- Team ThinkAg
Technology as driver of Rurbanisation
India is likely to become 43.2% percent urban (approx. 675 mn people) by 2035 as per the United Nations - Habitat’s World Cities Report 2022. The urbanisation will be led by growth in Indian population as well as migration from villages to cities. The report said that “cities are here to stay, and the future of humanity is undoubtedly urban”.
India already has about 50 cities with population over a million people and this number is likely grow in line with urbanisation trends. Infact, Delhi will emerge as the world’s largest urban conglomerate with a population of over 39 million by 2030. Going by the trends seen in the western world, urbanization is a sign of economic growth. Most developed economies in the world have more than 75 % share of urban population.
In this context, it will be an audacious statement to make that India will continue to remain rural and it will be almost blasphemous from an economist’s lens, to predict that India is likely to become more rural in the next few decades. Irrespective of how counterintuitive and contrarian it may sound, rurbanisation (reverse-urbanisation) in India driven tech-enabled business models. Infact, rurbanisation could very well be one of the most important growth drivers for the Indian economy in times to come.
The belief and confidence towards India’s rurbanisation arise out of the spiked emergence of new age technology-led models in rural India in the last decade, triggered by the more-than-anticipated willingness of rural India to embrace technology for higher incomes and business transformation. Unlike urban-centric tech evolutions (largely focused on driving efficiency and consumption), rural tech adoption trajectory is majorly, technology ---> higher incomes ---> consumption (with increase in incomes at the core). Another positive part of rural tech adoption is that very less of it is driven by cash burn / promotion led approach.
Amongst multiple sources of income for people in rural India, agriculture is and will continue to remain at the fulcrum. In the field of agriculture alone, we have seen an ocean of innovative business models in the last decade solving for any problem plaguing the sector for ages.
Majority of the tech-driven innovations in agriculture are led by about 2,000 plus startups. This count is growing and likely to cross 10,000 before 2030. The best parts of rural-centric startups are relatively low mortality, higher survival probability in funding winter and not even a remote possibility of monopolisation of the market by a handful of startups.
With "A"griculture at the core, the six other "As" which will play out in India's rurbanisation journey are Aggregation, Asset creation, Arbitrage opportunities, Ancillary Industries, Access and Aspirations. Let’s discuss how technology and innovations are catalysing and empowering these six "As".
In the context of rural India. technology is driving aggregation at least on four dimensions - Farm produce, Farmers, Farm land and Data.
1.1 Aggregation of farm produce
The aggregation of farm produce has traditionally been supply-driven with about 6600 APMC mandis and many smaller mandis as the key aggregation points. With organisation of the demand for food products in the front-end, supply side aggregation is catching up to synch up with demand side aggregation originating from institutional buyers, horeca, modern trade, ecom, quickcom, kirana stores and end consumers.
Over the last decade, there is demonstration of tech-enabled demand-driven aggregation of farm produce in multiple categories such as staples, horticulture, animal protein and milk by startups like WayCool, Dehaat, FarMart, Agribazaar, Hesa, Innoterra, Gram Unnati, Country Delight, Licious, Aquaconnect, Bioveda, Urban Harvest, Farmers Fresh Zone, Maalexi, Origin Konnect, TradeBridge to name a few. The transactional volume ranges from few tonnes to few thousand tonnes of farm produce on a daily basis.
The farm produce aggregation models necessitate involvement of local village communities and microentrepreneurs, creating both entrepreneurial and employment opportunities in the villages. Out of approx. 1000 million tonnes of food consumed and exported in / from India annually, the share of new-age-demand-led-aggregation models is still less than 2%, leaving large head room for growth. Millions of jobs will be created or formalised in this process with accelerated aggregation, with most of the jobs being created in villages.
1.2 Aggregation of farmers
The aggregation of farmers is largely led by government schemes for promoting FPOs (Farmer Producer Organisations), SHGs (Self Help Groups) and cooperatives. There are about 5000 FPOs, 8 million SHGs, 8 lakh cooperatives in India, with majority of members being farmers or from farming families including women farmers and rural youth.
FPOs though in their nascent stage are making using technology for both backward (for the purchase of inputs) and forward integration (for buyer / price discovery). The second phase of FPO evolution will likely pivot to value addition of farm produce and FPO’s transformation into FPPDO (Farmer Producer Processor Distributor Organisation) throwing open many innovative models and creating opportunity for skilled manpower to manage these companies.
SHGs are also undergoing transformation with over 1 million SHGs being digitised through E Shakti project, a clear indicator of tech adoption. Cooperatives have been there for decades and demonstrated the power of aggregation (case in point, dairy cooperatives which were instrumental in white revolution and continue to play a pivotal role in dairy value chain). However, there has been lack of transparency and efficiency in the cooperative structure. The Government has renewed its focus on cooperatives with the formation of a dedicated ministry called “Ministry of Cooperation” as we all know. There is a plan to digitise 63,000 Primary Agricultural Credit Societies (PACS) over next five years. Digitisation of SHGs and cooperatives will be hotbed for innovations for anyone serving rural markets.
The multi-tiered aggregation among village communities is bound to drive thousand and millions of innovative business models. Even among agri-startups, FPOs are already becoming an important target segment. Samunnati, Falca, Sahyadri Farms are some of the are some of the emerging FPO-centric business models and we are likely to see many more of them.
1.3 Aggregation of farm land
This is one of the most difficult aggregations because of continued fragmentation of agricultural land (average farmland holding has come down from over 2 hectares to about 1 hectare in the last 5 decades).
Pooling of farmland is imminent in India with monstrous need for mechanization across all sizes of farm land with farm labour becoming scant, sporadic at times and expensive. Though some mechanical tools work on small parcels of land, land pooling does makes small farms amenable to mechanisation through use of emerging technologies such drones, robots, sensors. IoTs, computer vision, harvesters, land levellers and many such hardware equipments. The fact that already a significant number of farms in India are cultivated by the share-croppers, land pooling at large scale is highly possible.
Mechanization-led-land pooling will open doors for millions of rental entrepreneurs who can provide product and services on pay-per-use. The custom hiring centres providing equipments on rent is a testimony to this trend. Startups focused on mechanization such as Krish-e, Tractor Junction, Mera Tractor, Toolsvilla, Agrictools, Sickle Innovations, Marut Drones, Garuda Drones, General Aeronautics, IoTechWorld, Fasal, Cultyvate, SoilSense are bringing both product and process innovation for mechanised farming.
1.4 Aggregation of data
Indian agricultural supply chain suffers from perennial dyslipidaemia leading to triple vessel block in three vital arteries of the value chain (pre-harvest, production and post production). The clogged value chain can be cured through the aggregation of data synergised with multi-tiered aggregation of farm, farm, farmland as discussed above.
Aggregation of farm data has been attempted by every other agritech startups by developing their proprietary stacks capturing information about farm, farmer, crop, soil, weather, cattle, quality of commodities etc. Data stacks created by likes of SatSure, CropIn, Krishitantra, Bhu-Praikshak, Harvest Global, Borlaug Web Services, Kheti Buddy, Ingreens, Agnext, GoMicro, WRMS, Skymet, IBISA etc have demonstrated how real time, accurate and aggregated data can be used for multiple applications in agriculture. However, data collection / cleaning / validation is always an onerous job for young startups especially when their heart and soul lie in data analytics.
The recent budget announcement regarding creating public digital ecosystem (so called Agristack) for agriculture is a massive step in aggregating scattered data points. The good news is that data is available (mostly collected and owned by the state governments) and digitised to a large extent. A unified Agristack can make the data standardised, interoperable and once made open-source can create opportunity for numerous APIs, innovations and business models solving for farmers’ access to market, inputs, advisory, credit and insurance.
2. Asset Creation
To unlock the value of rural economy, the confluence and convergence of physical and digital assets is the key. Digital highways created by the startups can become digital expressways with data aggregation and access to public platforms, which can significantly bring down the transactional cost of first and last mile access to farmers.
However, digital assets need to be complemented with millions of physical assets which can empower farmer and farmer groups to become participants in the value chain (rather than merely playing the role of producer) at possibly (farm + 2) level – as a processor as well as a distributor. The farm and near farm processing can drive farmer’s transition to a value chain custodian with higher value capture in the post-harvest phase. The decentralised warehousing and processing will also synchronise food value chain with the fragmented land holdings.
Startups like S4S Technologies, Innofarms, Arya.ag, Ergos, Digigrain, Suri Agrofresh, Ecozen, Inficold, Promethean are great examples of building physical infrastructure (in many cases complementary to digital layer) giving options to farmers to store as well as process; to bankers to digitally lend seamlessly and to processors to buy efficiently. The Agri Infra Fund (AIF) scheme of the Government, which provides concessional financing for setting farm and near-farm assets is playing a catalytic role in the creation of physical assets in rural areas.
3. Arbitrage (mitigation) opportunities
The Indian agriculture has genetically inherited three kinds of arbitrages - regional, seasonal and information. The information asymmetry can be addressed through aggregated datastacks as discussed above.
There is also an opportunity to build business models to mitigate seasonal and regional arbitrages as consumer demand patterns becoming unform throughout the country. The case in point is conventionally rice eating belts in southern India is eating more chapatis (made from wheat flour) and north Indians are eating more rice dishes. Biryani having strong localized association with certain cities like Hyderabad, Lucknow and Kolkata is gaining national character. Demand for dairy products in eastern region (which is milk deficit) is growing no less than other parts of the country. Thanks to improved access of food through disruptions in food retail and delivery by likes of Instamart, Blinkit, Swiggy and Zomato, disparity in food consumption across age groups and gender is also diminishing.
The regional and seasonal arbitrage in agriculture is largely attributed to the agroclimatic conditions. For example, apples are mostly produced in the Himalayan regions of J&K and Himachal; potato in western Uttar Pradesh and west Bengal; Onions in Nasik; Chillies in Guntur and Khammam districts etc. To top it up, most crops are produced in 2-6 months windows during the year and their perennial availability becomes a function of storage and shelf-line extension from one harvest to another.
A combination of technologies reducing the seasonal and regional arbitrages are already in practice such as technologies globally acknowledged as “Controlled Environment Agriculture (CEA)”. CEA is essentially a portfolio of hardware and software products to control temperature, humidity, nutrition, respiration, light etc to grow crops with the use of greenhouses / polyhouses, hydroponics, vertical farming, aquaponics, aeroponics and use of agribiotech products.
These technologies improve not just productivity per unit of land but also make supply chains climate-resilient with optimised use of inputs. Covid times highlighted the need for local food supply chains to become atmanirbhar (self-sufficient) which could very well be addressed by CEA technologies. Many of CEA models started with focus on niche vegetables such as bell papers, cherry tomatoes, salad leaves but focus is shifting towards high-volume vegetables catering to mass demand. Absolute Foods, Eeki Foods, Gourmet Garden, Barton Breeze, Greenpod, Bioprime are some of the examples of startups working in this space.
CEA can throw open many innovative business models for “grow local – sell local + global” supply chain. Financing for upfront investments (that could be in the range of USD 50-100k per hectare) with strong market linkages to offload produce is key to scaling. We are going to witness an army of entrepreneurs building, installing, managing and financing CEA models.
4. Ancillary Industries
The income from crops accounts for about 40% of farmers’ income which is an indicator of diversification in his / her sources of income. There is a huge role of ancillary industries especially dairy, poultry, fisheries, fibres, bamboo, millets, beekeeping in making farmers’ income less and less dependent on conventional crops.
This occupational diversification is also in synch with emerging consumer demand pattern shifting in favour of protein (milk and animal proteins) and fibre (coming from horticultural produce) with reducing share of fats and carbohydrates. Dairy and vegetables are also relatively high-liquidity produce putting cash in farmers’ pocket on weekly or fortnightly basis unlike crops which are highly working capital intensive.
There are multiple models emerging in digitisation and organisation of such value chains (Stellapps, Greenikk, Oxecart, Desai Fruits, Mango Dairies, Sasya Produce, Fruitfal, Milklane, Moofarm, MeraPashu360, Eggoz, Gfresh, FreshR, Flokx, Goataway) which offers opportunities to village level entrepreneurs to be part of vertically integrated chains. Given the perishability and complexity of such value chains, there is opportunity to create thousands and millions of aggregation points, collection centres, cold rooms, ripening chambers, CA storages, dehydrators etc. which can create “low-capex-decentralised-employment” models in the villages as well as tier-2/3 towns.
All four “As” described above is driving farmers’ access to markets, processing, storage, data, advisory, decision making tools, good quality inputs, mechanization, financing; which has the potential to make farm economics work on small holder farmers. The tech-enabled-access is not just making farming remunerative for farmers but bringing on-board new-age farmers and breed of micro-entrepreneurs.
Also, the access is working in reverse direction as well enabling ecosystem players– processors, distributors, input dealers, financial institutions – to reach out to farmers in a more time and cost-efficient way. The transactional cost for direct-to-farmer access has been prohibitive for many businesses. Technology has the potential to bring the transactional costs down by as much as 90%. As an example, many bankers are working with many agri-fintechs for using technology for farmer onboarding, risk assessment, underwriting and loan recovery – which at a scale can change the dynamics of rural fintech making it more cash-flow driven than collateral-driven. Avanti Finance, Jai-Kisan, Credit Siddhi, Upaz, Agrifi, Whatsloan have demonstrated the use of technology for the purpose of farmer and value chain financing. Likewise; other value chain players like Bighaat, Behtar Zindagi, Agrostar, Freshokartz, Unnati, Farmology, Agribolo etc have built platforms to digitally connect, advise and sell to farmers either directly or through intermediaries.
It is difficult to pen down and articulate the aspirations of India's rural youth. The only way you can experience it is to travel deep into India's rural heartland and spend time with them.
In my experience, the rural aspirations are not different from their urban counterparts. It's indeed a surprise to witness emerging homogeneity in aspirations despite so much cultural and language diversity. Thanks to social media, youngsters in rural India are well-informed on emerging technology trends. Majority of them are on Whatsapp, Facebook, Instagram and YouTube. There are startups like Agrishots and Krishify who are building farmer networks for targeted and customised information.
The drivers for migration for rural youth are usually education, skill development, jobs with stability of income (please note: not more income). A robust rural entrepreneurial ecosystem is the need of the hour which can mentor and curate their business ideas in places, where they belong. They also have aspirations of building their own venture but need support in structuring, articulating thought process and an intensive training on fund raising skills. Government needs to be complimented for their continued focus on rural incubation and seed funding some of these ideas. The “accelerator fund” for agri startups announced in the recent Budget can be a game changer in scaling rural innovations.
It is a matter of time that the sons and daughters of Indian farmers will be a significant share of growing breed of agri and ruraltech startups. Given their deep and clear understanding of problem statements, my guess is that they will pivot less (against a norm of 4 to 5 pivots to achieve product-market fit for majority of startups). The beauty of agri / rural tech is that one can build $ 100 mn topline businesses within a radius of 50-100 kms, without necessarily going too far from their home villages.
The big question can the above “As” make rural markets attractive enough to drive rurbanisation. Let’s do some back-of-the-envelope calculations. Each village in India is on average USD 1.2 million (approx. Rs. 10 crore) of economic opportunity (USD 600 bn farm output + USD 60 bn agri-input sales divided by about 600,000 villages), arising out of agricultural + agri-adjacent businesses. The farm services and emerging business models can potentially add another Rs. 2 crores of economic value per village, making it approx. 12 crores (USD 1.5 million) per village. Even with 5 % market share, entrepreneurs can create $100 mn topline businesses by catering to about 1300 villages. Mathematically, one need not go beyond two districts (on an average, India has 780 villages per district) to achieve this scale.
The other question is how much value can be unlocked while creating the tech-enabled rural businesses. There are empirical evidences which suggest that many agritech startups have unlocked value aggregating to Rs. 30,000 per hectare of land (not including ancillary opportunity) for farmers, Value chain players and themselves. Going by empirical evidences, there is a potential to unlock value in the range of Rs. 4 to 5 lakh crores (USD 50-60 bn) for about 150 million hectares of arable land in India, with increasing adoption of tech-enabled innovations. The best part is that farmer will gain a fair share of this value unlock.
Sometimes, mathematical calculations makes opportunity sounds very attractive. Yes, the opportunity is indeed attractive but it cannot be achieved without literary soiling one’s hand, going deep into villages and supply chains, building trust with farmers through partnerships to drive technology adoptions.
As it is said that it takes a village to raise a child; likewise, it will take the entire ecosystem (policy makers, central / state / district / village administration, FPOs, farmers, universities, multilaterals, system integrators, investors, incubators, accelerators and of course startups) to build scalable and sustainable new-age-village-centric businesses to unlock unrealised value.
I am hopeful that the sheer size of the opportunity catalysed by tech-integration will create enough entrepreneurial and employment opportunity for rural youth in their own backyard without the need to move to cities. The other question is this opportunity attractive enough for urban youth to explore rural markets. We already have some early signals of this as demonstrated by growing number of agritech / ruraltech startups. However, this number has to grow multifold for rurbanisation to become mainstream. We also need to build schools, colleges, hospitals and other infrastructure in villages to make it attractive enough for urban youth. Thanks to government massive push on building rural infrastructure (including expressways, highways, rural roads, housing, education) and driving broadband / 4G connectivity deep into villages; there is a good chance that many edtech, healthtech, cousmertech and fintech startups who have conventionally focused on top 50-100 cities in India may go rural. Given the overcrowding in some of these spaces; rural orientation can provide much-needed breather to many urban-centric startups who are walking on eggshells to pursue sustainability in claustrophobic and me-too urban markets.
What implications rurbanisation has for investors? It’s a positive news as it will throw open thousands of investible businesses – unique in many ways (definitely not silicon-valley-copy-paste), scalable in India and portable to other markets, with high degree of capital efficiencies and ROIs. However, investors have to look beyond HSR Layout, Indira Nagar, Gurgaon, Noida, Lower Parel, Hitech City etc and travel to un-noticed and yet-to-be-venture-invested pincodes in India to find these entrepreneurs. This opportunity requires investors to go extra-mile to remote places to discover, diligence and invest in these untapped business models. There is an opportunity to create “proprietary deal flow” at least in near to medium term and enter at a fair and reasonable valuations.
To conclude, taking “India to Bharat” rather than other way round will truly democratise our startup ecosystem taking new-age technologies to the hinterland and in this process creating many “Bharatcorns” serving India’s farmers and rural population at large.
The author Hemendra Mathur is an investor, mentor and board member with agritech, ruraltech and foodtech start-ups. He works as Venture Partner with Bharat Innovation Fund. He is also co-founder of ThinkAg – a platform for accelerating adoption of innovations in agriculture and food space. He is the chairman for FICCI task force on agri startups. The views expressed in this article are personal.
This article was already published by Inc42 on 12th March 2023