Sourcing Agri-products in Africa, No Longer a Pain in the A**

Building in Public Issue 1: What valuable company hasn’t been started yet in Africa’s agricultural sector?

You may have heard of GitHub, the renowned platform often referred to as “Facebook for nerds, Wikipedia for programmers, or Twitter for code.” It’s a true powerhouse that embodies various functionalities. But what made GitHub stand out was its ability to solve the problem encapsulated in its first slogan: “Git hosting, no longer a pain in the ass.”

Let’s delve deeper into this concept of “pain-in-the-ass costs” as described by Alex Moazed and Nicholas L. Johnson in their book, “Modern Monopolies: What It Takes to Dominate the 21st Century Economy.” These costs, known as transaction costs, encompass the expenses incurred during trade or exchange activities.

According to the authors, transaction costs fall into three main categories:

1. Search and information costs: These costs arise when sourcing or finding specific goods, as seen in the pre-Uber era of hailing taxis.
2. Bargaining costs: These costs arise during the process of reaching an agreement with another party, much like the negotiations over taxi fares before the advent of Uber.
3. Enforcement costs: These costs arise from ensuring that the exchange of value occurs correctly. For example, Uber’s driver profiles and ratings provide accountability and help identify and address bad actors.

Apart from reducing transaction costs, all successful platforms also enable complementary innovation. Consider how GitHub empowers software developers by offering an effortless way to host and manage projects.

Now, let’s apply these concepts to our African agri-tech startup. Here’s how our platform can fulfill the criteria:

1. Reduce transaction costs:

• Search and information costs: After conversing with food business owners in Nairobi, we discovered a common pain point they face is inconsistent supply from their food suppliers. This issue stems from a linear network of producers, which exposes them to numerous farming risks. As a result, these business owners must constantly communicate with multiple suppliers to increase their chances of sourcing the desired products.
• Bargaining costs: During our discussions, we found that the unpredictable nature of food supply in Africa leads to price fluctuations, making it challenging for businesses to budget effectively.
• Enforcement costs: Further conversations with food business owners revealed another significant challenge. When purchasing food in bulk, bad actors often mix spoiled products with fresh ones due to the lack of accountability in the supply chain.

2. Analysis using the five-question framework:

• Can technology reduce transaction costs and remove gatekeepers? Absolutely. The African food market has an uneven distribution of supply, resulting in resource wastage and food loss. By leveraging technology, we can consolidate data on product availability and match buyers’ needs with suppliers, significantly reducing costs.
• Is there an implicit network? Yes, there’s an implicit network comprising farmers and distributors responsible for bringing products to urban areas. However, this network is currently inefficient and fragmented.
• Is the supply large and fragmented? Indeed, the supply of food in Kenya largely comes from small-scale farmers, resulting in fragmentation. Although distributors exist, they compete in a market where the products they sell are undifferentiated commodities.
• Can a platform enable complementary innovation? Absolutely. Our platform will provide opportunities for logistics professionals to deliver products efficiently. Additionally, it will offer information and best practices for entrepreneurs investing in agriculture, fostering innovation.
• Is the market big enough to justify a platform? Undoubtedly, agriculture is Africa’s backbone, contributing significantly to its GDP and the livelihoods of millions.

3. The type of platform that solves these problems: To address these challenges effectively, we envision creating a product exchange marketplace that matches small-scale producers to food businesses.

Insight: Agricultural products are fully commoditized, meaning consumers primarily care about characteristics like freshness and price rather than cultivation methods.

To create a seamless experience, our platform will prioritize matching consumers with available producers. Building a highly liquid marketplace with sufficient overlap in supply and demand will be crucial.

Drawing lessons from Alibaba’s early days, we can adapt successful strategies:

1. Optimize the core transaction

• Create: Producers make their finished products available on the platform
• Connect: Buyers search for the desired products, initiating connections with producers
• Consume: Consumers find suitable matches in terms of quantity, distance, etc., and receive the products
• Compensate: After verifying product satisfaction, funds will be released from the escrow system.

2. Audience building: To establish a viable marketplace, we must actively engage two user groups: producers (small-scale farmers/distributors) and consumers (food business owners).

3. Matchmaking: Develop an optimal method for connecting the right buyers to sellers at scale, ensuring efficient transactions.

4. Creating rules and standards: Building trust is essential. We will implement systems and procedures to weed out bad actors and protect all users.

5. Core tools and services: Simplicity is key. Self-service tools for product uploads and centralized customer support will optimize each step of the core transaction.

The Key: Developing software can be time-consuming and expensive. Instead, we’ll launch our tech company without custom software. By integrating free or affordable plug-and-play tools, we can swiftly build and test our idea within a few weeks. Speed and user involvement will be paramount to our success.

Together, let’s revolutionize the African agri-tech industry, creating a platform that eliminates pain points, maximizes opportunities, and connects producers and consumers seamlessly.

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By Max Getuba

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Entrepreneur, Impact Investment Analyst, and Podcaster on a mission to build the world’s most talented, hyper-ambitious, impact-driven community of capitalists. Join me on this journey of self-discovery, personal growth, and empowerment.