Welcome back to the Agri Fintech Newsletter! And sorry it has been a while.
🔬 Agri Fintech in Numbers
🧐 Thoughts [A $100bn opportunity, really?]
🗞 Relevant News [Agri Digital, Stable major round, Nature Metrics bringing sustainability to the Board Room, Regrow Ag funding, Ambrook everywhere, Breedr launch Cashflow]
Reach out and say
Welcome back to the Agri Fintech Newsletter! And sorry it has been a while.
🔬 Agri Fintech in Numbers
🧐 Thoughts [A $100bn opportunity, really?]
🗞 Relevant News [Agri Digital, Stable major round, Nature Metrics bringing sustainability to the Board Room, Regrow Ag funding, Ambrook everywhere, Breedr launch Cashflow]
Reach out and say hi 👋 and please do share the content with people in your network by sharing on Twitter or LinkedIn.
Agri Fintech in Numbers
Firstly, did you get a copy of this report?
If not, please download from here where I break down VC investment into Agri Fintech companies in recent years. Please share in your network!
Below are some of the contents ⤵️
Agri Fintech in Numbers
Also one watch 👀
I will be delivering a Keynote at the Bushel Customer Conference in Fargo, discussing "Agri Fintech: Down to earth Fintech" to draw on some thoughts on the relevance of Crypto, Payments, Buy Now Pay Later and Embedded Finance across Agri ecosystems.
Will you be there or at the Grand Farm event? If so, let's connect by responding directly to this email.
If not, watch out for notes I will publish post event, including any relevant updates on Bushel strategy 👀 👀
Grappling with a $106bn opportunity
How big exactly is the opportunity in agricultural financial services?
In one report I surfaced there was a staggering $106bn gap between supply and demand in Agricultural Finance in developing markets in South East Asia and sub-Saharan Africa alone, with Banks, non Banks and Agri Fintech companies all playing a role to seize the opportunity.
What's the catch? It is small scale and across borders. The opportunity is certainly there, but it needs dedicated and specialist providers to capture it.
BTW - If you are a new reader, I cover innovation and issues in developing markets a lot as the approach to problem solving is always impressive.
In this Issue, I will discuss:
✅ Findings from the Report
✅ A look at EF Africa Group (Kenya and Tanzania)
✅ Thoughts
Findings from the Report
The ISF Agri SME Report published in March 2022, found that there is an estimated demand for financing of $160bn by 220,000 Agri SME's across sub-Saharan Africa and Southeast Asia, which has corresponding supply of $54bn, giving rise to the gaping $106bn. Of this deficit, $74bn was across Africa and $31bn was across Southeast Asia.
I really liked the following which outlined the current supply dynamics i.e. who is currently funding these small entities. The money shot ⤵️
Supplying Agri Finance - source: ISF Agree SME Report
When I look at the breakdown of capital providers, the fact Commercial Banks are a major provider is hardly surprising - that is their job!
However, I suspect if anyone is going to close the $106bn gap, it will be the NBFI's and PE/VC Fund segments, followed by the Impact Funds.
NBFI's, or Non Bank Financial Institutions, are key players in financial markets. Sometimes labelled as 'shadow banks' - a hideously sinister tag 😂 - they tend to be innovators and use technology to scale their business. NBFI's tend to be the one's that create and scale categories and EF Africa below are a good example in this context, but also includes lenders such as Farm Op Capital as just one example in the US.
Similarly, the dedicated PE and VC Funds also have a huge role to play and into this category falls actors like Twiga Foods and Apollo Agriculture, Agri Fintech companies I have referred to several times.
A look at EF Africa Group
The $106bn is a great headline for people like me to shout about, and a great Total Addressable Market (TAM). It really is.
Dear esteemed reader, I know what you are thinking ⬇️ 😅
But... you are especially thinking the first bit. It's OK - I hear ya!
This is where I introduce EF Africa Group, who utilise technology to disburse agriculture equipment finance in Kenya and Tanzania.
The unmet financial needs are astonishing in this sub-sector alone: one study found that only 3.4% of tractor owners used finance to purchase their equipment in one country. Three point four percent, that is not a typo but adds amazing context.
EF Africa Group are an example of a company who have been slowly building into the $100bn "TAM" for several years in Tanzania and more recently in Kenya. More specifically, their own TAM in that sector could be estimated at over $400m i.e. $200m in both Kenya and Tanzania, where tractor imports alone were $172m and $180m respectively in 2021 according to ITC Trade Map data.
EFA are a useful case study due to their presence in Kenya and Tanzania, two of the countries covered in the ISF Report, both of which are populous countries and part of the East African Community trading block and I recently caught up with company Co-Founder and Chairman Michiel Timmerman to discuss.
Timmerman advised they have encountered 2 distinct challenges when looking at both markets together.
⦿ Go to Market - In Tanzania, EF Africa Group command 10% of the tractor market, serving between 100-150 new clients in any given year, which is an amazing achievement. Similar success has been enjoyed in adjacent asset classes such as feed mills or freezers for fish to serve the trade around Lake Victoria and distribution deals have been secured with some of the major Tea estates in the southern Highlands of the country.
In Kenya, the market is very different so their go to market reflects an increasingly competitive lending space where Banks and other NBFI's actively compete with them. The SACCO's (Savings and Credit Cooperatives) are much better organised in Kenya and provide valuable touch points for the company, unlike their counterparts in Tanzania which are less consistent in their nature.
The Kenyan market moves quicker, so EFA must move quicker too, which leads to increased technology investment.
⦿ Fintech - The financial technology infrastructure, although still evolving, is more sophisticated in Kenya which creates opportunities for the company.
For example, their in-house credit analysis process in Kenya relies heavily on scraped bank statement data and PDF reports from the infamous mobile money provider MPESA. This can be supplemented with digitised producer sales data, if available, from an offtaker such as a dairy. This data aggregation may sound low tech and complex but this is exactly how major companies such as Plaid - a financial data aggregator - got started in the Fintech space.
The impact of these tech interventions is clear according to Timmerman - "This facilitates the opportunity of smaller loans at scale".
Trying to build the same workflows in Tanzania has not been fruitful yet as the technology ecosystem is still fragmented and the distribution strategy hasn't required it yet. Agri Fintech at scale may arrive slower in Tanzania.
Thoughts
▶️ For me the lesson here relates to the interoperability of processes across borders, or rather the 'un-inter-operability' - try saying that 3 times 😵💫.
▶️ Even in a distinct vertical, such as financing agricultural equipment, the process varies from one country to the next and so represents scaling challenges. This is in addition to many challenges noted in the ISF Report:
"For most practitioners involved in agricultural finance, the USD 106 billion formal financing gap will likely not be surprising. Relative to other sectors, agricultural markets are volatile—with high transaction costs, high risks, and low margins for many of the smaller value chain players."
▶️ Of course, EF Africa presents just the East African context for this. I'm keen to explore challenges beyond this region and hope to explore this same issue with some companies in South East Asia in the near future.
▶️ And one final comment or thought 💭 remains in relation to the role of subsidy, which the Report goes into in some detail. Hmm... how important is this and what really is the best way to incentivise more lending in this sector? That is a huge topic in itself.
📰 News
The fundraising announcements in the past month have been extremely interesting. Numbers are still going up and there have been several interesting investors peering into the sector.
⦿ Agri Digital announced a fundraise with an undisclosed financial services partner for A$25m, which was a mixture of debt and equity. Agri Digital have had huge success on their platform with over $150m of grain financed so far.
The new investor is described as
"a large global investor with experience in debt finance".
This is notable as I see this trend to continue in Agri Fintech, with more financial services companies investing directly into companies.
⦿ Nature Metrics, based in the UK, raised €14m Series B for the eDNA tools which work to collect data for financial services across the Agriculture and other environmental sectors.
Welcome back to the Agri Fintech Newsletter! And sorry it has been a while.
🔬 Agri Fintech in Numbers
🧐 Thoughts [A $100bn opportunity, really?]
🗞 Relevant News [Agri Digital, Stable major round, Nature Metrics bringing sustainability to the Board Room, Regrow Ag funding, Ambrook everywhere, Breedr launch Cashflow]
Reach out and say hi 👋 and please do share the content with people in your network by sharing on Twitter or LinkedIn.
Agri Fintech in Numbers
Firstly, did you get a copy of this report?
If not, please download from here where I break down VC investment into Agri Fintech companies in recent years. Please share in your network!
Below are some of the contents ⤵️
Also one watch 👀
I will be delivering a Keynote at the Bushel Customer Conference in Fargo, discussing "Agri Fintech: Down to earth Fintech" to draw on some thoughts on the relevance of Crypto, Payments, Buy Now Pay Later and Embedded Finance across Agri ecosystems.
Will you be there or at the Grand Farm event? If so, let's connect by responding directly to this email.
If not, watch out for notes I will publish post event, including any relevant updates on Bushel strategy 👀 👀
Grappling with a $106bn opportunity
How big exactly is the opportunity in agricultural financial services?
In one report I surfaced there was a staggering $106bn gap between supply and demand in Agricultural Finance in developing markets in South East Asia and sub-Saharan Africa alone, with Banks, non Banks and Agri Fintech companies all playing a role to seize the opportunity.
What's the catch? It is small scale and across borders. The opportunity is certainly there, but it needs dedicated and specialist providers to capture it.
BTW - If you are a new reader, I cover innovation and issues in developing markets a lot as the approach to problem solving is always impressive.
In this Issue, I will discuss:
✅ Findings from the Report
✅ A look at EF Africa Group (Kenya and Tanzania)
✅ Thoughts
Findings from the Report
The ISF Agri SME Report published in March 2022, found that there is an estimated demand for financing of $160bn by 220,000 Agri SME's across sub-Saharan Africa and Southeast Asia, which has corresponding supply of $54bn, giving rise to the gaping $106bn. Of this deficit, $74bn was across Africa and $31bn was across Southeast Asia.
I really liked the following which outlined the current supply dynamics i.e. who is currently funding these small entities. The money shot ⤵️
When I look at the breakdown of capital providers, the fact Commercial Banks are a major provider is hardly surprising - that is their job!
However, I suspect if anyone is going to close the $106bn gap, it will be the NBFI's and PE/VC Fund segments, followed by the Impact Funds.
NBFI's, or Non Bank Financial Institutions, are key players in financial markets. Sometimes labelled as 'shadow banks' - a hideously sinister tag 😂 - they tend to be innovators and use technology to scale their business. NBFI's tend to be the one's that create and scale categories and EF Africa below are a good example in this context, but also includes lenders such as Farm Op Capital as just one example in the US.
Similarly, the dedicated PE and VC Funds also have a huge role to play and into this category falls actors like Twiga Foods and Apollo Agriculture, Agri Fintech companies I have referred to several times.
A look at EF Africa Group
The $106bn is a great headline for people like me to shout about, and a great Total Addressable Market (TAM). It really is.
Dear esteemed reader, I know what you are thinking ⬇️ 😅
But... you are especially thinking the first bit. It's OK - I hear ya!
This is where I introduce EF Africa Group, who utilise technology to disburse agriculture equipment finance in Kenya and Tanzania.
The unmet financial needs are astonishing in this sub-sector alone: one study found that only 3.4% of tractor owners used finance to purchase their equipment in one country. Three point four percent, that is not a typo but adds amazing context.
EF Africa Group are an example of a company who have been slowly building into the $100bn "TAM" for several years in Tanzania and more recently in Kenya. More specifically, their own TAM in that sector could be estimated at over $400m i.e. $200m in both Kenya and Tanzania, where tractor imports alone were $172m and $180m respectively in 2021 according to ITC Trade Map data.
EFA are a useful case study due to their presence in Kenya and Tanzania, two of the countries covered in the ISF Report, both of which are populous countries and part of the East African Community trading block and I recently caught up with company Co-Founder and Chairman Michiel Timmerman to discuss.
Timmerman advised they have encountered 2 distinct challenges when looking at both markets together.
⦿ Go to Market - In Tanzania, EF Africa Group command 10% of the tractor market, serving between 100-150 new clients in any given year, which is an amazing achievement. Similar success has been enjoyed in adjacent asset classes such as feed mills or freezers for fish to serve the trade around Lake Victoria and distribution deals have been secured with some of the major Tea estates in the southern Highlands of the country.
In Kenya, the market is very different so their go to market reflects an increasingly competitive lending space where Banks and other NBFI's actively compete with them. The SACCO's (Savings and Credit Cooperatives) are much better organised in Kenya and provide valuable touch points for the company, unlike their counterparts in Tanzania which are less consistent in their nature.
The Kenyan market moves quicker, so EFA must move quicker too, which leads to increased technology investment.
Fortunately, there are some organisations that target the wider region, such as the East Africa Grains Council, who EF Africa have recently partnered with.
⦿ Fintech - The financial technology infrastructure, although still evolving, is more sophisticated in Kenya which creates opportunities for the company.
For example, their in-house credit analysis process in Kenya relies heavily on scraped bank statement data and PDF reports from the infamous mobile money provider MPESA. This can be supplemented with digitised producer sales data, if available, from an offtaker such as a dairy. This data aggregation may sound low tech and complex but this is exactly how major companies such as Plaid - a financial data aggregator - got started in the Fintech space.
The impact of these tech interventions is clear according to Timmerman - "This facilitates the opportunity of smaller loans at scale".
Trying to build the same workflows in Tanzania has not been fruitful yet as the technology ecosystem is still fragmented and the distribution strategy hasn't required it yet. Agri Fintech at scale may arrive slower in Tanzania.
Thoughts
▶️ For me the lesson here relates to the interoperability of processes across borders, or rather the 'un-inter-operability' - try saying that 3 times 😵💫.
▶️ Even in a distinct vertical, such as financing agricultural equipment, the process varies from one country to the next and so represents scaling challenges. This is in addition to many challenges noted in the ISF Report:
When I asked the question about building a full stack or an ecosystem play in Agri Fintech it is scaling challenges such as this that I had in mind.
▶️ Of course, EF Africa presents just the East African context for this. I'm keen to explore challenges beyond this region and hope to explore this same issue with some companies in South East Asia in the near future.
▶️ And one final comment or thought 💭 remains in relation to the role of subsidy, which the Report goes into in some detail. Hmm... how important is this and what really is the best way to incentivise more lending in this sector? That is a huge topic in itself.
📰 News
The fundraising announcements in the past month have been extremely interesting. Numbers are still going up and there have been several interesting investors peering into the sector.
⦿ Agri Digital announced a fundraise with an undisclosed financial services partner for A$25m, which was a mixture of debt and equity. Agri Digital have had huge success on their platform with over $150m of grain financed so far.
The new investor is described as
This is notable as I see this trend to continue in Agri Fintech, with more financial services companies investing directly into companies.
⦿ Stable raised a huge Series B to continue their product development for untraded commodities. When you consider that 90% of all commodities globally are untraded i.e. not traded on futures exchanges, it is not difficult to see the potential for Stable.
⦿ Ambrook, a company I have previously featured in the Newsletter was featured in the Not Boring Newsletter from Packy McCormick. Check this highly informative read out for a great insight into their mission.
Two companies operating in the sustainability segment have also completed sizeable fundraises recently.
⦿ Regrow Ag have raised $38m Series B to further develop and roll out their MRV tools.
⦿ Nature Metrics, based in the UK, raised €14m Series B for the eDNA tools which work to collect data for financial services across the Agriculture and other environmental sectors.
⦿ Breedr also launched a £10m cashflow product to help finance livestock in the UK via their livestock management app.
*** If you operate in the sector and want to share updates, please do as I am more than happy to receive these.THANK YOU!
I hope you have enjoyed this edition as I feel I have bombarded you with lots here.
Reach out and say hi 👋 and please do share the content with people in your network by sharing on Twitter or giving the post a Like on LinkedIn
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