A more efficient agri supply chain in Kenya: The business model of iProcure

The iProcure platform allows agro-dealers to manage their stock more efficiently.

The iProcure platform allows agro-dealers to manage their stock more efficiently.

iProcure is a Kenya-based platform that connects manufacturers of agricultural inputs (such as seed and fertiliser) to local agro-dealers who supply small-scale farmers. By cutting out the multiple levels of middlemen in the traditional agricultural supply chain and providing technology-driven insights on supply levels and price, iProcure aims to improve the availability and delivery of agricultural inputs at up to 25% less than prevailing market prices.

The company, which was founded in 2013, recently closed a $10.2 million Series B funding round that raised debt and equity from a group of international investors led by Investisseurs & Partenaires. The funding will support iProcure’s expansion into Uganda and Tanzania, as well as the launch of a credit offering for agro-retailers to purchase supplies on credit.

Jaco Maritz asked Niraj Varia, iProcure’s new CEO and former partner at Novastar Ventures (an investor in iProcure), about Kenya’s agricultural inputs supply chain and the company’s business model.

How do the manufacturers of agricultural inputs benefit from the iProcure platform vs how they previously operated?

Before iProcure, manufacturers planned their production based on their knowledge of what has worked for them in the past year and broadly adjusted for seasonal weather changes. Further, after they sold to a distributor, they were effectively blind as to where exactly their products were selling, how they were selling vs the competition, how much stock was in the supply chain, etc. This lack of visibility in the supply chain is bad for business because when a manufacturer’s product sells well, they are often caught short and cannot ramp up production quickly enough to ensure that farmers get the product they need on time. And if the manufacturer does not know that there is a stock-out coming, they typically cannot ramp up production quickly enough to meet the demand which mean everyone – manufacturers, farmers, consumers – loses out.

iProcure has shifted this paradigm by creating a platform that enables manufacturers of agricultural inputs to see real time granular data (down to the town-level) on what is selling and what inventory is held, allowing them to plan their own production runs much more effectively. For example, if the rains start early in one part of the country, and their product starts selling well, they can ramp up production to replace the inventory that has already sold and take advantage of the additional demand. And if rains start late in another region, we can work with them to shift inventory to another, better performing region, in real time. Finally, they can see if they have a product that is performing well in one town but farmers in another town a few kilometres away don’t know about it. They can then run very targeted farmer education programmes to encourage farmers to take advantage of the product.

And what’s in it for agro-dealers to buy stock through iProcure?

We are creating a supply chain to serve them more reliably. Agrovets, as they are called in this region, are not just retailers: they are trained agronomists and veterinarians who farmers go to for advice on their farms. The agrovets monetise this advice by selling products to the farmers – a very trusted and effective relationship that works for both. However, this only works if the agrovets have the product the farmers need when they need it.

Unfortunately, the supply chain getting products to them is fragmented. The agrovet buys from a regional wholesaler, who buys from a distributor, who buys from the manufacturer or importer – and this has been the supply chain for the last 30 years. It is pen and paper, informal, limited information flows within the supply chain, and limited access to finance. If anyone in the supply chain runs out of working capital, or has a vehicle break-down, or has problems with receivables, or picked the wrong product to stock, or has any of many possible business challenges, everyone downstream in the supply chain suffers.

iProcure solves these problems by enabling agrovets to make decisions based on real time data, collect orders every day, have next-day delivery, ensure they have working capital. Agrovets can, in short, always get what they need from us. Our retailer ERP system also digitises day-to-day operations including inventory control.

The platform provides insights on supply levels and price. Please elaborate on the importance of this feature.

Agriculture in Africa is almost completely rain fed. That means that farmers have a narrow window during which to plant, apply fertiliser and manage pest attacks. If they miss the window, they lose the season. In some parts of Africa this means they must wait six months before they can try again; for others, unfortunately, they lose a year. Adding to this complication is the fact that the timing and quality of the rains has always been hard to predict and are getting even more unpredictable with climate change.

When the rains start, all the farmers rush to buy what they need since they do not have the yearly working capital to stock up on inputs. All agrovets in the area therefore see a sudden spike in demand and a drop in inventory. If the agrovets cannot restock quickly enough, they will not be able to meet farmers’ needs and farmers are left without options.

Our platform allows us to immediately see any spikes in demand and facilitate restocking of agrovets to ensure that farmers can continue to get the supplies they need. We can then restock our distribution centres accordingly to ensure the supply chain is secured for any one product.

Niraj Varia, CEO of iProcure

Describe the journey of how agricultural inputs, a bag of fertiliser for instance, would go from the manufacturer to the agro-dealer via iProcure’s platform.

iProcure purchases products in bulk from manufactures and manages stock across our distribution centres using our data-driven platform. From there, an agrovet places an order through the retailer ERP system by calling our call centre or by speaking to our sales agents on the ground. We then fulfil the order from our nearest distribution centre (we have 13 distribution centers across Kenya’s agricultural belt) and deliver the next day.

We carry out daily stock reviews and, when we need to restock in a distribution centre, we can reallocate inventory from another distribution centre or order from the manufacturer. By holding our own inventory across our distribution centre network, we insulate the agrovets from the vagaries of manufacturers’ capacity and inventories. And by working directly with the manufacturers themselves, we eliminate the risk of intermediate stock-outs. Our solution is simple: reduce the number of hands the product goes through to just one (ours) and use data to eliminate stock-outs.

What is iProcure’s revenue model?

We make money by selling inputs to agrovets. This makes sure we are completely aligned with agrovets’ needs. We only make money if the agrovet likes our product and if we can honor our service commitment, both while maintaining a competitive price. This alignment means we are laser focused on delivering what the agrovets need and nothing else.

iProcure aims to reduce the prices of agricultural inputs by up to 25%. How do you ensure these discounts reach the farmers and that they are not just absorbed by the agro-dealers?

We do not control the prices that agrovets sell at since they are independent businesses, and we steer clear of interfering in how the agrovets manage themselves. However, before iProcure, agrovets may have been inclined to sell a product at a higher price given high demand and low supply. iProcure indirectly helps alleviate some of these extreme market conditions I mentioned earlier by ensuring there is ample supply.

Most importantly, agrovets have friendly and long-term relationships with their farmer customers. They are therefore wary of price gouging for a short-term win as that would put their long-term relationship at risk and are happy to be able to do great business with farmers by always having what they need in stock.

Describe the biggest challenges of running this business.

Getting inputs out to 40% of all agrovets in the country with a next day delivery commitment is hard to execute. The data is critical for this, but so is diligent application of our systems, policies and processes. It also requires a slightly obsessive culture: we need to be perfectionists if we are to make this work at scale. When we have so much data that it is sometimes hard to separate signal from noise. We have learnt how to do this for most of our core operations, but it remains a work in progress.