Digitizing Agricultural Payments: Uganda's Coffee Value Chain
This paper tells the story of how the United Nations Mobile Money for the Poor (MM4P) team in Uganda worked with exporter Kyagalanyi Coffee Limited (KCL) to digitize one of the country’s most important cash crops: coffee. In addition to addressing the complex dynamics of digitizing agricultural value chains, the paper illustrates how seven organizations from different sectors embarked on a three-year journey to digitize Uganda’s coffee value chain. The solutions they built and lessons they learned have fueled the digitization of several other agricultural value chains in Uganda—particularly, tea, dairy, and maize. Their work helped to build a foundation that enables greater financial inclusion of smallholder farmers by increasing financial participation of farmers, traders, off-takers, and exporters in the formal economy.
For implementers and donors looking at agricultural value chain digitization, the KCL story provides insights into the operational challenges of digitizing a coffee value chain, especially in rural areas. It also helps implementers assess whether their market or value chain is ready for digitization, and if not, whether the lessons learned by UNCDF and KCL can help them reach this point.
The paper addresses several questions, including:
Why digitize? Will it bring greater financial inclusion for the poor? For KCL, agricultural value chain digitization was about future cost savings as it ramped up coffee export, financial accountability, transparency, and farmer and trader loyalty. Agricultural value chain digitization has the potential to build tighter connections between farmers and exporters, allowing farmers to gain agricultural value chain financing that can increase farm yield—which benefits both buyers and farmers.
Once basic infrastructure elements, such as a network tower, a cash-in/cash-out mobile money agent network, and a customer acquisition sales team were in place, MTN Uganda registered 20,311 new customers (farmers and nonfarmers) in just one coffee cycle (eight months across two test areas). Fifty-three percent of these customers became 90-day active mobile money customers in a country where only 37 percent of registered mobile money users on average are active on a 90-day basis.
What level of market readiness is needed to make this happen? Technology is often the easiest part of payment digitization. Section VII of this paper helps readers assess whether their market is ready for uptake and use of digital payments. Payment adoption depends on criteria such as quality network and cash-in/cash-out infrastructure, product value proposition, product pricing and affordability, and user interface and user experience.
How should a digitization solution be implemented? In this case, each coffee cycle revealed challenges that required new partners and innovative solutions. MTN’s key staff members were not convinced that they should invest in the project; internal calculations projected that MTN would lose money if it put a tower in the pilot area. As a test, and perhaps as a compromise, instead of building the tower, MTN erected a mobile base station that would serve as a temporary tower during the first coffee cycle. The temporary tower over-performed within the first three months and became profitable. In response, MTN built a permanent tower in time for the second coffee cycle.
This use case illustrates the efforts of UNCDF, KCL, and their partners to digitize one of Uganda’s coffee value chains. However, not all agriculture value chains are the same. For example, UNCDF discovered that the value chain for tea is very different from that of coffee. Coffee farmers typically own the land and often live on it. On the other hand, owners of tea plantations hire tea pickers, who often are migrant laborers who are interested in using digital financial services to remit money home securely and safely.