Last fortnight, the 2020 Farm Bill was passed by the government, leading to widespread protests by farmers, and divided opinion on their economic impact. 

Reforms are Not a Piece of Cake

In 1928, Britain’s Royal Commission on Agriculture shared a report on Indian agriculture.

Building on Britain’s agriculture market reforms of the late 1800s, it was trying to replicate the same system in India. The Commission suggested the same.

Within a decade of the report, each large agricultural market in India was regulated. Due to this, there were early reforms, largely at a provincial level like the Bengal agricultural debtors act of 1936. 

The national Agricultural Produce Market act was initiated in 1939 but came into force much later. Due to this, there wasn’t a concrete central framework to reform the agricultural sector under British India. 

In the midst of these attempted reforms, there was a huge humanitarian disaster.

The world's worst recorded food disaster occurred in 1943 in British-ruled India. In the Bengal Famine, an estimated 4 million people died of hunger that year in eastern India, which included today's Bangladesh.

When the British left in 1947, India continued to be haunted by memories of the Bengal Famine. It was therefore natural that food security was one of the main items on free India's agenda. 

The government of India post-independence wanted to make India self-dependent in terms of food-grain production. These efforts coincided with the development of high-yielding varieties of seeds of wheat developed by Norman Borlung and his associates in Mexico. 

The Green Revolution in India began in the mid-1960s, marking a transition from traditional agriculture in India. This was anchored in the introduction of high-yielding varieties of seeds and associated agricultural techniques.

These seeds also necessitated changes in farming techniques such as the addition of fertilizers and pesticides and greater use of irrigation. High yielding varieties of seeds were first introduced in India in the states of Punjab, Haryana and parts of western Uttar Pradesh.

Beginning in the late 1960s, the first wave of the green revolution in India helped the country attain food-grain self-sufficiency,

As the revolution took off, another man was executing plans to make India self-sufficient in food.

Making Milk Udderly Easy

Dr Verghese Kurien’s toil since the 1950s was finally beginning to take fruit. 

Amul’s inspiration was to fight the Polson monopoly that distributed milk. Over the last two decades, he had begun to liberate the dairy farmers in the Western region. 

Amul’s organization of dairy production won backers at the highest form of government.

In September 1965, the National Dairy Development Board (NDDB) was registered under the Societies Registration Act, 1860. With this, Lal Bahadur Shastri’s dream of replicating the Amul model throughout the country and bringing it to reality became stronger.

Will Amul’s Milk Run Win India’s Consumption Marathon?

Dr Kurien, naturally, was to lead the efforts.

But the plan was presented to the government and faced rejection. Dr Kurien was convinced that they needed to do something different.

He thought of pitching the world on his new idea of creating food sufficiency, utilizing donated milk.

In 1968, at the World Food Programme (WFP) in Rome, Dr Kurien explained how he intended to use the donated milk. 

They would sell it at a regular price in India in order to capture the markets of Delhi, Mumbai and other metros. The rich cities would subsidize their poorer counterparts.

This would be under the umbrella of a programme called Operation Flood.

The major goal was to make India a self-sufficient country in dairy products. Requiring resources to help execute this startup, Kurien pitched the donation as a high RoI investment.

He claimed that if a country donated milk worth $100MM then it can expect a 10% return on investment, hence the donation was in fact an investment. He continued that he was not asking for such donations to sell them at a lower rate. 

The goal was not to make money but to raise money from richer cities to make India self-sufficient.

It was a unique economic transformation of a gift in kind to raise capital.

As Operation Flood was conceptualized, it linked 18 of India's premier milk sheds with consumers in India's four major metropolitan cities Delhi, Mumbai, Kolkata and Chennai. 

It was planned in 3 phases.

Phase I in 1970 was financed by the sale of skimmed milk powder and butter oil gifted by the European Union through the World Food Programme. Phase II in 1981, increased the milk sheds from 18 to 136; 290 urban markets expanded the outlets for milk. Phase III in 1985 enabled dairy cooperatives to expand and strengthen the infrastructure required to procure and market increasing volumes of milk. 

Operation Flood sparked India's dairy cooperative movement.

Its impact was to have 72,000 dairy cooperatives, and milk sheds reached 173 by Phase 3. It also gave an impetus to make agriculture tech-enabled, with a strong focus on R&D. 

As the white revolution was underway, the second wave of the Green Revolution was beginning to take place. 

An Appeeling Distribution of Growth

Green Revolution 1.0 was mostly limited to producing the high-yielding wheat crop. 

These were found to occur in some of the northern states of India such as Punjab. This is also one of the main reasons why Punjab & Haryana, until today, have a lead when it comes to agricultural output in India. 

You also begin to understand why the protests against the Farm bill are loudest in Punjab and Haryana. 

Seeing the success in the wheat baskets, a more inclusive second wave would soon take birth.

Green revolution 2.0 in India sparked agricultural growth in the 1980s. This ended up including regions across the country beyond certain northern states. It also included many more crops including rice.

The decade of the 1980s witnessed very favourable growth rates in the agricultural sector, including almost all the regions of the country and almost all the important crop sectors. 

This was also driven by changes in irrigation technology like private tube wells which enabled growing High Yielding Variety (HYV) wheat instead of rabi crops such as pulses in the dry (rabi) season.

In the monsoon (kharif) season the yield of rice was increased substantially by switching the varieties from traditional to modern types (HYVs).

Almost every foodgrain rocketed in production in the 1980s, with oilseeds and sugarcane becoming important drivers of growth. 

The 1980s had food production growing at the rate just post Independence when India unlocked its potential as an agricultural nation. The more equitable distribution of growth across crop types meant that growth was happening across states.

But while growth happened across geographies, the distribution was extremely inequitable across farmer types. Most farmers in the country would be subsistence farmers, who didn’t produce for business, but consumption.

As liberalization unlocked the country, an underlying problem in the agricultural industry would precipitate.

Bad Debt Crops Up

As the green and white revolutions began to fade out in the early 90s, the problem of rural indebtedness began to surface. 

The origins of this credit were the Integrated Rural Development Programme or the IRDP. For the purpose of spurring agricultural production, the IRDP was in its second decade of providing credit to turbocharge agriculture. 

IRDP was built on the tenets of credit, subsidy and providing employment to the agrarian economy. Anchored on disbursing loans for agriculture, bankers would have to meet targets on loan disbursed.

The problem with that incentive structure was a flood of loans into agriculture. 

The ratio of rural credit to deposits, a measure of leverage, spiked from 30% in 1970 to 70% in 1987. These loans were driven by indiscriminate lending by local bank officers disbursing largesse. 

The rapacious, high interest, money lender was wiped out by the indiscriminate, high disbursal, money lender. The poor farmers would be burdened with loans which were given without diligence. 

As India liberalized and money flowed into the country, there was a paradoxical flight from the rural market. 

The nationalization of banks, burdened by bad loans because of the banks, steadily moved away from rural markets. Instead of curing the overdosed patient with an antidote, they left it comatose.

Rural branches and banks were consolidated rapidly. Rural credit as a percentage of bank credit fell rapidly from 16% in the 90s to 8% in the early 2000s. Households were frozen out of credit and fell into a vicious cycle. Farmers did everything to avoid the debt trap.

The governments tried to take multiple steps to stop this decline. 

The Kisan Credit cards scheme in 1998, the National Agricultural Insurance Scheme in 2000, the Farm Income Insurance Scheme in 2004 were all attempts to resurrect agriculture. As they failed to work as imagined by the government, the farmer loan waiver scheme was started in 2008. 

The flight to urban cities was driven by the decline of the rural economy. After being constant for almost a decade, the agricultural share of GDP dropped from 26% in 1996 to 16% in 2006. India’s GDP grew 300% in the time agriculture barely grew 70%. 

Within two decades, the engine of India’s economic output had considerably slowed down. They would be agriculture’s lost decades, in the two decades India found its footing.

As agriculture struggled, entrepreneurs started to sow seeds of technology to resurrect India’s erstwhile engine. 

Herding Seeds of Innovation

The early seeds for agritech in India were sown in the early 2010s.

Godrej Agrovet set up a dedicated fund to invest in the space with an initial corpus of $50M in Sep 2010.

India’s F&B, the tobacco sector had attracted investments of ~$400M in 2008-10. However, the bulk of this was growth capital in areas of food processing, seeds, fertilizers etc.

There was whitespace in terms of private capital flow to nascent innovative models in ag-tech. 

Public sector R&D backed technologies which were often hard to scale while private sector R&D was concentrated among few MNC’s which accessed early-stage tech from top universities and research institutions.

Favourable regulatory reforms also made it conducive for funds to look at agriculture as the newest investment destination. 

In 2011, the Govt. of India allowed 100% FDI under automatic route in storage and warehousing and for the development of seeds.

A universe of small and mid-size companies focused on Agri innovation was beginning to start. 

Their first target was the farmers who had money, essentially the ones with large landholding. The top 20% of farmers owned 50% of the land, had disposable income and were more inclined to try and adopt new tech.

B2B tech solutions focused on medium-large farmers (11M) with an avg. landholdings of 4-15 Ha were the first to come up (CropIn 2010, Stellapps 2011). 

But the real gap in India’s agri landscape was that more than 85% of farmers were small holder farmers with less than 2 HA. 

The goal of these farmers was to make more money, and not optimize their costs. The early models had to rely on either transaction-based models or margin-based models to monetize and build revenues. 

This was unlike the developed markets where most investments initially went to precision agri, farm management, supply chain tech and output market linkages. 

The early set of companies which attracted investor interest (Series A+) were therefore in the farm input (AgroStar) & tech-enabled supply chain linkage space (Ninjacart Crofarm).

By 2015, there were early signs of the ecosystem shaping up. More than 12 agri-business incubators launched and 100 agritech products generated cumulative revenue of $1.5M

The most critical sector in India was getting its much-needed tech boost.

Legacy Challenges are Cereal Killers

As things were looking up, the decades of slow growth resulted in some serious on-ground challenges to confront. 

The Agri landscape remained massively fragmented in India. Avg. landholding size had decreased from 2.28HA in 1970-71 to 1.08HA in 2015-16 and the number of farms had more than doubled from 71M to 145M in the same period.

This meant that more farmers were farming to live, rather than do business. It also meant that the economies of scale were 

Depleting groundwater levels, poor quality of inputs, lack of mechanization and limited uptake, high dependence on middleman and monsoons and reducing soil productivity added to the challenges of growth for the space

As an overtly regulated market, agri in India was also supply-driven rather than demand-driven. 

Farmers optimized for what they could produce, with a heavy government subsidy, rather than what the market wanted. This was a prime reason for seasonal food inflation (onion prices volatility), food waste and value loss along the supply chain.

This could be solved by a more efficient supply chain.

The second wave of startups thus began to strengthen the plumbing of the agri value chain in market linkages (DeHaat, Waycool, Jumbotail). These witnessed growth along with players improving access to finance for farmers (Sammunati), which also helped improving the supply chain. 

Shared equipment and pay per use farm services model (EM3 Agri) and new age farm to consumer brands (Licious, FreshtoHome) also emerged

Process innovation (farm produce aggregation, farm automation, farm management) thus preceded product innovation (spectral analysis of soil and crops, sensors and IoT for precision agri) which remained at a nascent stage.

The new innovators who planted them included engineering and management grads from top-tier universities. This was a shift from, and an interesting paradox, where farmers did not want their children to take up farming.

An important trend observed was a concerted focus from startups to develop scalable business models with higher unit economics. 

As the market entered the last few years of the 2010s, sweeping digital innovation would improve access.

Digital Tools Come Bearing Fruit

Smartphones in farmer’s hands would be a game-changer for Agritech

Access to the internet had increased the addressable market as farmers started coming online. The last few years had made them comfortable to use digital tools to improve decisions right from input purchase to providing market linkages

By early 2019, the ruling party’s key manifesto was set to double farm income by 2022 which was an ambitious one considering the past history. With an annual farmer income growth rate of 3.3% between 1994-2016, it had taken India 22 years to double farmer income. 

Nevertheless, farmers are sitting on a massive opportunity.

A report suggested that the Indian AgriTech industry represented a market opportunity of $24Bn. The most exciting startups in the space are just beginning to scratch the surface.

The third wave of startups went deeper in the value chain to solve for the legacy issues which had crippled the space for long. 

Absence of organized marketing structure, inadequate storage and transportation facilities credit scarcity and limited access to superior technology would need a patient marathon mindset. 

The approach adopted by startups was a collaborative one to partner with the traditional value chain participants and offer value for them to succeed in these segments

As different stacks in the value chain digitized, startups were solving for information asymmetry and lack of accountability in the value chain for agri-commodities (Bijak, Procol, AgriGator)

Give the debt overhang, the toughest yet the most impactful sub sector was Agri-fin and interesting models began to emerge. 

Players in the space were utilizing the transaction history of farmers (input purchase, yield output) to provide credit through flow-based lending (JaiKisan 2017). 

There was also an opportunity for precision farming, farm management, input platform and supply chain linkage platforms who have built rich data repositories to become LSP’s (Loan Service Providers) and add ‘lending as a feature’ once OCEN was formalized

With rising digital penetration, pro-farmer regulations and increased investor interest, India climbed to the 3rd spot globally among the top geographies receiving Agri-Tech funding, just after China and the US. 

The pace was expected to accelerate as startups mature and require growth capital. Thin margins (8-10%) across segments will prompt players to go full-stack and provide end-to-end solutions for farmers.

But as agri-tech entered the new decade, the government would spark a revolution.

Simplifying a Maize of Regulations

The 2020 Farm Bills resulted in a strong reaction from all parties involved.

As some of you might know, the Government recently passed three farm bills that aim to change the way agricultural produce is marketed, sold and stored across the country.

Currently, these markets are run by committees made up of farmers, often large land-owners, and traders or "commission agents" who act as middlemen for brokering sales, organising storage and transport, or even financing deals.

It's a complex system underpinned by regulations and a host of personal and business relationships.

The reforms, at least on paper, give farmers the option of selling outside of this so-called "mandi system".

At its core, the Bills and proposed reforms will accelerate growth in the sector through private sector investment. This would be in building infrastructure and supply chains for farm produce in national and global markets.

They are intended to help small farmers who don’t have the means to either bargain for their produce to get a better price or invest in technology to improve the productivity of farms. 

The bill on the Agri market seeks to allow farmers to sell their produce outside APMC 'mandis' to whoever they want. Farmers will get better prices through competition and cost-cutting on transportation. 

However, this Bill could mean states will lose 'commissions' and 'mandi fees'. The states that have the largest mandis, and produce, would lose the most. 

The legislation on contract farming will allow farmers to enter into a contract with agri-business firms or large retailers on pre-agreed prices of their produce.

The government argues that the middlemen at wholesale markets form an extra link in the supply chain and that their commission pushes up the prices for consumers.

The Essential Commodities (Amendment) Bill, 2020, seeks to remove commodities like cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of essential commodities. 

This will end the imposition of stock-holding limits except under extraordinary circumstances.

On the surface, the Bills (now Acts) are well-intentioned and meant to give farmers more optionality and control over their supply chain, distribution and partnerships. But like many hopeful creations/decisions in history, a great plan often comes with unintended consequences.

The removal of stock limits and facilitation of bulk purchase and storage through the amendment to the Essential Commodities Act could bring large corporate players into the agriculture space.

As we’ve seen recently with the movement to curtail larger players who are trying to make headway into India’s B2B and B2C channels, the opposition is strong.

Additionally, not removing market support, in the form of the Minimum Support Price, while opening up the market serves contradictory purposes. The opposition claims that this is one step before pulling the MSP rug from under the feet of farmers, who may not even get the MSP in the “open” market. 

The government will save some portion of INR 2 Lakh Crore if the MSP is removed, and could be angling for the same.

While the Reliances of India may bring much-needed investment, they could also skew the playing field, with small farmers unlikely to match them in bargaining power. It is little wonder that the fear being played on is the coming in of “corporates”

If executed well, it could make agriculture closer to a “free market”.

Standing Out in the Global Field

While the house is divided on the bill, a flood of investments into the AgriTech space has been a clear secular trend.

Reports suggest that over $500MM will enter the industry over the next two years, buoyed by an increased relevance of technology, supply chain optimization and productivity that arose from the COVID-19 pandemic. 

The next decade will see significant investments from investors and other players in the ecosystem

Retail grocery, e-commerce and foodtech players will also look to backward integrate to own the sourcing network and create private labels in fresh produce which have higher margins. 

Zomato’s foray through Hyperpure and BigBasket’s Fresho brand which sources directly from farmers are a few examples. Food processing companies could also opt for strategic acquisitions especially in farm management software, precision agriculture quality management tech to improve transparency and product quality. 

Development in hardware and software and building specific end-use applications for smallholder farmers has also increased. 

The use of emerging tech such as drones and robotics has provided automated pesticide spraying, monitor crop growth and weed management (Tartansense) or use AI/ ML for disease recognition and crop advisory (Plantix, Intello Labs). 

Digitization of mandis and FPO’s (Crophunt), indoor farming through Hydroponics (Barton Breeze, BitMantis), vertical farming (Urban Kissan), and players building fresh supply chains (Clover) are emerging in the latest phase

While earlier, transacting with the farmers was limited to state boundaries, now the startups can source and work with farmers from anywhere in India. 

The best in class startups will pounce on the opportunity to increase touchpoints with farmers, resulting in benefits to the entire ecosystem -- more awareness of the opportunities in the short term and income growth support in the long run.

As the market grows and companies begin to scale, it will become apparent that the winners will be the companies that are able to build both vertical and horizontal capabilities. 

Agritech players will aim to own the end-to-end relationship with the farmer, right from input selection and delivery to crop management using precision agriculture to quality grading and procurement of produce. Players could leverage data across these stages of the value chain to implement precision farming and also offer financial services to farmers.

Innovation in biotech will lead to the adoption of climate-resilient farm techniques- plants which are more nutritious and resilient and regulate farm health. 

One of the biggest challenges that need to be overcome is the lack of clarity on land ownership and titles. 

Fragmented landholding and asset ownership could go through consolidation to help smallholder farmers achieve economies of scale. Digital profiles of farms will need to be created, bringing India’s largest employment sector online. 

Agriculture is a classic industry for disruption. During the pandemic, it has emerged as the only bright spot, and has historically been the sector that outperforms when the country slumps. 

Agritech startups will be at the forefront of a revolution, just like technology and innovation spurred the prior green revolutions. 

With the successes of the previous green revolutions to learn from, India’s AgriTech startups are showing shoots to seed India’s newest green revolution.

By Abhinay, Keshav, Omkar, Rohan, Shiraz and Aviral.

Audio Version: Behind the Scenes with AJVC

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