Continuing to improve energy access for smallholder farmers

A year into our Catalysing Agriculture by Scaling Energy Ecosystems (CASEE) partnership with the UK Government, we continue to support smallholder farmers in sub-Saharan Africa and South Asia to access energy.

Having launched with three investments into high potential social enterprises – S4S, Sistema.bio and Rent to Own – we have continued over the 12 months to make a series of investments to build out the CASEE portfolio and help farmers to improve their productivity and to increase their incomes.

Improving farmers’ income levels and energy access

The hypothesis behind CASEE – and behind all the investments made so far – is that an ecosystem approach is needed to stimulate the wider adoption of energy enabled assets for productive use among low-income, rural households. This is based on:

SF’s experience catalysing the household energy sector, which has demonstrated that while supporting product companies is important, so too is the need to directly support other elements of the ecosystem, such as consumer financing and last mile distribution
Growing evidence of a strong positive feedback loop between increased incomes and take-up of productive use energy above a certain income threshold[1]^,[2],[3]

These gives a clear rationale upon which to invest. But we also have increasing evidence that there are two key aspects that are hampering growth:

The first is that energy for productive use and the myriad benefits it brings appears to remain out of reach for the poorest. Despite our portfolio companies working at the very edge of where commercial models can be effective, we have mounting evidence that the very poorest customers remain out of reach.[4]
The second is that low income farmers in the geographies in which SF work face a huge range of risks, forcing them to be ‘present-biased’. There is strong evidence that even when low-income farmers understand the potential income increases something can bring in the future, they focus their spending on the most immediate concerns they face. They face so many risks that they are biased toward the most pressing risks, leaving them unable or unwilling to invest in their futures.[5] Two randomised control trials in Ghana, for example, found that providing crop insurance to farmers, mitigating the key concern faced by farmers, enabled farmers to ‘find resources to increase expenditure on their farms’.[6]^,[7]

Lady farmer in Africa in field of crops watering plants

Our hypothesis, and these two key barriers, underpin the investments that we have made so far this year.

We are supporting companies that provide direct access to energy for productive use. These include:

InspiraFarms

The development issue: Fresh produce industries across East and Southern Africa are limited by the poor supply of affordable and efficient post-harvest cold-chain technology and technical services. This leads to significant post-harvest food loss, with impacts ranging from increased food insecurity to lower levels of market access among smallholders.
The response: Inspira Farms will continue its existing work with SF to refine and scale cold-storage solutions which are designed specifically for growing agribusinesses and their respective smallholder suppliers in emerging markets, including through offering generous repayment periods and high levels of technical assistance and remote data monitoring services to encourage uptake and use

Find out more about InspiraFarms

SunCulture

The development issue: access to reliable water supply is a pivotal factor for the yields of smallholder farmers across the world. Too few smallholders, however, are currently able to control their water supply, and instead are dependent on rainfall.
The response: SunCulture, who were featured in the innovation hub at the UK-Africa Investment Summit earlier this year, provide pumps that enable smallholders to leverage water from deep sources using clean energy, and to use it for both farming and household needs. SunCulture is going to explore new ways of integrating technology into its products to enable farmers to operate with more certainty and confidence.

Find out more about SunCulture

We are also supporting businesses that help farmers to be more secure in thinking about the long-term (e.g. through the provision of credit, insurance, or a contract for produce), enabling them to gain greater resilience and move toward being able to invest in productive use energy assets and the positive feedback loop noted above. These include:

Pula

The development issue: we know that smallholder farmers invest a significant portion of their incomes into their farms. They are vulnerable to uncontrollable external factors ranging from climate change, droughts and pests. Despite this need, there has been little success in scaling models of for agricultural insurance across sub-Saharan Africa, which remains extremely limited.[8]
The response: Pula’s innovative approaches to offering crop-insurance will expand and improve existing channels for smallholders to access insurance, including exploring how to bundle insurance products with productive use assets and agronomy knowledge to help farmers benefit from a combination of better productivity and reduced risk.

Find out more about Pula

Amiran / Project Madaraka

The development issue: many agricultural SMEs in emerging markets, and particularly in Kenya, are unable to obtain the financing they need to purchase productive use assets, caused by a limited formal credit history or collateral. This prevents them from fully resourcing their business or investing in key areas, leaving them with low levels of mechanisation and digitisation, stymying the development of profitable operating models.
The response: last year, Amiran piloted a new asset financing arm called Madaraka. Through this renewed engagement, Madaraka is aiming to scale up its operations and finance a wider range of productive use assets to agricultural SMEs

Find out more about Project Madaraka

Responding to Covid-19

Our progress has, of course, been impacted by Covid-19. Smallholder farmers are among the most vulnerable to the changes affected by the pandemic and we are in the privileged position to consider how best to use our resources to respond. With the support of our partners in the UK government, we are currently exploring the most effective ways to work with social enterprises to improve food security ecosystems in particularly food insecure areas.

[1] Shell Foundation (2017). ‘Promoting productive uses of energy in Uganda.’ Available at: https://bit.ly/3cUizQB.

[2] World Bank Group (2017). ‘Double Dividend: Power and Agriculture Nexus in Sub-Saharan Africa’. Available at: https://bit.ly/3e2Ad4R.

[3] Lighting Global (2019). ‘The Market Opportunity for Productive Use Leveraging Solar Energy (PULSE) in Sub-Saharan Africa. Available at: https://www.lightingglobal.org/wp-content/uploads/2019/09/PULSE-Report.pdf

[4] Results from ‘lean data’ studies carried out by Acumen / 60 decibels of SF portfolio companies between 2017 and 2020.

[5] Duflo, E., Kremer, M., and Robinson, J. (2011). ‘Nudging farmers to use fertiliser: theory and experimental evidence from Kenya’. In American Economic Review, Vol. 101, No. 6, October 2011 edition. N.B. Duflo and Kremer focused on fertiliser, but the behavioural implications of their study apply more widely.

[6] Karlan, D et al (2014). ‘Agricultural decisions after relaxing credit and risk constraints’. In The Quarterly Journal of Economics, February 2014 edition.

[7] Kemeze, F. (2018). ‘The impact of agricultural insurance on the demand for supplemental irrigation: a randomized controlled trial experimental evidence in Northern Ghana’. In Building a Resilient and Sustainable Agriculture in Sub-Saharan Africa, pp. 181-206.

[8] Ntukamazina, N. et al (2017). ‘Index-based agricultural insurance products: challenges, opportunities and prospects for uptake in sub-Saharan Africa’. Available at: https://www.researchgate.net/publication/322725999_Index-based_agricultural_insurance_products_Challenges_opportunities_and_prospects_for_uptake_in_sub-Sahara_Africa.