AgriTech's Value Proposition for Reducing Food Cost

Rising food costs and shrinking economies are creating a dire situation for huge swathes of Africans who are practically living to eat. Across the continent, African countries are facing record levels of inflation. Nigeria hit a record high food inflation of 33.93% in December, while Ghana, Egypt and Zimbabwe hit food inflation numbers of 28.68%, 60.5% and 60.3% in the same period. Similarly, staple foods in Nigeria like rice, plantain, bread, and tomatoes have witnessed price increases of 39.69%, 75.29%, 35.81% and 24.88% respectively, compared to last year.

These price increases directly put a strain on household incomes, with food constituting a chunk of household expenditure. According to the USDA, lower income countries spend much higher share of expenditures on food than higher income countries, with African countries like Nigeria, and Kenya spending as high as 59% of their household income on food, compared to the US where consumers spend around 8% on food.

Typically, increased income owing to economic development and urbanization should drive down expenditure on food and up spending on essential services like education, and medical services. As the cost of food continues to climb, these marked changes in household income utilization in Africa continue to remain out of reach.

Technology has been used to disrupt several industries, increasing competition, enabling improved access, and driving down costs to consumers. Innovation around ride sharing, such as Uber and Bolt, did for instance, disrupt the traditional business model for taxis, making these services much more accessible to consumers at multiple socio-economic levels. Similarly, Airbnb disrupted the hospitality industry, reinventing hotel stays and the tourism industry, while solving the core challenge of skyrocketing hotel costs. Regardless of output in terms of product, one fundamental thing remains constant; technology’s intersection with a traditional industry can bring about much needed transformation.

Africa’s food system needs a transformation. In response, the continent, in the past decade, has witnessed a growth spurt of Agritech platforms working to disrupt food systems and drive down food costs by innovating across the value chain.

Crashing food prices requires a multifaceted approach targeted at production, processing, supply and accessibility to final consumers, and so, we have seen innovations around precision farming with AI and IOT, which solves the challenge of low production at farmer level, blockchain technology solving farm management challenges, crowdfunding/crowdsourcing platforms solving for low access to finance for farmers and processors. These models, through technology and innovation disruption, provide a solid precedence for transforming our food systems.

For close to 10 years now at AFEX, we have also been playing a part in transforming Africa’s food systems by deploying a commodities exchange model. Technology is a significant enabler in this model, allowing for increased access to both markets and capital for both sides of the market, while improving service delivery and data accessibility. Our WorkBench platform, for example, allows us to manage core aspects of our business such as farmer onboarding and loan disbursement, which gives a lot more farmers access to capital for their production needs.

As we face an increasingly high food inflation environment, the potential for this tech-enabled model becomes even clearer. Today, we can improve yields for producers, store and aggregate their commodities for trade and plug processors into the market to satisfy their quality and quantity requirements. Ultimately, however, we will build an inclusive futures market for the agriculture commodities sector on the continent, which will be a game changer for food costs, helping to limit volatility for players as they utilize tools to hedge and manage price risks.

Food costs remain a considerable challenge for many African households today. Solving for the cost of food can have a multiplier effect on numerous other societal and economic indices. The place of technology then, in building products that help achieve food security cannot be overemphasized and so Africa needs strong investment in agricultural technology solutions to drive innovation, competition, and ultimately put food on the tables of Africans while allowing them allocate money to other expenditures.

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