Co-innovation is necessary to drive innovations at scale
Agriculture in India grapples with four systemic constraints that disproportionately affect the approximately 125 million small and marginal farmers in the country: (1) High Yield Riskmanifests in the form of uncertainty in quantity and quality of produce, and timing of harvest; (2) High Price Riskresults from high volatility in prices due to gluts in the market at the time of harvest and poor mechanisms for matching supply with demand; (3) Low Price realizationfor farmers due to high costs of production and inefficient markets; and (4) Weak production systems with minimal use of technology that make farming an inefficient and labor-intensive enterprise. A question I think about a lot is what innovations would it would take for agricultural growth in India to break out of the confines of mainly medium/large farmers servicing tier I/II cities and create meaningful change for the entire sector. Co-innovation or Partnership linkages across innovative firms that stitch together innovations in business models, and in development and access to relevant technologies and efficient markets are key to resolving these constraints at a large scale.
Over the last decade technologies and business models in agriculture have advanced rapidly in India through several startups experimenting with new ideas. However, most of these innovations are solving for specific issues within the agriculture value chain and are yet to reach a scale necessary for substantial impact on the sector. I think that going forward we need more partnerships that leverage these innovations such that whole becomes greater than sum of its parts. While point solutions are a necessary first step, individually these models are insufficient to meet the need of farmers in light of the four constraints and changing consumer demand trends. In addition, there are dependencies across different parts of the value chain that can only be solved at scale through partnerships. As Bright Simons from CGD points out “value chain control paranoia is a rational approach to risk in environments where institutions and infrastructure are weak, but carefully analyzed, it is in fact a form of “weak rationality” since controlling risks by owning more of the value chain merely transforms the risk from counterparty risk to complexity risk”.
I will illustrate this point using an example in agriculture finance. Farmers need working capital finance during the farming season and a few NBFCs have created innovative business models that can reduce the perceived and real risk of providing agriculture credit. As a result, they have been able to increase the scale of lending while controlling the cost of finance to farmers. An important element of these models is reliable farm and farmer data that combine disparate datasets such as cash flows from market transactions, credit history, crop health and yield estimations to produce analytics that can form the basis of financial decisions. There are emerging technology companies that capture remote sensing and survey data to provide this information, and supply chain companies that have important data on market prices and cash flows of farmers. To a certain extent, existing business models could solve for these dependencies by diversifying into these areas, thus running increasingly complex organizations.For example, an e-commerce for input business may also have an NBFC to provide working capital finance, or an NBFC may have an inhouse advanced data and analytics platform, or a data technology company may create a marketplace for farmers and buyers to transact. However, players must not feel compelled to build across the value chain and to solve these problems at scale we need NBFCs, SaaS companies, supply chain companies and inputs suppliers to forge partnerships that create a scalable and replicable ecosystem within which millions of farmers can operate. There are a few promising sparks of such partnerships in the sector and we need a lot more of those in the country.
Such partnerships will enable firms to specialize and build on their strengths while focusing on unit economics instead of stretching themselves too thin by adding complexities and uncertainties of running a set of businesses that have different economics, require different structures, and are affected by a different set of market forces. This enables firms to leverage innovations and talent that exists across the sector, thus tapping into assets that would have been difficult for each company to build inhouse. Such reduction in complexity while developing an ecosystem could reduce the investment time horizon for VCs and improve their exit rates. It also incentivizes standardization of information flow across the sector as that will be critical to establish many-to-many relationships across companies. There are other sectors such as fintech we can learn from where startups developing alternate lending platforms, underlying data and analytics, and large banks are actively partnering to shape the future of finance in the country. Agriculture has all the necessary ingredients in place to get on that journey.
Anjani is Deputy Director for Strategy India Country Office at the Gates Foundation with past experience in investments in India and Africa across multiple sectors such as technology, agriculture, finance and education. He worked in commercial and investment banking for several years and now applies his skills and experience to drive innovations at scale across sector
The views and opinions expressed in this article represent the personal perspective of the author(s), and do not necessarily reflect the view of the foundation