Agriculture Technology Is A Sector Waiting To Take Off As Entrepreneurs And Investors Eye A Huge Opportunity
Startups in the Indian Ag-Tech sector cumulatively attracted nearly $1.9 billion in capital from investors since 2010, with bulk of the investments happening during 2014-19.
There are nearly 600 active Ag-Tech companies in the ecosystem, but even as opportunities abound, challenges remain.
The Indian Agriculture Technology (Ag-Tech) sector is poised for robust growth on the back of intense efforts over the past decade, especially in the last five years. The opportunity lies in impacting the outcomes for 140 million farmers, 85 per cent of whom farm on less than two hectares.
Just consider these facts:
- There are nearly 600 active Ag-Tech companies in the ecosystem.
- About 14 million farmers, or a tenth of all farmers in the country, are interacting with and benefitting from Ag-Tech startups in various categories.
- About $1.9 billion of capital has come into Ag-Tech deals since 2010, of which $1.7 billion alone during 2014-19.
- The average value of the cheque received by a company is $1.1 million in its first institutional fund raise, a value that has doubled over the last five years.
- There has been a 48 per cent compounded annual growth rate (2014-19) of capital invested in dollar terms.
- There have been as many as 380 transactions across 105 unique deals across different sub-sectors.
These are the findings in a report titled, “Ag-Tech in India: Investment Landscape Report 2020” released by ThinkAg, an Ag-Tech platform that seeks to bring together innovators, corporate entities and investors to improve outcomes in Indian food and agriculture.
There are a number of reasons for the growing interest among all concerned – entrepreneurs, investors and corporates – in this sector.
The shift in demand for food is driving change in the agriculture sector. India’s food retail market, according to ThinkAg’s report, is growing at over 9 per cent CAGR and is expected to be about $830 billion by 2023.
The key driver for this is the shift in consumption from low value staples to high value proteins. Improvements in processing perishables, a growing warehousing, storage and cold chain facility aided by technology, and a digital infrastructure are also helping in the growth of the sector.
The sector provides an opportunity to reach out to more than 1.3 billion consumers in India and many more internationally as value chains become regional.
While investments in the sector went down in 2016-17, they swung back up in 2018-19. Deal sizes have stabilised with most deals happening between $1 million and $5 million, which is a clear indicator of the underlying confidence of investors in this sector.
Indian Ag-Tech players have shown tremendous drive to catch up with their global peers in attracting investments, which is again a healthy sign of the rapid maturity of the sector, in many ways mirroring the Indian IT sector that quickly caught up with what the international players were doing.
ThinkAg’s report categorises the sector into seven streams – Downstream AgTech, Ag InfraTech, Ag FinTech, Precision AgTech, Upstream AgTech, Ag Automation and Ag Biotech.
The Downstream Ag-Tech sector accounted for a little over three-fourths of total investments during 2014-2019; some of these are linked to the consumer play of the companies that includes players such as Ninjacart, Jumbotail, Way Cool and Milk Basket.
Ag Fintech, which accounts for about 6 per cent of all deals, will see a lot more action in the coming years with the category riding on an extension play in fintech per se, combined with the government’s push for a digital footprint of Indian agriculture. There will be a lot more players in the Ag Fintech sector soon.
Indian Ag-Tech players are shaping their own business models and they have displayed tremendous agility in adapting to the long value chain. Recognising the challenges in reaching out to more than 120 million small-holder farmers, the Ag-Tech players have adapted a B2B2F – business to business to farmer – model to be successful.
A full-stack offering is seen as a condition to be able to attract farmers. A number of the players in the sector have scaled national boundaries and are present in many continents, including North America.
While corporate investors have not been putting in money in the sector as much as financial investors, it is just a matter of time before large corporates make investing in Ag-Tech part of their regular play, especially during the Covid-19 pandemic when they would lean more and more on the Ag-Tech sector to support them.
Investors, according to the report, have said they will continue to invest in the sector in 2020 and beyond. The sector continued to get investments even during the pandemic with the first six months of 2020 accounting for 10 deals valued at over $75 million.
The sector will see a lot more tailwinds in the coming years.
Covid-19 has accelerated digital adoption across the board and this has a positive impact on Ag-Tech as well.
Seeing the resilience of the agriculture sector, the government too has done its bit by announcing a slew of reform measures – dismantling the APMC (Agriculture Produce Market Committee), removing certain key commodities from the purview of the Essential Commodities Act – and long-term financial support for the development of the value chain.
Nearly 96 per cent of the Indian food supply chain is in the hands of the private sector and therein lies the opportunity to deploy technology.
However, ThinkAg’s report highlights certain important drawbacks in the ecosystem.
For one, the country lacks a cohesive and vibrant platform for entrepreneurs to tap into mentors, angel investors and accelerators. The entrepreneur-incubator-government-corporate network still has a few missing links.
More importantly, the report points out that the growth in investment value has not translated into new and unique deals; only a handful of investments were new ones, while a majority were follow-on rounds in companies that had already raised funds from investors.
Fewer unique deals at the early-stage reflect not just an absence of opportunity at that stage, but also an absence of promising business models. The net result was that investors were happy putting in more money in startups that had raised funds already.
There is, therefore, a need for more India-specific ideas and their incubation in the Ag-Tech space, with an increase in angel activity to help galvanise the sector.
According to the report, the Covid-19 pandemic has accelerated digital adoption and increased use of technology in agriculture, especially in supply chain solutions.
While the farm upgrade solutions space will see subdued interest, emerging consumer trends will continue to drive the Ag-Tech space. The ThinkAg report is optimistic that the sector will continue to attract investors.
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