The emergence of AgTech companies in different spheres of services such as input trading, output trading, farm services, and quality testing has brought in a few hundred start-up enterprises to adopt models of engagement with the farmers and the market that were hitherto practiced only by large agri and food enterprises. The start-ups have differently positioned themselves as AgTech companies due to the application of digital tools in providing connectivity between various trading partners. The funds provided to these enterprises are at manifold valuation compared to well-rooted, established commercial players in all these segments. The investment is predominantly from international PE/VC funds with very little commitment from homegrown large PE investors. Currently, about 1.1% percent of PE/VC investment attracted by Indian enterprises in the last twenty-four months has been deployed in AgTech companies.

Over five hundred companies have come into existence over the last five years, with a significant surge witnessed in the previous thirty-six months, the general thesis adopted by most business models reflects efforts to dis-intermediate supply chain, improve efficiency through digital tools and provide knowledge-based services to the farmers.

These enterprises aim at the asset-light investment model, with the predominant deployment of the capital raised in the form of equity and debt to meet working capital requirements and cash losses. There has not yet been any notable exit in the segment to reflect the sustainability of abnormal valuations applied to these enterprises in successive investments.

Several new-age enterprises have gained valuation at levels that are five to tenfold of established players with years of engagement in a similar sphere of product or service delivery. While some of them have applied functional tech applications, there is a high similarity in the tools used. Some of them are very rudimentary in their tech solutions, reflecting more agri operations with a tech enterprise’s mask.

These unrealistic valuations are unsustainable due to many reasons. First, the farmer services are highly competitive in India, and the competition from large corporations with years of product and service delivery success are ramping up their technology solutions to deliver highly affordable solutions to the farmers. Second, the investment needed to gain knowledge and deploy such expertise in the complex framework of Indian agriculture to provide agriculture services to farmers is intensive and time-consuming. Third, the critical gap in accomplishing efficiency in less sophisticated, more fragmented states in Northern/North–Eastern states relates to infrastructure challenges, and the asset-light model of the start-ups does not address this gap. Fourth, the goal of the business model is to ensure dis-intermediation.

However, most start-ups themselves are intermediaries in the whole chain of product movement and often depend on other intermediaries to accomplish their product and service delivery. While more intermediaries are expanding their services to accomplish the goal of total agri solutions to farmers, they are stepping into regulated services such as financing, warehousing, and risk assurance, that may attract state intervention due to frameworks of dispute resolution and prudential norms for such engagement currently not existing by unlicensed players. Financing without any applicable prudential norms or regulatory supervision is chaotic. This was witnessed when micro finance lending proliferated twelve years ago when states were forced to regulate the sector. There is also threat of loan waivers that states grant to farmers once in a few years and in such situation, the loans channeled or provided by the AgTech companies will be the first to forego repayment, resulting in disputes and harsh recovery mechanisms.

A similar challenge persists in warehousing where the private warehouses have no oversight, and the only comfort for the farmer is the warehouse receipt of the private entity. Some of the entities have combined warehousing with lending that has risk of default by the smallholder farmer and the forfeiture of inventory.

We foresee valuations tapering down drastically to more realistic levels as more enterprises performing similar services gain access to PE/VC capital. We expect high mortality among the 500+ enterprises currently aiming to scale their operations through PE/VC funding. AgTech companies cannot survive on farmer enrollment alone. For top ten enterprises to gain scale and reach sustainable operations over the next three years, we anticipate their funding requirement to scale up to incremental US$ 3Bn.

We expect over three hundred companies not to reach series A funding due to the limitation of scale and the highly competitive environment they operate in. The concentration of such ventures in some of the states with the most challenging environment will hamper their scale-up ability. Acute competition in the market-end aggregators may arise from retail giants integrating back-end operations for operational efficiency.

We do not doubt that digitization of agriculture will proliferate in India. The recent announcement for the indigenization of drones and other government policies will make agtech applicable at an affordable price in small farms. However, there will be a significant difference between Agtech revolution and other tech disruptions that have evolved in different spheres. The digitization of agriculture in India is necessary even to maintain the status-quo in productivity, and every farmer will aspire to adopt them in their small farm environment.

However, the revolution will be driven by government support for small farms to secure tools, engaging agriculture universities widely in training farmers in applying tools, and the integration of myriads of tech tools that are currently widely disintegrated, with the oversight of service standards. There will never be super profits in integrating the agri-food chain in India. The economy of scale is not dependent on the quantum of investment but on the productive deployment of every dollar to create incremental or unique value that provides visible gains to the farmers.

As more and more enterprises having raised capital at high premiums realize that their journey to sustainable break-even is farther away, the valuations may tumble to realistic levels. That may provide higher mortality to more agribusiness enterprises, whether operating in the tech-enabled environment or not.

We expect such reduction in valuation multiples will also focus on several business models to engage deeply in segment-based products and services rather than spread across the whole value chain.

Providing agriculture input products in India or merchandising farm gate products is and will remain an essential service in India, so long as smallholder farmers struggle to gain a reasonable livelihood from their family farms. This will bring many of the AgTech companies under regulatory framework, with data privacy, price monitoring, contracts monitoring, and restrictions on regulated activities currently performed by numerous unregistered players.

We also observe lack of corporate governance among myriads of small entities formed to focus on agtech services. With more than three years of annual accounts pending, audits pending, and financial reports not filed with the statutory authorities, there is a significant need for early-stage companies to focus on corporate governance and reporting.

While the manufacturing companies are compelled to focus on reporting due to regulatory compliance needs, the lack of regulations in many spheres of agtech services result in delayed reporting and shallow governance. The thin presence of outsiders in the board of the entities also contribute to this. We have observed that most of the PE/VC investors have taken observer positions in the Board of the agtech companies as compared to other investment types. This is perhaps due to high volatility of investments in the segment. Corporate governance and reporting will remain an impediment for many to scale up their operations and manage risk in a timely manner.

Indicative Array of Agtech Firms Assessed

FarmERPBarrix Agro Sciences
NinjacartKisan network
Fresh to homeGramco Infratech Pvt Ltd
Country DelightUnnati
INI FarmsAgricx Lab
RML Information Services Ltd.Aarav Unmanned Systems
EM3 Agri ServicesFarmagain
Skymet WeatherHummingbird (Agrisk Data Analytics Pvt Ltd)
VilFreshOur Foods
Farm TaazaInfolabs/ Krishihub
Intello Labs 
Eruvaka Technologies 
AgNext Technologies 
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