Agritech giving a makeover to the agriculture sector
Sometimes, the more you think that things have changed, the more you realise that they remain the same. Historically, India has been an agrarian economy with a vast majority of its people depending on agriculture as their primary source of earnings. Today, even at the dawn of a new decade, the agriculture sector contributes ~15% to India’s GDP and employs ~50% of the country’s workforce. However, despite its dominance, the sector continues to contend with numerous challenges across the agriculture value chain. This has made the sector ripe for disruption and laid the ground for technological disruption in the sector
What is agritech?
Use of technology in agriculture is not really a 21st century phenomenon. However, with the accelerated pace of technological development, technology solutions in the agriculture space are now becoming more innovative and value accretive. Simply put, agritech is the use of technology and technological innovation in agriculture. Agritech companies leverage technology to enhance farmer journeys by providing access to timely and accurate information on soil conditions, weather, and retailing, and improve profitability for farms. Recognising the potential for value creation, both the central and state governments have proactively launched initiatives to promote a robust agritech ecosystem in the country. For example, the National Agricultural Market (eNAM) has been established to remove information asymmetry in pricing through an electronic trading portal. In the backdrop of this fecund landscape, a recent report by EY estimates that India's agritech sector has the potential to grow manifold from $204 million currently to $24.1 billion in the next five years.
Three key factors can fundamentally alter the future of agritech in India. First, the government's initiative to open the market for farmers to sell their produce to anyone offering them a better price rather than relying on mandis. This has been in the limelight recently with certain section of farmers and agriculturists wanting a complete rollback of the three new laws that came into force in 2020. Second, deeper mobile penetration among farmers and the availability of cheap data packs. This has eliminated the information asymmetry between buyers and sellers and is creating a more efficient market. Third, the increasing acceptability of online ordering of grocery and its accelerated adoption due to COVID. A case in point is one of our portfolio companies, Fraazo that started as a B2B model supplying to hotels, restaurants and cafes and swiftly changed their business model to B2C catering to end consumers and societies. Collectively, these can engender great opportunities for entrepreneurs in an enormous market.
Agritech solutions adding value across the agricultural value chain
The Indian agricultural landscape has long been riddled with various challenges that have had widespread ramifications on farmer journeys, agricultural output, economic parameters, and its citizens. Solutions provided by agritech companies can potentially improve this landscape.
Assistance in crop advisory: Despite being one of the leading producers of pulses and paddy, the average crop productivity in India is far lower than the global average. One of the key reasons for lower yields is information asymmetry and the resultant adoption of poor farming practices. In order to improve yields, farmers need accurate information in areas like crop planning, irrigation, use of pesticides and fertilizers, etc. Further, given the varied climatic and soil conditions in the country, farmers need advisors to diagnose the specific situations and accordingly deliver the required solutions. Agritech companies are leveraging data analytics, machine learning, and sensor technology to diagnose soil conditions and provide insights on the weather to help farmers determine which crops to sow, when to sow, how to prepare for irrigation, and on the optimal use of pesticides and fertilizers. For example, soil sensors that measure moisture content and moisture flow can help farmers strike the tenuous balance between crop growth and water usage.
Access to input and output marketplace services: Farmers need easy and efficient access to a number of marketplace services. These could range from procuring the best kind of agricultural inputs (seeds, fertilizers, etc.) and leveraging value added-services during the sowing and harvesting stage (equipment rental) to getting accurate information on pricing, warehousing, transportation, and retailing. Agritech firms can create an online marketplace that can provide the relevant information and services in a transparent and seamless manner. For example, an online marketplace can be created where various service providers can seamlessly interact with farmers to meet their needs at various points of the agriculture cycle. A centralised marketplace will enable transparency, improve supply chain visibility, and lead to better price discovery.
Access to financial services: Lack of access to timely and low cost institutional credit is one of the biggest banes of the average Indian farmer. Farmers in India use credit to purchase agricultural inputs, pay for labour and equipment, bear the cost of warehousing and transportation, etc. It is estimated that 30% of agricultural lending is through non-institutional sources, at a rate that is ~10% higher than average interest rates. A recent survey by NABARD revealed that lengthy procedures for the sanction of loans by institutions and demand for collateral security were some of the key reasons for farmers seeking loans from informal sources. Agritech firms can provide solutions that leverage data analytics and artificial intelligence to better assess the credit worthiness of the farmer. With seamless integration and data exchange and through consented access to the farmer’s land records, crop cultivation, yields, etc., institutions can charge lower loan processing costs as data collection and verification becomes less labour intensive. Accordingly, loans can be cheaper and sanctioned in a timely manner.
Better supply chain visibility: In developed markets, farmers get up to 70% of the price paid by customers. However, in India, farmers share in the value chain is less than 20%. One of the key reasons for this gap is inefficient supply chain which has been persistent for decades. Due to multiple handling of materials by various intermediaries in the traditional supply chain, wastage is high (30%+ as per estimates) and hygiene of produce is compromised. Customers end up paying for these inefficiencies without getting safe and hygienic fresh produce for consumption. Agritech companies like Fraazo are leveraging technology to solve for such inefficiencies. “We buy fresh produce from farmers and deliver it at customers' door steps with single touch. End to end supply chain control not only ensures that freshness and hygiene of produce is maintained but also benefits of efficiency are passed to farmers and customers. Farmers end up getting 15-20% more for their harvest while customers pay 10-15% less than their neighborhood alternatives. Fraazo has already touched the lives of more than 1500 farmers and 2 Lac + customers and aspires to impact 1 Crore customers within next 3 years, shares Atul Kumar, Co-Founder & CEO, Fraazo.
These are simply the more visible areas where technology can add value in the sector. Agritech in India is still in infancy stage with just 1% penetration of the addressable market potential of $24 billion. The opportunity in this sector remains immense. However, for the Indian agritech market to reach its potential, multiple stakeholders including the agritechs, the government, and the farming community need to proactively engage in order to create a robust agritech ecosystem.