SunCulture Annual Letter 2020

Dear SunCulture Supporters,

We’ve always known that SunCulture is important to our customers, their families, and their communities. But this year showed that being a SunCulture farmer makes all the difference. This is most easily seen when comparing how SunCulture farmers fared versus non-SunCulture farmers in 2020. 

Our friends at 60 Decibels, an impact measurement company, spoke with farmers in Kenya during the height of the pandemic, and this is what they found: 

• 87% are in a worse financial position due to the pandemic
• 90% have used a financial coping mechanism such as digging into savings, selling an asset, or borrowing money
• 63% are receiving lower prices for their produce, even though 68% say that food prices are higher - which means that the price increase has not made it down to the people who grow the food

As 60 Decibels put it, 2020 has been exceptionally hard for Kenyan farmers. Their farms have been ravaged by floods and locusts, and, since March, a national curfew due to COVID-19 has brought the farming economy to a stand-still.”

A 26-year-old farmer summarized the situation, saying, “Both lives and livelihoods are at risk from this pandemic. We risk a looming food crisis.”

Here’s how SunCulture farmers did during the same period:

• 81% increased their revenue from farming
• 87% increased their production on their farm
• 95% improved their overall quality of life

While these results make me proud and have helped motivate me to work through the challenges of 2020, they are also heartbreaking. These positive outcomes should be the reality for all smallholder farmers. There’s still a lot of work to do. One of our customers put it perfectly: “This [SunCulture system] has completely changed my life for the better, and I would love it if everyone had one. 

I would too.

In addition to supporting our customers during these times, we’ve also supported our team. Nearly 2 million Kenyans lost jobs between April and June 2020, but we did not fire or reduce salaries for anyone. In fact, the Dream Team grew last year. We are deeply grateful for their heroic work helping to ensure that SunCulture farmers had a good year.

And when our farmers have a good year, our company has a good year. We raised $25 million ($14 million Series A equity, and $11m debt) -- big shout out to our existing investors who participated in this round, Energy Access Ventures (who lead the equity round), EDF, Alphamundi Group, and Lion’s Head Global Partners. And another big shout out to our new investors, Acumen Capital Partners, DPI, SunFunder (who lead the debt syndicate), Triodos Investment Management, and Nordic Development Fund. We’re lucky to have such a good crew around the table. This fundraise is allowing us to dramatically accelerate our growth and international expansion during a critical time.

We also established a groundbreaking partnership with the government of Togo. With our help, the government is providing thousands of solar irrigation systems to smallholder farmers across the country at a subsidized price to promote off-season and higher-value agriculture. This represents Africa’s first-ever large-scale public/private partnership utilizing smart, targeted solar irrigation subsidies to tackle food insecurity.

We’re excited to be piloting what we hope will become a go-to solution across sub-Saharan Africa. While this is, of course, a win for SunCulture, it is a bigger win for the future of climate technology on the continent.

***

For many years, everyone asked me, “does solar irrigation work?” But, over the last 12 months, no one has asked me about the viability of solar irrigation. Now, people are asking me, “how do we scale this?” I think this shift in the conversation is happening because of three things: 

1. Food security - Covid-19 has triggered a global food emergency (World Food Program, United Nations, New York Times)
2. Poverty - the World Bank reported that global extreme poverty is expected to rise in 2020 for the first time in over 20 years, with the Covid-19 pandemic estimated to push an additional 88 million to 115 million people into extreme poverty (potentially up to 150 million people)
3. Climate change - the world is on fire and being drowned at the same time. 2020’s extreme weather and climate events brought this issue closer to home for many people. The wild Atlantic hurricane season (which had more than double the activity of an average season), an apocalyptic wildfire season, Super typhoon Goni in the Philippines, and flooding in China that did $32 billion in damage are some of the many events that made 2020 one of the most destructive years to date for climate change.

Solar irrigation is a solution that can address all three of these problems. 

You can see from some of the numbers I wrote earlier in this letter, solar irrigation helps create food security and sovereignty, and it also helps lift people out of poverty. What people often don’t discuss is how solar irrigation mitigates the effects of climate change.

• Solar irrigation replaces diesel water pumps, which are significant contributors to global climate change through greenhouse gas emissions.
• Bad irrigation practices, like flood irrigation, lead to fertilizer runoff, which occurs when the ground gets more water than it can absorb, and fertilizer is washed away into rivers and oceans. “As a result, algae and other microorganisms take up the nitrogen, bloom and, after they die, suck the oxygen out of coastal waters,” Scientific American says, which kills ocean life. Solar irrigation reduces this runoff and subsequent killing of ocean life. 
• Solar irrigation increases farmer incomes, reducing their need to cut down trees to make charcoal to sell for supplemental income. This significantly reduces deforestation, a primary contributor to climate change.

Given the positive societal and environmental benefits of solar irrigation, it makes sense to ask how to scale it. 

There is significant demand for solar irrigation, sufficient operational capacity to distribute systems to smallholder farmers, and abundant capital. But there is a capital allocation problem that needs to be addressed. To address this problem, we need to decide how capital needs to be allocated differently, and what it needs to be allocated towards. I go through these below, and I give suggestions of actionable next steps. Let’s start with the how.

The how: from ‘spray and pray’ to focus 

In a report that Shell Foundation published in 2014, they note that, 

“In our early years, we selected grantees by consulting widely, publicising our areas of interest and then reviewing multiple proposals – a classic ‘Request for Proposal’ methodology based on offering short-term (i.e. less than three years) grants of less than $300,000 to a multitude of not-for-profit organisations.  

This ‘spray and pray’ approach was marred by a fundamental lack of success, with over 75% of grantees in our first three years failing to demonstrate any potential for large-scale impact and financial independence. The quality of applications we received was poor and, of those we selected, most failed to even achieve their basic stated objectives due to poor execution, an inability to ascertain the true needs of the market and insufficient expertise to develop a business model that could progress beyond a long-term reliance on subsidy.  

Through a process of trial and error, we discovered we could radically improve our philanthropic effectiveness by focusing resources (time, money and effort) on developing new approaches with a few carefully-selected entrepreneurial partners, and supporting them to build the organisational capacity needed to validate and scale new market-based models.”

They report that this focused model, where funding is concentrated with few carefully-selected interventions, resulted in a 77% success rate, vs a 75% failure rate for the ‘spray and pray’ model.

While the data is difficult to collect, my guess is that these numbers hold true for donor-funded programs around the world.

I think that the ‘spray and pray’ approach is needed to discover what could be successful in new sectors or in sectors that are experiencing rapid technological changes, such as natural language processing or machine vision. We previously needed the ‘spray and pray’ approach to figure out what solutions could sustainably increase food security, reduce poverty, and mitigate climate change. But now we know what works - in fact, I’ve asked experts in all of these sectors if they could pick five interventions to allocate all available capital towards over the next five years. Every person I’ve asked has said yes. This means that we need to change how we allocate capital.

My proposal: a “5 for 5” campaign, where sector leaders come together to select the 5 interventions that we, collectively and globally, will focus on over the next 5 years to see significant improvements. This does not mean that we won’t fund R&D, but rather, we will focus most of our capital on these 5 interventions. We need fewer $100,000 or even $1 million grants; we need more $100 million grants going towards fully implementing and scaling interventions (like what the MacArthur Foundation does). This will create systemic changes in these sectors.

In an ideal world, we would be looking at interventions with a 50-year time horizon, reviewed every 5 years for relevance. But I think to start changing the way we allocate capital, we need to begin with 5-year time horizons and work our way up. 

I think Concordia, a nonpartisan organization that develops cross-sector partnerships for social impact, is well-positioned to coordinate these “5 for 5” meetings, which could line up with their annual summit in September. Here’s how they can do this:

• February and March: identify and organize experts in key sectors
• April and May: run a process to identify 10-15 interventions/solutions that would be debated to be on the “5 for 5” lists. They could run a process to collect proposals similar to the one Chamath Palihapitiya ran to source ideas on how to allocate $1 billion towards fighting climate change
• June: selected expert committees narrow down to 10-15 ideas per sector
• July and August: host virtual meeting for developers of selected ideas to share more detailed proposals with their peers
• September: meeting at annual summit to select the “5 for 5”, and we’re off to the races

If solar irrigation makes it on a “5 for 5” list, which I believe it will, we’ll then need to answer the next question: what do we allocate this capital towards in order to scale solar irrigation?

The what: old concept, new markets

Because so much data has become available over the past couple of years on the benefits of solar irrigation, this question is now easier to answer. Dalberg and Mercy Corps dug into this in their policy brief, titled “Achieving Food Security in Kenya Through Smart Solar Irrigation”.

They used Kenya as a case study for scaling solar irrigation because Kenya has set a goal of reaching 100% food security in the country as part of the President’s Big 4 Agenda, with irrigation as a key part of the solution. The quantitative analysis on returns for farmers, funders, and the government in the brief is excellent.

The Kenyan government has set national priorities to increase irrigation, reduce food insecurity, increase agricultural GDP, and increase smallholder farm income. To achieve these goals, Dalberg analyzed four investment proposals to increase production and smallholder income, which could dramatically scale up the solar water pump market. They noted that “once the market is at scale, it will continue to grow through increased income by smallholder farmers, and improved economies of scale for distributors and financiers.” These investment proposals are intended to be short-term and only used to develop the market.

The four investments they analyzed are:

1. Subsidies
2. Incentivizing financial institutions to extend credit
3. Supporting a wide-scale awareness program
4. Providing financial support for water access

Of course, combining all of these interventions would result in the best outcome. If we had to choose one, rolling out a subsidy results in the highest number of solar water pumps sold, most food produced, and largest increase of smallholder farmer incomes over a five-year period.

Dalberg’s proposed solar irrigation subsidy program in Kenya would cost about USD 96 million over five years. That’s not a lot of money to achieve food security. Their full analysis can be found in their report.

There are a number of questions to answer when designing a solar irrigation subsidy program, and the answers to these questions will differ based on time and market. The good news is that there are many case studies and smart people to turn to help design a subsidy program. I will, however, address two questions with actionable answers here. The first question is: who should be managing these funds? And the second question is: how do we ensure the quality of products?

Who should be managing these funds?  

In most cases, I think that the subsidy should be managed by a neutral third party. This ensures that there is no bias or foul play when distributing the funds. We have to think about accountability, transparency, and verification when considering how to disburse these types of funds. CLASP has already done this with its results-based financing (“RBF”) appliance financing program. This program deployed subsidies to help facilitate the sale of more than 280,000 quality-assured, best-in-class, off-grid appliance products across seven national markets, which provided new or enhanced access to energy to more than 1.2 million people. Included in this program were subsidies for solar irrigation. They have the experience, the technology, and the systems to appropriately manage, distribute, and evaluate the effectiveness of a large solar irrigation subsidy program in multiple countries. 

How do we ensure quality of products?

The CLASP-managed RBF appliance financing program used the Global LEAP Awards Buyers Guide for Solar Water Pumps. The Global LEAP Awards is a UK Aid, USAID, and Power Africa-backed “international competition to identify and promote the world’s best off-grid appliances, accelerating market development and innovation.” They also mention that “All Global LEAP Awards Winners and Finalists undergo testing by accredited laboratories for their energy performance, quality, and reliability, and an evaluation by a panel of off-grid market experts” They provide an easy solution to any quality assurance questions.

My proposal: use what’s working (CLASP and the Global LEAP Awards Buyers Guide). 

Lastly, organizations like the Access to Energy Institute (A2EI) are well placed to help design and implement these programs, and I think they can play a major role in helping roll things out with speed.

Here’s a summary of the proposals I’ve briefly outlined above: 

1. An organization like Concordia to coordinate meetings to come up with “5 for 5” in a number of sectors
2. If solar irrigation makes it to a “5 for 5” list, use subsidies to scale them
3. An organization like A2EI to help design the program
4. An organization like CLASP to manage the facility
5. The Global LEAP Awards to ensure quality assurance

Simplify to get results

Another thing we’ve learned from the Covid-19 crisis is how incredibly resilient and ingenious humans are. The medical advances we’ve made in the last year are a testament to this. At the same time, we have a number of cognitive biases that hinder our ability to process large, long-term threats, like climate change.

Covid-19 was an immediate, in-your-face type of threat. Climate change is slow, complex, and encompasses a lot of different subjects that so many people are unfamiliar with, like Arctic ice melting, thawing permafrost, how hot air manipulates jet streams, acidifying water, the shifting reproductive and migration patterns of Arctic plants and animals, and the list goes on. And as humans, our cognitive wiring makes it difficult for us to address long-term challenges like this that threaten our existence. 

Dr. Matthew Wilburn King characterizes this phenomenon well. He says, “We know that climate change is happening. We also know that it’s the result of increased carbon emissions from human activities like land degradation and the burning of fossil fuels. And we know that it’s urgent...But that information hasn’t been enough to change our behaviors on a scale great enough to stop climate change. And a big part of the reason is our own evolution. The same behaviors that once helped us survive are, today, working against us.” 

But we know this. We know that evolutionary cognitive biases such as hyperbolic discounting (preferring an immediate reward rather than a higher-value delayed reward) and the bystander effect (someone else will solve this problem) are in play here, yet here we are. In his State of the Planet speech in December 2020, United Nations Secretary General Antonio Guterres said “Covid and climate have brought us to a threshold.”

With so much information available about how devastating climate change is, and an unlimited menu of solutions, we often run into analysis or decision paralysis. Decisions are treated as over-complicated because they have too many detailed options, which results in decisions not being made because we’re looking for the “perfect” solution.

We need to simplify things for everyone. We need fewer reports discussing how and why things are so bad, and more business plans using detailed mathematical analysis to show how solutions can be implemented and their impact. My hope is that the “5 for 5” campaign will help all of us — founders, policymakers, businesses — align away from inaction, and towards action. Because in this situation, at this threshold, inaction is not an option.

***

As always, I am deeply grateful for the partners, mentors, colleagues, friends, and family who have supported us in our journey.

This year I’m particularly grateful for the Dream Team at SunCulture. When you hire people, you test their ability to respond under pressure, work in teams, and solve complex problems. But you can’t test how they will respond in a crisis. So when the pandemic reached Kenya on March 13, 2020, all we could do was sit back and hope that the people and processes we put in place held strong. And they did. And because of that so many smallholder farmers didn’t have a bad year.

There is much more work to do.

Onwards and upwards,

Samir Ibrahim, CEO & Co-Founder, SunCulture