Originally published as the cover story of the July/August 2011 issue of Sustainable Industries magazine.
Not long ago, seafood industry veteran Craig Rominger toured a Mexican poultry processing plant with chilling and preservation systems as sophisticated as any he’d seen in the United States. Then he watched a driver load his vehicle – a Volkswagen Beetle with no refrigeration – and prepare for deliveries to groceries and restaurants, risking contamination in the sweltering air.
In Indonesia, Rominger has seen fisherman build fires of kerosene soaked wood to smoke their catch – while still at sea on wooden boats. In the 100-degree heat, it was the only way to preserve their fish for market.
And in Tanzania, where he plans to travel this fall, Rominger knows that high-end restaurants fly in their seafood frozen from Europe because local markets lack reliable means to keep their fish chilled.
These all strike Rominger as potential markets for NanoICE, a Bothell, Wash., startup that makes a slurry-like “liquid ice” that that chills food more quickly than conventional flake ice. The microsized cubes, small enough to pass through a hypodermic needle, cut down on bacteria, lipid oxidation and other effects that harm food on its way to market. And because liquid ice is also is also softer than chipped ice, food undergoes less bruising during transport.
The year-old company has made its first inroads into the seafood and poultry industries in industrialized nations, netting a high-profile customer in Seattle’s Pike Place Fish Market (home of the fish-throwing vendors beloved by tourists). But Rominger, the company’s chief executive, believes much of NanoICE’s growth will happen in seafood markets in the developing world.
“My dream is to be able to supply these people with margins for their products so they can make investments in their boats and equipment,” he says. “So they can improve their living conditions.”
He’s not alone in eyeing these emerging markets. Across the water tech industry, companies see developing countries as prime opportunities to establish operations or diversify revenue streams they’ve already developed in North America and Europe. Manufacturing heavyweight GE has built research centers in Saudi Arabia and Dubai to develop seawater desalination projects. HaloSource, a midsize maker of water purifiers based in Bothell, Wash., has targeted the emerging middle classes in India and China. And student entrepreneurs increasingly see water as one of the most promising arms of clean tech – water treatment technologies for the developing world made up a large proportion of projects at the University of Washington’s Environmental Innovation Challenge this spring.
The need for such products is tremendous. Global health researchers estimate that half of all the hospital beds in the world are occupied because of preventable waterborne disease. And more than one-third of the world’s population will live in severely water-scarce areas by 2030 if current consumption rates continue, according to a 2009 McKinsey & Company report. Laura Shenkar, principal of the San Francisco water consultancy Artemis Project and a close observer of the industry, gives a blunt assessment of the global situation.
“We’re running out of water,” she says. “These kinds of innovations are going to become very important. It’s not the kind of thing where you have to wonder if it will happen. It’s a question of how it will happen.”
Oddly, there’s not much precedent for successful innovation in water tech, a diverse industry that includes preservation work like NanoICE’s along with purification, environmental cleanup, desalinization and monitoring and management companies.
Just as top electric utility executives reached their status by keeping the lights on, so to speak, Shenkar says water leaders succeed through consistency, not experimenting. Electrical failures carry unhappy consequences, but failing to remove pathogens from drinking water is literally a life and death issue.
“We don’t reward our water engineers for being innovative,” Shenkar says. “We reward them for providing healthy drinking water. Water is so potentially dangerous if it’s bad, and it’s so important that it be good, that there’s been a reluctance to innovate into new ways of doing things.”
She finds inspiration in the telecommunication industry, which found that sub-Saharan African countries with little land line penetration were able to “leapfrog” over that 20th-century technology straight to mobile phones. Telecom companies that first ignored such areas are now finding them among their fastest-growing markets. In the same way, areas without municipal water systems may be better off moving straight to highly distributed sources of drinking water (and electricity, for that matter).
Tapping new markets
But developing countries are still affected by challenges originating in the industrialized world. Industrialized nations have typically viewed water as a public good, not a private asset. It’s historically been highly regulated and under priced, particularly for agricultural uses. That’s all resulted in investors shying away from the water business. Water technologies received about $150 million in venture capital in 2008 – less than 2 percent of the total venture investment in clean tech companies that year, according to the research firm Cleantech Group.
That’s starting to change, as HaloSource showed with an $80 million IPO on the London Stock Exchange last fall. The company says it’s on track to grow by more than 40 percent this year after generating nearly $12 million in revenue in 2009. Overall, clean tech research firm Lux Research expects global water sector revenues to reach nearly $1 trillion by 2020.
Still, all that profit potential doesn’t remove the challenges of breaking into unfamiliar markets. Some of the most promising solutions are coming through partnerships between companies that develop new technologies and non-profit aid organizations that can test and distribute products on the ground. Few companies have the global reach of GE, and many are finding that working with NGOs lets businesses focus on what they do best: developing new products at prices that global customers can afford.
Puralytics, a Beaverton, Ore., startup that uses a nanotechnology-based reaction to break down contaminants in water, has been looking for the right non-profits to help it break into emerging markets.
“With most of the solutions for the developing world, it’s often a channel problem,” says Mark Owen, the company’s chief executive. “A small company is not going to have a distribution base in the middle of Africa. You need partners that have access to those places.”
Like NanoICE, Puralytics saw its first successes in industrial markets. The company uses a mesh filter with a nanotech-derived coating. When the mesh is activated by LEDs inside the device, it produces a photochemical reaction that removes more impurities than typical water treatments. That’s been appealing to university, medical and crime laboratories that need water that’s been purified of estrogen, testosterone, pharmaceuticals, petrochemicals. cleaning solvents and other elements that show up in municipal tap water.
Puralytics, which won the Clean Tech Open startup competition last year, focuses not just on water contaminants that bring immediate harm like diarrhea and typhoid. It also addresses longterm threats that can accumulate in bodies, such as arsenic.
In the developing world, says Owen, “there are few solutions focused on long-term health problems. Most of them are focused on immediate threats such as cholera and diarrhea.”
Arsenic, pesticides and herbicides don’t make people sick as quickly. “But they are certainly things that will keep someone in poverty or keep them from learning or being able to fight off diseases,” says Owen.
Along with its LED-powered system, Puralytics makes a briefcase-sized device called a SolarBag that runs the electrochemical process off sunlight alone. Even on a cloudy day, it can provide three liters of drinking water in two to four hours. Since the bags weigh only four ounces and can be shipped flat, Owen believes they could be useful in disaster response.
The nonprofit connection
Owen acknowledges the company is still in the early stages of building relationships with disaster-relief NGOs. But Shenkar of the Artemis Group cautions companies against underestimating the complexity of disaster response operations. A lot of water businesses see disasters as opportunities, she says, but “they haven’t found that it’s a great way for a young company to build a market.”
In the BP oil spill last year, for example, many companies offered oil dispersants to break up the orange-brown patches seeping through the Gulf of Mexico. But the federal government relied on the Nalco Corexit dispersant it already understood. It can take more than a year for new technologies to gain government approval, and disasters are rarely the time when governments and aid organizations want to experiment, Shenkar says.
On top of that, aid groups want products that users will quickly understand, regardless of language and cultural differences. It’s these usability and behavior questions where nonprofit partners can become the most useful.
The outdoor recreation equipment company Cascade Designs learned that after donating tents and water treatment in Sri Lanka after the 2004 tsunami. The Seattle company’s core market of hikers and backpackers wants one to four liters of water at a time, but a household needs much more of that – perhaps 20 liters, says project manager Laura McLaughlin. The company also found that child-friendly hand pumps required different ergonomics. Most of all, the sheer scale require Cascade to think differently.
“We made a donation that was enormous for us and it was barely a slice of the need,” says McLaughlin. “We started asking, ‘What can we do that’s more than philanthropy?’ Philanthropy has a role, but we wanted to do more.”
The company found a partner in PATH, a Seattle global health organization with an annual budget of more than $250 million (much of it from the Bill & Melinda Gates Foundation). PATH had been working to provide safe drinking water for years, and it understood that, while water treatment options abounded throughout the world, there were many people who couldn’t afford them.
And it saw potential in Cascade’s MIOX Purifier, a penlike device that runs off a camera battery to kill viruses and bacteria in water. Since it was first developed for the military, it was already designed to be durable. Cascade and PATH sought foundation funding and developed a prototype of a large-scale version that could treat 20 liters of water in 90 seconds.
But that was only part of the challenge. “The technology will only bring you so far,” says Jesse Schubert, a technical project coordinator at PATH. “The challenge is implementing it and finding the right entrepreneurs in communities who understand the need to treat water and will do it consistently.”
PATH first found a church to test it in Korogocho, a slum in Nairobi, Kenya, where it’s common for people to buy water from kiosks without knowing for certain whether it’s safe, Schubert says. He learned that users wanted larger quantities and a device that looked more like a household appliance.
The next version, the SE (smart electrochlorinator) 200, treats 200 liters in each cycle and runs off a car battery, which are common in Kenya even when grid electricity is not. For this version PATH looked for a local operator who could run the device with less supervision. That search led them to Carolyne Otieno, known locally as “Mama Meg,” a businesswoman in a semi-urban area near Kisumu, Kenya.
She had already applied for and received two loans to dig a well, and she ran a kiosk at her home selling bread, sugar, treated water and chlorine. And, says Schubert, she understood the importance of treating water properly.
Schubert and PATH were convinced Mama Meg was the right person to train for the next test. “She took it seriously and wanted to make sure her customers understood they need to wait 30 minutes [to drink the chlorinated water],” Schubert says. “She wanted to make sure they were doing it right because she knew their health and her reputation were at stake.”
That test, too, confirmed the potential of the SE200. PATH turned to more field trials in Zimbabwe, Ghana, Tanzania and Nepal, while Cascade is working on bringing the manufacturing cost below $100. After that, the two organizations will look into microfinance loan models that could bring the device to thousands of communities.
Good business, not philanthropy
While PATH answers to its own donors, it knows businesses are still accountable to their shareholders. “With the reach we have, we can help companies like Cascade see a new market and find who the users are,” Schubert says. “But we still keep in mind the needs of the private sector. We can help get their projects out there and make sure they can make a profit in the end.”
In fact, each of the companies I talked to said they considered emerging markets part of their core business, not a charity project tacked on to their to their “real” business. But is exporting products from the developed world to developing countries truly empowering in the long-term?
Rominger of NanoICE notes that while his ice-making machines are developed in Washington, the ice is made locally, allowing fishing and farming business to sell more of their product for better prices. Puralytics is looking into ways to continue producing its core nanotechnology in Oregon but assemble final products more locally. HaloSource is already using that model with business partners such as Eureka Forbes of India.
Eureka Forbes is piloting a microfinance system to make HaloSource’s filters affordable for more customers. In that way, the companies partner much as PATH and Cascade do, with one focused on technology and cost and the other working out distribution, financing and usability.
“We know the culture and language and the nuances of what individuals do within their home countries,” says PATH’s Robyn Wilmouth. “[Cascade] has a high standard for quality of production, which we very much value.
“We’re aligned in our desire to reach poor populations and ensure safer water, but we both bring different strengths.”