This is the fourth post in a series about real life case studies to demonstrate how companies can successfully develop and use business models that gain traction in smallholder markets. Last week we looked at the consumer financing model. This week, we discuss how using local sales and service providers can overcome distribution challenges.
Rural smallholder farmers often lack the access and capacity to directly procure products and services from agricultural input companies. In turn, these companies face high costs and logistical difficulties reaching farmers. As a result, agricultural input distribution systems are nascent and limited in many developing countries, and unable to meet the needs of smallholders. To address this challenge, some agribusinesses identify and train local community members to act as sales and service providers. These entrepreneurs then independently sell and distribute the companies’ products and services into underserved rural communities for a fee. Feed the Future Partnering for Innovation, a USAID-funded program, supports numerous companies that incorporate local sales and service providers as integral components of their business, including The Metal in Bangladesh, TECAP in Mozambique, and Hello Tractor in Nigeria.
From the Real World
The Metal is a leading agro equipment distributor in Bangladesh. It hopes to capitalize on the unmet need for rice and wheat harvesting services in Bangladesh by introducing a low-cost, high-quality mechanized reaper. However, it realizes that while there are millions of smallholders, most of these producers have plots too small to justify investing in a reaper. To distribute its product, The Metal targets local service providers who can purchase reapers and then offer reaping services to local farmers. The Metal supports these providers with a comprehensive training and support program. To raise public awareness, The Metal complements its sales with a widespread marketing campaign that includes demonstrations in fields and at community bazaars to educate farmers on the reaper’s benefits. The benefits of this business model are threefold: The Metal benefits by diversifying and expanding its mechanization equipment offerings, local service providers are able to earn additional revenue, and smallholders are able to reduce their labor costs.
Tecnologia E Consult oria Agro-Pecuaria (TECAP) is a large supplier of improved agricultural inputs and mechanization services in Mozambique. Through its partnership with Partnering for Innovation, TECAP seeks to expand its geographic coverage and enter the smallholder market segment. To accomplish this, TECAP is establishing three new agro-input stores in Nampula, Tete, and Manica and investing in a distribution network of agrodealers, franchisees, and agriculture development agents (ADAs). TECAP trains ADAs in business development, enabling ADAs to operate as rural entrepreneurs receiving commissions on the sale of inputs and mechanization equipment. This rural market distribution strategy allows TECAP to reach
more farmers, serving as the impetus for future market expansion.
Similar to farmers in Bangladesh, Nigerian smallholders’ plots are small, meaning the need for individual tractor services is seasonal and limited. To solve this challenge Hello Tractor relies on a network of youth entrepreneurs who work as local service providers, or “agripreneurs” to sell its “smart tractor” services. Hello Tractor identifies and trains youth agripreneurs on financial and business management so they can earn income providing mechanization services to their communities. Hello Tractor’s smart technology allows smallholders to request tractor services as needed via SMS, enabling them to increase their productivity without having to invest in their own tractors.
Through these partnerships, Partnering for Innovation has identified several important considerations for companies planning to develop a distribution model based on local sales and service. First, it is important to identify the right entrepreneurs. Not only must these entrepreneurs be familiar with the communities they aim to serve, but they must also be highly motivated and passionate about improving smallholders’ productivity. They also must be risk takers and business-minded. Second, companies need to understand the capacity gaps of local service providers and develop a comprehensive training program to address these needs. Training must focus on business and financial management as well as technical information about the product or service. Third, companies must think through their strategy for helping scale their services providers’ businesses. With the proper support, local service providers can expand, purchasing more tractors, for example, and hiring employees of their own to expand their services. Fourth, companies must continuously raise public awareness among smallholders to generate demand for the products and services offered by the local providers. Only by ensuring an end market will the local service provider model be able to expand. Finally, companies must develop strong linkages with financial and government institutions. Local sales and service providers need access to financing to grow their businesses. This, coupled with government policies such as short term subsidies, greatly enhances the ability of local providers to succeed.
Next week, we will discuss how the outgrower model can help businesses to have guaranteed production and smallholders to have a guaranteed end buyer.