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Farmers in India get a tiny fraction of what urban consumers pay for produce because of the ‘mandi’ system. Agritech startups can put competitive pressure on the middleman and help farmers transact directly. (PhotoL PTI)
Farmers in India get a tiny fraction of what urban consumers pay for produce because of the ‘mandi’ system. Agritech startups can put competitive pressure on the middleman and help farmers transact directly. (PhotoL PTI)

Covid, reforms could help agritech startups bypass mandi system

Digital platforms for farmers, like Patna-based DeHaat, experienced a surge in demand as traditional agricultural marketing channels got disrupted

What was the only thing you could buy during the last three months?" asks Mark Kahn, managing partner at agritech venture capital Omnivore, and waits for the answer: “Food."

The first few weeks of lockdown were shambolic, when zealous police stopped food trucks. Supplies from farms to cities picked up after clarifications from the government, and farming also revived just in time for a bumper harvest.

“The bounceback has been fastest in agriculture because that part of the economy was not allowed to fail," he says. This spelt a quicker recovery for agritech startups compared to others. “Most startups in our portfolio are back to where they were in February."

Digital platforms for farmers, like Patna-based DeHaat, experienced a surge in demand as traditional agricultural marketing channels got disrupted. Kahn sees the pandemic accelerating adoption of agritech.

Other VCs appear to share that view judging from the number of agritech funding deals in the past few months. DeHaat raised a $12 million series A round in April led by Sequoia Capital, its first large agritech bet in Asia. Sequoia earlier co-invested with Omnivore and Omidyar Network India in seed funding agricultural commodities trading platform Bijak. The one-year-old startup had a $12 million series A round led by RTP Global in April.

INVESTOR INTEREST

The same month, impact VC Aavishkar Capital doubled down with series A funding of $5 million in Ergos, which has been building a “grain bank" in Bihar for post-harvest requirements. In May, Saama Capital led a $5.9 million series A round in Gurugram-based Intello Labs, which is working on the supply chain for fruits and vegetables. This month WayCool Foods announced debt financing of $5.5 million on top of its $32 million series C round led by Lightbox in February.

Time was when agritech was a low priority for large VCs. That’s changed in the last few years. Sequoia, Accel, Tiger Global, Qualcomm, Vertex Ventures, Nexus, Bertelsmann and Lightbox have become active, drawn by the possibilities opening up with smartphone usage in India’s massive agrarian sector.

Venture capital tracker Tracxn’s data shows that agritech funding picked up momentum in 2017, with $71 million being invested. This jumped to $145 million in 2018 and $266 million in 2019, which is 10 times more than the paltry $24 million invested in 2016 and $23 million in 2015.

Qualcomm Ventures is an investor in two of the top-funded agritech startups in India, Ninjacart and Stellaps, which are digitizing supply chains of fresh produce and milk, respectively. Both tackle a crucial issue of fragmentation in a large segment of Indian agriculture where farmers have small holdings such as two or three acres of land to grow vegetables or two or three cows to produce milk.

“That’s why in India you will see multiple models to aggregate the supply from farmers," says Swapna Gupta, director, Qualcomm Ventures. This benefits farmers with collective bargaining for prices and services as well as streamlined payments. For buyers, the use of digital technologies brings efficiencies in operations and scope for analytics to improve demand-supply matching.

The challenge is in the time and effort it takes to get these technologies to the hinterland. Stellapps has been at it for nearly 10 years, while Ninjacart is five years old. “It takes time to have an impact in the deepest parts of the country," says Gupta. “That’s why it takes time to scale these businesses."

Word of mouth is the best catalyst for adoption. If a startup has a positive impact on some farmers, others latch on fast. Then there are events like lockdowns which force a search for alternatives.

POLICY PUSH

Government policies also disrupt traditional structures that have shackled farmers, and pave the way for agritech. As part of its covid-19 package last month, the government promised farmers freedom to choose where they sell their produce. This will facilitate sales to aggregators, instead of tying farmers down to mandis of state APMCs (agricultural produce market committee).

“When you create localized monopolies, you encourage bad behaviour. So opening up agricultural marketing is tremendously powerful," says Kahn.

Farmers in India get a tiny fraction of what urban consumers pay for produce because of the mandi system. There needs to be competitive pressure on the middleman, explains Kahn. “Then the middlemen will become better and smarter and add more value. It will be easier for progressive traders to build value-added services, and it’s going to get much easier for farmers to transact directly with urban consumers."

Sumit Chakraberty is a Consulting Editor with Mint. Write to him at chakraberty@gmail.com

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