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Management in Practice

Can a Farming Startup Help End Extreme Poverty?

More than one billion people have moved out of extreme poverty in recent decades, but 80% of those that remain live in rural areas. Can an agribusiness startup transform smallholder farming and offer a private-sector solution to extreme poverty? John Denniston, founder of Shared-X, believes he has a model that can scale.

The UN’s Sustainable Development Goals call for an end to extreme poverty by 2030. There has already been significant progress; nearly 1.1 billion people have moved out of that category, defined as making less than $1.90 a day, since 1990. But much of that economic development has been tied to urbanization. Those who remained in rural areas haven’t seen the same expansion of opportunity. According to World Bank data, 80% of the 770 million people living in extreme poverty are in rural areas and 64% work in agriculture.

The planet’s estimated 500 million smallholder farms produce 80% of the developing world’s food, according to the UN’s International Fund for Agricultural Development. But to a great degree they operate in inefficient informal economies. In many places, weak government structures make it all but impossible for farmers to prove land ownership, excluding them from formal markets. The lack of storage infrastructure means that farmers consistently lose a significant portion of their crop to spoilage—and they sell the remaining crops into oversupplied markets when prices are at their lowest.

Few of these farmers have access to information about more valuable crops or better farming techniques. They lack financing for tools, supplies, crop insurance, or seeds. The Gates Foundation has been pushing to use technology to help smallholder farmers to connect to opportunities. The hoped-for results include a better return on the crops they grow by improving price transparency and a doubling or tripling of yields by diffusion of improved practices.

Can the for-profit sector help accelerate the spread of these technologies? Yale Insights talked with John Denniston, a retired partner at Kleiner Perkins Caufield & Byers, who founded Shared-X, an agribusiness startup that aims to use the power of the private sector to scale a solution to the poverty facing smallholder farmers.

Q: What is Shared-X?

Shared-X is an agricultural startup and an impact company—that is, a for-profit company with two goals in mind: generating financial returns and generating social returns. We grow high-value specialty crops in emerging countries. At the core, Shared-X seizes on the agriculture phenomenon called the “yield gap,” which is the difference in bushels per acre between developed and emerging-country farms. Yields can be 5, 7, even 10 times greater for the developed farm.

In the finance world, that’s an arbitrage opportunity. Our business plan is to collapse that yield gap by deploying advanced, sustainable farming techniques. We’re very excited with the progress that we’ve made, and we’re looking to go faster.

Q: How did you end up doing this?

It was two parts of my life coming together. Professionally, as a venture capitalist in Silicon Valley, I had invested in the agriculture innovation economy. At the same time, I’ve been taking my family to do volunteer community service in a rural agricultural region in northern Peru for 10 years.

Through that, I made a connection with Toni Salas, who is, today, our CEO. He was formerly Peru’s equivalent of the undersecretary of agriculture. He was also the CEO of an agricultural consulting firm in emerging countries. He and his team have done over 400 agriculture projects in 30 countries.

Toni was born and raised in Peru. In his capacity as a vice minister of agriculture and in his consulting career, he built connections around the globe, so when Shared-X is ready to expand we’ll have an established network of well-connected in-country experts in most of the countries where we’d want to do business.

Q: How does Shared-X choose which countries to go into?

We choose countries that have both stability and dire, bottom-of-the-pyramid poverty. So we’re in Peru, not Venezuela. And we won’t be going to Somalia and Haiti. Not because there isn’t need in those places, but since we’re a for-profit, impact company, we have to be selective. There are countries that are more appropriate for nonprofits.

Q: How do you measure success?

At all the impact conferences, there are speakers and panels talking about impact metrics. What do you measure? How do you measure it? For Shared-X, it’s really easy. We measure income gains for the smallholder farmers. Full stop.

Our business model is a hub-and-spoke system. We buy a farm that functions as a hub. The spokes are the smallholder farmers. To be clear, our hub is hundreds of acres. We’re not buying it from smallholder farmers. We’re buying it from the wealthy family in the big city or the mid-tier farmer getting out of the business.

From the hub, we openly share our advanced sustainable farming methods with the smallholder farmers. We sell our harvests side by side. Therefore, we know to the penny what their income is. It’s in our financial P&L. We can see it, every single day.

Q: Do you need to engage the government where you work?

To date, it has not been a factor, and that is an outcome of our business model. High-value specialty crops—organic bananas, aromatic cacao, specialty coffee—are higher-margin products, so our footprint in any community is relatively small. We’re not buying tens of thousands or hundreds of thousands of hectares, where we become very big and very noticeable. We’re relatively small, and we’re doing good in the communities, so beyond a level of stability that is part of our selections matrix, we don’t focus on the government.

Q: What is the state of the impact economy as a broader trend?

I see impact companies, impact ideas, and impact investors emerging all over the place. It’s not like the technology world in America, where you have these highly concentrated hubs. This is widely dispersed, and the capital is widely dispersed, at least at this phase in the development of the impact economy.

I give a lot of credit to the millennial generation. You see it in survey data. Eighty-seven percent of millennials believe that the success of a business should be measured by more than just its financial success. Seventy-five percent say they would buy, and pay more for, a sustainability product. It’s a bit of a mystery. Why this generation? Why now? But it’s a wonderful thing to see.

Q: How do the nonprofit and impact spheres work together?

To be clear, both nonprofits and for-profits are required. NGOs do wonderful work in many, many countries, including places where it’s tough for for-profits to work. A nonprofit’s scale is limited by the amount of charitable contributions it receives in a year. In the U.S., charitable donations are about 2% of GDP. Many nonprofits are very good at development, but you can’t solve the world’s biggest problems on 2% of GDP. It’s hard for nonprofits to create a for-profit’s multiplier effect. We need the scaling capacity of the private sector to solve something like the persistent worldwide crisis of smallholder farmer incomes. That’s the idea of the impact economy.