Building the business case for smallholder D4AG solutions
September 5th, 2019
Digitalization for Agriculture (D4AG) solutions and services are growing rapidly in Africa. Before 2012, there were 42 D4AG solutions in operation on the continent. Over the following six years, this figure rose steadily to 112 in 2014, 230 in 2016 and 390 in 2018.
But what these statistics don’t tell you is that only some of these solutions made it beyond pilot phase. As Dr Benjamin Kwasi Addom, Team Leader in ICTs for Agriculture at CTA, observed, “not all of them are alive today”.
Without business models, D4AG solutions remain project-led and donor-dependent, which means, more often than not, they collapse once trials are completed. As a result, there are currently very few scaled, functioning and sustainable D4AG solutions in Africa.
The challenge, as Dr Addom explained, is transitioning from project to business; transitioning beyond donor funding to a profitable and financially sustainable business model.
To help explain why so many D4AG projects struggle to survive, Ms Ndidi Nwuneli, Partner and Co-Founder of Sahel Capital, set out the questions and uncertainties that can bedevil D4AG project expansion. But first, she provided the official CTA definition of D4AG solutions:
“D4AG is the use of digital technologies, innovations and data to transform business models and practices across the agriculture value chain, including production, postharvest handling, market access, finance and supply chain management.”
And why D4AG solutions in Africa so often fail, she revealed, is down to a complex combination of factors. These include: the issue of registered users versus active users; a disconnect between who solutions are designed for and who their actual customers are; and funders distorting markets by rewarding vanity metrics.
Furthermore, “if business models are not rooted in a business case that is sustainable,” said Nwuneli, “the business dies.”
So, how do D4AG start-ups in Africa avoid these common pitfalls and transition from speculative project to established business?
To provide some answers, Ms Sara Boettiger, Senior Advisor at McKinsey & Co, set out some commonly understood lessons about philanthropic investments in data and analytics to enable African agricultural transformation.
First, it’s important to “distinguish what’s research”, which means assessing whether an investment in data is intended to further knowledge or enable changes in the way people make decisions or systems work. Second, developers need to consider who will use the data/analytics and how its availability will change what they do. Third, it’s crucial to “rigorously run the numbers on value”, which is all about quantifying the changes the data/analytics will enable. And finally, the D4AG finance model has to change. “In this heavily donor-funded market,” said Boettiger, “it’s 3-1 donor finance versus private capital,” which seriously limits long-term project potential.
On this final point, all speakers and panellists were in full agreement. Only through the emergence of more “patient private capital” that enables experimentation and fosters scaling will D4AG solutions become viable, sustainable and likely to succeed.
But how do we make a compelling business case for D4AG solutions and attract long-term private investment?
Gerald Otim, Founder and CEO of Ensibuuko, and Dick Kamuganga, President of The Uganda National Farmers Federation, provided some compelling insights from Uganda. The business case, they remarked, is all about value for money. Meanwhile, only by articulating clear value propositions that provide business sustainability will new ventures escape ‘project death’.
Crucially, solutions that address both the needs of the farmer and the needs of the private sector, marrying their interests equally, are likely to attract and retain long-term financial support. And finally, reducing the cost of delivery through coordinated investment will provide a firm foundation for future success.