Why We Invested: Good Nature Agro
If you have your finger on the pulse of agriculture in Africa, you know that it needs a major dose of fresh vigor. Perennially starved of resources and investments, the sector is stunted in its output and shunned by the labor force best suited to its needs. Crop yields are the lowest in the world, with main cereal yields stagnating at less than 25 percent of potential over the last half a century. Africa’s total food output represents just 10 percent of global production, even though the continent boasts a quarter of the world’s arable land. Unable to meet its own demand, Africa spends $35 billion on food imports annually. Bleaker still, young people — the most productive segment of the region’s population — are deserting the agricultural countryside for cities because of the risks, costs, low-profitability and intensive nature of agriculture. Had a Green Revolution — such as the one that dramatically transformed agriculture in Asia decades ago — materialized in Africa, perhaps the narrative might be different today.
Challenges in Africa’s agricultural sector have global ramifications. The world needs to produce 70 percent more food to keep pace with global population growth and Africa is our best chance for doing so. The region has enormous untapped agricultural potential, hosting more than half of the world’s uncultivated land. Moreover, agriculture remains a major economic driver, accounting for 32 percent of Africa’s GDP and employing the majority of the continent’s labor force. Smallholder agriculture, in particular, feeds and underpins livelihoods for 70 percent of the population in sub-Saharan Africa, a region that is home to 1 billion people. Agriculture, therefore, presents a great opportunity for development actors seeking broad impact in Africa. Even the continent’s massive annual food deficit, while worrisome, represents a tremendous market opportunity, one that is projected to grow from $300 billion today to $1 trillion by 2030.
Not surprisingly, the African agricultural landscape is beginning to attract great entrepreneurs focused on improving traditional businesses and bring innovative solutions like microinsurance and enhanced productive use appliances to market. That is why we at FINCA Ventures have made our first agricultural investment in Good Nature Agro (GNA), a social enterprise that aims to grow farmer net incomes and bring smallholder families firmly into the middle class.
A Holistic Agricultural Intervention Model Built on Legumes
GNA’s strategy is precisely what’s needed to invigorate agriculture across the region. To understand this, consider the agricultural value chain. If you are a farmer, your productivity and profitability depend on a smörgåsbord of factors. You might have enough land to grow crops, but are your soils and seeds sufficient in quality to optimize yields? Most probably not, if you are the average smallholder in sub-Saharan Africa, where seeds are constantly recycled and soils severely depleted. To maximize yields, you will need other instrumental inputs like fertilizer and herbicides (or loan capital to buy them) as well as access to extension services to help you learn the best agronomic practices. After harvest, you will need storage capacity, infrastructure to transport and market the produce, and insurance to protect your investments. Such an extensive and intricate value chain requires a holistic intervention strategy, something that GNA is deploying in Eastern Zambia.
On the surface, the model seems counterintuitive; it revolves around legumes in a region where a cereal, maize, is the established cash crop. But GNA understood that boosting incomes — a primary incentive for farming — must start with identifying the right markets and crops. A crop that commands premium prices — like cowpea, groundnut, soybean, common bean and pigeon pea — is the surest way to raise a farmer’s income. Because legumes are less common in the market than other crops, they fetch higher prices. And because seeds require very stringent quality control. they fetch even higher prices. Legume seeds boast a 50 percent improved margin over cash crops, like maize. Legumes are also valuable for other reasons very germane to agricultural transformation in Africa; they enrich soils by replacing nitrogen used by crops, and they are resilient against climate change. To cap it off, legumes are good for consumers’ health and productivity, providing a range of nutrients, such as protein, iron and phosphorus, critical in a region where 20 percent of the population is undernourished.
GNA provides the inputs, financing and extension services that farmers need to produce quality seeds that will attract premium prices. What’s more, GNA buys the entire crop upon harvest, thereby guaranteeing its farmers a market and income. It is a model that works because it fits together discrete but complementary pieces in a self-reinforcing system.
Guaranteed Markets and Incomes for Smallholder Farmers
To guarantee markets and incomes for its farmers, GNA invests heavily in quality. It identifies and works with niche, quality-controlled markets that pay more. Maintaining that relationship, of course, demands that farmers produce high quality seeds consistently. GNA works directly with some of the world’s leading crop development organizations and runs a seed multiplication program, ensuring that it can provide farmers with the best quality seeds in sufficient quantities.
Recognizing that quality is as much about process as it is about product, GNA has built a best-in-class extension model that leverages years of learning and best practices. GNA selects nominated leaders within a community and trains them in the best agronomic practices. These Private Extension Agents (PEAs) then pass the knowledge and skills to other farmers in their communities, with GNA incentivizing them with commissions. The agent network utilizes the Smallholdr mobile app and platform, which allows GNA to not only customize training and financing packages for its farmers, but also to track where crops were produced — from a store shelf back to the field and farmer. The innovative PEA system ensures that farmers produce the quality seeds necessary for GNA’s model to work. But it does more than that; it addresses one of the biggest challenges in African agriculture: the scarcity of extension services. In Zambia’s case, the PEAs have dramatically improved the ratio of extension agent to farmer from 1 in 5,000 to 1 in 40.
GNA aspires to grow the net income of smallholder farmers by 400–500 percent to achieve $600 per hectare. Today, its network of smallholders has grown to nearly 5,000 farmers in just a few seasons, and net income per hectare has more than tripled to $382, from an average of $113.
Farmers Turned Entrepreneurs
Driving GNA’s impressive work is a great team with deep roots in agriculture and development. Carl Jensen, co-founder and CEO, is a fifth-generation farmer from Idaho who has degrees in International Agricultural Development and Business Administration. He boasts agricultural experience across four continents and lives and breathes working with soil. Carl admits he is more comfortable on a farm field than in a boardroom, but we find him quite well suited for both environments! His co-founder, Sunday Silungwe, brings his intimate local knowledge — he is a Zambian from Chipata, where GNA is headquartered — and superb people skills to his employee recruitment and management role. There is terrific talent across the organization, including some of the country’s top agronomists, and seasoned sales and finance professionals.
A Potential Recipe to Boost Financial Inclusion and Livelihoods
In de-risking an important population segment (smallholder farmers) by raising their incomes and providing more predictable cashflows, GNA also provides an opening for financial service providers. The farmers need access to finance for more expensive input packages and to grow their farms. They also need savings and financial literacy to make sure that they are investing their boosted incomes wisely, and budgeting properly for a long growing season with lumpy cashflows. A partnership with a financial service provider has the potential to radically transform agriculture while simultaneously strengthening financial inclusion in the country.
In fact, GNA is working with FINCA Zambia to pilot cashless payments to PEAs. Payments are deposited into FINCA Zambia savings accounts which PEAs may conveniently access from their phones using mobile money. This, however, is only the beginning. The real goal is for GNA to pay its farmers in the same way.
GNA’s achievements to date are just a taste of what it can accomplish for agriculture in Zambia and beyond. There are over a million farmers still to engage nationally, and more land and crops to expand into. Pulsating opportunities also abound regionally and across East and West Africa, where the agricultural landscape mirrors that of Zambia. Innovative and holistic agricultural models like that of GNA — backed by better prices, better soil and better farming — are poised to increase the productivity, resiliency and quality of life for hundreds of millions of smallholders. This pulse (a synonym for legume) focused company is about to take the agricultural pulse in Africa up several notches.
Read it at: https://fincaventures.com/why-we-invested-good-nature-agro/
Subscribe to the FINCA Ventures newsletter to get the latest updates on our work, and visit us at www.FINCAVentures.com and follow us on Twitter @FINCA.
