Entries in economics of mutuality (33)


Gates on communication, technology and the future of smallholder farming

Bill Gates is best known for his role in founding Microsoft, but his interests -- and the interests of the Gates Foundation -- include the search for ways to improve the lives of poor, smallholder farmers in Africa. He blogged this month about ways in which he sees technology enabling a better future for agriculture on that continent.

Noting that the rapid spread of mobile technology is revolutionizing financial services for those with smaller incomes, Gates suggests that the same infrastructure can change the face of farming as well.

The key issue is the farmers' lack of ability to communicate with the broader agricultural markets. Without this stream of information, farmers can’t grow crops based on the market’s requirements because they don’t know the specifications.

Further, without a more direct and rapid channel of communication, farmers have no way to learn the agricultural practices that could allow them to vastly improve yields. Instead, they grow mostly what they can eat or trade locally, the way they’ve always grown it.

Gates is hopeful that, with time and effort, mobile technology can bridge the communication gap and transform the African agricultural landscape.

When information can flow easily, when data is democratized, the cost of doing business in agriculture goes way down, just as transaction costs go way down when financial transactions are digital."

I encourage you to read the blog, and check out the associated video.

-- Yan Toh




No compromises: profitable business model, while serving the poor?

As part of the Economics of Mutuality, we are very interested in business models that do well by doing good. In a recent article in Bloomberg Business, M-Kopa Solar's founders outline their "no trade-offs" approach to social business and profitability.

M-Kopa sells solar lighting and battery charging systems to rural African customers, most of whom rely on ancient, expensive, and "dirty" sources for their light and power. The company’s power system includes a solar panel, two LED bulbs, an LED flashlight, a rechargeable radio, and adaptors for charging a phone. In addition to the environmental benefits, M-Kopa estimates that it's customers can save about $750 over four years by switching to solar.

Company founders Nick Hughes and Jesse Moore envisioned building a company based on three conditions:

  • It had to involve mobile technology, an area in which they both had experience;
  • It had to solve a significant pain point for the very poor; and
  • It had to have the potential to become a billion-dollar business.

We think it’s possible to build a business with no trade-offs. We can benefit the environment. Our customers will be better off. And we’ll get richer. We all can win.” -- Jesse Moore

Because the company only requires a small down payment on their systems, collecting a $0.45 daily payment for one year to make up the difference, M-Kopa operates much like a finance business. Counterintuitively, the company has found that its poorest customers—those who rely on the system as their only source of electricity—make the best credit risks. “If you take the long-term view and if you treat low-income people as customers, not charity cases, you can change the world,” Moore says.

-- Yan Toh


Looking at smallholder farmers and sustainable productivity

Modern agricultural practices and new technologies in many cases have yet to reach small and very small farmers for various reasons, according to a recent Next Billion blog post. Among other issues, these smallholder farmers are faced with a lack of cash, unpredictable personal circumstances or a lack of safety net, should a harvest fail. There are certain companies and organizations that are making efforts to increase the livelihood of these smallholder farmers, by sourcing produce from them or selling products to them.

A recent study by consulting firm Hystra, “Smallholder Farmers and Business: 15 Pioneering Collaborations for Improved Productivity and Sustainability,” compares the performance of 15 companies and organizations worldwide who are pioneering this movement. Key findings from the report include:

  • Farmers can increase their net yearly incomes by 80% to 140% when they have access to productivity-enhancing technologies, including improved seeds, micro-irrigation systems or improved cow breeds. Notably, other interventions, which focused solely on “fixing” dysfunctional markets and redistributing value in the supply chain, only resulted in a 20% to 60% increase in income for farmers;
  • Smallholder farmers, commonly thought to be risk averse to new practices and technologies, in reality, aren’t. What is important to them is being able to reverse their decision, should they change their mind;
  • Early adopters of such development programs are found within the “enlightened” middle – farmers resilient enough to invest in new advancements, but not prosperous enough to be satisfied with the status quo;
  • Offering a wide range of benefits, becoming essential to farmers’ success allows the organization to become irreplaceable, creating a cycle whereby year after year organizations and farmers alike continue to invest in each other; and
  • The decision to work directly with farmers, rather than through an intermediary, can lead to greater success. While not always the case, some intermediaries can lack control and poor proximity.

Sustainability and poverty alleviation: focus on market-based solutions

I enjoyed a collection of recent articles in the New York Times focusing on the role of the private sector in sustainability and market based solutions to poverty, and recommend them to those interested in the topic. (Click on the headlines for the full articles).

Saving the World, Startup Style

The author notes that over the past 10 years, there has been a "quiet revolution" in the way many scholars and advocates think about aid. The revolutionary shift is the central philosophy that rich countries shouldn’t see themselves as responsible for coming up with theories about how poor countries can become richer. Rather, he says, "the rich countries allow the poor ones to determine what they think needs to happen — more girls in school, more vaccination, better access to global markets for farmers — and then pay money to whoever comes up with an actual solution. Governments, nonprofits and private-sector companies can compete on who can do this best."

Buffett's Grandson Seeks Own Investment Route: Social Change

Howard Warren Buffett, the grandson of the Berkshire Hathaway founder Warren E. Buffett has co-founded an operating company with big ambitions — essentially mimicking the structure of Berkshire Hathaway, but with a major difference in strategy. The plan is for the new company, called i(x) Investments, to invest in early-stage and undervalued companies that are working on issues such as clean energy, sustainable agriculture and water scarcity. “We’re looking at the long-term horizon and investments that are doing more than avoiding bad, but are actually trying to improve the world,” Mr. Buffett said. “It’s about taking the potential for capitalism to the next level.”

Unilver Finds that Shrinking Its Footprint Is A Giant Task

Unilever CEO Paul Polman has made sustainable production — of Hellmann’s, Lipton tea, Dove soap, Axe body spray and all the other products Unilever makes — the company’s top priority. Detergents are being reformulated, packaging is being reduced, and the company is taking steps to find more more eco-friendly food ingredients. But the transformation is not a simple one, and the article notes that before Unilever can "transform the world," it must focus on changes within the company.

Image source: New York Times

-- Clara Shen


Trial run for sustainable capitalism?

The investment strategy behind Al Gore’s Generation Investment Management is a simple one centering on sustainability as the key to long-term success. Far from rejecting capitalism, the company is touting a new version of it; one where socially responsible practices enhance, rather than hinder, long-term prospects. 

The Atlantic’s James Fallows thus explains Generation’s philosophy in practical terms: “Warren Buffett considers Coca-Cola a wonderful long-term value proposition, because of its decades-long track record of worldwide success. By Generation’s standards, it is distinctly unsustainable, since obesity problems in all of its leading market countries will, in the firm’s view, inevitably do to the soda industry what public-health concerns have done to Big Tobacco.”

According to Gore, the sustainable-capitalism model not only reduces the environmental and social damages caused by modern capitalism, but it does so while yielding healthy profits.

That part of the equation is at odds with the conventional wisdom that “the highest returns go to those who are unencumbered by sustainability or other environmental and social constraints,” as Carlyle co-founder David Rubenstein puts it. Yet the numbers seem to be telling a different story: Generation’s 10-year average ranked as No. 2 in a Mercer survey of more than 200 global-equity managers, and its global-equity fund was found to be among the least volatile. Academic research is also lending credence to the model’s viability, with a large-scale Oxford University study recently concluding - based on its assessment of 190 academic studies and news reports - that “it is in the best economic interest for corporate managers and investors to incorporate sustainability considerations into decision-making processes.”

Where attention to long-term social and environmental outlook has traditionally been viewed as a strain to the bottom-line, the people at Generation contend that their approach actually works “in the service of long-term greed.” Or as Gore explains it: “Our goal is to show that sustainability is a ‘best practice’ for doing this, and thus for changing the culture of the investment marketplace. I know that sounds pretty grandiose, but it’s our aim.”

-- Clara Shen