Why Technology is a Second Order Priority *Right Now* in Indian Agriculture?

In Which I Argue that Agricultural Markets Come First, Followed by Technology. Not the other way.

Editor’s Note 1: I have no editor.

Editor’s Note 2: This essay owes a lot to the wonderful fieldwork and research conducted by Mekhala Krishnamurthy. Her research paper, A Study of Agricultural Markets of Bihar, Odisha, and Punjab, was deeply helpful in putting this essay together.

Editor’s Note 3: This essay owes a lot to invigorating conversations I have been having with my agritech friends, running, investing, and raising capital for agritech startups. I don’t want to embarrass anyone here by naming them:) And moreover, they may not necessarily agree with everything I write here. Which is good:)

Why Technology is a Second Order Priority *Right Now* in Indian Agriculture?

Some time back, I participated in a fun podcast with Komal Patel and Kirsten Diprose from Agthentic Advisory/Tenacious Ventures. We talked about Indian Agriculture, Indian Agritech Scene, Farmer Protests, Australian Sandalwood industry, and spiced the dish with a bit of history. We delved deeper into one particular theme.

Technology is a Second Order Priority Right Now in Indian Agriculture.

I know this might sound wrong in the face of the data you might be seeing currently from the field or from the anecdotes you might be hearing from your sources. Whether you talk to Venture Capitalists, or Technology Evangelists, or anyone who is remotely concerned about the agrarian crisis in this country, if you ask all of them a simple question, When does Indian Agriculture Need Technology?

Their stock answer will most certainly be,

I am not being flippant or deliberately trying to be provocative for the sake of attracting eyeballs. I am aware that this might sound ironic, coming from someone, who calls himself in these spaces, ahem, an independent agritech consultant.

My agritech consulting philosophy is rooted in Nassim Nicholas Taleb's 'Skin In the Game'. You can either sell technology, or give objective advice. I choose to do the latter. It's unethical to do both. 

Nevertheless, having thought through this, I am now convinced that this is important, but a tough pill to swallow. Especially, if you are serious about agriculture, technology, and the possibilities that await when the two get serious about their long-term relationship in India.

Currently, if you ask me, the relationship between agriculture and technology in India is more of the 'flirting kind' with all that implies. Both aren't serious. And moreover, It is now a privilege, a luxury that can be afforded only by a few. The rest, here and there, find it entertaining to play around with few digital ag apps, without any existential, life-changing implications. More on this later. 

If you haven’t closed the window so far, and willing to hear my argument, please settle down with a cup of green tea, will you? I will take some time to set up the stage before we get down to the heart of the matter.

01/ If you study how technology evolves over time in history, you would realize that every technological revolution at some point of its evolution, will face strong limiting factors that prevent the technology from attaining its full potential.

02/ The Great Technological Historian, Thomas P. Hughes, called these limiting factors, these weak links, Reverse Salients.

03/ In his book, Networks of Power: Electrification in western society, 1880-1930, he proposed this concept, when he studied Edison’s direct-current electric system. When Edison faced challenges in distributing electricity beyond a particular range, he tried various options. However, none solved the problem until the alternating current system came along a few years later.

04/ During the 1920s, when aircraft manufacturers wanted to build faster planes, all the technological innovations to pursue that holy grail were in place, except for one thing: The Wheel. When the wheel created huge wind resistance, it was becoming difficult for aircraft manufacturers to achieve high velocity. It took almost a decade until Jack Northrop came along and designed a sheathing system that could be wrapped around the wheels.

05/ In the case of the electrification of society, it was the direct-current electric system that turned out to be the reverse salient. In the case of aircraft manufacturing, it was the wheel. Today, scholars largely contend that battery technology is the reverse salient, coming in the way of mass adoption of electric vehicles.

06/ These Reverse Salients need not always be technological components. They can be social factors, historical influences, and a whole range of factors. In the case of the digital music revolution, historians argue that the music copyright was the reverse salient that clipped the wings of the personal mobile music revolution until the iPod came along and..you know the rest of the story.

07/ In essence, until we address the reverse salient, the technological system cannot leapfrog into the next stage of evolution. What is the reverse salient that is coming in the way of Digital Agriculture achieving its full potential in India?

08/ How about Agricultural Markets? To understand why agricultural markets are reverse salients in an Indian context, we must understand few ground rules.

09/ In a country like India, to say that agricultural markets are diverse would be an understatement. In a country in which the language, dialects, customs, cropping practices, agronomy advice changes every 60-100 kms, it is not surprising that we would have a mind-boggling diversity of agricultural markets.

10/ Every state in this country has had a unique history of agricultural reforms and each of these factors, along with its distinct culture, has shaped the agricultural markets in this country.

11/ To understand the relationship between agricultural markets and the digitization of agriculture, here is a simple mental model: Think of the agricultural markets as the playground on which a variety of technological games (of the digital ag kind) could be played by trendsetting entrepreneurs.

Ofcourse, these games of entrepreneurship have been played since time immemorial before technology came in and reduced the cost of failure. We will limit our focus to the technological kind for the purpose of this essay.  

12/ The other word for a playground is context. Let’s stick to the word playground for now, as it less ambiguous. The playground is the sum total of the history that has shaped the particular operating environment we currently see in action.

13/ Playgrounds can be cities, trade markets, github (If you understand the world of software, this will make sense), and a whole lot of infrastructure that hosts the businesses. Just like an open playground attracts all kinds of games, the playground of agricultural markets attracts all kinds of technological games to be played on top of it. Here is how the complete picture would look like. I have overlayed it with some current 2019-20 data points from Ankit Arora and Vani Kola as well so that you connect the dots.

14/ Just so that you understand the difference between playground and games, it is the role of the policymakers in agriculture to observe the playground closely and how it constrains/enables entrepreneurs to play their respective technological games. Policymakers must also keep in mind how the games could shape the playground in the long run.

15/ Just to be clear, when I say agricultural markets, I am addressing three dimensions of markets- 1) An Institution or Agreement between buyers and sellers 2) A Market site where the commodity exchange occurs 3) A Marketing System that connects the various market sites and provides a means of communication to allow the exchange of scarce resources through price mechanisms.

I am spelling this out to make them agnostic of technology. To get more specific, I making a clear demarcation betwen  agricultural markets and market sites. Market sites can be physical location, or a virtual platform like Agribazaar. Similarly, marketing system can be physical or virtual. I borrow this from Mekhala's definition of agricultural markets in her research paper. This is more of a conceptual firewall to get my point across. 

16/ Here is a no brainer fact: Venture capital flows towards those technological games that can see the green shoots of revenue quickly inside the playground of the agricultural markets.

17/ We are currently seeing the digitization of Indian agriculture happening more seriously in horticulture crops, vineyards, and those sub-sectors that can afford those technological experiments.

18/ This is also another reason why we are seeing more agritech play in conventional (and therefore unsustainable) agriculture rather than say, regenerative agriculture.

Find out how many startups in regenerative agriculture are funded by venture capital in India, and you will know what I am talking about. I am happy to be proven wrong though:)  

19/ As adoption increases in these specific sub-sectors that are amenable to technology and venture capital, more investor money flows, and the flywheel of adoption kicks in.

20/ If you zoom in and study the geography of the Indian Agritech scene, this point would become more obvious.

21/ Indian Agritech Scene is currently limited to those states which have liberalized agricultural trade to a certain extent or remained indifferent to the diverse agricultural transactions that are happening in farm gates and other trade sites. While the states of Bihar, Madhya Pradesh, Gujarat fit the former category, the states of Maharashtra, Rajasthan, Karnataka, Tamil Nadu, and Telangana, in my opinion, fit the latter category. Note the operative nuance here. To a certain extent.

22/ As this 2016 independent study from one of my favorite agriculture scholars attests, the current darling of Indian agritech startups, Dehaat, took advantage of the fact that the state of Bihar abolished the restrictive APMC act in 2006.

When I say, they ‘took advantage’, all I mean is, the state reforms made their job slightly easier. It helped them that Bihar state, much like other states, had a non existent agricultural extension system. I analyzed Dehaat’s business model, contrasted it with Gramophone, and wrote the repercussions of this interesting study in a detailed article I wrote for subscribers of this newsletter.   

23/ The state of Karnataka has been able to attract a lot of agritech startup entrepreneurs because, for a long time, it has been on a reforming spree. It has a fascinating history of land reforms, later reformed its agricultural markets, and created the pilot model of E-NAM (Electronic National Agricultural Market) which was later rolled out nationally by the NDA government.

I analyzed E-NAM and studied the landscape of various Indian farm-to-fork startups in my article for subscribers of this newsletter. 

24/ The State of Madhya Pradesh has been able to attract Plantix, Gramophone, among others, probably because, starting from the 1980s, the state created the necessary playground infrastructure: The State passed a law to abolish middlemen, and later introduced the cash crop of soybean, and expanded the scope of canal irrigation. In 2008, when the State introduced decentralized wheat procurement operations, they made it easier to facilitate direct payment to farmers.

25/ If you dig deeper into pioneering agritech players in this country, you can trace it down to states that reformed their agricultural markets. ITC and their echoupal movements, for instance, were birthed in Madhya Pradesh for a good reason. Read the previous point once more, if you are finding it difficult to connect the dots.

26/ I am not saying that these reforms caused these startups to start from that particular state and flourish. I am simply saying that these reforms influenced the direction these startups and agritech players were operating and moving towards.

27/ Now why do I say that agricultural markets need to be the first-order priority in Indian agriculture? If you look at Indian state finances data, you would see how awfully paltry sum we have invested in the playground - agriculture and irrigation infrastructure.

28/ Take a look at this research paper which computes the average gross capital formation (GCFA) in agriculture and allied activities and you will understand how we are spending woefully inadequate sums on basic agriculture and irrigation infrastructure.

As Siraj Hussain and Dr. Seema Bathla write in their research paper

Public GCFA mainly pertains to major, medium and minor irrigation systems, and its share has consistently fallen from 33.76 percent during the 1960s to 15.19 percent during 2010-2018.

29/ If you dig deeper into this data, you would discover something strange: While Government is definitely not spending on playgrounds of agriculture markets, they are definitely spending a LOT on revenue activities.

30/ While government expenditure on asset formation in agriculture was INR 517 billion (INR 107 Billion in agriculture-forestry-fishing plus INR 410 Billion in Irrigation), the amount spent on subsidy in this sector is almost double at INR 964 billion.

31/ To borrow the words of Siraj Hussain and Dr. Seema Bathla, once again, from their research paper

The bias in government expenditure towards the revenue account in the form of an increase in input subsidies and day-to-day expenses, inadequate funds and low priority towards spending on agriculture and rural development in comparison to that in other sectors (Chandrasekhar and Ghosh, 2002; Bathla, 2014).

32/ Now that I have shown you data to argue why we have invested less on the playground, let’s now get to the heart of the matter. Why do I say that agricultural markets come first, technology second?

33/ Here is what happens when technology leapfrogs faster than agricultural markets. I found this in my feed yesterday.

34/ When I saw this post, I immediately tagged my friend Shashank to that thread who runs a whatsapp group with various agricultural traders and agents in this country. And despite various efforts, going by what Om posted in that thread, the right buyer couldn’t be found. I hope they found the buyer by the time I am writing this.

35/ I can’t think of a better example than this to illustrate my argument. When technological systems are in place, without underlying agricultural market infrastructure, it creates double-whammy inequality of grwoth.

36/ Although this is just one anecdote, and you could argue that my sample size is way too small, the reasons behind why this is happening could boil down to a simple fact. This farmer whom we are talking about comes from the eastern state of Orissa.

37/ Eastern States have lagged behind the rest of the states in various parameters of agricultural development. While India’s household farm incomes average out at 11.8%, eastern states have an income average of 6.7%, when compared to central states like Haryana with 17.5 % in nominal terms.

This data on agricultural incomes comes from Sukhpal Singh's paper,"RE-ORGANISING AGRICULTURAL MARKETS FOR DOUBLING FARMER INCOMES IN INDIA"

38/ Eastern States of West Bengal and Orissa also have more farmers practicing agriculture. As per current data, 70-80% of farmers are involved in agriculture (which indicates that many haven’t been able to transition towards other non-agricultural sectors, as has happened in other states.

39/ What these data points are pointing out is clear: Agricultural growth is uneven in this country. And technology, by its intrinsic nature, has only moved to those areas which have already well developed agricultural playgrounds.

40/ Can you imagine what happens when technology accelerates the inequality of agricultural growth that currently exists between these states?

It is no wonder, I haven't come across a good agritech startup from the eastern states of Odisha and West Bengal. If you know anyone, do mail me. I am happy to learn more about them. 

41/ Without going too much into the personal details of this farmer based out of eastern state of Orissa and his context which I am not privy to, if you dig down to the heart of this problem, what triggered this distress sale is a simple fact that the farmer didn’t have the right infrastructure to hold his produce.

42/ Why would there be a distress sale, unless there is no infrastructure for the small and marginal farmer to wait until he gets the right buyer and right price for his produce?

43/ If you look at it conversely, technological systems can compensate for the lack of infrastructure. After all, information travels faster than the onerous task of transporting watermelons from a distant village in Orissa with very little last-mile transport infrastructure.

44/ But, is it always sustainable to rely on information systems to compensate for the lack of agricultural infrastructure?

45/ Think about the deeper repercussions of this problem. What happens when we signal to farmers that, “You better start using these information systems well. We don’t have good agricultural infrastructure yet.” Every farmer starts using whatsapp, facebook, and other market linkage apps to solve problems that were never meant to be completely solved via these social networks.

46/ From the data I am seeing across live streaming Youtube channels through Farmer Influencers in this country, this is exactly what I am seeing. Every smart farmer I am seeing these days is a member of dozen Whatsapp groups, joins Youtube live streams, knows to find the best prices through market linkage apps. The only problem is this: He doesn’t have yet a decent infrastructure at the furthest mile to hold the produce, grade it objectively, and find the best price for his produce to take advantage of these technological advancements.

47/ When I recently visited the villages in the southern state of Tamizhnadu, I heard success stories of organic farmers leveraging Facebook and Whatsapp to sell directly to urban consumers. Now, this is great that they are able to leapfrog to digital technologies. I don’t mean to imply that farmers have to be Luddites whose only business is to grow food.

48/ All I am pointing out is this: What happens when technology leapfrogs faster than inadequate agricultural playground infrastructure? Wouldn’t it accelerate the inequality that is inherent due to uneven agricultural growth across the states?

49/ There is a massive flow of capital that is awaiting Indian Agritech. Omnivore recently announced that “$150 million fund to be invested in tech-driven, predictive crop insights that can help improve productivity and profitability for farmers in India”. There are many more in the offing, eyeing India as the massive golden goose that will lay the golden egg.

50/ How do we make sure that these capital flows don’t accelerate the growing inequality that currently exists in Indian agriculture across different states? How do we ensure that we have the agricultural infrastructure that is necessary for farmers to take advantage of the Indian agritech revolution?

51/ In May 2020, the Indian Government announced a National Agriculture Infrastructure Financing Facility with a capital outlay of Rs. 1,00,000 crore. for funding Agriculture Infrastructure Projects at farm-gate & aggregation points (Primary Agricultural Cooperative Societies, Farmers Producer Organizations, Agriculture entrepreneurs, Start-ups, etc.).

52/ Will this solve the growing inequality problem inherent in agriculture and currently getting further accelerated by agritech? I don’t have an answer. But, I think it’s important that we recognize that this problem exists, and is likely to happen. I am happy to be proven wrong at the earliest:)