Last week, we used real life case studies to demonstrate how companies can successfully develop an aggregator model. This week, we will discuss how rural advisory services can be integrated into a profitable business model.
In developing countries, smallholder farmers often lack the basic agronomic and business knowledge to increase productivity. This knowledge gap is often the result of weak or absent rural advisory services. Agribusinesses are uniquely positioned to provide these quality rural extension services. Private sector-led rural advisory services can both help a company’s bottom line and provide farmers with essential agronomic and business knowledge. When farmers have access to better crop production information and advice, they are better able to take the risk of investing in improved agricultural inputs, leading to higher productivity and incomes. For companies, building the capacity of smallholder farmers builds stronger ties and loyalty, leading to increased sales revenue of agriculture input and offtaking services, and more reliable supply chains. Investing in extension services leads to long-term benefits for farmers, shareholders, and the business. Feed the Future Partnering for Innovation, a USAID-funded program, supports numerous companies who embed advisory services in their business models, including Phoenix Seeds in Mozambique, Opportunity Bank in Malawi, and Tolaro Global in Benin.
From the Real World
In Mozambique, Phoenix Seeds is identifying 200 lead farmers as distributors for their seeds and training them in establishing demonstration plots based on good agricultural practices. These demonstration plots showcase numerous growing practices to educate farmers on land preparation, spacing, and proper handling and application of agro inputs. These lead farmers also raise awareness of Phoenix Seeds’ products, facilitating seed sales to neighboring farmers.
In Malawi and Mozambique, Opportunity Bank contracts third parties UT Grain, Greenbelt Fertilizer, and Catholic Relief Services to provide its smallholder customers with GAP training to improve their productivity and financial literacy training to improve their basic understanding of crop budgets as well as the advantages of saving and borrowing from Opportunity Bank. This results in increased bank business as well as lower default rates on the loans provided to more than 15,000 farmers.
Tolaro Global is a cashew nut processor in Benin that sources cashews from farmer cooperatives. Tolaro provides advisory services to 2,300 members of these cooperatives, including training on tree pruning, organic composting, fertilizing, intercropping, and cashew harvesting and storage techniques. It also registers these farmers through the Fair Trade certification program. By establishing a close relationship with its suppliers, Tolaro benefits by receiving a greater quantity of high-quality product from a more loyal supplier base while farmers benefit from greater productivity and a 15 percent price premium for Fairtrade certification.
Through these partnerships, Partnering for Innovation has identified several important considerations for companies looking to embed rural advisory services. First, private sector agribusinesses must conduct a cost-benefit analysis to determine if the costs of providing extension services will be outweighed by the benefits in the form of improved quality, greater volumes, expanded markets or lower overall costs of doing business. Second, these firms must decide if it is better to provide these services in house or to contract third party partners. While a company may not have the initial internal infrastructure to offer extension, third parties can be expensive and a disincentive to firms from investing in their own capacity. Finally, providing embedded rural advisory services that complement an agribusiness’s products and services can strengthen existing relationships and attract new clients – creating a win-win for the farmer and business’s bottom line alike.
Next week, we will discuss how the Consumer Financing Model opens up a new market for financial institutions and provides smallholders with the investments they need.