ThisseriesonInclusiveInnovationsexploresbusinessmodelsthatimprovethelivesofthoselivinginextremepoverty.EditorsareElaineTinsleyandNataliaAgapitova.ResearchedanddevelopedbyIntellecap.

HIGHLIGHTS• Farm-to-marketplatformseliminatemiddlemenandshortenthesupplychain;farmerscanrealizefarm-gatepricesfortheirproduceanddecreasecostsincurredontransportationtomarketyards.

• Algorithmsmatchfarmerstoappropriatebuyersbasedontheirpricesensitivityandgradepreference.

• Then,farmershavetheabilitytosetpricesfortheirproduceanddonothavetodependonpriceinformationprovidedbymiddlemen.

INCLUSIVEINNOVATIONS

Direct-From-FarmMarketLinkImprovingincomesbyleveragingtechnologytoconnectsmallholderfarmerstoendconsumers

SummaryGlobally, smallholder farmers are caught in a vicious cycle characterizedby low risk taking ability,lowinvestment,lowproductivity,weakmarketorientation,lowvalueadditionandlowmargins.Oneof the key impediments to breaking this vicious cycle is an acute lack of market linkages thatdeprives themofefficientmarketaccess.Middlemenbridge thegapbetween farmsandmarkets,and earn margins at every stage of the distribution chain, leaving very little for the smallholderfarmers.Recognizingthismarketgap,socialenterprises(SEs)areexploringwaystoleveragethepoweroftheinternet and increasing mobile ubiquity to provide direct market linkages between smallholderfarmers and buyers. By removing middlemen from the distribution chain, these enterprises arehelping smallholder farmers to secure higher prices for their produce. They also reduce farmers’workingcapitalrequirementsbyguaranteeingpurchaseandensuringpaymentsatthefarmgate.DevelopmentChallengeApproximately84percentofallfarmsworldwide(estimatedtobearound570million1),aresmallerthan two hectares. Most of these smallholder farmers reside in underdeveloped and developingcountries.Agriculturalmarketshavenotworkedefficiently for these smallholder farmers,and thelackofmarket linkageshasprovedtobeakeybottleneckforefficientmarketaccess.Poormarketlinkages substantially increase transaction costs and post-harvest losses. Marketing chains arecharacterizedbytheexistenceofagentsandmiddlemenateverystageofthesupplychainleadingtoalongseriesoftransactionsbeforethefarmer’sproducereachesend-consumers.Eachofthesemiddlemen retains amargin, allowing only a fraction of the final price of the crops to reach thesmallholderfarmers.Often remotely located and disconnected from mainstream market information, smallholderfarmersrelyonmiddlemenwhoarebetterinformedaboutmarketconditions,especiallyaboutthepricesfurtherdownthesupplychain.However,thisknowledgeisnottransferredtofarmerswhoareforced to accept prices offered to them by middlemen. Lack of price information coupled with

May2017/2

limited access to alternative buyers can lead to high price dispersion in rural areas.2 Further,smallholder farmers rely on these middlemen for loans to fund their agricultural and personalactivities. Subsequently, farmers become indebted to these agents. Smallholder farmers are alsounable tonegotiate fairprices for theirproduceas theycanonlyoffersmallvolumes in individualcapacity.With an increase in urban consumers’ incomes, their food consumption patterns are changingleadingtoanupwarddemandforfreshfarmproducelikefruitsandvegetablesaswellasotherlocalingredients.While this opens up opportunities for farmers, they lack efficientmarket linkages toparticipateinmarket-orientedproductionandtapthesemarketopportunities.BusinessModelSEs are leveraging technology to improvemarket linkages for smallholder farmers andmeet thegrowing demand for fresh farm produce from consumers. They have developed internet (e-commerce) andmobile (m-commerce) based platforms tomarket fresh farm products directly toconsumers. The enterprises receive orders placed by customers on the technology platforms andcollect the produce from the smallholder farmers for distribution. While this model is primarilyfocused on fresh produce, similar arrangements can be found for products (cereals, grains, rice,pulses,spices,tea,coffee,etc)whicharealsoconnectfarmersdirectlytomarkets.Figure1.Componentsofthemodel

CollectionSolutions that leverage the internet to connect farmers and buyers are fast gaining currency inemerging markets, and a number of SEs have created online platforms to market agriculturalproduce directly to buyers. These models are paving the way for efficient market linkages forsmallholderfarmers,byremovingmiddlemenfromthedistributionchainandsecuringhigherpricesfor the farmers.Enterprisesprocureproduce fromfarmgates,andweigh,gradeandpackage itatthe farm. These enterprises pay farmers immediately on purchase of the produce. For example,India-basedGo4Freshprocurestheentireharvestfromfarmersatwholesaleprices;theenterprisepartnerswithlocalaggregatorstovisitfarmsandcollecttheproduce.Agruppa,basedinColombia,

May2017/3

communicatesorderstofarmersadaypriortocollecting it fromtheir farms; itpartnerswith localtransporterstocollecttheproducefromfarms.MarketingEnterpriseshaveleveragedthedeeppenetrationofmobilesphonestoconnectsmallholderfarmersand buyers. For example, MLouma in Senegal provides small scale farmers a mobile and onlineplatform to upload information about availability of their produce for sale enabling buyers toconnectwiththemdirectly.Theenterprisealsoallows farmers tomarket theirproduce leveragingon the enterprise’s call center. Similarly, SokoText provides an innovative mobile-commerceplatformwhereinbuyerscanplaceordersforgoodsviaSMS.Thisproductallowsbuyersandsellersto communicatedirectlyandensuresquickandeasyorderanddeliveryplacements.Whilenotallfarmersandbuyershaveaccesstotheinternet,mostofthempossessamobilephoneandallmobilephonessupportSMS.Hence,businessmodelsattemptingtoleverageSMStechnologycaninherentlyreachawidersmallholderfarmerbase.DistributionA number of enterprises use algorithms tomatch farmers to buyers based on requirements andprices that farmers and buyers are willing to transact at. Upon sale, farmers either deliver theproducetobuyersdirectlyorseeksupportfromtheenterprisestotransporttheproducefromfarmgatetoendbuyer.Forexample,farmersonSokoNect’splatformdeliverproducetoconsumersusingtheirowntransportorhavetheoptiontopaySokoNectanominalfeetotransporttheproducetotheconsumers.InIndonesia,Kecipirengagescommunityhoststooperatecentrallylocateddeliveryhubswhereconsumerscancollecttheirordersorhavetheirproduceordersdeliveredtotheirdoorstepdirectlyforafee.Figure2.Processofthemodel

CostFactorsCosts involved in connecting farmers and buyers may depend on the type of communicationtechnologyadopted.For instance, forcustomersservedthroughfeaturephones,enterprisescouldchoose between using Short Message Service (SMS) or the more efficient but expensiveUnstructured Supplementary Service Data (USSD), which involves an upfront booking fee for the

May2017/4

Enterprisesspend15to18percentoftheirtotalrevenueontransportationandlogisticscostsandupto50percentonmarketingcoststowardson-boardingbuyersontheplatform.

USSD platform followed by monthly maintenance costs paid to mobile network providers. Inaddition,enterprisesincurcostsinhiringITexpertstodevelopandmaintaintheplatform.Anumberofenterprisesprovidefarmerstheoptiontoeitheruploaddetailsrelatedtothetypeofproduce,prices,andquantitieson theplatformdirectlyorwith thesupportof fieldagents.Theseenterprisesincurcostsinhiringfieldagentstotrainfarmersontheuseoftheplatform:fieldagentsvisit farmers and educate them on topics related to the use of internet and mobile technology,platformnavigation,themannerinwhichharvestedproductscouldbephotographed,andmethodsof pricing produce. In some cases, field agents assist farmers in photographing the produce anduploadingrelevantdetailsontheplatform.Some enterprises procure the produce from farmers; sort, grade,and package it at the farm gate; and subsequently upload thedetailsontheplatform.Theseenterprisesincurcostsonequipmentsuch as weighing scales, sorting and grading tables, packagingmaterial and transportation from farm to end consumers. I-Say-Organic incurs40percentof itsrevenueonprocuringproduceand15percentof itsrevenueontransportationandlogistics.Go4Freshincurs approximately 18 percent of its total sales revenue ontransportation, logistics and packaging costs. SokoNect incurslogisticscostsofUSD99tocollectorderswithinadistanceof70kilometersusing1truckregardlessofthequantitiestobetransported.Enterprisesrequiresignificantworkingcapitaltopayfarmersatthetimeofprocurementofproduceat the farm; any delay in payments to farmers results in a loss of farmers’ trust in this model.Marketingcoststowardson-boardingend-buyersconstitutesasignificantshareofoverallcosts.Forinstance,SokoNectincurs50percentofitstotalcostsonmarketingtheplatformtoend-buyers.Other costs include procuring licenses to operate the platform, taxes and fees to be paid to thegovernmentsandmarketingexpensestoacquireendcustomersontheplatform.RevenueStreamsEnterprises that allow farmers to directly upload their produce on the platform charge farmers atransactionfeeperuploadandchargethemacommissionfeeifthetransportationofproducefromfarmtoendbuyer isundertakenbytheenterprise.SokoNectchargesfarmersafee iftheyrequiretheenterprisetocollectproducefromfarmgateandtransporttoendconsumers.CostaRicabasedFruitspotchargesaservicefeeofUSD2centsonceatradeiscompleted.SokoNectcurrentlycharges2percentcommissionfeeforproductspricedlowerthanUSD99and10percentcommissionfeeforproductspricedoverUSD99.AnumberofenterprisessuchasGo4Freshprocureproduceinbulkfromfarmersregardlessofthegrade,shapeandquality.Theproduce issortedandgradedeitherat thefarmgateor inasortingfacilityandsubsequentlysoldtovariouscustomersegmentsatdifferentiatedprices–theenterpriseearnsamarginoverthepricespaidtofarmers.Enterprisesalsochargefeesforprovidingon-demandcustomizedinformationtofarmersontopicssuchassoilmanagement,cropandweatherconditions,diseasealertsandmarketprices.Theyearncommission fees fromvendorswhobuyproduceon theplatform, like in the caseofAgruppa, anenterprise that enables sale of produce from farmers to vendors in low-income communities inColombia.FinancialViabilityMostenterprisesthatprovidedirectfarmertobuyerlinkagesoperateasfor-profitbusinesses.Theyensure sustainability and profitability by adopting differentiated pricing strategies, effectivelyforecastingdemandandgeneratingsufficientdemand.

May2017/5

Enterprises that sort products at the farmgate and list it on their platforms typically procure theentireharvestfromfarmersatwholesalepricesandsellitatapricepremiumtodifferentcustomersegmentson thebasisofgrade, size,qualityandvisualappeal.This strategyallowsenterprises toprice products based on the price sensitivity of customers; for example Go4Fresh and MarkitOpportunity sell productsbasedonproductqualitydiscrimination– target customers forGradeAproduce includes exporters, supermarkets and retail individuals who pay premium prices, lowergradesaresoldtopriceconsciouscustomersincludingprocessors,hotels,restaurantsandcanteens.Typically, smallholder farmers sell small quantities of produce at a timewhich increases per unittransportationcostsfortheenterprises.FarmerswhosellonDMarketMovers,anenterprisebasedin Trinidad & Tobago, are encouraged to inform the enterprise about their expected productioncycles; this helps the enterprise in planning its transportation requirements. Effective orderforecasting enables enterprises to match demand and supply; for instance, Go 4 Fresh tracks itsorderstwodayspriortothedeliverydate–intheeventthatthereisoversupplyfromfarmers,theenterprisesellstheexcessproducetopriceconsciouscustomersatlowerprices,andinasituationofexcessdemand,theenterprisebuysproducefromthemarkettocoverforanyshortages.Demand forecasting also allows enterprises to inform smallholder farmers about the amount andtype of produce that will attract high demand in a particular season. For example, I-Say-Organicanalyzes potential demand for produce based on previous season trends and communicates thisinformationtosmall-scalefarmers.ColombiabasedSiembraVivainformsfarmerswhentoplantandwhentoharvestbasedondemandprojections.Itguaranteesproducepurchaseatapre-determined,premium price, and thus, not only builds trust amongst smallholder farmers, but also ensuresconsistencyinsupplycommensuratetodemand.The financial viabilityofdirect-from-farmplatforms corresponds to theamountofdemand that itgenerates for farmers’ produce. It is therefore important for enterprises to ensure there are asufficient number of buyers and sellers on the platform. The cost of customer acquisition anddelivery, both which can be quite high, will impact financial viability. In addition, it is crucial forserviceproviderstounderstandandaddresspreferencesofbuyerstoretainthemascustomers.Forinstance,Kudu,amobiledirect-from-farmplatforminUganda,tooknotethatruralfarmerscanonlypostsmalllotsofproduce,whileurbanbuyersprefertobuyinbulk,resultinginamismatchbetweenthe quantities posted by each group. In response to this, Kudu incorporated a service called ‘e-Bulking’,coordinatingthesalesofmultiplesmall-scalefarmerstoallowthemtoachievethelargelotsizesdesiredbybuyers.PakistanbasedMandiExpresshasapresence inthe localmarketyardsaswell,whereitsellsanyproducethatisleftunsoldontheplatform.PartnershipsIt is importantforenterprisestobuildtrustwithfarmercommunitiesanddemonstratethebenefitofusingadirectmarketplatformtoselltheirproduceasanalternativetodependingonmiddlemenand agents. SEs work with farmer co-operatives, farmer societies, NGOs and rural governmentagenciestoreachsmallholderfarmers.Inaddition,anumberofenterprisespartnerwithagro-inputproviders such as seed and fertilizer companies to reach small-scale farmers. Enterprises likeGo4Freshpartnerwithvillage-levelaggregatorswhoarefamiliarwithfarmersinruralremoteareastoprovidetransportationandlogisticsservices.EnterprisessuchasMarkitOpportunityandSokoNectidentifylocalleaderfarmersandtrainthemtobe field agents. These agents conduct frequent meetings with smallholder farmers to createawarenessabouttheplatformandguidefarmersontheprocessofuploadingpictures,descriptionandpricesoftheproduceontoplatformusingfeaturephonesandsmartphones.D’MarketMoverspartnerswithlocalfarmerleaderstoincreaseawarenessofitsserviceinfarmercommunities.SomeenterprisesinvolveNGOsinfarmerengagement,on-boardingandregistrationactivities.EnterprisessuchasMandiExpresspartnerswithstudentsfromagriculturaluniversitiesandagriculturaltechnicalexpertstoreachfarmers,surveyfarms,capturefarmandfarmerdetailsandregister farmersonto

May2017/6

theplatform.KudupartnerswithAgriNet,aprivatebrokeragefirminUganda,toprovideadditionalin-villageservicestofarmersregisteredonitsmobilemarketplaceplatform.AgriNetagentsprovidefarmerswithservicessuchasqualityscreening,creditlinesforbulking,andinsurance.Enterprises partake in information sessions conducted by local county governments and usegovernment facilities as demonstration plots to train farmers on good agricultural practices,uniformityincropproduction,andtheroleofinternetandmobiletechnologyinexpandingfarmers’accesstomarketsandincreasingtheirmarketknowledge.Enterprises partner with financial institutions to enable immediate payments to farmers; forexample,inthecaseofSokoNect,financialinstitutionsmakepaymentstofarmersupontheirsaleofproduce to end buyers, the enterprise pays the financial institution once the buyer makes thepayment on the platform. Enterprises work with banks to open bank accounts for unbankedsmallholderfarmers,ultimatelyexpeditingpaymentcyclesandincreasingfarmers’confidenceinthemodel.Implementation:DeliveringValuetothePoorAwarenessThepenetrationofmobileandinternetinsmallholderfarmercommunities,andtheabilityandeaseoffarmerstousetechnologydictatestheuptakeofdirect-from-farmplatforms.Enterprisesneedtohand-holdfarmerstonavigatethroughplatformfeaturesandlearnhowtouseinformationprovidedontheplatformtopricetheirproduce.EnterpriseslikeSokoNectpartnerwithgovernmentagenciesintheiragricultureprogramsandconductsessionsontheroleoftechnologyinenablingdirectandtransparentaccesstomarkets.Enterprisesalsoidentifylocalfarmerleadersandcommunitychampions,whointeractwithfarmersandhelpinspreadingawarenessaboutthedirectmarketlinkageservice.D’MarketMovers’farmernetwork has grown through farmer-to-farmer recommendations and referrals; farmers shareinformationaboutmarketdemandandwork towards increasing theirmarketpresenceasagroupandasaresultattractmorefarmersto jointheplatform.MandiExpresspartnerswithagriculturaluniversitystudentsandagriculturalexpertstovisitfarmersanddisseminateinformationabouttheservice. I-Say-Organic, an organic produce platform based in India targets farmers who practiceorganicfarmingandreachesthesefarmersthroughfarmerco-operativesandfarmersocietieswhopromoteorganicfarming.EnterprisessuchasGo4Fresh leveragepartnerssuchasfarmerproducerorganizations, co-operatives, government agencies, and agro-input dealer companies to spreadawarenessamongstfarmers. Creating awareness amongst farmers regarding what kind of products sell (which variety, grade,crop) also plays a crucial role in success. And on the consumer side, enterprises also engage in conducting marketing and awareness campaigns targeted towards on-boarding end customers andcreatingmarketdemand. Enterprisesmust raise the awareness that shifts customerbehavior andwillingnesstopayapremiumforsustainable,directlysourcedproducts.AcceptanceEnterprises need to demonstrate the benefits of direct-from-farm platforms in comparison totraditional tradingmodels in farmer communities. This includes the availability of real-time priceinformation as compared to physical market yard auctions, and the ability to receive paymentsimmediately upon the sale of produce in comparison to staggered payments by middlemen.Go4Fresh encourages farmers to use its platform on a trial basis alongside selling their producethrough the traditional government auctions and evaluate the mechanism. The enterprise alsofrequentlyarranges farmervisits tosupermarkets inorder to increase theirvisibilityofproduce inendmarkets.

May2017/7

Enterprises need to build trust amongst smallholder farmers for them to accept the model.Enterprises partner with banks to access continuous supply of working capital to pay farmerswithout delay. Partnering with local government agencies and local community leaders helps inestablishingfarmers’trustindirect-from-farmplatforms.Inaddition,buildingtrustbetweenbuyersand sellers is imperative in setting up a direct-from-farm model, given that buyers often preferestablishingcontactthroughface-to-faceinteractionfirst.AstudyofmobilemarketplaceCellbazaarinBangladesh showed thatengaging farmers is likely to require some formofhumanmediation.3Kudu’splatformhasaratingfeaturethatismeanttomimictherolethatrelationship-basedagentsand brokers traditionally play, thereby reducing the risk for farmers to transactwith newbuyers.Markit Opportunity incorporates high-touch interactions with farmers in the initial stages –registeredfarmersareprovideduniquecodes,fieldagentsthenvisitthefarms,weightheproduceusing digital scales and record the details on an app which is digitally signed by the farmer andbuyer.Thisalsolendstransparencytotheprocess.Enterprises design their marketplace platforms by leveraging existing interfaces that smallholderfarmers are familiar with in order to overcome the challenge of low technology literacy. Forexample, SokoNect conducted a survey among target farmers in Kenya and learnt that they arefamiliarwith theM-Pesa app. The enterprise re-designed its interface to replicate select featuresfromM-Pesatherebyincreasingfarmeracceptance.AccessibilityDirect-from-farmplatformsbreakdownphysicalbarrierstoaccess,andprovideanopportunityforfarmerstoselltheirproducedirectlytoendcustomersonthebasisoftransparentpriceinformation.Farmers are connected to end buyers through different platforms: voice calls, website, SMS onfeaturephones,ormobileappsoninternet-enabledsmartphones.Enterprisesdesignanddevelopthe platform layout based on the level of mobile and internet penetration amongst the farmercommunitiesthattheyintendtoserve.MandiExpress,KuduandMarkitOpportunityareSMSbasedmobile phone applications that don’t require farmers to be internet savvy. MLouma providesfarmersaccesstoendbuyersthroughmultiplechannels-theweb,SMSservice,mobileapplicationandacallcentre.Researchonprovidingservicestoruralpopulationsshowedthat informationmustbepresentedinlocal languages for greater acceptance.4Mandi Trades, an app based platform in India revised itsserviceayearintooperationstoprovidecontentinHindi,Tamil,Telugu,KannadaandMalayalaminadditiontoEnglish.5Similarly,SriLankabasedDialogTelekomprovidesfarmersandbuyersaccesstoitsSMSserviceinEnglish,SinhalaandTamil.A number of enterprises such as I-Say-Organic, SiembraViva, Veggie Kart,MarkitOpportunity andD’MarketMoversprovidetheirfarmersfeedbackoncropsthatareonhighdemandandinformationonhowtocultivatethesecrops.AffordabilitySmallholder farmers located in remote rural areas are subject to weakmarket linkages owing toinadequateinfrastructure,badroadnetwork,andexpensivetransportoptions.Forinstance,farmersinFijiresidingwithin500metersofthepackingshedswould incurapproximatelyUSD15tohireavehiclefromthefarmtothefacility.Direct-from-farmmarketplaceplatformshelpfarmersavoidthisexpenseasbuyerssourcetheproduceatthefarmgate.InTanzania,forexample,ruralfarmershavetoinvestsignificanttimeandmoneytoreachdistantlylocated‘kariakoos’ormarkets.Atthemarket,theyhavetorentstall,whichisoftenunaffordableforthem.Asaresult,mostfarmersinTanzaniadepend onmiddlemen to transport their produce tomarkets.6 Small-scale farmerswho sell theirharvest throughmiddlemenandagents incurcosts in termsof traderandcommission fee.Direct-from-farmplatformservicesareeitherprovided freeofchargeoratnominal subscriptionrates tofarmers; for example, Fruitspot and SokoNect charge farmers only once the transaction iscompleted.

May2017/8

Indiandirect-from-farmservices,Go4FreshandMandiTrades,haveregistered10,000farmersontheirplatformswithinthreeyearsofoperation.

Many small-scale farmers rely on a limited number of middlemen or traders to receive priceinformation,giventhatsearchcosts for finding informationelsewhereareoftenhigh.7 Inaddition,thesefarmersareforcedtoselltheirproduceatsub-marketpricestomiddlemenwhosellittoendbuyersatapremium.Farmersareabletosendquerymessagesonceregisteredondirect-from-farmplatforms for real-time information on prices, historical prices and market trends, and makeinformeddecisionstoselltheirproduce.Farmers also incur significant costs in employing labor for harvesting produce, and are oftenstrappedforfundsatthistime.EnterpriseslikeMarkitOpportunitymatchfarmerswithbuyersandprovide an advance deposit as assurance of sale, enabling farmers to pay farm laborers. Theenterpriseprovidesthisfreeofchargetofarmers,whoonlyhavetopayUSD1centtoposttheiraskrequestsviaSMS.ResultsandCostEffectivenessDirect-from-farmplatformsshortensupplychainsforfarmersalongwithprovidingtheminformationon prevailing market prices, access to customer segments that command higher prices and theability to set prices for their produce. The model enables smallholder farmers to increase theirincomeowingtobettermarketaccess, lowerpost-harvest losses, relevantconnectionswithprice-appropriatebuyersandtheopportunity to realizemarketprices. Inaddition, theseplatformssavefarmers the time they would otherwise spend in traveling to market yards and waiting throughprolongedauctions.ScaleandReachLeveragingontechnology,enterprisesprovidingfarmerswithdirectaccesstobuyershaveremovedpriceanddemandinformationasymmetries;thishashelpedfarmersrealizehigherfarm-gatepricesand increased their sales volumes.With the increase inuptakeofmobileand internet technologyacross developing countries, a number of enterprises have adopted the direct-from-farmmodel,primarilytoenabledisintermediation.MLouma, a platform connecting farmers to buyers through SMS, USSD, online website and callcentres caters to 75,000 farmers in Senegal – the use of multiple modes of technology enablesMLouma to reach different segments of smallholder farmers. The external financial support fromAMEA Orange Developer Challenge in 2014 allowed the enterprise to integrate SMS and USSDfeaturesandresultedinexpandingitsreachfrom1000farmersto75,000farmersinSenegal.

Direct-from-farm platforms in India have been able to reach a largebaseofsmallholderfarmerswithinafewyearsinoperation;thismaybeattributedtothedensityoffarmersinthecountry,theirtransitionfrom subsistence to commercial farming practices on a small-scale,and their awareness of growing urban consumer demand coupledwith their desire to circumvent existing imperfect supply chains andadopt technology to shorten the distribution process. For instance,within 3 years of operating its platform, Mandi Trades has 10,000

registeredfarmersinIndiaandhasenabledUSD7.47millionworthoftrade.8Go4Freshhasreachedover 10,000 farmers inMaharashtra, India and connected them to 8000 retail and 500 corporatecustomers.Enterprisesatalowerscaleareeitheryoung(under3years)oroperateinasinglecountryorsmallregion. SokoNect in Kenya has over 5000 registered smallholder farmers on its platform. MarkitOpportunityhas served300 smallholder farmers inKenyaand intends topartnerwith anNGO tolaunchtheplatformto3,000farmersin2017.9KuduhasbeenoperationalinUgandafor18monthsandhas registeredover1000 farmersand tradersand receivedUSD1million inbids frombuyers

May2017/9

Direct-from-farmplatformshelpfarmersinKenyarealizefarmgatepricesversustraditionalmodelsthatallowfarmerstoretainonly63percentofproduceprice.

DialogTelekom’smodelenablesfarmersinSriLankatoincreasetheirincomesby40percentandEkGaonTechnologiesenablesfarmersinIndiatoincreasetheirincomebyUSD127or67percent.

and USD 1.7 million in asks from sellers.10 D’Market Movers brings together 60 local organicproducersand650consumersinTrinidadandTobagoonitsdigitalplatform.11Table1.ExamplesofcompaniesandreachCompany Countryofoperation Yearsofoperation Numberoffarmersreached

D’MarketMovers TrinidadandTobago 560 organic farmers connectedto 650 consumers on theplatform

Go4Fresh India 310,000 farmers connected to8500 consumers on theplatform

Kudu Uganda 4 1000farmers

MandiTrades India 3 10,000farmersMarkitOpportunity Kenya 1 300farmers

MLouma Senegal 4 75,000farmers

SokoNect Kenya 3 5000farmersImprovingOutcomesWhile direct-from-farm platforms are nascent and are yet toscale, they have been able to deliver significant impact tofarmers in increasing their market access in comparison totraditionalmodels.AstudyconductedbyInternationalResearchDevelopment Centre (IRDC) found that produce typicallychangeshands3or4timesfromfarm-gatetobuyer;middlemeninKenya,onaverage, take23percentof thewholesalemarketprice and 14 percent of the price is directed towards packaging, grading,market access fees andtransportresultinginfarmersretainingonly63percentoftheproduceprice.12Direct-from-farm services enable farmers to realize maximumfarm-gate prices by eliminating middlemen in the long supplychain. Themodel has also helped farmers reduce post-harvestwastages. Dialog Telekom’s model has enabled farmers in SriLanka to increase incomesby40percentdue toeliminationofmiddlemen.13 In Colombia, according to SiembraViva, farmersreceive25percentto35percentoftheamountpaidbytheendbuyer.Byusingitsmodel,farmershavebeenabletoreceive48percentof thepricepaidby consumers. EkgaonTechnologies, through itsonlinemarketplaceandadvisoryserviceshasincreasedfarmerincomesbyUSD127or67percentonaverage.Enterprises buy farmers’ entire harvest, regardless of the grade, and then sell it at differentiatedprices to end customers. Under the traditional model, smallholder farmers sell their produce toagentswhotransportittomarketyards.Typically,cropsthathavephysicaloraestheticdefects,suchasbeingthewrongshapeorsize,brokenorhavingablemisharerejected.Farmersthereforehavetobearthepost-harvestqualityrelatedlosses.Direct-from-farmplatformsallowfarmerstosellsuchproducetooandcutsdownonthenumberofintermediaries,therebyboostingfarmersshareofthefinalprice.Enterprises have also contributed to creating other positive impacts on the lives of small-scalefarmersbesidesenablingthemtoearnhigherincomes.Forinstance,Kuchara,anonlinemarketplaceconnecting farmers with buyers in Peru allows consumers to buy subscriptions to crowdfundeducationoffuturefarmers,inexchangeoflong-lifediscountsontheirpurchases.

May2017/10

Usingtheappropriatetechnologyisimperativetoreachalargernumberoffarmersthroughdirectfromfarmplatforms.Enterprisesrequirefinancialsupporttoincurhighcostsinvolvedinintegratingmorefarmer-friendlysoftwarelikeUSSDor‘quickcodes’overSMS.

CostEffectivenessInIndia,nearlyUSD20millionworthofcropsarewastedperdayowingtorejectionatfarm-gateanddelaysinthedistributionprocess.Direct-from-farm platforms can be a cost-effective alternative to selling toprivate tradersandauctioning ingovernmentoperatedmarketplaceswhentheirentireproduce isboughtbytheenterpriseandthereisnoproducethatisrejectedatfarm-gate.

A number of enterprises procure produce from farmers atwholesale prices; farmers are satisfiedsincetheirentireharvestissold,regardlessoftheshapeandvisualappearanceofcropsandontheother hand, enterprises are able tomaintain low costs of procurement. Further, farmers benefitwhen the enterprisematches them to buyers and undertakes the transportation and delivery ofproduce to customers, thereby decreasing costs incurred by farmers in transporting produce tomarketyardsortoendbuyersthemselves.Enterprises require financial support to pay for initial costs involved in building the software andhardware for the platform or mobile-based solutions. They seek grant funds, prize money fromawardsandsupportfrominnovation labsto improvetheirsolutions,andachievebetterreachandscale results. For instance, Senegal based enterprise, MLuoma won the 2014 AMEA OrangeDeveloperChallengeandwasabletoleverageonthefinancialassistancetointegrateSMSandUSSDfeatures, resulting in its user base growing from under 1000 to 75,000 farmers.14 SokoNect wasoffered a USSD testing bed byMlab East Africa for a period of 3months, however, themonthlymaintenance fee of USD 465 proved to be a significant expense and led to the companydiscontinuingthisapplication.Tokeepcostslow,itisalsobeneficialforenterprisestopartnerwithlocal stakeholders in farmer engagement, procurement andtransportationactivities.Byleveragingonthesepartners,enterprisescanreducecostsonemployingandtrainingstafftoundertaketheseactivities. For instance, Kecipir, an enterprise in Indonesia thatenablessmallholderfarmerstoeliminatedealingwithmiddlemenor‘tengkulaks’, sells organic produce via its online and smartphoneapplicationbyorganizing itscustomersbasedoncommunitymarketclusters. It identifies local community hosts, who are paid a 10percent commission fee on the orders, to serve as delivery hubs,customer service agents, and community organizers. Go4Freshinvolveslocalaggregatorsor‘gundegaris’tosupportthecompanyinarrangingtransportationofproducefromremotelylocatedfarms.MarkitOpportunityleveragesthetrust that NGOs havewith their farmer beneficiaries and involves theseNGOs as field officers tofacilitatefarmerregistrationandtradingactivities,therebyreducingtheenterprise’sagentcosts.Many enterprises work on an aggregator model, wherein orders are placed by buyers on theplatform,demand isaggregatedandproduce istransportedbyenterprisesfromfarmsorcentrallylocatedcollectionpointstobuyers.Theycreateefficienciesinthisprocesstokeeptheircostslow-they aggregate collection, consolidate groups of farmers growing crops with similar productioncycles,andusetechnologytogrouporders forcollectionsotheyreducecostsacross transactions.For instance,Agruppacreatesadailycollectiveorderbasedonordersplacedontheplatformandbuyswholesalequantities fromfarmersgeneratingdiscountsofupto30percent.15 It is importantfor enterprises that operate on an aggregator model to track location-based orders in a timelymannersoastoenableoptimalschedulingofproducecollectionfromremotelylocatedfarmswhichwill result in lowering transportation and logistics costs. SokoNect is working towards groupingfarmers based on the types of crops they produce in order to streamline the consolidation andcollectionprocess.

May2017/11

Farmersarereluctanttoshiftfromtraditionalpracticesofsellingthroughmiddlementotechnologybasedplatformsowingtopersonalrelationshipsthattheyhavebuiltwithmiddlemenandtheirlimitedunderstandingofmobileandinternettechnology.

TakingittoScaleChallengesAgents, brokers or middlemen who are known to exploit smallholder farmers by procuring theirproduce at low prices represent the main threat to enterprises connecting farmers directly tobuyers. Small-scale farmers are reluctant to change traditional practice and switch over totechnologyplatformsthatenabledirectaccesstobuyers.AstudyonTradeNet,aSriLankanbasedmobileplatformshowedthatfarmerscontinuedtoselltothesametradersbecausetheydependedonthemasasourceofloansandinformation.16Enterprisesfinditdifficulttobuildtrustwithfarmerswhohavetraditionallybuiltpersonalrelationshipsandsocialtieswithmiddlemen.17The uptake of direct-from-farm services relies on farmers’familiarityandcomfortwithadoptingmobileand internetbasedtechnology. Small-scale farmers in developing countries aretypically illiterate, making it easier for them to interact withmiddlemen instead of adopting a technology based service toconnect with end customers. In response to this challenge,enterprises have incorporated user-friendly design features thatmimicwidespreadinternetandmobileplatformsthatfarmersarefamiliar with, such asM-Pesa. A number of enterprises such asMandi Trades and Dialog Telekom introduced their services indifferent local languages. Markit Opportunity and SokoNect sendfieldagents tovisit farmersandeducate them inusing their technologyplatforms to sellproducedirectlytobuyers.Many enterprises have cited that securing funds for working capital is a major challenge. Anessential component to building trust amongst smallholder farmers is linked to timely payments.Enterprisesrequiresignificantworkingcapitaltosupportimmediatepaymentstofarmers,withtheriskoflosingthemassuppliers.Enterprisesalsofacechallengesinsourcingfundsfortheirmarketingactivities–acriticalrequirementingeneratingdemandandgrowingtheendcustomerbaseontheirplatforms.RoleofGovernmentandPolicyGiventhatfarmers indevelopingcountriespredominantlypracticesubsistencefarmingdueto lackofefficientmarket linkages, theywouldbenefit frompoliciesthat fostertransparency inpriceanddemand information available to farmers, establish clear standards and create a marketenvironmentthatembracestechnology.For instance, in India, thegovernment is leveragingtechnologytoprovidetransparentmarkets forpreviously underserved farmers. Until recently the Government, under the Agriculture ProduceMarket Committee (APMC) Act hadmandated that the first sale of crops can only take place inregulated market yards ormandiswithin the same state. This mandate curtailed the market forfarmers and forced them to sell to traders or commission agents licensed to operate in APMCmarkets.Insomecases,licenseswererequiredtotradeindifferentyardswithinthesamestate.18Asasteptowardsexpandingmarketsforfarmers,theCentralGovernmentofIndiahasadvisedstatestoallowfreeexchangeofagriculturalproduceacrossstates;farmerscanuseacommonelectronicplatform–eNationalAgriculturalMarket(eNAM)–toselltheirproducetolocaltradersortoonlinebuyers across India. Under a USD 30 million scheme as part of the Digital India campaign, theGovernment plans to bring 585 regulatedwholesalemarkets across the country on an electronicplatformby2018.19The UnifiedMarket Platform (UMP) launched by Rashtriya e-Market Services is an example of apublic-privatepartnershipbetweentheGovernmentofKarnataka,IndiaandMumbai-basedNCDEX

May2017/12

SpotExchange.Theplatformenablesfarmersandendbuyerstonegotiateonpricesdirectlywithoutthe presence of an intermediary or agent. Circumventing middlemen allows farmers to receivepayments in their bank accounts within an hour of the trade as compared to being paid ininstallmentsoveramonth.20Therearesomegapsthatgovernmentsacrossdevelopingcountriesareyettobridge–enterprisesprovidingtechnologybasedplatformstodirectlylinkfarmerswithconsumershavecitedchallengesintermsofreceivinggovernmentfinancing,delaysinprovisionoflicenses,prohibitivetaxstructuresandhigh-levelsofcorruptionandbureaucracy.Forinstance,inKenya,SokoNectincursalicensefeetooperate itsonlineandSMSbasedplatform,paysanannual transportation feeofKSH5000andKSH2500toprocurealicensetodistributemarketingbrochuresinNairobi.Giventheneedtohavesufficientendbuyersonafarmertobuyerplatform,marketingtourbanconsumersisessentialforitsbusinessmodel.Governmentsneedtostrengthendatacollectionanddisseminationprocesses inordertopromoteenterprises providing direct market linkages to farmers cut off from mainstream markets. Forinstance, in Fiji, there are limited sources of accurate price information available to the privatesector. Fiji AgTrade, a division within the Ministry of Agriculture, maintains a record of weeklymarket prices across Fiji. However, farmers located in interior rural areas can seldom access thisinformation. There are no available data sets of farm gate prices and, at present, Fiji AgTradeappearstobetheonlysourceoflocalmarketprices.21InNigeria,dailyinformationonmarketpricescanbefoundinnewspapersfortraditionalexportcropssuchascocoa,butisunavailableforothercrops such as rice, sorghum, cassava, maize, and horticultural crops. Public agencies publishinformationonamonthlybasiswhichisoflimitedusetofarmers.22Enterprisesrequirecredibledataon prices and market trends so that they can build trust among smallholder farmers who areotherwisesubjecttoinformationasymmetries.ConclusionDirect-from-farmplatformsshortenthesupplychainandhelpsmall-scalefarmerstorealizehigherrevenuesowingtothedirectconnectiontoendbuyersandeliminationofmiddlemen.Thebusinessmodelisscalableowingtotheincreaseinadoptionofmobileandinternettechnologyindevelopingcountries.However,reluctanceoffarmerstoswitchfrommiddlemen,whotheyhavebuiltpersonaland social relationshipswith, to technology based servicesmay restrict the uptake of the direct-from-farmmodel.Thisscalabilityofthemodelisalsodeterminedbythecriticalnumberoffarmerswillingtomovefromsubsistencetocommercialagriculturalpracticesandtheirawarenessofmarketprices and demand. Platforms serving farmers who are only looking to sell small quantities ofproduceaftermeetingtheirownneedsmaynotbefinanciallysustainable.Enterprises that provide value added services that include procuring produce from farm gates,packagingitandhostingitontheirplatformsforsaletoconsumers,keepingtheirtransportationandlogistics costs low, are more profitable than enterprises that only provide direct market linkagesoftware to farmers to upload their produce. In addition, enterprises that design algorithms thatconsolidate individual farmers’ produce and sell to consumers in larger quantities attract largernumberofbuyerstotheplatform,therebyincreasingthevolumeofsalesontheplatform.*INRtoUSDrateconversion:1INR=0.015USD*KEStoUSDrateconversion:1KES=0.0099USD*FJDtoUSDrateconversion:1FJD=0.49USD

May2017/13

Table2.SEs:Direct-from-farmmarketlinkCompany Country SolutionDescriptionAgruppa

Colombia FormerlyknownasSokoTextColombia, theenterprise leveragesmobiletechnologytoconnect farmerswith fruitandvegetablevendorsservinglow-income communities. Vendors place orders viaWhatsApp or voicecalls and the company communicates the orders to farmers throughvoicecalls.

D’MarketMovers

TrinidadandTobago

Theenterpriseprovidesmarket access to farmers growinghigh-quality,butperishableproductsinmoreremoteislandareaswhopreviouslyonlyhad limitedaccess to localmarkets.Theenterprisehas60 localorganicproducersand650consumers.

DialogTelekom

SriLanka DialogTradeNetisanonlineplatformconnectingfarmerstobuyers.Theservice is operated by Dialog Telekom in partnership withGoviGnanaSeva (GGS). Information on the TradeNet platform isdisseminated via multiple digital communication technologies such asSMS, Unstructured Supplementary Service Data (USSD) via mobilephones,webandInteractiveVoiceResponse(IVR).

EkgaonTechnologies

India Ekgaon Technologies (Ekgaon) is a Delhi based social enterprise thatleverages ICT to provide farm advisory services and direct marketlinkagestosmallholderfarmers.

Fruitspot

USA,EuropeandLatinAmerica

Fruitspot provides an online platform linking farmers with buyers.FruitspotverifieseveryuserregisteredonitsplatformusingtheFruitspotVerificationProgram,therebyestablishingtrustinthetradingprocess.

Go4Fresh

India Go4FreshisbasedinMaharashtra,India.Itsmodelallowsfarmerstosellall grades of their fresh produce. Go4Fresh’s customers include exportcompanies, supermarkets and retail individuals in the premium pricebracket and price-conscious customers including processors, hotels,canteensandrestaurants.

I-Say-Organic

India I-Say-Organic is an e-commerce platform for organic produce. Theenterprise procures organic produce from smallholder farmers, gradesandensuresquality,anddeliverstheproducetoend-customersbasedonsalesgeneratedonitsplatform.Thecompanyalsoprovidesfeedbacktofarmers on when to plant and when to harvest based on demandprojections.

Kecipir

Indonesia Kecipir provides an online platform for farmers to connect with endconsumers. The model shortens the supply chain by eliminating thepresence of traders, central market, wholesaler, and retailer in thesupplychain.

Kudu

Uganda Thecompanyusesadoubleauctionsystemtomatchfarmerstobuyers.Buyers and sellers separately communicate their requirements and theprices theyarewilling to tradeat.Thesystemtakes intoaccountprice,locationandotherfactorstoautomaticallyfindthebestmatches.

MLouma

Senegal Mlouma functionsasavirtual commodityexchangeconnecting farmersto buyers through various communication platforms: internet, SMS,mobileapp,andcallcenter.

MandiExpress

Pakistan Mandi Express is an online and SMS based platform that connectsremotely located farmers in Pakistan with end consumers. The modeleliminates‘Arthis’ormiddlemeninthesupplychainprocess.Itispresentinthemarketyardsor‘mandis’aswellwhereanyexcessproduceissold.

MandiTrades

India Amulti-lingualmarketplaceplatformwherefarmerscanpostcropdetailsusingaphoneandconnectwithbuyersandtradersdirectly.TheplatformpublishespricesoffarmcommoditiesasprovidedbytheGovernmentofIndiatomakeiteasierforfarmersandbuyerstodecideonthetrade.

MarkitOpportunity

Kenya The enterprise’s e-commerce platform enables smallholder farmers toaccess information about the markets they buy and sell in, exchangehigh-quality produce through a double auction platform, and procuretransportation services. The enterprise oversees harvesting andtransportationlogisticsafteramatchhasbeenapproved.

May2017/14

SiembraViva

Columbia Theenterpriseusestechnologyandane-commerceplatformtoconnectsmallholderfarmersinruralColombiatoaconsumerbaseinurbancities.It alsoprovides supportandassistance toallow farmers to switch fromgrowingcommoditiestovalue-addedorganicproducts.

SokoNect

Kenya SokoNect links small holder farmers to buyers through mobile phonetechnology,onlinewebsite,SMSandAndroidapplication.Buyersincluderetail individuals, supermarkets, export companies. In addition, theenterprisealsoprovidesbusinesscapacitytrainingtofarmers.

May2017/15

AdditionalReading• WashingtonOfficeonLatinAmerica,2008,ThePromiseandthePerilsofAgriculturalTradeLiberalization–LessonsfromLatinAmericahttps://ase.tufts.edu/gdae/Pubs/rp/AgricWGReportJuly08.pdf

• FAO,GlobalFoodLossesandFoodWaste,2011http://www.fao.org/fileadmin/user_upload/suistainability/pdf/Global_Food_Losses_and_Food_Waste.pdf

• techfortrade,2015,Gettingproducetomarket:agriculturecollectioncentresinEastAfricahttp://techfortrade.org/blog/getting-produce-to-market-agricultural-collection-centres-in-east-africa/

• SandipMitra,DilipMookherjee,MaximoTorero,SujataVisaria,2013,AsymmetricInformationandMiddlemanMargins:AnExperimentwithWestBengalPotatoFarmershttp://economics.mit.edu/files/8720

• FeedtheFuture,USAID,2014,LinkingSmallholderFarmerstoMarketsandtheImplicationsforExtensionandAdvisoryServiceshttp://dev.meas.illinois.edu/wp-content/uploads/2015/04/Ferris-et-al-2014-Linking-Farmers-to-Markets.-MEAS-Brief.pdfInternationalGrowthCentre(IGC),AgriculturalFinancingandCreditConstraints-TheRoleofMiddlemeninMarketingandCreditOutcomesinGhana,2012http://www.theigc.org/wp-content/uploads/2014/09/Quartey-Et-Al-2012-Working-Paper.pdf

May2017/16

ENDNOTES

1http://www.cgap.org/blog/global-distribution-smallholder-and-family-farms2Enhancingsmallholdermarketparticipationthroughmobilephone-enabledservices:ThecaseofM-FarminKenya,CenterforDevelopmentResearch3Enhancingsmallholdermarketparticipationthroughmobilephone-enabledservices:ThecaseofM-FarminKenya,CenterforDevelopmentResearch

4MarketsfortheRuralPoor–Chapter5,IFAD5Anappthathelpsfarmerscutthemiddlemanout,LiveMint,Dec20156HabariMazao?SmallholderfarmersinTanzaniacanfinallydeterminetheirpricesthemselves,BetterPlacelab,20147Enhancingsmallholdermarketparticipationthroughmobilephone-enabledservices:ThecaseofM-FarminKenya,CenterforDevelopmentResearch8Anappthathelpsfarmerscutthemiddlemanout,LiveMint,Dec20159MarkitOpportunity-MobileAuctionforSmallholderFarmingTrading,OpenIDEO,Jun201610Amobilemarketplacetoconnectsmallholderfarmerstomarkets,OpenIDEO,Jun201611Theconnectedfarmer:Anewopportunityfortheagriculturalsystem,Spore,Apr201612KenyanfarmersdiscovertheInternet,IRDC13SriLankafarmersgetmobilephonetradeservice,e-agriculture,Dec200914https://partner.orange.com/partner/mlouma/15http://www.agruppa.co/menu16Enhancingsmallholdermarketparticipationthroughmobilephone-enabledservices:ThecaseofM-FarminKenya,CenterforDevelopmentResearch17AssessingtheViabilityofCollectionCentresforFruitandVegetablesinFiji:AValueChainApproach,FAO,July200918Agriculturereform:Governmenttakesfirststepforanationalfarmmarket,TheIndianExpress,July201519Anappthathelpsfarmerscutthemiddlemanout,LiveMint,Dec201520WebplatformbringsIndianfarmersclosertomarket,NikkeiAsianReview,July201621AssessingtheViabilityofCollectionCentresforFruitandVegetablesinFiji:AValueChainApproach,FAO,July200922Enablingfoodsecuritythroughsmallholderfarming,SwissRe,Jan2013

ThisseriesonInclusiveInnovationsexploresbusinessmodelsthatimprovethelivesofthoselivinginextremepoverty.EditorsareElaineTinsleyandNataliaAgapitova.ResearchedanddevelopedbyIntellecap.

OperatingModelGo4Freshenables smallholder farmers todirectly sell their freshproduce tobuyers.Thecompanytransportstheproducefromfarmgatetoendcustomers,therebystreamliningthesupplychain. Itcaters to diverse customer segments such as export companies, resellers, grocers, supermarkets,and individual retail customers who prefer premium grade produce; and hotels, restaurants,canteens (HoReCa segment), and processors who are price-conscious, but not averse to buyingproducethathavephysicaldefectsaslongasitisfreshandedible.Themodeleliminatesthepresenceofmiddlemenintheprocurementprocess,reducestheburdenon farmers to arrange for transport to reach government operated auction houses or ‘mandis’,enables farmers to realizepricesupfront, and reducespost-harvest losses stemming from lengthyprocurement and distribution activities. In addition, Go4Fresh’s model involves grade neutralproduce procurement from smallholder farmers, a diversion from the traditional selective-buyingmodel.Under the traditional model, smallholder farmers in India transport their produce to AgriculturalProduceMarketCommittee(APMC)marketyards,whereproduceissortedandpurchasedbasedonquality, shape, size and visual appeal. Farmers are generally able to sell their premium gradeproduce, but find it difficult to find buyers for lower grade produce. In order to avoid completewastage of the lower grade produce, farmers resort to selling it either at sub-par prices tomiddlemen or agents, or to processors.. Go4Fresh provides these farmers a platform to sell theirbulkproduceattransparentpricestoasingleprocureratthefarmgate.

CASESTUDY:GO4FRESH

May2017/2

Go4Fresh’sfarmerbaseincludesfarmerswhoown2acreplots,cultivate4-5vegetablecropsandearnUSD7472peryearingrossincome.

Buyers place orders on the Go4Fresh platform, which then conveys this information to its FarmCollectionCenterstwodayspriortoorderdeliverydate.Theteamthenvisitsfarmersontheirfieldsandprocuresalltheirproduceforanupfrontprice.Theproduceisthensorted,gradedandpackagedat the farmgate,and transported tobuyers.Farmersdealingdirectlywith theenterprisearepaidimmediately.Farmerswhoareassociatedwithaggregatorsreceivepaymentinatwo-stepprocess–Go4Freshpaystheaggregatorswithin15days,whothenpaythefarmers.Go4Freshsourcesproducefromindividualsmallholderandmarginalfarmers,farmerco-operatives,and farmer producer organizations. Local aggregators or ‘gundegaris’ as they are known inMaharashtra, India, support the company in arranging transportation of produce from remotelylocated farms. The enterprise partners with non-governmental organizations such as the KrishiPragatiFoundation,andagro-inputdealerssuchasSyngenta,BayerandMarico’sagricultural inputsubsidiary to mobilize farmers. Go4Fresh conducts sessions on demonstration plots to createawareness on the model amongst farmer communities. It also partners with local government‘taluka’ officers to conduct agriculture programs and leverages on the facilities of Krishi VigyanKendra -agovernmentbasedagriculturalextensioncenter - toconduct farmer training.Go4Freshalsoorganizessupermarketvisitstoeducatefarmersonindustrypracticesinpackagingandresale.Inanattempt toon-board farmers, itencourages farmers toevaluate itsmodelona trialbasis inparallel with using the traditional model and subsequently choose their preferred option to sellproduce.FinancialSustainabilityWith8000retailcustomersand500corporatecustomers,thecompanygeneratedUSD1.2millioninrevenuesin2015andiscurrentlyEBITDApositive.Thecompany’sstrategyofbuyingproduceinbulkquantities from farmers gives it a price advantage. Go4Freshworkswith food companies on pre-determinedbuyingandsellingcontractsthatarewell-matched,andhencelimitstheriskofcarryingperishable inventory or disappointed buyers. In addition, the enterprise forms farmer groups andprovidesGoodAgriculturalPractices(GAP)certificationstothematanominalfee.The company’s primary costs include farm to buyer transportation costs (USD 0.03 per kg,approximately6percent-10percentoftotalsales),packagingcosts(USD0.01perkg,approximately3 percent-4 percent of total sales), non-mechanized primary processing facility cost (3 percent-4percent of total sales), labor costs (USD0.01per kg) and capital expenses towards crates used inproducetransportation,weighingscales,andsorting&gradingtables.Theviabilityofthecompany’soperationsreliesonthevolumeofdemandgeneratedontheplatformand the consistency in supply. Inorder toensure thisbalance, it is critical forGo4Fresh to createsignificant awareness among end-buyers and establish trust with its farmer base by paying themwithoutdelays.Impact

Go4Fresh has enabled over 5,000 farmers in Maharashtra,Indiawith improvedaccesstobuyers.Thecompany’sdirect-from-farm model has helped small-scale and marginalfarmers in reducing post-harvest losses, increasing theirknowledgeaboutmarketprices and industry standards, andprovided them with the opportunity to realize value from

their entire harvest. The company has also provided capacity building services, helped farmersreceiveGoodAgriculturalPractices(GAP)certification,andeducatedtheminmanagingtransactionrecords.ThecompanyhasalsopartneredwithHDFC,aprivatebank in India,toopenaccountsforunbankedsmallholderfarmers;thecompanyelectronicallytransferspaymentstofarmeraccounts.

May2017/3

ChallengesandLessonsThecompanyfacessignificantchallengesingeneratingdemandandon-boardingendbuyers,givenits minimal marketing budget. Limited financial support hinders the company’s ability to securesufficientworkingcapital topayfarmersonan immediatebasis–apivotal factor instrengtheningfarmers’confidenceinGo4Fresh’sdirect-from-farmmodel.

*INRtoUSDrateconversion:1INR=0.015USD

ThisseriesonInclusiveInnovationsexploresbusinessmodelsthatimprovethelivesofthoselivinginextremepoverty.EditorsareElaineTinsleyandNataliaAgapitova.ResearchedanddevelopedbyIntellecap.

OperatingModelSokoNect’s software provides smallholder farmers in Kenya a platform to sell their agricultural,horticulturalandlivestockproductstobuyersusingamobilephone.Thealgorithmmatchesfarmersto potential buyers within their proximity and enables transactions without the presence of amiddlemanor broker. It also provides farmerswith informationonmarket prices and agriculturalnews updates. Buyers on SokoNect’s platform include export businesses, supermarkets and retailindividuals.The company partners with well-known farmers and makes them‘SokoAgents’,whosupporttheenterpriseinitsmarketingandfarmerinteraction activities. Soko Agents visit farmers on a bi-monthlyfrequency to provide them with information on the use of theplatformandon-boardthemasusers.Oncefarmersareregisteredontheplatform,theycanuploadtheir product details using the SMSbased service on their feature phones orwebsite andmobileapplicationontheirsmartphones.Farmersadvertisetheirproductsbyuploadingpicturesanddescriptionsrelatedtotypeofproduct,quantitiesandprices.Thealgorithmthenmatchesfarmerstobuyersaspertheirlocations.Farmersusing smart phones can also upload pictures, while Soko Agents assist farmers using featurephones—SokoNect charges a fee of USD 0.06 for each upload by SMS. The enterprise currentlycharges two percent commission fee for products priced lower than USD 99 and 10 percentcommission fee for products pricedoverUSD99. Thepayments aremadeeither by usingmobilemoneyortransactionsthroughEquityBank.

CASESTUDY:SOKONECT

80percentofSokoNect’scurrentregisteredfarmerbaseusesfeaturephones.

May2017/2

Followingtheplacementofanorderbyabuyer,farmersmayeitherchoosetodelivertheproductsdirectlytothebuyeroravailofSokoNect’ssupportfortransportationfromfarmtobuyer.SokoNectchargesanadditionalfeetofarmersorbuyerswhorequiretransportationandlogisticssupport.FinancialSustainabilityWith over 5,000 farmers on its platform, SokoNect isworking towards achieving break-even. Theenterprise intends to operate at a sustainable level by incorporating differential quantity basedpricingandtransactionfeestrategies.Efficientschedulingofpurchaseordershelpsreducelogisticscosts, thereby improving the model’s financial viability. Typically, smallholder farmers sell smallquantities of produce at a given point of time,which increases per unit transportation costs. Forinstance, the company incurs logistics costs of USD 99 to collect orders within a distance of 70kilometersusingonetruckregardlessofthequantitiestobetransported.Despitetheenterprisechargingfarmersafeetotransporttheirproducetobuyers,itisnotoptimalfor SokoNect to undertake frequent visits to farms to collect small quantities of produce. Itencourages farmers to upload information twoweeks prior to harvest, thus enabling streamlinedconsolidation of location-based orders that helps in planning a cost-effective logistics schedule. Italsointendstoclusterfarmersintodifferentgroupsor‘saccos’basedonthetypesofproductsandharvest periods for easier aggregation and collection of orders. Nearly 50 percent of SokoNect’soverallcostscomprisemarketingcosts–theenterprisefindsitmorechallengingtoacquirebuyersincomparisontoacquiringfarmerstoregisterontheplatform.LogisticscostsandSokoAgentsalariesareothermajorcostsincurredbytheenterprise.SincetheproductlaunchinJuly2013,thecompanyhasspentoverUSD9881.ItreceivedUSD4940infundsfromMLabEastAfricaandUSD1976fromSafaricom.

ImpactSokoNect’s platform currently enables 5,000 smallholderfarmers in Kenya to leverage on mobile phone technology toconnectwithendbuyersdirectly.Theeliminationofmiddlemenand brokers translates to increased revenues for farmersstemming from higher purchasing power and reduction inexorbitantagentfees.Theefficiencyinthesupplychainprocess,backed by real-time communication between farmers andbuyers, reduces post-harvest losses ultimately resulting inincreasedfarmerincomes.MostruralsmallholderfarmersinKenyaareilliterateandnotinternetormobilesavvy.SokoNectinpartnership with the government provides knowledge and capacity building to farmers on topicsrelated to role of technology and the internet in improving their agricultural practices andproductivity.ChallengesandLessonsSokoNect was initially developed as an Android application. However, upon realizing that mostfarmers in Kenya have feature phones, the enterprise introduced a version using short code SMSapplication—aplatformitpurchasedforUSD17781.SokoNectwasthenofferedaUSSDtestbedbyMlabEastAfrica foraperiodof3months. It lateradoptedtheUSSD(an interactivemobilephone

Small-scalefarmerstypicallyearnUSD99onaveragepermonth,buthavethepotentialtoearnUSD494byeliminatingmiddlemen.SokoNectenablessmallholderfarmersrealizebetterreturnsfromtheirproduce.

May2017/3

query service application) platform, costing the enterpriseUSD 1452 fromAfrica'sTalking Limited.Despite thebenefitsofUSSD—anapplication thatprovides farmers a simplerqueryand responsemechanismincomparisontoSMSservices,themonthlymaintenancefeeofUSD168provedtobeasignificantexpenseandledtothecompanydiscontinuingthisapplication.The uptake of SokoNect’s direct-from-farm service relies on farmers’ familiarity and comfortwithadoptingmobileandinternetbasedtechnology.Ittrainsfarmersoninternetandmobileusageandroleof technology inagricultureatgovernmentorganized farmermeetingsor ‘barazas’. SokoNectalsoredesigneditsinterfacetomimicthatofM-Pesa,amobilepaymentplatformthatmostfarmersinKenyaarefamiliarwith.Limitedgovernment fundingandsupport towards technologybasedenterprises inKenyaprove tobe a critical challenge for SokoNect; capital is provided to companies with a minimum of 8 - 12founders and there are high-levels of bureaucracy and corruption when working with countygovernments. In addition, it also has to pay taxes and license feeswhich aremajor expenses, forexamplethecompanypaysthegovernmentUSD50astransportationtaxandUSD25asanannualfeefordistributionofmarketingbrochuresinNairobi.*KEStoUSDrateconversion:1KES=0.0099USD