Agritech in India - Emerging Themes

Agriculture in India is characterized by small farm sizes, low yields, fragmented and inefficient supply chains, low mechanization, and unorganized retail. When compared to global counterparts on these measures, India has a long way to go.?

Some stats comparing India to other mature markets:

• Farm Size - 1.1 Ha vs 70-80Ha
• Farm Mechanization - 40-45% vs 60-90%
• Grocery in modern retail - 2-5% vs 60-90%

This coupled with the fact that of the approx. 150M farmers, only about 57M of the credit active farmers’ credit needs are addressed by institutions via priority sector lending. While technology adoption in other areas has been faster, agri ecosystem has been a late adaptor of technology due to lack of digital literacy, internet penetration, lack of trust and other factors.

This however has changed in recent times, post covid due to rapid rise in internet penetration (68% in 2021 vs 29% in 2016), access to smartphones (37% in 2021 vs 13% in 2016), digital adoption (1.7x jump in # of active users consuming content, and 13x rise in e-com. post covid vs pre covid), raising customer awareness and willingness of end consumers to pay for quality produce.

Additionally, with strong government push in terms of “agri-stack” and rising interest of private capital, there has been a transformative shift, with $2B+ capital raised in this space.?The agritech space is expected to drive the next wave with a ~50% CAGR thereby addressing a $24-$34B market over the next 5 years. 2022 has seen a 4x surge in investments in this space. With 1500+ companies (250+ funded) but only 17 players with a GMV of $100M+ and no unicorns, (vs 18 globally), there is still work to be done.

With input-output linkage capturing 29% and 18% of this fund basis the belief that supply chain optimization can lead to 30-40% cost saving, multiple players are striving to solve for the entire value chain from farm gate to market both D2C and B2B. Most of these players are now maturing into full stack platforms.

There is a significant diversity in terms of the pain points and approach taken to solve for those by the variety of players, however at the simplest level, the key pain points can be categorized as below

1. Information asymmetry

• Price inefficiencies
• Volatility of input prices and sub-optimal outcomes
• Insufficient information on environmental factors, soil, etc.
• Lack of farmer knowledge
• Sub-optimal demand and supply aggregation and matching
• Low mechanization and access to equipment, cultivation technology etc

2. Sub-optimal supply chain

• Lack of infrastructure
• High presence of intermediaries (farmer – aggregator – mandi – transporter – receiving mandi – wholesaler – retailer - consumer)
• Leakage and wastage
• Non-uniformity of inputs and outputs
• Uneven quality of produce and limited testing

3. Access to financing

And that is what most of the Agritech have focused on solving. So for e.g. FoodAgtechs are disrupting the input industry; solving for fragmented market, substandard quality inputs and limited farmer knowledge on inputs by creating a bridge between the manufacturer and farmer bypassing the distributor- dealer-retailer chain using variety of models, B2B or direct to farmer. Similarly, output market linkage connect FPOs and farmers to D2C brands, exporters, B2B enablers, HoReCa, Retailers / dark stores, and institutional buyers and efficient warehousing can reduce wastage by 16% and capture 40% extra value by storing goods during low growth periods.?

While the adoption of new technology on core production is still in its nascent stage, it is expected that over the next 5 years both agritechs and traditional players will drive it mainstream with a supportive government initiatives like Digital Agriculture Mission 2021–2025, India Digital Ecosystem of Agriculture (IDEA) and India Stack.

While market linkage may be an entry point, value added services such as quality assurance and traceability, trade facilitation, financing coupled with phygital modes such as local entrepreneurs or feet on street will be required to build trust and assist with adoption of platforms and technologies.??Platforms will need to go deeper in value chain to processed foods; build private/white label offerings and go global for sustainable and higher steady state margins.

In the medium term, Indian agritech may see a funding slump amidst an overall slowdown in global investment activity, with mid-to-late stage start-ups already feeling the ripple effects, longer term we should expect some large exits as a multitude of players look to solve for the pain points across the value chain.

Sources:

Omnivore – AgFunder - India AgriFoodTech Investment Report 2022

FSG - What’s next for Indian agri-tech?

Kalaari Capital – AgriTech – India’s Sunrise Sector

Avendus - – Agritech - Leading next decade's tech-first value creation - December 2022

Inc42, India’s agritech market landscape report