The Covid times has been challenging for most sectors of Indian economy. However, one sector which demonstrated extraordinary resilience has been agriculture and allied activities. We had a record Rabi harvest and massive Kharif sowing despite a stringent lockdown during April to June this year. The food supply chain kept rolling despite a massive unexpected shock, with no shortage of essential food items across the country. Few sub-sectors and allied sectors like fisheries, poultry and floriculture got adversely impacted but they are very much on the path to recovery.
The food supply chain responded with multiple innovative models to survive the covid shock. The temporary survival tactics in the form of innovative models developed by startups and value chain members in the last few months are turning out to be growth drivers for the longer run. This growth is driven by increased adoption of agritech innovations by the farmers, increased use of data by supply chain members, and proliferation of D2C (direct-to-consumer) models with consumers and trade becoming digitally comfortable and inclined to place orders online.
Many of these covid-triggered changes are irreversible and likely to stay forever; opening up doors for multiple entrepreneurial models in the food supply chain. I believe that this sort of pent-up adoption of new-age innovations has a huge role to play in inflecting the growth trajectory of the Indian food economy from about $500 Bn to about $1 Tn in the next decade.
Another important thing to note that despite 2020 being a challenging year for startups and the investing community, investors so far have pumped about $280 Mn across 20 plus deals in agri/foodtech business models. More than the quantum of money, what is noteworthy is that many funds took their first bet in agri and food tech space including Sequoia, Nabventures, Arkam Ventures, Avaana Capital, Elevation Capital, The United Stated Development Finance Corporation (DFC), Investment Corporation of Dubai (ICD) to name a few. This points towards the deepening of the investor base in a conventionally-impact-investor-dominated space.
It’s a matter of time now when we get to an annual investment rate of $500 Mn (the average of last 10 years is about $50 Mn per annum in upstream agritech). Mature agritech startups and business models need to demonstrate scale to attract bigger cheques (case in point is recent funding of $121 Mn in FreshToHome and $25 Mn in Country Delight). Another positive aspect of the agritech ecosystem, which got amplified during covid times, is low venture mortality rate (< 15%) driven by frugal and value-driven (rather than high CAC discount-driven) mindset and approach of entrepreneurs.
Though, these are early days for innovative business models in agri and food supply chain, it is becoming more obvious that a “full-stack platform” approach will be key to scale. For example, In the agri-output and new age farm to fork market linkage business models, there are only a handful of players who have crossed $ 100 mn annual revenue / GMV. On the agri input ecomm side, no one has crossed $ 50 mn of annual revenue or GMV. Pure data and tech players have also been mostly under $ 10 mn annual revenue mark, given longer product development and sales cycles.
This article talks about challenges for scale for new-age innovations and the need for building a “full-stack platform” approach for scaling them faster in a more resource and capital-efficient way.
What Are The Challenges For Agritech To Scale?
There are three big challenges as bulletized below, among several others in scaling agritech solutions:
- Scaling agritech is a function of integration of technology with supply chain and their rate of adoption by farmers and other value chain members. Demonstration of unit economics at the farm level is critical given farmers’ limited ability to take risk and experiment with new technologies. As per ThinkAg investment report, about 14 million farmers (out of a universe of approx. 150 farmers) have adopted some sort of agtech innovations, which implies a huge headroom for growth.
- Economies of scale and synergies don’t accrue until you give a holistic solution to the farmer. An Indian farmer earning on an average about $ 1500 per annum, uses inputs worth $ 500 – 600 (seeds, fertilisers, agrochemicals, labour, mechanization), pays significant interest $ 200 to 300 (on the loans taken from unorganised sources) and left with little profits and savings.
Farmers need solutions throughout the crop cycle on input, output, data, advisory, mechanization and credit. However, the majority of emerging solutions have focused on one or at most two components of these solutions; which solves farmer’s problems in parts. Farmers are also not comfortable dealing with multiple players and look for “one-stop-solutions”.
Also, the effort made by the start-ups to reach out to farmers is only partially leveraged and monetised with a limited scale of solution, pushing up the CAC (Customer/farmer Acquisition Cost). Hence there is case of offering bundled solutions to the same farmer to build stickiness and maximise revenue and return per farmer. Though start-ups are trying, it is too much to expect in their juvenile phase of growth.
- The fragmented approach in building farmer relationships and solving supply chain problems produces sub-optimal data and also increases transaction costs which in most cases becomes prohibitive for improving farmer access of institutional credit, services, and advisories to the farmers.
Why A “Platform Approach” Is Needed To Scale Agritech Innovators?
Platforms approach give an opportunity to agri and food supply chain members to build relationships with farmers throughout the crop cycle and in some cases in his or her other livelihood occupations as well such as livestock and dairy. A continuous engagement with farmers leads to better servicing farmer needs and, in that process, build multiple engagement and revenue streams for the business.
The biggest challenge for any farmer-centric and farmer-driven business is first mile and last-mile access to farmers which takes a lot of effort, management bandwidth and capital. The weaknesses in rural market ecosystems as compared to the much more sophisticated urban markets drive up the access and transaction cost of servicing the farmer.
Since each startup is trying to reach the “same farmer” for selling, buying, advisory and credit; there is merit in looking at the platform approach to bring together multiple services and stakeholders under one umbrella. The platform would have a common, accessible and processable databank to serve the farmer’s needs.
Type Of Platforms
There are three types of platforms from driving-innovations-to-scale perspective:
Vertical Platforms: Agri-Input + Output + Post-Harvest + Processing + Distribution
These are vertically integrated platforms across the value chain from agri inputs to output to processing and distribution. Among the more evolved supply chains in India like dairy and poultry; such end to end integration has been a key driver for growth. The whole cooperative dairy structure is based on integration from cattle feed to milk collection to processing to distribution and the model is adopted by the private dairies as well.
Likewise, the poultry industry has adopted a vertical integration approach. Poultry companies like Suguna, Venky’s, Srinivasa Hatcheries have built scalable businesses by integrating the supply chain from feed to hatcheries to poultry farms to distribution.
As far as new-age companies or startups are concerned, there are few vertically integrated platforms in India. I am sure that most of these unidimensional models will either converge or merge with each other into a platform in time to come.
Pioneering Ventures is an example integrated platform covering the entire supply chain right from production to post-harvest to distribution in multiple businesses including Desai Fruits Venture (focus on select fruits such as bananas, apple), Milklane (focus on value-added milk and dairy products), Citrus International (processing oranges to make concentrates) complemented by a production company called GrowCo, distribution company called Districo and farmer advisory and fintech platform called Samaaru.
DeHaat is another company with platform approach which has both input and output play, with strong franchisee network as an interface with farmers. Another startup called Plantix, which has developed an AI engine for pest detection, is building a platform to integrate an advisory engine with agri input suppliers. Bharat Agri and Bharat Rohan are data centric start-ups who have diversified into building supply chain linkages for farmers to complement the advisory businesses.
There is an intent among both input and output players as well as among data-centric startups to forward and backward integrate to create a full-stack platform and lot depends on their ability to hire the right talent and build tech-enabled supply chains to achieve this goal.
Horizontal Platforms: Staples + F&V + Milk + Animal Protein
Horizontal integration is building and consolidating supply chains across multiple food categories. This integration has typically happened only at the last leg of supply chain – at retail end customer end – in ecommerce as well as modern trade where players like BigBasket, Amazon, Grofers have built portfolios in staples, groceries, fruits and vegetables.
Both milk (Country Delight, Akshaya Kalpa) and animal protein (Freshtohome, Licious) categories with D2C models so far have largely remain unclubbed with other categories because of high perishability of the categories they serve, the shorter timeframe from order to delivery, need for cold chain and consumer sensitivities. However, there is an intent by some of these companies to leverage a single category platform to diversify into multi-category platform.
We have seen some horizontal integration at a category level like vegetables with fruits (Ninjacart, Crofarm, Agrowave), staples like rice and flour with spices and condiments (Shopkirana and SuperZop) but not much at cross-category level. Among startups, Waycool is one of the few doing both staples and fresh produce but most supply chain startups have focused either on staples or fresh produce. The platform developed by Pioneering Ventures is doing milk, fruits and staples along with simultaneous vertical integration in each of the categories.
Again, it is too much to expect from early stage companies to build expertise in multiple categories at the same time. Having said that, there is an opportunity in waiting to build economies of scale in sourcing as well as supply chain management and all the way to distribution through horizontal integration.
Cross-sectional Platform Integrators: Data + Financing
Two themes which cut across the entire value chain are financing and data with high degree of interdependence and correlation. For example, the viability of any data platform in agricultural supply chain is hard to imagine without used case in the financing of the value chain.
Banks and NBFCs have hesitated or faced difficulties in lending to farmers because of challenges around farmer onboarding, KYC, creditworthiness and loan recovery. These challenges can be addressed by smart data interventions as demonstrated by data driven start-ups like CropIn, SatSure, Mantle Labs and data-enabled lending platforms like Samunnati and Jai Kisan.
The much-needed fevicolisation of data with financing augurs well to make crop loans and value chain financing – affordable and timely – for farmers, aggregators, processors and SMEs.
Enablers For Building And Scaling Platforms
The evolving policy framework can boost the creation of more platforms and help them scale faster. The much-awaited “Agristack” from Government of India, which is under works can solve the challenges of first and last-mile access to farmers, reduce transaction cost of reaching out to farmers by a significant amount and drive the creation of thousands of APIs to boost agritech adoption by farmers.
The recent farm bills in conjunction with Agri Infra Fund will enable post-harvest platforms by bridging the demand-supply gap, enabling farm level value addition, reduce food loss and waste and control price volatility. Arya Collateral, Ergos, Whrrl, Origo, Apna Godam, S4S Technologies, Our Foods, Kamatan and distribution startups like ShopKirana, SuperZop and Districo (part of Pioneering Ventures) are well placed to leverage this opportunity.
Innovations and capital will continue to be the driving force for creation of platforms. The ROCE of such platforms will improve through more public investment and tech enablement.
ThinkAg, a platform for increasing adoption of innovations in agriculture – has demonstrated utility of bringing corporates and agtech startups together. We need more such thematic platforms such as one for bringing FPOs and Agritech startups together. Samunnati has build a platform called “Samaarambh” for engagement with agritech startups.
In addition to the existing and evolving platforms, there are still many white spaces in platform approach in specific value chains such as sericulture (example: ReshaMandi), eggs (example: Eggoz). Platforms for quality assaying and traceability (examples: Intellolabs, Agricx, SourceTrace, TraceX, Lateral Praxis) needs to built and integrated in the supply chains as well as with public platforms like eNAM.
Platforms for collaborative research and development for farm level value addition, secondary and tertiary processing are also very much needed. Dedicated logistics platform for transportation of agri commodities (example: Agrigator) is another opportunity area.
Open-source platform for building innovative digital tools is much required to reduce the cost of duplication in data collection and analysis. Satsure’s recently launched platform for open innovations called Sparta is one such initiative. It’s also possible in the future that digital platform can talk to each other as long as we can build uniform standards and interpretability norms. Another interesting convergence will happen when digital and physical platforms start talking to each other.
To conclude the article, it is fair to say that the platform approach drives capital efficiency make it 1.5 to 2x of conventional early teens for the majority of agribusinesses. Platforms not only drive scale and sustainability but also value creation for entrepreneurs and investors. A robust platform is probably the fastest route to an IPO. There is no doubt that investing in Indian agribusinesses and agritech needs design thinking through evangelisation and implementation of strong platforms.