Initiating Coverage: Agritech as an Investment space in India

INDEX
Contents
Introduction: ................................................................. 2
Overview of Agritech Funding in India:........................ 2
Market Size: .................................................................. 3
Industry Segmentation and notable start-ups serving
them: ............................................................................. 4
The problem they are solving: ...................................... 5
BUSINESS MODEL:......................................................... 6
Revenue models in India’s agritech sector ................ 6
Growth Drivers: ............................................................. 7
Prospects of Subsector : ............................................... 9
Funding analysis & Recent Deals:............................... 12

1|
Initiating Coverage: Agritech as an Investment space in India

Introduction:
In India’s economy, agriculture accounts for around 54.6% of all employment and generates
18.8% of the nation's gross value added (at current prices). As of 2021–2022, farm exports
from India represent 12% of all merchandise exports and have surpassed US$ 50 billion. About
17% of India's GDP comes from agriculture. It is one of India's most significant economic
activities, valued at over $390 billion. The sector's impact on general economic growth is
exacerbated by the fact that a number of industries, including retail, chemicals, packaging,
and e-commerce, are directly dependent on agricultural output.

Overview of Agritech Funding in India:

According to a report by Bain & Company, India is also the third-largest recipient of agritech
funding globally. Nearly 1,300 agribusiness start-up’s exist in India, and the majority of them
make use of cutting-edge technology like artificial intelligence (AI), machine learning (ML),
and the internet of things (IoT).

Between January and December of 2021 and the first half (H1) of 2022, India's Ag-Tech
ecosystem advanced dramatically. With the pandemic, the necessity for robust solutions and
remote technologies became eminently clear, and Indian Ag-Tech start-ups garnered $636
million in financing in 2021, more than double-raised in 2020.

2|
Initiating Coverage: Agritech as an Investment space in India

Market Size:

Total Market Opportunity

US $ 170b

Addressable Market
Opportunity
US $ 24b
Current Market Size
US $ 204m

Source: Indian Agriculture; Ripe for disruption, Bain & Company

Indian agritech market potential with technology-led interventions and on-ground

partnerships presents an opportunity of ~US$24b out of which the current market
penetration is ~1%. However, a study by Bain & Company pegs this potential at US$35 billion
by 2025.
Agritech market opportunity is spread across multiple segments, therefore, assessing the
market potential for each segment (as explained below in potential of sub-segment section)
is critical to understand the headroom left for growth in this sector. A top-down approach has
been used across each segment to first estimate the size as well as the growth of the
underlying market (e.g. agricultural output is the underlying market for the “Supply chain tech
and output market linkages” segment). Constraints such as the relevance of the
corresponding segment towards serving the needs of small and marginal farmers are used to
further estimate the addressable market potential for the segments.
Supply chain technology and output markets have the highest potential in India, worth
US$12.1 billion, followed by financial services, precision agriculture, and farm management,
quality management and traceability, and market linkages-farm inputs (US$1.5 billion) out of
a total projected agritech market potential of US$24 billion.

3|
Initiating Coverage: Agritech as an Investment space in India

Industry Segmentation and notable start-ups serving them:

Source: Magazine, Agritech in India overview and scope for Investments

IoT-powered agriculture and drones: The aim is to control the pest in precision agriculture
using unmanned aerial vehicles (UAV).
Marketplace and e-distributor: Different vendors on the agritech multi-vendor marketplace
can sell agro-products directly to other businesses or end buyers while the internal teams can
have digitized sales channels.
Farm Inputs: Inputs are things put into the production process such as land, labour,
implements, seeds, mechanization (tractors) fertilizer, and pesticides.

Precision agriculture and farm management: Precision farming is an approach where inputs
are utilized in precise amounts to get increased average yields, compared to traditional
cultivation techniques.
Farmer advisory: Providing advisory services to farmers; Helping farmers understand soil
micronutrition and address the lack of it more closely.
Equipment leasing: Farmers will be able to rent high-quality farm machinery and equipment
at competitive rates.
Crop quality assessment: Using digital tools, it is possible to recognize areas that require
special attention at the appropriate moment when crops are in the growth period.

Smart farm equipment: Smart Farming offers a full Agri-tech service that provides farmers
with practical knowledge and supports organizations to increase their impact.
Hydroponics: Hydroponics is the science of soil-less farming. It is the method by which plants
and crops are grown directly in a nutrient-rich water base, sometimes, with their roots being
supported by different materials like coconut coir, peat moss, perlite, etc.

4|
Initiating Coverage: Agritech as an Investment space in India

The problem they are solving:

Agritech presents an opportunity to address a number of current pain points in the
agricultural industry along the entire value chain, increasing the market potential. Leveraging
technology can expand investment opportunities in India's agriculture sector through
modernization and the implementation of systemic efficiency.

Some ways in which this can be achieved are:

• Facilitating input market linkages supported with a robust physical infrastructure

network can address the existing issues related to volatility in input prices, availability
of quality inputs as well sub-optimal input selection.
• Precision agriculture can enhance yield by up to 30 percent.
• Digitalizing records through farm management can improve operational efficiencies
and save costs.
• Introducing quality management and traceability will help farmers attain better
outcomes in terms of high-quality produce, further incentivizing them to continue
with modern methods.
• Facilitating output market linkages through an efficient post-harvest supply chain by
eliminating inefficiencies, such as high wastage of farm produce, which is a win-win
for both farmers as well as consumers, eliminating middlemen helps farmers to attain
the right price for their yields.
• Offering better financial services, which could serve 30 percent of farmer households
through access to credit, and 65 percent of farmer households through access to crop.

5|
Initiating Coverage: Agritech as an Investment space in India

BUSINESS MODEL:

• Market linkage – farm inputs: Digital marketplace and physical infrastructure to link
farmers to inputs. This ensures the availability of quality inputs at the right price and
at the correct time
• Biotech: Research on plant and animal life sciences and genomics.
• Farming as a service: Farm equipment for rent on a pay-per-use basis.
• Precision agriculture and farm management: Use of geospatial or weather data, IoT,
sensors, robotics, etc. to improve productivity; farm management solutions for
resource and field management, etc.
• Farm mechanization and automation: Industrial automation using machinery, tools,
and robots in seeding, material handling, harvesting, etc.
• Farm infrastructure: Farming technologies, such as greenhouse systems, indoor-
outdoor farming, drip irrigation, and environmental control, such as heating and
ventilation, etc.
• Quality management and traceability: Post-harvest produce handling, quality check,
analysis, production monitoring, and traceability in storage and transportation.
• Supply chain tech and output market linkage: Digital platform and physical
infrastructure to handle post-harvest supply chain and connect farm output with the
customers.
• Financial services: Credit facilities for input procurement, equipment, etc. as well as
insurance or reinsurance of crops.
• Advisory/ Content: Information platforms online platform for agronomic, pricing, and
market information.

Revenue models in India’s agritech sector

The above business models within the agritech space can be bifurcated into the following
revenue models:

• Margin-based model: Segments such as market linkage – farm inputs, supply chain
technology, and output market linkage operate through this model where the agritech
player earns a margin by creating marketplace linkages at the input or output side,
and by executing the promised services.
• Subscription-based model: Agritech players operating in segments like precision
agriculture and farm management as well as quality management and traceability
offer a mix of hardware, software, and services-based solutions throughout the year
and collect monthly or annual subscription charges from their customers.
• Transaction-based model: Agritech companies dealing in the financial services
segment follow this model based on the number of loans or insurance policies served.

6|
Initiating Coverage: Agritech as an Investment space in India

Growth Drivers:

Source: fao.org

• Arable land (about 120 million hectares (MHA) in China, and 156 MHA in India.
• China’s irrigation cover is 41% of the cultivated area, and India’s is 48%.
• As a result of this irrigation, China’s total sown area is 166 MHA compared to India’s
gross cropped area of 198 MHA
• But with much lesser land under cultivation, China produces agricultural output valued
at $1,367 billion—more than three times that of India’s $407 billion.
• This put alone is the biggest growth driver for the Indian AgriTech Industry.

Source: FICCI

7|
Initiating Coverage: Agritech as an Investment space in India

Inadequate And Unstructured Data: Acute lack of real-time data and insights act as a barrier
for tech penetration in the agri sector. Technologies such as drones, sensors, IoT, blockchain,
imaging, analytics and machine learning are all dependent on data, which is not existent or
unstructured in most cases.
Lack Of Access To High-Quality Inputs: Indian farmers lack access to high-quality agricultural
inputs, farm machinery, and other allied equipment, which in turn leads to low agricultural
productivity or low-quality crops. Agritech startups have addressed this challenge by
increasing the accessibility through digital e-commerce platforms for the delivery of inputs
such as seeds, fertilizers at the doorsteps of farmers
Inefficient Supply Chain: Post-harvest loss in India amounts to $13 Bn (as of FY2022) which is
primarily due to the poor transportation and storage facilities. This creates opportunities for
startups to streamline the supply chain by providing warehousing monitoring solutions,
market linkage, and demand-driven cold chains.
Lack of Employment Rationalisation: Agriculture sector employs 58% of India’s workforce,
contributing only 18% to GDP. This indicates that a large workforce needs to be rationally
redistributed through solutions that enable farm automation and aggregation.

High Cost of Equipment: Around 81% of the farmers own less than 1 hectare of land, hence
making it difficult to own equipment, also it is difficult for the farmers to buy heavy
agricultural equipment due to lack of funds or regular income. Startups offering farming-as-
a-service (FaaS) are making expensive farm equipment affordable for small and marginal
farmers for more efficient farming by converting the fixed cost of equipment into a variable
cost.
Lack Of Finance: Indian farmers have typically struggled to get loans from digital lending
platforms or even banks due to their bad credit history or lack of credit bureau data. Banks
have traditionally been significant Agri lenders but in recent times, they have been
constrained by bad loans-related norms. This has created room for agri-fintech startups that
are providing financial services beyond loans, but also crop insurance, and climate protection.
These services are helping improve the digital financial inclusion of farmers and creating an
alternate data source for traditional BFSI players.

Government Initiatives: National Agriculture Market (eNAM), India Digital Ecosystem of

Agriculture (IDEA), National Mission for Sustainable Agriculture (NMSA), National e-
Governance Plan in Agriculture (NeGP-A)

8|
Initiating Coverage: Agritech as an Investment space in India

Prospects of Subsector :

AgbioTech: In 2021, three companies in this segment raised over $14 million. While this is a
meagre 1% of the sector's substantial fundraise in 2021, it is the highest for this category thus
far. A key point worth noting is that each of these start-ups Sea Energy, StringBio, and
BioPrime Agri-solutions-began operations in or before 2016, making them some of the oldest
in the ecosystem.

AgFintech: Standalone AgFinTech solutions raised a cumulative $36.5 million across five deals
in 2021 and $19.33 million through one transaction in 2022. Although much larger than the
category's funds raised in 2020, it is a minuscule fraction of the capital attracted by India's
overall FinTech sector. The trove of farmer-specific data collected by these start-ups serves
as a 'digital wrapper' for financing entities to make informed lending decisions. Such
AgFinTech solutions are coming up in various forms, including PrecisionAgTech start-ups
providing locally and remotely captured farm-level data to inform loan underwriting
decisions, Downstream AgTech players facilitating tripartite agreements between farmers,
financial institutions, and buyers to create assurance of purchase as well as repayment.

UpstreamAgtech: It is gaining traction, accounting for a third of the first-time transactions

and more than 20% of Ag-Tech deals between January 2021 and June 2022. This is a significant
upward shift from past years, including 2020, when this category pulled in just 14% of all Ag-
Tech deals. Problem in upstream is high cost of customer acquisition, low visibility of the farm
end, and etc. Of the 16 start-ups that raised funds in 2021, 3 are focused on the dairy value
chain, 1 on aquaculture inputs, and 1 for farm diversification such animal husbandry, insect
farming etc.

Precision Agtech: This innovations attracted $62 million across 15 deals in 2021 and $72
million across 6 deals in the first half of 2022, Many start-ups in this space address on-farm

9|
Initiating Coverage: Agritech as an Investment space in India

challenges and so, like upstream supply chain solutions, have struggled with driving adoption
among farmers and farm-proximate value chain players and monetizing their solution.

AgAutomation: This solutions attracted three investments in 2021 and five in just the first
half of 2022, the highest for this category. This technology could provide an additional
revenue stream for farming families and serve as a fallback in the event of crop losses due to
unfavourable weather or other circumstance. Example: Hydroponic technology.

AgInfratech: This category attracted only two deals in 2021, and none in the first half of 2022
(down from four in 2020). Capital flows in AglnfraTech are dominated by large warehousing
platforms-Arya, primarily, and, to a smaller extent, Ergos. The high capital requirements of
solutions in this space likely pose a significant barrier to entry for new entrants. Innovative
cold chain and other shelf-life preservation solutions, as well as equipment and facilities for
farm-proximate value addition, are a huge missed opportunity in this category.

10 |
 Initiating Coverage: Agritech as an Investment space in India

Market Potential for Agritech Subsector

Segment Market Key Assumptions
potential
(USD in
Bn)
Market Linkage - 1.7b >Market for agri-inputs (seeds fertilizers and pesticides)
Farm Input is estimated at US $21.0b in 2025

>Agritech players in this space typically earn a margin of -

8% (it varies on type of input) on the value of agri-inputs
Precision agriculture 3.4b On a bottom-up basis,
and farm >Total base of farm units (projected at 169m in 2025) has
management been considered. Subsequently, an ARPU of US $20 per
farm unit has been applied to estimate market potential.
From a top-down perspective,
>North America's penetration of precision agriculture to
its GVA for agriculture (0.7%) has been applied to India's
protected GA for agriculture in 2025
Quality management 3b >Market for rapid quality testing in North America stands
& traceability at 0.5% of agriculture GVA. India's total market potential
has been projected at similar penetration
>Market for source traceability has been projected by
applying an annual ARPU of US $3 over the base of farms
holdings in India
Supply Chain tech & 12b >Value of agricultural output from fresh produce (fruits &
output market vegetables), cereals, pulses, oilseeds, and spices &
linkage condiments is projected at US $406b
>Addressable market has been filtered by applying the
share of urban areas for demand generation (33%). A
blended margin of 8% has been applied on addressable
turnover to estimate the net revenue for Agritech players
Financial services 4.1b >Market for lending has been projected by estimating the
(for farming loan book from informal lending in farmer units (30%
communities) farmers).
>Average ticket size of INR1.5L has been applied over a
Net Interest Margin of 2.7% to estimate net income.
>Market for crop insurance has been projected by
estimating the whitespace from current insurance (65% of
farmers unserved)
Source: EY report on Agritech in India,2022

11 |
Initiating Coverage: Agritech as an Investment space in India

Funding analysis & Recent Deals:

AGRITECH START UP FUNDING Y -O-Y
GROWTH
Series1 Series2

636

539
155

58

44
37

2020 2021 H! 2022

Source: Entrackr

According to Entrackr's data tracking platform Fintrackr, close to 100 agritech businesses
funded close to $1.33 billion over 139 deals between January 2020 and June 2022. This
comprises approximately 44 transactions totalling $539 million this year, 37 transactions
worth $155 million in 2020, and 58 transactions worth $636 million in 2021.

Agritech Funding Data: Jan 2020 - June 2022

(Analysis)
Name of No. of Sum of Amount Raised %
City Deals (In $Mn)
Bengaluru 44 353.98 26.62%
Delhi-NCR 36 440.92 33.16%
Mumbai 10 76.38 5.74%
Chennai 10 209.55 15.76%
Pune 9 98.24 7.39%
Hyderabad 3 7 0.53%
Patna 3 32 2.41%
Kochi 2 0.8 0.06%
Samastipur 2 15 1.13%
Jaipur 1 1.4 0.11%
Indore 1 10 0.75%
Source: Entrackr

Out of the total Agritech start-ups funded, more than 50% are from Bengaluru and Delhi.

12 |
Initiating Coverage: Agritech as an Investment space in India

Agrictech Funding raised at different stage

Sr. no Series No. of deals Amount %
raised ($
Mn)
1 Seed 56 55.35 4.16%
2 Series A 24 210.17 15.81%
3 Pre-Series A 15 42.29 3.18%
4 Pre-seed 10 5.99 0.45%
5 Series B 9 287.4 21.61%
6 Series C 7 176.93 13.31%
7 Debt 7 78.3 5.89%
8 Series D 5 456 34.29%
9 Angel 4 1.25 0.09%
10 Series E 1 10 0.75%
11 pre-Series B 1 6 0.45%
Total 139 1329.68 100.00%
Source: Entrackr

On a deal-to-value basis series round D has the highest value proportion among other deals.
Note: Recent deals that took place in Jan,2022 to June,2022 has been depicted in
annexure A.

13 |