India is predominantly an agrarian economy. Farming contributes about 17% to India’s GDP, and about 60% of the country’s rural households depend on agriculture and its associated industries. Despite having the second-largest arable land parcel—its 160 million hectares make it second only to the US—India is way behind some developed, as well as developing, countries in terms of productivity.
Low productivity in the sector is the result of various structural challenges, including heavy dependence on rainwater for irrigation, small-farm land holdings and lack of access to technology and real-time information.
Around 70% of the agricultural households in India (mostly small farmers with average land holdings of less than one hectare) struggle to make ends meet and depend on loans for their farming activities.
The demand for food in India is growing. That trend is likely to continue as disposable incomes increase and changes in consumption patterns favour value-added foods. However, supply is constrained by marginal productivity gains in a majority of crops, the shrinking amount of arable land, erratic monsoon patterns, climate change effects and inherent supply chain inefficiencies that lead to waste. And the reduction of available labour in the agricultural field makes the situation worse.
Given the importance of agriculture in India, both the government and private players are working to improve the efficiency and productivity of Indian agriculture and exploring how Farming as a Service (FaaS) solutions can play a role. FaaS seeks to provide affordable technology solutions for efficient farming. It converts fixed costs into variable costs for farmers, thus making the techniques more affordable for a majority of small farmers. Its services are available on a subscription or pay-per-use basis in three broad categories, which are crucial across the agriculture value chain.
FaaS has a lot of potential. India has seen an increase in the number of start-ups and an influx of funds to the sector. Total investor funding for FaaS in India is currently $105 million to $115 million. More than 40% of funding rounds are at a “series stage,” indicating investors’ high level of confidence in investing more money in the growth stage. Further, the number of start- ups evolving to growth stage funding has increased as investors become more confident in the viability of these business models and the returns.
Investors’ enthusiasm is visible globally; FaaS-based start-ups have gained popularity as investors pump millions of dollars into them. Total venture capital (VC) or private-equity (PE) funding has increased about 5.5 times in the last three years. The majority of the investments are in start-ups that offer farm management solutions that are primarily influenced by developed markets with high mechanisation. Many start-ups are in the digital or technology space, which is already attracting investments from tech giants—even those that lack an agricultural background.
In addition, both the central and state governments have launched initiatives to address challenges and promote innovation. The government is actively pushing FaaS-based services through customer hiring centres (CHCs) and soil testing. The government’s focus on increasing institutional credit to farmers, improving infrastructure (such as investment in cold storage areas) and promoting digital transactions will also expand FaaS-based solutions.
FaaS will not only bring economic benefits but will also have a vast social impact on the rural agrarian economy in which small and marginal farmers are the primary beneficiaries. FaaS will push much-needed process and product innovations in Indian agriculture, including multipurpose agricultural equipment, tools for real-time data capturing and analysis, aggregation of farmland and farm produce, and financial technology for farmers.
FaaS entrepreneurs have the opportunity to build scalable business models, which can be relevant not only to India but to other parts of the world. Initially, VC funds will help expand the scale at local or regional levels. Funds with strong domain expertise and a deep understanding of agricultural supply chains will be more successful in creating value for the stakeholders. In the long term, PE firms and corporations will push national or global expansion and lead to the consolidation of various FaaS models.