Agricultural e-Trade offers a key enabler for Africa

One of the many new ways of doing business that emerged during the Covid-19 lockdown was agricultural e-commerce, or online trading of agricultural commodities, fresh produce and even livestock.

Like most technological disruptors, this form of trade provides many benefits to buyers and sellers alike, but is it here to stay or will we return to business as usual when the social-distancing concerns brought about by the pandemic subside? Traditional agricultural value chains involve multiple intermediaries between farmers and consumers. Typically, farmers sell their produce at the farm gate to middlemen. Produce then passes through multiple intermediaries – each of which adds margins – before reaching the end customer. As a result, farmers receive only a small proportion of the price paid by the end consumer, who ultimately pays a higher price because of the margins added throughout the value chain. The simple business model of agricultural e-commerce has many advantages Agricultural e-commerce provides a simplified approach to trading, where buyer and seller are directly linked, streamlining the agricultural value chain and reducing inefficiencies in the distribution of farm produce. E-commerce platforms also offer several transport options, such as Farmgate, where the buyer pays; direct, where the seller pays; and consolidated, in which case both parties pay. These options mean that farmers can reduce their transport costs and increase profit margins. This is especially relevant with the recent fuel price increase, which is impacting all farmers – who recently lobbied government for subsidies. Emerging livestock farmers are especially battling, as their margins are usually lower. Advantages for sellers include improved cash flow, as producers are reimbursed within a few days instead of a matter of weeks or months; easier buyer access and management; the power associated with digital marketing and branding; and the reliability and insurance provided by a recognised ‘fintech’ platform. Specific benefits to buyers include lower prices and a transparent price discovery mechanism; reduced sourcing and logistics costs; increased product choice; and a streamlined procurement process. Importantly, this new model could also be instrumental in transforming the agricultural sector by eliminating or reducing barriers to entry, thus providing opportunities for semicommercial farmers. Allowing new entrants to bypass intermediaries leads to increased efficiency of the supply chain and generates fairer incomes and a transaction history for farmers. In fact, this sector of the market is already using agricultural e-commerce platforms, particularly online livestock auctions. Disadvantages can be easily overcome Agricultural e-commerce is considered a relatively low-risk, low-cost manner of accessing potential new markets, with quality assurance considered the highest inherent risk. However, some platforms have partnered with recognised food inspectors to verify the quality of produce on their site, and others include a quality dispute and mediation function. Any potential issues could also be solved if buyers visit the producer. A successful agricultural e-commerce eco-system requires certain enablers. The most obvious requirement is a reliable agri e-commerce platform, of which there are several in South Africa. Green consumerism is on the rise across all industries and the calls for sustainability and traceability within agriculture have never been stronger – e-trading can address this with a lower carbon footprint, less wastage and fresher and therefore healthier produce. Across sub-Saharan Africa, consumers spend about 50% of their disposable income on food. This is what consumers in the US were spending 150 years ago, compared to about 10% today. At the heart of the problem is an inefficient supply chain. Agricultural e-commerce is at an emerging stage of development on the African continent, but there is no doubt about the enormous commercial opportunity and potential social impact it could bring as it drives growth in the agricultural sector and improves the livelihoods and inclusion of all farmers.

By: Cobus de Bruyn, Nedbank Agriculture