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The Reset In The Farming Economy Fueling Agritech Startups


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As the Indian economy stumbles due to Covid-19, India’s agriculture sector is the only one that seems to be doing well as the focus of consumers and delivery startups falls on the supply of essentials such as fruits, vegetables and grains. According to industry experts, the farming sector is expected to grow at 3% by FY21, and agritech startups are playing a crucial role in ensuring that the losses for farmers are managed to a large extent.

“It is the only part of the Indian economy that is truly functioning,” says Mark Kahn, managing partner at Omnivore, one of India’s leading agri-focused venture capital firms. He adds, “Agriculture has always been a reliable slow-growing stalwart of the economy. A lot of people say it contributes to 15% of the economy, which is biased. If we consider NBFCs, the food processing and textile industry, it almost comes to 30%. The social impact of agriculture is huge,” he added.

Kahn said that thankfully the government also recognises that and in recent weeks, farmers have proven critical to both the rural economy and urban food security as the pandemic wrecks lives and businesses. In the last two months, as market linkages broke down, traditional mandis were shut or were operating at fraction at the regular capacity. During these tough times, agritech startups have come forward to fill in that void and help farmers to sell their products at fair prices.

Kahn said that now farmers are recognising that they do not have to sell to the same person who has been ripping off their family for the last 50 years. He believes that with the structural changes to essential commodities and the agricultural produce market committee (APMC) reformed, the industry is going to see massive deregulation of the farming economy which is going to fuel the growth of Indian agritech startups, multifold.

Edited Excerpts: 

Inc42: Recently, finance minister Nirmala Sitharaman announced a 1 Lakh Cr agri package to Indian farmers with the agenda to boost the agriculture infrastructure in the country. How can agritech startups leverage this?  

Mark Kahn: The proof is going to be in actual implementation. With the Indian government, execution has always been a big question mark. Since the FM explicitly mentioned startups, I think the intentions of the government are good.

Also, it was exciting to see that there is a dedicated capital for livestock and fisheries. It is not just farmers growing fruits and vegetables, there is an entire livestock and fisheries economy that was announced.

The thing that I am most excited about isn’t just the funding, but the proposed reforms. The fact that the government said that they are going to modify the essential commodities act. This is going to be a big bang in agricultural marketing reform.

In fact, this has been literally debated for two decades, since the time when I joined as an intern at ITC in 2005. It is interesting to see that in the midst of this crisis, everything is suddenly getting done, which otherwise would have taken ages. As the saying goes, never waste a good crisis. Hopefully, the government will not waste this crisis and will use this to do long-overdue reforms in agriculture.

Inc42: Since you are an agri-focussed fund, given the uncertainty that exists in the market, do you plan to foray into other impact sectors such as healthcare and education in the coming years? 

Mark Kahn: That is a hard no! We are in agritech, and our team largely are specialised in this domain. I believe that we can add a lot of value to agritech startups. That is simply not the case with education or healthtech. It is just outside of the wheelhouse, and we would rather stick to what we are smart about.

Inc42: What about your investment thesis, has it changed over the years? How has the short-term negative impact on the economy changed this? And within agritech, which segments are most attractive for VCs currently? 

Mark Kahn: Our investment thesis since inception in 2010 has been to transform Indian agriculture and agriculture supply chain. However, it has evolved with where we invest. But, we are still going after the same thing, which is the transformation of the agriculture economy in rural areas, and impacting the lives of farmers and farming communities positively.

The biggest inefficiencies are created by APMCs and forced mandi systems. We want to move to a world where traders get out of the business. As long as this exists, we are never going to see farmers selling directly to consumers.

In the coming days, we will see a big shift towards digital procurement, which I think will bring much better price discovery, than what previously existed. Also, we will see a certain amount of intermediation, not necessarily every farmer is going to be able to sell to consumers, directly. But, some farmers that are growing crops like Tomato, Onions, Capsicum, etc, will disintermediate.

Going forward, there is going to be a big push towards digitisation. Also, there will be an increasing amount of disintermediation.

Inc42: As most farmers in India are underserved by the banking sector, they struggle to get access to financial capital. Looking at the gap in the market, we have started to see a lot of startups emerging in agri-fintech segment. Will they be superseded by government efforts in the future? 

Mark Kahn: I don’t think farmers are terrible with respect to credit. This idea exists because of public bank loan waivers, which pictures farmers as habitual defaulters. I mean, if you waive off the loans to them, that is on you, and it is not on them.

For the most part, farmers borrow, primarily in the informal markets, where they have to pay back regularly with interest. I believe that there is a very large opportunity for startups to provide intelligent credit solutions to farmers. The loan has to be linked to other things rather than just standalone credit. In other words, you don’t want to give cash to farmers, so that they go and spend it on their daughter’s wedding. It just turns into consumption.

Ensuring that the farmer is borrowing money within a larger ecosystem so that it is going towards useful things. I think that is very important. For example, one of our portfolio companies Arya Collateral Warehousing, which is a mass warehousing and storage platform has a financial arm called Arya Dhan, which lends money to farmers on the basis of grains and things that are stored in their warehouse. It is a warehouse that received financing. That is quite secure. For the most part, the farmers are using that for inputs.

DeHaat, which is into embedding financial services throughout the agri value chain, including supply of inputs, outputs, is understanding what farmers are growing and how it will help them in selling. The startup provides finances for everything around the agri-value chain.

On the other hand, companies that are going out and lending to a farmer with no security. Now, that probably makes a bit less sense.

Inc42: Since you mentioned about Arya Collateral Warehousing and DeHaat, what about the other startups in your portfolio — such as Intello Labs, Clover, Fasal and Aquaconnect? How have they navigated the post- Covid world? 

Mark Kahn: For Clover, the first two weeks saw a lot of disruption. But, now, they have come back to where they were pre-Covid, in terms of volumes and they have been able to help close to hundreds and thousands of farmers who were growing fruits and vegetables without a market.

Previously, Clover was doing a lot of B2B. But, now it has shifted its focus towards food delivery. In the coming days, Clover brand for veggies will be coming up in a big way.

Intello Labs hasn’t missed a beat throughout this entire crisis. Their Indian customers are helping them scale. The company provides traceability and quality in these increasingly stressed and stretched supply chains. Intello Labs caters to clients, globally, and not just in India.

I would say, India is only half of the business. The other half of the business is outside of India, including the US, China, South East Asia and others. The other way to look at them is that they are very much like Indian SaaS companies, where they have incorporated IoT and AI-based solutions. It works closely with large corporates, retailers, packers, processors and distributors all over the world.

Today, every supply chain in the world wants more traceability, quality and pricing. Clearly, the supply chains are under stress. We are adding immense value in the supply chain by delivering solutions for fresh produce.





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Written by Amit Raja Naik

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