HELLO TRACTOR’S

‘ADOPT AN ACRE’ MODEL

A BUSINESS PROPOSAL
 HELLO TRACTOR’S “ADOPT AN ACRE” BUSINESS PROPOSAL

EXECUTIVE SUMMARY
Kenya’s agricultural production process is plagued by low agricultural mechanization, coupled with
the drudgery of manual production and manual post-harvest operations. This has led to low
agricultural productivity below the country’s potential, leaving the agricultural sector struggling to
meet the food production demand. Hello Tractor seeks to remedy the situation by providing Kenyan
small-scale farmers in Uasin Gishu, Trans Nzoia, Siaya and Homa Bay counties with mechanization
services to increase their crop yield and subsequently increase their farming income, while providing
the local youth with meaningful business opportunities as our booking agents who will recruit
farmers and earn a 5% commission. This will ensure the sustainability of the business model. Hello
Tractor will achieve this though the ‘Adopt an Acre model’ as explained below:

The Adopt an Acre Model

Farmers will be required to register at least three acres of farmland through our App. To entice
farmers to use our services instead of turning to manual labor or hiring competitor tractors, we will
offer to provide mechanization services for free for one of the three acres. This offer will help
farmers to considerably cut down the agricultural production cost of ploughing, harrowing, and
planting and beat the cost of manual labor or resorting to the use of a potential small-scale
competitor. Investors will then adopt the “one free” acres offered and pay for their servicing on the
farmer’s behalf. To mitigate the risk of such investor money being lost, the funding will not be given
to the farmer directly. Instead, Hello Tractor will first provide the services and only then will the
company seek payment from the investor. This ensures that it’s a zero risk investment to the
investor as they have total control, paying only after the services are delivered. Hello Tractor will
then collect payment from the farmer after servicing the remaining two acres. The company will use
the revenue generated to repay the investors their investment capital plus interest rate, and also to
pay for the operating expenses incurred. Since the Adopt an Acre business model is designed in
such a way as to be a win-win for all parties involved, it is a safe investment model with a quick
repayment window.

Adopt An Acre Implementation

Hello Tractor has recruited cooperatives, such as the Tarakwa Eldoret and Kseed cooperatives,
which have thousands of farmers, so that we can meet our acreage target of 15,000 acres from
recruiting 5,000 farmers for the first farming season. We have 25 tractors in our pool and each
tractor can farm 10 acres a day. With 20 working days, our tractors will complete working on the
15,000 acres in 3 months. We will hire the following expertise staff for the project: 2 Agronomists, 25
Tractor Operators, 25 Turn boys, 5 Trainers, and 5 Supervisors. Hello Tractor seeks investors to
contribute a capital injection of $450,000 for this project, which will be repayable in 3 years at an
interest rate of 30 percent. The repayment total will be $585,000.
Project Assumptions Year 1 Year 2 Year 3

#Farmers 5,000 7,000 9,000

#HA of Land Prepared 15,000 21,000 27,000
#Tractors 25 35 45
Revenue $ 1,625,000 $ 2,730,000 $ 3,510,000
Operating Expenses $ - 1,894,750 $ - 2,267,250 $ - 2,877,200
$ -269,750 $ 462,750 $ 633,000
Net Revenue
Loan repayment with 30% interest rate $ 0 $ 285,000 $ 300,000

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INTRODUCTION

Kenya currently averages 2.5 tractors per 1000 hectors, which means that 50 percent of farm work
in Kenya is carried out manually. The high cost of adopting mechanization in the country due to the
large initial capital investment required to acquire, for example, tractors, coupled with the high cost
of operational costs such as maintenance, servicing, and fuel, has only served to push
mechanization out of the reach of most farmers in Kenya, most of whom are small scale farmers.

Despite the challenges of mechanization in the country, Kenya is increasingly looking to increase
food production to meet its domestic food consumption demand, and reduce its ever-increasing
dependency on food importation. In addition, the country is also seeking to do so while ensuring that
farming is an economically viable activity with good returns to entice more of its youth population to
engage in it, and at the same time retain the current farmers in the industry. This, however, is no
longer possible through manual labor and requires the benefits that come with mechanization. As
such, the Kenyan market is ripe for mechanization services, giving Hello Tractor the perfect
opportunity to enter the market and meet the high demand for mechanization.

THE CHALLENGE

In Kenya, the performance of the agriculture sector is critical to the country because it accounts for
65 percent of employment, 75 percent of domestic trade, and 60 percent of export earnings.
Therefore, the manner in which the agricultural sector performs also impacts on Kenya’s economy
because the sector accounts for 33 percent of the country’s Gross Domestic Product. The
contributions made by the agricultural sector so far have mostly been through smallholder farmers
as they account for 75 percent of the country’s total agricultural output, and 70 percent of marketed
agricultural produce.

Despite just how vital the agricultural sector is to the Kenyan economy, the agricultural production
process is plagued by low agricultural mechanization and the drudgery of manual production and
manual post-harvest operations. This has led to low agricultural productivity, well below its potential.
In addition, due to its growing rise in population and the fast rate of urbanization, Kenya’s
agricultural sector is struggling to meet the demand for food production to meet local production.

Hello Tractor will provide Kenyan farmers in Uasin Gishu county, Trans-Nzoia and Siaya and Homa
Bay, the mechanization services they much need to improve their crop yield and subsequently their
lives through provision of affordable mechanization services that can benefit small scale farmers.

THE SOLUTION

Hello Tractor’s provision of mechanization services will transform the lives and economies of
millions of rural families in Kenya. This is because mechanization will increase the farm output while
eliminating the drudgery associated with human muscle powered agricultural production. Improved
livelihoods for smallholder farmers in Uasin Gishu county, Trans-Nzoia, Siaya and Homa Bay areas
will increase access of these farmers to input supply chains and integration in modern food systems,
and opens the doors to numerous and renewed business opportunities in the country.

Moreover, this agricultural mechanization has the potential to contribute significantly to the
sustainable development of Kenya’s food systems, when adopted countrywide because it has the
potential to render post-harvest, processing and marketing activities and functions more efficient,
effective and environmentally friendly.

Hello Tractor will also contribute towards a sustainable increase in not only food production, but
also farm family income. The impact of a sustainable increase in farm family income due to
mechanization will lead to profitable and sustainable business for Hello Tractor as a mechanization
service provider.

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This is because the demand for these services will increase due to the feasibility prospects of the
farmers, who will then have additional income to hire mechanization services. This in turn will raise
productivity, leading to further improvements in farm incomes. At the same time, an increased
demand for agricultural mechanization will lead to a concomitant improvement in supply as a market
response.

A future expanding Kenyan market means that the operating costs per unit will reduce and that
prices of providing these services in the face of future competition will fall without jeopardizing the
profitability of mechanization service providers like Hello Tractor.

THE PROOF

Hello Tractor’s history in Africa makes it the perfect company to provide mechanization services in
Kenya. As a company that was founded under the belief that smallholder farmers are the key to
ensuring global food security and alleviating entrenched poverty, it set out to improve the lives of
farmers through mechanization. To do so, the company developed a tractor management software
to serve both farmers and mechanization providers in Nigeria. Today, we are the leading provider of
technology solutions designed for the tractor services market.

In addition, we have captured 75% of private commercial tractor inflows to Nigeria and through
strategic partnerships been able to expand to a total of 5 markets across Africa, one of which is
Kenya. Our extensive experience in mechanization services has enabled us to develop technologies
that add considerable value in the marketplace by helping to address the critical needs of tractor
owners, agents, and the farmers that need tractor services.

The company seeks to leverage its knowledge and unique insight on how mechanization in Africa
can be done in an economically viable and profitable, manner while addressing the unique
challenges facing African smallholder farmers.

Furthermore, our unique experience in the market makes us uniquely positioned for success. For
example, we quickly learnt that simply developing and providing a technology solution to help
farmers find mechanization services, and for providers to track their tractors in Nigeria was only half
of the solution. To improve the adoption of our services, the company had to create linkages
between the farmers who required the services and tractor owners who provided these services, in
addition to providing the tracking management software. To do so, the company had to create its
own network of Hello Tractor booking agents, train them on our software platform and how to book
services for farmers in need.

The process taught us that many African farmers we hope to serve are not comfortable with app-
based technologies. Our commission-based booking agents, mostly young people from rural
farming communities, bridged this gap. These booking agents continue to perform critical market-
aggregation, ensuring idle tractors can connect to farmers desperately in need of service, all while
earning a sustainable livelihood they otherwise may not be able to access. Therefore, Hello Tractor
has the technical know-how, propriety tractor management software, and unique and valuable
experience on how mechanization in Africa works best to yield the best possible outcome.

Hello Tractor’s mechanization services will make use of a unique business model we call the Adopt
An Acre Project. This unique model will ensure constant demand for our services, and thus,
increase the demand to our services exponentially. This will cause our returns to grow exponentially,
which in turn will generate enough the revenue to repay our investment partners within the shortest
time possible.

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HOW THE ‘ADOPT AN ACRE’ MODEL WILL WORK

Farmers will be required to register through our App for mechanization services a month before the
start of the season. The choice of the farmers is critical since they need to be in a position to make
payments for services. As such, we have partnered with farmer cooperatives, who have agreed to
be the link between us and the farmers.

The use of cooperatives will serve Hello Tractor and the ‘Adopt an Acre’ project in four beneficial
ways:
1. The exposure of our mechanization services will create awareness.
2. The introduction through cooperatives will build our authority and earn the trust of farmers in
us.
3. The cooperatives will monitoring and evaluate the farmers to be served, those already
served and their satisfactory levels with the service. This will help to provide us with
feedback data we can use to better our services and make them more satisfactory to
farmers in order to ensure the sustainability and longevity of the project.
4. The co-operatives will help to mitigate against the risk of defaulting on payments as they
have agreed to pay on behalf of a farmer who defaults on payment.

The farmers will be required to register at least three acres of farmland. To entice the farmer to use
our services instead of using manual labor or hiring a tractor that is not in our wide range of tractor
network, we will offer to provide mechanism services for free for one of the acres. This will not only
entice the farmers, but it will cut down the cost of using our mechanization services considerably
beating the cost of manual labor or potential small-scale competitor.

An investor will then adopt one of the three acres by the farmer and service it on behalf of the
farmer. To ensure that this investment funding is not misused, the funding will not be given to the
farmer. Instead, Hello Tractor will first service the one acre and then seek payment from the investor
later. This will ensure zero risk of losing the investment for unserviced farmland.

Hello Tractor will then service the remaining two acres for the farmers, who will then pay for the
mechanization services. Since those are two acres, one acre will be used to repay the initial
principle amount invested into adopting an acre by the investor, and Hello Tractor will use the
remaining acres to repay the investment interest rate as well as take care of the operational costs.

Since the ‘Adopt an Acre’ project model is designed in such a way to be a win-win for all parties
involved, it is a safe investment model with a quick repayment window. The details of
implementation of the proposed project are in the following section that breaks down further how the
Adopt An Acre project will work efficiently.

THE PROJECT IMPLEMENTATION

To make the ‘Adopt an Acre’ project economically viable, a large amount of infrastructure is
required. This is because three requisites must be in place:

1. Enough farmland dedicated to the project. Our target is 15,000 acres per season.
2. Constant recruitment of farmers into the program
3. Availability of enough tractors to fill the demand

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Hello Tractor has already met all three requisites as follows:

15,000 acres farmland: Hello Tractor has recruited cooperatives that boost thousands of farmers
so that we can meet our acre target. For this project, we require 5,000 small-scale farmers to meet
our financial obligations.

With each farmer providing 3 acres, the total acres will meet our target of 15,000 acres per season,
5,000 of which will be farmed through investor funding. Our partnership cooperatives boost currently
of over 6,000 farmers. That is, the Tarakwa Eldoret that has over 2,000 farmers and Kseed
cooperative in Molo with over 4,000 farmers.

Recruitment of farmers: Hello Tractor will also deploy its own network of already in place booking
agents to recruit farmers in addition to seeking partnerships with farmer cooperatives. In addition,
other partnerships we have entered to create awareness for the ‘Adopt an Acre’ project include, the
United Nations World Food Program, and the Cereal Growers Association.

These partnerships will give Hello Tractor the platform to educate farmers of the benefits of our
project. The education activities will be carried out through these organizations’ speaking
engagements that they hold with farmers in the country.

Availability of tractors for mechanization services: Currently, we have 25 tractors in our pool.
Each tractor is 75hp and can farm 10 acres a day comfortably.

A tractor works for 20 days in a month, and we reserve the remaining ten days for repairs and
maintenance, excluding 4 days for Sunday. This means that we can service 15,000 acres in a
matter of three months. That is:

Time in months = 15,000 acres/(25 tractors*10 acres a day*20 days)

= 3 months.

Apart from having the requisite mechanization tools for ploughing, harrowing and planting tractors
as well as booking agents, the company will also hire expertise staff such as agronomists, hire and
train equipment handlers, and acquire supervisor cars. This will enable the company to target and
meet the mechanization of 15,000 acres per season. This means that at least 7,500 farmers will be
targeted per season, and as a consequence, over 15,000 families will directly and positively be
affected by Hello Tractor’s mechanization services.

To show the farmers our mechanization services in a real life situation, and the results they can
expect from using our services, the company will also acquire an acre of land that will be fully
serviced by the acquired machinery. This acre will not only help to showcase our expertise in
mechanization operations, but also our efficiency and professionalism.

With an increase in the number of farmers signing up for mechanization services from Hello Tractor
due to its viability and pocket friendly pricing for farmers, the company will not only be helping
farmers increase their crop yield, but also will be creating more employment opportunities for the
youth who will be recruited and trained as booking agents in our platform, and paid a 5 percent
commission for every service aggregated and completed. This will also ensure that Hello Tractor
has demand for its services, while farmers receive a much-needed mechanization services at a
cheaper cost.

In addition, the large aggregated number of farmers who will make use our mechanization services
means that Hello Tractor will be at the forefront of ensuring food security in Kenya due to increased
crop yield in smallholder farms, which will contribute towards meeting domestic demand and
reducing the country’s dependency on importation of food.

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In general, the contributions of Hello Tractor in the ‘Adopt An Acre’ project will include:

 Tractors for mechanization services to farmers.

 Tractor management system on tracks for Hello Tractor, farmers and booking agents to
track progress of how many trucks are available for immediate use or future booking.
 Training for all farmers on good agronomic practices such as soil testing, proper soil
nutritional application, and general husbandry to increase the quality of crops and yield of
farms.
 Financial literacy to farmers on the best farm accounting practices to follow. This will help
farmers manage better their farming income, and empower them to invest in other financial
activities or expand their current farming activities. Financial literacy will be key to keeping
farmers from mismanaging their farming income and help them to leave poverty behind.
 Marketing training based on what the market needs and when it needs it. This training will
assist farmers to sell their produce to interested parties at fair market prices, while their
produce is still fresh. This will help farmers avert losses due to lack of buyers, especially in
times of oversupply of specific crops in the market.

PROJECT DELIVERABLES

1. Recruitment of 5,000 farmers to provide the necessary 15,000 acres of farmland being
targeted.
2. The tractors will farm 15,000 acres within a season or three months, for example, from
January to March.

PROJECT MILESTONES
The ‘Adopt an Acre’ project has several milestones to achieve in order to be successful in Kenya.
These project milestones include:

1. Acquire tractors, which will be used as the mechanization machinery to be hired out to
farmers.
2. Install Hello Tractor tracking software on each truck and sync its data to our tractor
management software.
3. Acquire an acre of land for preparation and showing farmers what mechanization is about.
4. Recruit staff such as agronomists and equipment operators such as drivers and turn boys
who will work directly with the farmers.
5. Recruit booking agents and train them on how our software works, how to recruit farmers,
and how to make a living as our agents.
6. Aggregate farmers and bring them to Hello Tractor’s mechanized land to showcase our
expertise, efficiency, and professionalism in providing them with mechanization services.
7. Provide farmers with value addition through additional training opportunities of good
agricultural practices that lead to higher yields and financial literacy to help them manage
their farm income better.
8. Service 5,000 acres adopted by investors.
9. Service additional 10,000 acres from farmers in addition to the 5,000 adopted by investors.

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KEY FINANCIAL DATA AND FINANCIAL PROJECTIONS

Hello Tractor is seeking to obtain the necessary funding to commence on the ‘Adopt an Acre’
project in Kenya.

In light of this, this section contains the projected capital requirements, expected operating
expenses, break-even analysis, and a five-year cash flow analysis that shows how the company is
expected to perform and how it will repay its debt to potential investors.

Important Assumptions

These financial projections are dependent on some underlying assumptions such as:

1. The company will receive a large capital injection from the start in order for it to procure the
necessary machinery to implement the project over a large area of smallholder farmers in
Kenya.
2. Initially, the company expects to recoup the investment and pay investors within 3 years
because, for every one acre adopted, the farmer will commit two acres for mechanization.
3. The above assumption rests on another assumption that there will be no major economic
recession that takes place in Kenya during the three-year period.
4. The initial suggested capital investment will be sufficient and no additional capital injection
will be required at a later date to keep operations afloat.

Some of the key assumptions made that will impact the financial performance of Hello Tractor are
as follows:

The initial capital injected will be $450,000 and corporate income tax for Hello Tractor at 37.5
percent. See Table 1 which provides a summary of these key financial assumptions:

Assumptions

Item Value

Capital Injection $450,000

Corporate tax 37.5%

Table 1: Key assumptions

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BREAK EVEN ANALYSIS

To calculate a break-even analysis and determine when the project will become profitable and thus
able to repay its customers, three metrics are needed: total sales; total fixed cost; and total variable
cost. For Season 1, the total fixed cost is unique given that Hello Tractor will service 5,000 acres
out of 15,000 for free. Therefore, the total fixed cost is $526,750, the total variable cost is: $524,250,
and the total sales is $325,000.

Break even analysis = Fixed costs / (Sales price per 5000 acres – Variable cost 5000 acres)
=526,750/(325,000-524,250)
=-2.644 (whose absolute value is 2.644)

Taking the quantity multiplier for 5,000 acres, then the company requires the following number of
acres:

Acres needed to break even = 5,000*2.644=13,218 acres.

Therefore, the company will need to service an additional 3,218 acres in Season 2 to break even.

CASH FLOW ANALYSIS

In Season 1, Hello Tractor’s operating income activities will be limited to 10,000 acres of land. In
Season 2, however, the total acreage of service will be 15,000 acres. The company expects to grow
every year servicing: 21000 acres in Year 2; 27000 acres in Year 3; 33000 in Year 4; and 39000 in
Year 5.

Hello Tractor expects to make a loss of $416,000 in its first season due to high operating costs
totaling $1,066,000 as broken down in Table 2 below:

Table 2: Operating Expenses in First Season, Year One

Operating Expenses (15,000 acres for the first season) $
Ploughing tractor costs @ $30 per acre for 5,000 acres 150,000
Harrowing tractor costs @ $20 per acre for 5,000 acres 100,000
Planting tractor costs @ $15 per acre for 5,000 acres 75,000
5 supervisors @ $3,000 each 45,000
Vehicle maintenance (Fuel costs, car oils and insurance) @$14,000 per month ($560 per
tractor) 42,000
2 agronomists @ $3,500 each a month 21,000
25 tractor operators @ $750 each a month 56,250
25 turn boys @ $500 each a month 37,500
5 Trainers @ 2 trainings a month @ $3,000 a month 9,000
Training materials @ $2,500 a month 7,500
Training venues @ $3,000 a month 9,000
Farmer traveling allowance (5,000 farmers at $1,500 per allowance) per training session 450,000
5% commission to booking agents of 5000 acres aggregated cost of ploughing,
harrowing, and planting 48,750
Advertising @ $ 5,000 per month 15,000
Total cost in Season One 1,066,000

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After the first season, operating costs substantially lower as no additional 5,000 acres will be
serviced for free. The venture will be profitable from Year 2 onwards.

In Year 2, Hello Tractor will repay its investors $285,000, and in Year 3 complete the remaining
investment loan repayment of $300,000. Table 3 below is a summary of the cash flow analysis of
the project over the first five years:

Table 3: Cash flow analysis of the Adopt an Acre Project

Cash Flow
Analysis Y1 Sn 1 Y1 Sn 2 Y2 Sn 1 Y2 Sn 2 Y3 Sn 1 Y3 Sn 2 Y4 Sn 1 Y4 Sn 2 Y5 Sn 1 Y5 Sn 2
Operating
Activities
Operating
Income 10,000 15,000 21,000 21,000 27,000 27,000 33,000 33,000 39,000 39,000
(sales) acres acres acres acres acres acres acres acres acres acres
Ploughing
services 300,000 450,000 630,000 630,000 810,000 810,000 990,000 990,000 1,170,000 1,170,000
Harrowing
services 200,000 300,000 420,000 420,000 540,000 540,000 660,000 660,000 780,000 780,000
Boom Spray
services 150,000 225,000 315,000 315,000 405,000 405,000 495,000 495,000 585,000 585,000
Total
Income
sales 650,000 975,000 1,365,000 1,365,000 1,755,000 1,755,000 2,145,000 2,145,000 1,955,850 2,535,000
Less
Operating - - - - - - - -
Expenses 1,066,000 741,000 -994,800 -994,800 1,248,600 1,248,600 1,502,400 1,502,400 1,756,200 1,756,200

-416,000 234,000 370,200 370,200 506,400 506,400 642,600 642,600 778,800 778,800
Less
Corporate
tax 0 -87750 -138825 -138825 -189900 -189900 -240975 -240975 -292050 -292050
Net
Operating
Activities -416,000 146,250 231,375 231,375 316,500 316,500 401,625 401,625 486,750 486,750
Financial
Activities
Capital
Contributions 450,000 0 0 0 0 0 0 0 0 0
Capital
Repayments 0 0 85,000 200,000 200,000 100,000 0 0 0 0
Net
Financial
Activities 450,000 0 -85,000 -200,000 -200,000 -100,000 0 0 0 0
200,000 0 0 0 0
Investment
Activities
Investment
Income 0 0 0 0 0 0 0 0 0 0
Capital
Expenditure -450,000 0 0 0 0 0 0 0 0 0
Net
investment
Activities -450,000 0 0 0 0 0 0 0 0 0

Cash Flow
0 0 0 0
Cash at the
beginning of -
the period 0 416,000 -269,750 146,375 177,750 294,250 510,750 912,375 1,314,000 1,800,750
Cash at the
end of the -
period -416,000 269,750 146,375 177,750 294,250 510,750 912,375 1,314,000 1,800,750 2,287,500

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