Farmer Value Creation

What we mean by farmer value created

Among the key goals of smallholder-inclusive business models is to improve the livelihoods of smallholder farmers, their households and their communities. Furthermore, for any actors in agricultural markets – particularly donors or impact-first investors and enterprises – farmer value created is arguably the most important indicator in the FarmFit Insights Hub, as it looks at how much farmer incomes change as a result of the goods and services received through a smallholder-inclusive business model. This gives an idea of the value proposition a business model is able to provide to farmers, which is crucial to putting the other two indicators in the Insights Hub – Service Delivery Cost and Direct Cost Recovery – into perspective. For the former, it allows an analysis of how much value is created at the farm level for each dollar invested by a company, which in turn can inform what is an appropriate rate the company can charge farmers for the goods and services provided.

Farmer value created looks at the average annual difference in net income between farmers that have received goods and services from a particular business and those that have not. The change in net income is expressed in absolute USD.

Want to know more about how we define farmer value creation? Click here.

Alternative approaches that we considered

Our data on over 100 business models shows a huge spread in farmer value created results. Each dot in the below graph represents the farmer value created for each of the business model analyses that we have conducted till date. Figures range from a minimum of -$1,107 to a maximum of $4,953, with mean and median values of $910 and $615, respectively.

Among the many benefits of studying this indicator, there are two we want to highlight:

First, one, if not the, most important component of smallholder-inclusive business models is whether or not these models provide value for farmers. No analysis can be complete without including an indicator on this aspect.

Second, if we are to encourage more private sector investment, we need to think of interventions provided by the private sector as business models rather than development or CSR projects. And a core aspect of a commercially viable business model is a strong value proposition to the customer – in this case farmers. Put very simply, a commercially viable business model needs to create more value for its customer than what it invests. While there are other sources of value that should also be considered, we believe the most important is how much value a business model creates for its customers. In the long run, this can be crucial to helping the many models out there that do not recover any of their costs currently from service fees paid by farmers to gradually begin charging for farmer services. To do that, whatever is charged to farmers needs to be less than the value farmers get in return.

There are a range of more specific benefits to studying and understanding farmer value created that differ for different types of organizations:

Companies

Investors

Our insights on farmer value created

There is a huge spread in farmer value created for the 100+ models that we have analyzed, ranging from -$1,107 to $4,953. Till date, the Insights Hub has found the most interesting relationship between Farmer value created and the following other outcomes, contextual drivers and design drivers: