What on earth is Novozymes, a $1.8-billion industrial biotechnology company headquartered in Denmark, doing in Mozambique, a poor African country (per capita income: $440) where corruption is rampant and more than half of the government’s budget comes from foreign aid? The company says it’s trying to protect forests, increase agricultural productivity, lift farmer incomes, reduce indoor air pollution and, not incidentally, make money.
In an unusual move for a big multinational company, Novozymes and a partner, a New York-based firm called CleanStar Ventures, have created a vertically-integrated, energy-and-fuel company called CleanStar Mozambique. The centerpiece of the new venture is a factory that makes clean-burning ethanol for use as a cooking fuel from cassava, a starchy food crop widely grown in Africa. The factory opened in mid-May, with a visit from Steen Riisgaard, Novozyme’s CEO, who said, according to published reports: “I’ve seen many ethanol plants in the world and this is the smallest. But it is also the one that makes me the most proud.”
CleanStar Mozambique aims to do business at the bottom of the pyramid, where the world’s poor people collectively make up a big market. [See my blogpost, Beer at the bottom of the pyramid, which is also about Mozambique.] BOP, as it’s known, is an appealing theory, but not one that has generated a lot of success stories since it was put forward by two academics, the late C.K. Prahalad (who wrote The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits in 2004) and Stuart Hart, a Cornell professor who co-authored the first article on the BOP with Prahalad and has since become a leading thinker on sustainability.
The idea for CleanStar Mozambique took root after Thomas Nagy, an executive vice president of Novozyme, met the CleanStar Ventures people at a Cornell seminar organized by Hart. “We’d been looking for ways for our technology to get into the BOP market,” Nagy told me, when we spoke by phone. Novozyme is the world’s largest maker of enzymes, which are molecules that catalyze (or speed up) chemical reactions; they’re used in many industries, from detergents and toothpaste to stone-washed jeans, pulp and paper, oil and gas and biofuels. CleanStar Ventures, meanwhile, was formed by Greg Murray and Sagun Saxena, both former strategy consultants, to pursue business opportunities in emerging markets, with a focus on food and fuel. “We founded CleanStar Ventures because a lot of groups that operate in this space have a short timeline,” Greg told me by phone. “They’re in a rush to put money in and take it out. To transform things like the dependence on charcoal for cooking in Africa, we need to take the time to really understand the issues and bring in partners.”
Cooking with charcoal is widespread in Africa, and a big problem for several reasons. First, it leads to deforestation because trees are chopped down to make wood into charcoal. Second, indoor air pollution makes people sick. Third, charcoal is expensive; prices have doubled in the last year in Mobuto, the capital of Mozambique, and some charcoal is transported from more than 200 miles away, according to this story by TriplePundit’s Jen Boynton, who traveled to Mozambique with Novozymes. The charcoal market is Mobuto alone is said to be worth $150 million. “We think we can convert a majority of that over to our solution,” Murray said, and then expand. “As our scale increases, our production costs go down, and we can lower our prices. This is a pan-African strategy we’re trying to prove out here.”
Here’s how it works: CleanStar Mozambique works closely with farmers (about 500 and growing, no pun intended) who grow cassava as well as peas, beans, sorghum, pulses and soy, using conservation agriculture techniques. The company provides them with inputs and technical assistance, and buys their crops. “The land that they use is basically land that today has been slashed, burned and degraded, first from the charcoal and then from unsustainable farming,” Nagy says. “We’re adding value to the farmland and increasing the agricultural capacity of that rural community.” Some of the crop is sold as food, and the rest is processed into ethanol at the new factory, which uses enzymes from Novozyme.
Meantime, CleanStar Mozambique sells cookstoves and cooking fuel through its own shops, all in Maputo. Sagun says: “The pitch to the target customers is all about cost, usability and a better experience. It’s a direct commercial appeal.” The company owns the entire operation. “You can do it yourself or you get taken to the cleaners,” Murray told me. “There are only a couple of trucking companies, and they’re crooks.” “The secret in this project is not so much the technology or the farming practices but the ability to connecting the rural production capacity with the market in Maputo,” Nagy said.
It’s not a simple business. To make the cooking stoves affordable–they sell for about $30, but cost more than twice that–CleanStar Mozambique made a deal to sell carbon credits in advance to Bank of America Merrill Lynch (where the deal was handled by Abyd Karmali, the company’s carbon markets chief). It’s estimated that each cookstove reduces GHG emissions by four tons a year. Will the venture pay off? Novozymes has generated lots of good will, but it wants more than that, Nagy said. “This is a real business. We’re investing now but we certainly look forward to revenues and dividends,” he said.“We are cautious about calling it a victory, but we think we are onto something here that has real potential.”
Source: Marc Gunther