Agriculture is a critical economic sector in emerging countries. About 85% of the world’s population live in rural areas and roughly 80% of this population heavily depend on agriculture for their livelihoods, not only as their source of financial income but as a sustainable food source too. Sustainable agriculture, then, is vital to millions.
However, the value chain within agriculture economies has many stumbling blocks that digital payments and proactive financial services can help address. They would allow for a sustainable agriculture in which farmers could be compensated quickly, transparently, and securely for their crops (from an insurance angle, for example where a farmer loses their yield to floods or draught). Digital payments would also allow them to save money and reinvest it in their livelihoods.
Keys issues include:
- Cash-based agriculture economies suffer from inefficient value chains resulting in huge wastage of food. Opaque pricing also results in increased costs for farmers.
- Lack of Proactive financial services like savings and insurance products for farmers. Poor access to credit means farmers lack a plan B.
- Social Programs and subsidies often don’t reach the beneficiaries or are less effective by the time they do. Also, coverage of such social programs is very limited.
A report by BetterThanCash highlights the need for better and faster digitisation of payments and financial services to farmers. Key statistics include the following:
- Asia had the largest malnourished population (about half a billion).
- 23% of Africa suffered from malnourishment.
- There are over 2.5 billion smallholder farmers (those with less than 2 Hectares of land) in the world and they account for about 80% of the crops produced in Asia and Africa.
- 37% of food produced in these economies is wasted due to lack of market access to these farmers.
- 95% of these farmers were paid in cash. (2016 statistic)
- A 1% increase in agricultural production in eight APEC economies was associated with a 1.4% decrease in the number of rural people living under the poverty line.
- Agricultural growth reduces extreme poverty 3.2× faster than non-agricultural growth in low-income countries.
The above figures provide an insight into the size of the problem that exists, but also illustrate that a focused execution of financial inclusion in the agriculture economy can reap positive results that exceed those in most other sectors. Mobile industry association, GSMA, estimates the market for digital payments would reach a huge $394 billion as soon as 2020, paid to 370 million farmers.
Unfortunately, this is not an easy system to implement, and each ‘pain point’ can need the time and attention of multiple stakeholders to find a suitable solution. To facilitate a seamless digital payment system for farmers, the payment provider needs to work with the vendor and, in parts of Africa and Asia, potentially with a mobile service provider too.
Similarly, providing insurance and savings products for farmers not only needs the service provider and the vendor work closely in unison with each other, but farmers would also need educating on the types of products available and the benefits and risks of each. The subsidies and leakages in social programs reaching the beneficiary will need governance from the public sector institution.
NGOs can often play a key role in bringing together leading figures to effect transformation for the society and the industry through digital financial services. Bill and Melinda Gates Foundation is involved with a number of programmes within Africa that focus on providing innovative financial services that have the potential to empower farmers.
Mount Elgon in Uganda is one of Africa’s highest mountains and is the home of 5,500 coffee farmers who are paid in cash. During coffee washing season, an employee must drive in the region of 50 km every day and collect $50,000 in cash, before driving back to make payments at multiple washing stations. This is not only impractical but extremely insecure.
In partnership with the Bill & Melinda Gates Foundation, UNCDF’s Mobile Money for the Poor (MM4P) worked with mobile operator MTN Uganda to establish basic mobile connectivity. MM4p then worked with Fenix International to finance mobile handsets and helped build the basic infrastructure necessary to digitise payments for these coffee farmers. Farmers were then onboarded to MTN Mobile Money, through which they receive their payments.
These types of initiatives create huge opportunities by opening a distribution channel (the mobile wallet) to customers, which can be used for additional financial services for the farmers. They also provide scope to create digital marketplaces for farmers that would accommodate the direct sale of crops to buyers and results in disintermediation and more efficient value chains.
There have been glimpses of optimism and similar models have already been rolled out in other countries, such as NINAYO in Tanzania and SEWA RUDI in India. Regrettably, the reality is that it would take enormous effort to bring about economic prosperity through financial inclusion and digitisation for farmers on a global scale.