Why We Invested: Cinch
Over time, land in sub-Saharan Africa has fragmented across generations, in many cases resulting in plot sizes that are too small to support commercial activities. In Kenya alone there are 4.5M smallholder farmers and the average smallholder farmer farms on 1.16 acres. Without access to financial services to make transformative investments on the farm, like irrigation and mechanization, land is left idle and underutilized. Farmers have less than two crop cycles per year to generate revenue, which increases risk for farmers and limits income generation potential. On one acre, a successful single harvest, rain fed maize farmer generates less than $300 USD/year.
The Benefits of Land Aggregation Models
Land aggregation models have the potential to unlock the value of land assets held by smallholder landowners. At scale, these agriculture models would increase the irrigation cover in Africa from 5 to 15 percent of total cultivated area, consequently increasing agriculture productivity on the continent.
In the face of globalization, demand for food is expected to increase by 70 percent by 2050 with at least $80B in annual investment needed to meet this demand, placing additional pressure on the agricultural sector. Unlocking value in smallholder assets creates a viable and sustainable option for increasing food security.
Why Smallholder Farmers Find It Hard to Scale
In sub-Saharan Africa, smallholders produce the majority of the food, but are disproportionately affected by rising input costs, climate change and limited water resources.
Within a community, smallholders face competing claims for control and use of land, as majority of the land they own is through customary rights with no formal title. In Kenya over 80 percent of farmers have “letters of allotment”, which are legally recognized ownership documents, though they are sometimes in the name of another family member. Without security of tenure, vulnerable households are limited in the ability to secure sufficient food and enjoy sustainable rural livelihoods.
Insecure land tenure limits the economic opportunities for smallholders to access financing and invest in longer-term, sustainable practices.
Low mechanization levels are also a crucial barrier to scale smallholder farmers. Sub-Saharan Africa has a quarter of the world’s arable land but only 10 percent of the world’s agricultural output. Affordable technologies can address improved mechanization for productivity. For example, accessible and cost-effective modern irrigation could shield nearly 500 million small-scale farmers worldwide from poverty, food insecurity and exposure to climate risk.
Additionally, smallholder farmers are disaggregated, limiting opportunities for offtake. Small aggregators buy irregularly and with inconsistent pricing that takes advantage of the farmer. Large buyers will not engage with producers who do not meet their minimum threshold for yield and quality, which can be challenging for a smallholder to fulfill alone. What’s more, certifications are cost prohibitive for smallholder farmers, so they tend to have little access to export markets.
So, we know two things. First, in order to solve for food insecurity, land aggregation models are more likely to be adopted to improve agricultural productivity across Africa. Second, aggregating small cultivable pieces of land makes use of idle and underutilized land while increasing income opportunities for smallholder landowners.
And that’s why FINCA Ventures invested in Cinch.
Bringing the Economics of Commercial Farming to Smallholder Landowners
Cinch unlocks the potential of smallholder land by aggregating groups of interested landowners into larger “mosaic” farms via a leasing structure. After identifying a community that satisfies its criteria to host a mosaic farm, Cinch then invests in infrastructure where necessary (boreholes, machinery and drip irrigation) and utilizes a professional agronomy team to grow high value produce on contract to maximize the revenue per acre per year. Through working with Cinch, landowners have access to three revenue streams, potentially growing their incomes by up to 10x per year. In addition to the income growth that Cinch’s landowners experience, Cinch 100% transfers risk away from the landowner by managing all farm operations including planning, growing, harvesting and offtake.
Alex Fankuchen and Richard Gadbois launched Cinch in 2019 to leverage their robust experience in the financial inclusion space in emerging markets to bring the economic benefits of commercial farming to smallholders. The founders assembled a strong management and farm agronomy team that collectively has decades of experience working in horticulture in East Africa. To date, Cinch has aggregated mosaic farms across two countries & six locations from over hundreds of different leases with small landowners (33 percent are women) and has created jobs for roughly 2,600 casual workers (46 percent are women). Cinch has 100% retention from landowners, which demonstrates the strong value that Cinch is bringing to these rural communities.
The economics of each acre are driven primarily by the underlying crop (broad acre, perennial and horticulture) and acre usage. Cinch’s flexible platform allows for any landowner in a community to opt into the program as long as their land is close enough to other landowners to make the arrangement economically viable and the land can support the planting program.
Bundling On Additional Value Add Services to Farmers
Cinch is also keen on providing affordable credit to smallholder farmers who wouldn’t otherwise get access to formal financing channels. So far, Cinch partnered with existing investor Mercy Corp Ventures and Celo.org in 2022 to launch a pilot to test decentralized Finance (DeFi) based lending for productive use loans for their casual workers for things like home improvements, school fees, and to buy livestock. Interestingly, 94 percent of workers who received a loan had not previously had access to a similar product. This pilot was a success and Cinch is now working on launching an extension of this program.
Cinch’s Bottom Line
Cinch grows a variety of crops across their aggregated land to diversify revenue and hedge risks. Cinch focuses on three main crop types: broad acre, horticulture and perennial trees. For buyers, sourcing from Cinch increases the transparency within the supply chain and gives them the benefits of working with smallholders without the heavy lift of quality control and logistics. Cinch’s crop agnostic model allows the company to better align production with market demand fluctuations and increases the scalability of the business across many regions/micro climates.
Cinch’s goal is to serve hundreds of thousands of landowners over the next 10 years through land aggregation and sees numerous opportunities for bundling on additional products and services to the landowner groups, including financial services.
FINCA Ventures is thrilled to be a part of Cinch’s journey and to support them on their mission to expand the land aggregation model regionally.