HelloTractor

Excerpts from an interview with CEO of HelloTractor, Jehiel Oliver with Rhishi Pethe (Global Perspectives on Agriculture Technology).

One question their model raises for me (and other paygo models in general) is why the cooperative / FPO couldn’t be the owner of an asset and aggregate demand among its member farmers. Jehiel sort of touches on it here but not in detail.

Hello Tractor is a marketplace company started by Jehiel Oliver in Africa. The premise of Hello Tractor is straightforward. A majority of farmers in Africa farm small amounts of land, between 1-2 acres. (For reference, the average farm size in the United States is 444 acres.)

Most of the farmers plow their land using animals or by hand, as they do not have the resources to buy a tractor. The rate of mechanization (% of fields which are farmed using a tractor) is less than 50% in Africa. If you are going to farm 1-2 acres, buying a tractor does not make economic sense, as the tractor will be lying idle more than 95% of the time.

Hello Tractor started out with the hypothesis that if they could provide peace of mind to tractor owners around the security, proper usage of their tractor, tractor owners would be willing to rent out their tractors. To do this, Hello Tractor has created a device which can be attached to a tractor. The device is connected to the cloud and provides operating details like location of the tractor, operational hours, fuel levels to the tractor owner in real time. It protects the tractor asset and reduces fraud. With complete visibility to their tractor status, tractor owners are able to rent their tractor to other farmers for a price. Hello Tractor helps connect tractor owners, who want to rent out their tractor, with farmers who want to rent a tractor for their farm. You can think of it as Uber for tractors, though that is not a perfect description for what Hello Tractor provides.

In the smallholder1 space, farmers face challenges to access working capital to buy seeds, fertilizers, herbicides, and other inputs needed to farm. Given the dire needs for financing, farmers will always take up financing, if it is offered at reasonable terms to buy seed, fertilizers etc. If one starts with financing, it becomes difficult to prove your product/value hypothesis. Farmers will always take up good financing, over a pure product offering. This can confound the value of your product/offering with the value of accessing financing by farmers.

Rhishi: Why are there no cooperatives providing tractor rentals or a service to plant using the co-op’s equipment? For example, here in the US, if you are a large farm, you call your agri-retailer, and they will come and spray chemicals. They maintain a fleet of equipment and provide services to farmers.

Jehiel Oliver: There's a few different layers to why it doesn't work in Africa — capital and tech. The most effective equipment for contract is a low-horsepower tractor. It is disconnected from the cloud. There's no visibility around that equipment, no remote tracking and remote management. It is difficult to serve farmers distributed across far distances with small, fragmented plots and manage fraud.

There's no incentive for an individual or a group to invest capital in equipment without the ability to protect the equipment. The vast majority of our customers live in markets like Nairobi or Dar-e-Salaam. They make passive income on the side from their two or three tractors. Our IoT tech to track tractors solves an immediate problem of tracking. It allowed us to build the supply side of our two-sided marketplace.
There is a lack of volume on the supply side. We provide technology to people who invest in expensive equipment. It helps us build our supply side quickly with minimal spend and use our marketplace to optimize the supply as an add-on feature.

Rhishi: Where do you see the trend going in the OEM space? Do you think emerging markets will see consolidation and bigger equipment? Do you think with electrification and autonomy, one could swarm their field with smaller tractors?

Jehiel Oliver: As much as I love autonomy, the value proposition is diluted because the cost of labor in our market is so low right now. In-field autonomy is interesting, if you can get a low-trained, low-skill person to perform in a field.

However, there is a beautiful convergence of rural electrification and off-grid (mostly solar) clean energy. It's the most beautiful, complementary trend imaginable for mechanization with the emergence of off-grid infrastructure. A lot that needs to be figured out, but the tech and battery storage is good enough. Compact tractors are the most cost-effective, highest-ROI investment in mechanization for smallholders, because you're jumping from plot to plot. For large horsepower equipment, the opportunity cost is high, any time the equipment is not doing a farming activity (for example, when it is on the road driving between fields.) The 75 horsepower tractor is the sweet spot for somebody who's servicing farmers between one to five hectares. And that's where tractor electrification is progressing. The fastest rate is that lower-horsepower segment.

Monarch has roughly 70 horsepower equivalent power tractors. Escorts are lower by about half. You can't do some of the more destructive operations with a 35 horsepower tractor. You can pull a seed-drill, and you can start to introduce minimal tillage or no tillage.

Now growers who do not have access to mechanization can get an electric zero carbon footprint tractor powered by the sun, and the sun is in abundance in Africa. It is better for long-term soil health, and to keep soil structures in place for the longer-term success of the individual farmer.

It's a leapfrog opportunity for us to not only innovate to the status quo, but also be better than the more advanced agricultural economies.

About 2 million low-horsepower tractors are sold in the world a year. Hello Tractor was the first to connect these tractors to the cloud and build technology specifically for the buyer.

For tractor finance, we partner with people who have liquidity, who are chasing yield to invest in this new asset class. But we're not going to build up a balance sheet.

Our product that helps you minimize your risk exposure as you invest in this asset class. It is a pay-as-you-go system. You can see the performance of the asset. It is an asset being financed to borrowers with a full book of business from our marketplace.We track what the borrower was doing with the tractor. Everytime they service a field, they have to pay a small amount to pay down the loan.

The rate of amortization is greater than the depreciation rate, and so you're protecting the collateral value. If there is a default, the investor is never underwater. We resell it in the secondary market, recoup the principal, and pay off the investment.

We are not trying to be a bank. We're not trying to displace commercial banks. We are saying that we understand something unique about this market that can complement your portfolio.

I'll give you an example of tractor finance. It's generally unheard of for women to get a loan for a tractor, especially across our unbanked customer base. We work with Moody's on a credit underwriting system to weigh a variety of factors, including gender, but not in a crude way. When I was working in micro-finance, it showed the real economic benefit to working with women, applying a gender lens to the business.

We're using actual products and data driven approaches to create access. It is going to meet the impact objective, but also helps us commercially. Women will be overwhelmingly our customers in the future. From a risk management perspective, financing a tractor for somebody who does not have access otherwise will always yield a better outcome, which seems counterintuitive.