Supply Chains for Nutritious FoodsImproving access to nutritious foods through technologyMelody Tsolmonkhuu, Don Shin, Milena Casabella, Dickson EfahApril 26, 2019

Overview

Methodology

Application of our Methodology

Stakeholders

Impact Investors Food Processors Data Analytics Equipment Providers Aggregators & Distributors

Other Stakeholders

Ankor CapitalAspada Advisors VillgroOmnivoreOPICAccion

Go DesiYCookGo FarmLEAFNovozymes

CropIn AmbrotechsFlybird

LEAFKrimanshiGoldFarmJivabhumiFlipKart Aiobono

WFPCFTRI

Landscape Review: Defining Impact

● The impact investing industry consists of a diverse group of international players with different priorities.

● Approaches to defining, measuring, and assessing impact varies across the industry and methodologies are unique to individual investors.

● Our approach to developing a methodology consisted of reviewing the existing literature on impact investing, published methodologies of individual impact investors, and interviews with specific investment officers.

● We examined the methodologies of the following players: ○ International investors: Accion, TripleJump, OPIC○ Investors focused on the Indian agriculture sector: Villgro, Aspada, Omnivore, Ankor

Capital

Takeaways from our Analysis of the Impact Investing Industry

●While there isn’t a general consensus on the best framework to evaluate impact and approaches vary by investors, the industry appears to be converging towards using the U.N. Sustainable Development Goals (“SDGs”) to develop a set of indicators that can be used to measure and assess impact.●A consortium of Dutch financial institutions and companies have proposed a set of indicators based on SDGs that can be used to track and compare sustainable development investments.●Key takeaways from this report:

○ Practicality is valued over comprehensiveness. Often times, the indicator is a measure of outputs or outcomes as a proxy for impact. The trade-off here is balancing costs imposed on the portfolio companies and/or the investors with the depth and breadth of information.

○ Measurements units are preferably in tangible impacts, such as tons of carbon or number of lives, but euros are used as an alternative.

○ Indicators are drawn from the IRIS GIIN metrics, which is becoming an industry standard, as well as the SDG Compass.

Takeaways from our Analysis of the Impact Investing Industry, cont’d

● Attributes of indicators:○ Type of impact: access, productivity/efficiency, quality○ Reference point: point in time or benchmark (peer groups, global, or industry benchmarks)○ Type of metric: stock or flow (YoY increase or ratios vs totals)○ Impact value chain: distinction between outputs, outcomes and impact (impact is hardly ever

measured)○ Maturity of metric: to measure difficulty in obtaining the data

● Examples of Measures of Impact Measures used by impact investing companies.○ General:

■ Outreach: Number of clients or people provided with access ■ Type of Client: Low-income; female; rural

○ SDG 2: Zero Hunger■ Number of people provided with safe, nutritious and sufficient food■ Ecologically sustainable agricultural production per hectare (tonnes)■ % avoided harvest, transport, storage losses (tonnes)■ % products with certified improvements in nutritional value (euros as a % of revenues)

Our ApproachWhile we see merit to this approach and see similarities in this framework across many impact investors it has two limitations:

1. The approach works better for certain sectors such as microfinance that are more established and homogenous.

■ Based on our qualitative research, investing in the food and nutrition space appears to be limited with the exception of agriculture finance companies (similar to MFI model).

■ There are not a set of common indicators in this sector as there are for microfinance.2. There is difficulty in using this approach for evaluating investments due to reporting and information

constraints; often times the impact measurements will come after the investments are made.

The challenge is developing a framework to help prioritize what types of business models and companies to invest in within the food technology sector.

○ With this regard, there is considerable use of expert judgment involved.● Our Approach:

1. Defining the key challenges in the agriculture sector and mapping solutions to these challenges. 2. Identifying solutions that work to address these challenges.3. Using a set of qualitative factors to assess commitment and capacity to achieve impact.4. Assessing business feasibility and scalability.

Mapping Macro Challenges in the Food System with Solutions

Challenges in the Nutritious Food Value Chain1. Fragmentation:

○ At the heart of the inefficiencies in the sector and across the Indian economy in general. ○ Fragmentation is multifaceted:

■ Fragmentation of farmers leading to lower productivity with smallholder farmers owning less than 2 acres. ■ Fragmentation across states, which have different languages, and regulatory frameworks.■ Vertical fragmentation across the value chain from farm to consumer.

○ Various “middlemen” that serve to connect different stakeholders, which add to inefficiencies.

2. Information: ○ Lack of reliable data across the sector. ○ Lack of understanding (training, education, bias) in effectively using available data.○ Poor communication across the supply chain.

3. Food Waste: ○ Nearly one third of food wasted before it reaches consumers

4. Value-Add: ○ Relatively minimal use of food processing

5. Modernization: ○ Relatively minimal use of equipment and technology.○ Driven by lack of economically efficient technologies for smallholder farmers.

Solutions● Aggregators: seek to aggregate supply and demand and connect producers with consumers, creating access to markets

○ Ancillary services include advisory services and extension services. ○ Demonstration Model: LEAF

● Data Analytics: collect, aggregate, analyze, and disseminate information across different stakeholders○ Types of data analyzed include price, market, climate, environment, and quality○ Use of satellite imagery, artificial intelligence, & traceability technology○ Demonstration Model: CropIn

● Food Processing: consists not only of producers of food products, which can have increased shelf life, quality, and high nutrition, but also companies that develop and employ technologies to increase shelf life and reduce food waste

○ Demonstration Model: LEAF● Distribution:

○ Focused on delivering products to consumers while aggregating supply ○ Demonstration Model: WayCool

● Equipment: ○ Examples include irrigation, tractor, harvesting equipments○ Demonstration Model: FlyBird

Nutritional Impact

Management

Traction

Quality

ClientClient

Does the core offering address nutrition challenges or increase accessibility and/or affordability of nutritious foods?

Does the entrepreneur intend to create social impact?

Is GAIN positioned to influence the direction of the business?

Does the product or service enhance value proposition (nutrition, accessibility, affordability)?

Does the product/service have potential to disproportionate add value to the BoP consumer?

Assessing Capacity to Achieve Impact

ClientAdaptabilityWhere could this innovation be applied successfully? Are there some countries/regions that it would be more successful in?

Size of the addressable market/demand

Strength of the Value Proposition

Attractive unit economics

Plausible execution

Well suited passionate team

Supportive enabling market context - regulation, competition, other

Company history/financials (profit/loss/startup)

Sensible budget and growth plans

Assessing Business Feasibility

Does the product or service have the potential to achieve scale?

Interview Guide

● 2 Different Types: ○ Food and Nutrition technology companies

■ Business and Impact model■ Business feasibility and market readiness■ Understanding challenges to achieve goal and scale

○ Impact investors■ Definition and evaluation of social impact■ Challenges in India’s food supply chain■ Information about existing and future technology■ Sourcing agriculture technology companies to interview

● 10+ Open-ended Questions

Interview for Companies 1. What is the main product or service that you provide?

a. Why and when did you as a company decide to produce it?b. What makes it unique and valuable?

2. Who are your primary consumers/target markets?3. Impact questions:

a. How does your company create the most social impact?b. Does your company measure social impact? If so, what is this measure?

4. Where do you see your business in the next three-five years?5. What are the greatest challenges for your company to achieve these goals and/or what are the greatest challenges for your company to

achieve scale?a. What would you need to get to those goals?

6. Have you considered expanding into other markets? Countries? In particular, have you considered expanding to Africa? a. What do you think are/would be the greatest challenges to replicating this idea to African markets?

7. What is the greatest challenge in India’s food supply chain? a. What will be needed to address these issues and increase access to safe, nutritious and affordable foods? b. Do you think certain technologies are best positioned to improve the food supply chain? c. If so, what are the greatest challenges to adoption and implementation of such technologies?

8. Who do you consider your main competitors?9. Questions aimed at understanding market-readiness:

a. How many farmers do you work with?b. How many customers do you have?c. What were total revenues for the last Fiscal Year or units sold?d. Do you currently operate at a profit? When do you expect to reach profitability?

10. Who else do you think is doing interesting/innovative work in this field? Could you please give us the names and contact numbers for two other firms or collaborators? May we use your name to introduce ourselves to them/would you be willing to make an introduction to them?

*Bolded questions are the most important ones to prioritize if time is limited.

Interview for Impact Investors

1. Does your firm invest in companies that seek to address pain points in food supply chains?a. If so, why did your firm decide to invest in these companies?

2. What are the greatest challenges in the food supply chains that constrain access to nutritious, safe and affordable foods?

3. What technologies/innovations do you think are needed to address these issues?a. What do you think is the biggest challenge to the adoption of such technologies?

4. What do you think are the greatest challenges for companies working in this space in achieving scale and/or achieving its goals.

a. What do you think can be done to address these challenges? 5. What are the biggest challenges in investing in innovative companies that seek to address food supply chain

issues?6. How do you decide what companies to invest in? How do you assess impact? 7. Can you tell us about any companies or types of technologies that you have looked at that have turned out to

be less impactful or effective than you previously thought? 8. Who else do you think is doing interesting/innovative work in this field? Could you please give us the names

and contact numbers for two other firms or collaborators? May we use your name to introduce ourselves to them/would you be willing to make an introduction to them?

Micro Challenges for Companies to Achieve Goals and Scalability

A Few Interview Quotes

Education of Farmers and User Adoption

Human Capital at Firm Level Financial Capital

“What farmers are facing as a challenge is food shortages because of lack of info for farmers supply and demand.” -Flybird Innovations

“When sourcing from farmer, farmers sell to creditor that make their own price or farmer goes to a mandi where there is an auction, usually when they go to the mandi, there are always lower prices than the creditor.”- Omnivore

“Greatest challenge is they need more intervention across agriculture and farmer awareness needs to grow.” -Villgro

“Most of the skilled talent goes to e-commerce industries.” - Aspada Advisors

“There is a need of a skilled middle-man that knows how to market and manage the supply chain process specifically in rural areas.” - Go Desi

“Need employees that understand agriculture and building trustworthy relationships; building a local team and expanding in a rural area to teach farmers.”- Go Farm

“There is very little technology in this sector because the overdesigning of a tech equipment is very high cost and there is no capital to do that.” - Aspada Advisors

“More financial capital needed to sustain financial health/business and human capital.”- Ambrotechs

Mapping Company Micro Challenges with Recommendations for GAIN

Challenges Recommendations

1. Education for Farmers and

User Adoption

1. Human Capital at Firm Level

2. Financial Capital

• Knowledge Management/ Training,

Building Awareness

• Sourcing Talent for Key Managerial

Positions leveraging GAINS broad network

• Providing Capital, Creating/Supporting an

Ecosystem to Support Investments

Challenge # 1: Education for Farmers and User Adoption

● Training farmers to meet supply and demand: issue is farmers are creating food loss because they are growing crops that are not meeting demand from consumers and buyers

● Farmers do not know what price they deserve from buyers → must train them to know how to negotiate and value their crops so they can get a better price for it

● Farmers don't have proper education/knowledge on nutrition of soil, ways to seed appropriately, and usage of resources, thus a lot of food loss is created

● Lack of trust farmers have with companies because the lack of agricultural education→ partnerships with farmers is very important for start-up agricultural companies in India.

● User adoption is also a challenge that applies to consumers as companies emphasized that appreciation for food quality was another challenge, particularly if there was a higher a price associated.

Challenge #2: Human Capital at Managerial Level

● High skilled labor is missing from the agricultural sector, making it difficult for companies to address how to develop and scale new agricultural technologies. Most high skilled labor go and work for companies that achieve bigger scale and profit, so they can have a higher income (ex: e-commerce is not becoming big in India)

● Lack of direct communication with farmers; India has 22 official languages, so you need employees that know how to communicate with farmers through their local language to create impact and teach them how to crop effectively and sustainably

● Need more employees working on the field to help educate farmers in supply and demand,how to negotiate with mandi’s, and teaching them how to price their products → related to challenge 1

● Companies don’t know how to scale because workers don’t understand the agricultural sector so they must learn how to scale agricultural business, nutrition, and innovative technology

Challenge #3: Financial Capital

● Need capital to build infrastructure and employ more skilled labor in the agricultural sector to help scale companies → you always need more capital to scale product/business

● Specifically for for food processing companies: to start a food processing industry, takes a lot of financial capital to build network and partnerships; need enough money to brand and distribute/transport product.

● Need capital to build new agricultural equipment and to invest in new equipment

● Farmers have limited capital or access to finance to acquire needed technologies

Recommendations: Input, Output, Outcome and Impact 1. Education for Farmers and User Adoption → Priority for GAIN

a. Training: Nutrition of Soil, Farming Crops to Meet Supply and Demand, How to Price Crops Correctly, Sustainability of Resources (Water Management, Distribution and Storage and Crops)

b. Building Awareness: Education on how partnerships with startups can help grow crops and price them, awareness of Nutrition ex: Millets

c. Data Analytics: Data on how to grow crops with different soils, which crop is more in demand and what needs more supply

1. Human Capital at Managerial Level a. Sourcing Talent: Help provide start ups with appropriate skilled workers (specifically marketing, agricultural engineers

and agronomist) to reach workplace nutrition initiatives b. Training Management: Provide the right skilled talent for management of the companies, so they will become more

organized and profitable

1. Financial Capitala. Providing Capital

i. Grants: philanthropic in nature; most appropriate for business models that are not sustainable on a standalone basis in the short to medium term; provides some influence over the direction of the company.

ii. Private Equity Capital: typically profit-seeking in nature; investment horizons of 7-10 years are typical; greater risk but greater prospects for profitability; provides the greatest influence over the direction of the company; typically smaller investment sizes relative to debt.

iii. Debt Capital: investment horizons vary greatly; lower risks but typically not profit sharing; influence over the direction of the company is modest; typically not appropriate for startups that have not reached operational profitability

b. Creating an Ecosystem to Support Investment

Education of Farmers and User Adoption

Input

What GAIN Invests in:

TrainingBuilding AwarenessData Analytics

Output

What GAIN Does (Activities): Mobilizing knowledge:

1. Nutrition Training, Agricultural Assistance through Data Analytics and Technology Awareness

2. Supply and Demand Knowledge

3. Price NegotiationWho GAIN Targets: Small Scale farmers

Outcome

Short Term: Reach higher productivity levels with less food loss through the knowledge of supply and demand

Long Term: Reach greater scalability and profit

Impact

Improved accessibility and quality of nutritious food

Input

What GAIN Invests In:

Sourcing Talent Training Management

Output

What GAIN does (Activities):

1. Train Managers in how to build alliances with farmers and how to address financial, marketing, or agricultural/nutritional challenges

Who GAIN Targets: Labor force at Company Level

Human Capital at Managerial Level

Outcome

Short Term: Higher productivity and profit levels through new business alliances and talent

Long Term: Reaching scalability and company goals

Impact

Improved accessibility and quality of nutritious foods

Financial Capital

Input

What GAIN Invests In:

Capital/Grants/ Funds

Output

What GAIN does (Activities):

1. Provide Grants or Assistance in how to receive grants/funds from organizations or government.

Who GAIN Targets: Companies that want to reach scalability

Outcome

Short Term: Help firms reach higher profits and consumers/buyers

Long Term: Scalability in Africa or Across India

Impact

Increased scalability and access to nutritious food globally and nationally

Business model - Aggregator & Food Processing: Fresh Produce Supply Chain

Services: ○ Farmer extension services○ Agro Processing○ Logistics○ Traceability

Impact model: ○ Increase productivity and Income○ Reduce food losses○ Improve food quality, safety and shelf life

Case Study: Lawrencedale Agro Processing India Pvt Ltd (LEAF)

Challenges in achieving scale

1. Consumer awareness on food safety and quality

2. Farmers understanding and appreciation of Good Agricultural Practices

Year Est. 2009

Employees ~200

# of farmers >3000

Case Study: Crop In Business model - Data Analytics: Complete farm management solutions (digital and data management services)

Services: ○ Farmer extension services○ Weather advisory○ Pest management○ Monitoring Crop Health○ Traceability

Impact model: ○ Increase productivity○ Reduce food losses○ Improve food quality

Challenges in achieving scale

1. Consumer awareness on food safety and quality

2. Farmers understanding and appreciation of Good Agricultural Practices

Source: http://www.cropin.com

Year Est. 2010

Employees ~200

# of farmers 2.1m

Case Study: FlyBird

Business model - Equipment Provider

Services: ○ Cost effective Irrigation Equipment designed for smallholder farmers○ Automation through applications and smartphone app○ Smart fertilizer application○ Traceability

Impact model: ○ Improved productivity and Income○ Cost reduction on fertilizer, water and energy usage○ Designed to meet smallholder farmers’ need (cost)

Challenges in achieving scale

1. Consumer awareness 2. Farmer Subsidies: Variances in

equipment subsidies across states

Year Est. 2013

# of farmers ~250

Quotes from Companies

A lot of start-ups focus onB2C but this does notwork. We started as aB2C but run into lossesbefore we changed ourbusiness model andstarted doing B2B

We provide affordable solutions tofarmers through automatedirrigation system.….A lot of farmers expectfinancial support and governmentsubsidies have helped us reachout to customers.….We sell our products throughother private partners in areaswhere there are no governmentsubsidies

We buy vegetables fromfarmers, process, packageand sell to wholesalers,supermarkets, and bigretailers (B2B)

CropIn

FlyBird

LEAF

Replicating Business Models in Africa

MODELCOMPANY STATUS IN AFRICA

Y - Cook

Flybird

Food Processing Engaging potential partners

Crop In

LEAF, Aibono, Go Desi, Go Farm

Data Analytics

Equipment

Aggregators & Food Processing

Present in Kenya, South Africa, Nigeria, Ghana (Ongoing negotiation)

Engaging partners in Kenya

Aim to focus on the Indian market

Replicating Business Models in Africa

CropIn’s Success Factors

● Government commitment to the food sector

● Tailored services and products

● Collaboration with multilateral and bilateral organizations

The Challenges

● Understanding of Local Markets: Most Companies cited lack of understanding of local market dynamics askey to scaling into other markets

● Partnerships: Partnerships with governmental, bilateral, multilateral donor organizations, as well as privatesector players. The weak agtech ecosystem also affects partnership

● Risks: Political, and economic. There is also technological risks in terms of user adoption● Human Capital: Engineers who understand the use of technologies and company’s platforms, agronomists

to train farmers, right managerial expertise● Access to Capital/Funding: Capital to invest in technology and equipment, marketing, training and working

capital

Research Constraints & Areas for Further Research● Our team had difficulty gaining a strong understanding of the business feasibility of these business models given companies’

hesitation to share confidential financial information with consultants.

● While the impact proposition of the businesses we interviewed is clear, the business feasibility and sustainability of these

models are largely unproven. The food technology industry is a nascent industry in India with a majority of companies in our

field research having been founded in less than ten years.

● The companies we interviewed were not necessarily explicitly focused on nutrition. Many claimed to be focused primarily on

improving the livelihoods of farmers. However, further analysis revealed that these companies were contributing to better

nutritional outcomes by increasing the accessibility, affordability, and desirability of nutritious foods.

● Our efforts to assess companies’ successes in expanding to Sub-Saharan Africa were limited by a small sample size. Only one

company (CropIn) had successfully scaled in SSA. While many had ambitions to expand to these markets in the short to medium

term, further research is needed to understand the challenges and success factors for Indian food technology companies to scale

in other contexts.

● With regards to micro challenges that companies face in achieving their goals and scaling, we heard mixed results for the need

for financial capital. Some companies emphasized that this is their greatest challenge while others claimed that the Indian

markets are flush with capital. Further research is needed to understand under what circumstances capital needs are greater and

what types of capital structures are ideal (grants, equity, debt, hybrid).