As discussed in the first blog in this series, there are several reasons why an agricultural produce buyer would want to transition to digital payments. They could lower the cost and risk of moving large amounts of cash over long distance, reducing exposure to theft and fraud. Digitization also produces an electronic record which allows for more transparency and accountability. Using mobile money also allows for farmers to receive their payment quickly. Finally, some buyers may view offering mobile money, which is increasingly linked to other financial products and services such as the M-Shwari loan product, as a method of fortifying the relationship with their farmers. In environments where buying companies abound and the differential in price offered by each is mostly negligible, buyers will be keen to employ various methods to increase farmer loyalty.
However, actually transitioning to digital payments is challenging. Most companies don’t want to be the first in a sector to try something new and potentially unpopular. Dominant buyers are best positioned to take this risk. Indeed, the view expressed during an interview with Jeremy Dufour, a manager at Olam Tanzania (an agro-processor with 35,000 coffee farmers in Tanzania), was that “[one] has to follow what the average buyer does. And if you want to change to mobile money, make sure that the largest buyers make the switch FIRST.” Despite being a large agro-processor, Olam claims to be outside of the 3 largest coffee buyers in the country. According to them, this limits their ability to shake things up too much. They maintain that market dominance within a crop is the sine qua non for driving large scale mobile money uptake by those farmers.
One buyer that does have the benefit of market dominance and corroborates this premise is Tanga Fresh. Although the company has only 6,000 farmers, it is the largest dairy processor in Tanzania. Benefiting from this market position, Tanga Fresh has over the past year been able to convert 3,500 of its farmers from receiving payment in cash to M-Pesa. More importantly, this has been executed without any erosion in loyalty from farmers or disruption to operations. And what’s more, Tanga Fresh has been able to achieve this without rolling out a major sensitization campaign, relying instead on success stories spreading by word of mouth to drive uptake (Source: Tanga Fresh interview, April 2015).
One thing that buyers can do to attract farmers to mobile money is to bundle digital payments with other value added services or perks. Vodacom, for example, has developed a platform for information sharing and digital payments which allows the buyer to share prices, good agricultural practices and other information. Farmers realize that receipt of this valuable guidance is contingent on them selling to that particular buyer. And the exposure to mobile money, as part of the options offered by the buyer, raises awareness as a first step towards uptake. NWK Agri-services, a large cotton buyer in Zambia, has introduced free life and weather insurance to farmers who meet certain requirements. Farmers must, however, accept the large-scale shift that NKW is making towards mobile payments. The company is paying 12,000 farmers with mobile money in 2015 and plans to expand this to all of its 20,000 farmers by 2018. NWK’s aggressive shift to digital payments may have been catalyzed by drastic circumstances (one of their paymasters was murdered in 2013) but all agro-processors will appreciate the manner in which mobile money minimizes their exposure to risk and losses.
Another thing that agriculture buyers can do to drive acceptance of mobile money payments is to absorb the cost of cashing out on behalf of the farmer. This is happening on a small scale in Kenya and contributing to rapid uptake for those processors that take this approach. Farmers who have benefited from this have proven more amenable to digital payments because they can focus less on the cost and more on the additional benefits of going cashless. There is evidence that these agriculture buyers are even encouraging other actors along their value chain to trial this approach so as to lock in farmers along the entire chain.
Ultimately, for farmers to accept digital payments at scale, someone will need to invest significant resources to sensitize, register and train them. Given the low levels of literacy and numeracy that generally characterizes this remote demographic, this will require a lot of resources. Is it the role of the buyers or the MNOs to invest resources to create a conducive environment for digitizing agriculture value chains? As one example of this quandary: Kawakom, a coffee buyer in Western Uganda with over 6000 farmers, lamented that the mobile money providers in their area were not moving fast enough to sign up farmers, even though the company is eager to switch from cash. Kawakom also added that the providers were unwilling to provide resources to Kawakom to facilitate them playing this role as part of their normal duties. Kawakom clearly recognized that there were synergies going unrealized due to these resource challenges.
The question of who has the greatest incentive to invest in sensitization and acquisition of farmers to mobile money use is one which remains to be settled. Ultimately, however, buyers and providers should work closely together to develop mutually beneficial approaches that encourage registration and active use. Both providers and processors have a lot to gain from a partnership in this area. Though the benefits are clear to MNOs, buyers will need to be truly sensitized of their critical role in this equation and encouraged to be pioneers as it will reward them in the long run.