Agritech is a sector frequently in the news today. It is not just a booming sector, but also one essential for all our lives. I, Yagnesh Sanghrajka, founder and CFO at 100X.VC, welcome Hemendra Mathur to share his insights about the same. He has worked in VCs, Private Equities and has a lot of experience investing and supporting innovation in Agritech start-ups.
Significant changes in the Agritech space during COVID
Start-ups are facing many challenges due to the lock-down being imposed in an important phase of growing staple crops. There has been rapid development in streamlining start-ups and connecting the farmer to the end consumer. Start-ups like Ninjakart have played a key role in this value chain. It is also crucial that farmers receive seeds and fertilizers at the right time. While satellite imagery has helped out significantly, there is still a long way to go. There have been a bunch of great initiatives in this space, building huge momentum despite the tremendous challenges.
Many start-ups in this space have scaled up and undergone 10x revenue jumps due to the current situation. They have focused on locking in clients as well as booming innovation with technology and digitization.
Bharat innovation funds and Agritech
We already have more than 500 start-ups in the Agritech sector. Phenomenal digitization of technology has taken place in the past few years with developments like satellite imaging and spectrometry. Post-COVID, it is highly possible that consumer behavior will change and they will seek more accountability from the food supply chain. That is why, food safety, grading, and quality should be of utmost importance across the value chain today. Currently, most clients for Agritech start-ups are food processing companies.
However, we expect that even the government would be inclined to take an interest in the same soon. Due to the lock-down, consumers demanded increased food supply that caused a boom in this sector in the past few weeks. It is a given fact that the size of the opportunity in this sector is enormous, and the government should recognize that as well. The most important thing to expect from a start-up during trying times is resilience, and that is found consistently across Agritech start-ups. Logistics start-ups and their opportunities
Logistics for perishables: These are items that require an integrated cold chain provider. Start-ups should focus on improving shelf life and primary processing, starting right at the farm level. We also need scientific applications to streamline this smoothly; for example, digital technology such as sensors and IoT could play a significant role in monitoring temperature and humidity to ensure minimum spoilage.
Non-perishables and staples: Currently, there are a lot of areas of improvement in this space. A large amount of transport takes place in jute bags, with high costs and small bags, leading to wastage. There is a large scope to improve ongoing processes.
Pre-harvesting and post-harvesting financing
Pre-harvest: An important policy change would be to allocate funds for personal loans to farmers. There is also a need for reducing demand and supply asymmetry so that the demand and the prices of various items can be forecasted and does not remain so haphazard. A lot of farmers don't have access to private-sector lending, so there should be an active effort in building models for value chain and risk assessment. Meanwhile, recovery remains a challenge for every farmer, giving increased importance to digital payments and closed loops.
Post-harvest: This is usually not picked up as much because most farmers are smallholder farmers. We must build a model for farmer liquidity and give them flexibility where they can sell when they want. This creates a huge opportunity for innovative financing models.
Sector changes and nearing normalcy
This sector needs to be kept aligned and alive. Bulk buyers, more private sector engagement, and government initiatives are helpful, yet these changes must exist beyond COVID. Farming is time-sensitive, and we are an alarmingly under-mechanized country. Apart from tractors, we need to provide farmers with irrigation controllers, innovative irrigation solutions, harvesting aids, etc.
Q: What are the policy-level changes in government funding for the Agritech sector?
A: Some examples are- Direct benefit transfer scheme for farmers and the Janshakti ministry. Government funding should go towards new innovations, which work wonders in catalyzing Agritech start-ups. A great space is that of precision Agritech start-ups, which develop sensors and IoT to capture data from farms and build models. NGOs and FPOs also have an important role to play, as their support can become conducive to such types of farmers.
Q: How do you handle Agritech financing, taking into consideration that most farmers are used to waivers?
A: Policy is of absolute importance. A waiver is not something farmers have asked. Instead, it is a benefit that the government has willingly given. Blaming the farmers for not having discipline is incorrect. Instead of that, discipline needs to be built at a policy level. Farm economics has the potential to change with time if interest rates do. Empirical evidence also suggests that the majority of farmers are willing to pay back loans as long as those are available on time.
Q: What is the COVID impact on agricultural export?
A: For India, this represents a 30-35 billion dollar industry, including items such as rice and shrimp. We need to sort out the value chain first and come up with simple, cost-effective solutions for transparency, efficiency, and traceability. This is important because of the distrust in the quality of food sourced from India.
All in all, there is a huge scope in Agritech along with it being essential for our very survival, which is why VC funds should spend some time and take a deep dive into this sector.