By John Ikani
With distance and logistics problems, farmers’ crops can go bad and when factories buy them, it affects their processing yields and price. Farmers, witnessing post-harvest loss, also get paid less and miss the opportunity to invest in their crops production.
Nigerian Agritech Startup Releaf is solving this by building proprietary hardware and software solutions to make these farmers and food factories more efficient and profitable.
On Wednesday, Releaf announced that it secured $4.2 million through a seed round and a series of grants to scale its business across the country.
The $2.7 million seed round was led by Pan-African focused venture capital firms like Samurai Incubate Africa, Future Africa and Consonance Investment Managers and individual investors like the chairman of Bain Capital, Mr Stephen Pagliuca and Mr Justin Kan of Twitch.
On the other hand, the $1.5 million grants were secured from Challenge Fund for Youth Employment (CFYE) and USAID.
Releaf said it would use the seed investment to develop technology and deploy it to smallholder farmers, while the grant will focus on providing working capital financing to these farmers.
“The seed funding will enable the development of industrial food processing technology in Nigeria’s smallholder-driven Oil Palm sector while the grant will enable Releaf to provide working capital and other value-added services for smallholders and small-scale processors.
“Grant funding will support the training, recruitment and retention of more women and youth in Nigeria Oil Palm sector through the creation of both digital and technical jobs,” it stated.
Founded by Mr Ikenna Nzewi and Mr Uzoma Ayogu, Releaf focuses on value chains where smaller factories are set up near smallholder farmers, allowing them to get better processing yields and fewer logistics costs.
The firm is reputed to have a slice of the global market for palm oil which stands at $61 billion, as the company is into the production of palm oil.
According to Co-Founder, Mr Nzewi, the team saw an opportunity and set out to build a technology to help farmers crack oil palm nuts, as farmers typically go through the process by using rocks or inappropriate hardware.
With the help of a machine created by the Releaf group called Kraken, they produce about 500 tonnes of palm kernel oil per week for smallholder farmers.
The organization is working to increase the production capacities of the 3,000 farmers in their network and hopes to decentralize food processing from major cities in Africa.
About Releaf’s Founding Story
When Ayogu and Nzewi started the company in 2017, the idea behind Releaf was not concrete yet as the team, based in the U.S., had not figured out product-market fit.
First, it planned to increase productivity in Nigeria’s agricultural sector using software. Even after graduating from Y Combinator’s summer batch that year, Releaf toyed around with ideas around trade finance and a marketplace for buyers and sellers of agricultural products.
The team would get a clearer picture of what it wanted to build when the founders moved back to Nigeria. The Americans of Nigerian descent toured across 20 states and studied different value chains for crops spotting inefficiencies that could be solved by technology.
“We took a much more broad approach to what the solution would be, but we really wanted to decide on a specific crop to work in. And we found that opportunity in the oil palm sector,” Nzewi said to TechCrunch in an interview.
The oil palm market in Nigeria is a $3 billion one with over 4 million smallholder farmers cultivating farms where those crops are planted.
These farmers drive 80% of the production of oil palm. But since the industry is quite fragmented, they have many challenges processing the oil palm because it’s a crop that requires serious processing power to extract vegetable oil from it.
How the company’s 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, mainly in Nigeria’s south-southern region.
“Nigeria has about 60% more demand for vegetable oil than it does supply. And it can not be met due to supply shortfall with imports because the government banned the importation of vegetable oil. So there is a need to take these smallholders who are driving 80% of production and make them more efficient so that we can have a better balance of supply and demand for vegetable oil,” Nzewi said about the pain point Releaf is addressing.
Why does the company think it can break into a competitive Nigerian vegetable oil market with hardly differentiable products?
Nzewi explains that the answer lies in the quality of products. Typically vegetable oil is driven by a free fatty acid (FFA) metric that measures vegetable oil’s impurity. The CEO claims that while the industry standard is about 5% FFA, Releaf produces at 3.5%.
Despite having an edge in quality of production, Releaf products are sold on an industry standard. Nzewi says that might not be the case in the future, as the company is looking to finally take advantage of its product quality and increase prices to improve its profit margins.
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