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Essential Considerations For Every New Agribusiness

Essential Considerations For Every New Agribusiness

Essential elements of an agribusiness

Picture this: you’re in a conference room, surrounded by mining executives.
You’re presenting your ideas for inclusive businesses investments, and their disposition is…a little hostile.
They’re sizing you up, and whilst they want your opinion, they also want to see if they can poke holes in your ideas.
That’s my job.

I’m asked one fundamental question: “Isaac, will this work?”
It’s a simple question, but not an easy question.
It’s the same wherever I go, be it a CSR project, an impact investment, an agricultural pilot or an incubator pitch event.
“Will this work?”

To answer this question, you need to have an opinion on ten smaller questions.
Each of those ten factors is made up of ten smaller pieces of information, like academic reports, informal conversations with industry experts, historic market data and things you’ve seen for yourself in-country.
That means you need 100 data points of information in order to properly handle the executive’s grilling. 

This is one of the core principles I teach social entrepreneurs – you can’t outsource these opinions.
You might not need to be an expert, but you should understand the current situation and the possible scenarios that could occur in the future.
This is necessary in order for you to be comfortable with the idea, let alone ask other people to put in their money.

Here’s the part that people don’t like: An idea that is 90% perfect isn’t good enough.
If there is a pinch point in the model, a weakness that can lead to a catastrophe, then all of the social impact and agronomics becomes irrelevant.
I’ve seen the devastation that comes from having a single buyer who then changes their sourcing policy, slamming the brakes on an otherwise great business.
Or the power imbalance that comes from having one ship travel to and from your island, charging whatever they like without guaranteeing a reliable service.
Or the beautiful idea that makes so much sense on paper, that is met with distrust and indifference from farmers during the pilot phase.

People hear this and immediately want to know what are the ten essential areas, and I tell them the same thing: It’s different for each industry.
That said, I’ll give you an overview on the kinds of topics you should be across.
Some of them will be a breeze, and others will make you nervous.
Use those nerves to strengthen your weak spots.

If you don’t feel like you know enough to have an executive or fund manager ask you where you got your data, now is the time to do a bit more digging.
This does not make you an imposter, instead it makes you well informed.
The executive doesn’t need to agree with you, they just need to see that you’ve thought it through.
Here are some examples, pick the top 10 points for your industry:

agribusiness essential considerations

How long does it take to get the first harvest?

Different crops take different amounts of time to yield their first harvest, and this presents some interesting trade-offs.
There are many crops that you can harvest within a few months, some are staples like wheat, corn and rice, whereas others are more valuable like tomato, chilli or stevia.
Others might take five years, and are generally more valuable, like nutmeg, macadamias or mango.
These aren’t fixed either, some varieties can lead to faster harvests, but the seedlings might be more expensive or harder to import.

How much can you grow on a hectare?
In some parts of the world (like South East Asia), land is quite scarce and plots remain in families for generations.
In other parts of the world (like Papua New Guinea and the Pacific), land is plentiful but hard to reach.
Google can tell you how much of a crop can be grown on a hectare, but context is important.
e.g. a farmer in Thailand might be able to grow 70 tonnes of pineapples on a hectare of land, but that probably won’t translate to other situations, where you might get one third of that.
Do your farmers prioritise diligence and yield, or are they focused on the effort vs reward equation?
You want to estimate how much can be grown on a hectare in your circumstances.

What is the soil like?
Not all crops grow equally well around the world – partially due to the weather and also the soil.
Soil is interesting because it might vary from village to village, even though the temperatures are the same.
You want the soil to have the right properties to give the crop the best chance of success, e.g. pH, clay content, amount of aggregate, depth, etc.
Some of these can be supplemented with fertilisers, but it might be easier to pick a crop that matches the strengths of what you have.

What are the local pests and diseases?
Your harvests can be devastated by a disease or a pest, some of which can strike without much warning.
For example, pests like the coffee berry borer can disrupt entire industries, and a mitigation strategy is essential.
Just because there isn’t an issue today doesn’t mean you don’t have to think about the future, so you want to understand what small steps can be taken early on to prevent a disaster in the future.

What is the minimum/maximum number of participants?
For some projects, the aim is to have farmers sell into a fixed market.
In these scenarios, you probably don’t want to teach every household how to grow the exact same crops, or you’ll flood the market and decrease their earning potential.
On the other hand, if you’re selling to a commodities trader or are building a factory, you’ll have a minimum quantity requirement.
Based on the above factors, how many tonnes/hectares/farmers do you need for the business to succeed?
Have you factored in an attrition rate?

How might we boost yields?
A lucrative question that can make or break an idea.
It is generally easier to increase a farmers yield than it is to bring on more farmers, and it earns each household more income (which is often the purpose of the business).
Boosting yields can come through better quality inputs like seeds, seedlings, crop protection products, mechanised planting, fertilisers and no-till methodologies.
It can also come through training and ongoing support from extension workers, who train farmers and keep up their plot maintenance throughout the year.
There is a cost-benefit decision here, so you want to think through which ideas are both feasible and viable.

Can we intercrop with something complementary?
Intercropping is the practice of planting two plants on the same plot of land, because they give you a better result than one crop on its own.
For example, you might have a vulnerable crop that can receive protection from another, making it less exposed to the sun and the wind.
They might drain and add different minerals from the soil, or take different amounts of time to harvest.
e.g. coffee can be intercropped with chilli, which returns an income in a short space of time while the coffee trees mature.
This also diversifies the farmer’s source of income, another layer of defence against pests and market downturns.

How might technology improve our results?
There are a wide range of ways that technology can improve farming.
These include sensors that measure soil conditions and plant health, drones that monitor plantations, SMS services and mobile apps that give farmers advice and price updates, or trading platforms that connect growers directly to buyers.
Again, it’s a cost-benefit question, but it’s worth looking at the innovations that could solve your agricultural challenges.

agribusiness farmer interest

Will people go for it?

This is the biggest question when it comes to motivation.
You might have all the answers when it comes to the feasibility of the crop/product/service, but if people don’t think “this is for me” then it won’t get off the ground.
This is playing to self-interest – how does this improve their life, not just the broader community.

Who could get the ball rolling?
You might find that influencers are a good way for getting your customers/growers to become intrigued.
For a new crop, a demonstration plot in a public area is a great way for people to visualise how they might benefit from trying something new.
For a product or service, it might be photos or videos of key influencers using it themselves, in order to remove scepticism and generate some momentum.

How easy is it?
Two crops with similar incomes may not require the same amount of work.
Crops like cassava are reasonably foolproof, whereas eaglewood requires technical precision and vanilla needs to be hand pollinated on one specific day.
Which would your farmer prefer?
This affects your yield calculations – for rubber it depends on the number of trees a farmer taps each day, not the maximum productivity of their land.
Coconut sugar can produce great results, but it’s a pain to climb the tree and to boil down the sap.
Some cultures are willing to do it, and some aren’t.

How crowded is the market?

This can be a literal marketplace in the centre of a village, or it can be the global commodities market – either way, how many other people are selling the same thing as you?
Oversupply can drive down prices, but it also ensures that the industry survives.
If there are lots of farmers growing cocoa, there’s likely to be a range of cocoa buyers visiting the area, which makes it easier to sell.

What do we think prices might do in the future?
There is no correct answer here, but you want to have an informed opinion and some mitigation strategies.
What happens if the price of your commodity drops by 20%? 40%? 60%?
What happens if it goes up?
Past performance is no guarantee of future performance, although if prices are record highs/record lows then some regression should probably be factored in.
Some price shocks are unexpected (e.g. drought on the other side of the world cuts supply, meaning that your crop is now twice as valuable as last year), whereas others can be countered through hedging and supplier agreements.

What do we think currencies might do in the future?
As above, you want an opinion and a mitigation strategy.
These currency shifts might seem a boring topic, but a 20% swing can sink your whole concept (or massively boost your revenues).

Who are our best buyers?
Best is a subjective word, and there are a number of considerations.
Who has the biggest appetite for what you’re producing?
Who pays the most?
Who has the greatest commitment to the region/project?
It might be that the “best” buyer is the one who pays less than other but is almost guaranteed to still be trading in 10 years’ time.
Once you know who they are, what is most important to them?
What steps can you take to ensure they will stay with you for years to come?

agribusiness logistics

What is the path to market like?

In some areas, this is a literal path – one which can be blocked by floods and landslides.
You want to think through plans B, C and D to ensure that a weather event or civil unrest doesn’t paralyse your entire operation.
This includes getting from farm to aggregation centre, then to port, then to the offtake partner, and this will affect what you choose to sell.
For example, frozen products are valuable, but difficult to keep cold in some areas.
The same goes for crops that spoil, or contain a lot of water.

What is the smallest change that could ruin our plan?
This is black-hat thinking that could highlight vulnerabilities in a safe and helpful way.
If you had to design something little that would interfere with the operation, what would it be?
A broken-down truck?
Your buyer changing their procurement policies?
A power outage at the port?
Local holidays that shut down production for a week?

Can a partner improve our logistics?
In starting this project/business, you get to choose which areas will be your speciality and which can be outsourced.
Logistics are a prime candidate, especially if you can find partners who have spare capacity in their existing supply chain.
For example, are there businesses who import full containers into your area, then ship the empty ones back?
If so, there’s an opportunity to send your products back to the port at a lower rate, without starting your own logistics business.

Image credit: Strategyzer

Image credit: Strategyzer

The Business Model Environment
This tool helps you ask good questions about the forces that influence your idea, but which are not directly within your control.
You want to see them coming, so that you’re not blindsided when the world changes.

What industry forces could affect us in the future?
There are a wide range of competitors that could affect the business, some of them are obvious, some will be new entrants and some will be direct/indirect substitutes.
Either way, you’ll want to have an understanding and opinion on each of them, in order to see what they’re up to and to make wise decisions accordingly.

What key trends will change our plans for better/worse?
Changes in technology, regulation, legislation and culture will permeate all aspects of your idea.
These can be used to your advantage (e.g. improving harvests or marketing) or disadvantage (restricting how you export your products or reducing cultural acceptance of your model).
Your ideas are not formed in a vacuum, they’re created in the real world and must continue to adapt in order to stay relevant.
Keep an eye on local level governments, they have the ability to help or hinder your business, but generally you’ll be building something that does them a favour.

How might market forces affect our decision making in the future?
Your future customers may not exist right now, but you can begin to forecast their needs.
For example, some food and beverage manufacturers are interested in securing a supply of stevia, but this will almost definitely change in the next three years.
It will either take off, or it will become obsolete, and you want to gather information to get a sense of which way the market is moving.
This also includes new customers who do not yet exist, or businesses that haven’t yet moved into your industry but will in the future.
This is especially relevant for young people, who might not see your industry as being a noble calling.

Which macro-economic forces will impact our business?
Whilst these forces cannot be controlled, they can be pre-empted.
If there is a recession or drought, the issue of food security will change a family’s willingness to grow cash crops.
Changes to global markets and politics will affect demand and the ability to trade with other countries.
Access to capital will restrict and empower new growers, who need a loan to set up their plots and acquire the necessary tools.
Offtake partners might adjust their purchasing based on global prices, such as biscuit manufacturers turning to wheat substitutes when prices increase.

cocoa in agribusiness

These questions should not scare you too much, there’s a lot to take in but the information is quite easy to access.
It might be through Google Scholar or the FAO, meetings with prospective partners or some frank conversations over drinks with local experts.
Either way, the more data you can gather the better.

Marc Andreesen has this great term to describe his stance: Strong opinions, loosely held.
It’s a good description of the mindset you need in the early stages of an idea.
Without strong opinions, you won’t get anything done – the analysis paralysis wins.
Holding them loosely means that when new information comes to light, you’re happy to switch to a better idea.
This isn’t flip flopping, it’s common sense; why would you stick with a losing idea?
(Rhetorical question, but generally the reasons are ego and laziness).

Try it yourself; do your homework, ask lots of “what if” and “how come” questions in order to form some strong opinions.
When presenting your ideas, hold them loosely but speak with confidence.
You’re happy to change your plans when the facts change, and are willing to pivot if it boosts your chances of success.

Trust vs Price

Trust vs Price

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