Despite little VC capital, South Africa’s agritech sector is pushing ahead. TechCabal caught up with a few to get more info on their contributions to SA’s breadbasket sector.
According to Wandile Sihlobo, an agriculture economist and author, technology has played a significant role in making South Africa’s agricultural sector the most advanced on the continent. “South Africa has been able to make great strides in biological and mechanical engineering technologies, which has seen the country’s agriculture sector’s output more than doubled since 1994,” Sihlobo told TechCabal.
The importance of technology in the sector is reiterated by Amanda Chembezi, a member of the board of directors of the Center for Coordination of Agricultural Research and Development for Southern Africa (CARDESA). CARDESA seeks to coordinate and harmonise the implementation of agricultural research and development in the 16 member states, including South Africa.
“When we talk about food security in Southern Africa, technology is at the forefront of enabling us to increase our food sufficiency and our production levels as well the effectiveness by which we produce food,” Chembezi told TechCabal.
Despite the clear importance of technology to the agriculture sector, the sector is struggling to incorporate new technologies along its value chain. Numerous agritech startups in South Africa are building unique solutions to accelerate the adoption of such technologies to boost the sector. These solutions aim to address the challenges, both in the production and distribution parts of the value chain, facing the country’s breadbasket sector.
Agritech startups boosting agriculture production
One of those startups is Tsehla Holdings, a startup specialising in hydroponic farming. Hydroponic farming refers to growing plants using a water-based nutrient solution rather than soil. Tsehla claims to help farmers use about 90% less water than conventional farming methods, a sell factor statistic in a country where water is classified as a scarce resource.
“Technologies like hydroponics help tackle adverse and unpredictable weather patterns which can lead to droughts. With such technologies, we can control our production, thus ensuring that whatever happens with the weather, at least the production of food continues to go on,” Roseline Mapuranga, founder of Tsehla, told TechCabal.
Mapuranga shared that the main challenge she faced was access to funding, as hydroponics is cash-intensive. She secured an investment from the Africa Trust Group which she used to refine the company’s go-to-market strategy. After that, she landed a supplier contract with one of South Africa’s leading retail chain stores. Tsehla is also an alumnus of the Grindstone X program, one of the country’s leading accelerators.
Another startup using newer technologies to boost production in South Africa’s agriculture sector is AgriLogiq. The startup, founded by Joel van der Schyff, enables farmers to optimise crop yield through a fully automated greenhouse management system. The system includes a cloud-based IP-intensive software platform to allow wireless and intelligent poly greenhouse automation.
“One of our key products is a ventilation system that gets you to 70% of the efficiency of a traditional closed greenhouse at 50% of the capex cost and 20% reduction of running costs. That helps to bring water and chemical usage, leading to a massive impact on a farmer’s bottom line,” van der Schyff told TechCabal.
Founded in 2021, van der Schyff shares that AgriLogiq has deployed its proprietary system in over 25 farms across the country, tripling its turnover within its first year of operations and is on track to do so again in the current financial year. The company also resells its system to other greenhouse manufacturers in the country.
Van der Schyff states that education on deploying technologies in agriculture has been a pressing challenge. To address that, Agrilogiq is creating an open-sourced education space within its infrastructure to teach people about efficient farming.
“I think there is certainly an opportunity [to use technology to drive efficiency] because farmers are also innovative in the sense of trying new things and trying to do more with less. But it does come down to finding those farmers and equipping them with the requisite education,” he concluded.
Addressing the distribution bottlenecks
Beyond produce, distribution is another area where there is room to improve efficiency in South Africa. Challenges like the country’s rolling blackouts, known as load shedding, have sometimes led farmers across the country to fail to get their produce to the market. For consumers, the cost of these distribution bottlenecks is passed onto the shelf prices, making food more expensive.
One startup trying to address some of these distribution problems is AgriKool, founded by Zamokhuhle Thwala. The startup claims to “solve the challenges of food affordability” by building an ecosystem that reconnects farmers and buyers so that both parties get fair prices and a reliable marketplace.
AgriKool’s product offering is a two-sided online marketplace where producers list their available produce even before harvest. Buyers use the platform to look for produce they would like to buy. Once the two entities settle on an order, AgriKool engages a third-party logistics supplier to complete the delivery.
The startup also facilitates payments to farmers from buyers to reduce the time it usually takes for invoices to be settled on the buyer side. According to Thwala, the issue of high food prices in South Africa is more of a logistics than a production problem so reducing friction and fragmentation between producers and sellers, contributes to the reduction of shelf prices of agricultural products.
“We realised that the best way to make food affordable is to make sure that there’s streamlined logistics so that fresh produce travels the shortest route to market,” Thwala told TechCabal. AgriKool’s reports revenues “close to three million rands” from operations based only in Pietermaritzburg in the Kwazulu-Natal province. A few months ago, the startup also announced a distribution deal with Shoprite, South Africa’s largest retailer.
According to Thwala, despite the traction, fundraising has been challenging because don’t see the fact that the business is geographically located in one province as compelling enough to write cheques for it.
“[At the moment], it doesn’t make sense for us to scale geographically because if we grow too fast, then not only are we going to need to get farmers, we would also need to get retail partners in those areas,” Thwala said. “The issue with that is B2B sales cycles are very long so we would rather try to get our farmers to output more produce to meet demand which has worked for us so far.”
AgriKool helps farmers become more efficient through a process Thwala refers to as “co-production” whereby they provide a smallholder farmer with the liquidity needed to boost production. This is meant to help the company to ensure that it meets its contractual obligations to suppliers without needing to get produce from further-off farmers, which would increase logistics and transportation costs.
How agritech startups are addressing value addition challenge
Livestock Wealth is a startup seeking to ease access to farming returns by allowing prospective farmers to invest in livestock. Founded by Ntuthuko Shezi in 2015, the startup aims to build a global stock exchange that will allow people who own cows and farmland at a significant return.
“We have pre-selected farms where we have allocated assets that an investor can own in that specific farm. So for example, we can have a farm with cattle and individual investors can own some cattle without the headache of doing the farming itself. Anyone can go into our console web and mobile app and get started on investment from as little as 2000 rands,” Shezi explained to TechCabal.
An investor can invest in individual cattle or in pregnant cows. Individually, a calf is reared over a six months period until it is ready for slaughter. The meat is sold online or through bulk wholesale and to niche export markets, and the investor makes a return of between 10% and 15% per annum from the sale of the meat.
With pregnant cattle, the investor owns the calf for 12 months while it is in the farmer’s care. The calf, once weaned from its mother, is sold to the market to generate a profit. A portion from the sale is given to the investor. Livestock Wealth earns a commission with each transaction.
Livestock Wealth’s solution tries to foster the inclusion of citizens who might not have access to farmland in farming as well as providing significant returns for investors. Livestock Wealth claims that an investor’s average annual return, which takes the monthly fees into account, is about 10%. For context, the Johannesburg Stock Exchange (JSE) All Share Index over the last five years had an average of a 5% annualised return.
With $550,000 raised in October last year, Livestock Wealth is now expanding its model to farmlands, looking to allow investors to secure farmland to pursue various farming activities. Each portion, which investors can hold for up to ten years, is sold for R50 000 and is projected to earn an annual return of 4% per annum. Livestock Wealth’s asset value stands at R120 million (~$6 million).
The future of agritech in South Africa
Despite the challenges that agritech innovators face in South Africa, they are building sustainability and contributing to the country’s agriculture sector. According to Sihlobo, innovators who build products that allow South African farmers compete globally have a chance to build scalable and successful businesses.
Sihlobo is bullish on not only the level of innovation that is yet to come but also its uptake. “I think there will be a lot more innovation and better technologies. I also think there will be more financing that will need to come in and support those new ventures,” Sihlobo concluded.
Lack of financing was a challenge that was reiterated by almost all the entrepreneurs TechCabal talked to and the numbers back their concerns. Although some agritech startups in South Africa like Yebo Fresh and FarmTrace have raised venture capital, the amount of funding that investors put into the agritech sector is dwarfed by VC darling sectors like fintech and ecommerce. According to data by Agfunder since 2017, the agritech startup scene in Africa has received more than $1 billion in funding. Nigeria and Kenya each received $147.8 million, while Egypt received $186.1 million and Kenya $88.5 million. The smallest percentage of the four was claimed by South Africa.
Despite this lack of interest from investors, entrepreneurs like Mapuranga, van der Schyff, Thwala, and Shezi are proof that agritech innovators in the country are capable of building sustainable businesses even in a less-than-optimal funding environment. Should more funding become available, the sky will be the limit on the quality of innovation that will come out of South Africa’s agritech sector. The ball, or should we say chequebooks, is in the VC industry’s court.
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