How Agribusinesses Can Achieve Scale With Vendor Digitization?
Agriculture has been a crucial sector in India's economy for centuries. In fact, even today, the agriculture sector employs over 41% of the workforce. However, with the onset of agribusinesses in India, the sector has undergone a massive transformation.
In the 1980s and 1990s, the government began to liberalize the economy and encourage private investment in the agricultural sector. This further helped agribusinesses to scale up, particularly in the areas of seed production, agrochemicals, and food processing. Today, agribusinesses in India are constantly evolving and adapting new-age technologies to keep pace with the growing modernization.
While this is good for the agricultural sector, agribusinesses face some modern-day challenges due to modernization.
Challenges Faced By Agribusinesses
In recent years, the agricultural sector has been going through a digital revolution that, for the most part, is overcoming basic challenges and turning it into endless opportunities. At the forefront of this are agri-tech firms that are coming up with innovative digital solutions to help bring about a paradigm shift in the industry.
Despite the significant benefits offered by these innovative solutions, there are also some modern-day challenges that hinder the scalability of agribusinesses. Some of these challenges are:
1. Inefficiency in Supply Chain Management
In the context of agriculture, supply chain management refers to the coordination and management of activities involved in the production, processing, distribution, and marketing of agricultural products. A well-managed supply chain can help ensure that agricultural products are produced efficiently, transported and stored safely, and delivered to customers in a timely and cost-effective manner.
However, agribusinesses often face several challenges in managing their supply chains, including the lack of coordination and transparency among different stakeholders, fragmentation of the supply chain, and limited access to markets. In fact, in India, approximately 20% of agricultural production is lost due to inadequate logistics. This is primarily attributed to the absence of refrigerated transportation vehicles and manual handling during the loading and unloading of produce. The journey of products from farm to fork involves multiple stages, and each step is associated with a certain level of wastage.
2. Limited Access to Markets
There are several reasons why limited access to markets is a challenge for agribusinesses. One of the primary reasons is the lack of infrastructure, such as transportation and storage facilities, that is necessary for getting agricultural products from rural areas to urban centers where there is more demand. Another challenge is the lack of market information available to agribusinesses. This can include price data, market trends, and consumer demand. Without access to this information, agribusinesses may find it difficult to make informed decisions about marketing strategies and investment opportunities.
Regulatory barriers can also be a significant challenge for agribusinesses. Import/export restrictions, tariffs, and quotas can limit their access to foreign markets, making it difficult to expand their customer base and grow their business. Moreover, agribusinesses face stiff competition from other producers in their own market, as well as from producers in other countries who may have lower costs or more favorable trade agreements. This competition can make it difficult for agribusinesses to establish a strong market position and maintain profitability.
3. Inefficient Payment and Finance Systems
Agribusinesses operate in a complex ecosystem that involves farmers, traders, transporters, and other stakeholders. Payment for the crops is an essential component of the entire ecosystem. However, due to limited financial infrastructure, farmers face issues such as delayed payments, high transaction costs, and limited access to financial services like loans and insurance. This is because financial institutions have traditionally been reluctant to invest in rural areas due to the perceived high costs and risks. This results in challenges such as limited access to bank accounts, and other financial services.
Another challenge that agribusinesses face is the use of traditional payment methods such as cash, cheques, and wire transfers. When it comes to funding, agribusinesses are more often than not, out of luck. One of the major challenges is limited access to capital. This is particularly true for small and medium-sized enterprises (SMEs), which may struggle to access the capital they need to grow their business. High interest rates, strict lending requirements, and a lack of collateral or credit history can all make it difficult for agribusinesses to secure the funding they need. In fact, even fluctuating commodity prices, changing consumer demands, and weather-related risks can all impact revenue streams and return on investment, which can deter potential investors and lenders.
Even with technology transforming almost every other industry, agriculture is one such sector that still remains backward. Now, there is no denying that it has progressed a lot over the years, but these challenges are proof that the agricultural sector is far from where it should be.
For the sector to attain its rightful position in the economy, it requires a comprehensive development strategy that encompasses all stages of production, from pre-production to the sale of agricultural products.
Vendor Digitization to the Rescue
Since the challenges faced by agribusinesses are brought on by modernization, it is only fair that modern solutions provide the solution for them. One such modern solution that helps overcome the above-mentioned challenges is vendor digitization.
Vendor digitization refers to the process of transforming traditional paper-based vendor management systems into digital platforms that automate and streamline vendor-related activities. This involves the implementation of software applications, online portals, and other digital tools to manage vendor interactions, such as onboarding, contract management, invoicing, and payment processing. The aim of vendor digitization is to enhance the efficiency, transparency, and accuracy of vendor management processes.
Vendor digitization has been one of the key players in driving the digital agriculture market in India, which is expected to reach a CAGR of 11.3% by 2027. Here’s how vendor digitization can help overcome the challenges in the following areas:
1. Improved Supply Chain Management
Digitizing the vendor network can provide real-time visibility into the supply chain, which means that agribusinesses can track the movement of goods from the farm to the consumer in real time. This level of visibility can help in reducing wastage, improve inventory management, and ensure the timely delivery of products. With real-time visibility, agribusinesses can identify and track the flow of goods throughout the supply chain. They can monitor the quality of the products at each stage and take corrective action if necessary. This can help in reducing wastage due to spoilage, damage, or other quality issues. Vendor digitization also helps in improving inventory management. Agribusinesses can track the availability of goods at each stage of the supply chain and adjust their inventory levels accordingly. This can help in reducing stock-outs and overstocking, which can lead to additional costs and inefficiencies. Furthermore, agribusinesses can also monitor the movement of goods throughout the supply chain and identify any delays or bottlenecks. This monitoring can help them ensure that the products are delivered on time, which can help in improving customer satisfaction and building better relationships with customers.
2. Increased Accessibility to Markets
By digitizing their vendors, agribusinesses can connect with a wider range of vendors who can supply them with raw materials, equipment, and other goods and services. This can help in reducing costs and improving the quality of the products. Additionally, by having access to a wider range of vendors, agribusinesses can negotiate better prices, which can help in increasing profitability. It also helps agribusinesses to sell their products through multiple channels, such as online marketplaces, social media, and e-commerce platforms. This can help in reaching new customers who may not have been accessible through traditional sales channels. One of the perks of digitization is access to customer data. This insight into the customers can be used by agribusinesses to tailor their products and marketing strategies to meet the needs of their customers better. Vendor digitization provides agribusinesses with opportunities to collaborate with multiple partners, such as logistics providers, financial institutions, and government agencies. This can help in accessing new markets, financing opportunities, and regulatory support, which can help in expanding the business and generating new revenue streams.
3. Streamlined Digital Payment and Finance Systems
Vendor digitization can help agribusinesses scale their operations, including payment systems. The implementation of digital payment systems can streamline payment processes and improve cash flow management, leading to increased profitability and growth. Digital payment systems enable agribusinesses to make faster and more efficient payments to their vendors. This can significantly reduce payment processing times and minimize errors, improving overall efficiency. Moreover, the use of digital payment systems can lower transaction costs associated with traditional payment methods. This can help agribusinesses to reinvest their savings into other areas of the business, thereby promoting growth. By using digital payments, agribusinesses can track their payments and cash flow in real time. This, in turn, will help them make more informed financial decisions and improve overall financial management. It also increases transparency in payment processes, builds trust with vendors and ensures that payments are made on time, which leads to stronger relationships and more opportunities for collaboration.
New technology has opened up multiple digital funding options for agribusinesses to take advantage of and use for their growth. For instance, tech-led supply chain finance provides farmers and other contributors in the agricultural value chain with more innovative financing solutions that help boost productivity and profitability. One such agribusiness that took advantage of tech-led supply chain finance is Agriconnect. With the help of Bizongo’s tech-led supply chain financing solutions, AgriConnect grew from a monthly GVM of Rs. 15 crores to Rs. 25 crores in less than a year. This was possible because Bizongo ensured timely payments from Agriconnect’s customers, helping Agriconnect extend their clients’ credit period by an additional period of 7-30 days. This enhanced their aggregation capabilities in both demand and supply. “All our payment transactions run in AUTO-Mode,” said one of Agriconnect’s directors when highlighting Bizongo’s contribution to their growth.
As technology continues to advance, there will be even more opportunities to improve supply chain management, increase efficiency, and drive growth. In addition, the increasing adoption of mobile devices and the Internet of Things (IoT) is likely to have a significant impact on vendor digitization. And the more we get connected, the need for vendor digitization will also continue to grow, making it a critical component of any successful agribusiness.