NB: This is my personal analysis of contributions to question three from the forum. This post is the third in series of six, analyzing each of the six forum questions that were discussed.
Following the first two discussions on partnerships and scale, the third discussion was based on justifying a business case for investing in mobile agricultural services for rural poor farmers and the motivations for the service providers.
Question 3: Is there a business case for serving poor rural smallholders and what are the motivations for the Mobile Network Operators (MNOs) and Agricultural Partners (APs)?
Understanding the term “Business Case” for the Discussion!
As the discussion begun, a question was asked to clarify the term “business case.” In response, the facilitators pointed out that “Business Case” for the purpose of the discussion refers to “service models that meet specific needs (that of the customer/user) and are ultimately financially viable.”
Justifying a business case for serving poor rural smallholders with mobile agricultural services that meet their needs and at the same time financially viable, may involve identifying factors that currently contribute to their information deficit or information gap. It also involves proving that investment of capital and other resources are justifiable over time such that the benefits, costs and risks balance out to create this commercially viable service for both users (farmers), and service providers (MNOs and APs).
A Business Case for Serving Poor Rural Smallholders with Mobile Agricultural Services
The first contribution to the question from one of the experts used the case of Indian smallholder farmers as a typical example in the developing world, which shows the current deplorable state of smallholder agriculture. Some of the reasons due to low agricultural productivity include dearth of physical infrastructure, deficiency in the availability of agricultural inputs and lack of, or uneven access to information. Small and marginal farmers are often unable to gain access to reliable information that could help them increase their farm yield and get better price for their crops.
In earning their livelihood, small farmers face innumerable hurdles such as small acreages with low yields and low profit margins; less access to irrigation; susceptible to problems like crop diseases; scattered geographically; difficulty in pulling resources to accessing the latest information on growing techniques and the market; lacking access to credit to buy inputs; borrowing at exorbitant interest rates; forced to buy inputs at high costs and of poor quality from the money lenders’ shops; exposed to high risk; not being aware of agricultural insurance; facing shortage and high cost of labor; lacking facilities to store their crops; disorganized market; lack of efficient procurement system for their crops; and being compelled to sell their crops to brokers.
This array of problems and challenges facing smallholder farmers in the developing world, justifies serving them with mobile agricultural services. Access to mobile agricultural services is expected to increase the farmers access to credit, information on farming techniques, procurement of inputs as well as marketing their goods directly to customers or commodity exchanges.
Business Case for Service Providers
Looking at the specific needs of the rural poor farmers (users) who are at the bottom of the pyramid in the developing world, providing affordable and financially viable mobile services could be challenging. So the issue was whether it was the duty of the private sector or the national governments to meet these needs.
An interesting argument from one of the discussants was that serving rural poor and rural smallholders often is the duty of national governments to come up with certain schemes and programs. However, governments have limited resources and priorities, and it is a challenge to address the information needs, when other basic social needs are yet to be fulfilled. Sharing experiences from Bangladesh, the contributor stated that governments today are looking at alternate models like Build, Own Operate (BOO), Build, Own, Operate, Transfer (BOOT), Private Public Partnership (PPP), and outsourcing of non sovereign functions.
The partnership eco-system is also another dimension that needs to be looked into and nurtured and this is where government and MNOs can work together to deliver value to customers in rural areas. The bottom line is that there is a compelling business case today for MNOs and governments to work together to jump start the process and explore alternative business models that are sustainable in the long run.
Motivations for MNOs to Serve Rural Poor Farmers
The general view from the discussion also shows that, making a business case for MNOs is about whether the service is serving the rural poor to increase market share and revenues in the short or longer run. The MNOs, according to the discussion also may have two distinctly different views on how serving the rural poor will increase their market share. These are:
i) Provision of mobile agricultural services as a stand-alone business that should generate revenue for the company through direct revenue from charging per customer,
ii) Provision of services intended to boost revenue in the company’s core business or through indirect revenue benefits from acquiring and/or keeping customers loyal and active on their network such as selling SIM cards, air time, ring tones or launching mobile money services, etc.
If MNO looks primarily from a financial viability alone, there would not be any business case in providing services to rural areas. But when the business case is looked from a holistic view, then the whole paradigm of business case changes. In this case the Mobile Network Operators (MNOs) are motivated to take up a number of m-services via mobile networks such as financial services like mobile payment and banking, financial literacy; health services including health education clinical care, health worker training; mobile-based learning and education; market information services including farmer information services and help-lines, market pricing information and transportation.
Another view is that, scale is critical for MNOs to reach commercial viability and currently there is a business case for only a few mobile solutions serving farmers as it is not easy to reach the right income-costs balance and achieve service self-sustainability. It was noted that the private service provider will not venture into rural areas, which do not have economy of scale.
Commercial Services Versus Social Enterprise
There was also another concern about the service provision in terms of commercial services (services targeted at making profit) and services developed by social enterprises or social entrepreneurs (where the focus is improving people lives in a way that does not rely on donor funding). The questioner believed that this is often the tension between APs focusing usually on the social impact, and the MNOs, focusing on the commercial aspect.
Motivation for AP’s (Social Enterprise)
Providing mobile agricultural services from social enterprise perspective was seen as complicated because it usually includes some measure of the public good. But this approach depends on the willingness of donors to help out with up-front investments. Defining and honing these investments is critical, said by an expert. The mFarmer Initiative is focusing on doing this with its Challenge Fund as well as its learning component and technical assistance.
Another concern with the social enterprise approach is the long-term financial sustainability of the service after a potential start-up funding runs out.
In summary, the discussion brought out the proof for a business case for MNOs and APs to partner and invest in mobile agricultural services that could serve rural poor farmers and increase their access to agricultural information. Such investments will invariably improve lives in these rural communities but it was also necessary to ensure the financial viability of such services for the MNOs and APs. It was noted that the commercial viability and social impact of such a service are often closely related. Ensuring that the farmer use the service and act on the information received, is a long-term driver of repeated usage.
NB: The Next in the series (4th) is “Reflections on mAg Services: Financial Sustainability” (Available on 12/31/2011)
The first and second posts are: