Getting the Business Fundamentals Right for Digital Agriculture Success
There’s little question that digital technologies have dramatically changed the landscape for agriculture in developing countries. Yet, even the most innovative tools in the world will fail if they lack sound business fundamentals.
The Feed the Future Partnering for Innovation program has partnered with a wide range of agribusinesses in developing countries to assist them in reaching smallholder farmers with innovative new products and services. Digital technologies have been a major part of these efforts and offer valuable market-tested lessons about what works well and what falls short. The following four takeaways provide insights from some of these partnerships. While the details may differ, one constant remains: digital technologies are not a business in themselves, and require strategic and robust business plans to ensure their long-term success.
Technology is important, but a sound business plan is essential
In Nigeria, Feed the Future Partnering for Innovation partnered with an innovative agricultural technology company to supply and service low-cost “smart” tractors targeting smallholder farmers that would encourage mechanization of land preparation in rural areas. Farmers could easily request tractors via text and each machine would be equipped with a GPS antenna, local SIM card, hard drive, and telecommunications device to enable the owner to collect data on how, when, and where the tractor was used.
The technology itself was sound and promising. However, despite numerous attempts to pivot and ensure viability and profitability, the company was unable to develop a business model that truly got the project off the ground. “Smart tractor” operators were seen as entrepreneurs who could earn considerable money renting out their tractors, but many of them were unable to secure the 10 percent down payment required to purchase the machinery. Instead of becoming owners, these entrepreneurs were trained as booking agents who could earn commissions by scheduling reservations for established tractor businesses. However, even then, the entrepreneurs did not see the value in scheduling appointments through the specialized software, which meant that important information on customer engagement and usage went uncollected.
The company’s experience revealed the importance of understanding the market and getting the fundamentals right from the start. A sound business plan that reflects the realities of the local market is essential, even with an innovative and potential game-changing digital tool.
Data-rich digital tools can benefit customer and business alike
In a warehouse in Nairobi, a small and growing Kenyan company consolidates fresh fruits and vegetables from its network of thousands of smallholder farmers, and then sorts, packages, and delivers it all to shopkeepers and street-side vendors across the city of 4.5 million people. Managing an operation of this size and complexity is no small task. Feed the Future Partnering for Innovation partnered with the company early on to help expand and strengthen its network of smallholder farmer suppliers and better connect them to Nairobi’s food retailers.
Right from the start, the company developed a robust mobile business-to-business platform to automate all transactions. No cash is exchanged as produce moves from farmer to shopkeeper, making the entire process efficient, fast, and quality-controlled. The digital platform benefits both the company and its customers as smallholder farmers now have a consistent market for their produce and receive higher prices as a result. Food retailers, in turn, can depend on a reliable supply of high-quality and affordable produce for their customers. Finally, the company itself benefits by tapping into real-time sales data to respond rapidly to any changes in the local market.
Provide digital tools with real value for customers, or risk failure
Most Latin American and Caribbean exporters sourcing high-value fruits and vegetables from local smallholder farmers face strict entry requirements from foreign markets. Capturing vital information about how produce is grown, stored, and packaged is typically done by pen-and-paper – an approach that is both time-intensive and insufficient. Feed the Future Partnering for Innovation partnered with two non-profit organizations to commercialize a mobile-based tool that enables exporters in the region to electronically track and manage its produce from farm to foreign market.
The digital tool was tailored to the unique needs of exporters and was found to dramatically reduce paperwork preparation time from several days to mere hours. Despite the time savings, exporters saw the tool as too expensive and ultimately unnecessary, as their produce was not rejected at levels high enough to convince them to switch systems. As a result, digital tool subscriptions declined.
The low adoption rate by exporters revealed that even if the benefits of a digital tool are clear and well-recognized, the incentives around its adoption must be compelling and appropriately timed. It is likely that as key export markets enact even more stringent entry requirements for produce – and the risk of rejection increases – exporters will be more inclined to modernize their tracking and documentation methods.
Meet the customer where they are
From low approval rates and high interest rates to simple geography, smallholder farmers in Kenya encounter many roadblocks to accessing commercial financial services. Feed the Future Partnering for Innovation partnered with microfinance institutions to turn these barriers into opportunities through a software platform that makes loan processes more tailored and efficient to the needs of smallholder farmers.
Reaching the customer where they are with tools tailored to fit their needs was a core focus of the partnership. Village-based loan agents visited applicants in person and used a tablet-based cash flow analysis software to determine eligibility on the spot. From there, a loan application could be processed, and customized loan terms and repayment information determined. If approved, the loan funds would be deposited into the customer’s mobile money account within 72 hours. The rapid pace from eligibility to approval saved time that translated into savings for both microfinance institutions and applicants. Additionally, customers could use a mobile platform to receive payment reminders and other loan information.
Nearly 14,000 loans valued at $5 million were disbursed during the partnership, and the customized loan terms created during the process led to a reduction in loan defaults by customers. In addition, targeted efforts to reach women farmers were also undertaken, resulting in twice as many women as men receiving loans through the partnership.