Embracing digitalisation in agriculture for inclusive growth

11/04/2023

FSD Uganda

By Geoffrey Okidi

The COVID-19 pandemic was a wake-up call for businesses across various sectors to develop plans to ensure business continuity amidst disruptions of that magnitude. Most of these plans include embracing digitalisation.

For economies such as Uganda’s which are heavily dependent on agriculture, Digitalisation in agriculture can be a sector game changer. Digitalisation for agriculture is the use of digital technologies, innovations, and data to transform business models and practices across the agricultural value chain. This in turn helps address bottlenecks in productivity, postharvest handling, market access, finance, and supply chain management. This aims to achieve greater income for smallholder farmers, improve food and nutrition security, build climate resilience, and expand the inclusion of youth and women.

Financial Sector Deepening Uganda’s 2020 study on the impact of COVID-19 on agricultural finance in Uganda in September 2020 affirms the importance of digitalisation. The study points out that the lack of digitisation along the agricultural value chain exacerbated firm-level economic effects indirectly caused by COVID-19 measures. The study points out opportunities for digitisation that could have saved the day and fostered greater resilience to the impact of the COVID-19 lockdown measures. The study notes that there was a sudden growth in e-commerce (for example, door-to-door delivery) by 100 to 300 percent in some cases, albeit off a very low baseline, showing underlying demand for digitisation.

According to McKinsey Global Institute’s 2016 study titled Digital Finance for All: Powering Inclusive Growth in Emerging Economies, digital technologies cut the cost of providing financial services by 80 to 90 percent.

Findings of a similar study conducted by aBi Finance on the performance of SACCOs during COVID-19 lockdown are consistent with the McKinsey Global Institute Study. The aBi Finance study found that during the COVID-19 lockdown, fully digitalised SACCOs performed much better in terms of loan portfolio quality and savings mobilisation than their non-digitalised counterparts.

Uganda and other East African countries have some of the most conducive conditions for increasing uptake of digital finance technologies in the agricultural sector (about 56 percent of adults are already using mobile money – FSD 2018). However, agricultural payments in Uganda remain predominantly cash-based and many people remain unbanked (Better Than Cash Alliance, 2017).

To reap from the potential benefits of digitisation of the agricultural value chain, there is need to address the key challenges hindering it. According to the UN Capital Development Fund, the key challenges to digitalisation in Uganda are:

- - Low education levels, fluctuating incomes, price sensitivity/preference to pay with cash amongst many consumers
  - Formal financial exclusion and limited usage of available financial services
  - Limited infrastructure for digitalisation, for example, poor mobile network, high costs of mobile network expansion and maintenance
  - Gaps in the policy and regulatory environment, for example, SIM registration requirements were thought to limit smallholders’ access to mobile phones
  - Many agribusinesses do not have the internal systems in place to take advantage of digitalisation
  - Challenges in managing a national level digitalisation programme given diversity of languages across Uganda

To accelerate transformation in the agriculture sector, hindrances to the adoption of digitalisation must be addressed. According to The Digitalisation of African Agriculture Report 2019, Digitalisation for Agriculture solutions are categorised into five primary use cases: (i) advisory and information services; (ii) market linkages; (iii) supply chain management; (iv) financial access and (v) macro-agricultural intelligence. The report highlights the recommendations below to stakeholders to address the challenges in digitalisation.

Recommendations to address the challenges to digitalisation
To improve use, drive greater inclusivity, impact and reap the benefits of digitalisation of agriculture, priority should be placed on the following:

- - Development of human capital at every level of the digitalisation for agriculture ecosystem, including increasing awareness of digitalisation for agriculture, improving digital literacy and, greater digital skill building among actors across the agricultural value chain
  - Driving greater business model sustainability by, for instance, improving value for farmers, identifying, and promoting successful business models and mobilising funding to support a more diverse set of companies
  - Creating greater impact by making digitalisation for agriculture solutions more inclusive of women and other marginalised groups, as well as smallholders in geographies with relatively less digitalisation for agriculture investment
  - Investment in the missing middleware infrastructure. Successful digitalisation for agriculture solutions require access to a wide range of data (from remote sensing data to farmer-specific data) to deliver high-quality services to farmers
  - Investment in good data stewardship and designing for the risks and limitations of digital systems
  - Investment in the digitalisation for agriculture knowledge agenda
  - Creating an alliance of key digitalisation for agriculture stakeholders to promote greater investment, knowledge sharing and partnership building