The hope and hype behind India's agritech boom

Ecozen, a Pune-based startup, provides solar-powered cooling and market linkage services to growers of perishables.
Ecozen, a Pune-based startup, provides solar-powered cooling and market linkage services to growers of perishables.


  • With the funding tap opening up, an agri startup unicorn is no longer a distant dream. But will farmers benefit?
  • There is, however, another side to the buzz and excitement. Few investors claim that most funds flow into a handful of platforms, while product-led innovations are starved of capital

NEW DELHI : On an early winter evening about two decades ago, Veera Reddy, a farmer from Nalgonda, which is now a part of Telangana, had returned home distraught after selling his groundnut harvest. Reddy had sold the groundnuts at a much lower rate than what seemed to be a fair price. To make matters worse, Reddy was also humiliated by the trader. That memory stayed with Reddy’s 14-year-old son. And when he grew up, V Bala Reddy, now 38, gave up a prospective career as a software engineer and set himself a lofty target: to get farmers the right price.

After graduating with a degree in agri-business management from the Indian Institute of Management, Ahmedabad, Bala joined a bio-fuels company and travelled across India to meet farmers. “I soon realized that farmers were unable to the sell the product that consumers want…for instance, turmeric powder instead of raw turmeric or milled instead of raw pulses," Bala said over the phone. Taking the producer closer to the final consumer could be one solution to the price puzzle, Bala thought. In June 2016, the idea coalesced into Our Food, a Hyderabad-based agritech startup, which sets up microprocessing units closer to the farm gate. The units are run by local youth from farmer families and the final product is marketed by Our Food. In the process, farmers receive a better price by selling directly to the microprocessing units, which are only a step away from the local consumer.

According to Bala, the technology was stabilized in 2018 and 1,400 units have been set up in 13 states so far. The covid-19 pandemic was a blessing in disguise for the venture—Our Food found many interested youngsters who had returned from the cities after losing their job and wanted to start afresh closer to their native place.

In FY21, Our Food clocked a turnover of 81 crore and turned into a profitable entity (3% on a net profit basis). However, its five-year journey was anything but smooth. From bootstrapping the startup in its early days to going nearly bankrupt a few years ago, it has been a rather bumpy ride. Besides, no venture capital (VC) fund was interested. “Every investor wants to grow their money quickly. VCs would rather invest in trading platforms than bet on a startup (that is) creating infrastructure for farmers. But I persisted," Bala said.

Our Food is just one among the roughly 1,000 agritech startups in business that are looking to make a difference in India’s vast agricultural sector. Many of them are helping farmers access quality inputs, agronomic advice and marketing support, while others are innovating with cooling solutions for perishables, rapid quality assessment and traceability of farm products. A niche group of startups are also engaged in deep-tech—using satellite images to monitor crops and soil health, which can then be used by farmers as well as financial service providers.

“There is no turning back…Indian agriculture is ripe for disruption," noted a recent research brief from the consultancy firm Bain and Company. It also said that by 2025, between $30-35 billion of value pool will be created in the sector, with the e-sale of produce and inputs and digitally-enabled logistics emerging as key segments. India is already the third-largest nation in terms of agritech funding (after Germany and the US), with investments growing at a compound annual growth rate (CAGR) of 53%—from $91 million in 2017 to $329 million in 2020. The sector received close to a billion dollars in VC funds during this period, with the highest-ever funding in the first year of the pandemic (2020).

The total amount may be minuscule in comparison to the big-ticket investments in e-commerce, fintech or edtech, but the $370 billion agriculture sector is one that investors are looking at closely; a unicorn emerging from India’s fledging agri startup ecosystem may no longer be a distant dream.

“Three years back, you could not get a non-agri non-impact investor interested…we tried doing that but people would say ye toh bohot difficult he (this is extremely difficult)," said Vaidhehi Ravindran, partner at Lightrock, which has invested in eight startups since 2010. However, over the past two years, investors have woken up to the fact that the farm space is a large market with large outcomes. According to Ravindran, the uptick began in 2019 when Tiger Global invested $90 million in Ninjacart, a business-to-business agritrade platform. “It is still early days when it comes to investor interest, but today, not investing in agri will make a fund irrelevant," Ravindran added. The result: several early-stage deals in recent years that range in size between $10 and $12 million, with more investors expending time and energy in due diligence of agritech firms.

A growth bubble?

There is, however, another side to the buzz and excitement. Some investors whom Mint spoke to said that most of the investment is flowing into a handful of trading and consumer-facing platforms, while product-led innovations (such as Our Food) are starved of capital. Well-funded startups are also under pressure to grow beyond their means in a bid to raise valuations. One investor, who did not want to be named, said that some prominent startups were fudging revenue and farmer acquisition numbers. Mint could not independently verify the claim.

While the detractors mostly wish to remain anonymous, some are starting to go public with their apprehensions. “Don’t look any further than a few castles (read: bubbles) in the strange world of farm produce market-linkage startups, where revenue growth is ‘showcased’ but it does not move the needle on profitability," wrote the CEO of Nabventures, Rajesh Ranjan, in a scathing LinkedIn post last month. Nabventures is the VC arm of India’s apex rural bank NABARD (National Bank for Agriculture and Rural Development).

Ranjan added that agritech specialist VCs were obsessing about technology on the farm and are placing bets on startups that can neither scale-up nor provide an exit to investors. “Farmer adoption of on-farm agritech (has) remained low. So much for the self-proclaimed ‘fathers’ and ‘mothers’ of agritech investing and their unnecessary PR and media hype," Ranjan wrote.

The ability to absorb a large amount of capital and the potential to scale up fast make a startup attractive for an investor, said Emannuel Murray, senior advisor, Caspian Impact Investment. “But good agribusinesses will take time to grow, so pumping money like jet fuel may do more damage. You invest in a firm, hype it big, jack up the valuation…that is the reason startups are more interested to talk about fundraising and valuations than profitability," he said.

Over a candid phone conversation, Jinesh Shah, co-founder of Omnivore, a specialist agritech VC that has funded over 20 startups since 2011, said that “food and agriculture are essential sectors and startups don’t need to burn capital for growth, like e-commerce or food delivery." “If you need to disrupt agriculture, you need to bring some kind of glamour and storytelling…we were stewards of this sector and we are also going to be its biggest cheerleader," he said. Shah added that not every firm needs venture capital. Some are capable enough to create a business on their own. “The problem starts when startups make business plans for VCs and chase a valuation instead of focusing on their own growth…it’s anybody’s guess as to what happens in such a rat race."

For now, it’s hope and caution in equal measure. Improvement in rural broadband connections—expected to be 600 million+ within the next three years—has reduced the acquisition and servicing cost for startups, but execution in the rural context is still much more challenging than in an urban setting, said Arshad Perwez, vice president at JM Financial, who tracks the agriculture space closely.

According to Perwez, a large chunk of India’s farm output can be channelled towards consumers via digital channels. However, current investments are concentrated. As of early June 2021, the top five startups (Ninjacart, Licious, WayCool, DeHaat and Agrostar) accounted for as much as 50% of the funds raised, while the top twenty’s share was a staggering 80% (total equity investment of $955 million). "But the estimate of $30 billion revenues (from digital channels) by 2025 is not unrealistic and may even be surpassed," he added.

Farmers will pay if they see value in the new services that are on offer but for deep-tech interventions such as artificial intelligence and machine learning to work, supply chains will have to be digitized alongside good quality farm-level data, said Ritu Verma, co-founder and managing partner at Ankur Capital.

The government too seems to want a piece of the unfolding action. Over the past few months, it has set in motion an ambitious AgriStack project to digitize data on land holding, cropping pattern and credit history in order to link it to a proposed unique farmer ID. The goal is to provide customized agronomic advisory and seed-to-market services. Several startups are already offering similar services, though at a smaller scale.

Touch and grow

Our business model is simple, said Shashank Kumar, who in 2012 co-founded DeHaat, which has garnered about $46 million so far and is among the top five startups in terms of VC funding. Each season, farmers go through several touchpoints such as the planting of seed, crop management, harvesting and marketing. DeHaat offers the entire range of services by nurturing a set of rural micro-entrepreneurs who supply inputs to farmers. It has also created a full-stack data platform to provide customized advisories. Over 500,000 farmers spread across six states are currently on the DeHaat platform, which handles about 1,500 tonnes of produce and 9,000 delivery orders for crop inputs daily. “Obviously there is pressure to grow but investors understand that in agriculture one cannot grow at a pace like e-commerce or food delivery. Acquiring farmers is as important as retaining them," Kumar said. He expects Dehaat to turn profitable by 2024.

Similarly, Gramophone, which provides farmers with agronomic intelligence and input delivery services, began its journey in 2016 with just 5,000 farmers in Madhya Pradesh. “We have seen exponential growth during the pandemic," says its co-founder Tauseef Khan. In FY21, Gramophone added 400,000 farmers to its platform, taking the total number to 850,000.

From being a scientist to becoming the CEO of Satyukt— an analytics firm which is working on remote sensing solutions for farmers and businesses— Sat Kumar Tomar wants to tread cautiously in a universe ruled by growth projections. “At one point, I had to decline offers of large equity investments since I was only looking for smaller sums for trials," Tomar said. Satyukt has since developed data solutions that can help farmers optimize input costs by tracking soil and crop health while financial institutions can use the same data to generate farm income statements using satellite data.

Impact on farmers

The startup ecosystem is also replete with stories of grit and persistence, where graduates from premiere engineering institutes took the plunge to solve pressing problems. For instance, recurrent losses and fluctuating prices in perishables like tomatoes often force growers to dump their produce while consumers continue to pay a high price. Ecozen, which was set up in 2012 in Pune, Maharashtra, is trying to solve this by pre-cooling produce at the farm gate, which increases the shelf life and keeps the produce fresh during long-distance transport.

But despite a surfeit of new ideas and business models, actual evidence of widespread positive impact on the lives of farmers is rather thin. The frequency of funding (the ability to attract investments periodically) and whether the same anchor investor is leading the fund raise in subsequent rounds (implying a lack of wider investor interest) could be an indicator of the quality of a particular startup, said Parijat Jain, who leads agribusiness practice at Bain & Company. However, that analysis is yet to be done at an aggregate level.

Yet, dipstick checks can be quite sobering. For instance, Kannaiyan Subramaniam, a farmer from Erode, Tamil Nadu, share his experience with a top trading platform. “I didn’t receive even the slightest benefit. There was no transparency on pricing and they were always looking to procure (the) best quality harvest at cheap prices," he said. “How are they different from traditional traders? It was difficult to reach out to them with grievances…they took my help to open a collection centre and I lost face among fellow farmers in the process."

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