Referring to the fact that HT does not manufacture or own the tractors themselves Quote and attribution from Reuters: https://news.trust.org/item/20211014092853-b4qj7/ Mechanization refers to the process of using tractors for plowing fields and in many cases, planting, fertilizing, and harvesting as well. “What the Uber for Tractors Means for the Future of Agtech in Africa” Forbes.com Given the relatively low costs of labor, owners that can access sufficient capital to purchase a $30,000 – $80,000 John Deere, Kubota, or Mahindra tractor tend to run small to medium sized businesses.
By David Halliday, March 2022 “It takes a lot of confidence as an entrepreneur to look at the marketplace and say, “You’re wrong. I’m the only one that sees the way things should be.”’ “I don’t give a ___ about tractors, per se. But I do care about improving livelihoods in a way that is economically attractive to the private sector.” -Jehiel Oliver, Founder & CEO of Hello Tractor Intro: Welcome to the Hello Tractor open case. Hello Tractor is one of the most exciting tech companies I’ve come across recently. This is a capstone multimedia business strategy case. It consists of a written case and four short videos (16 minutes total). It is meant to be more challenging than a normal written case. It should take about an hour and 15 minutes to read, plus a more detailed than usual case response (homework) on Blackboard. Hello Tractor Hello Tractor was founded in 2014 by Jehiel Oliver and is currently based in Nairobi, Kenya. Hello Tractor (HT) operates in 14 countries including 10 in Africa and four in Asia. The vast majority of farms in these regions are “small-hold” meaning that they are typically family run, small in area, and produce crops on a small-scale. While farms in the United States average approximately 500 acres, farms in these regions of Africa and Asia average only one or two acres. The fragmentation of farms makes mechanization challenging. There are far more logistics and transportation costs, per acre, when farmers are only buying tractor services for one to two acres at a time instead of 500. The potential for farming yield improvements in the developing world is immense. “Africa is the world’s breadbasket – or should be. It has vast arable land, grows a wide variety of crops and has vast irrigation potential with seven major rivers,” says Aloysius Uche Ordu, director of the Africa Growth Initiative at the Brookings Institution, a Washington think-tank. Africa has 60% of the world’s arable land , but has much lower yield per acre of farmland. This means that sub-Saharan Africa is still a net importer of food. With agricultural best practices, African countries could more than double crop yields over time. The following chart from McKinsey & Company outlines the ways in which yield improvements are likely to occur: McKinsey & Company, 2019 Digital technology presents a major opportunity to close this “farm yield divide” between developing countries and countries with more capital-intensive farming that tends to operate on higher economies of scale. Mechanization, i.e. using tractors and harvesting equipment, offers a number of benefits to farmers: It is ⅓ the cost of hiring manual labor–even when local wage rates are quite low. It takes 2 hours to plow a 2 acre field rather than an average of 30 days by hand. A tractor raises the likelihood that farmers plant at the right time to capture seasonal rains. Tractors plow deeper into the soil–compared to tilling by hand–making it more likely that rain will soak into the soil instead of running off and eroding the field Taken together, farmers that plow their fields with tractors can achieve 100%+ greater yields on their crops, doubling or tripling income after expenses. However, to achieve these gains, farmers need to have widely available access to low-cost mechanization services. But with such small farms, there is a coordination problem of getting enough tractors to enough fields at the right time. In addition to the problems faced by farmers, the tractor owners face a number of challenges for improving the utilization rate of their tractors. Without the use of technology, tractor utilization rates average only 30% of optimal usage rates. They need technology to better match their available tractor utilization with farmers willing to pay for those services. AT the same time, tractor owners are rarely the ones driving and maintaining their tractors on a daily basis . This means that owners care a good deal about tracking their employees and tractors in order to keep accurate records of hours used and fuel consumed, both sources of potential fraud. Hello tractor’s solution to these dual problems, that is, smallholder farmers’ need to coordinate with tractor owners and tractor owners’ needs for an expanded customer base, GPS tracking, and security, was to create a self-contained, GPS-enabled telematics device, “a smart box,” that permanently attaches to the tractor and automatically connects the tractor to the cloud whenever it is within cellphone service range. This “internet of things” (IoT) solution allows the platform to automatically route tractors through their daily plowing schedule, all while letting owners track usage hours and location in real time. Hello Tractor solves these complex coordination platforms in exchange for a commission from the earnings of tractor owners from the platform. The simplified value proposition for HT, a for-profit technology platform, is that they are a platform where small-hold farmers can connect with tractor owners to order services for their fields such as plowing, planting, and harvesting. Due to the technological efficiency of the platform, these farming services can be offered with more reliability and at lower prices. Their tractor-for-hire model has been called “Uber-like” because of the GPS enabled logistics capability tying together tractor owners and farmers. 90488 120300 HT tractors are GPS enabled, and tractors are automatically paired with farms based on availability and geography. The mapping application automatically routes a tractor driver through their various jobs throughout the day based on route optimization. The following excerpt on how owners use the HT platform comes from an interview with Mr. Oliver in an article for Rural 21 : “[In the] tractor ownership app, where you see your tractor, its location, its basic activity, the operator and which implements are associated with the tractor the guy is booking. You can also see a list view of all your tractors, which tractors are active right now and where they are going. You can see the operator assigned to the tractor and how much work was completed by it. For example the operator might say: “I didn’t move your tractor.” Then you as a tractor owner say: “Yes, you did, you went from XXX to YYY.” We have also added the ability for tractor owners to utilize our satellite viewing feature. Then there is the booking app, where you can see the details of the booking. You can declare or decline the booking from the app. The weather app gives you detailed information. Booking comes in clusters, and you can see each individual farm and its productivity level, which is a proxy for the farmer’s likelihood to pay for the service… You get a planting window estimator – a kind of fourteen-day window showing where farmers need services to maximize yields.” The Hello Tractor booking app for tractor owners. The screenshots show, from left to right, a new bookings list, geographic mapping of bookings, and calendar based booking list. On the other side of the platform, HT must aggregate and increase demand from farmers. They accomplish this primarily through their booking agent network. Booking agents are local entrepreneurs that coordinate with farmers in their region to develop trust and facilitate direct bookings. The following video provides a general overview of Hello Tractor’s value proposition and how they work with booking agents to aggregate demand directly from farmers: Watch: Hello Tractor in the Field: Interview with a Booking Agent (4 min) Hello Tractor: An Origin Story In 2014, Mr. Oliver, a Cornell trained economist (MS, 2013), left his job in finance to start Hello Tractor. His first business plan was to manufacture low-cost tractors enabled with his prototype “smart box” that allowed for cloud tracking and automatic data uploading. His first target market was Nigeria. Nigeria represents an immense business opportunity due to its fast-growing economy, fast-growing population, and the low rate of tractor-based agricultural mechanization. When designing his first business plan, he listened to the experts. He researched every element of the agricultural value chain. Based on NGO and academic research, he decided to manufacture and import a small, economical single-axle tractor. His tractors cost approximately $4,000 and came with his prototype “smart” box. And yet, these tractors (see below) sold poorly through his dealer network despite being fuel-efficient and 1/10th the cost of the average (price range: $30,000 – $80,000) for a traditionally sized tractor: Hello tractor’s “Smart Tractor” sold from 2014 – 2018 Due to the low sales , Mr. Oliver decided that he was right about his software platform and the promising nature of his IoT approach (smart box), but wrong about his decision to manufacture and sell the tractors themselves. He chose to pivot to an asset-light , tech-only platform which is the business plan that has endured until today. In the following interview segment from an article in Rural 21 , Mr. Oliver describes his learning process and the change in philosophy behind making this strategy pivot: “Forget research, forget academics, forget people doing studies. It’s good, it’s better than nothing. But never place a higher premium on [a researcher’s] opinion than on [a customer] who is in the market, staring at you and saying: “I don’t want this, I want that.”… I’m still kind of ashamed of myself for listening to the experts instead of to my actual customers. And once I humbled myself to listen to the people who actually know what they are talking about I actually saw progress and traction of the business, and that’s a valuable lesson. … We sometimes look at the researchers who say “do the single axle tractor”, or “it should be SMS booking”. No, I am not booking tractor services via SMS. It’s like buying a house over SMS. The farmer’s entire [plowing] cost for his field is maybe 300 dollars if he’s fully funding his hectare. So a third of everything that he will spend in his business is going to happen over an SMS message? No, these people want to know the person they are dealing with, they want to know: “Ok, this agent represents my interest. He might be ordering over an app, but I have to know this person, I have to see this person, there must be a personal contact.” We are leveraging relationship capital that already existed in the community.” Uber for Tractors? HT has frequently been called “Uber for tractors” by publications such as Forbes, the Christian Science Monitor, and Reuters. While he appreciates the comparison, Mr. Oliver prefers a more subtle description that emphasizes the platform nature of Hello Tractor–similar to Uber–and how integral it is not just to farmers and tractors but to businesses throughout the agriculture value chain. For example, Hello Tractor collects critical data, aggregates it, and disseminates it throughout the entire agriculture ecosystem which is distinctly different from how Uber operates. Taken together, the key similarities with Uber are that both act as a connecting platform. In each case, the app charges a commission to the asset owner. The commission is about 10% for the tractor owner for Hello Tractor. However, Uber, charges up to 42% commissions & fees to their drivers. The following flow chart covers selected elements of the agriculture value chain as relevant for Hello Tractor. It demonstrates the platform nature of Hello Tractor by showing the direct linkages between tractor owners, booking agents, and customers. But it also suggests, in a simplified way, how Hello Tractor is able to aggregate and collect data throughout the value chain. When coupled with advanced sources of data such as weather reports, satellite imaging, soil sample data, and historical crop data, HT acts as a data provider throughout the value chain. Farmers learn about historical weather trends and gain planting insights based on their soil types. Tractor owners can plan for tractor deployment based on when fields will be plowed in different regions. Different regions and different crops all necessitate different planting schedules, which increases the utilization rate of the tractors. Banks and other lenders can track utilization rates of the machines they have financed in order to predict loan repayments and prepare for potential loan defaults. -514349 1495425 The following short video recaps some elements of the first video, above, but goes into further detail on the value propositions of HT for tractor owners, booking agents, and farmers. He describes how successful booking agents can get access to financing to buy their own tractor because they have demonstrated the capability to generate demand from farmers. Important vocabulary words that Mr. Oliver uses in this video: Rain fed – agriculture conducted without irrigation and only natural rainfall Yield – The amount of crops produced from a unit of land. Higher yield means more crops. SMEs – S mall and M edium sized E nterprises (small to mid-sized businesses) Watch: Hello Tractor in Kenya (7 min) Note how Mr. Oliver has emphasized how critical the booking agent model is for HT. Further, he explains how the relationships developed by the booking agent as well as the data collected by HT can be used to extend loans to booking agents (he refers to them as “entrepreneurs”) to buy tractors. The lenders are able to see their reduction in the risk of their loan based on tractor utilization and expected demand in the regions in which the tractors operate. The following short video shows Mr. Oliver pitching Hello Tractor at an MIT #Solve competition. He goes into further detail (starting at 1:34) about the entire HT platform ecosystem and what they charge for each element of their data products: Watch: Jehiel Oliver’s MIT Solve Pitch – Overview of the business. (3 min) 0 257175 In the following interview excerpt from Rural 21 , Mr. Oliver explains the value proposition for both tractor owners and farmers based on the integration and analysis of the data they collect: “We pull the weather data from The Weather Company API platform, which is an IBM company, and the satellite data from Landsat Sentinel. Soil data also comes in. And there is a process to do some analytics with the help of our in-house analytics team. The satellite data comes in, analytics happens, and then we make it available to our tractor owners. We also share information with the farmers that benefits them through their assigned booking agents – we do that on our charge. And then, lastly, we have the banking tool that is able to analyze a contractor’s projected debt repayment on a tractor based off historical data.” This data ultimately becomes a key source of value and competitive advantage for HT. However, there are a number of hurdles in validating the collection of this data from all of the sources that HT interacts with, such as farmers, tractor dealers, tractor owners, and booking agents. One solution that Mr. Oliver has proposed to validating data gathered from his partners throughout the value chain is by using a blockchain. He gives a brief introduction to his strategy in this short video: Watch: Hello Tractor short Blockchain Introduction (2 min) HT’s blockchain and data consolidation efforts include work from multiple partners at the forefront of today’s tech landscape such as IBM, Mastercard, and Aeris. The following article segment from IBM , written by IBM’s Head of Research in Africa, Solomon Assefa, describing some of the goals of their partnership with HT: Scientists at [IBM’s] lab in Kenya are working with Hello Tractor’s developers to apply several technologies including the Watson Decision Platform for Agriculture, blockchain, the Internet of Things (IoT) and IBM Cloud, to the app. The magic behind the idea is what we call an agriculture digital wallet, a blockchain-enabled and AI-based decision support platform that enables capturing, tracking, and instant sharing of data, while creating end-to-end trust and transparency for all the parties involved across the agribusiness value chain.[…] Farmers: Machine learning will help farmers predict crop yields. The data, combined with advanced analytics and blockchain, can be mined to develop a credit score for loans by predicting the value of a harvest. Forecasted weather data from The Weather Company (an IBM business), remote sensing data (e.g., satellite) and IoT data from tractors will also be incorporated into the app to help small farmers know when to cultivate, the quality of their farm cultivation, what to plant, and what fertilizer to use. In the future, IBM AgroPad technology, developed at our lab in Brazil, could also be incorporated to determine soil quality. Tractor Fleet Owners: Using machine learning and the IoT, fleet owners will be able to view and manage fleet utilization and predictive maintenance as well as forecast future tractor utilizations based on history, real-time weather data and remote sensing satellite data. Using a five-star rating system, tractor operators will be ranked and utilized based on their training (e.g., plowing, deep ripping, harrowing, fertilizing). Owners will also have financing opportunities for maintenance and for buying new tractors and implements based on historical data. Tractor Dealers: Dealers can benefit from improved tractor repair and servicing, after-sales support, spare part inventory planning and credit administration. Banks and Financial Institutions: Banks and financial institutions can view and track utilization of tractors to determine a credit portfolio for farmers and tractor owners, while also evaluating forecasted utilization to make credit decisions for tractor owners based on verified and trusted data on the blockchain.[…] Our vision is to leverage AI, blockchain and the IoT to digitize, optimize and streamline agricultural business processes, creating efficiencies and new services from farm to fork around the world. More specifically, the blockchain will provide a tamper-proof definition of demand-side and supply-side workflows from tractor request to fulfillment, payment for services, and distribution of proceeds, authorized access to services and documents within the workflow, logging of all workflow-related approvals including booking, invoicing, etc.). – Hello Tractor Pilot Agriculture Digital Wallet Based on AI & Blockchain HT can also use blockchain for complex transactions at different levels of the value-chain. For example, blockchain can enable “Smart Contracts” which are forms of algorithmic payment processing. A related term for these transactions is “Automated Escrow.” Currently HT uses this concept in the following way. If a farmer has paid HT for services to plow their field, a smart contract could automatically pay the tractor owner as soon as the field is plowed, since the app is GPS tracking enabled and knows the precise GPS parameters of the field to be plowed. Once the tractor has moved through the field, the escrow funds are released. Homeworks Questions [Also: Discussion Starters!] The following questions are your “case response” homework. You can find these exact questions on Blackboard. This is a more complex case response than we have done so far because this is our capstone case. Please write in no more than 2 pages, 12 point font, (normal 1.15 or 2.0 spacing preferred) your response to the following questions (1C is optional ). Information & Efficiency – Mr. Oliver’s philosophy on business is that only two things matter when assessing whether or not there is an opportunity to profit from a business opportunity: Information asymmetries Technological or operational inefficiencies HT solves both of these issues in the agricultural value chains that they compete in: Information asymmetries: On average, tractor owners working through traditional contracting networks only have 30% average utilization of their tractors. This is easy to conceptualize when you realize how difficult it would be for a given tractor owner to add new customers without using technology. Going door to door? Posting advertisements in a literacy constrained environment? Relying on word of mouth in an undifferentiated commodity market? HT solves both sides of the information asymmetry problem by aggregating demand from small farmers and matching them with tractor owners. Inefficiencies : HT solves inefficiencies throughout the value chain. For example, tractor owners do not know the optimal real time routing through the various jobs on a given day. HT automatically routes tractors in the way that is most time and fuel efficient, making the assets (tractor & labor) more productive and fuel efficient. Questions: Using these dual concepts of information asymmetry and inefficiencies , briefly explain why Mr. Oliver switched industries from selling smart-tractors to selling only a software platform solution (i.e. smart box and app)? We talk a lot about platforms, but we don’t frequently talk about the differences in competitive advantage of a platform. Strategically speaking, how strong is the competitive advantage of the Hello Tractor platform? Why? [Advanced question: Optional ] Given the potential for value creation at the level of the farmer (more mechanization = more yield), why has the free market, thus far, been so unwilling to lend to new tractor buyers or support more importation of tractors? What would help increase the number of tractors deployed in, say, Nigeria and Kenya in the future? Try to focus on direct business and investment ideas, not governmental, political, socioeconomic, or NGO-related solutions. Value Chain – Despite increasing smartphone penetration, Hello Tractor as a platform does not actually communicate directly with the farmers that book their tractor services. Instead, farmers book through a middleman called a booking agent. Why–or why not–should HT cut out the booking agents and instead engage directly with the end users? Hello Tractor’s Growth & Expansion Plans – HT operates in many aspects of the agricultural value chain. As noted above, HT currently also operates in 14 countries across Africa and Asia. They are involved in data collection and data sales. They work with tractor dealers to ensure supply. They work with banks to promote financing offerings. They… well , you get the point. HT does a lot! And they do it all with fewer than 30 employees (as of Q1 2022). This is your chance to be a strategist. This is your capstone moment. Integrating everything you have learned so far in Strategy, can you help Jehiel Oliver, multiple award-winning entrepreneur , optimize his strategy for Hello Tractor? Where should he devote his limited resources going forward? Which projects or areas of growth or development should he focus on? And most importantly, why ? Choose only one of the following potential strategic actions to discuss: Expanding to new agriculture markets (i.e. countries) Growing existing markets through: Increasing outreach to farmers (how?) Recruiting tractor owners to be HT customers? Recruiting investors who do not currently own tractors but may want to based on the potential return on investment? Financing and facilitating new tractor sales Helping high-value potential tractor owners access financing? Providing data and analytics for lenders? How could tractor financing move HT forward, strategically? Other options? Your choice. This case covers a lot of ground. Please defend your thoughts. Other Resources (Optional) Check out the Hello Tractor Website Listen: Jehiel Oliver on The Flip Podcast . Produced for venture capitalists. (8 minutes) Fortune Hello Tractor is revolutionizing farming in Africa by connecting farmers to essential resources Ventures Africa How Blockchain Can Help Transform Agriculture in Africa Technext Nigeria’s ‘Uber of Tractors’ Hello Tractor Partners John Deere to Bring Mechanized Farming Closer to Local Farmers Hello Tractor Inclusive Financing for Tractor Ownership Among African Youth & Women Express Computer Five IoT Applications That Are Reshaping Agriculture Technology Selected Corporate Partners to Hello Tractor IBM Mastercard Aeris Jehiel Oliver’s Selected Awards & Accomplishments Fortune Magazine “2021 Change the World” list Agtech awards, 2021 IoT winner Mercy Corps AgriFin ALE 2021 Awards for Farmer Impact & Last Mile Service Delivery Progress 2018 App Innovation Award for Best Mobile App Technology subcommittee chair for “President’s Council on Doing Business in Africa.” Appointed by President Obama. 2016-2017 Jehiel Oliver with President Obama, 2016
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