Agricultural technology, hereafter Agritech, is the use of technological innovation in agriculture to increase the quality and yield of the crops thereby rendering efficiency and profitability to the farmers. The use of modern methods like robots, big data, AI, IoT is being harnessed for multiple applications such as farmer decision support, precise farming, and insurance claims assessment. The Agritech segment in India has been noting a number of upcoming start-ups, disrupting traditional methods of farming through organic farming, equipment rentals, connected supply chains, and cloud-based analytics. According to a report by NASSCOM, every 9th Agri-Tech start-up in the world is from India. A report titled Agritech – towards transforming Indian agriculture published by EY in 2020 estimates that the Indian Agritech industry has the potential to reach $ 24 billion by 2025 with the current market penetration only at 1 per cent.
Historically, Indian agriculture has faced the formidable challenge of producing more food to feed a growing population. The global population is expected to reach 9.7 Bn by 2050. By then, resources might become scarce considering the current use. There is a possibility of food shortage as well. Secondly, the Food and Agricultural Organization (FAO) estimates that 40 per cent of the food produced in India is unfortunately wasted annually due to supply chain gaps. The sector is also witnessing the effect of rapid changes with regard to digitization and changing consumer patterns in the country. Trends such as plant-based meat, demand for organic fruits and vegetables, and quick delivery have created a beneficial impact on the outlook of the agriculture sector. Even the financial services sector has not remained aloof from this trend and with the consistent efforts of entrepreneurs and the government, an additional count of farmers has been connected to digital payment services that make the adoption of technology more accessible for them. Agritech has the potential to help feed the growing population and minimize food wastage by meeting the demand using real-time data. With smart farming, as fewer people will be required to carry out the same set of activities, others can switch to better job prospects without risking a fall in agricultural produce.
Globally, precision agriculture and farm management remain the top-funded as well as have the highest number of start-ups among all Agri-Tech segments. However, the trend in India is totally different with supply chain tech and output market linkages as the top-performing segments.
The Budget for 2022-23 has also put a special emphasis on this sector. The launch of Kisan Drones for promoting crop assessment, spraying insecticides, and digitalization of land records could prove transformative for Indian agriculture. The government has focused on the farm produce value chain as an area for capital infusion. This is a fund with blended capital, raised under the co-investment model, which will be facilitated through NABARD. The funds will be utilized to finance start-ups for agriculture and rural enterprises, support Farmer Producer Organizations, and provide machinery for farmers on a rental basis and technology, including IT-based support. Growing usage of the National Agricultural Market (eNAM) that connects existing APMC mandis through a common online platform has been increasingly removing information asymmetry, providing better price discovery based on the quality of products along with timely online payment. The government has taken several other initiatives to develop this sector, including the distribution of 100 million Soil Health Cards (SHCs) offering crop-wise recommendations of nutrients and fertilizers between 2015 and 2017. The launch of Pradhan Mantri Krishi Sinchai Yojana with an investment of $ 7.7 Bn that has aimed at developing irrigation sources gained popularity among farmers in India according to the Economic Survey 2019-20. A stronger push and appropriate fund allocation towards the Pradhan Mantri Krishi Sinchayee Yojana will help the government realize a target coverage of 10 Mn hectares in the next five years.
Startups such as Licious, Ninjacart, and DeHaat remain leading players in the industry and have fueled their growth through successive fundraising rounds led by venture capital firms and institutional investors.
The influx of capital investments has been the catalyst that has allowed entrepreneurs to strengthen in the sector at a high pace. Venture capital funds remain the top choice for financial growth and expansion in the sector.
Some venture capital firms like Omnivore have played a critical role in the growth and development of the Agri-Tech sector; Omnivore has invested in about 92 start-ups across the value chain. Ankur Capital and Accel have also invested in high-performing start-ups such as Ninjacart and AgroStar.
The recent performance of capital markets in India indicates a positive trend that would allow the start-ups to raise public money through IPOs and would provide investors an opportunity to exit the company earning high value or even remain invested for the long-term.
Given this context, the investors do have certain constraints to ponder upon. The agricultural supply chain remains highly fragmented with small and marginal farmers as the prime providers of grains in the country. It is often not commercially viable for small farms to own new smart agriculture applications individually, since this would not be cost-efficient. Second, India has a diverse soil type and correspondingly cropping patterns, hence the farming requirements vary greatly. It is, therefore, more challenging to develop more geographical and crop-based customized AI technologies. Precision agriculture, for instance, requires smaller farmers to divide their lands into several smaller management zones on the basis of crop type or fertilizer requirement. However, Indian farmers continue to follow uniform fertilizer application and irrigation techniques leading to sub-optimal produce and crop damage.
Despite the tangible challenges, the future looks bright for the growth of the agri-tech sector in India. Major factors for substantial growth of the sector are the possibility of high-speed delivery, greater production, and better quality. There is also a possibility of more e-commerce and retail grocery players entering the sector due to increasing competitiveness among these players in the quick- delivery and cloud kitchen segments.
India today, stands at a juncture where it can sizably contribute to the growth of agriculture through technology. Concentrated efforts on research and development for technological innovations are essential for agritech development. Financial incentives to agritech start-ups and setting up more incubation centers like ASPIRE are likely to create a wave of innovation and competition among the stakeholders. Cross-country collaboration for innovation can fill the gaps in technology and incentivize the market’s mega-players to invest in the cause as well.
This article has been co-authored by Karishma Sharma, Vishakha Bhagwat and Apoorva Rathore.