Replacing middlemen: Will Agroshift's attempts at scaling up see success?

Yet another agricultural supply chain startup aiming to replace conventional middlemen is causing a buzz in the country's startup landscape. 

Agroshift, the new startup that supplies RMG workers with agricultural products directly from the farmers, has raised $1.8 million in funding, making it the largest-ever pre-seed round for any Bangladeshi startup to date, according to reports.

One of Agroshift's co-founders, Diptha Saha, explained to The Business Standard why and how they came up with the idea of the startup.

"People say, buying is difficult, selling is easier. But when we started our journey, we found the opposite to be true. If you buy from one farmer, you actually need 100 consumers to sell the products. Where do you get so many consumers in a place?" said Diptha explaining the context.

"Then we found that the garment factories are the places where you get 5,000-10,000 customers at a single spot if you send a truckload of products there," said Diptha, who is also the Chief Operations Officer (COO) at Agroshift. 

The startup does not have regular outlets per se. Instead, there are two spots in every factory they are operating in: digital order point and drop-off point. 

Workers come and pre-order the items they need. At the day's end, Agroshift gathers all the orders from all the factories, transmits them to the collection points located in the rural marketplaces, and delivers the items the next morning at the drop-off point.

The firm is supplying four types of items for now: grains, vegetables, meat and fruits, and plans to sell fish in the near future. Vegetables, fruits and meat come directly from the farmers, and grains such as rice, lentil, etc. come from the mills. Edible oil, sugar, flour etc. comes from the companies.

Agroshift is operationally profitable,  said its COO. On the other hand, workers are getting a better price. 

What's the secret to it? A number of factors are at play here, he revealed: volume, local sourcing and elimination of most middlemen.

Agroshift supplies the commodities from nearby locations. The factories are based in Savar, Gazipur and Bhaluka, and the farmers' network is in the Mymensingh region. But when it comes to processed commodities, they collect it from whoever offers the best price, because they don't have to pay for transport in this case. Agroshift at this stage is depending on third parties for the transport.

Elimination of most middlemen, and becoming one mega-middleman also pays off, it turns out.

"A farmer in Madhupur sells a banana for Tk4-Tk4.5. It first comes to the wholesaler in Dhaka, and then it reaches you via the retailers with a price tag of Tk10. In Agroshift, we collect it from the farmer and deliver it directly to the consumer. Also, we ensure zero waste as we collect products only on the basis of pre-orders. Thus, we can sell the banana for Tk8," explained Diptha.

The volume also matters. Around the paydays, Agroshift gets orders worth Tk5-7 lakh every day. They also offer discounts to workers if a certain amount of orders comes from a production line. So workers order in groups. Such a "community bulk-buying'' model ensures a better price for agricultural commodities.

"We actually secure a 20% gross profit. It comes to 10-12% after the payment of staff salary and general and administrative expenditure," said Diptha, adding "Workers buy from us because we can offer a 10-15% lesser price for any product, any day." 

Agroshift's website promises safe food, but the co-founder said they are focusing on reducing the price at this stage instead of food safety, which 'makes the price shoot up'. However, the firm ensures that the products are visibly in a good state. "We are trading, not intervening in the production process," Diptha said.

Founded in March 2022 by Qazi Bouland, Rameez Hoque, and Diptha Saha, Agroshift aims to 'eliminate' middlemen. Diptha Saha earlier co-founded Khamar-e, a startup that worked with a similar goal of reaching directly to consumers with a particular farm product. 

So how successful are the agricultural startups that were founded with a view to eliminating middlemen? "Startup means disrupting an existing business and establishing a new system. In agri-business, this would be the arotdars [giant wholesalers]. Disrupting well-established arotdars would need massive working capital. Selling farm products online is easy, but scaling them up is hard. 

Also, the profit margin in agri-business is so low that doing this with bank loans is not viable. This is why most agri-startups cannot scale up," explained the former COO of Khamar-e, which has been shut down recently due to insufficient investment.

Agroshift, however, looks well on the course of becoming a mega-middleman, eliminating multiple traditional middlemen, at least for a supply chain especially engineered for RMG workers. The recent funding is a breath of fresh air for the newly founded startup.

Diptha said this fund will be used in infrastructure building, such as setting up new collection points in new rural marketplaces and distribution points in new factories. The company will also spend significantly on technology and manpower with a view to expanding the business.

Will they expand beyond the factories so the general public benefits from this model? Diptha said it was not feasible for Agroshift.

"Superstore culture is not very popular in our country. Only 2% of agricultural products are sold in supermarkets. So they are not feasible options. 98% are sold at the kitchen market or grocery shops.  A truckload of products cannot be sold at grocery shops," he said.

According to Diptha, scaling up depending on the kitchen market is also problematic because the sale is not predictable, so building a model is not possible. To him, e-commerce is also not viable, because the logistics cost is high for any size of recurrent order. This is why farmers cannot sell their products directly to the customers, and an intermediary-driven model is in place, Diptha added.

So the coming phase of expansion, too, is based on the factories.

"By June 2023, we are aiming at 3 lakh workers in 30 factories. When this is fulfilled, we'll be signing future contracts with farmers, i.e. will buy in advance from them ahead of the yield, based on our estimated demand," Diptha said.

The firm is also looking at export opportunities to Middle Eastern countries where Bangladeshis are working in large numbers.