By VIVEK Y. KELKAR
The growth of digital technology and innovation could help turn the country’s distressed agricultural sector around
India’s agricultural sector may seem the last place for hungry venture capitalists to invest given the headlines it has garnered for farmer protests and suicides.
Yet, if investment bankers and venture capitalists are anything to go by the US$254-billion (17.7 trillion rupee) sector is what may proverbially be called ‘hot’, thanks to innovative start-ups driven by information, mobile and broadband technologies.
As Nitin Puri, senior vice president and global head for food and agri-business at Yes Bank points out, in India food and agriculture and its allied eco-system is a $700-billion opportunity. Farm-related investments are about half that.
“There is a big change we have seen in recent years — a strong private sector participation in the sector including for farmer engagement-related infrastructure. For instance, the Indian dairy industry alone has come to a point where the private sector is over 50% of the capacity, up from a very insignificant level about three decades ago,” Puri said.
Yes Bank estimates investments in food processing and allied industries will be in the vicinity of Rs. 250 billion annually, when assessed across the entire value chain. It also expects the multiplier effect from the government’s Rs. 60 billion grant-in-aid through the ‘Pradhan Mantri Kisan Sampada Yojana’ (Prime Minister’s Farmer Estates Plan).
Yet today, India’s agri-sector numbers, if looked at in isolation, look quite dismal. Official data on India’s GDP indicates a decline in the nominal gross value addition (GVA) for the agriculture sector. Data indicates that GVA declined to 4.5% in the 2018 fiscal year, the lowest since 3.8% in the 2005 fiscal year.
And as Dhananjay Sinha of the investment banking and brokerage firm Emkay Global stated in a recent analysis: “The terms of trade – which captures the realized price of the farm sector produce relative to the cost index and hence it is a reliable indicator of its profitability – for the agriculture sector has declined by 8.5% from its peak in fiscal year 2011.”
The total sum of farm loan waivers is estimated at a mind-boggling Rs. 3 trillion, especially from states ruled by the Bharatiya Janata Party (BJP), which aspires to retain its power in an election next year. This quantum remains worrisome for an economy which has about 52% its employment from agriculture and about 17% as value added to its GDP, according to government data. Meanwhile, an estimated 67% of farm sizes in India are considered sub-optimal, ranging from below one hectare to 1.15 hectares, according to state data.
Digital tech to the rescue?
But if current numbers are grim what makes the sector suddenly so attractive? Hemendra Mathur, from Bharat Innovations Fund, a venture capital fund and incubator, says: “Digi-tech”.
“Indian agri-tech startups are trying to solve multi-dimensional problems prevalent in Indian agriculture including low productivity, sub-optimal efficiency in supply chain, lack of access to institutional credit, crop insurance, quality inputs and market linkages. The majority of startups are developing applications of digital tech, biotech and food tech to solve these problems. Digital tech innovations have focused on use of data analytics including machine and deep learning to develop business models to make agriculture supply chain more transparent and predictive,” Mathur said.
Rohtash Mal, chairman of EM3 Agri-services, a three-year-old startup that offers agricultural equipment and services on a pay-for-use basis with a Farming-as-a-service business model, said:“Successful start-ups in this sector need to identify the locks very closely for which keys can be built.”
Mal said: “The Indian farmer may not be tech savvy but is extremely savvy. If you take technology to the Indian farmer and show that it is working, particularly with the growth of mobile telephony and broadband, it means that services, information, knowledge, pricing, transaction services, etc. can be made to happen for the farmer if not by the farmer. And he recognizes that.”
EM3 Agri-services recently raised about $15 million from a George Soros’ fund and the Global Innovations Fund.
Yes Bank’s Puri agreed: “The investments coming into the agri-tech sector can be classified into three buckets – farm-tech, food-tech and supply chain-tech, with the last named the big digitally managed piece around the agri-value chain. There is an increasing convergence of traceability, financing and commerce along value chains.”
Mathur and Puri both say that digital technology has led to a hugely changed perspective around both equity and debt infusion into the agri-sector in regard to the startups now dotting the industry landscape. Recent technology startups include several that use data-driven technologies, the Internet of Things and artificial intelligence and other technologies to increase productivity and improve transparency across the agri-value chain.
Mathur cited several examples. “Farmer access to high-quality inputs at the right time at the right price is enabled by startups such as Agrostar, Bighaat, etc. There are startups focused on aggregation of farm produce including Ninjacart, Kamatan, Go4fresh, etc. that have developed farm to fork supply chains helping farmers to earn more. Farming-as-a-service models such as Goldfarm, Oxen, EM3, Farmart are offering affordable mechanization. Data-driven startups include Satsure, CropIn, Agnext, Aapah. Others like Agrisk, Agricx, Intellolabs are developing innovative models for crop detection, yield prediction, grading solutions and traceability of food supply chain etc.,” he said.
Puri said: “Digital technology enables a blend of efficient farming, better farm-level monitoring, superior logistics efficiency, robust farm-level price discovery, and a good deal for the consumer. For example, the whole farm-payment-systems space is acquiring greater transparency, ensuring reduced transactional inefficiency and giving farmers greater bargaining power.”
All this leads to better cashflow based lending, with improved revenue predictability and risk models for investors and lenders spurring investment into the sector.
Investors also recognize that given the institutional and socio-economic constraints in the sector, payback could be longer than the conventional five to seven years, even a 10-year payback timeframe with clearcut milestones with a sharp understanding of policy and other risks. Investors and lenders recognize that agri-tech investments are a long-term phenomenon.
With tech-savvy farmers and tech-driven startups, India’s moribund agri-sector has more hope for a better future.
Source: Asia Times