March 2021 agricultural “platforms” in a digital era

New models, new challenges
In theory, Platforms can scale quickly. By side- 
stepping time-, labor-, and capital-intensive 
manufacturing or service delivery activities, 
Platforms can expand at near-zero marginal cost. 
However, in agricultural markets, Platforms have 
major hurdles to reaching critical mass. Buyers, 
agribusinesses, and service providers only want 
to join if there are enough farmers to transact 
with. But recruiting and engaging those farmers 
requires fierce competition and substantial 
upfront investments in supporting services, 
infrastructure, and partnerships to reach sparsely 
distributed customers. Lacking enough patient 
capital, many players run out of cash before they 
can bring enough users on board to trigger crucial 
network effects.
Once scale is reached, the next challenge becomes 
sustaining it over the long term. The localized
nature of agriculture limits network effects, 
making Platforms particularly vulnerable to 
competition. At the same time, because most 
agricultural transactions happen in person, the 
risk of users bypassing the Platform altogether 
is high. Finally, Platforms face the challenge of 
landing on the right monetization strategy. For 
a revenue model to be viable, they must solve a 
large enough market friction to create additional 
value for users and be able to capture part of that 
value without discouraging users from joining or 
transacting through the Platform. However, in a 
smallholder market characterized by low value 
transactions, the excess value created by
Platforms may be too small to share between 
farmers, buyers, sellers, and the Platform itself.
Faced with this variety of challenges, Platform 
operators are experimenting with a wide range of 
service delivery models—with no winning models 
emerging just yet. But we remain optimistic about 
the potential for commercial viability. Interest 
and investment in the sector is healthy, and a 
handful of players (particularly in more mature 
markets like India) have reached critical mass, 
monetized their user base, and even attracted 
commercial funding.
While the promise of Platforms is high, global 
experience tells a cautionary tale. As Platforms 
scale, they often accumulate significant market 
power. Examples abound of the ways in 
which this power can lead to less competition, 
displacement of vendors and vulnerable small 
and medium-sized enterprises (SMEs), lower 
workforce protections, a more significant income 
divide with those users who can not easily 
connect and data and security issues. This is 
shaped, in part, by the way in which Platforms 
create governance systems, rules, and approaches 
to managing scale in their network of users.
These downside risks must be weighed carefully 
by regulators against the positive outcomes that 
can potentially be achieved for all users.