Rural and Agricultural Entrepreneurs Deserve a New Vision fo…

Author: Michaël de Groot.

In the latest in our guest blogs on the topic of the European Microfinance Award 2023 – Inclusive Finance for Food Security & Nutrition – Michaël de Groot from Rabo Foundation shares how three of the foundation’s partners are working to build more sustainable and resilient food systems by tackling challenges across the food value chain.

Farmers, both small and large produce enough food to feed 1.5x the global population. Despite this, 850 million people are hungry, and many of the world’s 450 million smallholders have to live on less than $2 per day. Add to that the significant role of our current food system in driving climate change, and we have a situation that we can’t sustain.

Staple crops like rice, wheat and potatoes are already experiencing impacts from climate change. But so are cash crops. One of Rabo Foundation’s partners, Norandino in Piura, Peru, has had to switch its cultivation three times over the past 15 years – from coffee to cocoa to sugarcane. Three different crops in 15 years, each time moving to crops more resistant to heat, drought and disease. 

To improve the climate resilience of farmers who grow our food, on-farm agriculture practices are important. But it is only one part of the change that’s needed. Farming households cannot change their crops and their agricultural practices, let alone invest in technology if they don’t have a living income. This is especially true for smallholder farmers that live at or below the poverty line, yet who produce 30% of the food consumed by increasingly urbanized communities.  

What we need to support and create is a food system change that responds to farmers’ needs and incorporates agricultural inputs, services, training, and access to markets. And the system change approach must not be limited to the institutional perspective, but must also tackle the way we produce – more regenerative, more circular, less external. Moreover, it must incorporate the entire value chain and not only a single solution. The following three examples show how to create a food system change.

In many countries, the mismatch between supply and demand is due to lack of infrastructure and absence of know-how that helps keep food fresh longer. A large part of that is the lack of access to affordable technology. SokoFresh – a company from impact venture company Enviu – has developed a process and business model that gives smallholder farmers affordable access to cold storage and links them to markets.

Sokofresh manages off-grid, mobile cold storage units that are strategically placed at the farm-level to optimize aggregation from smallholders. Farmers, cooperatives and aggregators are linked to exporters, wholesalers and processors. The use of cold storage during aggregation has two effects: drastically reducing food loss during harvest and significantly reducing the transport costs from farm to off-taker. Through the margins gained in this process, SokoFresh can be paid on a per kg basis, and farmers can earn up to 50% more on their harvest, while buyers receive more and better-quality produce. Rabo Foundation was one of the first partners to recognize the value of this concept and invest in the SokoFresh pilot to increase the accessibility of cold storage.

SokoFresh is just one of Enviu’s innovations that drive systemic change to address environmental and human issues we are facing today. Their FoodFlow program is creating a value chain for french beans, mangos, and avocados by developing the technology needed to eliminate post-harvest losses and create a value chain made up of sustainable, circular business models, achieving 0% post-harvest loss, increasing incomes and improving food security.

Its ambition is to deploy 400 cold storage solutions over the next 5 years, leading to increased income for 35,000 farmers, 3,000 new jobs in rural areas and 37,500 MT CO2-equivalent emissions prevented annually. We are currently scaling up our cold storage capacity in Kenya. Furthermore, we’ve started to develop a farmer-centric market linkage platform to provide smallholders with greater choice of buyers to sell to.

Smallholder rice farmers in Indonesia often experience low productivity due to excessive use of synthetic pesticides. The agtech firm Pandawa Agri has developed an innovative reductant to help farmers reduce their overall pesticide use, resulting in better harvests, safer working conditions, improved biodiversity and a better life for the farmers. And with Rabo Foundation, Pandawa Agri also expands access to finance, markets, and farming inputs needed by smallholder rice farmers.

‘Pandawa Agri developed an organic pesticides reductant – the first of its because we wanted to help smallholder farmers’, recalls co-founder Kukuh Roxa. ‘Farmers often experienced failed harvests because they used too much synthetic pesticide. We wanted to make them less dependent on those kinds of chemicals, improve their harvests, while also staying healthier and putting less pressure on the environment –lowering costs along the way.’

The reduction in pesticides alone isn’t enough. To have a successful harvest and a good income, farmers also need good seeds and other inputs, Pandawa trains the farmers to use less water and fewer pesticides. The rice is now of very high quality to ensure that farmers can sell their premium rice for a good price, without intermediaries taking all the profit.

Rabo Foundation partners with Pandawa Agri in the following ways:

• long-term working capital loan which Pandawa Agri uses to provide access to financing for smallholder farmers. Pandawa Agri assumes the risk for these loans.

• working capital loan for Pandawa Agri to purchase the rice from farmers to then distribute it to buyers.

• Rabo Foundation also connected Pandawa Agri to ACA Insurance. Their agriculture micro-insurance coverage protects farmers from the financial risks of a failed harvest.

Be it rice, peas, eggplants or bananas, Indian Agtech company DeHaat ensures a swift journey from field to shopping basket. They use an app and an enormous local distribution network for farmers in central, northern and western India to achieve this. In addition, DeHaat provides agricultural products and advice, as well as food storage and distribution channels. Through thousands of outlets produce from farmers reaches consumers incredibly quickly.

Millions of Indian smallholder farmers pay intermediaries high fees to sell their produce. That is, if it doesn’t perish on the way to market, where it often fetches a low price anyway. With their app and a local network of more than 11,000 DeHaat Centers, the company creates a direct link between farmers and buyers. The app provides crucial information on the latest market prices and puts farmers in contact with buyers, to whom they can sell directly at a fair price. They subsequently deliver their harvest to a DeHaat Center, where they immediately collect payment. Currently DeHaat serves around 1.8 million farmers across 118,000 villages in India.

DeHaat Centers are managed by franchise operators from the local community. They supply agricultural input products and training is offered physically as well as digitally to properly educate farmers by DeHaat agronomists.  DeHaat Centre provides also temporary storage for farm produce sold. 

The DeHaat app also gives farmers important forecasts and advice – for instance, by calculating expected harvest yields and the expected demand for produce, as well as providing weather reports and warnings about crop diseases. In addition, DeHaat agronomy experts visit farms to collect data and provide farmers with customized training, based on local soil samples and historical cropping patterns. DeHaat then analyzes the soil samples in order to offer tailored advice on soil fertilization.

The final step in the system, the storage and efficient market linkage of the harvest that has been sold, is also transparently managed. Post-harvest loss is significantly reduced thanks to local storage, reliable transportation to regional warehouses and demand led aggregation. Here, millet is collected for transportation. And in the DeHaat warehouse in Kasgani (Uttar Pradesh), rice lies safely and dry ready for buyers to supply to consumers.

Michaël de Groot is senior investment manager for Rabo Rural Fund.