The year 2016 saw the Indian agritech ecosystem evolve as many startups furiously developed solutions for the Indian and global agriculture industries. Interestingly, several entrepreneurs innovating in agriculture hailed from non-agricultural backgrounds, driven to create sustainable solutions for the industry based on clear need and opportunity. Last year we also saw the beginnings of institutional investor interest in backing early stage companies such as Nubesol, BigHaat, MeraKisan.
We believe the sector will gain further momentum in 2017. Given the state of the agricultural supply chain, we expect to see the development of innovations throughout the chain, although we believe process innovations will precede product innovations. Farm produce aggregation, farm automation, farm management solutions, organic farming, and cattle farming are examples of process innovations. Product innovations include soil inputs to increase productivity, devices for the spectral analysis of soil and crops, sensors and IoT for precision agriculture.
The ability to manage the long and complicated agricultural supply chain in India with the right technological interventions will be the key to the success of start-ups.
This year could well be the inflection point for investment in agritech resulting in a greater number of deals as well as increased participation from mainstream VC funds; the mainstream VCs that have been bullish on food e-commerce startups are already in the process of evaluating several agritech deals. Tech-enabled supply chain models for aggregation as well as precision agriculture are likely to have higher share in the number of deals.
Looking at the opportunities in the sector from an investor’s standpoint, here are five trends in agritech innovation we believe will drive the sector in 2017.
“Farming as a service (FaaS)” is a concept introduced to India by a company called EM3 Agri Services, which offers farming services and machinery rentals to farmers on a pay-for-use basis. Impact investment fund Aspada invested in EM3 in 2015. The concept has caught on and there are other agriculture equipment leasing and farm services startups in the space including Goldfarm, Ravgo, Oxen Farm Solutions, and FarMart. The average farm holding in India is 1.2 hectares, compared to several hundred of even thousand across Europe and the US, meaning the farmers have less income to invest in equipment like irrigation pumps, storage solutions, and so on. FaaS variabilizes the cost of farming and reduces the need for capex making it relevant to small farm sizes and affordable to small and marginal farmers.
2. Big Data for improving farm productivity
Farm productivity in India is one third to one half less than the world average. This is in part due to poor soil health. Soil analyses show the NPK (Nitrogen, Phosphorus, Potassium) ratio of Indian soils is significantly skewed in favour of N due to high usage of Urea. Developing farm-specific, data-driven diagnostics to determine soil health is a big opportunity area as well as biotechnological solutions to help improve soil health like soil amendments. There are also a growing number of big data technologies aimed at improving the efficiency of farming and in supply chain such as drones, sensors, and other IoT technology, and data analytics to provide decision support to farmers and other players in the supply chain. CropIn, AgRisk, AgNext, Skymet, Stellaps, and Airwood are some of the examples that are working on this theme.
3. Market linkage models for farmers
Indian agriculture is supply driven and less market-driven compared to other markets. This is the primary reason for seasonal food inflation as well as significant food waste and value loss along the supply chain. Though demand is becoming more predictable in India given the homogenization of consumption trends, supply is less predictable.
A farmer’s decision on which crop to plant each year is often driven by the price of that crop the previous year. Government policy in supporting the price for certain crops also plays a role in that decision. This presents an opportunity for developing market linkage models for farmers. This in turn could require innovations to help farmers with the timely and accurate estimation of sowing and harvesting in the context of patterns in consumer demand. The way forward will probably be hybrid models involving Big Data and Aggregation. Sabziwala, MeraKisan, Dehaat are some of the start-ups who have demonstrated successful aggregation in horticulture.
4. Fintech platforms for farmers
About one-third of the financing received by Indian farmers — approx. $60 billion — comes from non-institutional sources. Though the number of institutional funding sources is growing, there is an opportunity for fintech to improve the landscape for funders by providing them better intelligence about the farmers they’re lending to and farm credit-worthiness. Most fintech startups in India have focused on urban areas until now so it is time to look the at rural opportunity to make farmer financing more efficient, and therefore more available to the industry.
The Government of India’s decision to demonetize its currency in November 2016, and the consequent impact that had on agricultural trade due to a lack of liquidity, has also highlighted the need for agricultural trade to go digital. The majority of farm income is in cash, presenting an opportunity for digitizing payments to farmers through payment gateways linked to their accounts. Given increasing penetration of smartphones among farmers, this could come in the form of apps and platforms that connect farmers digitally with rest of the trade. Apps in vernacular languages, high on simplicity and safety, is the way to scale.
5. Supply chain models for dairy and horticulture
The dairy and horticulture industries are growing faster than the grain industry in India. Milk production in India is approx. 150 mn tonnes and horticulture production is approx. 270 million tonnes. For the first time in Indian history, horticulture production has outpaced food grain production. There is need to optimize these supply chains for both milk and horticulture. Solutions that can preserve the quality, reduce waste, improve traceability, and improve shelf-life efficient aggregation, transportation and storage, are in need. Farm to consumer milk supply chain models, such as LaVeda, Farmery, Puralite, and 4S Foods have been able to innovate supply chains and scale up at a city to regional level.
Investment across the agricultural supply chain in India has averaged around $250 million each year for the last five. We expect this to gain momentum with more focus on the above five trends in agritech innovation. Indian agriculture is set for a big leap forward in 2017, with an infusion of capital and high quality entrepreneurial talent focused on scaling up innovations.
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