Sunday Reflections (Ninjacart, Agribazaar & Farm-to-Fork)

Can Farm-to-Fork marketplace startups transform the Great Indian Kitchen by fixing the failures of Indian agricultural markets?

Dear Friends 👋 ,

Greetings from Hyderabad! My name is Venky. I write Agribusiness Matters every week to help us make sense of vexing questions of food, agribusiness, and digital transformation in an era of Climate change. Feel free to dig around the archives, if you are new here.

This free edition goes out to 27776 subscribers in Substack and LinkedIn, up by 268 last week.

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I write Sunday Reflections in pursuit of one question - In doing what I am doing, what am I really doing? Last week, I published my subscriber-only post, Zomato, Markets 🍕 and Farm-to-Fork 🍴Marketplaces.

It’s a fairly long and dense piece that goes into territories of complexity theory, market design, discontents of Indian agricultural markets, and unpacking agritech marketplaces of Agribazaar and Ninjacart.

I also made a prediction in the article that Walmart will take over Ninjacart once Ninjacart's FNV operations are fully recast by Walmart's algorithm for its grocery business. 

In response, a reader gave me this honest feedback:

“Make your writing simple to understand so that common folks such as an educated farmer can grasp the key points quickly. Some of the concepts discussed are complicated and not everyone will have the vocabulary to understand some of the words. I'm not saying it's easy, but if you can figure out a way to do it, you'll find wider acceptance.

Fair point.

Just to be clear, I am not writing this newsletter for farmers. If I were to write for Indian farmers, I wouldn’t be writing in English in the first place.  

Going by Einstein’s wise dictum, “Everything should be made as simple as possible, but no simpler.”, I will try my best to give an easy-to-read summary of the article for those who aren’t yet subscribers of the Agribusiness Matters community.

When I was a choir singer in a convent school that was run by Montfort Brothers of St.Gabriel, the Serenity Prayer was one of my favorite prayers, along with Lead, Kindly Light.

If the American theologian Reinhold Niebuhr were alive today to write a Serenity Prayer for the future of Agriculture, he perhaps might have written

God, grant me the serenity to accept the agricultural markets that I cannot change,
courage to design the agritech marketplaces that can change those markets,
and wisdom to know the difference between markets and marketplaces.

The real problem is this: We really don’t understand the difference between agricultural markets and agricultural marketplaces. They sound similar no?

Although I have built an elaborate framework using complexity theory in my essay to spell out the difference in greater detail, let me approach this from a different angle.

If you are an agritech startup founder like Amith Agarwal, CEO, Agribazaar (India’s answer to Indigo Ag), offering horizontal market linkages marketplace for farmers, your value proposition will most likely be built on one core assumption:

Post-harvest processing such as cleaning, sorting, and grading will fetch a higher price in the market

In ideal conditions, it should. In current market realities, does this assumption hold water?

In her fascinating study, A Study of the Agricultural Markets of Bihar, Odisha and Punjab, Mekhala Krishnamurthy puts this assumption to test by doing regression testing of the price of any crop that the farmer sells on an indicator for each of the post-harvest processes.

As you can see from the data, Farmers in Odisha perform more post-harvest processes on average. Farmers in Bihar perform the least.

After studying the data, she concludes,

Overall, however, these findings are consistent with the understanding (one that farmers in these states share too) that the time and resources spent in cleaning and grading their produce is unlikely to fetch a significant price premium under current conditions of exchange.

This is an extremely significant point I wish every Indian agritech founder building market linkages features in their agritech marketplace platform grok this.

To unpack its significance, let’s ask a basic question: Why are post-harvest processes not able to fetch a significant price premium for Indian farmers?

What is exactly the problem under current market conditions that prevent farmers from reaping the benefits of post-harvest processes?

Under current conditions of Indian market exchange, the moment the farmers’ produce has been harvested, the farmer is in a race against time.

Ofcourse, there are also transactions that conclude even before the harvest has happened. 

Ofcourse, the game of markets have been designed in such sloppy ways to make it often a race against time. They need not be a race against time, if we redesign those markets well. 

As the produce moves across the intermediaries in the journey from the farmer to fork, the principal risk involved in agriculture increases in proportion to the likely decline in quality.

Now, it is obvious that in proportion to the increase in risk, price arbitrage opportunities increase.

And when price arbitrage opportunity increases, this inevitably happens.

People's Archive of Rural India @PARInetwork

Tomato prices vary even within markets of the same city. In Pune this Sunday, prices in the Pimpri and Khadki markets were ₹ 8/kg, but the Moshi market was giving a measly ₹ 2/kg as a minimum price. With not even their transport costs gained, farmers dump it all 📷 @twrahul

It is here where we stop in our tracks, unable to comprehend why things inevitably go down south.

(If you see the responses this viral tweet has elicited, you will understand what I am talking about.)

When aspiring agritech entrepreneurs encounter stories like this, it becomes easier to blame it on evil middlemen, resolve to build yet another agritech platform that will connect farmers directly to consumers, only to realize that such well-intended initiatives often fail (‘it is easy to de-layer the chain but not easy to de-layer the costs’), and then, like most agritech entrepreneurs, including the founders of Ninjacart, pivot the model from B2C to B2B2C and, finally sit with the mother of existential questions for any Indian agritech startup founder that never gets asked in any panel:

Why are you doing an agritech startup to digitize middlemen operations in the first place, when they have been serving farmers for ages with not too many inefficiencies in their well-oiled operations?

From an investor and economics perspective though, digitizing the middle part of the value chain makes total sense:

As Sarah and Matthew write in their blog post, How Silicon Valley Set Agtech Back A Decade

In agriculture, the vast majority of the value accrues in the middle of the supply chain, with the traders, manufacturers, brands & retailers that transform food from farm-gate to consumer. These players can afford to bear the costs of change and have the incentives to innovate, given they will realize the benefits of digital transformation.

Is that the reason why Omnivore chose to invest in midstream focused Agrim Wholesaler App, a B2B Agri-input Marketplace, now that the middle part of the value chain is rapidly embracing digital, especially in the wake of the pandemic? 

To come back to our crucial question, what explains this heart-breaking price volatility across the agri-output supply chain that frustrates the hell out of Indian farmers?

In the previous edition of Sunday Reflections on Jai Kisan and the rise of agri fintech, I talked about the Beer Game (Bull Whip Effect)and its downstream effects on the lives of farmers.

Bull-whip effect is inevitable in the agri-output supply chain when…

1) ..there are multiple intermediaries ✔

2) ...there is a time lag between Supply and Demand ✔

3) …there is a variation in demand or supply ✔

You can tune into my conversation with Jagadeesh Sunkad where we discussed these points in greater depth in our Youtube conversation: Bull Whip Effect in Agri Output Supply Chain

And so to come back to the question we asked at the beginning,

Can Farm-to-Fork marketplace startups transform the Great Indian Kitchen by fixing the failures of Indian agricultural markets?

Perhaps, if they are able to come up with sensible approaches that address the root of bull-whip effect in the agri-input and agri-output supply chain.

So far, I haven’t found the best startup on earth that is attacking this critical problem in the Indian agricultural supply chain. My hunt is on.

Enjoy your Sunday,

Cheers,

Venky

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