Kamatan
Location
India
Sector
Agriculture
Type of Investment
Risk Capital
Project Stage
Test & Transition
Length of Investment
2020+
Website
Investment Overview
Based in India, Kamatan works with farmer produce organisations (FPOs) to source produce for direct supply to agricultural enterprises, processors, and retailers. Kamatan helps these FPOs in procuring and storing produce, and in conducting quality control and logistics. Separately, it also provides large buyers of produce with supply, bulk volumes, and factory gate delivery. Kamatan also assists farmers with the implementation of best practices in grading and sorting as well as value adding activities like drying, cleaning, and packaging, which can help reduce wastage and match the demands of institutional buyers to enable farmers to realise a significantly higher value for their produce.
The Development Challenge
The supply chain from the farmgate to the point of consumption for agriproduct – whether consumption, processing, retail or export – is fragmented, disorganised, and often has between 3 and 7 intermediaries, most of whom work informally. The result is a sub-optimal and inefficient marketplace on either end of the supply chain – the first mile dealing with the farmer producers and the last mile with retailers, food processors, and other small and large institutional buyers. Selling in small lots at local market yards or to informal traders provides little premium for quality and there is no incentive for bringing in best practices such as sorting and grading. The unorganised nature of the trading can also lead to delayed payments and other inefficiencies associated with informal markets, including predominant cash transactions and no records of accounts. On the buyer’s side, dealing with multiple informal traders reduces process efficiency and increases logistics overheads. This results in challenges with reliable and stable supply, visibility of production output, traceability of produce, and standardisation and quality. All of this informality increases the supply chain risks and disincentivises investment into midstream and downstream sectors such as food processing.
The Innovation
A possible solution to these challenges lies in aggregating the small producers and organising their activities towards value added marketing while creating access to market their produce directly to organised institutional buyers. The channel identified by Kamatan to implement this model is through Farmer Producer Organisations/Companies (FPOs). These are farmer collectives set up by government agencies like the National Bank for Agriculture and Rural Development (NABARD), the Small Farmer Agriculture Consortium (SFAC), and others. Kamatan ties up with food processors, millers, retailers and other market operators to create a diversified pan-India aggregated demand base. Simultaneously, Kamatan partners with the FPOs, or directly with farmers, to create an enabling ecosystem for producers to efficiently market their produce. Besides disintermediation (i.e. linking the farmgate directly to markets) the key value-added services offered by Kamatan to the producers as well as buyers are: technology integration; access to credit; sorting, grading and quality standardisation; and access to warehouses and logistics. Kamatan’s business model is based on trading margins from the procurement of output and sale of inputs, as well as service fees for the digital technologies and value-added services offered by it.
Our Investment
Kamatan will use GIF investment to expand their operations and bring in value-added services for the farmers/FPOs (such as financial linkages, technology solutions for production, and storage and quality management). They will also continue to provide input supplies and to develop the technology stack to enable supply chains.
Investment Objective
GIF’s investment in Kamatan can help to build an organised backend marketplace and supply chain for procurement of agricultural produce and bring in best practices in sorting, grading, quality assurance, and traceability, which are essential ingredients for building further farm infrastructure and creating more investment in value-added services.
Why we invested
The main channel of impact on GIF target beneficiaries is through the increased income received by farmers who are members of Farmer Producer Organisations (FPO) as a result of the market access efficiencies discussed above. However, our investment thesis has a broader perspective: that formalisation of agricultural markets and supply chains can unlock benefits for all stakeholders in the supply chain. This means potential benefits for the producers, downstream buyers such as food processing, retail and food services, as well as supply chain infrastructure providers (warehouse, cold-storage, logistics). In fact, such standardisation and disintermediation are the bedrock on which the entire formalised value-chain of agriculture develops.
Kamatan in numbers
Users of new farmer mobile application
Farmers in Kamatan's farmer FPOs
Kamatan Impact Brief
Introduction
In India, as in many developing countries, the supply chain from the farmgate to the point of consumption for agriproducts – whether consumption, processing, retail, or export – is fragmented and often has 3-7 intermediaries. This results in an inefficient marketing system where farmers do not obtain fair value for their produce, where there is rampant wastage at each stage of the supply chain, and where there is little incentivisation for quality improvement and value addition.
Kamatan is building a transparent, inclusive, and efficient supply chain for marketing agricultural commodities in India by linking farmer cooperatives to institutional buyers while creating capacity and tools for quality enhancement and standardisation of the farm produce close to source. Kamatan works with farmer produce organisations (FPOs), over 10,000 of which have been set up in India with government support, to source produce for direct supply to agricultural enterprises, processors, and retailers. Kamatan helps FPOs with procurement, storage, quality control and logistics of agricultural commodities. Kamatan also assists farmers and FPOs with the implementation of best practices in grading and sorting as well as value-adding activities like drying, cleaning, and packaging, which can help reduce wastage and match the demands of institutional buyers to enable farmers to realise a significantly higher value for their produce.
Use of GIF Funds
GIF’s equity investment of $2.1m was to enable Kamatan to expand its operations to more FPOs and institutional buyers, to further develop its technology stack, and to develop rural business hubs to bring in further value-added services such as agricultural inputs, financial linkages, and storage and quality certification for the farmers/FPOs.
Investment Objectives
GIF’s investment in Kamatan can help build an organised backend marketplace and supply chain for procurement of agricultural produce and bring in best practices in sorting, grading, quality assurance and traceability, which are essential ingredients for building further farm infrastructure and investment in value added services.
Create awareness, demand and incentives for sorting, grading and other quality enhancing activities at the FPO level.
Increase effective price realisation of farmers by 5-10% through premium paid for quality and reduction in costs - from lower transport, wastage and eliminating or reducing other transaction costs in traditional marketing.
Pilot the farmer app and strengthen the ERP system for integration with other stakeholders – credit providers, warehousing and logistics solutions providers.
Company scales the model to 50+ FPOs from 11 currently directly reaching 50K+ producers
Company demonstrates sustained relationship and growth with existing FPOs increasing offtake to >10% of total production
Impact to Date
Since inception Kamatan has worked with around 150 FPOs, with a farmer membership of over 100,000, directly or indirectly, whether to enable access credits, access to markets, or some other service. In 2020, Kamatan directly worked with 29 FPOs sourcing over 10,000 tons of produce from the 15,000 plus network farmers. These FPOs have been equipped with digital weighing scales and moisture metres to carry out a transparent assessment of quality and quantity.
Kamatan works with leading institutional buyers and has been able to deliver quality certified produce consistently with <1% wastage and rejection rates. Farmers on average receive better pricing for their quality than neighbouring Mandis (market yards) and also save on transportation costs and overheads by selling close to farmgate, improving their profits by up to 10%.
In addition, they have been able to provide technical advisory and farm demonstration services to over 45,000 farmers and their farmer mobile application which was formally launched last year already has over 42,600 active users receiving daily price updates, weather information and technical advisory. Six FPOs have so far been equipped with and trained on a specially developed ERP system called Kamatan turbo which will allow them to digitally record transactions, manage their accounts, and communicate with their farmer base directly.
Besides the direct impact of Kamatan there are early signs of indirect impact on the sector. Since Kamatan was founded more than four years ago, the idea of using FPOs as the natural aggregation of products and services for farmers has become more mainstream. Institutions such as non-banking financial institutions and other agricultural technology start-ups are setting out to solve other problems such as localised weather information, maintaining soil moisture, and quality control of crops, in partnership with FPOs. The more the business capacity and volumes of FPOs are strengthened, the easier it would be for them to absorb additional services.