Farmer Value Creation vs Scale
Key Messages
The
This finding is crucial when seen in light of other FarmFit data analyses that show a link between higher scale and lower
FarmFit data suggests that it is harder to create value for farmers at scale is due to:
Intensity and nature of service delivery .Changing farmer profiles at scale.
Keep reading to find out more.
Understanding how scale relates to farmer value creation
The key challenge that the FarmFit Insights Hub is looking to crack is how to design smallholder-inclusive business models that combine efficiency, commercial viability, investability and scalability, with effectiveness in creating value at farm-level. Scale is a key driver for all three outcomes that are assessed in the Insights Hub. Unfortunately, when it comes to
These results do not appear influenced by any other contextual or design drivers that the FarmFit Insights Hub has analyzed in detail: when disaggregating by any of the other key drivers,
Finally, using rigorous
Link to other outcomes
When looking at the relationship between Scale and the other two outcomes analyzed in this Insights Hub, we find that:
- For
Direct Cost Recovery from Service Provision , our data suggests that on average, larger-scale models recover a larger percentage of their service delivery costs to farmers. Click here for more details - For
Service Delivery Costs , our data shows that smaller-scale models are associated with much higher service delivery costs. Click here for more details
The implications are crucial: scale is a key driver across all three outcomes analyzed in the FarmFit Insights Hub, but the impact of scale is not uniform. Larger scale is associated with higher cost recovery, lower service delivery cost, and less value creation. How to scale smallholder-inclusive business models while optimizing for all three outcomes is one of the key nuts to crack, and thus will be a feature of insights added to the Hub in the future.
In the following sections we dive deeper into possible explanations and nuances behind these results, as well as their implications.
Diving deeper: what do we think explains these results
Our quantitative and qualitative data suggests there are a number of compelling reasons explaining why business serving a larger number of farmers deliver, on average, less value to farmers.
Intensity and nature of service delivery – As business models scale, the intensity with which services are delivered is reduced as the farmers-to-staff ratios increase significantly. In addition, larger-scale models are more likely to work with intermediaries for service delivery, helping them scale but often at the cost of reduced control and quality.Changing farmer profiles at scale – Smallholder farmers are often challenging to serve due to various reasons including small farm sizes, challenging economics, imperfect infrastructure. Businesses that are first set up are likely to work with relatively easier-to-reach farmers, for instance those that are closer to the business’ own operations or those farmers with whom the business has had longer and more secure sourcing relations. As business models scale, they are more and more likely to work with more farmers in more challenging circumstances, making it more and more difficult to achieve high value.
Clicking on each of the preceding reasons provides a longer overview of our thinking, including more supporting qualitative and quantitative insights.
Implications – so what does this mean for you?
Based on our findings till date on this topic, we see the following implications for different audiences:
- Assess whether you can provide the same quality of service delivery and / or have the same influence over farmer outcomes at scale. We see that the number of touchpoints with farmers – for instance the staff-to-farmer ratio – often decreases with scale. Are there ways in which you can mitigate the risks, for instance through working with intermediaries for last mile delivery or integrating technology or partnering with other service providers (and leverage their assets and client network) to allow you to scale more efficiently without compromising on quality?
- Assess whether service delivery needs to be customized as you scale and “go down market”. Do the hardest to reach and serve farmers need different or additional support services to maintain performance on farmer value as the business scale? Do you need need other types of support (temporary subsidies) to reach these more challenging farmer segments?
- Be up-front with investors and/or grant-making organizations about your ability to scale. Avoid committing to scaling targets and timeframes that compromise your business model or the value you can create for farmers. You could share that our data shows that there is often a trade-off between scale and farmer impact.
- Learn from the best – which peers and other businesses are successfully scaling without a trade-off in farmer value created? With what business model design choices and how could those lessons benefit you?
- Gain insights in what the “tipping points” are; at what scale does efficiency come at the expense of effectiveness? Support your investees in mitigating these trade-offs, for instance through the use of technology or the tailoring of services based farmer segment characteristics.
- If you want to support your investees to scale towards more challenging segments, you may need to use concessional capital to advance inclusion as serving those farmers will be challenging and costly (at least in the short run).
- For your investments to generate a strong return on investment, they will need to create strong value for farmers (which would allow for direct cost recovery) while operating at scale (to unlock efficiency benefits and reach viable ticket sizes for your investments). Encourage your investees to balance all three of these outcomes: service delivery cost, direct cost recovery and value created.
- Our data strongly suggests that scale is a key means of improving the economics of service delivery: lower cost and higher direct cost recovery. But it often involves a trade-off with farmer value created. Support research and intelligence efforts to better understand barriers to scale, scale enablers and successful pathways to scale.
- Support the private sector in creating delivery mechanisms (such as technology and intermediated last mile delivery) that enable scale while retaining the quality of service delivery.
- Be conscious of the potential unintended consequences of scaling targets, in particular the decreasing touchpoints of service delivery and in some cases the more challenging profile of more remote farmers. Ensure that the companies you support have the right organizational capacity to scale, the timeframes for scale are realistic, and the right mechanisms are in place to ensure that quality of service provision is not compromised.
- Work with government and other public bodies to build and develop “scale enablers” for private sector engagement. This could include creating stronger public physical and digital infrastructure, and supporting market-level initiatives such as the development of data assets or of digital b2b models, particularly around distribution, that can help providers reach a larger number of farmers. Such support can make it easier for businesses models to scale while not (or reduction in) compromising on quality.
- Find ways of directly or indirectly (e.g., through the private sector) building the capabilities of farmers that may be in more challenging segments. This can help make these farmers more attractive for businesses to work with and can increase these farmers’ potential to benefit from smallholder-inclusive business models.
- FarmFit data suggests that as business models scale, the profiles of the farmers they serve can become more challenging, making it more difficult for businesses to create a lot of value for these farmers. Support the private sector to reach the more “challenging” farmer segments with concessional finance and/or grants.
- Prioritize investment into public “scale enablers” that can reduce quality trade-offs businesses face when scaling up their models, such as:
- Public infrastructure: rural roads to improve the access to remote or difficult to reach farmers.
- Digital infrastructure: digital solutions can be a key way of efficient scaling while maintaining high quality of service provision and sufficient touchpoints with farmers. This can include mobile networks, regulation of digital payments and service provision, and promotion of digital literacy.
- Public extension services: coordinate with the private sector to reduce potential overlaps and waste, for instance with farmer training interventions provided by the private sector.
- Use public extension efforts to build the capabilities of farmers that may be in more challenging segments. This can help make these farmers more attractive for businesses to work with and can increase these farmers’ potential to benefit from smallholder-inclusive business models.
Reflections on data limitations and further research
The Insights Hub is a living document which we are constantly updating with new data, new analysis, validation by our partners, etc. For the results on this page, we would like to emphasize the following:
Major caveats and limitations of our current approach
Absolute income uplift does not show proportional impact
Next steps that we have planned to update these findings in the near future
Control for measured and projected data Incorporate scale as an outcome indicator
Suggestions for additional research by our peers and partners
Research innovations that can help scale, while maintaining or increasing farmer impact
Page content
Strength of Relationship 3/5
- Strong relationship between driver and outcome variables
- Results are largely consistent across analytical models used
- Few limitations regarding sample or indicator
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