Hello, “Hello Tractor”!
Challenged with information and technology gaps within their agricultural system, Nigerian farmers struggle to optimize crop performance. One company plans to change this by revolutionizing an unlikely tool.
Nigeria’s Complex
With over 84 million hectares of arable land, of which only 40% is cultivated1, Nigeria is primed for agricultural growth. However, major constraints stand in the way of Nigeria’s primarily smallholder farmer base. In order for Nigeria to catalyze its agricultural prospects, it must resolve challenges prevalent in the country’s agriculture sector. These issues include a lack of information, and limited access to modern technology and credit for farmers.
The Challenges
The dissemination of information is critical to farming. Farmers rely on knowledge of new innovation, modern farming techniques and weather patterns to increase productivity. Consequently, agricultural extension agents – institutions that utilize knowledge gained through research and education to provide non-formal education and learning activities to help farmers – play a crucial role in the agricultural supply chain. In Nigeria, there is a gap between farmers and the vital information that they require. This is mainly due to weak interagency cooperation in both program planning and implementation2.
In addition, Nigerian farmers suffer from a lack of modern agricultural technologies. These technologies could help ease the burden of laborious farming duties as well as increase productivity for farmers. To date, Nigerian smallholder farmers use traditional manual-farming-methods. Because of this, their crop yields suffer and they remain vulnerable to externalities, such as climate change, that will inevitably lead to a scarcity in food supply. With an increase in productivity, farmers can tackle problems such as food scarcity, which is expected to affect 35 million Nigerians3.
Although the gap between Nigerian farmers and the information they require is wide, the financing gap between Nigerian farmers and Nigerian banks may be even wider. Due to the relatively less riskiness of industries like real estate, construction, telecommunications, and oil and gas, Nigerian banks have a tendency to neglect the agricultural sector. This is so prevalent that according to the Core Welfare Indicators Questionnaire Survey, it is estimated that only 18 percent of farm households (mainly small- scale farmers) have access to financial services4. Subsequently, Nigerian farmers cannot afford to acquire the technology necessary to optimize their productivity.
An Answer at Abuja
In response to these challenges, an agriculture technology company in Abuja, Nigeria, Hello Tractor, is using digitization to revolutionize a staple of the farming industry. Hello Tractor is attempting to combat the issues plaguing Nigerian farmers by introducing Nigeria’s first “smart” tractor. Priced at $4,000 (roughly $36,000 below the price of a typical entry level tractor), Hello Tractor’s flagship product offers a low-cost option for farmers to meet consumer demand. Each smart tractor boasts a GPS antenna, notifying users on when the tractor needs maintenance. The company can also identify each tractor’s location and connect farmers who need tractor services with tractor owners, and cloud capability enables the tractor owner’s to receive key insights, including weather data, directly to the tractor. Yet, even with all these added benefits, the smart tractor’s most impressive trait is that it cuts labor costs by two-thirds5, further giving farmers the edge to push up profitability.
Proposal
Despite Hello Tractor’s sector-disrupting impact and success, there is always room for improvement. Specifically, there is an opportunity for Hello Tractor to reduce the financing gap that is inhibiting Nigerian farmers. Hello Tractor can strategically partner with banks and farmers within its network to fund the sale of smart tractors to farmers, using the tractors as collateral. In Addition, farmer payment data can be distributed to Nigerian banks to show payment history of farmers. Banks can use this information to help underwrite loans to qualified farmers. With these developments, farmers can begin to assume the vital role that they are destined to play in Nigeria’s economy.
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1http://fmard.gov.ng/
2http://www.idosi.org/aerj/5(2)15/1.pdf
3http://guardian.ng/news/food-scarcity-threatens-35-million-nigerians/
4 http://www.idosi.org/aerj/5(2)15/1.pdf
5 https://www.washingtonpost.com/business/sowing-self-suffiency-in-africa-with-a-maryland-made-hello-tractor/2015/09/11/20dd3aa0-564e-11e5-8bb1-b488d231bba2_story.html
http://www.our-africa.org/nigeria/climate-agriculture
http://dalberg.com/blog/?p=2606
Really interesting post Zach! I love the virtuous cycle created by getting a tractor, collecting data, sharing data, becoming more productive, helping improve lending practices, enabling the sale of more tractors, etc. I am curious how expensive $4000 tractors are for Nigerian farmers? Is access to credit for these kind of purchases realistically available or does more need to be done to open lines of credit to farmers with little collateral (aside from the potential collateral of the tractor itself)? Are there any worries about the recurring costs of upkeep, fuel, etc that might make the tractor even more expensive?
I believe that access to credit is realistically available but there is definitely more that can be done in terms of opening more lines of credit to farmers. I think one obvious form of collateral in this case would be the actual land that the farmers are using. However, the issue of land rights in Nigeria make this relatively difficult. Your comment on maintenence CapEx is well noted, I’m not sure what the exact costs related to those expenses are. Nevertheless, I am aware that the smart tractor does reduce production costs by up to 60% according to this Hello Tractor presentation: http://agtech.partneringforinnovation.org/servlet/JiveServlet/previewBody/1337-102-1-1452/Hello%20Tractor_Teaser.pdf
Really interesting post, Zach! I was really curious as to how Hello Tractor is able to price significantly lower than the typical entry level tractor. I did some quick research and it appears that they may be doing this through a lower horse power. According to an article I found, I looks like the horse power of the average tractor is 55 horse power compared to Hello Tractor’s 15 horse power. (http://www.npr.org/sections/goatsandsoda/2016/03/29/472129577/meet-a-tractor-that-can-plow-fields-and-talk-to-the-cloud) I wonder whether that difference will have significant implications on performance and whether Hello Tractor will require higher maintenance costs / have a shorter lifetime. One could argue that’s fine though because even making this equipment attainable for a small farmer is a considerable accomplishment.
The same article mentioned above also addresses the controversy of the labor implications of tractors. The author describes “On the one hand, they can help small-scale farmers plant on time in an efficient, cost-effective way. And if the farmer doesn’t have enough laborers, the tractor is invaluable. In places where there are laborers, however, tractors get the blame for taking workers’ jobs.” This is interesting because the benefits of digitization aren’t always black and white and there are often losers (in this case displaced workers) in the equation.
I looked into the affordability of the tractor and found out that Hello Tractor does in-fact coordinate low-cost financing to assist low level farmers in smart tractor purchases. For the most part, it appears that Hello Tractor’s main clients are NGO’s and private sector players who can afford batch purchases of the tractor. I think another key here is that farmers will maximize their productivity which will in turn provide them with more income. Also, farmers are able to provide ancillary services to neighboring farmers using their smart tractor, this introduces another source of income. This optionality provides financial sustenance to afford tractor upkeep.
Zach, I really liked your post. I appreciate Kamisha’s comments as well shedding some light on the pricing aspect of the tractor.
I am more curious about the role of the cloud interface on the tractor – it sounds similar to eChoupal’s business model value add, but is that necessary on the Nigerian farmer’s end these days? Isn’t mobile access to the internet and weather information fairly ubiquitous through mobile in Nigeria? Perhaps, the applications of GPS integration are still unseen as it can give feedback on “overfarming” an area to the farmer. Additionally, there should be some significant benefits to the company if it is gathering this data. I wonder how the company can best utilize this data to add value for farmers. Perhaps the value of the data, if sold by the company, can help to subsidize costs of the tractors – creating wider integration of Hello Tractor on more farm fields.
Introduction of tractors was a massive disruption when it entered the agribusiness industry in the developed countries, but here the jump is even bigger as Nigerian are moving directly to a bundle of improved agricultural tools associated with new technologies. What we have seen in the developing countries though is that some farmers were able to leverage their first mover advantage to get bigger and bigger crops and extend their farms by acquiring smaller ones and then benefit from economies of scale to lower their selling price. This made the competition even harder for smaller farmers that could not afford such technology. Do you think that the threshold of $4,000 is low enough for most of the farmers to invest in it or it will probably benefit only to the small richest percentage of the farmers?
Great Article. Got to meet the impressive team behind Hello Tractor sometime last year in Nigeria. Their solution has far-reaching net-positive implications for on farming practices and yields in the local Agric sector.
It’s my first time to hear Hello Tractor. It seems that the machine is a good replacement for labor intensive industry and its price is reasonable. What would be some challenges for Hello Tractor enter into every farmer’s home? Will farmers be able to operate the machine easily? Also, will machine increase productivity for farmers?
Interesting post! I see many similarities in the farmer situation in Nigeria and India. The agricultural sector in India constitutes a significant share of the economy (~17%). Hello Tractor’s solution can greatly benefit the Indian farmer too, who is burdened with many similar problems you outlined.
I was curious if you came across how this company could build a tractor with so many added features at such a low price – a $36,000 reduction is quite substantial! Did they use a different and highly advanced manufacturing technology? Additionally, do you think farmers in Nigeria can afford a $4,000 tractor, assuming they don’t get a loan? What would the approximate annual maintenance costs be? Lower than that for normal tractors?
I truly hope Hello Tractor can scale their product across Nigeria, even to other parts of the world, where such innovations are much required to meet global food needs.
Zach,
Terrific insight into a market that not many know much about. It seems as though the basic needs of the farmer in Nigeria are not being met and the availability of such a quintessential piece of farming equipment is a major step forward for the overall agrarian community in Nigeria. My question is around the other challenges facing the Nigerian market that are making the process off farming less of a sustainal source of food and income. One of the questions I have is around irrigation. We very often take our irrigation sytems in the US for granted but there could be opportunity in this space as well given the major impact of Hello Tractor. I look forward to exploring this market a bit more and to understanding the other needs. Thank you very much for your post!