By Sheena Jain and Varun Malhotra
Agriculture remains the largest source of employment in India, with over 50% of households principally dependent on agriculture for their livelihood. Farmers’ incomes in India are among the lowest across emerging economies, and the government has set a target to double farmers’ incomes by 2022. That said, any discussion on the feasibility of the government’s income target is moot without focusing on one glaring issue: post-harvest losses.
It’s estimated that a staggering US$ 13 billion is lost post-harvest in India due to challenges in storage, market inefficiencies, and a lack of financing options. The problem is complex and the challenges are intertwined.
Across India, food grain production moves through a caterpillar-like supply chain from primary markets (located in villages, the first touchpoint of the farmer) to secondary market centres (located in districts, aggregating at a few primary centres), ultimately reaching tertiary markets (located in towns and cities, which serve as large trading hubs) where it finally gets distributed for retail. The professional warehousing industry has long been focused on providing storage solutions in tertiary markets to large corporates and commodity exchanges, overlooking the huge demand from farmers and local small- to medium-enterprise (SME) processors. Lack of professional warehousing infrastructure near primary markets has been an impediment for farmers to safely and economically store their produce near the farm-gate.
The unique seasonality of cash flows for farmers is another challenge post-harvest. Farmers are dependent on cash flows at the time of harvest for sustenance and preparing for the next cropping cycle. The availability of financing is severely limited for farmers; banks seldom finance smallholder farmers, Farmer Producer Organizations (FPOs), and local SMEs due to the high cost to service smaller loans in remote locations. But without this critical financing, farmers are forced to sell immediately post-harvest, when prices are at their lowest. They travel to the nearest “mandi” (an agri-produce market), incurring high costs to travel with their produce. At the mandi, they are at the mercy of local traders who often promise higher prices beforehand but negotiate heavily once farmers arrive with their goods.
The two problems go hand in hand. Without financing farmers cannot generate liquidity; with financing, they need to store their produce in a trusted environment.
Having seen these problems first-hand while working at ICICI Bank, the founding team of Arya decided to solve both problems, bringing efficiency and transparency to the post-harvest value chain. The three founders — Prasanna Rao, Anand Chandra and Chattanathan Devrajan — together share decades of experience across agri-business and agri-finance. Before founding Arya, the team effectively created the warehouse receipt financing business in India and wrote the playbook for Indian agri-finance.
Arya is an integrated post-harvest platform that provides warehousing, financing and market linkage solutions, with a focus on smallholder farmers in primary and secondary markets. Warehousing forms the solid foundational layer of Arya’s business, with several integrated services for all types of clients. Using an asset-light model, the business has scaled up well. By the end of this year, Arya will manage more than 2,500 warehouses storing ~4 million metric tonnes of produce across the country.
The second key to Arya’s success lies in the company’s ability to provide financing solutions to farmers in order to support their cash flows. Given Arya has full control and visibility of the agri-stock it manages, providing collateral-backed commodity financing to small-holder farmers was obvious. Any farmer can store their harvest with an Arya warehouse and receive a loan against their stored commodity’s value. This warehouse receipt financing allows farmers to meet immediate cash requirements and sell the produce when prices are beyond harvest-season lows, often realizing 20–30% higher returns.
Finally, with an extensive network and on-ground capability to engage meaningfully with rural agri-customers, Arya launched its digital marketplace a2zgodaam. A2zgodaam integrates warehouse discovery, financing and market linkages to create an integrated digital platform to serve all post-harvest needs. Farmers, SMEs and even corporate clients have one-stop access and transparency to storage locations and services. Farmers and SMEs can apply for financing options for goods stored at any of the managed warehouses. Corporate clients and SME processors have the option of raising procurement needs on the platform that can be fulfilled with goods in the managed warehouses. A2zgodaam is a first of its kind solution for increasingly digitally savvy rural communities in India, providing them with frictionless and transparent access to post-harvest services and market linkages.
Through its digitally integrated model, Arya converts each bag of the farmer’s commodity into an electronic balance that in turn could be stored, offered as security for a loan, or be sold digitally at a click of a button.
The Quona team is very excited by this up-and-coming part of Arya’s business that builds on the strong operating core and foundational capabilities that Arya has built. Our investment in Arya falls within Quona’s embedded finance thesis, where we see fintech playing an integral role in the evolution of the post-harvest value chain. There are, of course, immediate benefits to increasing farmer incomes, but also long-term structural changes that can be accelerated by introducing more transparency into the system. The investment in Arya marks Quona’s second investment in this space, following our investment in Tarfin, an agri-inputs financing platform based in Turkey.