Farming 3.0: India’s Mission Agritech
Once least favoured, agritech is today betted as one of the most resilient sectors. The pandemic has further pushed farmers to leverage technology offered by the startups in the space, thereby making the sector a hotspot of investments. Is India’s agritech on the brink of a permanent transformation or the newly-found success a passing cloud? This playbook explores!
Agriculture remains the backbone of the Indian economy, but smart and sustainable farming is not exactly our forte. Decades ago, one might have come across a family or two in every village who could accurately predict the weather, irrigation requirements or the crop yield, but that ancient knowledge had slowly died out. However, tech-driven and environmentally sound precision agriculture has taken its place globally, promising maximum productivity, minimum variables risk (read unfavourable weather conditions and fast-falling soil fertility) and minimal environmental impact.
As the name suggests, this new practice requires a scientific approach, meticulous planning and management based on humongous agri data and computerised machinery to give simple farming a futuristic flavour. Add satellite imagery, drones and other IoT (Internet of Things) devices to the mix, and one would witness near-automated agriculture across wired villages. But how affordable will it be for India’s small and marginal farmers who cultivate only small patches of land (0-2 hectares) and have little or no access to formal credit?
Agritech startups in this space could be in a similar plight. Their services are varied and exciting – be it predicting the right amount of water for different fields or different parts of the same field, checking moisture levels or analysing micro-climate, soil condition or the damage caused by pests. And much like the developed world, quite a few precision farming startups in India are leveraging sensors and drones, using computer vision and satellite imagery, and making good of artificial intelligence (AI), machine learning (ML), deep learning algorithms and automation to help increase crop productivity and farming process efficiency. But how sustainable are they?
Thankfully, not many of these startup founders are daunted by the gloomy prediction that India is still not ready for scientific farming.
Even at the outset, these high-end technologies seem to bring hope that they will make farmers more efficient and reduce costs. For instance, they claim that water usage can be brought down by 40-50% using the correct data.
“Our users have seen a 40% increase in yield, with a 20% lower cost of production,” says Siddharth Dialani, cofounder of BharatAgri.
The Pune-based startup provides customised weather-based advisory for 30-plus crops in three languages via real-time satellite monitoring.
But the question remains: Can farmers afford these technologies? Can startups overcome the cost barrier to achieve scale?
Precision Farming Targets: Affordability For Farmers, Scalability For Startups
One of the reasons why precision farming has worked well for many developed nations is the size of the land owned by the majority of the farmers and the income they have. For instance, the average farm size in the US was 443 acres in 2018, up by two acres from the previous year, while the average income of an American farmer was around $11.21 per hour.
On the other hand, the number of smallholdings is steadily rising in India, but medium and large holdings are coming down every year due to the fragmentation of agricultural land. According to the agricultural census report released in 2018, the average size of the Indian farmland shrank by more than 6% between 2010-11 and 2015-16, and the share of small and marginal holdings increased to 86.21% of total operational holdings in 2015-16 as against 84.97% in 2010-11.
Precision farming tools are not cheap, either. A good weather sensor costs anywhere between $1,500 and $2,000 while an entry-level yield monitoring equipment costs around $2,000. Each environment data device can collect input for around 100 acres of land, and a soil moisture sensor can cover a maximum of two-three acres. Even indigenous devices will cost anywhere between $300 and $1,000. Plus, there will be a SaaS (software as a Service) cost, which is mostly subscription-based, to avail these services. In the US, $80-90 is charged annually per farmer per acre. But smallholder farmers, the majority of whom are operating at losses, can hardly afford this kind of technology.
“Sensors are used in developed nations as the farm areas there cover 1,000 acres or more. Nobody can physically walk and monitor that area. But in India, farmers can walk across their farms and check soil health and a few other parameters. So, they do not want to shell out the money for these tools,” says Krishna Kumar, cofounder of CropIn.
Instead of catering directly to the farmers, the Bengaluru-based startup operates in the B2B space. It uses satellite images, AI and ML to monitor crop health remotely, makes yield predictions and passes on the insights to Indian agri industry, farming companies, financial institutions and policymakers. The company also serves more than 100 farm businesses in 52 countries.
According to Kumar, working in the B2C space and catering to farmers will be difficult for startups if they want to achieve scale. “If your business model depends on farmers from whom you have to collect your revenue, it will be tough. The success of precision farming depends on which markets you are operating in and the farmers you are targeting. If you are targeting a farmer with an acre of land, his return on investment (RoI) may not be great immediately even if he agrees to invest in sensors. The B2C model may work if you are targeting large farmers,” he notes. Therefore, startups in this space need to scale and only then can offer such tools to many farmers at a time.
Another issue is the time taken to see the outcome. “Before opting for any change in the ongoing practice, a farmer has to see an immediate benefit in it. He will not wait for two-three harvest cycles (normally what it takes for precision farming to deliver results) to see what he gains. Farmers today are willing to pay for tech, but they need a solid proposition. They will not pay $80-90 subscription for devices and wait for a long time to see the value,” says Hemendra Mathur, venture partner at Bharat Innovation Fund.
Although precision farming can resolve multiple challenges such as pest attack or post-harvest losses, the farming community is not quite comfortable with these hi-tech tools. Convincing them about shared use and the initial cost could also be difficult. Each weather monitoring sensor can cover 100 acres of land, which means around 50 farmers could use it on a sharing basis. But bringing them together and helping them understand the variety of data these devices can capture and provide will not be an easy task.
“Our farmers surely need precision farming. However, their farm size is so small that startups cannot cater to them individually. Apart from hardware and software, companies will have to bear the training cost as well,” says Ankur Bansal, cofounder and director of BlackSoil. The VC firm is closely watching the agritech space in India and may invest soon.
Due to these challenges, most precision farming startups such as CropIn and StellApps are operating in the B2B space and have managed to scale. Investments have also poured in. Bengaluru-based CropIn has already raised $12 Mn, including a Series B funding of $8 Mn in November 2018. The round was led by Chiratae Ventures and also saw participation from the Strategic Investment Fund (London and Seattle) run by Bill & Melinda Gates Foundation.
For most others, it is either bundled services, meaning catering to both farmers (B2C) and businesses (B2C) or selling these tools to horticulture farmers, who are the low-hanging fruit, as they have more than 10 acres of land on an average.
Bundled Services, Large Farmers Keep Unit Economics Going
As medium and large farmers growing high-value crops have higher purchasing power, they are more open to trying out these precision tools. For instance, Omnivore-backed Fasal offers an AI-powered IoT-SaaS platform for horticulture farmers that captures real-time data on growing conditions from on-farm sensors and delivers farm- and crop-specific actionable advisories to farmers (via mobile) in vernacular languages.
“Horticulture is a better option when it comes to revenue. The segment is growing every year, and we want to be in this space for the next three-five years. Moreover, the customer acquisition cost (CAC) is low, and the unit economics is better as people here can easily see the value proposition. As for other crops, we would like to go in someday, but maybe with different economics,” says Ananda Prakash Verma, cofounder and CEO of Fasal.
The startup is catering to more than 2,000 farmers in Maharashtra, Karnataka, Chhattisgarh, Madhya Pradesh and some parts in Telangana.
Founded in 2018, Fasal has also developed a B2B2F (business-to-business-to-farmer) model and provides data to Mahindra Agri, SAgri and a few other companies.
“Although we work directly with farmers, going through aggregators is easier and more scalable,” says Verma. The company does not have a high profit margin from the hardware part of the business but makes up for it from software subscriptions. “As we scale, we get better margins. That is the way we have structured our business,” he adds.
The IoT hardware used by the startup costs INR 20K or more, which is a one-time investment, while Fasal charges a customer INR 500-700 a month, depending on the service bouquet. The startup also claims that the hardware it has developed in-house is around 25% less than than the imported tools.
Sudhanshu Rai, the cofounder of Fyllo, concurs, saying that the devices would cost a lot less if they are made locally. “We provide software to companies and also cater to farmers. And we believe that farmers will pay when they see the value. They have always paid the fertiliser companies as their products brought value. It will be the same with precision farming.”
Based in Bengaluru, Fyllo is an IoT and AI-based precision agriculture services company. It offers two types of IoT devices, an environmental-cum-soil sensor priced at INR 45K and a soil sensor that costs INR 25K. The startup claims that the data provided through its hardware and software has helped farmers raise the quality of their produce by 82% in one year. Despite lockdown restrictions and other challenges, the company is now catering to 500 farmers compared to just 20 customers in 2019, and the CAC stands at INR 1200.
BharatAgri, a Pune-based startup offering bundled services, is also growing at 40% month on month. The company sells advisory subscriptions to farmers for a fixed half-yearly fee of INR 599 an acre. It caters to more than four lakh farmers and works with more than 12 brands, helping the latter market their products among BharatAgri’s premium farmers. These range from essential inputs such as seed and fertiliser to financial products like crop and weather insurance.
Yield control and timely market access can also address the double constraints of cost and waste.
Vivek Rajkumar, the founder of Aibono, explains how the Bengaluru-based startup is doing it. “We operate in the perishables category, and if there is a mismatch between demand and supply, the produce goes to waste as small farmers do not have storage facilities. Moreover, matching demand and supply cannot be done after the harvest. So, our work begins 90 days before the harvest. We give them the right number of seedlings, which should be sown in sync with end consumption.”
Aibono not only offers yield and supply-demand sync using data analytics but also ensures 100% procurement. Plus, it connects the farmers to retailers so that they do not have to pay for the data and the seeds upfront. All costs and service fees are subtracted by the platform when the produce is procured and paid for.
Startups See Growth In Global Markets, Traceability Solutions
Venture capitalists think that going ahead, India will be the testing ground for precision farming concepts. But the global demand will always be there, and most of the customers will come from other countries.
“We are creating a lot of solutions for smallholder farmers. In India, we have around 120 Mn of them, but globally, there are around 500 Mn. That is a large number and a huge market. Other than the US, several countries such as Kenya and China have smallholder farmers who would need digital solutions. As an investor, I would be keen to look at a global play as well,” says Mathur of Bharat Innovation Fund.
A look at the startups’ clientele seems to justify this trend. CropIn has already expanded to 52 countries in South-East Asia, Europe and Africa, and gets 50% of its overall revenue from global play. Ankur Capital-backed Agricx, which offers AI and ML-based SaaS solutions to simplify the crop grading system and eliminate variability from the produce quality, has expanded to Europe and Turkey. StellApps, which provides a suite of applications to dairy co-operatives, farmer producer organisations and private dairies, has a subsidiary in Normandy, France, and mostly sells its cold chain monitoring solution in the French market.
Besides, food safety and food traceability are expected to be at the core of the supply chain. So, there will be a higher demand for remote monitoring tools and drones, offered by the data startups. “Tech literacy will increase among end consumers in the domestic market. How well the consumers can track the food source – the farm/s from where fruits and vegetables have been procured – will bring in the differentiation for startups,” says Kumar of CropIn.
Can Startups Create Affordability For Small Farmers Using Tech?
In spite of the growing adoption, monetising precision farming may not be easy in India, say experts. “I think precision farming is still in its infancy here and more appreciated by larger/high-value farmers and corporates (wineries, for example). It would slowly trickle down as a practice when the mass appeal around it grows,” says Deepak Gupta, founding partner at WEH Ventures.
But in the initial phase of the go-to-market, it may involve consultative selling and handholding, which may work better in an aggregated manner or for big-ticket sales, he adds.
“Also, as it typically involves hardware (with some amortised payments), collection can be a big issue when dealing with very atomised farmers. Hence, dealing with businesses or a collective base of farmers may be more practical,” says Gupta.
Experts, however, think that the B2C approach will eventually help achieve the real scale in agritech. And it will essentially involve small farmers who own 86.21% of total operational holdings.
“B2B is just a means to provide better services to farmers. But it definitely helps in increasing the ARPU (average revenue per user) and improving unit economics,” says Dialani of BharatAgri.
As farmers had little support or hand-holding over the years, they have become risk-averse to interventions and advisories, which are a departure from traditional practices. These also come with a cost component, which could be beyond the reach of most farming communities.
“The challenge, therefore, is to strive for investment in technology applications that would catalyse better insights and eventually create affordability across spectrums. In essence, the way out could be to develop a middle path between B2B and B2C/B2F. It will be sustainable if buyers (farmers) and sellers (inputs suppliers) can thrash out an agreement of cost-sharing. The middle path can be attained if buyers get affordable pricing for transitioning to high impact insights/inputs for crop interventions. Sellers can also absorb the price shortfall if they get exclusive data rights for fine-tuned and calibrated technological interventions,” sums up Taranjeet Singh Bhamra, cofounder of AgNext.