Project Novella

A pro-profit public-private partnership in a framework of environmental and social benefits Harrie Hendrickx Nairobi October 23 rd 2006

Allanblackia floribunda

AB is more than just another fat!

     Unique fat composition of edible quality  unique source of stearic acid  melting sharply  stable oil  not healthy, but enables healthier compositions  no ingredients that jeopardize food grade status High yield  higher than most, ……but lower than PO  relatively inexpensive to produce (labour & land use)  LT price level like other edible oils Can grow in many countries Oil can be sold / used in Africa and world wide Will be used by many companies / industries for widely different applications

Typical uses:

 In spreads as hardstock: 2 – 10% of composition    Good melting, good stability, natural hardstock Volume: at least 100.000 t/a, niche: typical 100 t/a Issue: permission to use has been applied for in EU  In chocolate products: few percent on product    as CBE / crystallisation stabiliser Volume: about 10.000 t/a Issue: no legal permission in most countries (EU, USA,….)  In many other composite food products     Culinary mixes / cubes Bakery ingredient Peanut / cashew butter a.s.o.

Novel Foods.

           Current estimates on timing: January 2003 Internal Unilever clearance August 2004 October 2004 January 2006 April 2006 September 2006 Application in Germany Questions raised Questions answered 90- day period ended 60- day period ended October 2006 Questions answered ----------------------------------------------------------------------------- March 2007 April 2007 Novel Food clearance obtained Products launched  (Predictions on future developments are highly uncertain!)

Typical uses:  In industrial applications  edible / food grade lubricant  chemical industry raw material  In soap: 20 – 30 % of composition  Slightly harder product   Value: premium over PO only few percent Volume: up to 1.000.000 t/a  In ointments: (few percent on product only)    good skin melting / moisturising properties Typical volume is 25 – 100 t Only when marketing effort creates this value (Aloe Vera)

Main issues / concerns  Safety of the oil     Intrinsic quality Contamination of the oil        Mixing seeds with other type of seeds Spraying seeds with pesticides / herbicides Smoke when drying seeds Storage of seeds near mineral oil or other chemicals Treatment of seeds with fungicides Cleanliness of tanks, prior cargo’s Environmental problems in area of seed production Mixing with different species HACCP / One mistake only !!!

 Quality of the oil    Fat composition Level of ffa, water, moisture,… Storage conditions / oxidative damage

Main issues / concerns  Volume of the oil  Small volumes jeopardise profitability for farmers, focal persons, crushers and industry  Most difficult times are within the next 2 years  The more oil the better  Supply security / regularity  Safety margins on supply level cost a lot  Safety enables more profitable usage  Ethics  Child labour, fair price, gender  Law and regulations

How do we get it ?

T T Oil seeds storage Oil milling Wild picking / Harvesting Inspection Oil Inlet Vent Dip Point Inspection Oil Inlet Vent Dip Point Sample Shell Manhole Agitator

contolled by Timer

Coil Inlet/Outlet Oil Outlet T Sample Shell Manhole Agitator

contolled by Timer

Coil Inlet/Outlet Oil Outlet storage and blending Crude oil storage Oil refining

The supply chain of AB is very similar to other modern supply chains, like that of palm kernel oil, coconut oil or Shea nut oil.

Basic understanding:  Each part of the supply chain is of equal importance  Each part is needed for the others to be successful  The problems of one of us are the problems of all of us!

 Since we depend on each other:  We should try to understand the needs of the other  We should try to help each other  We should be happy with each others success

Supply Chain f or Allanblackia Farmer / Collector Focal person Tree nursery authorities ICRAF-support NGO-Supported Transport firm Unilever managed authorities Crusher Shipping Refining Spreads production Marketing / sales

Shared partnership vision:

     1. Sustainability is required  Environmental & social 2. Profitability for all in the SC    For

african

farmers only Non-AB benefits can chip in when main project allows Unilever guarantees the market others start buying when volume grows 3. Long / mid-term ownership of SC will be local 4. Partnershipping / Joint approach     NGOs, research institutes and governments complement our skills Partners to take as many responsibilities as they can Risk aversion on all levels Resources need (public) supplementation 6. Transparency / adherence to the law / business principles  Gender sensitive, child labour, environment, corruption..

Price considerations

• • • • Price should reflect variable SC costs and overheads Price should stimulate the growth of the project Price should support the development of AB exclusively for Africa Price should grow towards expected market level  Price for 2007: US$ 1600 /t (cAB ex port)  Price for 2012: US$ 1100 /t  Price will always command small premium over PO  Market priceing may come from 2012 onwards

Price considerations

Cost-price for cifAB in Rotterdam Harbour

Transport insurance, financing and storage costs at Rotterdam (6%) Costs for transport to Rotterdam. For volumes below 2500 t/a iso-containers will be used. Above that level, bulk vessels will be chartered.

Total cost of nbAB at tank farm ready for export (= export value)

Management costs for running the supply chain Taxes to be paid (estimate of 5%). This is a net-figuere and can vary strongly between countries Costs of storage at tank-farm (Not applicable when iso-containers are used) Transport of oil to harbour (Not applicable when iso-containers are used)

Total cost-price of oil in crushers tank at crushing yield of 37%

Overhead costs and Profit margin crusher (8% + 5% on total, these are normal values for efficient operations) Conversion costs incl. Filtering, storage and losses Costs of transport of nuts to crusher (Depending on distance and local conditions of the roads).

Total cost-price of seeds till regional warehouse

Costs of regional warehouse, including loading and un-loading.

Premium for focal persons and buying firms (10% on farmgate price). This premium can be larger in very remote area's.

Net cost of packaging (20 polybags for 50 kg of seeds each). Bags will be provided and re-used where possible.

Vilage administration and other local/rural taxes that have to be paid. This can vary strongly from country to country.

Cost-price of dried AB-seeds as delivered at farm gate. This is the price farmers and collectors will get for their dry and clean seeds.

or: Rural benefit as pecentage of total value creation:

Low volume

2000.00 US$/t oil

113.21 US$/t oil 337.50 US$/t oil

1549.29 US$/t oil

855.96 US$/t oil 33.02 US$/t oil 0.00 US$/t oil 0.00 US$/t oil

660.31 US$/t oil

75.97 US$/ 2.7t of seed 46.46 US$/ 2.7t of seed 54.00 US$/ 2.7t of seed

483.89

US$/ 2.7t of seed

2.97 US$/ 2.7t of seed 43.72 US$/ 2.7t of seed 13.50 US$/ 2.7t of seed 16.20 US$/ 2.7t of seed 407.50 US$/ 2.7t of seed

150.78 US$/t of seeds 24

Large volume

960.00 US$/t oil

54.34 US$/t oil 101.25 US$/t oil

804.41 US$/t oil

114.92 US$/t oil 32.83 US$/t oil 1.35 US$/t oil 2.70 US$/t oil

652.61 US$/t oil

75.08 US$/ 2.7t of seed 44.92 US$/ 2.7t of seed 51.30 US$/ 2.7t of seed

481.31

US$/ 2.7t of seed

2.84 US$/ 2.7t of seed 43.50 US$/ 2.7t of seed 12.15 US$/ 2.7t of seed 16.20 US$/ 2.7t of seed 406.63 US$/ 2.7t of seed

150.45 US$/t of seeds 49

To guide future developments

   Volume:  Can increase about 10.000 times from current level Rural cost (capital, land, labour):  May be stable or go down up to 50% Rural price:  Planned to be stable, guaranteed till 2012  World oil market:  Price can not drop below PO level, volume is many orders of magnitude from saturation level.

 Conclusion:  Farmer income levels for seeds can improve 5.000 to 10.000 times from current level!

Quantity:

 Current best volume estimates for AB oil from existing trees (t/a): 2006 2007 2008 2009 Tanzania Ghana Nigeria Total 120 50 50 220 150 65 150 365 175 90 250 515  Other countries, like Liberia and Cameroon, may add to this.

200 125 350 675

Potential long-term development of AB production

100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 2005

Oil production in Africa

With planting AB trees Without planting trees 2010 2015   In 2015: 40,000 t oil

Market development for Allanblackia

    Unilever to guarantee for the next few years (2012)     Price fixed at initial high level, quality is food grade Volume is open end Aim to deliver the volume and reduce SC costs Support to cultivation to grow volume Others can come in the partnership     Should invest in growth of the partnership Should support our development agenda Should support business principles / adherence to the law Should support the sustainability guidelines Market should begin to function from 2012 latest  How to ensure a smooth transition ?

Local usage will not be profitable for several years  Exception possible for niche applications (foods / ointments)

    In the supply chain  Product quality (safety included)   Success of final products Competition In the growth of the production     Produce enough new trees Plant them successfully Production is satisfactory Pests and diseases Internal threats  Keep the partnership together External threats  Malaysia / Brazil can do better  Other crops will become more productive

Risks

Thank you

Results

       Working in 3 countries   7500 collectors / farmers over 500 communities 12 donors / NGOs / governments from northern world 30 NGOs / companies / research institutes / from Africa Working with local-, regional and national governments Income generated for farmers is still small, about US$ 250.000/a but increasing quickly Domestication of AB makes quick progress Biodiversity benefits are in development

Vision of small-holder production 5-50 trees per ha on 5 ha 30 fruit per tree 1 st harvest 4 years Full harvest 7 years US$ 1.5 per tree per year Replace after 40 years

(Additional) Benefits and Risks

 

Benefits:

     Demonstrates commitment to the development of the poorest in Africa (Millenium development goals).

Demonstrates commitment to protecting and supporting the environment and sustainable developments.

Creates options to link business partners with these developments.

Enables partners to develop a wider scope Brings a close partnership with high profile institutions like UNDP, Oxfam, IUCN, DfID, USAID, GTZ and SNV.

Risks:

  Financial  Loss of investment, liability for own activities, liability for activities of partners,... Reputational  Connection to child labour, poverty, environmental degradation, low payment to farmers, exclusion of women, spread of HIV/Aids, set up of plantations, move AB out of Africa, use African resources for our profit growth, use of this project to cover up other activities, .....

Outlook on near future

        Unilever to obtain Novel Foods clearance and perform factory trials.

Production level of about 370 t oil in 2007 and growing From 2Q2007 Allanblackia used in production of spreads, to start with Becel / Bertolli.

Planting of Allanblackia trees starts in 2006 (about 20.000) and will increase to more than 100.000 in 2007.

Project structure in the countries will develop in separate companies Make the SC project profitable to all actors quickly.

More publications on the project Stimulate the partnership to take over more responsibilities. Relative to total project size Unilever involvement reduces.

What makes Allanblackia unique....

 Only two major fatty acids

60 50

%

40 30 20 10 0 C12 AB PO PK SH C16 C18:1

•Triacylglycerols:

%

SOS SOO OOO SSO SSL OSO SLO/SOL/OSL SLS SSS REST

AVG

71.4 20.9 4.8 1.2 0.3 0.4 0.4 0.2 0.2 1.0

Supply chain and Quality

 SC experience in Gh and Tz is 3 years.

  Transport by Iso-container, rehearsed twice from Tz, once from Gh Crusher is now established in both countries  QA has not seen any real problems yet  Some ffa, moisture and filtering problems during initial trials  HACCP analysis done in Tz and Gh with return visits.  Recommendations are being implemented.

 Ng to catch up quickly (2006/7)