacilitieswillbeenhancedandupgradedbytheCentertoprocessthecollectedMacaubafruitsinordertodemonstratesmallholderfarmersthatMacaubaisaprofitablebusiness.

iii. TheCenterwillraiseawarenessforMacaubaproductsbyprovidingtestvolumestocompaniesproducingoilbasedproducts,animalfodder,andnutshellgranulateandtherebyprovethatthereisamarketforMacauba.

ThescopeofthetrainingcomponentwillaimtoensuretheinclusionofMacaubaasanaspectinthemanagementofproductionsystems,includingimprovementandpasturemanagement.

B. Implementinga2,000haagroforestrysystemwith300Macaubatreesperhectareasacommercialpilotproject

i. Workwithsmallholderfarmers,whoaremembersofacattlecooperative,tointegrateMacaubapalmsontheirpastures.

ii. Buildupanurserytoprovidesmallholderswithsaplings.

BothelementsareexplainedindetailinChapterV(BusinessModel).

Inyear5,furtherinvestmentwillbeattractedtobuildalarge‐scaleoilmilltoprocessfruitsfromthe2,000hapilot(thesevolumescannotbehandledbytheoilmilloftheMacaubaTrainingCenter).Thislargescaleoilmillwillbefundedthroughseparateprivatesectorresourcesandisnotpartofthisproposal.

Overall,theprojectwillcomplywithallrelevantcriteriaandstandards,includingwiththosesetbytheFIPandtheIDB/MIF.Furthermore,projectimplementationwilloccurinaccordancewithBrazilianlegislationandinparticularwithCAR(CadastroAmbientalRural),theforestcodeandlaborlaws.

EXPECTEDOUTCOMES

1. DirectImpacta. Establish2,000hectareofagroforestrysystemwithMacaubab. Sequester575,000tonsofCO2andavoidemissionsfromdeforestation(seenext

sectionfordetails)c. Generateincomeopportunitiesinperiodsofhighseasonalunemployment

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d. GeneratetotalincomeofaboutR$28m(>USD13m)forharvestworkersandsmallholderfarmersinthefirst20yearsandoverR$48m(>USD22m)when30projectyearsaretakenintoaccount(seesocialimpactfordetails)4

2. Createascalable,profitablebusiness

a. Break‐Evenafter7yearsb. StableannualturnoverofminimumUSD4.4m(fromyear10)c. StableannualEBITDAofminimumUSD2m(fromyear10)d. Createpositivespill‐overeffects

II. FITWITHINVESTMENTCRITERIA

Theproposedprojectaddresses“Theme1‐Managementanduseofpreviouslyanthropizedareas”,specifically“1.2‐Sustainableproductioninareaspreviouslyconvertedtoagriculturaluse(basedupontheABCPlan)”oftheFIPinvestmentplanBrazil,whichwill

“seektopromotesustainablelanduseandforestmanagementimprovementintheCerrado,thesecondlargestbiomeinBrazilandSouthAmerica,contributingtoreducingpressureontheremainingforests,reducingGHGemissionsandincreasingCO2sequestration”.

ThegoaloftheprojectistoestablishaprofitableflagshipprojectshowcasingthescalablepotentialofsilvopastoralMacaubatosequestercarbonandreducethepressureonexistingforestsandotherimportantecosystemhotspotsintheCerradoregion.Theprojectwillreducegreenhousegas(GHG)emissionsofvegetableoilproduction(ascomparedtoconventionalproductionmodels)andpromotefoodsecurityintheCerrado.

Webelievethatthisproposalmeritsconsiderationforinvestmentbecause

Ittacklesmajoreconomic,ecologicandsocialchallengesinBrazilandtheCerradotargetregion,particularlyinhillyregionsthataredifficulttoaccesswithagriculturalmachines,leavingextensivecattlefarmingastheonlyviableagriculturaluseofland.

ItfitstoFIPtargets,theexistingframeworkandtheBrazilinvestmentstrategy(seebelow).

TherearesignificantresearcheffortsonMacaubainthetargetregion:apartfromtheprogramatLeuphanaUniversity(Germany),thereisastrongresearchnetworkonMacaubainvolvingunitsofEmbrapaandseveralBrazilianuniversitiesaspartofthe“ProPalma”project.5Additionally,PetrobrashasinvestedR$5minMacaubaresearch.OurprojectisthefirstcommercialimplementationoftheMacaubaresearchandservestobridgethepioneergap.

ThereisstrongpoliticalsupportforMacaubainMinasGerais:Tosupportthedevelopmentofpioneerprojects,theStateofMinasGeraishasimplementedtheso‐called

4 Newly planted Macauba palms produce fruits after five years. Each year additional Macauba trees will be planted on pastures. Consequently, total yearly incomes for smallholders and harvest workers increase over time. 5 Embrapa, 2012 (http://www.embrapa.br/imprensa/noticias/2012/agosto/3a-semana/macauba-no-mercado-de-bioenergia/).

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Pro‐MacaubaLawto“[…]encouragethecultivation,extraction,marketing,andconsumptionofMacaubaproductsand[…]promotethedevelopmentofMacaubaprojects,preferablybycooperatives,involvingallactorsinthesupplychain”(LEINº19.485,2011).6

Ithasenormouspotentialtobescaledupinthefuture:MostexistingpasturesintheCerradoaresuitableforMacauba,asindicatedbylargenativeMacaubastands(seepicture2above)

Takentogether,aftersuccessfultrialsandseveralfeasibilitystudiesconductedbyuniversities,theprerequisitesforasuccessfulprojectaregiven.Afirst‐moverisrequiredtoimplementthefirstlarge‐scaleprojecttoleveragetheindustry.AnFIPinvestmentwillestablishanimportantlandmarkprojectwithsignificantspillovereffectsandscalablepositiveimpact.

THEFIPCRITERIA:

Additionally

ThisprojectisunlikelytobefinancedwithouttheFIPProgram.TheMacaubaindustrysuffersfromthepioneergap:InspiteoftheextensiveresearchdescribedaboveanddespitetheProMacaubaLawestablishedin2011,thereisstillnotasingleMacaubapilotproject.

Currently,innovativevegetableoilprojectswithnovelspeciessufferfromhesitatingprivateinvestors.Amongthereasonsforinvestors’reluctancetoinvestinoil‐bearingperennialsare–amongstothers–negativeexperienceswithJatropha.Worldwide,over200milliondollarshavebeeninvestedinJatrophaprojects–manyofwhichfailedtoyieldtheexpectedoilvolumesandhenceshowednegativefinancialreturns.Lackofagronomicknowledgeontheplantwasoneofthemainissues,whysomanyprojectsfailed.7ThisisnotthecaseforMacaubabecauseoftheintenseandregionallyfocusedresearchontheplant.Asthe2,000hectaresofMacaubaagroforestrysystemswillbeplantedexactlyintheareawheretheresearchhasbeenconductedandthousandsofwildMacaubascanbefound,knowledgeistransferable–whichwasoftennotthecaseinJatrophaprojects.

Yet,pioneeringinvestmentisveryunlikelytobedonebyprivateinvestorsalone.Astreesofanovelspeciescannotserveasanasset,financialriskmitigationviacollateralsisdifficulttoachieve.Onesolutionwouldbetoacquireland,whichhowevercontradictstheobjectivetomaximizepositivesocialimpacts.Therefore,concessionalfinanceisneededtoreducerisksforprivateinvestors.Reducingasset‐backingburdensviaFIPfinancingwillhelptheprojecttofullyfocusonscaleandimpact.

Furthermore,asthefirstprojectofitskind,investmentincapacitybuildingandtrainingwillbesignificantlyhigherthanforsubsequentprojects.Thishasproventobeaninvestmentbarrierforclassicinvestors.FIPfundingandtechnicalassistancewillhelptoovercomethisbarrier.Ourprojectwillbeabletodevelopbestpracticesforestablishingsilvopastoralsystemswithsmallholderfarmers,whichcanbeappliedbyfutureprojects.Reducinguncertainty,thiswillfacilitatefutureprojectstoaccessconventionalfinancing.

6 LEI Nº 19.485, 2011. http://www.agenciaminas.mg.gov.br/noticias/governo-de-minas-regulamenta-o-pro-macauba/. 7SeeLeuphanaUniversity(2013)InsightsintoJatrophaProjectsWorldwide(http://www.leuphana.de/fileadmin/user_upload/portale/inkubator/download/Studie_Insights_into_Jatropha_Projects_Worldwide.pdf).

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Picture 3) Natural occurrence of Macauba

Duetothesignificantinvestmentsincapacitybuildingandthetimedifferencebetweenplantingandfirstharvest,theprojectwouldnotbeviablewithoutrelativelylowinterestrates.Atlast,ourrigoroustriple‐bottom‐lineapproachisonlypossiblewithbelowmarketinterestpayments.

ClimateChangeMitigationPotential Baseline:pasturesremainunchanged Leakage:accordingtotheUNFCCCapprovedafforestationandreforestationbaseline

andmonitoringmethodology,8leakagefromestablishingsilvopastoralsystemsonpuregrasslandcanbecountedaszero.

Carbonstorage:accordingtoToledoetal.,UniversidadeFederaldeViçosa,theaverageCO2sequesteredineachMacaubapalmamountsto958kgpertree;accordinglythetotalcarbonstorageof2,000hawith300treesperhectareamountsto575,000tonsofCO2.

Indirecteffectscomprisereducedpressureonexistingforests:plantingMacaubagenerateshigherincomesforlocalfarmersandcreatesadditionaljobopportunities.Ratherthancuttingdownforestsinordertoincreasepasturesizesandhenceincomes,localfarmerscouldparticipateinthevegetableoilbusinessandbenefitfromitshigherreturns.

DemonstrationofpotentialatscalePasturescover50mhectaresoftheBrazilianCerrado.MacaubaisalreadynativetomostpartsoftheCerradoandcouldbecultivatedintheentireregion(seepicture).Thebusinessmodeliseconomicallyviableandcanbescaledupworkingwithfurthercooperatives,aswellasindustrialcattlefarmers.IntheprojectregionofPatosdeMinasalone,594.000haofpasturesareavailable.9

Inthemediumterm,itseemsrealistictosubstitutetheentireBrazilianpalmoilimports.Theseimportsarecurrentlyabout200,000tonsp.a.10andthecountry’simportdependencyisrising‐afact,theBraziliangovernmentcurrentlyseekstoreduce.11About200,000haofsilvopastoralMacaubaplantationarerequiredtocutBrazil’spalmoilimportstozero.Achievingthisplantationsizewithin20yearsseemstoberealisticsince:

8 United Nations Framework Convention on Climate Change (2012): AR-AM0009. 9 Source: Official cattle statistics, State of Minas Gerais.10 Source: index mundi, U.S. Department of Agriculture. 11Toencouragethesubstitutionforimportedpalmoil,thegovernmenthasestablishedthe“ProPalma”Programandpalmoilissubjecttoimportduties.

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WithCoopatosasapartner,upto98,000haofpasturescanbeaccessedwithoutrequiringanychangesinpartnershipsandcommunicationchannel.

Coopatosowns51%ofCemil,acooperativeofcooperatives,makingafurtherscale‐upofthemodelrealistic.

AdditionalcooperativeshavealreadybeencontactedandexpressedinterestinsilvopastoralMacaubaplantations.

TheMacaubaTrainingCenterwillreachouttofarmersandharvestworkersnotassociatedwithCoopatosandalsoinviteNGOsandcooperativestopresenttheopportunitiesarisingfromMacaubacollection.

Potentiallongtermimpact:Withover50mhaofCerradopasturespotentiallysuitableforsilvopastoralsystemswithMacauba,thelong‐termMacaubapotentialinBrazilexceedsthecurrentglobalpalmoilproductionvolume.Thispotentialcanberealizedbyleveraginganinnovativeafforestationmethod–asopposedtodeforestationformonocultures.Theapproachiseconomicallyviablewithsmallholderintegrationintraining,employmentandincomediversification.

Insummary,nationalmarketdemandforpalmoilishighandthegovernmentpromotestheproductionoflocalpalmoilequivalents.Theproductionpotentialisequallyhighand200,000hectaresofsilvopastoralsystemscouldbeachievedwithintwodecadeswithfurtherexpansionpotentialinthelongrun.

CostEffectivenessTheFIPfundingislikelytotriggerrelevantprivatesectorinvestmentsinassetssuchasoilmillsaswellasinadditionalprojects.Furthermore,sinceamajorityofpreparatoryandsupportingresearchwasfundedthroughtheEU‐projectatLeuphanaUniversityLuneburgandotheruniversities,theadditionalinvestmentswilldirectlybeappliedtotheactualimplementationoftheMacaubaflagshipproject,ratherthanfurtherresearchanddevelopment.WhiletheexpecteddirectGHGreductionduringthelifeoftheprogramperFIPdollarinvestedamountsto5USD/tonofCO2,indirecteffectsaresignificantlymorepronounced:plantingMacaubaincreasesincomesperhectareoflandforsmallholdersandhencereducespressuretologremainingforests.Whilepalmoilplantationfrequentlyresultedinrainforestdestructioninthepast,Macaubaoilcanserveasadeforestation‐freesubstitute.

ImplementationPotentialTheimplementationwillbeconductedincooperationwiththelocalmilkcooperative“Coopatos”.Buildingupontheestablishedcommunicationandgovernancestructureswithinthecooperative,theprojectwillbeabletoachievealargesocialimpactwithhighimplementationfeasibility.

SafeguardingtheIntegrityofNationalForestsMacaubapalmtreeswillbeintegratedonlyonexistingpastures,hencesafeguardingtheintegrityofnationalforests.Moreover,plantingMacaubatreesallowsmitigatingsomeoftheimpactsofdeforestation:Clearingforestsaffectswindvelocityandchangesintemperatureandrainfallpatterns.Treecanopiesblockthesun’sraysoverthedayandholdinheatatnight.Whenentireareasaredeforested,thisleadstomoreextremetemperatureswingsthatcanbeharmfultoplantsandanimals.Whilerainfallissignificantlyhigherover

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thewarmer,deforestedland,rainfallovertheremainingforestscanbereducedby50%ormore.12Therefore,changinglandusefromforesttocroplandreducesrainfalloverneighboringforeststhreateningthoseremainingecosystems.IntegratingMacaubapalmtreesintopasturescreatesacanopycoverofapproximately30%,hencereducingtheamplitudeoftemperatureswingsbyprovidingshade.Moreover,evendispersedtreesactaswindbreaksandsequestercarbon.Forthisreason,agroforestrysystemswithpastures(silvopastoralsystems)havebeenacceptedasafforestationandreforestationactivitybytheUNFCCC.Moreover,Macaubasilvopastoralsystemscansubstituteforpalmoilplantationswhichhavebeenestablishedattheexpenseofrainforestsinthepast.Averageyieldsofpalmoilplantationamountto3.5tonsofoilperhectare13whilesilvopastoralMacaubaplantationsyieldaboutonetonofoil.Consequently,200,000hectaresofMacaubaagroforestrycouldsubstituteover55,000hectaresofpalmoilplantation–potentiallysavingthesameamountofrainforest.

IntegratingSustainableDevelopment(Co‐Benefits) Environmentaleffects:

Asdescribedabove,plantingMacaubatreescanmitigatetheeffectsofdeforestationandincreasecarbonsequestration.Byprovidingshade,Macaubatreescanalsoreducethewaterconsumptionofcattle.Asanativespecies,Macaubatreesincreasebiodiversity,providingfoodandshelterforanimals.

Socialeffects:

Morethan200,000peopleinMinasGeraisworkoncoffeefarmsduringtheharvestseason.Afterthecoffeeseason,unemploymentratesgenerallyrise.AsMacaubaharvesttakesplacefromOctobertoJanuary,i.e.afterthecoffeeharvest,itcreateswell‐paidadditionalincomeopportunitiesforworkers.GrowingMacaubaincreasesincomesforsmallholderfarmersandhencelocaltaxes.WorkersinthefeasibilitystudyearnedonaverageR$73perdayi.e.R$1600permonth14withharvestingnativeMacaubastands.Thisisequivalenttomorethantwicethemonthlyminimumwagein2012.WhenallplantedMacaubatreesreachmaturity,15theprojectwillcreate250‐350ofthosejobsfromOctobertoJanuaryreducingseasonalunemploymentoutsidethecoffeeharvestpeaks.

Overtheperiodof20years,harvestwillamounttoabout300,000tonsoffruitswhichyieldsaboutR$18m(>USD8m)toworkers.When30projectyearsaretakenintoconsideration,thisamountincreasesaround500,000tonsyieldingapproximatelyR$32m(USD15m16).

12 NERC (2011), NASA (2004). 13Source:RoundTableonSustainablePalmOil.14 Calculation based on 22 working days. 15 The first newly planted Macauba palms will reach maturity in year 5, the last palms in year 10. 16 Exchange rate June 2013, please note that exchange rates are strongly fluctuating.

Picture 4) Biodiversity: Macauba as a habitat

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Moreover,smallholderfarmerswhoplantMacaubawillreceivea“Macaubalandlease”dependingonthefruityieldperhectare.Smallholderscanhencedecidewhethertheywanttoorganizetheharvestthemselvesorreceiveacompensationforthevolumesharvested.Intotal,“landlease”paymentstosmallholderfarmerswillamounttoaboutR$10m(>USD4.5m)overthefirst20yearsandR$16m(>USD7.5m)overaprojectedperiodof30years.

Intotal,smallholderfarmersandharvestworkerswillearnaboutR$28m(>USD13m)inthefirst20yearsandmorethanR$48m(>USD22m)inthefirst30.

Thesecalculationsdonotyetincluderevenuesfortheprojectmanagementteam,nurserystaffandextensionservice(9FTE),aswellastruckdrivers.Theoilmill,whichwillbefundedbytheprivatesector,alsocreatesadditionalincomeopportunities.

Systemicimpact:Establishing200,000hectaresofsilvopastoralsystemwouldallowforasignificantsubstitutionofBrazilianpalmoilimportsandisarealisticdevelopmenttargetinthenextdecades.Suchaplantationsizewouldrequire25,000‐30,000harvestworkersandgenerateincomeopportunitiesforseveralthousandsofsmallholderfarmers.

III. TypeofPrivateSectorEngagement

Theprojectisafullyprivateinitiative.TheprojectisbasedonacooperationbetweenINOCASGmbH,Luneburg,Germany,andParadigmaOleosVegetaisinCarmodoParanaiba,BrazilwhichhasalongstandingandexceptionalexperiencewiththeMacaubavaluechain,andthecooperativeCoopatos.Coopatosmembersaresmallholdermilkproducerswith60haofpasturelandonaverage(furtherinformationonthepartnersintheannex).TheprojectbenefitsfrompubliclyfundedresearchsuchastheresearchprojectattheLeuphanaUniversityLuneburg.

IV. Innovation

Theproject’smaininnovativecomponentisitsbusinessmodel,whichhasnotbeenappliedanywhereinthisformyet.Agroforestrysystemsassucharenotnewbythemselves.Yettypically,theproductintheforestrypartofthesystemistimber.Inourmodel,theMacaubatreesarenotplantedtoharvestwood,buttocreateanothersetofmarketableproducts(Macaubaoil,animalfodder,granulate)withthefollowingadvantages:

Comparedtoothercontractfarmingmodels,riskexposureofsmallholdersissignificantlyreduced.FarmersdonothavetocovermaterialcostsforplantationsbutonlycontributelabortoestablishandmaintaintheMacaubatrees.Monetaryexpensesarecoveredbytheprojectventure.Thisisoneofthereasons,whytheproposedprojectrequiresconcessionalfinancing.

Manyprojectsinvolvingplantingoftreesfailbecausesmallholdersfearthatnocompanywillbetheretobuytheirproductsinafewyearstime.Forthisreason,itisvitalandalsoaninnovativeelementofourmodeltohaveaprocessingfacilityavailablerightfromthestartoftheproject(intheMacaubaTrainingCenter,seebelow).Thisway,weactivelydemonstratetheexistenceofamarketforthesmallholders’products.Pastexperiencesshowthatneglectingthiscrucial

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Fruits after drying Separation of dried fruits The oil press Picture 6) Processing of Macauba Fruits

psychologicalfactoroftenleadstosignificantfailuresinintroducingadditionalcropstotraditionalfamilyfarmerstructures(seeforexampletheexperienceswithCastorinBrazil).

Inthepast,therewaslimitedknowledgeabouttheprocessingofMacaubainBrazil.However,ParadigmaOleosVegetaishasdevelopedaninnovativesystemtoprocessMacaubainalargescaleandefficientmanner.Itisalreadyputintopracticeinasmallfacility(upto3,500toffruitp.a.)andservesasablueprintforlargerscalefacilities.

V. Technology,Product,and/orBusinessModel

TheprojectusesatechnologydevelopedbythelocalpartnerinBrazilandwillestablishapilotforafullMacaubavaluechainintheprojectregion.Theprojectcoversthefollowingelements:

1. HarvestingandprocessingofMacaubafruitsandmarketingofproducts(performedbytheMacaubaTrainingCenter)

2. Establishingofa2,000haMacaubaagroforestrysystem(includingsaplingproduction)

1. HarvestingandprocessingofMacaubafruit

TheharvestoffruitfromexistingMacaubatreesisorganizedbyharvestworkerswhotypicallyworkincoffeeuntilJuly/August.TheMacaubafruitbunchesarecutwithknivesfittedonlongsticksandcollectedinbigbags,whicharethentransportedbytractorsandloadedontrucks(seepictures).Asstatedabove,the2012/2013Leuphanafeasibilitystudy(300tharvested)foundthatharvestworkersearnedabovetwicethenationalminimumwage.

Forprocessing,Macaubafruitswillbedriedinadryerfueledwithwood.Afterdrying,theoutershellandpulpareseparatedfromtheharder,innershell(“endocarp”).Thepulpwillbepressedtogainpulpoilandpulppresscake.Theendocarpwillbecrushedtoseparatethesoftkernelfromitshardshell(seepicture).Theinnerkernelis

Fruits are collected …which are taken by …or next to the road …bags are unloaded at in big bags… tractors either to trucks… (& picked up by trucks later)… the oil mill. Picture 5) Macauba harvesting process

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thenfurtherprocessedintokerneloilandkernelpresscake.Theendocarpshellisprocessedintoahigh‐qualitygranulate.Forallproducts,localmarketsareavailable(seebelow).Companiesindicatedtheirinterestsand/orsignedlettersofintentforthepurchaseofthefullproductspectrum.

TheMacaubaoilmillinthepicturesisrunbyParadigmaandwasusedduringtheLeuphanaUniversityfeasibilitystudy.Itisoperational,butneedstechnicalupgradesallowingforamoreefficientproductionwhenusedbytheMacaubaTrainingCenter.

2. Establishingofa2,000haMacaubaagroforestrysystem(incl.saplingproduction)

SmallplantsareeitherproducedfromMacaubaseedsorcollectedaswildgrowingsmallplants.Theywillremaininanurseryfor6to18monthsuntiltheyreachthenecessaryheight(ideally>1m)tobetransplantedintothefield.Thenurserywillprovidetheplantsforthesmallholderfarmers.

ThesilvopastoralsystemwillbeestablishedincooperationwithCoopatos,alocalmilkcooperative,whichwillhelptoaddresscattlefarmersintheregion.Coopatosmembershave98,000hectaresofpasturelandundermanagement.ThoseparticipatingintheprojectwillbecompensatediflossesresultingfromreducedlandavailabilityinthefirstyearsafterplantingMacaubatreesoccur.Availabilityofthelandforcattlemaybereducedforaninitialperiodof24months,becausenewlyplantedpalmsneedtobeprotectedfromcattle,forexamplebyfences,untiltheyreachasufficientheight.

Asdescribedabove,farmerswillnothavetopayforsaplingsorothermaterialcost,butonlycontributelabor.The2,000hawillbeestablishedstepbystepoverafour‐yearperiod.

AssoonastheMacaubatreesbearfruit,theprojectwilleither1. harvesttheMacaubafruitsonthefarmers’landpayingfarmersacertainpriceperkg

harvested,2. orpurchaseharvestedandcollectedfruitsforahigherpricefromthefarmers

ThecooperativeCoopatoswillcontributelogisticalsupport.ToassistfarmerswithgrowingandmaintenanceofMacauba,theprojectventurewillprovideanextensionservice,andagronomistswillvisitfarmersonaregularbasis.

VI. Market

Macaubafruitsareprocessedinto

i. Oil:pulpoilandkerneloilii. Animalfodder:pulpandkernel

presscakeiii. Granulategainedfromprocessing

theendocarp.

Picture 7) Macauba Fruit and its Components

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I)MACAUBAPULPANDKERNELOIL

Theoilgainedfromtheouterpulpiscomparabletopalmoil;theoilfromtheinnerkerneliscomparabletopalmkerneloil.PalmandpalmkerneloilimportstoBrazilincreasedatarateof13%and24%p.a,onaverageoverthelast10years,respectively.In2012netpalmoilimportsintoBrazilreachedabout200,000tons,netpalmkernelimports385,000tons.AccordingtotheBrazilianSecretariatforSocialCommunicationtheimportedpalmandpalmkerneloilsareusedinchemicalsaswellasarawmaterialinsoaps,shampoosanddetergents.17Inadditiontothoseproducts,Macaubaoilissuitableforbiodieselproduction.Inthecontextofthisproject,thefirstvolumesofMacaubaoilproducedwillbesoldtoanoleochemicalcompany.

Inthelongrun,MacaubaoilisalsosuitableasbiodieselfeedstockpromotedbytheBrazilianSocialFuelSealProgram(SeloCombustíveSocial),whichaimsatintegratingsmallholderfarmersinbiodieselfeedstockproduction.Thecriteriadefinedbythesealarefulfilledbythecooperative.PricesofMacaubaarelikelytobelinkedtopalm(soapandoleochemicals)orsoybeanoil(biodiesel)dependingonthemarket.

II)ANIMALFODDER

Aftertheoilsareextractedfromthefruit,theremainingpresscakerepresentsavaluablecattlefoddercontainingfiberandproteins.Macaubafruitsarealreadyusedtofeedcattlebysomefarmers.DuetoBrazil’sgrowingmeatandmilkdemand,volumesrequiredtofeedthecountry’sherdarecontinuouslyincreasing.Domesticsoybeanmealuse,dedicatedtofodderproduction,increasedfrom10mtonsin2002to17mtonsin2012.Again,Macaubacanhelptomeetgrowingnationaldemand.

Whilebeingusedbysomefarmers,Macaubapresscakeisnotknownasafodderingredientbylargefodderproducers.Thisrepresentsamarketbarrier.Likefortheoil,theprojectwillfirstproducesmalleramountsofpresscake.CollectingandprocessingfruitsfromexistingwildMacaubapalms,cooperativesandotherlargescalefodderproducerscantestMacauba‐containingfodderintrialsofseveralthousandtons.Inyear5oftheproject,whenlargevolumesofMacaubafruitsbecomeavailable,fodderproducerswillbemorefamiliarwiththeproduct.

AnimalFodderPrices(SoybeanMealandCorn)2003‐2013[USD]

Prices:Soybeanmealandcornpriceswhicharerelevantfoddercomponentshavemorethandoubledoverthepastdecadeandareexpectedtoriseinthefuture.Source:indexmundi,U.S.DepartmentofAgriculture

17 SECOM, 2013 (http://www.brasil.gov.br/para/press/press-releases/may/brazil-launches-national-program-for-environmentally-sustainable-palm-oil-production/br_model1?set_language=en).

0

100

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Mar 03

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Sep 04

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Soybean meal

Corn

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III)GRANULATE

Grindedendocarpcanbeusedasrawmaterialforactivatedcarbonproduction,forthesandblastingindustry,and,duetoacomparativelyhighcaloricvalue,asfuel.Inaddition,carboncreditsgeneratedbytheprojectwillbeanadditionalsourceof incomewhichhelpstoovercomeinvestmentbarriers.

VII. FinancialPlan(Indicative)

TherequiredfinancingofatotalofUSD6mwillservetosetup

a) TheMacaubaTrainingCenterincludinganupgradeoftheexistingoilmillfortheprocessingofapproximately1,500tofwildgrowingMacaubafruitp.a.and

b) A2,000hasilvopastoralsystem.

Thefollowingtablepresentsasplitofthesubcomponentsoftheproject(intermsofmainexpenseitemsinthefirstsixyearsoftheproject),andtheassumedsourcesoffinancingforthesecomponents.PleasenotethatallnumbersarecalculatedinBrazilianRealandthenconvertedintoUSDollaratanexchangerateof0,44(July24,201318).Thesenumberscanserveasanindicationforhowandwherefundswillbeapplied.Actualrequiredfinancingvolumemightdifferascertainrevenuesarenotconsideredhere.Also,duetostrongfluctuationsinexchangeratesin2013,theUSDollaramountcandifferfromtheUSD6.0mindicatedabove(atpresent:USD5.9m)

A)MacaubaTrainingCenter In‘000R$ In‘000USDFinancingSource

Investmentinassets 250 111 Debt(FIP)+equity

Training&Support 400 178 MIFGrantSubtotal 650 289

B)2,000haagroforestrysystemPlanting(largestcostfactors:nursery,fertilizers,protectionofsaplings)

7,500 3,336 Debt(FIP)+equity

ExtensionService 1,700 756 MIFGrant

Others(largestcostfactors:workingcapital,management,vehicles,etc.)

3,400 1,513 Debt(FIP)+equity

Subtotal2,000haagroforestry 12,600 5,605

Total 13,250 5,894

18Exchangerate24thJuly2013,Source:oanda.com.

14

TheprojecthasatotalrevenuepotentialofaboutUSD5mwhichcanbereachedafter10years.Inthefirst5years,revenueswillstayatarelativelymodestlevelofapproximatelyUSD0.5m.Duringthattime,incomesaremainlycreatedbytheMacaubaTrainingCenter.AsMacaubatakes4‐5yearsuntilthefirstharvestispossible,revenuesoftheplantationcomponentwillonlykick‐inafterthattime.Theprojectwilloperationallybreak‐eveninyear7andcreateastablecashflows(beforefinancing)exceedingUSD1mafteryear10.TheInternalRateofReturn(IRR)basedoncashflowsbeforefinancingisnegativefora10yearhorizon,about10%over15yearsand15%over20years.Thisdemonstratestheverylongtermcharacteroftheinvestment.

ThesefinancialprojectionsassumeaconcessionalfinancingcomponentbytheIADB(MIFgrantandFIPloan)asshowninthetablebelow:

SourceofFunding

(bytypeofinstrument,equity,debt,guarantee,grants,creditlines,etc.)

Amount(USDmillionequivalent)

Percentage(%)

Projectdeveloper USD2m 35

MIFgrant(inUSD) USD1m 15

FIPloan(inlocalcurrencyviafinancialintermediary)

USD3m 50

Localbanks 0 0

Otherinvestors 0 0

Bilaterals 0 0

Others 0 0

TOTAL USD6m 100

AsdescribedinchapterII,theprojectrequiresconcessionalfinanceforseveralreasons: Establishingthispilotvaluechainintheprojectregionrequiresefforts,specificallyfortraining

andsupportoflocalfarmersandharvestworkerstobecomefamiliarizedwiththeactivitiesaroundMacauba.Thiswillnotbeneededasextensivelyforotherprojectsoncethepilotisestablished.Thisupfrontinvestmenttoestablishthevaluechainwouldnotbefinanceableoncommercialterms.

MacaubaisaplantnotyetcultivatedinBrazilandisthusalsonewtothefinancingcommunity.Thisentailsthatcommercialfinancing,specificallybankloans,arenotyetavailableforMacauba

DuetolongleadtimesuntilthefirstharvestofMacauba,financingneedstobelongtermoriented(>15yearshorizon).

Asthisisthefirstcommercialstageproject,financiershavetobearspecific“piloting”or“firstmover”risks.Thistypicallyimpliesthatcommercialbankloansarenotavailable.

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VIII. ExpectedResultsandIndicatorsResults IndicatorsGeneralSuccessfulflagshipproject:substantialincreaseof#ofMacaubapalmtreesplantedinagro‐forestrysystems

#ofplantsundermanagement#ofhectaresundermanagement

ConceptofplantingMacaubainagro‐forestrysystemsistakenupbysignificantnumberofsmallholderfarmers

#ofsmallholderfarmersplantingMacauba

EconomicSuccessfuldemonstrationofeconomicpotential:projectisfinanciallyprofitable

EATandIRR

Successfulflagshipproject:expansionofmarketforMacaubabasedproducts

Salesfiguresaswellastypesofdifferentmarketsandproducts

Reductionofregionalunemployment Numberofjobscreated(bothdirectandindirect)

Environmental

Climatechangemitigation:CO2sequestration(seeIII,“ConsistencywithInvestmentCriteria”)

TonsofCO2 sequesteredthroughplantingMacaubatrees

Climatechangemitigation:partialsubstitutionoffossilfuelsthroughsustainablyproducedMacaubaoilbasedbiofuels

Tonsofvegetableoilproduced(whichcouldbeturnedintoxtonsofbiofuel)

SocialSignificantincreaseof(small‐holder)farmers’incomes

Averagefarmer’sincome

Diversificationof(small‐holder)farmers’incomes

Compositionofaveragefarmer’sincome

Significantincreaseofland‐workers’incomes

Averagelandworker’sincome

Creationofnewjobopportunitiesforland‐workers(especiallyoutsidethecoffeeharvestingseason)

Averagelandworker’sincomeinMacaubaharvestingseason(incomparisontotheactivitiestraditionallycarriedoutduringthispartoftheyear)

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IX. ImplementationFeasibilityandArrangements

Asdescribedabove,theprojectbenefitsfromalow‐techapproach.Togetherwiththebusinessmodelstructure,thatspecificallyincorporatessmallholders’concernsandrisksensitivity,theprojectshowsahighimplementationfeasibility.

TheMacaubaTrainingCenterisreadytostartinthenextMacaubaharvestingseason.i.e.byOctober2014.Theestablishmentofnurseriesfortheagroforestrysystemcanbestartedinparallel.Thus,plantationcanstartatthebeginningofthewetseasoninOctober2015.Accordingtotheplan,the2,000hawillbeestablishedoveraperiodof4years:

2015:250ha 2016:400ha 2017:600ha 2018:750ha

ThefirstcollectionofMacaubafruitsfromtheplantedtreesisexpectedfrom2019onwards.

ExpectedFIPSub‐CommitteeapprovalMarch2014 ExpectedMDBApprovaldate:April2014

X. PotentialRisksandMitigationMeasures

Risk MitigationMeasureMarketsideMarketforvegetableoilandrelatedproductsfairlyvolatileUnprovenandnotverywellknownproduct

ModelassumesveryconservativefiguresforproductpricesFeasibilitystudyhasshownthatofftakersexistandarewillingtopurchaseproducedvolumes,additionallyMacaubaoilisverysimilartootherwell‐establishedvegetableoils

Reputational:“palmoil”undercriticism MacaubaisdifferentfromtheAfricanoilpalm.Itrepresentsasustainablealternativeandthusprovidesaneffectivemeanstoreducepalmoildrivendeforestation.Thisargumentishighlycommunicable.

Stakeholder‐relatedSmallholderfarmerstraditionallyseeMacaubaasaburden,sincetherewasnoincomegeneratingactivityassociatedwithitsofar

Financialbenefitstosmallholdershavebeendemonstratedinthefeasibilitystudy(with>300tharvestedintheregion)thewordabouttheadditionalincomeopportunitiesfromMacaubaisspreading;furthermore,additionaltrustduetocollaborationwithlocalcooperative

BiologicMacaubaplanthasnotbeenoptimizedyet,soyieldsmayvary

OngoingresearchatBrazilianuniversitiesandinstitutestoimproveplantefficiency;estimates

17

XI. Contact

Inter‐AmericanDevelopmentBankGloriaViscontiLeadClimateSpecialistgloriav@iadb.orgFOMINGregoryWatsonClimateSeniorSpecialistgregoryw@iadb.org

INOCASGmbHThiloZeltMunstermannskamp1D‐21335LuneburgGermanyPhone:+491719548788Fax:+4930484986425Web: www.inocas.comEmail:zelt@inocas.com

inbusinessmodelareconservativeandusevalues(suchaskgoffruitsperpalmtree)gainedfromanalyzingwildMacaubaintheprojectregion

SurroundingBrachiariagrasscouldslowdowngrowthofMacaubapalmtreesandaccordinglypushbackfirstrevenuesfromsellingto>4yearsafterplanting

Ongoingresearchtooptimizeplantingprocess

ManufacturingCurrentoilmillnotlatesttechnology;mayslowdownscalingprocess

Built‐outinvestmentsinoilmillbudgetedinbusinessplan

FinancialCashflow:significantinvestmentneededintoestablishagro‐forestrysystem,thenpalmtreesneedtogrowfor4yearsbeforefirstincomefromtheagro‐forestrysystem

Revenuefromday0onwardsduetoharvestingwildMacaubaandsellingoilproducedfromitsfruits,usingthealreadyexistingoilmill

Accesstofinance:FirstmoverdifficultiesExchangeraterisks:theBrazilianRealshowssignificantfluctuationsinexchangeratesin2012‐2013

Seekingfundingfromdevelopmentbankswhichhavemorethanjustonebottom‐lineandplayvitalroleinhelpingclosethepioneergap.Achievingdebtfundinginlocalcurrency,Makingofftakepricesdependingonpriceindices

1

ANNEX

CONTENT

ThePartners..............................................................................................................................................................................2 

INOCASGmbH,Luneburg,Germany......................................................................................................................2 

ParadigmaOleosVegetalesLtda.,PatosdeMinas,Brazil.............................................................................2 

2

THEPARTNERS

INOCASGMBH,LUNEBURG,GERMANY

FoundedinFebruary2011,INOCASisaspin‐offoftheLeuphanaUniversity,Luneburg.AsstatedinthecooperationagreementbetweentheUniversity’s“PlatformofSustainableAviationFuels”andINOCAS,thecompanyisinchargeofimplementingtheconceptsforasustainableplantoilproductiondevelopedbytheEUfundedplatform.

Since2011,INOCAShasalsobeenworkingasprojectdeveloperforaprivateinvestorinParaguayandconductedafeasibility&sustainabilityanalysisonanEastern‐EuropeanbiofuelprojectfortheLufthansaAG.BesidesitsintenseprojectdevelopmentactivitiesfortheMacaubaproject,INOCAScurrentlyactsasaconsultanttotheGermanMinistryofTransport,BuildingandUrbanDevelopment.Thefounders,ThiloZeltandDr.KatharinaAverdunk,havebeenworkingasprojectdevelopersinthefieldofalternativeoilplantsforthepastsevenyears.TheMacaubaProjectwillbesupportedandmanagedbyINOCAS’agronomistswithlongstandingexperienceinagriculturalprojectswithsmallholdersfarmers.

PARADIGMAOLEOSVEGETALESLTDA.,PATOSDEMINAS,BRAZIL

ParadigmaOleosVegetalesisaBraziliancompany,whichhasbeenattheforefrontofworkingwithMacaubafornearlyadecade.Oneofitsfounders,theengineerMarceloMoreiraAraújo,hasdevelopedthefirstBrazilianMacaubaoilmill,whichhasbeenusedforthefeasibilitystudyandwillbeusedinaslightlyimprovedversionbytheMacaubaTrainingCenter.

ParadigmaadvisestheBraziliangovernmentonallmattersrelatedtoMacaubasuchasthe“ProMacaubaLaw”.Thesecondfounder,FranciscoMendonça,hasmorethan30yearsofexperienceasentrepreneurinBrazilianagriculture.AnagronomistbyeducationfromViçosaUniversity,hemanagedthefamily’splantationforseveralyears.SoonafterreturningtohishomestateofMinasGerais,heassumedtheroleofAgriculturalSecretaryofthePrefectureofPatosdeMinas.Boththroughhisownandhisfather’sexperience–whowasawell‐knownfarmeraswellasMemberofParliamentinBrasilia–ChicoisverywellconnectedtoBrazilianpoliticsandagribusiness.