Relevance: GS-3: Major crops cropping patterns in various parts of the country, different types of irrigation and irrigation systems storage, transport and marketing of agricultural produce and issues and related constraints; e-technology in the aid of farmers.

Key Phrases: startup ecosystem, supply chain activities, agriculture and manufacturing, business model, agri-startups, agri­based economy, NABARD, AgroStar, angel investors, venture capitalists, APEDA.

Why in News?

• Seed capital from banks, a dedicated stock exchange and renewed thrust on FPOs will give them a boost.

Context:

• Seventy-­five startups/new age companies mobilised ₹89,066 crore in April­November 2021 through the initial public offering (IPO) route, the highest in a decade, according to the latest Economic Survey. However, the share of agri­startups in this is negligible.
• It appears that the startup ecosystem in India is skewed in favour of services — Big Data, Edtech, fintech, logistics and supply chain activities — rather than agriculture and manufacturing. While startups have several options to mobilise funds, their early stage break­through funding normally comes from angel investors (private equity and venture capital) and the government (seed capital).
• While venture capitalists are keen on investing in startups based on, among other things, their disruptive business model, high growth potential and their ability to make quick profits, agri­startups have been lagging in attracting funds.

Need for Agri-Startups

• It is a well-established fact that Indian agriculture is largely not a viable profession due to many structural issues. As a result, very few investors are interested in deploying their funds in this sector.
• However, India is a rural centric and agri­based economy, and nearly 60 per cent of the population depends on this sector for livelihood. Therefore, agri­startup entrepreneurs need to be encouraged in the following ways:
• First, Seed capital from the banks and hand­holding of agri­startups by institutions such as National Bank for Agriculture and Rural Development (NABARD), by extending credit plus services, will go a long way in this direction. In September 2020, the Reserve Bank of India directed banks to treat loans up to ₹50 crore to agri­startups under priority sector lending.
• Second, by taking a cue from the social business model promoted by Muhammad Yunus, agri­startup entrepreneurs may tap low­cost funds.
• Third, a dedicated exchange for agri­startups may be established just like a stock exchange for small and medium enterprises. The Securities and Exchange Board of India (SEBI) may stipulate liberal regulatory norms for listing of agri-startups on the bourses. This will pave the way for raising much needed risk capital for scaling up agri­startups and rural enterprises.
• Fourth, renewed thrust on collectives — Farmer Producers Organisations (FPOs) — will enhance the economic viability of agriculture by fostering penetration of technology and technical knowhow, improving productivity, and enabling enhanced access to inputs and services to the farmers. This will improve the collective bargaining as well as purchasing power of farmers so that they will be able to pay for the services of agri­startups in India.

• Fifth, the entrepreneurs should be imparted with financial literacy and education as the startup world is full of domain professionals and engineers, who hardly know anything about finance and investors. Therefore, entrepreneurs would be successful in mobilising capital from the market if they team up with agricultural researchers, financial experts, and technology wizards. For instance, IIT Madras and Tamil Nadu Agricultural University promoted incubation centres and accelerators to promote agri­entrepreneurs by connecting the dots in the ecosystem.
• Sixth, agri-startups that focus on climate change and disaster management will flourish in the near future. Even international agencies such as the World Bank and International Fund for Agricultural Development are willing to assist agri­startups in the context of achievement of sustainable development goals in general, climate action (SDG 13) in particular.
• Seventh, angel investors, venture capitalists and private equity holders may be given tax incentives on capital gains apart from providing ease of doing business at the time of their exit from the agri­startups. More specifically, the government should create an investor friendly regime to attract funds in the agri­startup sector.
• Eighth, the Indian Council of Agricultural Research and State Agricultural Universities have developed numerous farmer friendly technologies but the same have not been commercialised so far. So policymakers may be proactive in this context by identifying right stakeholders under public private partnership, for conversion of brilliant ideas into useful products/services.
• Ninth, an insurance mechanism may be developed to de­risk genuine failures of agri­entrepreneurs. This will improve their risk appetite.

Challenges in Agri/Opportunities for Startups:

• Inefficient Supply Chain: Powerful incumbents control farming resources such as finance, seeds, chemicals, distribution, and supply chain. These systems have complete access to the distribution networks that supplies to about 8 Mn kiranas across the country too.
• Middlemen and Agents: The farmer needs on the demand-side are controlled by middlemen and agents who own the fragmented supply chains. They also control the produce pricing. For instance, organized retailers are estimated to source 20% of their produce directly from farmers, the rest of from mandis. But mandis are not ideal farmers’ markets, Traders require a license to operate within a mandi but wholesale and retail traders and food processing companies cannot buy produce classified as notified agricultural products (cereals, vegetables etc.) directly from a farmer. Notified products are to be brought to the market committee and auctioned in the farmers’ presence. Most of the market committees have failed to provide a competitive platform to farmers and lack transparency and technology intervention to ensure smooth and just trading.
• Lack of financing: Distributors usually double up as lenders and most farm-debt is created because of using chemicals and seeds that are not pest-resistant. Additionally, domestic subsidies and investments announced in policies rarely reach the end customer – the farmer.
• Inadequate Irrigation: Agriculture in India is a fragmented activity spread across 600,000 villages and most of the regions still depend on rainfall for water (~70%). While at the same time, groundwater levels are slowly receding from the 1,000 ft. avg. depth yearly.
• Farm size vs Productivity: Studies have shown that there is an inverse relationship b/w farm size and productivity. Indian farms are fragmented and small; 70% are less than 1 Hectare, while national average is less than 2 Hectares, resulting in significantly low farm yields. In Europe and US, avg. sizes are 30x and 150x of those in India

Way Forward:

• Agricultural start-ups in India have addressed systemic bottlenecks in the agricultural sector, instead of focussing on specific commodities. As a result, they have the potential to scale up nationwide.
• However, in addition to investment capital, Indian agricultural start-ups need technical advice and access to global markets and talent. Several venture capital and private equity funds are stepping in and applying their experience from other sectors and countries.
• Thus, start-ups that serve small farmers need more seed funding, early-stage capital, incubation and mentoring to unlock their immense growth potential.
• Further, the announcement of a fund for agri­startups by Finance Minister Nirmala Sitharaman in her Budget speech is a welcome move. The exclusive fund for agri­startups and rural enterprises will be launched through NABARD in order to give a fillip to the farm produce value chain. However, the government should ensure ‘ease of funding’ for agri­entrepreneurs to attain the intended objectives.
• Finally, agri­startups will flourish in India if they are associated with industry associations like Agricultural and Processed Food Products Export Development Authority (APEDA), Indian Chamber of Food & Agriculture, NASSCOM, etc., especially for testing/ validation of prototypes before their launch.
• In sum, concerted efforts should be made for promotion of agri­startups in order to implement climate smart agricultural practices in rural India, thereby ensuring food and nutritional security of the nation.

Source: The Hindu BL

Mains Question:

Q. Discuss the need of agri startup ecosystem in Indian agriculture. What challenges they are facing and measures to boost these startup? Critically analyse.