Two of the biggest issues for Indian farmers are sales and cash flow. They are at the mercy of traders who can wait, while farmers cannot because they have to sell the produce before it spoils. This often forces them to sell for a lower price. In addition, farmers are also vulnerable to late payments and usurious rates from pawn shops, as they are again limited in time in their need to sow the next season’s crops.
Noida-based startup Arya is trying to kill two birds with one stone: warehousing. Farmers’ organizations (POs) as well as individual farmers can use warehouses to store their produce until they find the right buyer. They also use the stored products as collateral to secure financing.
It’s more complicated than it looks. Warehousing and banking services are available in tertiary markets like Azad Maidan in Mumbai or Kota in Rajasthan. They are mostly absent in the small markets where two-thirds of the country’s agricultural transactions take place. These are the places Arya goes, to be closer to the farm gate. This presents challenges, bringing into play certain nuances in the startup model.
One of them is the computer vision-based quality control in its supply centers, from where the products go to the warehouse. “Once there is a seal of quality, the merchandise is converted into a digital value that can be offered as collateral to a lender,” says Prasanna Rao, co-founder and CEO of Arya. have an imperative cash flow to sell the product at the price they can get immediately after harvest. They can expect a better price.
“We have our own NBFC (non-bank financial company) as well as partnerships with several banks. The loan process is digitized, so it takes about an hour for the loan to be credited to the farmer’s account, ”says Rao. “Likewise, when farmers want to sell their produce, there is an escrow system and visibility of the commodity for buyers. comes with the stamp of quality that we provide. “
Arya operates its own 1,800 warehouses. And it introduced an additional 2,400 third-party warehouses in a digital marketplace, a2zgodaam.com which it launched last year amid the pandemic. More than 80% of its activity is carried out on the primary and secondary markets, where the challenge is to be profitable at a scale ranging from a quarter to a sixth that of a tertiary market.
The startup solved this problem by forming warehouse clusters. Typically, a cluster would start with a nodal warehouse serving a corporate customer. “Once we had that reference customer, we would travel 70 to 80 km around that point to build smaller warehouses. We operate about 50 such clusters across the country, with each cluster processing 60,000 to 70,000 tonnes of product. Now within a cluster, even if I set up a 100 ton warehouse, I can operate it profitably. No other player can do it because you cannot operate a 100 tonne warehouse profitably on your own, ”says Rao.
It even has “on-demand warehouses” where products can be hermetically sealed with special plastics, which are faster to deploy and less expensive. The cluster model has helped Arya evolve rapidly. A cluster can start with a capacity of 10,000 tonnes. Then, as it attracts more farmers and buyers, the cluster extends to 40,000 tonnes and then 60,000 tonnes.
At the same time, it continues to add service layers in each cluster as it grows, from aggregation and quality assessment to storage, finance and market linkages. .
“They call it the ‘supply chain’ that helps their customers get better returns,” says Mark Kahn, founding partner of agrritech VC Omnivore, who was an early investor in the startup.
Currently the products are worth approximately ??7,000 crore passes through Arya in the 21 states in which it operates. It takes 0.25% commission from both sellers and buyers in each transaction. Then there are small fees for purchasing and storage as well as mark-ups on the loans it provides. But even though it aims to make every warehouse profitable, the startup has raised $ 21 million in Series B funding this year to keep its rate of expansion high.
Digitization is the key to making all of this work work without “clusterfug,” a term coined by Stanford professor Hayagreeva Rao to describe the problems organizations face when scaling them up. In Arya’s case, while back-end digitization was implemented from the start, the clusterfugs she faced were at the front-end. The digitization of the front end where grain is purchased depends on the availability of the internet and digital tools which have improved in recent years. For example, another startup in the Omnivore portfolio, AgNext, has come up with an artificial intelligence product for quality assessment that has made it more reliable and much faster.
Sumit Chakraberty is a consulting editor at Mint. Write to him at [email protected]
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