I find agri-tech a bit of a misnomer because it does not tell the full story and sometimes misrepresents the extent of the work a company does. It is almost like calling yourself a retail-tech company when you are basically a retail shop that uses accounting software Tally to manage your finances.
Misnomer aside, a lot of interesting things are happening in the agri-tech space in Bangladesh of late. It started a few years back with companies like iFarmer and Bhalo, where companies were trying to figure out solutions to various access-related challenges farmers face such as access to finance, inputs, market, etc.
The scene has since evolved. Several agri-tech startups have raised meaningful investments over the years. There is now increased attention paid to these companies because of the global shift in priorities where agriculture is increasingly viewed as a critical sector. At the same time, many impact investment-related organizations and NGOs are also taking a keener interest in agriculture.
The current cohort of agri-tech startups is looking to address a number of challenges farmers face. There are players looking into solving the access to finance challenge that farmers face. The funding gap in agriculture is huge. While a policy mandate to invest in agriculture exists, the majority of the formal financial institutions don’t invest in agriculture. There are reasons behind this. For many formal financial institutions, it is hard to give loans to farmers owing to their lack of documentation and papers. Assessment of farmers is a tricky challenge that banks and financial institutions find hard to address. Logistics is yet another challenge for banks and financial institutions. It is hard for them to monitor and essentially manage if they give these loans. This challenge has led to the rise of high-interest informal sector loan business that is exploitative towards farmers.
Several agri-tech companies have been trying to address this challenge. These startups are exploring a number of models.
One common model several of them are using is the retail crowdfunding model where retail individual investors can invest in farms or farmers. The process works something like this: the startup works with a number of farmers producing a range of products/firms such as cow fattening, rice, mango, maize, etc. They get into an agreement with the farmers for a profit-sharing model where once the firm season ends and the farmer sells their products, they will share a certain percentage of the proceeds with the startup. The startup then puts together an app or a website and puts up these firms where retail investors can subscribe to and invest in these firms. Once the farming season comes to an end, the company returns the investors with their money and profit.
Although it appears simplistic, it is a complex model. Companies who are doing this model for several years have evolved the model. Initially, companies were giving farmers cash and in many instances, they found out that it leads to various challenges. Then they changed the model to an input support model where instead of giving cash they provide an equivalent amount of inputs. Two founders I spoke with told me that while it has addressed the challenges, the model still has some challenges.
Initially, one challenge was ensuring repayment. This repayment challenge was of course tied with the first challenge. Because if you give a farmer cash and he doesn’t invest the money in the farm and instead uses it for other purposes, naturally he wouldn’t have the money to repay when the time comes. Once you solve the proper use of the money in the form of giving inputs and other necessary items instead of direct cash, it solves part of the repayment challenges. The second thing companies are doing is improving monitoring using the field force. There are other interesting approaches companies use, but these interventions solve part of the challenge.
The second challenge farmers face is access to fair prices. This problem is often framed as an access to market challenge but I think it is more of an access to fair price challenge than a mere access to the market challenges. Several companies have introduced models to address this challenge. Some companies source directly from farmers and sell them in urban markets. Others are connecting market access with other products such as inputs and so on.
There is also a small group of startups looking into issues like precision farming using advanced technologies such as IoT and soil testing, insurance, and so on.
A few of these companies are also working with inputs and advisory services where startups work with input companies and their distributors and sell inputs directly to farmers along with advisory services for better farming and so on.
Following are some of the prominent players in the agri-tech space. The list is not exhaustive and is merely used for the purpose of offering some examples and context.
Active investors in the vertical: At least four agri-tech startups have raised meaningful capital over the last few years. iFarmer, AgroShift, Fashol, and WeGro all have raised money in 2022. A number of other players in the space have raised money in the form of grants and seed capital. I wrote at the beginning of this story, there is a growing interest in the agriculture sector. These are some of the investors who have invested in agri-tech startups in Bangladesh lately.
- Startup Bangladesh Limited
- Millville Opportunities Management
- IDLC Finance
- South Asia Tech Partners
- DEKKO ISHO
- Zayn Capital
- Falcon Network
- Accelerating Asia
- Sketchnote Partners
- Anchorless Bangladesh
- Ratio Ventures
- Sabr Capital
- Julian Shapiro
- Shorooq Partners
Agriculture is the ultimate schlep blindness
But the current level of activities in the sector is disappointing given the importance and size of the sector. The agriculture sector is a significant contributor to Bangladesh’s economy. It provides livelihoods for over 60% of the population and accounts for around 15% of the country’s GDP.
Bangladesh has about 16.5 million farmers. Almost 80% of them are smallholder farmers who typically cultivate small plots of land using traditional methods.
Access to finance, quality agricultural inputs such as seeds, pesticides, fertilizers, etc., and fair prices are some of the apparent challenges of the sector. For instance, research suggests farmers in Bangladesh get only 40% of the consumer retail price owing to the high number of intermediaries in the supply chain and annual post-harvest losses amounting to $2.5 billion.
There are other pressing challenges facing the sector. Improving efficiency and production. Reducing wastage. Introducing relevant technologies to improve crops and yields. The interventions are endless.
The challenge, however, is that while there has been a growing investor interest in the sector, the interest is proportional to the overall interest Bangladesh receives as a market, which is insignificant.
To that end, while many similar ventures in other markets such as in Indonesia have raised meaningful capital, Bangladeshi startups still suffer from limited attention.
Access to funding for agri-tech startups could have led to more interesting outcomes in the sector. I think investors will be wise to pay more attention to this overlooked sector in Bangladesh.
Similarly, there should be more startups in the vertical. While the number of prominent startups in the sector has increased in the last two-three years, there is room for more interesting and diverse startups in the sector.
The companies we are seeing now are broadly of similar value propositions and trying to address challenges of broad nature. But there is room for more niche initiatives in the space. In fact, it is absurd to see so little startup activities in the sector compared to other much smaller opportunities given the size and the importance of the sector for Bangladesh. This is a clear schlep blindness problem.
Moreover, as we discussed, the sector faces a number of staggering challenges including limited access to finance, lack of modern technology and equipment, and poor access to markets. With the growing tide of climate change, rising temperatures, and extreme weather events affecting crop yields, the future holds even greater challenges. The most staggering challenge, however, the sector faces in my eyes is the lack of manpower.
Agriculture has consistently lost manpower over the years to the service sector and manufacturing. Modern educated young people seldom view agriculture as a potential career. I think this is one of the most critical challenges the sector faces.
This is interesting given the size and importance of the sector, it offers some of the most rewarding opportunities for ambitious entrepreneurs. The challenge for the sector is that most people suffer from Schlep blindness, which I call the “boring and complex metric”. Agriculture appears boring and most startup people don’t know how to approach it. In many ways, this is precisely why ambitious founders should get into the sector and build.