Social Return on Investment
As a nonprofit social enterprise, One Acre Fund generates earned revenue, but we also receive donor dollars to support a variety of countries and program types. We use a concept called Social Return on Investment (SROI) to help us guide donor dollars most cost-effectively.
To calculate SROI, we take the total impact of a program in terms of new farmer income generated ($), and then divide it by the donor cost of operating that program ($). On a per-farmer basis, SROI is equivalent to the average incremental profit per farmer divided by the average donor subsidy per farmer. For example, suppose that last year, a country program served 100,000 farmers and generated an estimated $100 of new income per farmer. This resulted in a total impact of $10 million. Against that, suppose One Acre Fund spent $2 million in donor funds to create that impact. The SROI of that program would be $10 million divided by $2 million, or 5. That means that for every $1 donor dollar invested in that country program, we generated $5 in new farmer income. Or – equivalently, we created $100 of new income impact per farmer and spent $20 in donor funds per farmer to generate that impact: $100/$20, or an SROI of 5.
The first chart below shows the annual SROI of One Acre Fund’s core program and the organization overall from 2014 to 2018. The second chart below shows the annual impact and cost per farmer, on an “all-in” basis from 2014 to 2018.
Despite material progress in reducing our net cost per farmer, the inherent volatility of agricultural yields and profits due to weather, pests, and price fluctuations has meant that our SROI has fluctuated within a band of 2.8-4.7 (core program) and 1.3-2.0 (all-in) over the past five years. We believe these are strong ratios for an at-scale program serving farmers at the poverty level of our target population.
- Impact per farmer: Over time, One Acre Fund has steadily improved the impact of our program, by introducing both improvements to existing products (e.g., higher-yielding seeds, more productive planting techniques for maize) and new products (e.g., agricultural lime, improved storage bags). However, many of the crops smallholders plant are harvested annually, in the agricultural season. As a result, the effects of product improvements are often overshadowed by the material influence that weather, pests, and market prices have on the yields and profits farmers generate from their crops in a given year. This is demonstrated in the fluctuations in the chart above.
- Net cost per farmer: One Acre Fund has steadily improved our costs, both in terms of core program cost per farmer and all-in cost per farmer. In particular, One Acre Fund has been able to drive meaningful cost efficiencies in R&D and shared service costs, as we can control what we spend in those areas. Our core program cost per farmer has improved through economies of scale in input ordering and better farmer to field officer ratios, though in part offset by lower farmer repayment and re-enrollment rates in recent years due to weather and pest challenges.
Looking ahead, while any single-year is difficult to forecast, we do see a strong path to increasing our SROI over time on both a core program and all-in basis, through improvements to both impact and cost. For instance, to increase impact, One Acre Fund is innovating a poultry program in key countries and using the tools of precision agriculture to start making site-specific seed and fertilizer recommendations. On the cost side, One Acre Fund is projecting major efficiencies through technology. For instance, we are rolling out tablets to our front-line field staff in Kenya this year, to shift core functions like marketing and enrollment from paper; and to supplement training and repayment collection.
In addition, while we highly value SROI as an important metric, One Acre Fund also generates meaningful impacts beyond financial impact, and therefore not currently captured by SROI. For instance, One Acre Fund builds resilience among our clients, by increasing asset value, asset diversity, insurance coverage, and safety net networks relative to non-One Acre Fund farmers*. We are also working to achieve non-financial outcomes for clients, including outcome areas where we have strong evidence today (such as food security)** and new areas we see as important to holistic improvements for our clients (such as nutrition, agrobiodiversity, and soil health). For more detail on our holistic impacts, please see Impact in Detail and Climate and Soils.
One Acre Fund is also proud to have an impact on the broader rural communities in which we work. For example, our core program has spillover effects on nearby farmers, improving their yields. Our labor-intensive model generates significant, truly incremental jobs in rural areas; in 2018, we paid over $16M in rural wages to African staff. Additionally, One Acre Fund’s systems-change and policy units generate broader ecosystem impacts as well, that, while difficult to measure and/or attribute, help transform markets. We describe below how we use SROI in tandem with other metrics to make internal resource-allocation decisions. We are also exploring ways in which we might be able to integrate these other important outcomes into SROI over time, to better reflect our holistic impact, and facilitate more integrated decision-making.
How we use SROI
SROI is a powerful metric in that it enables us to combine impact and cost, to ultimately show how cost-effectively we’re achieving impact as a whole and within specific areas of operations. For instance, we aspire to generate at least $4 in incremental profit for farmers for every $1 in donor subsidy spent on our core program, which we believe is strong for the population we serve.
The biggest use of SROI at One Acre Fund is to inform internal decision-making. As with all donor-supported organizations, we have limited resources and must make decisions as to how we deploy those resources to maximum effect. SROI provides a common metric we can use to analyze performance of our many programs and countries. Of course, SROI should not be the sole criteria for resource allocation decisions. One Acre Fund also considers a number of others, such as need-level, scalability, and non-income impacts, to determine how much to invest across our increasingly diverse portfolio.
Average SROI per country (2016-18)
To inform internal decision-making, One Acre Fund calculates different SROI targets for each country and/or program based on its scale point and need-level. Highlighting the variation in SROI in different countries, below is a chart of average core program SROI in several of our core countries of operation.
|NPV impact ($) per farmer||Donor subsidy per farmer||SROI (impact/cost) per farmer|
We share here two examples of how SROI has supported resource allocation.
Example 1: How should resource levels change for each of our core program countries?
- In 2016, Kenya’s core program SROI was well above target. As a result, we challenged our Kenya team to identify opportunities for faster growth (more resource investment), which resulted in a strategy to increase market penetration and expand outwards. Conversely, Rwanda’s core program SROI was below its target, due in particular to environmental factors. As a result, we prioritized improving efficiency before investing for fast growth, and our Rwanda team responded by trimming 20% of its budget.
Example 2: Among our pipeline of research and development trials, which ones should we scale up, and at what investment level?
- Although harder to calculate, given we are projecting future impact (based on several assumptions) and then discounting to present value, we can generate an SROI for trials in our R&D pipeline, and choose to invest in scaling up those with the highest projected SROI and scale. For instance, tree planting has proven in our innovation trials to have an extremely high SROI (and highly scalable) across many contexts. This category will receive enhanced investment in the coming years.
At One Acre Fund, we put farmers first. Using SROI to allocate resources is part of the pact we make with our staff, our funders, and most importantly our clients, to generate the most social good for every dollar we deploy. Farmers count on us to use our resources responsibly -- doing so means more families can put food on their tables and create brighter futures for their children.
For additional information on SROI, we invite you to visit our publications and blog posts on SROI.