With increasing corporatization of agriculture, domestic corporate giants like ITC, HLL, Reliance, as well as multinational companies like Wal-Mart, PepsiCo and Tesco are betting big on the country’s farm sector. The process of corporatization of agriculture will ultimately lead to greater efficiency in domestic agribusiness.
Agribusiness sector comprises businesses that either supply farm inputs or are involved in the marketing of farm products through warehousing, processing, wholesaling and retailing. The sector can, therefore, be thought of as consisting of economic activities relating to the supply chain of agricultural inputs and the supply chain of agricultural products. The potential for further growth of agribusiness is considerable. According to some estimates, value addition to foods by processing is only 7% of total value of production compared to China (23%), Philippines (45%) and UK (188%). The manufacturing sector is only one component of the agribusiness sector. The other and possibly larger component consists of trade (wholesale and retail), storage and transport services.
In the last two decades the fruit and vegetable output has grown in a remarkable rate compared to the major cash crops. Agribusiness opportunities are also expanding in fruits and vegetables and to a lesser extent in oilseeds, sugars and food grain. The main reasons behind the growth are rise in consumer incomes, which increase demand for perishables and non-food staples and processed food.
India is the third largest producer of agricultural commodities in the world. To its credit, the country occupies the number one position in the world in milk, tea, rice and sugarcane production and in livestock wealth. Given this, food processing is one of the largest industries in India, ranked fifth in size and contributes around 7% to GDP and 13% of the country’s export. The industry size has been estimated at $70 billion and employs around 1.6 million workers directly. However, the food processing industry is still at a nascent stage in terms of development. For instance, India’s total agriculture and food produce, a mere 2%, is processed. Dairy sector contributes the highest share of the processed food, where 37% of the total produce is processed; of this, only 15% is processed by the organized sector.
But, the scenario is changing with increasing corporatization of agriculture. Domestic corporate giants like ITC, HLL, Reliance, as well as multinational companies like Wal-Mart, PepsiCo and Tesco are betting big on the country’s farm sector. The process of corporatization of agriculture will ultimately lead to greater efficiency in domestic agribusiness. The seeds of change have already been sown agriculture is set to be transferred into agribusiness. Going by the increasing potential, corporates are getting closer to the farmer and investing in the value chain and the farmer is now getting access to the value chain.
By involving corporates, the sector can witness modern technology in production, post-harvest processing, transportation, widening market at domestic and export level, smooth capital inflows and more importantly assured market for crop production. Large-scale corporate agriculture is more effective than the present system of peasant farming. It leads to greater efficiency, higher private investment and higher output, income and exports. The radically changing scenario in the agriculture sector after the liberalization of the economy has brought about greater market focus in the whole gamut of agricultural activities. Reliance is planning to move into the farming sector in a big way. In addition, banks are also lending to self-help groups, which can enter into contracts with companies.
The biggest rural initiative which can show the power of IT to serve the rural communities is ITC’s e-Choupal model. Corporate farming reduces the problems related to logistics and supply chain and reduces the procurement cost by breaking the stranglehold of middlemen. Corporates can play a large role in research, IPR issues and coordinate with research institutes to improve rural services. They can also play the role of marketing agencies to export agricultural products. Corporates can develop the food processing industry so that farmers can get remunerative prices through value-added products and also encourage organic farming. The corporate buyers can select areas suitable for the crops they are interested in and organize farmers to produce the crops under contract while providing planting material of the right quality as well as technical supervision. The process enables the farmer to eliminate marketing risk while allowing the corporate buyer to ensure quality supplies by selecting planting material and providing access to scientific advice on disease and other types of stress.
Challenges Remain
However, agri-infrastructure in India is inadequate and insufficient when compared to its large food and agriculture production. The poor infrastructure has led to huge losses in the supply chain right from the fields, storage and transportation to retail stores. This in turn has hindered the growth of value-based agribusiness. Besides, agricultural production is not of uniform quality and most of the time not suitable for further processing. The processing industries find it hard to assemble enough raw materials for their business. It is estimated that 37% of perishable agricultural products like fruits, vegetables etc. are lost between the farm gate and the kitchen table. Similarly, about 10% of the foodgrain produced in India is lost before it reaches the consumer. The high cost of food distribution and retailing become constraints for the development of modern distribution and retailing channels·
Other hurdles relate to the state of the sector itself: cash-strapped farmers with little access to credit, inadequate infrastructure to get goods from farms to ports for export, a shortage of food-processing facilities, and export processes weighed down by red tape. There is a strong need to find ways to modernize the agribusiness in India through possible policy changes, government initiatives and modern technology and practices like promotion of agricommodity trading. Agribusiness should be characterized by a wide range of players with varying degrees of integration and should include seed companies, grower cooperatives, large commodity processors, value-added processors, big retailers and chain restaurants.
N Janardhan Rao, Senior Economist.
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