Feeding the world
The requirements of smallholder farmers in Asia
Convincing farmers to change
The power of soil as carbon capture tool
The impact of rice on the planet
Helping farmers manage their soil and fertilizer
VCs and proving traction over time
The iterative process of product development
A financial model that works for farmers
Agriculture Is 24% Of Global Greenhouse Gas Emission
By 2050 90% Of the World’s Soil Will Be Degraded
Take an Outside View, Ask the Difficult Questions
Double the Income of 100,000 Farmers in Southeast Asia
The Feedback Is Smiling Faces
Constant Questioning of the Status Quo
Farmers Don’t Really Care About Climate Change
Read the best-effort transcript below (This technology is still not as good as they say it is…):
Zal Dastur 0:01
Hi, everybody. Welcome to the Social Innovation podcast. My name is Zal Dastur, I’m your host today. And I will be here with Max Nelen, the founder of Agros, which is an agricultural startup helping farmers in Southeast Asia reduce their carbon footprint and their electricity bill. Hi, Max. Welcome to the show.
Max Nelen 0:20
Hi, Zal. So nice to be here. Good morning to you.
Zal Dastur 0:23
Max. Before we get started, why don’t you just give us a little bit of an intro into into Agros and exactly what it does?
Max Nelen 0:30
Sure. So some I’m Max Nelen, the founder and CEO of Agros. So Agros was founded in the end of 2019, just before the pandemic, great timing. And so we launched the company at the intersection of of agriculture and climate change. So really at the intersection where we see two major problems one is food scarcity or food scarcity in the future that we need to double food production by 2050 to meet global food demands. And second one is we need to do that zero emissions. So obviously, there are solutions out there like indoor farming. But our our view is that indoor farming will not feed the world. So we’ll need to make smallholder farmer and in particular, so 500 million smallholder farmers are feeding still almost half the population in the world. And so we need to increase our income to make sure they are climate resilient, and keep producing the fruit they need to produce, for us to be able to sustain our population. So that’s a bit of the why we why we started the company. And then when you start digging deeper, you try to see the problems because obviously, reducing emissions is one thing, but it needs to increase the profits of the farmers. And so we’re looking at different solutions out there, and we’ve mapped it out. And so the idea is to really be a platform farmer facing platform that helps farmers increase their income while reducing carbon footprint. And so the first brand we launch is agri solar, which is now operating in two countries in Southeast Asia, which is a solar irrigation system that replaces conventional diesel pumps or electric pumps, and so reduce carbon emissions by five times per pump, as well as increase the income up to 63% within a study. So this is two ways not only reducing their electricity bill, their fuel bill, but also actually allowing them to irrigate an extra season or some of the extra acres. They weren’t irrigating because it was they had to go into their pockets to irrigate. And so we’re now launching two additional brands, one this year, and another one next year. One is Aqua soil, which is going to be around sustainable soil management. And the other one is Aqua stem, which is going to be around sustainable plant management.
Zal Dastur 2:40
Was there something that you went through that made you choose this particular area to tackle?
Max Nelen 2:49
It’s a good question. So I’ll start where this all started. So I was I used to work first as an entrepreneur, then as a consultant, Brussels, some originally from Belgium, Brussels, London, then move to Singapore started more on on the renewable energy side. So I’m coming in from the more renewable energy side working on different startups that were launched and are now successful in Singapore. And then we looked at agriculture, because agriculture was this this, this weird kind of industry that, like if you look at the amount of funding that goes into climate change, and renewable energy is like electric vehicles, right? So there’s the stat I think that 70% of feces going into electric vehicles, because it’s only responsible for 10% of the emissions. So we looked at agriculture was 24% of global greenhouse gas emissions, but not a lot of VC money was going into and why was that? And so we need to create more ventures that that would solve these problems. So that was really passionate. And then the other one is just going around. So then our runs, took pre COVID, a few planes through all of these countries, my American Bodiam, Vietnam, Thailand, just talking to a lot of farmers. And then you see the potential and then you really get passionate and being there in the field, talking to those farmers, understanding their problems, but also seeing seeing their willingness to change, which was really important, because I had this whole idea of farmers are stubborn, they’re doing things for 50 years, and maybe they are but I think if you if you give them a right incentives, right tools, the right financing, they’re happy, they’re more than happy to change.
Zal Dastur 4:19
Very interesting, because one of the things I wanted to ask was about how did you convince these farmers? I agree, I have the same notion that people have been doing the same thing for such a long time. Was it easy for you to come in and try to convince some of them to make changes or to try something new?
Max Nelen 4:35
It was to shorten the short answer to your question, it is this still hard? Not saying it is easy, but we figured out how to do it in an easier way. So it needs three elements. One is a technology components that can or that can increase their income, whether it’s to reduce operational expenses or increased yields. The second one is an education The advisory component and the third one is a financing component. So we, for example, our certification systems can be either paid to cash or they after harvest. So where they pay a smaller percentage down and a larger percentage after they have harvest after they’ve seen, they’ve increased their yields and reduce their bill.
Zal Dastur 5:20
So that’s very interesting, because your solution does both right, it increases the yields as well as lowers their cost. So that must have been very appealing for them who are working on I imagined very thin and tight margins.
Max Nelen 5:33
Correct. And that’s, that’s the main reason why we started with solar irrigation is because it was this low hanging fruit for farmers to switch. It’s this immediate cost saver. So we’ll go into soil and plant solutions, which are needed to get to net zero and increase the income further. But those take more time. So there you need some trust with the farmer as well. And what’s the best way to help them trust you? They have immediately.
Zal Dastur 5:57
So I want to take one just a step back a little bit and kind of look a little big picture because I know that traditionally when we talk about carbon emissions from food, huge amounts of focus on the meat industry, particularly beef and the methane that’s produced from that, but what is it that people should know about the type of carbon emissions that are done from farming in Asia, which is not necessarily so cow heavy?
Max Nelen 6:22
Now, good point. And again, there’s maybe in the agriculture is a lot of focus, like on the EVS, there’s a lot of focus on the meat, and it’s a big buckets. So there’s this big study of McKenzie, that that obviously shows the biggest bucket is cow related emissions, especially mostly from from methane emissions. And then if you look at the second buckets, or the tier two buckets underneath that, it’s, it’s one is just in general diesel and electric consumption, mechanization, whether it’s irrigation, whether it’s processing, whether it’s storage, or whether it’s tractors used on the fields, so that’s a major one. A third one bucket is just in general rice. So rice, because the way it’s produced today, with a lot of flooding, keeping the water levels, that increase is actually the bacteria into the soil and reduces actually the amount of carbon that can be stored into the soil. So soil is really a carbon capturing tool, almost more than than trees. And so it can capture all of that carbon. But if you over flooded, then that reduces the potential to restore the carbon in the soil. And the third one is in general, also, synthetic fertilizer. So synthetic fertilizer is this. Not a lot talked about for probably a few political reasons. But it’s now becoming more and more appearing because the prices have gone through the roof. Right? So it comes to this, this economical tipping point where maybe synthetic fertilizer doesn’t make sense anymore. Neither for the planet, neither for the economy. So it’s that’s a very interesting market that we will take a next because the assumption is they’re overusing it, but they’re also overusing the fertilizers, mostly NPK. And especially the element with nitrogen, which is obviously high in carbon emissions, not not co2 is in particular, carbon equivalent, right?
Zal Dastur 8:10
You said something there, which I only recently learned, like in the last few weeks about the impact of rice? And is that a particular crop that you are targeting at the moment? Or are you looking at other crops, and then hopefully, to try to work your way to rice?
Max Nelen 8:26
So we focus on both. So we have rice farmers are majority still horticultural farmers, just because the lever of income is at this stage, the highest. So to increase the double the income of rice farmers is more difficult than double the income of high value crops, which which have a higher level of yields, I would say, but we have rice farmers in our portfolio, we’re looking to work more and more with them. And so but there’s a lot of practices change. So it’s very hard. And there was an interesting conference lately, where there was almost in conclusion that can we really get to net zero with rice, a lot of people in the room believed so some people even said we might have to stop eating rice and briyani in the Indian mind, have a problem and a few other countries, but it’s this difficult staple foods that that we need, and that we need to tackle. So we’re increasingly looking at solutions to because it’s a big market as well. Right. So we have to tackle it at some point more aggressively.
Zal Dastur 9:24
I mean, I would I would think that rice is probably, if not the most definitely top three consumed crops in the world. So there must be just especially in Asia, where as you said most are smallholder farmers. There must be 1000s of people that you would need to communicate with, what’s the strategy to going out and connecting and bringing these farmers on board?
Max Nelen 9:48
Very good question. So So for now, it’s we’re building the community from the ground up as a startup has to do or is doing rights with limited resources you going out or building your community So, the advantage is that it gives you a lot of brand recognition, strong brand loyalty, which is really key. And so that’s what we’re doing now in our current countries, the strategy moving forward is to partner up, especially in more developed countries to partner up with existing, whether it’s cooperative off takers, or larger agriculture and MNCs to target a larger group of farmers, right? Once we have the scale, once we have also raised the money that we need to scale, we can then target then 1000s of farmers 100 1000s of groups of farmers to directly adopt our technologies. So for now, it’s more an Hub and Spoke approach. So we build a hop into a certain region, we have our own field, Salesforce, we have digital tools, such as Viber groups, that we create community feelings, we have an app as well, that our field forces using to build a relationship with the farmer. And so to scale beyond that is to work in partnerships yet, otherwise, it’s gonna take too slow.
Zal Dastur 11:02
And is this a product that is replicable around the world? Or is it very specific for the sort of Southeast Asian and Asian market?
Max Nelen 11:12
So obviously, there’s differences between US, Europe, Africa, and Asia, who put it if we divided like that, so I think we’re really focusing on the smallholder farmer. So Europe and US is not in scope, Africa would be Africa is a bit more behind in development to cut a few corners. So but it’s definitely on our on our radar, let’s say boasts like horizon two or three. But there are a lot of companies out there actually in Europe and US focusing on regenerative farming, if you will. But it’s a different approach. It’s a different approach. Because you’re talking of farmers with 20 3040 hectares since different approach, you can reach them easily online, to the website. And it’s a lot of a carbon credits game. While we are really focusing on the income increase, we the carbon credits is a bonus if we can use that for additional fundraising and finance the farmers to adapt, but it’s not going to be like the approach that a lot of regenerative ag tech startups are taking is like, you’re basically giving carbon credits to the farmer and then only he adopts, right.
Zal Dastur 12:19
So you had mentioned about the soil, and that being something that you wanted to tackle next. And that’s something again, I’m learning a little bit more about now, which is not only what a great carbon sink soil is. But also, as I feel when we scratch the surface of almost any topic these days, we realize how much damage we are doing to the current soil that we’re using, by over farming. By fertilizing, we’re actually making the soil unusable to grow future food, which naturally if we have to double food production is going to be a bit complicated. So tell me a bit about the the plans moving forward to help farmers with their soil.
Max Nelen 13:00
I think like like anything with climate change, the major issues is that we always will always think short term, right. So we think short term yield synthetic fertilizer is like this, this perfect boost of short term yields. But it’s it degrades the soul over time, along with other bad practices like over watering and, and using too much pesticides. And so it’s this this major problem, I also realized only a few years back where you look at these stats, and then suddenly like you’re like, by 2050 90% of the world, soils will be degraded, but actually in Southeast Asia, it’s already getting close to them. So if you’re going into few very dry areas like India, Bangladesh, Myanmar, and so on, you’re already close to 80 90%. So he’s like how and then you’re, you’re wondering why the yields not going up out might be it and so you maybe have a peak for a few years, or bits like incremental increase. So it’s this huge problem. And there’s there’s two main problems. One is the lack of education of the farmers on the ground of which which fertilizers use how much to use and there’s there’s just a lack of knowledge. So how we want to tackle that is we’re going to bring at scale so tests to the ground in replicable matters, not giving soda to the farmer dude as a surface. So we go around, take the soil tests of the farmers, recommend them through an app how much fertilizer is being used, and then working together with retailers to package the right amount of fertilizer, and then over time, including more and more biological, biologicals, organic fertilizer to reduce that amount of synthetic, we won’t do that overnight, because it takes time for the soul to adapt. If you go from 100% synthetic to zero overnight, you will have a big drop in yields. So that’s also something you don’t want the farmer because he will then say, okay, who’s going to pay for that dip, right? So that’s really important. So again, it’s going to be bundled with with education. So we’re going to have agronomists that are going to provide Digital Advisory as well as the financing components. So when a farmer decides to work with us and take on the agricultural offer, he has to pay a little down payment for the service, but then pay most of the of the chunk after harvest, after he’s seen, and that has been proven that his yields have increased.
Zal Dastur 15:16
I find it interesting that someone who has come from a consulting background, working with corporates, I’m guessing you don’t really have any sort of farming or agriculture background. Now you’re going out into the into the farms and you’re meeting all these farmers? And do they expect you to have a credibility? Do they have they expect you to know anything? Are they you know, happy to listen to somebody who is coming in telling them how they can do their job a little bit better?
Max Nelen 15:43
I get this question a lot, you know, you have this and then I’m not even adding the ethnicity element, which brings like the European guy to to Asia telling how to do business. But no, in general, it’s, it’s, I think it’s, it has pros and cons. But the pros for me are that you take this outside perspective of an industry. And that’s always like, as a consultant, you do the same, take an outside view, and you can actually ask the difficult questions like, why are we doing this, like this. And that really helps. And, obviously, I have the team around me to create the credibility. So we have an amazing team on the ground, as well as centralized that are knowledgeable that have 1020 years plus experience. And for me, it’s just bringing that leadership bringing that constant questioning of the status quo, whether we’re doing the things in the right way that really brings I think the company forward. And that asked the critical questions on the grounds needed to change agriculture to make it regenerative, I’m spending quite some time on the ground. And actually, farmers don’t take it as like, why is this foreigner coming in, tell us what to do, right? Because obviously, the pitch goes through the local people. But that takes time. And so I’m spending a lot of time on the ground as well to bring them and so I haven’t seen that that friction as much. So I’d say one of the the other great examples is that I always use is efficiently says very successful story of an agricultural as well, where it’s the opposite the guys is very locally, as much in the indigenous as you can probably be. And I think both ways work right? As long as you can have the team around you to execute. And I think the advantage of being a foreigner as well is that you look at a bit of broader scale wider if you’re coming from a particular country, you might limit yourself to that to that country. Right? So we’re already in two countries looking to launch two more next year. So that gives investors also the confidence to like, okay, he’s seeing this as a as a global problem.
Zal Dastur 17:39
Okay, you just use the I word there, right investors. So I’m very curious to understand how has been the response from investors, when you’re talking about going and uplifting you know, smallholder farmer crop yields and reducing their electricity usage. Obviously, it requires a level of financing. And you mentioned even being able to help these farmers with the financing of these tools. How has the response been from from investors and from the market in general? Because as you said, there’s not a lot of money going into this from from VCs and from traditional from traditional investors.
Max Nelen 18:13
Yeah. So in general, Everyone is very excited about your stories. And there’s, I think, two types of VC. One is really the more social innovation impact innovation, theses, and under more generic pieces that don’t focus on any particular, whether it’s impact or vertical, the impact we see is more specifically on social innovation VCs are very excited about the story, see the impact, see the 63% yield increase can increase the reduced carbon emissions significantly being abated over time. And so yeah, that’s all the questions go around the execution, how can you actually execute it on the ground? How can you show traction over time, but in general, all VCs have been have been very positive, we’re now backed by WaveMaker, which is one of the leading VCs in Southeast Asia. And so we’re looking to leverage that platform, of course, to attract more more VCs. And the traction has been amazing. And we only received the funding very recently, and already deployed it to our best to our restaurants. So we’re looking to, to raise another round soon to keep the momentum going.
Zal Dastur 19:18
always challenging in the startup space to be to be raising, but sounds like you guys are on a good track. And I know that, you know, WaveMaker is quite a well established VC fund, and especially in this area, in terms of the vision for the rest of the company, because I know that you said I Gross is just it’s like a group and you’ve got multiple products that you’re planning on deploying. So what’s the vision for the company? Let’s say in the next three years, where do you want to take it?
Max Nelen 19:43
Good question. So the vision is to in the next, let’s say five years to double the income of 100,000 farmers across Southeast Asia. So that’s really the key while reducing millions of carbon emissions. And so it’s these two elements instead that we’re really focusing on so we’re going to be in 45 countries in the next the next five years, really penetrating those markets, as well as having established our three brands agri solar agro soil, and then go step. So each of them will contribute to X percent of income increase, as well as y percent of carbon dating.
Zal Dastur 20:23
I saw on your website, you have a very ambitious goal of reducing 100 megatons of carbon. And you’ve got a tracker there that’s showing the carbon that you’ve already abated, I’m curious as to how do you calculate that carbon number.
Max Nelen 20:39
So we’re working with an external service provider that obviously helps you get like certification of the carbon credits that you can then claim. And so they’re estimating that based on various methods, which are which are pre written by golden standard?
Zal Dastur 20:56
Okay, so this is not your number, this is a number that a third party is coming to you and saying, This is what we your impact on these farmers has done in terms of abating the carbon that’s been emitted out into the world?
Max Nelen 21:07
Correct, correct. And then obviously, in the beginning, already days, we estimated the number itself and then we get it, you got to verify it. And now we’re in the process of getting it certify, which needs a one year like one year running the numbers and verifying it.
Zal Dastur 21:21
On this show. I like to ask all the people that have made this step because obviously you took a step from helping corporates build innovative companies into helping farmers increase their yield, what advice would you have to anybody out there that’s wants to make a difference, and maybe doesn’t know how to take that first step or what to do? from a professional point of view?
Max Nelen 21:45
Yeah, great question. To be honest, if you would have told me five years ago, you’re going to be an entrepreneur and agri tech working across Southeast Asia I would have never believed you. So why I’m saying that is because that’s important like keep looking out for opportunities and cents check what what excites you like do this this kind of observation of yourself it’s what what gets you excited, right? What gets you motivated and what keeps you passionate and for me that was going around the fields. Seeing these weird numbers of solar Gration farmers low profitability sounds like we need to change something. Yeah. So I would my advice to other people is just just see what was there have have conversation with people see what excites you, and then just try it out. I mean, there’s what you really have to lose, okay, fixed income, stable job, but the satisfaction you might get from that will might deliver less than the satisfaction you get from from an entrepreneurial journey. So obviously, it has been a roller coaster, but the satisfaction is amazing, just just being out there. And for me, in particular, going to these countries, seeing the farmers and seeing the smile on their faces. Talking to them is one of the most rewarding things you can have. And so making that jump, just closing your eyes, making the jump and and see where you land is sometimes frightening, but also very, very rewarding.
Zal Dastur 23:10
The method that you chose to deploy initially was a solar system that helped farmers with their irrigation. So it not only, as you said, lowered the cost of their energy usage, but allowed them to potentially irrigate more in their field. There’s so many different ways that you could have impacted these farmers, irrigation and energy was just one. So were there others that you were considering before you decided to zero in on this? And then the follow up to that is how did you go about developing the solution that was specific to helping these farmers because obviously a solar panel that you put out in a farm is very different to something that you put on a roof?
Max Nelen 23:51
Correct? So to your question, what we did is we analyze the costs of the farmer and see where the big buckets were. So that’s really what you need to do because they don’t really care about climate change, right to be frank. And so what they want is increased income and the fastest way to do that is to reduce their their big costs buckets, right. And so the number one was fuel the second one was fertilizer and the third one was then was them seats obviously changing their seats is pretty hard. There’s quite some innovations out there but it’s not the first thing they got us change fertilizer similar more changeable but again, new technologies out there more difficult to push and fuel was this this obviously changer so that’s why we focused on on irrigation. And then so how we went about it was you just try out different things. There’s there’s not such a thing in a startup where you create a master you have a master product plan, but in reality it changes all the time. So what you do is you you start to design you hire an engineer, you start to design different products and just try to test them out. So you your first our first solar pump really looked like this was an MVP, right? But it was working in pharma about the idea. And that was the most important part. And so you get a lot of the feedback was just the smiling faces. And as long as you see smiling faces, and they, they understand the cost benefit analysis, that was a validation point. And that’s how we go about it. And then yeah, obviously, there’s some operational challenges. As you said, it’s not just you put it on the roof. So we’re building all solar stands. Now, we’re working on an unbox solution, like IKEA, where we’ll be giving them a stand in a box. And they will go and build that because farmers are very handy. They’re they’re very like handyman. So they can do this. And we can do this more at scale. If we just provide it in a box, we don’t have need all the field force to go in and scale. That’s that.
Zal Dastur 25:44
So you just said something there, which is, which, you know, caught my ear, which was they don’t care about climate. And I agree, right? Because, honestly, the only people that have the ability to care about climate change are people that are not concerned about putting food on the table that day, or being able to pay their rent, this goes back to my feeling that whatever product you provide for Climate Solutions, it has to be a better product, because just being good for the climate is not enough, right. And I’m guessing that when you talk to these farmers, climate change is not even an issue that gets brought up.
Max Nelen 26:26
No, correct. And so it’s this I mean, what we’re really displacing is, is this approach that that not dismissing any of these these approaches, but the NGO approach where you try to change practices, and divide and a very highly subsidized way to make them change. And one example, for example, is a big lever to for climate change. And rice is alternating wetting and drying, which is basically doing one season dry once using wet rice. But at this moment, the approach is very subsidy driven. So you basically paying the farmer to switch his practice, and only then you will do it. For me as an entrepreneur, as with a business background, that’s not a sustainable model, you might be able to do it a few projects left and right. But as long as like if you want to do this at scale across countries, without any political barriers, you need to do it the economical way, right, economic way that brings higher income for farmers. So every product and it’s really pushing down as a CEO, the sculpture to the product team, to the engineers to the agronomist of its this, this map of what is the biggest impact on climate, but also an extra, more importantly on the income of the farmer. So every product should have first thing of how can we increase the income of the farmer, and then what’s the maximum co2 We can abate with that product?
Zal Dastur 27:41
Absolutely, you have to be able to speak their language and what matters to them, which, as you said, is crop yield its cost, that’s got to be the focus. And then the climate is almost like a secondary niceness to have. So you, you know, you’ve used the word entrepreneur a few times and business and economics. So I’m guessing that there is a idea and a vision for profitability, at some point with this business like the obviously once you get to a particular scale, is that the goal here?
Max Nelen 28:07
Yeah, and it’s there’s our unit economics are very good. So So in our first operating country, we’re already breakeven, the second operating country, we’re aiming to be breakeven end of this year. And so at least as we grow and launch new countries, the target is to be breakeven within two years of setting up the business. And so we’re heavily overviewing, the unit economics, not only in the product, individual level, but also the distribution level. So that’s really important. Because we’re a farmer facing platform with our hops, it needs to be profitable to hub level as well after seeing all the distribution costs. And so breakeven point at the global level will depend on how fast we want to scale, of course, how fast we want to go across different countries.
Zal Dastur 28:51
What’s the model that you’re applying that works for these farmers, because when I speak to solar providers, typically the model that they charge is the difference in electricity price, and they they kind of make the difference, and then that’s, you know, over like 2025 year contracts, but I don’t think that’s really the same model that you can apply here. So what is it that you’re what’s the model that you’re applying that works both for you and farmers?
Max Nelen 29:14
That’s a good question. So we for every farmer, we calculate the payback periods, we estimate their fuel costs over time and calculate the payback period. And ideally, it’s less than two years, so very attractive, high turnover. And then we try to make a financing plan that matches the cash flows as well as the payback period that doesn’t exceed the payback period. So it would be like if they’re spending x amount of dollars per month on fuel for the first two years that would be just the equivalent in solar in like the installments you would pay. But then after and the system can last for 10 years for eight years, that would be at zero cost. And that really works. So bit of matching the cash flows with the fuel for the first few years and then bringing that down to zero.
Zal Dastur 29:56
Very interesting. So your goal here is to replace fuel almost entirely in their process. Yeah, so that definitely makes that makes a big difference to the cost of anything especially now with the way fuel prices are.
Max Nelen 30:09
Exactly and so we’ve we’ve done very well in April and May despite the economical crisis it’s actually the winners it is in the back,
Zal Dastur 30:19
Max. Thanks so much for for being on the show. I you know, that was really informative.
Max Nelen 30:24
Thank you, Zal. pleasure was mine. Really, really good to have a chat and looking forward to to do more of these in the future.