Nigeria’s palm oil sector exemplifies the persistent challenges that have stymied Africa’s agricultural production at large. There are an estimated 4 million smallholder farmers cultivating oil palm in the country, but they lack modern technologies and access to markets that would enable Nigerian palm oil to become a thriving commodity.
Agtech startup Releaf is trying to tackle the issue. Its starting point is upgrading farmers’ processing capabilities and equipment. It says its technology has enabled farmers to increase their palm oil processing 200-fold.
Releaf’s model stretches across the entire palm oil value chain, too, helping farmers earn more for their oil by selling it to fast-moving consumer goods companies and other buyers. It currently works with 2,000 smallholder palm farmers and has an eye to reaching 10,000 in the next two years.
The startup just secured $4.2 million in a mix of investment and grant capital from Samurai Incubate Africa, Future Africa, Consonance Investment Managers, the Challenge Fund for Youth Employment, USAID, and several individual investors. AFN spoke to co-founder and CEO Ikenna Nzewi (IN) about his belief that transforming agriculture in Africa must start with the basics – ensuring that primary processing is done as close to the farmer as possible.
AFN: Describe for us how palm oil processing typically works in Nigeria, before Releaf’s technology was introduced?
IN: Farmers were using rocks to hit the oil nuts to crack them open and extract the oil. If you are a farmer, it is not much fun to sit with a rock, cracking open nuts after your harvest.
Using these outdated methods meant that [Releaf’s network of 2,000] farmers could only process about 500 kilograms of palm oil per day. The technology that we are developing is a machine that cracks open the oil palm nuts in an industrial and automated manner. It will enable farmers to process 100,000 kilograms per day.
Our objective is to reduce drudgery for the farmers, so that farmers can spend their time focusing on production, factories can focus their time on processing, and so that more youth will be excited to join agriculture.
Our belief is that we need to bring food factories closer to farmers. Factories should be in the farmers’ backyard, so that after they are done producing, raw materials can be processed while the crops are still very fresh and made into high quality goods and then sold into big demand centers or bigger processors. We believe that primary processing should be done as close to farmers as possible.
AFN: How important is palm oil to Nigeria’s agricultural sector?
IN: It is incredibly important. Oil palm is the biggest source of vegetable oil in Nigeria. The vegetable oil market in Nigeria is worth over $3 billion. Nigeria [also] has 60% more demand for vegetable oil than it has supply.
The best way to meet the difference between supply and demand is to invest in and create scalable solutions for smallholder farmers. Smallholder farmers drive 80% of oil palm production in Nigeria, while the big plantations owned by multinationals only drive 20%. If we can make smallholder farmers more productive, we will transform the industry as a whole.
AFN: When Releaf started back in 2017, it was an online marketplace that connected buyers and sellers of agricultural commodities. What prompted your business shift, and specifically, your focus on palm oil?
IN: The business reality. I think a lot of people in Africa have approached agtech from a software perspective, creating software that farmers can use. Some of those solutions have worked very well, but I think many have fallen short on their objective to transform these value chains.
For us, we saw there was a need for a value chain player who can actually process the nuts to catalyze the industry. My co-founder and I have travelled to over 20 states in Nigeria, looked at eight different value chains, and we followed them from the farmer all the way to the consumer. We were looking for inefficiencies in the value chain, and we saw the oil palm sector was ripe for disruption and innovation.
We have raised [this $4.2 million] round of funding for two main objectives. The first is to develop West Africa’s leading oil palm technology. The second is to commercialize the technology – not just build a machine, but use it day-in, day-out to impact the lives of smallholder farmers.
AFN: How big is the market in terms of commercializing the technology?
IN: Oil palm is a $3 billion market throughout Nigeria. When you include West Africa, it is a $6 billion market.
Oil palm is the most efficient source of vegetable oil. If I plant one plot of oil palm and you plant soybeans or groundnuts or another crop that produces vegetable oil, I will have seven times as much vegetable oil as you.
We like to focus on crops that have biological advantages. West Africa is the home of the crop because it grows within a couple of degrees of the equator. There are not many places in the world where you can grow it.
Oil palm processing technology is very affordable and does not change in price based on the scale of your business. If properly utilized, our factories can pay themselves back in a fraction of a year. In this value chain, capital intensity is not actually an inhibitor to our growth and with the capital we have been able to raise, we can continue to scale.
AFN: Releaf’s business model goes beyond designing and manufacturing technology and setting up processing facilities. You are also an off-taker for farmers’ oil, and you are a financial partner. Describe your vision for impacting and improving the lives of smallholder farmers?
IN: The first impact is reducing drudgery thus giving farmers the ability to spend time on production instead of manual processing. The second impact is to provide financing. In March this year, we started piloting financing solutions whereby we provide smallholder farmers with capital so that they are able to harvest more. Instead of repaying the loans with cash, they repay with palm nuts. This means that farmers are turning their waste product into working capital.
Oil palm processing is our entry point to rural communities. However, our goal is to be an economic pillar in rural communities, not just by providing off-take of farming commodities, but also providing other services like insurance, educational loans, and equipment.
Our partnership with [API fintech startup] OnePipe enables us to take the required steps to become a greater and more engaged member of these communities. OnePipe has been helpful in establishing virtual bank accounts, so instead of paying farmers in cash, we can pay them via virtual accounts.
In order to create rural prosperity, we have to link up food processing with access to financial services for these markets to grow and take off in the coming years.
AFN: Palm oil is notorious for its devastating environmental footprint. Describe how the sector works in Nigeria, and what social and environmental challenges are present?
IN: The industry has had challenges in terms of sustainability, driven less so by the crop and more so by the people. [But] in Malaysia, oil palm has had environmental concerns because it was introduced as a foreign species.
If we substitute oil palm and use other crops to produce vegetable oil [in Nigeria], we would need to plant a land area the size of Spain for the same amount of vegetable oil consumption.
The world needs oil palm. We need to create a more sustainable manner of producing oil palm, and that’s where Africa comes in. That’s why we are focused on empowering farmers.
For us, sustainability and traceability of our crops is important for our business. From a technology standpoint, we build software that we use when purchasing raw material from farmers so that we have traceability.
On the point of certification, it is a work in progress. The leading certification organization on sustainable oil palm is the Roundtable on Sustainable Palm Oil (RSPO). There’s only one smallholder group of farmers in Africa that has been certified by RSPO. That is because the rigorous nature of achieving the certification does not fit the local realities of many of our low-income smallholder farmers, who are required to pay $500 to sign up for certification.
We are engaging with RSPO and other certification bodies to make the rules of certification in Africa fit the realities of our smallholder farmers.