India's agriculture industry contributes significantly to the country's economy, chipping in around 16 per cent to its GDP with 44 per cent of the national workforce from this sector. The government is aggressively encouraging all stakeholders to incorporate digitalisation to increase their yield and efficiency while reducing their dependency on unpredictable factors like climate and socio-economic ones like the ongoing recession.
In September 2021, the administration launched the Digital Agriculture Mission (DAM) 2021–2025 initiative to give a leg up to agritech start-ups, leveraging developments in cloud computing, earth observation, remote sensing, data and AI/ML models. This helped the industry unlock new possibilities and address current agricultural issues, which can significantly increase food production and profitability for all participants while lowering their operating expenses.
However, Vicky Dodani, founder of Agrizy, a platform that bridges the processed agri supply chain, noted that a major gap exists between what the market wants and what farmers produce. The government needs to resolve this gap to achieve its target of doubling farmer profitability.
“The agrifood processing industry plays a major role in filling this gap by increasing the shelf life and reducing waste. India has a long way to go in this regard. For instance, he noted that only 3 per cent of the total output of fruits and vegetables is processed in the country, which is much less than in some of the developed economies,” he noted.
Seamless Supply Forever In The Works
Anywhere between 5 to 10 per cent of the total agricultural produce is annually spent to address supply chain challenges. The government should focus on creating policies that optimise this issue by offering attractive incentives for companies to build storage warehouses or cold storage facilities. It should also invest in improving the overall agritech infrastructure, including irrigation ecosystem, logistics and silo storage facilities across states.
For instance, the key objective of introducing the Farmers Produce Trade and Commerce Act 2020 was facilitating agricultural produce trade outside Agricultural Produce Market Committee (APMCs). However, measures are yet to be taken to allow trade based on the PAN card outside APMCs.
Furthermore, despite the government allocating funds to improve the infrastructure at APMCs for installing testing and drying machines, the availability of these machines could be much higher. Pankaj Dwivedi, Head of Business Development & Partnerships at nurture.farm, advocated increasing the number of APMCs, introducing digital platforms to help farmers sell produce at a fair price, delivering market price information, and regularly offering advisory, financial assistance, and best practices. He opined that setting up marketplaces focused on FPOs can also help drive demand and improve farmers' price realisations.
Making Hay While The Sun Shines
Agritech has emerged as a promising industry capturing a larger portion of the public and private sector investment while projecting a positive growth rate. However, the global economic recession coupled with the Ukraine war crisis has cultivated fear among investors to back potential technologies across the sector.
Apart from the socio-economic concerns dominating the market in the past few years, the biggest challenge is the limited adoption of technology-led solutions across food value chains. Bhamra noted that while the agricultural revolution paved the way for tech developments, the need for enough infrastructure, sustainable crop cycles and the skills required to use these advanced solutions are more important than ever.
"To increase productivity and profitability, the government needs to take more measures towards digitising systems, developing infrastructure and promoting training for all stakeholders to have critical know-how about modern innovations," he opined.
Amit Sinha, the co-founder of AI agritech platform Unnati, pointed out that agriculture is a relatively long gestation business. “Funding sources in the infrastructure area need to have this in mind and build accordingly. Newer core agriculture technologies need to be funded and driven to wider adoption globally,” he claimed.
Sinha also pointed out, “Moreover, many changes to regulatory aspects are oriented only towards the physical localised scale of operations, while agritech firms are working across multiple states and locations.”
Ploughing It Back
In the upcoming Union Budget 2023, agritech founders hope for a reduction in budgets allocated under the PM Kisan, PM Fasal Bima Yojana and other subsidies offered on short-term loans for the farmers. Food and fertiliser subsidies alone account for one-eight of India's total budget spending, so they want some cuts in spending on the same.
“A separate budget allocation to improve crop production efficiency and enhancement of the supply chain can improve benefits to the farmers,” said Dwivedi. Other demands by farmer associations include getting benefits of input tax credits or doing away with GST on the input material. Farmers are also asking for an increase in the limits of Kisan Credit Cards.
“However, the scheme needs to be relooked at as high non-performing assets (NPAs) have been reported. A loan becomes NPA if there is no payment of interest or principal for 90 days. The farmers use the Kisan Credit Cards to draw money. The limits of these cards can be increased periodically based on the repayment records,” Dwivedi further explained.
Shoots Of Growth
Recent market research assessments predict that the global agritech market will expand between 2020 and 2027 at a 12 per cent CAGR, with India emerging as a major player beside US and China.
While the ongoing challenges in the agriculture industry is likely to persist, equally important are the series of initiatives taken by the government in the previous year to encourage the digitisation of processes for enhanced productivity. From integrating APMC Mandis on the e-NAM platform to simplifying the regulations for drone use, the government is taking many initiatives to increase the adoption rate of technologies across the sector.
In the previous year's budget, the government strengthened some avenues in the agritech start-up space. This included extending the tax incentive scheme until March 23, promoting Kisan drones for crop assessments and providing support to farmer-producer organisations for accessing tech capabilities. These steps encouraged farmer-producer organisations to form partnerships with agritech companies.
Not just this, Taranjeet Singh Bhamra, CEO and founder of AgNext Technologies, noted that the government strengthened the Agri Infrastructure Fund (AIF) and Sub-Mission on Agriculture Mechanisation to provide subsidies for post-harvest and pre-harvest equipment, respectively. While the government has shifted its agricultural policies, there is still a long way to go.
Role Of Ancillary Companies
Though the government has made significant strides to aid agritech start-ups, agritechs and agrifintechs that provide financial solutions to farmers are seeking an equal playing field when compared to traditional financial institutions. Prasanna Rao, co-founder and managing director of Arya.ag, explained how agritech and agrifintech businesses, which are often structured as NBFCs, do not qualify for the government's credit guarantee programmes since they are only available to banks.
“Priority Sector Lending (PSL) would otherwise benefit us, but we have to borrow at much higher rates since we serve the same market sector that PSL does. Additionally, we have difficulty gaining access to finance and equity financing,” he stated.
India is also one of the largest producers and exporters of farmed seafood. Accelerating the blue food economy will improve the farmers’ incomes, and foreign exchange earnings through the exports of seafood and enhance the nation's food security.
However, the country needs to diversify its seafood basket and identify newer markets to double the seafood export. On the other hand, promoting domestic seafood consumption should also be a high priority to absorb the high volume of harvested produce and ensure fair prices for the commodities and better market stability.
Raj Somasundaram, founder and CEO of Aquaconnect, said that to improve the state of the fisheries sector, the government allocated Rs 60 crore under Digital Agriculture in the Union Budget 2022-23. “While this is a good start to accelerate digitisation, we expect further fund allocation in the upcoming years to incentivise the adoption of tech-driven solutions across the fisheries and aquaculture value chains,” he added.
To cope with risks like economic slowdown or natural calamities, the government should give greater importance to the agritech sector by undertaking relevant measures and policy changes that address the industry's fears, attract foreign investor interest and fulfil the needs of stakeholders across the food chains. This also includes altering and accelerating foreign trade policies in accordance with the economic conditions to help India accomplish its mission to build a $5 trillion economy.