Blockchain integrated technology platform could play a path-breaking role for Agri stakeholders, as they can witness developments in real-time, and undertake transparent transactions, Sunoor Kaul, Co-Founder, Director, Origo Commodities said in an interaction with Moneycontrol.
“With the Indian government’s renewed focus towards reforming the country’s agricultural sector to opening avenues of investments, forward contracts can be adopted as a viable investment option for investors looking at agri sector”, Kaul added.
As an emerging technology, blockchain is playing a pivotal role across sectors in delivering secured, efficient, and transparent processes. In the agri-tech sector, blockchain is crucial for established high-security for all users, now that the procedures are so decentralised.
Please brief us about Origo Commodities and your business model... the commodities you deal with.
At Origo, we have been pioneering commodity finance and tech-enabled solutions for the agricultural sector for over 10 years, which has kept us in good stead. Origo Commodities is a leading agri fin-tech player in India, which is facilitating commodity trade & finance services, providing value proposition in simplicity, security and transparency in commodity transactions to all agri stakeholders. We have emerged as one of the leading agri fin-techs in the country in a sector that has faced resistance to reforms and has thus far been the slowest to embrace technology. However, the changes in recent years have propelled Origo to become the market frontrunners in aspects such as trade & finance, warehousing, and innovation in financing structures. We deal with several agri commodities like maize, paddy, wheat, soyabean, cotton, and mustard to name a few.
How is Origo different from other agri-tech companies?
Origo is unique in its value proposition with its offering in innovative commodity trade & finance structures that allow simplicity, security and transparency. We were the first to introduce securitized debt instruments for agri commodities in India with the instrument being rated A1 by ICRA. Commodity backed securitized debt instruments allow for financing in agri commodities to open up to more than traditional sources of financing. It allows for institutions to invest in an instrument for commercial reasons beyond just it being a priority sector; it democratizes commodity financing.
Origo’s vision is also to simplify trade & finance through forward contracts. A forward contract provides assured delivery of physical commodities at a pre-determined price and time. Value add to buyers of commodities is that they can hedge their cost of purchase since Forward contracts are not impacted by the volatility of commodity prices and buyer will get the commodity at the prices agreed upon at the signing of the contract.
Another value-add that a forward contract offers is that by nature of the contract it is off-balance-sheet financing for the buyer. It de-leverages the debt metrics for the buyer since the inventory and the debt related to that is on the balance sheet of Origo.
We led by example, and everyone in the sector is sitting up and taking notice due to the sheer potential that the sector holds. By registering better growth and bringing in more liquidity, the sector will have a holistic development that can pull people out of destitute circumstances.
Which sectors are your key focus areas? Tell us about your strategies for the Indian market.
Origo has quite a few offerings and among them, our focus is on providing securitized debt instruments, building commodities financing platforms, warehouse management systems, and an auction-driven trading marketplace. With blockchain integrated technology the platform could play a path-breaking role for agri stakeholders, as they can witness developments in real-time, and undertake transparent transactions. We intend to provide the tools to make the process more efficient for everyone.
Apart from this, Origo’s push to improve warehousing in the country is backed by our operations across 400 warehouses, with state-of-the-art systems that are enhancing how agricultural value chains function. Skilling and encouraging learning is another focus area for us, as we’d like to see people increase their knowledge about IoT enable warehouse management systems. Considering that India faces food wastage despite production surpluses of food grains, upgrading the facilities is one of the only ways to mitigate the situation. Further to this, India’s ongoing crisis with water scarcity and climate change only accentuate the problems for the population. Keeping these issues in mind, by adopting new and scientific technologies, we can reduce both food wastage as well as carbon footprint by significant margins.
Origo is also launching a digital auction platform for price discovery for users in May. The platform while offering capabilities for price discovery allows for digital payments and also provide better transparency.
What is your stance on Blockchain Technology, and its scope in the agri-tech sector?
As an emerging technology, blockchain is playing a pivotal role across sectors in delivering secured, efficient, and transparent processes. In the agri-tech sector, blockchain is crucial for established high-security for all users, now that the procedures are so decentralized. There has been a trust deficit when it comes to monetary flows in the agri sector as many believed pre-existing systems to be unreliable. Because blockchain works on a consensus-based system where changes to data points cannot be made by any unitary party, it acts as a robust alternative.
Furthermore, blockchain facilitates tokenization of assets, wherein contracts and commodities on the platform are converted to digital form. Therefore, our blockchain-backed application smoothens the transaction flows for anybody who signs onto the platform.
What brings more engines of growth for Origo - the Trade Finance bit or warehousing and post-harvest solutions?
For Origo, it's both, its Structured Trade Finance and Warehousing segment. Our value proposition in our services for Structured Trade as well as Warehousing has been contributing to growth over the years and we forecast a high growth rate from both these verticals going forward.
Over the last year, Structured Trade grew 1.8x and we expect to grow almost 2x this year. One of our key partners on the warehousing side has been the different government agencies with whom we have been working. Our government warehousing revenue grew 35% last year and based on the contracts we signed earlier this fiscal, we expect to have an additional 50% capacity going from 2.7 million MT to 4.1 million MT.
How did COVID-19 affect your business and what were your strategies to be viable in the market?
Among the several arms of Origo’s business that involves structured financing and warehousing, one was affected more than the other during the pandemic. Fortunately, our warehousing end of the business did not suffer owing to the importance of commodities storage and supply of goods during the pandemic. As essential goods, agri commodities needed to be operating efficiently. Add to this the fact that the government was our major client for warehousing, occupying close to 90% of the business.
We provided our services to different government agencies to stock produce that farmers brought under MSP procurement and serviced timely supply to PDS stores. The active role of public institutions in ensuring the constant flow of agri commodities made supply chains function normally, and allowed us to operate effectively.
Structured Trade Finance was impacted for initial 6 weeks during which period the country had gone through a complete lock-down including the agriculture mandis which limited the transactions. By the month of June, we were ramped up slowly to normal trade and finance operations. As we are back to our normal operations since June 2020, we are keen on doubling the purchases and the overall quantity in FY2022.
By executing the first securitised transaction via PTC, how the road ahead looks like? Are there any more deals happening in the near future?
We have received a lot of interest since the first transaction from institutional investors and stakeholders alike. We took up several other transactions since the first, and they have been rated by the top-most rating agency ICRA.
In the current year, we not only expect more deals but also increase our investments in commodity purchases. We have dramatically increased the commodity securitization investment for FY 2022, to open the space even for retail investors. In addition to this, our efforts will go into offering our solution to our key commodities, as many were never available in the country earlier for securitisation.
With your recent stance on the forward contracts - how will this open investment options for retail investors... what is the ticket size? Is the ROI better than bank FDs and gold?
When investors look at commodities, they see asset classes as a hedge against other investments in their portfolio. It is often the case that investors look at putting their money in gold, crude oil futures, agri commodities futures, heavy metals, etc. While these options provide portfolio diversification, India continues to have several unexplored areas, which could offer stability and better returns in the time of economic uncertainties.
Forward Contracts which is a contract between two parties for future delivery of commodities at today’s price, covers all commodities and all varieties. Also, given the forward contracts are designed for deliveries, this is an option for processors to ensure stable supply and hedge their cost of procurement.
With the Indian government’s renewed focus towards reforming the Country’s agricultural sector to opening avenues of investments, forward contracts can be adopted as a viable investment option for investors looking at agri sector.
The question about ROI’s from agri instruments as compared to FDs and gold is appearing more often in recent times. It is attributed to the interest being created by forward contracts, which offer a coupon to investors somewhere ranging between 10-11%. While fixed deposits offer anywhere between 4-6% returns, and debt mutual funds fall in the range of 7-8%. It is aptly balanced between low-risk returns from FDs on the shorter side and high-risk market portfolios on the other end. One of the advantages is the secured investment structure with a commodity-backed guarantee to protect your capital. The other advantage is the stability and better returns on par or even better than gold options. Gold continues to oscillate based on its relationship with stock markets. However, the longevity of forward contracts offers an alternative that might work in the favor of investors.
What are your target markets apart from India, which part of the geographies are you planning to expand in the year 2021?
Our plans are currently centred on the Indian market alone, as we believe there is a lot of distance to cover in terms of reaching our potential. At the moment, the Indian agri space is going through the transformation of a lifetime and we wish to be one of the major players ushering in the change. While external markets are enticing, our focus is on the domestic market for now.
After achieving more efficiency within the Indian system, and experimenting with our ideas and services, we believe we’ll attain high productivity and returns. On creating a brand and niche for ourselves, the next step would be expansion.
Given the introduction of the new farm laws, any major trends you see catapulting and dominating the agri-tech in the coming time?
The space is likely to become more democratized, considering that people of all denominations and financial standing will be availing credit, direct access to commodity supplies and sales, top-class warehousing solutions, etc.
Apart from this, there will be more transparency and accountability within the system, and it will lead to trust-building between buyers, sellers, and suppliers. Last but not the least, the agri sector will have more liquidity, which will be essential for improving the infrastructure.