September 26, 2023

India’s agriculture industry is at a crossroads. When India gained its independence from Britain 75 years ago, agriculture dominated the economy and accounted for more than 50% of its GDP. India continues to be one of the greatest and most diverse food producers in the world, and agriculture—which accounts for more than 20% of India’s income—remains a key sector of the country’s economy.

However, serious issues prevent the country from reaching its full potential. If the problem could be resolved, a thriving agriculture sector would benefit the economy and greatly enhance farmer livelihoods and revenue. A 50% rise from its contribution in 2020, agriculture may contribute almost $600 billion to India’s GDP by 2030. To get there, though, India needs boost the sector’s production and growth.

Agricultural technology, or agtech, is the secret to accelerating India’s transformation into a farming superpower. India behind developed agricultural nations in agtech. India’s farmers, to put it simply, are at a competitive disadvantage: half lack basic agricultural equipment, three out of every four farms are susceptible to crop loss from pests and weather, and 50% lack access to conventional funding sources. Those who can obtain credit frequently pay inflated interest rates that are 10 to 25% higher than market rates.

The promise of agtech, how it has already improved results, and what investors are looking for as rural India adopts modern farming are all covered in this article. Agtech can provide Indian farmers a boost, increasing their profitability and the sector’s contribution to the country’s economy.

The farmer was historically merely one of the numerous participants in a market that was based on mandis, the neighborhood marketplaces where farmers sold their wares at auction. The emergence of digital technology and the development of several agtechs have placed the farmer at the center of the ecosystem as a whole. Solutions are starting to focus more on the farmer: whether it’s financing, inputs (such as seeds, agrochemicals, and fertilizers) or advise, every aspect of the value chain that is digitizing targets the farmer.

Agtech is already boosting Indian agriculture

The number of agtech start-ups in India expanded from less than 50 in 2013 to more than 1,000 by 2020, thanks to growing farmer knowledge, better internet access in rural areas, and the demand for increased efficiency in the agricultural industry. Additionally, the legislative climate in India is steadily changing to support the expansion of digital technology in agriculture.

Agtech in India is still growing, with innovations coming from both start-ups, or “agrifintechs,” and major technology firms. Core enterprises in the value chain are embracing digital technologies like “super apps” to innovate.

If properly developed, the agtech ecosystem might help Indian farmers’ earnings increase by 25 to 35 percent.

Existing agricultural incumbents employ digital technology to reach farmers directly or to spread their products and services to nearby areas. Suppliers are evolving into purchasers, and financial services are being added by advisers.

  • Providers of farming supplies such as agrochemicals, fertilizers, and seeds are using technology to create direct-to-farmer sales channels that bypass middlemen and retailers. For example, UPL (traditionally
    a core agrochemicals player) is providing mechanization services and agrochemicals to farmers through its digital platform. The company has also expanded to provide financing, advisory, and market services.
  • Firms, including banks and nonbanks, primarily engaged in providing finance through farm and rural loans, are using technology to better understand the farmer, provide targeted products, and reduce loan risks. For example, the State Bank of India (SBI) developed the YONO Krishi app to meet farmers’ finance, inputs, and advisory needs.
  • Companies that sell farm equipment have also started providing mechanization as a service to farmers. Mahindra, for example, offers a tractor rental service.
  • Firms that operate in procurement, processing, or the selling of agricultural products have started to integrate backward into the supply chain and create market linkages for the farmer. For example, ITC, a core outputs player, used its e-Choupal network to expand direct-from-farm procurement over the past 20 years. It has now launched the ITCMAARS super app. Using a partnership approach, the app gives farmers access to modern tools, quality inputs at the right prices, and finance.

Fully nurtured, the agtech ecosystem has the potential to propel Indian farmers’ incomes to grow by 25 to 35 percent , and add $95 billion to the Indian economy, through reduction of input costs, enhanced productivity and price realization, cheaper credit, and alternative incomes (Exhibit 1).

Agtech has the potential to add $95 billion to the Indian economy by 2030.

The government’s role in enabling agtech

India’s government has also taken several policy steps and conducted pilots to foster technology and innovation in the agricultural sector:

  • Easier digital reach through farmer collectivization. The government has promoted farmer–producer organizations (FPOs), granting $750 million to set up over 10,000 FPOs in the next five years. FPOs collectivize the otherwise fragmented farmer base, helping agtech companies (such as Samunnati) to easily access and scale up their business models.
  • Development of the “agristack.” India is creating a unified database of agricultural data sets, which will be linked to farmers based on their land holdings. This will enable agtech companies to customize offerings and products based on farmers’ needs, which vary by land size, crop sown, and soil conditions.
  • Digital soil-health cards. A digital soil-health-card program entails mapping soil composition and quality at the farmer level. It could help agtech companies in India to promote precision-farming initiatives and tailor offerings for specific farmer groups.
  • Digitally enabled direct benefit transfer in fertilizer sales. This initiative directly transfers subsidies for fertilizers and other goods to the farmer. It authenticates the farmer’s identity at points of sale and through verification. It could significantly encourage the adoption of fertilizers and reduce leakages in transportation, maintaining affordability for smallholder farmers.
  • National Agriculture Market (eNAM). This pan-India electronic online trading portal connects existing Agriculture Produce Market Committee (APMC) mandis, forming a unified national market for agricultural commodities that ensures better prices for farmers through the transparent auction process.
  • Agricultural Accelerator Fund and digital public infrastructure. The government has recently announced a new fund for promoting the agtech ecosystem, potentially seeding new start-ups that may increase digital adoption and the range of digital solutions available to farmers. Additionally, the government announced its intent to build an open-source digital public infrastructure that will likely support agtechs with relevant information services across the value chain.

These initiatives are building an agtech ecosystem in the country, supporting farmers in areas where they need the most help.

What are investors looking for?

Agtechs are ready to interact with Indian farmers thanks to government initiatives and farmers’ willingness to accept technology, but they will require reliable finance sources and a lively, encouraging environment to be successful.

With venture capital (VC) funding receiving more and more attention in recent years, agriculture technology has exploded in India. Samunnati, Ninjacart, DeHaat, and Bijak are a few of the firms that Accel and Sequoia Capital have invested in. Agtechs in India have raised around $1.6 billion over the last four years. Through 114 agreements, VC companies spent more than $1.2 billion in 2022 alone, a 50% increase from 2021 and three times as much as in 2020. Despite a two-year economic slump, the average deal size is increasing, showing that start-ups in this sector are maturing (Exhibit 2).

Investors have ramped up venture capital investment in Indian agtech companies.

Of nine agtech categories, 90 percent of all VC funding was directed at five categories in 2022 (Exhibit 3):

Of nine agtech categories, 90 percent of all venture capital funding was directed at five categories in 2022.
  • Downstream agtechs: These are primarily B2B or B2C platforms or brands to connect farmers with businesses or consumers. In 2022, such firms as Ninjacart, Absolute and Waycool raised more than $707 million in funding. Funding decisions are driven by the maturity of business models, the need for follow-up rounds of investments and highly accessible and monetizable opportunities across categories.
  • End-to-end ecosystems: These are platforms that play across the value chain and have a significant presence in multiple segments, such as inputs and outputs. In 2022, such firms, for example, DeHaat, attracted more than $113 million in funding.
  • Digital solutions and precision agtech: These are digital solutions or products which provide farmers with services such as advisory, precision farming and sensor-based solutions. In 2022, companies such as Cropin attracted more than $92 million in funding.
  • Midstream agtechs: These are agtechs that help provide supply chain solutions that improve efficiencies in areas such as logistics and warehousing. In 2022, firms such as Arya attracted more than $80 million in funding.
  • Agribiotech: These are agtechs that leverage biotechnology to create green and sustainable new products, or ingredients such as food additives. In 2022, firms like String Bio attracted more than $63 million in funding.

Contrary to the rest of the world, where agricultural investment has focused on cutting-edge foods (think Impossible Burgers or other plant-based foods), investment in India has focused on the fundamentals: financing and technology to improve farming and agricultural practices and reduce climate risks (like pests, droughts, and flooding).

Investors therefore approach India from a different perspective. In our interviews with VC firms, we learn that they evaluate new technologies based on five criteria: market size, product range, customer traction, scalability, and the X factor (intangibles like the learning curve required to use the new technologies effectively).

Grow or die: Agtech success in India

Investors in Indian agtech are, or should be, asking some basic questions, including the following.

Does an agtech invest in multiple touchpoints and a breadth of offerings? Contrary to e-commerce, agtechs incur substantial acquisition expenses, such as getting a farmer to download an app and sample a product, despite receiving modest transaction volumes from farmers. This is made more difficult by the farmers’ own willingness to test out several applications in search of the best value, as well as the persistent attempts of numerous incumbents and agtechs to enter the market and cut prices.

Startups like Gramophone, Samunnati, DeHaat, and others are expanding their product portfolios and creating additional touchpoints to offer services across the value chain, from inputs and finance to consulting, in order to meet this challenge. Even platforms that initially just had one use case are growing into nearby value chains.

Does the agtech embrace a ‘phygital’ model?

Infrastructure, both physical and digital, is crucial in rural India. The majority of farmer households still prefer to have physical touchpoints for digital support like lessons or assistance with app installation, even if 75 to 80 percent of them have access to smartphones. Agtechs like Agrostar and DeHaat have field teams to conduct in-person site visits and to spearhead efforts to increase app adoption.

An example of customer support is the ITC e-Choupal ecosystem, which has succeeded in filling the digital infrastructure gap in rural areas through a network of central sanchalaks (overseers), who serve as the ecosystem’s physical touchpoints and on whom farmers continue to rely.

There are several methods to interact with the farmer personally. One possibility is using field representatives. Other instances are a fertilizer vendor’s participation in neighborhood Indian micromarkets or agrifintech rural bank branches.

Is the agtech charging for the right product or service? 

The ideal monetization strategy is essential. Although some businesses are attempting to make money off of advising services, most farmers—not only those in India—are hesitant to pay for counsel. Typically, giving advise is a means to do business rather than doing business itself.

Is the agtech light on assets?

Agtechs can easily expand across borders if they rely less on asset investments. For instance, Agribazaar had a fixed asset base of about $2.5 million and a gross merchandise value of $2,250 million in the fiscal year 2021. It accomplished this by transferring control of storage, quality assurance, and transportation for the majority of transactions to buyers and sellers on the platform.

Agtechs that need investments in tangible assets or infrastructure often strive to maintain their business models dependent on regional business owners who purchase the necessary buildings and equipment. For instance, DeHaat and Agrostar employ village entrepreneurs to do delivery and last-mile services inside communities, allowing them to pool demand and ship more product.

The potential for a bumper crop Indian agriculture

The investors and agtechs that successfully negotiate India’s particular obstacles could perceive limitless possibilities. Both established players and newcomers must perform well over the next three to five years.

A winner-takes-all market is unlikely to develop in this one. A small number of significant businesses, particularly those with close ties to the farm in the supply chain, might take the lead in this market. Numerous smaller, niche players may be supported by these businesses, who would then use the end-to-end platforms to flourish.

Working together will be essential. While agtechs may improve decision-making and replace labor-intensive agricultural techniques like spraying, decreasing reliance on merchants and mandis, incumbents continue to play a crucial role in the new ecosystem for R&D and the provision of fertilizers and chemicals.

Successful platforms are already starting to emerge that provide farmers with a broad range of goods and services to solve various, significant pain points. These one-stop shop agri-ecosystems are also building a physical supply network and backbone, which makes it simpler for established businesses and new ventures to reach the dispersed farmer base.

Agtechs have a special chance to develop into the perfect partners for businesses looking for market access. In this case, existing agricultural firms are adding value for the farmer by providing more effective and affordable access to the farmer than traditional setups that need a lot of people. The more that agtechs understand the farmer, the better products they can create.

For many years, India’s fields have provided food for both India and the rest of the globe. Digital technologies have the potential to improve productivity at every stage, from premium agricultural inputs to top-tier agricultural products. This might increase economic fortunes in rural regions in a healthy ecosystem and benefit the overall economy. It could also assist Indian farmers achieve sustainable growth.

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