Key Supply Chain Challenges accessing Small Holder Farmers

There is increased interest in agriculture in Africa and in particular small holder farmers (SHF). SHF’s output remains low and is seen by many organizations to hold the key to chronic food shortages in Africa. For any suppliers looking to expand their footprint to access agro dealers servicing small holder farmers, there remain some key challenges.

Infrastructure – Infrastructure remains a key challenge as distances are great in African upcountry areas. According to the Monitor MBS report, the population density of India is five times that of Kenya and Senegal. Some farmers have to travel in excess of 50 kilometers for purchases from agro dealers. While African road networks have improved considerably in some key markets (e.g. Tanzania, Ethiopia) they remain in general poor.

Transport – According to a World Bank study, transport cost in Africa could be as high as 40% of profits. During a recent Agro dealer workshop in Zambia, dealers were adamant that investment in transport is essential to running a successful agro dealer business. Unfortunately, investment in trucks tie up much needed capital that could be used for inventory.

Channels – Channels and markets are less structured and accessing agro dealers servicing SHF in these fragmented markets can be an expensive undertaking with low returns. Few companies have the product mix to penetrate these markets and forming meaningful collaborations with other organizations or companies can be difficult. As one company put it to me, “the margins and product range are just not there”. Often companies poorly understand the landscape of potential organizations and partners they can work with.

Agents –Working with agents to reach SHF farmers can be an expensive and frustrating undertaking. Agents often require intensive training and turnover remains high. Agents are also sometimes left to their own devices with little supervision, support and no clear sales targets. Often limited attention is given to agent and agro dealer selection and they fail due to poor support.

The right product mix and timing – Due to seasonality the product range will not stay constant and companies don’t stock the right product mix for the required season. As one agro dealer put it to me “when we are looking for pesticides they have herbicides”.
Inventory and finance – For agro dealers it remain a constant battle to stock the “right product” and maintain the required working capital. The high cost of finance and access to capital remain one of the key challenges for agro dealers. During the low season, paying business overheads can be a challenge, and often agro dealers lack the required business planning to plan for these seasons. Farmers often have to travel great distances for banking services, tying up valuable time and resources.

Counterfeit products – Whether you are in Botswana or Burundi, counterfeit products are increasingly a big problem for farmers.

Scaling models – Often, Bottom of the Pyramid (BoP) Route-to-Market models are in the early stages of development. Scaling the models remains a key challenge. As many companies have learned, you can run perfect pilots with all the “bells and whistles” but scaling it profitably remains an Achilles heel for many organizations.

Demand – As many companies in the BoP segment have discovered, need for a product does not always translate into demand. Often limited Below the line (BLT) marketing support is provided.

Overcoming challenges

To overcome these challenges, companies and suppliers require an innovative Route-to-Market model and partnership to access agro dealers servicing SHF. The following options could be considered to overcome these challenges:

Value proposition – Companies have the potential to create a unique value proposition by providing transport, investment, training and other services. As one agro supplier framed it, “we need to understand the hooks to get agro dealers to support our business”. Understanding the “hooks” or value proposition should be key for any Route-to-Market design teams.

Collaboration –For companies, it is important to assess the landscape and identify companies and organizations they could potentially collaborate with. Farmers in rural communities want to buy at a “one-stop shop”. As previously mentioned, few companies have the required product mix to provide exclusive dealership. Companies can also aim to provide a bundle of goods and services. Potential services and products could include insurance, credit facilities and agro information such as market prices. Shared channels and a bundled approach to services and products can go a long way in reducing cost and making Route-to-Market models viable.

Understand the consumer – It is important to understand the consumer or farmer. Products need to be tailored for the market. Farmers are price sensitive and price points need to match the farmers’ cash flow. As we have also seen in the consumer goods segment, best in class companies provide the right package sizes (e.g. Unilever sachets) at an affordable price (Coca-Cola 200ml returnable glass). A good example in the agriculture sector is Bayer’s Green World Stores that provide smaller package sizes to agro dealers.

Order generation & transport – Companies can assist agro dealers with order generation activities. This could be through the role of an agent or centralized telesales. Orders and shipment from multiple agro dealers could be bundled together to save transport and transaction cost. As previously discussed, for many agro dealers in rural areas, transport remains one of the biggest expense items.

Inventory holding and depots – Agents are facing high transport cost and great distance to make purchases, additional distribution centers and micro depots are often required. These depots could be managed by 3rd parties. Companies can also opt for shared facilities with other companies or organizations to reduce cost.

Value chain and pricing – Many companies have poorly designed pricing strategies and agro dealers often find them competing against other hybrid distribution models such as supplier owned and controlled retail shops and wholesalers. Companies need to map out the value chain and assess the margin required for each partner in the value chain.

Agents and marketing activities– With the right training, incentive schemes and development, agent networks can become important sales components for any company hoping to reach agro dealers in rural communities. Farmers are highly risk adverse and agents can act as key opinion leaders (KOLs) and help create demand and educate dealers. As one agro dealer put it to me, “farmers often buy products when they are not sure what the product will do”. Agents can provide an important role during field days and introducing farmers to demo plots in their respective territories. They can also distribute information and provide below the line (BTL) marketing material such as posters and pricing decals. Finally, agents can sell value added services (e.g. crop spray) and products (e.g. micro-credit) that will increase their income and make the model more sustainable.

Shop fixture and merchandising – Companies can assist with shop fixtures such as racks and also provide value information about merchandising, including supporting merchandising material.

Finance and access to capital – Agro dealer networks can play a key role to assist agro dealers to access capital through banks or Micro Finance Institutions (MFIs). Companies can also assist with start-up cost, consignment stock and provide credit facilities. Companies should also explore collaborations with mobile phone companies to provide m-banking facilities.

Reducing counterfeit – By establishing a reputable supply chain through certification and training, companies can educate dealers about counterfeit products. , including to bar codes and registration (e.g. Nigeria’s NAFDAC registration). As we have seen from the pharmaceutical sector, technology can play a key role in addressing counterfeit (e.g. M-pedigree).

Selection and Training –Companies need a robust system to identify and select dealers ad agents. Understanding the complexity of the sale and determine how much training is required. For example, agro chemicals require specialized training to handle and store chemicals. As training is expensive, it is sometimes necessary to select and work with a limited number of agro dealers and/or agents. Companies and organization can also collaborate on training requirements, such as basic business skills and business planning, to reduce cost.

Many SHF supply chains remain long and expensive. There is increased investment and innovation happening in the SHF landscape. Collaboration remains key and the road to these fragmented markets remain difficult but with a potential of great reward.

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