May 27th, 2024

Farmer Service Centres act as a crucial link between public and private sector partners and smallholders and can be a rural entrepreneur, farmer group, or an aggregator.

Understanding the Farmer Service Centre model

The Farmer Service Centre model was first introduced to Kenya in 2019 by the Farm to Market Alliance[1] (FtMA) to bridge the first mile (inputs and services) and last mile (commodity) gaps for smallholder farmers in the rural areas. FtMA has since built a network of over 900 Farmer Service Centres in 13 counties[2] which has served over 207,000 smallholder farmers.

Farmer Service Centres earn by providing productivity enhancing services to farmers either through commissions on the sales generated or revenue earned through direct sales, charges for extension and consultancy services, margins on sales after aggregation and revenue from mechanisation.

FSD Kenya jointly with FSD Africa and FtMA commissioned a deep dive study on Farmer Service Centres to better understand the Farmer Service Centre business model, its viability, and sustainability across different segments, with a specific focus on those owned by females including aspects related to their organisation (including formality/informality). The study intended to explore opportunities to improve the Farmer Service Centres’ access to finance, identify ways to leverage their services for delivering finance to the smallholder farmers they serve, and further assess the role of digitisation in facilitating access to finance for both Farmer Service Centres and smallholder farmers.

Findings

Findings from this study have since revealed useful insights on Farmer Service Centres’ main activities, tiering, levels of digitisation, financial access, and credit usage, as well as gender dynamics. Of the 819 active Farmer Service Centres in 2022, (out a total of 918), 42% are women led. Although the number of services offered by Farmer Service Centres does not differ by gender, there are differences in the types of services offered by male and female led Farmer Service Centres.

From the data analysed, it is evident that female-led Farmer Service Centres were more likely to sell inputs and post-harvest equipment, whereas male-led Farmer Service Centres were likely to offer spraying services, mechanisation services, harvesting and logistic transport services (Figure 1).

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Consequently, the number of income streams for Farmer Service Centres ranged from an average of two to four with input marketing, agricultural produce marketing (aggregation) and post-harvest handling linkages emerging as key Farmer Service Centre activities. In fact, in 2023, over the period January to July, earnings from input linkages (sale of inputs) and produce marketing linkages (aggregation services) contributed to 85% of total commission income by all Farmer Service Centres.

The data collected also reveal a variation in the number of farmers served based on gender of the Farmer Service Centres. Female led Farmer Service Centres on average served 78 farmers compared to 97 farmers for male led Farmer Service Centres.

In terms of access to finance, it was observed that almost half of all Farmer Service Centres per segment had a bank account, with a personal account being the most common. Also, regardless of gender, older Farmer Service Centres were more likely to have been advanced credit previously compared to younger Farmer Service Centres. Access to finance was also demonstrated by the financing agreements in place with financial service providers by the Farmer Service Centres. Most of the finance agreements were related to stock financing (275 agreements, 87%). From the data analysed, male-led Farmer Service Centres were slightly more likely to receive asset financing relative to female-led Farmer Service Centres who were likely to go for stock finance solutions.

Additionally, Farmer Service Centres used digital tools for specific service offerings. For instance, out of a sample size of 627 Farmer Service Centres, 41% use a digital tool or app e.g., Yara Connect / Yara Bodega, We Source from True Tade or WhatsApp to support the sale of inputs.

Linked to organisation (levels of formality/informality), less than 20% of Farmer Service Centres registered their business. Registration of businesses was less common among the female-led Farmer Service Centres as compared to male-led Farmer Service Centres. Farmer Service Centres who registered their business opted for the simplest form of registration (Figure 2) save for male led Farmer Service Centres who were most likely to register their businesses as limited companies, ‘self-help groups’ and ‘community-based organisations’.

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Lastly, FSC 2023 tiering data which classifies the FSC’s as advanced; middle level; starter and not classified for male – non youth; female – non youth; male youth; female youth; revealed that male and female non-youth Farmer Service Centres are more likely to be advanced or mid-level Farmer Service Centres compared to male and female youth Farmer Service Centres[3].

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This study offers better insights on gender mechanisms of Farmer Service Centres backed by 2022/3 FSC validation data, the avenues for integration of women focused financial services, how to better target digitisation to address women led FSC’s needs and the new opportunities available for female led and male led Farmer Service Centres within the agri- food system that foster financial inclusion and gender equity.

Development partners will be able to use insights from this work to identify opportunities to dedicate resources with a view of finding solutions for rural women. There’s value proposition for delivery of services and finance through group-based models for farmers. Data generated from this work reveal that the best performing revenue segments for FSC’s are aggregator based i.e., input marketing, agricultural produce marketing (aggregation) and post-harvest handling linkage services.

Policy makers and government of Kenya will find this research useful as regards policy implications therein – reasons for the informalisation effect, and the incentives (or lack thereof) and further raise awareness about variations that exist when working with smallholders. This also includes resource allocation and delivery of services.

Fintechs and Agtechs should be in a position to leverage this data in developing digital solutions that work for Farmer Service Centres and in digitising the FtMA if value adding. Based on this data as well, financial institutions should be able to design gender inclusive/ focused finance solutions that better serve the segments discussed above.

[1] The Farm to Market Alliance (FtMA) aims to enhance smallholder farmers’ transition to commercial agriculture by providing support, information, and investment from seed to market.

[2] Nakuru, Meru and Narok have the highest concentration of Farmer Service Centres (33% combined, 11% respectively). Meru has the highest concentration of female-led Farmer Service Centres (16%), followed by Nakuru, Nyandarua and Busia (10% respectively), while Narok has the highest concentration of male-led Farmer Service Centres (16%), followed by Nakuru (13%) and Home Bay (9%).

[3] 985 Farmer Service Centres were active in 2023.

This blog is one of the articles in FSD Kenya’s 2023 annual report. To read the full report, click here. 

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