Service Delivery Cost per Farmer vs Last Mile Delivery
Key Messages
Companies that leverage intermediaries such as agents, lead farmers and farmer groups, to
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
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
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:
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.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 assetsScale 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 provisionFarming 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:
- If you are considering scaling up the number of farmers that you work with, consider what the best option is for reaching those farmers: whether that is with your own staff, with intermediaries or a combination of the two. Assess the implications of each of these options for both your own business performance (both in terms of service delivery cost and direct cost recovery), and for the value delivered to farmers.
- If you are only working with your own staff:
- Consider whether working with local intermediaries, such as agents, can help improve the reach of your services in a cost-efficient manner, without compromising farmer value. This is particularly the case if you are working with farmers that are geographically dispersed. Take a look at this Commission-based agent innovation guide to view key steps you can take to establish an agent network.
- You may be providing services to farmer organizations. Reflect on whether these farmer groups have the capacity to play a role in last mile delivery. It may be the case that some, but not all, farmer organizations are able to play a role in last mile delivery. Take a look at this Farmer Organization Segmentation innovation guide to discover how you can build a model where more capable farmer organizations can share the burden of last mile delivery.
- If you are already working with intermediaries:
- Evaluate whether you are setting the right level of commission to a level that is competitive enough to incentivize performance. Also consider whether your intermediaries are sufficiently resourced and trained, to deliver value to farmers while driving operational efficiencies for your business. Consider the impact of equipping agents with digital tools to streamline service delivery.
- If possible, within the regulatory framework you are operating in, consider whether sharing an agent network with other service providers is an attractive option to share cost and risk and increase agent incentives.
- If working with agents, check out this Commission-based agent innovation guide to see more tips on how to optimize your model. If working with a range of farmer organizations is appealing, have a look at this Farmer Organization Segmentation & Graduation guide.
- Explore which other companies and organizations would have an interest
in building / improving farmer organizations, farmer groups and/or agents for last mile delivery. This could offer you the opportunity to share costs.
- Support your portfolio of investees by identifying potential improvements to last mile delivery strategies to mitigate key risks and drive operational efficiencies in their supply chain. For example, evaluate what accountability mechanisms are in place to reduce the chance of theft and fraud, or whether farmer value is being maximized.
- If your investees are looking to scale, support them in exploring how intermediated service delivery can help reach more farmers and do so more efficiently, Together, explore and manage/mitigate potential trade-offs to direct cost recovery and value creation.
- To avoid duplication of efforts, coordinate investment and support towards intermediaries so that they can be more effective. Well-resourced intermediaries can become dependable partners for business and ultimately reduce the cost of doing business with smallholder farmers.
- Support building a conducive enabling environment for intermediaries to flourish. Work with governments and regulators to build a common understanding on enabling and regulatory requirements, including customer protection, and advocate for their prioritization. Consider investments in technologies such as data platforms that allow companies to identify, compare and recruit intermediaries. For instance, comparable datasets on farmer organizations or registers of individual agents.
- Evaluate how agent models can provide alternative forms of employment in agriculture and provide space for rural entrepreneurship. In many cases, agent models have been able to create jobs for young people who may not have sufficient farmland to cultivate crops and also appreciate the flexibility offered by such roles.
- Assess the legal framework to determine whether relationships between intermediaries and companies protect their respective rights.
- Better coordinate public extension services with last mile delivery networks set up by companies or support organizations. Improved coordination with last mile delivery networks could reduce costs for both the public and the private sector and improve the quality of service delivery to farmers.
- Invest in the supporting infrastructure that last mile delivery networks require. Ensure you consider rural roads and storage facilities, in addition to digital infrastructure, for example.
- Support the professionalization of farmer organizations. Formal and capable farmer organizations can become more dependable partners for companies, playing a role in last mile delivery and ultimately becoming and engine of local economic growth.
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:
Next steps that we have planned to update these findings in the near future
Suggestions for additional research by our peers and partners
Page content
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
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