India’s Agritech Sector: Pivoting to Private Labels Amidst Funding Slowdown

The Indian agritech landscape is undergoing a significant transformation.

The venture capital funding landscape for agritech and food tech startups in 2024 has seen a continuation of the cautious trend from previous years, particularly 2022.

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The Funding Winter: Navigating Through Reduced Investments

Private equity infusion for Indian agritech and food tech startups dropped 33% to $2.4 billion in 2022.

The first half of 2024 reported a total investment of $598 million, which is significantly lower, standing at just 21% of the total funding secured in 2023.

This indicates a more selective investment approach in the sector, focusing on sustainable and innovative solutions within the agritech and food tech industries.

Notably, the much coveted unicorn status - a valuation of $1 billion or more - has eluded the startups in the sector.

DeHaat, WayCool Foods and Flipkart backed Ninjacart are valued in the range of $650 million to $800million.

Also, there has also not been any instance of agritech firms looking to list on the capital markets.

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Private Labels: A Strategic Response to Funding Challenges

As a result of the venture firms' funding winter setting in, agritech companies are increasingly turning to retailing their own labels as a growth strategy.

This shift is also a response to the challenges in scaling up and the need for self-reliance in a tightening investment climate.

Here are a few instances.

Agrostar, a leader in agricultural inputs, now generates almost 80% of its business from its private labels. The 11-year-old Pune-based company introduced its first brand in 2020 and the contribution of private labels to the topline has grown to 70% from 5%.

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DeHaat, another major player, garners about 30% of its revenue from its private-label vertical. The firm is backed by Singapore's Temasek and Belgian investment firm Sofina.

DeHaat has launched its own consumer brand named Honest Farms, which is part of its private-label initiative.

Honest Farms is aimed at strengthening the value chain for fruits and offering better market access and price discovery for Indian farmers. Honest Farms sells staples and grains across e-commerce platforms.

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Market Potential: The Untapped Agritech Landscape

India’s agritech sector, valued at a substantial $24 billion, presents a significant opportunity for growth and innovation.

Despite its potential, the sector has only achieved a modest 1.5% market penetration.?

This indicates a vast untapped landscape ripe for development and expansion.

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Key Insights into India’s Agritech Potential:

●?Global Standing: India is recognized as a major agricultural exporter, ranking 8th with a 2.33% share in the global agricultural export market.

●?Economic Contribution: Agriculture contributes approximately 18% to India’s GDP and employs around 45% of the national workforce.

●?Growth Projections: The agritech ecosystem could potentially increase Indian farmers’ incomes by 25 to 35% and contribute an additional $95 billion to the country’s GDP.

●?Sector Growth Rate: The global agritech industry is expected to grow at a compound annual growth rate (CAGR) of 12.1% between 2020 and 2027.

●?Start-up Surge: Over 1300+ agritech startups have emerged, indicating a robust entrepreneurial environment within the sector.

● Government Support: The Indian government is prioritizing agritech, aiming for a comprehensive strategy for sustainable development and encouraging digitalization to boost yield and efficiency.

The current state of the agritech sector in India suggests that there is a considerable scope for companies to penetrate the market further.

With supportive government policies, increasing digitalization, and a growing number of startups, the sector is poised for a significant transformation that could lead to increased productivity, sustainability, and profitability for the Indian agriculture industry.

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Strategic Advantages: The Power of Homegrown Labels

Private labels allow agritech firms to cater directly to both farmers and consumers, offering high-quality seeds, pesticides, and farming equipment, as well as farm-to-fork products like rice, pulses, and condiments.

Homegrown labels allow agritech startups too control entire supply chain as well as seek higher margins due to the absence of intermediaries.

The direct-to-consumer approach eliminates intermediaries, resulting in higher margins and greater control over the supply chain.

Competitive Threats: Big Players Entering the Agritech Arena

The agritech sector in India is facing increasing competitive pressure as conglomerates like Tata Consumer and ITC fortify their agricultural supply chains.

These established players are leveraging their extensive resources and market reach to create more efficient and sustainable supply chains, directly impacting the same operational areas where agritech firms operate.

Tata Consumer’s Sustainable Supply Chain Initiatives: Tata Consumer is committed to creating a climate-resilient supply chain, addressing the challenges posed by climate change with sustainable agricultural practices. The company’s efforts to train farmers on these practices aim to increase resilience to climate change effects, such as erratic rainfall and soil erosion.

ITC’s Integrated Value Chain Approach: ITC is actively working to reduce its carbon footprint across agricultural value chains. The company’s ‘ITC One Supply Chain’ initiative has led to route optimization and improved vehicle utilization, contributing to lower greenhouse gas emissions. ITC’s engagement with farmers to promote climate-smart practices like zero tillage and drip irrigation is part of its broader sustainability agenda.

These initiatives by Tata Consumer and ITC represent a strategic move to strengthen their positions in the agritech space, which could pose a significant challenge to smaller agritech firms.

The competitive intensity is heightened by the fact that these corporations have the capability to invest heavily in technology and infrastructure, potentially overshadowing the innovations introduced by agritech startups.

For agritech companies, this means they must not only continue to innovate but also find ways to differentiate their offerings and add value that cannot be easily replicated by larger entities.?

Collaborations, niche market targeting, and specialized services could be key strategies for agritech firms to maintain a competitive edge in this evolving landscape.

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The Road Ahead: Adapting to New Market Realities

The sector’s recalibration is a moment of reckoning, signaling a major shift in strategies as startups adapt to the new funding realities.

With the right strategies, private labels could become a significant revenue stream, empowering agritech companies to navigate the current investment landscape and continue to innovate.

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