By Dave Ramaswamy
AAM: Please give an overview of your company? Operating History? How/when did you decide to enter the grain storage business?
Blumberg: Several generations ago my father’s side of the family immigrated to America. They settled in Dothan, Alabama, the “peanut capital” of the United States. That’s when our family got into farming, growing cotton and pecans. Our family later dispersed across the U.S. but kept that farming backbone to some extent. In South Florida, we grew mangoes, tomatoes and other crops. From that history, we knew that storage and control over supply chains, from farm to retail, were the key to ensuring agricultural profitability
A couple of generations later, my grandfather, David Blumberg, became a developer in the city of Miami, where he was responsible for some of the largest residential and commercial real estate projects outside downtown. My father, Philip Blumberg, after graduating from Harvard Business School, started a construction company, Southern Projects, the origination of what was to become Blumberg Capital Partners. Starting in the early 1990s, as the youngest investment manager in institutional real-estate, he was able to raise money from family foundations, pension funds and other institutional investors. This he invested in Class-A commercial office space.
Through an approach that was both conservative and disciplined, he was able to build the leading investment fund in that sector. It delivered average annual returns of 18 percent through the ’90s and 2000s. One method he used for tracking and forecasting pricing was through analyzing the inflation component of the commodities that served as construction materials. A building is nothing but a bundle of commodities, an assembly of copper, nickel, glass, steel and concrete. So his company had a team that tracked those underlying commodity prices.
In 2006 my father saw a cliff on the real estate horizon and started divesting his real estate assets. The company returned 22 percent to its investors in 2007 – the highest-performing fund of its kind that year. The company was sitting on some sizable cash reserves at the end of the process. Looking to diversify the business, my father decided to focus on commodities. He decided to set up a fund, not focused on virtual assets, but to invest in actual brick-and-mortar projects.
For the commodities fund, the company looked at investments across the globe – wind farms in west Texas, rare earth deposits in Greenland, solar fields in India, etc. On a trip to India in 2010, to check on a solar field investment, our team traveled into a thriving agricultural area. It was the end of a bumper harvest season, and people were packing wheat into small warehouses called “godowns.” Due to a big harvest, and lack of fixed storage capacity, the wheat spilled over onto the area outside the godowns. The nightly rains had then started in earnest and would wash this wheat away onto the streets. The next morning cows and other animals were feasting on this rotting wheat. That year India lost a large part of its wheat crop to post-harvest losses, while hunger persisted across the country.
My father decided that food security was an area where someone needed to step in and play a role. Our company did research into post-harvest losses in grains, into agricultural value chains and into different emerging markets across the globe. And what became clear was that while India has problems with post-harvest losses, it is in a much better position relative to countries in Africa and some countries in Southeast Asia and South America.
So it was the trip to India in 2010 that made clear to us the opportunity in grain storage. My father found that it was an opportunity to use our expertise in real estate in combination with the latest technology from the United States. The company set up an R&D center in Ames, Iowa, a scientific hub in U.S. agriculture. And we started working with Iowa State University to develop our products and systems. We formed a team to come up with an offering for emerging markets to solve the issue of post-harvest losses.
The key was to develop a storage system that was simple to maintain and that also utilized the highest levels of technology. This included things like aeration fans, dehumidification systems and inventory management systems. The storage system would have built-in security with keypad entry and security cameras that could be monitored with an iPad. It could even be equipped with sonar guns, which blast sound waves at a person’s inner ear, and that would force any intruder to leave the warehouse.
Even though the name of the company is Blumberg Grain, we also knew that the issue of post-harvest losses affected the perishables (fruits/vegetables) area. So our Applied Engineering team developed systems that not only use refrigeration technology but also build in a controlled atmosphere capability. In the storage room, this displaces oxygen with nitrogen, unlike other systems that use lethal carbon dioxide. It’s the technologies we use in the warehouses that make us a market leader in food security.
AAM: Could you give us an overview about your range of storage systems?
Blumberg: We have our Grain Vault, which is a warehouse that can accommodate 1500 metric tons of grain, in a 600-square-meter facility, which we can put up in three days. We target this at smaller trading operations, farmers etc. It can also serve as the foundation for a larger network of disparate warehouses.
We also have huge systems that can accommodate 60,000 metric tons of grain or more. These compete with silos and surpass them on many levels. They have inflow/outflow rates of 200 metric tons per hour using pits, screening systems and drying systems. We use a new technology, designed with experts in the plastics industry, where we can fill 1.5-metric-ton FIBC jumbo bags. We’ve put them through a process where we vacuum seal them, and by doing that we extract the oxygen from the environment. This also allows for natural fumigation of the crop in the package. We don’t have to apply any hazardous chemicals, and because we are able to bring the oxygen levels in that bag to almost zero, grain can stay preserved for decades. This is game-changing technology.
We have the Blumberg Arctic Vaults which are refrigerated storage warehouses. Take a mango, for example. If you’re able to use controlled atmosphere technology with a mango, you can extend the shelf life of the mango to six months.
The Blumberg Grain warehouse is only one part of the equation. In order to maximize gains for our clients, Blumberg Grain offers a proprietary network management system that helps form the backbone of a country or company’s food supply and crop management program.
AAM: American companies perceive Nigeria as a difficult place to do business. Would you tell us about your work there?
Blumberg: Right now, there are many agriculture initiatives in Nigeria under the leadership of Minister [Dr. Akinwumi] Adesina. At the Nigerian Economic Summit in 2013, the focus of the summit was agribusiness in Nigeria. I spoke there about the issue of post-harvest losses. At the end of my talk, the farmers in the audience stood up and said, “We need Blumberg Grain Warehouses.” Minister Adesina, whom we had been in discussions with previously, spoke at the conference the following day and said he was going to buy 800 Blumberg Grain units, one for each district across Nigeria. Fast forward, and Nigeria is now receiving a large order of Blumberg Grain systems, for development across many states. The systems are mostly cold storage. In fact, the split is 75 percent versus 25 percent between cold storage and grain storage. Some of them are controlled atmosphere, and it’s the first time that this technology is going to be used in Nigeria. The minister is excited about this project. Our products catapult Nigeria into the 21st century when it comes to agricultural value chains, particularly in the crop storage space.
AAM: What is your business model? Who pays for the warehousing system, the government or private sector? What is the investment required for a standalone system? What is the payback period?
Blumberg: Blumberg Grain provides food security systems to both private- and public-sector clients. The main model by which customers use our technology is on a rental/leasing basis. In Nigeria our products are used in this way. Nine different states are receiving our technology. They’re going up now, but the government is renting them out to the private sector at subsidized rates. This is because the private sector has a problem with accessing financing, accessing land, accessing civil works etc. to get these storage facilities up. So the government is putting them up for the private sector to rent later.
What our storage system does in a country like Nigeria or many of the countries where we work is that it enables the farmer or trader to (1) cut down on the post-harvest losses that they suffer (in essence, doubling their true output); and (2) realize a sales price difference between the harvest season and that lean season that could be 400 or 500 percent higher. It puts a lot more money into the farmer’s or trader’s pocket.
As a result, the payback period on our technology is quite short. This is especially true, if you’re able to take advantage of this market timing arbitrage opportunity. In many instances, with our systems customers can recover their investment within one year.
AAM: Do your systems run on a variety of power inputs? Grid power is not always available or reliable, with voltage fluctuations, in these markets.
Blumberg: Good point. When designing our systems, we told our R&D team that they should plan for poor infrastructure as well as harsh climates. The Applied Engineering division designed our units so that a 600-square-meter facility (with 1500 metric tons of storage) can pack up into just one 40-foot cargo container. Our engineers designed our units for fast installation – as little as three days. They designed them for flexible use. Our units are modular when it comes to adding capacity and are upgradable when it comes to adding our technology options.
Speaking to your point about energy – it was clear that the units would have to be able to handle different kinds of energy supply. So we offer solar power, wind power, etc. as a supplementary power source for these systems. Our Grain Vault can run completely on solar power.
AAM: Is it solar PV? How exactly does it work? How do you handle power failure and redundancy?
Blumberg: That’s correct, Solar PV on top of the warehouse roof. You can get quite a bit of power out of those panels. What we’ve done is leverage technologies on the inside of our warehouse that are energy-efficient. The only issue is the cold storage component for which the power needs are quite high. Our cold storage could run on 100 percent solar power, but it then becomes inefficient from an economic perspective.
For our refrigerated storage, what we suggest to our clients is to locate these close to the existing grid. If that isn’t possible, we need to have generators in place to run the system. Even if we’re on the grid, we have the option to hook into different independent power solutions.
Our video on the technology describes this flexibility and some other features of our systems: http://www.blumberggrain.com/video/
AAM: What is the secret of your success in these demanding markets?
That is because of two things: first, the success that we have realized in the market vis-à-vis the application of our product; and second, for some reason, there haven’t been companies that emerged to play a role in this storage space in these emerging markets.
When you look at these developing countries, our competition is, for the most part, local concrete contractors. These contractors put up a concrete warehouse that has only a tangential application to food security. The warehouse offers no specialized ancillary options or specialized components. They don’t provide the safety and security needed to keep the crop preserved in-condition. So you continue to see high post-harvest loss rates.
We designed our warehouses with coatings and primers that reflect about 65 percent of the sun’s heat. We have seals that create foam closures between each panel. This means you don’t have leakage and you don’t have water coming into the facility. We’ve designed our warehouse to be basic nuts-and-bolts assembly, so any skilled labor can put it up fast. So there are no problematic issues with construction, and we can be sure the facility works as intended.
In agriculture, the harvest season dictates the timeline for construction projects. If you miss the harvest season deadline, you lose that year’s benefit. It is critical to be fast and timely. We hold the record in the industry for the ability to get 600 square meters of covered storage up, in three days.
AAM: If a private party approaches you interested to buy, what are the different options – and what are your price points?
Blumberg: Our systems are customizable. Though we have different product lines, they are all systems that come out tailor-made for the customer. We like to work them through a process where we identify what their needs are, and we come up with the solutions that meet them. When it comes to the private sector, the solutions are the same as what we would do for the public sector. I talked about our Grain Vault and Arctic Vault. We also offer our Self-Contained Bulk System that competes with silos. This system beats silos on cost, quality, natural fumigation, safety etc.
Every silo project that I’ve seen in Sub-Saharan Africa has failed because silos are difficult to maintain. Also, suppliers of silos are coming not from Africa, but from Asia, Turkey, North America and Brazil. For example, to fix a panel that breaks is difficult. You have to first evacuate the silo when you do maintenance, and then it takes too long to get spare parts to the site.
We designed our systems to be easy to manage and maintain. All our systems come with our export and repair kit. With our shipment you get a full kit of spare parts, to enable easy swap-out of a broken panel, or cracked gear – as the case may be. Because our structures are horizontal, it is easy to do that maintenance.
We designed our systems to be cost-effective – that’s the key variable that people use to compare in Egypt, Nigeria, D.R.C., etc. Cost is a bottom-line factor when making procurement decisions.
As an example, we can compare our Self-Contained Bulk System to a silo system that is 15,000 metric tons in capacity. The silo system with turnkey installation will set you back about $235 to $240 per ton. Compared to that, our system will cost you about $200 per ton. We include costs for the site prep (because foundations are a factor that we have to consider). So you see an almost 20 percent price difference between our systems and systems available in vertical silo form.
AAM: How did you target countries like Nigeria, D.R.C, Egypt? Could you speak about the sociopolitical implications of your work?
Blumberg: Blumberg Grain works across the globe. We’re in South America. We’re in the Middle East. We’re in Southeast Asia. And as you pointed out, we’re active in Africa. The common thread across the countries we target is a huge incidence of post-harvest losses. That is the main reason we are there, and the governments there have set an agenda for tackling food, water, and energy shortfalls.
Ministers and government officials now realize that the fastest way to increase farm productivity is to reduce post-harvest losses. In comparison, putting more acreage under plough requires considerably more expenditure and time commitments. They discuss the topic of food security among themselves, and the Blumberg name comes up. That’s how it happened in Nigeria and the D.R.C.
Policymakers now understand that losing large amounts of food grains is not just bad economics. The resulting food inflation could be a social tinderbox, resulting in riots – or a political tinderbox, resulting in the overthrow of a government.
The children of farmers in Sub-Saharan Africa see their parents lose almost half of their produce. They also see traders/middlemen take advantage by offering rock bottom prices at the peak of harvest. Farmers don’t have two dimes to rub together. And the children say, “We’re not going to do this. We’ll get out of farming, go to the city, where there’s more opportunity.” But in the city they face terrible living conditions. With few employment options, they sometimes have to turn to the underground economy to scrape a living. There’s also violence. You see what is going on with the Boko Haram [abducting children]. A hungry belly is vulnerable to extremist influence and propaganda.
In Egypt, Mubarak’s overthrow was set in motion the day he decided to raise bread prices. He was running out of reserves to import wheat. Egypt is the world’s No. 1 wheat importer. I am visiting Egypt now to put in place systems to stabilize wheat prices, and replace the shounas (open-air cages) in Egypt. 400 of the shounas store most of the harvested wheat – and see about 30 percent losses, based on conservative estimates.
The product that flows in to the Egyptian Ministry of Supply is “out of condition” for the most part. So they lose billions of dollars a year on this wastage. The Ministry of Supply plans to upgrade shouna facilities into a modern Blumberg Grain infrastructure. That’s one of the projects we are working on right now.
Through our work in food storage, we would like to prevent unnecessary rural-to-urban migration. This in turn maintains social harmony and encourages political stability. The countries where we work can then have a stable environment for economic growth and development.
AAM: American companies typically think that doing business with African governments is a nightmare, e.g., the possible need for hush payments and kickbacks to win contracts, and officials making promises they can’t keep. What has been the difference between that perception and your reality?
Blumberg: As an American company, we don’t play those games. And in the past, we’ve had to abandon projects when such talk has come up.
One of our primary conduits into these countries has been the U.S. government. Our embassies and commercial officers help with introductions into the private sector. When they introduce us to counter-parties, they know that we abide by the Foreign Corrupt Practices Act (FCPA). So we get to build on relationships that are available through them while using the shield that they provide. We also go straight to the agriculture or trade minister, or the heads of state, who are progressive in their thinking.
AAM: What is your near-term company outlook, in the next one to three years? Are you considering opportunities beyond storage?
Blumberg Grain wants to solidify our position in Africa as leaders in food security. Meanwhile Blumberg Capital Partners, our holding company, wants to make other investments in these countries, in sectors like real estate, steel, etc.
We are looking to set up Blumberg Grain Food Security Fabrication facilities all across the globe. We plan to produce Blumberg Grain’s steel warehouses and components in the countries that matter most to us. This is a huge investment for the countries we’re in discussions with. We are close to finalizing our selection process in in West Africa.
KPMG has done studies on our Food Security Fabrication facilities. They would provide employment to 1000 people, produce 1200 units every year, and increase trade and industry. The estimated economic impact would be over $1 billion in the first year of operation, and reaching $10 billion over five years. So these projects are something governments are fighting over.
Blumberg Capital Partners is on track to expand investments across the agricultural value chain as well. They’re analyzing investments in different countries across the globe. We’re looking at $250 million investment opportunities that touch the entire value chain.
Beyond storage, investments in high-yield, high-efficiency farming will be the next step. Investments in logistics infrastructure will follow, going downstream. Then we’ll look at processing facilities, packaging facilities.
For example, in Nigeria they’re importing plastics. They’re bringing plastic bags from Lagos in the south all the way up to Kano in the North – about 500 miles – and it might as well be “transporting air.” That packaging can happen close to the final destination, and for significant cost savings. There is lot of opportunity like that, and there’s a strong emphasis within our company to look at agriculture in these emerging markets.
AAM: Some say that vested interests – like speculators, traders, local politicians – allow food wastage. So they can keep farmers at their mercy and/or be a source of patronage. How do you respond to that?
Blumberg: I don’t see anyone opposing improved storage. Even the players who control the grain trade still benefit if they can keep their product “in condition” for a longer period of time. As technology providers, we provide solutions to anyone willing to work with us. We also organize the financing to capture that value.
Many of the governments we work with are offering this technology as a rental to the private sector. This way a trader or logistics player can get access to more capacity. The local communities benefit because more crop volume is able to reach the market and more money stays in the community. The farmer can sell more crops and increase her income.
Our storage systems lay the groundwork for establishing commodities exchanges. The first step to develop a grain commodities exchange in a country is to have warehouse infrastructure on the ground. This is one way to move toward a market-oriented system where ALL participants stand to benefit. In the interim, stakeholders can still use and monetize our storage systems in their interests.
AAM: Finally, any lessons for American businesses considering working in Africa?
Blumberg: First, for market entry, I would suggest using the resources of the U.S. government. One can leverage U.S. government officials for market data and meeting facilitation. This can happen through the commercial offices of the embassy, the Trade Department, or other on-the-ground resources. Additionally, the U.S. government assists the private sector in financing activities abroad. Organizations like the EXIM bank, OPIC, and USAID-DCA provide low cost debt in countries, where financial markets are not that developed.
Second, I would tell American business not to be afraid of the Chinese competition. To a large degree American businesses are wary of facing off against Chinese businesses. Some American companies think Chinese companies, either state-owned or private, have a stranglehold over business in Africa. The truth is that governments in Africa are looking for American companies to step in and play a role in their economies. Customers and officials all over Africa recognize U.S. products as having superior technology, and we compete on that basis. Leveraging that strength of innovation and quality can overcome any issue arising from Chinese influence.
Third, there is a need to be realistic about timelines when viewing investment cycles. It’s not a novel revelation, but the speed of doing business in Africa is quite slow. So American companies need to internalize thorough preparation and focus on the long-term, as part of their business development strategy. Of course, there will be ups and downs in realizing any corporate goal in Africa. But if there is patience in the ethos of the company and a desire to look forward, there are enormous opportunities waiting to be engaged.