Agri-business, not agri-culture, is the need............?

“To succeed in India, agribusiness must empower the farmer by making agriculture profitable, not by expropriating him,”. Small and marginal farmers who cultivate less than two hectares of land account for more than 80 per cent of all holdings and almost 40 per cent of cultivated area.The biggest factor in India’s favour in the world food market is that of a low-cost advantage. Agri-business could become the safest bet for India during this recessionary period, Indian agriculture cannot continue to be what it is. It has to change in its soil use and cropping pattern, post-harvest processing technologies and its approach to pricing and marketing. But for a minority, agriculture has come to be synonymous with poverty, inefficiency and uncertainty. A conceptual change, a paradigm shift to view agriculture as a business has become a necessity, especially in the backdrop of emerging globalisation.
         Modern technologies, like tissue culture, hybrid seeds, planting materials are key components of modern agriculture. The importance of seeds and seedlings in the overall growth and yield of any crop cannot be overemphasised now, especially in the context of the need for tapping export market.
                                                                                                                                    Contd.............

Scope and Opportunities in Agribusiness

Introduction

A shift from “agriculture” to “agribusiness” has become an essential pathway to revitalize Indian agriculture. The share of pure agriculture in GDP may decline, the share of agribusiness will not. Now the agriculture is being redefined as the practice of activities relating to production, processing, marketing, distribution and trade of food, feed and fibre. Thus while planning and managing the agriculture sector, the focus should now shift from ‘only production’ to ‘production plus all other associated activities’. And also the shift from production to innovation is very critical as innovation leads to enable small farmers to counter the disadvantages of size and scale. To succeed in India, agribusiness must empower the farmer by making agriculture profitable, not by expropriating him.

Worldwide the most rapid growth in agriculture has been occurring in post-production activities. The important reasons underlying this are major changes in socio economic environment with higher incomes, increasing urbanization and increasing number of working women leading to high demand for processed foods in the domestic as well as export market. Being a leading producer of many agricultural commodities, having vast arable land and agro climatic diversity, India has the potential to be the “food basket” of the world. Thus Food Processing industry is being largely recognized as sunrise sector of Indian Economy.

With the distinction between agriculture and agro industry getting blurred, the agricultural supply chain is gaining importance. Whether it is increasing the income of farmers, saving the national loss of farm products along the traditional supply chain or creating more employment opportunities, sound development of agribusiness provides a

new frontier by creating an environment of much needed investment in agricultural marketing and trade. Development and promotion of agribusiness sector, which has strong linkages with the agricultural production, agro-processing and service sectors is capable of influencing each one of them through an adequate investment in marketing activities. This makes a valuable contribution in terms of creating additional employment in the non-farm sector. A recent study by NCAP has revealed that out of the total income of farm households, around one-fourth (24.4%) is contributed by non-farm business. For sub-marginal and marginal farmers, it is 33.9% and 27.4% respectively.

Size of Indian Agribusiness

The total Indian agribusiness is worth at least Rs.11,43,000 crore which includes all the segment viz. primary agricultural products, farm inputs and processed products and value addition. Agro-industries include both organized and unorganized sector units. Most of the food processing units are in unorganized sector and Indian food market is dominated by fresh food segment. According to one estimate, Indian food market comprises 10% processed segment, 15% semi-processed segment and 75% as fresh food segment.

Based on the vision document for the Ministry of Food Processing Industries (2005-2015), the industry targets are as follows:

• Industry should aim to increase processing  of perishables 20%
• Increase value addition from the present level of 2% to 34%
• Share in global trade up from 1.6% to 3%

If the targets fixed are achieved, the size of food industry will be tripled by 2015, thus estimated to generate direct employment of 28 lakh and indirect employment of 74 lakh.

Major industry players have the vision “to link India’s small farmers to global supply chains in agriculture, just as its software writers and call centre works have been linked to other segments of the global economy”.

Issues in Agribusiness

The critical issues for agribusiness in the way forward are inclusive and equitable growth by ensuring participation of small and marginal farmers, backward areas and regions and small and micro enterprises in modern value chains. In most of the developing countries around the world the benefits of the modernizing sector do not automatically accrue to all stakeholders in the system. Particularly at risk are small scale farmers, small scale traders, processors, wholesale markets and retailers, who must compete with large food suppliers and manufacturers. Thus agribusiness must empower the farmer by making agriculture profitable, not by expropriating him. The role of agro industry development has been realized in enhancing rural incomes and agribusiness development.

Emerging Areas

1.      Agribusiness Opportunities

The efficiency of the marketing system can be improved with investment in various areas broadly classified as production, processing, infrastructure and trade. Apart from these, several companies and food chains are now sourcing agricultural products from India to feed their outlets across the world. Further, our exports in several agricultural sub-sectors are also increasing.

2. Retail Sector

Indian retail sector is estimated to be worth Rs 13,30,000 crore and is fast expanding thus attracting the attention of corporate, both domestic and foreign. Food is the largest segment of retail industry and contributes 77% of total retail sales. Food retailing in India is, by and large, unorganized, highly fragmented and predominantly small, family owned business. Nearly 96% of the food outlets are small with less than 500 sq ft. area. The unorganized retail outlets are under capitalized and unable to cater to the consumer demand for value added services, thus providing the edge to the organized retail sector. The organized food retail is expected to grow by 30% in the next five years. Some of the organized agricultural retail chains are: ‘E-Choupals’ and ‘E-Sagars’ (ITC), ‘Krishi Vihars’ (M&M), ‘Aadhaars’ (Godrej Agro), ‘Kisan Sansars’ (Tata) and ‘Reliance Fresh/ Reliance Retail’.

3. Contract Farming

The organized sector is using contract farming model for meeting its requirement for retailing, processing or export purposes. Despite several advantages of contract farming, the coverage continues to be limited. According to a report, in 2007 the total area under contract farming was 4.26 lakh hectares, most of which was in three states of Tamil Nadu, Punjab and Orissa. There are 18 companies/ organizations involved in contract farming. Contract farming has been traditionally a common practice for the paper industry, match stick manufacturers and now in seed production. Contract farming lowers transaction cost for the company and reduces market risks for farmers. Some sort of contract farming is also prevalent in sugarcane and dairying but it is not treated as a formal format for contract farming. The contracting companies tend to exclude small and marginal farmers. With adequate hassle free safeguards, advance contract between the farmer and buyer can be an important pathway for minimizing farmers’ marketing risks and increasing their incomes.

Recent Initiatives

Several initiatives have been taken during the past five years to create a favorable environment for the growth of agribusiness. These include amendments in several regulation and Acts, setting up agri export zones for improving farmers’ incomes etc. Various agribusiness models are being set up in the public-private partnership format. A very successful case is of Uttarakhand State Seeds & Tarai Development Corporation. The stakeholders are State govt. (30%), Govt. of India (21%), State Agricultural Universities (15%) and farmers (34%). The Corporation is using private companies for sale of seeds and is also involved in the export of seeds.

      Another initiative on linking farmers to market is the “Rural Business Hub” jointly launched by CII (Confederation of Indian Industries) and Ministry of Panchayati Raj proposes encourage participation between private companies and panchayats (local governance bodies) in a region. The idea is to create economically viable ventures with partnerships between private companies and panchayats. This project has been initiated on a pilot scale in some areas. In this series, the concept of  Producer Companies has also been initiated in some parts of India. For example, World Bank has initiated a project to develop producer companies through the Madhya Pradesh District Poverty Initiative Project (MPDIDP). The producer companies works towards aggregation of produce and developing backward and forward linkages to induce market driven agricultural growth. These Producers companies are controlled and owned by the farming community and managed by professionals.