Problem: What problem is this project trying to address?
Historically, financial institutions are risk averse. Traditional business models are based on making exponential profit on top of fixed costs, a standard that does not always apply when it comes to agricultural businesses. Since the sector is seasonal and extremely unpredictable, agriculture is considered high risk in the financial industry. Concurrently, many farmers around the world are using outdated methods and are unable to grow, employ people, and increase their viability. To add to this, agricultural due diligence costs are high. The training, travel, money and time it requires to conduct due diligence on a farm with uncertain investment potential is often a barrier for banks. This increases the lack of knowledge and misunderstanding within the sector. In addition, the market surrounding large global agribusinesses inherently disincentivizes good agriculture practice with emphasis on rapid output at low cost. The current global agricultural market rewards suppliers that pay low wages, use harsh farming practices, and do not take care of the land or the people working on the land.
There is a large group of farmers – “the missing middle” – that are often excluded from financial support, insurance, and other services. This group consists of estates, cooperatives, and medium-sized farms that employ roughly between 50-1000 people. These farms are too large to access microfinance capital, which typically support subsistence farmers, and yet they are too small to access the financial services and support provided to larger agribusinesses in their region. For example, many of the 25 million farmers in the coffee industry fall into this middle category and cannot access loans or financing for fertilizer, tractors, or other supplies and equipment that can enable their farming practice to grow.
The lack of willingness to invest in the agricultural sector results in many negative externalities felt worldwide. Despite the demand for food rising due to increase in population, there is an inability for the agricultural sector to improve production and address this demand as they continue to operate under capacity. As climate change becomes an increasing problem for farmers in certain parts of the world, the inability to invest in better operations forces prohibits any adjusting for the future. Agriculture is still one of the largest sectors in many developing countries and a lack of investment in the sector only limits farms’ ability to grow and create more employment opportunities.
Solution: What is the proposed solution? Please be specific!
In order to combat the persistent lack of understanding and perceptions of high risk in agricultural investment, Lucas Simons has developed a way to efficiently and effectively provide a rating of mid-level agricultural producer organizations, which results in a ‘profile’ of the organization. Medium-size producers (including estates, cooperative, medium-sized farms, typically employing between 50 - farmers) are often not able to access finance, resources or insurance due to the risk involved in investing in farms. However, this specific group of farmers and organizations is expected to be key in providing enough food and resources for the growing global population. With SCOPEinsight’s rating and profile system, Lucas is able to shift the agricultural market from rewarding negative and non-sustainable methods to incentivizing positive, sustainable agriculture and management practices. Lucas works with a previously disconnected set of stakeholders to overcome perceptions of risk and promote financial inclusion, thus creating an entirely new market.
The rating tool is based on a variety of variables used to effectively score an agricultural producer organization. This tool seeks to determine whether a farmer can produce and sell a harvest, getting at the crux of what financial institutions and insurance companies ultimately want to know. There are several factors that contribute to the rating number, which functions similarly to a personal credit score; it shows whether a farmer is bankable or not. Additionally, this information is collected by a cohort of trained, local people, reducing the cost burden of traditional due diligence processes and injecting more jobs into the local economy. ScopeInsight rewards farmers for good practices and showcases farms as viable investment opportunities, providing financial inclusion for millions of medium-sized farmers.
The rating tool used by SCOPEinsight is not the sole innovation. The tool is the mechanism by which Lucas works to promote transparency and increase the quality of information sharing. With this rating system, ScopeInsight creates dialogue amongst groups that traditionally do not understand or trust each other. Lucas works to add value for a variety of stakeholders: he allows mid-level farms access to capital, highlights investment opportunities for financial institutions, and provides an evaluation service for the NGOs working to fund these farms. By bringing these stakeholders together and opening up access to finance, insurance and networks for medium-sized producers, SCOPEinsight provides an avenue for producers to receive resources that were previously unavailable. Growth of these particular organizations can lead to greater job creation, more sustainable agriculture practices and food enough to feed an increasing global population. In essence, by opening up access to these resources for medium-sized producers, food security challenges of the world can be mitigated.