The landscape of African agriculture is dominated by smallholder farms that typically cannot support capital-intensive technology.
During a panel on agri-fintech at the World Agri-Tech Innovation Summit Dubai in December, panellist Alexander Fankuchen, critiqued agtech business models that position smallholder farmers as paying customers
“If you look at African agriculture, it is largely made up of very small farms that drive the food supply but remain highly underproductive… I am very sceptical of any business that claims it can make money by selling to smallholder farmers. I do not think that is a viable starting point for a commercial business,” said the co-founder and CEO of Cinch, a company that consolidates fragmented smallholder farms into larger units to manage.
“There are many well-intentioned companies and organisations trying to do this, but they are often better suited to being non-profits or development initiatives. Trying to build a for-profit business by selling to smallholders, or treating them as customers, is extremely difficult, if not impossible.”
Fundamental problems
Fankuchen highlighted two main reasons for this based on his personal experience with hundreds of smallholders.
Firstly, he challenged the prevailing assumption in the sector that smallholders farm by choice and can pay for solutions such as irrigation, tractors, digital platforms, or AI-powered inputs.
“There is a faulty assumption that they want to be farming in the first place. We rarely talk about this. We assume people farm because they choose to, when in reality many farm because they have no other option.”
Secondly, the structural limitations of farm size mean that even well-intentioned interventions can fail to scale.
“Even if every smallholder did want to farm, there is a structural barrier to making money, and that is simply farm size. On farms under 10 acres, which is how smallholders are typically defined, it is impossible to sustainably pay for investments such as irrigation. No amount of cross-subsidy, carbon credits or other mechanisms will consistently pay for a pump on a farm of that size, especially when it breaks and needs repair.”
He added that transaction sizes were simply too small to sustain commercial returns.
“Even with perfect infrastructure and frictionless transactions, which Africa does not have, the transaction sizes are simply too small for these business models to work.”
Fankuchen explain how Cinch adopted the opposite approach by starting with scale.
“At Cinch, we help smallholders turn their idle land into income. And we do that by leasing land from smallholders. We aggregate it into large commercial tracks, and then we invest in and operate commercial farms on land owned by smallholders, and the smallholders draw a passive income during the lease period.”
The effect on incoming capital
Fankuchen argued that this was why venture capital has retreated from African agtech.
“The reason that capital has pulled back from these markets is because these business models are flawed. It’s a flawed business model if you’re trying to sell someone who makes $100 a month a product that costs them $20 per month to lease or to buy – that just doesn’t work.”
He called for more urgency within the sector to move beyond such flawed models and tackle the structural issues head-on. If not, agtech will continue to struggle to attract sustainable investment or deliver meaningful productivity gains.
