A new three-legged platform for the advanced bioeconomy? The Castor, jatropha, pongamia strategy.

Castor, jatropha, pongamia — the three steps that Bosques Energeticos is taking in piloting its way to success in fuels, chemicals and other markets. Can the early-stage company thrive, based on its uncommon approach to intercropping?

The Digest investigates.

In science, there exists the difficulty in developing a new energy crop —  improving yields and stress tolerance, identifying the right geographies for deployment, developing and sharing the agricultural practices and training, and so on.  A number of new energy crops and residues have been brought along by companies such as Agrisoma, SGB, Yulex, Ceres, Chromatin, NexSteppe and more, despite the odds.

But there also has been the difficulty in developing an economic model for deployment, that proves more attractive and safe than the “here’s your seed, get going” approach that has proven uninspiring to local growers.

Indeed, growers have proven adept at trialing new energy crops, but bailing at the first sign of trouble — and the lack of robust models for deployment that offer sufficient returns is a prime reason for that, No more so than with the introduction of new, high-yield perennials, trees and bushes whose seeds take years to develop but provide excellent economics in the long-term. Annuals have been easier to deploy, given the fast returns.

Along comes Bosques Energeticos to change that. A Mexican early-stage company, it has been best known for developing improved jatropha varietals. But as former SBG CEO Kirk Haney often observed, “it wasn’t jatropha that failed, it was the jatropha business model that failed.”

So what’s different about Bosques?

For one, it’s an intercropper, in terms of deployment — multiple crops go into the same field.

We’ve seen increasing attention to multi-crop strategies in recent months, as sweet sorghum continues to to attract attention as a companion to sugar cane, proving impressive sugar yields in the four months of the year when cane is not harvested.

So, there’s off-season potential. But what about the pre-season potential — the period when jatropha is coming to maturity?

In fact, that’s what the Bosques multi-year, multi-crop strategy is all about. In their model, growers plant castor as a lower-value, but relatively instantaneous oilseed cash crop — at the same time as jatropha is planted for the mid-term, and pongamia is planted for the long-term.

Legendary’s interest

“D1 and GEM rise to prominence and collapsed, all associated with jatropha,” said Zafar Karim, chairman of Legendary Investments, a listed London company which invested in Bosques in 2010 and effectively put them on the map. “And one of those ventures was quite serious in its ambitions, and relatively accomplished. So, I grilled Bosques hard when I first met them. One thing I saw is that one of the biggest problems with small companies like Bosques is actually that they are so unknown and under the radar that it becomes a problem. but investing via a listed company we have given them a profile, without their having to be a listed company themselves at this time.

Pon-what?

Yes, pongamia — grown most extensively in India, but generally not grown in much volume anywhere around the world, and not because its oilseed yields are not tempting in the long-term. Simply put, the tree takes too many years — think 5-7 — to get established to tempt many growers.

So, think years 1-3, castor dominates, years 4-7 the jatropha comes into its own, and for the long-term pongamia provides the enduring high-value.

Follow the agronomy

“We need bring forward the cash flows,” said Karim. “The key is to make it economically more attractive to growers, and follow a strategy of looking at what others had done in the field, see what the fundamental reasons behind the mistakes, avoid those and do better.

“One thing we found is that it’s not about the lab, it is about doing it on the ground. Finding elite types, don’t compete with food, be soil improving, and make sure you empower the people on the ground.

“In the early 2000s the companies used outsourced farming. There’s little control when you outsource.

Farmers give up very quickly. Our view is to do estate farming — have our own farmers and train them. Of course, it becomes easier to do this and get the land you need in the places you need it, when you are investing in the local economy, and improving the soil.

“Also, the problem with the seed marketer as opposed to being an oil marketer: if we sell just the seed, and let other people do the work, there’s knowledge you transfer with a new crop, and you lose that value once they have your seed.”

Improving yields and speed

“With pongamia,“ Karim said, “typically you get flowers in year 4 and seeds in years 5, so far as we knew no one had gotten flowers in 2 years, but we are doing that now with our 4G pongamia. With out 4G jatropha we are now producing fruit and seeds in under 1 year, and our pods contains 3-4 seeds. Jatropha typically fruit and flower 18 months.”

Margins and yields

“If we look at year one and year two, we project per hectare 1200-1300 kg from castor, and that’s conservative. After year 4, pongamia and jatropha kick in. We see jatropha starting at 500 and getting up to up to 5500 – 6000 kg per hectare of seed, with the higher 30s of oil content, by year 5.

With pongamia, we see as much as 3000 kg of seed in year 4, 10000 by year 7, and in the 17000-18000 range by year 10.

Margins? Castor, we see at 55-60 percent gross margin, and that’s not out of the norm. Jatropha we see it start around 30 percent and peak at 70 percent. Pongamia, we start at high 60s then peak at more than 90 percent.

“It’s something like olive groves,m where in the first year you see zero or negative margin, but at maturity, it’s almost like you have to just shake the trees with shaker a couple of months of the year. That’s why we have a long-term focus on pongamia.”

Models

Right now we are planting on 20 hectares of our own and trialing elsewhere— as opposed to doing all the work in the lab or going immediately to 1000 hectares or more. I told the team, when we invested, “I don’t want you to do 1000 hectares, I want to focus on developing the jatropha on small scale, and get the profile right.

“We have pursued that over the last 4 years. But 20 hectares is one thing, but once you go to 500 or 1000 you have scalable operations, and so our next step is to go to 500-1000 hectares and make sure we get the operations right. Then, we’ll list the company

Next steps

“Now, we can go out and seek partners — partners who will bring land, or capital, or “in the space” expertise.

Geographies? “It’s easiest to be in Mexico, but we have had discussions with respect to Africa and Southeast Asia. SInce we have had success taking plants from India and doing well in Mexico, I am reasonably confident we can do a test plantation in other parts of the world, and prove out our model elsewhere over time.”

The Bottom Line

Bosques has a fascinating approach to establishing a business. Do they have the right seeds — combining robust yields with a broad enough geographic potential? Time will tell. But one thing is for sure — it’s one of the most interesting ways we have heard described of how to provide shorter-term returns and lowered risks for investors who will like the long-term numbers of pongamia but wonder how to make an investment perform well in the early years.