The Procurement Problem
Last year, I visited a small district called Alwar, in the state of Rajasthan, India where 100s of farm traders rushed in to sell their consolidated cotton produce.
What I was seeing were live physical auctions where bidders came in to take trade positions for raw commodities — like a spot exchange.
Agriculture is one of the largest sectors in India. With over 600M Indians dependent directly on agriculture sector contributing over ~17% of India’s GDP.
World’s second largest producer of food grains, fruits, and vegetables, IBEF estimates that the processed food market in India is estimated to touch $482 Billion by next year.
And in order to feed the growing world population predicted to reach ~10 billion by 2050, agricultural production needs to grow by 70% and by nearly 100% in fast-growing economies.
Nothing beats the scale of commodity trade in the world
The food you eat, the clothes you wear, the paper you write on, or the tyre your cars run on — originally grows its raw material on land.
What I saw at Dhar was shocking. Coming from a background of tech, this was extremely fascinating how the state of the things still are — physical, fragmented, unorganized, fragile, and extremely disconnected.
Everything in commodities trade is relationship driven. Millions worth trades are done over a handshake (“transactions”), without records — with people putting bugs in ears for the produce quality (color, size, damage), demand forecasts (consumption), trade duties (imports, exports), government policies (MSPs), local area information (weather, local lobbies) etc, the way they’d see it, which may not be the reality — because well the information is asymmetric across layers and even within the same layer.
It’s not about what you know, it’s about how you know it
Someone without a trade background cannot just break into commodities. Very few family driven organizations are running the ground. It’s a black box.
Today we order food worth say ~500 bucks on Zomato and still go wondering if it was picked up (going by the rating of the restaurant), dispatched (? why is the driver taking the wrong route), asking the driver to deliver at the location and, even getting cashbacks if it arrives any later than 30 minutes.
Now imagine ordering something worth Rs 10,00,000 every single day, 100 times a day, at volatile prices – since these are non-standardized commodities, where prices fluctuate as you read this.
The organizations who purchase the highest volumes of commodities still run their operations offline.
By our research, a few actually forward-thinking CXOs spent years and millions of rupees repeatedly trying to solve these problems. A few of them implemented existing clunky Procurement Softwares available in the market but most of these initiatives failed because, well the products solve half-hearted problems, and converting a physical trade to a digital one – is, in fact, challenging.
Some even went a step ahead to build their own agriculture procurement solutions, which were costly to build, took ages to implement, and yet... are still hanging in there, with no one around to maintain, build on them.
Buying agriculture commodities is not like buying an iPhone where you’ve got the brand, standard specs etc. Rice, for example, has over 40,000 different known varieties and no set nomenclature to identify them.
Hence, things are still managed by traditional means — relying on phone calls, whatsapp, emails passing around for transactions worth millions.
The problem is big
While there are multiple intermediaries who add value in the supply chain like logistics, warehousing, financing — there are intermediaries, middlemen, resellers for almost everything in the supply chain adding costs of over a minimum ~10% inefficiencies on an optimistic view.
The reason for multi-layered middlemen in India is simple. Average farm landholding in India is 1.15 hectare vs in the US is 179 hectare. The number of farmers (producers) with small landholdings and the number of consumers on the other end is exceptionally high. Hence, that amounts to high consolidation costs ~$35 Billion in India, which isn’t reducing anytime. Globally considering the inefficiencies of even 2% in a 12 Trillion market, we’re spending a few hundred billion $s in consolidation costs.
We went live a year ago
While still studying the market, our team started building solutions for food enterprises. And finally putting these learnings of a few years to use and a little bit ignorance, we went out for adoption.
Luckily, we got access to work with a billion dollar Indian food enterprise and we digitized their entire procurement ops. We now handle hundreds of million $s of procurements for them, which saved them a few million $s.
We’re now continuing to build intelligent systems for food enterprises which helps them save weeks of work, millions of $s — but most importantly, bring back control of their direct business spend into this new connected economy.
Procol, however, still in its early stages has been built with people with decades of experience in the agriculture commodities market — which continues to evolve with other industry leaders, who know intricacies of this fragmented industry.
The suppliers are actually the overjoyed ones who now have access to sell to large enterprises. And well, the only thing that keeps you going as a founder is seeing users immensely valuing your product.
Seeded by a history of this trust-driven network, we’ve been lucky to have access to amazing partners. Our expertise in technology and theirs in commodities enable us to scale this in this millennium-old, non-standardized market — and trust me, it’s not for everyone.
But hell, it’s exciting.