Agri supply chain in India offers huge investment potential

With a vast domestic market, wide agricultural products spread and huge export potential, India’s farm to fork story is a compelling investment theme. Herein, Improving economics and encouraging Government policies have created a safe space for investment in agri supply chain

June 7, 2018

India has an advantage in agricultural production backed by myriad cropping pattern, robust livestock farming and vast water resources to support fishery

Government of India has implemented several schemes under the Pradhan Mantri Kisan Sampada Yojana with an allocation of US$900 million for 2016-20

An integrated approach in agri value chain is, therefore, critical to ensure reduction of wastage, just pricing for farmers and strong agri export earnings for India

The nation’s processed food industry is expected to grow to US$958 billion by 2025 at a compound annual growth rate (CAGR) of 12 per cent

Agriculture, encompassing activities related to land cultivation, livestock farming, forestry and fishery, is a critical component of the Indian economy. While the agricultural sector’s contribution to national income has dropped to around 17.5 per cent owing to the emergence of modern tertiary industries, it continues to be the nation’s largest employer. Hence, Government of India has put special focus on strengthening the sector, especially the farmers, in order to ease the impact of market volatilities, weather aberrations, among other factors. Since the sector secures nutritional supply for not just the world’s second-largest population but a vast export market, investment in it has been guarded, however, participation in allied sectors have been broadly encouraged by the Indian Government. Meanwhile, the agricultural allied sector, or the agricultural supply chain space, has seen a steady rise in capacity given the demand of a growing consumer base, resulting in a rise of investment in the sector. Supply chains are principally concerned with flow of products between — procurement of materials, transformation of materials into finished products, and distribution of those products to end customers.

Need of an efficient agri-allied sector

Technology-driven, integrated supply chains enable entities to reduce inventory and costs, add product value, extend resources, accelerate time to market, expand market, increase pricing for sellers and variety for buyers as well as retain customers. Herein, the Indian Government has sought to involve multiple stakeholders to improve interactions between farmers, processors, distributors and retailers, after all a successful supply chain should create improved value for all engaged stakeholders. The supply chains of different agricultural commodities in India, however, have been fraught with challenges related to land holdings, agricultural financing, inadequate infrastructure set-up and market volatilities. These obstacles have been dealt with through initiatives to improve connectivity between farmers and consumers by aligning production, procurement, transportation, warehousing, processing, distribution, and marketing activities in the sector. This structural alignment in agricultural supply chain has been achieved through increased private and foreign involvement that has allowed the use of the latest in informatics and technology to scope the right market opportunities and pricing of products.

The agri supply chains in India and their management are now evolving to respond to the new marketing realities thrown by the wave of globalisation and other internal changes such as the rise in the level of disposable income of consumers and change in their food basket towards high-value nutritional products. The demand of the time has spurred the Government to go in for different legal reforms for enabling private investment in agricultural marketing infrastructure, removing different entry barriers to promote coordinated supply chain and traceability. The amended Agricultural Produce Market Regulation Act (APMR) Act, the major agricultural marketing act of the country, being implemented by the different states of India, now contains enabling provisions to promote contract farming, direct marketing and setting up of private markets (previously banned). These measures will go a long way towards providing economies of scale to small firms in establishing direct linkage between farmers, and processors, exporters, retailers, among others. Thus, the measure will provide both backward and forward linkages to evolve integrated supply chains for different agri products in the country.

The Ministry of Food Processing Industries (MoFPI) has implemented several schemes under the umbrella of the Pradhan Mantri Kisan Sampada Yojana with budgetary allocation of US$900 million for the period 2016-2020

 

Government provisions for agri supply chain

India is globally ranked second in food production aided by myriad cropping patterns, robust dairy and poultry sector and diverse water resources to support fishery. Some of these natural, climatic and geographical advantages again throw up a huge market opportunity that can be tapped by strategic harnessing and plugging the gap areas between the producer and end consumer. A critical role in India’s agricultural supply chain management in played by the Ministry of Food Processing Industries (MoFPI), which has been implementing several schemes under the umbrella of the Pradhan Mantri Kisan Sampada Yojana with an allocation of US$900 million for the period 2016-2020. These schemes are expected to leverage investments of nearly US$5 billion for development of infrastructure in the food processing sector which makes up a considerable portion of the agricultural supply chain. The sector is open to 100 per cent foreign direct investment. The schemes will help manage 33.4 million tonnes of agro-produce valued at US$14.7 trillion, benefiting 2 million farmers and generating 530,500 direct and indirect employment in the country by the year 2019-20. The schemes, as mentioned below, are targeted to create a seamless food supply chain infrastructure covering farm to retail.
Mega Food Park Scheme: Designed as a cluster, the scheme envisages creation of infrastructure in well-defined agri/horticultural zone for setting up of processing units. These parks typically consist of collection centres, primary processing centres, cold chain and space for entrepreneurs to set up food processing units. The Mega Food Park Scheme is proposed to be implemented by a special purpose vehicle (SPV) registered under the Companies Act. So far, 42 such park schemes have been funded of which 12 are already functional.
Scheme for cold chain, value addition and preservation infrastructure: It covers setting up of supply chain infrastructure facilities such as pre-cooling, weighing, sorting, grading, multi product/temperature cold storage, packing, blast freezing, mobile cooling units to name a few. There were 238 approved cold chain projects across India as on April 2018 with a combined budget of US$900 million led by private investments. The main aim of this scheme is to increase the level of processing and value addition to improve sale as well as reduce wastage.
Schemes for forward and backward linkages and agro processing cluster: This linkages programme, targeted at perishable commodities such as horticulture, dairy and fisheries, aims to enable linking farmers to processors and the market to ensure competitive pricing. Meanwhile, the agro processing cluster scheme aims to develop modern infrastructure to encourage set up of food processing units by linking groups of producers and farmers to the processors and markets through well-equipped supply chain with modern infrastructure.

CAGR of 12 per cent predicted for the sector

Along with the above mentioned schemes, the Government has focused on promoting food quality and safety standards covering all stages of the supply chain. The improved confidence out of the regulatory measures in the sector will help augment investment as well as market competition globally. Moreover, the Government’s Skill India programme has targeted training of labour force to support activities in the agri supply chain space. According to a joint study by Ernst & Young LLP (EY), a global servicing firm, and the Confederation of Indian Industry (CII), India’s processed food industry is expected to grow to US$958 billion by 2025 at a compound annual growth rate (CAGR) of 12 per cent. The country’s processed food market was valued at US$322 billion as on 2016. An integrated and seamless approach is, therefore, critical to ensure reduction of wastage, market-linked pricing for farmers as well as consumers and also to deliver improved export earnings for India, whose mainstay is agriculture. Aided by positive policy frameworks, a vast domestic market, a wide product spread and huge export potential, this sector could well be among the most investable bets the country has to offer.

Recent Articles

PLI-linked Capex to reach INR 1 trn by FY24

November 24, 2022

India’s PLI schemes are expected to make various industries increase …

Read More

Govt. to assist selected telecom companies under PLI scheme

November 24, 2022

To increase local manufacturing, the Indian government aims to provide …

Read More

India ranked 8th in Climate Change Performance Index

November 23, 2022

India rose to the eighth rank on the Climate Change …

Read More