Trends in private capital flow in Indian agribusinesses
Indian businesses are witnessing private capital like never before, and much of it has come in from private equity (PE) and venture capital (VC) which was pegged at over $ 45bn in 2020 alone, representing a 25%+ CAGR for the last five years. There is no time like the present for Indian entrepreneurs to build businesses as there is a range of investors from angel to seed capital to start-ups to growth to buyouts across a range of sectors ready to back at different stages of investments.
While a lot of the fresh capital has found home in new age internet businesses, the appetite for traditional businesses like financial services, consumer and retail, life-sciences is on the rise too. Pandemic has led to embracing technology across many sectors and has spotlighted sectors like life-sciences, EdTech, technology, and some sub-sectors of financial services for their resilience to covid disruption.
Among all the flurry of deals and capital raising activity, the Indian agribusiness sector continues to strive for its deserving place in the minds of PE and VC investors. While the sector has been on the verge of breakout with strong underlying fundamentals and attractive demand-supply dynamics that augur well for capital deployment, investments have been slow and into select pockets. The key reason for the muted investments in the context of overall capital flow across all sectors is the perception of higher investment risk in agribusinesses due to low productivity, fragmented supply chains and commodity price volatility. Companies that are solving these problems at scale and feeding into a large consumer market are drawing the attention of investors.
Traditionally, investors have primarily invested in downstream segments of the agri-food sector as they understand and connect with urban themes better than upstream. Still, it is encouraging to note the trend of growing interest in upstream and midstream segments of late. Sub segments like agritech, supply chain & logistics are attracting deserved attention for the potential to disrupt the agriculture sector and solve the sticky issues of low farmer profitability, accessibility and sustainability. Newer segments of investors are joining the agri investing ecosystem, which now boasts of a sector dedicated private equity and venture capital firms, impact and social funds, strategic players’ investing ventures, and more traditional funds that are opening gates for the agri-food sector
Indian Agriculture and allied businesses that are termed as Agribusinesses, from the lens of PE and VC, are mainly upstream and midstream businesses, namely, dairy, livestock, animal feed, agri-logistic, agri inputs, agritech, and some food processing segments that are linked to agriculture in the backend.
PE firms have largely invested in traditional and scaled agribusinesses like dairy, food processing that links directly to primary agriculture, logistic and agri-inputs that address the country’s food demand at large, supply chain & distribution inefficiencies and farm productivity. Private equity firms continue to favour sector champions with size and scale in these subsectors. Sector focused venture capital firms have picked agritech start-ups in areas of robotics, farm management software, IoT, rural fintech, deep tech and life sciences. In contrast, impact funds have invested in farmer connect platforms. Agritech’s tremendous potential to disrupt the agriculture industry the same way as foodtech has disrupted the F&B industry has resulted in many VCs evaluating that closely. Investors continue to lean on agritech play in the larger profit pools like dairy, aquaculture, horticulture etc.
The Indian agri investing challenges that remain are lack of scale, commodity price volatility, and urban-centric investors that may not fully connect with the fragmented supply chain to identify the inflexion points.
While technology and innovation can lead to systemic transformation of the sector, investors will have to be patient in the building phase and continue to believe in the long-term potential while developing inflexion points for value monetization along the way.
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