Prasanna Rao, CEO & Co-Founder, Arya, discusses how startups in the post-harvest agri-tech space are building a complete suite of services to the farmer, encompassing tech-enabled quality grading, aggregation, storage, swift and smooth digitally-enabled financing, and a marketplace on one platform one platform.
For any industry in any economy to prosper, finance is the necessary fuel to sow green shoots of growth, the Indian agrarian sector being no different. Credit is tight and working capital is low, from start to finish in the Indian agricultural economy. In most cases, the humble Indian farmer doesn’t have enough money to use Storage-as-a-Service, and is thus forced to sell to traders to generate cash flow at harvest when prices are lowest. The trading segment is itself fragmented (unlike the West where a few juggernauts handle the bulk of the volume) and is therefore comprised of a spectrum of small to large traders who progressively handle different parts of the supply chain – from buying from the farmer and giving him immediate cashflow to themselves selling to larger traders who have more capital and can therefore aggregate more.
Time is always money, but additionally in agriculture, storage is power. Post-harvest – the more time that elapses, the more prices usually tend to appreciate past that harvest supply push. And to wait it out and capture that price increase, you need to be able to access cheap storage to tuck it away. To be able to store without being starved for cash flow, you need credit. He who has capital generates more capital, and in Indian agriculture, that isn’t the farmer. World over, we have seen a shift in this trend – as farmers this century have grown wealthier (due to greater control over their own storage), a subtle but powerful shift has occurred in the dynamics of global agri value chains, as more value has accrued to the producer.
Arya and other Indian agri-techs are working to bring this shift to India. They are creating opportunities for smallholder farmers and FPOs at the fringes of inclusion.
The ability to finance farmers cheaply and instantly is in the first place driven by the right asset footprint. Unlike a vast majority of Warehousing Service Providers, new age agritechs are primarily geared towards the farmgate – 90% of Arya’s footprint is, for example, in primary and secondary agri-centers, wherein over 40% of our borrowers are using formal lending sources for the first time. This enables farmers and FPOs to simultaneously access storage and financing very conveniently, and allows them to participate in the price appreciation post-harvest. In many cases, post-harvest agritechs are the only lenders present in these areas.
At the time of harvest, the farmer will bring his/her produce to a warehouse for storage, at which point in time, quality is first assessed using a combination of regular processes as well as AI-enabled techniques. Once the produce is graded and stored, the farmer receives a digital balance, which can then be used for borrowing.
Warehouse receipt finance has become a viable and easy solution to the needs of small holders. Many banks/NBFCs insist on a formal credit history before lending. Moreover, agri-tech lenders issue small ticket loans which many bigger lenders will not. By lending only against secured collateral which it controls, a fintech like Aryadhan doesn’t require credit history for lending.
This is key to unlocking financing demands in near farmgate markets. Onboarding and borrowing processes are simple and intuitive and sanctioning of a loan to a farmer is done in less than 5 minutes. For a loan, one needs only basic Aadhar KYC, which can be scanned and uploaded digitally. For reference, banks and other bigger NBFCs typically take a week to 10 days for this stage as they don’t have the physical presence in the immediate vicinity. Sending someone to a rural village in India and processing a loan could typically take at least a week. Speed here is of the essence and agri-techs like Arya enable swift borrowing for clients.
Very importantly, the rates at which agri-techs lend are much lower than competing lenders in these areas, making it a win-win for the farmer as well the agri-tech company.
To close this particular loop, the final key service is a marketplace, so farmers or FPOs can sell their produce through a digital platform instead of having to search for a buyer themselves. With a wider footprint, a digital platform is able to connect a wider circle of buyers and sellers than an average participant today typically transacts with, thereby increasing the chances that the seller finds the best price on the platform.
Once the commodities are sold through the platform, the loan gets closed automatically. The balance of the proceeds are refunded to the buyer immediately, thereby reducing friction and increasing convenience as well as utility significantly for the farmer. Arya’s model agri chain is a very good example of how agrtitech maximises every value of the grain that travels through the value chain to benefit smallholders with better returns.
Thus, startups in the post-harvest agri-tech space are building a complete suite of services to the farmer, encompassing tech-enabled quality grading, aggregation, storage, swift and smooth digitally-enabled financing, and a marketplace to capture the best price for the goods all on one platform, thus enabling profitability for the farmer and a much-needed shift in value in the chain towards the producer.
