In 2016, while planning a trip to Southeast Asia, a friend suggested I try Couchsurfing to save on accommodation costs. She had paid nothing for boarding through Europe and the US using the platform — which allows travellers to crash on the couches or in the spare rooms of gracious hosts. The catch? Only that the generosity she enjoyed would be reciprocated whenever others visited her corner of the planet. My experience with the sharing economy back then was limited, and the sceptic in me was not convinced. A digital platform that assumed goodwill? One that would require me to trust a complete stranger to play friendly host in a foreign city? I was reluctant to buy in, to say the least, and I pre-booked my accommodation for that trip.
Fast forward to 2018, while enrolled for my MBA at the University of Oxford, I came across a course by a popular Said Business School Fellow named Rachel Botsman entitled Trust in the Digital Age. Although I didn’t opt to take the class at the time, I subsequently reflected on Botsman’s views on trust and how it is built and mediated in our increasingly digital world. It is these principles that I now find particularly relevant in my current role as Head of Investments at Founders Factory Africa (FFA). Coincidentally, Rachel co-authored a book called What’s Mine is Yours with FFA Co-founder and CEO Roo Rogers.
What does all this have to do with AgriTech in Africa, you may ask? Well, a lot, it turns out. Stay with me.
When people talk about the African agriculture industry, they often reference the awkward fact that over 20% of the continent’s population suffers from hunger (with over 280 million being undernourished) and 60% of the world’s arable land is in Africa. This is just one example of the paradox of African resources.
In light of this, it is sensible to conclude that we need to find intelligent ways to collectively increase the production of agricultural output, with the implied assumption being that the majority of those who operate as farmers want to improve their production. Hence, AgriTech. However, this assumption needs to be unpacked further to account for the nuances of African market dynamics.
When it comes to the business of AgriTech, I have observed three philosophies held by farmers who could potentially adopt innovative tech-forward agricultural tools and approaches:
Type 1: The subsistence farming mindset
Farmers with a subsistence farming mindset are not interested in long-term growth and the prospect of future (potential) operational efficiencies for a given investment today. They are more concerned with solving for immediate needs and exploiting short-term revenue opportunities that are frequently sourced through long-standing relationships with partners they have trusted and worked with over many years.
Type 2: Individual growth mentality
Farmers with this mentality are open to individually capitalising on an opportunity, given the right incentive structure (and appropriately-sized upfront investment requirement, often met by others). Farmers in developed markets who receive government subsidies and other incentives to produce prescribed output are a good example of this proclivity.
Type 3: Collective growth mentality
Some farmers embrace opportunities to increase output to serve a growing need or demand. Such farmers are often willing to make the upfront investment and/or behavioural change necessary to achieve this, i.e. trusting new partners and working collaboratively through a distributed value chain.
Interventions that aim to leverage technology, or provide some kind of platform to help balance demand and supply, assume that there are sufficient Type 3 farmers available to provide the means (and will) to sufficiently increase supply and service growing demand through increased access to more resources.
Next, I would posit that there are typically three parallel business model considerations that often dominate the conversation when investors look at agricultural value chains and the role of technology in driving growth:
1. Asset-light vs CAPEX-heavy
Most (venture) investors do not have the luxury of backing business models that require ongoing capital expenditure/hardware investments to scale. These take time and often do not scale at the high margins that investors require. As a result, founders who require the rollout of these sorts of hard assets are typically not favoured, despite the need to gather data and offer on-the-ground value through physical assets.
2. Centralised vs decentralised approach to growth
While Africa does have vast quantities of arable land, the reality is that farming is conducted in a largely fragmented and decentralised manner across large landmasses. This WEF article references United Nations and Food and Agriculture Organisation data stating that 33 million smallholder farmers contribute up to 80% of Sub-Saharan Africa’s food supply. Given that stat, supplying all the continent’s smallholder farmers with adequate facilities such as power, irrigation, internet, and logistics infrastructure would be a monstrous undertaking that would likely be too costly and onerous to execute across Africa’s vast expanse.
On the opposite end of the spectrum, commercial farming models which centralise services and adopt mechanised approaches to farming are few and far between on the continent (especially relative to developed markets). Yet, these are the models which lend themselves to the economies of scale required to attract private and commercial investment.
3. Top-down vs bottom-up approach
The existential question of whether to pick a specific niche to solve or build out a more comprehensive end-to-end offering remains. Especially given that there is often a lack of reliable options when it comes to adjacent services, including but not limited to logistics, financing, insurance and market access.
At Founders Factory Africa, our response to the complex investment considerations I have outlined above involves accounting for three critical nuances. The first is the time horizon. Rather than focusing on whether a model is hardware or software-based, we establish whether the solution under investment consideration is poised to attract long-term capital incentivised to weather short-term cycles.
We aim to help create a natural segue for a data/asset-light model to evolve by backing founders building foundational software infrastructure early on. In this way, hardware/software models coexist until there are sufficient data points and scale for the software element to become valuable to more high-growth partners. We see this play out with startups such as Synnefa, which offers both hardware and software solutions that help to simplify elements of the farming process.
Secondly, we evaluate exogenous factors across the value chain. The agricultural value chain is exposed to external factors such as the weather, land ownership dynamics, and complex dependencies on logistics and other infrastructure access. It’s key to establish whether there is a propensity to adopt the “sharing economy” mindset Roo and Rachel unpack in their book. While they reference collaborative consumption (such as my Couchsurfing experience), I think this approach is essential for collaborative production in our markets. If everyone takes a top-down, end-to-end approach to building (i.e. winner takes all), then there will be too many inefficiencies at a market level. Models exercised by startups such as Hello Tractor, which offers a digitally-led ecosystem for the use and preservation of tractors, demonstrate the potential of collectively addressing external constraints through the sharing economy.
Thirdly, like many community-led sectors, the ‘human factor’ is another crucial consideration. Accounting for how people are wired is arguably the biggest challenge, especially when creating structures to incentivise the adoption of new behaviours, technologies and relationships. This is despite creating awareness about the potential economic upside. As agricultural practice is generally built on generational knowledge transfer and longstanding relationships built on familiarity and trust, it can take time to build confidence in the digital age. However, if goodwill can be created, I believe that some of the solutions we’re seeing — aided by technology — can be instrumental in solving some of the biggest challenges of our times. For instance, Femi Aiki, Founder and CEO of Foodlocker, has spent years building trusted relationships and digitising his extensive farmer network in Nigeria through a farming-as-a-service model. This third consideration can be hugely catalytic if we focus on it through education and other means (as Femi is doing).
Now, circling back to the teachings on trust I gleaned from Rachel Botsman. In this keynote address, she puts forward that society has historically gone through three phases of trust:
However, the ability to trust individuals, more so when using technology, isn’t evenly distributed globally. That truism is a distinguishing feature in Africa’s nascent AgriTech industry. Just as I was reluctant to believe that I could trust a stranger not to kill me in my sleep if I dared surf their couch, African farmers will need to get over their unwillingness to place trust in new people and unfamiliar institutional systems.
Botsman once quipped in a talk, “Money is the currency of transactions, trust is the currency of interactions”. I would hazard that, in the short term, if we are to convert more African farmers to Type 3 farmers — willing to adopt AgriTech — we need to increase the number of human interactions we have with them, and not necessarily the number of transactions we conduct with them.
It is necessary to strike a balance as we seek to drive the sticky adoption of potentially game-changing technologies across the continent. The stark statistics about food insecurity will only worsen if we neglect to use human-centric models of intervention and innovation to increase the pool of Type 3 actors along the agricultural value chain. We’ve seen digital adoption play out successfully in other sectors of the economy (such as mobile money), and AgriTech is ripe to follow suit.
While I initially didn’t trust strangers to house me in 2016 — because I didn’t have the benefit of previous success with this approach at the time — I did at least get my beak wet by downloading the Couchsurfing app while abroad because I heard there was a feature that allowed you to meet other travellers for group activities. My use of the platform increased as I met, spoke to and interacted with its proponents and beneficiaries in person. While my friend’s Couchsurfing experience abroad was a valuable reference point, it was insufficient to instil a sense of trust. It ultimately took enriching social “interactions” to win me over, rather than solely the “transactional” rationale of cost savings.
The result? Meet my Couchsurfing host in Vietnam, who graciously let me into her home and introduced me to her beautiful country — an interactive human experience I will never forget.
Rajiv Daya, zipping around Vietnam with his Couchsurfing host.