Aflasafe Commercialization StrategyImproving the Health and Securing the Income of Nigeria’s Small Holder Farmers

Creating Companies | Creating Wealth | Creating Jobs

October 2012

CONFIDENTIAL

Source: IITA

Aflatoxin: A very dangerous food toxin present in over 40% of household grains across sub Saharan Africa. Impacting the health and incomes of millions of farmers

Type 1 Carcinogen Stunts the growth in children

by 25% - 35% Massive immunosuppressant

0

20

40

60

80

100

120

140

160

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Farmers

Afla

toxi

n (p

pb)

792 309

64% fields above 20 ppb at harvest in northern Nigeria

Increases in stores; interventions required in field and stores

Source: IITA

Aflatoxin problem starts in the fieldAflatoxin Levels in various fields Farmer with harvested grain

4

USDA / IITA Technology that naturally and cost effectively reduces Aflatoxin levels

by 80% to 99%

The Solution

How does Aflasafe work

5

Aflasafe in 5 kg Boxes Broadcast at 10kg/hectare

Sporulation on moist soil

Reduced levels of Aflatoxins

Spores in the wind and via insects Soil Colonization

Extent of Aflasafe use by farmers belonging to various organizations in Nigeria, 2011

6

Organization State CropFarmers

(No.)Area treated

(ha)CADP Kano Maize 158 193.0CADP Kano Groundnut 106 61.5CADP Kaduna Maize 92 560.0MVP Kaduna Maize 59 30.5MVP Kaduna Groundnut 19 10.5

TOTAL 434 855.5

CADP = Commercial Agriculture Development ProjectMVP = Millennium Village Project of the United Nations

Farmers treating maize and groundnut in field

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Key TakeawaysAflatoxin reduction in corn

• Harvest: 2009 (80%), 2010 (89%)

• Storage: 2009 (90%), 2010 (96%)

Duration

• 71% and 52% carry over of innoculum 1 and 2 years earlier

Aflatoxin reduction of peanut at harvest• 2009 (96%), 2010 (98%)

75

94100

03

39

73

27

100

80

60

40

20

0

<4 <10 <20 >20

EU WFP US unsafe

maximum allowable aflatoxin level (ppb)

farm

ers'

fiel

ds (%

)

Aflasafe

untreated Productivity increased of

communities in aflasafe-treated

areas

DALYs saved: 103,000 - 184,000

Cost-effectiveness ratio: 5.1 - 24.8

Source: Felicia Wu, Pittsburgh Univ.

Impact of Aflasafe on Trade and Health

Source: IITA

Aflasafe Commercial Strategy

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“Establish a sustainable premium market for low aflatoxin maize and ensure this premium creates sufficient economic incentive to sustain farmers adoption”

Three Strategic Question

I. Who is the target market for low aflatoxin maize?

II. What premium can this market afford and does the premium provide sufficient economic incentive to sustain farmer adoption?

III. How will the commercial plan to be implemented?

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Who is the market for low Aflatoxin Maize?

Target Market for Aflasafe MaizePoultry Industry… Key Driver of Domestic Maize Production

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Nigerian Government Bans Poultry Imports

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

DriversCorrelated Growth In Maize and Poultry Production in Nigeria

* Doreo Analysis, FAO

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Is Aflatoxin an issue for the poultry industry?

Safe38%

Toxic62%

Aflatoxin has a significant economic impact on poultry production

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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

Impact of Toxic FeedMajority of Poultry Feed in Nigeria Toxic

Significant increased mortality Dramatic reduction in live weight / Feed efficiency (40% less in IITA trails)

Drop in egg production rateAdditional IITA trails in progress*IITA

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

Target Farm gate Price of Aflasafe $15 USD per Ha with Target Yields of Aflasafe Maize Farmer of 3.5 MT /Ha

15

36 6

13

Toxin Binder Cost

Toxin Binder Concentration

Low Low

Low LowHigh

High High

High 2 2.5 3 3.5 4 4.5 50

10

20

30

40

50

60Teir 1 Tier 2 Teir 3

Yield Per Ha (MT/Ha)

Farm

Gat

e Pr

ice

of A

flasa

fe ($

/Ha)Tier 2

Customers Tier 1

Customers Tier 3

Customers

Poultry Industry Current Premium by Customer Segment*

($ per Metric Ton of Maize)

Price 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 feed

Economically Sustainable Farm Gate Price of Aflasafe by Customer Segment and Farmer Yield*

Assumes farmer makes 33% profit on use of Aflasafe

Target Price

Target Yield

* Doreo Analysis

Analysis Aligns with Farmer Willingness To Pay Study Conducted by IITA

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$0 $3 - $6 $6 -$9 $9 - $12 $12 - $15 $15 - $19 $20 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100% 100%99%

83%

60%

25%19%

34% 31%

18%12%

5% 4%

Farmers who have used Aflasafe (n=246) Farmers who have not used Aflasafe (n=119)

Target Farm Gate Price Range

Source: IITA Analysis

Small Holder Farmer Members

Small Holder Farmer Members

Small Holder Farmer Members

Babban Gona: Agricultural Franchise ModelEnabling Aflasafe farmers to double their yield utilizing a sustainable private sector mechanism

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Trust Group 1

Trust Group 2

Trust Group n

Services

Services

Services

Trust Group

Development and Training

Credit

Input Services

Output Services

Babban Gona: Trust Group Service Delivery Model

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Impact of Babban Gona: Doubling Farmer Incomes

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Babban Gona Field Expected Yield 4 MT per Hectare

Non Babban Gona Field Expected Yield 1.5 MT per Hectare

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

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1

2

4

3

5

6 7

In addition, Piloting Proof of Purchase Option

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How cheap can you produce Alfasafe?

6.88 8.75

12.19

3.13

3.44

0.632.5 0.63 1.88

12.215.61.9

0.90.6

Significant Product Development Investment to Reduce COGsReduced from $20 per Ha to $7 per Ha

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Aflasafe Estimated Price ex Factory*Measure: USD per Ha

Substrate (Sorghum)

SG&APackaging Ex Factory Price

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

Analysis of Ex Factory Price and End Farmer Cost

Inoculum Labor/OH EBITDA Margin

Aflasafe Estimated Farm Gate Price*Measure: USD per Ha

Ex Factory

Price

Retailer Margin

Farm Gate Price

Transport to DP

DP Margin

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.

Key Takeaways

* Doreo Analysis

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How will the commercial plan be implemented?

Strategic Plan to Drive Sustainability Leverage Strong Regulatory Enforcement to Sustain Premium Market for Aflasafe maize

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1Year

2 3 4 5

PACA and Pull MechanismGenerate Supply of Cost Effective Low

Aflatoxin Maize

Enforce Regulatory Policy

Enable Market Forces to Drive Sustainability

Promote Health Awareness to Value

Chain Actors

Policy: Build Regulators Capacity

Policy: Develop

regulatory framework

Policy: Phased in regulatory enforcement mechanism

Market Forces

Health Awareness: Farmer Focus

Health Awareness: Industry Focus Health Awareness: End Consumer

1

2

3

4

B

A commercialization strategy for distribution and adoption being pilotedConsider Aflasafe as public health intervention for aflatoxin

Ownership and advocacy by the Nigerian Government

Billboards Interactive Forum

Contact Details

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Lagos3B Baajiki Close

Lekki Phase I

Lagos, Nigeria

London11 Mount Pleasant

London, England

SE27 9PU

Kola Masha Managing Director

kola.masha@doreopartners.com

+234-(0)-805-5000-350

www.doreopartners.com

Doreo