The value of the ‘Trust’ currency in agri-supply chains
This article is authored by Anilkumar SG, Founder & CEO Samunnati and Jyotsna Krishnan, Managing Partner, Elevar Equity.
It is no secret that agriculture is, today, a key focus of India’s socio-economic fabric. There are different approaches being undertaken by public and private entities that are looking to enable, disrupt and transform the agri sector. There is a lot riding on this, given that in India, agriculture accounts for about 42% of India’s workforce, 14% of the GDP and ensures food security for roughly 1.3 billion people. Of late, many players have come in and attempted to put frameworks in place to improve the agri ecosystem's functioning. And a lot has been spoken and done about the need to digitise Indian agriculture and make agri supply chains more ‘efficient’, by integrating AI and data analytics. However, these approaches overlook two critical aspects of the way the agricultural ecosystem operates - first, trust as a key currency and second, the entrepreneurial spirit in agri supply chains.
This tends to happen as most players focus on the activity (the agri value chain) versus the actor (the smallholder farmer). To be able to make meaningful change, it's imperative to acknowledge and understand that the Indian agri ecosystem cannot exist sans smallholder farmers. Their needs have to be central to the innovation and upgrades we bring in and that is where both of the above-mentioned elements assume importance.
The issue of trust is vital to the agriculture sector. Historically, the smallholder farmer has had a pronounced lack of leverage in most transactions, ranging from control over the timing and pricing of produce, to the pricing of farming inputs, to ease of access to capital and so on. This lack of leverage more often than not leads to broken trust, and such experiences leave deep scars. In fact, research reports suggest that farmers across the globe tend to trust their neighbouring farmers more than government intermediaries, NGOs or private players. Not surprisingly, therefore, smallholder farmers are protective of their interests and take a purely transactional view of most new relationships. Hence any transformative action will need to start with establishing trust and the demonstration of intent to build a relationship.
While the traditional approach of trust building would be to start with a small transaction and then keep doing repeat transactions with the actors in the system, given that agri is a seasonal business, the number of transactions with farmers would be as few as one or two a year and therefore the trust building process could take longer. So one needs to find engagement points beyond transactions as well as leverage the existing trust credit of other players like non-profits and community based
Organisations that have built trust with farmers over many years. Take for example, an agri player wanting to work with smallholder farmers to provide financial interventions and market linkages. The first step of trust building could be to approach the farmers through a farmer collective - a cooperative or company formed on the basis of mutual trust and alliance. The trust that the collective has already built with the farmers would provide important leverage, as well as provide a single touchpoint to reach many farmers. The second step would be to earn the trust of the collective itself, through activities like helping the collective increase its member base by helping in farmer outreach, working with them to improve systems and processes, providing training on farming techniques, and so on. The same applies to digitising processes in agri value chains for greater efficiency. It may be easy to achieve end-to-end digitisation for urban audiences but for a smallholder farmer (who is at the core of the agri value chain), this digital transition needs an additional layer of handholding and aiding adoption, all part of the trust-building process.
The second important element is appreciating the fact that every player in the agri supply chain is an entrepreneur. Being an entrepreneur implies many things - skin in the game, having a risk appetite and the ability to absorb losses. This shock-absorbing capacity is vital to the smooth functioning of agri value chains. Farm-to-fork models that have attempted to replace this system with end-to-end employee run and corporatised structures have, more often than not, found the going unviable. This is because they have found it difficult to match the efficiencies of capacity utilisation, nimbleness and risk absorption capacity that are inherent in the multiple layers of entrepreneurs that constitute agri value chains in India today. The key is to mine this existing gold and help these entrepreneurs become more efficient, rather than replace the existing system.
Players that want to work with the agri ecosystem have two choices - to be transactional (which might work in certain scenarios but will always elicit opportunistic behaviour) or to look at building a long-term relationship with existing players in the ecosystem. Those who want to bring about meaningful change within the agri landscape in India have no choice but to go for the latter approach. What is needed is for agri players to take a long-term, solution-oriented view of the agri value chains, beyond lending, commerce or technology. All these individual components are but enablers, not the end in themselves. The DNA of such an organization needs to be about bringing multiple players in the agri value chain together and enabling them to function at higher efficiencies by harnessing their inherent entrepreneurial energy - and for this, establishing the currency of trust is critical.
This article is authored by Anilkumar SG, Founder & CEO Samunnati and Jyotsna Krishnan, Managing Partner, Elevar Equity.