Guayakí Pioneers Market-Driven Restoration Business Model
Aug 27 2012
Building the Next Economy
“We had this incredible product—yerba mate—that gives you the strength of coffee, the health benefits of green tea and the euphoria of chocolate. We thought if we work with people on forest projects we can make the mate be the driver for reforestation, and inspire other companies to do similar work,” says Guayakí founding partner Chris Mann, describing the genesis of the company’s pioneering “market-driven restoration” business model.
California-based Guayakí sells the stimulating rainforest plant as a loose-leaf tea and in canned and bottled drinks. The company partners with farming communities in South America’s Upper Paraná Atlantic rainforest to produce shade-grown organic yerba mate and to reforest their land with native hardwoods, and it pays a premium to support living wages, healthy working conditions and community development projects.
Co-founder Alex Pryor introduced the four other Guayakí founding partners to yerba mate in the 1990s, when he arrived in the California central coast college town of San Luis Obispo from Buenos Aires toting a traditional gourd cup for the hot brew—favored over coffee by a wide margin in several South American countries.
Yerba mate is mostly cultivated on industrial farms in full sun, but it is native to the canopy of the Upper Paraná Atlantic rainforest, which stretches across Argentina, Paraguay and Brazil. When Guayakí’s founders started their business in 1996, they thought they would help preserve the rainforest—one of the world’s most endangered—by giving local communities a way to make a living from it without cutting down trees. A few years in, faced with a map showing 95 percent deforestation since 1900, they realized that preservation was not enough.
“We needed to develop a model for how they could get paid to plant hardwood and nurture it,” Mann says. “We were really surprised there weren’t many people doing restoration. The timber companies were planting monocrops to cut down again. One of the large conservation groups had a project, and there were a few smaller-scale research things, but we didn’t find any market mechanisms.”
Guayakí’s market-driven restoration model, developed in pursuit of a mission to restore 200,000 acres of the Upper Paraná Atlantic rainforest and create more than 1,000 living-wage jobs by 2020, involves cultivating relationships with indigenous communities that often have had “hellish” experiences with outsiders, Mann says. “It’s little by little, building that trust network and educating the community on what we’re trying to do, and listening and being educated on what’s working for them and what they want to do. It’s a slow process,” he says.
Guayakí made steady progress and by 2008 it was delivering on its mission. Revenue was at about $8 million a year—but the company was losing money. “We’re competing with a lot of brands that are just trying to grow market share as fast as possible, which means paying distributors and giving away tons of product,” says Mann. Guayakí needed more capital to thrive, but the founders wanted to maintain control of their business—and their mission—and banks weren’t lending money to pre-profit companies at the depth of the recession. “We were in the lurch,” Mann says.
RSF Social Finance had just launched its Mezzanine Finance fund to fill precisely this sort of funding gap: growth capital for social impact businesses that don’t want to take on more equity partners and aren’t seeking a quick exit. When RSF stepped up with $500,000, Guayakí was able to roll out its canned beverage line, develop its small-store delivery distribution model and build inventory.
In addition to its financial relationship, Guayakí is engaged with RSF to advance thinking on business structures and practices that respond to community needs and are sustainable in the long term. For example, Mann has participated in RSF meetings that bring together investors and borrowers to discuss and recommend interest rates. The last pricing meeting session was inspiring, he says: “If you create a system that’s not based on every single person having to maximize, there’s room for everyone to do well.”
Guayakí’s moves with the RSF capital infusion paid off, and the company was profitable on $15 million in revenue in 2011. With its strengthened financial position, Guayakí now qualifies for RSF’s Social Enterprise Lending Program and has a $1.9 million line of credit.
The company is about 15 percent of the way toward its 2020 goal, providing about 150 jobs (including 35 U.S. employees) and restoring 30,000 acres of forest. Because of the carbon those new trees capture, purchasing one pound of Guayakí yerba mate tea reduces atmospheric CO2 by 1.26 pounds, according to a third-party life-cycle analysis.
“A core aspect for us is providing a dignified way of life and dignified working conditions” in indigenous communities, says Mann. In the U.S., he adds, “we’re really passionate about the need to create local living economies. There is no business if there is no community.”
VITALSCompany name Guayaki, guayaki.com Impact area Food & Agriculture RSF relationship Mezzanine Finance (2009), Social Enterprise Lending Program (current) HQ Sebastopol, CA Revenue about $15 million (2011) U.S. employees 35 Communities served U. S., Canada, and south-central America