Thursday, March 1, 2012

Changing Lives by Changing Mushroom Farming and Consumption in Rwanda

Sustainable farming requires growing enough product to sell at a reasonable price in reachable markets. Entrepreneur Laurent Demuynck hopes to increase the yield of mushrooms for Rwandan farmers, thereby making this nutritious, but currently expensive, food a staple in the country.

STANFORD GRADUATE SCHOOL OF BUSINESS — When Laurent Demuynck began growing mushrooms in Rwanda two years ago, he wanted to help solve a social problem and also be profitable.

“I took the twin concepts of ‘social’ and ‘enterprise’ seriously,” said Demuynck, a 1995 graduate of the business school who recently addressed current students, including those from the Food and Agriculture Resource Management Club, or FARM Club. He told them: “It is possible to do good and make money.”

Demuynck didn’t come initially to the GSB with Rwanda or mushroom growing in mind, though he did know he wanted to move away from investment banking.

“I was in finance before business school, and I came to the GSB to do something very hands-on,” said Demuynck, who is from Belgium. “I wanted to work in an environment that ‘made stuff,’ and preferably in a small company, where you felt your actions had more of an impact on the bottom line. But never did I think I would end up doing mushrooms in Rwanda.”

Then he read The Blue Sweater, a book by Jacqueline Novogratz, MBA ’91, which details her experience leaving a banking position to help women create a business in Rwanda at a time before that country’s shocking genocide. She is now the CEO of the Acumen Fund, a venture capital nonprofit that invests in sustainable development to alleviate extreme poverty in many developing countries.

Demuynck’s Africa experience was different. On a 1986 visit to Zaire, he saw extreme poverty but accepted it as “just the status quo.” Novogratz, on the other hand, “reacted with empathy and decided to change this state of affairs. When I read that account, I felt a bit shallow and ashamed of myself, so I realized the time was right to try and do something about it.”

A few years after getting his MBA, Demuynck ran a brewery in upstate New York. However, he felt he was contributing to global warming “by doing business as usual,” he said, so he sold his stake in the brewery and considered how he could continue to work with food, not just to create jobs but also to improve nutrition for people who needed it.

He hit upon the idea of growing mushrooms in Rwanda, because of the favorable climate and need for nutritious, cheap food, but he had difficulty seeing how it could be a profitable business. He and his family had moved to Spain, which has a large oyster mushroom industry. He realized that if he could bring down the cost of substrate, the organic material used to grow the mushrooms, they would be cheap enough to make the business model work.

Kigali Farms was started in March 2010. Its focus has been on the cultivation of oyster mushrooms because they can grow year-round, are rich in nutrients, and can produce high yields per acre. “In the West, people tend to think mushrooms are just something you put in to have something white on your plate,” Demuynck said. However, oyster mushrooms are rich in protein, iron, essential amino acids, and vitamins.

There is much potential for the mushroom industry in Rwanda, but there are also challenges. Rwanda is a small, landlocked country with unstable countries as neighbors. Exporting goods is difficult, and much of the land is degraded.

Demuynck discovered that Rwandans already eat mushrooms, and various foreign aid agencies and NGOs have helped set up numerous cooperatives to grow and sell mushrooms. But their methods weren’t designed for high productivity.

“Today, in developing countries, substrate is prepared in small batches with low capital methods, which results in high variable costs and low yields.” he said. He described programs as “helping people survive, not helping people get out of poverty.”

“The cost of growing mushrooms in this way is high, as is the risk of crop failure,” he said. “So you end up with small volumes of highly priced mushrooms on the market. Mushrooms today in Rwanda are more expensive than meat, which defeats the whole purpose. It even has given mushroom growing a bad name in some donor circles, because these methods yield such poor results.”

Kigali Farms is trying to “get a bona fide industry off the ground,” Demuynck said. The idea is to produce high-quality substrate in bulk, not only for its own use but also for sale to other farmers, making it cheaper to produce mushrooms. “We want to transfer the most modern technology to Africa. Mushrooms are a $20 billion industry worldwide, but just a cottage industry in Africa. There is no reason it should stay that way.”

So far, Demuynck has been selling oyster mushrooms in small quantities and has financed the venture himself. He is looking for outside capital of $700,000 to $1.2 million to build a factory to produce the substrate on a large scale. He has a long list of other areas he would like to explore as well, including regional exports, mushroom processing, and using alternative substrates such as coffee pulp or rice straw.

When he speaks about the business, he talks about both the social and the financial goals of the company. For example, when he needed straw to use as the main raw material for substrate, he bought it from local residents, mostly women, who had been growing wheat and selling only the grain. The stalks went unused and had no cash value until he paid them for it. He realized that his business plan was also providing cash to people who had no other way to get it at that time of year.

Demuynck also hires local workers. “The country is full of people who are really smart, but who were just not given the same opportunities as you and I had when we were born,” he said. “Helping them develop whatever potential they have is another exciting part. Building a team in business is always fun; building a team there is twice as fun.”

Kigali Farms expects to be profitable by the end of 2013. It expects 2012 revenue of just under $100,000, growing to more than $2.5 million once the operation has scaled up. “The main risk is the purchasing power of the local markets,” Demuynck said. “By and large the public enjoys mushrooms, and they even perceive it as food for the rich, an aspirational good. But because of irregular production and high prices, few people in Rwanda today can afford to buy mushrooms, and so relatively few people eat them. So we'll have to get people to include mushrooms in their diet more often.”

Demuynck’s goal: “Wherever you see tomatoes and onions” being sold in local markets in Rwanda, “I want, in 5 to 10 years, to see mushrooms.”