Srinivas Ramanujam | June 30, 2016

Agriculture in India: Challenges and Opportunities – Part 2

This is the second in a two-part post continuing to discuss opportunities and solutions in the agri sector for startups. Read part one here.

5) Agri-Energy Nexus – Agri-Energy nexus encapsulates use of renewable energy in pre and post-harvest farm level activities. There have been a few companies in the areas of solar irrigation solutions and solar powered post-harvest crop management solutions, but there is still a lot scope for new entrants with the right value proposition. In addition to the product/ service offering being needful, the same needs to be made affordable for the small and marginal, which constitutes the larger part of the farmer population.

6) Market Linkages – The market linkage model facilitates trade relationships between the target population or “clients,” small producers, local firms and cooperatives, and the external market. This has, undoubtedly, been the hottest business with the highest number of new entrants, which can be attributed to the a) lack of entry barriers, b) lack of governing regulations, c) no product development time, and d) less initial investment. This has in-turn resulted in a highly undifferentiated market with multiple enterprises trying to achieve the same goals. Also, in a hurry to enter the market, entrepreneurs often do not conduct a complete study of the market and identify the real gaps. Being largely undifferentiated in terms of business model, the execution capability of the entrepreneur and the team becomes the determinant of success.

7) Bio-Inputs – This sub-sector has garnered a lot of interest in the last 2-3 years with increased demand for organic farm produce. In present-day agriculture, bio-fertilizers are of great economic importance because they replace/ reduce chemical inputs and play a vital role in enhancing soil and environmental quality. There have also been studies linking inadvertent usage of chemical fertilizers and insecticides/ pesticides with increased incidence of cancer among end consumers. Prolonged exposure also leaves the farmers at the risk of contracting life threatening diseases. While the number of entrepreneurs foraying into this business has been on the rise, it has been increasingly difficult to, a) find highly differentiated products and b) see enough proof points to make a convincing case.

With these wonderful opportunities making headway into the sector which will ultimately result in increase in overall disposable income or decrease in overall cost of cultivation, the question to be asked is, how does it help a small and marginal farmer. The average land-holding by an Indian farmer is very small, and often fragmented into scattered pieces. The farmers can be categorized into 5 segments, based on their land holding, which is as follows:

a)     Marginal (below 1 ha)
b)     Small (1-2 ha)
c)     Semi-medium (2-4 ha)
d)     Medium (4-10 ha)
e)     Large (10 ha and above)

There are two schools of belief that dominate this debate. According to one, the final offering (product or service) needs to be created keeping in mind the smaller segment and made affordable and available to every segment of the farmers from the very beginning. The other school debates that the offerings first need to go to the affluent segment and then trickle down to the small and marginal segment, when there are enough proof-points that the product/ service actually works and is beneficial. Also, with some scale, the price may come down making it more affordable. There is also another emerging thought on the rental model for the higher value products, which is evident from the advent of agri-equipment renting companies like Zamindara and EM3 Agri Services. Mahindra and Mahindra also launched a similar initiative under the brand name Trringo.

In the end, whatever be the model, the unit economics for a small and marginal farmer needs to make sense. The cost of the offering should be justified by increase in income or reduction in the overall cost of cultivation in the longer run that not only covers the cost of the offering, but increases the disposable income.

The point to be noted here is, with more than 80% of the farmers belonging to the small and marginal category, it will be detrimental for any start-up to not reach these farmers. Fortune, therefore, does lie at the bottom of the pyramid, and it will be impossible to build scale without catering to these segment of farmers, irrespective of whether it’s a rental model, trickle-down effect or a product/ service made for them.