According to a latest EY report ‘Agritech – towards transforming Indian agriculture’, adoption of technology in agriculture (agritech) is helping in solving several challenges across the spectrum of the traditional agriculture value chain, and presents a market potential of US$ 24 billion by 2025.
The potential of the agritech market segment can be segmented into supply chain tech and output market linkages (US$ 12.0b), Financial Services (US$ 4.1b), precision agriculture and farm management (US$3.4b), quality management and traceability (US$3.0b), and market linkages -farm inputs (US$ 1.5b). However, despite witnessing strong investment activity in the last few years, market penetration in the sector is still very low (~1%). The untapped market potential, opportunities in agritech, global investment, and a robust policy framework will drive growth in this space over the next decade.
Ankur Pahwa, Partner and National Leader – E-Commerce and Consumer Internet, EY India, says, “We could witness a horizontal expansion of players into platform-based services where they own the end-to-end relationship with the farmer. Further, there would be consolidation in the industry as larger players begin to acquire regional players to achieve scale in market linkages as also extend into other service domains. Attractive market opportunity, nascency in investment funding, currently limited penetration of incumbent agritech players, along with the Government’s aim of doubling farmers’ income by 2022 offers an opportunity for established players such as a institutional retailers, e-commerce players, and food processing companies to create impact at scale by creating strong partnerships with the agritech ecosystem.”
As per EY analysis, mapping of demand (in terms of market potential and ease of penetration) with supply (start-up funding across segments) provides the below insights:
- Diversified solution providers have the largest addressable market opportunity. As the agritech market matures, the market could witness a consolidation of start-ups across segments to offer / integrated to farmers. However, players need to build capabilities across segments to realize this potential.
- An opportunity of US$ 4.1 billion exists in the Financial Services segment. The market has room for multiple players to establish their presence. Agritech players need to develop lending solutions that are different from existing urban lending solutions (e.g., sachet loans) to win in this segment.
- Precision agriculture and farm management offer a significant market potential of US$ 3.4b and have witnessed lower investment activity compared to the supply chain tech, and output market linkages segment. Start-ups need to offer comprehensive solutions in hardware, software and services to attract attention from investors in this segment. Start-ups also need to develop appropriate risk sharing models or engage in contract farming to solve the constraint of affordability in this segment.
- Players in market linkage – farm inputs segment needs to provide credit to farmers to help them manage their working capital requirements. Further, players operating in this segment can attain scale by partnering with intermediaries such as distributors or retailers, instead of aiming to displace them.
- Quality management and traceability is also relatively under-funded and is attractive in terms of scalability if players manage to tie-up with FPOs and food processing companies to expand their footprint.
“Agritech players operating in the addressable segments in India have received a cumulative investment funding of US$532m as of April 2020. Global investors can harness their learnings from their success stories in the agritech segments to help them realize their full potential in India. An agritech policy framework shall provide a favourable regulatory environment for cross-country collaboration on agritech technologies, investments in R&D, all of which help create hyper growth and support large scale rollouts.” adds Pahwa.
Scenarios that may play out in future
As agritech start-ups proliferate and begin realising the US$ 24 billion potential, we could witness multiple developments in the space as per the below themes:
- The entry of retail grocery players and e-commerce players into the sector – Engaging in farm-to-fork models could propel the next leg of growth in these companies. Through vertical integration of their supply chain and by adopting technology to drive process efficiencies, large retail players can procure their produce at a cheaper cost while also minimising losses from wastage. Similarly, horizontal e-commerce players are aggressively expanding their grocery play due to higher margins coupled with a greater frequency of purchase.
- The emergence of end-to-end agritech players – Agritech players would 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 also offer financial services to farmers.
- The entry of food processing companies into the sector – Large food processing companies operating in the space of consumer staples could play a greater role in agritech by offering solutions such as precision agriculture and farm management software to the farmers from whom they procure.
