Arog Bio Allied Agro Services Limited (ABAAS), founded in 2009 in Ekiti state, is an integrated cassava starch and derivatives manufacturing company. They source cassava tubers both from block farmers who farm on land leased from ABAAS; and community farmers who have their own land. ABAAS processes the raw cassava tubers into high-quality cassava flour (HQCF) and aims to sell it to large buyers in the Nigerian market. Next to their extension and input provision, ABAAS leverages their farm equipment business unit to provide mechanization services to farmers.
Once the cassava processing line is completed by the end of 2020, ABAAS will gradually increase and expand their operating capacity to reach an annual maximum capacity of 10,000MT HQCF by year 2024. Therefore, ABAAS intends to develop its block farm model to 3,000 hectares and expand its active block farmer base of 300 in 2020 to 1,500 by 2025. Its community farmer base is expected to grow from 870 in 2020 to 2,070 by 2025.
By offering access to additional farm land and services such as training, inputs, improved stems and mechanization, ABAAS is able to increase annual production for block farmers with 25%, thereby significantly boosting their household incomes from no cassava income, to additional annual earnings from cassava to $637 within 5 years.
This analysis assesses ABAAS’ strategy and business model and identifies opportunities to establish an efficient sourcing model while mitigating business and farm-level risks. For ABAAS to run an efficient, inclusive, and sustainable cassava processing business it should strategically design its sourcing and service delivery model, while optimizing its working capital needs and attracting new sources of affordable finance. Few of our key suggestions to ABAAS are to:
- Create farmer impact by providing services on credit. By enabling the block farmers to invest in high-quality inputs, improved cassava stems and hire mechanized farming equipment while incurring relatively low cash expenses, cassava yields could increase 50% and income 600%.
- Establish a phased cropping scheme within the block farm. By balancing the timing of planting of stems, timing of harvest and the even distribution of monthly harvesting volumes, ABAAS can ensure steady supply and maximize the processing factory utilization.
- Add community farmer supply to the sourcing mix. Sourcing from block farmers alone would allow ABAAS to fully supply the factory and it should be prioritized by ABAAS to ensure high quality and control over the timing of supply. However, by adding community farmers to the sourcing mix, ABAAS could reduce its total working capital needs as less credit would be provided to farmers and thus reducing ABAAS’ credit risk.
- Balance the growth trajectory. ABAAS must balance fast growth to supply the factory with sufficient tubers and gradual growth to reduce working capital peaks and cost of finance, as the number of block farmers is directly tied to capital needed to provide services on credit and to purchase tubers. ABAAS could potentially scale up faster by unlocking the Anchor Borrowers Program or impact finance by proving the commercially viable and social impact of their business model.
- Invest in irrigation for mitigation of climate impacts if the business case is clear. Irrigation has clear benefits such as harvesting all year round, higher yields by preventing water stress and increasing water availability, but it also requires a significant upfront investment. Therefore, ABAAS should first demonstrate the business case for irrigation by piloting at small scale, prove the impact and analyse the return on investment.