The global population would spike to about nine billion by 2050 so there is an increasing need to increase food productivity. Investment in agriculture is necessary to feed this ballooning population. The global demand for food will increase by 70 per cent by 2050, and at least $80 billion in annual investments will be needed to meet this demand, most of which needs to come from the private sector.

Agriculture plays a huge role in the lives of Africans and their economies, but the sector lacks access to finance and investment. The industry is projected to be a $1 trillion industry by 2030 but receives less than three per cent of banking credit. The consequence is that Africa lags in agricultural productivity compared to the rest of the world. Farmers on the continent can’t improve their productivity and increase their income. They can’t afford the necessary infrastructure needed to maximize productivity and stay resilient to odds like climate change.

Seeking innovative ways to fill the investment void and generate agribusiness opportunities for young African entrepreneurs, Heifer International announced that it is investing $1 million in the tractor booking platform, Hello Tractor to provide loans for tractor purchases. The tractor financing model, Pay-As-You-Go (PAYG), aimed at increasing agricultural productivity in Nigeria has enabled tractor purchases in the states of Nasarawa, Abuja, and Enugu. “We developed the PAYG program to make tractor ownership—and the reliable income these machines can bring—a reality for entrepreneurs who find it impossible to get credit through normal channels,” said Jehiel Oliver, founder, and CEO of Hello Tractor. 

Globally, there are roughly 200 tractors per 100 square kilometres of agricultural lands, but in sub-Saharan Africa, there are only about 27. This is a pointer that agriculture in Africa is heavily under mechanized. Remarkably, Hello Tractor is one of many new agri-tech companies emerging across the continent that are finding business opportunities in tackling this and other farming challenges. 

According to Adesuwa Ifedi, Senior Vice President of Africa Programs at Heifer International, “there is a sense of urgency to bridge the technological gap between smallholder farmers and the rest of the world. Farmers play a strategic role in feeding the continent and reversing our import dependency on food. Unfortunately, farmers still use primitive methods to cultivate the land, and this takes a long time and reduces productivity. With tractorization, they could produce five times more. That for us at Heifer, is a huge gap we want to fill, not just in reducing the labour-intensive nature of the agriculture that is preventing young people from seeing it as an attractive career but also in helping to increase the income of the farmer and food productivity” 

Oliver feels the immediate early success and impact of the first investment by Heifer spurred the interest in re-investment. According to him, the short term effect of the new investment would be to create 200 new tractor owners to service 250 thousand acres of smallholder land owned by over a hundred thousand farmers and the provision of 3,500 direct jobs. In the long term, he expects these to catalyze more investment to grow the size of agricultural lending and to fill the mechanization gap in Nigeria and beyond. 

Oliver said partnering with Heifer enabled Hello Tractor to extend innovative financing to people previously considered unbankable while also increasing access to technology that has the potential to improve the incomes of millions of smallholder farmers across Africa. 

The PAYG finance model

The PAYG model is a credit and risk management tool to serve the underbanked entrepreneurs in Nigeria who traditionally lack access to capital. This flexible financing helps tractor dealers have a diversified income stream and make idle machines available to smallholder farmers. Aside from helping existing tractor owners expand their business, PAYG introduces an unconventional way for new players (tractor owners) to come into the market and change how tractor ownership is imagined and conceived.

According to Ifedi, the most viable tractor owner is likely to be the one that is closest to the farmer. He could be a booking agent who can’t afford to buy a tractor and doesn’t have the regular credit track records that will enable him to be financed for one. This innovative financing model provides that if the person has booked farmers over time, his credit rating would be based on his customer database. “Once I can look at your customer database, and I see you can generate the income to pay for your tractors, this eliminates traditional assessment for financing and introduces something new, dynamic and more friendly to farmers,” Ifedi explained. 

However, getting finance to purchase a tractor isn’t the only problem. Many tractor owners prefer to service large holder farms, which they deem commercially viable compared to smallholder farms. Since the latter constitute the greater percentage of farmers on the continent, they are disadvantaged. Hello tractor, with its innovative service ensures it is commercially viable for entrepreneurs to invest in a tractor to service smallholder farmers through a clustering process. By clustering smallholder farmers, a tractor owner can service a chain of smallholder farms around the same location at a go. 

Infusing IoT technology into their service, Hello tractor fits tractors with a GPS tracking device that allows tractor owners to track their equipment in real-time on their phones. Often referred to as Uber for tractors, the company offers software devices that allow farmers to book tractor services from local tractor owners via a mobile phone app. Hello Tractor is the largest marketplace for agricultural equipment in Africa, and it currently serves over 500,000 small farmers across Africa with over 3,000 tractors. 

Agricultural finance challenges

While private equity groups and large impact investors have provided more than $5 billion for tech startups in Africa, very little of that financing has gone to young agri-tech entrepreneurs. Per Disrupt Africa, of all tech sectors in Nigeria, the agri-tech ecosystem contributed the least investment, put at US$23,708,000 (2.6 per cent) of the total US$903,680,00 raised in 2021. The reason is that “Agriculture has never been an attractive business because of the risk attached. The more the risk, the less likely investors would want to invest. It has also not enjoyed the understanding from the financing community so that they can design financing instruments that fit the uniqueness of agriculture. Hence, Agtech companies would not be able to see the same investment as other innovators in other sectors. To drive financing to agriculture, we have to de-risk the sector,” Ifedi explained.

Heifer is doing this by championing insurance for farmers with its Area Yield Index Insurance (AYII). The AYII scheme ensures farmers get significant returns if insured farmland does not produce the projected quantity of crops. In paying the premium for this insurance, Heifer finances farmers before harvest and has the farmers pay back at harvest. Ifedi noted that Heifer International is also demonstrating the potential of agri-tech investments to generate jobs for the 10-12 million youths in an economy which produces only three million formal jobs annually, according to the African Development Bank (AfDB). 

In 2021, Heifer International created the AYuTe Africa Challenge, which awards cash grants annually to the most promising young agri-tech innovators across Africa. The challenge supports Heifer’s goal of helping more than six million African farmers earn a sustainable living income by 2030. The inaugural AYuTe Africa Challenge awarded $1.5 million to two companies, one of which was Hello Tractor. The award enabled Hello Tractor to finance 17 tractors for 17 entrepreneurs in three countries. Heifer’s new investments for the company’s PAYG product will give more entrepreneurs and smallholder farmers access to tractor services at an affordable rate. That will boost farm productivity, employment, food security and farmer livelihoods. 

Progressively, Heifer is looking into sectors of the agricultural sector in Africa where innovation is already happening and wants to augment it. “We are not standing back as experts and saying these are the five areas we think Africa needs to invest in. We are learning and listening to African innovators on the ground and what they are doing for smallholder farmers. We look at those that have the potential to scale but have some challenges in financing and innovation,” Ifedi said.  

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