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AgroCenta agents
AgroCenta's agents are central to the platform's relationship with its smallholder users. Image credit: AgroCenta

Through microfinance, AgroCenta is developing end-to-end solutions for Ghana’s smallholders

February 10, 2022

While working at digital ag company Esoko, AgroCenta co-founders Michael Ocansey and Francis Obirikorang became familiar with bottlenecks in the Ghanaian agricultural supply chain. Among the most glaring issues was that Ghanaian smallholder farmers lacked access to structured markets where they could sell their produce at fair prices.

Instead, farmers had to go through many intermediaries who would buy from them at cutthroat prices – even below 40% or 50% of what the fair market price would be, in desperation to sell. The middlemen would then sell the produce in urban areas making profits of over 200%, Obirikorang tells AFN.

“Farmers in Ghana lose around $290 million annually of potential income due to exploitation by middlemen,” he adds.

At the same time, there was a huge but unmet demand for grain from large consumer goods companies and breweries looking for raw materials locally. However, getting in touch with farmers who could supply them was challenging; let alone finding a large enough pool of farmers who could satisfy the volumes they required.

The corporates would therefore turn to imports from large-scale operations in South Africa and Europe, despite domestic availability and the risk of delays and higher expense.

Obirikorang and Ocansey founded AgroCenta in 2015 to solve both demand and supply problems, leveraging technology to connect the two.

Since then it has launched two main products: CropChain, an online trading and supply chain management platform for smallholder grain farmers; and LendIt, which helps those smallholders access financial services such as microloans, crop insurance, and pension plans.

“We’ve been able to marry the two key challenges, which are access to market and access to financial services, to create an end-to-end solution where once the farmer enters AgroCenta, he doesn’t need to go out to other platforms to look for additional services,” Obirikorang tells AFN.

Early challenges

Farmers are onboarded to AgroCenta’s services through CropChain, which helps users with inventory warehouse management, traceability, logistics, sourcing, and trading. This onboarding process is handled by agents who are usually selected by participating smallholders.

It soon became clear that sourcing these agents locally would be crucial to overcome language barriers in rural communities and win the trust of the farmers.

Initially, AgroCenta would identify an offtaker’s annual demand needs and subdivide it into monthly volumes. The company would then determine how many farmers were needed to fulfill the order; this model ensured that smallholders have at least one buyer to supply all year long.

However, as AgroCenta continued to grow, inadequate internet penetration in its target markets became a challenge. The startup therefore had to revamp its mobile app so that it could work offline and be synchronized later when reconnected to the internet.

After piecing the demand and supply side together, another challenge arose: logistics. By striking partnerships with logistics providers in every Ghanaian province, AgroCenta was able to build an Uber-like model which can offer large delivery trucks capable of cross-country haulage, down to three-wheeler tuk-tuks for the last mile – and everything in between. On top of this, the startup has built centralized warehouses where goods are aggregated and processed before being shipped to buyers.

From subsistence to commercial farming

As all this trading activity picked up pace in AgroCenta’s ecosystem, the startup was soon able to determine farmers’ average incomes. That’s when it launched LendIt, which tracks farmers’ data to build their financial profiles and calculate a credit score for them. With this, they become more attractive to lenders – who partner with AgroCenta to extend microloans.

Smallholders on the platform typically receive input financing loans worth between $100 to $500 based on their demand needs.

AgroCenta goes further, assisting its farmer partners with repayments. These are often done in-kind by the farmers, with the startup taking a share of produce to offset the interest to be paid.

“This model has kept default rates very low, at around 2%,” says Obirikorang.

To further strengthen the system, loans are disbursed into farmer groups with a minimum of four members, where each member acts as guarantor for the others. This incentivizes them to hold each other accountable; by repaying on time, they can graduate to higher loan tiers as they go through farming seasons.

“One of the key impacts we track is effective movement of farmers from subsistence farming to commercial farming,” Obirikorang says.

“We’ve seen farmers who started out with, say, one acre of land move on to three or four acres mainly because of the provision of financial services.”

Educating investors

Even though 52% of Ghana’s labor force serves in agriculture, the industry — as in most parts of Africa — is still underdeveloped. Obirikorang believes that data and financial services will be key to its evolution.

“Unlike players in the fintech space who can build software and apps that can be used readily, players in the agritech space need to go the extra mile. Farmers find value when you create an immersive platform and ecosystem for them, where they can find 90% of their needs met,” he says.

So far, AgroCenta has raised $2.2 million in disclosed funding, with its latest round being a $790,000 pre-series A raise. But Obirikorang admits that it has been difficult to secure funding as it’s hard to find investors who fully appreciate what agritech in Africa needs to work.

“Some investors are interested in the tech [but] not heavy on operations and infrastructure,” he explains.

He adds that some startups do not meet minimum tickets because investors are looking for huge commercial entities, or argue that the businesses are too early stage for them. Sometimes foreign investors show more interest – but then, often the challenge is that they don’t have a good grasp on the realities of agriculture in Africa.

Obirikorang believes that launching LendIt helped investors better understand AgroCenta’s end-to-end offering, highlighting its scalability.

The company is now keen on expansion and has already ventured into Burkina Faso. Other priority countries are Kenya, Nigeria, Tanzania, and Uganda. At home, AgroCenta is present in six out of eight  provinces – and has its sights set on the remaining two.

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