June 7, 2019

GSMA Report Examines the Market Opportunity in Agriculture E-Commerce in Developing Countries

Over the course of my career, I had the opportunity of working in developing countries where the agriculture sector serves as the primary contributor to a country's gross domestic product. In 2009, for example, I advised officials with Afghanistan's Ministry of Rural Rehabilitation and Development on a strategy to grow the country's economy through agriculture and agribusiness development. While some Afghans owned mobile phones at the time, e-commerce was virtually non-existent. If presented with the same opportunity today, e-commerce will play an essential role in growing the agri economy in Afghanistan and most developing countries worldwide. This post is about an insightful report on agri e-commerce.

GSMA Intelligence, the research arm of GSMA, a UK-based organization that represents the interests of mobile operators worldwide, published a report that "examines the market opportunity in agri e-commerce, with a focus on Sub-Saharan Africa as well as developing countries in Asia and Latin America." The report also "highlights key emerging trends, business models and recommendations for stakeholders to maximize the agri e-commerce opportunity. As part of the research, we interviewed 21 businesses across Sub-Saharan Africa, Asia Pacific and Latin America. Three of these companies (AgroCenta, Farmcrowdy and Twiga Foods) have received grant funding through the GSMA's Ecosystem Accelerator program in recent years. Interviewees included agri e-commerce businesses, mobile operators and mobile money providers."

E-commerce in agriculture: new business models for smallholders' inclusion into the formal economy presents the following key findings:

Agri e-commerce can disrupt traditional agricultural value chains

"Traditional agricultural value chains involve multiple intermediaries between farmers and consumers. Typically, farmers sell their produce at the farm gates to middlemen. Produce then passes through multiple intermediaries before reaching the end customer. As a result, farmers receive only a small proportion of the price paid by the end consumer as each intermediary in the value chain earns a margin.

"Agri e-commerce provides an opportunity to streamline the agricultural value chain and reduce inefficiencies in the distribution of farm produce. It represents a new way for farmers to sell their produce to an array of buyers, including agri businesses, retailers, restaurants and consumers. Agri e-commerce also increases farmers' access to new markets and adds transparency to the value chain. It enables farmers to bypass several intermediaries, resulting in higher income for the farmers, reduced wastage, and the potential to deliver fresher produce to customers. Such benefits are especially significant in developing regions, where more than 97% of people employed in agriculture live and where the sector's contribution to GDP is in double digits."

GSMA's agri e-commerce Market Attractiveness Index highlights the maturity of key markets

"Agri e-commerce is an emerging opportunity in developing regions. However, there is considerable variation in the readiness of developing countries in regards to agri e-commerce. These differences are examined in our Market Attractiveness Index, which ranks countries according to a number of agri e-commerce enablers."

GSMA Intelligence's "research identified seven enablers for agri e-commerce in any given market. One of the foremost enablers is internet connectivity, allowing buyers and sellers to perform key tasks over online platforms. Logistics is another key agri e-commerce enabler. National infrastructure (such as roads) in addition to delivery services and purpose-built facilities (such as warehouses) allow agri e-commerce businesses to transport produce between farmers and buyers more cost effectively. Countries that have high mobile internet penetration and improving logistics infrastructure, such as Malaysia and Thailand, score highly on our Market Attractiveness Index."

Business models must fit local market conditions

The report explains that "[t]o maximize the emerging opportunity, agri e-commerce businesses require scalable and sustainable business models. The choice of business model depends on the operational functions the agri e-commerce business performs in the context of their local market. It also depends on factors such as product category and the strategic objectives of the business. A sustainable business model balances these considerations to build trust and increase user loyalty."

What is more, "The business models of agri e-commerce businesses in developing regions can be grouped into five levels. Each is defined by the operational functions and capital intensity of the business model, with businesses that perform the least functions at level 1 and those with the most integrated approach at level 5. Asset-light business models are less capital intensive but – in the context of developing markets – have a higher potential for farmer and customer churn. Conversely, asset-heavy business models are more capital intensive but enable the agri e-commerce business to have greater control over key elements of the service, including customer experience, product quality and packaging, and farmer education."

Mobile operators can add value to agri e-commerce businesses in several ways

Matoke for sale at a public market
I visited in Uganda
Based on my experience, I agree with the assertion that "[m]obile operators can play a central role in the emerging agri e-commerce space. At a foundational level, mobile operators provide the connectivity that enables online services and, increasingly, facilitates digital payments through mobile money. Beyond connectivity and payments, there is scope for mobile operators to leverage other key assets, such as APIs, investment capital and distribution channels, to increase their footprint in agri e-commerce."

Moreover, "As mobile operators are increasingly participating in both agriculture and e-commerce segments – by launching their own products and working in partnerships – the emerging opportunity in agri e-commerce is a key strategic consideration. The integration of operator-led mobile money services into agri e-commerce platforms can increase mobile money adoption and usage by meeting the demand for digital payments. Mobile operators' scale and existing relationships with customers could serve as a platform to expand services more quickly for agri e-commerce businesses. In addition, agri e-commerce can deliver benefits to operators' core services in rural areas through improved customer acquisition and retention, as well as increasing network usage and ARPU."

Stakeholders must align to fulfill the agri e-commerce opportunity

While there is much discussion on the subject including numerous conferences and whitepapers, GSMA Intelligence is correct to note: "Agri e-commerce is at a nascent stage of development, especially in developing regions. However, the commercial opportunity and potential social impact are not in doubt. Apart from agri e-commerce businesses and mobile operators, governments and investors can tap into this opportunity to drive growth in the agricultural sector and improve the livelihoods of farmers."

The report adds: "The development of the agri e-commerce ecosystem requires government ministries and regulators to establish an enabling regulatory environment. Government ministries can further support agri e-commerce businesses by supplying information on local farming regions and holding events to raise farmer awareness of agri e-commerce opportunities. Donors and investors also have an important role to play – for example, through investing in agri e-commerce businesses that have a sustainable competitive advantage and potential to scale. This means understanding local market dynamics and the level of development of the key agri e-commerce enablers."

What products or services do you see as vital to the development of the agri e-commerce ecosystem?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

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