Onyeka Akumah, the Co-Founder and Chief Executive Officer of Farmcrowdy; Yomi Jemibewon, Co-Founder of CardinalStone; Olu Wole, Deputy Director, Development Finance Department of the Central Bank of Nigeria, and Thomas Essel, Secretary General of African Rural and Agricultural Credit Association (AFRACA), based in Kenya, spoke at the recent Agricultural Summit hosted by Sterling Bank PLC in Abuja, on what small-holder farmers can do to make themselves commercially attractive for funding and investment.

Excerpts:

Onyeka Akumah of Farmcrowdy

PT: From your experience, how can small holder farmers make themselves attractive for funding and investment?

Akumah: We are Nigeria’s first Agric Digital Platform that connects small scale farmers to investors for the purpose of boosting food production in the country.

We have been in business for just two years and ten months. During the period, we have connected about 25,000 farmers.

Recently, we signed up 50,000 farmers from Oyo State to work with us. We have been able to use technology to reach everyday people. With Farmcrowdy application on the mobile device, one can watch what happens in the farms.

At the end of the cycle, a decent return on harvest is assured, while watching the farmers do the work on the farm. The produce is sold to different off-takers.

We supply 50 cows to the top eateries in the country on a daily basis, apart from Sundays. We have raised N2.5 million chickens to the eateries. We have cultivated 16,000 acres of farmland within the period.

FarmCrowdy has a large number of women farmers and youth who have been able to grow excitement among young people to embrace agriculture as business.

Gradually, everyone is paying attention to how they apply technology to the different parts of the value chain to improve the farming process.

When we started, our focus was on small scale farmers alone. Gradually, we are stepping up.

Coming to your question, if a farmer or SME (small, medium enterprise) is interested in funding or investment, I think our experience will help bring them up in a commercially viable position and allow them to get small scale funding that allows them improve their processes, get the training they need and sell to the right market.

When we first started, I did not even have a background in agriculture, although we had people on the team who were experts and had many years’ experience in agriculture.

We started with small scale farmers. We said we were going to work one to one with each farmer. That was a big mistake.

We started with these farmers by building out models that were focused on individual farmers.

In the first couple of months, it was a lot of work coordinating 500 farmers scattered all over the place.

We were compelled to change the model. Rather than working with one to one, we started putting them into groups.

In doing that, we discovered the advantages of working with cooperatives against working with the individual farmers.

As we were deploying our efforts and systems into working with these farmers, gradually we stopped working with individual farmers, and started working with cooperatives and groups.

One of the easiest things that the individual farmer can do is to plug themselves into those systems of cooperatives and groups, to allow themselves reduced exposure to deal with the risks at individual levels and do so collectively in a group. We started focusing on signing up cooperatives in different locations.

How it works is this: If we get a buyer that says he wants 2,000 metric tons of maize or corn for a certain purpose, we take that order and design a model to look for farmers within different points across the country that we can put into the group to produce maize or corn that is required by the buyer.

For instance, we did rice farming in Edo with individual farmers. The best we could do was 25 hectares. When we moved into the cooperative model in Kwara State, we were able to work with 5,000 farmers on 2,000 hectares.

We had more trouble working with 25 hectares than we had working with 2000 hectares.

In Pategi, Kwara State, we had almost three communities coming together. They brought over 5,000 farmers to work with us.

We were able to concentrate all our resources to the place. It improved the quality control we were able to put in place.

Our technical experts were able to effectively coordinate their efforts in one community as against going to different touch points.

It reduced our cost of production. At the end of the day, we were getting value at scale, which is what everyone wants.

With those farmer, we were now producing much more than before. We still refer to them as small scale farmers who are in one group or one unit.

That first year we generated about $1 million to do some work with those farmers. Today, that has gone up to $14 million within this short period.

We are excited about working with all the farmers. This is the approach we intend to take going forward. Working with the cooperatives helped us put the farmers at check. The banks like working with cooperatives than individuals.

Rather than dealing with individual farmer to pay back a loan, the cooperative of farmers will be better, because if one farmer misbehaves, other members will ensure he/she does not cause the group to be blacklisted.

So, they will put themselves in check. That started giving us better returns for our investment.

In addition, many entrepreneurs in African get easily distracted with too many ideas at the same time.

This is one of the biggest issues about scaling. One started up with one thing and all of a sudden one ends up with ten things. And the investor who wanted to invest get confused. He does not know whether you are in logistics, or a producer or marketer.

Even the people who want help raise the money that will allow you to scale will be having the same problem.

The entrepreneur needs to find the right model before scaling. One needs to find what works for him and streamline his operations before scaling.

The problem with people is that they take on too much; they spread themselves too thin, and are not experts at anything, but experts at everything.

To every entrepreneur, if you want to attract funding and investment, get into a cooperative; focus on one thing at a time; learn it end-to-end. Be the expert that you want. Once you have designed your model, you scale.

Yomi Jemibewon of Cardinalstone

PT: How do you get small holder farmers into the medium scale enterprises system?

Yomi: At Cardinalstone, we bring together financial and non-financial institutions that support agriculture in Africa.

When we incubated our company, we had a big vision. We looked at cassava. Although Nigeria is the leading producer of cassava in the world, we still import processed cassava substitutes.

We knew that there were a few starch and flour producing companies across Nigeria. But, we had a supply issue.

Although we had a lot of cassava farmers. Because we eat cassava, there is a strong competing market for processed cassava. And cassava was not being grown on a commercial structure. Our yields were low.

It was clear that for us to fix the processing, we had to go back and catalyse and get more professionalised on the farming aspect.

What happens is that cassava pricing goes through cycles. So, when prices go high, the out-growers dump you. That was the history.

So, we decided to review our strategy and start from the farm. We went and acquired largescale farmland and started doing our own farming.

We acquired 13,000 hectares of land. We started farming, first, on 50,000 acres; 100,000 and later 200,000. When we ordered our plant, we started testing out-grower structures. Today, we have over a thousand out-growers.

Now, our hope will be that over time more cassava will actually come from the out-growers than from our farm.

We recognise one thing. We needed to establish ourselves as a credible off-taker. Second, we needed to do something to show the farmer that we have options. So, we said, let’s honour our commitment to ourselves. Don’t take us for granted when the prices go high in the market.

One of the biggest impediments to lending by the banks is the ecosystem. It is not any individual player’s fault. The whole ecosystem has to evolve together for things to work.

There is need to be off-takers to make it credible for it to work. One cannot fix one aspect of the value chain and expect it to work.

If the other aspects are broken, money will not return. If money will not return, more money will not be given.

So, what is happening is that there is an evolution. It is just that it is taking its time.

There is a mindset that each farmer has to have. Each farmer has to change from the mindset of saying to us; that not only the farmer’s out-grower community alone, but everybody in the supply chain that gives money or relies on you.

If a farmer gets a loan and goes to marry a new wife and cannot return the money tomorrow, he would have affected other people in his group.

So, that long term vision of the small holder farmer is very important. To be able to say: it is us not me, I will give up less value for myself.

To allow this group grow, I will not take the higher price when the price go high, to honour my contract, because I am thinking long term.

PT: Have there been any challenges in scaling up your company, in terms of finding investors?

Yomi: That one has been given everything, in terms of a structure in place, capital (not debt or equity) is not a problem. But, sometime what happens is that the supply or value chain is the limiting factor.

For instance, our fist investment was in operations. But, we discovered that at the scale at which we invested, we could not find enough truckers to take our produce to the market. So, we had to invest in trucks.

What I am saying is that the biggest impediment to scaling is typically your thinking first of all and our forward approach to researching into the bottlenecks we are going to face next.

When we get to a certain scale and want to get the next scale, suppliers that served us today might not be sufficient for us at that new scale. The distributors might not be sufficient.

The capital we might require at that next stage might require a different level of institutionalisation and structure.

The biggest thing that limits capital is mindset and readiness of our structure to accept that institutional capital, because any time one wants to go to the next level, there are structures one is going to require, and one needs to prepare one’s system to be able to accept that.

So, one will have to think about what and what bottlenecks one is likely to face and work towards (resolving) that.

Olu Wole of the CBN

PT: How does the collateral registry function to ensure a steady flow of financing to the small holder farmers?

Wole: At the CBN, we develop financing of the real sector to promote inclusive growth in agriculture, SME, micro-finance, and manufacturing.

We have 27 intervention programmes, with 13 in agriculture.

We promote the development of financial infrastructure, like the National Collateral Registry for the moveable collateral, which has helped to create more access to finance. We have been collaborating with the different developmental agencies.

We have developed the value chain to cater for the small-holder, largescale, processor using the different channels of financing.

The way the collateral registry works with the small holder farmers is, first, to do a cross-guarantee within members of the group.

Again, to ensure that their produce is worth being taken as collateral. That is if we have some financial infrastructure, like the bank verification number (BVN).

It makes it important for one to ensure that the farmer pays back his loan, because if one does not pay back one’s loan through one’s BVN, you will be blacklisted, and you cannot enjoy any loan again.

Under the CBN small-holder scheme, there is the Anchor Borrower Programme. The small holder farmers come together as a cooperative. They must open an account in the name of the cooperative. They must have their BVN.

Once it is validated, the anchor, who will be the off-taker, will write for expression of interest for the process to start.

There will be a town hall meeting for all the stakeholders to come together to discuss about inputs, provision of extension services, off-take price, monitoring and insurance, in case of any loss.

If it involves livestock, the cattle is tagged, so that it could be monitored. If one is involved in the tractor hiring service, then there will be a tracker to monitor movement of all the equipment.

In a nutshell, it is a cycle, and the money will always come back. So, if you satisfy all the condition, one will be attractive to investors and financiers.

Thomas Essel, Secretary General of AFRACA

PT: How do we ensure regional integration of small-holder farmers in Africa?

Thomas: It is clear Central Banks, which have the regulatory responsibility of monitoring what is happening, are becoming more stringent in their supervision.

That is also part of why banks also find it a little difficult lending to sectors like agriculture, because the banks have to meet the prudential guidelines of the Central Bank, otherwise they will not be allowed to operate.

So, the challenge still remains with the farmers. But, if the farmers’ organisations, banks or micro-finance institutions want to have access to external funding, then they need to put their houses in order.

Funders will want to see a clear business model in place. One must be sure of what one is doing.

The farmer must show some strategy that one is moving from one point to another in a bid to realise set objectives. This must be in the farmer’s plan.

The money the banks are bringing is with the understanding that they will take it back at some point.

So, the farmer has a business model that is clear and has a strategy, then he needs also to convince. Brand the little thing one is doing, no matter how small.

The bank will also look at the profitability of the business to grant loans. Is the business a going concern? Can it lead to the repayment of the funding the farmer wants to bring in?

They also want to look at the experience that the farmer has built over the years. Is it something they can hang on to and have faith in to make available their funds to you?

Above all, one needs to have a structured system in place, even within the organisation, step-by-step on the ways things are done, or within the value chain the farmer fixes himself.

If there is a structure that let’s your bank to know that if you produce, there is an off-taker; when the off-taker takes, there is a processor, up to commodity market. So, these are very important.

Also, there is an attitude that the farmers have, which they must change. They must learn to imbibe the attitude of saying “this is ours”.

Businesses today need funding. One is not getting funding because there are petty things one is not doing.

The farmers need to come together to be able to leverage certain funding, otherwise they will continue to play themselves out of the investment market.

So, the groups and cooperatives are important if farmers want to be attractive for funding.

If there are areas we can merge the businesses to grow at scale, I will recommend it to be able to access finance for the business. If the business is growing at scale, it can access more funding than going alone.