Catalysing innovation in India’s food & agriculture sector

Nitin Puri, Senior President and Global Head of YES Bank’s Food & Agribusiness Strategic Advisory and Research Group shares his thoughts on catalysing innovation and attracting investment in a market driven food & agriculture sector in India –

Making sense of the growth and transformation in India’s food and agriculture sector 

Historically, supply chains were largely controlled by the Government, either directly or indirectly, and private companies played a very small role, whether in research, processing, logistics, distribution or trade. It is only in the last 15 years that the private sector has become a dominant force, and the past three years have been particularly conducive to innovation from startups. Indeed, today over 1000+ active startups at various stages of development benefit from this enabling ecosystem. If you look at the entire food & agriculture industry in India, from production to services, manufacturing and processing, it adds up to nearly USD 1tn – this shows the sheer scale of opportunity for even the smallest of innovations.

This transformation is being pushed and pulled by both the supply side and the demand side. Markets are playing a much larger role in driving the supply chain, rather than statutes coming from the government in terms of strict end-to-end control. This has meant that many more pain points and problem statements are emerging from stakeholders. Indeed, when things become market driven, it follows that there is a drive for efficiency – a lot of the inefficiencies that were there all this while come to the fore, and that creates so much more room for innovation and capital to come in.

With regard to investments, we have seen an overall flow of capital, sector agnostic, into startups in India. The food & agriculture sector has been considered an unexplored territory where little has been done in terms of innovation, in other words, driven by the need to organise the unorganised. Moreover, in addition to generalist investors, there are now many sector-specific funds that invest exclusively in food & agriculture startups. The time for innovation in India is more apt today than ever before.

The scope for innovation and growth opportunities

Innovation from pain points in the supply chain: opportunities arising from adversity
Innovation in the food & agriculture sector is a response to genuine pain points in the supply chain. During the lockdown period in April 2020, large collection and distribution centers became hotbeds for COVID-19 transmission and closed down, and farmers were thus unable to sell their produce efficiently. Many startups emerged from that to provide last mile collection and aggregation services, and facilitate logistics, grading, sorting and packaging of goods. This is an example of opportunity arising out of adversity, which is something India has always excelled at, especially in the food & agriculture sector. The kind of exponential growth we’ve seen is a mix of digital technologies, fintech, supply chain financing, aggregation, efficient logistics and more, serving the needs of farmers as well as consumers, when and where innovation is needed the most.

Understanding on-ground realities to shape your problem statement
India is a country with so much diversity, whether in agro-climatic zones, farm (types of farming, cropping, etc.) and non-farm activities, or in the way markets and financial institutions are structured. A mistake that many startups make, especially global startups entering India, is trying to force fit a solution they already have. Regardless of your business model, this approach doesn’t work. It is important to get it right from first principles, in terms of understanding local conditions, on-ground realities and the root causes of the problems you are trying to solve. And once you get the problem statement right, you may even change or modify or restructure your product offering or service to align it to your stakeholders, such that problems are actually solved. It then becomes fairly easy to navigate your way through the ecosystem in terms of identifying who you need to engage with: whether the government from a regulatory or policy standpoint, or with industry, potential customers, etc.

Incubation & collaborations with large companies: A new model for growth
There has been a lot of interest from large food & agriculture companies in innovation originating from startups. Many companies have recognised that frugal innovation happens much better and much faster in a smaller company, and that working with an agile and nimble-footed startup would result in a win-win situation. This has led to tangible business engagement in the form of collaborations or equity investments and has been quite predominant in the past year with many such instances.

The role of financial institutions: Digital and fintech innovations

A conviction held by many financial institutions is that innovation from startups – especially financial and digital technologies – will revolutionise the food & agriculture sector in India. The example of rural credit illustrates how fintech innovations address the pain points for both financial institutions and for farmers in enabling better and more efficient access to finance. One of the reasons why almost half of rural credit in India still happens through unorganised/ informal systems is the lack of formal mechanisms for tracking cash flows & hence the challenge for financial institutions to base financing structures on actual cash flows vs the prevailing collateral based financing model. Administrative inefficiencies in disbursements, collections and monitoring too add to the padding up of costs for granular small farmer/ micro enterprise solutions for rural areas. With innovations in digital and financial technologies, every leg of the value chain now becomes much more transparent. Proliferation of digital marketplaces as well as formalisation of the rural economy through private and government initiatives have also made it much more amenable for both demand and supply sides of the rural credit mechanism.