Shifting Investments Toward the Smallholder Farmer
Updated: Sep 30, 2020
Digital technologies are set to positively transform the highly fragmented landscape of smallholder farming in ASEAN. Tools for finance, logistics, and learning have the potential to improve farmers’ prosperity while bringing greater efficiency to value chains by significantly lowering transaction costs. However, at present, only about 2.5% of farmers in ASEAN are active users of these technologies.
Unsurprisingly, there has been a growing interest amongst investors in technologies that impact smallholder farmers, as investors become more aware of the role smallholders play in ensuring food security. In the ‘State of the Smallholder Sector 2020’ session at the recent Grow Asia Forum we presented an overview of the Smallholder AgriTech investment landscape in Southeast Asia to highlight the opportunity for innovators to develop tools with investors and agribusinesses that help farmers access inputs, finance, and markets.
John Friedman, Director at AgFunder – a leading AgriFoodTech Venture Capital Platform with significant investments in ASEAN - presented key findings from their recent ASEAN 2020 AgriFoodTech Investment report:
In 2019, 423 million was invested into the sector, which is a 41% deal growth year on year.
Agrifood Tech startups in the region are still relatively early stage, as 63/99 investments are in Seed Stage.
Impact investing is no longer considered as “charity”, as 50% of investors plan to increase their allocation to Food & Ag, according to the GIIN 2019 report.
It is just the beginning for ASEAN AgriFood Tech - we are likely to expect more investments going into startups that are serving the smallholder sector in the next few years, as investor awareness shifts more towards food security.
John was joined by two agritech startups, HARA and DeHaat, who shared reflections on their respective experiences.
The shift towards the smallholder farmer
While this is slowly changing, startups in agritech developing smallholder-oriented solutions are still seen by investors as high risk compared to those developing consumer-oriented ones. However, investors such as AgFunder have been developing ways to influence investor’s perception of risk by adjusting the way investment products are structured.
"Within the venture capital construct of smallholder agritech, I believe there needs to be a balance between expected equity returns given the incremental profit margin attainable, and perhaps more loan-type products which offer attractive yields yet still benefit the smallholder through financial inclusion. While traditional metrics such as user traction and ARR may be top of mind for now, over time I'm sure we will better be able to attribute the value-added 'impact' when considering investments in this space."
John Friedman, Director, Asia, AgFunder
When asked what startups can do to make investors more comfortable in investing in them, Larissa Sidarto (COO of HARA - an organization that provides blockchain-based data exchange in the food and agriculture sectors) and Shashank Kumar (Founder and CEO of DeHaat, an Indian agri-tech company with a farmer-to-market platform serving close to 300,000 farmers) echoed the centrality of having a clear value proposition for your solution and an appropriate business model.
“Farmers are willing to pay for our services once they see the value of our ecosystem. As we continue to show these farmers are good customers, we started to attract more players in the ecosystem - different banks, insurance companies, and even local retailers, creating a closed-loop environment that strengthens the business model over time.”
Larissa Sidarto, Chief Operating Officer, HARA
“Whichever model you are working with, whether that is full-stack, or fintech, or just input or output - I think the value proposition has to be very clear to the smallholder. Because if that is established, everything else becomes slightly easier.”
Shashank Kumar, Founder and CEO, DeHaat
While the growing interest amongst investors in financing technologies that impact smallholders highlights an opportunity for the startups in Grow Asia’s network, most of the current investments are still in very early stages. Startups need to continue to focus on developing clear value propositions, and build a sound business model around their idea to help reduce the perceived risk amongst investors. Ecosystem builders like Grow Asia and Padang & Co are needed to continue to propel the industry, and help to move investments to more mature stages to help startups reach scale.
Grow Asia invites practitioners to continue engaging with Grow Asia’s Digital Program through our various activities to learn and network with others. To learn more, visit www.growasia.org/digital or email firstname.lastname@example.org.
About the Grow Asia Digital Program
Grow Asia’s Digital Program brings together business leaders, development actors, policymakers and AgriTech startups to:
Improve the performance of existing solution providers
Motivate corporate leaders to adopt solutions in their business (by educating, inspiring and connecting them)
Generate more financial investments into solutions
Increase the number of solutions by encouraging more entrepreneurs to build agritech startups