Conclusion of masterclass in produce markets

This part 2/2 of my masterclass series. Part 1 of this series comprises about the background and work we did in produce markets.([[Masterclass in produce marketplaces]]) Special mention to my good friend <a target="_blank" rel="noopener noreferrer nofollow" href="https://twitter.com/himali1212">Himali Saini</a> for pushing me to do it in the first place.<a target="_blank" rel="noopener noreferrer nofollow" href="https://www.networkcapital.tv/course/vivek-vs">Marketplaces in Agriculture - The challenges behind the glamorous sector</a>In this post we will cover the lessons learnt and trade-offs to consider in building supply chain businesses in produce markets.It goes without saying that the opinions expressed over here are solely mine<h2>In produce markets</h2>That was the common monicker I used before addressing any opinion that I stumbled across while building.There are <a target="_blank" rel="noopener noreferrer nofollow" href="https://twitter.com/vsvivek93/status/1491003332215074818">33 of them</a>. I picked the relevant ones for folks who are not from agri-space.<h3>Standards First</h3><img src="https://buttondown-attachments.s3.us-west-2.amazonaws.com/images/493bd6e4-405f-4a31-ac06-84d5d2f1c53c.jpeg" alt="2587BC2B-F29F-4A33-8909-58481A6914D6.jpeg">The forever challenge is lack of standardisation of produce while it’s traded between people. When the produce leaves the farmers field to when it reaches the consumer’s kitchen, multiple assessments of its value and grade would have been done.This creates an incentive mechanism where the trade takes place when both the buyer and seller are in physical presence to ascertain grade of produce. This is one of the main reasons why the dominance of Mandi(s)(local marketplaces set up Agricultural Marketing committee of government of state) continues.When we decided to grade produce. We went with the narrative of “we grade, you trade”. We wanted to standardise produce to make the logistics of it similar to e-commerce. The price paid was the same for the produce between the buyer and farmer. But, the price to get the produce is charged as a tariff. This unbundling of pricing helped us differentiate ourselves from Mandi pricing affects and also develop recurring buyers.<h3>Perils of Mandi(s)</h3>Produce supply chains are short in nature. Standardisation unlocks faster transaction between all the people involved if they align in what is being traded rather than who is trading it. This has been the biggest challenge we had to surmount.<img src="https://buttondown-attachments.s3.us-west-2.amazonaws.com/images/6698f9c9-d8de-48d8-96f2-8ac96dc4374f.jpeg" alt="B5BA41C5-B3A3-430A-8C24-75A4FB6DB93E.jpeg">In dominant marketplaces like mandi(s), the ownership of the commodity is given prominence. The by-product of it is such behaviours where farmers have to protect their produce before the mandi starts auctioning.<img src="https://buttondown-attachments.s3.us-west-2.amazonaws.com/images/ef114122-b2cf-45c7-ba9a-a331acdf1cf9.jpeg" alt="IMG_0152.jpeg">The other aspect that existing marketplace optimise for is daily throughput. In mandi(s), there are traders selling and buying commodity of different farmers every day. The farmer visits the mandi(s) during a season a couple of times but a trader is present throughout. This creates a challenge for startups building in this space.<img src="https://buttondown-attachments.s3.us-west-2.amazonaws.com/images/326cfa17-c977-44a9-aa2a-0d1921bba715.jpeg" alt="IMG_0153.jpeg">To focus on long term yet important problems. We need to address them in cycles. When the harvest happens, you are one more trader looking to buy the farmer’s produce. Mandi(s) due to their structure are there every day. So, if you are just an another option there is no reason why a farmer should shift where he/she sells.We addressed this by assisting farmers with harvesting and grading their produce. During harvesting season, finding labour gets tricky. We intervened and solved the issue by providing skilled labours to harvest and grade. We only talked about selling through us once the grading is done. This let them see us as service providers rather than just an another buyer. We charged for our service if they decided to sell to the mandi. The incentive was for them to sell to us but no coercion.<h3>Resetting Motivations</h3>The value chain and supply chain of produce marketplaces can be illustrated as below.<img src="https://buttondown-attachments.s3.us-west-2.amazonaws.com/images/22362e23-614c-4b76-8f72-27bee1bc40a1.jpeg" alt="Sorrow to Smile.jpeg">The mandi(s) created a process flow that rendered both the farmers and buyers at the bottom of the value chain. Farmers could only sell at their nearest mandi(s) at the price that is locally available. Similarly, buyers could only get produce that is available at their nearest mandi(s), not what they need. The connectivity is dictated by the traders and logistics service provider moving commodity between mandi(s). This structure prevails because of the notion of fairness.<img src="https://buttondown-attachments.s3.us-west-2.amazonaws.com/images/115e83b4-fbab-46a6-8ced-0ea144c92739.jpeg" alt="IMG_0154.jpeg">With <a target="_blank" rel="noopener noreferrer nofollow" href="www.subjimandi.app">Subjimandi.app</a> we tried to flip the curve, a beneficial marketplace. By enabling the buyers to buy produce and then pay for delivery of it separately. We were trying to create a smile curve. It is not a perfect solution but a better system to align incentives and also share risks with farmers.<img src="https://buttondown-attachments.s3.us-west-2.amazonaws.com/images/d66defe0-09e1-4f62-94ae-3ce36bca9551.jpeg" alt="IMG_0155.jpeg"><h2>Building Marketplaces</h2>The talk culminated with the topic of developing marketplaces. What are the trade-offs to be considered, capital allocation and domain constraints you will have to factor when designing marketplaces.<h4>Marketplace Dynamics</h4><img src="https://buttondown-attachments.s3.us-west-2.amazonaws.com/images/f1933a3c-1866-47c6-802d-f3d172f6352b.jpeg" alt="IMG_0156.jpeg">The best framework to asses these tradeoffs came from <a target="_blank" rel="noopener noreferrer nofollow" href="https://twitter.com/vsvivek93/status/1436357425867624448">Lia Di Bello’s work</a>.<img src="https://buttondown-attachments.s3.us-west-2.amazonaws.com/images/88e3afe6-9c4f-426e-a8a6-2187f99c16c4.jpeg" alt="B21017D9-3B78-42D6-AB18-C7FDDE7D4BFA.jpeg"><h4>Agriculture is a Canvas</h4>The domain of agriculture is very complex. The constraints are from different factors. All these factors are dependant on the region of where your marketplace is operating.<img src="https://buttondown-attachments.s3.us-west-2.amazonaws.com/images/da93df62-fad2-4f08-94e4-b5762b87b63c.jpeg" alt="Agriculture is a canvas.jpeg">Economy is not finance. It is the overall system that you develop to track progress of the participants of marketplace.One example, the farmers of Solapur and Nashik are both doing onion harvesting but the way they make their decisions are different due to economics. The access to mandi(s) was not a problem in Nashik , they had tractors to ferry the onion. But that was not the case for Solapur district farmers.Our approach also tailored basing on the economics of farmers. In Nashik, we pitched them about the unrealised gains they could gain from grading. Whereas in Solapur, why do the hassle when you can earn well by grading your onion at your farm.If you unpack each factor, there are layers of attributes. Like in the case of agriculture, we have buyer, crop and farmer. These 3 attributes contribute to defining the type of agriculture takes place in a region.<h4>Capital</h4>This take comes from the person who didn’t raise from institutional VC. So, please be cautioned.<blockquote>Capital is required to trade but it won’t give outsized returns. The spend to return in trading is misplaced opportunity.</blockquote>If you are spending majority of capital in trading of commodity, i.e buying and selling. The returns on them are not productive to justify the capital.<blockquote>You are not in the business of selling your commodity that flows through you but also in the process of selling the business model.</blockquote>In produce markets, we are not in the business of trading but in the business of access. Can we get the produce in the best possible manner to the buyer. This is more of selling it differently than selling a product.<blockquote>Understand that we entered this space by doing it in the right way. The funders have to be privy to this right from the start.</blockquote>Find investors who understand how you approach the space. Having been on the wrong end of this advice. I believe if you are raising any sort of money. Investors are in it for the right reasons that align with your core values.<blockquote>Collaborative approach. If you are solving one pain point, find someone who can do the other one.</blockquote>The domain like everything that I previously mentioned showcases its complexity. Please take it into account and try to collaborate with as many adjacent companies that are in the space. The main competition for us was the local mandi(s) not the next startup that is building a different take on the produce marketplace. We both can co-exist as this is not a winner take all market.<blockquote>Focus on the narrative, deliberate on the impact and optimise for learning.</blockquote>The narrative around the problem you are solving is more important than the solution to solve a problem. The lack of narrative creates a vacuum that cannot be filled with even good execution and healthy financials.We knew that grading is the basic tenet for success of our marketplace and logistics was our differentiator. The execution on both was equally good. We ended up doing 900 + farm procurement and moved all of the cargo though 3rd party logistics service providers with quarter of the cost compared to existing supply chains.Yet, when we were in difficult juncture of closing down. The biggest vacuum i couldn’t fill was the lack of narrative around grade. Building the narrative is a long process but we were out of time.<h2>The End</h2>Thank you for reading and being part of this rendition of the masterclass. The 3 years of building the Subjimandi.app were one of the most fulfilling years of my life. The domain of agriculture still dominates my work as an operator, so the pursuits carries on in a different form and manner.I will leave you with a simple meme that was created when discussing about the grade. It showcases how <a target="_blank" rel="noopener noreferrer nofollow" href="https://buttondown.email/ontheside/archive/agri-commodity-marketing-via-advocacy/">critical it was that we focus on grade</a>.<img src="https://buttondown-attachments.s3.us-west-2.amazonaws.com/images/ce2145aa-34e1-444a-9174-9987f636f2c3.jpeg" alt="CC2FA05F-F9E2-4390-98B3-4CB2502C8C04.jpeg">If you leave this post with just one takeaway. Please let that be this one;<blockquote>Buy and Sell grade-wise only.</blockquote> ***** Originally Published : Tags: #published #agriculture #essay