Farm Bills 2020: How they benefit farmers, agritech startups, agri warehouses, and private players

If you’ve followed the recent news cycle and social media trends, you would be acquainted with the three Farm Bills — a set of agricultural reforms passed by the Rajya Sabha and cleared by the President of India. 

The Bills led to agitation among a faction of farmers — primarily rice and wheat growers — in Punjab, Haryana, and western Uttar Pradesh, who went on to accuse the central government of “anti-farmer” policies.

Despite their hue and cry, which was concentrated in belts where state government procurement is maximum, the truths and ground realities may well be different for a majority of those involved in agriculture in India. 

Most sections of the industry and key stakeholders in the agri trade reckon that the Farm Bills are progressive and “visionary”, and a definitive step towards realising the government’s mission of doubling farmer incomes by 2022. 

The new reforms are particularly beneficial for small and marginal farmers, who own less than two acres of farmland each. These smallholder farmers make up over 80 percent of the agrarian population, and are not the ones protesting. 

Puneet Sethi, Co-Founder and Director, Farmpal (an agritech platform that organises the post-harvest supply chain), says, “We have discussed the bills with our farmers, and by and large, there does not seem to be any opposition to them. Large farmer dynamics are very different from small farmers with marginal landholdings who constitute most of Indian agriculture. The larger farmers who tend to benefit more from the earlier scenario might have more reason to protest.”

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The Farm Bills are expected to create an open market for inter-state and intra-state agri trade and bring “freedom of choice” for farmers.

The legislation allows them to sell produce directly to any buyer as opposed to restricting them to the local mandis. These additional channels could be anyone from large corporations and agritech startups to food processors, wholesalers, modern retailers, and B2B customers like hotels and restaurants. 

Transactions taking place outside mandis will not be charged the APMC (Agricultural Produce Market Committee) cess. Add to that, farmers will benefit from direct market linkages and better supply chains that will impact their incomes positively.

The Bills also bring in a slew of benefits for agritech startups and organised players who connect farmers to agribusinesses, food processors and exporters; agri warehousing companies and cold storage providers; supply chain and logistics operators that ensure transparency and timeliness; online agri trading marketplaces, and practically anyone in the agri value chain that works towards eliminating inefficiencies in ‘farm-to-table’.

Mark Kahn, Managing Partner, Omnivore (an agritech-focused VC), says,

“The Farm Bills will definitely create tailwinds for agritech startups. Anyone working on market linkages, post-harvest services, or digital farmer platforms will benefit from the new laws, which enable direct interfacing with farmers. The Bills take much of the regulatory uncertainty in the agri value chain away, and agritech startups will be more nimble-footed than large agribusinesses in building farm-sourcing systems and related infrastructure.”

While there are several evolving threads in the Farm Bill discussion, in this piece, YourStory attempts to separate the wheat from the chaff — quite literally — and establish the on-ground impact of the new legislation.

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How agritech startups gain

Many agritech startups had already been working towards digitising farmers, offering them data-led crop advisory, helping them with improved market linkages, and reducing intermediaries for better price realisation of crops. 

Some platforms also improve demand visibility for farmers, and help reduce post-harvest loss and wastage, especially in perishables. 

The Farm Bills expedite this and make tech intervention in agriculture more formalised. “Many companies already work with farmers, but it is based on relationships. Now, those relationships will get storified into contracts across crops, regions, etc. And we’ll have more private sector involvement,” says Avinash BR, Co-founder of Clover Ventures. 

Clover, an agritech startup that provides greenhouse-grown fresh produce, had begun to experience the winds of change in the early days of the pandemic.  

Avinash says, “During COVID-19, many middlemen and aggregators disappeared, and farmers started to see the benefits of working with Organised agritech companies like us. They began to look for long-term arrangements for demand visibility and structural processes. Farm Bills reinforce this in a more regulatory manner. Farmers are now more empowered to make choices that will be remunerative in the long run. They can choose their partners and decide how to market their produce.”

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Smallholder farmers, particularly, need supply chain efficiencies — from better matching of supply and demand to lower volatility on pricing, and superior cold storage. The Farm Bills open up these avenues and let farmers interface directly with agri service providers, most of which are new-age startups that have built their foundations on technology. 

Prasanna Rao, MD and CEO, Arya Collateral (an agri-warehousing and post-harvest solutions provider), says, “It expands our canvas; we can now operate anywhere without restrictions. This is a huge tailwind for agri warehousing businesses. The reforms also mean that a buyer can buy produce from anywhere, irrespective of geography, which automatically expands the entire base of buyers.”

The free market benefits not only farmers, but also agritech startups. They will no longer be restricted by state-level bureaucracies and the License Raj of local APMCs, which would often impede their growth and scalability. 

Shashank Kumar, Founder and CEO, DeHaat (a full-stack agri platform that connects farmers to buyers) adds, “Earlier, when you wanted to set up a farmer-driven model, you had to apply for Seedhi Khareed (direct purchase) licenses in every district of every state. This direct procurement license came with a cess and a licensing bottleneck. With the new reforms, our gestation period around scalability is much shorter because the inefficient process is eliminated by law. In the long run, this will boost procurement infrastructure near the farmgate, which will be the biggest benefit for us.”

For Indore-based Gramophone, which works with wheat farmers in Madhya Pradesh and plans to enter other states, the Farm Bills are a shot in the arm. 

Co-founder and CEO Tauseef Khan says, “We can go to any state or farming belt directly without partnering with local mandis. Earlier, the farmers would have to sell their produce through local aggregators and mandis, which would then sell to consumers at a higher price. Each intermediary jacks up the price of produce, but the farmer still earns less because the commissions went to the middlemen. The small farmer is so small that he cannot command anything. But now, they can work with platforms like us directly. They are not mandated to go to the mandi. With a free market and increased competition, farmers will get price benefits.” 

Besides the streamlining of processes, elimination of some intermediaries, and reduction in red-tapism, the Farm Bills may even lead to the mushrooming of new startups that will help draw up legal frameworks and contracts between farmers and agribusinesses, and also educate farmers on the Bills’ benefits.

 “There are numerous opportunities in the space that could see new kinds of players in contract farming frameworks, farmer advisory, farm consulting providers, and online farm marketplaces,” says Puneet of Farmpal. 

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More investments and supply chain innovation

Because of the opening up of the agri trade, there is likely to be more corporatisation, privatisation and participation of organised players. A bit like what India witnessed after the liberalisation of the economy in 1991. 

Most stakeholders believe that more privatisation will lead to increased investments and tech-led innovations, especially in sourcing and collection centres, storage, and supply chain infrastructure. These areas are likely to draw VC attention too.

Arya Collateral’s Prasanna says, “A layer of trust and quality assurance will be enabled by these laws. More professional agencies would step in to certify and grade produce. The scope of innovation goes up across the ecosystem.”

Efficient supply chains are almost imperative given India’s post-harvest loss stands at 40 percent annually. Perishables are the worst hit, with losses amounting to a staggering Rs 13,300 crore. The Farm Bills will allow deep-pocketed private players to fix this pain point with state-of-the-art infrastructure and advanced farm-to-table processes. 

Sudhakar Nimmagalla, Founder and CEO, FnV Farms (agri startup that enables last-mile delivery of fruits and vegetables), says, “The Bills will bring highly required private investment in agricultural marketing, processing, and infrastructure. Despite agriculture being the backbone of our nation, past governments have neglected the right infra and supply chain required to efficiently handle perishables to reduce the wastage it undergoes. Privatisation brings in the required technology and new methods into the orthodox functioning of traditional supply chains.”

End consumers too stand to benefit from efficient supply chains and better storage.

“A quicker supply chain directly reduces the prices as fewer hands are involved. Better infrastructure and climate-controlled storage facilities give end consumers good quality perishables with a longer shelf life,” Sudhakar adds.   

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Boost for agri storage and private players 

While farm-to-table efficiency may be the most immediate impact of increased innovation, in the long run, the Farm Bills are also expected to boost agri storage infrastructure even in smaller locations.

Arya Collateral’s Prasanna explains,

“Warehousing has always been skewed towards larger markets. Because of the lack of market linkages, finance, and other support, a lot of the storage capacity lies unoccupied in smaller locations. These locations can now become vibrant storage hubs.”

The Bills are said to empower local entrepreneurs too. “They can procure directly from farmers and set up mini mills in their district to cater to local demand,” says DeHaat’s Shashank.

The Farm Bills are also expected to bring corporates closer to farmers. It will lead to more buying, contract farming, and farmer-first programmes from them. 

Shashank elaborates, “The end point of agri trade belongs to corporates (like ITC, Godrej, Cargill) because most B2C channels are owned by them. Due to the mandi bottleneck earlier, they had to go through traders. If corporates wanted to design farmer-driven programmes, there was no incentive for them to do that because even after all their efforts, they didn’t have the option to source directly from farmers. The Bills will encourage them to come closer to farmers, get first access to their produce, and invest in cold chains near the farmgate.”

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Agri supply chain startup Crofarm believes that the Farm Bills will eventually lead to the government relying more on private players for storing agri commodities. 

Co-founder and CEO Varun Khurana says,

“The new Bills will encourage organisations, individuals, and farmers to stock select agri commodities to increase profits. It is likely that the government will rely on private players for storage, which makes sense. Historically, the government has incurred huge losses due to mismanagement when it tried to store agri commodities.”

In Punjab and Haryana, for instance, 75 percent of the procurement is done by the government. So much so that large farmers in these states are incentivised to grow certain crops against others. This creates a surplus, which is stored in dysfunctional godowns, where it simply rots and leads to wastage. 

Omnivore’s Mark says, “Do we really want to pay farmers to grow more rice that will sit and rot in the Food Corporation of India godowns? India is a grain-surplus country already, and today, the population is eating more sabzi, fruit, dairy, and animal protein. By growing surplus grain, you are depleting India's most precious natural resource (water), and heading towards an environmental disaster.”

Privatisation of agri warehousing is expected to solve the storage problem while increased buying from non-government players — enabled by the Farm Bills — will eventually bring down surplus production of food grains. 

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Will mandis disappear or reinvent?

Farmers in north India have been gripped by an almost irrational fear about the future local mandis. To set the record straight, those aren’t going anywhere. The Farm Bills haven’t replaced mandis, but merely added other channels for farmers to sell. 

Omnivore’s Mark says, “The fear of middlemen [like commission agents and traders] being eliminated seems naïve because the farmers are dependent on them as moneylenders. The Farm Bills will force APMCs to up their game, and become modernised and digitised. Hopefully, more reforms will follow in agriculture land ownership and leasing.”

The Farm Bills allow free trade to co-exist with mandis. But rising competition will compel them to reinvent and reimagine their role in the agri value chain. 

FnV Farms’ Sudhakar says,

“They might even take up a new avatar within the new regulation. With the scrapping of additional state/mandi charges, they can leverage their well-established connections with farmers to create a direct supply chain for private organisations at cheaper prices.” 

Essentially, mandis will have to add value and be more than just facilitators of trade. They need to offer better prices because the farmer has "freedom of choice" now.

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Mandis are also critical because they act as grievance redressal cells. 

DeHaat’s Shashank shares, “The Mandi Samiti resolves farm disputes. If there’s a dispute in a transaction that happens outside the APMC, say if a corporate cheats or exploits the farmer, who will resolve that? It’s a grey area.”

APMCs also ensure that the produce gets sold even if the farmer doesn’t get the best price. This assurance is often an incentive for smallholder farmers to travel 150-200 kilometres from their farms to the nearest mandi. 

Crofarm’s Varun says, “The mandi system is several decades old. I don’t see it becoming irrelevant anytime soon. However, I do foresee some level of decline in the trading that happens at the mandis, with more choices available.”

APMCs in India make Rs 11,200 crore in annual revenues, as per industry estimates. Because of the rationalisation of cess, and the end of their monopoly due to the availability of alternate channels, they might be hit in the short term. 

However, until a substantial volume of trade moves outside the APMCs, there would be no pronounced impact in the long run. “APMCs are supposed to be developmental organisations to facilitate business. In the long term, they will evolve to match the market requirements,” says Arya Collateral’s Prasanna.

As for traders and commission agents who just add more layers to the value chain, “some of them may morph into organised players and links in the supply chain for either farmers or customers,” says Clover’s Avinash, adding, “There may be some shocks in the short run, but the Farm Bills will ensure an equitable balance between consumers and farmers in the long run.”

And according to industry sources, this will only attract more VC capital into the agritech sector in the next 12 to 18 months, signalling greater potential to reimagine India's agriculture industry for maximum impact.