Why Agriculture is all about logistics. (Part -1)
Agriculture is all about logistics, because not one single transaction that happens in the ag space that does not involve the movement of grain physically from one place to another.
The first wave of globalisation of trade occurred in 1990’s and since then agri-business industry has evolved itself. As the global demand for agricultural commodity is rising consistently, logistics management in agricultural domain becomes even more important in ensuring that the production and supply chain runs efficiently to prevent shortages across the globe.
Logistics plays central role in profitability of a company as procurement has to be done from several small markets, contributing around 20% in total gross value of commodity. Today Farmers, Traders, Millers, Industry and almost all stakeholders in agri-value chain want easy & faster access to freight with more clarity around rates. This makes logistics cost an integral part for making day to day decisions. Every quintal of grain produced today moves by truck at least once before arriving at its destination, making grain transportation crucial to the success of our food system.
Let’s understand this with an example:
There is a huge behavior shift in buying patterns:
- Every buyer wants to buy commodity on FOR (Freight on Road) basis, meaning logistics cost is now part of purchase price. This increases the importance of how efficient the system needs to be.
- Buyers are demanding faster TAT for dispatch and they don’t want to engage themselves in the mundane hassles related to uncertainty of truck availability, searching & negotiating freights with multiple follow ups. So, the sole responsibility is borne by the supplier to arrange trucks on-spot.
- Suppliers are heavily depended on local transport broker for trucks and which lacks efficiency.
FOR means, if goods are ordered on FOR basis, the goods will be transported by road and the client does not need to pay the freight cost. The goods will be dispatched from the supplier to the client without any transportation charges.
This cost of Rs. 310 Per quintal (or Rs. 3100/MT) is very high because it includes multiple brokerages and margin cuts. Moreover, fleet owners are not paid the entire cost of freight at the rate of Rs. 310/quintal. In fact, they actually get around Rs. 275/quintal with the difference being taken away by brokers. This emphasises the sheer amount of information gap, uncertainties and exploitation at play, benefiting brokers in such cases.
Technology & Dedicated Logistics For Agri could be a game changer:
Today, Agri logistics contributes 55% of total freight movement in India and 90% of it works with on-spot system. In On-spot, TAT for searching & booking a truck is very important due to which providing trucks on time becomes highly critical. During market research we also found that 30% of the time, trade deals get cancelled because of unavailability of trucks.
Logistics is the bigger pain and a centralised hook for the entire supply chain, plagued with multiple inefficiencies, lack of transparency in freights, unavailability of trucks, higher brokerage and marginal cuts, frequent cancellations and zero tracking leading to an unorganised system that needs serious rectifications.
As of now, companies like Rivigo, BlackBuck, Delhivery, etc. are mainly focused on sectors such as e-commerce, retail, auto, cold-chain, and FMCG. These spaces are very distinct from agri because of difference in operating model, data, Average Order Value & stakeholders, altogether implying a different economics in itself.
This clearly displays the need of a dedicated agri logistics platform. I believe that market linkage can never be efficient until you have an efficient logistics in place.
Agrigator is dedicated toward building an efficient, transparent and optimised supply chain for agri-stakeholders. Our vision is to eventually improve farmer’s profitability in long term by initially fixing secondary side of the value chain. Our GTM is defined by agri-logistics and this helped us to peg a 20X growth in last 10 months. We provide a Procurement platform by bringing in and efficiently connecting buyers and sellers of grain for procurement, along with a Freight platform which connects them to move and dispatch commodities in an organised manner.
We are creating a win-win situation for all our three key stakeholders : Buyers, Sellers and Carriers. This makes us unique from all other players in market by leveraging technology to replace inefficiencies. We are scaling our logistics arm, resulting in winning customer trust. Logistics, being our entry level service, helps and encourages users to also use flexible procurement services and factoring-based financing. This is what creates stickiness and an ecosystem of a suit of services that benefits users in the long run.