Industry
Why VCs are drawn towards upstream agritech
Summary
- Upstream technologies such as high-yielding varieties of crops and fertilizers were the prime drivers of the green revolution. Now, VCs are getting interested in that space
India's ‘green revolution’ yielded results because its architect M.S. Swaminathan, who passed away last month, and his team focused on solving upstream problems using high-yielding varieties of seeds, fertilizers and other technologies. There’s an echo of that in recent activity in the agritech space, where a number of startups are promising to use technology to solve the sector’s problems. Until a few years ago, downstream agritech companies solving distribution problems attracted most of the venture capital funding.
In the 1960s Indian agriculture was facing a crisis, especially after the 1966 drought. In 1966-67 India produced 30.4 million tonnes of rice and 11.4 million tonnes of wheat, and had to depend on imports. In 2022-23 production jumped about 4.5 times and 10 times, respectively, thanks to better yields. The yield per hectare for rice jumped over three times and that of wheat jumped by nearly four times during this period.
India is now a major player in global agricultural supply: its decision this July to ban rice exports pushed up international prices to a 12-year high.
India still depends on imports for some other agricultural produce, primarily pulses and edible oil, which the government has tried to address with varying degrees of success. While pulses imports have dropped since 2015-16, edible oil imports continue to grow. Improving agricultural productivity is key for India since a majority of its workforce is dependent on agriculture, and successive governments have aimed to increase farm income.
Changing factors
During the green revolution, the increased use of fertilizers was one of the key drivers of productivity. However, its effectiveness has dropped over time. Yield has dropped from over 12 kg of cereal grains for 1 kg of NPK (nitrogen, phosphorus, and potassium) in the 1960s to 8.8 kg in the 1990s and just 5 kg in the last decade. Similarly, during the green revolution, the use of pesticides was encouraged as it lowered crop loss. Its use has also increased during this period, from about 90 grams of pesticides per hectare in the 1960s to about 315 grams in the last decade.
The use of fertilizers is also complicated by policy decisions. Government subsidies incentivize farmers to overuse fertilizers, often at the cost of soil degradation in the long term. Besides, the government transfers subsidies to manufacturers rather than to farmers, a policy that has been criticized for promoting inefficiencies in the supply chain.
Even as India saw the benefits of the green revolution in terms of higher production, Swaminathan insisted that the country needed an evergreen revolution that addressed some of the downsides of the programme, such as soil gradation, promotion of water-intensive crops and lack of biological diversity. Recently, the Indian government has been pushing millet growth and consumption, which is expected to achieve some of the goals.
Tech revolution
In the past few years, Indian agriculture has attracted startups. There are over 1,500 agritech startups in the country, according to an Avendus Capital report last year. At least 17 of these have a gross merchandise value of over $100 million, and agritechs have benefited over 15 million farmers, the report said.
Agritech has also been impacted by the funding winter faced by startups globally. Venture capital funding to the segment dropped by a third to $2.4 billion in 2022, according to a report by Agfunder. But there was one exception: upstream agrifood tech startups. The report called them a “bright spot in a bleak year, raising $617 million, up 50%". The top categories included agriculture biotech firms, which included technologies that led to high-yielding varieties during the green revolution and novel farming systems. A change may be under way.
www.howindialives.com is a database and search engine for public data.
