A paradox is playing out in Indian agriculture. Even though more than 58% of rural households in Asia’s third-largest economy depend on farming, investors—especially private equity (PE) funds—aren’t really chasing businesses in this sector.
So far this year, PE investment in the Indian food and agriculture industry has been at a five-year low, according to data from News Corp VCCircle, an information and news provider focused on startups and investments.
Some 62 PE investments worth $250 million (Rs1,668 crore) were made this year in the sector. Compared to 2015, there has been a drop of 78% in deal value and a decline of 59% in the number of deals. Of this $250 million, only $79 million, around 32%, went to farming and processing businesses. The remaining went towards food tech, online groceries, restaurants, packaged food, dairy, and poultry firms.
India’s startup ecosystem is one of the world’s fastest-growing, already boasting nine unicorns or firms valued at over $1 billion. Almost all of these are internet businesses. A country of 140 million odd farmers doesn’t have a single major agriculture-focused startup.
“In the agro-space, the ability to scale up along with infrastructure development of cold chains, warehousing, farm equipment etc. are factors that would determine investor attraction for the future,” Nita Kapoor, head, India New Ventures, News Corp, and CEO of News Corp VCCircle said in a statement.
Investors say that agri-businesses don’t scale up beyond a level, because the market is dispersed, and the population in rural areas is typically lower than towns and cities.
Here’s a quick snapshot of funding in the industry:
“Selling products and technologies to farmers is a big challenge and it is one area where many startups have not figured out a successful model. Aligning with the farmers’ needs and committing to improve productivity is not an easy task,” Nagaraja Prakasam, angel investor at the Indian Angel Network, told the Indian Express newspaper in 2015.
“In a developed country, farmers get up to 70% of what the consumers pay, but in India, they merely get 30%. So the supply chain of farm to market is not efficient here. The potential is huge, but the challenges are even bigger,” he said.