Agritech Companies Need To Build Sustainable Business Model To Thrive

By Anu Chaudhary September 23, 2023

By leveraging technology these companies can reduce food waste, optimise planning, lower use of chemicals, improve crop yield and enhance crop price realisation

Agritech Companies Need To Build Sustainable Business Model To Thrive
According to Tracxn, as of August 2023, there are over 2,300 agritech startups in India. Shutterstock

Agriculture sector is the backbone of the Indian economy and technology plays a vital role in development of agriculture. The NITI Aayog has listed transformation of Indian agriculture, led by innovation, and through sustainable as well as inclusive growth as one of its key initiatives.   

The Indian agritech sector is expected to lead the upcoming decade’s technology-first value creation opportunity, growing at a compound annual growth rate (CAGR) of 50% over the next five years, and addressing a $34 billion market by 2027, Avendus Capital said in a report.  

At present, the agriculture sector has less than 1 per cent technology penetration. As such, tech disruption has the potential to positively impact 40 million farmers. According to Tracxn, as of August 2023, there are over 2,300 agritech startups in India. Given the significant potential, companies in this sector should be guided equally by impact and growth.   

One of the important ways to focus on an impact led growth would be for these agritech companies to focus on all the tenets of E, S & G to make their operations more sustainable and build resilience in their operations.   

Agritech companies are in a unique position to demonstrate product stewardship. The services that these companies provide address an important need in a country like India. By leveraging technology these companies can reduce food waste, optimise planning, lower use of chemicals, improve crop yield, enhance crop price realisation, etc.   

Further, on their own operational footprint, companies can thoughtfully evaluate the use of energy in their businesses and switch to cleaner sources of energy especially in energy intensive activities such as data centers. These companies should also be deliberate in the design of the buildings they occupy and ensure that they subscribe to greener norms. On the social indicators, companies in the agritech space should ensure they incorporate diversity, equity, and inclusion in their business model. Engaging workforce from the rural and the marginalised sector and equipping them with an understanding of technology will play a crucial role in upskilling societies and building inclusive growth. Similarly, companies should assess the management of human resource and include a larger share of women employees. Agritech companies can also improve human development index by training their constituents in technology both as an input and as an end use in the agricultural economy.   

Agritech companies should be equally focused on governance of their enterprise. Having the right skill set across their board of directors is an important starting point. The board of directors will have to lead the governance process by putting in place the right policies and culture within the organisation. The tone at the top must be slanted towards better and higher compliance. Another important aspect of governance would be having a robust data privacy and cyber security set up. Agritech companies have access to and generate significant and insightful information. Companies should examine their data governance practices, including how to collect, use, manage and protect data.   

Agritech companies taking these initiatives to build product stewardship and embedding ESG in their operations, should also pay careful consideration to what they communicate with their stakeholders. Communicating the initiatives in the earnest way yields positive results in the form of reduced cost of capital, minimised complaints and litigation and a satisfied workforce, among others.   

This brings us to the major challenges faced by Indian agritech companies, particularly the startups working to improve India’s agriculture domain. As this business is primarily focused on solving problems for sustainability, they must embrace certain challenges when it comes to driving their environmental, social and governance (ESG) agendas. 

Absence of adequate internal skills and expertise to implement ESG initiatives: As a relatively new area of expertise, ESG is not yet a common academic discipline in education and vocational institutions. Finding and nurturing talent in business, therefore, is critical.   

Funding constraints: Green funding initiatives are not yet translating into innovative financing opportunities at a business level. Most companies are continuing to fund their ESG initiatives themselves, rather than tapping the burgeoning markets for green finance.  

Lack of clear regulations: Lack of clear regulations can hinder consistent measurement and disclosure of ESG performance. While global frameworks have now become more widely adopted in the region, many startups still call this out as a significant challenge. It is expected that in COP28 businesses will want to see ESG-related policies and regulations being announced.  

Faced with all the above-mentioned challenges, there is a silver lining for agritech businesses in the country in terms of their need in an agrarian economy such as ours. We have seen Indian agritech startups consistently innovate and scale up which is a positive development. With sustainability incorporated in their business strategy, they are at a threshold of rapid growth and making a positive impact to the societies in which they operate. 

 (Anu Chaudhary is partner and global head, ESG consulting practice, Uniqus Consultech.)