Impact Report 2021: Building a Circular Impact Economy

Impact Report 2021: Building a Circular Impact Economy

A message from Mandala Capital's Managing Partner, Mr Uday Garg

The current food system has supported a fast-growing population and fuelled economic development and urbanisation for the last several decades; but this has come at a great cost to society and the environment and today’s model is no longer fit to meet tomorrow’s needs. The current linear food system is ripe for disruption into a Circular Economy. I would argue that changing our food systems is one of the most impactful things we can do to address climate change, improve health and nutrition, rebuild biodiversity, and lift hundreds of millions of people out of poverty.

Impact investing will always mean different things to different people. It took us a while to define what it means for Mandala. There are three questions we always ask ourselves to help us think through this:
What is the Impact we are trying to make?
Sustainable and scalable Impact across the food value chain.
Why are we choosing this type of Impact?
Because we feel that Food and Agri is the most impactful sector to influence the things we consider important, such as climate change, rural development, soil health, water conservation, health and nutrition.
How are we making or contributing to this Impact?
By investing in companies with a shared philosophy, by finding investments that enhance the Impact we are trying to achieve, by tracking and monitoring our Impact effect, and by encouraging better Impact standards post-investment.

I am encouraged by the iterative process we have followed so far to arrive at our current understanding and definition of Impact and excited about the years ahead as we continue to learn from what others are doing in this space, while continuously evolving our own thinking on the best way to define and implement Impact investing.

Read Mandala Capital's Impact Report 2021

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Social Impact Highlight: Food Safety

Social Impact Highlight: Food Safety

Sustainable Development Goal #3: Good Health and Well-being

Our physical health and mental well-being determine the quality of life we can live and influence the health and mental well-being of those we come into contact with each day. We are what we eat, and more than 1.6 billion people live in fragile settings where protracted crises and weak infrastructure hinder accessibility to food and basic health services.

Increased demand for (perishable) food
The world’s population is expected to increase by two billion people in the next 30 years, with demand for food and livestock in 2050 estimated to be 56% greater than in 2010. As health-conscious and richer consumers around the world seek to consume more meat, fruits and vegetables, fresh and frozen, all year long, there is a growing demand for nutritious, perishable food requiring sufficient cold transport and storage.

Healthcare and Productivity Costs of Foodborne Diseases (FBD)
Foodborne diseases cost India $28 billion a year (0.5% GDP), and productivity loss of $15 billion a year, with cases expected to increase to 170 million a year in 2030 from 100 million in 2011.
Food contamination monitoring is essential to ensuring the safety of food supply and managing risk. Likewise, consumer awareness about food safety plays an especially important role in the successful implementation of food safety guidelines.

Mandala's Social ROI for Food Safety in FY2020 is 1.6
This means that every $1 invested in food safety has resulted in $1.60 of social value. Food testing, cold chain storage and reefer truck capacity contribute to reduced contamination risk and reduced healthcare spend on FBD. Food safety accounts for 54% of all social impact created by Mandala's portfolio companies. For more insight into our impact methodology, click here.

How Mandala's Portfolio Companies Contributed in 2020
To ensure a safe and sustainable food supply, initiatives in technology, food packaging, and waste reduction can lengthen food’s shelf life and increase food supply.

-Gati Kausar owns temperature-controlled facilities, including an extensive fleet of 180 refrigerated vehicles and a growing network of cold warehouse facilities across India that are needed to meet the growing demand for food with quality and safety.
-EFRAC is one of the largest integrated food testing and research facilities in India, testing food products for nutrition, hygiene, adulteration and quality.
-EFRAC also conducts food safety clinics and provides food safety kits to raise consumer awareness about food safety.

The safe food imperative is more pressing than ever, and investments in market-led capacity building solutions are far outsized by the FBD burden. We want to hear your thoughts on supporting more companies like EFRAC and Gati Kausar towards a safer and healthier world!

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Indian Renewables and the Circular Economy Paradigm

Indian Renewables and the Circular Economy Paradigm

Industry-leading food and agriculture companies today are making public commitments to use renewable chemicals and biodegradable packaging, employ carbon neutral processes and produce biofuels, signalling their intention to take a more sustainable approach overall to people and the planet. In contrast to the 'take-make-waste' linear model, a circular economy approach to economic development is today widely favoured because it benefits businesses, society, and the environment. Regenerative by design, it aims to gradually decouple growth from the consumption of our planet’s finite resources. This month, we share snippets from Samir Somaiya, CEO of Godavari Biorefineries, who talks about India's renewables and the circular economy strategies his company is taking to develop the industry.

Biorefining is the process of converting feedstock into value added products such as foods, fuels, electricity, chemicals, pharmaceuticals, fragrance chemistry, bio materials, agrochemicals and more.  In a press release with Chemical Engineering World, Somaiya illustrates an example of how Godavari Biorefineries has pivoted toward being a circular and cascading biorefinery that continuously strives to add value: 

"A few years ago, we installed an incinerator boiler to recover energy from our waste. Now, we are implementing a process to extract potash from the ash from the incinerator. This potash will then be sold to our farmers."

Currently, India imports almost all 4 million tonnes of its potash needs, but this could be different in the future. If more companies start producing potash from waste, especially as subsidies for potash-based fertilisers were recently cut amidst an attempt to contain fiscal deficits, India can reduce its import reliance

Godavari Biorefineries invests heavily in energy efficiency and engineering to convert available surplus bagasse (the fibrous by-product of sugar production from sugarcane stalks) into next generation feedstock. They also produce acetic acid from renewable sources instead of from petroleum feedstock, which substitutes conventional materials without loss of functionality.  Mandala’s investment proceeds were used to kickstart and accelerate some of the key products and processes that form part of Godavari’s integrated biorefinery model today.

The next phase of growth in renewable chemicals in India rests on two key factors: renewable chemical prices compared with that of conventional fossil-based chemicals, and the willingness of the end user to pay a price premium for renewable-derived feedstock. There are signs in the skincare sector that show responsibly sourced, traceable, renewable and biodegradable chemicals can command a price premium from the end customer. 

Of course, capital outlay for the development of renewables industry does not come cheap, and initiatives like the US’ Bio-Preferred Program and EU carbon markets enjoy the support of governments that sponsor investment in research, heavily capital-intensive pilot plants, and commercialization of renewable processes and technologies. Likewise, India’s Viability Gap Funding (VGF) program subsidises up to 20% of project costs for Greenfield facilities to make 2G ethanol (ethanol from biomass). 

Somaiya believes India should take a ‘bolt-on’ approach in both 2G ethanol and biofuel, adding onto existing infrastructure the equipment and technology necessary for production of ethanol and biofuel. This way, funding needs can be drastically reduced. With a strong agriculture base and abundance of biomass, India needs to focus on education and research to harness its dormant potential in renewable energy and chemicals. 

Biofuels a possible answer to India’s sugar surplus crisis, renewables growth part of circular economy 

Indian sugar millers face a multitude of issues: unsold sugar stocks, cane dues and unpaid interests. With performance feasibility, production capacity, and the consumer market overturned by the raging coronavirus, a bailout package seems to be the only favorable solution to the sugar surplus crisis, Somaiya shared recently in an interview with Chinimandi News

Taking a longer term view, Somaiya argues that India has long proven itself to be a surplus producer of sugarcane, and suggests ways this surplus can be utilised to meet the country's burgeoning food and energy needs. 

How Godavari Biorefineries leads the Indian sugar industry in building a sustainable bio-fuel economy

-Expanded distillery capacity from 200,000 lpd to 320,000 lpd last season, and to 400,000 lpd this season
-Manufactures ethanol via sugarcane syrup and B Heavy molasses, diverting over 40% of sugar towards ethanol
-Created optionality between sugar and ethanol
-Actively supports government policies on producing 2G ethanol, and Bio-CNG
-Pioneered the use of renewable feedstocks to make chemicals, materials and renewable power with applications in pharmaceuticals, agriculture, flavours and fragrances coatings
-Working on intercropping with farmers to improve their agronomy so that they farm and earn better

Long-term policies recommended for the growth of India's ethanol industry

To get to production levels in Brazil and the USA, India will need a wide variety of renewable biomass. Apart from pushing for the use of sugarcane juice and B Heavy molasses in ethanol, increasing the ethanol blend rate in petrol will go a long way to help meet India's energy security needs. Already, the Government has indicated bold targets to move towards a 20% blend rate. In states that already have ethanol surplus, the blend rate can be increased more quickly. Promoting flex fuel cars like Brazil has done is another strategy to further increase adoption rates. Overall, the pace of transformation will rely on how quickly sugar companies can obtain regulatory approvals and financing to build distillation assets and divert their sugar surplus to ethanol.

In the short term, the surplus sugar will have to be exported. India has exported a new high of nearly 6 million tons of sugar this season and sugar millers will need continued government support on export policies. 

Watch this space for news on renewable chemicals and energy, and creating sustainable impact on food and agriculture in India!

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Weathering the Storm to Achieve Scalable and Sustainable Impact

Weathering the Storm to Achieve Scalable and Sustainable Impact

The Coronavirus pandemic continues to challenge traditional assumptions about supply chains across the food and agribusiness sector. In order to balance novel health and safety considerations with changing consumption patterns—coronavirus related and otherwise--firms are reconsidering consumers, production sources and distribution channels. In turn, these questions have contributed to a myriad of pressures on policymakers and commercial entities. As balance sheets weaken (especially for early stage companies) and both social need and opportunity have become even more widespread, fund managers looking for sustainable food and agriculture investment opportunities must rethink the meaning of social impact. Governments and businesses must adapt policy and strategy to balance circumstantial exigencies with long standing consumption and demographic trajectories. Essential sectors like food and agriculture are uniquely sensitive to this dynamic, especially so in developing markets like India and Southeast Asia.

Uncertain and changing conditions in markets—either from within or exogenously—challenge existing supply chains and necessitate innovation. Like never before, innovation must be tailored to achieve sustainable food and agriculture investments at scale. There is no dearth of innovation in food and agriculture and companies throughout the sector will need to innovate to ensure they are also poised to accommodate the consequences of the coronavirus on their category in the supply chain and ultimate consumer. As fund managers consider how to either invest in innovation or ensure their existing assets have access to innovation, they must evaluate the role innovation can play in this context. How can LP capital be allocated efficiently to achieve optimal impact in an era of restrained capital and capital scarcity? Is it through technology, commercial methodology or some hybrid of both? Is obtainable impact realised through drastic shocks to the supply chain or incremental development?

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