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How the Ag-Tech Landscape in India Is Ripe for Innovation

Dr. Borlaug helped launch the “green revolution” in India in the 1960s. Within a few years, India became independent in food grains. Over the last 50 years, India’s agricultural productivity growth has outpaced its population growth. India is the largest producer of milk, second largest producer of fruits and vegetables, contributes a quarter of the world’s pulses, a fifth of the world’s rice, 13% of wheat, and is the second largest exporter of cotton.

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Challenges

Even though India is a powerhouse, there are multiple challenges with agriculture in India. The use of agricultural equipment is about 40%-45% (vs. U.S. 95%, Brazil 75%). Due to this, even though the agriculture sector employs 42% of the workforce, it contributes only 14% to the GDP. The small size of farm holding (average is less than 2 hectares) makes it challenging to get efficiencies of scale. A majority of the production is dependent on monsoon rains, adding to the uncertainty of output on a smaller size farm. Farmers find it challenging to get their product to market as there are challenges with the marketing infrastructure, storage and cold chains are limited, and logistics is inefficient.

Silver Linings

Even though there are a lot of problems (opportunities!), there are some tailwinds as well. India’s GDP has grown at >5% for the last 30 years (barring some blips, including the last 5 years). In the last decade, India has lifted 271 million people out of poverty. The rise in wealth and income levels has amplified the demand for high quality and nutritious food. 

1. Changes in Policy and Infrastructure

Pre-Covid-19, farmers could market their product mostly through government sanctioned outlets called APMCs (Agriculture Produce Marketing Committees) only. The government has recently relaxed most of these restrictions. It will provide flexibility to farmers on marketing their products. It has also launched multiple schemes for farmers, e.g. for sustainable agriculture, and government subsidized crop insurance programs.

It has launched an ambitious program (Soil Health Card scheme – similar to SSURGO) to measure soil health and educate farmers. One soil sample is collected for every 10 hectares and 2.5 hectares for rain-fed and irrigated cropped areas respectively. It will collect 34.6 million grid samples in two years and a large number of the results have been distributed to farmers using soil health cards.

2. Technology Investments

AgFunder’s 2020 Farmtech investment report found that India “recorded the second highest number of deals after the U.S. in 2019. It saw an 87% year-on-year funding growth, from $133 million to $249 million in 2019. For the Indian context, Mark Kahn and Shruti Srivastava (VCs at Omnivore) think of ag-tech investments (paywalled essay) in nine different sectors.  

  1. Farmer platforms: e.g., Agrinet, Clover, Dehaat
  2. Rural fintech: e.g., Sammunati, Bijak, GramCover,
  3. Agribusiness SaaS: e.g., Cropin, Skymet, Procol
  4. Precision agriculture: e.g., Fasal, Eruvaka, Tartan Sense. 
  5. B2B Agri marketplaces: e.g., JumboTail, Ninjacart, Waycool
  6. Farmer to Consumer brands: e.g., Country delight, Licious, Freshtohome
  7. Postharvest tech: e.g., Stellapps, Ecozen, Intello Labs
  8. Agribiotech: e.g., Barrix, String Bio
  9. Innovative foods: No notable investments in the last 5-6 years.

Over the last 5 years most of the funding has gone to marketplaces, farmer to consumer brands, farmer platforms, and rural fintech. Precision agriculture has received only 3% of the funding amongst these nine sectors over the last 5 years (April 2014 – Oct 2019).

Based on the 2020 AgFunder report on India, investments in FY2020 have dropped by 56%, with the biggest decline on the downstream side ($741 million). Upstream funding ($312 million) has more than doubled, with a 42% share of funding. The report states:

“Tech addressing India’s smallholder economy and fragmented supply chains attracted increased investor interest on the back of rapidly expanding internet connectivity and smartphone ownership. Startups working on farm digitalization, improving supply chain efficiency, and precision agriculture were among those to score funding.”

The interest from VC firms has grown with Omnivore, Sequoia, Tiger Global, Accel, AgFunder Group, Mayfield, Blume, Lightbox, SAIF, and Fireside being the most active VCs in FY2020.

The tech giants are also paying attention. Google recently pledged a $ 10 billion investment, including “leveraging technology and AI for social good, in areas like health, education and agriculture.” In June 2020, “Microsoft announced the launch of a program for agritech startups in India that are committed to driving transformation in agriculture.” It will provide access to deep technology, business and marketing resources.

3. Connectivity

There has been an explosion in mobile connectivity in the last few years. WhatsApp is a common mode of communication. Reliance Jio’s big push has led to 380 million subscribers and data rates as low as $ 0.17 / GB, a comparable plan costs $ 5-$10 / GB in the U.S.

Covid has accelerated digitization, with more people treating connectivity as an important part of their lives.

In spite of all the challenges, it is a great time to look at the ag-tech market in India. There are a few factors to consider.

Disaggregation is Necessary

It is a mistake to treat the millions of farmers in India in a monolithic fashion. According to the 2015-16 agriculture census, small and marginal holdings (0-2 ha) constitute 86% of the total holdings with a 47% of the operated area. Semi-medium, medium (2-10 hectares) and large ( > 10 hectares) holdings were 14% of the total holdings with 53% of the operated area. There is a lot of heterogeneity across different regions and crop types, with a lot of local innovation. It is critical to understand the heterogeneity and the unique nature of the value chain to help focus on the right set of problems.

 Unique Value Chain

Given the large number of farmers, it is challenging for a new entrant to market any direct to farmer product. Ag retail is a key player in the value chain. They have the network, the relationships and the bundling opportunities to continue to be a significant part of the value chain. On the product marketing side, entities that can aggregate demand and help farmers connect with buyers can add tremendous value in the supply chain.

Talent Pool

The industry continues to innovate, in spite of the unique challenges. There is a large talent pool of farmers, industry experts, and dogged and experienced entrepreneurs. There is a desire and an appetite to try out different business models, as can be seen through the variety of startups highlighted above.

Conclusion

The conditions are ripe for ag-tech innovations, with changing government regulations, improvements in connectivity, and continued investments. The key is to have local presence on the ground, focus on the right set of problems, realize that access to distribution is important, and resist the urge to aggregate. There is a large set of interesting problems to be solved!

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