Like most countries, South Africa suffers from Pareto distribution, the Long Tail effect when it comes to agriculture ā significant value is created by a small number of large farms.
For context,Ā South Africa has 122.5 million hectares of arable land, of which 46.4 million is used for commercial agriculture.Ā Together, the Northern Cape, the Free State & the Eastern Cape have a combinedĀ 65.8% of all commercial farming activity in South Africa. From 2007 to 2017 the agricultural output grew 287% from R85.9 billion to R332.8 billion while the number of farms decreased.
Wealth can be created here but smallholder farmers are forced to remain small due to an imbalance in land distribution & 3 fundamental problems.
Not to say there arenāt more but the belief is that the 3 problems faced by smallholder farmers are the crux of all other problems, and I believe these problems are ubiquitous across African countries. Think of it as a pyramid with access being at the top; call itĀ the access problem:
These problems create an inherent risk in the value chain of each farmer. As an overview, I created a risk matrix to show how each factor affects each function of the value chain. For example, there is little money canāt solve & the lack of access to a suite of adequate financial services can cripple any business. While all major banks have dedicated departments for agriculture ā add the Land Bank to this ā they still cannot profitably serve smallholder farmers. The risk factor is high at the input level, but just as any industry; deprived of capital it wonāt survive & production costs for a farm are already high.
But then again risk breeds opportunity for others. Over the last decade, around the world, the farm has been unbundled into various segments of innovation.
The advancement in technology has seen new ways to aide farming, such as next-gen vertical farming or the use of robotics & drones in crop management. I believe these technologies are not yet feasible for use at the smallholder level; they donāt solve the 3 problems in the African context. This is why a more primary approach has been taken by those active in the market.
I always look to Kenya when it comes to innovation in AgTech & how they solve these problems. For instance the CEO ofĀ Apollo Agriculture, Eli Pollak talks about the need for a holistic approach when solving problems for smallholder farmers. Organisations cannot simply provide one element of the value chain and deem it sufficient. If you are offering finance in the form of a loan, that needs to be attached to inputs & quality information or if you are offering market access that needs to be attached to logistics & storage. In essence, the solution needs to beĀ Full-StackĀ toĀ solve the access problem.
I spent some time thinking about this, how to effectively solve access in a sustainable & scalable way, starting with the access to finance:
Access to financeĀ is imperative for the success of any organisation. So how do you offer financial products to smallholder farmers in a profitable way? You have to start with an alternative way to assess creditworthiness; there are two startups on the continent doing this,Ā FarmdriveĀ &Ā Harvesting. Each does scoring differently but at the core, they use agronomic data & social data. The use of machine learning/AI & the focus on smallholder farmers allows for a more scalable way to address the market. Credit is the bedrock of any high functioning economy & it allows financial institutions to provide access to more tailored products, in the case of agriculture, products such as goods (inputs) on consignment, asset financing for machinery, crop & livestock insurance, then one step further with bundling these services to provide a more holistic solution.
In the age of Google, information is easily & freely accessible but if I give you a piece of land, money, a feature phone with airtime & then I tell you to farm baby marrows how far do you think you will get without the need to ask for help? We often takeĀ access to informationĀ for granted but the lack of knowledge & access to it can be crippling. So how do you make it widely available without the need to consult Google? You crowdsource it. One can argue that Facebook groups have been the biggest source of information on the continent. Peer-to-peer knowledge networks just seem to work, another one of these isĀ WeFarm, a peer-to-peer knowledge network that connects farmers & enables them to share ideas & solutions to problems via an SMS-based platform. These are the solutions that create value & impact on smallholder farmers, these simple connections that add value over time.
The last problem that needs to be solved isĀ access to markets. In South Africa,Ā KhulaĀ has been growing over the past 4 years. Khula is a B2B marketplace connecting smallholder farmers to formal markets of buyers through offtake agreements & an online bidding portal. Since its existence, Khula has amassed 3000 farmers onto its platform. Market linkage is an important aspect for any farmer, knowing where to sell is just as important as knowing what to farm.Ā Iāve written a bit about marketplaces, in AgTech they seem to be just as popular & most likely to succeed,Ā Twiga FoodsĀ in Kenya already has a big footprint. At the end of the day, there are 2 million farmers in South Africa who are underserved, any solution that drives impact at scale will create immense value. Every problem needs a solution.
By Ububele Kopo
