Inclusive Business Model Analysis: Africa Improved Foods, Rwanda

Africa Improved Foods (AIF) is a public-private partnership involving Royal DSM, Government of Rwanda, IFC, CDC Group and FMO. AIF provides solutions to malnutrition via local production of highly nutritious foods and is operational since December 2016.

AIF is a social enterprise and partners with non-profit institutions, such as the World Food Programme & Governments, as well as making affordable commercial products for the mass market.

AIF currently sources 30,000 MT of grade 1 maize, of which up to ~50% comes from Rwandan maize farmers.

AIF aims to increase its volume of grade 1 maize sourced from Rwandan farmers to 30,000MT, with the objective of improving farmer livelihoods and contributing to rural development in Rwanda.

Yields, quality and contract compliance of Rwandan maize farmers are currently too low for AIF to achieve its local sourcing ambition. In order to address these challenges, AIF has partnered with IDH, Yara and Syngenta on the “Yield Improvement Project”.

The key question of this SDM analysis is: “How can AIF increase and sustain volumes of locally grown maize sourced for its Rwandan production facility?”

This SDM analysis report is structured to answer this question along the following elements:

• By understanding the total cost of sourcing per MT sourced through different sourcing channels;
• By understanding growth opportunities for AIF and partners; and
• By strengthening the long-term sustainability of the local sourcing model.

Our SDM analysis demonstrates that it is possible for AIF to source their full maize requirement locally and profitably by 2025, while having a positive impact on farmer livelihoods in Rwanda. A few things should be explicitly mentioned as context:

For AIF to claim an impact on farmer livelihoods through local sourcing, it is not sufficient to source locally or even directly from cooperatives. The impact on farmer livelihoods is achieved through onboarding cooperatives and farmers onto a Service Delivery Model (SDM) such as the Yield Improvement Project, as our farmer and cooperative income projections demonstrate.

Sourcing from cooperatives that are onboarded onto the Yield Improvement Project is only slightly more expensive per kg for AIF than sourcing through the cheapest sourcing channel, sourcing partnerships.

All partners that we studied benefit from participating in the Service Delivery Model established by the Yield Improvement Project:

• Farmer incomes will continue to be very low (the gap to living income will still be 81% for farmers in the East 1 and 90% in the South) but their net income will increase by 71% and 11% respectively;
• Coops can grow revenues and net income tremendously through predictable and sustained growth in trade of maize and high-quality inputs, and benefit from higher member loyalty;
• The Yield Improvement Project provides Yara and Syngenta with sufficient market to establish operations locally;
• AIF can achieve its target of sourcing all maize from SDM cooperatives in a financially sustainable way, but potential bottlenecks exist from the working capital requirements and existing silo storage capacity.

Our analysis assumes that the Yield Improvement Project leaves potential value creation untapped: we expect that farmers will not be able to afford 100% of the recommended inputs made available by Yara and Syngenta, and no adequate financing is currently available to bridge this gap. For that reason, we recommend AIF to strengthen the long-term sustainability of the local sourcing model by ensuring farmers gain access to adequate financing by:

• Strategic investment in cooperative development to increase the resilience of cooperatives as business partners;
• The set-up of financing solutions for the purpose of purchasing high-quality inputs, that are channelled through cooperatives.

Assuming that any additional costs related to cooperative development and financing solutions are not carried by AIF, the further increase in sourcing efficiency through cooperatives is expected to reduce the gap between the total cost of sourcing through SDM cooperatives and that of the cheapest sourcing channel by another 25%