Service Delivery Cost per Farmer vs Last Mile Delivery

Strength of Relationship 3/5

  • Moderate relationship between driver and outcome variables
  • Results are consistent across analytical models used
  • Few limitations regarding sample or indicator

Key Messages

Companies that leverage intermediaries such as agents, lead farmers and farmer groups, to deliver the last mile of services see a service delivery cost per farmer over 75% lower than companies that only rely on their own staff. Across all our analyses, last mile delivery was the driver with one of the biggest impacts on service delivery cost per farmer.

Our data suggests that this is due to the following reasons:

  • Lower operating costs
  • Fewer capital expenditures
  • Scale and business model maturity
  • Farming models

Keep reading to find out more.

Understanding the role of last mile delivery in service delivery cost per farmer

Last Mile Delivery is the immediate touchpoint with the farmer and how this is designed determines the way in which farmers receive services. This has direct impact on the cost and quality of service delivery, in addition to many other effects (timing, accessibility, consistency, etc.). One of the main motivations for using different last mile delivery is to find more efficient ways of reaching farmers and getting models to scale. Our analyses confirm there is a strong relationship between service delivery cost per farmer and the type of last mile delivery options chosen. 

Read more: how do we distinguish last mile delivery methods?

The data shows that companies relying solely on their own staff for last mile delivery have a service delivery cost per farmer of 3 to 7 times higher than those relying in part or in full, respectively, on delivering services through intermediaries. Most companies that choose to work with intermediate actors to support last mile delivery and procurement do so mainly out of cost-efficiency and scale considerations, rather than quality. Therefore, these results are in line with our expectations and observations over years. Furthermore, our machine learning modelling results, in which we control for the estimated relationships between service delivery cost per farmer and all other drivers that we have analyzed, confirm the results. 

Linking to other outcomes

A logical follow-up question is, do these cost efficiencies come at the expense of other outcomes? We find that using intermediaries might come at the expense of higher cost recovery from services and higher value creation for farmers. 

  • For Direct cost Recovery from Services, businesses that involve their own staff in last mile delivery, either as standalone or in combination with intermediaries, recoup more of their service costs through service payments compared to business models that rely on only intermediaries. Click here to read more 
  • For Farmer value Creation, we found that business models that rely solely on their own staff are associated with higher levels of value creation compared to those where last mile delivery is partially or fully carried out by intermediaries. Click here to read more 

Diving deeper: What might explain these results?

The results showing a strong relationship between last mile delivery and service delivery cost per farmer are not overly surprising. We see last mile delivery influencing cost through:

  1. Lower operating costs – Intermediated approaches to last mile delivery reduce staff and transport costs by allowing a business to rely on intermediaries to handle a portion of the direct interactions with farmers.
  2. Fewer capital expenditures – Companies working with intermediaries can benefit from the use of intermediaries’ capital assets for last mile delivery rather than having to invest in their own assets
  3. Scale and business model maturity – Companies that leverage intermediaries for last mile delivery are often able to reach higher numbers of farmers and subsequently benefit from economies of scale. These companies typically have more mature business models enabling them to outsource with lower risk of compromising quality of service provision
  4. Farming models – Higher costs for companies relying solely on their own staff are partly driven by the large proportion that are engaging with farmers organized in non-scattered farming models: non-scattered models are typically more expensive than scattered models

Implications – what does this mean for you?

Based on our findings to date on this topic, we see the following implications for different audiences:

Reflections on data limitations and further research

The FarmFit Insights Hub is an interactive resource 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

Although we believe our analyses and insights offer a solid set of insights that can be used to inform decision-making, there is one major caveat that we wish to be open about:

Our quantitative analyses are only capturing the presence of last mile delivery options

Next steps that we have planned to update these findings in the near future

Investigate more closely the relationship between context and last mile delivery

Suggestions for additional research by our peers and partners

Research on how policy and regulations influence the incentive to work with agent networks

Further Reading & References