The Challenges Facing African Agriculture: A Closer Look at Agri-Fintech

In the realm of agriculture, smallholder farms dominate the African landscape, often struggling to embrace capital-intensive technologies. During a recent panel discussion on agri-fintech at the World Agri-Tech Innovation Summit in Dubai, the limitations of current business models were brought to the forefront by industry expert Alexander Fankuchen.

Breaking Down the Business Model

Fankuchen, co-founder and CEO of Cinch, voiced his skepticism regarding the notion that smallholder farmers can be successful paying customers for agtech solutions. “If you look at African agriculture, it largely consists of small farms that are crucial for food supply but remain underproductive,” he stated. “Making a profit by selling to smallholder farmers often proves to be an impractical business model.”

He emphasized that many enterprises operating within this framework seem more suited to non-profit or developmental roles rather than profit-oriented strategies. “Trying to build a for-profit business that sells to smallholders is extremely challenging, if not impossible,” he added.

Identifying Fundamental Issues

Fankuchen pointed out two primary challenges influencing the viability of these models based on his extensive experience with smallholder farmers.

Firstly, he challenged the misconception that smallholders farm by choice. “There exists a faulty assumption that they want to farm; in reality, many are compelled to do so out of necessity,” he explained.

Secondly, he noted that the structural constraints of farm size hinder scalability for even the most well-meaning interventions. “For farms smaller than 10 acres, it’s nearly impossible to consistently fund investments like irrigation systems. Even the most innovative financial mechanisms cannot justify the costs associated with maintaining such infrastructure,” he stated.

Rethinking Strategies: The Cinch Approach

In response to these challenges, Fankuchen outlined how Cinch has adopted an alternative approach by focusing on scale. “At Cinch, we assist smallholders in converting idle land into income by leasing their land and aggregating it into larger commercial units. We invest in and manage commercial farms on lands owned by smallholders, providing them with a passive income during the lease period.”

The Impact on Investment

Fankuchen underscored the significance of these structural limitations in relation to investment trends, stating that venture capital has been receding from the African agtech landscape. “The withdrawal of capital results from these fundamentally flawed business models,” he noted. “It’s unsustainable to sell a product costing $20 to someone earning just $100 a month.”

He urged stakeholders within the agri-fintech sector to address these inherent structural disparities head-on, emphasizing that without urgent action, agtech will continue to face difficulties in attracting sustainable investment while yielding meaningful productivity improvements.