AgriTech and Agri-Startups

• 19 Apr 2022

This editorial is based on “Unlocking the Potential of Agri-Tech” which was published in The Hindu BusinessLine. It talks about the significance of agri-startups and the challenges faced by them.

For Prelims: Agri-Startups, Priority Sector Lending, NABARD, Initial Public Offering (IPO), APEDA, IFAD

For Mains: Agri-startups - role in agricultural sector, challenges to their success

The Covid-19 pandemic and the war in Ukraine has massively disrupted the global food system, putting huge pressure on agriculture-focussed countries like India to provide more sustainable options.

However, considering the complexity of Indian agriculture, a single policy or technology cannot reform the agricultural sector.

Consistent digital transformation efforts along with government incentives and intervention can strengthen the agricultural model in India. The combination of an influx of investments, AgriTech startups and innovation have the potential of changing the dynamics of Indian agriculture and paving the way for a futuristic model.

What Role have the Agri-Startups been Playing in Agriculture?

• Increasing Income: The state of small and marginal farmers in India has been dismal, struggling with low incomes, mounting debts and dependency on mono-crop culture, informal lenders and fluctuating output prices.
  • Farmers who seek to venture into aquaculture or animal husbandry don’t have appropriate investments, marketing channels and knowledge.
  • With the advent of AgriTech startups and digital tools, many Indian farmers are supplementing their income with farm diversification.
• Farm Diversification: The AgriTech Startups are empowering farmers to integrate livestock rearing and aquaculture into their existing operations with micro-farm installation requiring minimum space and labour.
  • Non-crop diversification is helping farmers increase and earn round-the-year income, improve productivity and profitability and adopt sustainable farming systems.
• Awareness Creation: AgriTech startups with the ever-increasing internet are increasing awareness among the farming communities and connecting them to a network of traders, retailers and exporters willing to buy their produce at higher prices.
• Technological Advances: Technological advances in supply chain platforms have also resulted in the supply of high-quality live input materials to farmers engaged in livestock rearing and aquaculture.
• Reforms in Lending Culture: With the emergence of Fintech and AgriTech startups, the lending landscape of the country is changing.
  • Previously underserved small and marginal farmers can now secure loans from formal institutions at low-interest rates.
  • A plethora of easy financing options and government initiatives have alleviated the burden of interest on farmers.

What are Initiatives Launched for Agri-Startups?

• In 2020, the Reserve Bank of India directed banks to treat loans up to ₹50 crore to agri-startups under priority sector lending.
• In the Budget 2022, the Finance Minister of India also announced a fund for agri-startups and rural enterprises. The exclusive fund will be launched through NABARD in order to give a fillip to the farm produce value chain.
• The International Crops Research Institute for Semi-Arid Tropics (ICRISAT) has called for applications from agritech start-ups under the NIDHI-Seed Support Scheme (NIDHI-SSS).
  • The selected start-ups will receive funding up to ₹50 lakh. The seed fund will enable them to accelerate their commercialisation activities.

What are Issues regarding Agri-Startups?

• According to the latest Economic Survey, 75 startups/new age companies mobilised ₹89,066 crore in April-November 2021 through the initial public offering (IPO) route, the highest in a decade. However, the share of agri-startups in this is negligible.
  • The startup ecosystem in India is skewed in favour of services — Big Data, Edtech, fintech, logistics and supply chain activities — rather than agriculture and manufacturing.
• While startups have several options to mobilise funds, their early stage break-through funding normally comes from angel investors (private equity and venture capital) and the government (seed capital).
  • While venture capitalists are keen on investing in startups based on their disruptive business model, high growth potential and their ability to make quick profits, agri-startups have been lagging in attracting funds.
• India has 650 plus start-ups that offer agri-tech innovations in partnership with industries and financial institutions, however, they lack scale due to the very high costs of serving smallholding farmers and building their own distribution system.
  • While start-ups have good expertise in emerging technologies, they often lack the application-level domain expertise.

What Steps can be taken to Boost Agri-Entrepreneurship?

• Seed Capital from Banks: Seed capital from the banks and hand-holding of agri-startups by institutions such as NABARD, by extending credit plus services, will go a long way in helping Agri-Startups establish their position in India’s startup ecosystem.
  • The government should also ensure ‘ease of funding’ for agri- entrepreneurs to attain the intended objectives.
• A SEBI for Agriculture: A dedicated exchange for agri-startups may be established just like a stock exchange for small and medium enterprises.
  • The Securities and Exchange Board of India (SEBI) may stipulate liberal regulatory norms for listing of agri-startups on the bourses.
  • This will pave the way for raising much needed risk capital for scaling up agri-startups and rural enterprises.
• Collaboration with Field Experts: Entrepreneurs would be successful in mobilising capital from the market if they team up with agricultural researchers, financial experts, and technology wizards.
  • Agri-startups will flourish in India if they are associated with industry associations like APEDA, Indian Chamber of Food & Agriculture, NASSCOM, etc., especially for testing/validation of prototypes before their launch.
• Financial Literacy: The Agri-entrepreneurs should be imparted with financial literacy and education as the startup world is full of domain professionals and engineers, who hardly know anything about finance and investors.
  • Moreover, international agencies such as the World Bank and International Fund for Agricultural Development are willing to assist agri-startups in the context of achieving SDGs in general, climate action (SDG 13) in particular.
    • Agri-startups with a vision of focussing on climate change and disaster management are more likely to flourish in the near future.
• Role of Government: The government should create an investor-friendly regime to attract funds in the agri-startup sector.
  • Angel investors, venture capitalists and private equity holders may be given tax incentives on capital gains apart from providing ease of doing business at the time of their exit from the agri-startups.

Conclusion

With a burgeoning population, climate change and a looming food security crisis, the need for Indian agriculture to transition from the traditional industrial model into a new futuristic and sustainable model has never been more pressing. Small but consistent changes in the agricultural sector can propel India’s farming community to the next level. Greater support for AgriTech firms, digital infrastructure and innovative technologies can usher in a digital and green agricultural model.

Drishti Mains Question

“Concerted efforts should be made for promotion of agri-startups in order to implement climate-smart agricultural practices in rural India, thereby ensuring food and nutritional security of the nation”. Discuss.