MASSACHUSETTS INSTITUTE OF TECHNOLOGY

Typha Charcoal in Senegal: Changing a National Threat into Durable Wealth

15.915 Laboratory for Sustainable Business
Rodrigo Caro, Helena de Frutos, Ajamu Nassor Kitwana, Angela Shen 5/12/2011

CONTENTS
Executive Summary ...................................................................................................................................... 3 Background & Objectives ............................................................................................................................. 4 About Senegal ........................................................................................................................................... 4 Typha Changing a National Threat into Durable Wealth ...................................................................... 4 Project Objectives ..................................................................................................................................... 6 Feasibility Analysis....................................................................................................................................... 6 Market Potential ........................................................................................................................................ 6 Typha Charcoal Production Process ......................................................................................................... 9 Industrial Practices ................................................................................................................................ 9 Value Chain Analysis ............................................................................................................................. 11 Typha Harvesting ................................................................................................................................ 11 Typha Charcoal Production ................................................................................................................ 12 Distribution ......................................................................................................................................... 14 Business Model Summary .................................................................................................................. 14 Financial, Environmental and Social Impacts ............................................................................................. 15 Financial Implications ............................................................................................................................. 15 Environmental Impacts ........................................................................................................................... 17 Social Impacts ......................................................................................................................................... 18 Alternatives ................................................................................................................................................. 18 Recommendations ....................................................................................................................................... 19 Appendix A ................................................................................................................................................. 23 Appendix B ................................................................................................................................................. 27 Bibliography ............................................................................................................................................... 28 Interview List .............................................................................................................................................. 30

EXECUTIVE SUMMARY
Sup De Co, a business school headquartered in Dakar, Senegal, is inspired to make a positive difference for its country. Salla Dior Dieng of Sup De Co is a national champion for two environmental challenges in Senegal. The first environmental challenge is the spread of invasive Typha Australis, a weed similar to cattails that has significantly over grown throughout the Senegal River corridor. The second is deforestation and desertification in Senegal.

As a business school, Sup De Co would like to find a market-based solution to these problems. In fact, Dr. Dieng has collaborated in the past with an NGO called PERACOD to demonstrate that the invasive Typha plant has several potential commercial uses. Sup De Co proposed developing paper pulp, biofuel, and cooking charcoal to the S-Lab team as business opportunities to explore for large scale commercial usage of Typha. We chose to target charcoal because of the significant domestic market (350,000 tons annually) for charcoal, and its social and cultural importance in Senegalese households.

The S-lab team conducted a high-level feasibility analysis of launching a Typha charcoal production business in Senegal. After comparing small scale, medium scale, and large scale production options for profitability using market projections that are in line with Sup De Cos goals, we estimate that large scale production will be the most profitable. However, given that a market for Typha Charcoal has not been established yet, it would be valuable for Sup De Co to pilot Typha charcoal production starting with the small scale 3-barrel approach. This is largely because of the lower risk associated with the 3-barrel process due to low up front capital requirements and the fact that it does not require electricity or other energy inputs. The areas that we recommend investigating at the pilot scale before expanding are: Customer demand, Typha harvesting, transport logistics, barriers to charcoal markets and supply chains, and financing costs and availability

BACKGROUND & OBJECTIVES

ABOUT SENEGAL

The host company, Sup De Co (Groupe Ecole Suprieure de Commerce de Dakar), seeks to develop a large scale operation to produce green charcoal from an invasive wetland plant called Typha that grows along the Senegal River. Sup De Co, a private institution based in Senegal, includes six schools, and provides university level education in business, commerce, finance, business management and information technology (IT). Sup De Co plans to be an owner of this new biomass energy production venture.

Senegal faces a considerable deforestation problem. With trees disappearing, finding viable alternatives is a must. Currently, at least half the population relies on expensive wood and charcoal for household fuel. Less than 30 years ago, charcoal consumed in Dakar came form 70 Km away, from the Thies region. Now, people have to go 400 Km form Dakar to find forests (Africa Good News, 2009). 40% use petrol products like butane gas that is all imported and partially subsidized by the government because of its high price (Africa Good News, 2009). 350,000 tons of wood charcoals are consumed each year from wood, in other words, approximately 2.5 million trees being cut down for charcoal national wide. Harvested locally in the southern semi-tropical region of Senegal, this contributes to desertification in the country and southern expansion of the Sahel region. This transition is characterized by decreased vegetation cover, greater soil erosion, millions of tons in soil loss, and diminished soil fertility in a country where 65% of the total population depends on the agricultural sector, directly or indirectly. (Elbersen W. , 2005)

TYPHA CHANGING A NATIONAL THREAT INTO DURABLE WEALTH

During the 1980s, two dams were constructed on the Senegal River to provide electricity, irrigation, drinking water and to prevent sea water incursion. After the construction of the dams, altered river conditions cultivated wetland plants in shallow water along the shore. Typha, a native plant on the Senegal River, grows aggressively in the new environment and now covers large parts of the Senegal River. Typha roots in the soil and requires less than 5 feet of water depth. The proliferation of Typha leads to many problems, including blocking irrigation canals, making access to the river and fishing difficult for the local population, attracting bird pests that invade rice plots, a weed problem in rice plots, and increasing health problems that result from stagnant water. (Elbersen W. , 2005)

The Senegalese Organization pour la Mise en Valeur du Fleuve Sngal (OMVs) is responsible for clearing tyhpa from the navigation channel of the Senegal River, but Tyhpa grows uncontrolled along the rivers banks. In order to encourage the removal of Tyhpa, Senegalese public officials and academics have considered promoting several options for commercial use of Typha biomass material. Those options include compost for local horticulture farms, paper production, construction material and energy production. For this study, we focus on investigating the feasibility of Typha charcoal production, given the urgency of the energy shortage and deforestation in the country.

Concerned Senegalese NGOs and citizens like Dr. Salla Dior Dieng of Sup De Co have identified using biomass from Typha to create green charcoal as one of the solutions to limiting the proliferation of Typha and simultaneously reducing deforestation in Senegal. Any organic material such as agricultural waste can be carbonized in an anaerobic burning process called pyrolysis to be made into charcoal. PERACOD, affiliated with a German NGO called GTZ, has introduced a 3 futs (3-barrel) system for community scale charcoal production in Senegal. PERACOD ran a pilot program producing green charcoal from Tyhpa. The project brought together groups of rural women who harvested the Tyhpa, produced charcoal, used it at home and sold some in their local communities.

PROJECT OBJECTIVES
The S-lab teams task was to work on a business plan for starting and sustaining a large-scale charcoal business in Senegal using Typha. Sup De Co is particularly interested in understanding business models and production models used internationally for charcoal production. The plan had to consider the likely production, management, operational and marketing challenges for the envisioned production process and final products in the context of Senegal. The S-Lab team streamlined the project scope based on what they could produce in the time and with the resources available. The framework developed here can be built upon with further research by Sup De Co or others such as a group in the G-Lab course in the fall of 2011. Here we develop a framework to compare potential approaches to launching a Typha charcoal business. This can be useful to identify the necessary conditions to achieve profitability in the tyhpa business- such as a minimum market share required to break even. If Sup De Co deems a given approach to be attractive, the next step would be to complete a business plan for the approach selected.

FEASIBILITY ANALYSIS
MARKET POTENTIAL
PERACODs pilot project revealed some challenges to market adoption of the green charcoal. It burns slower than wood charcoal and has a different odor. Moreover, charcoal vendors have less incentive to sell Tyhpa charcoal due to smaller profit margins compared to wood charcoal. For 1kg of green charcoal, a vendor makes a profit of 5 US cents, whereas conventional charcoal brings in almost 20 cents per kilogram. (Africa Good News, 2009). Additionally, identifying distribution networks to reach the primary market in Dakar is also likely to be a challenge given the agreement between the Merchant Union (producers of wood charcoal) and the permitted vendors of charcoal in Dakar. Finally, interviews with Senegalese citizens that we conducted indicated that use of charcoal in Dakar has been falling and replaced by more convenient gas burners. The four interviews we conducted are not a statistically 6

significant sample, but this does merit more investigation into the growth projections in the charcoal market.

Currently, the population consuming Typha charcoal in Senegal is negligible. The few people producing green charcoal are doing so in association with NGO sponsored pilot projects and they typically produce at the household or rural community scale. Furthermore, selling green charcoal, even at a significant discount (about 50%), to replace wood charcoal has been a challenge in the country. The energy yield of Typha charcoal per kilogram is 80% of that of wood charcoal. The appearance is different from wood charcoal so consumers believe it has lower quality. In the PERACOD pilot, Typha charcoal was also poorly packaged, so consumers were deterred by the fact that they got dirty managing it.

However, Typha charcoal also offers many advantages to the consumers. One kilogram of green charcoal sells for just $0.15, whereas traditional charcoal currently costs twice that (Africa Good News, 2009). Right now, the price of butane gas is six times the price of green charcoal (about $1/day). Producing Typha charcoal presents an opportunity to get energy in an inexpensive and more sustainable form of fuel for the country and for the riparian communities in particular. The Senegalese government has subsidized butane gas in the past to deter demand for wood charcoal and mitigate deforestation. Gas subsidies have however been phased out due to high costs to the national government. The demonstrated national commitment to combat deforestation through subsidies could be an opportunity to get financial support for Typha charcoal as a less costly alternative to wood charcoal. Moreover, another advantage of decreasing gas consumption in Senegal will be the reduction of the dependency on volatile international oil markets.

A PERACOD customer who switched to green charcoal from gas explained that she is happy with the change because it is the most efficient, affordable and suitable (especially for large-scale cooking) household fuel (Africa Good News, 2009). Moreover, there is a general perception that cooking with 7

charcoal produces better flavor for many meals than cooking with gas. Green charcoal can offer the flavor advantages of charcoal without the deforestation impacts that have lead the government to limit charcoal production. Restaurants also present a market opportunity for green charcoal; most of them currently consume both gas and charcoal, with the price being the single biggest determining factor in the choice.

In our study we will examine the feasibility for large scale production. 40% of the population uses gas as a household fuel, but even those people maintain the capacity to switch to charcoal because of the high price of gas, the variance of government subsidizes over time, and the frequent gas shortages. The estimation of the charcoal consumption in Dakar is about 210,000 tons (60% of total consumption in Senegal) (Ribot J. C.) . In order to market Typha charcoal, Sup De Co has to implement an adequate marketing strategy that includes attractive packaging (e.g. paper bags), providing visibility and accessibility for customers in Dakar, a convenient price (about half the price of wood charcoal), and educating the consumers (including cooking demonstrations). If Sup De Co does so, it could potentially be able to replace some of the current consumption of wood charcoal in Dakar. If we assume that marketing efforts are successful in capturing 20% of the charcoal market in Dakar, this will represent the 12% of the total wood charcoal replacement (20% wood replacement in Dakar which is 60% of total wood consumption). This meets the benchmark that Senegals Minister of Energy would like to obtain for the whole country It is not possible to completely replace charcoal. But even if we can replace 10% or 15% is good (Africa Good News, 2009).

Thus the S-Lab team estimates that 20% of the Dakar charcoal market will switch to Typha charcoal. Sup De Co is very confident in the availability of Typha as a resource for charcoal. There are more than 400,000 hectares currently covered by Typha and we estimate that only 8,700 hectares will be used to meet the needs of 20% of Dakars charcoal market. Furthermore, the route from the river side to Dakar passes by several big cities, such as St. Louis (181,000 inhabitants) or Thies (278,000 inhabitants) (City Population). If Sup De Co were able to address any of these market, it might well reach the high range of 8

15% that the Ministry of Energy had set to replace the national consumption of wood charcoal. If Sup De Co helps the Ministry to get to this goal of wood charcoal replacement, it might be able to get some economic help from the Government to support the project.

TYPHA CHARCOAL PRODUCTION PROCESS

Charcoal is made through a process called pyrolysis which involves baking biomass in the absence of air to drive off volatile gasses. Pyrolysis can be done with two main methods, Direct and Indirect methods. Direct pyrolysis uses the biomass as its heat source and is easy to implement. This is the method used in the majority of small scale production processes. However, at the large scale the Indirect method, which requires an external source of heat such as coal or fuel oil, is typically used because this is more energy efficient. (Lehmann & Joseph, 2009)

Another emerging process is gasification. The process converts biomass into carbon and hydrogen by transforming the raw material at high temperatures with a controlled amount of oxygen (Brewer, 2009). Ankurscientific, a company founded by an MIT trained PhD, uses this process in India, Sri Lanka, SouthAsia, US, and Mexico. The company produces 100KW power on average, using different biomass such as wood waste or coconut shell (Ankurscientific). However, currently there is no charcoal production at industrial level using the gasification process, let alone any using Typha as feedstock (Garcia-Perez, Lewis; C., & Kruger, 2011).

INDUSTRIAL PRACTICES
The charcoal market is divided in two main groups of producers, the lump charcoal producer and the briquette charcoal producer. While the lump charcoal involves whole pieces of wood being exposed to high temperatures, the briquette charcoal consist of biomass being ground up, mixed, and compressed. Both charcoal type use pyrolysis processes (Lehmann & Joseph, 2009). Biomass sources include not only wood but also other biomass, such as coconut from Vietnam, Philippines and Cambodia. There are

numerous examples of charcoal production from non-wood biomass sources, such as coconut shell (Water Siemens), cocoa (Carbongold), as well as agricultural and forestry wastes, and animal manures (Kamimoto, 2005). In the US, the lump charcoal is mainly controlled by small companies. The main charcoal briquette producer in the US is Kingsford, which controls over the 80% of the charcoal briquette market. This company uses wood chips as the main biomass source (Kingsford). The process consists in the pyrolysis of the wood chips. Then this ground wood is mixed with other products such as: Mineral Coal to improve its calorific power Sodium borate as a press release agent to allow the briquettes to release from the molds they are made in Limestone used as an ash colorant Binder in the past they used wheat starch as a binder for the charcoal briquettes. Now they change the formulation to another chemical Sawdust to speed the ignition Sodium Nitrate to speed the ignition

The pyrolysis charcoal process generates organic residues that can be used as a fertilizer that can increase revenue (Dharmakeerthi & Chandrasiri, 2010) (Chan, 2007) (Whitford, 2008). The effects on the soils are (Lehmann & Joseph, 2009): Reduce leaching of nitrogen into ground water Increase cation-exchange capacity resulting in improved soil fertility Moderate of soil acidity Increase water retention Increase number of beneficial soil microbes

Regarding the use of gas, most processes re-circulate the syngas to the pyrolysis stage to increase the temperature inside the system. Best Energies in Canada patented a slow pyrolysis reactor that incorporates an electrical generator that operates on syngas (Bestenergies).

10

VALUE CHAIN ANALYSIS

In order to help Sup De Co identify and evaluate the various potential points of entry in to the charcoal market in Senegal, we will examine the charcoal value chain. This review will discuss challenges and opportunities that Sup De Co should consider at each stage in the process. The financial feasibility model in Appendix A offers cost and revenue estimates for the processes discussed.

TYPHA HARVESTING

Typha can be harvested throughout the year once a month if cut appropriately. The two challenges are 1) Typha needs to be cut 10-15cm above the water; 2) large amount of green Typha (approximately 21 tons) is needed to produce one ton of charcoal. At the small scale 3-barrel production, every 21 tons of green Typha would produce 3.5 tons of dry matter and consequently 1 ton of Typha charcoal. From the economic perspective, it would make business sense only if the Typha can be harvested using highly efficient machine or very low cost labor. Given the financial estimates compiled in Appendix A, harvesting costs are 65% to almost 90% of total charcoal production costs.

We spent time on secondary research and interviewing industry experts, trying to identify existing machinery that can be used to harvest Typha. Although it would be ideal to have a specific machine to cut Typha, our research shows that in developing countries (e.g. China, Kenya), pest plants are harvested in very labor intensive ways. According to the report prepared for PISCES and FAO by Practical Action Consulting, when harvesting with basic tools such as sickles, on average the yield is 250kg /person /hour which is approximately 1,500kg of fresh Typha each day based on a 6 hour work day. It is important to point out that Typha harvesting is very demanding. In a pilot project led by PERACOD, there were three production groups involved in the study when the project kicked off in 2006, but only one stayed involved till 2008. (Practical Action Consulting, 2009)

11

A 2005 Typha for Bioenergy report stated that a World Bank Project was in the pipeline to reduce the Typha coverage to 30,000-40,000 ha. (Elbersen W. , 2005) However Dr. Salla Dieng reported that the project did not happen and that it is no longer anticipated. It is currently uncertain whether there will be an effort to reduce the coverage area of Typha to protect against its negative impacts. However, if Typha is reduced to 30,000 ha, this still exceeds the amount needed to meet the proposed market share target. If efforts are launched to actually limit the Typha coverage, Sup De Co should keep that in mind when preparing the site the facility. This could also impact longer term growth opportunities. To further understand the impact, research must be conducted to understand the optimal or safe level of Typha on the Senegal River, the result of which could impact the business case of the investment. We have seen that in some cases of biomass production of invasive plants, there is a tension between the new incentive to grow that plant and the effort to manage it, if it ever becomes cheaper for someone to grow their own Typha at or near their property than it is to go out into the river to harvest it. We could risk encouraging additional Typha growth by creating a market for Typha products.

On average, it takes 5 to 10 days to dry the Typha. For this study, we assume that either in the case of small scale production or household level production, the farmers would be able to find open area close to the harvesting site to dry to Typha.

TYPHA CHARCOAL PRODUCTION

We examined three potential methods of producing Typha charcoal. Each of these processes use Pyrolysis conducted at different scale. All figures reported in this section are the results from our financial model included in Appendix A.

The first method considered is the 3-barrel method which PERACOD has used in the past. This is a household level production process. Each 3-barrel system produces 31 tons per year. In order to achieve

12

the large quantity (52,000 tons of charcoal based on the assumption of 20% Dakar market), Sup De Co would operate almost 1,700 different systems. This highly decentralized approach maximizes the number of jobs and entrepreneurial opportunities created through the process at 4,327 new jobs. A key advantage of the 3-barrel system is that the technology has been proven and many in Senegal are very familiar with a similar process from experience producing wood charcoal at the household scale. In our review of charcoal production efforts around the word, the small scale direct method has dominated as the approach of choice.

The second method evaluated is at the midsize or semi-industrial scale. Pro-Natura, a French NGO, has marketed and operated an indirect pyrolysis system that produces 936 tons/year. The most recent version of their system is called Pyro 71. (ProNatura International, 2011) To meet the large scale demand goal with the Pyro 7, Sup De Co would purchase and operate 57 systems at $65,000 each. In partnership with Eco-Carbone a French company that brokers carbon credits, Pro-Natura is promoting its system to charcoal producers around the world. They advertize a profit margin near 70% once carbon credits are incorporated. The cost of energy in this system is approximately $0.50 per ton of charcoal produced. Sup De Co would create approximately 3,200 jobs with this approach.

The third method that we evaluated is an industrial scale production. Our S-lab team did not find examples of production of biomass charcoal at this scale in our review of the industry. The figures used for the model were taken from a previous Sup De Co report that estimated cost and production at an industrial scale. (Groupe Sup De Co, 2010) At this scale Sup De Co would need only one system. It costs $4Million upfront and has a capacity to produce 60,000 tons of Typha charcoal per year. Operating costs are at about 60% of revenues and 2,700 jobs would be created with this approach.

Pictured in Appendix B.

13

DISTRIBUTION

In this part, we discuss the cost of transportation and distribution. We will separately consider inbound transportation and outbound transportation.

Due to the large amount of green Typha needed for charcoal production, i.e. 21 tons of green Typha for one ton of charcoal, and the dry climate in Senegal, we believe it is easier to dry the green Typha before transporting to the production site. Even though, roads already exist for charcoal production transportation, the inbound transportation would be a considerable piece of cost. Outbound cost would also be significant, especially when planning to produce in north Senegal, close to St. Louis, and sell to Dakar. Distance of the two cities is above 300km. High-level estimation of the transportation cost is in the financial session.

We interviewed the project leaders from MITs D-Lab (http://d-lab.mit.edu/), Amy Smith, Amy Banzaert and Manpreet Singh, who have worked on charcoal production projects in several developing countries. They reported that most of the D-lab projects were done on a small scale, not only because the small scale operation has a quick payback period (approximately one month) and promotes local development, but also because the cost to transport biomass material is high, compare to the overall production costs.

BUSINESS MODEL SUMMARY

Sup De Co aims to set up an industrial production facility for Typha charcoal. It would buy dried Typha plant material from rural harvesters, centralize the production and ship the charcoal to wholesalers in Dakar markets. Although the raw material (mainly dry Typha) cost is very low, the harvesting costs are expected to be high given the distribution of Typha along the Senegal River. Regarding the source material, further studies are needed to understand the cost of using Typha versus leveraging biomass

14

leftovers from agricultural or other sources. It is important to set up facilities that can process not only Typha but other biomass residuals. Regarding the production process, we would recommend further study to understand the economics of the different stages of the Typha charcoal production process: separating carbonizing and briquetting.

FINANCIAL, ENVIRONMENTAL AND SOCIAL IMPACTS

FINANCIAL IMPLICATIONS

Revenue potential Dakar is the primary market for wood charcoal, accounting for 60% of the charcoal sold in Senegal. (Ribot J. C.) Dakar is the target market for our Tyhpa charcoal business due this size, Sup De Co want to maximize scale in order to disrupt the wood charcoal market and mitigate its negative environmental and social impacts. For this analysis we assume that Sup De Co is able to capture 20% of the Dakar charcoal market within 3 years. This means selling 52,500 tons of charcoal and would yield $6.6 Million dollars in revenue.

Profitability Our financial analysis in Appendix A shows the profitability figures discussed below. Our baseline scenario using the 3-barrel method projects a gross profit of $214,000, this is a 3% margin. We estimate that at an industrial scale the profit margin could be as high as 28%. The actual profits from green charcoal will depend on several factors. For the large scale production, profits will fall if sales fall below projections. Uncertainty in operating and maintenance costs and financing cost could also cut into larger scale profits. This process as well as the midsize ProNature process requires energy inputs, a larger upfront investment and certain lead times. ProNatura advertises their Pyro 7 machine to produce a 15

generous 38% profit margin with the potential to be doubled by using carbon credits which they facilitate for their customers. This option should be further explored in future phases of the business plan.

Sup De Cos position in the supply chain will also impact profitability. We assume that Sup De Co would produce charcoal and sell to wholesalers in Dakar. The wood charcoal business in Senegal is reportedly tightly controlled by special interests, therefore making it difficult for new entrants to profit. Current profit margins range from 3% for local villagers to 54% for merchant union members who exercise significant power over the supply chains (Ribot J. , 2006). The profits that do exist are concentrated in to hands of few powerful players. Sup De Co sees benefit in the end goal of reducing deforestation, combating Typha, and limiting desertification. Therefore the uncertainties in profits alone are not likely to be a significant deterrent given the benefits of operating this business even if it just breaks even.

Financing sources Sup De Co can potentially enhance its ability to launch, scale up or expand their Typha charcoal operation by leveraging appropriate financing resources. Sup De Co should pursue private sector investment programs from development banks that operate in Senegal. These funds are typically more willing to take the risk of investing in a startup industrial scale operation than traditional banks in Senegal (Abbey, 2011). Many of these international development finance institutions prioritize initiatives which have a positive environmental impact as Sup De Cos business will. Senegals department of Forestry has grant funds available that could support pilot phase projects for Typha charcoal. They national government has subsidized gas in the past to help reduce stress on deforestation. Sup De Co should explore the potential for a similar subsidy for Typha charcoal as an alternative to wood charcoal and to oil which has been challenging due to price volatility.

The NGO ProNatura has partnered with Eco-Carbone, a broker of carbon credits, to offer additional project financing for green charcoal. In their advertised sample business model they project eligibility for 16

carbon credits that augment revenues by 87% of sales. Sup De Co should seek a green house gas or carbon offset asset broker to offer similar subsidy to their green charcoal operations. EcoCarbone helped ProNatura to develop their proprietary pyrolosis system as well as to find carbon offset investors. (ProNatura International, 2011) Such a partnership with an entity with international experience in green project finance is strongly advisable.

ENVIRONMENTAL IMPACTS

Sup De Co hopes to achieve various environmental impact goals with its Tyhpa charcoal business. Those goals are to reduce footprint of Typha in Senegals waterways, to reduce the rate of deforestation, and to reduce the rate of desertification in the country.

The impact on Typha is removing 8,700 hectares from Senegals riparian banks. This impact estimate is based on producing 52,500 tons of charcoal or taking 20% of the Dakar market share and this displacing 42,000 tons of wood charcoal from the market.

Deforestation is a significant concern to Sup De Co and a demonstrated priority of the national government. By taking market share from the wood charcoal industry Sup De Cos Tyhpa charcoal business can save trees at a rate of 7 trees per ton. We estimate that our operations would save 300,000 trees given sales of 42,000 tons of Tyhpa charcoal. This number could be influenced by several factors. It is possible that Sup De Co achieves its sales goals and deforestation doesnt diminish if due to increased cooking gas costs the overall sales of charcoal increases. The national government has tight control of wood charcoal quotas, so Sup De Co should seek to coordinate with the national government to encourage them to decrease wood charcoal quotas as Typha charcoal sales increase.

17

Additionally, if successful at reducing deforestation, Sup De Cos impacts would be helping to reduce desertification. Retaining trees will add to soil stabilization and moisture retention and therefore mitigate the desertification impacts in Senegal.

SOCIAL IMPACTS

Sup De Co can make positive social impacts by greening the charcoal industry and greening charcoal production jobs. By replacing the charcoal made through the highly regulated and allegedly corrupt wood charcoal industry, Sup De Cos success would have important social consequences. Today rural villagers who live in regions of Senegal like the Cassamance that are exploited for remaining wood resources get almost no financial benefit compared to the other parties in the charcoal value chain (Ribot J. , 2006). The value in the wood charcoal industry goes largely to the merchant union (whose heavy-handed leader is currently under investigation for fraud) and migrant worker groups that do not stay to contribute significantly to the local economy. Sup De Co hopes to employ rural women in sustainable jobs as it grows its green charcoal business.

Projected jobs created from a Sup De Co Typha charcoal business range from 2,756 for the large scale production to 4,328 using the 3-barrel method. 2,607 jobs are created across all production methods in rural areas from harvesting alone.

ALTERNATIVES

Our research shows that production location, production machinery, market access, and financing availabilities are key factors that would impact the success of the business. We suggest that Sup De Co consider the alternative opportunities below.

18

Distribution Centers: First alternative is for Sup De Co to set up distribution centers along the Senegal River to purchase charcoal from entrepreneurs who produce it on their on, presumable using a system similar to the 3 barrel system. Then Sup De Co could focus internal efforts on marketing and distribtion of Typha charcoal. On one hand, this allows the local community to produce charcoal either for their own use or generating additional income; on the other hand, Sup De Co leverages its marketing and distribution expertise (cultivated in the business school) to promote adoption of Typha charcoal. Advantages of this approach include: fast Implementation, low upfront investment, and encourage rural entrepreneurs.

Multi-national Partnership: Another alternative we would suggest is to partner with a multi-national charcoal manufacturer. In Senegal, charcoal is produced at a decentralized scale by many small players in the market. However, there might be international players with the appetite to tap into the green charcoal production, either for business expansion or sustainable development purposes. One example is Eco Carbone, a French company that brokers carbon credit trading, that partnered with Pro-Natura to set up their medium scale green charcoal system. This approach could get Sup De Co access to both technology know-how and financing.

Revisit alternate uses for Typha: Our S-lab Team focused on charcoal because of its significant local market size and potential for environmental impact by reducing deforestation as well as commercializing Typha. However our study has shown that charcoal seems to be a declining market with significant barriers to entry in Senegal. Sup De Co should further explore additional uses such as producing biogas, insulation, and fertilizer from Typha biomass.

RECOMMENDATIONS

19

Sup De Co is very committed to take action to address the significant environmental challenges associated with the spread of Typha in Senegalese waterways and deforestation in the countrys southern region. Commercializing Typha by producing green charcoal is promising as a way to potentially address these challenges and produce profits. However, charcoal is a very challenging industry in Senegal. Before launching a Tyhpa charcoal business in Senegal we recommend that Sup De Co work to further understand several factors including: demand for Typha charcoal, harvesting challenges, logistics of transport of Typha to be processed and of charcoal to markets, barriers to entry into the charcoal industry, and financing costs and availability.

Increase Demand and Awareness of Typha Charcoal Launch a marketing, education, and market research campaign to increase demand for Typha charcoal. Find out what segments of the population are open to the Typha charcoal. Examine the speed at which people choose to adopt Typha charcoal over other fuel methods and why. Study customer willingness to pay for Typha charcoal and factors that increase customers willingness to pay. Study what might be unique about the Dakar market regarding demand and willingness to pay for Typha Charcoal.

Find an Optimal Harvesting Technique Harvesting represents the greatest portion of the Typha charcoal production cost in our analysis. So far those studying Typha commercialization have proposed and tried several methods of harvesting. The challenge of Typha growing in water, and the fact that it must be cut sever centimeters above the water make the harvesting process challenging. We recommend that Sup De Co study harvesting techniques to settle on one that will have predictable costs. If Sup De Co wants to create jobs through harvesting, the capacity and costs of Senegals rural labor force will have to be considered.

Investigate Transportation Logistics

20

Our interviews and literature review suggested that drying and transporting Typha can be significant logistical challenges that drive up costs. However the examples that we found sited production facilities near the source of Typha. These examples did not require the extent of transport that Sup De Co would require to bring tyhpa (wet or dry) to the large scale processing facility. Sup De Co should conduct a pilot that require transporting tyhpa to a central location then shipped to markets in Dakar. Study the cost and benefit trade-offs to selling in Dakar compared to smaller cities that are closer to Typha sources.

Secure an entry point into the charcoal supply chain Make a close assessment of the charcoal supply chain to identify a good entry point. For this analysis we assumed that we will be able to sell to charcoal wholesalers but both union control and smaller Tyhpa charcoal margins are potential detterents to Dakar wholesalers from taking and distributing Typha charcoal.

Start with Small Scale We found that at the targeted scale (20% of Dakar market) the industrial scale tyhpa production would be most profitable. This is consistent with Sup De Cos hypothesis. However, we did not find evidence of actual demand being significant enough to justify the initial investment ($4Million) in industrial scale production. We recommend that Sup De Co produce charcoal at the small scale in conjunction with market testing, raising awareness within the market, and investigating optimal harvesting strategies. Once Sup De Co has observed evidence that demand for Typha charcoal will reach the scale studied (50,00060,000 tons annually), it would then be reasonable to invest in an industrial scale facility.

Seek partnerships As an educational institution Sup De Co could face many barriers in starting a business. We recommend finding strategic partners with experience raising financing and with operational experience in charcoal or

21

a similar industry. An international company with experience accessing carbon credits that can help to incorporate them as a revenue stream would be particularly helpful.

Investigate Financing Options and Costs Literature review and interviews with Senegalese professionals have emphasized the potential challenges of finding financing. We did not focus on this aspect, but we found a general sentiment that lenders in Senegal as well as the international finance agencies like the World Bank and IFC tend to be conservative when lending in Senegal. This can make borrowing difficult for a startup. Find out more about specific public and private financing options and what is required to access them. Forming the right partnership as recommended above can significantly help in this regard.

22

APPENDIX A
IMPORTANT NOTE Below session is a high-level business case comparison among the small scale, mid size and industrial level production, to show case the economical, social and environmental analysis. Costs of material other than Typha, packaging cost, marketing expenditure etc are not included, due to the lack of data support. Further studies are needed for investment decisions.
Basic Assumptions Number Item Exchange rate 1USD = 500 Working days per year 208 National charcoal consumption 350,000 % of charcoal consumed in Dakar 60% Assumption: SupDeCo market share in Dakar 20% # of CO2 equivalent emissions are avoided for each Kg of green charcoal produced 10 conversion: wood to wood charcoal 5 conversion: wood charcoal to typha charcoal (energy efficiency) 1.25

Unit CFA days ton per year in 3-5 years kg

Item conversion: green typha to charcoal conversion: dry typha to charcoal conversion: green typha to dry typha Total area covered by typha Green typha Typha charcoal market price Distance Ross Bethio, St Louis - Dakar conversion tree to wood Mass of avg tree

Unit 21 3.5 5.9 400,000 125 75 300 50% 680

ha ton per ha per year CFA per kg km kg

Volume of Typha charcoal equals to CO2 emission reduction equals to wood Harvesting Harvesting labor cost

ton ton ton $

Baseline - 20% Baseline - 20% Baseline - 20% Dakar @ 3 barrel Dakar @ midsize Dakar @ industrial Assumption 52,500 52,500 52,500 525,000 525,000 525,000 262,500 262,500 262,500 4,130,516 4,130,516 4,130,516 50% 250 8 5.08 2606.069712 499,800 183,750 10 500 5.33E-03 50% 250 8 5.08 2606.069712 499,800 183,750 10 500 5.33E-03

Source / Note

Premium for drying / harvesting Harvesting efficiency Work hours Daily salary Job created Person - harvesting Inbound Transportation Total dry matters ton Average Distance km from collecting point to Average Distance km from havesting point to Cost per ton per km $ kg / (person*hour) hours cost / (person*day)

Assume green typha will be harvested 50% and dried at the river side, before being need to be confirmed transforted to the production center 250 8 5.08 2606.069712 499,800 183,750 Assume renting the fleet, rather than owning 10 500 Dr. Dieng Average work week. 8 hours per day, 8 month per year, 6 days per week OECD report, in 2002 average salary at $220; 2540 CFA need to be confirmed Peradco report

Job created Person - transportation

Assume 1/8 of the length of the river, which is 4K km 12.5 tons 300km costs 1000CFA; 5.33E-03 Assume 10 times cost of high-way long need to be confirmed distance transporting Assume 2 drivers needed for each 10 9 ton truck; round trip would take 30 minutes; 8 hours per day

24

Production

Annual depreciation Operation cost (labor + fuel)

Baseline - 20% Baseline - 20% Baseline - 20% Dakar @ 3 barrel Dakar @ midsize Dakar @ industrial Assumption 46,816 370,500 400,000 1,766,702 627,525 130,904

Source / Note

Capacity per machine

ton / year

31

936

60,000

60K -MIT SUPDECO report Oct 2010; 31407 2004 PERACOD report; 45 ton per day - ProNatural website 32,500,000 CFA PREDAS fiche project

# of machine needed Cost per machine Fuel cost Total fuel cost $ $/ton $

1672 140 0 0 5 1 46,816 7,490.56 1672 8,400

57 65,000 0.48 25,240.38 10 10 370,500 59,280.00 570 8,400

1 4,000,000

cost of 500K CFA fuel PERACOD project 0.48 for 5 tons per day for proposal; six months 25,240.38 10 100 400,000 64,000.00 Assume 16% 100 8,400 It takes 5-6 hours from Ross Bethio to Dakar, 12.5 so assume one round trip per day, each truck carry 10 to 15 tons 1000 CFA per truck of Dr. Dieng 10 to 15 tons Assume 2 drivers 40 needed for each 10 ton truck 2 662,344 8.41% bench-mark wood charcoal 30 593,137 7.53% bench-mark wood charcoal 1500 need to be confirmed need to be confirmed need to be confirmed

Job created

PPE useful life year # of operators per machine Amortization $ Interest Expense $ Person - production $

Outbound Transportation

Average volume per truck per day

tons

12.5

12.5

Cost of transporting per truck Job created

2 40

2 40

Wholesale Mark up % Job created Retail Mark up % Job created

662,344 8.41% 30 593,137 7.53% 1500

662,344 8.41% 30

25

593,137 7.53% 1500

Summary -) Revenue @ market price Dealer mark-up Revenue @ selling to wholesalers harvesting + transportation cost + operating cost Gross margin Gross margin % Margin after amortization Margin after amortization % Total Job Created excl retailer and wholesales 7,875,000 1,255,481 6,619,519 6,405,418 214,101 3% 159,794 2% 5,858 4,328 7,875,000 1,255,481 6,619,519 5,266,241 1,353,278 20% 923,498 14% 4,756 3,226 7,875,000 1,255,481 6,619,519 4,769,621 1,849,899 28% 1,385,899 21% 4,286 2,756

-)

Impacts Typha cleared wood charcoal substituted wood substituted Trees saved Trees saved/kg charcoal ha ton ton 8673 42,000 210,000 308,823.53 7.35

26

APPENDIX B

Harvesting Typha

Typha Charcoal

Pro-Natura, Pyro 7

(ProNatura International, 2011)

BIBLIOGRAPHY
Africa Good News. (2009, April 23). Retrieved May 2011, from http://www.africagoodnews.com/development/environment/380-senegal-green-charcoal-to-saveforests.html Action Learning MIT. (n.d.). Retrieved May 2011, from http://actionlearning.mit.edu/s-lab Ankurscientific. (n.d.). Ankurscientific. Retrieved 10 5, 2011, from http://www.ankurscientific.com/ Bestenergies. (n.d.). Retrieved 5 10, 2011, from http://www.bestenergies.com/index.html Brewer, C. E.-R. (2009). Characterization of Biochar from Fast Pyrolysis and Gasification Systems. Environmental Progress & Sustainable Energy,, Volume 28, Number 3, p.386 - 396,. Carbongold . (n.d.). Retrieved 5 10, 2011, from http://www.carbongold.com/cacao_belize_project.html CBBQA. (n.d.). Retrieved from http://old.cbbqa.org/wood/Kingsford.html Chan, K. e. (2007). Agronomic Values of Greenwaste Biochar as a Soil Amendment. Australian Journal of Soil Research Volume 45(8),, p.629634. City Population. (n.d.). Retrieved May 2011, from http://www.citypopulation.de/Senegal.html Dharmakeerthi, R. S., & Chandrasiri, J. A. (2010). Use of charcoal as a soil amendment in rubber (Hevea brasiliensis) plantations: Effectiveness in young budding polybagged plants,. Third Symposium on Plantation Crop Research (pp. p.179-188). Colombo, Sri Lanka: Stakeholder Empowerment through Technological Advances. Elbersen, W. (2005). Report on bus ticket no. B1. Garcia-Perez, M., Lewis; C., T., & Kruger, E. (2011). Methods for Producing Biochar and Advanced Biofuels in Washington State Part 1: Literature Review of Pyrolysis Reactors. Ecology publication number 11-07-017. Washington State University. Kamimoto, L. K. (2005). Economic Feasibility of Bagasse Charcoal in Haiti. Thesis for Bachelor of Science at the Massachusetts Institute of Technology. Kingsford. (n.d.). Retrieved 5 10, 2011, from http://www.kingsford.com/our-heritage/

28

Lehmann , J., & Joseph, S. (2009). Biochar for Environmental Management. London: Earthscan. OFID. (n.d.). Retrieved 4 30, 2011, from http://www.ofid.org/projects_operations/private_sector.aspx Practical Action Consulting. (2009). Small-Scale Bioenergy Initiatives. Ribot, J. (2006). Double Standards on an Uneven Playing Field. World Resources Institute. Dakar, Senegal: World Resources Institute. Ribot, J. C. (n.d.). Distribution along Senegals Charcoal Commodity Chain. Trading Economics. (n.d.). Retrieved May 2011, from http://www.tradingeconomics.com/senegal/indicators UNDP. (n.d.). Retrieved 4 30, 2011, from http://www.undp.org/energyandenvironment/EETTF.html Water Siemens. (n.d.). Retrieved 5 10, 2011, from http://www.water.siemens.com/en/products/activated_carbon/Pages/coconut_shell_comparison_c oal.aspx Whitford , B. (2008). Biochar: Ancient Fertilizer for Modern Farms. Plenty Magazine. Wikipedia. (n.d.). Retrieved May 2011, from http://en.wikipedia.org/wiki/Senegal

29

INTERVIEW LIST
Name Richard Coco Agbeyibor Amy Smith Organization / title MIT student Area of Expertise Spent IAP in Senegal; visited Sup De Co and PERACOD Lots of experience in International Development, particularly for charcoal production Charcoal industry expert Interview date & topic 4/10/2011. Provided an overview of the project 4/26/2011. Overview of the D-lab charcoal projects. Shared key lesson learnt 4/26/2011. Overview of the D-lab charcoal projects. Shared key lesson learnt 4/26/2011. Provided charcoal project SME contact info 4/29/2011. Provide an overview of their project in India. They have successfully partnered with Philips in bringing to the villagers the eco-chulha (a firewood based cook stove) 5/2/2011. Shared experience and insights about project in China and Rwanda. Discussed about the D-lab small scale charcoal production technology 5/3/2011. Shared insights about the charcoal industry in Senegal 4/30/2011. Discussed entrepreneurship, business financing, and charcoal industry in Senegal 5/2/2011. Discussed his household use of charcoal and other cooking fuels. Including price changes, gas shortages, and incense use. 5/2/2011. Discussed the charcoal market and local government in Saint Louis region. 5/5/2011. Discussed charcoal industry and market in Senegal. Shared experiences of his father who does business in Senegal.

MIT D-lab lead

Amy Banzaert

MIT D-lab instructor

Jessica Huang Ramesh Venkataraman

MIT D-lab staff Jungle Scapes

Project coordinator Charcoal production from Lantana in India

Manpreet Singh

MIT D-lab alumni

Green charcoal projects in China and Rwanda

Jesse Ribot

Dovi Abbey

University of Illinois, Political Science Professor Senegalese Business Man From Dakar

Charcoal in Senegal

Business in Senegal

Khadim Thiam

Magueye Seck

Professor of African and French Literature at University of Ohio. Former resident of Dakar, Senegal Resident of Saint Louis, Senegal

Dakar households, Senegalese culture

Senegal politics and Family life

David Ly

MIT Sloan MBA student, from Senegal

Senegal life and business

30

31