LIVESTOCK BASED AGRITECH START-UPS IN INDIA :Probable Reasons for Agritech Start-Ups Failing in India
Agriculture plays a vital role in India’s economy. Over 58% of the rural households depend on agriculture as their principal means of livelihood. However, the use of technology in the agricultural industry has been limited in India. As a result, the agriculture industry in India contributes merely 17-18% to its GDP. The agro based industry saw a growth at a CAGR of 16.4% over FY10 to FY18. Agricultural exports from India reached US$ 38.54 billion in FY19 and in FY20 (till November 2019) US$ 22.69 billion. With many initiatives for farmers, the government aims to double farmers’ income by 2022.
However, in the last couple of years, India has seen a rise in the number of agritech start-ups that are not only making technology more accessible but also helping these farmers to improve their lives.
Agriculture sector in India is suffering from a variety of problems like the use of outdated equipment, improper infrastructure, and farmers unable to access a wider range of markets with ease while making just limited profits on crop sales. Lack of proper infrastructure and supply chain management are the more pressing concerns.
Current state of Agri-startups in India
- Despite a pandemic-hit year, agritech start-ups in 2020 saw over $300 million of investments.
- As per a recent study by Accel-Omnivore, funding in the agritech sector rose from $45.8 million in 2016 to $430.6 million in 2020—a 4x growth during this period.
- The number of such start-ups has shown steady growth with around 600-700 start-ups dominating the Indian agritech ecosystem.
- According to a Ken Research report,
- the Indian Agritech market was expected to grow at a CAGR (revenue) of 32 per cent from FY20 to FY25.
- Karnataka, Maharashtra and Delhi-NCR had the most number of Agri-tech start-ups in the country.
- It is estimated that $10bn will be invested in Indian Agri-tech start-ups over the next 10 years.
- Currently, 8% or 1294 of the total recognized start-ups in the country are in Agri startups space as per the Economic Survey of 2019-20.
- Of these, 54% are classified as Agri-tech while the rest are in the field of dairy farming, food processing and organic agriculture.
Potential of Agri-startups to increase the agricultural productivity in the country
- Agri-tech is a sector that has a promising potential, as the sustainable growth of agriculture systems offers synergistic opportunities for collective growth of capital investment and agriculture.
- With improvement in areas of technology, digitization and startup culture growing rapidly, there are many new ones entering the Indian startup ecosystem.
- Agritech startups have a strong focus in solving real problems than perceived problems unlike other startups today, which is enough to loop in quantitative investment.
- The Agri startups in India are providing information, techniques and efficiencies to farmers.
- Over the last decade, the sector is being streamed with the stream of educated youth, fired by the ideas, passion and innovations to launch newer kinds of technology and business models to lift the face of agriculture from primitive to hi-tech one.
- Startups are providing missing links in the agri value chain and delivering efficient products, technologies and services to the farmers on one hand and the consumers on the other hand,
- Technology can play a disruptive role in input costs optimisation, farm management, precision farming, integrating financial services, value chain enhancement among many others, for agriculture and allied sectors such as livestock, fisheries and non-timber forest produce.
- From ICT apps to farm automation and from weather forecasting to drone use and from inputs retailing and equipment renting to online vegetable marketing, and from smart poultry and dairy ventures to smart agriculture and from protected cultivation to innovative food processing and packaging, its proliferation of all innovations and technology driven powerful startups set to revolutionize the food and agriculture sector.
- Modern techniques and methods will surely elevate agriculture to the next level and ease the burden on farmers. This therefore creates a huge scope for Agriculture Startups in the country.
- Transformation of Agriculture to Agri-business is one of the important strategies where enterprising farmers practice profitable agriculture.
- These startups are at present capable to address intrinsic challenges of Indian agriculture happening from the starting and are now able to offer right techniques, information, and efficiencies to small-scale farmers exclusively for pre-harvest operations and post-harvest use cases.
Promoting Agri-Startups:
As still the majority of Indian workforce is employed in agriculture, there is a need to clear roadblocks and promote agri-startups.
The new farm acts give greater choice to farmers and incentivise start-ups to transform the agriculture value chain in storage, finance, transport, aggregation, and marketing.
Start-ups in High-end Technology:The recently-released Draft Space Policy states that “Indian entities can undertake design, development and realization of satellites and associated communication systems.
Bridging Digital Divide:There is a need to fill infrastructure gaps especially in rural areas, promote digital literacy and help people become more knowledgeable about the digital world. In this regard, the government initiative of Digital Saksharta Abhiyaan is a step in the right direction.
Integration with School Curriculum: The National Education Policy, 2020 envisages to promote student entrepreneurs by offering vocational education in partnership with industries and introducing coding for schoolchildren.
This can have a favourable impact on the start-up ecosystem in India, if entrepreneurial skills are integrated with the education curriculum under new education policy.
Agri Startups are making headway in the areas of farm management, field monitoring, crop monitoring, yield mapping, equipment guidance, precision farming and implementation of automation and electrification. Agrowave, BharatAgri, Bijak and Ergos are some of the companies working on data-science led personal advisory, logistics and marketplace models. But these companies unlike the tech sector have longer investment cycles and have a high need for patient capital, a need that social impact venture funds are slowly addressing. For these startups to make a difference, an appropriate agritech ecosystem in the country will be required.
- Price wars with the retail giants
2020 saw conglomerates Tata and Reliance aggressively enter the retail space with an acquisition. Fresh produce and grocery are a lucrative segment where players are building their private labels of farm produce which they procure at cheaper rates and sell at predatory prices giving them good margins.
This hurts the revenues of major Agritech players with their USP as organic produce which they cannot sell at lower prices.
- Lack of commercial guidance
The existing incubators and accelerators in India lack the expertise to guide farm-oriented start-ups, unlike IT, Health tech and e-commerce.
- Not taking the D2C channel
In the current pandemic situation where big retail stores are operating erratically, it will not be wise for Agritech start-ups to opt for retail channels. Opting for a D2C channel will help the start-up gain complete control of the control chain.
A recent example is that Clover, a supplier of perishable fresh produce, changed its approach from B2B to B2C by adapting to the D2C approach in the pandemic. Clover could provide customers high-quality produce at competitive prices under a traceable supply chain. Clover’s sales grew 3 times in the Covid by turning to D2C.
- Reluctant investors due to the slow turnaround of profits
Lack of funds leaves the Agritech start-ups cash strapped as it fails to lure investors since ROI in Agritech relatively takes time and does not meet market expectations. Also, add is the uncertainty in weather conditions which makes it a high-risk proposition for investors. Agritech innovations in India need patient capital and an ecosystem that has the appetite to programme these innovations for scale and success.
- Lack of visibility
Supply chain visibility and efficiency are the keys to running a viable agriculture-based business. Given the perishable nature of the products and the sensitive timelines associated, every stage of the supply chain in agriculture comes with integration issues, security vulnerabilities, and other problems.
Therefore, the right technological intervention at the right stage of business will enable solutions that preserve product quality, reduce waste, improve traceability, transportation and storage.
- Lack of technical know-how
Most Agritech start-ups lack the technical know-how about the health concerns of cattle or crop produce that lands them in major trouble causing low productivity levels.
Agritech players should collaborate with large technology players that can provide an innovative solution for instance MoooFarm a Gurugram based start-up collaborated with Microsoft to tackle mastitis using Machine Learning (ML) and helped farmers save US$500 million per year.
- Low internet connectivity in rural areas
Several remote rural locations lack strong reliable internet connectivity preventing Agritech start-ups to apply smart agriculture techniques using IoT, Artificial Intelligence (AI), and ML at such places. Start-ups before serving the geographies must do in-depth research about the available internet connectivity.
- Uncertain climate conditions
Hailstones, heavy rainfall, or drought impacts the crop produce directly affecting the revenues. Adoption of crop monitoring technologies AI and ML improves agriculture outcomes in adverse climatic conditions. With the right technology, a farmer can give each crop individualised care, utilise resources in exact quantities, and can grow more with less.
- Logistics and last-mile delivery
Logistics and last-mile delivery is key to the operation of Agritech start-ups that do not find cold storage remote sensing and digitisation of field-level data as economically viable. Also, the backward integration of services in agriculture does not attract many investors thus leaving Agritech start-up with scarce facilities.
- Expensive Infrastructure
Agritech start-ups end up investing money in establishing lavish offices, expensive cattle shades and other infrastructure which mounts debts. In the initial days, one should not spend money on infrastructure, only the necessities and essentials should be the building blocks.
Agritech startups are nascent in India. The idea that agriculture can be monitored using AI, ML and IoT devices is an alien concept to the farmers, therefore its gradual acceptance will lead to slower turnaround time for profits. Keeping in mind that not many investors are interested in investing in agritech, the startups should be wary of spending excessively on luxurious infrastructure. It will be imperative for startups to begin with the basic essentials of infrastructure and spend more on enhancing the tech capabilities keeping in mind the uncertain nature of climate the sector is heavily dependent on.
CHALLENGES FOR AGRI STARTUPS
- Inefficient Supply Chain: Powerful incumbents control farming resources such as finance, seeds, chemicals, distribution, and supply chain. These systems have complete access to the distribution networks that supplies to about 8 Mn kiranas across the country too.
- Middlemen and Agents: The farmer needs on the demand-side are controlled by middlemen and agents who own the fragmented supply chains. They also control the produce pricing. For instance, organized retailers are estimated to source 20% of their produce directly from farmers, the rest of from mandis. But mandis are not ideal farmers’ markets, Traders require a license to operate within a mandi but wholesale and retail traders and food processing companies cannot buy produce classified as notified agricultural products (cereals, vegetables etc.) directly from a farmer. Notified products are to be brought to the market committee and auctioned in the farmers’ presence. Most of the market committees have failed to provide a competitive platform to farmers and lack transparency and technology intervention to ensure smooth and just trading.
- Lack of financing: Distributors usually double up as lenders and most farm-debt is created because of using chemicals and seeds that are not pest-resistant. Additionally, domestic subsidies and investments announced in policies rarely reach the end customer – the farmer.
- Inadequate Irrigation: Agriculture in India is a fragmented activity spread across 600,000 villages and most of the regions still depend on rainfall for water (~70%). While at the same time, groundwater levels are slowly receding from the 1,000 ft. avg. depth yearly.
- Farm size vs Productivity: Studies have shown that there is an inverse relationship b/w farm size and productivity. Indian farms are fragmented and small; 70% are less than 1 Hectare, while national average is less than 2 Hectares, resulting in significantly low farm yields. In Europe and US, avg. sizes are 30x and 150x of those in India.
India has the third-largest ecosystem for startups, yet 80-90% of Indian startups fail within the first 5 years of their inception.
Wondering why startups fail?
We found some of the key reasons behind the same and ways in which entrepreneurs could challenge these startup failure situations.
1) Lack of innovation
According to a survey, 77% of venture capitalists think that Indian startups lack innovation or unique business models. A study conducted by IBM Institute for Business Value found that 91% of startups fail within the first five years and the most common reason is – lack of innovation.
Although India is said to have the third-largest startup ecosystem, it doesn’t have meta-level startups such as some of the big names like Google, Facebook, and Twitter. Indian startups are also known for replicating global startups, rather than creating their own startup models.
Among the most innovative Indian startups would be startups like ChaiPoint, Ola, Saathi, and Swiggy, according to a list of 50 most innovative companies in the world.
How can startups avoid this?
Innovation in business helps in numerous ways: beat the competition, stand out from the rest, helps solve problems easily and increases productivity. Here are a few points that startups must consider:
- Avoid emulating existing successful global startup ideas in India without proper research and understanding of the Indian market. Startups need expert technical and innovation talent.
- Think about the long-term sustenance of the idea before venturing into ideas that are trending.
- Find the right resources to drive the startup with innovation.
2) Lack of funds
In 2018, bike rental startup, Tazzo, shut shop. The reason, as given by one of its funding partners, was a failed product-market fit that led to drying up of funding. Even though the startup had raised a considerable amount of funds, the lack of a profitable business model led to the startup shutting down.
There are millions of startup ideas floating around. But to turn ideas into reality requires finance. Those that do procure funding need scalable and profitable models to make the startup grow. Lack of funding is one of the key reasons why startups fail.
Insufficient cash is a roadblock that leads many startups to shut down. For those startups that receive seed funding, the inability to raise follow-on funds is one of the biggest reasons why startups fail.
What are the key factors to consider?
- Startups must have effective business and revenue models.
- Startups must focus on revenue and profit as much as products/services from the beginning.
- Funds must be spent judiciously.
3) Lack of focus
When Bill Gates and Warren Buffet were asked about one factor that was responsible for their success, both replied with one word: focus. To understand how focus can help, let’s look at an example.
Grubhub is a food delivery startup. From the beginning, the company decided to focus only on food delivery. There’s a lot of other services that a company like that could offer- pick up of food, catering, and more, but the founders chose to focus on just delivery. The result? They could execute technically and operationally and grow the business successfully.
Here’s how startups could maintain focus:
- Look for feedback, both, good and bad.
- Do not go all out. Decide and focus on one thing at a time.
4) Product Market Fit
A large number of startups fail for the simplest reason – the consumers have no need for its products. Does your product provide value to consumers? Are there consumers for your product?
Is your product aligned with the innovative ideas that your company is based on? A lot of times startups attempt to quickly develop products that have no demand or try to expand the market for a product.
How can you avoid this?
- Gain an in-depth understanding of who your customers are and what they feel about your product.
- Find new customers via word of mouth before jumping into creating expensive marketing plans.
- Establish a relationship with your customers.
- You can’t please everyone, nor should you try to.
5) Leadership gaps
Most startups are driven by the vision of its founders and core team members. However, having a good idea is far less important than knowing how to lead a brand, a company, and a team. Lack of vision and strong leadership is another common reason why startups fail.
As mentioned in the Harvard Business Review, “While a principled founding team can create a great company, an enduring company requires a system of leadership that is implemented very early in its history.” Some entrepreneurs may have leadership qualities, while others may have to develop them over time. This can be one of the reasons why startups fail.
How can you avoid this?
- If you do not have leadership skills, delegate the role to someone else who would do it better than you.
- Study leadership, practice it.
- Find a mentor to help you build leadership skills.
6) Lack of agility
Today, we live and function in an always-on culture. One needs to, always, keep up with the complexities and changes. In such a culture, agility can bring a competitive advantage to startups.
In 2015, India’s largest consumer goods producer, Hindustan Unilever Limited, decided to partner with startups. The reason they did so might surprise you. They did it to regain agility. The move helped the company imbibe agility and the adaptive mentality with which startups are known to function.
Startups can have a number of teething issues. Besides that, they constantly face challenges, to which, they need to find solutions. Change is inevitable and hence, it is most important for startups to remain adaptive and agile in order to progress.
Startups can ensure agility within the organisation by practising the following:
- Continuous learning
- Having a fluid workforce
- Research and development
- Be willing to let your ideas change
7) Business model failure
A good product, an impressive website, and huge ad spends- a number of entrepreneurs assume that these factors are going to be enough to attract customers and business. They ignore the fact that customer acquisition and customer retention come at high costs and the startup needs a foolproof business model to sustain and profit.
Here are two questions where entrepreneurs can begin in order to build a suitable business model:
- Does your startup have a scalable way to acquire customers? Can you find one?
- Can you monetise those customers once acquired? Will the revenue from that customer outdo the cost of acquisition of that customer?
8) Lack of talent & competency
Surprising, but 23% of startups fail due to lack of talent and skill. It is one of the most easily solvable issues, one would assume. However, it is not. The reasons?
1) Startups spend a lot of time and effort in recruiting the right candidates. In situations of bad hiring choices, startups may face the challenge of replacing the hire with a better candidate.
2) Most times startups are cash strapped and cannot afford to hire experts or experienced employees who come at a high price.
What could startups do to tackle this issue?
- Plan their hiring processes with utmost care.
- Create alternative working methods such as work on freelance-basis or on a project basis model with expert professionals.
- Make hiring processes stricter and intense by giving the candidates a real issue to solve.
9) Ignoring customers
Quite often startup founders have too much to handle – funding, recruitments, overall management of the organisation, and more. Customers may not even feature in their to-do lists. This is a big problem, which entrepreneurs fail to realise and can very well be the reason why startups fail.
When startups are committed to being customer-centric, their decision-making becomes easy, their focus gets narrowed down and their popularity increases from word of mouth – as explained in an article in the Harvard Business Review. Moreover, customers know what they want and can help startups better their products and services.
Here’s what to do:
- Do not ignore customers.
- Address customer queries, concerns, and feedback.
Addressing your startup’s drawbacks and challenges will only help you on the path to growth.
