New model farming

If political rhetoric was rainfall, Africa’s agricultural economies would be thriving. 2014 was the African Union’s year of agricultural development. At the AU’s Malabo Summit, national governments reaffirmed their decade-old commitment to assign

10% of their national budgets to agriculture — a commitment that only 10 countries had actually achieved.

There are variations between African nations, but between 60-70% of the continent’s workforce depends on agriculture. Most work on small plots. The average farm size in sub-Saharan Africa is 2.4ha, compared to 178.4ha in the United States and 111.7ha in Latin America. Smallholders account for around 80% of Africa’s food supply and the vast majority of cocoa and coffee production, two economically significant cash crops.

Despite decades of economic and development thinking that promoted the idea of large-scale commercial agriculture as the principal route to prosperity, national governments and the international public sector have gradually shifted their view, acknowledging that to ‘fix’ African agriculture means to work with the small-scale end of the industry.

Unfortunately, the factors that drive transformation in agriculture — the adoption of technology and access to finance and skills training — are often difficult to deliver economically to smallholder farmers, who are often geographically dispersed and poorly connected to markets. Fertiliser use in sub-Saharan Africa, for example, is less than 10% of the global average.

Throwing money at the problem has rarely worked, and, with a few exceptions, government extension services in Africa have either been dismantled or scaled-back due to a lack of resources.

Models to scale up smallholder farming and to increase efficiency at the farm level have begun to emerge, however. The presence of dedicated social enterprises and the evolution of consumer goods and food companies’ corporate social responsibility into more holistic, supply-chain based interventions have proved that small-scale farming in Africa can be a viable business.

“I think why this space of social enterprise has caught the imagination of so many in the development sector, particularly in the last decade, is that it makes use of the listening device of the market, where it treats the poor not as a beneficiary but as a customer,” says Vicki Tam, head of the development practice at Bain & Co.

“Because of that, our hope and belief is that these social enterprises are well-equipped to provide products and services that are actually valued by the poor, that they will keep using over and over again, even if they have to pay for them.”

Bain & Co recently produced a report, in cooperation with the impact investing fund, Acumen, that examined 11 “pioneer” companies whose models have demonstrated sustainability and scalability.

“There’s a real dearth of proven business models,” she says. “When we scanned the market, and we looked at hundreds of firms in this space, we found less than 5% of them that had actually scaled beyond 250,000 customers… there are just very few that have truly scaled, or scaled in a profitable way.”

Among the successful firms they studied was Juhudi Kilimo, a Kenyan microfinance business that provides smallholders with loans to acquire productive assets — such as dairy cows — and supports them with business and technical skills training. The company was founded in 2005 and in nine years scaled up to 20,000 clients, a loan book of $5.8m and revenues of $1.7m.

Similarly, the One Acre Fund, a non-profit, supplies farmers in East Africa with credit, inputs, training and links with markets. From a standing start in Kenya in 2006, it now operates in four countries and serves 130,000 farmers.

Sidai, also from Kenya, provides inputs and veterinary services to livestock farmers, offering them an alternative to the bad advice and inappropriate or counterfeit products on sale at existing retailers. Since its founding in 2011 as a for-profit arm of the non-profit Farm Africa, the company has opened six company-owned stores and 70 franchised centres, with 2013 revenues of $1.4m.

“What’s fascinating about this is that despite the diversity in the companies we are really finding common challenges that they face operating in this environment of smallholder agriculture,” Tam says. “They are targeting and perhaps dealing with a customer segment that is arguably the most challenging customer segment ever. They have very low purchasing power… Often in environments where they’ve been doing the same thing for generations, so these things truly are new to them, and they have to change their behaviours to do something new.”

“Doing that in an environment where you have very little access to information, very little media, and where influence is very much constrained by word of mouth, it’s also constrained by hierarchies and tribal relationships. All of that just makes the diffusion of information particularly challenging.”

Successful businesses in the space share several key characteristics, Tam says.

“A successful pioneer firm or enterprise needs to combine the best of a more typical social sector player and a business. The really successful social enterprises that we have seen have such an intimate understanding as a farmer as customer. They’re there, on the ground, rolling up their sleeves, meeting with them, really understanding them in an intimate way, and what their aspirations are.”

For market-based solutions to work, there needs to be an end market. Increasingly, multinational companies are providing that, working to bring small-scale farmers into their supply chains. Brewers, such as SABMiller and Diageo, have begun to source cassava and other local crops to replace imported grains in their beers, while large agribusinesses, such as Olam, have expanded their hub-and-spoke outgrower models.

Their motivation has not simply been altruistic, according to Don Seville, the co-director of the Sustainable Food Lab. Some companies — such as Cadbury’s, the UK chocolate maker which adopted the Fairtrade standard for the cocoa it sources in Ghana in 2010 — have genuine concerns about the sustainability of their supply. Others fear the risks to their reputation if consumers are made aware of issues, such as child labour, which can result from communities in extreme poverty in the supply chain.

“There’s a real short-term worry about where supply is coming from, and that’s certainly driving some of the investment… but for many companies it gets compelling when it’s combined with the risk lens,” Seville says.

Sasha Dichter, chief innovation officer at Acumen, says that the impact investing and social enterprise sector is seeing more involvement from multinationals, who are “much more serious about their supply chains, and the business imperative of really getting them right.”

However, he adds, it is important not to focus exclusively on improving the livelihoods of cash crop farmers, to the detriment of subsistence-level smallholders.

“I think that would be a big part of the endgame, but it would be ignoring the people who have been ignored for too long, who are stuck on smaller and smaller parts of land,” Dichter says. “There are ways for them to drastically increase their productivity and their income, and really to raise the tide for these economies if we can get this agricultural sector to be more productive.”

source: africanbusinessmagazine