High internet penetration and cellular connectivity have driven technology awareness among farmers and agribusiness firms. This is one of the engines that propels disruptive innovations in agribusiness.
The emergence of more than 1,000 agtech start-ups passing through incubation, piloting, and upscaling can testify to the significance of digital innovations in this ecosystem. As per an estimate, the market size of the agtech business is expected to be $30-35 billion by 2025 and in that the major contributors would be agri-input services, farm management, and quality control and traceability.
India has emerged as the world’s third largest agri-tech funding destination next to the US and Germany and reported a staggering CAGR of 53 per cent between 2017 ($91 million) and 2020 ($329 million).
It is worth noting that Union Government is playing a key role to unlock the potential of digital agribusiness creating incubators/accelerators, channelizing grants, concessional loans, and effectuating public-private partnerships. For example, BHARATNET project aimed to enhance the rural internet penetration has played an important role in attracting private equity and venture capital as angel investment in agri-techs.
Notwithstanding the government’s role in promoting agri-tech start-ups and unlocking the potential of digital innovations in agri space, there is hardly any policy document on how to shape these agri-tech firms for deepening and upscaling digital innovation (EY, 2020). So, a few queries should be addressed before agri-tech start-ups fail to withstand the test of time.
What are critical enablers for shaping agri-tech firms? How do enablers influence their business model canvas?
Harald Overby and Jan A Audestad (2018) in their book digital economics elucidate a few critical enablers, namely infrastructure, core competencies, innovation, investments, workforce, and historical factors.
The infrastructure contains enabling technologies (ICTs), IT systems which are agricultural technology information systems, support systems like smart farming systems, and organizations such as agtech firms and their complementors. While core competencies typify knowledge, skills, methods and processes, innovation is central to research, patents, processes, intellect, and knowledge sharing. Investments include production facilities, alliances and cooperation, and risk management. The workforce embraces knowledge, commitment and mobility and historic factors are customer base, market segmentation, and brand recognition.
Enablers improve or strengthen business model canvas. It underpins the relevance of value proposition, value turnover, and value generation.
First, the value proposition is the core building block of the business model canvas that upholds the key activities of agtech firms, identifies, and maintains their core competencies.
The value proposition can help the firm for precise targeting of (digital) production of goods and services that the agri-business stakeholders will have and can improve the firm’s ability to change the direction as the agri marketplace evolves and processes and products get substituted by the new ones or rival firms. By creating customer confidence in the product, the value proposition can further help agtech firms understand how and why the product creates value for the users.
Second, value turnover is the second tenet of the business model canvas. It has four building blocks, viz. customer segments, channels, customer relationships, and revenue stream. These building blocks stimulate the agtech start-ups on how they generate value from their value propositions, and it also describes how the customers, especially farmers and agri-input service providers generate revenue or cashflows for the agtech start-ups. It exploits the direct and indirect network effect generated by the agtech firm platform business.
Third, value generation includes the building blocks of key partners (alliances and cooperation), key activities, key resources, and cost structures. It elucidates what is needed in terms of resources, activities, and partners to create the value proposition and the costs associated with the benefits and values the agtech wants to offer. Value generation specifies the value model either directly or indirectly used by the firm.
Connecting the blocks
The business model canvas of an agtech firm should be a thorough description of each of the nine building blocks discussed and their functional relationship. First, value proposition and customer segments need to be defined. For example, an agtech firm offers an AI-enabled supply chain solutions to farmers and processors.
Second, the agri-tech firm defines how the product is rendered to specific customer segments through channels, say web-based or app-based services. In this case, the firm utilises a “phygital“ channel, say the internet and distributor to serve the target users.
Third, the customers must pay for the product and generate a revenue stream for the firm. So, the agtech firm can charge a competitive price adopting predatory pricing for its solutions that should improve its price-to-sales ratio.
Fourth, an agtech start-up can have one or more relationships with its customers. So, the firm should adopt the stakeholder relationship model to retain and value loyal customers.
Fifth, the firm performs a set of key activities through resource acquisition like warehousing facility, e-traceability system and quality management etc to create the value proposition.
Sixth, both key activities and key resources cost money to the agri-tech firm. Finally, the firm needs to form strategic partnerships to support its value proposition, key activities, and key resources. For instance, the agtech should identify its key partners for alliances and cooperation to deepen and upscale digital innovations leveraging on upstream or downstream marketplace model or both.
The author is faculty of Agribusiness Management group and former Chairman of CFAM, IIM Lucknow. Views are personal.
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.