Alune Aqua: Financing the Future of Seafood

August 13, 2020

Alune Aqua is a startup based in Indonesia that is improving the aquaculture industry by offering loans that meet the needs of farmers. Shrimp farming in Indonesia is a $4 billion industry employing over 3 million people, yet it is an industry, which has been slow to adopt technology, and financial loan terms do not meet the needs of farmers. Alune is making shrimp farming more efficient and sustainable by offering loans that meet the needs of farmers and enable new technologies and improvements on farms, whilst offering investors access to an SDG aligned asset class.

We had the pleasure of speaking with Alexander Farthing, CEO and Founder of Alune.

What led you to founding Alune?

“I started Alune just under two years ago. I’m a  marine biologist with a masters in sustainable aquaculture systems. After a few years in London’s start-up scene, I understand the power of business combined with science to drive innovation, and importantly, the adoption of that innovation. We see a vacuum today in aquaculture between technology availability and adoption, due to a lack of suitable financial partners.  

“Alune is for people and planet. I find it unmotivating to get out of bed for businesses that don’t have an impact motive attached to them.  Most (businesses) can positively move their customers, partners and teams to make an impact. It feels lazy if organisations are not  attempting to do this. At Alune, it’s built into our very core  as we drive financial inclusion with an environmentally aware investment framework.”

What is the fundamental problem Alune is trying to solve?

“Aquaculture is a $400Bn USD industry which is underbanked and underserved by the financial sector. Shrimp farms in particular, are an asset class many traditional finance providers are unsure how to approach and risk adjust. BCG estimates only 6% of shrimp farmers have bank financing.

The result is that many farmers are unable to access finance on terms that fit their needs, leading to lower infrastructure and technology investments, which holds back productivity and prevents moves towards sustainability. 

Alune has built the credit, risk, partnerships, value chain and impact components required to enable capital into the industry at scale.

“Today we are enabling capital to enter the market, with a focus on technology and infrastructure developments. As an early leader in aquaculture finance, it is right that our investments and motives are SDG aligned and designed for people and our planet.”

Our mission: Create the aquaculture financial ecosystem for people and planet

What is Aquaculture: 

Aquaculture is the equivalent of agriculture for seafood products. “Farms” in the sea, inlets, or other bodies of water hold fish, shrimp, crustaceans, seaweed or other seafood products which are grown and then harvested. Aquaculture often involves processes to enhance the productivity of farms or mitigation of losses by protecting the organisms from predators, feeding, and ensuring the environment and conditions are optimal for the organism being farmed.   

“Aquaculture as an industry has been flourishing in the  last 30 years, and now  produces over 50% of the seafood we consume. There is still some way to go in terms of developing the scientific infrastructure required to make it as effective and efficient as agriculture, however today's knowledge and technology is creating stable, scalable businesses for well financed farmers.  Aquaculture’s financial infrastructure has been lagging behind it’s scientific innovations, this has created a mismatch between product availability, known best infrastructure and the finance available to enable it.”

“When we look at aquaculture as an industry and compare it to agriculture, we find thousands of financial institutions with products tailored to farmers, whereas aquaculture simply does not. h We are creating the distribution channels, technology and partnerships to enable risk-adjusted capital into aquaculture at scale.”

How do you educate potential investors about the aquaculture market?

“Agriculture is a helpful benchmark, given the problem parallels and the significant value that solving problems in a fast growing, young industry can create. An industry which in Indonesia alone employs 3.3 million people, growing 7-9% per year.”

Aquaculture presents unique challenges when compared to Agriculture, at a production level water is a fantastic growth medium for your crop, but also supports rapid proliferation of pathogens. This means farms need additional biosecurity steps as well as comprehensive disease management plans which requires expenditure on innovative products and the application of up to date science.”

Banks and existing financial solutions have not developed the tools and teams to invest into the sector at scale, to do this, lenders must be able to accurately assess risk, securitise loans and generate network effects through the value chain to shift risk profiles. This is our vision.”

How does your method differ from traditional microfinancing?

“The methods of microfinancing are quite diverse, a key difference today is simply loan size. Most microfinance loans are up to $10,000 per loan. Our customers typically need a loan between $75,000 to $200,000... We price our loans using a revenue sharing model, which is effective in generating returns which align well with farmer and investors needs.

Could you describe one of your pilot loans?

“We had a farm come to us and they had been farming for three years. They are a relatively young team and are very aspirational. We looked at the farm and they had already brought in some technology which was working well. We provided them with a loan to help them add additional technology. The loan is split 70% towards infrastructure and technology and 30% towards operational costs, which helped them finish the modernization of the farm.”

“As a standard part of our investment process, we had our team of in house experts come to the farm and analyse  the water quality, the existing operational processes, and look at how best the technology can be used to improve the performance of the farm. The value added from our expertise, value chain and technology already delivered them 120% of the financing cost before the first repayment was due. In effect we paid for ourselves and generated another 20% on-top within 3 months. This should rise to 100% by the end of the loan period.”

What are the current needs in the aquaculture industry?

“The financing needs to modernise shrimp farming in Indonesia is $1.35 billion. That is the amount needed to invest in the infrastructure and operations expenses to get the industry up to where it needs to be in the next 3 years.”

“By being a stakeholder on the farms, we are able to make sure that the staff are well looked after, the employment terms are fair, and that workers get holiday, sick pay, and insurance...”

How does your female apprenticeship program work?

“We found that when we were hiring we had nearly 3 times more male than female applicants, but 2 times more female applicants would make it to the final rounds of interviews. Women were showing higher levels of professionalism, the response rates were better, and we had much better engagement on our assessment tasks. We realized that there were so many women who wanted to get into aquaculture but that interest was not represented on farms we visited. Typically less than 2% of farm workers are female. That led us to the idea that we can both do our internal work hiring women, but also provide other women with the skills and tools necessary to go onto the farms we invest in.”

“By the end of this year we aim to have the programme live, for recent female graduates to come work at farms that Alune is invested into or those we assess to be great leaders in farming best practice."

How does mangrove reforestation play a role in your corporate mission?

“Shrimp farming has historically been a cause of mangrove deforestation, yet we believe that we can use shrimp farming as a tool to regenerate mangrove ecosystems. Every hectare of mangrove you regenerate improves the water quality for all shrimp farms in the area. Mangroves act as a natural biofilter and a natural hatchery for fishing stocks. By investing profits from farms back into mangrove regeneration, we can not only improve the environment, but also the quality of shrimp farming.”

What is mangrove deforestation?

Mangroves are a unique type of tree that grow in saline or brackish water. They are essential to coastal ecosystems because they prevent erosion by binding soil together and serve as nurseries for fish. In addition, they are a massive source of global carbon sequestration, accounting for 14% of carbon sequestration in the ocean. 

Mangrove deforestation has had devastating effects on ecosystems across the globe. The Millenium Ecosystem Assessment estimated that 35% of mangrove forests were lost from the period of 1980-2000.  

Aquaculture has historically been a source of mangrove deforestation with forests being cleared to make room for farms. Alune Aqua, aware of this history, has made mangrove reforestation a key aspect of their business and mission.

“If we take a 50 hectare plot of land, regenerate 75% of that into mangrove forests, and take the other 25% of it and turn it into a shrimp farm. The revenue from the shrimp farm can repay the original financing for the 50 hectares. After the original loan is paid off in roughly 7 years, we can continue reinvesting the profits from the farm into further mangrove regeneration.”

“We hope that this process can take us into launching a $40 million mangrove bond with the same principle but scaled up over a larger area. That bond would similarly have a repayment term of 7-8 years, but after that term we could reinvest the money into further mangrove reforestation. We believe that this process could sequester 500,000-600,000 tonnes of carbon within 13 years.”

Any final words?

“We are always looking to talk to and engage with investors who are interested in accessing the space and industry. Particularly, we tend to find impact investors and funds and microfinance funds find us as a good partner in helping solve the social and environmental problems within the aquaculture industry.”