Agritech firms turn to private labels as sector grows harder to crack

Agrostar, which has carved a niche as a marketplace for agricultural inputs such as seeds and fertilisers for farmers, gets almost 80% of its business from its private labels, co-founder and CEO Shardul Sheth told Mint. The 11-year-old Pune-based company introduced its first brand in 2020 and the contribution of private labels to the topline has grown to 70% from 5%, Sheth said.

DeHaat, backed by Singapore’s Temasek and Belgian investment company Sofina, gets about 30% of its business from its agri inputs private-label vertical, according to co-founder Shyam Sundar Singh. It started the Honest Farms brand to sell staples and grains across e-commerce platforms in April.

The recalibration comes at a moment of reckoning for India’s agritech sector. Venture capital funding for Indian agritech and food tech startups dropped 33% to $2.4 billion in 2022, according to the AgriFoodTech Investment report by AgFunder and Omnivore last year. The sector continues to rely on government support.

Valued at $24 billion, India’s agritech sector remains significantly untapped, with only 1.5% penetration, according to a report by Ernst & Young.

None of the startups in the sector has achieved unicorn status – a valuation of $1 billion or more – or has listed publicly. DeHaat, WayCool Foods, and Ninjacart are valued in the range of $650 million to $800 million.

Margin game

Typically, agritech firms that run their own brands cater to both farmers and consumers. They offer high-quality seeds, pesticides, and farming equipment to farmers, while consumers can get farm-to-fork products such as rice, pulses, and condiments.

The biggest advantage of running a house of brands is the high margin due to the absence of intermediaries. Usual distribution processes, especially for fast-moving everyday essentials, involve multiple changes of hands that result in higher final prices and leave little in terms of earnings for the producer.

“On the B2B (business-to-business) side, private labels can offer great value to farmers because the agricultural inputs supply chain is largely unorganised. Margins in this segment tend to be at least 2-3 times more than non-branded items,” said a former executive of the Flipkart-backed agritech firm Ninjacart, asking not to be identified.

DeHaat’s Singh said its network of 5 million registered farmers benefits from the technology assistance and competitive pricing. Being able to control the supply chain right from the farmers to the consumers also helps build a single platform for a variety of needs.

However, Singh noted that DeHaat continues to focus on its core business of providing a marketplace for farmers and buyers.

According to Pratip Mazumdar, a partner at early-stage venture capital firm Inflexor Ventures, agritech companies are slowly moving towards high gross margin businesses simply because the initial value propositions may be struggling to find a stronghold.

Ninjacart—one of the earliest startups in the space—was set up as a fresh produce supply chain company but it later pivoted to an online marketplace to link farmers, distributors and retailers.

Chennai-based Waycool, which is said to be in talks to raise money for working capital needs, strategically focused on becoming a house of brands over the past two years, managing director Karthik Jayaraman told Mint.

“This focus on value-added and differentiated products will remain our priority. Over the past 30 months, the share of our own brands in overall revenues has increased from 3% to 41%. In the next 24 months, we anticipate this will rise to 75%, with a continued emphasis on value-added and differentiated products rather than basic offerings,” Jayaraman said.

Mint reported last week that Omnivore-backed agritech startup Reshamandi found itself in a deep financial crisis with frozen bank accounts, delayed debt repayments, and mounting legal challenges threatening its survival.

Moreover, there is enough competition from established FMCG brands such as Tata and ITC, which could make it a difficult space to win, according to Inflexor’s Mazumdar.