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Two of the biggest pain points for Indian farmers are sales and cash flow. They’re at the mercy of traders who can wait it out, while farmers can’t because they have to sell the produce before it spoils. This often forces them to sell at a lower price. Moreover, farmers are also vulnerable to payment delays and usurious rates from moneylenders as they’re again timebound in their need to get the next season’s crops planted.

Noida-based startup Arya tries to kill both birds with one stone: warehousing. Farmer producer organizations (FPOs) as well as individual farmers can use the warehouses to store their produce until they find the right buyer. They also use the stored produce as collateral to get financing.

It’s more complicated than it sounds. Warehousing and banking services are available in tertiary markets like Azad Maidan in Mumbai or Kota in Rajasthan. They’re mostly absent in smaller markets where two-thirds of the country’s agricultural transactions take place. Those are the places where Arya is going, to be closer to the farm gate. This presents challenges, bringing into play some nuances in the startup’s model.

One of these is computer vision-based quality checks at its procurement centres from where the produce goes to the warehouse. “Once there is a quality stamp, the commodity gets converted into digital value which can be offered as security to a lender," says Prasanna Rao, co-founder and chief executive of Arya. That’s the real game changer because now farmers don’t have a cash flow imperative to sell the produce at whatever price they can get immediately after the harvest. They can wait for a better price.

Digitization drive

“We have an NBFC (non-banking financial company) of our own as well as partnerships with multiple banks. The loan process is digitized, so it takes just about an hour for the loan to go into the farmer’s account," says Rao. “Similarly, when farmers want to sell the produce, there’s an escrow system and the visibility of the commodity for buyers comes with the quality stamp that we provide."

Arya operates 1,800 warehouses of its own. And it has brought in 2,400 more third-party warehouses on a digital marketplace, a2zgodaam.com that it launched last year amid the pandemic. Over 80% of its business is conducted in the primary and secondary markets, where the challenge is to be profitable at a scale that is a quarter to one-sixth of the scale of a tertiary market.

The startup tackled this by forming clusters of warehouses. Typically, a cluster would start with a nodal warehouse that serves a corporate client. “Once we had that anchor client, we would go 70-80km around that point to build smaller warehouses. We operate about 50 such clusters around the country, each cluster handling 60,000-70,000 tonnes of produce. Now, within a cluster, even if I set up a warehouse of 100 tonnes, I can operate it profitably. No other player can do that because you cannot operate a 100-tonne warehouse profitably on a standalone basis," explains Rao.

It even has “on-demand warehouses" where produce can be hermetically sealed with specialty plastics, which are faster to deploy and cost less. The cluster model has helped Arya scale fast. A cluster may start with 10,000 tonnes of capacity. Then, as it attracts more farmers and buyers, the cluster expands to 40,000 tonnes and then 60,000 tonnes.

At the same time, it keeps adding layers of services in each cluster as it grows—from aggregation and quality assessment to storage, finance, and market linkages.

“They call it the ‘agchain’ helping their customers realize better returns," says Mark Kahn, founding partner of agritech VC Omnivore, which was an early investor in the startup.

Present status

Currently commodities worth about 7000 crore flow through Arya in the 21 states in which it is operating. It takes 0.25% commissions from both sellers and buyers in each transaction. Then there are small charges for procurement and storage as well as markups on the loans it provides. But even as it aims to make each warehouse profitable, the startup raised $21 million series B funding this year to keep up its high expansion rate.

Digitization holds the key to making all this work without ‘clusterfug’, a term coined by Stanford professor Hayagreeva Rao to describe snafus that organizations run into while scaling. In the case of Arya, while back-end digitization was implemented from the get-go, the clusterfugs it had to deal with were at the front end. Digitization of the front end where the grain is procured depends on the availability of the internet and digital tools which have improved over the last few years. For example, another Omnivore portfolio startup, AgNext, came up with an artificial intelligence product for quality assessment which has made it more reliable and much faster.

Sumit Chakraberty is a consulting editor with Mint. Write to him at chakraberty@gmail.com

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