Impact of Agritech startups on the Indian Agriculture Sector

The ever-evolving startup ecosystem in India has been proactively playing its part in disrupting the agriculture sector. Agritech startups are functioning in a key market with a projected potential of US$24b by 2025. India’s digital sphere is seeing sharp growth on account of affordability and availability of speedier internet connections & maturing digital content ecosystem. 

The impact of the said factors facilitates a promising opportunity for innovation in the Agri sector, wherein market players, including new entrants, can leverage cutting edge technology such as data platform & data digitization, AI, data analytics, ML, i.e. machine learning, IoT, & SaaS to disrupt the current state of affairs. 

While the GOI latest reforms such as deregulation of Agricultural Produce Market Committee marketplaces are anticipated to strengthen the Agri sector, the full potency of this sector can only be realized via widespread adoption of technology. This is helping in resolving several key issues across the spectrum of the traditional agriculture value chain & presents a strong market that is valued at US$24b.

Agritech market in India at a glance

Indian agriculture has witnessed a drastic transformation from being state-focused in maintaining food security to becoming a prominent global producer. There is no doubt that Indian agriculture has got all the potential to become “the food bowl of the world” if our nation focuses on; 

• Building efficiencies into the agri produce trade,
• Integrating quality norms as part of trade protocols, and 
• Optimizing the cost of productions to rule out competition 

1. Agriculture is the fundamental source of livelihood for almost sixty per cent of India’s population. Agriculture and other related sectors accounted for nearly 18% of gross value added in India in FY 2020-21. While the Covid-19 pandemic took a toll on most sectors and services, the agriculture sector remained afloat & helped sustain end-users demand. 
2. In view of recent industry estimates, end-users spending in our nation will return to growth in FY 2021 after Covid-led contraction, expanding by as much as 6.6%
3. India’s food sector is poised to witness sharp growth, increasing its contribution to global food trade every year owing to its great potential for value addition, particularly within the food processing.
4. The food processing industry is quite massive in India, accounting for 32% of the nations’s overall food market & ranking 5th on account of production, consumption, export, & proposed growth. 
5. India has also witnessed considerable growth in agriculture exports during FY 2020-2021. As per the Ministry of Commerce & Industry^[1], the exportation of agri-based products grew by 17 per cent in FY 2020-21 after being lethargic for the past three years

How Exactly Agritech is improving agricultural sector in India?

• Agritech players are changing the face of the Indian agriculture sector by presenting the latest technologies that improve all stages of the value chain.
• Players in market linkages are ensuring seamless blending of the latest tech with physical infrastructure to facilitate farm inputs at a greater price certainty
• Farm management players & Precision agriculture are enabling farmer to improve their yields by up to thirty per cent 
• Traceability players & Quality management are enabling farmers to realize the benefit of incentivizing high-quality produce
• Players functioning in the output market linkages segment & supply chain tech are mitigating pain points such as high wastage of farm produce, which is profitable for both farmers and end-users. 
• Financial services entities could have access to thirty per cent of farmer households via access to credit, & 65% of farmer households via crop insurance
• Business models in the Agritech ecosystem could be categorized into the following: 
• Margin-based models where players underpin market linkages on the input or output side & reap margins on the buy-sell spread
• The subscription-based model is a model where players facilitate a mix of hardware, software & services to aid farmers to boost crop yields, keep a tab on the produce across the entire value chain
• The transaction-based model is where player charges based on the no. of transactions addressed, such as insurance policies or loans. 
• Demand-side drivers such as ever-growing customer’s dynamics towards healthier food owing to urbanization, essential to minimize food wastage in India, environmental factors such as a water shortage & climate change are boosting the adoption of agritech in the nation. 
• Agritech players serving the addressable segments across the nation have received healthy funding of US$532m as of April 2020.
• A comparison with worldwide investment funding patterns discloses that farm management companies in India still lack the required funding. 
• Worldwide Investors can leverage their knowledge from their past stories in these segments to enable them to realize their potential. 

Government initiatives to boost agritech ecosystem in India

Both state and central governments have rolled out various initiatives to incentivize the agritech ecosystem in India. An initiative like National Agricultural Market aims to mitigate information asymmetry in pricing via a digital trading portal. State governments are underpinning tech partnerships to forecast prices of agricultural produce utilizing artificial intelligence to aid farmers in effectively planning their harvest cycle. 

Incentivizing localized data gathering on soil health & rendering access to government-based research units to agritech startups could further speed up the adoption of agritech. Lessons from nations such as the Israel & United States seek to build a flexible agritech policy framework in India which entails collaboration between all market players such as agritech entities, farming communities, FBOs, research institutions & technology providers. 

Cross-nation collaboration in agritech & operating models could be driven via such a policy framework. Despite the excellent investment activity in recent years, the market penetration in the Agri sector is still on the lower side. However, it is expected that the untapped market potential in agritech will continue to stimulate growth in the space in the coming years. 

As the agritech ecosystem attains maturity, a few fruitful scenarios could play out in the Agri sector. There is a likelihood for players to expand across the sector to rejoice in the end-to-end relationship with the farmer. Also, there is a chance for some prominent retailers to expand their grocery presence via backward integration. FBOs could also acquire agritech facilities to keep a tap on their quality and operations.

Going forward, we could encounter a spike in penetration of segments such as precision agriculture, financial services, quality management, and quality management, considering the healthy market potential that these segments facilitate and the quantum of investment funding these segments have encountered. 

Conclusion

Agritech startups need to underpin measurable business models with higher unit economics while stimulating rather than displacing conventional value chain participants to succeed. It is vital to acknowledge that small & marginal farmers constitute the primary share of India’s land holding, which is 86% to be exact. Consequently, solutions to challenges in the Agri sector need to be inclusive of the requirement of these farmers. 

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