Author: By Dr A. Lawani, G. Rambaldi and K. Chimhanda

Publish date: 15 May 2025

The agricultural sector is undergoing a profound transformation, driven by digital innovations such as artificial intelligence (AI), the Internet of Things (IoT), digital farm books and farm management information systems, .  Precision agriculture is a management strategy which benefits from such digital innovations.  Part of the agricultural world believes that precision agriculture is going to redefine traditional farming systems, equipping farmers with innovative tools for efficient resource management, accurate yield forecasting, and proactive disease prevention, others promote alternative forms of sustainable agriculture.  Recent studies show that these technologies can reduce labour costs by 50%, improve crop yields by 15%, and decrease water usage by 20% through intelligent irrigation systems (Mohammed et al., 2024), Overall productivity in agriculture can see an average increase of 30%, driven by data-enabled solutions such as fertilization optimization, pest control protocols, plant disease detection, and livestock health monitoring. For smallholder farmers especially in low-and middle-income countries (LMICs), these advancements offer opportunities for addressing challenges related to global food production, market access, financial services, and resilience to climate change. Despite the potential, these technologies have to address the pressing challenges smallholder farmers face in agriculture, they also provide digital service providers with an opportunity to diversify their offerings and capitalize on emerging markets by adapting to the evolving needs of the sector.

Digital Solutions for Climate Resilience

Digital solutions are particularly relevant for addressing climate challenges. According to the World Bank, agricultural productivity could drop by 5-25% in many LMIC regions by 2050 due to climate change. In countries like Kenya and Uganda, digital services, that offer climate-smart advisory and precision irrigation have been pivotal in helping farmers build resilience against climate adverse events. For example, Kenyan farmers using digital irrigation solutions reported a 50% reduction in water usage, alongside productivity gains of 25% (GSMA, 2023). However, this technological shift presents a strategic dilemma for digital service providers in agriculture: should they focus solely on tailored solutions for the agricultural sector, or consider expanding their offerings into other sectors to mitigate risks and broaden their impact?

Pathways for Diversification in Digital Agriculture

The strategic dilemma for digital service providers in agriculture has become a crucial decision as the industry faces rapid technological advancements and global challenges. Several potential pathways for diversification can be envisaged. One option, vertical diversification, is to expand digital offerings within the agricultural sector itself. This approach allows providers to enhance their range of tools and services, leveraging advancements in AI, IoT, and automated precision farming to drive the adoption of digital solutions likely run by intermediaries. By keeping pace with these innovations, providers can tailor their services to meet the evolving needs of farmers. For example, IoT solutions that monitor soil moisture and climate patterns are essential for efficient water management. However, only about 20% of LMIC farmers currently have access to such solutions (GSMA, 2023). The agricultural landscape, particularly in LMICs, requires solutions that cater to varying levels of digital literacy and infrastructure. For instance, modern tools often coexist with older technologies like radio and DVDs, creating opportunities for tailored services.  In Malawi and Zambia, mobile advisory services complement radio-based agricultural programs, making technology accessible even in low-internet regions (USAID, 2022). This approach enhances the likelihood of adoption and ensures that the services cater to diverse user needs, given that digital literacy varies widely across LMICs. Additionally, climate change intensifies the demand for digital solutions as variability affects productivity. Farmers increasingly seek tools for precision irrigation, pest management, and climate-resilient crop planning. The solutions can be tailored to virtually all sectors along the agricultural supply chain (e.g. streamlining of post-production operations). Staying focused on agriculture enables providers to develop specialised services that effectively respond to these unique challenges.

Another pathway, horizontal diversification, is to extend technological solutions to multiple sectors, allowing providers to apply their expertise beyond agriculture. This strategy can mitigate risks associated with agricultural challenges, such as weather variability, pest outbreaks, and market fluctuations. By diversifying into non-agricultural areas, providers create a buffer against fluctuations in agricultural demand. For instance, some agritech companies have expanded into market linkages, and other sectors such as health, natural resources conservation, and even aerial survey stabilising revenue streams beyond seasonal agricultural cycles.

Firms with advanced technological capabilities which adapt their solutions for new markets, including logistics, environmental monitoring, and financial services enhance operational performance and reduce risks. This expansion also offers an opportunity for digital service providers to reach a wider customer base, as they can apply their expertise in areas requiring similar technological applications. In Tanzania and Uganda, digital providers have secured additional revenue by offering financial services alongside agricultural solutions. Some have developed financial solutions for smallholder farmers, such as credit scoring based on agricultural data, which has opened new avenues for growth and diversification. As a final example, several members of the Africa Goes Digital association, in addition to providing drone-based services for the agricultural sector, have expanded their offerings to other industries such as topographical mapping, mining and quarrying, and cultural heritage conservation. By leveraging their expertise in digital tools, providers can create integrated solutions that serve a broader range of clients across sectors while maintaining a core focus on technology.

A third option, vertical combined with horizontal diversification, involves broadening both the range of services and sectors beyond agriculture. While this approach offers greater diversification, it poses risks of spreading resources too thin. Providers attempting to serve multiple sectors may struggle to maintain high-quality services due to the complexity of managing a diverse range of offerings. This challenge is particularly relevant for smaller firms with limited resources, where the cost of managing a broad portfolio can quickly become unsustainable. Insights from East Africa highlight the risk of "digital confusion", where many farmers, especially those with limited digital literacy, find it challenging to adopt multiple new technologies. This complexity can hinder adoption rates, as farmers may feel overwhelmed. Moreover, regulatory constraints can limit diversification efforts. For instance, in several African countries challenges in drone registration have stifled interest in the adoption of the technology, illustrating how regulations can shape the feasibility of sector expansion.
 

Navigating the Path to Strategic Diversification

As companies consider these pathways, diversification emerges as a strategic response to the inherent risks associated with agricultural dependency, such as fluctuating markets and environmental challenges. By diversifying their services, companies can stabilize income streams and reduce vulnerability to sector-specific downturns, thereby enhancing business resilience. However, this requires a deep understanding of emerging customer needs and market dynamics. To effectively navigate this landscape, providers must balance opportunities with potential risks. While remaining focused within the agricultural sector may seem like a safer choice, it still faces unpredictable challenges, including climate change, pest outbreaks, and market fluctuations. Diversifying into multiple sectors can offer stability, but it introduces complexities that must be managed carefully.

To initiate the diversification process, providers should assess their core competencies and identify unique strengths that set them apart. Understanding market demand is equally important; engaging directly with clients, particularly farmers, can uncover real needs and pain points that existing technologies in other sectors may address. Digital agriculture solutions in Africa have grown notably, with adoption rates reaching approximately 23% among smallholder farmers, compared to just 12% for traditional methods (CTA, 2019; GSMA, 2021).  The Beanstalk AgTech 2023 report estimates “reaching an average D4Ag adoption rate of 38% across the LMICs by 2033, encompassing a vast population of 224 million users”. The adaptability of current technologies also plays a significant role, as digital solutions are often flexible enough to be repurposed for various applications. Strong relationships with existing customers can provide invaluable insights into new opportunities within agriculture and potential crossover applications in other sectors. Feedback from these users can highlight emerging needs that digital solutions may address. Importantly, there is no one-size-fits-all approach to diversification. While some providers may find success by focusing solely on agritech, others may thrive by expanding into multiple sectors, leveraging their core strengths while remaining responsive to evolving market demands.

As rapid advancements in AI and IoT continue to drive innovation, these technologies provide opportunities for developing solutions tailored to specific agricultural challenges. Exploring both vertical diversification, which enhances service offerings within agriculture, and horizontal diversification, which applies expertise to other markets and their different actors, enables digital service providers to mitigate risks associated with agricultural volatility, thereby enhancing business resilience. Ultimately, the journey towards effective diversification in digital agriculture is not just about expanding service offerings; it requires collaboration and continuous improvement across the entire ecosystem. By investing in research and development, providers can foster innovation while remaining competitive. Engaging farmers and agricultural cooperatives in the development and testing phases of new technologies, ensures that these innovations meet practical farming needs, facilitating the adoption of new digital solutions that improve productivity and sustainability.

Advancing Ethical Standards and Responsible Governance

Maintaining high ethical standards and engaging stakeholders is also essential, especially as companies venture into unfamiliar territories. Ensuring data privacy, securing stakeholder buy-in, and maintaining transparency in operations are critical for fostering trust and cooperation. Studies reveal that 65% of smallholder farmers in sub-Saharan Africa express concerns about data usage and privacy, particularly in digital financial services (CGAP, 2023). Policymakers and government agencies play a crucial role in creating regulatory environments that support innovation and responsible diversification. Providing financial incentives for startups bringing innovative and sustainable solutions is essential, as is promoting the adoption of digital solutions that advance sustainability within the agricultural sector. In LMICs, where over 70% of food production relies on smallholder farms, digital agriculture can play a transformative role in enhancing productivity and resilience (FAO, 2023). However, responsible governance is crucial for ensuring that this digital transformation benefits communities equitably.

Summing up: The Future of Digital Diversification in Agriculture

In conclusion, strategic diversification in digital agriculture necessitates a comprehensive approach that includes understanding market dynamics, adapting to technological advancements, and fostering collaboration among stakeholders. By nurturing innovation and being responsive to market demands, digital service providers can significantly enhance their impact on agriculture while improving the livelihoods of farmers. The dynamic nature of digital agriculture necessitates ongoing research into diversification strategies to ensure they remain effective and aligned with global trends, innovations, and the local needs. Future studies could focus on the long-term outcomes of the diversification strategy adopted by digital service providers and its impacts on the sustainability of their operations and of the farming systems. By taking key factors such as market dynamics, technological innovation, stakeholder collaboration, and sustainability into consideration, digital agriculture service providers can better navigate the complexities of diversification and position themselves for sustained success in a rapidly changing environment.