Water Innovation for the 21st Century

This week’s blog describes three examples of water innovations.  In the first case an entrepreneur fights city hall to provide a source of clean water for residents of Mexico City. In the second case, a state government entity agrees to pay a publicly traded commercial entity to store water on private land in Florida. In the third case, an engineer calls for a water revolution. 

Retrofitting homes for rain water catchment in Mexico City

Mexico City faces a severe water crisis. The Valley of Mexico aquifer is being overexploited to provide water to its 21 million residents.  As a result, the city is sinking about 1 meter every 10 years.  And yet, citizens of Mexico City still lack sufficient drinking water. Mexico City’s water pipes are old and cracked, springing thousands of leaks that the city government cannot keep repaired. It is estimated that 40% of the available water is lost through these leaks. Some 36% of households are without access to a constant daily flow from their faucets. This lack of drinking water is posing a major health risk, and Mexicans try to compensate by having the highest consumption per capita of bottled water in the world. Without investing billions of dollars in infrastructure to replace the entire system, the government will continue to fail to deliver safe drinking water to its citizens. In crisis mode, and in large part to reduce the probability of political unrest, city officials are delivering water by truck at great cost (PBS Newshour, PBS NOVA).

RainWater_Harvesting_Isla_Urbana_System_ComponentsEnrique Lomnitz, an engineer from MIT with an industrial design degree, has developed a low cost rain water harvesting system and established Isla Urbana to build such systems and educate local residents on harvesting and using rain water. His system, at a cost of $1000, when applied to a typical roof and under average annual rainfall, can provide enough water for two families per year. Mr. Lomnitz estimates that widespread installation of such systems could provide for 30% of Mexico City’s water needs. To date only 1500 rain harvest systems have been installed. The challenge that Mr. Lomnitz and Isla Urbana face in building widespread adoption for this innovative solution is political, governmental inertia, rather than technical. (PBS News Hour).

Water storage and release on private land in Florida

In Florida, water districts are challenged by the unequal and intermittent flow of fresh water into lakes, estuaries, and ultimately the Everglades following heavy rainfall. This challenge impacts agriculture, the environment, the economy of Florida, and the quality of life for its residents.

Under a recent agreement between Florida’s oldest and largest water alico logomanagement district (the South Florida Water Management District), and a major agribusiness with the largest citrus production in the US (Alico, Inc.), more than 34 billion gallons of water will be stored on approximately 35,000 acres of ranch land. This agreement is a first under a Dispersed Water Management program and makes use of private properties to store water and manage its release to avoid overwhelming Lake Okeechobee and coastal estuaries during heavy rain seasons. Property owners gain financially in return for providing a critical water management option.

Water 4.0 for Californiawater 4.0 yale books

“We require a fundamental change in our relationship with water”, says David Sedlak, UC Berkeley professor of civil engineering, co-director of the Berkeley Water Center and author of the recent book Water 4.0: the Past, Present, and future of the World’s Most Vital Resource (Yale University Press, 2014). Over the centuries there was Water 1.0, when Rome built aqueducts and disposed of waste. Water 2.0 saw 19th century Europeans chlorinate and filter drinking water; followed by our present system, Water 3.0, that treats sewage as well. But according to Sedlak, now it’s time to update to Water 4.0.

“If the system remains hidden underground and people just turn on the faucet and don’t think about all the effort that goes into getting the water to them, we can’t have an intelligent discussion about water supply”, Sedlak says (PRI). However, according to Sedlak’s optimistic view, the very crises we face, such as the severe drought that California faces, may just result in sufficient collective will to accomplish a major shift in our relationship with water.  In a recent interview (NPR) Sedlak expressed his optimism that rapid advances in electronics, materials science, and biotechnology will help us solve current challenges.

The first principal of Water 4.0 involves continuing to adopt new technologies for indoor plumbing and elsewhere in the entire water system, technologies that allow greater water conservation. Technology solutions include switching to top-loading washing machines instead of front-loading washing machines and installing more efficient toilets. The modern flush toilet uses 1.5 gallons per flush, whereas vacuum toilets (think airplane toilets) can reduce that flush to 10% of that amount.

The second principal of Water 4.0 refocuses urban residents on local solutions that capture and recycle water. Capturing urban storm water run-off (USG), using seawater desalination plants, and sustaining urban aquifers are all ways to move water management to a local level. While building a reservoir in the middle of a city is nearly impossible, many cities already have urban aquifers underneath them that can store water (NPR). Other local solutions include recycling more water either by returning grey water (water from bathroom sinks, showers, tubs, and washing machines) for use in flushing toilets (greywateactionr.org) or by recycling sewage after it’s been treated and returning the clean water back into the water supply.

According to a 2014 report by the Pacific Institute and Natural Resources Defense Council (NRDC), if Californians adopt aggressive conservation, water reuse, and rainwater capture practices, the state could save up to 17.3 million cubic meters of water, more than the amount of water used in all of California’s cities in a single year.

Lessons from Australia’s response to millennial drought

Sedlak and others point to Australia’s response to their millennial drought that ended in 2009 as an experience from which Californians can draw important insights. A summary of Australian responses can be found in a presentation at the Public Policy Institute of California on January 12, 2015 by Jane Doolan, fellow of natural resources governance and member of Australia’s National Water Commission.

In brief, the Australian government responded to their country’s extreme drought conditions with policy initiatives that changed their water entitlement system, supported water markets, and provided water for the environment to head off catastrophic impacts to sensitive species and ecosystems. Economic, social, environmental outcomes were considered together. The new paradigm became ‘This is the future”, as opposed to “We need to get through this”.   Australia succeeded in changing its water system in a way that different stakeholders saw as fair and as spreading the pain all around equitably and thus the changes had broad public support.  Specifically they:

  • Improved the water grid at the highest level to enable the movement of water.
  • Adopted efficiency in all sectors:urban households, industry, and rural irrigation systems.
  • Improved infrastructure and adopted smart river management to enable water movement.
  • Gave tools to entitlement-holders to allow them to manage their own risk.
  • Made the water market able to operate under extreme circumstances.
  • Augmented supplies when required.
  • Shifted to an environmental paradigm that was practical, pragmatic, and easily understood.

 

The innovations described above are examples of how countries, states, cities, water management districts and individuals are going beyond incremental improvements to their water management to solve critical water problems.

Beyond the Buzz: High Impact Trends in Sustainable Agriculture

By Anne Slaughter Andrew, Co-founder and Chairman of TerViva

TerViva was formed and launched around a commitment to advancing sustainable agriculture – ahead of the trendy buzz that this concept invokes today. Yet this buzz, and the sobering fact that agriculture produces about one quarter of the global green house gas emissions, has given impetus to the hard work of developing measurable outcome data and of shifting cultural concepts around “the way it’s always been done on the farm” in order to advance sustainability – from large corporate farms to the rural agricultural communities of Latin America and Africa.

sustainability_venn_diagram

Sustainable agriculture aims to incorporate social, economic, and and environmental sustainability.

One impressive recent initiative is the Stewardship Index for Specialty Crops (“SISC”), which seeks to promote sustainable agriculture by providing common measurement tools and metrics for food producers and consumers. SISC’s goal is to provide a common language for communication about sustainability activities related to specialty crops  (fruits, vegetables and nuts).

The SISC agreed-upon metrics focus on a commonsense platform for sustainable agriculture: (1) Applied water use efficiency; (2) Energy use; (3) Nitrogen use; (4) Phosphorus use; and (5) Soil organic matter.  With today’s agriculture accounting for more than 70% of freshwater drawn from rivers, lakes and aquifers and the documented impact on water quality from agricultural runoff of nitrogen and phosphorus (not to mention the costly waste of limited resources like phosphorous), there is no debate that monitoring and adjusting farm practices around these metrics will advance sustainability to the benefit of the growers, producers, and consumers.

eutrophication-china

Agricultural runoff high in nitrogen and phosphorous can lead to eutrophication, harmful algal blooms, and other negative impacts on lakes, oceans, and rivers.

What has driven the interest by producers and consumers around this more transparent and measurable approach to sustainable agriculture? A major factor was the rising demand for “sustainability” in the marketplace where there was no consensus among producers and consumers of exactly what “sustainability” meant. The benefit of this “buzz-feed” is that it brought together a broad coalition of interests– from growers and producers like Del Monte Foods; trade associations like the National Potato Council; retailers like Walmart; and environmental organizations like the Natural Resources Defense Counsel — to develop a comprehensive system for measuring sustainable practices performed at the farm level.

Underlying the metrics of SISC, and making its approach possible, is the impact of big data and predictive analytics in agriculture. For agriculture to sustain its customers – including the growers and producers – it must be able to feed the world’s population, which by 2050 is expected to be 9.2 billion people. To meet this demand, it is expected that global food production must increase by 70%. With real-time data on critical information (e.g. the weather, soil quality and crop maturity) that can be processed, analyzed and downloaded back to the growers, farmers can maximize food production, operate more cost effectively and minimize the environmental impact.

Rural, small scale farmers feed more than 2 billion people every year.

Rural, small scale farmers feed more than 2 billion people every year.

These “precision agricultural technologies” today can be accessed and utilized by large farming operations and agricultural companies which have the financial resources to support a robust IT infrastructure to gather, monitor and analyze the data. However, this means that small scale farmers, who represent over 75% of the world’s farms and feed more than 2 billion people, are not positioned to take advantage of the advances in sophisticated data-driven agricultural technologies. This is particularly concerning because most of these small scale farmers are in underdeveloped areas where population growth, food scarcity and climate change will have such a disruptive impact.

 How can we bring these technology-based resources into the hands of the small-scale farmers? More importantly, how do we convince these small-scale farmers to adapt to more sustainable—and technology-based –agricultural practices when the farming traditions they follow are woven into the fabric of their communities and culture.

One organization with a track-record that has gained attention from major donors like MasterCard Foundation for their success in developing young leaders in sustainable agriculture is EARTH University in Costa Rica. EARTH University was founded 25 years ago with a mission to prepare young people capable of leading positive change in their communities to advance sustainable development and prosperity. Today, EARTH University has 420 students from 36 countries across Latin America and Africa, many of whom are the first in their villages to attend university. The students come together at EARTH U. with all of their diverse local traditions and customs, and with little exposure to modern agricultural science and technology. When these students graduate, the impact they are having in advancing sustainable agriculture at local and regional levels in developing countries is transformative.

A student at Earth University tends to an organic lettuce project.

A student at Earth University tends to an organic lettuce project.

How can EARTH U. create such a transformative impact on sustainable agriculture? It starts with the fact that 4 out of 5 EARTH graduates return to their country of origin—and bring with them a commitment to have a positive impact. More than 50% of EARTH graduates are actively engaged in advancing modern sustainable agriculture practices, from soil management and water conservation to alternative forms of energy for farming operations. At the same time, more than 75% of EARTH graduates are actively engaged in influencing positive social change, from improving working conditions to addressing gender and ethnic equality within their agricultural-based economies and communities. These students have learned how to be agents of change within the social and cultural context in which they live. No doubt the students of EARTH can best tell this story and you can hear from them here.

In agriculture, change comes at a pace that synchs with the growing seasons. Luckily, we are trending towards a more sustainable approach to agriculture—from the high-tech impact of big data and measurable metrics for growers and consumers to the high-value impact of young and committed leaders engaged in advancing sustainability in their communities across the developing world. Will this trend continue and support the global policies and practices necessary to feed the global population and sustain our environment? What do you predict?

Turning Air into Rocks?!

Mea Culpa, that was more click bait from this author; but as with my previous post, would you have clicked on a blog post with a title like “physicochemical conversion of heterogeneous gaseous mixture into stable crystalline formation”? Nuff said.

There are several components I consider crucial for a strong start to the day, two of which are a strong cup of coffee and a perusal of the newspaper so as to remain an informed citizen.

I’m naturally inclined toward curiosity in stories related to renewable energy and mitigation of the effects of climate change. As such, a recent post in the New York Times seized my consciousness.

The article, written by Henry Fountain and published by the Times on February 10, 2015, bears a headline that allows little ambiguity as to the direction of the narrative: “Panel Urges More Research on Geoengineering as a Tool Against Climate Change”.

This New York Times piece, and many others like it, are familiar to many, and the gist of these articles can be summarized as follows:

  • Climate change is happening
  • The eventual effects of climate change are going to be devastating
  • Current efforts are not going to be sufficient to address the effects of climate change
  • We need to take drastic action to avoid the worst possible outcomes
  • This drastic action may have negative unintended consequences, but the known negative consequences of climate change are far worse

Caveat: this article quotes US government officials who advocate for more research, I am not implying anything other than government advocacy for research into geoengineering.

Rather than foist my own opinion of this journalism on you, I bring this article to your attention for a much more important reason, summarized by this quote from the article advocating for the study of geoengineering.

In two widely anticipated reports, the [National Academy of Sciences] panel — which was supported by NASA and other federal agencies, including what the reports described as the “U.S. intelligence community” — noted that drastically reducing emissions of carbon dioxide and other greenhouse gases was by far the best way to mitigate the effects of a warming planet. But the panel, in making the case for more research into geoengineering, said, “It may be prudent to examine additional options for limiting the risks from climate change.

In case that wasn’t clear: groups within the federal government of the United States of America view our current societal trajectory as so calamitous that we should begin studying the potential effects of changing the climate of the entire planet, so as to lessen the catastrophic effects of climate change. This research could be quite necessary in case the work of folks attempting to address this conundrum through high tech, and high ambition plans such as turning atmospheric CO2 into rocks for sequestration doesn’t pan out.

I view the panel’s finding as significant because I plan on living many more decades on this particular planet. I also plan on having children who will hopefully, at the very least, have the option of living on earth for many decades to come.

I am greatly comforted by the knowledge that there are bright, well-intentioned people working to find very high-tech solutions to the problems that are the underlying cause of climate change.

I will also be completely candid with you: I have vacillated, but have not yet developed a strong opinion pro or con regarding geoengineering. If you feel strongly about this issue, please comment on this blog post.

I have the luxury of being able to punt on my opinion of geoengineering, because my day-to-day work chips away at an underlying cause of climate change (dependency on petroleum-based products) while being minimally risky: I plant trees for a living. While inspired and intelligent individuals the world over work through their own chosen potential solutions to climate change, I will continue planting orchards of pongamia trees with TerViva. These orchards will do more than address climate change, they also provide jobs, and return former agricultural land to productivity through new farming crops and techniques.

I sincerely hope we never need the geoengineers to execute their plans, but am glad that intelligent people are thinking through the implications. For the time being I take comfort knowing that TerViva is contributing in it’s own, silvicultural fashion, as indicated by our newest, recently planted acreage in Hawaii that is pictured below.

IMG_8864 - Version 2

Some Thoughts on Farmland Investing on the Downside of a Commodity Cycle

By Tom Schenk, TerViva’s Director of Business Development

A good case can be made that over the last 10 years, most of the “easy” money has been made in farmland investing. Corn, soybeans, wheat, and many other commodities more than doubled in price over their prior decades, and then maintained those levels – until this past year. Surges in worldwide demand and weather-related shortages primarily fueled this explosive rise in prices.

image006
Farm income rose sharply as interest rates plummeted and suddenly a once-sleepy asset class called farmland (and agriculture in general) became the darling of hot investor money. As investors swarmed to this asset class, farmland prices were bid up even faster than lease rates were rising.

Farmland that once fetched an 8% cap rate declined to 3% and in some cases even lower. Total annualized returns (lease income + land appreciation) ballooned to 15% and many expected those returns to stay close to those levels far into the future – until this year. Additionally, tillable acres worldwide grew sharply as technology improved farming methods and varietal yields.

So in 2014, faced with a worldwide surplus of grains, we are reminded once again of the fundamental laws of supply and demand.

Farmland values are related to lease rates. Lease rates are related to farm incomes. Farm incomes are related to crop prices, input costs, and tax rates. And none of the latter has been kind to profitability.   Growth in profitability drives appreciation expectations for this asset class.image009

As a result – and in the near term – investors are dreaming if they are expecting traditional row crop farmland returns beyond their current lease rate. Row crop farmland has entered an “adjustment” period where crop supply/demand ratios slowly re-align, where land prices re-align with rental rates, and where rental rates re-align with farm income. This is nothing new in agriculture world, but certainly may be for investors new to this asset class.

But rather than concluding on a gloomy note, I’d like to leave readers with two thoughts.

  1. Finding/creating alpha from this asset class will take some thinking outside of the box. In other words, instead of passively owning traditional farmland and riding the commodity cycles up and down, explore ways to proactively drive your own returns.

Advances in precision farming have the ability to make the land, inputs, machinery and the farmer more productive. However, converting to precision farming is expensive and especially at current crop prices, can take many years to just break even.

Agriculture will always need supporting businesses, handling, and processing infrastructure assets. Opportunities should be explored here, as well.

And finally, another approach for traditional farmland investment portfolios may be to add an “alternative” crop that can be grown on under-productive or low-value land. Though it is a shameless plug, the oilseed tree crop called pongamia is one such crop that, to date, is showing extraordinary promise to achieve just such a goal on abandoned citrus land in Florida as well as abandoned pineapple and sugar land in Hawaii.

  1. The final thought here is a macro observation about investing in general in today’s crazy world. I attended one of the top business schools, and worked in Wall Street firms for 36 years specializing in commodities and money management and I am completely dumbfounded at where we find ourselves today. I was taught that a healthy economy saves and thus creates capital to invest in the production of goods and services and good things result for the society as a whole.

The “Quantitative Easing” experiment that the central banks have embarked on has little precedent and even fewer image007beneficial results for employment or the economy as a whole. Years of artificially suppressed interest rates have resulted in mis-allocating capital and mis-pricing risk across all asset classes. Japan has probably the longest experience in following this politically expedient money-printing experiment and is a good place to look to for a preview of what we can expect in Western economies. There is a mind-blowing quantity of: debt, leveraged debt, trillions of derivatives and swaps written on this debt. Let’s be clear: nothing tangible is created other than esoteric derivative paper instruments or making the spread off borrowing from the Fed and investing in Treasuries!
Just like Will Rogers quipped years ago, that he is more interested in the return of his money than the return on his money, so too should investors be today. Farmland is truly a real asset – and it cash flows. (Not even gold can make that claim.) People will always have to eat. Farmland is always taking the energy from the sun and the rich earth and creating food. Even at today’s low returns, there are few better places to store one’s wealth until this economy returns back to some fundamental economic reality. If you own farmland, sleep well.

Galls Gone Wild!

Galls Gone Wild!

Cue steel drums. Now get ready for a wild picture:

Galls

Cue grumbling. OK, cheap move, but really, would you have clicked on a blog post titled “Pongamia’s potential in Okinawa”?

PresentingI recently had the honor and privilege of being invited to speak at a conference on the Island of Kumejima, in Okinawa prefecture. It was a delight to be able to explore such a beautiful part of the world, especially an area with a strange dichotomy wherein some aspects of the landscape appeared analogous to my home state – Hawaii – while other aspects were utterly divergent and completely foreign.

One of the people I struck up a conversation with an emeritus professor from the University of Tokyo, and current President of the Deep Ocean Water Applications Society. As interested in pongamia as he was, I was equally intrigued by his Ocean Thermal Energy Conversion (OTEC) field, though that’s enough fodder for a whole separate blog post. After hearing my presentation on TerViva’s work to commercialize pongamia, this professor did a bit of research on his own and determined that in the Japanese language, pongamia is called “Kuroyona,” and that there are many Kuroyona trees to be found in Okinawa prefecture.

While the picture at the beginning of this blog post may have tipped you off, I can confirm that pongamia most certainly do exist on Okinawa Island. After a bit of exploring, I was able to locate several dozen Kuroyona trees, and observed them to be robust, with some displaying dense examples of early stage flowering, which could lead to a plentiful crop of oilseeds. In addition to these observations, I also recorded the presence of many leaf galls, which are structures built on the host pongamia’s leaf tissue by mites. In this context, there was no indication that the presence of leaf galls was having a negative impact on the trees in which I saw them; I determined there was no indication of ill effect due to the lack of superficially observable differences between trees with heavy gall outbreaks relative to trees with no visible galls. It should be mentioned here that the pongamia trees TerViva is growing in the United States have been verified to be gall-free by the USDA, and TerViva has not observed any galls on trees growing in the wild in the United States. Pongamia sign

The presence of pongamia in Okinawa is significant for a couple of reasons in particular:

  • Presents further indication of just how hardy Kuroyona is, given that Okinawa is impacted by typhoons an average of 7-8 times every year
  • As vividly depicted in the picture of galls going wild at the beginning of this post, the pongamia trees I observed appeared to be thriving in spite of what in some instances was high-density gall colonization
  • In spite of these environmental insults, and indication of minimal maintenance, the Kuroyona I observed were vigorous, and many trees displayed early indications of high density inflorescence, meaning the trees could be highly productive

flowersAs a result of my exploration and observations, I naturally wondered: what is the potential for pongamia cultivation in Okinawa Prefecture?

Looking for statistics on oil/diesel use in Okinawa Prefecture was difficult, and ultimately I was unsuccessful, which probably had something to do with the fact that I don’t speak Japanese, and so cannot search Japanese-language websites. Luckily, some friends from Kumejima Island (a larger island in Okinawa Prefecture) stepped in and graciously helped by providing me with the following information: As of 2004, ~300,000 gallons of oil per year were used for transport (both gas and diesel) on Kumejima Island.

Anyone who read my previous blog post will remember that I am prone to spontaneous bouts of case study formulation. Here’s a quick one: how much land would be required for a pongamia orchard large enough to supply all of the diesel needed for transportation on Kumejima Island? First, some assumptions:

  • Half of the transportation fuel used on Kumejima Island in 2004 was diesel, which can be replaced by biodiesel produced from pongamia oil
  • Kuroyona orchards on Kumejima Island still yield the 400 gallons of oil per acre that we expect them to yield in the United States

Given these assumptions, TerViva would need to plant an orchard ~375 acres in size to supply all the diesel used for transportation on Kumejima Island, ~150,000 gallons as of 2004. Since it is almost 2015, let’s assume diesel use has grown by 33% since 2004, to annual consumption of ~200,000 gallons. To produce 200,000 gallons of pongamia biodiesel, TerViva would need to plant a 500-acre orchard. As a point of reference, 500 acres represents less than 3.5% of the entire landmass of the island of Kumejima. Because I was not overly diligent in the research for this blog post, let’s say I was off, that it’ll take double the land I calculated would be needed; that is still less than 7% of the entire island’s land mass.

Allow me to summarize the above babble: using less than 7% of the land on Kumejima Island, TerViva could supply all of the diesel needed for transportation on the entire island. All of your diesel needs for less than 7% of your land? That’s a pretty good deal.

Cool (coffee) beans

juan valdezMy wife and I spent some time in Colombia recently and the highlight of the trip (there were many) was visiting a coffee plantation in Salento, a town 300km east of Bogota. I grew up seeing the Juan Valdez commercials on TV but never appreciated the rich history of coffee or the differences in varieties and growing regions.

First discovered around the 11th century in Ethiopia, coffee is considered native to the tropics. Legend has it that goats in Ethiopia were seen mounting each other after eating the fruits of the coffee tree. Humans were intrigued and coffee spread quickly throughout the world! Now we drink over 500 billion cups of coffee every year.

While there are hundreds of varieties of coffee, the most popular species are arabica and robusta. Most people prefer arabica for its taste and medium/high acidity and body. However, arabica generally has lower yields and less caffeine than robusta, so robusta has gained in popularity (at least with producers). Robusta coffee is easier to grow, can be grown at lower altitudes and is supposedly less vulnerable to pests and weather conditions. Supermarket and instant coffee is typically robusta while Starbucks and higher end coffee is arabica.

coffee treeSome interesting coffee facts:
  • Coffee is harvested in the rain because seeds ripen during the rainy season.
  • Coffee comes with sugar inside the beans. You have to ferment the sugar away before roasting. Otherwise, the sugar will make the coffee more bitter as it cooks the coffee too quickly.
  • 9 months from flower to cherries. Once picked, no coffee cherries will grow on that branch. 
  • Coffee beans with the parchment layer are planted. Do-You-Make-This-Mistake-When-Brewing-Coffee-ftrOnce you remove the parchment skin, seeds will not germinateinto trees
  • Typically, two beans of same size are found in each red cherry. Sometimes, one seed will be much larger. These larger seeds are ‘pea berries’ which are very expensive.
  • Skin of coffee beans are used as fertilizer.

Brazil is the biggest coffee producing country in the world, growing both arabica and robusta. Vietnam and Indonesia are number two and three, producing almost exclusively robusta. That brings us to Colombia, which, until recently, was number three but has fallen to fourth place (more on this later).

Colombian farmers produce 100% arabica coffee, considered some of the best in the world. Colombian coffee is cultivated along the three different mountain ranges of the Andes as well as in the Sierra Nevada of Santa Martaas. Colombian growers are small producers; the national average is 1.8 hectares per farm and only 5% of producers hold more than 5 hectares in coffee. There are about 500,000 active coffee producers in Colombia.

Colombia has a number of competitive advantages that make growing coffee profitable.

  1. Soil: Has rich volcanic soil with low ph levels.
  2. Rain: Extremely important in coffee cultivation. Colombia has two significant rainy seasons every year in the center of the country: April to May, and October to November. Colombia benefits from the Atlantic and Pacific oceans, the Amazon and the inter-Andean valleys.
  3. Geography: High elevations above 3,000 feet going up to 6,000 feet provide ideal growing conditions for the coffee tree. Cooler mountain temperatures provide a slower growth cycle, which prolongs bean development, creates more complex sugars and better flavor.
  4. Labor and supporting infrastructure: It is important to pick the seeds at the right time to get the best taste; hand picking is ideal. Colombia has developed an ecosystem that develops and protects the farmer. The Colombian Coffee Growers Federation (FNC) provides farmers a minimum price, technical assistance, scientific research and even health care. It was FNC who created the Juan Valdez character in 1959 to market Colombian coffee. There is a terrific post on Knowledge @ Wharton that discusses more the FNC in more depth. As the folks at Wharton point out, the FNC has done much to push R&D in coffee through a 66 person research center that focuses on quality optimization, environmental protection and agricultural disease control.

CMYK básicoDespite these advantages, an interesting fight has been quietly brewing amongst Colombian growers because output has been falling over the years due to heavy rains, coffee rust disease and a stronger Colombian Peso. Large coffee growers favor introducing robusta because of higher yields and lower production costs (more money). Smaller producers are loathe to introduce a lesser quality coffee bean and want to stick with Arabica. At the same time, they struggle to make good margins because of the many middlemen in the system.

One of the problems seems to be that large buyers like Nestle prefer to work with large producers due to simplicity and consistency of product (no variance batch to batch). This means that large producers are usually growing one variety to keep taste consistent over time.  This type of monoculture planting has its own issues, but importantly the small coffee farmers who grow diverse varieties don’t get the benefit because coffee is graded on size only, not taste or other factors. A big debate is happening now in Colombia. Will money win?

From a pricing perspective, there is no distinction between coffee varietes. High quality arabica beans net the same price as lower quality ones. What if this wasn’t the case, and farmers could get a higher price for better varieties? This is the question that small farmers like Don Eduardo of The Plantation House in Salento is asking. His novel solution is to sell directly to buyers by allowing people to purchase specific rows of coffee trees, which are then picked and sent directly to their home cutting out the middle men and garnering a higher price for better arabica varieties. Time will tell if this model can work, but I hope this spirit of innovation is fostered so Colombia remains a high quality place to grow coffee. I know my mornings will appreciate it.

By: Sudhir Rani
CFO of TerViva, Inc.

Don’t Give Up on Biofuels Yet, HECO. Introducing the 10-10 Plan.

Last week, TerViva attended the Asia Pacific Clean Energy Summit in Honolulu, where we presented our vision for Hawaii. We call it the “10-10 Plan”: to use pongamia to produce 10% of Hawaii’s current petroleum needs annually, using 10% of Hawaii’s available farmland.

In response to the Hawaii PUC’s call to action (http://1.usa.gov/1x2PFWc), Hawaiian Electric (“HECO”) recently presented its strategic goals for Hawaii’s energy future (http://1.usa.gov/YXk1ei). It prominently features the use of liquefied natural gas and increases the amount of solar energy production. It does not put much emphasis on biofuels. Hawaii currently generates most of its expensive electricity from oil-fired power plants, and it has been long-hoped that biofuels could replace the use of petroleum. While not explicitly stating so, HECO now seems to view biofuels as only a small part of Hawaii’s future energy mix.

TerViva hopes to change that with pongamia. The 10-10 Plan is ambitious. Hawaii currently uses approximately 42 million barrels of petroleum per year. 10% of that is 4.2 million barrels, or 178 million gallons. At our current projected yield for pongamia of 400 gallons per acre per year, that means we’ll need almost 4.5 million acres of land. But Hawaii’s total land mass is only 4.1 million acres, and total available farmland is only 1.2 million acres. 10% of that farmland, or 121,000 acres, means that pongamia will have to produce 1470 gallons per acre per year for the 10-10 plan to work (121,000 acres X 1,470 gallons per acre = 178 million gallons). That’s a big increase from 400 gallons per acre, and it’s quite bold to suggest that we will plant 10% of Hawaii’s farmland with pongamia.

So how will we make the 10-10 Plan a reality? There are 2 necessary developments:

Example pyrolysis process, courtesy of www.btgworld.com

Example pyrolysis process, courtesy of http://www.btgworld.com

 

First, we’ll have to find a way to take all those seed pod shells produced from pongamia and turn them into oil. Like other nuts such as almonds or peanuts, pongamia seeds grow inside of woody shells. Right now, the shells are a waste stream – it’s really the oilseeds that we care about for their vegetable oil and protein seed cake (for cattle feed).

But there is technology that converts woody biomass it into oil (e.g., pyrolysis).

We’ve done some modeling using assumptions provided to us by UOP, and we estimate that we’ll be able to double the oil yield per acre per year if we can convert the shells into oil.   These conversion technologies are not quite yet ready for primetime, but we hope that in the near future, they will be.

Second, we’ll need to move pongamia toward intercropping and/or agroforestry. There’s no way that 10% of Hawaii’s farmland should be dedicated exclusively to any one crop. We should decrease the spacing of pongamia trees per acre to accommodate row crops or cattle grazing on that same land.

By decreasing the tree density per acre, pongamia can be "intercropped" with row crops or cattle

By decreasing the tree density per acre, pongamia can be “intercropped” with row crops or cattle

To allow for intercropping or cows, we estimate that we’ll have to reduce the number of trees per acre by 40%. This means that each tree will have to be even more productive. Assuming a 40% reduction in tree density per acre, as well as the ability to convert the pongamia shells into oil, we’ll have to produce 140 kgs of seed pods per year per tree to make 1,470 gallons of oil per acre per year (1,470 gallons per acre X 120,000 acres [10% of Hawaii’s farmland] = 4.2 million barrels of oil [10% of Hawaii’s current annual petroleum usage]).

140 kgs of seed pods per tree annually is more than double what we are currently forecasting (60 kgs).  Hence why the 10-10 Plan is ambitious. But it’s not undoable. Here’s a picture of a mature 25’X25’ pongamia tree in Australia. This is about the size of a tree that we’d expect at maturity in our Hawaii fields. This tree produces about 200 kgs of seed pods annually.

A pongamia tree full of seed pods (estimated 200 kgs)

A pongamia tree full of seed pods (estimated 200 kgs)

 

Not all of our trees, every year, will produce this prolifically, but we believe that over time, with proper agronomy and tree selection and breeding, pongamia is capable of producing 140 kgs of seed pods per tree per year.

We understand why HECO hasn’t put much faith into biofuels. They’ve gone down the road with a few other promising biofuels projects, only to see them flounder. We didn’t come up with the 10-10 Plan as some PR stunt. We did it to show that biofuels should still be in the conversation, and we’ll let our trees do the talking for us.