By Catherine Cheney
The world’s largest agriculture equipment maker is now the largest investor in Hello Tractor, an agricultural technology company based in Nairobi, Kenya, with a farm equipment sharing application that connects tractor owners with smallholder farmers who need tractors. And an NGO played a key role in making the deal happen.
Hello Tractor CEO Jehiel Oliver credits philanthropic support from Heifer International for drawing in commercial investment from John Deere. Over the last few years, the global nonprofit, which aims to eradicate hunger and poverty, has awarded Hello Tractor $4.5 million in philanthropic capital, including a recoverable grant — essentially a zero-interest loan. By doing so, Heifer provided seed capital for Hello Tractor to scale up its new tractor financing product. This paved the way for private sector investors like John Deere to put in their money, too.
What set John Deere’s investment in Hello Tractor apart is that it came from Deere & Company, not the John Deere Foundation, the corporation’s philanthropic arm.
“They have their own financial interest. But as they met their financial interest, we were able to meet their impact interest at scale. They’ve got $7 billion in cash on their balance sheet, and it’s just itching for a place to go,” Oliver said of John Deere and its net income for fiscal year 2022 at Devex’s event at South by Southwest last week. “And if we continue to execute, the sky’s the limit and we might be able to solve the problem by bringing in philanthropy, large corporates who don’t actively invest in African agriculture, and then all the partners we have here today.”
The way that Heifer helped to catalyze investment from John Deere could offer a model for other donors, NGOs, and philanthropists to attract investors, including corporations, that may not otherwise enter a deal.
How Hello Tractor is meeting the demand for mechanization
Oliver launched Hello Tractor in 2014 because he saw an opportunity for technology to help farmers pay for the use of tractors even if they cannot afford their own.
While Africa has the largest inventory of arable land on earth, crop yields lag behind the rest of the world. Half of this gap is because of a lack of mechanization, Oliver said.
Since its launch, Hello Tractor has drawn more farmers to the platform than it has tractors to service them, with 3,000 tractors and combine harvesters for 630,000 smallholder farmers.
Last year, it leveled up its offerings. Heifer’s $4.5 million investment supported Hello Tractor’s innovative idea to meet the growing demand on its platform: a pay-as-you-go tractor financing product that would allow farmers, equipment booking agents, and other entrepreneurs to become tractor owners. Though the costs of farm equipment vary, it’s often well out of reach for most people working in African agriculture. But tractor owners on the Hello Tractor platform can make up to $30,000 in bookings a year.
The idea was to enable Hello Tractor customers who may not be eligible for traditional loans to demonstrate their creditworthiness through the platform and pay for agricultural equipment in a series of smaller payments, rather than paying the full amount upfront.
“We created innovative underwriting standards to profile borrowers, looking at booking activity on the platform, and selecting high performers to graduate to become tractor owners,” Oliver said in a session at SXSW where he appeared alongside Adesuwa Ifedi, Heifer’s senior vice president of Africa programs.
Heifer’s financing allowed Hello Tractor to roll out the new service — and additional funding from John Deere allowed it to scale. So far, the company has supported 104 pay-as-you-go customers, financed 300 tractors, and brought mechanization to nearly 5,000 farmers.
Heifer’s support of agricultural technology
Only 4% of investment in technology and innovation in Africa is in agriculture, Ifedi said.
Heifer is working to change that by supporting ag-tech businesses with the goal of mobilizing additional financing.
The NGO created an ag-tech investment competition for young innovators, which Hello Tractor won in 2021, based on the belief that young people are key to building technological solutions to tackle Africa’s food crisis.
Ifedi said part of Heifer’s motivation for backing ag-tech innovators is to attract other investors, who tend to see this sector as too risky.
“The innovation doesn’t have to happen only with the technology, but also on the investment side,” she said.
Ifedi called for more donors to do what Heifer has done by leveraging patient and flexible capital to take the risk of upfront investment in such enterprises.
Heifer was interested in Hello Tractor not only to help the company meet the demand on its platform, but also to create new job opportunities in the markets where Hello Tractor operates.
The $4.5 million Heifer provided has allowed the company to finance tractors for young entrepreneurs in Kenya, Nigeria, and Uganda; secure partnerships with five manufacturers and dealers to supply tractors and support; and raise additional funding to scale up the pay-as -you go financing product, including the John Deere investment.
“It’s a massive opportunity to sell billions of dollars of equipment in Africa, and we’ve got a creative way to look at this market and get that money out there to finance your equipment, and do that in a way where you can bring that money back in and recycle it in the system,” Oliver said at SXSW.
How Hello Tractor drew interest from John Deere
Hello Tractor’s relationship with John Deere dates back to its participation in a program that the corporation launched in 2019 to deepen its relationships with startups whose technology could add value for its customers.
Last August, Deere & Company announced that it made a minority investment in Hello Tractor, meaning it took a non-controlling stake, less than 50%, of the business in exchange for its investment.
“John Deere sees this as an opportunity to support Hello Tractor’s innovative work to provide technologies and solutions to agricultural entrepreneurs in Africa and Asia,” said Jason Brantley, John Deere’s director for Asia, Africa and the Middle East, in a press release about the investment.
Hello Tractor’s work also aligns with John Deere’s strategy to ensure its equipment is connectivity-enabled, he added.
But John Deere would have been unlikely to invest without Heifer taking the initial risk, said Roger Bird, chief of party for the Kenya Investment Mechanism, a five-year, $35 million USAID-funded initiative that seeks to mobilize $520 million of private-sector investment to small- and medium-sized enterprises in Kenya and East Africa.
While he’s been involved in a large number of blended finance deals — which use philanthropic grants or development finance to mobilize private capital in emerging markets — this was different. Heifer provided money upfront to jumpstart the pay-as-you-go tractor finance product and demonstrated that the model would be viable.
By financing tractors and other equipment, Hello Tractor is now in the credit business, said Bird, whose investment initiative supported the company.
John Deere’s investment is “a huge vote of confidence” in Hello Tractor’s model, he said. And it provides John Deere a way to get more equipment to smallholder farmers in a market that is otherwise challenging to reach.
Ifedi said Heifer’s support of ag-tech innovators is part of a larger effort to do more innovative financing, using grants to unlock investment.
“We have to have our eye on the big picture, and the big picture is systemic transformation, and for systemic transformation to happen, we have to consider where the bottlenecks are, and it takes access to finance to unlock that,” she said. “And I think all of us have to allow our grants to work in a different way that builds a system that is there long after we leave.”
This post originally appeared here on March 30, 2023