How to Support Entrepreneurial Ecosystems in Agriculture
By Hamza Shad and Martin Pickering
A new report by Endeavor Insight, with support from the Lemelson Foundation and Small Foundation, draws on the experiences of successful founders to understand how entrepreneurial agriculture companies can maximize their impact in developing countries. The study provides a data-backed assessment of the challenges and opportunities for entrepreneurs, based on original data from more than 250 companies operating in sub-Saharan Africa and India.
Building on a growing body of research in the international development and social investment communities, Endeavor Insight’s unique approach applies two lenses to its analysis: a focus on the types of innovation that founders have created, as well as an examination of the dynamics within certain agricultural value chains.
The results offer guidance for capital providers, support organizations, and other decision-makers who work with entrepreneurs as they address the Sustainable Development Goals (SDGs), especially in raising the incomes of smallholder farmers, creating transformative solutions that can address global food security, and generating high-quality jobs. Several barriers limit global efforts to advance the SDGs, but agricultural entrepreneurs are addressing them through innovation. The study also takes into account the impacts of the COVID-19 crisis, which has increased global poverty and food insecurity.
Analyzing Innovation Types
An examination of agriculture companies by their innovation type revealed the specific strengths that each have in helping achieve the SDGs, which interested the Lemelson Foundation given its focus on the role of inventions in addressing global challenges. The three innovation types considered in this report are:
- business process companies, which primarily deliver a product or service that requires “on-the-ground” operations, and may also involve the use of technology;
- invention-based enterprises (IBEs), which conduct research and development, and manufacture at least one component that is a physical product; and
- software companies, whose primary activities are in developing and selling digital solutions and platforms, such as e-commerce or financial technology.
Endeavor Insight examined top-performing companies of each type to understand how entrepreneurs are overcoming challenges. Because of their cost efficiency and the nature of their digital products, software companies have a comparative advantage in reaching smallholder farmers. IBEs offer cutting-edge solutions that can enhance crop yields, improving food security and reducing poverty for farmers. Finally, the model of business process companies requires more personnel for logistics and operations, so they are well placed to foster job creation.
Examining Value Chains
In addition, an analysis of value chain dynamics and their impact on farmers interested Small Foundation, given its dedication to rural development and poverty alleviation. Entrepreneurship evolves differently within value chains, based on the type of product and the position of the company. This is seen by a comparison of the export-focused Kenyan macadamia and domestically-focused Nigerian maize sectors. The positions along the value chain that companies can occupy are:
- upstream companies, which provide the inputs and equipment that farmers need to grow their crops and increase yields;
- midstream companies, which provide a range of services to farmers, such as fintech and transportation, to enable them to run their businesses and sell their produce more efficiently; and
- downstream companies, which purchase farmers’ produce and process, sell, and/or export it to reach the consumer.
In the Kenyan macadamia sector, upstream companies serve the greatest number of farmers, increasing the efficiency of crop production. In the Nigerian maize sector, midstream companies serve the most farmers, and they contribute directly to improving smallholder farmers’ business operations.
Kenyan macadamia is export-focused, which may explain its heavy concentration of expat founders and strong connections to foreign capital and mentorship. These attributes may be beneficial for scaling, but not for building linkages to local actors like farmers. In contrast, domestically focused value chains with more local or returnee founders, such as Nigerian maize, succeed more in social impact, but need more assistance accessing capital.
Entrepreneurial Challenges & Networks
Access to capital is the greatest challenge reported by founders of agriculture companies given investors’ perception of risk in the sector, and this especially affects IBEs. COVID-19 has exacerbated capital-related challenges, but also created opportunities to access funding remotely. Other major challenges include access to talent — both managerial and technical — and government policies.
Entrepreneurial networks have various features that can impact the trajectory of individual companies. The presence of high-quality mentorship within a network, particularly from those with relevant agricultural experience, can be pivotal in helping companies scale and raise capital. Support organizations play a positive role in providing access to funding and networks, but existing programs are not always tailored to the needs of the agricultural sector.
Analysis of founder backgrounds demonstrates a systemic feature of these networks: teams made up of all-local founders face more barriers to raising capital and scaling than teams with at least one expat or returnee (a founder who gained educational or professional experience abroad). Previous Endeavor Insight research offers an approach that decision makers can use to support the success of more local founding teams.
Endeavor Insight’s report ends with practical recommendations for addressing the major challenges that founders face, with specific guidance for entrepreneurs, investors, support organizations, donors, policymakers, and universities.
- Reframe agriculture as a strategic investment, while helping founders secure capital at different stages of development.
- Build specialized pipelines for technical and managerial talent.
- Tailor support programs to the needs of the sector and specific innovation types.
- Prioritize mentorship from local actors with agricultural experience.
- Provide an enabling environment for founders that facilitates entrepreneurship.
Ultimately, local innovation and entrepreneurship in agriculture in sub-Saharan Africa and India will enable these developing regions to achieve positive outcomes in poverty alleviation, food security, and job creation.
The full report can be accessed at: endeavor.org/entrep-in-agriculture.
About Endeavor Insight
Endeavor Insight is the research division of Endeavor, a nonprofit organization with a 20-year history of supporting high-impact entrepreneurs around the world. Our team of economists, data scientists, and policy analysts provide data-backed insights on entrepreneurship and its contribution to economic development. We specialize in understanding how entrepreneurship networks can drive job creation and inclusive growth. We partner with organizations that support entrepreneurs, including foundations, multilateral agencies, and corporations.
About The Lemelson Foundation
Based in Portland, The Lemelson Foundation uses the power of invention to improve lives. Inspired by the belief that invention can solve many of the biggest economic and social challenges of our time, the Foundation helps the next generation of inventors and invention-based businesses to flourish. The Lemelson Foundation was established in the early 1990s by prolific inventor Jerome Lemelson and his wife Dorothy. To date the Foundation has made grants totaling more than $290 million in support of its mission.
About Small Foundation
Small Foundation is a philanthropic foundation based in Ireland that is working to catalyse income-generating opportunities for extremely poor people in rural sub-Saharan Africa. Small Foundation’s goal is to improve the business ecosystems that proliferate income opportunities for those in extreme poverty by expanding the access of micro, small and medium-sized enterprises (MSMEs) to knowledge, skilled human resources, finance, technology, and markets.
Hamza Shad is a Senior Associate at Endeavor Insight.
Martin Pickering is a Research and Publishing Assistant at Endeavor Insight.