*A thought experiment where I am indulging with my writing to propose an actionable roadmap to start an agri business with lessons learnt* Original Published Date : 18-11-23 Edited: 06-12-23 **** ## Preface The motivation behind this hypothetical excersise stemmed from sharing about the domain knowledge through a personal point of view. I read Ted Gioia's [post](https://www.honest-broker.com/p/if-i-ran-a-major-record-label) where he asked himself a similar question with respect to record labels. I thought this would be interesting to answer for myself. Let me re-iterate. Business, not a startup. So, for a more concrete picture. Let us assume some corporate deciding to enter the agriculture in the post harvest space(output). ### 1. First and foremost I will try to define a region of operations Agriculture is a vast domain. It has multiple streams. But, the one fundamental aspect that constrains it is the region. The agriculture in US and India are not similar. Even if, they are growing the same crop. The first and foremost mental model that one needs to understand about this is that it is a canvas.  In this one domain, I am bounded by region of operation and its dependant mix of 3 factors of that region. 1. Society - Demographic of people and practices of community. 2. Agriculture - Type of farming /cultivation that is practised over there. 3. Economy - GDP of the region. Prospering or neglected. We cannot expect that solutions we develop for Maharastra state will work in Bihar. They are completely different in multiple attributes. If you dive into each layer. Things will get more complex. In order to increase any odds, first thing is bound it by region. ### 2. Understand the problem space and form a point of view. The problem that we are looking to address will fall into the primary farming ecosystem. This is the visible part of agriculture. The invisible part is the technology in the form of seeds, insecticides, pesticides, microbes, bio-mimicry and other such technologies to assist either growing or storing of produce. So, segmenting the area of operation and stakeholders will provide us a complete picture of the space. ![[Primary Farm Ecosystem_illustration.png]] This is how they are stacked. If I first decide where I would like to operate. Pre or post harvest. Which stakeholder should be my user and who should be my eventual beneficiary. My point of view deriving from the illustration will make me focus on everyone else other than Farmers. They have the lowest value creation potential. So, even if we attempt to solve a problem for them. The reward will be non-sustainable on the long run. ### 3. Economic thinking in problem selection Agriculture is a space that has enough problems plaguing it that we could find multiple problems to address. The common advice of selecting one problem and solving for it will not work. Instead, select a bouquet of problems that are either pivoted to a stakeholder or a function. Let me explain, farming and farmers or trade and trading of agriculture are not the same thing. If we are looking to help farmers, it is not causal that you are solving a farming problem. Similarly, if we set out to solve the trade(function) inefficiency problem by optimising cashflow management or logistics. Traders need not benefit out of it. So, when we are categorising around a stakeholder or a function . It will be possible, we would have to address more than one problem. ![[Primary Farming _Stakeholders Size.png]] ### 4. Decide which cashflows I can route through me In agri-output supply chain. The riverbanks(facilities/stakeholders) of cashflow are well established. Mandi(s) have been the dominating marketplaces that have become the benchmark to better for every new entity that enters the market.  In the process a new tributary to re-direct the flow of cash through them is established. The challenge in sustaining this tributary without investing in any moat building like check-dams.  Rather, we should focus on replacing existing riverbanks without disturbing the flow of cash. In this pursuit, we can create a business that would not require outsized investment for incremental value creation.  ### 5. Focus on a single commodity and its multiple processed and bi-products Every produce segment has the potential to be a ₹ 1000 crore opportunity. I am paraphrasing what [Ajay](https://www.linkedin.com/in/ajay-t-g-9ba50b17/) who does this job that I am hypothecating as Head of Westfalia India. Westfalia is one of the largest Haas avocado growing company across the world. Ajay took about 8 years to import, produce and distribute the avocados to consumers in India. He has been patiently building and knows there is a long way to go before they reap the rewards. In a similar manner, we will narrow down on a commodity and work through identifying all processing and bi-products of processing on the commodity. In my past, when running [subjimandi.app](https://www.sujimandi.app). The deliberation of setting up a processing plant for the No-Grade onions(Grade C) was project that never got prioritised. The cost we would have incurred was just ₹ 17 Lakhs and ₹ 10 - 15 thousands(rental) in warehouse space. Rest all were operating costs. Importing of two dehydrating machines and packaging unit would have helped set up B2B trade of processed onion. Then we could have focused on oil, table cutting and storage of onions as well. So, the commodity has to be chosen and researched with these aspects in mind.The options of produce will be limited by the region(production) you have selected. ### 6. Work-Backwards We could invest in asset light and long-tail bets. Focus on marketing for generating demand. The recent successes in food space in India have been all around brands that developed a product suite and built distribution to sizeable scale. They invested in brand affinity with customers and also defined a niche product. An example, the exit of Soulful to ITC which is in the space of providing healthy breakfast cereal. They invested in building a brand through the new channels, e-commerce and DTC. And, by the time they started growing on the shelfs of physical retail stores. They were acquired by ITC. FMCG is littered with examples of niche brands created on 1-2 products being bought by a large company to unleash the benefit of distribution and marketing to take the brand mainstream. Soulful, was one example from the recent trend of brands doing this in Food and Beverages segment. Building brands in food and beverages is unsaturated. The bottle neck for lack of innovation in this space is the challenges of distribution on the demand and sourcing on the procurement. Both of which can be solved with hiring the right people for the right roles. ITC has the operating leverage to sustain in F&B because it has an entire division working on helping it procure raw commodities for each of their products. ### 7. Prioritise leverage; scale will follow The transformation of raw commodity to processed value added food is an untapped potential. ![[Chart 13a - Extent of food processing in India.jpeg]] It is neither sexy nor scalable. None of the existing factories that were built are running in full capacity. It is not the best return option for money invested. Yet, this where we should invest the most money. Both to innovate and own an asset. For the outsiders this may feel foolish. But, for a miller or any food processing owner. It will make most sense. You have leverage that dictates how the post harvest markets run. The density and diversity of clusters are few. Operating leverage percolates into procurement of raw commodities. You will get better deals if you are running a sizeable operation. In the above sections we could use this captive demand to solve a set of problems on the stakeholder we focus, farmer or trader. Also, through processing we get to transform the value of product. Sell to a different segment while we have abundant suppliers who will source for us. ![[Credit Cycles in Value Chain.png]] If you are operating in produce, start with a niche commodity. The current market is dominated by consumption markets and prices will be set by them. Where as in staples and oilseeds, most of the raw commodity first gets processed. So, processors dictate the price. ## Status on advice This is neither comprehensive nor rigorous. I tried to keep it limited to concepts and themes that yours truly would explore if some big shot conglomerate is interested. I spent more words on what we shouldn’t do instead of detailing what we should. It comes from experiencing it first hand. You will have to take everything with a heavy dose of salt. This is hypothetical in every aspect and as of this date (November, 2023) my approach of starting a business in Indian agri-space. None of this makes the process easier or faster. It will entail hard work. It will be time consuming. In the end of it though, we will have sustainable business with a moat. We can then spend time counting the value of assets and percentage of profits instead of “lives touched” (never understood what that means) or revenue numbers (you recieved money, good for you). ## Final words There is a heuristic that I have developed in assessing if a business in a specific domain will succeed. It starts with understanding people both at the top(leadership) and also on the front lines. If you focus on these two sets of employees of any organisation. It becomes evidently clear on the odds of their success. There are certainly more qualified and experienced professionals out there who will fit the bill if a conglomerate is actually curious. Yet, hiring people who have a "[taste]( https://www.are.na/blog/notes-on-taste)" of agri space would be detrimental to success. They will be able to quickly execute what needs to done and in the long term keep you focused against the plethora of problems that keep surfacing time to time in agri. **** Tags : #agriculture #business