A G RI CO

Sustainability High difficulty

Agriculture Interviewer-led case

Our client is an FMCG company looking to make an environmentally friendly profit by generating offsets.
This case tests all elements of the interview scorecard, with emphasis on structuring and numeracy.

Problem definition

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Our client is Agri Co, a privately held FMCG company that creates consumer food products with

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revenues of $50B, generated by partnering with 100,000 farmers who own 50M acres of land. Although
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Agri Co does not directly own the land, it has a heavy influence over the farmers in its supply chain.
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Agri Co is considering changing the farming practices of its farmers to generate and sell carbon offsets to
make an environmentally friendly profit. A carbon offset is one ton of CO2 that is removed from the
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atmosphere by the supplier, that buyers can purchase to compensate for their own emissions.
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For Agri Co, the carbon offset business model would involve mandating its farmers to adopt carbon-
absorbing farming practices (e.g., letting crop stubble decompose instead of burning it), partnering with a
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third-party certification agency to verify that these practices are upheld, acting as an intermediary to
purchase the offsets from farmers, and then selling the offset in the open market.
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Agri Co has hired us to evaluate whether they should partner with farmers to enter the carbon
offset business.

Agri Co - 1/14
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Question 1 (Structuring)

What factors would you consider to determine if Agri Co should enter the offset business?

Guidance for interviewer

If the candidate asks about the types of carbon offsets that can be generated, indicate that it would be
through practices like growing trees as crop cover, letting crop stubble (i.e., the part left at the end of
harvests) decompose instead of burning it, reducing the frequency of harvests to improve soil cover, etc.

A weak answer would only consider the profitability of Agri Co and not the profitability for farmers nor the
underlying market conditions or feasibility of entering the market.

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A good answer would consider the profitability for both Agri Co and farmers but only lightly touch on the

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overall market conditions and feasibility. A good answer must include the impact on the existing

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business.
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A great answer would consider the profitability for both Agri Co and farmers, and the overall market
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conditions and feasibility. It must include the impact on the existing business for both Agri Co and
farmers and highlight the operational complexity of driving large-scale collective action of farmers.
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Candidate may even recognize that farmers of different sizes may find offsetting more vs less profitable.
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Possible answer
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To enter the offset business Agri Co must consider:

1. The profitability of the offset market

a. Demand:
i. Are enough consumers interested in purchasing offsets?
ii. Are consumers interested in agriculture-related offsets vs reforestation?
b. Supply:
i. Have other Agriculture competitors already entered the space? Is there oversupply?
ii. Are there major barriers to entry e.g., regulation, competitive pressure, Capex?

2. The profitability for Agri Co to enter the offset business

a. Costs
i. Paying farmers to adopt offsetting practices

Agri Co - 2/14
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 ii. Paying certification agency to verify that low carbon practices are upheld
iii. Raising awareness, coaching, and training farmers on practices to issue offsets
b. Revenue from sale of offsets in the market
c. Impact to the cost of crops (yield of harvests)

3. The profitability for Agri Co’s farmers to enter the offset business:
a. Cost to implement the low carbon action (e.g., plant trees/ manage soil carbon)
b. Revenue:
i. Number of offsets that can be generated per acre
ii. Price that Agri Co will pay the farmers (market price minus Agri Co and certification
agencies cut)
iii. Total acreage used to generate offsets
c. Impact to existing business:

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i. Cost of reduced yield due to lower land area

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ii. Revenue from any price premiums of product

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4. The viability for Agri Co and for farmers to enter offset business:
a. Operational complexity for Agri Co.
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i. Driving collective action of farmers

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ii. Raising awareness and coaching farmers on offsetting practices

iii. Monitoring and tracking emissions reduced
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iv. Selling offsets successfully in the market

v. Recruiting additional farmers to compensate for lower crop production
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b. Operational complexity for farmers.

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i. Ease of implementing and maintaining carbon sequestration practices

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ii. Financing challenges - working capital required to implement practices and the delay in
cash flow from offset revenues
iii. Trust in Agri Co, intermediaries that offsets are a viable business path

Agri Co - 3/14
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Question 2 (Judgement and Insight)

Great, let’s start by looking at the overall offset market. See Exhibits 1 and 2.

Given the information, what are your thoughts on the market trajectory, and what would you
recommend investigating as the next steps?

Guidance for interviewer

Share Exhibit 1 and 2.

A weak answer would comment on either exhibit 1 or 2 in insolation – i.e., oversupply of offsets, or big

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spike in demand

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A good answer would integrate exhibit 1 and 2, offer commentary on why exhibit 1 and 2 may be

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disconnected in their takeaways, and offer project next steps when demand will overtake supply
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A great answer would integrate exhibit 1 and 2, with reasoning, and suggest next steps that question
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and scrutinize the information to understand the root causes behind why there’s oversupply, and why
demand is expected to spike. The underlying questions should access the level of risk Agri Co might
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face by entering the market

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Possible answer
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The carbon offset market looks promising:

1. The overall offset market has been growing year over year
2. Although there is a supply surplus in the market, demand has been growing faster than supply
3. And looking forward, Demand over the next 30 years is expected to grow 50x

Although market conditions initially look favorable, Agri Co should deep-dive further to evaluate the risk
of Agri Co trying to sell offsets but not finding any buyers:
1. How reliable is the demand increase projection?
2. How fast is supply expected to grow? What about agriculture-related carbon offset supply?

Agri Co - 4/14
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Exhibit 1

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Agri Co - 5/14
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Exhibit 2

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Agri Co - 6/14
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Question 3 (Numeracy)

Given its knowledge of the market, Agri Co is investigating whether to push farmers to implement
offsetting measures like tree plantation within the fields. Planting trees not only sequesters carbon and
generates offset revenue, but also improves soil carbon health thereby boosting crop yield.

Farmers are considering using 20% of their land to generate offsets. No more crops can be grown on
this land. Given these facts, is this a profitable opportunity for our farmers? for Agri Co?

Guidance for interviewer

Share Exhibit 3 and 4

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When candidates ask share that:

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1,000 offsets can be generated per acre

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It costs Agri Co $4,000 annually per farmer to train them in the new practices

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• Yield will increase by 10% on the remaining land used for crops, once this is implemented
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Weak answers will struggle to structure the math, and jump into calculations before pointing to the need
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to calculate the profitability of farmers before vs after, and the profitability of Agri Co before vs after.
These candidates will likely find it difficult to reach a conclusion. Alternatively, weak answers may
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struggle to account for the profits from offsets AND from the productivity improvement on existing crops.
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Good answers will structure the math upfront, and while they may face hiccups, will effectively calculate
the before vs after profitability for farmers and for Agri Co.
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Great answers will structure the math upfront and will methodically calculate the profits before offsets,
and the profits after offsets including the yield improvements for farmers and Agri Co. These candidates
will calculate the margin per acre to simplify their calculations moving forward. They will also point to
qualitative and future considerations: 1) the choice to focus on Big farmers first followed by Medium
farmers, 2) that as the market grows and prices increase, they will capture the small segments as well,
3) although in theory there is a sizable market opportunity, in practice the offset market is not yet large
enough to support 100% adoption of offsetting measures.

Agri Co - 7/14
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Possible answer
To answer question 3, we calculate the margin per acre before vs after for both the farmers and Agri Co.
Only if both the farmers and Agri Co make profits do we implement offsets.

1) First we calculate the margin per acre for farmers today:

Total crop Margin: Margin per
Farmer Total acres Acres per
# of farmers yield Farmer acre
type of land (M) farmer
(M tons) $/ton ($)
Total crop
yield x
Margin
Total acres farmer
of land / # / Total acres
of farmers of land
Small 75,000 15 75 100 200 500

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Medium 20,000 20 100 100 1000 500

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Big 5,000 15 75 100 3000 500

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Interestingly the margin per acre for all farmer types is the same. Perhaps in the future, it is worth looking
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into ways to improve efficiency for larger farmers.
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2) Then, we calculate the future margin per acre for farmers by adding the margin from offsets generated
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on 20% of land + the margin from the productivity improvements on 80% of land.
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Margin from
Margin from offsets New margin per acre
productivity
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($/acre) ($)
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improvements ($/acre)
20% land for offsets x 80% land for crops x
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$1 / offset x $500 margin per acre x

1,000 offsets/ acre 110% yield
100 + 440 = 540

Therefore, we see that, while the margin on offsets per acre is equal to the margin on crops per acre, the
productivity improvements to the remaining land results in an overall higher margin per acre.

Therefore, it is profitable for our farmers to use 20% of their land to generate offsets.

Agri Co - 8/14
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3) After, we calculate the current margin per acre that Agri Co makes per farmer
Total crop Current margin
Total acres of Margin: Agri
Farmer type # of farmers yield per acre Agri Co
land (M) Co ($/ton)
(M tons) ($)
Total crop yield
x Margin Agri Co
/ Total acres of
land
Small 75,000 15 75 20 100
Medium 20,000 20 100 20 100
Big 5,000 15 75 20 100

4) Then, we similarly calculate the new margin per acre that Agri Co will make with offsets

Margin from offsets New margin from crop sale

New margin per acre ($)
($/acre) ($/acre)

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20% land for offsets x 80% land for crops x

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$0.1 / offset x $100 margin per acre x

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1,000 offsets/ acre 110% yield

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Finally, we calculate the incremental profit per farmer considering the annual training cost per farmer:
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Current
Annual
Acres per New margin margin per Incremental profit
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Farmer type training cost

farmer per acre ($) acre Agri Co per farmer ($)
per farmer
($)
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Acres per farmer x

(new margin –
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current margin) –
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Annual training cost

Small 200 108 100 $4,000 -2,400
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Medium 1,000 108 100 $4,000 4,000

Big 3,000 108 100 $4,000 20,000

Therefore, only the Big and Medium farmers are profitable for Agri Co to partner with to generate offsets.
Cumulatively, this translates to $180M of profit ($4000 x 20k Medium farmers + $20,000 x 5k Big
farmers) for Agri Co.

While $180M in profits on paper is sizeable for a $50B revenue organization, it is worth recognizing that
the offsets generated to capture this total sum are larger than the overall market today. And so, in
practice, it may be prudent for Agri Co to roll out offsets to only a subset of the Big farmers first.

Over time, as the offset market grows, Agri Co can expand across Big and Medium farmers. Finally, to
capture Small farmers Agri Co can exert leverage to boost margins on offsets with small farmers, while
still ensuring farmers are profitable or find lower-cost ways to train farmers (e.g., online/ bulk training) to
get them to adopt offsetting measures and capitalize on larger sales.

Agri Co - 9/14
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Exhibit 3

Total acres of land Total crop yield

Farmer type # of farmers
(M) (M tons)
Small 75,000 15 75

Medium 20,000 20 100

Big 5,000 15 75

Total 100,000 50 250

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In a rush to ramp up your case structuring skills?

Practice on your own with the Structuring Drills in the

Interview Prep Course

Agri Co - 10/14
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Exhibit 4

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Agri Co - 11/14
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Question 4 (Creativity)

Given the market opportunity, Agri Co wants to move forward.

How would you put together an implementation plan to bring farmers on board?

Guidance for interviewer

Push candidates for additional details if they remain stuck at high-level answers.

A weak answer would offer generic high-level next steps (e.g., launch marketing campaign, train big
farmers, start offsetting measures). If candidates are stuck at this level, probe them to offer added details

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A good answer would offer specific next steps (e.g., understand how to allocate the 20% of land,

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highlight the collective action challenge, discuss measurement and verification challenges)

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A great answer would break the next steps into phases (pilot -> preparation -> roll out -> ongoing) and
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offer specific next steps at every level. Best answers would tie to the previous exhibits (e.g., noting that
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initially, the market is too small to have all supply go online at once, highlighting that demand and
therefore price will increase, pointing to the need to boost offset margins with small farmers) and include
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next steps on the how Agri Co should plan its overall carbon offset strategy.
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Agri Co - 12/14
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Possible answer
Next steps:
Launch pilot with a Big farmer
Create playbook to train farmers
Roll out playbook Big farmers
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Verify and monitor progress
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Issue and sell offsets
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Improve offsetting plan
Create 10-year offsetting plan
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Actions:
1. Understand how best to plant trees over the 20% of land
to maximize yield on 80% of cropland
2. Learn of challenges with planting trees (e.g., new supply
chain for seeds, water requirements, lower upfront yield)
3. Note the process to issue and generate offsets
4. Partner with agencies to get offsets verified and certified
5. Measure performance over time
1. Create awareness materials on the profitability of offsets
2. Create training materials for how and where to plant trees
3. Create financing options that will support farmers in the
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short term as initial yield slows down
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1. Launch awareness campaigns across Big farmers
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2. Hire training agencies / offer referral bonuses to farmers to
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spread offsetting techniques
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3. Create a low-cost digital way to measure carbon reduction
1. Verify carbon removal using digital tools (e.g., satellite
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tracking of # of trees, phone scanning of tree size)
2. Offer ongoing support
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3. Ensure trees are not cut midway
1. Certify and purchase offsets from farmers
2. Sell offsets in exchanges/ direct to consumers
3. Remit back profits to farmers
1. Lower cost of training individual farmers
2. Roll out offset practices to medium farmers after all Big
farmers are already implementing offsets
3. Exert higher margins on offsets / wait for retail prices to
increase beyond $5 to rollout practices to medium farmers
1. Determine which farmers and how much supply to get
online to ensure that enough demand exists
Agri Co - 13/14
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 Question 5 (Synthesis)

What is your overall recommendation?

Guidance for interviewer

A weak answer would ramble and not address the original prompt of the case

A good answer would be specific – Agri Co should enter the carbon offset business, but not offer
succinct takeaways or next steps.

A great answer would distill the key takeaways from the numeracy, next steps and exhibits to offer a

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clear go forward for Agri Co, along with meaningful and specific next steps for implementation.

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Possible answer:
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Agri Co should enter the carbon offset business:

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1. Agri Co can generate $180M in profits by partnering with its Big ($100M through 5,000 farmers) and
Medium farmers ($80M through 20,000 farmers)
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2. Agri Co’s farmers make $40 more per acre (translating to $120k more for Big farmers and $40k more
for Medium farmers) by generating carbon offsets, and so will be incentivized to partner with Agri Co
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3. The demand for carbon offsets is expected to spike 50x by 2050, allowing Agri Co to take advantage
of a growing industry while reducing carbon emissions.
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However, Agri Co should enter the space by piloting with a few Big farmers initially and scaling over time:
1. Capturing the full $180M requires supplying more offsets than the total market today, and so Agri Co
should wait for the offset market to grow to have confidence that their offsets will sell
2. This is especially true because there is currently oversupply in the market – although demand is
expected to spike, this requires further validation
3. Agri Co can build know-how on issuing and selling offsets, and farmers can build know-how to
increase yield on existing cropland, from initial pilots and use the learnings to effectively scale
4. Agri Co can also react to changes in the growing but nascent market. For example, as demand
increases, buyers may place added emphasis on the quality of offsets, translating to increased
verification costs which may make the business case unfavorable. Conversely, as demand
increases, retail price of offsets may increase, making the business case more favorable.

Agri Co - 14/14
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