ICT4Ag business models: How to sustain and grow the Digital Harvest

The AGRA financial inclusion team, in its partnership with The MasterCard Foundation, has been assessing the business models of fifteen ICT4Ag solution providers in Kenya, Tanzania, and Ghana.  Study outputs to date include the full report, executive summary, 15 case studies of providers, and a short video where farmers give their perspective on these solutions. Hedwig Siewertsen, AGRA's Team Leader of Financial Inclusion, summarizes key findings below.

By Hedwig Siewertsen 

[Download the full report and executive summary] 

“Digital Harvest” business models: What’s working and what’s not?

The proliferation of mobile phones among rural households in Kenya and Tanzania (72% in both countries) has seen a significant increase of digital information solutions for farmers. However, many of these solutions do not sustain beyond the life of an award or a typical three-year donor project.

We use the term “Digital Harvest” to refer to the 150+ different ICT solutions in these countries that allow farmers to access information on market prices, good agronomical practices, and weather updates. With the help of these solutions, farmers  are able to source services like transport and produce aggregation. These non-financial agricultural services are instrumental in reducing the risk of delivering financial services, as a farmer who knows the best time to plant, how to apply fertilizer, and where to get a good price for the harvest, is more likely to be able to pay back an input loan.

Despite the initial success of the Digital Harvest, there are already signs of ‘post-harvest losses’ with some solutions disappearing from the market due to flaws in their business models. Based on earlier research from GSMA, CTA, and Mercy Corps these flaws are the main cause of underperforming solutions. Therefore, AGRA is interest in understanding what’s working and what’s not. This requires identifying which ICT4Ag solutions are sustainable and valued by farmers in order to target support at scalable and lasting solutions.

To build on these interests, AGRA with support from The MasterCard Foundation and assessments conducted by Advantech Consulting Ltd from Kenya, commissioned a business model assessment of fifteen ICT4Ag Solution providers in Kenya, Tanzania, and Ghana. The sample is small and we do not claim that the review is representative of the universe of ICT4 Ag solutions. However, it does yield insights in flaws and possible improvements needed to grow and sustain the solutions that offer real value to users.

Identifying flaws of Digital Harvest business models

The business model review identified eight key problems that hamper the growth and sustainability of the solution providers.

1. Smallholder farmers have little ability or willingness to pay for services.
2. Mobile network operators propose unfavourable revenue sharing models.
3. Affordable patient capital to finance scaling of solutions is difficult to find.
4. Solutions have no clear revenue model and struggle to fund their growth.
5. Limited customer segmentation, weak relationship management, and limited customer feedback mechanisms reduce user uptake and retention.
6. Farmers mistrust or resist innovation and technology if they feel automated payments and push messaging are using their airtime (phone credit).
7. Extension workers and traders, who are the potential promoters of the solutions, might fear for their job or income when trading is automated, prices become transparent, or extension messages are digitized. The need for change management at that level is often not recognized.
8. Solution providers insufficiently track financial key performance indicators as a measure of sustainability and have a limited view on their cost drivers.

Unfortunately, these flaws in business models and the lack of a clear business case for users, lead to solutions that do not have robust revenue models or do not empower customers to adopt the solutions.

Key traits of sustainable business models

The business model review found that five out of fifteen solution providers were sustainably delivering services. The longer the solution providers are in existence, the more likely it is that they are sustainable.  This may reflect adjustment of business models over time or it might be that the non-sustainable solutions have disappeared from the market after an initial donor-funded project phase.

Nonetheless, successful solution providers were found to have the following traits in common.

1. Revenue models where agribusinesses or institutions pay for smallholder farmers to access the service - hence the paying client differs from the user.
2. Low-cost digital delivery channels combined with expensive face-to-face promotion and marketing to gain trust from smallholder farmers and organize regular customer feedback.
3. Offerings that combine valued and focused services in partnership with trusted organizations that give access to content, users, or infrastructure.
4. Key performance indicators and customer feedback loops to monitor the business.
5. Diversified sources of revenue such as subscription and usage fees combined with advertisements and commissions. The selling of data collected through the solution is often mentioned as a revenue stream, but it is too early to see success cases of this potential revenue stream.

Toward increased business model sustainability 

With these findings, we believe that ICT4Ag solutions could become more sustainable, attract more resources, and have more users by taking the following approaches:

1. Use a freemium revenue model adopted and promoted by early users - this allows the solution to demonstrate its value before customers are charged.
2. Undertake a user-centered design process, where the content becomes more farmer-centric and the solution more user-friendly. Bundling with services that farmers have a willingness to pay for, credit for example, might improve uptake.
3. Provide change management support at the level of promoters and institutions adopting the solutions.
4. Forge symbiotic partnerships with other providers to share field agents, customer acquisition,  feedback services (call centers) and content generation, which could reduce costs of services delivery.
5. Unite with other providers to lobby the mobile network operators for an equitable revenue share percentage and unite the financiers for patient affordable capital instruments.
6. Present a strong business case for all actors involved (target customers, promoters, and content providers) and envisage an exit strategy for donor support.

ICT4Ag can play an instrumental role in improving the farmer experience, making it easier for smallholders to grow their crops and sell their harvest at the market rate, thus putting them in a better position to pay back their loans. For ICT4Ag solutions to work, Digital Harvest providers will need to  revise their business model to align with a more sustainable approach. 

Note: On Sept 6, 2016, AGRA and CTA jointly held a workshop on the Digital Harvest study at the African Green Revolution Forum in Nairobi.  10 solutions providers came together to comment and discuss the findings to date from the business model review as well as view farmers’ perspectives.  A suggested next step at the conclusion of the workshop was to create a community of practice which could aim to:

• Forge partnerships that reduce duplication of efforts in content generation and general awareness on ICT4Ag
• Unite solution providers in their lobby for improved revenue sharing contracts with MNOs
• Share scarce resources like field agents, physical presence and information data bases
• Set quality standards for content (validation of content) and customer services (possibility to opt-out) and develop a code of conduct for service provision (clarity on payments and privacy of data)
• Involve the governments in the promotion and quality assurance of the solution provision.