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1.3 Mega-Trend Impacting Both Agricultural and Rural Economy

Technology and the Cell Phone and Internet Revolution

Cell phones and, to a lesser extent, the Internet have totally modified access to communication, information, and related services for a vast majority in the developing world. And for once, it is not only in capital cities and wealthy neighborhoods. For millions of people who had never had access to a land line and who were isolated from everything, cell phones have been a true liberation. This is the reason why the penetration of this technology has been so fast, so broad, and so deep regardless of its costs.

The cell phones and the Internet have radically changed the access to information for individuals and for enterprises, especially those who are operating in lowpopulation density areas.

Information has always had a key role to play in economy and economic development. Prices for and availability of commodities (inputs, equipments) and crops on markets are key for balancing information asymmetry, enhancing bargaining power for farmers, and increasing flows of goods. The experience of e-choupal launched by India Tobacco Company in India, in building an information platform providing e-commerce support adapted to the rural areas, is an example of how Internet can be used to design a transaction model between farmers and a processor/seller[1]. In West Africa, cell phones provide market and price information to fishermen who then sell their catch where the prices are higher[2].

Similarly, cell phone, MIS, and Internet are used by institutions to lower transaction costs for clients and for securing information when delivering services in rural areas. Technology has been also used to reduce costs in setting up weather stations allowing an innovative approach to a major risk mitigation mechanism[3].

The Agricultural and Rural Environment Today

In view of these major changes during the last few years, it is clear that they have radically impacted the rural economic and social landscape, and have modified the parameters for agricultural production in a quite positive way. There is a large, unmet demand for agricultural produce that could stimulate production for the first time in many years; this demand is coming from a solvent urban middle class in the developing countries themselves.

There are new skills and new entrepreneurial spirit among youth including in rural areas that could be mobilized for the modernization of the rural economy and for agribusiness. Some have started investing in agricultural value chains. IT technology, particularly cell phone usage, has been easily adopted by large number of rural individuals and enterprises and is used to reduce information gaps and transaction costs. No doubt, these factors are essential for creating an enabling environment for investment in rural areas and in agricultural production. The private sector has clearly identified them and is aggressively entering the sector to take advantage of this favorable situation.

Hence, today, it is now possible to operate and finance agricultural and rural activities profitably. They are mostly run by entrepreneurs and enterprises that have assessed their risks, evaluated their potential gains, and made a well-thoughtthrough investment. Today, modern agriculture in developing countries is, by and large, private-sector led and profitable. Lower-end rural households have developed a diversification strategy to mitigate risks and get regular income throughout the year. This strategy has been paying off and could be financed quite safely through adapted lending methodologies.

Over the last two to three decades, this situation could be considered as a unique chance for agriculture and off-farm activities to support significant growth for the rural economy in developing countries. Appropriate financing is highly needed to transform this opportunity into wealth creation.[4]

However, many challenges still remain, among others the negative impacts of climate change on production and productivity. This has led to tension over water and land, internally (between herders and farmers) or externally (“acquisition of farm lands by international buyers” – the issue of “land grabbing”).[5] Will these large farms operated by foreign companies create decent and sustainable jobs for local laborers or will they marginalize the most vulnerable? Other challenges are related to access to technical advisory services for small farmers where public extension services have been phased out and not replaced by a private service provider. How will they be able to cope with new technical problems/crop diseases? How will they be able to take up new varieties or improve the quality of their production?

A decade ago, major African political leaders and their partners, in the context of the New Partnership for Africa's Development (NEPAD in 2001) and Comprehensive Africa Agriculture development Program (CAADP in 2003) and later, the Alliance for Green Revolution in Africa (AGRA in 2006) analyzed this situation and found it promising. They have invested in developing new approaches to position themselves in what they see as a new opportunity. For instance, governments in SSA,[6] have focused their strategies for growth on agriculture as a major pillar and have thrived to build pro-active Public Private Partnerships. NGOs and TA providers have been innovative in developing methodologies to approach food security and agri-food value chains and offer new services to actors involved.[7] Banks and the cooperative movements have also set up dedicated departments to explore these new avenues.

With high competition in urban markets, some of which are near saturation, mainstream commercial microfinance banks have also recently been tempted to expand in the rural market and take part in this new agriculture boom.[8] Some have tried to deploy their existing products through rural branches and have met repayment problems on top of a major rise in costs. With existing products, the scope to reach a large segment of this agricultural and rural market may appear, depending on the context, to be quite limited. Some have called for expertise to assist in designing a rural and agriculture business line and are presently testing products before scaling up.

It appears that traditional and new players are interested. However, what seems to be even more obvious is the need for new sets of skills: knowledge of rural and agricultural economy, understanding of this specific market, opportunities and constraints, interactions between actors in a chain, in addition to financial analysis and product development. There are a range of new products, services, and innovative delivery mechanisms using technology to reduce costs while being physically present face to face with rural clients to build trust.

  • [1] See B. Bowonder et al., “Developing a Rural Market e-hub: The case study of eChoupal experience of ITC”, Indian Planning Commission Report (2002) and S. Sivakumar, “Streamlining the Agricultural Supply Chain: Lessons Learnt from E-Choupal”, Bazaar Chinta, Working Paper, No. 35 (June 2005).
  • [2] See the project of the Fédération nationale des GIE de pêche au Sénégal, “Internet et telephonie mobile pour l'acces aux prix agricoles”, International Development Research Centre (April 2005).
  • [3] See IFAD and WFP, “Creating Pathways Out of Poverty in Rural Areas: Managing Weather Risk with Index Insurance”, WFP publication (2008).
  • [4] See for instance McKinsey Global Institute (MGI), “Lions on the move: the progress and potential of African economies”, MGI Research Report (June 2010).
  • [5] See Article of Michael Pauron : “Terres achetées, quelle réalité“, Jeune Afrique, September 26, 2010.
  • [6] Ex: Senegal Strategy for Growth 2008.
  • [7] See the publications of the Rural Outreach Action Group-E-MFP, “Value Chain development and microfinance – Review of current issues”, (2010); Calvin Miller et al., “Agricultural Value Chain Finance, tools and Lessons”, FAO (2010) and IIRR, “Value Chain Finance: Beyond microfinance for rural entrepreneurs”, (2010).
  • [8] See the contribution of Meyer (2013) in this volume.
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