Seven lessons to help African agriculture reach its full potential

Recently, McKinsey & Co. published a thought-provoking essay entitled Winning in Africa’s Agricultural Market, which identified seven important lessons that can help unlock Africa’s potential. This refreshing article highlights solutions that are aligned with the approach we have been offering for the past 11 years. This article summarizes the key points of McKinsey’s findings along with concrete solutions we have seen over the years.

Enormous untapped potential

The seven lessons include support for input retailers and farmers to create a full solution.

McKinsey argues that Africa could produce two to three times more cereals and grains if its full agricultural potential is reached, with similar increases in other agricultural production as well. This will require significant investment from both the public and private sectors. For companies looking to invest in Africa, it is important that they pick a few specific areas and value chains to focus on and follow the following seven lessons.

1. Streamline distribution

Currently, agro-inputs change hands many times between the original producer and the farmer. This can lead to a massive markup in prices, which in turn means that fewer smallholder farmers can afford the inputs they need. This distance can also inhibit smallholder farmers from benefiting from additional value-added services that some distributors offer. On the other hand, if distribution can be streamlined and expanded, then inputs and services will be available to more farmers, which will increase these farmers’ chances of success.

If this streamlining and expansion is to happen, then agro-input retailers must become stronger and more professional. We have already begun working on this with our SCOPE Input Retailer tool. This tool was developed in partnership with CNFA, Bayer, Syngenta, and the IFC and is part of the Last Mile Retailer curriculum. In Rwanda, CNFA used the tool as part of their USAID Feed the Future Rwanda Hinga Weze Activity, which actively worked to strengthen a country-wide network for 318 input retailers.

2. Expand payment terms

Many small agro-input retailers have difficulty affording large volumes of inputs. Similarly, many smallholder farmers have difficulty affording the inputs they need. Interest rates in sub-Saharan Africa are some of the highest in the world, which compounds this problem. By trying out different payment methods, companies can find which options work best for both the input retailers and the farmers.

During CNFA’s Hinga Weze Activity, CNFA helped 79 input retailers access over $275,000 in loans. This helped the input retailers to purchase their products and then implement a credit scheme for local smallholder farmers. These farmers were able to purchase inputs on credit and then repay the loans after the harvest. One input retailer was able to extend credit to 42 farmers over a single season, who were then able to pay her back after the harvest instead of struggling or being unable to pay for the inputs beforehand.

3. Improve retailer-service levels

The Last Mile Retailer is a complete package that is designed to help agro-input retailers become more professional.

Agro-input retailers are very important to smallholder farmer communities. According to a survey McKinsey performed, approximately 30% of input retailers provide advice to farmers and 73% extend credit. Strong, professional input retailers can make a massive impact on their local communities, and supporting these retailers allows them to support the farmers around them.

High-performing input retailers are both able to help more local farmers and more likely to receive external support. The Last Mile Retailer program can help input retailers to become professional and perform better. The four-step program helps input retailers with a tailored curriculum that focuses on their specific needs, based on the results from the SCOPE Input Retailer assessment. By the end, the retailers have improved their performance, which means they can reap the benefits of professionalism and also provide better support to the farmers around them.

4. Conduct practical segmentation

On the farmer side, it is important to recognize that a great deal of variety exists among sub-Saharan African farmers. Different farmers have different needs and are looking for different opportunities. It is important to be able to differentiate between the different types of farmers so they can all receive the support that will be most effective for them.

SCOPE assessments are designed to give an overview of agribusinesses and their strengths and weaknesses. While McKinsey warns of poor or lacking data causing companies to focus on the wrong farmers, our data is high-quality and vast. One of the ways that capacity builders commonly use SCOPE data is to segment agribusinesses. This allows them to split the agribusinesses into similar groups and ensure that each group has the proper focus. Thanks to SCOPE assessments, segmenting farmers is a simple process.

5. Tailor to local preferences and needs

The Local Expert Network helps agribusinesses to create beneficial relationships with financial institutions and markets.

Knowing local market demands is essential for multinationals and other companies to effectively do business in any given country. For example, some companies have found success in offering smaller packs of inputs for smaller farmers. These farmers most likely would not have purchased larger packs of inputs, either because they could not afford them or because the packs were too large to be practical. However, an understanding of local needs showed a desire for smaller packs, and the companies who moved to offer them were able to reach a new market.

Companies can leverage SCOPEinsight’s Local Expert Network for this precise purpose. The local experts serve as a bridge between farmers’ needs, local market requirements, and external parties. The Local Expert Network currently stretches across many African countries and contains a wealth of knowledge about the local markets in those countries.

6. Use sales and promoter networks

To effectively outreach to farmers and agribusinesses, sales and promoter networks are essential. However, we found that agribusinesses that are less professional are often not linked into these networks effectively. This is why working from the agribusiness upwards is essential.

Rikolto has had success in taking this approach to link agribusinesses to markets. In Nicaragua, they worked with farmers and linked them to Subway. Subway had previously had difficulty linking to producer organizations because a lack of transparency in the sector meant they were unable to differentiate between professional and unprofessional organizations. Together, Subway and Rikolto were able to train agribusinesses in good agricultural practices, which allowed them to enter into larger markets. This helped the farmers reach a larger network through which to sell their produce.

7. Address farmer working capital

The Bankability Metrics allow agribusinesses to communicate effectively with lenders, which then allows them to work together.

For farmers and agribusinesses to purchase inputs and invest in their businesses, they absolutely need working capital. However, many farmers struggle to get loans. Two important factors in this struggle are: 1. Financial institutions perceive farming as risky, and 2. Farmers lack collateral.

To address these barriers, we recently developed Bankability Metrics (with the help of the Center for Financial Inclusion (CFI) and Alliance for a Green Revolution in Africa (AGRA)) to help financial institutions measure risk in agriculture more effectively and to provide a common language between farmers and financial institutions.

The future of African development

It is only through understanding what Africa needs that we can work to effectively unlock its full potential. These seven lessons show a clear map of what innovations are necessary to reach the next step in Africa’s agricultural development. By partnering and investing together, we can help both the supply and demand sides of the African agricultural sector and help double or even triple production. Africa has millions of smallholder farmers whose full potential has not yet been reached. Together, we can help them to succeed.

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