Last week, agri-produce marketing platform NinjaCart raised $40MM to deepen its distribution and supply network. 

Lessons from civics in school have ingrained (pun) how important agriculture is to the Indian economy. It accounts for ~20% of India's GDP and ~50% of employment. Food prices can make or break governments. $250Bn worth of value-add is done by agriculture, and 285MM tonnes of foodgrains are produced each year. 

Agriculture is incredibly important socially, politically and economically. Yet, the industry struggles with existing. 

Agriculture provides livelihood to millions of farmers in India. Most of these farmers usually do not have access to best practices or perfect market information, despite being at the start of an incredibly important value chain. The supply chain for agriculture is plagued by middlemen, as is visible in this diagram that shows its complexity. The farmer could push to a registered/unregistered dealer or a mandi. Mandi's push it to aggregators, who push it to state procurement systems, who push it to retail and it finally gets to the consumer.

The shortest path to the consumer passes to 3 entities, the longest could take as much as 7.

As one would realize, the number of middlemen is directly proportional to the cost increase passed to the final customer. To top that, the middlemen are larger in size, and smaller in number than the farmers. When few entities sell to many consumers, they are monopolies. When many entities sell to a few customers, they are monopsonies. In classic economic behaviour, middlemen behave like monopsonies, decide and collude to fix prices, and generally keep farmers in the dark about prices.

It is estimated that middlemen make anywhere between 30-40% of wholesale prices. Farmers are pressured to keep prices low, and this could be a big factor in economically stressed suicides by farmers. Political and economic structures that ensure the process remains in the favour of the middlemen.

The gravity of the problem doesn't end there.

Supply chains are broken. 30% of fruits and vegetables (FNV) rot before being sold. 21 MM tonnes of wheat, for example, is wasted every year lying in warehouses. Food logistics lack cold storage, warehousing and appropriate management. For the wheat lost, at a price of $150/tonne, it's $3Bn. For the $80Bn FNV market, 30% lost could be worth $24Bn. Stopping wastage across crops and produce is thus multi-billion dollar industry. Even 4-5% saved could be worth a billion. 

There are thus two significant pain points. First, farmers lack a direct channel to consumers. Second, supply chains in between farmers and consumers our broken. Large, disorganized and complex - the market is ripe for disruption.

It is these two pain points that NinjaCart is trying to solve while trying to disrupt a massive market. The company did not start this way, though.

In 2015, when the hottest sector in startup town was hyperlocal delivery, NinjaCart started off as a hyperlocal delivery firm. The company built a local customer base and supply chain. The hyperlocal nuclear winter and the realization that the business model could not work made the company pivot to its present model.

NinjaCart now defines itself as a marketing and delivery platform for agricultural produce. The company focuses on fruits and vegetables, and that is very clever.

FNV would be the lowest hanging fruit (pun) in the horticulture market. Pegged at $20Bn, the segment also has the largest amount of spoilage. This is because the produce needs to be fresh, and delivered quickly. Additionally, the margins for middlemen in this segment are also the highest. This is natural because farmers need to turn around their produce quickly, and because of the lack of information, they end up selling quick and low. There is no need for large warehouses, or government granaries (like wheat), and it has lesser barriers to entry. 

As a platform, NinjaCart connects farmers with local grocers or is a B2B marketing platform. As this video explains in detail NinjaCart provides a direct marketing channel for farmers to grocers, while providing the entire fulfilment needed for grocers. Farmers get better prices, grocers get quality produce at their doorstep. As you can see, NinjaCart is solving the two pain points.

NinjaCart is the Amazon for FNV connecting suppliers (farmers) to customers (grocers). 

Over the last 3 years, the company has built substantial scale in an industry that is overlooked by investors, because parallels from western markets are non-existent. NinjaCart has 4000 retailers and 3000 farmers on its platform. It claims to do 300 tonnes of produce everyday (or 110K tonnes a year), and is present in 3 cities. FNV tonnage per year is 307MM, implying NinjaCart just does ~0.03% of the overall tonnage. 

This implies that retailers on average are doing 25 tonnes, while farmers are doing 30 tonnes on average per year through NinjaCart. How much value must this amount to?

The FNV market is pegged at $80Bn, as we know. The tonnage is 307MM, so it is $80Bn/0.3Bn or priced at $260/tonne of produce. This is surprisingly close to the per tonne price of the average Indian food basket.

We can now estimate how much GMV would be going through NinjaCart.

At a 100K tonnage, the company likely pushes $260*100K or $26MM of GMV through the platform. NinjaCart manages a lot of the processes for the supply chain, Let's assume that the company makes a 20% margin from the platform, it would be a revenue of ~$5MM. My sense would be that the company would be able to make much more than this today and in the long run. For a $30MM raise, likely at a 25% dilution, NinjaCart is valued at $120MM, or ~4x GMV.

As is visible, NinjaCart is only scratching the overall market and there is a huge upside for growth. The key challenges are going to be acquiring farmers (suppliers) and customers (retailers), which are highly distributed and disorganized. NinjaCart has scaled sustainably, only getting into a few cities and not scaling recklessly. The company will also face resistance from middlemen getting disintermediated, but that will come up only at scale. Overall, NinjaCart is solving a real socio-economic problem, that could vastly improve lives.

NinjaCart could change the way food is produced and consumed in India.