According to a recent McKinsey research report, more than 60 percent of the population of sub-Saharan Africa are smallholder farmers, about 23 percent of sub-Saharan Africa’s GDP comes from agriculture and that Africa could produce two to three times more cereals and grains, which would add 20 percent more cereals and grains to the current worldwide 2.6 billion tons of output. Similar increases could be seen in the production of horticulture crops and livestock.
1 – What is the market potential for agribusiness in Africa, and why is this industry segment still largely untapped?
According to a recent McKinsey research report, more than 60 percent of the population of sub-Saharan Africa are smallholder farmers, about 23 percent of sub-Saharan Africa’s GDP comes from agriculture and that Africa could produce two to three times more cereals and grains, which would add 20 percent more cereals and grains to the current worldwide 2.6 billion tons of output. Similar increases could be seen in the production of horticulture crops and livestock.
In a 2018 study by Dalberg advisors showed a total addressable market of EU2.3 billion of which only 6% is currently being tapped into. The Agric value chain is still highly fragmented, underdeveloped with no “single solution or technology that effectively link and cater for all the funding, trading and supply chain requirements.” The agric segment is also highly cyclical and exposed to external climatic conditions which makes it a higher risk sector to invest in from a supply and demand certainty perspective.
We have seen the lack of infrastructure and mechanization as some of the largest opportunities to address. Ongoing investment across Africa in local production and value addition is a key focus to lower the dependency of the continent that remains a net importer of food. Import substitution presents a large opportunity for Africa with 23% of the continent’s GDP and 60% of employment. Currently agricultural commodities present 75% of the continent’s domestic trade, along with 60% of the world’s uncultivated arable land. This combined with a young and growing population and rising middle class offers the sector with a large untapped opportunity to develop.
On this basis is clear that the agriculture has significant potential.
2 – How do agribusiness platforms benefit farmers and other market participants and unlock industry growth potential?
Linking the supply and demand side in the agric value chain through efficient, transparent and cost effective platforms creates opportunities of inclusion of the informal trading sector to the formal economy.
Primary producers remain price takers with little insights into the demand dynamics at the onset of the season, leaving them vulnerable once the crop is harvested and at the mercy of the market movements.
The formal sector on the other hand find it difficult and expensive to effectively communicate raw material requirements to a largely unorganized informal sector, which creates gaps and inefficiencies between value chain players. Providers of seed, fertilizer and pesticides are investing heavily in different technologies and recommendation engines to assist commercial farmers in determining the best inputs, managing requirements, monitoring production and providing adjacent services. Large buyers of agricultural produce, such as traders and producers are investing into the supply chain in order to provide agronomic support, training, working capital and quality inputs. Buyers are also investing in different technologies to improve their monitoring processes, reduce the use of cash and improve forecasting.
The primary sector can benefit from a demand driven production approach, better access to quality inputs improving their output and elevating them from substance to emerging farmers and advisory services through the season to improve education, with access to funding and insurance, while the primary sector presents great promise of markets for input suppliers and formal sector off takers to acquire commodities at competitive prices, while developing the informal sector through fair and sustainable trade.
The start-up scene in agriculture is booming. Significant advances have been made in remote sensing, internet of things and drone technology. Other start-ups have developed platforms and prediction algorithms using this data combined with on-the-ground reporting. In the smallholder farming ecosystem, many start-ups are developing technology platforms to provide digital marketplaces, digitise farmer groups and farmer activities, provide digital advice and extension services, and provide financial services.
3 – What is Standard Bank’s role in building and supporting agribusiness platforms in Africa?
Simplifying the highly complex informal sector and creating a platform that can cater for the small scale farmers needs, while linking the primary sector to the goods and services the formal sector offers. Platforms also creates a channel of rich and meaningful data to give the informal sector an economic identity, which is a crucial element to participate in the formal sector. The platform should create welfare in a sustainable manner for all value chain players and address the fragmented nature of the sector that creates inefficiencies.
OneFarm is being developed as a B2B business that connects to the smallholder ecosystem, aggregates their demand, and connects them to businesses that supply enterprise grade commercial services.
As an ecosystem play, the platform will connect to the smallholder ecosystem via local start-ups in the field as channel enablement partners. The platform will be able to provide these local SMEs and businesses with access to quality finance and enterprise grade services.
For commercial and corporate clients, the platform will plug into their existing systems, and provide them with access to provide services to, or source product from the smallholder ecosystem, which has been largely inaccessible.
4 – What impact have you seen from your agribusiness platforms to date, and what is your outlook for expanding their reach within the industry?
The current AgriTech’s are highly specialised and cater for only certain segments of the value chain, leaving the value chain fragmented and disconnected. Isolating the crucial necessities of the value chain players and implementing a scalable and commercially viable model with the lack of infrastructure or digital channels to reach the most remote population of the economy remains a challenge. Various test and learn projects has been launched to find and test concepts that will form part of a multi-layered, modular and flexible platform that can be tailored to a wide range of environments based on the state of development.
The OneFarm platform is now in its third season of piloting and many learnings have been identified. It has seen significantly improved yields and productivity of the farmers engaged. We are also currently launching with two new channel partners which will allow access to thousands of new farmers, by providing services via co-operatives. Other smaller pilots on this platform are being explored in other regions to test viability before being brought onto the larger platform.
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