Business Models for Agricultural Services in Emerging Markets


African farmers have a demand for better information. Farmers and growers globally are faced with increasing weather variability and uncertainty while having to contend with increasing demand for producing quality food products. The challenge is to help farmers increase production, increase incomes and become active contributors to the local, regional and global food supply chain and economy.

With a lack of extension services in rural Africa and Asia most small holder farmers will struggle to face these challenges. Even basic information such as weather forecasts, pest and disease warnings and alerts, best practices, agronomic tips and recommendations can have an enormous positive impact on yield but remains nonexistent in many parts of the world.

Providing information to small holder farmers via their mobile technology would seem straightforward but, in fact, there are many challenges, such as;

Cost of entry; how do farmers with few resources pay for a service, even when the service will help increase their income. The seasonal nature of agricultural income is an added complexity.
Information technology; what mobile phone models do farmers have access to? What cell coverage exists in rural areas?
Literacy and interpretation; how do farmers interpret new information correctly? How will they transition from traditional knowledge users to information services users?

Finally, the key question that we address in this post: how do organizations establish a viable business model in such a challenging market?

As challenging as the market is, it is still sizable and worth addressing. A recent study by GSMA shows that farmers in Africa currently have a capacity to pay up to 25 cents (USD) per month for services (Market size and market opportunity for agricultural value added services), while the margins are small, the same study shows the potential opportunity could be as much as 80 million farmers by 2020, both a challenge and an opportunity.

aWhere provides field level data and information to farmers through implementing partners. These might range from Mobile Network Operators (MNO’s), agricultural information services and software companies to development agencies and other private enterprises. We see many different approaches to establishing a viable business model for agricultural services in Africa, including the following approaches below.

Farmer Pays
The starting point for many agriculture services is to assume that small holder farmers will simply pay for services, unfortunately this is not as easy than it sounds. While it is true that farmers, just like any business, will pay for something that increases profits, convincing farmers that information services are worth the investment is a challenge. In this market, the service business has small margins so scale must be achieved quickly in order to sustain the information service creation, maintenance and support. Add to this the multi-season evidence required (by some of the more skeptical farmers) and competing free services offered via subsidies and/or donor projects and the challenge to achieve scale at the rate required with little capital investment is further compounded. Even with these challenges there are businesses such as Esoko and FarmerLine that are achieving success by offering quality services backed by extension and call center agronomists plus setting appropriate expectations. If farmers can eventually perceive information services just like any other input, like seed or fertilizer, then there is a case for farmers paying for such services.

Free Services
There have been a number of donor funded initiatives that pay for agricultural services, meaning the small holder farmers receive services for free. This might appear to be a quick way to establish usage and increase farmer yields, however it is not always a scalable long-term solution. In fact, one could note that it creates a false economy and inhibits the very innovation required to solve the world food production problem. I have heard a number of smaller agricultural service software companies endeavoring to create a viable business lament that donor funded projects, providing similar services for free, are making it extremely difficult for them to have success.

Freemium Models
Some groups such as iShamba are testing Freemium to Premium models. The idea being that a free trial period or a limited service is available for free to the farmer. After the trial period where they can test the value of the service for their farming decisions, they are willing to pay for the service. This approach has been used in the US market as well by a number of companies including Climate Corporation. It remains to be seen what is the conversion rate from free to paid users is.

Vouchers and Subsidies
Vouchers and subsidies are used to encourage farmers to experiment with the information service until it proves its value. This system discounts the actual price, and is often supported by government programs. This approach sets the appropriate expectations around the cost of the service, yet also allows farmers to understand the value.

Delivery via Agricultural Businesses
Small holder farmers, like other consumers, look favorably towards a free service especially when it offers value to their business proposition. Businesses in the agricultural value chain such as input providers (seed, fertilizer and crop protection companies), buyers and processors, see value in paying for or at least subsidizing farmer information services for their farmers. Customer loyalty tops the reasons why agricultural business invest in such information services. Commodity aggregators expect to get higher quality and more consistent product, and if the information service is a two-way interaction, the corporate sponsors get intelligence about what farmers are growing, in what quantities plus the status and timing of the current season's crops. This is valuable information for agricultural businesses to plan capacity and focus sales and marketing initiatives. The challenge for information service providers is to educate agricultural businesses that such information access exists and the value it can bring to their farmers and their businesses – enough for them to pay for the service on behalf of their farmers.

MNO's Cover the Cost for the Farmer
Increasingly Mobile Network Operators (MNO's) are recognizing the potential value of the rural market. In an environment where the farmer is reluctant to pay for services up front, or at all, then the MNO’s rely on indirect benefits to justify the provision of agricultural value added service (AgriVAS). These include acquiring and retaining rural customers, and with the longer term benefit of increasing productivity, incomes, and thereby rural customers’ willingness to pay. GSMA has been leading some donor funded initiatives with a number of MNO's in Africa and Asia. In one of the longer running initiatives, Vodafone Turkey estimates that the members of their AgriVAS deployment, Farmers’ Club, customer churn is on average 23% lower than the churn rate of the total customer base. Beyond this well documented case, the results are still not conclusive across the GSMA initiatives to prove value proposition to MNO’s for subsidizing the provision of mobile agricultural services.

Financial and Insurance Pays
There are other businesses interested in gaining access to the rural community. Financial services and insurance companies in particular can also benefit from establishing trust with farmers and gaining access to farmers. Financial service and insurance companies also seek to provide trust and information to mitigate risk of micro loans and/or policy thresholds. These companies are a particularly interesting way to augment agricultural services. I recently met with a financial services group called MOBIS who have been very successful at getting micro-finance out to farmers via financial cooperatives. They view agricultural services as being a trust builder component to their service which results in better use of finances (i.e. using the credit the farmer has received more effectively) and for the financial service to better assess financial risk (e.g. is the crop the grower proposing to grow a viable option for the agro-ecology at that location?).

Bundled Services
I was just in Uganda at the inception of the G4AW MUIIS (Market Led, User Owned ICT4Ag Enabled Information Service). This is a 3 year project funded by the Dutch Foreign Service and implemented by the Netherlands Space Office. The project is multi-organizational and includes data and information providers EARS, eLeaf, AGRA and aWhere, along with development organizations and coordinators such as Mercy Corp and CTA (the prime) and the East African Farmers Federation. Eventually software and technology partners and businesses are to be brought into the project also. The hope for this project is that it will successfully combine agricultural information services, financial services and insurance services. The premise is that agricultural services, financial services and insurance services have a lower chance of success when implemented individually. By bundling these services together, the symbiotic nature of the services can be leveraged, for example, farmers can use financial services to pay for agricultural services. Agricultural services can give better results for both financial and insurance services because they promote better agricultural practices and provide visibility to insurance policy status. There are many other benefits yet to be realized, but it is clear that by giving farmers a selection of tools is a more feasible approach than stand alone and at times competing services.

With many initiatives being used and tested it is clear that many organizations see the value proposition in providing agricultural services for farmers in emerging markets. What the specifics of a successful model is, remains to be seen but probably will transpire to be a combination of services and a very competitive market. There is no doubt that farmers in Africa and Asia will soon have an abundance of agricultural information services to choose from, some at low cost or free through subsidies and other participation in the agricultural value chain. There will probably be a period of complexity as the market is established, but the outcome will most certainly improve the quality and quantity of agricultural production in these markets – which after all, is one of the overarching goals of these initiatives. It is an exciting time in the world of agriculture as we figure out how establish successful and sustainable business models to enable farmers and the world solve the global food challenge.Click to edit your new post...

Topics: agricultural development

Recent Posts


Subscribe to Email Updates