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A look at reasons behind rise in capital flow in the agritech space

A look at reasons behind rise in capital flow in the agritech space

A look at reasons behind rise in capital flow in the agritech space
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By Jescilia Karayamparambil  Jan 3, 2022 4:06:59 PM IST (Published)

Agritechs witnessed an investment of over $ 515 million in 2021.

This year was an eventful year for the agriculture sector.

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At one end, three farm laws gained much of the attention and at the other end, agri-entrepreneurs were able to attract investments to further develop their solutions or support their activity in the agriculture sector. Private investments in agri space are a good sign.
Growth in agritechs
According to Impact Investor Council’s data from January 2021 until October 2021, the agriculture sector attracted over $ 515 million. In October alone, the sector saw investment worth $ 269 million.
Despite the pandemic, the agrifood tech sector witnessed an investment boom. In a report titled ‘India Agrifood Startup Investment Report for FY2020-21’, total funding into Indian agrifood startups saw an approximately 100 percent year-on-year jump. It increased from $ 1.1 billion in FY 2019-20 to $ 2.1 billion in FY 2020-21. Deal numbers also surged — from 133 in the last financial year to 189 in FY 2020-21.
Speaking to CNBC-TV18, Subhadeep Sanyal, Partner, Omnivore said, “In the last two years, while we have seen agritech grow in leaps and bounds, we are still some ways far from an agritech unicorn. They will eventually emerge from multiple spaces such as B2B marketplaces, full-stack farmer platforms, fintech, and Farm to Consumer (F2C) brands. We certainly hope to see some in the next two years.”
Agribusiness value chain aggregator Arya.Ag has seen 3X growth for the last two years. Prasanna Rao, Managing Director, Arya.Ag said, “The agritech ecosystem in India continues to be on an accelerated northward march.”
He added, “The times ahead are certainly exciting and promising enough for the agritech sector in India to attain the status of sunrise sector. Thus if 2020 established the resilience of agritech as a sector, 2021 placed into limelight the relevance of the sector in the new normal world.”
Ruchit Garg, Founder and CEO of Harvesting Farmer Network (HFN) — provides farmers with end-to-end solutions (from seed-to-market service) — said, “The next 15-20 years will be the golden years for the horticulture crops in the country.”
Recently, precision agriculture platform Fasal raised $ 4 million in Pre-Series A round from 3one4 Capital, Omnivore, and Wavemaker. 2018-founded Fasal's Co-Founder Shailendra Tiwari said, “While we were fortunate to raise funds in the early days of our operations, there have been many other agritechs who have not been that fortunate. But in recent years, the agritech space has gained momentum.” Tiwari hopes this momentum continues which will help agritechs to work towards improving the income of farmers.
In India, agritech startups and entrepreneurs are working towards solving agricultural challenges like low productivity, poor efficiency in the supply chain and lack of access to markets, formal financial products and services, quality inputs and market linkages.
Innovation
Innovations in synthetic biology, chemistry, and biotechnology are considered critical for the future of Indian agriculture and food systems. In 2020, globally, agrifood life sciences startups raised $ 6 billion in funding; Indian contributed a paltry $ 18 million to that statistic, said Sanyal. “In India, innovations in agrifood life sciences remain neglected by venture capital investors and, as a result, entrepreneurs,” he added. “The agrifood life sciences ecosystem in India needs to be rebooted with talent and catalyzed with capital.”
Climate change
Investors are increasingly looking at investing in the agriculture sector in India as they are becoming more and more aware of the repercussions of climate change on agriculture. Climate change impact is already visible in India with an increase in temperature and rise in frequency of extreme rainfall events in the last three decades.
Under National Innovations in Climate Resilient Agriculture (NICRA), the impact of climate change was studied. It was found that rainfed rice yields in India are projected to reduce marginally (<2.5 percent) in 2050 and 2080 and irrigated rice yields by 7 percent in 2050 and 10 percent in 2080 scenarios. Furthermore, wheat yield is projected to reduce by 6-25 percent in 2100 and maize yields by 18-23 percent. Giving his view on climate change, Subhadeep Sanyal said, “Within a decade, Indian farmers will bear the full force of climate change, and digital technologies alone are insufficient to ensure a bright future in rural India.”
Financing the agritechs
Some prominent investments by VCs in FY 2020-21 include Sequoia investing in DeHaat, Bijak, Animall, Procol; Matrix investing in Country Delight, Captain Fresh, VeGrow; Procol, Pixxel, Jai Kisan raising funds from Blume Ventures; Chiratae Ventures invested in CropIn, Ergos; RTP Global (investing in DeHaat, Bijak); Lightspeed (funded Pixxel) among others.
Ruchit Garg believes there has been a change in the way investors are looking at agritech startups today, which has given impetus to the sector. “It has been a good year for the agritech sector, it was driven mainly due to the attention that the agriculture sector received since the arrival of COVID and its subsequent lockdowns.” He added, “With big investors starting to talk about climate change and its impact, the positive impact is seen in the investment pattern of various investors and investment management companies in agritechs.”
It is not just VCs that are investing in these agritechs, there are banks and non-banking finance companies (NBFCs) partnering with these agritechs. Banks like State Bank of India, Bank of Baroda, ICICI Bank, HDFC Bank, Kotak Mahindra Bank, Yes Bank, among others are working with agri startups to build innovative ways of farmer financing or lending the agritechs as well. Agriculture-focused NBFC Netafim Agricultural Financing Agency (NAFA) is also lending in this area. Prabhat Chaturvedi, CEO of NAFA, said, “We are an NBFC and support the targeted segments through debt. We already have a book of over Rs 200 crores supporting drip irrigation systems adoption on the ground. Extending the scope of our business, we have plans to support Agtechs. Initially, we are looking to create a 100-crore book from such tie-ups. Our focus is to encourage environment-friendly technologies and support their adoption by offering a customized solution for their channels.”
While investments and finance have started to flow, Garg feels the most important deal here will be “patience capital”. Recently, HFN signed an MoU with the Gujarat government to help 2 lakh farmers to use organic fertilizers like cow dung, urine, and other natural fertilizers. This is to encourage organic and natural farming stated Garg. Such projects are time-consuming projects and to support such initiatives that are long-term, patience capital will be critical.
Development of agristack and other policies
In August 2021, the Agriculture Ministry in a statement said that the ministry has taken the first step in building a “federated farmers’ database. This would serve as the core of the envisaged agristack.
To create Agristack, the ministry is in the process of finalizing ‘India Digital Ecosystem of Agriculture (IDEA)’ which will lay down a framework for Agristack.
Agristack is about creating a better agriculture ecosystem in the country.
Other than “building a robust AgriStack”, Subhadeep Sanyal, Partner, Omnivore said “incentivizing banks to work with startups for building and piloting innovative agri fintech solutions, strengthening climate-focused financial products and services”, are few other ways in which the government can boost the growth of agritech space.
Prasanna Rao, Managing Director, Arya.Ag stated an elaborate policy for the agritech sector is ‘critical’. He added, “One can draw an analogy from the benefits reaped by having a policy framework for the fintech ecosystem that has resulted in India being a global hub for innovations in the new-age financial services space. Similarly, stakeholders can provide due support and incentives to agritech as well as agri-fintech players that can then result in opening up new horizons.”
Rao opined that a policy framework that recognizes the intersection of new-age technology innovation and traditional agri practices is extremely relevant today. “An innovation and regulatory sandbox can pave the way for such a contemporary policy environment.”
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