For farmers across the developing world, being trapped in a cash-based economy is costly. Those costs come in all forms—what commodity buyers farmers can work with, security risks associated with constantly carrying around large wads of currency, the unpredictable price fluctuation and pressure to produce more as as opposed to better.
The cash economy doesn’t offer buyers much in the way of benefits, either. Large scale buyers of agricultural products in developing nations generally face increased security-, record-keeping- and transaction costs in a low-trust environment where COD is the only payment model any supplier in the chain is willing to accept. Moreover, cash payments represent increased cost for diminished benefit. Fraud instances statistically run higher in environments where buyers must make individual cash payments to tens of thousands of farmers
In short, the cash dominated agricultural marketplaces are not sustainable in the 21st century.
This was the thesis of the GSMA (Groupe Speciale Mobile Association) at Nairobi’s Fin4ag conference hosted by the Technical Center for Agriculture and Rural Cooperation, reports Devex. GSMA represents 850 mobile network operators worldwide and has declared that it is in its strategic interest to help steer payments between buyers and suppliers in Africa’s agricultural commodities marketplace toward digital payments.
GSMA’s push for expanded digital exchanges in agricultural commodity exchanges comes as buyers and suppliers around the world are embracing digital as a reasonable alternative to both cash and traditional banking, especially in nations where underbanked is an almost universal condition—particularly in agricultural communities where there are simply no banks.
Even when physical bank availability can be addressed, rural Africa and South East Asia both have widespread literacy gaps in rural areas, making banking forms impossible to fill out.
Even in remote rural locations, however, there are mobile devices and that access is projected to expand, according to the Southern Africa Telecommunications Association. (SATA). According to SATA, more than a billion dollars has been invested in Africa over the last 16 years and that investment means that, increasingly, mobile technology is accessible.
With that technology, agricultural suppliers are getting their first crack at a financial identity and supply chains that can be customized better.
For example, Jayaraman M is a farmer in Tamil Nadu, reports the Economic Times of India. His dairy operation has historically been forced into priorities with which he was not comfortable.
“Earlier it was difficult,” said Jayaraman, 55, who lives in Thalaivasal village, close to Salem city. “We would get paid based on quantity, not quality.”
With new technology from Bangalore-based ThoughtFocus, the Jayaraman farm is one of many milk collection centers across South India that has had embedded sensor systems installed. The sensors collect data on the milk, check fat and protein content, temperature and overall quality. That data is then transmitted to buyers, who also have the option to purchase it directly, also through the ThoughtFocus platform.
The buyer gets a higher quality good while the seller makes more profit (Jayaraman reports his revenues have roughly doubled) and get paid much faster.
As more money pours into developing economies in South East Asia and Africa, much still needs to be done to optimize mobile payments. Infrastructure needs to be built, partnership need to be forged and locals agricultural sellers need to learn.
But as mobile payments are picking up steam world-wide, and farmers in developing economies increasingly comfortable with using their phones as a payment method, the days of cash-based agriculture may finally be drawing to a close in the developing world.