Agribusiness and Information Technologies in Developing Countries

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1 CONVERGENCE LETTER Agribusiness and Information Technologies in Developing Countries Mobiles are having a field day N 22 To get there. Together.

2 ABOUT BEARINGPOINT BearingPoint. Management & Technology Consultants. We deliver Business Consulting. We are an independent firm with European roots and a global reach. In today s world, we think that Expertise is not enough. Driven by a strong entrepreneurial mindset and desire to create long term partnerships, our 3,200 Consultants are committed to creating greater client value, from strategy through to implementation, delivering tangible results. As our clients trusted advisor for many years (60% of Eurostoxx 50 and major public organizations), we define where to go and how to get there To get there. Together. For more information: To add some of your contacts to this letter mailing list, please register them on our website, indicating they want to receive the Convergence Letter: Austria I Belgium I Denmark I Finland I France I Germany I Ireland I Italy I Netherlands I Norway I Portugal I Romania I Russia I Spain I Sweden I Switzerland I United Kingdom I Africa I North America I South America BearingPoint 2010

3 Agriculture has benefited from the Industrial Revolution through mechanisation and the use, sometimes to excess, of plant-protection products. But, in contrast to most other areas of the economy, it has not yet really benefited from the Digital Revolution initiated by Information and Communications Technologies (ICTs). And yet modern communication tools are in widespread use in the large Western farms: tractors equipped with computers, dedicated weather forecasts available on the Internet, consultation of farm prices on the financial markets, sales of harvests, health tracking of livestock using electronic chips and scans, etc. So the real revolution lies not so much in the innovative technology and services offered to farmers as in the potential for the spread of these technologies through an everyday tool that is now commonplace: the mobile phone. With more than 4.5 billion users worldwide (up from 2 billion in 2005), the spread of the mobile phone is unparalleled in terms of both numbers and speed. For farmers in developing countries, it is an opportunity to gain easy access to simple techniques and services. They can use them to improve their whole value chain, from installation to disposal of products, including supply and use. 1

4 Agribusiness and Information Technologies in developing countries Use: mobile phones irrigate fields by SMS Communication technologies, especially mobile phones, have an immediate role in agricultural production. First, by spreading knowledge. Farming is all about know-how, and the increase in contacts between farmers and availability of advice on the Internet are helping to propagate the most effective techniques. Mobile phone applications can also be more specific, as shown by the experiments in India with the Raita Mitra module. This box, connected to a water pump, works in a simple way: when there is enough electricity to operate the pump, it sends an SMS to the farmer. He then sends an SMS containing a basic code (e.g. ON) to start the pump and irrigate the field. All he has to do is send another SMS (e.g. OFF) to stop it. This innovation solves two major problems for famers in developing countries: availability of water and electricity. Based on this principle of remote control by mobile phone, many other applications can be devised to help farmers improve productivity, in Western countries too. The information sent by Raita Mitra type modules could also be expanded to include soil moisture content, measured by a sensor, and weather forecasts. In this way, the farmer only turns on the irrigation if his field really needs it. 2

5 Mobiles are having a field day Supply and disposal of products: mobile phones reduce the imbalance of information in the agricultural markets and help to improve management of stocks. The study by Abraham (2007) 1 showed the role of mobile phones in improving the efficiency of agricultural markets in India, more specifically on the fish market, where mobile phones enable fishermen to land their fish where the market price is highest. The fishermen surveyed ranked the mobile phone in third place among the technical advances that have assisted their development, after mechanisation and the improvement of transport infrastructure. More than 80% of fish wholesalers, fishmongers and hauliers also acknowledge that the mobile phone has helped to reduce price volatility and differentials between markets. The impact of mobile phones is also confirmed by the study by Aker (2008) 2. This study demonstrates that the use of the mobile phone enables cereal growers to increase their trading area and hence their reserve price. By reducing monopsonies 3, improved dissemination of information in Niger has triggered a movement that is smoothing prices over extensive geographical areas. 1 Reuben Abraham (2007), Mobile Phones and Economic Development: Evidence From the Fishing Industry in India. 2 Jenny C. Aker (2008), The Impact of Cell Phones on Grain Markets in Niger. 3 Monopsony: the reverse of a monopoly, i.e. several suppliers for a single buyer 3

6 Agribusiness and Information Technologies in developing countries Genuine on-line trading platforms are also developing, such as Esoko in Africa. It links growers and traders via Internet and SMS in some ten countries, essentially in West Africa (Benin, Burkina Faso, Cameroon, Ghana, Côte d Ivoire, etc.). Subscribers receive targeted SMS messages of the prices of the agricultural products they are interested in on various markets, weather information and in future the levels of distributors stocks. These platforms are revolutionising access to price information for rural populations and are helping to raise their incomes: they are taking advantage of new outlets and better prices forecasting. The supply of information is gradually expanding with the development of networks of physical offices dedicated to farmers. These offices aim to provide information and facilitate Internet access, such as the ABIPs in West Africa (Agri-Business Information Points, set up under the MISTOWA project, jointly financed by USAID) or the e- Choupals in India (set up by the Indian conglomerate ITC, which has diversified into the supply of agricultural commodities). Besides information on farm prices, faster information allows better management of the supply of the distribution chain of produce, especially stocks. Improved disposal of produce therefore has an impact both on farmers incomes and on the food security of the populations concerned. For instance, the food riots in Haiti in 2008 were caused not only by a rise in prices of agricultural produce, but also by poor distribution of the few food stocks that were still available. Similarly, dissemination of weather or health 4

7 Mobiles are having a field day information (animal epidemics, etc.) helps to anticipate risks of production shortages or surpluses, and to improve distribution of agricultural production. Thanks to the Internet and especially mobile phones, information technology is playing a crucial role in agricultural market facilitation. In practice it is raising farmers incomes and improving food security for the population. These results are obviously of interest to countries suffering from chronic food shortages. Securing incomes: remote micro-insurance to cover adverse weather conditions Another innovation made possible by mobile phone technology is remote micro-insurance, such as that offered under the Kilimo Salama programme. Introduced by the Syngenta Foundation, mobile operator Safaricom and African insurer UAP, in 2010 the operation enabled more than 9,000 farmers to insure their harvests against drought. Mobile technology is involved in all stages of the insurance process: taking out a policy, checking the payout threshold criteria and payment of the indemnity. When the policy is taken out, the suppliers scan the bar codes of the inputs (seed, fertilizer, plant-protection products, etc.) that the farmer buys. The insurance policy is then automatically registered by the insurer and confirmed by SMS to the farmer. 5

8 Agribusiness and Information Technologies in developing countries The insurance costs 5% of the price of the scanned inputs. Indemnity payouts are triggered whenever local weather stations, connected to the 3G network, detect conditions liable to destroy the crops (drought or excessive rainfall). All farmers in the affected area are then compensated immediately with a mobile phone payment. Surveying farmland by satellite In addition to mobile technologies, the services offered by satellites can survey farming land and delimit it precisely. While setting up a land registry is no longer an issue in developed countries, the authorities in developing countries could find a major use for these technologies. Indeed, they have every interest in acquiring an accurate knowledge of their arable land, at a time when it is coveted by foreign investors and subject to growing pressures. Every year, farming land worldwide is reduced by an area equivalent to Italy, mainly as a result of urbanisation and pollution. Knowledge of this land is therefore becoming essential. In Europe, farming is too often associated with a nostalgic rural ideal or the health scandals of industrial agriculture, and rarely perceived as a sector offering growth and development. And yet, with 2.5 billion more inhabitants to feed and clothe by 2050 in developing countries, growing pressure on arable land and increasing requirements in terms of quality and traceability 6

9 Mobiles are having a field day of agricultural products, farming is a fundamental challenge for the whole world. Many players have already understood this, as we can see from China s purchase of farmland in Africa or the takeover bid by BHP Billiton (a mining company) for fertiliser manufacturer Potash, convinced of the growth potential of fertiliser production. As demand develops, agricultural supply is bound to grow, in terms of both volume and value. Mechanisation, plant-protection products and biotechnology are all areas for increasing production already or yet to be exploited, with care in some cases. But we should not overlook the potential of information technology for improving agricultural productivity. Mobile phones have three characteristics that illustrate their capability to contribute to the development of whole areas of the economy: omnipresence (mobile phones are used in all sectors), improvement (the technology keeps progressing, cutting the costs for users) and induced innovation (mobile phones contribute to the advance of new products and processes). The farmers and businesses that have understood this are already taking advantage of it while helping to fight hunger. Paradoxically, while the issues are fundamental and the practical cases very tangible, there is as yet no natural crossover between the world of agribusiness and ICTs. Telecoms operators have not yet moved into this niche market, while the health and banking sectors are being watched with interest. And yet, it would defi- 7

10 Agribusiness and Information Technologies in developing countries nitely be worthwhile for these economic sectors to take a closer look at this real opportunity for common growth. Henri Tcheng, Jean-Michel Huet and Pierre Labarthe 8

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