Are digital platforms a clear path out of poverty for Uganda’s smallholder farmers?
By Geoffrey Okidi
John, a 50-year-old smallholder farmer in Mbale district grows maize, beans, and cassava on less than one acre of land for own consumption and sale. His farm production is affected by over reliance on traditional farming practices, use of low yielding varieties, small farm size and limited access to finance. John often sells his produce at his farm to middlemen at a low price, earning less than UShs1 million annually. John’s story is that of a typical smallholder farmer. His story represents that of 6.9 million households in Uganda according to the 2019 Uganda Annual Agricultural Survey report.
Fortunately, this narrative stands to change if Uganda’s third National Development Plan (NDP III) 2020/21 – 2024/25 goal to increase household incomes and improve the quality of life of Ugandans is realised. The NDP III recognises that a high proportion of the population is still dependent on subsistence agriculture due to: (i) low agricultural production and productivity; (ii) poor storage infrastructure; (iii) poor market access; (iv) low value addition; (v) limited access to agricultural financial services and critical inputs.
To solve these challenges, the government is committed to the Agro-Indutrialisation Programme, increase of ICT penetration and use of ICT services for social and economic development. But how can this commitment solve the challenges being faced by Uganda’s smallholder farmers?
The Financial Sector Deepening Uganda believes that embracing technology platforms is one way to activate this commitment.
The technology platform concept is fundamentally simple: create a place where producers and consumers can come together in interactions that create value for both parties using digital technology. Examples of digital platforms include Uber, Airbnb, Amazon, Jumia among others.
There are multiple ways by which digital platforms can create gains in production, efficiency, information flow, inclusion for marginalised groups, and transparency across segments in the agricultural value chain—all of which contribute to improved outcomes for small-scale producers. Some of the potential benefits of digital platforms include:
Market aggregation: Platforms create new efficiencies by aggregating unorganised markets. Market aggregation provides information and power to platform users who formerly engaged in interactions in a haphazard fashion, often without access to reliable or up-to-date market data. Using platforms, economies of scale can be realised when numerous dispersed smallholder farmers get organised into viable economic units or groups that are engaged in producing for the market. The 2019 Uganda Annual Agricultural Survey report revealed that only six percent of the adult household members belonged to a farmer group. To improve their incomes through collective actions, small holder farmers need to join farmer groups. Working in groups increases their bargaining power, possibilities of sharing services, assets, and infrastructure such as warehousing and processing equipment. This enhances post-harvest handling, value addition and product quality. Additionally, working in organised groups reduces the unit cost of production and delivery of services to smallholder farmers thereby increasing the possibilities of profitability and growth.
Appropriate value and supply chain financing: Access to finance remains a limiting factor for many farmers to invest in productivity enhancements. As such, only four percent of Ugandan farmers use a full package of production enhancing technologies (a combination of fertilisers and improved seeds) and supportive services according to the NDP III. This is partly because smallholder farmers are engaged in the production of a variety of enterprises that makes it uneconomical and increases the risk for lenders. Using a market-led approach to farming, smallholder farmers should be supported to participate in one or two profitable value chains appropriate to their agro-ecological zone. This will enable them increase access to internal and external value chain financing opportunities that platform participants can proffer. To begin with, smallholder farmers should be rallied around the 10 priority commodities in NDP III namely, coffee, tea, fisheries, cocoa, cotton, vegetable oil, beef, maize, dairy and cassava. Specialisation in these commodities will facilitate the development of appropriate value and supply chain financing business models and financial solutions in the digital marketplace.
Strong and sustainable partnerships in the platform economy: Within the digital platform, producers and consumers will be connected to each other to exchange value. For example, a platform would facilitate interactions between smallholder farmers, off takers, input suppliers, Financial Services Providers (FSPs), providers of social services, etc. Digital data from platform activities can drive increased financing to farmers, both as buyers of services and sellers of produce. The platform would also afford participants economies of scope which increases the opportunities for economic multiplier effects for the financial service providers, other economic actors, and the value chain actors. For example, FSPs can deliver financial services to different actors across the value chain thereby increasing the possibilities of revenue and profits. Platform participants would have increased access to various services across the value chain in addition to the primary economic activity. There is also increased ability to bundle services together to alleviate multiple constraints at one time. For example, platforms can easily facilitate contract farming while tying output markets to credit markets. Risk mitigation measures such as agriculture insurance and irrigation can also be bundled up with other services on the platform.
To determine the viability of embracing technology platforms, the Financial Sector Deepening Uganda has partnered with three technology platforms – Ensibuuko Tech Ltd, Quest Digital Finance Ltd and Emata Uganda Ltd to pilot three-year programs. The programs will digitise different agricultural value chains, trade, and light manufacturing supply chains. This is with a goal to support the development of sustainable business models, products/services, and solutions for delivery of financial services to the underserved market segments. Learnings from these pilots will be shared in subsequent blogs and case studies.
Photo credit: Image by Freepik