The integration of digital technology into agriculture represents a major opportunity for Africa.
With the emergence of the mobile phone as a popular communication tool, this, coupled with Internet-based solutions, could significantly boost access to financing for agricultural inputs across the value chain.
According to John Deere’s Financial Managing Director in Johannesburg, Antois van der Westhuizen, limited access to adequate financing is one of the key inhibitors to achieving long-term sustainability for Africa’s farmers.
This means that they cannot compete effectively with their peers in heavily subsidized markets in the European Union.
John Deere estimates that there are approximately 122 million electronic banking accounts in Africa, mainly hosted by mobile phone operators or home-grown payments and transfer solutions like Kenya’s M-Pesa.
Van der Westhuizen says the electronic payment and receipt records of these accounts can be leveraged to harvest valuable client information which can then be used to create more accurate risk profiles of smallholder farmers by analysing their cash flow management, repayment histories and spending habits.
“The more accurate a picture you can build of the borrower the better you can price their risk, which boosts the likelihood of credit providers actually wanting to lend money to them,” says van der Westhuizen.
“You could even use their expenditure on inputs like fertiliser to estimate their approximate yields based on the size and quality of the land on which that fertiliser was used, and for which crops.”
Guarantee schemes such as those provided by USAID can further incentivise commercial lenders to provide financing to smallholder farmers.
A project between USAID and Ghana’s Feed the Future programme helped improve the livelihoods of 113,000 smallholder farmers by boosting the productivity of rice, maize, and soy cultivation thanks to the provision of such guarantees.
John Deere itself participated in a project in Tanzania where it helped smallholder barley farmers boost their output from half a tonne per hectare to three tonnes a hectare thanks to mechanisation, better quality seed and better fertiliser.
Van der Westhuizen says the enormous potential to boost Africa’s agricultural output is underscored by the fact that most smallholder farmers on the continent only have the capacity to farm around 10% of the land available to them at any one time due to a reliance on hand hoeing and rainfall.
“You have to look at the entire supply chain financing arrangement from the seed and fertiliser right up to the tractor,” says van der Westhuizen.
He adds, “You can’t just sell someone a tractor and expect that alone to improve their yields. You need to sell an ecosystem, not just a machine if you want to succeed in making the farmer a businessman.”
John Deere has dubbed this approach its S.M.A.R.T. programme:Solutions for small farmers,Mechanising for yield,Access to finance,Reliability for lower costs, andTechnology and education.
The company, which has 135 dealer contact points across Africa, is now exploring ways to better use technology to enable smallholder farmers to hire tractors on a short-term basis.
By utilising telematics and the Internet of Things (IoT), owners of the asset can then monitor its use via a small tracking device installed in the vehicle.
This data is uploaded to the cloud for further analysis by financiers, insurance providers and other stakeholders.
“By thinking laterally and by utilising better information through the power of technology we can build financing models that price risk more competitively, resulting in better repayment terms for the borrower,” says van der Westhuizen.
“As we improve our risk pricing models and adapt them for the unique circumstances of Africa, we can also improve the likelihood that lenders actually want to lend, which in turn, then, makes it possible to boost access to financing for inputs across the entire agricultural value chain.”