The year 2020 has been one of those years which not only adversely impacted lives and livelihoods across the globe but also have fundamentally changed the way we look, approach and predict the future.
We probably need to have a distance thinking instead of a myopic view when it comes to forecasting. That is why I chose to put out trends for the next decade rather than for the next year, as we transition from 2010-2020 to 2020-2030.
The uncertainty quotient in our lives has grown manifold post-covid, encapsulating insecurity and agility in equal measures about things that matter to us - and I will put health and food, right at the top of the list amongst others. The big question is how our food systems will respond to changing consumer behavior and supply chains needs in the post covid world. This article attempts to lay down twelve trends that are likely to shape the emerging entrepreneurial business models and investments into the sector. Here is the list of the top twelve trends for the next decade:
1. Dairy and horticulture products will dominate the consumer diets with falling share of cereals
For the last five years or so, horticulture (fruits, vegetables, spices) production and consumption have overtaken cereals (wheat, rice, pulses, oilseeds). Horticulture has consistently outperformed with annual production of over 300 mn tonnes and it seems that horticulture will continue to consolidate the lead over cereals.
Dairy at an approximate production of about 180 mn tonnes continue to grow year on year with increasing per capita consumption, which doubled from 200 to 400 grams per day in the last 20 years. In fact, the value of the dairy industry (approx. $ 145 bn) is way ahead of cereals and horticulture (both in the range of $ 100 - 120 bn).
The close race between three important food sectors has clear podium positions now (in value terms) – dairy first, horticulture second and cereals third. This order is unlikely to change in the near term but its clear horticulture will notch up to a close second to dairy by 2030 (both forecasted to be in the range of $ 350 - $400 bn) and cereals will be a distant third ($ 250 to 300 bn). Animal protein (egg, poultry, lamb, fisheries, buffalo) is at the fourth place with $ 45-50 bn worth of production but has the highest headroom for growth as the large section of population is becoming non-vegetarian, in addition to the growing export demand. The animal protein sector will more than double to about $ 100 bn in the next ten years.
The safest forecast to make is that the quartet of “dairy, horticulture, cereals and animal protein” will take us well past a $ 1 trillion food economy by 2030. The change in hierarchy of the above categories is a reflection of changing consumer preference that is moving away from carb and fat dominated diets to diets rich in protein and fibers.
Rise of dairy, horticulture and animal protein has caught the attention of both startups and investors. Dairy is witnessing a second white revolution in the supply chain with innovative models in milk cooling, collection and procurement (Milklane, Promethean), digitization (Stellapps), vet services for cattle farmers (LiveStoc, Moofarm) , milk quality assessment (Agnext) and direct to consumer milk models (Country Delight, 4S Foods, AkshayKalpa). There is still huge room for innovations in improving cattle genetics, productivity, embryology and cattle feed and fodder. We can either develop knowledge, skills and capabilities on our own or a smart strategy could be importing this expertise from places like Australia, New Zealand and Europe.
Likewise, horticulture has seen large number of end-to-end supply chain models (Farmlink, INI Farms, Desai Fruit Ventures, Leaf, Agrowave, Ninjacart, Waycool, Crofarm to name a few), quality assaying (Agricx, Intellolabs, Raav Tech, InfyU Labs, qZense) and farm level storage and processing (RuKart, Ecozen). In animal protein, we have startups like Numer8, Eggoz, Poultrymon developing tech solutions in fisheries, eggs and poultry respectively.
2. Millets will be the “wildcard entry” on the menu
Millets were the big casualty of the green revolution as the focus shifted to paddy-wheat combo to ensure food security for the nation. I am sure that had millets stayed in our diets, we would have had far less number of diabetic patients in India (about 77 million) and ground water table would have been a few feet higher (millets have a very low glycemic index and consumes much less water than most other cereal crops).
However, the area under millet production (approx. 15 mn hectares currently) consistently went down and then it got labeled as cereals for animal feed and poor people, which did not help either. There are multiple startups trying to build millets based products (Soulfull, Milletbowl, 24 Mantra, Healthsutra, Mera Kisan to name a few).
The increasing health awareness augurs well for change in consumer orientation towards millets. The increasing focus by policy makers on this category (such as efforts made by the Karnataka government) will hopefully arrest the fall in production area under millet cultivation.
3. D2C is here to stay forever
It took a pandemic for “farm to fork” models to fructify for the first time in its true spirit, in the history of independent India. There are many instances where farmer groups approached consumers directly to offload the produce during the lockdown period. Farmers typically earned up to 50% more and consumers paid up to 30% less, clearly demonstrating the power of disintermediation.
Though it was more of a Covid-19 response to the situation, it is clear that direct to consumer (D2C) models are here to stay. The two fundamental reasons for this is the sharp change in consumer behavior towards digitally ordering the grocery and second is the ability of the tech-enabled supply chains to respond and fulfill D2C originated demand.
D2C models across multiple food categories reported 2x to 4x increase in monthly revenue rates (MRR), including likes of Freshtohome (meat), Country Delight (milk). The conventional B2B distribution models also pivoted to D2C. It is yet to be seen on how D2C models optimize the cost of last mile delivery and customer acquisition, to make this opportunity transform into sustainable business model.
4. Kirana is still the king and will remain the king
Two key supply chain players who kept the supply chain running in covid times were farmers and Kirana stores. Epitaphs of Kirana stores are written multiple times in the past with the arrival of modern trade and e-comm in grocery retail but Kirana grew stronger and seamlessly adopted to beat the competition.
I still don’t think food retail is as competitive as most people think. The fact is that we are going to consume, on an average, additional $ 50 bn worth of food every year, for the next decade or so (equivalent to annual sales of about 600,000 Kirana stores)
Startups s focused on empowering the Kiranas and supermarkets (SuperZop, Jumbotail, Pine Labs, Store king, City Mandi, ShopKirana, Ninjacart, Waycool) will scale as long as these solutions improve store economics (more revenue and optimization of cost of space and working capital).
5. Data and value chain financing – will “oil” the supply chain
The food supply chain has conventionally been data-starved. The lack of accurate and timely data on food demand, commodity prices, food loss, area under crop production, harvest volumes, hyper local weather, pest infestation, soil moisture, nutrition, input sales has paralysed the decision making across the value chain.
Integration of data will be pivotal in the decision-making of the farmers and other value chain members. The digitization spree will open floodgates for multiple applications – financing and insurance are clearly two big demonstrated used cases of data application in the supply chain.
Players like Samunnati, Jai Kisan, Samaaru, Bijak, Spoon and Agrifi are building cases for data driven financing. It is a matter of time that large public and private sector banks will embrace innovative models for more efficient lending to farmers, processors, and traders. Startups including CropIn, SatSure, AgRisk, VegaMX and Mantle Labs are working with banks and agri corporates to develop remote crop monitoring dashboards.
It’s not just lending for crop loans but the opportunity in post-harvest financing that can be exploited with increased digitization (Arya Collateral, Whrrl, Origo, Star Agri) and likewise for livestock value chains in poultry, fisheries and dairy ( Aquaconnect, Numer8, Stellapps).
6. Digitally enabled farmers - the next big consuming class
Who would have thought farmers will pick and become comfortable ordering products online. The increasing number of digital order and queries on agri input platforms (Bighaat, Freshokartz, Agrostar, Behtar Zindagi, Unnati, Gramophone, E Fasal, Plantix) is a testimony to the arrival of a digitally enabled farming community.
The number of second hand tractors viewed and sold through YouTube is growing. Whatsapp integration with farmer-centric apps will further drive adoption and transactions as digital payments with The AV3 (Advisory through Video, Vernacular and Voice) formula for building farmer’s digital access will be a winner.
7. Rural entrepreneurship will redefine the startup ecosystems
The combination of agritech and foodtech will open up millions of entrepreneurial opportunities for rural entrepreneurship. It will probably take another full article to detail these opportunities.
In brief, opportunities for farmer aggregation (through FPOs), farm produce aggregation (Kamatan, DeHaat, Aishwari Agro), last mile logistics for delivery and pick up (AgriGator), farmer onboarding models for lending (Hesa, Frontier Markets), silage manufacturers, pollinators, Artificial insemination workers, dronepreneurs are some of the models which will evolve among several others.
This in a way will bring strength, diversity and balance to startup ecosystem which continues to be dominated by metros and few tier II cities.
8. Corporates, SMEs, FPOs, Startups and farmer partnerships to catalyse scale of innovations for agritech
It is time for the siloed world of Indian agriculture to come together. Corporates, SMES, FPOs and startups are trying to solve the same problems through their own resources which can be optimized if they come together to build solutions.
Corporates such as Bayer, Godrej, Olam, M&M, UPL, Marico, Tafe, DCM Shriram, Crystal Cropcare and SMEs like FIL Industries, Dayal Group, Suri Agrofresh, Star Agri, Netafim are some of the examples who are actively exploring ways to engage with startups. ThinkAg has catalyzed many such partnerships in the last couple of years.
9. Climate-linked finance will be institutionalized
The gravity and extent of risks to agriculture arising out of climate issues is hardly understood and appreciated. Conversations on climate response have remained confined to board rooms and conferences. It is time for serious action, policy reforms and deployment of capital to solve for climate issues. We should start building a climate resilience (or risk) index (CRI) for each of the 600,000 villages in India, which can be the foundation for driving crop diversification and resource optimisation.
In India, farmers are incentivized for timely payment of crop loans under Priority Sector Lending (PSL). Can we create a framework where we can reward farmers for efficient use of water, fertilsers and pesticides? Climate linked finance could be one such mode to build incentives for farmers linked to adoption of climate resilient practices.
Fortunately, the technology has evolved enough to capture granular data to measure climate parameters (usage of water, energy, chemicals, fertilisers). Startups like Bharat Agri, Cultyvate, Kritsnam, Soilsense, Satyukt, Fasal have demonstrated the use of sensor, IoT, drones, satellite imagery for capturing the climate data points with reasonable degree of accuracy. Banks and NBFCs needs to tie up with such startups and farmer groups to build a case for climate finance. I am sure climate finance will evolve and will become an important instrument for farmer financing by 2030.
10. Agri platforms and food brands with over $100 mn annual revenue to emerge
It is becoming evident that a platform approach (input + credit + data+ advisory+ market linkage + processing and value addition) is critical to building sustainable agribusinesses with revenue of over $ 100. There are not too many demonstrated cases of platforms as of yet given the nascencey of the sector. The platform developed by Pioneering Ventures is one such examples of vertical and horizontal supply chain integration through multiple businesses including Desai Fruits Venture, Milklane, Citrus International, GrowCo, Farmlink, DistriCo and Samaaru. Samunnati is another example, which has also scaled financing to the agri value chain on the basis of a platform approach called AMLA (Aggregation+ Market Linkage + Advisory).
Likewise, a home grown new-age food brand with turnover of over $ 100 mn has remained a mirage. It will be a pity if we don’t see at least 25 Indian food brands cross $ 100 mn in next ten years or so. Bira91, Veeba Foods, Epigamia, ID Foods, Hector Beverages are likely candidates to achieve the goal posts, but the size of opportunity opens doors for many more brands.
11. Product mix, value addition and convergence of food and agri will drive gross margins
Food and agri has suffered from bipolar disorder as the two distant ends of supply chain. Food and agri are perceived as two segments of the supply chain, both by entrepreneurs and investors. Tech enablement and farm level value addition can bring these two worlds together as well as push the gross margins northwards.
While there is enough demonstration of scale in both agritech and foodtech startups, gross margins have remained elusive across the board. It’s time to move from GMV (Gross Merchandise Value) to a GM (Gross Margin) mindset.
Entrepreneurs have to discover the right balance between scale and margins. Minimum gross margins of 20 % plus in agri input ecom models, 40% plus in fresh produce and 20 % in staples and 50% plus in data centric startups is key to drive sustainability. These margins can only be achieved with the right product mix strategy, disintermediation and farm-level value addition for supply chain startups. For pure-tech / data startups, higher gross margins is possible with high degree of analytics and the ability to merge data solutions with their clients’ legacy systems and processes.
12. $ 10 bn+ investment into Indian agritech in the next decade
Indian agritech (upstream part of the value chain) attracted investment of about $ 900 mn between 2010 and 2020 (out of which about $ 600 mn came in 2019 and 2020). In 2020, about 20 deals got closed, despite it being a pandemic year.
My guess is $500 mn plus annual investment run rate is visible in the next 3-5 years with many startups making claims for$ 100 mn plus cheques. The investment rate is likely to improve with every year given unprecedented emerging investor interest from large impact and mainstream funds.
It is likely that we will have investments of over and above $ 10 bn in the next ten years with an average of $ 1 bn per year in upstream agrtiech (with return potential of $ 25-30bn). The investment trajectory can become more concavely non-linear with one mega exit on the way (possibly the first one to happen between 2023 and 2025). IPOs could happen in case of 2-5 startups in the next 10 years once they cross annual revenues of $ 80 - 100 mn with positive PAT.
In conclusion, many of the above predictions may not come true, as 2020 has painfully demonstrated to us the unreliability, applying to predictions made in the past. However, I can say that the probability for these predictions going wrong is low compared to many other sectors, given the high degree of resilience demonstrated in the pandemic year.
As most VCs would say, you make money when you see trends ahead of others and bet on strong founding teams to “ride” the trend. In agritech, the word “ride” should be replaced by ”drive”. The winning models in the sector will need to be driven by entrepreneurs and investors together through evangelization, execution, conviction, convergence, commitment in addition to capital.
Hemendra Mathur is venture partner at Bharat Innovation Fund and co-founder of ThinkAg, a platform for accelerating the adoption of innovations in agriculture and food. The views in this article are his own.