A potential antidote to rising food prices
Saturday March 12, 2022/ 9:30 PM / by FDC Ltd/ Header image credit: FT
Nigerians spend about 57% of their income on food alone. While headline inflation has slowed in Nigeria, domestic food prices remain high and the global food price index hit a record high in February (104.7 points).3 Worse still, due to ‘a combination of COVID-19 and adverse weather conditions, food prices will remain high for the near future. Rising food prices could push an additional six million people into poverty. The Nigerian agricultural sector is ill-equipped to meet these challenges. Nigerian smallholder farmers (80% of the total number of farmers) produce 90% of the national agricultural production. Yet they represent the poorest 40% of the population. Acute lack of finance and credit, limited access to markets, lack of access to information, low use of mechanization, transport and logistics problems are the main challenges facing the agricultural industry .
This calls for action, and today the brightest ray of hope in the industry is agricultural technology, commonly abbreviated as agritech. Agritech uses technology to improve the agricultural sector with the aim of increasing production efficiency and improving supply chain tracking and management. It can be deployed to improve processes such as financing, planting, breeding, storing and selling agricultural products. The agritech sector in Nigeria is growing exponentially with new agritech solutions constantly appearing. Examples of investment-worthy agribusinesses include: AgroXchange, Farmcrowdy, Verdant Agritech and Releaf.
These budding tech startups are addressing key challenges facing the agricultural sector, including:
- Insufficient funding or access to financial support
- Market access
- The lack of information
- Processing
Insufficient funding or access to financial support
Agritech solutions in this space aim to connect willing investors with farmers who need access to finance to grow and improve their businesses. AgroXchange is a digital profiling platform that supports farmers who are struggling to access the market. It was developed by a Nigerian Geographic Information Systems company and it helps smallholder farmers realize profits through market access. For example, farmers registered on AgroXchange can make their profiles accessible to customers, investors and financial institutions through an assigned smart ID number. This can support on-demand sales to processors and improve the ability of buyers, investors and financial institutions to visualize and understand the growth of a particular agricultural business. Input optimization, using the crop health analysis feature, is another key advantage that agribusiness has created to reduce fertilizer purchase costs and associated overhead.
Startups like Farmcrowdy are tackling supply chain management, making it easier for fast-moving consumer goods to reach small and micro businesses. Farmcrowdy’s “FC Shops” is a B2B retail platform that helps small retailers source inventory. Farmcrowdy delivers goods directly to store owners, meaning store owners no longer have to shut down their business to travel to distributors to stock up on produce. The platform accelerates access to the widest variety of fast-moving consumer goods and thus accelerates the consumption of agricultural products.
The lack of information
Around the world, agriculture is being driven by data and digitalization to improve agricultural processes and yields. However, Nigeria has a problem with efficient data storage and still lags behind in the digital hemisphere. Therefore, agritech solutions are key to driving the digital transformation needed to help farmers collect and keep up to date with information such as weather forecasts and advice.
The main start-up providing solutions in this area is Verdant Agritech. This start-up uses a simple telephone functionality that allows farmers to obtain crucial data such as global sustainability standards, weather forecasts, market prices and agronomic advice. The feature also connects farmers to key stakeholders and services such as agricultural retailers, credit institutions, crop consultants, distributors, etc. Additionally, Verdant’s systems support low-end phones, making them affordable for most. Farmers who create profiles on the Verdant platform receive reminders, tips and tricks that will provide them with instrumental information.
Transport and logistics issues
Releaf is an example of a start-up making progress in this area. Its mandate is to industrialize the African agribusiness industry, particularly in the palm oil sector. The start-up positions its factories as close as possible to the farmers it works with, to drastically reduce logistics and transport costs. Releaf has also developed a breakthrough technology called “Kraken” which dramatically improves the quantity and purity of processed palm nuts within a week. Traditionally, Nigerian farmers manually crack palm nuts to obtain the purity needed for palm oil, which is a slow and exhausting process. However, Kraken costs less than half of an imported huller, operates 25 times faster than local cracking equipment, and 240 times faster than by hand. This greatly improves the efficiency and production of palm oil production in Nigeria.
Agritech solutions offer many innovative solutions to today’s challenges in the agricultural sector, especially in the long term. Fintechs have been successful in attracting investment, but limited funding opportunities and a lack of awareness of these opportunities appear to be the biggest impediment to the expansion of new agritech companies. The financial ecosystem and dynamic business environment are not mature enough to support new ventures and contribute to long-term success. Therefore, many start-ups need to focus on generating revenue from the start instead of focusing on research, development and establishing a viable business model. Many agritech companies, including those mentioned in this article, offer digital solutions that fill industry and infrastructural gaps. Investment in these agritech companies will be essential to ensure that they can achieve their goals and lead the growth of the agricultural sector in Nigeria. More importantly, agritech solutions will have a positive impact on productivity, production costs, distribution outputs and farmer incomes, which will inherently lead to lower food prices.
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