‘Agtech start-ups must brace up for potential slowdown in medium term’

India’s agtech start-ups grew by over seven times between 2016-17 and 2020-21 from $44 million to $323 million, but the funding in the sector is “trailign down”, says the Asian head of global consulting firm FSG.

“... it would be useful to realise that the funding is now trailing down in the sector, from a VC perspective now it’ll be about scale up funding and only a few of these will sort of survive and bubble up to large numbers,” said Rishi Agarwal, Managing Director - Head, Asia FSG. 

“I do think that markets opening up post-Covid, there is a lot more opportunities to deploy the funding, but I also think there have been bets already placed, right?” Agarwal told businesslike.

Disrupting agri sector

His comments come on the heels of FSG coming out with a white paper on agri-tech “What next for Indian agri-tech?” The white paper said agri-tech start-ups are disrupting the agriculture sector, beginning with market linkages to now becoming ‘full-stack’ providers, first movers in in-farm and novel farming innovations, and value-added services such as agri-fintech. 

But it said, “Funding to India’s agri-tech start-ups continues to grow in the near term, but the sector must brace itself for a potential slowdown in the medium term, given the global funding crunch.”  

 “There is a sectoral rate that you would like to have in your portfolio. And most of the large venture capital players have placements on one or two of these firms. So it’s also a question of diversification. …this is something that somebody sitting in one of these firms (VCs) would be able to talk about better,” he said.  

Traditional firms falling behind

“All of the technology platforms got a decent amount of funding during the pandemic as it was easy to go to the investment committee and get funding,” Agarwal said. 

 The white paper said traditional agriculture companies focused on the upstream and midstream value chain, such as agrochemical and farm-mechanisation players, while still leading in biotechnology, are falling behind on business model innovations. They have only recently begun redressing the gap by increasing their investments in agri-tech.

Stressing that the focus in agriculture should be on how much rupees can be earned per hectare, Agarwal said the agtech startups were looking at “how do I get farmer a better price and more than a better price, how do I lower the volatility of price?”.

The ecommerce precedent

Startups are playing a significant role not just in India, but globally. In India, the situation has headed to where e-commerce firms were 15 years ago when Snapdeal, Amazon, Flipkart, Shopclues and other firms competed.  “We had 7-8 platforms coming up and finally it was battle of platforms and only two survived,” the FSG Asia head said. 

The white paper said with the Centre’s efforts in “mainstreaming” agtech picking up pace, “we may see a ‘battle of platforms’ as start-ups compete for farmer attention. We are already witnessing consolidation in the sector, which will likely continue. In this context, agri-tech start-ups need a more acute focus on profitability and sustainable growth to survive.”  

Some of these firms have become specialist players, but largely two big platforms have survived. “Similarly I think it’s going to be a battle of platforms in the agtech space in India as well where one or two would get that network going,” he said.

Agtech startups were making efforts to turn into a “full stack company”, he said. “They’re trying to be present on the input. They’re trying to be present in the output. And some of them are trying to do in the farm as well, though not as much right in farm in terms of doing soil testing,” Agarwal said.  

Pioneering tech

The white paper said while Indian agri-tech players’ initial focus was on business model innovations to disintermediate the agriculture sector’s fragmented supply chain, advanced economies such as the US and Israel have pioneered technological innovations in other areas of the agricultural ecosystem. 

“Most global agri-tech activity is focused on sustainable inputs such as bio-stimulants, digital in-farm solutions, novel farming systems, seed-to-fork traceability, and agri-carbon. 

“We believe that these categories, each with significant potential to improve farmers’ incomes and livelihoods and ensure food security for the future, will drive the next phase of India’s agri-tech growth, driven by several socio-economic, political, and environmental factors,” it said.

With the Centre “mainstreaming” agritech in Indian agriculture picking up pace, “we may see a ‘battle of platforms’ as start-ups compete for farmer attention. We are already witnessing consolidation in the sector, which will likely continue. In this context, agri-tech start-ups need a more acute focus on profitability and sustainable growth to survive,” it said. 

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