Improved business methods expand horizons beyond subsistence level
The first time Ige Akinwale Benson, a Nigerian cocoa farmer, heard of a company called AFEX Commodities Exchange, he was unimpressed. “I looked at them and I thought ‘these guys are totally 419’,” says Benson — using a common Nigerian term for fraudsters.
The reason for his first impression was that AFEX seemed to be offering something too good to be true. The company — which tops the FT ranking of Africa’s fastest growing companies — provides loans to smallholders for buying seeds, fertilisers and pesticides and then buys their produce at market prices, stores it in warehouses, and transports it to market.
In developed economies, such services are de rigueur. But, in Nigeria, a country with an estimated 34.5mn smallholder farmers, the package being offered is little short of revolutionary.
Agriculture is of crucial importance to a country in which about 70 per cent of its 220mn people are engaged in the sector, mainly at subsistence level, according to the UN’s Food and Agriculture Organization (FAO). Limited financing, poor access to farm inputs and markets, and a lack of warehouses are commonplace problems, the FAO says.
However, since Benson signed up in 2019 to be part of AFEX’s system, he has overcome the issues that for generations have kept his family poor. “Before 2019, our family’s annual income would be about 1.2mn naira ($1,463) but now we are getting between about 4.5mn ($5,488) and 5mn ($6,098) naira,” says Benson, who farms about 65 acres around the village of Ajue in Ondo state.
“I don’t spend the money extravagantly,” he stresses. “I put it in the bank account. I have a house and a car now, so I don’t need much. I will spend the money on a good education for my four children. I will send them to a better school.”
AFEX, which was founded in 2014, recorded a compound annual growth rate between 2018 and 2021 of 502 per cent, according to the ranking by the Financial Times and data research company Statista. Its president and group chief financial officer, Kunle Adesuyi, says it is aiming to raise $75mn in equity and debt by the end of this year, potentially from international investors.
AFEX’s business model relies on taking Nigerian farmers out of isolation and subsistence and including them in an integrated agricultural system. After farmers have signed up to its platform, AFEX provides months of training on what crops to grow, which seeds are most suitable, which fertilisers, fungicides and pesticides to use, how to avoid flooding and swarms of pests, how to reduce post-harvest crop losses, and other competencies, notes Adesuyi.
It provides loans in the form of farm inputs — such as seeds and fertiliser — rather than money. AFEX charges 15 per cent annual interest on the inputs loaned. When farmers come to sell produce to AFEX after harvest, the cost of the inputs plus interest is deducted from the sum they receive.
Applying better farming inputs in this way has resulted in a dramatic increase in crop yields. Almost 500,000 farmers registered on AFEX’s database produced around 500,000 tonnes in crops last year, up from some 307,000 tonnes in 2021, says Adesuyi.
A huge problem with waste has been reduced by AFEX’s network of warehouses. They have a capacity of 600,000 tonnes, and can store harvested crops including cocoa, sesame, cashew, ginger, rice, sorghum, coffee, and barley. Before the warehouses were built, post-harvest losses because of inadequate storage were as high as 40 per cent, Adesuyi points out. After the application of AFEX’s methods, he adds, the percentage of waste has come down to a fraction of that.
AFEX is not the only company in this area, though. ThriveAgric, backed by California start up accelerator Y Combinator, has 514,000 farmers on its database and works in 26 Nigerian states, says its chief executive, Uka Eje. “When you go to the US, you are travelling over a thousand kilometres and all you see is productive farmland,” notes Eje, who grew up in rural Benue state. “But when I was going to school, I would travel and see very little activity on the farms. Millions of hectares are not cultivated.”
ThriveAgric’s model is similar to that of AFEX, but with a twist. It groups the farmers on its platform into “clusters” — usually into groups of about 10 but sometimes as many as 50. They cross-guarantee each other’s output so that, if one falls short, the others are liable for the shortfall. Eje says: “The social pressure helps to drive performance.”
As with AFEX’s model, digitalisation is a crucial aspect of ThriveAgric’s operations. Not only are mobile phones used to map and verify a farmer’s land, digital processes are also used to provide loans using a farmer’s bank verification number, identity card and online account. Thus, the prevalence of mobile phones, which can be bought in Nigeria for as little as $50, has become a crucial enabler of agricultural aggregation.
“Digital technology allows us to build structure from a chaotic environment,” says Eje. “Africa, these days, is pretty chaotic and there may be some infrastructure that does not exist. But we can build a technology system that can service this unstructured market.”