Perspectives on Headwinds and Opportunities in Indian Agri Startups

Agriculture Startups | Amardeep Sibia

Life of all the startups is characterized by what they achieve given the limited resources, money and time they have. At times these headwinds are demoralizing, due to non-productive use of the Startup’s resources. These have the broader and long-lasting negative impact on them, as opposed to established companies in this domain. Indian Agri startups constantly find themselves at this intersection of limited money, time and resources.

Access to Working Capital

Given the seasonal nature of agriculture with income being generated at the end of the season, Agri Startups and their clients may only see seasonal access to revenue. They need money to pay their employees and invest in their enterprises. The assumption that such companies can only raise capital from VCs needs a relook as not every startup is suitable for equity-based capital. Some of these companies may only be looking for working capital loans in the range of Rs. 50 Lakhs to Rs. 1 Crore to become sustainable. These capitals in the form of equity or loans from banks are inaccessible to Agri Startups preventing them from being viable.

This can be resolved by creating separate schemes for startups to take working capital loans against confirmed orders and a liberal grant regime tied to solving problems in the Agri sector, which will attract more startups to this domain. Companies and industry federations can also pool funds in their CSR initiatives to support such startups.

Buying Capacity of the End User

While there are many startups solving many issues in the sector, a big challenge is ability for the end user (the farmers) to afford such technology or services. This is a disincentive for the Startups because there are limited avenues to acquire sustainable revenues in an organic manner. Such new technology deployments in the sector require a sufficiently large deployment size to be financially viable. This is further compounded by the paucity of orders from established Agri Businesses.

Taking the example of IOT and drip irrigation-as-a-service. In villages with small land holdings, this may not be a financially viable option if offered to the farmers individually. The same may become financially viable if a mechanism was available for the majority of farmers to subscribe to such a service with sufficient protection for the assets of the service provider. A focus on farmer collectivization and incentives for businesses to source from them is one way to build buying capacity. Agri Businesses can be a major source of revenue as for end users, creating an incentive scheme for Agri-businesses to acquire products and services from the Agri startups in the form of paid POCs and the like shall have a major positive impact in the sector.

The Elephant in the Room

Governments are a major stakeholder in the sector. A large proportion of new technology deployment in agriculture happens through the Government subsidy model. Even large wealthy farmers prefer to procure new technology through Government subsidy channels. However, Government procurement practices need a major rethink if, innovations from Startups are to be channeled through Government subsidized channels. The current Government subsidized model for providing new technology to farmers is not Agri Startup friendly. The current structure of Government subsidy channel procurement tends to favors established players who can meet bidding norms and have the financial wherewithal to fulfill supply levels.

GFR norms dictate suppliers provide Advance & Performance Bank Guarantees for payments. For entities with limited banking history, RBI norms dictate that the Banks must retain collateral of equal value to the amount of the Bank Guarantee in most cases in the form of an FD. This essentially means a Startup will have to tie up a substantial portion of its capital if it wants to invoice the Government.

Most Government departments require the deployment of a large number of on-site resources for effective engagement. Thus, the cost of servicing the Government increases further burdening the Startup, especially, when the number of people in a Startup is low. To compound these further, payments from the Government can be delayed by many months. Thus, if the Startup has invoiced the Government, the Startup will be liable to deposit GST irrespective of whether the Government has actually released the payment or not further burdening the Startup.

As long as the government norms are not changed there remains little or no hope for the companies in the sector. As a start, the government can create a channel for banks to provide working capital loans for Government contracts to Startups. The government can give a certificate recommending release of working capital loan through ring-fenced mechanisms like escrow accounts. The scrounge of performance and advance bank guarantees should be removed as well as relaxation of GST norms for government contracts awarded to these startups.

Access to Technology, Data, and Experts

Deploying new technologies like AI in agriculture require access to datasets owned by the Government like yield, fertilizer, land records, soil records, irrigation, weather to name a few. However, most of these datasets remain offline or has unreasonable access restrictions. This prevents Agri Startups to effectively bring technology to bear. Also, Indian Startups are not exposed to advances and developments in other parts of the world. This lack of exposure will ultimately adversely impact the ability of Indian AgriTech Startups to compete globally and scale faster. There needs an immediate rethink in the way access to technology and data is provided to startups, as well as the way they are able to access expert resources for advice and validation. Policy change for granting access to data like land records, digital maps, Survey of India data, CCE data, Soil test data, weather data, satellite data, primary data from Agriculture Research Institutes, and regional level access to agri experts will result in a step change the way the sector organizes itself and delivering benefits to the end customers.

Collectively these issues ramp up to creating a talent deficit in the sector in India, lowering of valuation of companies in the domain vis-a-vis other technology startups operating in the country and last but not the least, forcing such companies to seek customers from outside the country, thereby depriving agriculture ecosystem in India the benefit of their innovations.

The time to change headwinds into opportunities is now, or never.

About the Author

Amardeep Sibia is currently the CEO at SatSure Limited, a space-tech company based out of UK that develops innovative solutions for monetizing data collected by satellites. Prior to entering the space-tech domain he was a full-time corporate junkie having spent over 16 years at Goldman Sachs as VP and Executive Director. He has a great background in technology infrastructure, global technology services and international management. Amardeep utilizes his 23 years of experience managing organizations responsible for architecture, analytics, automation, management, implementation and operations of infrastructure platforms in developing, deploying, scaling, securing and operating critical technology systems.