One of the trickiest elements we see with building a new business, particularly socially focused businesses, is structuring a financially sustainable and profitable business model. Developing an Agri VAS (Agricultural Value Added Service) is no different.
While there are some examples of farmers’ willingness and ability to pay (WTP/ATP) for Agri VAS (IKSL, Nokia Life Tools and Reuters Market Light, all examples from India) we simply don’t have enough evidence to draw a generalised conclusion that WTP/ATP exists. Therefore, the target beneficiaries, poor rural smallholder farmers, cannot necessarily be relied upon as a source of meaningful revenue. Thus, we must take a broader look at the agriculture value chain and the Agri VAS ecosystem to see how other stakeholders are benefiting and how we can capture bits of that value to offset costs or reduce the financial burden to farmers. In this process it is vital to understand the rational and business case for each organization to support and invest in Agri VAS.
In this blog post, I’ll attempt to share some insights into the business modelling aspect of building Agri VAS programs by examining the agriculture value chain and Agri VAS ecosystem. I’ll follow up with more detailed studies and case examples in later posts.
The Agricultural Value Chain:
Looking at the impact Agri VAS can have on the agricultural value chain, we see the potential benefits to be on agribusinesses that fall into three categories:
- Contract Farming Organizations
- Input Supplier/Dealer
Each of these organizations either currently relies on poor rural smallholder farmers or sees future opportunities by engaging with them. For example, many Contract Farming Organizations rely on smallholder farmers for their raw material inputs. In order to secure the right quality and quantity of produce, they’ve invested in farm extension services for their contracted farmers. By replacing or complimenting their traditional extension services with bulk Agri VAS subscription for their contracted farmers, they can extend the reach of their extensions services while reducing the cost and complexity around labor intensive logistics. This reduction in cost and complexity represents value they are willing to pay for.
When considering each of these stakeholders, it’s important to understand their rational and the business case (ROI) for their participation in Agri VAS. In future posts, we’ll investigate these revenue models in a bit more detail. Chapter 5 of our recently published Agri VAS Market Entry Toolkit also covers this in depth.
The Agri VAS Ecosystem:
Agri VAS don’t only generate value for the agriculture value chain, but due to its very nature, being a VAS (Value Added Service), delivers direct benefits to the hosting MNO. Again, because the subscribers of Agri VAS have little to no willingness or ability to pay for Agri VAS services, these will be non-financial benefits.
Because mobile services in urban markets are pretty saturated, many MNOs in developing regions are starting to look at the rural sector for the next wave of growth. Offering Agri VAS products is a great market penetration tool for the rural sector as it is a key differentiator in an otherwise commoditized market. Other expected indirect, non-financial benefits include greater loyalty, reduced churn and increased ARPU amongst rural subscribers.
We are currently working on developing the business case for MNOs and will follow up with subsequent posts to share more findings, analysis and case examples.
Tell Us What You Think:
We’d love to hear from members of the afore mentioned organizations (Contract Farming Organizations, MFIs/Insurers, Input Supplier/Dealer or MNOs).
How are you currently engaged with smallholder farmers? Do you see other ways you may benefit from Agri VAS, or other challenges Agri VAS may create? Are you interested in investing in Agri VAS to compliment or replace your traditional extension programs?
Email us at mAgri@gsma.org