Kerry Naidoo: Hello, and welcome to the McKinsey Africa Podcast with me, Kerry Naidoo, the podcast that brings you conversations with leading experts, and shares actionable insights into the challenges and opportunities facing managers and leaders working on the continent.
How digital tools can help transform African agri-food systems
Kerry Naidoo: In this episode, we're focusing on using digital tools to help transform African agri-food systems with the view to enhancing food security. Ensuring food security, the basic right of people, to the healthy food they need is surely one of the greatest challenges facing the African community, making this a particularly pertinent conversation at this time.
Kerry Naidoo: Recent estimates of food insecurity on the African continent have suggested that as many as 73 million people are acutely food insecure, and this number is climbing. COVID-19 is, of course, exacerbating the problem with food imports, transportation and agricultural production, all hampered by its fallout. I'm confident our guest in today's episode can shed some light on how the scenario can be turned around.
Kerry Naidoo: And I'm delighted to be joined by Amandla Ooko-Ombaka, an expert on the subject and co-author of a paper titled How Digital Tools Can Help Transform African Agri-Food Systems, which you can find on our McKinsey website. An economist by training, Amandla is an associate partner in our Nairobi office. She's a leader in our Africa agriculture and consumer-packaged-goods practice and plays a pivotal role within the McKinsey Center for Agricultural Transformation. Amandla, welcome. It's lovely to have you join us today.
Amandla Ooko-Ombaka: Thank you Kerry, for having me today to talk about my favorite topic, agriculture, in my home, in my favorite region to talk about in Africa. It certainly does seem like an opportune time for this conversation. We've seen a really vibrant energy in the ag-tech space across the continent in the past five years.
Amandla Ooko-Ombaka: And COVID-19 has really accelerated uptake of technology across many sectors, including agriculture, both the private sector and governments that are reaching for greater clarity and real-time data to help them make decisions around food security. So I'm optimistic there's real potential to build on that momentum.
Kerry Naidoo: Before we delve into how digital tools can help, can you bring us up to speed with the current lay of the land? What kind of agri-tech is there on the continent, and what sort of impact is it already having?
Amandla Ooko-Ombaka: In Sub-Saharan Africa alone, there more than 400 unique digital agriculture solutions in use, including financial services and insurance, market linkages, making sure that farmers and other producers have access to markets, supply chain management and logistics, advisory and information services. And just a lot around E-extension, for example, as well as business intelligence and the data that allows farmers and ag businesses to make better decisions.
Amandla Ooko-Ombaka: In Kenya in particular, Kenya is known as the Silicon Savannah across lots of sectors, but several ag-tech companies have recently closed important series A and B rounds, including one led by Goldman Sachs recently. The innovation pipeline is really, really exciting, but getting digital solutions to scale, which we consider to be one million users or more, is quite challenging. To give you some stats on the lay of the land, of these 400 digital solutions, 20 of them alone account for more than 80% of farmer registrations. And only a handful of these have more than one million users at scale.
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Amandla Ooko-Ombaka: Farmers are not the only intended users of these applications, but they're a really critical stakeholder to consider, and where I'll focus most of my time today. The bulk of these applications have less than 30% of active users and really struggle to be financially viable. In short, while there's a really exciting innovation pipeline, many of these applications fail to scale and many of them fail to improve the lives of farmers and the other end users that they're targeting.
Kerry Naidoo: Why exactly is it so difficult for them to succeed?
Amandla Ooko-Ombaka: Kerry, put simply, availability of these tools does not guarantee small-holder farmer uptake and adoption. It's not a case of build it and they will come. For farmers, as I mentioned, farmers are not the only end user based digital solutions, but the ones that I will focus on. In order for them to uptake these solutions, they need to see the added value for them as end users. This could mean that using a digital tool improves crop yields, boosts their profits, or reduces the input costs and crop loss.
Amandla Ooko-Ombaka: And even when you do demonstrate this added value, very few farmers are willing to pay for digital applications without a clear impact to their financial outcomes. Second challenge, I guess, as we think about it is that farmers need a combination of both in-person, face-to-face support from extension officers and other field officers, in addition to the digital solutions. There are few substitutes to this sort of last mile support that can really tailor digital tools to farmers.
Kerry Naidoo: Yes, I can see that those factors would play a key role as you're dealing with people. It's not all about the tech. Are there any other difficulties that are contributing to this challenge?
Amandla Ooko-Ombaka: Kerry, you're absolutely right. Even if you have a working tool that in theory, farmers want, there are several other challenges to overcome, to increase adoption and uptake of these digital solutions. The biggest barrier actually being basic access. I'll define access in three ways. The first is really about access to power.
Amandla Ooko-Ombaka: Half of Sub-Saharan African citizens don't have access to electrical power. There's a lot of creative solutions in the field right now around solar and mini grids to make that happen, but you need to be able to charge your phone. And phones are the devices that most farmers would be accessing these digital tools on.
Amandla Ooko-Ombaka: The second is actually the cost of a device. The average cost of an entry-level second gen or third generation wireless device is more than 70% of the monthly income of a farmer in the region. Compare this with about 17% in India. While the cost of devices is coming down significantly, in fact, now in market, you could probably get a smartphone for about $20 to $30. That is still a significant share of an income of the average farmer.
Amandla Ooko-Ombaka: And the final is really around network coverage. So if we think about network coverage in urban areas across the continent, which is about 70% versus 40% in rural areas where most farmers live and work today, there's really room to improve that network coverage and accelerate adoption. To be clear, these challenges of access are things that are rapidly changing across the continent. Data costs are coming down. Investments to support network coverage are going up. And I hope that we'll look back in a couple of years and be proud of the progress we've made on access.
Amandla Ooko-Ombaka: But we still need to think about this as a real barrier to increasing adoption, alongside areas like digital literacy, data accuracy and usability, and things like just tailoring content for local context, making sure this content is available in local languages. Governments have an important role to play here in creating an enabling environment, including investing in some of the data infrastructure like farmer registration to make all this possible, and regulation. But there's a lot of work we need to do, even if we have the working digital tools.
Kerry Naidoo: Given the extent of food insecurity on the continent and the challenging context and obstacles to rolling out digital solutions you're describing, why the optimism?
Amandla Ooko-Ombaka: I am an eternal optimist. I believe so much in the power of digital to transform, support transformation of agfood systems across the continents. And despite these challenges, our research as McKinsey and our experience serving private and public sector agriculture clients across the continent shows how powerful digital solutions can be to accelerate ag transformation, particularly if they're designed to directly support outcomes that farmers care about.
Amandla Ooko-Ombaka: So if a tool is directly supporting increases in small-holder farmer incomes, and it's not an add-on or an isolated digitization effort to try and modernize, then we can see real legs for digital solutions to support ag transformation.
Amandla Ooko-Ombaka: We're optimistic because of the examples we've really seen and be part of, if we call them very specific use cases, these are projects that have a clear beginning and a clear end, and apply a digital or advanced analytics solution to achieve a measurable benefit. With very specific use cases we've seen deployed, there is a chance to support food security outcomes across the continent.
Kerry Naidoo: Please tell us about some of these use cases and the type of outcomes they support, and how you came across them.
Amandla Ooko-Ombaka: Absolutely. So we conducted a scoping exercise of over 20 countries around the globe, six of which were in Africa, to identify 10 use cases that we believe had the potential to accelerate ag transformation, one, but two, that also had a very clear government role for implementing or scaling.
Amandla Ooko-Ombaka: The private sector imperative for innovation on the ag-tech side is clear and often commercially driven. But in order to really move the needle on ag transformation, we felt it was quite important to understand these use cases that government was part of driving in a quite significant way.
Amandla Ooko-Ombaka: The 10 use cases we selected each had a clear beneficiary. So beneficiary being an end user, the farmer, or potentially for some of these government use cases, government implementers, and a very specific outcome that the digital tool could enable. We grouped the outcomes into four categories.
Amandla Ooko-Ombaka: The first were increases in farmer income, the second was increases in agricultural output and production, the third was improvement in government savings and more effective management of food security, and then finally, a group of enablers that we didn't think generate direct financial impact, but are critical for the sustainability of the use cases overall.
Kerry Naidoo: Amandla, can you share more about some of the tools? What kind of applications are we looking at?
Amandla Ooko-Ombaka: As far as the actual tools, so let me share them against the outcomes we mentioned. As far as increasing farmer incomes, one example of a tool is a market information system that provides farmers with regular crop market prices that we can geo locate to the markets that are nearby where the farmers are, and reduce market information asymmetries.
Amandla Ooko-Ombaka: A lot of words to say, if I wake up one day and I have X kilos of bananas I want to sell, I want to get on to some sort of tool that will show me the price in the market that's five kilometers away is X. The price that is in a market that's 10 kilometers away, might be two X. And then I can do the math as a farmer. And if I want to incur the transportation cost to go to the further market in order to get the higher price for my produce.
Amandla Ooko-Ombaka: On government savings, I'll give the example of an E-subsidy or an E-wallet tool, where eligible farmers are targeted to receive an E-subsidy that they can use for inputs and mechanization. In order to make something like this work, government needs to have a farmer registry and then can use digital tools to both deploy the actual subsidy, for example, in the E-wallet, and then measure the performance of the subsidy program thereafter. Who are the farmers that use the subsidy for a specific input that led to an increase in farmer yield or farmer incomes?
Amandla Ooko-Ombaka: The tool though, that I'm perhaps most excited about and have been closest to is what we call a food balance sheet, which I think really demonstrates the scale and impact of digital tools for ag transformation.
Kerry Naidoo: I'd love for you to share a little bit more about this digital food balance sheet or FBS. What is that exactly?
Amandla Ooko-Ombaka: So digital food balance sheet does exactly what you think it does. It measures the inputs into your food system. So this would be your production and your yields. It measures the outputs or your use of food, including your consumption, and then measures some of the data you need in between that. So what is happening to stocks? If you have stocks in a country, how do those affect your ability to consume? What are the trade levels? So you can get food outside of your local production system.
Amandla Ooko-Ombaka: And then, of course, we're interested in things like prices that will bring together your consumption, your production and your trade. A food balance sheet allows you to see this information across governments, and even private sector players and private sector stockholders and producers, ideally. So you get a full picture of the food balance in a country.
Amandla Ooko-Ombaka: A well-functioning FBS can support national food security by providing accurate and reliable information for policy decisions on the food reserves. So, how much stock do you need to release from the food reserve to cover the citizens and people that will be affected by upcoming droughts or floods and production levels there? It can even be used for trade decisions, because if you know how much surplus or deficit you will have, and at what price those commodities are trading for in the region, as a government, you can make decisions about what to trade. As a private sector trader, you can make decisions about what to trade as well.
Amandla Ooko-Ombaka: The government of Kenya recently moved to digitize its food balance sheet in line with its 10-year ag transformation strategy. And within 12 weeks, had actually completed all the steps necessary to define, design and build a minimal viable product for the FBS, which is already in use. At scale, the FBS is expected to reduce spending on food reserves by up to 3% annually, while improving the ability to report on agricultural data.
Kerry Naidoo: Amandla, could you share with us some of your observations and key learnings from watching these kinds of transformations being rolled out and reading about these kinds of transformations across the globe and in emerging markets?
Amandla Ooko-Ombaka: There are a number of lessons that can be learned from Kenya on the FBS or other digital tools in agriculture where we ourselves have supported countries across the globe, including in emerging markets.
Amandla Ooko-Ombaka: So the first lesson is really about the importance of demonstrating quick wins. Quick wins give you momentum to get more resources, to get more people excited for people to take risks and be more creative and innovative in the next round. And I'll give you one example from an East African ministry that we supported through the COVID-19 pandemic.
Amandla Ooko-Ombaka: This ministry had been planning to build a tool to track production of key commodities nationwide as part of a broader effort to digitize manual data collection for some time. But momentum before the pandemic broke out to do this work was just lacking, because the use case for the data was not particularly clear. Stockpiling data, historical data for analysis is helpful over time for annual reporting, but the urgency to be able to see this data in close to real-time on a weekly basis, just really wasn't there.
Amandla Ooko-Ombaka: When the pandemic broke out, it highlighted the importance of a tool that can monitor food supply across the country in real-time or near real -time. In only six weeks, the government had developed a food-production tracking tool and expanded it to track indicators, including food prices. This tool permitted the data to be visualized in close to real-time and viewed by senior ministry officials that has catalyzed efforts to build more real-time visualizations for decision-making beyond food prices, beyond production. And so the momentum, we've really seen lay a strong foundation for subsequent scale-up efforts for digital tools like this.
Kerry Naidoo: That's really a great story, Amandla. You mentioned it demonstrated one of the key lessons you've learned. What are the others?
Amandla Ooko-Ombaka: On some of the other lessons, lesson two is really grounding the digital agenda and government priorities. A digital strategy must, must, must be centered in the transformation priorities of the government more broadly. Now, it's not to say that every single government needs a very structured 10-year transformation plan like existing in Kenya, plus a super well-articulated digital strategy. But it's to say that any digital investments need to have a very clear priority they're supporting, if that is increasing small-holder farmer incomes, if that is increasing agricultural output. Because then, it will have accountability within government for delivering results.
Amandla Ooko-Ombaka: Lesson three is about choosing partnerships carefully. Governments may want to partner with private sector and development partners where incentives align, but public-private partnerships can raise important issues in this space, including the commercial terms of using data, data privacy, data ownership rights. These are all really complex issues that can impact the design and timeline to develop tools, ultimately impacting the beneficiaries. So it's really important to carefully consider which partnerships make sense for which digital tools.
Amandla Ooko-Ombaka: Lesson four is really about applying Agile thinking to design digital products. Agile ways of working, which is really around fast decision-making, early user engagement, rapid iterations or sprints, as opposed to waiting for a perfect tool to deploy and market, is a domain that's often thought about in the private sector for innovation. But I've seen the power of using Agile methodology in governments to engage users early. Data sources don't need to be perfect. An agile methodology applied in government and some of these use cases is starting with a sufficient database to build a working product, and a clear plan to improve data sources over time.
Amandla Ooko-Ombaka: Getting an MVP, a minimum viable product out there and getting user feedback is a really powerful way to make sure that you're designing a tool that works. Remember at the beginning, we said in this space it's not about build and then they will come. You need to build with the user in mind. And the more feedback you can get from that user as you build your tool, and the shorter your design sprints, the more iterations and opportunity you have to really tailor the tool for use, and to see it in real-time and make those improvements.
Kerry Naidoo: Could you share with us an example of an Agile approach, or MVP you came across in agri-tech?
Amandla Ooko-Ombaka: Sure. Let's move to a different part of the continent. I get very comfortable when we're sitting in East Africa. So there's a Southern African country that was really trying to understand how to increase agricultural output across the country. Which crops grow in which regions best? And wanted to do a rapid land optimization study and model to figure out the highest economic potential across the country's major agroecological zones.
Amandla Ooko-Ombaka: Put simply, if you think about grapes, for example, grapes that grow in warm climate regions often are juicier grapes. They're more ripe fruit flavors, and they have less acidity because of the warm climate in that region. So a certain region of the country might be better at growing grapes of this nature and therefore, able to get a better price for that particular crop and commodities. That's the kind of work that we were doing.
Amandla Ooko-Ombaka: Over four months and several design sprints, we identified 18 different crops that were suitable for investment across the various zones, and made suggestions for which crops might be grown in which region. Each sprint was focused on a different region, and a different climate, and a different set of crops. So over time, we were able to tweak the model and make adjustments to ensure that we had incorporated lessons learned from previous design sprints.
Kerry Naidoo: What is the fifth lesson?
Amandla Ooko-Ombaka: The fifth and final lesson is to build for the longterm. While design and test phases should work towards building an MVP, a minimal viable product that you then scale up over time, governments could build these tools with a longer timeframe in mind. When you think about building for the longterm, it means having a budget that anticipates running for three or more years, oftentimes beyond a single administration.
Amandla Ooko-Ombaka: Because when you think about something like the food balance sheet we described earlier, if you're making critical decisions about food security, when to deploy food stocks, when to make importation choices so you make sure there's no shortage of food in the country, it can be incredibly disruptive if there's a change in the administration. And the tools, suddenly it goes offline for a year or two as research mobilization efforts are proceeding for that particular tool. Or as departments are reshuffled in order to accommodate the new political dispensation.
Amandla Ooko-Ombaka: So doing longterm planning that embeds a solution in a stable a location as possible, and plans for resources over two to three periods of time, not just thinking about the cost of building, but who is going to run the tool in two or three years? Do you need to hire digital talent to sit in the ministry and take the product through future iterations? All of that thinking is really important to do upfront.
Kerry Naidoo: There is clearly work to be done, a lot of challenge to overcome, but it certainly sounds like agri-tech holds a lot of promise to help the continent achieve better food security, improved nutrition, and sustainable agriculture, which as we all know is the second sustainable development goal.
Amandla Ooko-Ombaka: Absolutely, Kerry. There's a lot of work to be done, and a lot of challenges to be overcome. But I'm relentless in my passion for this topic. And not just me, but our research and our experience on the ground is very clear on this. If digital tools are designed to directly support ag transformation outcomes, such as increasing farmer incomes, they're carried out in measured, well-scoped and targeted use cases by governments committed to their success, digital solutions can accelerate ag transformation and improve food and nutrition security.
Kerry Naidoo: Amandla, thank you for offering us your thoughts and perspectives. It's been such a pleasure talking to you. Any last thoughts for our listeners?
Amandla Ooko-Ombaka: Parting thoughts? Yes, digital solutions can be a powerful way to accelerate ag transformation. But successfully implementing digital products and transformations is hard. And most of them fail in execution in the private sector and in the public sector.
Amandla Ooko-Ombaka: Governments cannot tackle all the challenges we've discussed today at once. Carrying out a handful of well-scoped and targeted use cases in manageable sprints, I think is one way to begin to address these challenges and make measurable progress to using digital tools to support ag transformation.
Kerry Naidoo: On that note. Thank you again, Amandla. And thanks to you, our listeners. We hope you enjoyed today's episode of our McKinsey Africa Podcast series. If you'd like to learn more about this particular report, we encourage you to visit our insights page on mckinsey.com, where you may also find links to our latest insights. We also encourage you to follow us on Twitter by searching our handle @McKinseyAfrica, and follow us on LinkedIn by searching McKinsey Africa. Thanks, again, for listening and we hope you can join us again soon.