What is an Agritech?
The word ‘agritech’ is a combination of two words, agriculture and technology. The term agritech is used when a business makes informational technology products and services that benefit the agricultural sector. In India, this sector has developed recently. More ideas are brewing in this area to make a profitable venture.
Agritech business can be started by a firm that is specializing in manufacturing products and developing software services which would include the use of technology in the agriculture sector. This will include the development of software services by using advanced technologies such as Artificial Intelligence, Data Analytics, and Big Data for the purposes of developing smart services for agriculture.
Statistics for Agritech in India
India is the second-largest agricultural hub in the world. This brings about thriving opportunities for Indian Entrepreneurs as well as foreign investors to consider raising capital in this sector. The farming business has shifted from traditional modes which are utilized to modern methods. These include the shift from irrigation and depending on rainwater sources for growing crops and plants to using technologies such as data analytics and artificial intelligence to develop methods to improve the yield in crops.
Some statistics which affect the agritech sector in India:
- In the financial year, 2018-19 more than 30 start-ups in the area of agritech business has been established.
- The Government of India has made a foreign investment, including foreign direct investment in this sector under the automatic route. 100% foreign investment is allowed in this route. Agricultural demand has improved drastically, which has increased the amount of foreign investment in the country.
- In 2018, more than USD 70 million was received in this sector, which increased to more than USD 230 million in the year 2019.
- Most of the funding secured in India is at the initial seed phases.
As per the above statistics, the sector is said to improve in the coming years and reach a benchmark by the year 2025.
Key Trends in the Agritech Sector
The key trends which are developing in the sector include the following:
Business Segments such as B2B and B2C are developing
When it comes to an understanding an argitech business, more start-ups and companies developing different forms of agritech services tend to focus more on developing products which will benefit sectors such as the B2B (Business-to-Business) and B2C(Business-to-Consumer). For example, there are many companies that provide their services from the farm to the business retailer or supply chain engagement entity.
Emerging Opportunities related to agritech
Lot of emerging opportunities have developed the agritech business. This will include technologies such as Artificial Intelligence, Big Data, and Internet of Things which help argitech companies develop new products. For example, the development of artificial intelligence and data analytics uses predictive technologies to determine the crop ratio pattern. Another example is the use of drone-based technologies, to spray pesticides and study the livestock population.
Funding is prominent in this area
Funding can be the following in the agritech sector:
- Capital funding
This can be seed-based funding for different unicorns. Apart from this, private equity investments can also be considered as a part of the funding, which is required for an agritech business.
- Foreign direct investment
The government of India has opened doors to foreign direct investment in India. Under the automatic route, funding in the agricultural sector is allowed for agriculture. The funding which is secured is 100% which can be utile by different sectors.
- Government Schemes
The Government of India has brought out different lucrative schemes which provide a different form of varied benefits to farmers and companies engaged in the process of farming.
Main Focus of this Business is Marketing and Supply Chain
The main focus of argitech business is primarily in the area of marketing and supply chain protocols. Without proper marketing practices, the firm would not have a minimum amount of orders to carry out day to day production activities. The firm has to market its products either through internet marketing practices and physical marketing practices. Apart from the above process, the entity must ensure that supply chain practices and protocols have been established.
The emergence of Public-Private Partnerships
In this sector, more public entities and government departments are collaborating. Through collaboration, it is possible to improve co-ordination and other activities. As farming predominately involves, liaising with government and other regulatory authorities. Hence, there are lots of government entities that, partner with private entities.
Policy Making Awareness
In this sector, it is important for the government to introduce policy and regulation for activities to be regulated. Many start-up companies and unicorns which are established are urging the government to bring out some form of policies that regulate the sector. Policy and legislative interference are required, as it would create some form of starting point for the entities carrying out this form of business to have some precedence.
Primary Regulatory Body for Agritech Sector
Up to now, the government has not brought any form of the regulation dealing with the above. However, start-ups and another form of entities which are engaged in this area have stressed the importance of bringing some form of law that regulates the working of Argitech’s in the country.
However, every form of entity which carries out the business of agriculture and technology has to have some form of business structure. The business structures which are present in India have to be in accordance with the Companies Act 2013, the Limited Liability Partnerships Act 2008 or any other law that governs the law related to a business structure.
Types of Business Structures which can be used by an Agritech Business
The following business structures can be considered for an agritech business:
All private companies are companies that do not have their shares listed in a public stock exchange. Under section 2(68) of the companies act 2013, a private company is not allowed to transfer its shares to the public. Apart from this a private company is also not allowed to place its shares in a public stock exchange. Any form of a private company that is formed under the Companies act will have the limited liability status. This means the liability of the shareholders and directors of the company is limited to the number of shares held by them.
A public company is a company incorporated in India that has its shares registered in a public stock exchange. Under section 2(71) of the Companies Act 2013, a public company is an entity which is not a private company. Apart from this, a public company must have a minimum paid-up capital of Rs. 5 Lakh. Public companies are required to have a minimum amount of directors and shareholders as per the requirements of the companies act. They enjoy the same limited liability status as a private limited company.
Under section 4 of the Partnership Act, 1932 a partnership company is understood as any form of agreement between the persons of a partnership to agree to share profits of the business. The profits shared between the partners of the business would be for one person acting on behalf of all the partners. The liability status of the partners is not limited but is considered unlimited under the partnership act.
Limited Liability Partnership (LLP)
A limited liability partnership is also known as an LLP. This form of entity is formed under the Limited Liability Partnership Act, 2008. A limited liability partnership is considered as an entity that is formed under the LLP Act, 2008. There would be a respective agreement between the parties of the LLP. This agreement is understood as a Limited Liability Partnership Agreement. LLP’s can enjoy the major benefits of having a partnership structure and the limited liability status of the business.
Sole Proprietorship Concern
A sole proprietorship concern is an entity which is formed by an individual. Only this person is responsible for the activities which are carried out in the business. There is no limited liability for this form of concern. This makes the sole proprietor personal assets liable to be taken by creditors in case some form of debt is payable by the sole proprietor.
One Person Company
Under section 2(62) of the Companies Act, 2013, a one-person company is an entity that has only one person. The shareholders may or may not be the directors of the company. However, in case of death of the sole proprietor then a nominee has to be appointed to take care of the affairs of the entity.
Most suitable entity for an Agritech
Out of all the above entities, it is important to understand the advantages and disadvantages of the entities. A private limited company would have the benefits of limited liability. For a public limited company, there are lots of compliance and filing requirements which have to be followed by the entity. When it comes to a partnership concern, a normal partnership does not have benefits of limited liability.
A limited liability partnership will have the benefits of a company and a partnership. Hence this form of business structure would be idle for an agritech business. Apart from this, the agritech business can go ahead with the business structure of a private limited company.
Challenges faced by an Agritech Business
Legal / Regulatory Challenges
These would include challenges such as a regulation being brought out by the government. In India, startups and other companies have been stressing the fact that policy and regulation must be brought out in order to support agritech businesses in the country. Having this regulation would bring about specific changes in the sector.
The mindset of the Farmers
Farmers in India are reluctant to garner change when it comes to using technologies such as data analytics and artificial intelligence. Traditional methods for farming are still utilized by farmers. For example, instead of using technology for their advantage, farmers still depend on irrigation and rainwater for watering their plantations.
Implementing Digital-based data is hard considering that technology challenges are apparent in India.
Funding can be a major problem to entities that are just starting off their business. This would be challenging when it comes to loan from local banks and other institutions.
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