Digitizing the $200bn first-mile agriculture value chain: Why we invested in Bijak
Photo credit: Dealstreet Asia
“I’ve had to maintain my bijak (invoices) by pen and paper, with no visibility on my creditors and debtors. I’ve determined my selling price based on intuition rather than data. I’ve been cheated by buyers when I’ve tried to sell outside of my trusted network, and thus have to restrict my sales to the six buyers I know and often sell my produce for a lower rate than what I know is prevailing in the market.” These are the words of Abhishek Tiwari, a local aggregator from Kannauj in Uttar Pradesh, highlighting some of the key issues that plague India’s agricultural supply chain.
The agriculture value chain in India is very complex – from the farm to the consumer, there are at least 5 intermediaries. While startups are working on disintermediation, this has primarily been at the last-mile or consumption end of the value chain.
The first-mile intermediaries – namely the Local Aggregators (LAs), gather produce from multiple smallholder farmers and sell it to Commission Agents (CAs). These CAs or ‘adhtiyas’ who sit at the mandi have traditionally played a critical role in the life of the farmer by providing logistics services, guaranteed offtake of produce, and credit. While India’s ~150M million strong farmer base produces nearly all the agricultural produce we consume today, these first-mile intermediaries channel 75% of the produce value. About US$200 billion flows through these first-mile intermediaries which involves a network of about 5 million LAs and CAs. And since the network is not formalized it is plagued by issues such as asymmetry of information, trust deficit, lack of transparency and accountability.
Since transactions are recorded manually (or even verbally) there are no means for recourse in case of disagreements. Moreover, since there is no way to find trustworthy and reliable counterparties for both LAs and CAs, business is usually limited to closed networks of trusted partners, as Tiwari points out. In addition, long working capital cycles are largely funded by expensive informal credit, with a perpetual credit crunch restricting growth. This leads to a vicious cycle wherein snap decisions drive transactions, ultimately leading to poor price discovery. This, in turn, impacts the farmer as their payments are delayed and they get lower prices for their produce.
All these factors contribute to the inefficiencies along the value chain, which is why stories like Tiwari’s are commonplace.
Bijak is creating an online marketplace/network of verified agri-traders through its proprietary rating tool that addresses the trust deficit between, and enhances the accountability of,all stakeholders – including LAs and farmers – by providing access to more trustworthy buyers and sellers. Bijak also acts as an e-ledger for suppliers and buyers, maintaining the transaction history for both.
In Hindi, Bijak means ‘invoice’ and fittingly, the start up’s vision is to eventually facilitate transparent trading and offer services such as credit, payments/escrow, and logistics. Users can access a network of buyers and sellers, check their transaction history and ratings, track orders and payments, avail credit and access support for logistics, through the app. Due to increased transparency and accountability, farmers are starting to get paid faster and will eventually make more money as LAs start to compete amongst themselves for more business in the same area.
What we consider especially promising about Bijak is the inherent potential to grow fast online, organically, in a segment that’s entirely offline. With Bijak, any supplier downloading the app will add his buyers, who in turn will add his other suppliers and thereby create a chain.
We are excited to partner with a team that comes with a nuanced understanding of the challenges facing a complex sector, and that envisions driving ground-up change through technology to better serve a largely ignored user base.
At Omidyar Network India, we believe that formalization and digitization of MSMEs in India will not only drive efficiency and transparency but also unlock access to finance and services that will fuel a virtuous cycle of consumption and production for the Next Half Billion.
We are confident that Bijak with its first principles approach to designing solutions for this segment, viral user acquisition, and a full-stack services vision will revolutionize the way the agricultural intermediaries and eventually the farmers do business, leading to increased prosperity and productivity across perhaps one of the most vital segments in the country.
