Empowering farmer participation, one harvest at a time
Anubhav Goyal
Oct 07, 2020
Chiratae Ventures leads the Series A round in agri-tech startup — Ergos along with existing investor Aavishkaar Capital. Below is the story…
Solving for Farmers’ Incomes
Stagnating farmer incomes has been one of the biggest challenges in the agricultural sector of India. In spite of a 3.7x growth in food production (compared to a 2.5x growth in population) in the country since the Green Revolution, the major stakeholder in the agriculture sector namely farmers have remained in a poverty loop.
The primary reason for this can be traced to a peculiar characteristic of farming in India, wherein 85% of the farm holdings are less than 5 acres, which largely affects the farmers’ bargaining power in the agricultural value chain.
While there have been attempts by both private and Govt. players to address the income problem through yield maximization, non-farm occupations, farmer loans, etc. we believe that a strong hypothesis-driven technology-first approach to solving the declining average farm holding and stagnant farmer income challenge could lead to sustainable value-creating businesses in agriculture.
Looking at this challenge from a simple first-principles perspective, the farmer income can be seen as a function of the actual yield and the value realization from the said yield. The 7 key prospects for a 2x growth in farmer incomes by 2025–26 as identified in Niti Aayog’s white paper from 2017 can be attributed to one of these variables.
Over the years, we have partnered with Agrostar (a leading agri-inputs m-commerce player) and Cropin (Data and AI-led B2B SaaS platform for agri-businesses), both of which in their own ways have focused on the yield and productivity maximization in the current phases of their growth journey.
The other piece of the income opportunity has been on increasing the value realization for farmers for their existing produce, for not just a single transaction but on a consistent and sustained basis.
When we first met Kishor (co-founder and CEO of Ergos), their Grainbank model & 3 key observations and hypotheses resonated strongly with our thesis.
- Year-round price transparency and opportunities to sell for farmers: Based on long-term data, farmers can realize better rates (20%-100% higher) if they can sell in the off-season, which can result in their net income increasing by 40%–150%. Year-round price transparency, removal of middlemen, and opportunity to micro-sell via community pooling to end-market linkages have the potential to drive value maximization for farmers.
- More opportunities to sell requires access to storage: With storage infrastructure for foodgrains at less than 50% of the total annual production, farmers are forced to sell in bulk at the time of harvest to avoid the 15–20% grain loss in the absence of quality storage. Solving for availability, accessibility, and affordability of storage for all farmers opens up choices for the farmer to sell throughout the year.
- Agri-credit grows with more data & ease of processing: Lack of incentives, regulation, and micro-level data lead to over-reliance by PSLs (priority sector lenders) on macro factors like district per capita income, etc. to lend. Data shows that ~40% of agri-credit went to Southern states accounting for ~20% of total crop production. A longitudinal harvest data and collateralized play with support from a digital intermediary helps farmers put down their case for access to credit.
Ergos attempts to provide all of these as a single point full-stack solution as a “friend of the farmer” with round the year connect at the village/farm-gate level.
Our Litti Chokha Lunch in Bihar
Some interesting conversations with Kishor & Praveen got us excited to witness their operations and tech platform in play at ground zero. We were fortunate to visit the state in its cold winter months early this year, weeks before the pandemic locked us in our houses.
Our road trip with the founders turned out to be a great time to get to know more about Kishor and Praveen’s journeys and motivation for building Ergos.
Through our conversations with some of the farmers, it became clear that their engagement with Ergos was much more than a transactional relation having experienced real on-ground benefits. All conversations echoed one thing — an option to price and sell round the year is priceless!
We as VCs surely took away some interesting insights on how the farmers and the company’s own VCs (Village Champions!) interacted with technology (Every farmer interaction and grainbank operation had a digital trace!)
The Village champions reminded us of early bank managers who focussed on building strong relationships to drive trust among new customers, along with an added role of capturing more longitudinal farm data to potentially unlock micro agronomy advice.
Pioneering a unique Grainbank model
Ergos has a very unique model of allowing farmers to hold a digital inventory of their produce by providing farm-gate access to warehousing and potentially agri-processing services as well as access to credit by collateralizing their digital inventory. Their technology platform enables year-round micro-selling by farmers with better price discovery through strong hyper-local end buyer linkages.
While multiple farm to fork players have worked on improved price realizations on a transactional basis, the longitudinal data and farmer relationship stood out as strong moats for Ergos. Our conversations indicated that Ergos stood out as a long-term full-stack partner for engaging further in post-harvest journey of their produce.
Opportune Moment for Farmer-first Agri-tech
These are surely interesting times for Indian agriculture, as technology and policy came together to drive the much-needed impetus for the sector. Various recent policy decisions point out to this.
- ENWR guidelines by WDRA: The WDRA (Warehouse Development and Regulatory Authority) which is a regulatory body for the development and regulation of warehouses came out with the Guidelines for Creation and Management of Electronic Negotiable Warehouse Receipts (ENWRs) driving a strong policy push for digitizing warehouse workflows.
- Viability Gap funding for farm-gate warehouses: In the latest Budget, the Govt. highlighted its intent to digitize the entire warehouse footprint in the country with NABARD undertaking an exercise to map and geo‐tag warehouses in the country. Provisions for VGF — viability gap funding to SHGs for setting up warehouses at the local farm-gate level have also been proposed.
- Farm Bills: The 3 farm bills passed by the Govt. are targetted at empowering farmers to sell their produce to anyone and not restrict them to the Agricultural Produce Market Committee (APMC) mandi yard via an amendment to the APMC Act, letting them enter contracts on a pre-defined forward price including free inter-state movement & marketing of their produce and lastly, an amendment to the Essential Commodities Act (1955).
- District-wise Priority Sector Lending: RBI’s recently revised guidelines seek to increase the penetration of credit to previously under-covered areas and regions, focus on small and marginal farmers by setting district-wise incentives and disincentives for PSL credit.
This is only the beginning
Other than the policy tailwinds, the company’s own focused approach of operating at the farm-gate and leveraging technology in all their operations drove the company to record its highest ever inwarding volumes in this year’s rabi season despite the challenges due to Covid-19. Riding on the robust model, Kishor, Praveen & their team looked all set to grow their existing farmer relations and expand their geographical coverage across states.
While the company plans for that, we are happy to announce that Chiratae Ventures have led the company’s $11M Series A round. As Ergos charts its path to become India’s largest grainbank network at the farm-gate reaching out to several million farmers, we at Chiratae are extremely excited to be a part of its journey.
Personally, we cannot wait to see more and more farmers getting empowered through farm-gate access to storage, credit, and market — one harvest at a time 🚀