Zambia is a Southern African country rich in arable land yet only 15% of it is cultivated. Its predominantly rural population is highly dependent on agriculture with around 60% of households participating in agricultural activities and 50% getting their livelihood from it, according to the Food and Agriculture Organization.
The agricultural sector is dominated by maize production, which is the country’s staple food and main cash crop, but doesn’t fetch high premiums for smallholder farmers.
This is where Good Nature Agro (GNA) comes in. The startup figured that one way to help smallholders transition from poverty to the middle class was through higher income-generating crops such as legumes. Incidentally, legumes promote better soil health too and are often used as nitrogen-fixing cover crops in the western world.
By supplying legume seeds and working with farmers on how to grow them, who to sell them to, and how to get good yields, the startup works with Zambia’s smallholder farmers to help them produce high quality legumes for export.
Founded by Carl Jensen and Sunday Silungwe, GNA’s aim is to create a group of smallholder farmers who are financed, trained and have access to high-quality information and inputs.
“Our business is built on trying to maximize lifetime value, the nature and also long term impact of the farmer,” Carl Jensen, CEO and co-founder of GNA tells AFN.
How it works
GNA’s core product is high-quality and specialized seed for a range of legume crops including cowpea, groundnut, soybean, common bean and pigeon pea.
It also provides microbial fertilizers and inoculants that work with the soil to improve nitrogen fixation.
The social enterprise first identifies high-value premium markets for legumes and establishes agreements with food processors. It then contracts smallholders to fulfill these agreements. GNA calls this the Source model, which is the shorthand name for that model of engaging seed customers (GNA’s farmers) to produce commodities for specific offtake clients.
GNA makes sure that they have a ready market that’s transparent and that they know about before the season begins. This is guaranteed by purchasing the entire crop harvest at the end of the season from the farmers.
Beyond seed provision to credit
High poverty levels in Zambia are bound to affect its smallholders. Around 78% of the country’s population lives below the poverty line. Ultimately, this means that farmers have to find ways to survive in between farming seasons.
Research by the Poverty Action Lab showed that while smallholder farmers generally lacked access to credit, when they did manage to get loans, they increased their agricultural output. The largest effects were seen in households with the least available resources.
In alignment with its vision to lift smallholder farmers from poverty, GNA is now going beyond seed provision to include credit — a well-trodden path for agtech startups on the continent whose main customers often cannot afford their wares otherwise.
GNA has now offered input financing to 26,000 farmers helping them to cover 80% of their input costs on average. Its financing model is flexible and some farmers can qualify for 100% financing depending on their credit scores. GNA lends off its own books and has seen just 6% default rates across its portfolio.
“We have different credit scores so that farmers start with relatively small packages, but then add on additional hectares and inputs over time. And we purchased the seed and commodity that’s produced back from those growers, usually at a premium price of about 25 to 30%,” Jensen notes.
Farmers from GNA’s second credit tier or higher also get to receive advances prior to harvest, two months early. Often known as the lean season in smallholder agriculture, farmers are usually running out of money and therefore make desperate decisions. The advance comes in handy and GNA recovers it at harvest.
Leaning into fintech
GNA is now investing in building a digital fintech platform that will leverage learnings from annual engagements with the farmers. The platform will embed an alternative credit model that sits alongside other datasets that are useful for other financial institutions.
With the demographic data captured, GNA hopes to give financial institutions a comprehensive view of smallholder farmers as individuals and what each of them is ready to take on than. It’s also planning to introduce asset financing with a pilot in irrigation already running, and a program to advance money to farmers that have been with them for a couple of years and their operational data is well reported.
By the end of 2022, roughly 35,000 farmers will be onboarded with GNA lending and buying from them.
In working with its outgrowers, GNA has very little criteria to be able to onboard the smallholders. This makes it very easy for farmers to join GNA’s outgrower program. From that point, a farmers future ratings will determine how they advance.
“Our introductory package is relatively small and relatively affordable, where we’re talking about a half hectare of soybean sample that a farmer can access for about $30. No other inputs are required, just seed and inoculant to help get that initial fixation,” says Jensen. And the smallholders only have to pay half of the amount upfront, so with a $15 equivalent in Zambian kwacha, a farmer can join GNA’s program.
From the entry point, GNA gauges the farmers based on the quality and quantity of the product they bring to the market, their attendance at training, farming practices and whether there’s any side selling. These are then used to construct a farmer’s subjective grower rating score.
“If they perform well with those those metrics, they can do a much larger package the following year. They will also have much higher credit ratings needing to do a couple crops instead of one,” says Jensen.
GNA tries to negotiate a 25% gross margin for itself, under agreements established with food processors.
Its main revenue model, however, is still the sale of seeds. In 2021, GNA reported that 79% of its top line turnover came from seed sales, 12% from commodity sales and 9% was from financing other inputs like fertilizer.
Overall, GNA has been profitable and was able to generate $5.6 million in sales in 2021.