Venture Capital Funding in Agriculture: Harvesting Growth Through Investment in Sustainable Companies
According to the CFA Institute, the Agriculture, Forestry, and Land Use (AFOLU) sector contributes to 21% of the global greenhouse gas emissions, second only to energy at 25%. Traditional agricultural practices contribute substantially to climate change with rampant deforestation, excessive use of chemical fertilizers and pesticides, and inefficient water use.
Considering this, sustainable agriculture is crucial in the fight against climate change. In fact, sustainable agriculture builds resilience against climate change. Practices like crop rotation, diversification, and promoting beneficial insects can help farms adapt to changing weather patterns, droughts, and floods, ensuring food security in a volatile climate. Transitioning to sustainable practices via sustainable finance enables agriculture to shift from being part of the climate change problem to becoming a vital part of the solution. This approach offers a win-win scenario, fostering food security, environmental protection, and substantial financial returns.
Agriculture in India and the Need for Sustainable Finance
India, with its rich agricultural heritage and vast arable land, is one of the world's leading agricultural producers. According to the last census of India, the estimated number of farmers in India exceeds 200 million, constituting approximately 55% of the country’s workforce. However, based on data from the Ministry of Agriculture & Farmers Welfare, agriculture and allied sectors contribute only 18.3% to the country’s GDP, growing at a rate of only 3.3%. Agriculture has to sustain a growth of at least 4% to keep the Indian economy growing at 9%, making this an economic problem as much as an environmental and social one.
This gap in revenue and productivity is due to issues like obsolete equipment, poor infrastructure, inefficient supply chains, and the lack of access to the markets. Small and fragmented landholdings limit economies of scale. Traditional farming methods result in low productivity and poor infrastructure, like a lack of cold storage facilities, leading to significant post-harvest losses affecting supply chains. Small farmers often struggle to secure financing relying instead on informal sources with high interest rates. This hampers their ability to invest in better technologies and practices. Plus, agriculture in India is heavily dependent on monsoon rains, making it vulnerable to climate change and water scarcity.
Sustainable finance has the potential to address these challenges by injecting much-needed capital and fostering innovation
Boosting Agriculture by Investing in Sustainable Companies
According to an EY Report, the total market opportunity of agritech start-ups is potentially USD 24 billion by 2025, and based on Inc42’s analysis, this potential is being recognised by Indian and global investors, as these start-ups have secured more than USD 2.4 billion already.
This opportunity for sustainable finance is driven by heightened awareness of food security concerns due to population rise and climate change as well as technological advancements like precision agriculture, artificial intelligence (AI), and blockchain offering solutions for efficiency and transparency within the agricultural landscape. Growing consumer demand for organic and sustainable food products and supportive government initiatives promoting agritech adoption and innovation are also creating opportunities for start-ups to address these segments. For climate investors, this presents a unique opportunity to drive positive environmental and social impact while achieving substantial financial returns.
Opportunities Identified By Green Frontier Capital
Top investment companies in India like Green Frontier Capital have been quick to recognize the potential of sustainable agriculture start-ups and the opportunity they present. These start-ups perfectly align with environmental, social, and governance (ESG) investing principles. Plus, sustainable agriculture solutions can improve farm profitability, leading to better financial returns for investors alongside positive environmental and social outcomes, achieving a double bottom line. Investing in promising early-stage agritech companies also allows climate investors to shape their growth trajectory and ensure a strong focus on sustainability from the outset.
There's a plethora of avenues in the Indian agricultural market for sustainable finance and climate investors to explore. Here are some sustainable companies that Green Frontier Capital has identified for its investors:
Dairy Alternatives
According to GlobalData, the Indian dairy alternatives market is poised to grow at the rate (CAGR) of 6-8% over 2023-27. To seize this growing trend, Green Frontier Capital has invested in Zero Cow Factory, a sustainable company that is working on technologies to produce “smart” dairy proteins (such as casein and whey) without the involvement of any animal by using bioengineering microbes and precision fermentation.
Zero Cow Factory’s first product, A2 beta casein, is healthier than its A1 milk protein counterpart which causes indigestion. The sustainable company aims to be the first globally to get regulatory approval for this protein, which will be used to formulate various sustainable dairy products. It will have the lowest protein production cost in the world by 2025 at USD 20/kg. They aim to be among the world’s first 3 sustainable companies to commercialize production and are on a mission to feed 10 billion people sustainably by 2050. Their impact is delivered through healthier dairy, animal welfare, climate friendliness, and 99% less land consumption, 98% less water consumption, 84% less CO2 emissions, and 65% less energy consumption.
Farming Technology
The hydroponic market in India is projected to experience a CAGR of 13.53% from 2020 to 2027, significantly higher than the global hydroponic industry's estimated growth of 6.8%, according to Krishi Jagran. Taking advantage of this, Green Frontier Capital has invested in NutriFresh, India’s largest hydroponic farm.
NutriFresh is committed to growing and supplying superior quality, non–GMO, residue, and pesticide-free fruits, vegetables, and herbs to meet the massive demand for high-quality produce across B2B, B2C, and modern trade. It is a profitable organic farming brand and India’s sole hydroponic operation, growing and selling 42+ various SKUs. This sustainable company has approximately 15,000 users, a weekly active user base of 1,000, and receives roughly 100 orders per day. In terms of impact, the hydroponic farming process itself generates oxygen and consumes CO2 via photosynthesis. This controlled environment sustainable agriculture includes farming techniques for optimal growing conditions and crop protection. It conserves 90% water and delivers pesticide-free produce.
Supply Chain and Logistics
In India, approximately $14 billion worth of crops are wasted annually due to poor cold chain facilities and disorganised logistics. Plus, farmers often lack strong market connections and struggle to obtain fair prices for their crops. Technology can be a strong tool to solve these issues. Identifying this, Green Frontier Capital has invested in KisanKonnect, India’s first digital farmers market for urban consumers.
Due to a strong regional focus, with a hybrid online and offline model in Mumbai and Pune, KisanKonnect has a market opportunity of USD 30 billion. They have developed a fully integrated supply chain by sourcing fresh fruits and vegetables, pulses, grains, and preservative-free snacks directly from farmers and farmer groups, largely made up of women. KisanKonnect claims that it manages over 1.75 lakh acres of cultivated land and provides access to more than 200 types of vegetables and 100 types of fruits through its online platform. The start-up also claims to deliver approximately 1.5 lakh boxes of vegetables and fruits every month.
Their products are sold through a fully integrated refrigerated supply chain, technology-enabled data collection, traceability, and data analytics at every point. Their impact can be seen through their 5,000 farmers from Maharashtra who are provided with fair prices, agronomical support, training in soil regenerative techniques, and environmentally friendly agricultural inputs that enhance crop yield.
Addressing Challenges and Mitigating Risks
While the potential for venture capital funding in Indian agriculture is immense, several challenges need to be addressed. Crop markets are subject to price volatility due to factors such as weather conditions, pest outbreaks, and global market trends. Sustainable finance investors can mitigate these risks by investing in a diverse portfolio of sustainable agriculture start-ups across different segments to reduce exposure to sector-specific risks.
Agricultural policies in India are complex and often vary across states. Start-ups and climate investors need to navigate these regulatory landscapes carefully to ensure compliance and leverage government schemes effectively. Adopting new technologies requires a significant mindset shift for many farmers. This adoption can be slow due to limited awareness, access to resources, and risk aversion. Providing training and support to farmers to facilitate the adoption of new technologies and practices can enhance the impact and sustainability of investments.
Finally, investors must note that scaling sustainable companies in agriculture to reach millions of farmers is a significant challenge. Start-ups and climate investors need to develop scalable business models and leverage partnerships with government and private entities to expand their reach.
The Way Ahead
The Indian agriculture sector is at a pivotal moment, with venture capital funding playing a crucial role in driving innovation and growth. For sustainable finance investors, this presents a unique opportunity to support technologies that not only promise financial returns but also deliver substantial environmental and social benefits. By investing in sustainable agriculture start-ups, climate investors can contribute to transforming Indian agriculture into a more productive, equitable, and environmentally friendly sector.
As the world grapples with the challenges of climate change and food security, the innovations emerging from the Indian sustainable agriculture sector could provide crucial solutions. Sustainable finance investors, with their focus on long-term value creation and ESG principles, are well-positioned to lead this transformation, making a meaningful impact on one of the world's most critical industries.
FAQs
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Sustainable agriculture is a farming approach that balances environmental health, economic viability, and social equity. It aims to meet current food needs without compromising future generations' ability to do the same. It also ensures profitability for farmers and fair labour practices, supporting the well-being of rural communities. Sustainable agriculture promotes efficient resource use, biodiversity, and resilience to climate change, ensuring long-term productivity, and ecological balance.
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Venture capital funding can boost sustainable agriculture by providing essential capital for innovative sustainable companies in the agriculture space. Venture capital funding enables scaling of eco-friendly practices, improving supply chains, and reducing environmental impact. By investing in such sustainable companies that promote sustainable practices, sustainable finance helps transform agriculture, making it more productive and resilient while addressing climate change, ensuring food security, and enhancing the livelihoods of farmers.
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Top investment companies in India are encouraging sustainable agriculture by funding innovative sustainable companies that promote eco-friendly practices and technologies. They invest in solutions such as precision farming, organic inputs, and efficient water management systems. These investments support the development of climate-resilient crops, renewable energy-powered equipment, and sustainable supply chains.
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Climate investors can contribute to sustainable agriculture by funding projects and technologies that reduce environmental impact and enhance resilience to climate change. Climate investors can back initiatives that improve soil health, water conservation, and sustainable supply chains. By providing capital and expertise, they help scale eco-friendly farming practices, and align agricultural practices with broader climate goals.