Looking back and Looking ahead — India’s evolving AgriTech startup ecosystem

March 19, 2018

The past year has probably seen a spurt of new companies crop up (no pun intended) in what is commonly being referred to as Agritech. These young companies typically run by non-farming folks are trying to gnaw away at a sector that is Jurassic, a behemoth that as far as we know has resisted technology changes around it surviving on age old methods and is used to bowing to no one but the climate.

However, the vagaries of climate, the shrinking size of land holdings, and the limited knowledge of farmers is a reality. Will tech change that, is the burning question.  In India agriculture is a $350 Billion dollar industry. The 158 million cultivated acres feeds not only India but also many others in the world.  It provides livelihoods to over 500 million and yet majority of it is left to rely on the monsoon, the people who till the land are seen as beneficiaries, productivity lags and produce is wasted.

(Image source - https://www.startup-buzz.com)

Can this new breed of companies change the way we farm? Can technology; big data and smart farming take in the myriad variables that go together to come up with the algorithm that addresses the inefficiencies in the chain?

At Ankur Capital, we have a ringside view of these new companies. We saw over 1000 such players, evaluated more than 500, invested in 3 and continued to watch our earlier 3 investees grow.

A bulk of these solutions fell into two areas –food and processing and output distribution.  The former is not surprising at all as consumption in India continues to change – our office alone consumes and discusses food from quinoa pasta to kiwis to vada pav. The Indian consumer is much more conscious of their food so it is no surprise that branded food/ processing for the food industry saw a lot of activity and continued to grow.  It is an exciting space we participated in and will continue to do so down the line. 

Perhaps what was more surprising was the rise of the tech sabziwala’s. We see a large number of solutions that target output distribution. A myriad of entrepreneurs are taking a stab at the fragmented inefficient path that produce (and especially fresh produce) in India typically takes to market.  In our mind this is one of the toughest places to build a business at scale.  The trajectory of the Indian crop is passed from hand to hand before it reaches our mouths, however the hands along this path fulfill a lot of needs – grading, sorting, storage, logistics and finance. Unless solutions address these needs more efficiently than the current system and are willing to invest where normal traders can’t, it will continue to be a tough game. We however, do believe that targeted technology has a large role to play to remove the friction that exists in output distribution and we have gone ahead to support some of these players.

Other entrepreneurs targeted inputs, precision agriculture, information plays, input distribution, farming tools, FAAS, new farming methodologies (hydroponics, aeroponics) and some innovations in bio-inputs. There was a fair bit of activity on digital advisory to farmers, community driven engagement platforms for farmers, market forecasting analytics and weather related information companies. In the precision agriculture space a handful of companies worked on drones, soil testing and water.  

While we see a good inflow of these new ventures, were we ready to put our money behind the change they could drive?  The answer we found lies in the detail. The oft touted phrase that the farmer is uneducated and a Luddite is misplaced. Each time we followed an innovative company’s solution to the end we found that Indian farmers are extremely smart and run a tight P&L on their farm. If you show them a value proposition that increases their bottom line, brings a benefit to their activities they are very happy to adopt. For example we see exponential growth in farmers using their mobiles to order delivery of quality seeds at their doorsteps, not once but repeatedly. When you see a large impact on your P&L due to quality inputs it doesn’t take long to change your behavior. What perhaps we hope to see more off in the coming year are the technologies that have a breakout impact on profitability of farms.  When there are these solutions, adoption and selling to the farmer will not be a challenge. When benefits are mired in if’s and but’s and target 10-15% impact then the ground will remain a challenge.

Agritech is not just for farms. At Ankur, we are a firm believer that changing the chain in India is just as important if not the first priority. If we have a 138 million farmers, we also have a lot of value chain players - be it large food companies, SME’s or traders in the system. Unlike the countries with large tracts of land and large dominant agricultural companies, India is fragmented in land and value chain players. Introducing technology that helps agri linked business operate more efficiently is equally necessary. Through a couple of our portfolio companies we see how companies big and small are ready to lap up technology that helps them improve their P&L.  They are more than willing to do paid pilots and they prove to be sticky customers. We are very bullish about such solutions though there were only a handful of companies targeting this area. We expect to see more solutions for businesses in the coming year.

While we saw a lot of activity in key areas, it is also worthwhile noting the areas that saw lower or limited innovations. One such area was agri-fintech. The payday loan equivalents that allow seemless lending not only to farmers but also to the extended chains have not cropped up.  The insurance products and many other financial products that are cropping up in the consumer space are absent here. Perhaps the growth of the information players coupled with the governments efforts in digitization will unlock opportunities and we hope that the coming year will see a start of players in this area.  Without agri-fintech, current actors will have to fulfill a lot of the roles much like current day intermediaries. This will limit the scale of operations in the days to come.  Another area was biotech. This perhaps is understandable given the larger capital needs and longer gestation times for such ventures.

At Ankur, we believe that the consumer as well as the digital backbone we have built is going to be a key enabler in building the new companies in agritech.  As the Indian agriculture system shifts from one where policy was primarily focused on food security and production of basic cereals to one that aspires to be market led and feed the world, opportunities abound.  For example in this past year horticultural production equaled grains, a clear indicator that farmers are seeing the opportunity in producing what the market wants. At the office we are excited about the entrepreneurs who will rise to capture this opportunity in 2018!