African AgTech: Five Take-Aways
By: Erik Kobayashi-Solomon
Tags: Investing, Agtech, Climate Change, Venture Capital, Africa

Source: Wikipedia

I couldn’t help being curious when I received an invitation from Wendy De La Harpe, Project Director of the African Agri Council (AAC), to attend the organization’s virtual conference The Crucial Role of AgTech: The battle for a food-secure world.

Africa is home to roughly 17% of the world’s population and is the second most populace continent on earth; the UN estimates that Africa’s share of the world population may grow to as much as 25% by 2050.

According to an article on the BBC by Richard Washington, a professor of climate science at the School of Geography and the Environment at Oxford University, Africa is also the continent most vulnerable to the dangers of climate change.

But danger also brings opportunity, and my impression is that there is a great deal of opportunity for entrepreneurs and investors in Africa. While some of my take-aways are Africa-specific, I found that the narrative offered by conference participants contained important lessons for U.S. venture capitalists and entrepreneurs as well.

There is no such thing as the “African Market”

Africa is a continent with amazing linguistic and cultural diversity, with native speakers of over 1,500 languages and countless ethnic groups. Economic and legal systems, heavily influenced by the political and commercial struggles during the Imperial Age vary greatly, making lessons applicable to one African country non-generalizable.

One American seller of agricultural equipment told me that his partners and customers in South Africa were similar in all respects to his customers in the North American Midwest. Move a few hours up the coast, to East Africa, and suddenly, the commercial picture looks completely different, with 80% of farming activity done on a subsistence basis only.

This grain elevator in Free State, South Africa, would not be out of place at any rural community in Illinois. Source: Wikipedia

Going to a sophisticated, high-tech exporter of agricultural produce in South Africa with the best technology from the last decade won’t win you any new business. Neither will selling a monthly subscription to a satellite-based soil moisture service to a subsistence cassava farmer.

Start-ups must maintain laser focus on solving customers’ problems

Failing to understand market dynamics and needs of customers is a universal issue for startups anywhere. One of the problems I have seen in the US AgTech market is that entrepreneurs come to market with cool technology that is simply hard for farmers to buy, because of high up-front capital costs, uncertain economic benefits, a steep learning curve, or some combination of all three.

In African markets where many prospective customers are close to the subsistence end of the agricultural continuum, the necessity for even more laser-like focus on solving real-world problems is more acute.

One expert panelist who spoke about digital technology in African agriculture, Chris Rhodes from the University of Georgia, sees three areas ripe for commercialization:

Mobile phone based agricultural extension services to help farmers increase productivity and decrease loss.

Digital monitoring of regional market prices to make it easier for farmers to sell their produce at the best prices.

Tools to help with the logistics and resource utilization of commercial farms.

Mobile telephony has already bettered the life of Indian fishermen, who can consult fish prices in regional markets to find the best prices for their catch. Source: Wikipedia

Business models matter

Asking a subsistence farmer with no access to formal bank loans to pay a material percentage of their annual income on a new device makes for a tough sell. I heard several participants talking about operating on a rental, lease-to-own, or subscription business model to help overcome their customers’ resistance to a big, up-front purchase.

Several African venture capitalists talked about how Covid-19 was actually providing a big boost to start-ups that had good business models and which were responding to customer needs. Agricultural businesses are essential but rely on other industries that face more restrictions. In these cases, tools that enable farmers to operate safely and with greater efficiency sell themselves.

Local partners matter

While several of the venture firms participating in the conference were based in the US or the UK, all said that having local offices and representatives were vital.

Jon Engelstad, International Sales Manager of Superior Grain Equipment, a US manufacturer of grain storage systems, told me that his firm operates entirely through a distributor network in Africa. The distributors understand the local agricultural, political, and commercial environment well, as well as know the types of products and price points would prove attractive to farmers in the area.

There seems to be a lot of low hanging fruit

Monsanto’s 2013 acquisition of big data cruncher, The Climate Corporation, not only signaled the start of the AgTech gold rush, it also set the tone. Big Data, AI, genetic engineering, drones, remote sensing — having a product whose development requires a team of PhDs has become table stakes to participate in the AgTech space in the US.

Many places in Africa have problems that can be solved with a lot less academic horsepower. For example, Superior Grain’s Engelstad told me that farmers in many areas in East Africa — an area into which he sells — lose a lot of crops post-harvest. With grain sitting in bags, rather than being dried and stored in pest-proof containers, infestations can and do wipe out a significant portion of harvested crops.

While the cost of Superior’s products exceeds the resources of individual farmers in the area, his distributors are making plans to buy storage systems to operate centralized storage cooperatives that help all the farmers in a certain area.

A woman working on an agricultural cooperative in Guinea, West Africa. 80% of farm work is done by women, making AgTech a gender equality issue as well. Source: Wikipedia

This pairing of a technology considered mature in developed market with an innovative business model (i.e., selling to a coop rather than to an individual), seems like the kind of venture that has a great deal of potential.

With the vast majority of Africa situated in the tropics, an area directly in the climate change firing line, innovative, paradigm shifting solutions to the issue of food security represent an absolute necessity over the next fifty years.

A clever entrepreneur with the right product and the right insights stands to do a lot of good for Africa and do very well for themselves.

Intelligent investors take note.