The distance between their farms and the nearest processor is essential for small farmers who need to process their crops. And although Nigeria’s food processing systems are very similar to those in the West when it comes to large factories and huge economies of scale in high demand cities, farmers still suffer from poor logistics networks.
With distance and logistics issues, farmers’ crops can go wrong and when factories buying them affects their processing yields and their price. Farmers, who witness post-harvest losses, are also paid less and miss the opportunity to invest in the production of their crops.
Nigerian agritech startup Releaf solves this problem by creating proprietary hardware and software solutions to make these farmers and food factories more efficient and profitable. Today, the company announces that it has raised $ 2.7 million in seeds and grants for this effort.
Pan-African venture capitalists Samurai Incubate Africa, Future Africa and Consonance Investment Managers led the round. Individual investors like Stephen Pagliuca, chairman of Bain Capital and Justin Kan of Twitch also participated..
Besides in turn, the agrotech startup obtained $ 1.5 million in grants from the Challenge Fund for Youth Employment (CFYE) and USAID.
Founded by Ikenna Nzewi and Uzoma Ayogu, Releaf focuses on value chains where small factories are located close to small farmers. This allows them to obtain better processing yields and lower logistics costs; at the end of the day, the farmer has more money to work.
When the duo launched the company in 2017, the idea behind Relead was not yet concrete as the team, based in the United States, had not yet found the fit between the products and the market.
First, it planned to increase the productivity of the Nigerian agricultural sector using software. Same after graduating from Y Combinator summer that year, Releaf played with ideas on trade finance and a market for buyers and sellers of agricultural commodities..
The team would have a clearer idea of what they wanted to build when the founders returned to Nigeria. Americans of Nigerian descent traveled 20 states and studied different value chains for crops, detecting inefficiencies that could be solved by Technology.
“We have taken a much broader approach to the solution, but we really wanted to decide on a specific culture in which to work. And we found this opportunity in the oil palm sector, ”Nzewi told TechCrunch in an interview.
The oil palm market in Nigeria is $ 3 billion with over 4 million smallholder farmers cultivating farms where these crops are grown. are planted.
These farmers provide 80% of oil palm production. But as the industry is quite fragmented, they have many challenges to process in processing oil palm as it is a crop that requires significant processing power. To extract vegetable oil.
Farmers typically go through this process using stones or inappropriate material – inefficient processes that lead to poor quality oil palm largely unsuitable for manufacturing high quality vegetable oil.
Nzewi says the team saw an opportunity and set out to develop technology to help farmers crack oil palm nuts. The result was Kraken, a proprietary patent pending machine.
So here’s how the business model works. Releaf buys nuts from the farmers, then uses the Kraken to crack the nuts and crush the kernels into vegetable oil. Releaf then sells the vegetable oil to FMCG processors and local manufacturers, above all in the south-south region of Nigeria.
“Nigeria has about 60% more demand for vegetable oil than it supplies. And it cannot be achieved due to the lack of supply with imports as the government has banned the import of vegetable oil. So there is a need to take those smallholders who generate 80% of the production and make them more efficient so that we can have a better balance between supply and demand of vegetable oil, ”Nzewi said of the problem. which Releaf is tackling..
But still, why does the company think it can break into a competitive Nigerian vegetable oil market with products that are difficult to differentiate?
Nzewi explains that the answer lies in the quality of the products. Typically vegetable oil Is driven by a free fatty acid metric (FFA) which measures the impurity of vegetable oil. The CEO says that while the industry standard is around 5% FFA, Releaf produces at 3.5%.
Despite an advantage in terms of production quality, Releaf products are sold on an industry standard. Nzewi says this may not be the case in the future as the company finally looks to take advantage of the quality of its products and raise prices to improve its profit margins..
According to the company, Kraken already processes 500 tonnes of palm nuts. Its software connects to more than 2,000 smallholder farmers who have supplied more than 10 million kilograms of quality palm nuts to food factories.
Regarding expansion, Nzewi noted that Releaf has more of an appetite to expand into new geographies instead of offering crops. His argument is that oil palm processing and cultivation style is a straightforward method due to its similarities across West Africa..
But for crop expansion, the business may need to find crops that can be planted alongside oil palm and intercropping or working with crops like soybeans or peanuts used in the vegetable oil industry.
Releaf will use the seed investment to develop the technology and deploy it to smallholder farmers, Nzewi tells me. Then the $ 1.5 million in grants Will focus on the financing of the working capital of these farmers. He adds that Releaf has already conducted fundraising trials this year where it has increased the incomes of smallholders three to five times.
“We think there is a really great opportunity to bring both physical technology and financial services to these communities to make them more productive. And that’s sort of at the heart of our thesis, ”said the CEO. “We believe that our smart factories can serve as an economic pillar in these rural communities and make it easier for us to provide these communities with other services that they may find useful such as access to working capital, payment for education and ‘access to insurance services. So we see food processing as the first step that holds us together in the value chain.. “
Earlier this year, agrotech startups like Gro Intelligence and Aerobotics raised huge amounts of venture capital and showed the promise of the sector in Africa. However, venture capital has slowed down in recent months and Releaf’s investment brings that spotlight back to the industry, albeit briefly.
Rena Yoneyama, managing partner of Samurai Incubate Africa, said Releaf’s innovative approach sets her apart from other agro-tech startups the venture capital firm has engaged with.
“We believe the company’s thesis on decentralization of food processing would have a strong link with the landscape of economic development of Africa for the next decades. Ikenna and Uzo are the perfect founders to disrupt this market in Nigeria and beyond. We are delighted to support them in their innovation by providing agrifood and financial services to rural communities and farmers,“she added.
Also speaking on the investment, Iyin Aboyeji, general partner of lead co-investor Future Africa, said: “… The Releaf team is building the agro-allied industry of the future from scratch, starting with palm oil for which it has developed a new technology to aggregate, shell and transform into essential ingredients like vegetable oil and glycerin. Future Africa is delighted to support Releaf to build the future of modern agriculture.