goldenberries from colombia · america’s leading superfood supplier, essential living foods, has...

responsAbility Investments AG / Terrafertil Investment Case – Colombia and Ecuador

David BermeoEcuador-born Bermeo is an ex-Wall-

street banker. His dream was to become a successful entrepreneur – and make a difference for the country and its people. His intuition, courage

and skill have borne fruit.

Mauricio Jibaja“Terrafertil is a highly dynamic

growth company,” says Mauricio, responsAbility's Head of Agriculture Debt Financing Latin America; he

played a key role in sparking the next (growth) stage.

GoldenberriesTerrafertil’s goldenberry production

is based on sustainable and fair methods, using high-tech equipment to process them into dried fruit and juice. Goldenberries are successfully conquering the superfood shelves of

stores around the globe.

Goldenberries from Ecuador and

ColombiaTerrafertil is conquering the world with its superfood berries –

and aims to double its turnover by 2021.

08

the Andean country is fi lled with giant plantations for commodities such as coffee, cane sugar, cotton and cut fl owers. In addition to precious natural resources such as oil, natural gas, gold and silver, they are among the most important – legal – export commodities. Cocaine is one of the biggest sources of income. Although Colombia is considered unsafe and politically unstable, a glimmer of hope can be seen on the horizon. In November 2016, the government and Farc signed a peace agreement, marking a real milestone – also for the country’s economic develop-ment. Deep-reaching reforms introduced in the early 2000s are fi nally having an impact: for the last fi ve years the economy has been growing by at least four percent annually, and the volume of international investment has increased fi ve-fold since 2000.

Prosperity is distributed very unevenly in both Colombia and Ecuador. In particular in rural regions, many people are in need, but there are very few opportunities for them to earn money. Terrafertil has found an effective way to tap the growth potential in the country’s economic situation, making the company highly attractive for responsAbility’s investors – both in terms of value and performance.

Neighbouring countries Ecuador and Colombia have many factors in common. Their export industries are booming – thanks to an

abundance of natural resources and fertile land.

Ecuador and Colombia – more than

a shared border

Apart from being neighbouring countries, Ecuador and Colombia have a number of other factors in common: a rich abundance of nature, intensive agriculture and a high dependency on exports.

Straddling both sides of the equator, Ecuador is the small-est country in South America, covering an area of around 283,000 square kilometres. It is also the biggest natural paradise in the world, bursting with more biodiversity than any other country. Ecuador’s landscape and economy are determined by three very different geographic regions: the tropical lowlands of the Costa region, where bananas, coffee, sugar cane and cocoa grow; the Amazon Basin in the East, called the Oriente, where oil fi elds bubble up; and the central belt of the country, the Sierra, which includes the Andes Mountains – the farmers here grow the food that is needed by the rapidly growing population and also produce cut fl owers.

Ecuador is a developing country whose economy is based on agriculture. The Andean country is the world’s largest producer of bananas and the second largest exporter of crude oil in South America (after Venezuela). According to the CIA Factbook, Ecuador’s GDP per capita in 2016 was estimated at USD 11,100. The country is ranked 137th when compared globally.

Hope on the horizon

Colombia is ranked as high as 115th in this ranking system with a GDP per capita of USD 14,200. As the country’s geographical and climatic conditions are ideal for growing, agriculture also fl ourishes here: coffee from the mountains, exotic fruit from the tropics and citrus fruit and grains from the temperature regions. However, most of the land is owned by a handful of large farmers;

Türkei

Iran

Russland

Kasachstan

Turkmenistan

Ukraine

Rumänien

BulgarienGeorgien

Aserbaidschan

Armenien

Togo

BeninNigeria

Niger

Tschad

Burkina Faso

Mali

Kamerun

GhanaElfenbeinküste

Guinea

Liberia

Sierra Leone

Senegal

Gambia

Mauretanien

Columbia

Venezuela

Guyana

Ecuador

BrazilPeru

Panama

Costa Rica

Guinea-Bissau

VietnamKambodscha

Thailand

Laos

Malaysia

Myanmar

China

IndiaBangladesh

BhutanNepal

2

responsAbility Investments AGTerrafertil Investment Case – Colombia and Ecuador

David Bermeo has reason to smile: his company is prospering and as a result so are countless small farmers. This was exactly

the ex-banker's vision when he embarked on this enterprise: to be successful – and make a real difference.

From nobody to global market leader

3

In 2005, brothers David, Daniel and Raul Bermeo gave up their well-paying jobs to become entrepreneurs. Together with two friends, they founded Terrafertil in their native Ecuador. Their business idea was to produce and distribute dried fruits. They started by selling dried pine-apples, mangoes and bananas, sourcing the exotic fruits for their factory from small producers in the fertile coastal region of Ecuador. The factory is located about a one-hour drive from Quitos, nearly 3,000 metres above sea level in the Andean highlands.

In 2007, they had a fl ash of inspiration: goldenberries! These orange, super-healthy berries go by the botanical name “physalis” and offer exactly what the two young businessmen were hoping to fi nd – success, but not at any cost: they also wanted to make a difference. They wanted to run a business that is sustainable, healthy and fair. “Goldenberries are perfect for achieving our goals,” explains David. “Firstly, this fruit was largely unknown, secondly they’re incredibly healthy and thirdly they’re from the Andes, just like us.” He also says their cultiva-tion is very labour intensive, which is why the company’s

_Previous pageDavid Bermeo, co-founder and CEO Terrafertil

_Below leftWorkers in the high-tech production facility near Bogotà.

_Below rightEven with state-of-the-art technology, at Terrafertil manual labour is still essential: a worker prepares golden-berries for drying.

“Small farmers can generate 70 percent more income with goldenberries.”

David Bermeo

workforce accounts for 70 % of the production costs. Lastly, large amounts of goldenberries can be grown without harming the environment. To sum up: “Golden-berries are an attractive alternative for the small farmers in this area, who would otherwise be largely dependent on producing environmentally harmful and volatile crops like cut fl owers, potatoes and corn.”

4


Terrafertil’s goldenberry producers

Ecuador Colombia

Small growers that produce for Terrafertil

2011 271 35

2013 328 80

2015 1143 160

2017* 1542 240

Cultivated land (in ha)

2011 63 28

2013 76 50

2015 266 83

2017* 360 90

Source: Terrafertil, *as estimated by Terrafertil

_TopPackaged Nature's Heart products.

_BelowSupermaxi – the premium super market chain in Quito – is one of the most important outlets for the high-priced Nature's Heart products in Ecuador.

Ambitious targets

Everything was swiftly translated into reality – this has been Bermeo brothers’ recipe for success and they are rapidly moving forward with their business. 2016 saw the company achieve a turnover of 50 million dollars, making it one of the leading producers of health and wellness foods. By 2021, the company aims to double this fi gure to 100 million dollars, which requires an annual increase in sales of 14 percent. The money is generated B2B with dried fruits and B2C with the company’s own brand, Nature’s Heart. Launched in 2009, the Nature’s Heart range encompasses 200 different products, including tea, breakfast fl akes, crisps, coconut water and dried fruit snacks. It is sold in 22 countries on 5 continents by the regionally dominant retailers. Industry giants such as Casino, Carrefour, Supermaxi and Jumbo sell products from Terrafertil, as do Starbucks and Walmart.

Although dried mango, pineapple and banana are still part of their business, “our main focus is goldenberries,” says David. With a 90 percent share of the market, Terrafertil is the biggest producer of goldenberries in the world. Via its Nature’s Heart brand, it is also the largest promoter of this super fruit – dried goldenberries are a key ingredient in 70 Nature’s Heart products.

5

Terrafertil

FOUNDED2005

BUSINESS ACTIVITIESManufacturing and sale of health and

wellness food and drinks, range includes around 340 products.

USPGoldenberries

SUPPLIERS / GOLDENBERRY GROWERS

1000+ in Ecuador and Colombia

EMPLOYEES480

CERTIFICATIONISO 9001, USDA Organic, BRC Global

Standards, BCS Öko-Garantie, HACCP certifi cate

LOCATIONSEcuador, Colombia, Chile, Peru, Mexico,

Brazil, UK, US

Terrafertil purchased its fi rst physalis fruits directly from small producers in the region “at a very fair price”, emphasises David. He says the farmers can generate 70 % more income with goldenberries than they can with other fi eld crops or roses. This approach qualifi ed Terrafertil for Fair Trade certifi cation. Goldenberries fi t perfectly into the global zeitgeist. In addition to being produced fairly, they are natural, healthy and sustainable, which means the products virtually sell themselves. Demand is rocketing and supply bottlenecks are becom-ing a problem. David Bermeo has reacted quickly and at a number of levels. He is selling seedlings to interested local farmers – not in exchange for money, but in return for goldenberries. “Growing goldenberries for Terrafertil is a very attractive prospect for them,” says David. “The farmers don’t have to invest any money to get started and we pay them fair prices that always remain stable.” Today, approximately 1,000 local farmers produce goldenberries for Terrafertil. Terrafertil manages the large infl ux of new farmers and the resulting growth in volume by coop-erating with local communities and cooperatives. They take delivery of the farmers’ harvest, weigh it, check it and handle the invoicing and payment. Nimble-fi ngered women remove the goldenberries from their husks and prepare them for transport to the factory. At its 12-hectare

_TopEach goldenberry is individually harvested by hand.

_BelowView of a goldenberry fi eld – this one is around 3,000 metres above sea level.

factory location near Quito, Terrafertil also grows golden-berries itself. Apart from helping to meet demand, this also aids progress. Agronomists at Terrafertil are develop-ing a process for growing the goldenberries organically. It will soon become the standard. “Selling our products has never been a problem for us,”, says David, “but we had to learn that healthy production means setting up the necessary processes, fi nding the right people and paying as much attention to the suppliers as we do to our customers.” Five agronomists visit the farmers regularly to instruct them and check that the regulations for organic production are being observed.

6


The new factory cements Terrafertil’s position as the world’s leading producer of goldenberries. 100 tonnes are processed every week and Terrafertil is the only producer that offers the super berries in so many variants. True to the Bermeo brothers’ credo of “stay away from commod-ity”, the berries are available in unsweetened or sweet-ened form and also as concentrate, juice and powder. In 2012, Terrafertil found a “very good export partner” for exports to continental Europe, says David. In the same year, the youngest brother, Daniel, opened an offi ce in the UK. “It is purely operated as a trading company,” says David, “and is highly effi cient. In 2016 we recorded our highest growth to date there, doubling our turnover to 7.5 million dollars – with just two employees, my brother and his assistant.”

Terrafertil has an offi ce in London and in Peru. There are also factories in Ecuador and Columbia as well as subsidiaries in Mexico, Chile and Brazil where Nature’s Heart products are packaged and distributed. In early 2017, another of the Bermeo brothers’ wishes came true: gaining a foothold in the US market. The acquisition of America’s leading superfood supplier, Essential Living Foods, has now opened the door for them. Terrafertil is ready for the challenge. When planning the capacities of their six subsidiaries, the Bermeo brothers allowed a generous buffer for expansion. None of the Terrafertil subsidiaries is currently using more than 20 percent of their total capacity.

Developing leading position

The expansion of goldenberry production to Colombia, which is currently the world’s largest exporter of the orange berries, is taking Terrafertil to an entirely new level. 50 kilometres outside of Bogotá is a factory that enables Terrafertil to turn goldenberries into pure gold. “In the past we had to decide whether to use the berries for making juice or dried fruit,” says David. “Now we get two products from one fruit – that’s high tech.”

First the juice is extracted from the fresh berries without crushing them. The de-juiced berries are then rehydrated with pineapple juice and dried. The machines required to do this fi ll a factory hall the size of half a football fi eld. Developed over the course of four years of research and development, the process has been patented by the company. “11 million dollars,” answers David, when asked about the investment sum, “half of which was fi nanced via responsAbility.”

“The UK is highly effi cient; in 2016 we recorded our highest growth there with just

two employees.”David Bermeo

_LeftFull-body protective clothing and a mask are required to enter the production facility.

_RightDried goldenberries – a top-selling product from Terrafertil.

7

Terrafertil is fi rmly in the hands of the three Bermeo brothers: David, Raul and Daniel. Having grown up in Ecuador and received

an education in the USA, they joined forces in 2005 and turned their dream of running their own company into reality.

A winning team

David Bermeo, 36, is the CEO of Terrafertil. He owns and manages the company with his two brothers, Raul, 35, General Director, and Daniel, 34, Managing Director of Terrafertil UK. The brothers were born and raised in Ecuador and all three of them studied in the USA. David studied business at Duke University and at the London School of Economics. Raul studied business at Cornell University and Daniel studied at Davidson College. After completing his degree, David worked as an investment banker for Credit Suisse First Boston in New York. Raul was a brand manager at Unilever in the USA and Mexico, and Daniel was under contract with HSBC in London. In 2005, they founded Terrafertil together with two friends. Their vision was to become the world’s leading producer of health and wellness foods.

The food business was nothing new for the Bermeos, as their father was a successful producer of dried vegetables. Or at least he was until 2005, when Nestlé, which was by far his largest customer, radically slashed its order quantities, causing the business to fold. Using their father’s old drying oven, the enterprising brothers “started from scratch” and experienced many setbacks along the way. The decision to concentrate on goldenberries (physalis) and pursue the “from fi eld to mouth” approach propelled their fl edging business into the stratosphere – reaping benefi ts both for themselves and for the many small farmers in the highlands of Ecuador and Colombia.

In the interests of expansion and diversifi cation, the broth-ers now live apart in different places around the world. Raul is based in Mexico, Daniel in London and David in Quito, the capital of Ecuador. However, they still meet up every two weeks for a management team meeting.

_TopNature's Heart products from Terrafertil.

_LeftEverything that is sold must be perfect. A worker checks the quality of dried goldenberries.

8


_Top leftView of Quito, built 3,000 metres above sea level.

_Top rightLocal-style store in Bogotà

Quito and Bogotà – the home of Terrafertil

_2nd row left Bogotà, the pulsating capital of Colombia.

_2nd row centre Chess games in the middle of the shopping street

_2nd row right Ministry of Information C om-munications Tech-nology, Bogotà

_3rd row left Quito – graffi ti hotspot.

_3rd row centre Bladimir Barba, Head of Sales at Terrafertil Ecuador, in Supermaxi Quito.

_3rd row right The old city of Quito is a UNESCO World Heritage Site

_4th row left No mobile? Just rent one.

9

educated and each contributes his individual expertise. David was a Wall Street banker and takes care of the company’s fi gures and projections. Raul had a career with Unilever in Latin America and knows the retail business. Daniel, the youngest, was a banker in the UK. He manages the company’s business in Europe and is in charge of the Middle East and Asia markets. The three brothers are sup-ported by a CFO, a Chief Technology Offi cer, a Chief Quality Offi cer and a Chief Plant Manager – all of which have an academic background, profound specialist knowledge and many years of experience.

What is responsAbility’s role in Terrafertil?

We played a very important role when Terrafertil began to open subsidiaries in various countries in Latin America and started to build factories and warehouses. This required major investments in infra-structure, machinery and buildings. Banks are not generally interested in businesses of this size, let alone when the investments are located in

Mauricio, why is responsAbility investing through its funds in Terrafertil?

At our meeting in 2013, David Bermeo explained Terrafertil’s business model to me and showed me the company’s accounts. I was impressed! Terrafertil is a dynamic growth company that it is operated profi tably and sustainably, pursing a holistic approach with a high level of impact. Over 1,000 small growers are producing goldenberries for Terrafertil. All stakeholders are integrated into the business model, including suppliers, customers and employees. Last but not least, Terrafertil complies with a wide range of international quality standards, as demonstrated by a host of recognised quality certifi cates. Terrafertil is a company that goes the extra mile with its business.

What was your impression of the management team?

Terrafertil is managed by three brothers who know what they’re talking about; they are all very well

“Terrafertil is a highly dynamic growth company that it is operated profi tably and

sustainably.”Mauricio Jibaja

“Three brothers who know what they’re talking about.”Four questions for Mauricio Jibaja – as Head Agriculture Debt Financing at responsAbility, he “discovered” Terrafertil.

several different countries. For us as a globally operating asset manager, Terrafertil’s expansion offers exciting opportunities and we are delighted to be involved.

What can you do for the Bermeo brothers in the future?

Grow with them. Over the last three years, the focus has been on building up the infrastructure. Now this has been done, Terrafertil can increase its output for years to come without hitting any capacity limits. From the asset management point of view, the company has just entered the con-solidation phase. Over the next few years, Terrafertil won’t need much in the way of long-term loans, but it will require growth capital. The Bermeo brothers are planning to double their business volume by 2021. As responsAbility's level of involvement is not yet that extensive, this means we can use our funds to co-fi nance this expansion of Terrafertil.

10


The Quito production location – where it all began.

Colombia Ecuador Mexico Chile Brazil UK Peru

Founded 2011 2005 2009 2015 2015 2012 2013

Investments 2014 – 16 in USD

6.5 mn 4.4 mn 2.8 mn 1.2 mn0.8 mn (2016)

63000 7000

Factory size 5700 qm 3600 qm 870 qm 1000 qm 1300 qm – –

Employees 2016 64 168 89 7 1 2 7

Turnover 2016 in USD

7.7 mn 17.5 mn 17 mn 0.9 mn 0.22 mn 8.1 mn 1.2 mn

Average capacity used as at the end of 2016 in %

20 20 30 5 1 – –

Source: Terrafertil

11

We visit the Procoaven cooperative, which every week supplies 10 tonnes of goldenberries to the Terrafertil factory, located an hour and a half away. The pristine whitewashed building stands in stark contrast to the lush greenery of the Andean highlands. Nubia Leiva is the boss of the factory. She meets us in front of the main building with a fi rm hand-shake and a friendly smile. “Yes, the building is brand new,” she says in response to our observations. She opens the door and steps forward confi dently, “Follow me.” Moving at a brisk pace, we walk through hall 1,

“Deliveries,” says Nubia. We then progress through hall 2, which is for “Inspection, quality control and preparation for transport”. Finally we arrive at the communal staff room. “Please have a seat,” she says, gesturing for us to sit on one of the many plastic chairs that have been arranged in a semicircle.

The 32-year-old manages the cooperative and the 24 local farmers who deliver their golden-berry harvests here. The fruits are weighed, inspected and sorted at the cooperative. Until 2011, only

Cooperating with cooperatives:

win-win Local cooperatives act as a collection point for Terrafertil.

The goldenberries are removed from their husks, checked and prepared for transport.

the unblemished portion of the harvest was selected for export, the remainder was considered waste and worthless. The main reason for rejecting the fruits was damaged husks of the physalis, as the berries are more prized as decoration than as fruit in the countries of export. For Terrafertil, which Nubia has been collaborating with since 2011, the husks are irrelevant because the goldenberries are processed. “Terrafertil buys the entire harvest from the farmers at a fi xed price,” explains Nubia. This is a blessing for the farmers because they can earn

12


between 50 and 100 % of their income with goldenber-ries. As suppliers for Terrafertil, they know how much they will be paid when Nubia does the accounts and settles up with the farmers twice a month. “Now they have a secure income,” says Nubia, “and for many that has completely changed their lives.”

At the Procoaven cooperative everything has also changed completely. Having originally focused on the export market, they now have a profi table domestic business that has created new jobs – twenty in total, all of which are fi lled by women. “The majority of the producers are men,” says Nubia, “Women take care of the home and garden. Here they have jobs, an income and their independence.”

Impacts

The business model of Terrafertil was audited by GIIRS – and received best-in-the-industry results. Key aspects:

IncomeTraditionally, farmers in the highlands grow potatoes and corn. These fi eld crops are only harvested once a year, the prices are low and fl uctuate strongly with the global market. This is not the case with goldenberries – they grow all year round and the market is far less volatile.

However, switching to goldenberries is simply unafford-able for the average small farmer. That’s why Terrafertil sells seedlings to the farmers in return for goldenberries rather than in exchange for money. It doesn’t take long for the initial investment to pay off – after six months the fi rst fruits are ready to be picked; from the second year the fruits can be continually harvested. Harvesting is thus a continuous process that continually generates income. As Terrafertil pays fair prices, the farmers earn far more by producing goldenberries for Terrafertil than they would with growing potatoes. Most farmers use this additional income to carry out repairs or extensions to their homes, buy a motorbike or car and to pay for their children’s education.

_TopNubia Levia, Head of the Procaven cooperative, near Bogotà.

_BelowFarmers from the area deliver their harvests.

“The farmers now have a secure income and for many that has completely changed

their lives.”Nubia Levia

13

Over 1,000 small growers are producing

goldenberries for Terrafertil.

JobsTerrafertil is creating sustainable jobs in a region that has seen a tumultuous history of ups and downs due to its position on the global market and commodities such as potatoes. Terrafertil employs 480 staff. The Terrafertil business model has a broad impact on the employment situation beyond the company. Over 1,000 small growers – plus their family members – produce goldenberries for Terrafertil; more than half of them became goldenberry farmers via friends or neighbours who were already producing for Terrafertil.

GrowthDavid Bermeo is committed to doubling the company’s turnover by 2021. To ensure this growth, instead of increasing the number of growers, he is focussing on developing existing producers that show an enterprising spirit and ambitious attitude. Many of them are now able to take out bank loans to lease additional land. And from Terrafertil they receive the support they need to increase their productivity.

_TopDavid Bermeo proudly gives a tour of his gigantic new warehouse in Quito.

_BelowJavier Muñoz is one of the Terrafertil goldenberry producers.

14

Farmers who grow goldenberries for

Terrafertil are entrepreneurs.

_TopA worker at the entrance to the production hall where fresh fruit such as pineapples and mangos are delivered by the truckload.

_Below rightGoldenberry fi eld in the Andean highlands.

_Below leftSeedlings for goldenberries. Terrafertil sells them to small farmers – in exchange for goldenberries.

HealthFor the growers, goldenberries are a healthy alternative to the widespread production of cut fl owers, which involves large quantities of pesticides.

EntrepreneurshipFarmers who grow goldenberries for Terrafertil are entre-preneurs. They reap the returns, but also bear the risk. Agronomists from Terrafertil advise the farmers on how to use diversifi cation in order to safeguard their income.

TrainingTerrafertil trains the local farmers to cultivate golden-berries, instructing them in organic farming and ensuring they fulfi l the necessary criteria. The company attaches great importance to aspects such as hygiene, effi ciency and innovation – and trains its employees accordingly.

15

ZURICH (HEAD OFFICE)

GENEVA

PARIS

HONG KONG

MUMBAI

NAIROBI

LUXEMBOURG

OSLO

LIMA

BANGKOK

WWW.RESPONSABILITY.COM

OUR OFFICES

This document was produced by responsAbility Investments AG. The information contained in this document (referred to hereinafter as ‘information’) is based on sources considered to be reliable but its accuracy and com-pleteness is not guaranteed. The information is subject to change at any time and without obligation to notify the recipient. Unless otherwise indicated, all fi gures are unaudited and are not guaranteed. Any action derived from this information is always at the recipient’s own risk. This document is for information purposes only. The information does not release the recipient from making his / her own assessment.

Texte: Dave HertigBilder: Nici JostGestaltung: Liebchen + Liebchen Kommunikation GmbH

responsAbility Investments AGJosefstrasse 59, 8005 Zürich, SchweizTel. +41 44 403 05 00www.responsAbility.com

© 2017 responsAbility Investments AG

goldenberries from colombia · america’s leading superfood supplier, essential living foods, has...

Documents