‘Cash-Cows’ In Africa’s New Digital Economy

The keys to unlocking new digital-enabled value in Agri-Tech.

In this article, I will briefly cover and explore the key areas behind successful digital transformation in the Agri industry in Sub-Saharan Africa.

From The Revolutions behind these winds of change, The Agri Value Chain and lastly The New Business Models unlocking these new markets and domains

The Covid-19 Pandemic has disrupted supply- and value chains in ways we could not have imagined. Other forces such as digital transformation of business landscapes have been at work for over two decades - but Covid-19 became an overnight accelerator of disruption.

Agriculture is the least digitized of all major industries, according to the McKinsey Global Institute's Digitization Index.

Nevertheless, the agricultural industry is a digital emerger and has least been negatively affected by Covid compared to all other major industries.

With lockdowns that had commenced globally - supply chains came to a halt and for the first time in years a massive catalyst had pushed the agricultural industry into a new era - a Digital-First Era.

Platform business models are nothing new and have in fact been around with a proven track record for years.

Challengers are questioning business as usual with new digital capabilities that are built, using various emerging and developing technologies. The success of the integrated future digital business model, will be determined by ensuring that long-term vision is maintained while focussing aggressively on short-term tech-enabled opportunities.

How data is used, created, manipulated or designed will impact the success of the future platform of businesses and enable a new sowing field for future harvests. It is clear that mastering the use of data will be at the core of successful business platforms.?

In a study by McKinsey; all the increased technological innovations within Agri has led to a consolidation in margins across the board of between 6-8% in the last 20 years.?

This creates room for digital automation and hidden capabilities to unlock the future of trade - especially in Africa.

Despite recent events due to the Pandemic, the Agri industry has had to adapt to the so-called ‘new normal’ quite quickly compared to other industries.

Various socio-economic changes have positioned Africa as the new emerger in production and could yield massive growth in contribution to global GDP in the near future - by as much as a 3-time increase according to McKinsey.

According to Mordor Intelligence, the CAGR growth rate for the Agri industry is projected to reach 4.2% from 2021-2026 despite Covid 19.

“Platform play in the digital era disrupts value chains and opens up room for value to be captured in reimagined platform business models” - Deloitte Digital

To understand the underlying dynamics behind these winds of change in the industry - we must first consider the industrial revolution and get a bird’s eye perspective of 'Change'

To simplify technological change, we take a look at 3 core revolutions:?

The Technology Revolution Simplified:

1. The Agrarian Revolution

The Agrarian Revolution gave us the transformation of agriculture where land ownership was a competitive advantage.

This second agri revolution gave us a massive increase in the utilization of land and natural assets, parallel with increased productivity of the workforce.

It kickstarted the gradual change and production within the industry and facilitated the foundation on which such changes are built on today.

2. The Industrial Revolution?

Following the Industrial Revolution, an increased volume of employees and workers meant more room for competitive strategies around increased volume outputs. This marked the plateau of linear models and capabilities before the 20th century.

These new advancements created a massive surge in supply; and placed new demands on producers and the early organizations behind these value chains.

More consumers now had access to the value behind these earlier chains and this access facilitated adoption within societies and intra-ecosystems.

3. The “Information Revolution”

The Information Revolution steered its way into the 20th century with the advent of internet-based technology. Digital technologies in the Information Revolution unlock new capabilities - the use of data, insights and digital technologies to intelligently solve complex problems has become the new basis of building competitive advantages in the Information Revolution.

By using digital technologies, organizations can now push past the ‘plateau’ left by the early industrial revolutions and reach new consumers at a global scale.?This removes the bottleneck effect and enables customised solutions to a much broader audience - The platform business model enables an interconnected network of various stakeholders, suppliers and intermediaries; to serve consumers in ways unprecedented in the past.

With high energy costs and climate-related challenges in traditional agricultural geographies, Sub-Saharan Africa has the perfect infrastructure for new value to be added in the immediate future. This, coupled with new advances in digital-enabled trade, will increase the transparency and liquidity of markets across Africa.?

Making this a reality, however, will require investment and inputs in infrastructure and markets, to open up the possibility of full participation by Africa’s millions of smallholder farmers and commercial players in the agriculture supply chain.

Given these core shifts in the global economy; we can now analyse the Agri value chain and structure the foundation behind these digital-enabled opportunities.

The Agri Value Chain Simplified:

1. Pre-production & Input Supply

The inputs into these value chains are in most instances carried out by practitioners outside of the farms and contribute to the utility of resources that affect the production of agricultural commodities.?

Research, policies and infrastructure govern the direction. These are generally classified by 3 core segments: Animal Production, Horticulture and Field Crops. Digital Transformation least affects these activities. As an example, early policies with regard to cotton or tobacco plantations caused consolidation in output as seen in the years following the 2008 financial crisis. A surplus, most popular with maize, now allows for greater exports.

2. Production

This entails all the operations and activities which determine the effective utilization of resources to produce Crops, Livestock and Produce in a timely manner.?

To yield the commodities for trading, these production-heavy activities in the chain can be enhanced and often unlock higher crop yields; less use of water and fertilizers; increased safety; and impact on the environment. Core technologies, aiding to increase the timing of harvests and integration with supply chain, involve the effective capture and processing of enriched data via IoT devices; sensors; data analytics capabilities; and systems.

3. Post-production & Distribution

The industry is still low on the digitalization meter compared to others. This unlocks hidden value made possible via platform technologies.?

Logistics infrastructure requires heavy financial inputs. Partnerships and integrations along the chain via these platform systems, consolidate logistic inputs for higher efficiency in distribution. Forecasting and planning technologies are important during these activities.?

4. Trading & Marketing

The omnichannel nature of digital communication assimilates into many industries.?

With most of the focus on pre-production industry-wide, there is much value to be captured after production. Web-based technologies bring together the touchpoints to coordinate the effective trade and marketing of these commodities; and strong data-first strategies make this possible.

5. Processing

Optimized processing secures value addition for all entities involved. The challenge here becomes evident in balancing the distribution of value amongst all stakeholders further down the value chain.?

These processes involve the transformation of raw agricultural commodities into finished/semi-finished products. Enhanced product characteristics and optimized processing unlock new value that can be pushed further down the chain. An integrated Crop and Livestock system could unlock enhanced processing capabilities. As an example: effective waste management in production could serve as recycled inputs for the next production cycles - impacting fertilizers, animal feeds, etc. Integrated systems look at the pre- and post chains and unlock holistic value as opposed to just focussing on farm-to-table post-production strategies.

6. Logistics & Retail?

Big Data and digital-first strategies enable organizations to tap into their markets and understand the underlying forces of demand.?

Fulfillment management systems and integrated payments functionalities could unlock hidden capabilities in the retail- and logistics space. Integrated systems and analytics allow greater traceability and create room for improvement loops.

7. Consumers & Consumption

This coined ‘Consumer Renaissance’ had been unlocked by the ubiquity of digital data and the processing thereof.?

This ‘putting the consumer at the front of everything we do’ mentality has changed how we look at our markets. Data models around these enriched platforms is an example of how rethinking consumer experience truly becomes the ultimate advantage in future business. Proliferous abundance of mobile devices connected to a global network creates entire new domains.?

This not only enriches the consumer experience by providing even more variety to meet their changing needs, but also captures peripheral streams that layer on these ecosystems such as financing options and enhanced business intelligence capabilities powering the digital economy.

Building Sustainable Change In Agriculture:

Just as coal drove the early revolutions, the steam engine became an engine for growth. In today’s digital-enabled economies the ‘search engine’, as an example, became an engine for change in the information revolution - the consumer has ample access to information and service providers.

“Direct investment into Digital Technologies has been projected to reach 8 Trillion US Dollars globally from 2020-2024” - Statista.

Restructuring portfolios for the new era of business involves pouring more research and investment into aggressive digital transformations and strategies.?

Ubiquitous ‘Tech’ availability has made market entry much easier for digital challengers in recent years and has created greater opportunity for ease of change; but also yields greater threat with competitors positioning ahead of incumbent organisations.

Covid-19 was a great trigger in enabling the adoption of “Digital” in traditional Agri markets and provides the perfect environment for the launch of such models.

Many models arise within these segments but based on research of the Agri value chains, we found that the following core business models emerge within this new digital economy and simplified it into either one of 3 models

The 3 Core Platform Business Models Of The Immediate Future:

1. Core Product Model:

These models are more focussed on a specific stream and peripheral value is most often only unlocked further in the third-party value chains down the line. The success of these rely on extensive research and development inputs in order to become top in your segment to unlock the scale needed for sustained growth.?

2. Ecosystem Trade Models:

These models are focussed on providing a connection between supply and demand and mostly happen in post-production value chains at scale. ‘Marketplace models’ is a common example and usually connects buyers and sellers on an open platform.

3. Client-based Model:

These models are more geared towards end-to-end ownership of the entire customer journey. This requires more aggressive infrastructure around the consumer data to enable an enriched experience. These are more focussed on continuous improvement around the services offered, based on the rich data and insights around each user.

In Summary

The AgriTech digital platform business models unlock enormous value and companies still need startup and agile mentalities to sustain growth in this new reality.

Core entities behind these forces of change are either IT and Cloud-enabled challengers; or the traditional organisations with more resources deployed in aggressive short-term strategies.?

Modeling similar successful and proven platform business models helps get the edge necessary to build competitive advantages. Having strategic alignment with a bottom-up approach creates the environment needed to sustain a company culture in alliance with a clear vision and market need.

AG companies shouldn’t just blindly ‘Go Digital’

By just plugging in technology to old business models will not create a platform for growth and the ‘one size fits all’ approach is disappearing. Digital technologies change the underlying dynamics and often render traditional models obsolete.

Understanding the ‘people’ within these ecosystems should always be the core to unlocking hidden and enhanced value, and not the technology as an ad hoc approach.

Referenced Sources:

The platform business model to survive in an ecosystem driven economy - Deloitte, “https://www2.deloitte.com/content/dam/Deloitte/za/Documents/financial-services/za-Article-1-The-business-of-platforms.pdf”

The Agri Industry After Covid-19 - Strategy& PwC “https://www.strategyand.pwc.com/de/de/implications-of-covid-19/the-agri-industry-after-covid-19.html”

ISF Agricultural Report March 2021, “https://isfadvisors.org/wpcontent/uploads/2021/03/ISF_RAFLL_Agricultural_Platforms_Report.pdf”

Global Trade Analysis Project - Joubert, J.C.N. 1; Jooste, A.2 and Lotriet R “https://www.gtap.agecon.purdue.edu/resources/download/8378.pdf”

Agriculture sector: Preparing for disruption in the food value chain - McKinsey & Co, “https://www.mckinsey.com/industries/agriculture/our-insights/agriculture-sector-preparing-for-disruption-in-the-food-value-chain”

Mordor Intelligence, “https://www.mordorintelligence.com/industry-reports/agriculture-in-south-africa-industry”

Statista, "https://www.statista.com/statistics/870924/worldwide-digital-transformation-market-size/"