Reality Check on the Agritech Hype Cycle

If you are unfamiliar with the Corporate IT world, you probably would be hard-pressed to imagine how deeply influential Gartner’s?hype cycles?are in shaping the buying decisions of CXOs across the globe. They are so deeply pervasive that we implicitly assume them to be an empirical fact?sui generis.?We forget to think that these are not facts based on measured data, but aggregated?opinions?of analysts.

Although Hype Cycles have reached meme status in the Infographics Department of the Internet, I don’t see many agritech analysts plotting how the industry growth cycles are evolving for various applications of agricultural technologies across the world.

Today, I am going to focus mostly on the Indian Markets. In future editions, I will do a follow-up specifically for US, European, LATAM and African Markets.

Globally speaking, at a broad sweeping 20000 feet view, concurring with the wonderful folks at Tenacious ventures, you could argue that we have seen?three waves?of agritech so far, coinciding with technological waves of aggregators, integrators and infrastructures respectively. Here is a quick handy guide?to these definitions.

(2010-15)Agritech 1.0 = Farmers as users of technology, but?not?beneficiaries. (Think of Climate Corporation before they became?Bayerised?)

(2015-2020) Agritech 2.0 = Farmers and Channels as users of technology, but?not?beneficiaries (Think of Granular before they became?cortevized)

(2021-Present) Agritech 3.0 = Agribusinesses as users of technology?and?beneficiaries. (Think of?Bushel)

The generalizable learning across these three waves is uncannily common across US and Indian Markets: Farmers are never going to?pay?for your agricultural technology solutions. In the latter’s case, it is the government that is making sure that they will never pay for your technological innovation. (We will talk about exceptions later).

While globally, we are fairly well placed in the third wave, in the case of the Indian market, we are still in the second wave, slowly inching towards the third wave. In the Indian Market’s case, there is also a crucial difference in the way the three waves of agritech have played out.

Agritech 1.0 (2011-2015) = Farmers as users of technology, but not beneficiaries. (Think of Ninjacart before they got?Walmartized)

Agritech 2.0 = Farmers and Channels as users of technology?and beneficiaries?(Think of Dehaat/Unnati/Gramophone before they became…….)

Agritech 3.0 = Agribusinesses as users of technology and beneficiaries. (Think of?Origo)

Since the channel is the critical node in reaching out to the farmer, technological innovations have immensely benefited the?golden middle of the value chain?and we are now seeing newer digital-influenced?channel behaviours.

How does the Indian Agritech Hype Cycle look at the moment?

Five Phases of Hype Cycle:

1. Innovation Trigger:?Whether it is?Eeki Foods?or?Nutrifresh?or?Trikaya?or?simply fresh,?controlled environment agriculture models (encompassing hydroponics and vertical farming) have enough going on to ride the initial flush of success they have seen from sales and funding fronts, thanks to climate tech funds now looking at protected cultivation seriously. Ironically, they are terrible?when it comes to energy efficiency.?Whether it will impact their impact story and profitability once they scale remains to be seen.
2. Peak of Inflated Expectations:?I see many agritech platforms trying to crack export by a) becoming an exporter/importer (say,?Produze?or?Tridge?or outside India,?TazaGlobal), b) building either a part or complete shared services platform for exports to comply with regulations (Maalexi,?Wizfreight), c) offering working capital to exporters. I am doubtful if there is a sustainable model to?exportify?agritech without taking principal risks. I would love to be proven wrong though.

As is the case in spices, Medicinal and aromatic plant (MAP) oils, there are a lot of expectations riding at this point to crack this model. I will delve deep into spices, and MAP models separately later.

3. Trough of Disillusionment:?Given the fact that venture capital relies on social signalling, I am aware that by including “output linkages” in this phase right now, I might be the unwelcome messenger of bad news. I am convinced that it is now almost impossible to build a sustainable business model that will scale once the GMV party is over. The more I interact with traders and output buyers, I am convinced that traders’ collusive behaviours will thwart any margins the output linkages platform will make. Sure, we will see some GMV charades for some more time. But, eventually, the party will stop. If you want to understand traders’ collusive behaviours, take a look at this case study put together by India’s?Nobel-prize-winning economist.

That said, if I were to do a BBC-style Hard talk skit with this Kalaari Capital Report, it might look like this.

Kalaari Capital Report: “This reflects another major problem farmers grapple with today: Inefficient post-harvest supply chains that lead to wastages and principal losses.”

Me: From whose perspective are we saying it is “inefficient”?

In the case of?Traceability,?I’ve written a lot earlier about how the price premium for?traceable produce?has been overrated and IMHO it is unlikely to be a strong moat.

4. Slope of Enlightenment:?Input Linkages have become far more mature than output linkages for a simple reason: Agritech platforms have discovered a powerful moat of digital distribution (which further fuels the flywheel of e-commerce) that helps agri-input players maintain their margins. Sure, there are risks, as I have?highlighted earlier, but “Input Linkages” will be my foremost bet to move fast to the plateau of productivity.

5. Plateau of Productivity:?While there are a few lone wolves of SaaS players and marketplace players (with healthy financials) in niche subcategories of agritech, I don’t see any particular subcategory here yet that deserves a mention.

What do you think?