Agribusinesses have unique business models, with product and service offerings that align with the realities of the environment and markets they serve. In this note we group agribusinesses into three broad categories, enabling us to discuss similarities in their RAS approaches and methodologies.
Agricultural input supply companies
These are businesses focused on manufacturing, distributing, and/or selling agricultural inputs needed by farmers to cultivate crops and manage livestock. Such inputs include seeds, fertilisers, crop protection products, vaccines, and equipment such as tractors and irrigation systems. Input companies are motivated to provide embedded RAS to ensure famers use their inputs correctly, benefit from links to offtakers and financial institutions, and realise the yield and productivity benefits of their products, under the premise ‘a happy client is a returning client’. (An example is shown in Box 1.) Common RAS approaches include demonstration plots and farmer field days where a product is compared with traditional practices. The downside of this arrangement, from society’s perspective, is that the incentive for sales may override alternative approaches that do not include the company’s inputs. Also, agricultural input suppliers may not properly address environmental and health concerns related to their products.
Box 1: Multi-product Suppliers in India
Large, multi-product agricultural input suppliers, such as Hariyali Kisaan Bazaar and Tata Kisan Sansar in India, offer seeds, pest management products, fertiliser, soil testing equipment, and credit, in addition to in-house extension advice. Both companies have extensive retail distribution networks and diverse product offerings, resulting in sales volumes that can justify the cost of the additional services. (1)
A wide variety of service providers operate in the agricultural sector. Examples include financial institutions that provide loans to buy inputs or invest in farm assets, and commercial consulting firms and farmer cooperatives that provide training to farmers. Service providers may offer RAS either directly for a fee, or embedded within their other service provision. An interesting example is Opportunity Bank’s work with smallholder farmers in Malawi and Mozambique, where it couples financial products with face-to-face advisory services including GAP and financial literacy training (Box 2). Opportunity Bank found that default rates were lower among borrowers provided with RAS than among loan recipients who had not received RAS.
Box 2: Service Providers in Malawi and Mozambique
Opportunity Bank in Malawi and Mozambique contracted third parties UT Grain Management, Greenbelt Fertilizers, and Catholic Relief Services to provide smallholder farmer training on GAP. In collaboration with these organisations, the bank also provided complementary financial literacy training to improve farmers’ understanding of savings-and-loan products. This resulted in lower default rates on loans provided to over 15,000 farmers.
Offtakers such as intermediary bulkers or food processors buy harvested commodities from farmers with the intent of adding value such as drying and cleaning, storing, packaging and processing, marketing, and distribution. A critical factor for their success is to ensure the consistency and quality of the commodities they procure, so they naturally have an interest in improving the quality of produce and the productivity of their farmer clients. Advisory services may include providing GAP training, improving inputs, and facilitating product aggregation. These are most often embedded services that the offtaker builds into their cost of doing business, or that will be deducted when a farmer delivers a product for sale. An example is given in Box 3.
Box 3: Offtakers in Benin
Tolaro Global is a cashew nut processor in Benin. It provides advisory services to 2,300 members of two farmer cooperatives. The services include agronomic training on weeding techniques, tree pruning, organic composting, fertilising, intercropping rotation, nut quality, and cashew harvesting and storage. Tolaro benefits from establishing a close relationship with its suppliers that results in more and higher-quality product. The farmers benefit from a 15% price premium from fair trade certification, and larger nut sizes.