The agriculture sector plays a pivotal role in the Indian economy. Contributing over 18% to GDP and employing ~60% of the population. Several ancillary industries such as retail, packaged goods, agri credit, transport, fertilizer and chemicals, and e-commerce are dependent on agriculture, thereby magnifying the impact of agriculture on the country’s economy.
And while the contribution of the sector to India’s economy has declined over the years, from over 30% in 1990, there is one subset within the sector that has been growing at a rapid pace “Agri-Tech”. The technology revolution in agriculture has been led by start-ups who are changing the landscape of farming and related activities in the country. From a mere 43 firms operating in this space in 2013, there are currently over a 1000 firms engaged in using technology to improve farming practices. This number is expected to continue growing at 25% going forward.
The sector has thrived during the pandemic as start-ups rushed to step in to solve the massive supply chain disruptions that had been caused by country-wide lockdowns. The number of start-ups operating almost doubled in 2020 from about 500 in June 2019. However, M&A activity dipped during the year owing to a flight of risk capital, but trends suggest a large uptick in funding to the filed in the coming years.
(All amounts in USD Million)
While the number of deals in 2020 remained steady at 30, declining marginally from 32 in 2019, which almost doubled from a year prior (17 deals in 2018), average ticket size fell sharply from $7.25 million to $5 million. Despite a fall in overall funding, the Agri-tech along with the broader agriculture industry have remained resilient and continued to show positive growth in midst of a weakening economy. As investor risk apatite picks up, investments are expected to flow into the sector.
Despite fast growth, the sector itself is vastly underpenetrated. The current revenue generated by companies employed in the sector is $204 million annually. Reports estimate that this number is likely to grow by over 10 times over the next 5 years to $24 billion. The driver for this growth is likely to be concentrated to a few market segments within Agri tech.
These are themes that have been generating traction and are likely to play out in a major way going forward.
The biggest focus for tech firms in agriculture is improving supply chain efficiency, which is expected to responsible for almost half of the $24 billion Agri tech market. It is estimated that approximately 30% of global food crops are wasted post-harvest along supply chains. This number is likely to be much higher for India due to the challenging geographical terrain.
Another growing segment is Quality management and assurance. With an increased push for export of farm products, several companies have turned focus to improving efficiency and quality of output generated by Indian farmers.
Two emerging segments attracting interest are grocery and ecommerce. Increasingly large well established players in the ecommerce and retail sectors have been turning their attention towards using the internet to reach end consumers disrupting supply chains across produce. Through vertical integration of supply chains and direct sourcing of produce from farms, ecommerce companies have been able to substantially boost margins and are able to cut losses from wastage.
Indian Agri-tech is still in the initial stages and is expected to grow manifold in the next 5 years. A renewed focus on Indian agriculture along with a robust investment ecosystem, will help accelerate growth. The sector is likely to see further consolidation as was played out during 2020, with a few large players acquiring start-ups that focused on disruptive innovation.