Making the Case: How Agrifood Firms are Building New Business Cases in the Water-Energy-Food

58 Pages·2014·8.93 MB·English

Making the Case:
How Agrifood Firms are
Building New Business Cases
in the Water-Energy-Food
Nexus

About REEEP
REEEP is an international non-profit organization that advances markets for clean energy in developing
countries. There, we build scale by connecting funding to projects, practice to knowledge and knowledge
to policy.
REEEP uses donor funding to support a portfolio of high potential ventures that create energy access and
combat climate change, often attracting private finance. REEEP monitors and evaluates projects within their
policy, financial and commercial environments to gain insight into opportunities and barriers. REEEP feeds
this knowledge back into the project, the portfolio and the policy framework to continuously advance markets
for clean energy.
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Author: Andreas Zahner, REEEP
Editor: John Tkacik, REEEP
Published in 2014 by the Renewable Energy & Energy Efficiency Partnership (REEEP)
and the Food and Agriculture Organization of the United Nations (FAO).
2014 © REEEP and FAO
All rights reserved
Copyright: Material in this publication may be freely quoted or reprinted with acknowledgement.
Cover image: Terraced rice fields at dawn, Yuangyang, Yunnan Province, China
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Acknowledgements
The report was greatly enhanced from the input and Detailed information on REEEP supported projects
expertise of: and SMEs was provided by:
Dave Boselie (The sustainable trade initiative - IDH, David Cerqueira (EDS Sustenergy, Brazil), Miroslav
Senior Manager Learning & Innovation), Bassel T. Daher Dijakovic (Pt. Contained Energy Indonesia, Business
(Qatar Foundation Research & Development, Research Manager), Toby Hammond (Futurepump Ltd, Managing
Analyst), Olivier Dubois (UN Food and Agriculture Director), Allan O. Marega (Global Supply Company
Organization – FAO, Senior Natural Resources Officer & Kenya, Managing Director), Danielle de Knocke van
Leader Energy Team), Niranjan Khatri (ITC hotels India, der Meulen (Mercy Corps Indonesia), Bob Nanes
General Manager for Environment Initiatives), Greg (iDE, Vice President of Technology and Innovation),
Koch (Coca-Cola, Director Global Water Stewardship, Romain Peyrache (RONGEAD, Project Manager), Anjali
Corp. Sustainability Office) Peter Koegler (Human Shanker (Innovation Energie Developpement – IED,
Dynamics KG, Senior Project Manager), Patrick Laine Managing Director), Peter F. de Vries (Pt. Contained
(Better Cotton Initiative, Chief Executive Officer), Peter Energy Indonesia, Managing Director), Ryan Weber
du Pont (Nexant Asia, Vice-President Government & (iDE, Irrigation Engineer), Widiatmini Sih Winanti (The
Clean Energy Consulting), Nagaraja Rao (CTI PFAN Environment Technology Center at the Agency for the
Regional Coordinator), David Rosenberg (ECOM, Group Assessment and Application of Technology - BPPT),
sustainability advisor), Peter Scheuch (Ennovent GmbH), Muhammad Ridha (Mercy Corps Indonesia)
Peter Storey (CTI PFAN Global Coordinator)
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About this Study
This study was commissioned by the Food and
Agriculture Organization of the United Nations (FAO)
to complement its comprehensive work on a Water-
Energy-Food Nexus Assessment approach and funded
by the OPEC Fund for International Development
(OFID). This study analyzes several existing business
cases specifically addressing the nexus. In looking at
commonalities and variances across large and small
enterprise approaches, the report identifies several
model pathways for nexus-related business cases, and
showcases real life business examples.
The large enterprise business case analysis draws
on research and interviews with representatives
of Coca-Cola, ITC limited and SABMiller, among
others. In looking at small and medium enterprise
(SMEs) approaches, the study focuses on nine REEEP
projects using clean energy in food production
and water management. The SME cases range from
solar-powered irrigation and decentralized power
distribution to post-harvest processing and use of
agriculture waste for energy generation in Asia,
Africa, and Latin America.
The business case is primarily based on desk review and
a number of interviews with representatives of both
large and small enterprises in the agrifood sector. Due
to the short timeframe for research, the information,
data and statements provided by the different sources
could not be validated in detail. Hence, it is not the
intention of this paper to comprehensively evaluate
case study results, activities and approaches of both
large and small enterprises according to specific
nexus related evaluation criteria.
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Executive summary
It has long been known that water, energy and food is facing unprecedented resource pressures, with
systems are inextricably interconnected. Water more on the horizon.
and energy are needed to produce food; water is
needed for almost all forms of power generation; Understanding water-energy-food inter-linkages and
energy is required to treat and transport water. managing them holistically is critical to sustainability
The relationships and trade-offs within this in the sector. But while some private enterprises in
triangle of resources are known collectively as the the agrifood sector understand the significance of
water-energy-food nexus. the nexus – and some have already seen competitive
advantages in nexus-driven solutions for sustainable
The agrifood sector is one of the most prominent crop management, processing, distribution and
single subsectors within the nexus, accounting for retailing – most do not.
some 80% of total freshwater use, 30% of total energy
demand, and 12-30% of man-made greenhouse gas A study of agrifood business cases incorporating
emissions worldwide. With global food production nexus concepts reveals important lessons both for
expected to increase 70% by 2050, the agrifood sector enterprise as well as for governments.
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Key Findings
For Enterprise
• The nexus adds value: Firms in the agrifood sector can mitigate risk, reduce costs and raise productivity through
nexus thinking.
Ultimately, an enterprise’s engagement in the water-energy-food nexus hinges on value. Both large and small
enterprises can often reap significant value in the form of (particularly environmental) risk mitigation, reduced
costs and increased productivity. But large and small enterprises vary considerably in their ability and readiness
to act on positive value propositions.
• Discovering nexus value: Firms must be able to assess risks, quantify returns and monitor progress. This requires
upfront investment and long-term thinking, often leaving small and medium-sized enterprises on the sidelines.
Understanding nexus value hinges on how well a company can analyze problems amid increasingly complex
market conditions, identify measures to address them, and implement timely action. While managers in large
companies often enjoy freedom to engage in long-term strategic thinking, as well as the financial and technical
capacity to invest in assessments and planning, small and medium enterprises are often focused on managing
immediate and short-term issues.
At the same time, nexus value is often difficult to quantify in terms of economic returns on investment (ROI), the
primary driver of private sector activity. Such returns are often held in long-term and/or life cycle cost reductions,
necessitating protracted investment timeframes aggregation across supply chains. Much nexus value comes in
the form of positive externalities for the environment and society at large, and does not yield financial returns.
• Trust and partnerships are key: Large enterprises can generate nexus value across supply chains and
SMEs can reduce up-front risks and costs through mutually beneficial business partnerships and trusted,
verified technologies and services.
Large enterprises can develop strategic long-term partnerships and multi-stakeholder forums to leverage
capacity, resources and tailored solutions. Because so much sustainable value is found within precompetitive
arenas, joint work on creating standards, processes and protocols of measurement and reporting are critical.
Vertically-integrated enterprises with close connections to sourcing areas may also be able to generate nexus
value unilaterally, while those downstream may need to rely upon upstream actors to take the lead, or focus on
collaborative strategies and networks with other businesses and NGOs.
Risk-averse SME’s will be more able to implement nexus solutions when those make use of reliable technologies
and are offered by trusted service providers. In some instances, collaborations between multiple small
enterprises may lower risk perception by joint investments into technologies and services.
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For Governments:
• Private enterprise cannot be expected to finance public benefits alone – governments must take steps to promote
and “monetize” nexus returns.
Large enterprises are making strides in quantifying benefits and incorporating into accounting and strategic
decision-making. For instance, greater environmental stewardship from nexus strategies can translate into
improved reputation or better water quality into lower water treatment costs over the long term.
But large and small companies alike generate significant co-benefits for communities by engaging in sustainable
nexus practices, such as improved air and water quality, public health, and food security. To ensure that
businesses have incentives to invest in sustainability, governments must create incentive schemes and price
instruments that account for positive environmental and social externalities.
• Firms, especially SMEs, must have access to finance in order to make long-term investments in sustainability.
Limited access to finance is often a key barrier for both large and small enterprises. Banks often refuse lending
for unconventional technologies or business models, particularly ones with long-term return periods. Large
enterprises with cash on hand, multinational parent companies, or low-risk status with financial institutions
are at an advantage, while small and medium enterprises are often constrained by limited access to finance.
SMEs tend to be risk-averse, with financial assessments focused on loan conditions and payback periods rather
than investment returns. Governments should promote lending through specific targeted financial instruments
and incentives.
• The nexus is little-known among SMEs – governments must do more to promote awareness among small and
medium enterprises.
Large companies are largely aware of the significance of the nexus for their business, even if they do not use this
precise language, and the concept of sustainability has shifted from a peripheral PR concern to a core element
of corporate strategy. SMEs are usually not familiar with nexus terminology, but are generally aware of climate
change and potential impacts on their business. But lack of access to finance and information are holding many
back from action. While technological developments are progressing at lightning speeds, SMEs are at risk of
being left farther behind large enterprises with greater access to both finance and information.
• Better policy making on food-water-energy issues demands cohesion among government agencies and inclusion
of SMEs in consultation processes:
Large companies use market power to engage with governments and influence policy development. Even so,
they must often navigate a confusing policy landscape. Most countries do not have cohesive food-water-energy
strategies; rather, interconnected issues are handled by multiple agencies with unclear lines of responsibility
and decision making processes, each working on the basis of proprietary data. SMEs in most cases lack strong
representation among decision makers. Governments can do more to ensure that policy frameworks and
incentive schemes, government-funded research and development, and national standards for services and
technologies are tailored toward SMEs.
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An installer tests output from the REEEP-supported Sunflower
Solar Pump solar-steam irrigation system in Kenya
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