From Tradition to Tech: Smallholder Challenges in Embracing AgTech

A study by McKinsey reveals a stark contrast in AgTech adoption. In Europe, North America, and South America, the willingness to embrace AgTech is over 50%. In Asia, however, it's a mere 9%.

Why? Because Asia has many smallholders busy fixing their 'today' rather than focusing on 'tomorrow.'

Smallholder farmers are caught in a never-ending relentless cycle - low income leading to low risk-taking ability, which forces them to depend heavily on middlemen for farming advice, resulting in average returns and ultimately leading back to low income.

They know only one way to avoid risk - use only 'tried and tested' products, services, or processes. They wish to use newer technology but cannot do so.

Let's take a deeper dive to find out why.

Smallholders arguably confront the highest risk among ethically operated small-scale enterprises. In addition to the conventional challenges faced by any small-scale business, such as escalating input costs, seasonal fluctuations, and competitive pressures, smallholders are overwhelmed by two distinctive risks:

• Exposure to Unfavorable Growing Conditions: A substantial portion of cultivation activities is conducted in open fields, making growing conditions beyond their control. They find themselves exceptionally susceptible to various adversities, including floods, droughts, elevated temperatures, hailstorms, pest infestations, etc. These environmental changes frequently have a huge negative impact on farm yields.
• Price Vulnerability: Smallholders are price takers who can't hold stock and don't have access to cold storage facilities. Their poor financial conditions force them to immediately sell their produce post-harvest, compelling them to accept the prevailing market price without any possibility of negotiation.

No wonder, for these reasons, smallholders are always seeking divine intervention and God's blessings for a good crop. The University of Copenhagen also found the same in a recent survey.

For smallholders, mitigating these two risks is of utmost importance. They will always pray for favorable divine interventions, but they also need someone highly dependable, one they can rely on highly.

Here comes into the picture - 'Trusted Agent'.

'Trusted Agents' are input sellers and produce collectors with whom smallholders share a bedrock of trust cultivated over decades, sometimes over generations. These 'Trusted Agents' mitigate risk for the smallholders in the following manner:

• Mitigating Exposure to Unfavorable Growing Conditions: Smallholders lean heavily on input sellers for invaluable advice and recommendations for the best products as per expected growing conditions. These input sellers often provide assurances regarding product performance and supply these inputs on credit.
• Navigating Price Vulnerability Risks: Here, they depend on the produce collectors. They not only purchase produce at optimal prices but also offer unsecured loans. Smallholders growing rice and wheat in India, rice in Indonesia, pumpkins in the Philippines, and watermelons in Vietnam, Thailand, and Malaysia follow the same method.

Other key players within the 'circle of relationships' (see diagram below) also exert a notable influence on the decision-making process of smallholders. Agri-input companies play a considerable role in this decision-making with their perceived brand value and product quality. Additionally, the collective influence of fellow farmers, government entities, NGOs, and media outlets cannot be underestimated.

Yet, the Input sellers and produce collectors emerge as the most significant influencers. These 'Trusted Agents' hold this distinctive position due to their special role in facilitating 'access to markets' and 'access to finance'—two critical factors in farming. It would be far easier for smallholders to adopt novel solutions — be they products, services, or processes — only if vouched for by these 'Trusted agents.'

Smallholders mainly get the below-mentioned four services from these 'Trusted Agents,' thus giving them the most important role in the 'Circle of Relationships'.

• Reputation for Expertise: Smallholders trust these Agents for their advice regarding farming practices.
• Advocacy in Adversity: In the event of any setbacks or performance issues with the products used on the farm, these 'Trusted Agents' serve as the smallholders' voice to raise concerns and complaints to input companies or government authorities.
• Providing Unsecured Loans: For house construction or education and marriage expenses for children or emergency hospitalization, or anything, these agents are available to extend unsecured loans.
• Flexible Produce Procurement: Irrespective of timing or quality, these agents stand ready to purchase the farmer's produce, offering flexibility that smallholders perceive as a massive support.

But these 'Trusted Agents' also operate in a commercial ecosystem, driven by their own profit motives. They recommend only those solution (product, services, or processes) that brings them high returns and have minimal risks.

Access to finance is a constant struggle for smallholders. While governments, NGOs, and startups are working hard to make a difference, none of these players can provide unsecured loans. That's where the 'Trusted Agent' steps in. These are relationships cultivated over decades, providing unsecured loans to smallholders for various needs, from education to emergencies. The 'Trusted Agent' reap returns from 12% to 36% annually.

Access to the market is another big problem. Take the case of tomato farming in India, a country with many smallholder farmers. In May, farmers in India sold their tomatoes for as little as USD 0.02 to 0.03 per kilogram at wholesale markets. That didn't even cover their transport costs. So, what did they do? Many of them just dumped their tomatoes on the roads. It was heartbreaking.

But the story doesn't end there. Heavy rains in June destroyed the remaining crops, leading to a tomato shortage. Prices skyrocketed, reaching USD 3 per kilogram in some cities. Smallholders saw an opportunity and planted more tomatoes. But within months, the market was flooded, and prices crashed again.

In September, tomatoes are selling for as low as USD 0.07 to 0.15 per kilogram in retail markets. Once again, crops are abandoned on the farm because even cultivation expenses can't be recovered. And you know who loses the most in this game? The smallholder farmers. The middlemen might have made their money, but the farmers remain trapped like mice.

It happens very often, almost every year, and the most sensible approach could be to invest in the supply chain and processing units. If there were accessible cold storage facilities and processing units, things could be different. With processing units, tomatoes could be turned into puree, which has a longer shelf life and can be used for cooking. It's a win-win for both smallholders and consumers. But sadly, the value chain players often prioritize maintaining the status quo over making these critical investments.

It is one of the examples, but it represents the plight of all smallholders across many countries and crops, from Asia to Africa.

Marslow's theory - hierarchy of needs is in work here, too. Smallholders are still struggling to fix their basic needs (access to the market & access to finance), while the need to adopt newer technologies sits higher in the pyramid. Unless we can help fix basic needs, it will be an uphill task to make smallholder farming modern and help them use newer technologies faster.

So, what's the solution? One approach could be to empower smallholders by integrating the entire chain, linking them directly with input suppliers, and buying their produce at the farm gate. Many corporates and startups have tried and are still trying across various countries, but with not-so-encouraging results.

The other solution, maybe short-term, is empowering these 'Trusted Agents' and motivating them enough to help smallholders adopt better technology to improve their income.

What would you choose? It's a complex problem, but we need to solve it together. Let us know your thoughts.

??To dive deeper into the topic above and explore the ones preceding it, simply click the link below. Your interest holds great value, and I welcome your feedback, views, and suggestions??

https://cultivatingtomorrow.substack.com/publish/posts