This document proposes using virtual markets and mobile technologies to reduce transaction costs and integrate smallholder farmers into agricultural value chains in South Africa. It outlines how mobile phones and platforms like Google Trader could connect farmers to markets and information. An integrated system is suggested using trained agents with GPS-enabled phones to aggregate products from farmers and transport them to local hub processing centers, providing economies of scale. This could help bridge the economic divide between commercial and small-scale farmers in South Africa's dualistic agricultural system.

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THE POTENTIAL OF VIRTUAL mMARKETS
FOR REDUCING TRANSACTIONS COSTS &
BRIDGING THE ECONOMIC DIVIDE IN
DUALISTIC AGRICULTURE
By: R. Jack Armour
Free State Agriculture,
Bloemfontein, South Africa
IAALD-Africa Chapter 21-23 May 2012 1

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History / Quotes / Lit. Review:
• In 2006 at the AEASA Simon Brand Memorial address
- Dr Eleni Gabre-Madhin, then Program Leader for
Ethiopia’s Development Strategy and Governance,
now CEO of Ethiopian Commodity Exchange, stated :
• “the 2nd revolution will be in markets:
– “New exchanges” (self regulated)
– “086 Ag-trade network”,
– low cost V-SAT technology making rural
entrepreneurs into knowledge brokers.
– A warehouse / silo = a potential bank!”

3. WEF
research
2009
Boston
Consulting
Group

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Mobile communications to transform
smallholding farmers’ livelihoods in
emerging markets
10 October 2011
• Vodafone and Accenture announced the findings of a
ground-breaking new research programme intended
to measure the impact of mobile communications
on the lives and prosperity of farming communities
in some of the world's poorest countries.
• Vodafone and Accenture research indicates
potential $138 billion addition to developing world
farmers’ incomes by 2020
• Dr Cho, Day2 s4

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The paradox of Africa:
“the richest continent with the poorest countries.” -
David Njie of the United Nations Industrial Development Organisation (UNIDO)
Fortune at the bottom of the Pyramid ? (Grameen Foundation)

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The food aid “solution” has crashed! -> G8-MDG
Global Trade undermined African production /
innovation?

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The global context – key drivers:
• Increasing fuel costs , Green Economy / Climate
Change necessitate revamp of the logistics of
traditional value chains
• 60+% mPhone penetration in Africa (20% Mobile
internet in SA)
• mPhone developments in N-Africa, India/Asia
– Grameen Phone, M-PESA, Google Trader, etc.
• Wal-Mart entry into Africa
• Vodafone / Accenture report
• Individual components exists but NOT the

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The Problem:
Dualistic Agricultural sector in South Africa
National food security &
30 000 Commercial farmers
Trade
Small Scale farmers
300 000 mostly former homelands
Local food security
Household and backyard Household Food Security /
3 000 000 gardeners Food Sovereignty
Access to markets
– Transactions costs
– Economies of scale
– Gap between the formal and the informal markets

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AppLab Wins Best Use of Mobile for
Social & Economic Development Award
• By grameenfoundation
• 2010 GSMA Mobile World Congress .
• Global Mobile Awards – recognizing the top achievements in
the mobile world from the prior year – would get the one of
the top honors in the industry.
• Category: Best use of Mobile for Social and Economic
Development partners in the AppLab and Google SMS
endeavors of the last 2.5 years, Google and MTN Uganda.
• Grameen Foundation and its partners have been focused on
leveraging the most successful technological innovation of
our time, the mobile phone, to improve lives of the low-
income individuals and communities who are always the last
to be reached by the market.

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ICT Gap
Grameen Foundation AppLab does:
– Google Earth has the GIS Technology
– Google Trader has the virtual trade platform
– Google sms provides the communications platform
– Grameen Foundation /M-Pesa, micro finance
OPPORTUNITY:
– Integrated solution,
– database,
– Corporate social responsibility,
– Etc.

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The Potential Solution:
• Integrate: Small farmers into value chains
• Access: (MUST be accessible to base of the
pyramid - BOP ):
– Mobile based (60% African have access to a
mobile phone, 20% mobile internet in SA)
– Make transactions costs as low as possible
– Access to finance & market information
• Agents: need incentivised and trained agents
• Facilitative infrastructure: Role of Gov.?
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“Mobile communications can help to meet the challenge of feeding an estimated 9.2 billion people
by 2050. The 12 specific opportunities explored in this study could increase agricultural income
by around US$138 billion across 26 of Vodafone’s Markets in 2020.” - Sept 2011

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The holistic integrated
systems approach
• THE I.C.T. PLATFORM:
• THE AGENT – PRIMARY FUNCTION:
– Entrepreneurial market agents, using a GIS enabled
smart phone,
• THE LOCAL AGROPROCESSING HUB:
• THE AGENT – EXTENDED FUNCTIONS:
– extension officers; suppliers of market info., inputs and
micro finance,
• THE POTENTIAL NICHE / BRAND:

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The ITC Platform:
Connects Informal
to formal Economy

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THE AGENT – PRIMARY FUNCTION:
Entrepreneurial market agents trained to access
the database :
– Department of Land Reform’s
National Rural Youth Services Corps - NARYSEC
student
– Agricultural Extension officers, etc.
Using a GIS enabled smart phone / tablet:
– calculate shortest route to fill their e.g. 1ton pickup
– scan within an x radius what is available
– calculate what is the shortest route to complete an

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THE LOCAL
AGROPROCESSING HUB:
-Small town amassing /
value adding
infrastructure
Economy
of scale

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THE AGENTs – EXTENDED
FUNCTIONS:
Become incentivised extension officers;
– Manstrat paper Dr De Villiers
Suppliers of:
– market information / knowledge brokers
– Inputs
– Micro finance
• Catalyse the formation of small cooperatives,
• Facilitate the transition from subsistence to
commercial market orientated agriculture.

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Linking AGROPROCESSING
HUBs:
Use database for Inter hub trade
Franchise model?

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THE POTENTIAL NICHE /
BRAND:
Traceability,
– Fair Trade
– Organic, Bio, etc.
• Online reputation – e.g. e-bay rating
• Economies of scale and reduced transactions
costs used by Woking collectively
• START OF A SPECIALITY CLUSTER AND
SMALLHOLDER REVIVAL?

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Already achieved? BusinessReport

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The Challenge:
To bring together:
– the locally applicable supply of exiting ICT
applications and
– The demand for these at grassroots organisations
level
• Into a HOLISTIC INTEGRATED SYSTEM.
• The right suite of App.s is just one part, and
an exciting tool, within the entire agri-food
value chain.

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So Who?
• Government? Right role of Gov. NB
– mLab at Meraka Institute, CSIR
– National Agricultural Marketing Council
– Dept. Agric.: Extension and Advisory Services
– Dept. Rural Dev. & Land Reform: NARYSC
Private sector
– Technoserve
– Commercial farmers
– Mobile companies: Vodafone, MTN, CellC etc.
(Corporate social responsibility)

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HOW? Dr. Gerhard Scheifer
Entire value chain approach – e.g.

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Summary & Conclusion:
This paper is a plea to bridge the industry & digital divide:
– Between farmers, Ag. & social/dev. researchers, extension
officers, Gov. officials & agri-business practitioners on the
ground dealing with the physical aspects of growing/processing/
distributing food; who know and experience the real problems
on the ground AND
– the often very distant ICT programmers and developers.
Working together as an integrated team & with the
correct structures and systems in place, we could do far
more toward achieving Improved Livelihoods and Food
Security in Africa.

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THANK YOU!
Jack Armour
jack@vslandbou.co.za
071 672 0271