By Sarah Jones and William Kwende, November 2014. Updated by David Elliot Johnson, September 2017
Photo: Sunflower production in Burkina Faso © Agritech Group
Agritech Group’s CEO, Mr. William Kwende, boldly states
“The solution to the world’s food and energy crisis is to build farmers’ capacities to implement sustainable and efficient agricultural practices”.
As the world population grows to 10 – 15 billion by the end of this century, Africa’s population could triple to reach between 2.5-3.6 billion people. Farming models need drastic improvement in productivity and sustainability, not only to accommodate population increase, but also to reduce current poverty levels in both rural and urban areas. Sub-Saharan Africa requires substantial efforts in training, soil management, mechanisation and irrigation, which in turn needs considerable energy, additional infrastructure and financing and investment.
In this respect Agritech Group is unique. Working on the ground with farmers and rural communities in the semi- arid Sahel region of Sub-Saharan Africa, Agritech’s valuable worldwide partners and contacts provide support and innovative ideas and technologies in the field. Rural, affordable, ‘off the grid’ energy solutions, which are largely independent of global energy price shocks, are critical for pumping water and nutrients to Sub-Saharan soils, for transport and for processing plants.
Without affordable energy, adequate water and nutrients do not reach the crops. Without affordable fuel, crops do not reach their destination, are unable to be stored in bulk as seeds for planting or as a food source between harvests, or are unable to be processed for preservation and added value.
The energy, water, food nexus, and the balance in land use and investments in this nexus, is critical.
Small farms but global markets: Riding the 2007-2008 food price crisis
As the average cost of a barrel of crude oil peaked at US$ 136.31 in June 2008, the cereal price index in the same year reached a peak 2.8 times higher than in 2000*. Massive public protests errupted in very diverse countries Burkina Faso, Cameroon, Egypt, Guinea, Haiti, Indonesia, Mauritania, Mexico, Morocco, Nepal, Peru, Senegal, Uzbekistan and Yemen. By 2011, the World Bank estimated that rising food prices had driven a further 44 million people into poverty.
During and in the aftermath of the crisis, Agritech was already taking an alternative route from the potential large scale acquisition of land and water resources in the global south – one of the solutions to food and energy security under consideration or already undertaken by national and multi-national investors, governments and individuals.
Agritech’s roots are in Burkina Faso, where addressing food and nutrition security is at its most challenging. The Sahel region of Burkina relies more than 80% on subsistence agriculture for basic food provision and income. Burkina faces increasing desertification and soil nutrient depletion; is deprived of food and energy so that 26% of the population are malnourished and 85% have no or prohibitively expensive fuel and electricity. Burkina must also cope with additional pressures such as Taureg refugees from neighbouring Mali and volatility in international food and energy markets.
In response to the challenges, an Agritech pilot project in Burkina Faso, starting in 2005, clustered small-scale holdings into a larger unit for potential bio-fuel production with the Jatropha Curas plant, intercropping with other cash crops and crops for local consumption.
Planned land ownership and management strategies were pragmatic, seeking to balance efficient and effective land management with local food security and additional community benefits. They ranged from Agritech ownership and leasing, to working through cooperative and family ownership. Local farmers and rural communities were involved in knowledge exchange, training for implementing innovative farming technologies and value chain development.
Technologies introduced by Agritech and partners included solar powered water pumps and water saving technologies, such as drip nutrient and water irrigation (fertigation), and absorbent gels which keep water and nutrients on plant roots, even in desert sands.
Above: Initial investments by Agritech in solar powered water pumps, training and drip fertigation at the pilot ARC, Burkina Faso © Agritech Faso.
* The causes of the 2008 food price spike are complex. In 2011, a United Nations report, The Global Social Crisis, reported that emerging issues included excessive speculation in agricultural commodity futures markets particularly following the sub prime morgage crisis in the United States, drought-induced crop failures in major grain and cereal producing regions and the surge in biofuel production in Europe and the United States.
Underwriting signs of success: Rapid Expansion from 2007-2011
By 2007, Agritech’s Rural Development Cluster (ARC) model was already demonstrating some success, particularly signs of increased food production and energy security at the farm level and the potential for local job creation. It led to interest and development of a similar model in neighbouring Benin and attracted investors for Agritech’s rapid expansion from 2007 -2011.
Above: Knowledge exchange, capacity building and local job creation for success. Below: Farming with drip fertigation and half shade covers in Burkina Faso. Photos © Agritech Faso.
Agritech’s projects are supported by the Government in both Burkina Faso and Benin. Government contributions typically include the identification of suitable land, communication in rural areas, supply of local expertise, and enforcement of the contracts.
A critical aspect of expansion, and a tribute to Agritech’s institutional and strategic strength, was the Multilateral Investment Guarantee Agency (MIGA) of The World Bank Group, acting as guarantor for international investment against political risks*.
* These risks include suspension of convertibility of the local currency on the foreign exchange, breach of conduct, coups d’Etat, terrorism, other civil troubles and war.
State of the Art: The ARC Model
In 2016, Agritech Group continue to expand the Rural Development Cluster (ARC) model. Farming clusters of 1,000 to 10,000 hectares have started or are planned in six West African countries – Burkina Faso, Benin, Togo, Nigeria, Ghana and Ivory Coast.
The currrent clusters intercrop Jatropha for biodiesel with moringa, shea, sesame, eggplant, sunflower and other crops, including on demand.
Above: Cash crops which are delivered worldwide by Agritech. Photos © Agritech Group.
Agritech Group has produced an ARC simulation model to ensure decision maker’s and investor’s understanding of the vision and activities.
The business plan rests on four pillars, nurseries and plantation, processing of agro-resources, renewable power generation and commodities trading with an arm in Singapore. Best farming practices also include the use of organic biotreatment seeking to substitute 90% chemical fertilizers, pesticides, soil conditioners and antifungal and viral treatments. Natural preservative saves most of the 60% of post harvest wastage, reduces the risk of food poisoning, reduces the need for energy such as for refrigeration and expands the reach for rural markets.
Given the escalating prices and volatility of feed stocks suitable for biodiesel, the control of feedstock is also at the core of Agritech’s strategy. Starting in 2007, Agritech has accumulated one of the largest Jatropha seedling stocks in the world.
In the next ten years, planned intercropping of 400,000 hectares, on maturity, is projected to produce 1,000 million litres of Jatropha oil each year, or the equivalent of 17,200 barrels of biodiesel per day.
Above: Investments by Agritech Faso in Boni include bio-oil extraction facilities and a biomass processing unit. Photos © Agritech Faso.
Seeking new measures for success!
Agritech Group remains committed to power and empower the multi-dimensional aspects of sustainable development in The Sahel, economic, environmental and social.
Biodiesel from Jatropha will not only reduce the dependence on imported petroleum for energy needs, it will help mitigate climate change by reducing green house gas (GHG) emissions from fossil fuels. It will also provide direct employment for thousands of West Africans and increase the standard of living of their families and communities.
While Jatropha is a cash crop for farmers, processed and converted into biodiesel and electricity, it is equally a source of affordable energy for consumers. This enables a multitude of local tasks, from pumping water to farms and communities, to recharging a mobile phone, operating a medical clinic, or studying after the sun goes down.
Taking significant control of energy cost and price volatility provides a solid financial model for Agritech’s business. But in their traditional financial accounts -profit and loss, cash flow and balance sheets- the monetary costs of Agritech’s holistic approaches (investing in community knowledge exchange and training, soil recovery, seed storage and intercropping) are not equated with company value in monetary terms – values such as institutional strength and soil quality of their holdings in the longer term, seedling stocks and incremental production of food and bio-fuels per hectare. In addition, Agritech’s wider contribution to local, national, regional and global economies – food and energy security, increasing family income, reducing the risk of disease, reversing desertification and mitigating climate change – are also lost in company valuation.
Agritech Group’s view on financial accounting coincides with that of Clarity and others.
Agritech and Clarity’s joint goal is to achieve ‘True Value Accounting’ (TVA) which will internalise the wider economic, environmental, social and governance costs and benefits of more sustainable business practices, in monetary terms, into company financial accounts.
Accounting for True Value
Confidence (Limit) Accounting + Resource Information = True Yield (True Value).
As the acronym suggests, Clarity has developed a methodology for True Value Accounting (TVA). Current financial accounting practices value a company with a single point value in their financial accounts. Companies that do report on social and environmental issues for demonstrating Corporate Social Responsibility (CSR) do so separately from financial reporting, referred to as ‘triple bottom line’ accounting.
As part of Clarity project design, an innovation in financial accounting called ‘Confidence Accounting’ adds range values to company financial accounts. In a changing world, confidence ranges enable the company’s ‘commodity value’, for example, to be valued under a range of scenarios such as energy price, demographic developments and resource access and depletion.
Above: For this hypothetical company, Confidence Accounting answers the question ‘Is this company a going concern?’ The finance director’s report would state that the mean value of equity at the balance sheet date is £36bn, with a conventional minimum of £6.5bn and a maximum of £65bn, with 95% confidence the value of equity is at least £24bn. The 95th percentile value, or confidence limit, is used in Confidence Accounting to support a ‘going concern’ assertion. If the state of the world doesn’t change, and the accounts are competently drawn up, the realised value of the balance sheet should be no more than £12bn (£36-24) worse than the mean. Source: Z/Yen Group, 2011.
In parallel, producing range value information is standard practice for resource accountants and statistical agencies. The further significance of the Confidence Accounting framework is that it readily incorporates resource accounting modifiers such as company skill sets, environmental context and social context as part of the range. ‘Triple bottom line’ accounting becomes a single bottom line, for decision makers to compare company value and risk* in a common currency – money!
Above: For this hypothetical company, range values are populated with resource accounting modifers. This voluntary accounting practice is for overall company valuation, while disruption of its day to day financial accounting is minimal. Source: Modus Vivendi, 2014.
In effect, resource accounting for carbon emissions (GHG) to mitigate climate change is already a mainstream requirement to measure national commitments to United Nations Framework Convention on Climate Change (UNFCCC) Agreements. There are increasing efforts to standardise methodologies for measuring GHG emissions. In the meantime, voluntary Confience Accounting already facilitates differing GHG emission calculators per unit $ output to refect in the range value of financial accounts. Other issues will follow as awareness of their impact on economies grows.
Dr Malcolm MacGarvin, Co Founder, Clarity, states
“The strength and point of the systematic gathering of information for Clarity’s True Value Accounting is the inclusion of uncertainty, some easily assimilated ways of displaying information, and the cross-over of local issues, national and global reporting and Confidence Accounting. The information is neutral and usable regardless of the perspective of the user.”
*The Ceres model for FNS Sub-Sahara good, green and fair sustainability mapping, is based on its sister system Pisces. Pisces is already in use in the UK to provide information on the value chain of: fish quality in London restaurants (good); environmental sustainability of the fisheries (green); and fair returns to fishermen (fair).
True Value Accounting for Sustainable Design, Economic Analysis and Financial Investment
Arguing for the benefits of economies of scale is particularly notable in the agriculture and food business. Indicators that focus on cash from production in the short-term, such as quarterly and annual GDP, tend to favour large scale land purchase and mono-cropping to increase production and play down the longer-term role and wider economic benefits of models such as Agritech’s Rural Development Cluster. By undertaking Clarity’s True Value Accounting, Agritech can distinguish the True Value of the ARC model in monetry terms against the agricultural sector average, and alternative farming models, from large scale to subsistance.
Local issues, generated by a scoping study for the Ceres model, stand alone to assess local needs, or cross over with data for national and global reporting. It is important to have wider knowledge on land use, production and cultural perspectives, both now and for plausible futures, to meet local food choices and energy needs over time. For the Ceres model, FNS Sub-Sahara also gathers quantitative and qualitative information for food and nutrition security in line with the relevant UN Millennium Development Goals and Sustainable Development Goals (zero hunger, affordable clean energy, decent work and economic growth etc.). Related social issues such as access to quality heath care and education, training, job opportunities, banking and other micro and SME business support, communications and marketing tools in local languages are often root causes which inhibit progress. For farming information through mobile phones, such as for climate and markets, Agritech partners with the Ghana based Esoko.
Photos: Mobile Uses (top) and Call Centre (bottom) ©Esoko
At its most basic, there is still a signficant lack of knowledge on food hygiene and preservation and the range of affordable ‘recipes’ and cooking practices which introduce more nutritious ingredients such as moringa cake. In such cases nutritious food and a balanced diet is not available despite the provision of new technologies and food variety.
True Value Economies for Global Markets
There are multiple step by step benefits of True Value Accounting for reducing risk and strengthening economies for the longer-term. Beyond providing new measures of success and information to decision makers on the multi dimensional aspects of development models, there is also a window to standardise ‘sustainability reporting’ for re-thinking government tax regimes. Differential tax regimes, such as carbon emissions tax for vehicles, buildings tax relief for green rooves and other energy efficiency options, sugar tax etc., are already creeping into some economies. Further steps could move towards Value Subtracted Tax (VST) which would provide systematic tax relief or tax credits for the most sustainable products and services, funded by increased tax on unsustainable behaviour. Such strategies can convert sector average and voluntary True Value Accounting into true cost and reflect in company accounts under existing global accounting standards and practices.
In turn, True Value to true cost will have a profound effect on the risk reward equation, increasing the scale of investment in sustainable development options and assisting the road to economic and political stability. It follows that sustainable ‘investment class’ opportunities on a significant scale will filter though to meet the risk reward mandates of the mainstream institutional investors such as the global pension funds and insurance institutions.
Once we have a better understanding of the range of issues, we can design a future to build in ‘True Value’ and reduce risks. Agritech Group, for example, will have improved information to strengthen, scale up and attract further partners and investment in the ARC model within the scope of their activities.* Other decision makers can choose to compliment Agritech’s activities for sustainable design of community activities and entire economies. The development of easy access, easy to read communications tools can give supply chain businesses and consumers the ‘good’, ‘green’ and ‘fair’ value of their purchase for every unit $ spent.
Mr George Sycip, Principle Investor & Board, Agritech Group concludes
“The potential (for Clarity’s True Value Accounting) to inform investment priorities for a sustainable world is significant. We should all be working this way.”
* As the search for cheaper energy sources continues, the demand for bio-fuels has increased world-wide. A major source of the growth in demand for food crops is for the production of bioethanol and biodiesel. Following the 2007-2008 Food Price Crisis, a UN report, The Global Social Crisis, 2011, reported that developed countries were providing US$ 13 billion in subsidies and protection annually to encourage biofuels production, which diverted 120 million tons of cereal away from human consumption for conversion to fuel. In the United States alone, 119 million out of 416 million tonnes of grain produced in 2009 went to distilleries – enough to feed 350 million people for a year.
Agritech’s fundamental point in the design of the ARC model is for Africans to power and empower Africa, balancing land use, production, local income, commodity price and cultural values to achieve local food and energy security and strong African economies. From a global investment perspective, a less risky path for energy security is not to pick winners – hedging for example, best practice biofuel production and other low carbon and renewable options world wide during the transition from fossil fuel investments.
This article was reviewed and an overview translated to French by David Elliot Johnson, Department of Economics, University College London, September 2017. The following comments and update was offered.
Clarity’s work on True Value Accounting is both inspirational and concrete. I will follow and support progress for practical application.
It is worth noting that although global oil prices plumetted at the time this article was published*, there are still large proportions of populations that remain off the grid and unable to access cheap and reliable energy sources. As a result, there is still a critical need for energy security and to avoid price volatility in The Sahel.
*From the tail end of 2014 and beginning of 2015 oil prices suffered a major fall going from nearly $100 a barrel to almost half that price. Since then the price has remained relatively stable at $50 a barrel and many economists suggest it will be a long time before we see prices at the level they were. This of course had significant consequences for the major oil exporting countries around the world. The reason for this fall has been attributed to four distinct reasons. Firstly, the American dollar has been very strong in recent years. The strength of the dollar, especially against the Euro, leads to a fall in commodity prices as it puts pressure on the market, especially given commodity prices are usually in dollars. Secondly, OPEC is unwilling to stabilise the market, there was disagreement amongst the OPEC members as to whether production should be cut. In the end it wasn’t, this has contributed to the oversupply of crude oil, further brought upon by the widespread use of fracking in the US. Furthermore, there has been decreasing demand as a result of cars becoming more fuel efficient and pressure to move away from non-renewable sources of energy towards electric and other renewable energy sources. In spite of the fall in crude oil prices, there are still large proportions of populations that remain off the grid and unable to access cheap energy sources. As a result, there is still a great need for energy security in these regions. DEJ 170912
About Clarity Projects and measuring True Value
Starting in 2012, Clarity collaborators- leading world experts from the fields of finance and investment and sustainable development – have worked together, and on behalf of major clients, to design step by step solutions which ‘Bridge the Gaps’ between mainstream investment and global resource trends. Clarity has built some of these steps, with and end goal of True Value economies, into several show cases such as Agritech Group’s FNS Sub-Sahara project. Project leaders form the Clarity Coalition of expertese and business and development leaders. The World Business Council for Sustainable Development – some of the worlds 200 largest corporations – and others, recognise that achieving True Value pricing of products and services is a ‘must have’. Clarity’s first step solution for achieving True Value is to combine resource accounting for monetisable and privitisable economic, environmental, social and governance aspects with financial confidence accounting.
About Resource Accounting
What we measure is what we do!
In 2009, at the International Commission on the Measurement of Economic Performance and Social Progress, one of the world’s most distinguished economists, Joseph Stiglitz, stated:
“In our performance orientated world, what we measure is what we do! If we have poor measures, what we strive to do say increase annual GDP, may actually contribute to a worsening of living standards. We may be confronted with false choices, seeing trade offs between output and environmental protection that do not exist. By contrast, a better measure of economic performance might show that steps to improve the environment are good for the economy.”
Measuring the resource use and environmental impact of economies (resource accounting) is growing, particularly for water and carbon. But it goes far deeper than this. If data is available, resource accounting can produce as many lines of valuation for as many environmental, social and governance (ESG) issues as required. The big data revolution enables the processing of this huge data. Databases and input-output modelling have evolved to extend from individual companies and countries to connect economic and ESG information through supply chains worldwide. In theory, every invoice for every product and service could show ESG values per unit $ ouput at every step in a supply chain.
Such resource accounting is already in prototype use for assessing the ‘footprint’ of individual companies and other organisations. At a national level, an example is Balancing Act which covers 135 sectors of the Australian economy.
Above: Three illustrative examples from the 135 sectors of the Australian economy in Balancing Act. Adverse financial, social and environmental outcomes produce longer ‘legs’ on the sustainability map (also called an amoeba diagram or spider chart). The average for the Australian economy scores one. This means, for example, that more imports (considered bad) creates a longer leg, more exports or more jobs results in a shorter leg. Note also the log scale which means that small differences away from the centre actually reflect large arithmetic differences. Source: Balancing Act, 2005.
By providing information per unit $ output, resource information is related directly to the financial accounts of businesses and other organisations and to traditional indicators of economic activity such as Gross Domestic Product (GDP).
About Confidence Accounting
At an opposite end of the track, attention remains on how to bring greater resilience and stability to global capital markets, including through reforms in financial accountiing. Company valuation with a single point value, asserts, as it did, that all investment bank’s risks are fully costed and covered, or, as it does, that all fossil fuel reserves valued in an energy company’s accounts can with full certainty be burnt, regardless of global warming risks. Neither is true.
Regulators now recognise the benefits of Confidence Accounting to move from ‘point value’ to ‘range value’ financial accounts. This is explained in detail in the publication Confidence Accounting, a proposal from Longfinance, the Association of Chartered Certified Accountants (ACCA) and the Chartered Institute of Securities and Investment (CISI).
Andy Haldane, Executive Director for Financial Stability at the Bank of England welcomes the proposal and writes in the foreword,
“My hope is that this proposal moves our thinking a step closer towards a set of accounting standards for major entities that put systemic stability centre stage. In the light of the crisis, anything less than a radical re-think would be negligent.”
What others are saying and doing
Clarity follows more than two years of connecting minds for the project Future Business, Long Finance. This project included analysing global megatrends and highlighted business and investment opportunities, innovations and past lessons for ‘bending trends’ towards sustainable ends. For Future Business, Long Finance, we worked with the world’s leading professionals and initiatives, including the World Business Council for Sustainable Development and the Longfinance community.
Above: The overall goal is to ‘bend the trends’ – aligning (bending) economic activity (say GDP) to meet human well-being – which always has a greater value than economic activity – and decoupling (bending) resource use and environmental impact from GDP. Graphic Source: European Environment Agency (EEA) /United Nations Environment Programme (UNEP), 2011.
Clarity and Agritech’s goal of achieving True Value Accounting coincides with Longfinance and Vision 2050 of the World Business Council for Sustainable Development (WBCSD). In 2012, Vision 2050 proposed that a commitment to True Value pricing is a ‘must have’ by the year 2020, to achieve a sustainable world by 2050. WBCSD consider action a priority in a number of areas: energy and power; buildings; mobility; materials; governance; people development, behaviour, values; agriculture and fisheries; forests; ecosystems and biodiversity. The project FNS Sub-Sahara will show case how Clarity’s True Value Accounting provides some of the tools to help evaluate progress and results, and adapt priorities, across the relevent Vision 2050 areas.
Above: WBCSD’s Vision 2050, where a commitment to True Value pricing is a ‘must have’ by the year 2020, for achieveing a sustainable world by 2050. Source WBCSD, 2012.
WBCSD has recently introduced Changing Pace, an invitation to governments, policy makers, civil society and business leaders to engage in a debate on the policies required to help achieve Vision 2050.
For more information on Clarity’s True Value Accounting and to discuss detailed methodologies please contact Dr. Malcolm MacGarvin, Director, Modus Vivendi, Co-Founder, Clarity here.
For more information on Confidence Accounting and its role in coding financial risk-reward please contact Prof. Michael Mainelli, Exec. Chairman, Z/Yen Group here.