Farming through the lens of Investment
We all grew up reading that x% of the population in India depends on farming, y% are farmers, and z% pursue farming as the primary occupation. My connection with farmers goes a decade back when I started working in rural India. In my journey, so far, I was always looking at farmers through various lenses such as their financial services requirements, their healthcare requirements, and their energy requirements. Then, I took up the exciting role at AgroStar — India’s leading AgTech startup, which provides scientific agri advisory and agri-input solutions at the fingertips of farmers, powered by tech solutions, agronomy, and data.
Through this role, I got to look at farmers through a completely different lens. I observed that farmers are either happy with farming or else they are not. In short, there are extremes. Surprisingly this extreme feeling changes with every cropping season, and it depends upon the outcome of all the hard work invested and the output harvested. I kept observing this constant phenomenon until I met a progressive farmer in Gulbarga district in the northern region of Karnataka.
Not only was this farmer happy about farming, but he was also satisfied with the work he did every day on his farm. He had job satisfaction. After spending the entire afternoon with this farmer, I realised that the key differentiator that set him apart from the rest was his attitude of considering “Farming as an investment and managing it like an entrepreneur,” as repeatedly mentioned by him. That is when I started connecting the dots and made a mental note on what does it take to look at farming through the lens of investment.
1. Building Your Portfolio
Like mutual funds or any other business and investment, farming requires a balanced portfolio too. Too much concentration in a particular category such as fruits, vegetables, and field crops can lead to various risks into the investment, such as low returns in a high concentration of field crops, increased chances of pest attack due to the high frequency of vegetables or increased expenditure due to aggressive fruit farming. Apart from the category, the portfolio needs a balance within the group itself, i.e., multi-cropping. Hence like a responsible investor, this farmer used various trustworthy sources such as the AgroStar App and the local agriculture institutes to choose the right portfolio of the crop for his farm. E.g., this farmer with a landholding of eight acres had sown fruits, vegetables, and field crops. Within vegetables, he had grown two different crops.
2. SIP & SEP
The two most fancy and frequent words of the retail investment industry, i.e., Systematic Investment Plan (SIP) and Systematic Exit Plan (SEP), can apply to the farm too. Once you have designed your crop portfolio, it is critical to invest in those stocks (anchor crops) so that your cash flows are in line with your liquidity requirements. It helps you to avoid over-indebtedness. This farmer had mastered the art of planning. He had planned his cropping portfolio to give him a SEP from two months to two years. E.g., he started with the sowing of watermelon for which he started making an exit from the 60th day onwards to the planting of Malaysian Guava, where he would exit after two years. Additionally, he had planned three other crops that would yield produce in fixed intervals through the two years of harvesting Guava.
3. Hedging
Now so far, it looks like farming is too easy as long as the thumb rule was met. Well, it’s not so, and agriculture is too complicated an investment than any other in the world. The question is, “Did this farmer face any losses, or did he fail?” The answer is yes. He had lost his capsicum crop due to a pest attack; however, his loss was limited. Thankfully the pest that attacked was a capsicum specific pest. So the other vegetables were not affected by it. Thus the theory that multi-cropping is not just a way to keep your soil healthy or maximize your income from the farm, but is also a perfect way of hedging in this investment of farming. This hedging helps as income generation from the farm remains consistent throughout the tenure. It is crucial to think of hedge while you are building your portfolio, i.e., the number of crops, types of plants, and other such factors.
4. Transforming Farming to FMB (Family Managed Business)
What impressed me the most in this visit is this farmer’s ability to think beyond farming. Upon more interactions with him, he shared that while he holds a Diploma in Agriculture, his son is pursuing a Bachelor’s degree in Commerce and Accounting. He justified this collective decision with a rationale. He mentioned that while agriculture can be learned on the field over time, the most critical factor in pursuing farming as a business is financial accounting. He said that the next generation needs to master that aspect as he is not good at it. Next up was a surprise in the physical register where his son keeps track of all expenses on the agri-inputs and labor, harvesting plan, cash flows, and the next year’s crop planning. It was evident that this farmer has transformed his venture into an FMB with a clear vision for the upcoming generation.
5. Profitability & Sustainability
Though I was a little hesitant to discuss his business’s exact monetary calculations, the farmer was super excited to present his achievements through systematic farming. Like any entrepreneur, he never believed in overnight success. He shared his wisdom and wished that farmers in India should refrain from putting all their eggs in one basket. It is typical of Indian farmers to observe fellow farmers earning good money through an anchor crop and blindly copying them. Farmers fail to understand that this herd mentality increases the supply, thereby leading to a price crash (we often read and hear the news of dumping harvest on the roads). Our farmer’s approach of maintaining a balanced portfolio ensures that he does not make lump sums overnight and lose it the next day. It helps him have profits and calculative losses, thereby enabling him to make steady and sustainable earnings through his farming venture.
Every day when our farmer visits his farm, he touches the soil in respect synonymous with the Indian tradition of touching the feet of parents and elders to pay your respect and seek blessings. Our farmer attributes his achievements in life to the grace of his farm, and that includes the purchase of an SUV for his kids.
After this visit, I could conclude that a successful farmer is no different than a VC, a retail investor, a startup founder, or an entrepreneur. Like them, farmers have to be innovative, careful, aggressive, and, last but not least, a visionary. Similar to the startup world, the farming community must take motivation from each other and become successful in their ‘ventures.’ Farming as an investment holds the potential to drive a significant change, as India is an agrarian nation.
