Why venture capitalists are attracted to upstream agritech | spcilvly

India’s “green revolution” worked because its architect MS Swaminathan, who died last month, and his team focused on solving upstream problems using high-yield seed varieties, fertilizers and other technologies. There is an echo of that in recent activity in the agricultural space, where several startups are promising to use technology to solve the sector’s problems. Until a few years ago, agtech companies solving distribution problems attracted the majority of venture capital funding.

In the 1960s, Indian agriculture was facing a crisis, especially after the drought of 1966. In 1966-67, India produced 30.4 million tons of rice and 11.4 million tons of wheat and had to depend of imports. In 2022-23, production increased by about 4.5 times and 10 times, respectively, thanks to better yields. The yield per hectare of rice tripled and that of wheat almost four times during this period.

India is now a major player in global agricultural supply: its July decision to ban rice exports sent international prices up to a 12-year high.

India still relies on imports of some other agricultural products, mainly pulses and edible oil, which the government has tried to address with varying degrees of success. While imports of pulses have declined since 2015-16, imports of edible oils continue to grow. Improving agricultural productivity is key for India as the majority of its workforce depends on agriculture and successive governments have aimed to increase agricultural incomes.

Changing factors

During the green revolution, increased use of fertilizers was one of the main drivers of productivity. However, its effectiveness has been decreasing over time. Yields have fallen from more than 12 kg of grain per 1 kg of NPK (nitrogen, phosphorus and potassium) in the 1960s to 8.8 kg in the 1990s and only 5 kg in the last decade. Similarly, during the green revolution, the use of pesticides was encouraged as they reduced crop loss. Their use has also increased during this period, from about 90 grams of pesticides per hectare in the 1960s to about 315 grams in the last decade.

Fertilizer use is also complicated by political decisions. Government subsidies incentivize farmers to overuse fertilizers, often at the cost of long-term soil degradation. Additionally, the government transfers subsidies to manufacturers rather than farmers, a policy that has been criticized for promoting inefficiencies in the supply chain.

Even as India saw the benefits of the green revolution in terms of increased production, Swaminathan insisted that the country needed a permanent revolution that would address some of the disadvantages of the program, such as soil gradation, promotion of crops that require intensive use of water and the lack of biological resources. diversity. Recently, the Indian government has been boosting the growth and consumption of millet, which is expected to achieve some of the targets.

Technological revolution

In recent years, Indian agriculture has attracted new companies. According to an Avendus Capital report last year, there are more than 1,500 agtech startups in the country. At least 17 of them have a gross merchandise value of more than $100 million, and agritechnologies have benefited more than 15 million farmers, according to the report.

Agritech has also been affected by the funding winter faced by startups globally. Venture capital funding for the segment fell by a third to $2.4 billion in 2022, according to an Agfunder report. But there was one exception: new agri-food technology companies. The report called them “a bright spot in a gloomy year, raising $617 million, an increase of 50%.” Top categories included agricultural biotechnology companies, including technologies that led to high-yielding varieties during the green revolution and new agricultural systems. A change may be occurring.

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