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

Creating Companies | Creating Wealth | Creating Jobs

January 2013

CONFIDENTIAL

Partners:

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

by 80% to 99%

The Solution

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 with the buyer and seller sharing the economic benefits equally”

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

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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

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What incentive will farmers have to adopt Aflasafe?

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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Modest Premium of $6.25/mt (Approximately 2% premium) Works if Farmer Attains Yields of Over 3MT/Ha

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

Small Holder Farmer Members

Small Holder Farmer Members

Small Holder Farmer Members

Babban Gona: Agricultural Franchise Model

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Trust Group 1

Trust Group 2

Trust Group n

Services

Services

Services

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Training

Credit

AgricInputs

Good Markets

Babban Gona Services Provided

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Babban Gona Impact

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Babban Gona Field Yield Up to 4.6 MT per Hectare

Non Babban Gona Field Expected Yield Less than 1.5 MT per Hectare

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Babban Gona Impact

Ibrahim MustaphaAttained 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

With his earning from his first season in Babban Gona he bought a car.

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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 high can the premium for Aflasafe maize go?

Poultry Industry Currently Paying an Implied Premium in Lost ProfitsAflasafe Treated Maize Dramatically Increases Profitability by up to $0.72/ Broiler Started

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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

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

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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

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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

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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