Latin America’s agricultural sector is highly informal. Farmers pay for crop inputs via all-cash transactions and get paid for their harvest in the same manner. These informal processes with no data have several significant consequences, one being farmers’ lack of access to formal financial services.
Around 90% of farmers in Mexico do not qualify for traditional lines of credit, says Hugo Garduño Ortega, CEO and co-founder of ag fintech startup Verqor. Without credit, most small to medium-sized farmers can’t access the new agtech tools becoming available, from precision ag software to more sustainable inputs.
Ortega and his co-founders started Verqor in Mexico in 2019 as a way of bringing more formal processes and data to agricultural operations in Mexico to connect farmers with credit and access to buyers and markets.
Below, Ortega [HGO] and Verqor COO Valentine Rogacheva [VR] share with AFN how the Verqor platform works, the benefits it brings to farmers, and how the company hopes to accelerate the adoption of agtech in Mexico and Latin America.
AFN: How do farmers access financing once they sign up on the Verqor platform?
HGO: Verqor is [changing] the whole agribusiness industry in Mexico and Latin America. What we’re trying to do is digitize all the flows that exist in the industry through our model, which is cashless credit.
Sadly in the region, the agriculture business is very informal, with most of the transactions done in cash. There is no money traceability. This doesn’t allow farmers — small to medium farmers, mainly — to get financial services. All these big problems exist in an industry full of intermediaries, including intermediaries for selling products, providing agro inputs, and for getting financing.
A farmer enters the Verqor platform and fills out their information. We analyze this information and use a traditional approach that most of the financial institutions take: we make a productive analysis of the farmer, their deals, the productivity, crops, the weather in that existing region, etc.
AFN: It sounds like the underwriting you’re doing is based on data and information traditional banks would have access to or wouldn’t normally consider – so-called “alt-credit” assessment.
HGO: Once we approve the farmer, we put the amount of credit that was approved on their balance. The farmer can use this balance to purchase all kinds of inputs from our platform: fertilizer, seeds, agro-chemicals, biologicals, insecticides. We deliver these inputs directly to the farmer. Once the farmer is harvesting the crops, we connect them with companies that purchase products directly from the farmers, companies like AB InBev, Heineken, some exporters in Mexico, importers in the United States. The payment happens through the Verqor platform.
All this information and data allows the industry to start to formalize and digitize.
AFN: Is one of the goals to cut out those intermediaries and create more direct relationships between farmers and big companies or farmers and input manufacturers?
HGO: Yes, that’s right. When intermediaries do business with, for example, manufacturers of inputs, companies like Syngenta, there is formal invoicing and real traceability of the money. But when intermediaries sell inputs to the farmers, there is no formal operation. The same thing happens with the sale of the actual products. When intermediaries sell to big companies, they do invoicing, but when an intermediary buys from the farmer the process is completely in cash.
For us to be able to meet our goal, which is to digitize and formalize operations, we have to start getting rid of the intermediaries that exist in the industry.
VR: The industry is very informal. More than 90% of transactions are made in cash. And we’re speaking about vulnerable sectors. They’re still not part of the technological advances we know like using credit cards and online banking and fintech services. That’s why there is no traceability and no data. That’s why 93% of farmers in Mexico have no access to formal credit. When they go to a traditional financial institution and apply for a credit there is no way to check the paying capacity of the farmer.
AFN: Talk a little bit about your recent seed funding round.
HGO: We actually started raising this seed round in December . We finalized some weeks ago the participation of our lead investor, which is SP Ventures. In total we raised around $2.5 million, and this will allow us to keep rolling.
When we raised our first investment round in 2021 and [focused on] finding our product-market fit. The first half of 2022 was for growing the team. We brought talent from other fintech companies in Mexico and created a very strong team. We also worked a lot to shape the internal processes.
The second half of this year will be to grow commercially, to reach very ambitious goals of clients and credits and sales, which will allow us to break even and have a very strong Series A for the first quarter of next year.
This round is for growing commercially to reach the whole country. The Series A will be to strengthen our financial side. Today Verqor faces huge regulations in fintech laws. We operate as a non-banking financial institution, so the farmers know that we’re the lender, but we have to [run] this credit through third parties. So the Series A will be to make Verqor 100% the lender of all credits we place.
AFN: Where do you see agtech in Mexico and Latin America headed in the next few years?
HGO: When we started with Verqor back in 2019, there was very little interest in agtech in the VC industry and in the startup world in general. I think the pandemic showed the strength of the agriculture industry. Today, we have several agtech startups that focus on precision agriculture, sustainable products, the Internet of Things…
What we’ve noticed is that these technologies have solved many problems, but they’re not accessible to farmers. That’s why Verqor can be the catalyst for farmers to get all of these new technologies. Today there’s no company focused directly on lending for the agriculture business [in Mexico]. We’re happy to say we are the leaders in this area.
VR: When creating solutions for vulnerable sectors, in this case farmers, it’s very important to know how you can reach this market. Farmers live in very remote areas. So usually these technologies don’t reach the farmers even though they can be very beneficial.
What we saw is that we needed to start from the root of the problem and first try to increase the income of the farmers so they can cover their basic needs; then they could implement these new technologies. That’s why we started with financing.
AFN: Does Verqor plan to eventually expand geographically?
HGO: Yes definitely. That’s one of the main drivers we have with our investors, especially with SP Ventures, which is based in Brazil. We have a huge market in Mexico so of course it’s a priority in the short-term to strengthen our operations here. Maybe in the next two years we will start Latin American expansion.
VR: By connecting all these players in the ag industry, what Verqor aims to do is to [improve] traceability in supply chains [so], for example, a produce buyer would know what was used in the fields, which chemicals and fertilizers, the biomass and quality of the products. This way we can establish what works best in certain fields and certain regions, and we can make these benchmarks for other farmers.