If the industrialisation of agriculture in the the 1960s and 70s was India's farming 1.0 moment, the next few decades washed away the good work with mismanagement of resources and the supply chain. Now it's time for farming 3.0 and startups such as Ninjacart, WayCool and Aibono solving the issues for today's farmers
With Covid-19 impact giving tech-based farm and supply chain operations a big boost, many startups are seeing around 10x growth and multiple deals are in the pipeline after two quarters full of investments
In our latest playbook - Farming 3.0: India’s Agritech Moment — we are diving deep into various segments in agritech and the trends that are shaping Indian agriculture
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!
The Green Revolution was a path-breaking initiative in Indian history — not only was it strongly linked to India’s storied agrarian tradition, but it also made agriculture a significant contributor to the Indian economy.
Apart from introducing high-yielding seed varieties, irrigation and water management solutions to reduce the dependence on monsoon, the Green Revolution of the 1960s revitalised industrial farming by introducing farm machinery and related technologies for the first time.
According to the data available with The Energy and Resources Institute (TERI), the Green Revolution resulted in a record grain output of 131 Mn tonnes in 1978-79. “This established India as one of the world’s biggest agricultural producers. Yield per unit of farmland improved by more than 30% between 1947 and 1979,” TERI says.
Understandably, the end goal was to make India self-sufficient and reverse bad farming practices introduced by the British such as the promotion of cash crops instead of food crops. While the agri economy flourished immediately after the policy change, a few years later, there was a flood of abuse, including overwatered fields and overuse of chemicals and pesticides, which defeated the core purpose of the Green Revolution.
The excessive use of pesticides and the mismanagement and absence of crop rotation not only led to health issues and environmental degradation but also ruined soil fertility in many states. From 1982-87, the water table in Central Punjab was falling at an average of 18 cm per year and the decline rate accelerated to a staggering 42 cm per year in 1997-2002, and 75 cm during 2002-06. It also led to an undesirable loss of crop genetic diversity. About 75% of the rice fields in India contain only 10 varieties of plants, a massive drop compared to the 30K rice varieties which were planted 50 years ago.
Fast forward to 2020, and it is now time for India’s Green Revolution 2.0. India’s agritech startups are looking to solve challenges across the value chain by ensuring strong marketing linkages and redesigning the farming ecosystem. Will technology, the rise of impactful models and exposure to modern tools change the game in India’s agriculture landscape?
In our 7th Playbook, Farming 3.0: India’s Agritech Moment, we will be diving deep into various segments and trends, including opportunities in urban farming, India’s market-linkage startups such as Ninjacart and WayCool reducing links in the supply chain to free farmers from the clutches of middlemen, the limitations within FaaS (farming-as-a-service), startups operating in the agri-fintech space, the effectiveness of precision farming and finally and more.
VC Interest Adds To Agritech Momentum
From large to small and marginal farmers, the farming community today is more open to adopting new-age technologies, given that there is a lot at stake. With farm incomes depleted at the hands of several middlemen in the food supply chain, startups could be the last resort for farmers to keep their farm cycles running and their lands sustainable.
Given this state, investor sentiment radically improved in the past five-plus years after ‘Startup India’ was formalised.
“Agritech was generally a peripheral investment field for venture capitalists and impact investors. They entered the space when a lot of people started looking at it. But from 2016, investment is accelerating dramatically year on year,” said Mark Kahn, managing partner, Omnivore, which started investing in agritech in 2011 and has 25 agritech startups in its portfolio, including DeHaat, Bijak, Fasal, Arya, Ecozen Solutions, Clover and the likes.
Omnivore’s thesis bets that technology will be applied agriculture, which constitutes 25% of Indian’s economy and 40% of the workforce. “We believed that eventually, people would develop new technology to reform farming,” Kahn added.
According to Inc42 Plus’ upcoming report — India’s Agritech Market Landscape Report 2020 — India has over 1,000+ startups in the agritech domain with over 467 Mn+ being raised between 2014 and H1 2020.
Many other top investors such as Omidyar Network, Arkam Ventures, Ankur Capital and Accel Partners have also shown keen interest in agritech for the past six-seven years. Ankur Capital’s first fund (ACF I), launched in 2016, invested in 14 companies with the prime focus on agritech startups such as CropIn. Founded in 2014 by Ritu Verma and Rema Subramanian, the fund has seen several reforms in the past few years which have made agritech more viable for entrepreneurs.
“When we were launching ACF I, we were convinced that India’s agritech sector had a very large opportunity. Underlying changes happening on the ground, which seemed promising to invest in. Sub-sectors such as agri inputs and supply chains were ripe for technological innovations. Ankur had a focus to look at those markets and continues to evaluate companies in that space. In fact, agritech is a global play and Indian talent is capable of developing world-class tech solutions,” said Verma.
Although Omnivore and Ankur Capital were early entrants, most of the investments in the agritech sector happened in the past three years.
Not so long ago, the major impediment for entrepreneurs’ success was the notion that it would take around five to eight years to scale within agritech or reach a turnover of INR 100 Cr. Climate change and the policy risks involved also hurt investors’ confidence. Plus, there was no accurate farm-level data to rely on to make decisions based on numbers.
The easiest option was to solve the challenges which also affected other sectors such as logistics. Improvements in those segments will boost not only food supply but also ecommerce. Then the focus turned to buy directly from farmers, an area that has seen a lot of new investments.
“I would say the majority of investments happened in the past two to three years. There is a bit of inflexion today in the number of deals and the quantum of money coming into the sector,” said Hemendra Mathur, a venture partner at Bharat Innovation Fund.
The VC fund mostly makes deep-tech investments in emerging sectors, including agriculture, cleantech, healthcare and digital technology.
So, What Brought About This Inflexion Point?
While India ranks 103 among 119 countries in the Global Hunger Index (GHI) 2018, the country wastes 40% of all harvested agricultural produce due to inefficient cold chain transits. This has resulted in economic damage by incurring a loss of more than $14 Bn every year in lost crops alone, according to reports.
To resolve the same, many startups such as Aibono, CropIn, and AgroStar took the leap of faith early on, even though the sector was not considered profitable. And they proved that agritech could help solve crucial issues such as wastage, land utilisation, market linkage and credit availability while turning a profit. These startups, along with others, not only built economically viable models using tech and data but also scaled across geographies in a short period.
For instance, CropIn, a Bengaluru-based farm management solutions provider, founded in 2010, is now present in more than 60 countries with a 200-plus customer base. The pace of development may not be too evident, but there is a lot going on under the hood to encourage investors.
Agri startups in India have largely explored solutions around robotics, big data, smart equipment, sensors and farm management software, as well as new-age agricultural practices like indoor or controlled-environment farming. Technology adoption is not a far cry, either. With the Internet penetration growing at a fast clip, even poor farmers are more open to paying the right price for the right tech.
The likes of Ninjacart (it is a Bengaluru-based food supply chain platform) played a major role in this value chain. This group of startups have understood the highly complicated structure, especially that of the supply chain, and then got into it while tech has reduced climate risks and other barriers.
“We found a great business opportunity in leveraging technology to build a reliable and cost-effective supply chain from farm to store, on a daily basis. We wanted to add value to farmers, retailers and end consumers in one go,” Ninjacart cofounder and CEO Thirukumaran Nagarajan told us in an earlier interaction.
Encouraging developments, including increased openness from corporates to adopt supply chain tech, business models catering to farmer producer organisations (FPOs), lenders and insurance companies, and significant handholding by enablers such as incubators and accelerators have changed the agritech game in the past four years.
Fence-sitters Join The Agritech Race Post Covid-19
Market factors were already in favour of an agritech boom when the pandemic hit and forced more momentum into the sector. By now, investors and entrepreneurs have realised that the sector has not been disrupted much and how essential it is to the economy as a whole.
Of late, several agritech startups have seen a 10x increase in revenue, consistent across various segments, while cross-vertical models are also coming through. So, those who were fence-sitting and idly watching the space for years have taken the plunge.
“Mainstream investors saw that agritech is resilient. More than half a dozen deals have been closed recently and I am party to some which will be closed soon. With government policy reforms adding value to it, the adoption of agritech will be accelerated. The sector will attract more investments, essentially more VC money and private equity. So, the sentiment has been positive here just like it has been for edtech,” said Bharat Innovation Fund’s Mathur.
Take, for instance, Kettleborough, a VC firm set up in July 2020 and focussed on investing in early-stage technology startups. “We were really keen on the sector even before launching. Earlier, I was working with Taufel, an early-stage investment firm that invested in Crofarm. Since then, I have been closely watching this space. With the pandemic triggering new developments, we are more confident of taking the plunge,” said Nisarg Shah, managing partner, Kettleborough VC.
There is also a realisation that most models are indigenous and not copied as seen in other sectors. Stakeholders have the confidence that Indian startups can not only build for India but also create models for global markets, especially South-east Asia and Africa.
“I think the pandemic has increased investors’ interest as it is one of the few sectors that is thriving despite challenges. There has been a misconception that investment is slow. We are building ecosystems from the ground up,” added Omnivore’s Kahn.
Businesses Opportunities And Segments Gaining Interest
Recently passed by the Parliament, the new farm regulations aim to bring in large-scale private sector investments to the agri space to help develop modern farming, a robust infrastructure and a national-and-global supply chain. A couple of these reforms allow farmers to sell their produce directly, away from the APMC (Agricultural Produce Market Committee) mandis and also sign contract farming agreements with agri-businesses or large retailers on pre-agreed pricing. In spite of widespread apprehensions that farmers may not get the minimum support price (MSP) for their produce if they adopt these models, most VCs think the new policy will open up the market and allow farmers to take charge of their operations with the help of startups.
Puneet Sethi, a cofounder of Farmpal Techlogi, which connects farmers to businesses, said the reforms are the need of the hour and probably the most significant step towards helping farmers increase their incomes. Like Sethi, many agritech founders believe that the reforms would especially benefit small and marginal farmers who own and/or cultivate up to five hectares of land) and constitute over 75% of India’s farmers.
The benefits will be many. When processors, retailers or corporates procure directly, it will ensure better prices for farmers, reduce transaction costs (hence, end consumers will have to pay less) and tackle quality issues. Besides, the new format of contract farming may also witness new business models. These may include open-source intermediation, public-private partnerships and bipartite or tripartite agreements where startups could play a valuable intermediary role.
Be it modern farming or building a seamless supply chain, the new models will be backed by cutting-edge technology such as drones, artificial intelligence (AI) and IoT (Internet of Things) devices which might have been unheard of in the agritech space until now. Understandably, technology will play a crucial role in reviving India’s agriculture. However, Ayush Nigam, the cofounder and CEO of Distinct Horizon, thinks direct linkage and supply aggregation still remain the primary focus areas for startups, given the state of the supply chain at the moment.
Nigam launched his startup in 2015 and built an agricultural machine called DH Vriddhi to introduce a scientific method of fertiliser application that would increase rice production by 25%, double the profits of rice farmers and reduce chances of crop failure. DH Vriddhi, the startup claims, uses up to 40% less fertiliser and offers significant environmental benefits.
With the supply chains in complete disarray in the aftermath of the pandemic, monitoring end-to-end operations has also become extremely critical.
“Smart farming technologies can monitor end-to-end supply chain operations and provide right solutions for many pain points of agricultural enterprises,” said Jitesh N. Shah, chief revenue officer of CropIn. The startup has been working in the farm management, monitoring and traceability space since 2010.
Mechanisation in the sector is also resolving the manpower shortage caused by the migration of labour to cities. Besides, there is an increased awareness today about how mechanisation can optimise cost and increase efficiency, thereby paving the way for farming as a service (FaaS).
Also, there is a rise in brands merging fintech and agritech functions to disrupt the traditional way of lending to farmers. These startups are pioneering a data-driven lending approach with the help of AI-led credit and the support of FPOs and governments in the rural sector.
The Changing Face Of Agritech Entrepreneurs
Driven by optimism and entrepreneurial energy, a host of cofounders took the initial plunge to bring about transformational changes in the agritech sector. Did they succeed? Omnivore’s Kahn explains how the profiles have changed in the past 10 years – the three waves, to be precise.
“In the first wave, we saw the idiosyncratic minds. Most entrepreneurs who got into it were considered crazy with no idea of what they were doing. So, they were unique and diverse. When the second wave started around 2016, people from strong corporate categories or serial entrepreneurs joined the bandwagon. Many of them had earlier worked with agritech startups. And the third wave is what we see today,” he explains.
People who grew up in villages or studied there or even trained engineers are now keen to launch agritech startups, creating jobs at the grassroots, says Kahn. There is also a growing understanding that it does not take too many years to become profitable, and hence, the entrepreneurial surge.
The latest trend is more heartening. Several corporate leaders have quit their cushy jobs and switched to agritech to give back to society. These entrepreneurs mostly focus on urban farming and new techniques like hydroponics. Their enterprises flourished even during the pandemic as they made good use of the reverse migration post lockdowns and ramped up their workforce.
“Agritech startups also promote rural entrepreneurship, which is key to tech adoption,” said Bharat Innovation Fund’s Mathur.
“We believe agritech entrepreneurs will drive the change and lead the transformation in Indian agriculture through profitability, resilience and sustainability. We know these brave founders and their teams will leverage innovation, technology and persistence to remake the world around us,” said Kahn.
How Agritech Will Evolve
According to Vision 2030, an agritech report recently released by Omnivore, the key trends which are expected to disrupt the status quo of the Indian agricultural system include precision agriculture, end-to-end automation (from sowing to harvesting), the use of advanced mechanisation for production, predictive analysis for production planning and the use of biotechnology to improve yield while reducing input usage.
Farmers will operate in a highly digitalised ecosystem, receive services and transact via smartphones, and engage more with consumers, thus ensuring product quality and retaining higher margins. Crop choices and production planning will be based on a tech-enabled, market-driven approach.
In brief, the future calls for smart farming – an automated and connected agricultural system that requires a fundamental shift. Consequently, the agritech sector will attract more investments and deliver more.
Success follows success and funding follows funding, says Kahn of Omnivore, explaining why more entrepreneurs and VCs are expected to enter the space. “Startups will also take up new challenges and innovate more. We are not in a bubble. We are in a period when generalist venture investors have realised that there are huge opportunities in rural India as the wave of digital technology can bring its benefits in rural areas.” Kahn believes it is still early days and there will be more activities in the Indian agritech space.
Verma of Ankur Capital concurs. “We have been investing in agritech since 2016 and will continue to do so. Our companies have been resilient during the pandemic, and we still see tailwinds. We will continue to invest in agritech and will not walk away from it.”
Correction Note | 14.30, January 12, 2021
Use or reference to the trademark logo of Zuari Agro Chemicals Limited in the article was an error and the same has been rectified by removing it.