Farm Smarter, Not Harder

There is no way around it: farming has to become more productive

Agricultural growth is seen as a precursor of economic transformation as countries such as China, India and Vietnam recently demonstrate. In Africa, agriculture accounts for two thirds of livelihoods and food accounts for two thirds of the household budgets of poor people however, the productivity levels in its agricultural sector are worrisome. Although the continent has all the prerequisites to even become a net exporter of agricultural products such as maize, rice, wheat etc. it recently is a net importer. To create success the productivity levels need to rise sharply.

Currently, the scarce productivity in the agricultural sector in Africa can be accounted to a variety of factors such as limited irrigation mechanisms , poor soil health (e.g. due to lack of use of  fertilizers), use of pesticides, lack of access to quality seeds, and mechanization of work – with each topic having its own unique root causes and problems.

Looking at the mechanization issue, it presents itself as following: In Africa, over 60% of farm power is still provided by human muscle, mostly from women, the elderly and children (whose work might interfere with schooling). Only 25% of farm power is provided by animals, while less than 20% of mechanization services are provided by engine power. And over 80% of farming is done on small scale farms of one to three acres size, which fragments the issue of mechanization. On the contrary, as observed in most parts of the world, the adoption of mechanical support such as tractors and other tools could enhances the overall production as well as the productivity of farming due to timeliness, precision and improved quality of operations.

Why is mechanization not happening? First, there are simply not enough e.g. tractors suited for the small farmers in Africa and the African machinery industry which could provide them is minimal. Moreover, the western agriculture machine industry is mostly focused on investment-intensive high-end equipment and thus does not provide the right equipment for small scale farming. And even if there are tractors, the local access is often times not given. Next to that, farming is not seen as a business like others, so the levels of organization and the general aim to investment are low. And, very practically, often times simply the capital is missing.

In the past, the mechanization attempts were handled in a fragmented manner and mainly through government schemes or in a one-time aid-in-kind manner. The results are at best mixed and definitely did not lead to a breakthrough yet. Most of these attempts failed miserably due to short term planning, poor management and poor training of the staff – and in sum without a plan how to run the scheme and allocate the machines long-term.

A model that addresses these issues:

A machine-as-a-service model could solve most of these problems of general agricultural tool supply. How does it work? Ideally, farmers are enabled to rent equipment that fits their specific needs for small-scale farming (e.g. simple two-wheel tractors) at any time and just pay for their specific usage through a platform. Through this renting – or machine-as-a-service – they get local access to machinery without being confronted with high upfront investments. How does that practically look? For example, a two-wheel tractor and additional equipment, outfitted with a simple location tracking device can be provided by an operator who operates a big pool of machinery. Farmers can access the equipment by simply sending an SMS or access an online-platform and specify their need for machines, projected usage time and how much they are willing to pay per hour. The platform provider assigns a nearby available machinery according to the specifics and informs the farmer about the details of the location and handover. Farmers thus don’t need to buy the equipment, but can still profit from the access of it exactly when they need it. The maintenance of the equipment is done by own trained technicians or a network of trusted and specially trained partners.

Even the oftentimes in SACCOs organized farmers could be included when they collectively invest in equipment and then offer the equipment on the platform and create additional income.

3…2…1…Sold! Using an auction to set the price

But who sets the price and assigns the machines? The platform provider? We know that transparency is unfortunately not a typical characteristic of these markets (information asymmetry often leads to traders ripping off farmers). Here, an auction mechanism solves the issue. An auction could help to put the machines in the place, where they would create the biggest value at the moment. This is because a farmer by bidding for a machine figuratively communicates how much the machine would add value to him. If a farmer knows that if he can have access to a machine today and that would increase his output by 50%, he would bid more than another farmer who knows that he does not need the machine immediately today but it is still of the same value for him next week. This overall helps to operate the fleet of equipment as profitable as possible – both for the farmers and the provider! Additionally, from a bird’s eye perspective, the operator could shift equipment capacities according to planting, growing and harvesting seasons and thus further increase the utilization rate. Especially in sub-Saharan Africa asymmetric seasons could be leveraged. Taking the bird’s eye view could increase the spreading of the scheme further.

Who profits and how?

Farmer: Increased productivity for the farmers at marginal costs, without initial investments. Indirect effect: the rest of the family can switch to other activities such as new opportunities or education.

Provider: Minimized investment risk due the highest possible utilization rate at the highest (market) prices. Increased information quality on the platform about demand and supply which allows for auxiliary services (markets for the outputs, weather, forecasting of harvest, etc.). Buying tractors or agricultural equipment in bulks significantly decreases purchase prices (compared to every farmer buying singles). New competitors entering a region, leveraging higher machine quality/functionality for similar bids.

Government: decreased subsidies as higher productivity increases output, eventually better targeted subsidies, because no middlemen are needed.

Manufacturing Industry: Reliable and financially trusted partner as customer which increases the incentives to actually engage in that industry.

Potential Obstacles:

  • Availability of technology that is suited for the small farms, easy to use, reliable and easily to be moved around
  • Paying for that service requires access to electronic payment
  • Careless handling of the equipment leading to extremely high maintenance costs

 

Despite the obstacles, first attempts in the direction of machine-as-a-service are successfully launched for example with HelloTractor in Nigeria.

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