Investment Theme of the Month: Agri

Investment Theme of the Month: Agri

With India ranking 103 out of 119 in the Global Hunger Index in 2018 and at the same time wasting 40% of all harvested agricultural produce – it is surprising that only in the last few years have investors opened their eyes to the value potential in Agriculture.

India continues to be a country driven by agriculture; despite only accounting for 20% of GDP, 58% of the population relies on this sector for subsistence.  Moreover, given the pain points in the agriculture sector, highlighted below, one can slowly begin to understand why it has taken so long for VCs to see potential in the sector.

Nevertheless, these same pain points also create demand for the very services which Agri start-ups have begun to provide over the past 5 years.

  1. Supply Chain Inefficiencies
  2. High Finance Costs and Large Volumes of Unstructured Data
  3. Access to High Quality Inputs

As such, the above factors correlate with the key business segments and thus directly try to solve the problem for the farmers and consumers. Currently, firms place the market potential for Agri-tech start-ups at ~$24bn.

Supply Chain Inefficiencies >>> Market Linkage Companies:

Market Linkage start-ups are the most well-funded in the sector and accounts for nearly half of the market potential ($12bn). These companies aim to solve the most difficult problem from the farmers’ perspective as they reduce the number of intermediaries between the farmer and the retailer.

More importantly, reforms through the new farm laws are the need of the hour when it comes to providing  farmers more control over their income. Key obstacle continues to be reliance and the exploitation by intermediaries. In the ideal scenario, there would exist significant potential for farmers to reach distant markets directly as the supply chain opens to technology from start-ups.

From TCF’s perspective, we see valuations as a potential issue as many of the larger players have scaled up at higher valuations. Team to actively look for smaller players with potential to scale.

High Finance Costs and Large Volumes of Unstructured Data >>> Agri Credit Companies:

It is a well-established fact that there is a formal credit gap for small and marginal farmers. This is evident from the fact that out of the 12.4 Cr small and marginal Indian farmers, who own 86.2% of the farmland, only 3.6 Cr borrow from formal sources. Further, due to lack of data, banks target medium and large farmers who already have access to formal capital and take >50% of the Agri credit.

In most cases, the need for informal funding shoots up after the seeds have been planted. Highlighting that, unplanned expenses are the main reason for acquiring informal funding. As such, it is essential for Agri Credit companies to be able to provide fast funding at reasonable terms.

Despite only garnering a fraction of the funding provided to Agri Tech, we at TCF see great value in this segment and believe it fits well into our focus areas. With a number of these start-ups working with FPOs to scale, they can piggyback on the growth from the market linkage players.

Access to high quality inputs >>> Agri Inputs Companies:

The Agri inputs segment has the least barrier to entry but has seen several challenges to scale given the traditional supply chain operates with a long working capital cycle, with retailers taking disproportionate working capital risk (dues typically paid post cultivation) based on social capital with farmers.

Though people acknowledge that there are inefficiencies in the system, D2F model has not succeeded. The Start-ups in early stage are working with existing retailers in the segment and helping them with knowledge and lower priced inputs directly from manufacturer.

From TCFs perspective, we continue to explore companies who provide a combination of inputs and financing capabilities to tackle the key working capital issues faced by the retailer.


Overall, we at TCF, continue to see long term value in the Agri tech space and we carry unique capability capital to underwrite and partner with companies focused on providing financial services to the sector. Further, given the market potential in segments such as ‘market linkages’, we will also continue to view the space on an opportunistic basis.

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