Unlocking success
Key messages
What if we told you that:
- Regional agribusinesses invest 2x more in service delivery per farmer than global agribusinesses
- Business models that charge farmers for service delivery (even if not fully recovering their costs) invest up to 7x more per farmer than business models that provide services to farmers for free
- Scale is no silver bullet solution but comes with important trade-offs: while working with more farmers is associated with more efficiency and higher direct cost recovery for companies, it often comes at the expense of the quality of service delivery to farmers
Keep reading to discover more insights and understand the potential implications of these insights for you.
The case for change
Smallholder agricultural markets have enormous funding needs: farmers’ incomes are low, reducing their capacity to properly invest in their farms, and business models serving these farmers struggle to justify increasing their investments. Meanwhile, agricultural development funding is unlikely to increase significantly in the near future, and is often deprioritized due to competing environmental, social, geopolitical and economic challenges.
We are convinced, however, that under the right conditions, business models working with smallholder farmers can be inclusive, cost-effective and commercially viable – at scale. And that credible, comparable and accessible data to accelerate learning and identify best practices will help to make this a reality. The real and perceived risk of investing in the smallholder agricultural sector is high, but more rigorous, data-informed insights can and will help drive better allocation of investments – for the benefit of both businesses and farmers.
More and smarter investments into smallholder agricultural markets are needed, and are possible. The private sector – both companies and investors – play a large role as they can drive the development and scaling of business models. In turn, the emergence and scaling of more smallholder-inclusive business models develop and strengthen markets in which smallholder farmers have equitable access both as consumers of goods and services and producers of agricultural products. The public and philanthropic sectors also play a crucial role in providing
Read more on the paradigm shift we see happening.
Defining success
The FarmFit Insights Hub explores where, why and how stronger smallholder-inclusive business models can be designed, implemented, scaled, and replicated for success. In the current iteration of the Insights Hub we focus on three core outcomes that provide insight into a business model’s strength and potential:
Service Delivery Cost per Farmer Direct Cost Recovery from Services Farmer Value Creation
We recognize there are
Smallholder service provision: Key insights
Trade-offs and tipping points: What have we learned?
Implications – What does this mean for you?
So what do these insights mean for you? And how to put these insights to the test?
The answer to these questions depends on what type of organization you represent.
How to action these insights?
- Create clarity on why you are offering services to farmers and what you intend to achieve. Do you intend to meet buyer requirements for example or do you want to improve your core business operations? There are most likely sources of value that are not (yet) seen that you can unlock to increase your investments in service supply. Higher investments in service supply can help to create more value to farmers.
- Use a human centered design lens to analyze whether you are creating enough value for farmers to enable them to pay for the goods and service that you provide / plan to provide. Use this lens also to assess how you are reaching women and youth. Consider how to create opportunities beyond farming as well, for instance for rural entrepreneurship through agent models.
- Include such other sources of value into an economic and financial overview of your business model to attract investors.
- Create a clear vision on what is most important for you (commercial viability, business performance, farmer value, scale) and be aware that it is not feasible to create maximum outcomes for all KPIs. Think ahead about which outcomes have highest priorities and why and be ready to accept the trade-offs and willing to transparently communicate about such trade-offs with clients, investors, etc.
- Holistic service packages (service packages that include training, access to inputs, markets and finance) are more effective. Consider to segment your farmer base and (re) design your service packages for different segments.
- Invest in Farm Management Information Systems to be able to make data-driven decisions and link such a system to your core business information.
- Be aware of the context in which you operate and find the opportunities and accept the limitations of the enabling environment. Use smart design choices to fit the context in which you operate. Team up with others to influence key limiting factors in the enabling environment.
- Ensure that you have the data, systems and capabilities in place to evaluate your business model success and impact in a credible and ongoing way, and that you use the insights to learn and adapt. The outcomes and drivers analyzed in the Insights Hub and our Methodology can be helpful as guidance.
- (Re)design your business model:
- Benchmark your performance against that of peers and learn from the best practices of others. Our analytics have mainly focused on the entire universe of business models that we have analyzed. However, you may want to compare yourself against a closer set of peers. Using our data explorer, you can filter for similar companies when comparing performance.
- (Re)assess your service package to farmers. Our insights show that more holistic service packages (service packages that include training, inputs, access to markets and finance) are more effective. Consider to segment your farmer base and be intentional about which services packages to offer to which segment
- Learn about the limitations of context and how design choices can help you optimize performance, through our how-to-guides to get practical tips. Our analyses have highlighted a number of trade-offs when it comes to designing your business model. For instance, working with intermediaries can lower cost, but also increases risk and reduces value creation. Smart design choices can mitigate some of the risks and downsides and even turn trade-offs into win-win situations.
- Think out of the box and look beyond your own context to get inspired from companies active in very different markets.
How can my team collaborate with IDH FarmFit?
- Reach out to us to explore how we can work together. We can analyze your smallholder-inclusive business model (click here for examples of such analyses), support you with technical assistance, and more.
- FarmFit is experienced with primary data collection on the farm-level. Reach out to us to discuss ways of introducing better farm-level data collection in your business model.
Dive into more of our insights to explore more analyses and implications for your business!
How to action these insights?
- Ensure that your investment strategies consider context. For instance, employing different strategies for investing in food and cash crops, or regional and global value chains.
- Encourage your (potential) investees to continuously assess their performance in a data-informed way and to continuously reflect on the successes and trade-offs of their businesses model design choices.
- Encourage and support your investees to assess and quantify their return on investment (ROI) when working with smallholder farmers. We believe much (or even most) of the ROI remains “hidden” causing companies to underappreciate the value of expanding their investments. A better view on the ROI can also strengthen your case for investment.
- Benchmark and better manage the performance of your investees – use our Data Explorer. Our insights can also help inform M&E requirements. Consider using some of the same metrics we use in a standardized way to allow for more effective portfolio benchmarking and accelerated learning in the future
- Get a more nuanced understanding of performance drivers and the influence of context in the path towards commercial viability, to adjust your investment structures and terms to the capital needs of different business models.
- Evaluate whether you are missing out on viable investment opportunities due to perceptions and investment restrictions. For instance, our data suggests that the general underinvestment in food crops and smaller regional agribusinesses may be impacted by:
- Perceptions: our data suggests that business models in food crops invest (much) more and recover more by charging farmers than those in cash crops – despite worse access to investment.
- Investment restrictions: working with businesses active in food crops and/or with only a regional focus often means having to work in (and be exposed to) local currency. Explore partnerships with local financial institutions to help channel investment to underserved market segments.
- Invest in companies that have integrated their service delivery and sourcing activities, or encourage your (potential) investees to do so. This can help better quantify the return on investment and can help strengthen a business mindset in service delivery, which we have seen can increase investments, demand-driven value creation and direct cost recovery.
- Be aware that there are important trade-offs in business model performance that we have highlighted on this page and which should inform your investment strategy. These include diminishing impact per dollar invested at higher spend, and, more fundamentally, potential trade-offs between business model performance (service delivery cost and direct cost recovery) and farm-level impact created.
How can my team collaborate with IDH FarmFit?
- Our approach and methodology can be well-suited to helping you assess and benchmark your current and pipeline of investees. Reach out to us if you are interested in working with us or using our methodology.
- Reach out to us if you are interested in (joint) research on specific sectors or geographies to help inform your future pipeline development.
How to action these insights?
- Integrate context into your private sector development strategies:
- Adapt your support strategies to the contexts in which you (plan to) operate. Be aware of the different patterns, behaviors, challenges and opportunities that smallholder-inclusive business models face in different contexts.
- Consider how you can influence the context to better enable smallholder-inclusive business model success. This could include supporting strengthening of the regulatory environment, physical and digital infrastructure, but also thinking about how the role of grant and development funding and efforts can create (dis)incentives for businesses
- Continue to support the private sector by channeling your resources in a smart and targeted way. Our data and insights can help identify areas in which the private sector may need more or less support, and what kind of support would be suited to different contexts and at what stage of development of a business model. For instance, our data suggests that regionally-active agribusinesses tend to struggle more often with reaching larger scale and global agribusinesses active in cash crops rarely include a demand-driven component (e.g., by charging farmers) in their business models. FarmFit data also suggests that there are tipping points and trade-offs that need to be managed, such as a minimum scale above which business models generally start to generate higher direct cost recovery and efficiencies, but also trade-offs between larger scale and farmer impact. These trade-offs and tipping points are often context-specific.
- Stimulate business to integrate their CSR and core business activities and require from potential investees to be clear in the priorities and hierarchy of outcomes they are looking for with their business model.
- Be critical when assessing the service package to smallholder farmers. Is it a holistic package, are the services meeting the needs of farmer segments and are the services adding value to increase the payment capacity of farmers?
- Beyond supporting individual business models, invest into broader market enablers. Such support can focus on policy, public goods, economic resources (finance) or research and intelligence, that can help lower the barriers for private sector investment and scale up. Such enablers can also be in the form of risk mitigants.
- At a systemic level, the high resource requirements for evidence-backed insights can be considerably offset through common data standards that promote interoperability and sharing. Much more effort is required to promote such standardization, as currently, organizations focused on learning often use their own standards, resulting in siloed databases, rather than potentially aggregating data for higher quality analysis and insights.
- Assess whether subsidies that you provide may have unintended consequences of indirectly inhibiting investments into smallholder agriculture. For instance, subsidies can increase farmer dependency, have sub-optimal effects on farmer impact, reduce demand-driven elements that can help drive accountability and quality, and make it difficult for private sector initiatives to compete.
- Benchmark and better manage the performance of your grantees. Our insights can also help inform M&E requirements. Consider using some of the same metrics we use in a standardized way to allow for more effective portfolio benchmarking & accelerated learning in the future.
How can my team collaborate with IDH FarmFit?
- Our approach and methodology can be well-suited to helping you assess and benchmark your current and potential portfolio of supported companies, or to assess your private sector development strategy. Reach out to us if you are interested in working with us or using our methodology.
- Reach out if you are interested in (co-)funding research that will improve visibility into companies’ return on investment (ROI) in smallholder agriculture. Our insights today focus on a narrow portion of the ROI, only looking at revenues from charging farmers for services and certification premiums. There are many other sources of value that remain hidden to companies. More visibility on these sources of value and guidance to companies on how to identify and quantify these would help strengthen the business case for investments into smallholder agriculture.
- Reach out to us if you wish to apply our methodology and approach to a wider range of organizations, specifically farmer organizations, financial service providers and specialized service provider. Our current analyses predominantly draw from certain types of providers (mostly global and regional offtakers). There are many other actors engaged in smallholder service provision, including farmer organizations, specialized service providers financial service providers, digital service providers and digital platforms. Our work would benefit from deep analysis of such organizations in a similar methodology as used in the Insights Hub.
- Consider working with us and others on harmonizing indicators and sharing financial and impact performance data so what we can collectively have a larger pool of businesses and data to analyze, and continuously validate, improve and adapt our insights and learn from.
- FarmFit has collected a wealth of data at both the business and farm levels. Reach out to us to discuss ways of sharing our data sets and apply your analytics to our data.
How to action these insights?
- Acknowledge the key role the private sector plays and can play to improve smallholder farmer markets and think about possibilities to work together. Consider how you can accelerate private sector engagement in line with your national agricultural transformation goals e.g. commercializing subsistence farmers or ensuring food security. Our insights on the performance of business models can help you kick start a conversation with the private sector to go deeper into their constrains and needs and reflect on:
- What a conductive enabling environment needs to look like. This includes considering the broader policy and regulatory framework, the need for more or improved public infrastructure or the reach and quality of public extension systems; and how changes in these would impact outcomes at business and farm level
- How to directly incentivize more private sector investment, such as through differentiated taxing schemes, direct government subsidies, guarantees, public insurance or farmer capacity building. Our data and insights can provide a starting point to assess what incentives might work best for different models based on what drives their performance today and the challenges they might be facing
- Use our insights on the financial and impact performance of different business models in different contexts to help you make better informed decisions on your role as a provider of public goods such as extension services or input subsidies. In particularly use our data to start getting a more nuanced understanding of what segments and / or services might not deliver attractive enough returns for the private sector and might need long term public subsidy
How can my team collaborate with IDH FarmFit?
- Reach out to FarmFit to help us identify suitable topics for a series of Policy Papers that explore the policy implications of Insights Hub findings.
- Get in touch with IDH country teams to explore how to collaborate / strengthen existing collaboration
Get in touch
Are our data, analytics, and insights shaping your decision-making? Are there specific topics, studies, or formats you're eager to explore? Don't hesitate to get in touch and share your thoughts with us! Your input matters.
