Unlocking demand for agricultural innovation: a response to Acumen and Bain’s Growing Prosperity report

 

Elicia Carmichael and Root Capital

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This series of blogs

Growing Prosperity: Developing Repeatable Models® to Scale the Adoption of Agricultural Innovations, the new report by Acumen and Bain & Company, produced with the support of the Bill & Melinda Gates Foundation, is intended to help entrepreneurial companies, and others, get smart about scale and unlock the full potential of smallholder farmers.

The report’s insights and findings – which are the result of interviews with more than 300 smallholder farmers, sector experts and pioneer firm management – demonstrate the transformative power of providing smallholder farmers with the right access to the right innovations at the right time. The report proposes new approaches that address why very few pioneer firms have been able to achieve the scale needed to give smallholder farmers access to those agricultural products and services that have the potential to increase their yields and pull them out of poverty.

In a series of blogs, to be published over the next week, the views of investors, capacity builders and others on the opportunities outlined in the report will be presented starting with Elicia Carmichael’s below and continuing on Monday with a response from Nilotpal Pathak at Intellecap.

Last month, Acumen, in conjunction with Bain & Company and with support from the Bill and Melinda Gates Foundation, published a report on how to drive more widespread adoption of agricultural innovations. Refreshingly practical, the Growing Prosperity: Developing Repeatable Models® to Scale the Adoption of Agricultural Innovations report examines what it takes for pioneering firms to scale the adoption of innovative products and achieve sustainable, profitable growth.

As an impact-oriented agricultural lending institution, Root Capital has supported the growth of more than 530 agricultural businesses by providing over $750 million in debt capital alongside a range of advisory services, from providing financial management training to connecting clients to agronomic experts. We approached this study thinking that we would see linkages to our clients: small and growing agricultural businesses that aggregate thousands of smallholder farmers and connect them to high-value markets. And while that was certainly true, we also found its insights deeply relevant to our own experience bringing previously unavailable products and services to developing markets.

By introducing Acumen and Bain’s Four A’s framework – awareness, advantage, affordability and access – through vibrant and relatable examples, the report provides practitioners with a valuable model to help condition the market and achieve more widespread adoption of agricultural innovations. Where the report really excels is in illustrating that even when product benefits are understood – and when awareness, affordability and access challenges are also addressed – it remains difficult for pioneer firms to predict producer assessments of advantage with accuracy. The reasons for this are varied and complex, but they are driven by individual risk profiles and are often influenced by the residual effects of past market-distorting development projects.

In short: what a firm defines as an advantage worthy of a financial investment may not align with the ideas and experiences of farmers themselves.

A case from our own experience that illustrates the difficulty of converting interest into demand occurred on a visit to a group of Central American smallholder vegetable producers interested in acquiring drip irrigation. We had all the actors in the room that a pioneer firm would want to see working together: producers, their buyer, a technical assistance provider, and Root Capital as the potential financier. We were all in full agreement on the productive benefits of installing drip irrigation systems and we all felt the urgency to implement the technology quickly after a year of unpredictable rains.

The producers, however, were concerned about taking on the financing necessary to make the investment; in this case, their urgency and understanding did not translate into immediate, actionable demand. When we inquired about their alternative funding sources, they informed us that they were waiting for a donation because they had seen similar projects funded by donations in the past and were concerned about the cost of financing. We asked how long they had been waiting, and they answered, half joking: about 20 years. The producers and our finance team calculated the missing revenue associated with waiting for such a donation and shook our heads together at the staggering loss. We agreed that this had been a very costly theoretical donation.

For these vegetable producers, the risk assessment on a financed farm investment looked different from that of a donated one, and that changed the relationship between advantage and affordability. As this example illustrates and the Growing Prosperity report validates nicely, early adoption of innovative technologies is often tentative and piecemeal for a complex array of reasons that developed markets simply don’t encounter.

After decades of under-investment in agriculture, the need for donated goods and services is still very real, and well-targeted subsidy is crucial for building capacity, demonstrating advantage and increasing affordability. At Root Capital, we continuously ask ourselves how our own credit policies, which are more flexible than those of conventional banks, could potentially create distortionary effects or unintended consequences in the market. This is a topic we feel responsible for monitoring carefully and studies like this one from Acumen and Bain provide us with additional context within which we (and other supporting actors) can understand our role.

The Growing Prosperity report provides a guiding framework to address the innovation demand conversion challenge and proposes appropriate roles for subsidy deployment and multi-sector development collaborations. It provides valuable strategies for pioneer firms to evaluate advantage from a producer point of view, taking into account the complex, and often broken, market systems in which they operate. We applaud our friends at Acumen and Bain & Company and fully expect to see increased adoption of innovation across rural communities wherever lessons from this report are applied.

Elicia Carmichael is director of business and product development at Root Capital. This blog was co-authored with Matt Foerster, communications officer at Root Capital.

Tagged in: Growing Prosperity: Developing Repeatable Models® to Scale the Adoption of Agricultural Innovations


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