Uganda: Digitising Agriculture Offers Better Returns

23 October 2018

More than 8,200 farmers gaze at the sky twice every month patiently waiting for any sight or sounds of a plane flying over the Rwenzori ranges. Armed with baskets on their backs, the harvesters are eager for the arrival of the plane - a symbol of the next decent meal and school fees for their children.

This is because for Mcleod Russel, a tea grower and processor across six estates around the Rwenzori Mountains, cash management is important. Salary payments for the farmers comes through a cash drop from an aeroplane with tight security. The cash on hitting the ground is heavily guarded by men with gun machinery up to the cash payments office. Just as the cash drop area, the money is also protected at this office.

But for this system to work, over the years, Russel has absorbed the cost of flying the money and tight marked security without realising the pressure it has put on his profits.

However, processors like McLeod have been saved from the burden of making cash payments to their farmers.

How it started

United Nations Capital Development Fund, (UNCDF) in partnership with Financial Sector Deepening Uganda, (FSDU) and the Bill and Melinda Gates Foundation in 2015, piloted a programme to digitise payments in rural areas while leveraging on mobile technology.

In 2016, UNCDF approached multinational payment service providers - Airtel and MTN - to extend infrastructure to the rural areas of East, West and Northern Uganda to ease digital payments.

After several deliberations between the telecoms and UNCDF over justifying the investments, the latter decided to de-risk the telecoms' investments with a guaranteed fund of $100,000 in case of any losses.

Speaking during the unveiling of a report drawn from experiences, Mr Dimitry Pozhidaev, the regional technical advisor UNCDF, said their efforts were mainly targeted towards digitising agriculture throughout the value chain.

"Putting in place components of infrastructure and providing linkages between them was a challenging task that will not happen by itself. It will need someone to make very targeted efforts and that is what UNCDF was doing," he explains.

Consequently, a total of 147,844 farmers in the focus areas of the study in different value chains such as coffee, seed oil, dairy, maize and tea were registered for mobile money in three years.

Airtel, which contributed 57 new sites for infrastructure development throughout the study, says it has realised value for its investment.

"We continue to see growth and value for the investment while farmers continue to appreciate other digital financial services," Mr Allan Balunywa, Airtel sales and distribution director, says.

So far, 480 mobile money agents have been recruited, creating employment for people in the rural areas.

Digital agriculture vital

Security with the old cash delivery system creates a perilous environment especially for those that move the bulk cash to pay farmers.

Kyagalanyi Coffee Limited revealed that they travel 70 Km in search of money between Shs90m and Shs150m to pay suppliers.

To explain the danger of cash, is maize off-taker, AgroWays whose trader was hacked and robbed of Shs12m in 2017 while the Cooperative Enterprise was robbed of Shs82m while in transit to pay farmers.

Insecurity coupled with loss of work time as the farmer moves distances to collect money, lack of transparency and digital records for their transactions leaves farmers with dismal or no chance for access to credit.

According to Ms Rashmi Pillai, director of programmes FSDU, digitising payments will allow more farmers to use financial services.

"Digitisation of payments can also increase farmer loyalty, creating a direct channel to receive credit for farm inputs," she explains.

The report titled, 'Learning in the field: Implementing Digital Bulk Payments in Agricultural Value Chains in Uganda,' released last week indicates that digitising agriculture boosts financial inclusion for small holder farmers while breaking down economic barriers.

Challenges

Ever wonder why investors have deliberately ignored the agricultural sector which contributes 25 per cent to Gross Domestic Product (GDP)?

Farmers characterised by illiteracy are reluctant to adopt to change. The report indicates that the highest form of education for these farmers is usually primary school.

"60 per cent of coffee farmers and 35 per cent of maize farmers said they have some level of primary education while an additional 10 per cent and 20 per cent say they have some form of secondary level education," it reads.

The low literacy levels make it hard for the farmers to understand and operate technology especially since it is in a foreign language.

In 2016, nine out of 10 farmers reported that they did not have bank accounts in their names and seven out of ten did not use mobile money services.

While mobile phones are not a challenge, the usage of mobile money in rural areas is shielded away from agriculture. Maize farmers admitted to use mobile money for personal reasons rather than business transactions.

For dairy farmers use it for business transactions, over the counter assistance is necessary.

56 per cent of seed oil farmers use mobile money with only two thirds using just once a month.

This, according to the telecoms, is a blow to investment since the costly infrastructure is underutilised, making the chances of the multinationals breaking even a distant dream.

Sustainability

Despite these challenges, the investors did not give up but instead persevered to create growth in the agricultural sector.

Introduction of infrastructure and mobile money agents had to be boosted by ensuring they had enough money to transact and provide the farmers with cash as and when they needed it so that no confidence is lost in the system.

Effects of digitising Agriculture

The value chain is made up of different levels with small holder farmers playing a pivotal role in agricultural production.

In essence, inefficiencies from one part weaken the whole system but strengthen value addition.

According to Mr Dimitry Pozhidaev, the farmers whose payment systems were digitised improved productivity with a 30 per cent increase in coffee sales at Kyagalanyi Coffee Limited in the East.

The cost of making digital payments by Mcleod Russel was approximately 10 per cent less than the cost of flying money from Kampala to those estates in Rwenzori Mountains. Reduced cost of operations create opportunity for profit maximisation and savings for the farmers.

Farmers with digitised records can now request for loans with financial institutions since there is a track record that they use to ascertain their credit standing.

Skills transfer

According to telecoms, skills transfer took place from their qualified staff who were stationed in the areas to ensure that farmers and local agents are well-versed with the new technology.

"Majority of the agents die six months after recruitment. So it is an area we need to focus on to ensure the project is sustainable," Mr Balunywa says.

Mobile money tax major set back

Lack of farmer confidence in the mobile money digital services is a barrier that needs to be broken before digitising agriculture takes off. The mobile money tax reduced to 0.5 per cent, is still believed to have a negative impact on the farmers.

Mr Robert Natamba, chairman Dairy Farmers in Isingiro District, says digitising agriculture will be hard if they have to explain tax implications on any money sent via mobile money. He says that ordinary farmers will become apprehensive to the cashless system if their money upon withdrawal is reduced, regardless of its convenience.

Policy limitations

According to telecoms, agent acquisition was stifled by the stringent prerequisite conditions set by the regulator thus reducing the ease with which farmers can receive and send money. Restrictive policy such as stringent 'Know Your Customer (KYC)' form requirements which some of the farmers do not have, coupled with the brick and mortar requirement for telecoms to set up structures from where they can operate hinders the multinationals' from investing in these areas.

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