At scale, who will pay? Market failure, government failure, and a need for new business models
Over time, hundreds of digital agri-information services have been implemented, but rarely have any achieved a respectable scale. One can argue that slow adoption from the farmer community is a reason. However, a major challenge is a missing payer at scale. We lack answers to critical questions like - How will a project be funded at a scale of millions of farmers?
Traditionally, agriculture extension has been in the realm of the government. Unfortunately, the government’s response to designing new cutting-edge digital products has been slow. Faced with mammoth issues of climate change and integrated international markets, there is an urgent need to update the existing government extension system. The question, however, remains - who will pay for it?
In this blog, we identify distinct market and government failures and a new model that holds potential answers.
1. The limited plausibility of charging farmers
A handful of organizations are charging farmers for providing digital agri-information services. However, these interventions have yet to prove a replicable business model. Economic theories suggest that three features of agricultural information make it difficult for pure subscription models to reach as many farmers and can be the reasons for their low willingness to pay. The three features of agri information are:
Non-rival - agricultural information can be easily shared with additional people without any cost to others
Non-excludable - difficult to control its access to non-paying farmers
Asymmetric information - about the quality of the service, i.e. farmers who purchased the service need not necessarily know the value of the information sold to them
Further, digital payment has not yet penetrated the agricultural community. Hence, even if farmers are ready to pay a small fee, collecting it physically from a large, dispersed population makes limited economic sense.
2. Conflict of interest in earning revenue through advertisement or hot leads
Some start-ups, like Krishi Network and Krishify, are exploring variations of the ad-tech model. Here, the service is free for farmers who make one side of the platform. Agri-input retailers make the other paying side of the platform. Farmers are presented as an aggregated customer base to the companies, and money is charged under "Pay per click," “hot leads to the customer,” or “commission on a sale facilitated.”
While this model does provide promising signs of funding the extension service at scale, it is bound to enter the conflict-of-interest zone. This model may undersupply information on agricultural techniques that are preventive in nature and do not involve input purchases. This model might also end up as a channel of false or misleading information based on differing needs.
Historically, the government has been running agriculture extension services and is thus privy to vast institutional knowledge. However, what makes them perfect for implementing a digital agri-information service is that they have access to farmers’ data. This gives them tremendous power to draw farmers to their platform and have an impact at scale. However, a government solution can have its unique kind of failure.
1. Lack of agility
A high-quality digital agri-information service requires a design thinking approach, continuous inflow of feedback, and agile product development. Governments are rarely known for such kind of nimble product development. Technologies designed by the government have poor UI/UX. Agricultural information provided by them is often too technical or complex for an average farmer to understand.
Case in point: A 2017 study highlighted that improvements in the government’s soil health card led to increased baseline comprehension from 8% to at least 40%. But government departments rarely collect feedback and undertake rapid iterations.
2. Conflict of interest
The government can hide, distort, or push different information based on their policy goals of national food security, food export commitments, or environmental targets. In addition, if government systems grow, input sellers may start lobbying or bribing government officials to recommend their brands instead of others.
A New Model?
Funders and non-profit entrepreneurs are exploring a new business model, one that minimizes the above-mentioned product design failure and plays on the strength of the government to reach a large number of farmers. In this model, funders provide the initial risk capital for designing, iterating, and scaling a quality information delivery service in partnership with the government.
Here, research on the Government of Andhra Pradesh’s adoption of a video-based agricultural extension program pioneered by the NGO Digital Green offers valuable insights. They suggest three main stages of this model:
Initial phase - the NGO demonstrates the impact potential and scalability of the intervention.
Transition phase - the NGO identifies opportunities to integrate the solution into existing systems and processes.
Sustainability phase - When the intervention starts to run smoothly, the NGO passes the ownership of the model to the government.
Precision Development (PxD) also experimented with a version of this model in partnership with the Government of Odisha. They created the Ama Krushi advisory program on crops, fisheries, livestock, poultry, and kitchen gardens. In a short period, the Ama Krushi program reached 2 million farmers in the state. Now, PxD has handed over the day-to-day management of the service to a company contracted by the government.
We are cognisant that this model is based on a shaky assumption. That is, an iterative design methodology is needed only in the initial years of a product cycle, and once a certain level of product maturity is achieved, it can be run by the government without many changes. This assumption breaks the key principle of continuous product development for achieving transformative impact at scale.
We continue to explore different business models that assure financial sustainability while scaling impact. Until then, building quality information delivery services on the pathway of collaboration and continuous innovation holds great promise.